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Daily Newsletter, Sunday, 12/19/2004

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The Option Investor Newsletter                   Sunday 12-19-2004
Copyright 2004, All rights reserved.                        1 of 5
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In Section One:

Wrap:  Drug Overdose
Futures Wrap: See Note
Index Trader Wrap:  Possible double tops to watch
Editor's Plays:  Living Dangerously - Part 2
Market Sentiment:   Only 8 1 / 2 trading Days Left
Ask the Analyst: Expensing stock options.  Good, bad, and difficult at best.
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 12-17        WE 12-10        WE 12-03        WE 11-26 
DOW    10649.92 +106.70 10543.2 - 48.99 10592.2 + 69.98 + 65.32 
Nasdaq  2135.20 +  7.13 2128.07 - 19.89 2147.96 + 45.99 + 31.34 
S&P-100  567.39 +  1.89  565.50 -  1.58  567.08 +  4.43 +  2.96 
S&P-500 1194.20 +  6.20 1188.00 -  3.17 1191.17 +  8.52 + 12.31 
W5000  11783.36 + 91.38 11692.0 - 43.29 11735.3 + 99.63 +155.01 
SOX      423.75 +  1.00  422.75 - 22.53  445.28 + 14.30 -  0.90 
RUT      642.08 +  9.84  632.24 -  9.97  642.21 + 11.05 + 17.71 
TRAN    3751.07 + 65.04 3686.03 - 40.71 3726.74 + 78.75 + 80.34 
VXO       12.71           13.20           13.61           13.35 
VXN       18.21           19.57           18.26           17.85
******************************************************************

Drug Overdose
by Jim Brown

What a way to end the week! There was a constant barrage
of drug news both positive and negative that helped remove
any remaining bullish bias. Add in the index re-weighting
on the NDX, RUT, S&P 500, Mid-cap and Small-cap and it had
investors wishing they were on drugs before the day was
over. 

Dow Chart


Nasdaq Chart


SPX Chart - Multiple Resistance Lines



The Consumer Price Index rose a higher than expected +0.2%
despite the drop in oil prices over the reporting period. 
Core inflation also rose +0.2% and pushed the annual rate
of inflation to +2.2% for the last 12 months. The headline
inflation rate increased to an annualized +3.5% and the 
highest since May 2001. With inflation rising the Fed 
has no reason to really let up on the rate hike scenario
despite the current wishful consensus that expects them 
to pause. Energy prices added to the number despite a 
drop in crude for the month. The higher energy levels 
are starting to filter through the system and it will
take a prolonged drop to remove the upward pressure. 
Don't count on it any time soon. 

The economic news took a back seat to the drug news and
there was plenty of it. The headliner for the day was
Pfizer and news that at very high levels there was an
increased risk of heart attack. The new study released
Friday showed at doses 2-8 times the recommended dose
there was twice the risk of heart attack. The study was
an anti cancer study where very high doses of Celebrex
were being tested to see if cancer complications from
high levels of inflammation could be improved by removing
the inflammation. PFE stock dropped to $22 from $29 on
the news but quickly rebounded to close at $26. You would
have thought they had found that there was a heart attack
in one of every 50 pills. Very few drugs when taken at
4-8 times the recommended dosage will not cause problems
and I think Pfizer will recover. However, as we have seen
over the last three months the MRK/VIOXX news has caused
serious investor flight from these drugs. It could be
months or even a year before the daily news stories
will fade away. This weekend CNBC is doing a special
called the "Death of a Wonder Drug" in relation to the
MRK/VIOXX event. This will pose additional questions in
the mind of users and investors. I believe PFE is a buy
at $25 but I would give it a few more days to settle 
down. PFE traded 289 million shares on Friday and I
suspect there are plenty of investors who did not bail
but will soon. 

Lilly warned that their Strattera drug for A.D.D. had 
produced liver problems in some patients. LLY fell -1.38
on the news. AstraZeneca fell -7.7%, -$3.11 after it said
it's cancer drug Itressa failed to prolong survival in 
cancer patients. OSIP soared on the news with a +$21 
jump to $68. OSIP and DNA just had their anti cancer 
drug Tarceva approved on Nov-19th. With Itressa out 
of the picture the OSIP drug which has shown positive
benefits should jump to the front of the pack. Deutsche
Bank said "Tarceva remains the only EGFR inhibitor to 
have demonstrated a survival benefit in patients" and 
maintained a buy on DNA/OSIP. CSFB said it was a clear
win for Tarceva. FBR said Tarceva could end up with 100%
of the market but Eributux from Imclone could still be
a factor in future trials. 

There were several lesser items of drug news but you 
get the picture. JNJ powered the Dow higher on Thursday
and gave Dow components MRK/PFE a boost as well. Today
PFE removed that positive bias and pushed the Dow back
to 10650 and a level that appears risky were it any 
other time of the year. 

Crude Oil Chart


Last Sunday I predicted that the 200-day average would 
be strong support on crude oil. That average at just
over $40 produced a very strong bounce. Oil prices 
rocketed back over $46 with a gain of +2.10 on Friday
and +5.60 for the week. This was a +14% jump in price
and the biggest jump in five years. Somebody must have
gotten an advance copy of my Oil Crisis Report. (grin) 

The jump was related to colder weather drawing
down supplies of heating oil, the breakup of Yukos,
the Osama tape and worries about Nigeria again. Yukos
production arm is going to be auctioned this weekend
to supposedly satisfy a tax debt. However, it is already
beginning to appear as though Russia is trying to regain
control of its oil assets. This is troubling for the oil
sector as Yukos was the most westernized of the Russian
entities. Yukos pumps about 1.5 mbpd and has reserves
of nearly 11 billion barrels. That sounds like a lot 
but it is less than a four month global supply at our
current rates. The bidder expected to win is Gazprom,
Russia's state controlled gas giant. I say expected 
to win because only four companies have entered the 
auction and the other three are previously unknown. 
Considering it took at $1.77 billion deposit to enter
the auction it did not take much research to determine
that at least two of the unknowns were actually linked
to Gazprom itself and put in the bidding to simulate a
real auction. Indications are that the third company 
may also be a phony. If the government gave an auction
with only one government controlled company bidding it
would be seen as a complete sham. By adding in three 
phony bidders it is only a 97% sham. Thus far no western
country has appeared to bid because they no longer feel
confident in doing business there. With the expected 
price to be in the $8 billion range and fair value in
the $18.5 billion range you would have expected some
of the U.S. companies to take a shot. They all fear 
the current environment and the potential for losing
all of their investment. 

Production is already falling at Yukos since the 
current battle began and fears are rising that should
another Russian company take control the production 
would slip even further. The problem in Russia is a 
desire to take all the cash from sales and use it 
elsewhere and not spend any on new exploration, 
repairs or even finishing out existing capacity. 
When the fields begin to decline there is no cash 
left to rebuild them. Secondly if this is a move by
Russia to take back the oil fields for whatever reason
then western oil companies are afraid to invest/explore
in the region. This also increases the global decline 
rate because the entire region is taken out of the 
picture earlier than expected. It normally takes 
about six years from discovering oil to being in full
production of the find. If the discovery phase is being
eliminated in Russia then we will always be at least 
eight years away from seeing any additional production.
Two years to restart the discovery process once the 
political climate changes and six years to drill and
start production. This is yet another reason why the
world is going to be very short on oil very soon. I 
explain this all in great detail in my Oil Crisis 
Report.  https://secure.sungrp.com/05renewal/

A new Osama tape that appeared on Thursday calls for
attacking oil in Iraq and the entire Middle East to 
prevent America from getting it. This is yet another
problem that will be facing the world in 2005. Osama
repeated the claim that the U.S. invasion of Iraq was
to take control of some of the largest oil fields in
the world. I discarded this accusation over the last
two years but after doing research on my oil report
I am no longer sure. I initially thought Bush went
after Iraq and Saddam for various reasons including 
Saddam's attempt to assassinate Bush senior. I did 
not give credence to the oil scenario. Since Bush and
Cheney are oilmen fully aware of the coming problem
I am finding there could easily have been an ulterior
motive that included putting in a new regime that 
was friendly to the U.S. just before the world oil 
production begins to decline. I am sure nobody will
ever admit to it. It also did not hurt to show some
force in the region in anticipation of the coming oil
crisis. Makes the other countries a little less vocal
about their anti American feelings and tendencies. I 
have rambled on here but you can see I am becoming 
passionate about the future of oil.    

EBAY caught the shopping fever this week and bought
Rent.com for $415 million. Rent.com lists home and
apartment rentals on the Internet. This is a great
deal for EBAY and helps get them another step closer
to building out their real estate segment. EBAY is
expected to be a major force in real estate sales
in coming years. Rent.com listings only generate a
fee if the property is rented. The fees are generally
much higher than an auction on a Tickle Me Elmo doll
so I am sure EBAY will get another shot in the revenue
arm once the deal closes in early 2005. 

There was huge volume across all the indexes Friday and
the Dow came close to a top-5 volume day. Volume across
all three major exchanges totaled 5.985 billion shares. 
This is almost a billion shares more than Thursday's
5.005B level. Nearly 700 million shares were in only
two companies. News Corp, NWS-a, traded 408 million
shares and PFE hit 289 million. News Corp was added
to the S&P-500 at the close. The Nasdaq leaders were
SIRI 130M, MSFT 129M and CSCO 106M. SIRI has been 2-3%
of the daily Nasdaq volume for over a month. According
to Ameritrade it is the most heavily traded stock by
a wide margin. 

Unfortunately the majority of this massive volume was
down despite the A/D line being nearly flat. For two
days now we have seen massive volume and it has been
weighted to the sell side. This is very troubling to
market analysts given the level of the indexes, the
length of the current rally and the season. It is 
still hard to attribute the losses to any material 
stock factors. This could just be related to the 
index events. With the 41 new IPO stocks going into
the Russell there was a need to sell a portion of 
existing positions in thousands of stocks, literally.
This would contribute to sell side volume but no real
drop in prices. Same with the S&P changes. With News
Corp's market cap at $55B this also meant index funds
had to buy a lot of NWS stock. Over $7.6 billion in 
NWS stock was bought on Friday. This literally meant
$7.6 billion in other S&P stocks had to be sold to 
maintain the balance in the index. 

I believe this index re-weighting has depressed the 
market over the last couple days and produced an 
artificial selling bias. Quadruple witching expiration
did not help either. Little was said about the FASB
option ruling on Friday but you can rest assured it
will reappear. A reader emailed me on Friday about the
American Jobs Creation Act asking how it would impact
the market in 2005. Given the potential downside
pressure from the FASB options ruling this is an
excellent time to discuss the Act. I had meant to do
it several times but there is just never enough space.

The American Jobs Creation Act was passed on Oct-22nd
and it basically gives American corporations a free
pass to the local candy store. Companies with operations
in other countries can repatriate up to $500 million per
year in cash at a 5.25% tax rate. The current tax rate
for bringing overseas profits back into the country is
35%. This nearly free opportunity takes dollars that
would have been spent in other countries and brings
them back to the U.S. The only catch is that the money
must be used for job creation, capital expenditures,
pay down debt, buy back stock, increase dividends or
fund pensions. All of these uses would be positive 
for the U.S. economy. According to TrimTabs and Morgan
Stanley there could be over $420 billion in profits
waiting to be put to work. Of that number TrimTabs
estimates $150 billion could be repatriated. Intel
has already announced they might bring back $6 billion.
Heinz said they were returning $1 billion. These are
just the tip of the iceberg given the Act has only
recently been signed. Of that $150 billion TrimTabs
thinks $50 billion could make its way directly into
the market and the rest would support the market by
the various other uses. Obviously the largest amount
will be in the first year of the program and it will
dwindle as the years pass. Is it enough to compensate
for the FASB ruling? I doubt it but it should soften
the blow. 
 
Russell Investment Services released the results of a
recent survey of investment managers on Friday. The
survey showed that 10.4% thought the market was over
valued, 69.8% thought it was fairly valued and only
19.8% thought it was under valued. In general the 
managers were expecting an 8-11% return in 2005 and
felt dividend stocks were the main focus with large
cap and growth stocks the next in favor. That is a
"return" not an increase. They are expecting a +5-7%
market gain and the rest in dividends. Another analyst
said dividends had represented 43% of market returns
from 1930-1980. Since 1981 dividends had only accounted
for 23% of the overall returns. Both analysts felt 2005
would be another year for increased dividends rather 
than any material increase in stock prices. In periods
where the market stagnates those dividends can provide
an income to offset the lack of appreciation. With the
current tax laws favoring dividends it only makes sense
managers would refocus their efforts. 

For next week we are facing a lot of mixed market 
indicators. Historically the Santa Claus rally occurs
on the last four days of the year and the first two days
of the next. The anticipation of this rally normally
sees buyers appear the two days before Christmas. For
2004 this gives us a window from Wednesday this week
until Tuesday Jan-4th as potentially bullish days. 
With expiration on Friday we should continue to see
settlement issues on Monday. Monday and Tuesday could
be a critical days for market sentiment. With the Dow
resting on 10650 and the SPX in danger of breaking 1195
we need to see confirmation of the prior underlying bid
or the Santa rally could fail. This makes Mon/Tue pivotal
for the rest of the year. There is an adage, "If Santa
Should Fail To Call, Bears May Come To Broad and Wall." 
When buyers are hesitant to enter the market during the 
holiday season it typically suggests trouble ahead. 
This makes next week a critical sentiment week for all.
Everyone will be watching and many will be waiting for
somebody else to take the first step.  

To make it as simple as possible I would continue to 
watch SPX 1195. We broke back below the 1200 level I was
using as an indicator to add to positions on Friday but
I am hoping it was due to index balancing. 1195 is still
support. Should we fall below that level I would not want
to be long. As long as we remain above I would chance 
small bullish positions until we get confirmation the 
underlying bid has returned. Mutual fund managers have
a lot riding on the next nine days. Many earn their 
bonuses based on performance through 12/31. They will 
want to keep painting the tape as much as possible to 
keep prices high. However, they do not have to remain 
locked into this program. If the outlook suddenly turns
grim they can and will take profits to salvage as much 
of their bonus as possible. Until a new upward trend 
appears next week traders and managers will be walking 
on eggshells in fear of an early breakdown. Let's hope
those eggs are petrified.  

There is only two weeks left in 2004 and the clock is
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Only 5 shopping days until Christmas

Jim Brown


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

Possible double tops to watch
By Leigh Stevens

THE BOTTOM LINE – 

Possible longer-term double tops may have set up in the S&P 100 
(OEX), the Dow (INDU) and the Nasdaq Composite, which makes the 
Friday reversals in all the indices of greater than average 
interest as to what comes next – another shallow pullback or the 
start of a deeper correction.  Sentiment readings were at a 
bearish extreme also this past week – on Thursday.  

I've exited any remaining index calls as further upside seems 
limited for a while – we're entering the seasonal slow down 
period ahead as traders and portfolio managers will tend not to 
make any major decisions. A lackluster sideways trend will cause 
time premiums to erode making the further upside potential in 
calls limited in holding them further in my opinion.      

FRIDAY'S CLOSING NUMBERS – 

The S&P 500 (SPX) Index was off 9 points on Friday to close at 
1194. The Dow 30 (Industrials) Average (INDU) was down 55 points 
to 10,649, but up 1% on the week.

The Nasdaq Composite (COMP) Index declined 11 points to 2,135, as 
it was hit by disappointing earnings announcements on some key 
tech stocks.

FRIDAY'S TRADING  – 

The pharmaceutical companies were big losers on Friday beginning 
and especially with negative news on Pfizer's Celebrex – its use 
in treating cancer appeared to demonstrate an increased 
cardiovascular risk. Celebrex is a very big drug for the company 
and one of the biggest sellers in the world.

Pfizer said it has suspended its study while it reviews the new 
data. Pfizer ended down $3.23 at $25.75, after falling to as low 
as $22.  

Other drug stocks hits - AstraZeneca fell nearly 8%, after the 
U.K.-based company said results of a trial indicated that its key 
Iressa drug failed to significantly prolong lung cancer patients' 
survival. 

Eli Lilly was down around 2.5% on news that the company had added 
a warning to the product label for Strattera, its attention 
deficit/hyperactivity medication which indicates the product 
should be discontinued in patients with jaundice or who show 
laboratory evidence of liver injury.

Adding to the bearish mood was an intraday jump in crude-oil 
prices to back above 46 dollars a barrel. January crude futures 
ended up $1.50, closing at $45.7 a barrel on the New York Merc, 
after trading to as high as 46.20 intraday.

TECH HECK – 
PalmOne fell some 22% the company warned that its fiscal Q3  
earnings would be under Street expectations. 

3Com Corp., maker of data and voice networking products, fell 
nearly 5% after reporting falling revenues, that were under 
expectations. 

Take-Two Interactive Software fell (-3%) after the company posted 
fiscal Q4 results that were under consensus estimates. 

ECON – 
A closely watched report on U.S. retail inflation didn't move the  
market. The U.S. Labor Department said that the seasonally 
adjusted consumer price index (CPI) rose 0.2% in November, after 
having gone up 0.6% in October. 

The core CPI, which excludes the more volatile food and energy 
costs, rose 0.2%, matching October's gain. Both indicators were 
in line with Street expectations. 

The Labor Department also reported that real average weekly 
earnings fell by 0.4% in November. Hey, that's what all those 
credit cards are for – income short, just borrow! Or so it seems 
these days. 

OTHER MARKETS – 
The benchmark 10-year T-note was down 5/32 to 100 11/32, for a 
yield of 4.21%. 

In the FX markets, the greenback was down a half percent against 
the euro, closing at $1.33 in New York trading and the dollar was 
down the same (-0.5%) against the Yen, which closed at 104.15.


MY INDEX OUTLOOKS – 

S&P 500 Index (SPX) – Daily chart:

What was looking like resistance around 1192, at the top end of 
the recent weeks' trading range [as highlighted in the S&P 500 
(SPX) chart below], should now act as support.  A rally that 
appears to break out above a trading range or "rectangle" in the 
jargon of technical analysis, then drops back into that range 
warns of a possible top or at least an interim top.  Stay tuned 
on that.  

I said last week that SPX needed to break out above its trading 
range of the prior 3 weeks to suggest a next leg up. Did I 
mention such an upside breakout also assumes that the Index keeps 
going higher after the event?!

After a strong move and subsequent consolidation, I usually give 
the benefit of the doubt to the trend and assumed here the next 
move was also going to be UP. 

Resistance now has to be assumed for the 1206-1208 area, around 
the highs of last week.  There is tendency, especially after the 
market has been running for a while, of the even 100 levels to 
mark "natural" areas of resistance – and support. Notice the 
rally of fully 100 points when SPX pulled back to the 1100 area. 

Near SPX support is 1185, key lower support around 1170, at the 
low end of the recent trading range.  We could be due for the 
long- anticipated correction/pullback, but with the underlying 
bullish tone to the market, it seems unlikely for more than a 
shallow correction.   



When you get these spikes up well into my bearish-extreme zone in 
my sentiment indicator, it often suggests, not always as can be 
seen from the FIRST such spike, that traders are getting "too" 
bullish for the trend to be sustained much longer.  

This was the case with the spike up in my Call/Put indicator this 
past Thursday and shown above. Also, when I see a daily volume 
figure of a million equities calls changing hands on the CBOE, 
which also occurred Thursday, I know the market is getting frothy 
and trading fever is at a pitch. 

In these instances, for my style of decision-making, I tend to 
want to stop trading and hibernate until things cool down! I 
figure it's too dangerous to continue to hold calls and equally 
tricky to buy puts, given that these things – such strong 
bullishness – can carry the market still higher.   

S&P 100 Index (OEX) – Daily chart:

I talked in my prior weekly commentary about key resistance being 
at 573, at the prior yearly high. With the apparent reversal from 
this area it does set up the possibility of a double top, which 
is one of more reliable technical patterns suggesting a top.  
Time will tell, but Friday's market news was not the key event – 
it was rather the S&P 100 (OEX) reversal from a prior high of 
months back. Whether this is only an interim top remains to be 
seen of course.  But it's sure enough to get me to exit my 
remaining OEX calls – outtathar!  

Long-term momentum trends are still bullish.  A bearish price/RSI 
divergence, as prices trended higher without a similar move in 
the RSI, was not. Usually such divergences forecasts a reversal, 
but sometimes the lag time before that happens is too much to be 
useful by itself.  However, with this divergence AND the 
inability for the Index to continue on through the prior high is 
a pretty good signal.  



562 is near technical support as suggested by the minor up 
trendline.  The prior (down) swing lows around 560, then 558, are 
important, especially on a closing basis.  A close under 558, 
unless reversed the following day, would turn the chart bearish.
573-575 is key overhead resistance – a close or better two 
consecutive closes, above 573 would suggest a new up leg.


Dow 30 Average (INDU) - Daily: 

The same pattern of a potential double top exists in the Dow 30 
(INDU) Average.  The double top is a potent formation – sellers 
come in again in the same key area and this may be where the 
market is "fairly" valued finally in terms of current PE's and 
current fundamentals.  

A trader friend of mine the other day called fundamental market 
factors the "funny-mentals", a joking word play from a 
technically oriented trader. However, I always am looking at 
technical patterns as simply the most objective way to evaluate 
current market fundamentals.  



Key resistance now is clear as being in the 10750 area.  Support 
is at 10600, then key support around 10400. If the correction 
that may have started on Friday is shallow and INDU does not 
pullback to far – well, old highs are made to be broken.  The 
longer-term Stochastic momentum indicator is neat to a bearish 
downside crossover.  Stay tuned - we are near a key price 
juncture at the 12-month high, as is the Composite too for that 
matter.  

Nasdaq Composite (COMP) Index  – Daily chart:

Key resistance, especially on a closing basis, was the old high 
in the 2153 area and prices turned lower Friday after another 
rally attempt to this area. This might be indicative of a top, 
but it's too soon to tell. A "confirming" sign of a top would be 
a close under the prior swing low around 2100.  

Near support is in the 2100 area, then around 2050 which I would 
define as a key area, along with more major support at 2000, at 
the up trendline.   



Long-term momentum in the Nasdaq Composite (COMP) is up, as 
especially defined by the 50-day average being above the long-
term 200-day average as shown above. However, short-term, 
momentum indicators (not shown) are on a downward path.  I'm 
watching the 2100 area as a key and defining point.  I'm out of 
any call positions in the NDX based on what I see in the 
Composite.

Nasdaq 100 (NDX) Index  – Hourly:

I find the hourly chart and the uptrend channel I've outlined on 
the hourly line (close-only) chart below to be of trading 
interest. The rally to resistance implied by the upper boundary 
of the uptrend channel, followed by a sideway move is usually 
indicative of the beginning stages of a correction with more 
downside to follow.  There is an approximate double top in the 
hourly chart.

I continue to peg near support at the prior closing hourly 
downswing low at 1580. More key support comes in at 1560, the low 
end of the hourly uptrend channel in the Nasdaq 100 (NDX) Index.  
Next resistance above the recently made NDX high around 1635, is 
probably 1658-1660, at the upper end of the channel.



Short-term, NDX is getting oversold based on my hourly RSI, so if 
1580 is seen and certainly 20 points under this area, at 1560, I 
would anticipate a rally and exit any puts and go the other way 
into calls – assuming these aforementioned support areas, if 
reached, attract buying interest. At 1560, if seen, tight stops 
or exit points can be used for calls, as NDX would be at the 
trendline.  A trendline break sets up or suggests a further fall.

Nasdaq 100 tracking Stock (QQQ) Daily chart:

IN CASE YOUR DAILY CHART LOOKS LIKE THIS – 



ITS WRONG!

While every chart and data service I could check had the Daily 
low at 37.21, it was in fact, 39.21.  Reminding me again of how 
easy it is for a bad data point to get reported out to all the 
services and that a chart is only as good as the data that it 
graphs.

Myself, I had a problem with my QQQ data from e-Signal, as the 
updates stopped coming at the end of last month and I haven't yet 
been able to figure cause and get it fixed – meanwhile have 
entered the daily OHLC manually so far in December. Anyway, my 
ANALYSIS last week was only as good as my out-of-date data, as I 
was a bit off on suggested resistance being 40.

(Corrected) Daily chart, through Friday 12/17/04 – 
Rather than resistance being around 40 based on my out of date 
chart, prices had tracked higher than what I was seeing. But QQQ 
was still hugging the top end of its uptrend channel - resistance 
suggested by the upper trend channel line was 40.60. The turn 
lower was from this area.  I continue to look for the upper end 
of its channel as highlighted below, to suggest where resistance 
may lie if 40.60 is pierced – around 41 in the coming week.  

QQQ may have made a minor double top but it's too soon to tell.  
I have been wondering if the bearish price/RSI divergence was 
going to foretell a deeper correction than what has been seen to 
date. By this I mean that the RSI has been trending lower on 
balance since ITS last top. 




The key on the downside still looks the same – whether prior 
resistance – the old high – at 39, will now act as support.  If 
so, the chart would maintain its bullish pattern.  

A daily close under 39, without a recovery the following day, 
would turn QQQ bearish in its (chart) pattern. And suggest that a 
fall to the low end of the Q's uptrend channel might develop and 
the stock wind up down to around 38, which looks like the next 
key technical support area. 

NOTE – 
I discussed in my last week's Trader's Corner the rectangle 
pattern discussed relative to the S&P (along with another 
pattern), as being significant chart formations.  You can trade 
off them and base trading decisions when there are trend changes 
that develop around this pattern.  More on that at – 
http://www.OptionInvestor.com/traderscorner/tc_121604_1.asp     

Good Trading Success!


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

Living Dangerously - Part 2

Last week we scripted a play where it would be practically
impossible to lose money. I think Murphy decided it was
a direct challenge to Murphy's Law and he set out to
prove us wrong. 

I am not going to repeat the entire play from last week
but this link will give you all the background. 
http://members.OptionInvestor.com/editorplays/edply_121204_1.asp

The news broke on Tuesday that the Appeals Court had 
vacated the previous injunction and other rulings made
by the district court. This was good news for RIMM and
the stock shot up to $103.56 on the news as all the
shorts had their buy stops run. 

The bad news was the Appeals court did rule in favor of
NTP on 11 patents. In vacating the prior injunctions it
ruled the lower court had acted improperly on some of
the process. 

This means NTP will have to go back to court to get a
new ruling on what RIMM will have to pay NTP to continue
selling BackBerry's. It will take time and RIMM can
continue doing business as usual while the Patent office
finishes reviewing the NTP patents. If the Patent office
finds as RIMM hopes that the patents were vague and 
non specific then all the court cases will just fade 
into history. 

Meanwhile, RIMM has earnings on Tuesday. Analysts still
expect RIMM to settle out of court with NTP and this
would be a good place to announce it. Regardless we
should get an update on how RIMM sees the future. I
would hope it would be bullish for the stock. They
should also continue their pattern of beating earnings
estimates. 

I still believe in RIMMs future and that RIMM will soar
once the court case is over regardless of the outcome. 

The mistake I made last week was suggesting a $95 stop
on the put option that was protecting our long position.
The news spike to $103 blew out the stop on the put
and put us back to a naked long on the stock and the
LEAP. 

I am recommending this week to reinitiate the put 
with the March $80 put RUP-OP currently $6.80 instead
of the March $85 we used initially. Based on reader
emails most were stopped out on the put between $4.40
and $6.00. The put had opened on Monday between $8.00
and $8.50. By reentering the $80 put at $6.80 it puts
you back into the insurance position at about where
we were stopped out. We are down a couple dollars on
the play but still in position. With the upside much
more than a couple dollars we are still in good shape.

Oh, and don't put a stop on this put! 

We now have to wait on the Tuesday earnings and hope
for good news.  

See the link from last week for all the gory setup
details. 

RIMM Chart




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

Google Puts $180.00   UNCLE! 

After acting like it was finally going to crater and
break support at $170 the Tuesday announcement added
+$10 to the price right in front of the Thursday 
lockup release of another 25 million shares. Thursday
saw selling but buyers came right back in on Friday
despite the market drop. 

I give up, uncle, kings X.  

There are still 212 million shares to come out of lockup
with 25 mil on Jan-16th and 187 mil on Feb-16th but I
quit. The shorts are loading up on this stock a week 
at a time and some announcement comes along and all
the stops are run squeezing them out again. I would
still bet GOOG will be a lot lower by the end of 
February but the volatility is too high to peacefully
wait it out. 

Close this one and go on to something else. Of course
you realize that once we close our puts the bottom 
will fall out. It is your decision. I am done. 

GOOG Chart



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

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

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

Only 8 1/2 Trading Days Left
- J. Brown

Would you believe we only have eight and a half trading days left 
in 2004?  That means we're approaching one of the most bullish 
times of year for equities.  The traditional Santa Claus rally 
usually begins around Tuesday or Wednesday this week and runs 
into the first two trading days of January.  As is normally the 
case market pundits begin asking, "Will the year-end rally appear 
this year?"

We think so.  Granted the major stock indices are still 
overbought but stock funds are expected to see huge inflows and 
managers need to put that money to work.  Part of the year-end 
rally can probably be attributed to year-end and quarter-end 
window dressing so your mutual fund statements look good.  

If for some reason Santa fails to show up it could spell trouble.  
The old Wall Street maxim "If Santa Claus should fail to call 
bears may come to Broad and Wall" is true because the lack of a 
year-end rally in the past usually signaled the beginning of a 
new bear market or at least a serious correction.

Some technicians are worried too.  The huge volume recently 
without any stock market gains could spell a top.  The volume on 
the NYSE this Friday was 3.1 billion shares while the NASDAQ hit 
2.49 billion.  Jim's wrap suggested that most of this volume was 
due to the various index rebalancing.  Let's hope so!  

This coming week the U.S. markets are closed on Friday in 
observance of Christmas. That means all the economic data has 
been squeezed into Wednesday and Thursday with the final Q3 GDP 
numbers, chain deflator numbers, November Durable orders, 
personal income and spending, and the Michigan Sentiment figures 
for December.


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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  9708
Current     : 10649

Moving Averages:
(Simple)

 10-dma: 10593
 50-dma: 10308 
200-dma: 10238 



S&P 500 ($SPX)

52-week High: 1207
52-week Low : 1060
Current     : 1194

Moving Averages:
(Simple)

 10-dma: 1193
 50-dma: 1157
200-dma: 1125



Nasdaq-100 ($NDX)

52-week High: 1635
52-week Low : 1301
Current     : 1596

Moving Averages:
(Simple)

 10-dma: 1610
 50-dma: 1531
200-dma: 1450



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

CBOE Market Volatility Index (VIX) = 11.95 -0.32
CBOE Mkt Volatility old VIX  (VXO) = 12.71 -0.30
Nasdaq Volatility Index (VXN)      = 18.21 -0.39 


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.84      1,241,187     1,037,969
Equity Only    0.54      1,002,656       536,541
OEX            1.48         53,842        79,939
QQQQ           2.59         41,366       107,462


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

Bullish Percent Data

           Current   Change   Status
NYSE          76.3    + 0     Bear Correction
NASDAQ-100    77.0    + 0     Bull Confirmed
Dow Indust.   70.0    + 0     Bull Confirmed
S&P 500       76.6    - 0.2   Bull Confirmed
S&P 100       77.0    + 0     Bull Confirmed


Bullish percent measures the number of stocks in an index 
currently trading on a buy signal on their point and figure 
chart.  Readings above 70 are considered overbought, and readings 
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend


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

 5-dma: 1.00
10-dma: 1.09 
21-dma: 1.01
55-dma: 1.06


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    1387      1482
Decliners    1428      1560

New Highs     203       106
New Lows       16         9

Up Volume   1336M      971M
Down Vol.   1768M     1471M

Total Vol.  3141M     2493M
M = millions


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

Commitments Of Traders Report: 12/14/04


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 upped their positions in both longs and 
shorts with the net result as a decrease in their bearish
bias.  Small traders did the same but with a net result in
a decrease in their bullish bias.

Commercials   Long      Short      Net     % Of OI
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%)
12/14/04      502,471   540,494   (38,023)   (3.6%)

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
11/23/04      171,192   150,606    20,586     6.4%
11/30/04      176,031   148,876    27,155     8.3%
12/07/04      187,707   135,776    51,931    16.0%
12/14/04      201,428   164,111    37,371    10.2%

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

Hmm.. we have some interesting movement here.  Commercials upped
both their longs and shorts but their bearish bias has been slowly
decreasing for weeks.  Meanwhile the small traders more than 
doubled their short positions putting a serious dent in the 
overall bullish bias.

Commercials   Long      Short      Net     % Of OI 
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%)
12/14/04      556,980   899,616   (342,636)  (23.5%)

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%
12/14/04      398,915    137,598   261,317    48.7%

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 are seeing some interesting movement here too.  Commercial
traders significantly raised their positions in both longs
and shorts with a serious drop in their bullish bias as 
the net effect.  Meanwhile small traders added a huge chunk 
of new longs compared to a significant jump in shorts with
the net effect being a sharp drop in their bearish bias.

Commercials   Long      Short      Net     % of OI 
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%
12/14/04       73,554     50,286    23,268   18.7%

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
11/23/04       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%)
12/14/04       26,781    58,159   (31,378)  (36.9%)

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

Commercial traders added significant amounts to both their long
and short positions with a net decrease in their bearish bias.
Small traders also poured a lot of new money into both their
long and short positions with the net effect as a decrease
in their bearishness.

Commercials   Long      Short      Net     % of OI
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%)
12/14/04       36,960    38,566   (1,606)     (2.1%)
 
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
11/23/04        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%)
12/14/04       13,445    19,089   (5,644)   (17.3%)

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

Expensing stock options.  Good, bad, and difficult at best.

On Thursday, December 16, 2004 the Financial Accounting Standards 
Board (FASB), which sets U.S. accounting standards, said it ruled 
that companies must account for granted stock options as expenses 
on financial statements.

The news generated quite a few questions from investors as to 
what impact the decision may have on equity markets and stock 
valuations.

While opponents of the accounting rule, which include economists 
as well a corporate leaders, especially those in the high tech 
industry, vowed to continue their fight against the expensing of 
stock options, many believe the FASB will eventually stick.

Proponents viewed the FASB's new ruling as a win for investors, 
as it would give greater transparency to the true profitability 
of a company and its shareholders.  

Don Delves, a Chicago executive compensation specialist who has 
been an active proponent of the rule, said he believes the rule 
will ensure "much better disclosure of an item that has a 
significant cost to shareholders."

The ruling, if implemented, calls for large companies to begin 
expensing stock options after June 15, 2005, while small business 
will have until after December 15, 2005 to take the expense.

One question from investors was what will this do to the bottom 
line, or earnings for companies that do grant stock options to 
their employees, or board members.

This has been a difficult number for analysts to nail down, but a 
study by Credit Suisse First Boston showed that the aggregate 
earnings of the S&P 500 would have been reduced by 8% in 2003 if 
companies comprising this benchmark index had expensed stock 
options.

A survey by Bear Stearns found that companies representing more 
than 40% of the total stock value of the S&P 500 already were 
expensing stock options.

The difficulty in figuring out what impact (positive or negative) 
might have on a company's bottom line is the variable of what 
price the granted stock options are for, the expected life of the 
options, the current stock price, expected dividends, volatility, 
and risk-free interest rate.  These are all variables that the 
FASB's Statement No. 123 says should be considered when valuating 
stock options.  The Black-Sholes method of valuing stock options 
utilizes these factors.

One can begin to see how complex, and most likely, inaccurate, 
the expensing of stock option will be.

For instance.  Let's say John Smith, who works for ABC Company 
was granted 1,000 stock options (1,000 shares) shares, when he 
joined ABC Company, at $50 per share.  The options were 
exercisable within 10 years, and after a 5-year vesting period, 
John could either exercise some or all of his options.  On John's 
date of hire, ABC Company was trading at $60.00.

Since John's 1,000 stock options aren't a marketable security, 
ABC Company "discounts" the granted stock option by 20% to give 
John a sense of immediate reward, or incentive for joining the 
company.

One problem with the Black-Sholes method of accounting is that it 
assumes employee stock options are marketable, and the company 
must record an expense of the then market price of ABC Company 
($60.00) and number of options granted (1,000 shares).  In 
essence, the Black-Sholes model immediately overstates the 
expensing of John's stock options.

Another problem that can be encountered is the term, or duration 
of the stock option.  The longer the term of an option, the more 
valuable the option is.  You and I know this to be true.  

With IBM (NYSE:IBM) trading at $96.20, an IBM Jan06 $95 call 
(WIB-AS) would cost $9.00.  An IBM Jan07 $95 call (VIB-AS) would 
cost $13.10.

An option trader understand the IBM 2006 and 2007 price 
differential as not only time premium, but VOLATILITY!

Now, if you're the accountant ABC Company, you need to try and 
predict what the price of ABC Company is going to be in 5-years 
when John's vesting date may have him exercising some, or all of 
his options.

What happens if in 5-year, ABC Company's stock is trading at 
$40.00?  Hasn't ABC Company already expensed John's options at 
$60.00?

Do you see where the expensing of stock options begins to lead 
us?  

No?

My thoughts, and perhaps those that oppose the expensing of stock 
options is that the expensing of stock options is only going to 
be a guessing game.

While the expensing of stock options will at some finite point in 
time give an investor an idea of what the "real" profit or loss 
is being carried on that quarter's income statement, the multiple 
variables involved in trying to determine the eventual expense 
will never be certain.

I will be willing to bet that just as financial analysts 
currently estimate what a company will earn (ex-items), the 
additional work of figuring out the expensing of options will be 
lumped into the broader category of "one-time items" each 
quarter.

As time passes, and a stock's price fluctuates, should the price 
of a stock move below a certain level, in John Smith's case, 
$60.00, then if ABC Company's stock price were to be trading at 
$40.00, shouldn't ABC Company now see a financial benefit to 
earnings?  

Oh, I know.  Let's restate earnings from 5-years ago!  ABC 
Company can go back and adjust their financial statements for all 
the employees that were granted stock options above $40.00 and 
reap a financial windfall!  "Ex-items" of course.

I can see it now.  Consensus estimates for Cisco Systems 
(NASDAQ:CSCO) is for the company to earn $0.89 per share for
2005.  Footnote: Plus or minus 10% to account for the expensing 
of stock options.

The biggest question is this.  

Based on the complexities of trying to figure out how to value, 
then expense stock options, what we as investors will really be 
getting is a snapshot view, at a finite point in time (what price 
is the stock trading at when a company's fiscal quarter ends, 
relative to all previously granted options), with some added 
guesswork from the company's accountant, and its auditors, as to 
what the company's stock price will be valued at as all these 
granted stock options become exercisable.

Even the FASB understands this, and has made no recommendations 
on the method that companies may use to value options, or on the 
formulas to assign costs to the options.

How does that sound?  If companies continue to offer stock 
options, and have to expense them, then there is no "one" method 
that has to be used.  

Let's see.  Hewlett Packard (NYSE:HPQ) might use Black-Sholes.  
eBay (NASDAQ:EBAY) is using the so-called binomial model.  Oh, 
and Sirius Satellite Radio (NASDAQ:SIRI) as well as XM Satellite 
Radio; maybe they'll be using the orbital-galactic-science model.

There have been some concerns that the expensing of options could 
be a greater negative for technology company, that use stock 
options to entice highly valued workers (management, scientists, 
engineers) to work of any given employer.

From what I've read (financial statements, industry views) the 
RISK doesn't appear to be to the dilution of earnings.  At least 
nothing a company's investment banker (plan administrator) can't 
take care of.  

Companies often initiate stock repurchase programs for various 
reasons.  Many are designed in part, to compensate for employee 
stock option programs.  If stock options are going to be 
expensed, then so be it.  Have the investment banker buy stock 
under the company's board approved stock repurchase program, in 
sufficient amounts to cover any "in the money" stock options, 
then hedge that basket of quarterly, or annual expensing of 
options.  

The RISK that many companies see, is to the smaller, and new 
innovators, that don't have the capital in early stages of 
growth, but do use stock options as an incentive to attract "key 
employees."  

Does the 2-year engineering genius at IBM that feels like a 
needle in a haystack, leave their $80,000 per year job to go work 
for Google, which pays $50,000 per year?  Maybe not, even if they 
really felt that their innovative ideas might be implemented 
faster at a younger Google.

But if there was a 1,000 stock option at $200.00, with a 5-year 
vesting and 10-year expire they might just take the risk.

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

AMHC  American Healthways Mon, Dec 20  After the market     0.21
ANGO  AngioDynamics       Mon, Dec 20  After the market     0.05
ARRO  Arrow Intl          Mon, Dec 20  ----- n/a -----      0.35
CRDS  Crossroads          Mon, Dec 20  ----- n/a -----     -0.08
IMGC  Intermagnetics Gen. Mon, Dec 20  After the market     0.26
JBL   Jabil               Mon, Dec 20  After the market     0.31
SMSC  SMSC                Mon, Dec 20  Before the bell      0.12

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

APSG  Applied Signal Tech Tue, Dec 21  After the market     0.29
ATYT  ATI Technologies    Tue, Dec 21  ----- n/a -----      0.26
BSC   Bear Stearns        Tue, Dec 21  Before the bell      2.14
CBK   Christopher Banks   Tue, Dec 21  ----- n/a -----      0.22
COGN  Cognos              Tue, Dec 21  ----- n/a -----      0.33
ECHO  Elctrnc Clrg House  Tue, Dec 21  After the market     0.09
FDS   FactSet Research    Tue, Dec 21  ----- n/a -----      0.49
GIS   General Mills       Tue, Dec 21  ----- n/a -----      0.87
GTK   GTech Holdings      Tue, Dec 21  Before the bell      0.34
MANU  Manugistics, Inc.   Tue, Dec 21  After the market    -0.04
PAYX  Paychex             Tue, Dec 21  After the market     0.23
PRGS  Progress Software   Tue, Dec 21  Before the bell      0.29
RIMM  Research In Motion  Tue, Dec 21  After the market     0.55
SLR   Solectron           Tue, Dec 21  After the market     0.05
SCOX  The SCO Group       Tue, Dec 21  After the market    -0.18

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

AGE   A.G.Edwards         Wed, Dec 22  Before the bell      0.56
CAG   ConAgra Foods       Wed, Dec 22  Before the bell      0.46
GPN   Global Payments Inc Wed, Dec 22  After the market     0.53
MU    Micron Technology   Wed, Dec 22  ----- n/a -----      0.22
PSRC  PalmSource Inc      Wed, Dec 22  After the market     0.04
RHAT  Red Hat, Inc.       Wed, Dec 22  ----- n/a -----      0.06
TIBX  TIBCO Software      Wed, Dec 22  After the market     0.08


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

AM   American Greetings   Thr, Dec 23  ----- n/a -----      0.70
SUMX Summa Industries     Thr, Dec 23  ----- n/a -----      0.12

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

..none..


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

Symbol  Company Name              Ratio    Payable     Executable

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
LUK   Leucadia Ntl Corp           3:2      Dec 31st    Jan  3rd
NADX  National Dentex             3:2      Dec 31st    Jan  3rd
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
SBIT  Summit Bancshares           2:1      Dec 31st    Jan  3rd

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

There are a few earnings in the middle of the week and economic 
reports on Wednesday and Thursday but investors will probably be 
more focused on the upcoming Christmas holiday than corporate 
earnings and economic data. 

==============================================================
                       -For-           
----------------
Monday, 12/20/04
----------------
Leading Indicators for November

-----------------
Tuesday, 12/21/04
-----------------
..none..

-------------------
Wednesday, 12/22/04
-------------------
Final revision for Q3 GDP numbers
Chain deflator guage

------------------
Thursday, 12/23/04
------------------
Weekly initial jobless claims
U.S. bond market has a shortened session
Durable Orders for November
Personal Income & Spending for November
Revised Michigan Sentiment index for December
New Homes Sales figures for November

----------------
Friday, 12/24/04
----------------
Christmas Eve - 
U.S. markets are closed in observance of Christmas holiday




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The Option Investor Newsletter                   Sunday 12-19-2004
Sunday                                                      2 of 5

In Section Two:

Watch List: Schools, Shoes, Retail and more!
Dropped Calls: FLR, MWD
Dropped Puts: none


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**********
Watch List
**********
 Schools, Shoes, Retail and more!

___________________________________________________________________

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


Apollo Group - APOL - close: 79.51 change: -0.12

WHAT TO WATCH: If you're looking for a put candidate this might 
be for you.  Shares gapped down on Thursday under support at the 
$82.50 level and its simple 200-dma.  The move was a reaction to 
its earnings report where APOL beat estimates by a penny and 
guided in-line.  Two brokers followed the news with a downgrade.  
The decline has turned its technical indicators bearish with a 
new sell signal in its MACD. A 50 percent retracement of its 
November to December rally would put the current sell-off near 
$72-73.  We would target short-term support at $75. 




---

Nike Inc - NKE - close: 91.70 change: +5.80

WHAT TO WATCH: NKE soared 6.75 percent on Friday after beating 
earnings estimates by 10 cents.  Volume was heavy and the stock 
broke through resistance at $88 and $90.  We would watch for a 
pull back either probably around the $90 level as a potential 
bullish entry point.  Look for the bounce to begin before 
considering new positions.  Our target would be $100.




---

M G I C Investments - MTG - close: 68.27 change: +0.56

WHAT TO WATCH: MTG has been consolidating under resistance at 
$69.00 and its simple 200-dma for weeks.  Now technicals are 
positive and its MACD is nearing a new price target.  The P&F 
chart is very close to reversing its sell signal into a buy 
signal.  Watch for a breakout over $69 as a potential entry 
point.  More conservative traders may want to wait for MTG to 
close over the $70 mark, which could be round-number resistance.




---

Kmart Holdings - KMRT - close: 100.28 change: -0.99

WHAT TO WATCH: Hmm... the consolidation in KMRT is narrowing, 
which means we can look for a breakout one way or the other soon.  
The fact that shares are narrowing near the $100 mark might make 
KMRT a decent straddle play or some sort of neutral spread to 
capture a breakout up or down.  The short-term trend of lower 
highs suggest a breakdown.  Meanwhile its long-term trend is 
still up and shares are nearing support.  Definitely be ready to 
catch the move.





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

ESI $48.25 -1.69 - ESI is another educational stock that is 
seeing some profit taking.  Consider a trigger under $48 and 
target support near $43.50-44.00.

WMT $52.02 -0.73 - WMT is nearing round-number support at $50.00 
bolstered by a very long-term trendline of support.

CEPH $48.99 +0.93 - We would watch CEPH for a breakout over its 
simple 200-dma near resistance at $51.00.

TZOO $94.00 +2.79 - Aggressive players can watch TZOO for a 
breakout over $100 or a breakdown under $90.

AZO $89.25 +0.57 - AZO is nearing significant resistance in the 
$90-91 region.  The P&F chart is bullish and points to $120.  
Watch for the breakout.

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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
^^^^^

Fluor Corp - FLR - close: 53.13 change: -0.08 stop: 52.75

Early morning weakness in FLR was more than expected.  Shares 
slipped to $52.60 before rebounding.  That was enough to hit our 
stop loss at $52.75.  Given the recent sell signal in the MACD 
indicator this may not be a bad thing.  

Picked on November 22 at $48.51
Change since picked:     + 4.62
Earnings Date          10/27/04 (confirmed)
Average Daily Volume =      521 thousand   



---

Morgan Stanley - MWD - close: 54.11 chg: -0.74 stop: 51.50

MWD offered us a round-trip ticket to nowhere.  The stock has 
ended up right back where we started at $54.11.  The lack of 
follow through on the XBD broker-dealer index breakout, MWD's 
breakout and the LEH earnings news is somewhat disappointing.  We 
are exciting now to avoid any negative surprises when MWD reports 
earnings next week.  

Picked on December 12 at $ 54.11
Change since picked:      + 0.00
Earnings Date           12/21/04 (confirmed)
Average Daily Volume =       4.6 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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The Option Investor Newsletter                   Sunday 12-19-2004
Sunday                                                      3 of 5

In Section Three:

Current Calls: ABK, BIIB, COF, EBAY, IBM, MDC, MHK, OSK, SWN, UTX, ZBRA
New Calls: BDK, GOOG
Current Puts: GCI
New Puts: None

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

Ambac Fincl Group - ABK - cls: 82.20 chg: -1.00 stop: 79.89     

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:
Yes, believe it or not we still like ABK.  We were not excited to 
see the gap down on Friday but traders bought the dip near $81.55 
and ABK held near the $82 level for much of the session.  Stocks 
are still expected to perform well through the end of the year so 
traders can evaluate this dip as a potential entry point.  If ABK 
surprises us and dips lower we'll look for support near $80-81.  
Of course technical traders may want to play it cautious.  Short-
term oscillators are turning negative and its overbought MACD 
indicator just produced a new sell signal.  We do notice a MACD 
sell signal a few weeks ago that was quickly reversed so we're 
not panicking yet. 

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=  31 current ask $8.00
BUY CALL JAN 80 ABK-AP OI= 350 current ask $3.80
BUY CALL JAN 85 ABK-AQ OI= 262 current ask $1.15
BUY CALL JAN 90 ABK-AR OI=1348 current ask $0.25

Annotated chart



Picked on December 01 at $82.26
Change since picked:     - 0.06
Earnings Date          10/20/04 (confirmed)
Average Daily Volume =      490 thousand



---

Biogen Idec - BIIB - close: 64.80 change: -1.09 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:
BIIB may have fallen 1.65 percent on Friday but the stock held up 
rather well compared to some of its peers in the drug/biotech 
sectors.  The DRG index was hit for a 2.9 percent loss following 
the volatility in shares of Pfizer and the big gap down in AZN.  
If you were feeling optimistic one could claim that BIIB is still 
trading in its short-term range between $64 and $67.  However, 
the action on Friday does look like a potential failed rally.  We 
would expect shares to possibly dip toward the $62-63 levels 
before bouncing higher.  Such a dip could be a new bullish entry 
point for readers.  Short-term technicals don't look so hot so 
waiting for a dip may work well.  Brokers have been active on 
BIIB lately.  Thursday saw BAC upgrade the stock from "neutral" 
to a "buy" with an $88 target, which coincides closely with the 
current P&F chart target at $89.  On Friday A.G.Edwards 
reiterated their buy rating on BIIB.  

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=21461 current ask $6.20
BUY CALL JAN 65 IHD-AM OI=12347 current ask $2.65
BUY CALL JAN 70 IHD-AO OI=11766 current ask $0.85

BUY CALL APR 65 IHD-DM OI= 3189 current ask $5.20
BUY CALL APR 70 IHD-DN OI= 4767 current ask $3.10

Annotated chart



Picked on December 9 at $ 65.25
Change since picked:     - 0.45
Earnings Date          01/26/05 (unconfirmed)
Average Daily Volume =      3.5 million  



---

Capital One Financial - COF - cls: 82.04 chg: +0.22 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:
Banking stocks have been a mixed bunch the last few days.  This 
has left COF to trade on its own and thus far the stock has been 
churning sideways in a relatively tight range.  While we are 
encouraged by COF's relative strength it would not surprise us to 
see shares retest the $80 level as support.  A bounce from $80 
would be the preferred entry point for new positions.  However, 
if you look at COF's intraday chart you'll notice that after 
sliding sideways for most of the session COF broke out to the 
upside in the last thirty minutes of trading.  This is one reason 
why we would still consider bullish positions at current levels.  
Our six to eight week target remains the $88-90 region.

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=3544 current ask $7.80
BUY CALL JAN 80 COF-AP OI=6086 current ask $3.70
BUY CALL JAN 85 COF-AQ OI=2116 current ask $1.10

BUY CALL MAR 80 COF-CP OI=1771 current ask $5.60
BUY CALL MAR 85 COF-CQ OI=1428 current ask $2.90
BUY CALL MAR 90 COF-CR OI=1893 current ask $1.25

Annotated Chart:


Picked on December 12 at $ 81.12
Change since picked:      + 0.92
Earnings Date           01/19/05 (unconfirmed)
Average Daily Volume =       1.4 million  



---

eBay Inc. - EBAY - close: 114.75 chg: -0.95 stop: 113.99     

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 made headlines on Friday with its announcement to buy 
Rent.com for $415 million in cash and stock. Yet we doubt the 
deal, which is seen as a positive for EBAY, negatively affected 
the stock price.  The pull back in tech stocks and the 0.9 
percent drop in the INX Internet index is the more likely 
culprit.  On Thursday we suggested that this was a pivotal spot 
for EBAY as is toyed with support in the $115.00-114.50 level.  
Now shares have edged even lower but remains inside this range.  
We would not suggest new bullish plays as a drop under $114 is 
likely a precursor to testing the $110 level and/or its simple 
40-dma.  Hopefully this is the new short-term low and EBAY will 
quickly rebound toward $120 in time for the holidays.

Suggested Options:
We are not suggesting new positions at this time although more 
aggressive traders could use a bounce from $115 as a potential 
entry point.

Annotated chart



Picked on November 08 at $103.69 
Change since picked:      +11.06
Earnings Date           10/20/04 (confirmed)
Average Daily Volume =      10.4 million 



---

Intl Business Mach. - IBM - close: 96.20 chg: -1.25 stop: 95.49     

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:
Are you getting a sense of deja vu?  We are.  Through the second 
half of November IBM churned sideways in a trading range between 
$94-$96.  Now for the past three weeks this December IBM has been 
stuck in a range between $96 and $98.  Back in November IBM 
produced a failed rally near the top of the range and then 
slipped toward the bottom of its range all while looking ready to 
breakdown.  The next day IBM rebounded and quickly broke out.  We 
see a very similar pattern in the last two sessions for IBM with 
shares failing near the top of its range and slipping toward 
support looking very weak. Will IBM rebound again?  Or will it 
break support this time?  We've been suggesting that readers 
consider some profit taking for weeks.  It is still a viable 
option today but we're going to let our stop work for us at 
$95.49 and we'll happily exit if shares can hit the $99 mark. 

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:    + 6.20
Earnings Date         10/18/04 (confirmed)
Average Daily Volume =     4.7 million 




---

M D C Holdings - MDC - close: 85.30 change: -1.00 stop: 82.00

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:
MDC remains a relative strength winner this week but shares did 
see some profit taking on Friday.  We remain bullish on the stock 
and continue to target the $88.50 level.  However, now that 
shares have surpassed our initial profit target we are not 
suggesting new bullish positions.  Short-term traders may want to 
strongly consider doing some profit taking.

Suggested Options:
MDC has already exceeded our short-term target.  We are not 
suggesting new bullish positions.

Annotated Chart:



Picked on December 12 at $ 81.01
Change since picked:      + 4.29
Earnings Date           01/11/05 (unconfirmed)
Average Daily Volume =       435 thousand



--

Mohawk Industries - MHK - close: 89.40 chg: -1.57 stop: 86.99

Company Description:
Mohawk currently operates five facilities in South Carolina 
located in: Ulmer, Calhoun Falls, Dillon, Landrum and 
Bennettsville. The company is headquartered in Calhoun, GA and is 
traded on the New York Stock Exchange. Mohawk is a leader in the 
floor covering industry with over $5 billion in annual revenues 
and produces and distributes carpet, ceramic tile, rugs, 
laminate, hard wood and home accessories.
(source: company press release)

Why We Like It:
Uh-oh!  Thursday's dip to $90.40 was okay with us.  A chance to 
buy a bounce above $90 looked attractive.  Friday's drop under 
round-number, psychological support/resistance at $90.00 is 
another story.  The recent MACD buy signal appears to be in 
jeopardy.  We would not suggest new bullish positions until MHK 
traded back above the $90 level.  Aggressive traders might look 
for a bounce from $88, which is where we expect MHK to find its 
next level of support. 

Suggested Options:
We are going to suggest the February calls.  Januarys are 
available.

BUY CALL FEB 85 MHK-BQ OI= 376 current ask $6.20
BUY CALL FEB 90 MHK-BR OI=1345 current ask $3.20
BUY CALL FEB 95 MHK-BS OI= 243 current ask $1.40

Annotated Chart:



Picked on December 14 at $ 91.00
Change since picked:      - 1.60
Earnings Date           02/05/05 (unconfirmed)
Average Daily Volume =       319 thousand   





---

Oshkosh Truck - OSK - close: 66.90 change: +0.82 stop: 63.49*new*

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:
OSK is getting closer to our target near $67.50.  The stock 
displayed some relative strength on Friday bucking the broader 
market weakness with a 1.24 percent gain.  We are suggesting that 
readers prepare to exit as OSK nears our target.  We are not 
suggesting new bullish positions.  We are going to raise our stop 
loss to $63.49. 
   
Suggested Options:
We are not suggesting new bullish positions this close to our
target.

Annotated Chart:


Picked on November 07 at $ 62.16
Change since picked:      + 4.74
Earnings Date           10/28/04 (confirmed)
Average Daily Volume =       205 thousand   




--

Southwestern Energy - SWN - close: 51.05 chg: +0.06 stop: 49.50*new*

Company Description:
Southwestern Energy Company is an integrated natural gas company 
whose wholly-owned subsidiaries are engaged in oil and gas 
exploration and production, natural gas gathering, transmission, 
and marketing, and natural gas distribution.
(source: company press release)

Why We Like It:
Honestly we're a little bit disappointed.  As we expected crude 
oil prices rebounded strongly this week but SWN failed to follow.  
The long-term trend for SWN is still in place and the stock looks 
poised to move higher but now we have to deal with a possible 
pull back in oil from its sharp rise.  Brave readers can still 
watch for a dip to $50.00 but we would definitely look for the 
bounce before committing any capital.  We are going to raise
our stop loss to $49.50 just under rising technical support
at the simple 40-dma.

Suggested Options:
We are going to suggest the January and March calls.

BUY CALL JAN 50 SWN-AJ OI=223 current ask $3.40
BUY CALL JAN 55 SWN-AK OI=334 current ask $1.25

BUY CALL MAR 50 SWN-CJ OI=345 current ask $4.70
BUY CALL MAR 55 SWN-CK OI=306 current ask $2.60

Annotated Chart:



Picked on December 14 at $ 51.05
Change since picked:      + 0.00
Earnings Date           00/00/04 (confirmed)
Average Daily Volume =       557 thousand   



---

United Tech. - UTX - close: 103.90 change: +1.90 stop: 98.95*new*

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:
The Dow Industrials losses would have been worse on Friday if it 
had not been for strength in UTX.  The stock added another 1.8 
percent on above average volume.  The move pushed UTX to a new 
all-time high over the $103 level.  We don't know whether this 
move was a delayed reaction to the merger news on Thursday (UTX 
buying British Kidde for $2.8 billion) or news out on Friday that 
UTX won a $734 million contract from the U.S. Air Force to work 
on the F119 engines in the F/A-22 Raptor fighter jet.  Whatever 
the case is we are not complaining.  The P&F chart has produced a 
new double-top breakout buy signal with a $123 target.  We 
continue to believe that UTX is a stock split announcement 
candidate since shares last split 2:1 in May of 1999.  Our short-
term target remains the $110 level. We are going to raise our 
stop loss to $98.95.

Suggested Options:
We like the January 2005 calls.  

BUY CALL JAN  95 UTX-AS OI=3112 current ask $9.50
BUY CALL JAN 100 UTX-AT OI=7406 current ask $5.10
BUY CALL JAN 105 UTX-AA OI=3725 current ask $1.80
BUY CALL JAN 110 UTX-AB OI=1221 current ask $0.45

Annotated chart



Picked on December 1 at $100.15
Change since picked:     + 3.75
Earnings Date          10/20/04 (confirmed)
Average Daily Volume =      1.8 million  




--

Zebra Technologies - ZBRA - close: 55.47 chg: -0.45 stop: 51.99

Company Description:
Zebra Technologies Corp. delivers innovative and reliable on-
demand printing solutions for business improvement and security 
applications in 100 countries around the world. More than 90 
percent of Fortune 500 companies use Zebra-brand printers. A 
broad range of applications benefit from Zebra-brand thermal bar 
code, smart label, receipt, and card printers, resulting in 
enhanced security, increased productivity, improved quality, 
lower costs, and better customer service. The company has sold 
nearly four million printers, including RFID printer/encoders and 
wireless mobile solutions, as well as software, connectivity 
solutions and printing supplies.
(source: company press release)

Why We Like It:
This looks like a new bullish entry point in ZBRA.  The stock 
slipped to $54.59 before traders jumped in to buy the dip near 
its simple 50-dma.  The bounce back above the $55 level is also 
encouraging.  Per our original play description traders can buy 
the breakout over $54 or look for a move through the November 
highs near $56.  The P&F chart has a very positive pattern with a 
bullish triangle breakout and a $66 target.  Our initial target 
is a move into the $60-62 range. 

Suggested Options:
We are going to suggest the January and February calls.

BUY CALL JAN 50 ZBQ-AJ OI=111 current ask $5.90
BUY CALL JAN 55 ZBQ-AK OI=677 current ask $2.50
BUY CALL JAN 60 ZBQ-AL OI=296 current ask $0.80

BUY CALL FEB 55 ZBQ-BK OI=2210 current ask $3.90
BUY CALL FEB 60 ZBQ-BL OI= 581 current ask $1.70

Annotated chart:



Picked on December 15 at $ 55.21
Change since picked:      + 0.26
Earnings Date           02/09/05 (unconfirmed)
Average Daily Volume =       709 thousand 




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

Black & Decker - BDK - close: 85.66 chg: -0.35 stop: 83.49

Company Description:
Black & Decker is a leading global manufacturer and marketer of 
power tools and accessories, hardware and home improvement 
products, and technology-based fastening systems.
(source: company press release)

Why We Like It:
We have been following BDK on the watch list for weeks.  The 
stock has been a consistent relative strength winner for months 
as investors continue to buy each dip.  Currently BDK has been 
consolidating sideways in a trading range between $82 and $86.50 
since early November.  Now that shares are trying to bounce from 
its rising 40 and 50-dma's and its technicals oscillators are 
edging higher with its MACD indicator nearing a new buy signal we 
are going to put BDK on the play list with a TRIGGER. Our plan is 
to catch a year-end rally as BDK breaks out from its trading 
range.  Our entry point will be $87.01.  If we're triggered we'll 
target a six to eight week move to $96-$100 range, which seems 
somewhat conservative compared to its bullish P&F chart with its 
$114 target.

Suggested Options:
We are going to suggest the February calls.

BUY CALL FEB 85 BDK-BQ OI=510 current ask $4.20
BUY CALL FEB 90 BDK-BR OI=218 current ask $1.85
BUY CALL FEB 95 BDK-BS OI=  0 current ask $0.75

Annotated Chart:


Picked on December xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           01/24/05 (unconfirmed)
Average Daily Volume =       656 thousand 



---

Google Inc - GOOG - close: 180.08 change: +3.61 stop: 174.99

Company Description:
Google's innovative search technologies connect millions of 
people around the world with information every day. Founded in 
1998 by Stanford Ph.D. students Larry Page and Sergey Brin, 
Google today is a top web property in all major global markets. 
Google's targeted advertising program, which is the largest and 
fastest growing in the industry, provides businesses of all sizes 
with measurable results, while enhancing the overall web 
experience for users. Google is headquartered in Silicon Valley 
with offices throughout North America, Europe, and Asia.
(source: company press release)

Why We Like It:
Love it or hate it GOOG is starting to look bullish.  The stock 
has spent the last seven weeks consolidating if meteoric rise 
from $100 to $200.  The recent dip toward the $170 region has put 
in a short-term higher low and its MACD indicator is nearing a 
new buy signal.  Yet before we continue we need to urge caution 
to our readers.  Volatile stocks like GOOG are not for everyone.  
The intraday swings can be enormous and the volatility in the 
options even worse.  This needs to be played with risk capital 
only since odds are higher one could lose all of their 
investment.  Bulls would be fighting against a bearish P&F chart.  
Plus, there are the lock up periods to deal with.  Thus far the 
markets have quickly absorbed mammoth amounts of stock from 
GOOG's numerious lock up expirations.  There is another one for 
24.9 million shares on January 15th and the last major lock up 
expires on February 14th for 176.8 million shares.  We do not 
want to hold over February 14th lock up giving us a set time 
frame for this play to work.  Our plan is to use a TRIGGER at 
$183.01 to capture the breakout from its current consolidation.  
Our target will be the $199-200 level.  

Suggested Options:
January strikes are available but we are going to suggest the 
March calls.

BUY CALL MAR 180 GOU-CP OI=7325 current ask $19.00
BUY CALL MAR 190 GOU-CR OI=3972 current ask $14.60
BUY CALL MAR 200 GOU-CT OI=5688 current ask $11.00

Annotated Chart:


Picked on December xx at $ xx. xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           01/20/05 (unconfirmed)
Average Daily Volume =        10 million  





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


Gannett Co Inc - GCI - close: 79.26 chg: -0.41 stop: 82.51

Company Description:
Gannett Co., Inc. is a leading international news and information 
company that publishes 101 daily newspapers in the USA, including 
USA TODAY, the nation's largest-selling daily newspaper. The 
company also owns more than 600 non-daily publications in the USA 
and USA WEEKEND, a weekly newspaper magazine. Gannett subsidiary 
Newsquest is the United Kingdom's second largest regional 
newspaper company. Newsquest publishes more than 300 titles, 
including 17 daily newspapers, and a network of prize-winning Web 
sites. Gannett also operates 21 television stations in the United 
States and is an Internet leader with sites sponsored by its TV 
stations and newspapers including USATODAY.com, one of the most 
popular news sites on the Web.(source: company press release)

Why We Like It:
So far so good.  GCI has tried to bounce back above the $80 level 
twice in as many days without success.  Friday's action was the 
most impressive with an early dip lower on big volume quickly 
followed by a rally attempt that failed at $80.  This looks like 
a bearish entry point for new positions. More conservative 
traders may want to wait for the drop under $79.00 that will 
produce a spread quintuple-bottom sell signal on its P&F chart.  
Our short-term target is only $75 but the P&F chart points to $72 
and is likely to fall even lower.

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

BUY PUT JAN 80 GCI-MP OI=1877 current ask $2.15
BUY PUT JAN 75 GCI-MO OI= 480 current ask $0.60

BUY PUT APR 80 GCI-PP OI= 812 current ask $3.60
BUY PUT APR 75 GCI-PO OI= 397 current ask $1.60

Annotated chart:


Picked on December 16 at $ 79.39
Change since picked:      - 0.13
Earnings Date           01/31/05 (unconfirmed)
Average Daily Volume =       1.0 million  




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

None


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The Option Investor Newsletter                   Sunday 12-19-2004
Sunday                                                      4 of 5

In Section Four:

Leaps:    Down to Fighting Weight
Spreads and Straddles:  Tis' The Season To Be Profitable 
                        ... Fa-la-la-la-la, la-la-la-la

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*****
LEAPS
*****

Down to Fighting Weight

We dropped a couple more entries this week that had been
with us for quite sometime. Juniper hit our stop and I
could not pass up the profit on XMSR that was offered 
on its inclusion in the QQQQ/NDX.

We are going to reopen a position on an old friend and
at levels that provide very little risk. That is of
course Symantec. 

The decision to add the oils back into the portfolio
last week with crude at the 200 day average appears 
to have been the right decision. Oil prices jumped
+14% last week and the largest weekly jump in five
years. The stocks have not reacted as strongly as
you would have expected because I believe most traders
think this is just a news spike in crude. It may be
but the long term trend is still up until that 200
day average is broken. 

There is some serious market weakness developing and
while I hope it is just due to the various index
shuffling this week I am going to raise some stops
again. The FASB ruling on options last week will
eventually come back to haunt us and it could be
serious. 

By raising the stops on those plays without insurance
we could get knocked out on some end of year volatility
but we will be out with a profit and that is always a
good plan. No reason to let "volatility" turn into a
loss just because we thought it was only volatility. 

I am going to be really picky about new entries until
the end of January and we will probably add in a few
leap puts if the market starts looking weak. 

For the next two weeks the historical trend is usually
up but on years Santa does not come it usually means
trouble ahead. We will watch the signs and see it that
is light at the end of the tunnel or a train heading
our way. 

We were stopped out of Adobe last week at $61 and it
rallied back this week to a new high at $64.80. But, 
by the end of the week it was back to $60. Profit 
taking by funds and the ORCL/PSFT, SYMC/VRTS deals
took the bloom off the software stragglers. 

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

leaps @ OptionInvestor.com  


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

SYMC - $25.37 Symantec/Veritas


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

XMSR - XM Satellite Radio $40.14  ** Dropped **

JNPR - Juniper Networks $28.13 **Stopped $27.50**

TYC - Close 2005 $30 LEAP only

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

None


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

Position Summary Table



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

SYMC $25.37 Symantec - Veritas  ** no stop **

Welcome back! I am sure everyone heard the news about
Symantec buying Veritas for $13B on Thursday. The news
should have been met with excitement but with the amount
of profit in Symantec from the strong run over the last
year there were too many traders selling now without
asking questions later. 

The stock dropped to $25 on the news and a dead stop 
on the 200 day average. This is very strong support and
after two days of holding at that level the options have
had time to compress from that drop volatility. 

I believe that the SYMC/VRTS merger is a match made in
heaven and analysts will come to that view as more plans
are announced. The companies have no overlapping products
but all their products are perfect fits for the others. 
With one company having anti-virus, data security, backup,
recovery and storage management it puts the other stand
alone companies in a very difficult position. EMC and 
QLGC both fell in the storage sector and Mcafee got
crushed in the ant-virus sector. 

There is no stop on this position. With the 2007 LEAP
Call any minor dips will not result in a material drop
in the leap. The April $22.50 insurance put will protect
us from any potential disaster. For me this is a buy and
forget play.  

BUY LEAP
2007 $25 LEAP Call OBL-AE currently $6.30

Insurance Put
BUY APR-2005 $22.50 PUT SYQ-PX currently $1.15

Entry $25.37 (12/19)

SYMC Chart



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

XLE - S&P Energy SPDR $36.08  ** No Stop **

The XLE rebounded to $36.65 on Wednesday but the Yukos
news caused several of the big oil stocks with operations
in Russia to weaken. As long as oil prices continue higher
the XLE will eventually follow.  

Crude Chart


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 @ $3.60 
2007 $40 LEAP Call ORJ-AN @ $2.65
Drop insurance: March $34 Put XLE-OH @ $1.00 

Entry $35.55 on 12/12

Components of the XLE
http://www.OptionInvestor.com/charts/1218200414332AM_8.asp

XLE Chart


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

COP - Conoco Phillips $87.00    ** Stop 83.00 **

I raised the stop on COP to $83 from $79. COP just
bought several billion in assets in Russia and the
Yukos problem is setting up a potential problem for
western oil companies. I believe Bush would lean on
Putkin if we saw him looking at western assets but
it is still a risk until the Yukos deal blows over. 

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 $83 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 - $37.31 Marathon Oil    ** No Stop **

Marathon was one of the dew oils not to show a decent
bounce this week. We still have strong support at the
200dma and it appears to be consolidating with an 
upward bias. 

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. 

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 

Entry $36.67 (12/12)
MRO Chart


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

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

ETR recovered nicely over the last week and was very
strong on Friday. ETR is back near its highs and the
trend is good after taking a couple nuclear plants
offline for refueling.  

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 $99.90  **Stop $95.00**
Entry $91.93 (11/5)

FDX dropped to $95.32 on Thursday after announcing
profits nearly quadrupled on its freight business. 
The problem was analyst estimates. FDX had said 
earnings would be between $1.10 and $1.20 and they
hit $1.15 on the nose. Analysts, greedy people that
they are were guessing $1.17. Margins dropped slightly
due to higher fuel costs bit FDX stole market share
from UPS to make up for the added cost. It is already
back at the highs again but if oil hits $50 again this
could be a rough ride. I am leaving the stop at $95
this week and we will see what happens.   

CLOSE the Jan-$95 put we sold on entry into this play.
The put is selling for 75 cents now and that gives us
a $3.65 profit. That put offset the cost on our LEAP
calls and worked out exactly as planned. 

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.  

2006 $ 95 LEAP Call WFX-AS @ $8.00
2007 $100 LEAP Call VFX-AT @ $10.60 
SOLD 2005 Jan $95 Put FDX-MS @ $4.60 Closed
(Closed at $.75 +$3.65 profit 12/19)
(selling the put initially offset the price of the call)

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

FDX Chart


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


TYC - Tyco Intl. $34.87  **Stop $33.50**

Tyco is trying VERY hard to break $35 resistance.
Once it does we should see some serious short covering
and buyers come back into the stock.  

We currently have a 2005 $30 LEAP Call that needs to 
be closed. I am going to close it for record purposes
today @ $4.80. Our entry was $2.15 back in May for a
+123% gain.  

If you want to gamble on gains over the next four weeks
on that LEAP I believe it would be a good bet but that
is up to you to decide. It is $4.87 in the money and 
there is no time premium. Any gain or loss in the stock
will be immediately reflected in the LEAP. 

The 2006 $30 LEAP will remain open. 

2005 $30 LEAP Call TYC-AF @ $2.15 12/19 $4.80 +2.65 123%
2006 $30 LEAP Call WPA-AF @ $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 $26.56 **Stopped $27.50**

Juniper broke our stop on Tuesday and broke the 50 dma
on Thursday. Siemens sold off 30% of their stock in
Juniper over the last two weeks and it looks like it
attracted some other sellers as well. Still a 100%
gain so we can't complain.

2006 $25 LEAP Call WBW-AE cost $3.50 closed at $7.10
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



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

XMSR - XM Satellite Radio $40.14  ** Dropped **

I couldn't take the pressure. The spike at the close
on Friday over $40 convinced me to take profits. XMSR
has been trading on anticipation of its inclusion in
the QQQQ for over a week and I view this closing spike
as a climax top. I am taking profits today and we will
look to reenter the next time it pulls back. It has
been moving higher in stops and starts for some time
and I just feel it should be getting tired. 


Current position:
2006 JAN-$30 LEAP Call YLX-AF @ $6.60 closed $12.80 94%
2006 JAN-$32 LEAP Call YLX-AZ @ $5.60 closed $11.10 98%
2006 JAN-$35 LEAP Call YLX-AG @ $4.60 closed $9.70 111%

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

XMSR Chart



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

LLL $75.75 L-3 Communications   ** Stop $72.50 **

L3 closed at a new all time high on Friday at $75.75
and is showing no weakness. This stock could be a
favorite of funds going into 2005 and looking for
a niche play in defense and homeland security.

I raised the stop to just below the last dip at $73.  

L3 itself is on an acquisition binge with four 
acquisitions in just the last eight 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 $67.40  ** Stop $64.50 **

Hartford is nearing resistance at $69 but a breakout 
there could really get things moving. I raised the stop
to $64.50 just in case disaster strikes. 

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  $106.51 Dow Diamonds Trust **Stop 105.50**

****** Profit stop 107.50 ******

After coming very close to getting stopped out over the
last two weeks I am getting really nervous about this
last spike. I raised the stop loss to $105.50 and put
on a profit stop at $107.50. We are up nearly 100% on
all the leaps below and I am worried about a market
event the first couple weeks of January.  

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



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

QQQQ  $39.47 Nasdaq 100   **Stop $39.00**

I am getting really nervous on the QQQQ at $39.47. With
the stop at $39 it is not worth an early exit and we
could still rally on Monday. The NDX/QQQQ was rebalanced
on Friday and that always involves selling stocks in the
index. On Monday we should see a rebound but we are very
close to an exit if that rebound does not appear. The
QQQQ is down over a buck from Wednesday's high at $40.68.  
 
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
****************************    

Witch Hunt 

I looked at several hundred charts this week trying to
find something that would be immune to any January dip,
had a decent chart and LEAPS. You would have thought I
was looking for a coven of witches at the Vatican. 

I had a very tough time finding anything that was not
either already at new highs and very extended or did
not have leaps. 

KMI which I mentioned last week as a possible gained
+2 and broke out to a new high again. I just have a
real problem about buying new highs.  

I tripped over STN, Station Casinos, which had fallen
off its vertical ramp at $59 back on Dec-6th and finally 
found some buyers at $54 this week. I could not find any
news to account for the drop but I did see it has one
of the most bullish analyst ratings I have seen in a
long time. Of the 21 analysts rating the stock 13 are
a buy (7 strong buy) and 8 are a hold. I am not yet
convinced the rebound is for real. Secondly casinos
may be inflation proof but if I am going that route
I would rather play HET or MGG but they are already
blowing through the roof after the Sands IPO. HET
is buying Caesars (CZR) and MGG is buying Mandalay
Bay (MBG). The charts on these stocks are literally
vertical since the Sands deal. MGG has already 
outpaced the strikes on its LEAPS and the highest
strike is already $5 in the money.

Harrah's could be a play. I would like to buy it on
a pullback to the 21 day average currently at $62. 

I would really like to play RIMM again but I can't
justify the expensive options. Insurance is simply
too expensive and I would not touch them without
an insurance put. 

I have probably run a chart on ADSK 20 times over
the last six months but they don't have leaps. Each
time I look up the option chain I keep expecting them
to have added LEAPS but not yet. Meanwhile it just
keeps going up. 

There are plenty of oil stocks going up but we already
have our oil quota. 

If you have some suggestions for plays please do
us all a favor and send me an email. I could use
another 100 pairs of eyes doing research!

leaps @ OptionInvestor.com 




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

None


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

HET - $65.89 Harrah's Entertainment

(I know this chart is vertical but until the
market picks a direction in late January I
am not interested in buying weak stocks)
 

*************************
Current Watch list
*************************    
   
HET $65.89 Harrah's Entertainment

HET operates hotel casinos in Reno, Lake Tahoe, Las 
Vegas and Laughlin, Nevada and Atlantic City, New 
Jersey. The company also operates riverboat, dockside
and Indian reservation casinos. Harrah's Entertainment,
owns or manages 28 casinos in the United States, 
primarily under the Harrah's and Horseshoe brand 
names. http://www.harrahs.com

Caesars Entertainment, (CZR) is an international 
gaming company which owns, operates or manages 27 
casino properties in the United States, Australia, 
Uruguay, Canada, South Africa and at sea

HET has agreed to pay $9.4 billion for Caesars and
will be the largest casino company in the world when
complete. 

I would look to go long on HET with a pullback to 
the 21 day average currently around $63.00

Buy 2006 $65 LEAP Call WBI-AM currently $7.30
Buy 2007 $70 LEAP Call VKH-AN currently $7.80

Insurance Put
Buy Feb-2005 $60 Put HET-NL currently $0.80 cents

HET Chart


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




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

Tis' The Season To Be Profitable ... Fa-la-la-la-la, la-la-la-la
By Mike Parnos

"Caution" was the word for the December expiration cycle.  
"Profit" was the result of the "caution."  Isn't it interesting 
how "caution" and "profit" go hand in hand in the trading 
business?

All of our positions expired worthless for the December cycle – 
the best possible outcome for option sellers.  With the market 
trending up, it wasn't prudent to place the bear call spreads on 
top of our bull put spreads to complete our Iron Condors.   As it 
turns out, the market paused a bit, and the Iron Condors would 
have worked out, but it simply wasn't worth the risk.

We're back on the right track.  We've made some subtle changes to 
our Iron Condor strategy.  After all, we should never stop 
learning or honing our trading skills.  Life, and trading, is a 
work in progress.

After November's debacle, we pulled in the reins a little and 
became more conservative.  We learned that, as a defensive 
measure, we should limit the size of our spreads.  Some CPTI 
traders had 15, 20 or 25-point spreads - and paid a price for it.  
When the mierde hit the fan, and we had to close our bear call 
spreads, the value of the long calls did little to defray the 
cost of buying back our short calls.  The result was heavier 
losses than necessary.

If you're treating your trading as a business (which you should 
be), losses are a cost of doing business.  Money is your 
inventory.  You have to preserve your inventory or you'll be out 
of business.  That's why the smaller the size of your credit 
spreads, the more the long call will be able to help when the 
time comes to close the position.

Below is a summary of the December positions.  A profit of $3,080 
may not seem like a lot compared to some of our "big" months last 
year, but it's a start -- a good start.    November was the first 
month of our third year.  In November we lost $4,665.  In 
December, we made $3,080.  We still have $1,585 to make up.  By 
January expiration we'll be in positive territory again.  
Patience, my students.  Patience.  If the market gives us an 
indication of slowing, we may even complete our Iron Condors by 
putting the topside (bear call spreads) on some of our bull put 
spreads for January.
___________________________________________________________

December Trade Summary
SPX - 1125/1120 Bull Put Spread - Profit: $1,000
SPX - 1135/1130 Bull Put Spread - Profit: $700
SPX - 1165/1140 Sure Thing Credit Spread - Profit: $1,380
TOTAL DECEMBER RESULTS: Profit: $3,080
____________________________________________________________

A Few Reminders
January is a five-week trading cycle.  Well, you can't tell by 
the option premiums.  With volatility ($VIX) hovering near an all 
time low, there isn't a great deal of premium to be had.  When 
will the volatility return to the markets?  Who knows?  As 
premium sellers, we just have to do the best we can. 

Marry or Merry?
A little boy was attending his first wedding. After the service, 
his cousin asked him, "How many women can a man marry?"
"Sixteen," the boy responded.

His cousin was amazed that he knew the answer so quickly. "How do 
you know that?"

"Do the math, dude!" the little boy said. "Like the preacher said 
- 4 better, 4 worse, 4 richer, 4 poorer."
_________________________________________________________________

JANUARY CPTI POSITIONS
January CPTI Position #1 - SPX Iron Condor (Part 1) - 1194.20
Sell 20 January SPX 1125 puts
Buy 20 January SPX 1110 puts
Credit of about $.50 ($1,000)

Profit potential $1,000.  Maintenance: $30,000.  I know I said I 
prefer not to use anything larger than five or ten-point spreads, 
but this is almost 80 points out of the money that I'm going to 
make an exception.  This seems incredibly safe, but then we've 
thought that before, didn't we?

January CPTI Position #2 - SPX Sure Thing Credit Spread - 1194.20
We're still in an up-trend and we might as well try to take 
advantage of it.  Our "sure thing" spread worked to perfection 
for the December cycle.  So, until the market tells us otherwise, 
we're going to continue with the strategy.  Again, remember that 
this strategy is for only those who have a lot of maintenance 
dollars available, because you may need them.  Eventually, we'll 
be right, but you may need that staying power (money). You have 
to be able to withstand being whipsawed back and forth.

In Thursday's column I suggested initiating the "hypothetical" 
position by placing the January 1195/1170 bull put spread for a 
credit of $6.30.  However, on Friday, the SPX headed down in the 
morning.   When it leveled out, we put on a two contract SPX 
1190/1165 bull put spread instead and we were able to take in 
$6.80 ($1,360).

We are still mildly bullish for the next month, but we couldn't 
pass up an opportunity to lower our short strike to 1090 -- plus 
get a little more premium.  Maintenance (initially): $5,000.

January CPTI Position #3 - MSH Iron Condor (Part 1) - 496.05
This is the Morgan Stanley High Tech Index.  We haven't traded it 
before, so now is as good a time as any.  Maybe it will turn out 
to be a usable replacement for the RUT.  We're going to continue 
to be conservative.
Sell 15 MSH January 550 puts
Buy 15 MSH January 540 puts
Credit and potential profit of about $.55 ($825)
Maintenance: $15,000.

January CPTI Position #4 -- SPX Iron Condor  (Part 1) - 1194.20
Put on two weeks ago -- and a wise choice it was (so far).  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 (now over 90 points) 
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
____________________________________________________________

REVIEW OF DECEMBER CPTI POSITIONS
December Position #1 -- SPX Iron Condor (Part 1) - 1194.20
We sold 20 December SPX 1125 puts and bought 20 December SPX 1120 
puts for a credit of $.50 ($1,000).   Maintenance: $10,000.   
Result: Profit of $1,000.

December Position #2 -- SPX Sure Thing Credit Spread - 1194.20
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.  Result -- Profit: 
$1,380

December Position #3 - SPX Iron Condor (Part I) - 1194.20
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.  Result -- Profit: $700
___________________________________________________________

ONGOING POSITIONS
QQQ ITM Strangle - Ongoing Long Term -- $39.47
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.  
We rolled out the Dec. $34 calls at break even and then sold the 
January $40 puts for $.80 ($800).  Our new total premium is about 
$14,200.

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 
good conservative cash flow generating strategy. 
ZERO-PLUS Strategy. OEX - 567.37

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 Adjustment
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).  New cash total: 
$11,175.

The December bull put spread expired worthless.  We put on a five 
contract OEX 545/535 bull put spread for a credit of $.70.  If 
all goes well, we can, at January expiration, add another $350 to 
our cash total.

 

Happy Trading! 
Remember the CPTI credo: May our remote batteries and self-
discipline last forever, but mierde happens. Be prepared! In 
trading, as in life, it's not the cards we're dealt. It's how we 
play them. 
Mike Parnos, Your Options Therapist and CPTI Master Strategist 

 

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



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DISCLAIMER
**********

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


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The Option Investor Newsletter                   Sunday 12-19-2004
Sunday                                                      5 of 5

In Section Five:

Covered Calls:  CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS
Spreads and Straddles:  Pfizer Fouls Year-End Rally!
Premium-Selling Plays: Naked Puts and Calls


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

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

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

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

_________________________________________________________________

Editors Note: This week's positions range from very conservative
to speculative in a variety of market sectors and industry groups.
However, all of the sold calls "in-the-money," thus providing a
reasonable (statistical) potential for profit even with a small,
post-holiday decline in equity values.
   
Sequenced by Target Yield (monthly basis/no margin)

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

FXEN   10.32  JAN 10.00  IWQ-AB 1.35 1319  8.97  34  10.3%
CTIC    8.20  JAN  7.50  CUC-AU 1.25 3427  6.95  34   7.1%
STSI    6.05  JAN  5.00  QSE-AA 1.35  404  4.70  34   5.7%
TWTI    8.35  JAN  7.50  QIT-AU 1.25    6  7.10  34   5.0%
BRCD    7.99  JAN  7.50  BQB-AU 0.85 34K+  7.14  34   4.5%
VISG    8.05  JAN  7.50  TUN-AU 0.90 1657  7.15  34   4.4%
RMBS   25.26  JAN 20.00  BNQ-AD 6.10 15K+ 19.16  34   3.9%
PLXT   10.90  JAN 10.00  PIU-AB 1.30  324  9.60  34   3.7%
DSCO    9.02  JAN  7.50  AQW-AU 1.80  132  7.22  34   3.5%
HEPH   11.44  JAN 10.00  QGQ-AB 1.80  257  9.64  34   3.3%
NFLD   20.18  JAN 17.50  DHQ-AW 3.30  471 16.88  34   3.3%
IMAX    8.50  JAN  7.50  IMQ-AU 1.25  462  7.25  34   3.1%
SIFY    6.14  JAN  5.00  SUY-AA 1.30   20  4.84  34   3.0%
ZEUS   25.18  JAN 22.50  SBQ-AX 3.40  426 21.78  34   3.0%
AMTD   14.01  JAN 12.50  TQA-AV 1.90 6687 12.11  34   2.9%
CRIS    5.65  JAN  5.00  UUX-AA 0.80  235  4.85  34   2.8%
DUSA   13.73  JAN 12.50  FDU-AV 1.60 1037 12.13  34   2.7%



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


Pfizer Fouls Year-End Rally!
By Ray Cummins

Stock retreated sharply Friday amid a slump in pharmaceutical
shares after Pfizer (NYSE:PFE) announced that its widely-used
arthritis painkiller Celebrex can increase heart problems.

The drug sector was hit hard by the news, which came only two
months after Merck's announcement that it would pull Vioxx from
the market due to increased risk of heart attack and stroke.
Now investors are concerned that undiscovered health problems
might adversely affect leading drug products, and the share
values of the companies that manufacture them, in the future.
The Dow Jones Industrial Average fell 55 points to 10,649 with
retail, energy and financial components also drifting lower.
The NASDAQ Composite index slid 10 points to 2,135 amid renewed
selling pressure in the computer hardware segment.  Standard &
Poor's 500 index ended down 9 points at 1,194 with homebuilding,
casino, and airline shares among the notable losers.  Big board
volume was 1.8 billion, while the NASDAQ crossed 2.5 billion
shares on a quadruple-witching options expiration.  Decliners
outpaced advancers by a small margin on both exchanges.  Bond
prices were slightly lower in a mildly active session.  The
10-year note fell 5/32, with its yield climbing to 4.20%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 12/17/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

WLP   113.90 115.28  DEC 100.0 105.0  0.50  104.50   0.50  Closed
CECO   35.00  36.51  DEC  25.0  30.0  0.60   29.40   0.60  Closed
EYET   45.64  45.50  DEC  30.0  35.0  0.45   34.55   0.45  Closed
XMSR   36.13  40.20  DEC  30.0  32.5  0.25   32.25   0.25  Closed
OIH    84.45  84.80  DEC  75.0  80.0  0.60   79.40   0.60  Closed
DWA    39.58  36.45  DEC  30.0  35.0  0.50   34.50   0.50  Closed
DRIV   38.31  39.62  DEC  30.0  35.0  0.35   34.65   0.35  Closed
MRVL   31.53  35.38  JAN  25.0  27.5  0.40   27.10   0.40   Open
CFC    33.21  36.05  JAN  27.5  30.0  0.30   29.70   0.30   Open
EBAY  112.20 114.75  JAN  95.0 100.0  0.60   99.40   0.60   Open
LEND   46.85  48.09  JAN  35.0  40.0  0.50   39.50   0.50   Open
LEN    50.11  54.88  JAN  42.5  45.0  0.30   44.70   0.30   Open
PHM    59.65  63.67  JAN  50.0  55.0  0.75   54.25   0.75   Open
MRVL   34.89  35.38  JAN  27.5  30.0  0.30   29.70   0.30   Open
VRTS   27.38  27.75  JAN  22.5  25.0  0.45   24.55   0.45   Open

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

The losing position in Vimplecom (NYSE:VIP), as well as profitable
plays in Piper Jaffray Companies (NYSE:PJC), Cymer (NASDAQ:CYMI),
Nabors Industries (NYSE:NBR) and Nucor (NYSE:NUE), has previously
been closed to limit potential losses.


CALL-CREDIT SPREADS

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

SEPR   45.44  56.97   DEC  55.0  50.0  1.00   51.00 (4.00) Closed
TTWO   33.24  32.46   DEC  40.0  37.5  0.30   37.80  0.30  Closed
GM     39.97  38.62   DEC  45.0  42.5  0.30   42.80  0.30  Closed
BSX    34.70  35.47   DEC  40.0  37.5  0.30   37.80  0.30  Closed
MXIM   42.50  41.48   DEC  50.0  45.0  0.70   45.70  0.70  Closed
INSP   49.17  47.83   DEC  65.0  60.0  0.40   60.40  0.40  Closed
AMZN   38.55  40.01   DEC  45.0  42.5  0.30   42.80  0.30  Closed
OSIP   58.16  68.38   DEC  70.0  65.0  0.55   65.55 (2.83) Closed
LXK    84.82  86.81   DEC  95.0  90.0  0.45   90.45  0.45  Closed
MBT   135.99 130.90   DEC 155.0 150.0  0.55   50.55  0.55  Closed
TASR   23.50  27.22   DEC  28.8  27.5  0.15   27.65  0.15  Closed
SINA   37.93  31.75   JAN  50.0  45.0  0.60   45.60  0.60   Open
LLY    53.33  56.02   JAN  65.0  60.0  0.65   60.65  0.65   Open
NVLS   26.94  27.27   JAN  32.5  30.0  0.35   30.35  0.35   Open
CCU    33.15  33.72   JAN  40.0  35.0  0.50   35.50  0.50   Open
UVN    29.06  30.23   JAN  35.0  30.0  0.80   30.80  0.57   Open
ADI    36.42  36.59   JAN  45.0  40.0  0.50   40.50  0.50   Open
KOSP   35.13  37.44   JAN  45.0  40.0  0.55   40.55  0.55   Open
TTWO   33.45  32.46   JAN  40.0  37.5  0.30   37.80  0.30   Open
MSTR   56.22  59.70   JAN  70.0  65.0  0.65   65.65  0.65   Open

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

The bearish position in Sepracor (NASDAQ:SEPR) should have been
exited earlier in the week for a smaller-than-published loss.
Electronic Arts (NASDAQ:ERTS) and Biogen-Idec (NASDAQ:BIIB),
which expired profitable, have previously been closed to limit
losses.  Univision (NYSE:UVN) is a candidate for early exit on
any move above $30.75.


DEBIT STRADDLES

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

DE      69.26  73.02   DEC   70.0   70.0    4.50   4.25    Closed
TK      54.45  45.05   DEC   55.0   55.0    3.75  10.25    Closed
BTU     79.17  81.43   DEC   80.0   80.0    5.50   6.95    Closed
GS     109.40 103.75   DEC  110.0  110.0    3.10   6.75    Closed

Speculative positions in Goldman Sachs (NYSE:GS), Teekay Shipping
(NYSE:TK) and Peabody Energy (NYSE:BTU) offered favorable gains
during the December options-expiration period.

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

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

ACL - Alcon  $80.60  *** CFSB Favorite! ***

Alcon (NYSE:ACL) develop, makes and markets pharmaceuticals,
surgical equipment and devices and consumer eye care products
that treat eye diseases and disorders and promote the general
health and function of the human eye.  It has operations in
over 70 countries and its products are sold in more than 180
countries around the world.  The company conducts its global
business through two business segments, each of which markets
and sells products principally in three product categories of
the ophthalmic market: pharmaceutical (prescription drugs);
surgical equipment and devices (cataract, vitreoretinal and
refractive), and consumer eye care (contact lens disinfectants
and cleaning solutions, artificial tears and ocular vitamins).

ACL - Alcon  $80.60

PLAY (very conservative - bullish/credit spread):

BUY  PUT  JAN-70.00  ACL-MN  OI=115  ASK=$0.35
SELL PUT  JAN-75.00  ACL-MO  OI=522  BID=$0.75
INITIAL NET-CREDIT TARGET=$0.45-$0.50
POTENTIAL PROFIT(max)=9% B/E=$74.55


__________________________________________________________________

SSYS - Stratasys  $32.31  *** New Contract! ***

Stratasys (NASDAQ:SSYS) develops, manufactures, markets and
services a family of three-dimensional printers and other
rapid prototyping systems that enable engineers and designers
to create physical models, tooling and prototypes out of
plastic and other materials, directly from a computer-aided
design workstation.  The firm's computerized modeling systems
utilize its technology to make models and prototypes from a
designer's 3D CAD in a matter of hours.  Stratasys' product
offerings are Dimension, Prodigy Plus, FDM Titan and Vantage.

SSYS - Stratasys  $32.31

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-25.00  QQG-ME  OI=100  ASK=$0.25
SELL PUT  JAN-30.00  QQG-MF  OI=60   BID=$0.80
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$29.40



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

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.

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

MERQ - Mercury Interactive  $43.87  *** Consolidation Underway ***

Mercury Interactive (NASDAQ:MERQ) is a provider of integrated
performance management solutions that enable businesses to test
and monitor their Web-based applications.  Its software products
and hosted services help Global 2004 companies enhance the user
experience by improving performance, availability, reliability
and scalability in their Web-based applications.  Its many hosted
services provide its customers with a cost-effective solution that
quickly meets business needs without dedicating significant time
and internal resources.  Its integrated performance management
solutions enable customers to more quickly identify and correct
problems before users experience them.  The company also provides
outsourced load testing and Web performance monitoring services
that complement its software products.

MERQ - Mercury Interactive  $43.87

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JAN-50.00  RQB-AJ  OI=2586  ASK=$0.35
SELL CALL  JAN-47.50  RQB-AR  OI=5679  BID=$0.65
INITIAL NET-CREDIT TARGET=$0.40-$0.45
POTENTIAL PROFIT(max)=19% B/E=$47.90


__________________________________________________________________

STRA - Strayer Education  $109.56  *** In a Trading Range? ***

Strayer Education (NASDAQ:STRA) is a for-profit, post-secondary
education services corporation.  The company offers a variety of
academic programs through Strayer University, both in traditional
classroom courses and through Strayer University Online.  Founded
in 1892, Strayer University is an institution of higher learning
offering undergraduate and graduate degree programs in business
administration, accounting, information technology, education and
public administration at campuses in the Eastern United States.
Strayer University is accredited by the Middle States Commission
on Higher Education, an accrediting agency recognized by the U.S.
Secretary of Education.  The company also offers classes via the
Internet through Strayer University Online.

STRA - Strayer Education  $109.56

PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-125.00  SDQ-AE  OI=151  ASK=$0.55
SELL CALL  JAN-120.00  SDQ-AD  OI=50   BID=$1.00
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$120.50



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

BZH - Beazer Homes  $144.85  *** A Reader's Play! ***

Beazer Homes USA (NYSE:BZH) designs, builds and sells single
family homes in the following states: Florida, Georgia, North
Carolina, South Carolina, Tennessee, Arizona, Nevada, Texas,
California, Colorado, Maryland, New Jersey/Pennsylvania and
Virginia.  Beezer designs most of its homes to appeal mainly
to entry-level and first time "move-up" homebuyers.  The firm's
objective is to provide its customers with homes that have
quality and value while seeking to maximize its return on
invested capital.

BZH - Beazer Homes  $144.85

PLAY (very speculative - neutral/debit straddle):

BUY CALL  JAN-145.00  BZH-AI  OI=425  ASK=$6.30
BUY PUT   JAN-145.00  BZH-MI  OI=193  ASK=$6.20
INITIAL NET-DEBIT TARGET=$12.00-$12.25
INITIAL TARGET PROFIT=$4.25-$6.50




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

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

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 12/17/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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   23.21    0.45   5.52%   2.64%
VTIV     DEC    17.50   17.05   20.34    0.45   5.46%   2.64%
IFLO     DEC    15.00   14.55   18.52    0.45   6.89%   3.09%
ADLR     DEC    12.50   12.10   15.75    0.40   6.88%   3.31%
UTHR     DEC    25.00   24.05   44.74    0.95   9.03%   3.95%
RIGL     DEC    20.00   19.70   24.35    0.30   4.02%   1.52%
NFLD     DEC    15.00   14.45   20.18    0.55   8.24%   3.81%
RMBS     DEC    17.50   16.75   25.26    0.75   9.88%   4.48%
AGIX     DEC    20.00   19.60   24.30    0.40   4.83%   2.04%
ATI      DEC    20.00   19.35   22.09    0.65   7.37%   3.36%
MRVL     DEC    25.00   24.60   35.38    0.40   5.17%   1.63%
ELN      DEC    22.50   22.15   26.35    0.35   4.93%   1.58%
TSRA     DEC    25.00   24.35   37.24    0.65   7.97%   2.67%
VTS      DEC    20.00   19.65   20.78    0.35   4.84%   1.78%
ERICY    DEC    30.00   29.60   32.00    0.40   3.44%   1.35%
RMBS     DEC    17.50   16.95   25.26    0.55  10.12%   3.24%
TSRA     DEC    30.00   29.65   37.24    0.35   4.12%   1.18%
NCRX     DEC    25.00   24.25   29.88    0.75   8.18%   3.09%
IFLO     DEC    17.50   17.00   18.52    0.50   7.38%   2.94%
NTGR     DEC    15.00   14.60   17.75    0.40   6.54%   2.74%
ENZ      DEC    17.50   17.05   18.73    0.45   6.32%   2.64%
CECO     DEC    30.00   29.30   36.51    0.70   7.67%   2.39%
CRA      DEC    12.50   12.20   13.53    0.30   6.11%   2.46%
DDS      DEC    22.50   22.25   26.02    0.25   4.06%   1.12%
SRNA     DEC    20.00   19.60   21.44    0.40   5.87%   2.04%
RAE      DEC     7.50    7.25    7.90    0.25  10.80%   3.45%
FXEN     DEC     7.50    7.05   10.32    0.45  17.57%   6.38%
NVDA     DEC    17.50   17.10   23.06    0.40   6.91%   2.34%
IDCC     DEC    17.50   16.85   20.69    0.65  11.05%   3.86%
MCIP     DEC    17.50   17.05   20.14    0.45   7.70%   2.64%
PLMO     DEC    30.00   29.60   33.11    0.40   5.49%   1.35%
TINY     DEC    12.50   12.15   14.47    0.35   9.97%   2.88%
IDCC     DEC    17.50   17.20   20.69    0.30   6.57%   1.74%
ADLR     DEC    12.50   12.25   15.75    0.25   6.86%   2.04%
NANO     DEC    15.00   14.70   15.09    0.30   6.80%   2.04%
ISRG     DEC    30.00   29.50   36.11    0.50   6.08%   1.69%
DHB      DEC    17.50   17.20   18.07    0.30   6.59%   1.74%
AMED     DEC    30.00   29.35   32.20    0.65   7.53%   2.21%
HNT      DEC    25.00   24.60   28.75    0.40   5.37%   1.63%
UTHR     DEC    40.00   39.60   44.74    0.40   4.64%   1.01%
ELAB     DEC    22.50   22.30   27.11    0.20   4.07%   0.90%
CTMI     DEC    12.50   12.25   14.93    0.25   8.20%   2.04%
DUSA     DEC    12.50   12.25   13.73    0.25   8.26%   2.04%
MCIP     DEC    17.50   17.25   20.14    0.25   6.11%   1.45%
RMBS     DEC    20.00   19.65   25.26    0.35   7.55%   1.78%
ZEUS     DEC    20.00   19.70   25.18    0.30   6.48%   1.52%
VISG     JAN     7.50    7.10    8.05    0.40   7.51%   5.63%
GIVN     DEC    30.00   29.65   36.00    0.35   5.71%   1.18%
RHAT     JAN    12.50   12.05   15.54    0.45   6.06%   3.73%
MSO      DEC    20.00   19.60   27.60    0.40  10.85%   2.04%
NKTR     DEC    17.50   17.15   18.96    0.35   8.90%   2.04%
NANO     DEC    15.00   14.75   15.09    0.25   7.69%   1.69%
ELAB     DEC    25.00   24.65   27.11    0.35   6.45%   1.42%
SHOP     DEC    25.00   24.70   25.07    0.30   7.32%   1.21%
NCRX     JAN    25.00   24.40   29.88    0.60   4.78%   2.46%
NTGR     JAN    15.00   14.65   17.75    0.35   4.58%   2.39%
RMBS     JAN    17.50   17.10   25.26    0.40   4.87%   2.34%
TLCV     JAN    10.00    9.65   10.31    0.35   6.91%   3.63%
WITS     JAN    15.00   14.55   16.14    0.45   5.38%   3.09%
IDCC     JAN    17.50   16.95   20.69    0.55   6.62%   3.24%
NVTL     JAN    17.50   17.20   21.48    0.30   3.95%   1.74%
MSO      JAN    17.50   17.05   27.60    0.45   5.62%   2.64%
MSO      JAN    20.00   19.60   27.60    0.40   5.28%   2.04%
ACF      JAN    22.50   21.65   23.09    0.85   6.54%   3.93%
USNA     JAN    30.00   29.00   32.74    1.00   6.12%   3.45%
DHB      JAN    15.00   14.35   18.07    0.65  10.38%   4.53%
MOGN     JAN    25.00   24.05   27.91    0.95   7.47%   3.95%
GTOP     JAN    12.50   12.05   17.10    0.45   8.45%   3.73%
CMVT     JAN    22.50   22.05   24.36    0.45   3.93%   2.04%
RMBS     JAN    20.00   19.35   25.26    0.65   8.12%   3.36%
IDCC     JAN    17.50   17.05   20.69    0.45   6.77%   2.64%
NFLD     JAN    17.50   17.05   20.18    0.45   6.15%   2.64%
ADLR     JAN    12.50   11.85   15.75    0.65  13.38%   5.49%
NCRX     JAN    25.00   24.55   29.88    0.45   4.60%   1.83%
RMBS     JAN    20.00   19.45   25.26    0.55   7.18%   2.83%
NKTR     JAN    17.50   17.05   18.96    0.45   5.64%   2.66%
ALXN     JAN    20.00   19.65   24.90    0.35   4.51%   1.78%
AMLN     JAN    20.00   19.65   22.73    0.35   4.07%   1.78%
  
Positions in Seachange International (NASDAQ:SEAC), which is
currently profitable, and Pan American Silver (NASDAQ:PAAS),
have previously been closed to limit potential losses.  TLC
Vision (NASDAQ:TLCV), Witness Sytems (NASDAQ:WITS) and Nektar
Therapeutics (NASDAQ:NKTR) are on the "watch" list.
   

NAKED CALLS

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

FOSL     DEC    30.00   30.50   24.97    0.50   4.16%   1.64%
SLAB     DEC    35.00   35.55   34.28    0.55   4.84%   1.55%
DIGE     DEC    25.00   25.30   26.31   (1.01)  0.00%   0.00%
MDCO     DEC    30.00   30.35   28.78    0.35   5.01%   1.15%
BOBJ     DEC    25.00   25.40   24.74    0.40   5.96%   1.57%
ENZN     DEC    20.00   20.55   13.65    0.55  14.84%   2.68%
TACT     DEC    25.00   25.40   23.09    0.40   8.50%   1.57%
AMLN     DEC    25.00   25.25   22.73    0.25   5.35%   0.99%
ATMI     DEC    25.00   25.40   23.85    0.40   5.74%   1.57%
CELG     DEC    30.00   30.45   27.01    0.45   6.31%   1.48%
JBLU     DEC    25.00   25.30   23.14    0.30   4.99%   1.19%
AGIX     DEC    30.00   30.35   24.30    0.35   8.24%   1.15%
JUPM     DEC    20.00   20.20   19.77    0.20   6.98%   0.99%
CYBX     DEC    22.50   22.85   20.82    0.35  11.25%   1.53%
PLAB     DEC    20.00   20.30   16.79    0.30   8.40%   1.48%
ARO      DEC    30.00   30.55   29.75    0.55   8.89%   1.80%
KYPH     DEC    25.00   25.50   24.62    0.50   9.20%   1.96%
MAY      DEC    30.00   30.30   27.79    0.30   5.24%   0.99%
TACT     DEC    25.00   25.30   23.09    0.30   10.43%  1.19%
OSIP     DEC    55.00   55.65   68.38  (12.73)  0.00%   0.00%
XLNX     JAN    32.50   33.00   29.33    0.50   3.96%   1.52%
SCSS     JAN    17.50   18.05   16.85    0.55   7.68%   3.05%
PLAY     JAN    35.00   36.05   25.16    1.05  12.22%   2.91%
AFCO     JAN    22.50   22.80   21.21    0.30   3.92%   1.32%
SYMC     JAN    32.50   33.00   25.37    0.50   6.06%   1.52%
PDII     JAN    30.00   30.30   22.80    0.30   4.64%   0.99%

Positions in American Pharmaceutical Partners (NASDAQ:APPX),
Sonic Solutions (NASDAQ:SNIC), Monster Worldwide (NASDAQ:MNST),
and Kyphon (NASDAQ:KYPH), which would have expired profitably,
have previously been closed to limit potential losses.

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

NFLD   20.18  JAN 17.50  DHQ-MW 0.60  396 16.90  34   3.2%   9.0%
DUSA   13.73  JAN 12.50  FDU-MV 0.45  270 12.05  34   3.3%   8.5%
PMTI   22.38  JAN 20.00  HKQ-MD 0.60   15 19.40  34   2.8%   7.5%
NCRX   29.88  JAN 25.00  QNY-ME 0.50  321 24.50  34   1.8%   5.9%
BOBJ   24.74  JAN 22.50  BBQ-MX 0.50  794 22.00  34   2.0%   5.5%
ARTC   32.39  JAN 30.00  ARU-MF 0.60   20 29.40  34   1.8%   4.8%
SONO   33.98  JAN 30.00  UZS-MF 0.50   20 29.50  34   1.5%   4.4%
CRK    21.95  JAN 20.00  CRK-MD 0.30    0 19.70  34   1.4%   3.8%

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.
_________________________________________________________________

NFLD - Northfield Labs  $20.18 *** Rally Mode! ***

Northfield Laboratories (NASDAQ:NFLD) is engaged in the production
of a safe and effective alternative to transfused blood for use in
the treatment of acute blood loss.  Its PolyHeme blood substitute
product is a solution of chemically modified hemoglobin derived
from human blood.  PolyHeme simultaneously restores lost blood 
volume and hemoglobin levels and is designed for rapid, massive 
infusion.  PolyHeme requires no cross-matching and is therefore
immediately available and compatible with all blood types.  It
has an extended shelf life compared to blood.  Northfield Labs
purchases indated and outdated blood from The American Red Cross 
and Blood Centers of America for use as the starting material for
PolyHeme.  It uses a proprietary process of separation, filtration
and chemical modification to produce PolyHeme.

NFLD - Northfield Labs  $20.18

JAN 17.50 DHQ-MW LB=0.60 OI=396 CB=16.90 DE=34 TY=3.2% MY=9.0%


__________________________________________________________________

DUSA - DUSA Pharmaceuticals  $13.73  *** Acquisition Target? ***

DUSA Pharmaceuticals (NASDAQ:DUSA) is a pharmaceutical company
developing drugs in combination with light devices to treat or
detect conditions in processes known as photodynamic therapy or
photodetection.  The firm is engaged primarily in the research,
development and marketing of its first drug, Levulan brand of
aminolevulinic acid HCl (ALA), for use in a range of medical
conditions.  When the company uses Levulan and follows it with
exposure to light to treat a medical condition, it is known as
Levulan photodynamic therapy (Levulan PDT).

DUSA - DUSA Pharmaceuticals  $13.73

JAN 12.50 FDU-MV LB=0.45 OI=270 CB=12.05 DE=34 TY=3.3% MY=8.5%


__________________________________________________________________

PMTI - Palomar Medical  $22.38  *** Entry Point? ***

Palomar Medical Technologies (NASDAQ:PMTI) is a researcher and
developer of light-based systems for hair removal and other
cosmetic procedures.  The company researches, develops, makes,
markets, sells and services light-based products that perform
procedures addressing medical and cosmetic concerns.  Palomar
offers a range of products based on its technologies including
hair removal; non-invasive treatment of facial and leg veins and
other benign vascular lesions, such as rosacea, spider veins,
port wine stains and hemangiomas; removal of benign pigmented
lesions, such as age and sun spots; tattoo removal; treatment
for acne; pseudofolliculitis barbae, and other skin treatments.

PMTI - Palomar Medical  $22.38

JAN 20.00 HKQ-MD LB=0.60 OI=15 CB=19.40 DE=34 TY=2.8% MY=7.5%


__________________________________________________________________

NCRX - NeighborCare  $29.88  *** Next Leg Up? ***

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

NCRX - NeighborCare  $29.88

JAN 25.00 QNY-ME LB=0.50 OI=321 CB=24.50 DE=34 TY=1.8% MY=5.9%


__________________________________________________________________

BOBJ - Business Objects  $24.74  *** Bullish Sector! ***

Business Objects S.A. (NASDAQ:BOBJ) is a worldwide provider of
business intelligence solutions.  The company develops, markets
and distributes software that enables organizations to track,
understand and manage enterprise performance.  The company's
products include data integration, query, reporting, online
analytical processing, information broadcasting, company alerts,
analytical application frameworks and pre-packaged analytic
applications.  Its products also include administration tools
that enable information technology professionals to set up and
deploy its products across an enterprise.

BOBJ - Business Objects  $24.74

JAN 22.50 BBQ-MX LB=0.50 OI=794 CB=22.00 DE=34 TY=2.0% MY=5.5%


__________________________________________________________________

ARTC - ArthroCare  $32.39  *** Another 2004 High! ***

ArthroCare (NASDAQ:ARTC) is a medical device firm that develops,
manufactures and sells products based on its patented Coblation
technology, which offers a variety of options for physicians
performing soft-tissue surgery.  The company's products allow
surgeons to operate with a high-level of precision and accuracy,
limiting damage to surrounding tissue and thereby potentially
reducing pain and speeding recovery for the patient.  ArthroCare
applies its Coblation technology to soft-tissue surgical markets:
arthroscopy, spinal surgery, neurosurgery, cosmetic surgery, ear,
nose and throat surgery, gynecology, urology, general surgery and
various cardiac applications.

ARTC - ArthroCare  $32.39

JAN 30.00 ARU-MF LB=0.60 OI=20 CB=29.40 DE=34 TY=1.8% MY=4.8%


__________________________________________________________________

SONO - SonoSite  $33.98  *** New 2004 High! ***

SonoSite (NASDAQ:SONO) is global developer of high-performance,
hand-carried ultrasound imaging systems for use in a variety
of clinical applications and settings.  The company's products
include the SonoSite TITAN system, for general imaging and
cardiology applications, the SonoSite 180PLUS system, for
general ultrasound imaging, and the SonoHeart ELITE, configured
for cardiovascular applications.  The iLook 25 imaging tool is
designed to provide visual guidance for physicians and nurses
while performing vascular access procedures and the iLook 15
imaging tool is designed to provide visual imaging of the chest
and abdomen for physicians and nurses while performing other
procedures and examinations.

SONO - SonoSite  $33.98

JAN 30.00 UZS-MF LB=0.50 OI=20 CB=29.50 DE=34 TY=1.5% MY=4.4%


__________________________________________________________________

CRK - Comstock Resources  $21.95  *** Oil Sector Hedge ***

Comstock Resources (NYSE:CRK) is an independent energy company
engaged in the acquisition and development of oil and natural
gas properties.  Comstock's oil and natural gas operations are
concentrated in the Gulf of Mexico, east Texas/north Louisiana,
southeast Texas and south Texas regions.  In addition, Comstock
has properties in the Illinois Basin region in Kentucky and the
Mid-Continent regions located in the Texas panhandle, Oklahoma
and Kansas.

CRK - Comstock Resources  $21.95
  
JAN 20.00 CRK-MD LB=0.30 OI=0 CB=19.70 DE=34 TY=1.4% MY=3.8% 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.

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

SINA - Sina Corporation  $31.75  *** Pure Premium-Selling! ***

Sina (NASDAQ:SINA) is an online media company and value-added
information services provider in China and for its communities
worldwide.  The company provides an array of services to its
users such as region-focused online portals, mobile value-added
services, search and directory, interest-based and community
building channels, free and premium e-mail, online games,
virtual Internet service provider, classified listings, fee
based services, e-commerce and enterprise e-solutions.  Sina
provides its services through SINA.com, SINA Mobile, SINA
Online, SINA.net and SINA E-Commerce.

SINA - Sina Corporation  $31.75

PLAY (sell naked call):

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

SELL CALL  JAN 40    NOQ-AH     29    0.40  40.40   5.3%   1.0%


_________________________________________________________________

TELK - Telik  $19.35  *** Drug Trial Woes? ***

Telik (NASDAQ:TELK) is a biopharmaceutical firm that discovers,
develops and commercializes small molecule drugs for serious
diseases.  The firm discovered all of its product candidates
using its proprietary technology, Target-Related Affinity
Profiling.  The technology exploits a fundamental property of
all drugs, which is their selective interactions with proteins.
By developing a profile of how small molecule chemicals interact
with a reference panel of proteins, the company may identify
compounds active against disease-related protein targets much
faster than by alternative technologies.  Telik concentrates
its efforts on three therapeutic areas: cancer, diabetes and
inflammatory diseases.

TELK - Telik  $19.35

PLAY (sell naked call):

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

SELL CALL  JAN 22.5  ZUL-AX    446    0.30  22.80   5.5%   1.3%


_________________________________________________________________

PLMO - palmOne  $33.11  *** Warning = Sell-Off! ***

palmOne (NASDAQ:PLMO) develops, builds and sells Palm-branded,
hand-held devices, accessories and the Palm operating system
(Palm OS).  The company was historically organized into two
operating segments: the Solutions Group and PalmSource.  The
Solutions Group develops and markets hand-held devices and
accessories to provide the user with a simple, elegant and
useful productivity tool.  PalmSource developed and licensed
the Palm OS and related software, which is referred to as the
Palm platform.  The Palm platform is the foundation for Palm
devices, as well as for devices manufactured by third-party
licensees.

PLMO - palmOne  $33.11

PLAY (sell naked call):

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

SELL CALL  JAN 40    UPY-AH    3633   0.60  40.60   7.4%   1.5%



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

SEE DISCLAIMER - SECTION 1

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




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