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Daily Newsletter, Wednesday, 12/22/2004

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The Option Investor Newsletter                Wednesday 12-22-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Higher Highs 
Futures Wrap: See Note
Index Trader Wrap: What's under the tree?  


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
      12-22-2004           High     Low     Volume   Adv/Dcl
DJIA    10815.89 + 56.46 10822.68 10739.19 1.75 bln 1694/1129
NASDAQ   2157.03 +  6.12  2163.48  2145.18 1.80 bln 1676/1376
S&P 100   575.34 +  1.98   576.04   571.85   Totals 3370/2505
S&P 500  1209.57 +  4.12  1211.42  1203.81
SOX       424.05 -  0.35   427.13   422.39
RUS 2000  648.46 +  2.26   649.75   645.68
DJ TRANS 3790.62 -  1.47  3803.75  3786.24
VIX        11.45 -  0.10    11.71    11.37
VXO (VIX-O)11.81 +  0.29    12.18    11.58
VXN        17.15 +  0.21    17.38    16.44
Total Volume 3,556M
Total UpVol  2,191M
Total DnVol  1,306M
Total Adv  3370
Total Dcl  2505
52wk Highs  390 
52wk Lows    19
TRIN       0.82
PUT/CALL   0.91
******************************************************************

	Higher Highs
Jonathan Levinson

The Dow and SPX hit new highs for the year as the Nasdaq trailed 
behind.  An unexpected rise in oil inventories saw crude oil drop 
sharply, a move that was credited by some reporters for the 
higher high in the Dow and SPX.

Breadth was positive, with advancing volume nearly doubling 
declining volume on the NYSE and the Nasdaq.  Volatility remains 
very low, with the VXO going out at 11.81 and the QQV dropping 
another 1.46% to close at 15.48


Daily Dow Chart


The Dow blasted higher in a move that kicked off at 10AM, 
reaching a 42 month high at 10822.68 before 11AM and held for a 
minor correction to 10786 before resuming its upward march to 
close the day at 10815.89.  Support below is at 10780, 10740, 
10640 and 10575.  While the daily oscillators are vulnerable to a 
bearish divergent downphase, that will only occur if the Dow 
reverses hard from here.  The more likely scenario would see a 
minor pullback to one of the supports I've drawn as the bull flag 
breakout in the Dow continues to play out.  A move below 10430-
10440 support would invalidate that bullish scenario.

Daily S&P 500 Chart


The SPX reached a new year high at 1211.42 on the 10AM runup, and 
the pullback bounced from a double intraday bottom at 1207 to 
stall out at 1210, closing the day at 1209.57.  Support from 
1205-07 is followed by 1189-92 and 1172.  As with the Dow, the 
daily cycle oscillators suggest caution, but only the bears can 
drill the price below the 1172 level from here.


	Daily Nasdaq Chart


The Nasdaq missed the party, touching a high of 2163.48 on the 
morning pop, below its Dec. 15th high of 2171.27.  The afternoon 
bounce was weaker as well, failing below 2158 to close at 2157. 
The bearish divergence is steeper for the Nasdaq as well, but the 
question remains as to whether it's a bearish divergence or a 
corrective bullish consolidation.  Provided that 2070 doesn't get 
violated on a closing basis, it should prove to be the latter.


	Weekly TNX Chart



The Mortgage Bankers Association reported that the Mortgage Index 
was flat at 689.3 for the week ended December 17, following the 
previous week's 1% decline.  The Refinancing Index rose 5.7% to 
1958.2 following the previous week's 2% decline, while the 
Purchase Index declined 3.6% to 471.1 following the prior week's 
0.4% decline.  

The sideways drift of the ten year note yield (TNX) in recent 
weeks has the weekly cycle upphase faltering.  Provided that the 
4.0%-4.02% rising wedge support line doesn't fail, the upphase 
should begin to get traction on a break above 4.26% resistance, 
above which 4.4% is the next significant confluence.  For the 
day, TNX rose 3.3 bps to close at 4.201%.  Interested readers can 
follow the daily action of the TNX in my nightly Futures Wraps.


Weekly chart of Crude oil


The Energy Department reported today that crude oil inventories 
rose by 2.1M barrels, catching analysts off guard on their 
expectation of an 800K barrel decline.  Gasoline inventories rose 
1.8M barrels against expectations for inventories to remain 
unchanged.  Distillate supplies rose 600K barrels vs. 
expectations for a 1.13M barrel decline.  The American Petroleum 
Institute confirmed the increases in supply, reporting increases 
of 2.9M, 4.2M and 315K barrels for crude oil, gasoline and 
distillate supplies respectively.

Crude oil futures got slammed on the news, dropping from an 
intraday high of 45.95 to a low of 43.65 before bouncing to a 
range in the low 44's.  On the one-year daily chart, the move 
kicked off what might prove to be the right shoulder of a head 
and shoulders top with a horizontal neckline at 40 or a hunchback 
neckline at 41.  Using the 40 neckline, the implied target would 
be as low as 25. While I would be personally surprised to see 
levels even approaching 25, that's the implied target of the 
formation.  A move above 50 would invalidate the pattern, but 46 
is a confluence that has acted as support and resistance this 
year, and the failure 5 cents below it fit well with a  
relatively symmetrical h&s pattern.  For the day, crude oil 
closed lower by 3.17% at 44.30.


The big news of the day landed overnight as FNM announced the 
resignation of CEO Franklin Raines and CFO J.T. Howard, as well 
as a number of smaller management changes, following last week's 
announcement that the SEC would require to amend prior accounting 
"errors".  Those errors allegedly resulted in the overstatement 
of $9B worth of past profit.  FNM owns 25% of current US 
mortgages and is the countries largest GSE.  It's currently 
defendant to a number of class action suits and under criminal 
investigation by the Justice Department, investigation by the SEC 
and an ongoing probe by its regulator, the Office of Federal 
Housing Enterprise Oversight (OFHEO).  The company also announced 
the dismissal of FPMG as its auditors.

Raines was replaced by interim CEO Daniel Mudd and Howard was 
replaced by Robert Levin.

The Washington Post reported that the OFHEO alleges that FNM 
"systematically manipulated accounting estimates, ignored 
accounting requirements it had lobbied unsuccessfully against and 
operated with weak internal controls that helped obscure the 
other problems."  The OFHEO has been aggressive in its call for 
Raines' removal, blaming him for promoting a corporate culture 
that prioritized "stable" earnings rather than accurate 
disclosure.  The OFHEO stated last night that FNM is 
"significantly undercapitalized". To get an idea of the potential 
enormity of that statement, consider that FNM has outstanding 
debts to bondholders totally 957B and guarantees the principal 

and interest on 1.9T of mortgage-backed securities.  These are 
significant percentages of the total amount of US debt in 
circulation, a particularly worrisome situation as the media 
began to utter names like "Enron" and "Worldcom" in the same 
breath as "Fannie Mae".  Others however, note that FNM aptly 
qualifies for the phrase "too big to fail".

To make up for the 9B shortfall, FNM would likely have to sell 
part of its portfolio, issue new stock or reduce its dividend.  
Traders following this story will recall that FNM had previously 
been ordered by the OFHEO to increase its capital reserves by 5B 
no later than mid-2005.

What's important for traders to note is that while the situation 
continues to unfold, it is not a new one.  Bears have been 
discussing FNM and FRE for years, and for years the sky has not 
fallen.  Given the size and breadth of FNM's commitments, the 
issue is, if anything, as political as it is financial.  
Regardless of the financial outcome, the departure of Raines, a 
self-made man, a Rhodes scholar and former director of the Office 
of Management and Budget, raises all the old issues of corporate 
governance and ethics that continue to plague our markets.

FNM gapped higher at the open and traded a high of 73.81, bounced 
from a low of 71.61 and settled into a range around 72 to close 
+2.32% at 71.98.

On a lighter note, at 8:30, the Commerce Department announced the 
final Q3 GDP results, which came in at 4% vs. the 3.9% previously 
reported.  The 4% expansion of the economy for Q3 exceeded 
estimates for an unrevised 3.9% and Q2's 3.3% growth rate. The 
core personal consumption expenditure index (PCE), which nets out 
food and energy costs and is the Fed's preferred measure of 
inflation, rose at a .9% annual rate vs. the .7% expected, the 
smallest rise since last year's .9% increase, which was a 32 year 
low.  Corporate profits were low as well, however, with domestic 
profits decreasing by 59.3B in Q3 compared with an increase of 
28.3B in Q2.  That 59.3B decline was comprised of a 68.7B drop in 
profits of domestic financial corporations (which dropped 7.9B in 
Q2) and a 9.4B rise in profits of non-financial corporations 
(which had increased by 36.2B in Q2).  The personal savings rate 
declined to a low of .5% in Q3, down from 1.3% in Q2 and 1.0% in 
Q1.

In other news, Marketwatch reported that SNE has won injunctions 
against 2 Hong Kong companies allegedly engaged in producing 
counterfeit PlayStation products.  However, SNE declined to 
comment on a report in the Financial Times to the effect that 
investigations have revealed significant networks such 
counterfeiters- one story covered a container that left one such 
sub-contracting factory, entered a prison in Shenzen, China 
loaded with parts and remained for several days, long enough for 
the inmates to assemble them.  The issue of intellectual property 
between the West and East remains critical and unresolved.  SNE 
lost .66% to close at 37.80.

MSFT lost an appeal in the European Union to delay an order 
requiring it to immediately release a stripped-down version of 
Windows and amend its business practices.  The EU's Court of 
First Instance had upheld the European Commission's sanctions 
imposed on MSFT in March, and today's failed appeal leaves the 
original decision intact, along with the finding that MSFT had 
abused its monopoly.  MSFT's General Counsel Brad Smith said that 
the company would comply with the decision.  Consumer groups 
applauded the decision, and the fact that MSFT will now be 
required to share its protocols and offer a version of Windows 
that contains no multimedia apps, deemed to prejudice competitors 
such as RealNetworks.  The fine upheld totals 497M euro.  For the 
day. MSFT closed lower by .37% at 26.97.

For tomorrow, there's a full slate of economic reports as the
markets prepare for the long weekend.  At 8:30AM, we get 
November Durable Orders, Personal Income and Personal Spending, 
as well as initial claims for the week ended 12/18.  At 9:45 it's 
Michigan Sentiment for December and at 10AM, November New Home 
Sales.  Volume should continue to thin out ahead of the weekend, 
and with the headlines reporting the bullish new highs, we can 
expect retail traders to adopt that as the theme.  After today's 
dismal intraday downphases following Tuesday's strong rise, the 
environment should remain decidedly unfriendly for bears even in 
the shortest timeframes, at least above today's lows.  

As I watch the hail outside my window, I'd like to take the
opportunity to wish everyone a warm and happy, healthy and 
prosperous holiday season.


***************
FUTURES MARKETS
***************

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


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*****************
INDEX TRADER WRAP
*****************

What's under the tree?

A sharp retreat in oil prices, and a plethora of buy program 
premiums had the major indices posting gains, but once again 
traders wills sense some type of pressure building, and wondering 
just what is under the Christmas tree as several economic reports 
get unwrapped in tomorrow's session.

I went back through my notes, or should I say list, and checked 
it twice, and while I've got a bullish bias headed into the 
three-day weekend and remainder of the year, I'd sure want to see 
some green on my screen from the S&P Depository Receipts 
(AMEX:SPY) by 10:00 AM EST tomorrow morning.

Four more "major" economic reports will be released before 
tomorrow's opening bell, so I'm including some of today's e-mini 
S&P futures (es05h) intra-day observations with tonight's wrap, 
and then revisiting the November 18 and 19 dates, where not 
unlike today, we saw a lot of buy program premiums generated on 
11/18 with little intra-day price movement, followed by a rather 
bearish option expiration trade that following day, which was a 
November option expiration.

With today's decline in oil prices on unexpected inventory 
builds, and a lot of buy program premiums being generated with 
not a lot of bullish price action, one has to wonder just what 
Santa is about to deliver.  A bunch of goodies for a bull?  Or a 
lump of coal?

	Market Snapshot / Internals 

 

There was one buy program premium that did have some meaningful 
impact on today's trade, and that came right at 10:30-10:35 AM 
EST as today's EIA weekly statistics were released.  On the above 
market snapshot, I went through my $PREM chart on 5-minute 
intervals and counted the number of times a buy program premium 
would have been found from 09:00-10:00, then 10:00-11:00 and so 
on.  I've posted the numbers in GREEN just below the VIX.X.

One thought to today's active program premium alerts is that 
there was some end-of-year rebalancing by mutual funds as most 
managers get ready for an extended vacation, which may well run 
through the end of the year.  In last night's Index Trader wrap, 
I touched on the somewhat difficult year the Dow Industrials had, 
relative to the other major indices, and I thought the INDU 
traded tough or seemed a little more resilient, perhaps a sign 
that "dividend" stocks were a finding more buying that some of 
the perceived growth, or smaller dividend yielding tech stocks.

Let's take a quick look at a comparison chart of the e-mini S&P 
futures (es05h) and the S&P Depository Receipts (AMEX:SPY) on an 
intra-day basis, 5-minute intervals, with the QCharts WEEKLY 
Pivot levels turned on.

As I wrote tonight's Wrap, I then set up a test based on past 
observation.

e-mini an SPY Charts - 5-minute intervals

 

Equity bulls got what they were hoping for as February Crude Oil 
futures (cl05g) $44.24 -3.32% fell $1.52.  My observation is that 
this news really seemed to bring the buyers into the equity 
markets, and once the e-mini (upper) cleared its WEEKLY R1, it 
never came back below.  

In the lower SPY chart, I once again tabulate the number of buy 
program premiums, where we can see that after that 10:30-10:35 
action, these buy program premiums, which are really just 
arbitrage, or "out of whack" differences between futures and 
cash, that they had little impact the remainder of the session.  

One area of interest to me, was that volume "spike" in the e-mini 
(selling), where 5-minute later, another volume spike, but this 
time in the SPY, saw more of a bullish bias during that 5-
minutes.  Then a "buy program premium" was generated during the 
02:00-02:05 interval.  

What's going on here?  I've got to think there was obviously some 
type of "hedge trade" or "balancing" taking place.  Sell some 
leveraged futures, but come back and buy the basket of stocks.  
As supply gets eaten up (even on a short-term basis) then some 
follow through cash buying generates the premium.

What I appreciate more than anything, is reviewing other traders 
trades.  Look at tonight's futures monitor archive, count the 
bullish and bearish trades of those traders that are more active 
in the futures markets.  Did the bull side (long) win or did the 
bear side (short) win?

A lump of coal, or a box of bullish goodies?

Tomorrow morning, we'll get a pulse, but my thoughts are a box of 
bullish goodies as long as futures stay above WEEKLY S1, and 
should the S&P Depository Receipts bid green at any point early 
in the session, we could see a sprint to WEEKLY R2 by the close.

Here's what a negative trade would most likely look like.  Many 
of the observations, or comments I make in another e-min S&P 
(December) and SPY comparison, was taken from the intra-day 
commentary.  

I'm showing 10-minute intervals with these two comparisons, 
simply to gather some further proceeding and following session 
trade, which would surround the Thursday November 18 trade, where 
we also noted a lot of buy program premiums being generated, but 
very little PRICE action.

e-mini an SPY Charts - 10-minute intervals

 

In the lower SPY chart, I make note that on Wednesday, stocks 
traded strong as the SOX.X was breaking above its trending lower 
200-day SMA.  Hmmmm.... the SOX.X was dead flat-to-lower today 
(12/22/04).  Late that Wednesday, it seemed to me that stocks 
erased gains as OIL found a late bid.

Then on Thursday, I noted quite a few buy/sell program premiums 
and sensed "pressure building" in that evening's Index Trader 
Wrap.  

The following session was November options expiration, oil jumped 
3.85% to $48.00, and the S&P Depository Receipts never did turn 
green after the open.

A positive or a negative?  On November 18, the SOX.X closed at 
445.64.  Tonight they closed at 424.05, where this group
continues to be a negative drag on the QQQQ/NDX.  

If the QQQQ is going to make a run at its recent highs, the for 
the QQQQ to rock, it'll need some SOX.X.

	Pivot Matrix - 

 

In PINK I note today's close for the SOX.X at its MONTHLY Pivot.  
I also note today's close for the BIX.X above its WEEKLY R2.

The proverbial "rubber band is stretching at both end... 
something's got to snap."  If the SOX.X can pull itself away 
higher from the MONTHLY Pivot, then I'm thinking further snap 
higher.

In today's intra-day commentary, I noted that Citigroup (NYSE:C) 
$48.31 +2.37% had broken out of a huge base, and above 8-month 
resistance.  This action can sway a lot of market theorists to 
put more money to work in equities, as many investors (including 
myself) will put great weight as to what this stock's price 
action says about global economies and business.  The KBW Bank 
Index (BKX.X) 104.23 +0.58% closed at an all-time high, and it 
two begins to break above 8-month resistance.  Some "strength 
from the bottom" in a big money center bank?  You better believe 
it.

In this morning's Market Monitor, just minutes after the EIA 
weekly inventory figures were released, I profiled a bullish 
swing trade in the QQQQ at $39.74, stop $39.50, target $40.25.  I 
make some notes in the pivot matrix.  If the markets bid early 
tomorrow morning, I'm thinking I won't have to "worry" about QQQQ 
$39.50, but on some early morning weakness, I may well adjust my 
stop just fractionally lower to perhaps $39.45.  

Jonathan Levinson noted his thoughts regarding some resistance at 
$39.71 on his intra-day charts.  I also made some notes in the 
03:15 PM EST update and U.S. Market Watch as some type of intra-
day gravitation around $39.72.  

	U.S. Market Watch - 12/22/04 Close

 

In today's Market Monitor at 02:21:28 PM EST, I posted a little 
Yield curve observation, examining today's bond trade, and impact 
that it has had on the yield curve for the past 5-days 
(steepening) and 20-days (still flat).  I must say that I'm 
disappointed in bond traders.  They used to be AHEAD of a move 
for equities, but it would have to be my analysis, that bond 
traders wait for every piece of "news" (oil, Fed talk, etc.) 
before they react.  If anything, today's steepening curve only 
confirms what stocks have been saying.  

Jeff Bailey


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The Option Investor Newsletter                Wednesday 12-22-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Watch List: Auto parts to Autos and more!
Stop Loss Updates: BDK, RAI, UTX
Dropped Calls: None
Dropped Puts: None
New Calls: ACL, BBOX, WFMI
New Puts: None
Spreads & Straddles: An Early Christmas Present!
Premium Selling Plays: Naked Puts & Calls

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

Auto parts to Autos 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.
___________________________________________________________________


AutoZone - AZO - close: 91.09 change: +1.49

WHAT TO WATCH: Today's 1.66 percent rally through heavy 
resistance in the 90-91 level looks like a new bullish entry 
point.  AZO's next level of overhead resistance looks like the 
$97-98 region and technical oscillators are positive for the 
stock.  The P&F chart shows a new ascending triple-top breakout 
buy signal with a $120 target.

Chart=


---

Fairfax Financial - FFH - close: 164.44 change: -2.23

WHAT TO WATCH: Aggressive traders may want to look over FFH as a 
potential bearish play.  The stock has been in retreat for the 
last couple of weeks and shares just broke round-number support 
at the $165 level.  Volume today was exceptionally heavy.  This 
would be a very aggressive play.  Not only is FFH prone to 
volatility but its P&F chart is still bullish with a $220 target.

Chart=


---

General Motors - GM - close: 40.14 change: +0.60

WHAT TO WATCH: Both bulls and bears may want to watch GM.  The 
stock has been churning sideways the last few weeks.  Shares have 
broken through its simple 50-dma and are testing resistance in 
the $40-41 region.  More importantly GM is testing resistance at 
the top of its descending channel.  A breakout here could be 
pretty bullish.  Bears can look for a failed rally and a drop 
under the $38 level.

Chart=


---

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

QCOM $44.44 +0.46 - QCOM is edging closer to a breakout over 
resistance at $45.00.

SBUX $61.14 +2.18 - Just as we suspected - SBUX recent 
consolidation has blossomed into another bullish breakout this 
time over the $60 level.

CMI $83.74 +0.62 - CMI continues to be a relative strength 
winner.

TTC $80.55 +0.90 - TTC continues to climb higher little by little 
and shares have now broken through the $80 level.


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

BDK - call play -
  BDK gapped higher this morning at $86.95 and this hit $87.50 
  before failing and dropping back toward the bottom of its
  current four-day trading range.  We have been triggered in 
  this play at $87.01 but we're disappointed that BDK could not
  hold its gains.  We would not suggest new positions until BDK
  traded back above the $87 level.
 
RAI - call play -
  Tobacco stocks continued to march higher despite losing an
  appeal over airline smoke-related health issues.  RAI broke 
  through the $80.00 level and hit our trigger to go long at 
  $80.11.  
 
 
UTX - call play -
  UTX is looking strong up another 1.11 percent and closing
  above the $105 level for a new all-time high.  Short-term 
  traders may want to consider doing some profit taking.


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

None


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

None


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

*********
NEW CALLS
*********

Alcon Inc - ACL - close: 81.74 chg: +1.84 stop: 77.85

Company Description:
Alcon, Inc. is the world's leading eye care company. Alcon, which 
has been dedicated to the ophthalmic industry for over 50 years, 
develops, manufactures and markets pharmaceuticals, surgical 
equipment and devices, contact lens solutions and other vision 
care products that treat diseases, disorders and other conditions 
of the eye. Alcon has been conducting retinal research for more 
than 15 years and is the world's leading provider of surgical 
equipment used by vitreoretinal specialists who treat patients 
with AMD and other retinal diseases.
(source: company press release)

Why We Like It:
The DRG drug index has been rather volatile lately with news 
hitting drug giant PFE to blame for the recent declines but 
overall the trend for the sector has been bullish the last four 
to five weeks.  We like ACL as both a relative strength play and 
a technical breakout play.  Shares held up very well during the 
recent declines in the sector a few days ago and now ACL is 
breaking out over early October resistance.  CSFB named ACL as 
its favorite play in the specialty pharmaceutical stocks.   We 
also like the bullish P&F chart with its quadruple-top breakout 
buy signal and $98.00 target.  Our plan is to stay long over 
$80.00 an target a quick run toward the $86-87 region.  We are 
going to be somewhat cautious going forward.  ACL looks strong 
but there are stocks in the drug sector that could be hit with 
tax loss selling (like MRK and PFE) next week that could be a 
drag on the index and thus ACL would have to swim upstream 
without the benefit of a positive sector index. 

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

BUY CALL FEB 80 ACL-BP OI= 594 current ask $4.70
BUY CALL FEB 85 ACL-BQ OI=2001 current ask $2.20


Annotated chart:

 

Picked on December 22 at $ 81.74 
Change since picked:      + 0.00
Earnings Date           02/09/05 (unconfirmed)
Average Daily Volume =       773 thousand
Chart =


---

Black Box - BBOX - close: 46.15 change: +1.70 stop: 43.40

Company Description:
Black Box is the world's largest technical services company 
dedicated to designing, building and maintaining today's 
complicated network infrastructure systems. Black Box services 
150,000 clients in 141 countries with 117 offices throughout the 
world. (source: company press release)

Why We Like It:
It has been a while since we have added BBOX to the play list.  
We did note the October breakout over resistance at $40.00 and 
its climb through technical resistance at the exponential 200-dma 
and then later at the simple 200-dma but shares failed near 
resistance at $45 in early December.  Fortunately for the bulls 
BBOX didn't fall far.  Lending the stock some strength may have 
been the recent broker comments.  At least two analyst firms have 
upgraded BBOX in the last week. The latest firm put a $52 target 
on the stock.  We would agree.  The bullish P&F chart may point 
to a $64 target but we see resistance in the $50-51 region.  That 
will be our target.  Now that shares have broken through 
resistance at $45.00 and on very strong volume this looks like an 
entry point.  We would like to put our stop under support at 
$42.00 but that doesn't provide a very economical risk-reward 
ratio. We opted to put our stop under its simple 200-dma.  If 
shares surprise us with a dip we would buy a bounce near $45.  
Keep an eye on the NWX networking index and larger rival CSCO
as a reference. 

Suggested Options:
We are not planning on holding BBOX past its January earnings 
date.  Aggressive players can trade the January calls.  We're
going to suggest the Februarys.

BUY CALL FEB 45 QBX-BI OI=230 current ask $3.40
BUY CALL FEB 50 QBX-BJ OI=  0 current ask $1.25

Annotated chart:

 

Picked on December 22 at $ 46.15 
Change since picked:      + 0.00
Earnings Date           01/18/05 (unconfirmed)
Average Daily Volume =       128 thousand
Chart =


---

Whole Foods - WFMI - close: 96.62 chg: +2.00 stop: 91.49

Company Description:
Founded in 1980 in Austin, Texas, Whole Foods Market is the 
world's leading natural and organic foods supermarket and 
America's first national certified organic grocer. In fiscal year 
2004, the company had sales of $3.9 billion and currently has 166 
stores in the United States, Canada, and the United Kingdom. The 
Whole Foods Market motto, "Whole Foods, Whole People, Whole 
Planet"(TM) captures the company's mission to find success in 
customer satisfaction and wellness, employee excellence and 
happiness, enhanced shareholder value, community support and 
environmental improvement. Whole Foods Market, Harry's Farmers 
Market®, and Fresh & Wild® are trademarks owned by Whole Foods 
Market IP, LP. Whole Foods Market employs more than 30,000 team 
members and has been ranked for seven consecutive years as one of 
the "100 Best Companies to Work for" in America by Fortune 
magazine. (source: company press release)

Why We Like It:
All right.  We've had WFMI on the watch list long enough.  
Today's 2 percent rally on above average rising volume is a 
breakout over four-week old resistance at the $95 and $96 levels.  
WFMI actually hit a new all-time high today at $97.48 before 
paring its gains.  Technically the stock looks bullish with 
stochastics and RSI positive and its MACD nearing a new buy 
signal.  Plus the daily chart is arguably displaying a cup-and-
handle formation.  We are going to use a TRIGGER over today's 
high to open the play.  Our entry point will be $97.51.  
Hopefully the $100 level, which is usually round-number, 
psychological resistance, won't be a barrier for WFMI.  The P&F 
chart currently points to a $112 target but this is likely to 
grow as WFMI continues to rally.  Our initial target will be a 
move to $105 with a secondary target at $110.

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

BUY CALL FEB 90 FMQ-BR OI=1274 current ask $9.00
BUY CALL FEB 95 FMQ-BS OI=2254 current ask $5.80
BUY CALL FEB 100 FMQ-BT OI=349 current ask $3.20
BUY CALL FEB 105 FMQ-BA OI=286 current ask $1.75

Annotated chart:

 

Picked on December 22 at $ xx.xx <-- see TRIGGER 
Change since picked:      +00.00
Earnings Date           02/09/05 (unconfirmed)
Average Daily Volume =       880 thousand
Chart =




********
NEW PUTS
********

None


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

An Early Christmas Present!
By Ray Cummins

Christmas for the stock market arrived ahead of schedule Wednesday
as the major equity averages climbed to multi-year highs.
 
The Dow Jones Industrial Average jumped 56 points to 10,815, with
Pfizer (NYSE:PFE) leading the rally as the drug giant continued to
recover losses suffered during the recent Celebrex-related slump.
The NASDAQ Composite Index rose 6 points to 2,157 amid a surge in 
networking shares.  The S&P 500 Index saw gains in homebuilding,
airline, financial, health care, retail, and utility issues as it
climbed 4 points to 1,209.  Advancers led decliners nearly 3 to 2
on the New York Stock Exchange and by a slightly smaller margin on
the NASDAQ.  Big Board trading volume was 1.4 billion shares, and
1.8 billion shares changed hands on the technology exchange.  Bond
prices retreated as share values moved higher.  The benchmark
10-year note closed down 9/32 at 100 11/32, to yield 4.19%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 12/19/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

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


CALL-CREDIT SPREADS

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

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

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.

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

Editor’s Note: Due to the Christmas holiday, there will be no
Spreads/Straddles section published this Sunday (12/26/04).
Happy Holidays!
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
ERTS – Electronic Arts  $61.71  *** New 2004 High! ***

Electronic Arts (NASDAQ:ERTS) develops, markets, publishes and
distributes interactive software games that are playable by
consumers on platforms, including home videogame machines, such
as the Sony PlayStation 2, Microsoft Xbox, Nintendo GameCube and
Sony PlayStation consoles; personal computers; handheld game
machines, such as the Game Boy Advance, and online, over the
Internet and other online networks.  The products designed to
play on consoles and handhelds, are published under license from
the makers of these platforms, such as Sony for the PlayStation
and PlayStation 2, Microsoft for the Xbox and Nintendo for the
Nintendo GameCube and Game Boy Advance.

ERTS – Electronic Arts  $61.71

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JAN-55.00  EZQ-MK  OI=16835  ASK=$0.40
SELL PUT  JAN-57.50  EZQ-MY  OI=3925   BID=$0.70
INITIAL NET-CREDIT TARGET=$0.35-$0.40
POTENTIAL PROFIT(max)=16% B/E=$57.15


__________________________________________________________________

PENN - Penn National Gaming  $59.87  *** Hot Sector! ***

Penn National Gaming (NASDAQ:PENN) is a multi-jurisdictional
owner and operator of gaming properties, as well as horse
racetracks and associated off-track wagering facilities.  The
company owns or operates nine gaming properties located in
Colorado, Illinois, Louisiana, Mississippi, Ontario and West
Virginia that primarily serve customers within driving distance
of the properties.  The firm also owns racetracks and wagering
facilities in Pennsylvania, a racetrack in West Virginia, and a
joint-venture racetrack in New Jersey.

PENN - Penn National Gaming  $59.87

PLAY (conservative - bullish/credit spread):

BUY  PUT  JAN-50.00  UQN-MJ  OI=3097  ASK=$0.35
SELL PUT  JAN-55.00  UQN-MK  OI=154   BID=$0.80
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$54.50



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

BEARISH PLAYS - CREDIT SPREADS

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

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

ABC – AmerisourceBergen  $57.09  *** A Big "Down" Day! ***

AmerisourceBergen (NYSE:ABC) is a wholesale distributor of
pharmaceutical products and furnishes related services to
healthcare providers and pharmaceutical manufacturers.  It
also provides pharmaceuticals to long-term care, workers'
compensation and specialty drug patients.  AmerisourceBergen
distributes a line of brand name and generic pharmaceuticals,
over-the-counter healthcare products and home healthcare
supplies and equipment to a variety of healthcare providers
located throughout the United States, including acute care
hospitals and health systems, independent and chain retail
pharmacies, mail-order facilities, physicians, clinics and
other alternate site facilities, as well as skilled nursing
and assisted living centers.

ABC – AmerisourceBergen  $57.09

PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-65.00  ABC-AM  OI=1420  ASK=$0.10
SELL CALL  JAN-60.00  ABC-AL  OI=6275  BID=$0.50
INITIAL NET-CREDIT TARGET=$0.45-$0.50
POTENTIAL PROFIT(max)=9% B/E=$60.45


__________________________________________________________________

RIMM – Research In Motion  $83.49  *** Disappointing Forecast! ***

Research In Motion (NASDAQ:RIMM) designs, manufactures and sells
wireless solutions for the global mobile communications market.
The company provides platforms and solutions for access to time
sensitive information, including e-mail, phone, short messaging
service, organizers, Internet and intranet-based corporate data
applications.  RIM also licenses its technology to handset and
software vendors to enable these companies to offer wireless data
services using the BlackBerry Enterprise Server and BlackBerry
Web Client.  RIM's products, services and embedded technologies
include the BlackBerry wireless platform and the RIM Wireless
Handheld product line, and its additional products and services
include software development tools, software licensing agreements,
technical support contracts and professional services.

RIMM – Research In Motion  $83.49

PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-100.00  RUP-AE  OI=10754  ASK=$0.60
SELL CALL  JAN-95.00   RUP-AS  OI=7121   BID=$1.00
INITIAL NET-CREDIT TARGET=$0.45-$0.55
POTENTIAL PROFIT(max)=9% B/E=$95.45



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

No straddles or strangles today...

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

SEE DISCLAIMER - SECTION 1

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


*****************************************
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 12/19/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

VISG     JAN     7.50    7.10    8.05    0.40   7.51%   5.63%
RHAT     JAN    12.50   12.05   15.54    0.45   6.06%   3.73%
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%
  
Special Tuesday Note: Rambus (NASDAQ:RMBS) is “one to watch”
after news emerged earlier this week concerning additional
legal issues with Infineon.  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

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%

Special Tuesday Note: Select Comfort (NASDAQ:SCSS) is on the
"watch" list after the recent upside activity.

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

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

Editor’s Note: Due to the Christmas holiday, there will be no
Premium-Selling section published this Sunday (12/26/04).
Happy Holidays!
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW NAKED-PUT CANDIDATES

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

CTIC   8.35   JAN  7.50  CUC-MU 0.50   64  7.00  31   7.0%  16.4%
NEOL   12.78  JAN 10.00  UOE-MB 0.30  777  9.70  31   3.0%  10.3%
NAVR   16.69  JAN 15.00  QIG-MC 0.50  183 14.50  31   3.4%   8.9%
KFX    15.04  JAN 12.50  KFX-MV 0.30 1580 12.20  31   2.4%   7.8%
NTGR   17.07  JAN 15.00  TUD-MC 0.40  101 14.60  31   2.7%   7.6%
ARBA   16.77  JAN 15.00  IRU-MC 0.30  182 14.70  31   2.0%   5.6%
IDCC   21.99  JAN 17.50  DAQ-MW 0.25 7499 17.25  31   1.4%   5.3%
SWFT   21.47  JAN 20.00  SDU-AD 0.35  130 19.65  31   1.7%   4.6%

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.
_________________________________________________________________

CTIC - Cell Therapeutics  $8.35  *** Drug Speculation #1 ***

Cell Therapeutics (NASDAQ:CTIC) develops and commercializes a
range of novel treatments for cancer.  The company's research
and in-licensing activities are concentrated on identifying new,
less toxic and more effective ways to treat cancer.  The firm
markets TRISENOX for the treatment of relapsed or refractory
acute promyelocytic leukemia in the United States and in the
European Union.  In addition, the company has a large number
of clinical development trials and/or investigator-sponsored
research trials related to potential market expansion for that
product.  CTI is also developing XYOTAX for the treatment of
non-small cell lung cancer and ovarian cancer, and pixantrone,
for the treatment of non-Hodgkin's lymphoma.

CTIC - Cell Therapeutics  $8.35

JAN  7.50 CUC-MU LB=0.50 OI=64 CB=7.00 DE=31 TY=7.0% MY=16.4%


_________________________________________________________________

NEOL – NeoPharm  $12.78  *** Drug Speculation #2 ***

NeoPharm (NASDAQ:NEOL) is a biopharmaceutical company engaged
in the research, development and commercialization of drugs
for the treatment of various cancers.  The company has built
its drug portfolio based on its technology platforms, which
include the NeoLipid liposomal drug delivery system and a
tumor-targeting toxin platform.  Neopharm has four cancer
product candidates in various stages of clinical development.
Its most advanced candidate is IL13-PE38QQR, a tumor-targeting
toxin being developed as a treatment for a deadly form of brain
cancer, glioblastoma multiforme.

NEOL – NeoPharm  $12.78

JAN 10.00 UOE-MB LB=0.30 OI=777 CB=9.70 DE=31 TY=3.0% MY=10.3%


_________________________________________________________________

NAVR – Navarre  $16.69  *** An Entertaining Stock! ***

Navarre (NASDAQ:NAVR) publishes and distributes a wide range of
home entertainment and multimedia products, including personal
computer software, audio and video titles and interactive games.
The company's business is divided into two business segments:
Distribution, which it operates, and Publishing, which is jointly
operated through Encore Software and BCI Eclipse, LLC entities.
Navarre continues to expand the number of electronic commerce
customers for whom it performs fulfillment and distribution.
These services include sales of PC software, prerecorded music
and digital video disc/video home system videos and video games.
The firm's business-to-business Website offers online ordering
and deployment of text and visual product information.

NAVR – Navarre  $16.69

JAN 15.00 QIG-MC LB=0.50 OI=183 CB=14.50 DE=31 TY=3.4% MY=8.9%


_________________________________________________________________

KFX - KFX Inc.  $15.04  *** Clean Fossil Fuel? ***

KFX Inc. (NASDAQ:KFX) is a clean energy technology company with
a patented process, referred to as the K-Fuel technology, which
uses heat and pressure to physically and chemically transform
high-moisture, low-energy-value coal and other organic feed
stocks into a low-moisture, high-energy solid clean fuel.  The
technology adds value to coal producers and the electric power
generation industry by improving the quality of low-grade coal
and facilitating the industry's compliance with air emission
standards.

KFX - KFX Inc.  $15.04

JAN 12.50 KFX-MV LB=0.30 OI=1580 CB=12.20 DE=31 TY=2.4% MY=7.8%


_________________________________________________________________

NTGR - NetGear  $17.07  *** Uptrend Intact! ***

NetGear (NASDAQ:NTGR) designs, develops and markets networking
products that address the specific needs of small business and
home users.  The firm supplies networking products that provide
quality, reliability, performance and affordability for it users.
Its suite of approximately 100 products enables users to share
Internet access, peripherals, files, digital multimedia content
and applications among multiple personal computers and other
Internet-enabled devices.  Its products are grouped into three
primary segments within the small business and home markets:
Ethernet networking products, broadband products and wireless
networking products.

NTGR - NetGear  $17.07

JAN 15.00 TUD-MC LB=0.40 OI=101 CB=14.60 DE=31 TY=2.7% MY=7.6%


_________________________________________________________________

ARBA – Ariba  $16.77  *** Entry Point? ***

Ariba (NASDAQ:ARBA) provides unique enterprise spend-management
solutions that allow enterprises to manage efficiently the
purchasing of all non-payroll goods and services required to
run their business.  The company's solutions, which include
software applications, services and network access, are designed
to provide corporations with technology and business process
improvements to better manage their corporate spending and, in
turn, save money.  Ariba Spend Management solutions integrate
with and leverage the Ariba Supplier Network.  Their Supplier
Network is a scalable Internet infrastructure that connects
Ariba customers with their business partners and suppliers to
exchange product and service information, as well as a range of
business documents, such as purchase orders and invoices.

ARBA – Ariba  $16.77

JAN 15.00 IRU-MC LB=0.30 OI=182 CB=14.70 DE=31 TY=2.0% MY=5.6%


_________________________________________________________________

IDCC – Interdigital Commmunications  $21.99  *** New Range? ***

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

IDCC – Interdigital Commmunications  $21.99

JAN 17.50 DAQ-MW LB=0.25 OI=7499 CB=17.25 DE=31 TY=1.4% MY=5.3%


_________________________________________________________________

SWFT - Swift Transportation  $21.47  *** On A Roll! ***

Swift Transportation (NASDAQ:SWFT) is a truckload motor carrier
that transports primarily retail and discount department store
merchandise, manufactured goods, paper products, non-perishable
and perishable food, beverages and beverage containers and other
building materials.  Swift operates principally within short to
medium-haul traffic lanes and transport in an average length of
haul of less than 600 miles.  In addition to operations in the
continental United States, Swift has a cross-border operation
into Mexico that primarily ships through commercial border
crossings from Laredo, Texas, westward to California.

SWFT - Swift Transportation  $21.47

JAN 20.00 SDU-AD LB=0.35 OI=130 CB=19.65 DE=31 TY=1.7% MY=4.6%



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

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.

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

AGIX – AtheroGenics  $23.88  *** AGI-1067 Controversy! ***

AtheroGenics (NASDAQ:AGIX) is a research-based pharmaceutical
company, focused on the development and commercialization of
novel drugs for the treatment of chronic inflammatory diseases,
including heart disease (atherosclerosis), rheumatoid arthritis,
organ transplant rejection and asthma.  The firm has developed
a vascular protectant technology platform to discover drugs to
treat these types of diseases.  Based on this platform, it has
four drug development programs in the clinic and is pursuing a
number of other preclinical programs.

AGIX – AtheroGenics  $23.88
  
PLAY (sell naked call):

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

SELL CALL  JAN 30    AUB-AF    13K+   0.30  30.30   5.8%   1.0%


_________________________________________________________________

EPIX – Epix Pharmaceuticals  $17.89  ** Consolidation Underway **

Epix Pharmaceuticals (NASDAQ:EPIX) is a developer of targeted
contrast agents that are designed to improve the diagnostic
quality of images produced by magnetic resonance imaging.  MRI
is an imaging technology for range of applications, including
the identification and diagnosis of a wide variety of medical
disorders.  The company is developing two products, MS-325 and
EP-2104R, for use in MRI to improve the diagnosis of multiple
cardiovascular diseases affecting the body's arteries and veins.

EPIX – Epix Pharmaceuticals  $17.89

PLAY (sell naked call):

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

SELL CALL  JAN 20    FCU-AD    243    0.45  20.45   8.0%   2.2%


_________________________________________________________________

SWIR - Sierra Wireless  $17.94  *** Downtrend Resumes? ***

Sierra Wireless (NASDAQ:SWIR) develops and markets a range of
products, including wireless data modems for portable computers,
embedded modules for original equipment manufacturers, rugged
vehicle-mounted modems and mobile phones.  In addition, the firm
has a number of products under development, including its Voq
Smartphone product line.  Sierra Wireless' products permit users
to access wireless data/voice networks using notebook computers,
personal digital assistants, vehicle-based systems and mobile
phones.

SWIR - Sierra Wireless  $17.94

PLAY (sell naked call):

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

SELL CALL  JAN 20    IYQ-AD    1574   0.50  20.50   8.7%   2.4%



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

SEE DISCLAIMER - SECTION 1

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


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