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Daily Newsletter, Tuesday, 12/28/2004

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The Option Investor Newsletter                 Tuesday 12-28-2004
Copyright 2004, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Back From The Brink
Futures Markets: See Note
Index Trader Wrap: Jump in consumer confidence gives NASDAQ Comp. a 
                   new high
Market Sentiment: Santa Claus, January Effect or Window Dressing


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      12-28-2004           High     Low     Volume   Adv/Dcl
DJIA    10854.54 + 78.40 10859.04 10773.92 1.25 bln 2327/ 919
NASDAQ   2177.19 + 23.00  2177.19  2156.53 1.61 bln 2285/ 921
S&P 100   577.16 +  3.30   577.77   573.81   Totals 4612/1840
S&P 500  1213.54 +  8.62  1213.54  1204.92 
SOX       426.75 +  3.70   427.48   421.51
RUS 2000  654.57 + 10.23   654.60   644.34
DJ TRANS 3811.62 + 57.40  3811.62  3753.96
VIX        12.00 -  0.14    12.40    11.97
VXO (VIX-O)12.31 +  0.15    12.47    12.12
VXN        17.79 -  0.54    18.51    17.74  
Total Volume 3,039M
Total UpVol  2,095M
Total DnVol    877M
Total Adv  5183
Total Dcl  2208
52wk Highs  545
52wk Lows    34
TRIN       0.65
NAZTRIN    1.42
PUT/CALL   0.69
************************************************************

Back From The Brink
by Jim Brown

The earthquake depression that weighed on the market
on Monday appeared to lift today with the market 
returning to the recent highs. The Monday dip had 
pushed the indexes back to support and right on the 
brink of a potential trend change. Strong Consumer 
Confidence and strong Retail Sales helped to bring 
traders back to trade but volume was still light. 
That volume will decline even further we near the 
end of the week and the year. 

Dow Chart

 
Nasdaq Chart

 
SPX Chart

 

The holiday finished strong for retailers with a closing
spurt of buying for a +2.7% gain over the prior week. 
According to ICSC-UBS, the people that prepare the weekly
numbers, year over year growth surged +4.3% and the best
gain since June. This was the third consecutive week of
strong gains after a weak post Thanksgiving period. It
appears the majority of buyers waited for the discounts
to increase before releasing their grip on their cash. 
Higher gas prices could have weighed on consumers with
gas up an average of 30 cents a gallon over the same
period last year. 

The biggest boost to the market was a jump in Consumer
Confidence to 102.3 and well over the estimates of 94.0
and November's number of 92.6. Today's 102.3 was a five
month high with gains in all components. The Present
Situation rose to 105.9 from 96.3 and Expectations rose
to 99.9 from 90.2. Those planning to buy homes, autos 
and major appliances also saw a strong bounce. Falling
energy prices and a rising stock market helped produce
the lift. A positive outlook on jobs also contributed 
to the gains. We will get the December Jobs report on
January 7th and analysts are expecting more job gains.

The Consumer Confidence helped provide a boost to the
market on a slow news day but it failed to produce any
decent volume. This week is not known for strong volume
but more of just a constant upward bias. With positive
news all around it appears that trend could continue
for at least the rest of the week. Let the tape painting
continue. 

SIRI fell back to earth today after Banc America raised
its price target to $5.25 from $3.68 per share. This
caused some sharp selling since SIRI was trading at 
$8.10 at Monday's close. 110 million shares were traded
today. XMSR was also upgraded by Banc America with a 
price target of $44, up from $37. XMSR was trading just
under $40 when the upgrade hit the street but fell to 
$38.86 at the close. Valuation concerns were the culprit
after negative comments were made about SIRI. Both 
announced strong subscriber gains for 2004 with XMSR 
up to 3.1 million subscribers after starting 2004 with
only 1.3 million. SIRI jumped from 260,000 to one 
million over the same period. 

Amazon completed two amazing days of gains with a +10%
jump from $39 to $44.62 after multiple upgrades and
positive comments about sales patterns this holiday
season. Bear Stearns upgraded AMZN to outperform on
the belief that they are poised to benefit from the
next wave of e-commerce. BSC raised their price target
to $55 and upped their earnings estimate +3 cents to
44 cents for the current quarter. Amazon is expected
to have sold $2.5 billion in merchandise during the
fourth quarter. Amazon also said it had its highest
volume day ever during December and was selling items
at the rate of 32 per second. They said their watch
shop has been selling more than a watch a minute since
Nov-25th and its music store sold more than one million
units a week for two straight weeks. 

As strong as Amazon may be it is a distant second to 
EBAY. Previous Internet darlings AMZN, YHOO, VRSN as
well as many other high flyers in 2000 are just a 
shadow of their former stock prices. EBAY however has
more than tripled in the last five years and still 
climbing. EBAY is the only Internet stock that has
created its own self sustaining support base. Hundreds
of thousands of sellers now make a living on EBAY 
working out of their homes. Companies use EBAY to sell
excess inventory and offer their core wares to a broader
audience. EBAY recently said China, a strong growth 
market for them, would eventually surpass America as
its biggest revenue producer. Europe has also turned
into a strong performer. EBAY gained +3.30 today on 
the Amazon news and it is only $2 below its all time
high.  

The weekend earthquake shook our markets on Monday as
some traders locked in profits while they waited to 
see if there would be any economic impact on the U.S.
Once the news was fully digested the Nikkei rose to
a five month high and that led a market rebound that
followed the sun westward. Traders holding their breath
after Monday's market swoon finally exhaled as the long
awaited Santa Claus rally finally appeared. 

The Dow rose to close at 10856 and completely erased
Monday's loss. This is the third consecutive day the
Dow has tested resistance at 10850 and today's move
suggests there is a breakout ahead. Today's close was
another new multi-year closing high and only 11 points
away from its intraday highs for the year at 10867. 
Intel was the only Dow component that finished in the
red. Caterpillar was the leader with a +2.37 gain and
a breakout to another new high. There was speculation
that CAT could benefit from the tsunami rebuilding 
effort. 

The Nasdaq surpassed the Dow by posting a strong gain
and surging to a new 3.5 year high and a close at the
high of the day at 2175. This is a very strong move
considering Intel was negative on the day and the SOX
is still clinging to 425 with no hint of breaking that
grip. The Nasdaq gained support from biotechs and from
the Russell. The Russell fell off the planet on Monday
dropping from a new all time high of 651.72 at the
open to 642.84 on the morning dip. Today the Russell
rebounded even stronger than before to close at another
new all time high at 654.35, well over Monday's pre
drop high. This gain was sparked by three strong buy
programs and suggested funds were already putting end
of year money to work or maybe just repainting the 
tape after Monday's drop.   
 
The SPX also rose to a new closing high at 1213 but
it is facing some serious overhead resistance at this
level. If the SOX suddenly found buyers, which it may
any day now, I believe the techs in the SPX would push
it well over this resistance very quickly. Another 
factor holding the SPX back is the energy component 
which accounts for 8% of the S&P. Energy stocks have
softened as we wait for the Wednesday crude oil 
inventories. 

Crude has found support at $42 and has held at this
level for nearly all of December. Wednesday's inventory
numbers are expected to show a drop in inventory levels
due to higher consumption from colder weather. I have
not heard of any material oil disruptions from the
earthquake region but those would not impact inventory
in the U.S. for weeks to come. If there was any drop 
in production related to the disaster the speculators
should have already picked up on it and prices have
not budged. 

For the rest of the week we can expect low volume and
a potential upward bias. The year-end positions have
already been established and funds will be holding 
their breath hoping the current levels hold for the
next three days. There will likely be some tape
painting as we near Friday's close but once those 
performance bonuses are locked in and the calendar
expires it could produce a rocky week ahead. Funds
with huge profits in some high flyers could elect to
take those profits once the calendar year changes. 

The worry for traders is the potential for some 
institutions to exit in front of this event. Offsetting
the potential for profit taking should be the very strong
cash flows into retirement funds over the next two weeks.
It could develop into a question of who blinks first the
bears or the bulls. The next big flurry of economic
reports begins on Friday with the NAPM-NY, PMI and the
Help Wanted Index. Monday has the ISM and kicks off a
week of heavy reporting. All of these things should be
overshadowed by the cash influx but we need to keep our
eye on the potential potholes ahead. Until the trend
changes we should remain long but with increasing 
caution. Watch the volume and the advance/decline line
for clues to the real market strength. 

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Futures wrap is not emailed due to the excessive number of charts.
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*****************
INDEX TRADER WRAP
*****************

Jump in consumer confidence gives NASDAQ Comp. a new high

A much stronger than expected jump in the Conference Board's 
Consumer Confidence Index for the month of December had the major 
indices reversing yesterday's losses, with the very broad NASDAQ 
Composite (COMPX) 2,177.19 +1.06% closing at a new multi-year 
high.

I thought the Biotechnology Index (BTK.X) 549.69 +2.26% made a 
much needed move higher above the 545 level in today's session 
(see today's 01:00 PM EST Update), and if nothing else, gives 
some lift as the Semiconductor Index (SOX.X) 426.75 +0.86%, 
often-times viewed as the more important sector for technology 
strength, continues to flounder between its rising intermediate-
term 50-day SMA (421.50) and longer-term and still trending lower 
200-day SMA (432.00).

The U.S. Dollar Index (dx00y) 80.72 had the dollar finishing 
unchanged against a weighted basket of 6 major foreign currencies 
after the dx00y matched Monday's multi-year lows just prior to 
today's equity market open.  

All sectors, except the Amex Gold Bugs Index ($HUI.X) 216.96 
-0.95%, which has experienced a December that gold bugs would 
just as soon forget despite dollar weakness, finished with gains.

U.S. Market Watch - 12/28/04 Close

 

While the surge in the Conference Board's Consumer Confidence 
Index for December did find further selling coming into 
Treasuries at the 10:00 hour, which pushed the benchmark 10-year 
yield ($TNX.X) as high as 4.346%, Treasuries finished little 
changed by their close.

Late session buying in both the 10-year and 30-year, combined 
with some upbeat responses to some of the forward-looking 
consumer confidence survey questions had the homebuilders as 
depicted by the Dow Jones Home Construction Index (DJUSHB) 793.22 
+2.85% closing above Thursday's close, when disappointing new 
home sales for November were released.

Ahead of tomorrow's weekly energy inventory figures, February 
Crude Oil futures (cl05g) $41.93 +1.48% settled higher by 61 
cents after plunging 10.03% the prior three sessions.  According 
to the median estimate of 10 analysts surveyed by Bloomberg, 
crude oil supplies are expected to rise 200,000 barrels, while 
distillate inventories are expected to drop by 750,000 barrels.

Market Snapshot / Internals - 12/28/04 Close

 

Volumes were light once again at the big board, where perhaps the 
headline number from the consumer confidence numbers may have 
pushed a vacationing fund manager to make a couple of buy side 
phone calls to the trading desk before the close.  NASDAQ volumes 
were also off their current 2.13 billion share daily average for 
the month of December, but improved from Monday's 1.48 billion.  

It would be difficult to read any more into today's internals, 
than that of Thursday and Friday, when many traders are probably 
relaxing with their feet warmed by extended holiday fire.

Still, some of the new highs for the Wilshire 5000 ($DWC.X) 
11,981.40 +0.84%, the NYSE Composite ($NYA.X) 7245.81 +0.67% and 
the Russell 2000 Index ($RUT.X) 654.57 +1.58% would suggest 
market participants have their sights set on a bullish close into 
Friday's shortened trading day.

Pivot Matrix - 

 

The major indices continue to be bound by their WEEKLY Pivots and 
DAILY R1s.  After having profiled a bullish swing trade in the 
QQQQ last week at $39.74 with a target of $40.25, I do take note 
of MONTHLY R1 and DAILY R2 correlations at that level tomorrow.  
Unfortunately, that QQQQ bullish trade was stopped out yesterday 
at $39.50.  Note DAILY S1 and DAILY S2, which come darned close 
to my bullish entry profile, and stop.  

The bullish side of me still has me thinking the QQQQ gets at 
least a $40.25 trade by Friday's close, if not more, and I'd be 
hard pressed not to give the Qs another shot on a dip back near 
DAILY S1 tomorrow.

Earlier this months I also said I'd be on the floor if the OEX 
hit 584 at some point in December.  If institutional computers 
have control of things into year's end, and with volumes light 
like they are, then my dog Drake has been wise to have been 
vying for the recliner instead of the space under my desk.

The reason I think Drake is wise in his recent move to the 
recliner is today's close for 3M (NYSE:MMM) $82.99 +1.02%.  This 
is probably my #1 "key stock" for the INDU and the OEX.  It's the 
4th-most heavily price-weighted component for the Dow 30, and 
currently the 29th-most heavily market cap-weighted component in 
the OEX.  It's also a stock I consider to be a deep cyclical, and 
one that "MUST" trade bullish in strong economy!

3M (MMM) - Daily Intervals

 

The technicals for 3M are also what I would consider to be "too 
perfect" as a stock to really give further lift to the INDU and 
OEX.  It is also a stock that while looking so bullish and not 
extended, faces perhaps the most formidable test that any stock 
can be tested by.  The point and figure chart's bearish 
resistance, which MMM now challenges today at $83.  "If MMM 
continues to bid, then bulls will continue to raise the lid" on 
both the INDU and OEX.  My thoughts anyway.

S&P 100 Index (OEX.X) Chart - Daily Intervals

 

MMM can't "make or break" the OEX by itself, but it is a stock 
that I have viewed as a stock that can give further lift to what 
some may feel is an "extended" OEX and INDU.  Like an inchworm 
that will crawl up a tree, for the OEX to gain further, it needs 
some bullishness from the "tail," which can eventually rotate to 
the "head" and provide further bullish leadership.

Jeff Bailey

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

Santa Claus, January Effect or Window Dressing
- J. Brown

Once again strong consumer confidence numbers help spur stocks 
higher.  Of course we're in the middle of arguably one of the 
most bullish weeks of the year.  One could easily claim that 
today's gains were due to the seasonal Santa Claus rally, the 
January effect or just plain old window dressing by fund 
managers. 

Like most on Wall Street we expect the next few days to remain 
bullish but there are clouds on the horizon.  The volatility 
indices remain in bearish reversal territory.  The P&F chart 
bullish percent numbers remain overbought in bearish reversal 
territory.  The ARMS index or TRIN moving averages all took a 
turn for the worse with the 5-dma and 10-dma reaching 
overbought/bearish reversal territory.  

Plus, to add to the various technical readings the latest COT 
data calls for caution ahead.  The commercial traders or "smart 
money" has turned more bearish on the S&P 500 e-minis and the 
Industrials.  Meanwhile we've seen a dramatic reversal in the NDX 
futures with commercials suddenly turning bearish and small 
traders becoming net bullish.


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

Market Averages

DJIA ($INDU)

52-week High: 10868
52-week Low :  9708
Current     : 10854

Moving Averages:
(Simple)

 10-dma: 10741
 50-dma: 10401 
200-dma: 10250 



S&P 500 ($SPX)

52-week High: 1213
52-week Low : 1060
Current     : 1213

Moving Averages:
(Simple)

 10-dma: 1204
 50-dma: 1168
200-dma: 1127



Nasdaq-100 ($NDX)

52-week High: 1635
52-week Low : 1301
Current     : 1624

Moving Averages:
(Simple)

 10-dma: 1611
 50-dma: 1552
200-dma: 1456



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

CBOE Market Volatility Index (VIX) = 12.00 -0.14 
CBOE Mkt Volatility old VIX  (VXO) = 12.31 +0.15
Nasdaq Volatility Index (VXN)      = 17.79 -0.54 


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.69        561,745       387,881
Equity Only    0.48        472,655       227,347
OEX            1.82         10,595        19,280
QQQQ           1.29         23,622        30,501


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

Bullish Percent Data

           Current   Change   Status
NYSE          76.8    + 0.2   Bear Correction
NASDAQ-100    80.0    + 2     Bull Confirmed
Dow Indust.   73.3    + 0     Bull Confirmed
S&P 500       78.2    + 0.2   Bull Confirmed
S&P 100       78.0    + 0     Bull Confirmed


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

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


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

 5-dma: 0.64
10-dma: 0.86 
21-dma: 0.96
55-dma: 1.01


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    2135      2209
Decliners     693       839

New Highs     237       158
New Lows       16         8

Up Volume    961M      987M
Down Vol.    233M      568M

Total Vol.  1225M     1574M
M = millions


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

Commitments Of Traders Report: 12/21/04


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

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

S&P 500

Commercial traders are growing more bearish while small traders
are naturally moving the other direction and growing more 
bullish.

Commercials   Long      Short      Net     % Of OI
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%)
12/21/04      455,238   502,538   (47,300)   (4.9%)

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
11/30/04      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%
12/21/04      157,015   106,205    50,810    19.2%

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

There has been a dramatic reduction in open positions for
both longs and shorts for both the commercial traders and
small traders.  The net result has produced an increase
in bearishness for professionals and an increase in bullishness
for small traders.

Commercials   Long      Short      Net     % Of OI 
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%)
12/21/04      279,694   554,818   (275,124)  (32.9%)

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
11/30/04      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%
12/21/04      227,047     66,140   160,907    54.8%

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


NASDAQ-100

Hmm... we are seeing a dramatic reversal for both commercial
and small traders.  Commercials have significantly cut their
long positions reversing their bullishness into bearishness
for the NDX.  Small traders have drastically reduced their
short positions to flip-flop them from net bearish to net
bullish. 

Commercials   Long      Short      Net     % of OI 
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%
12/21/04       30,614     45,158   (14,544) (19.1%)

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%)
12/21/04       20,840     9,109    11,731    39.1%

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 have suddenly become a lot more bearish 
on the Dow Industrials.  Meanwhile small traders have
significantly cut their positions on both sides of the trade.


Commercials   Long      Short      Net     % of OI
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%)
12/21/04       24,850    31,920   (7,070)    (12.4%)
 
Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
11/30/04        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%)
12/21/04        5,637     6,961   (1,324)   (10.5%)

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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stocks that have the potential to deliver stratospheric gains. 

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The Option Investor Newsletter                  Tuesday 12-28-2004
Copyright 2004, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: None
Call Play Updates: ABK, ACL, BBOX, BDK, BIIB, COF, ETR, FRE, FSH, 
                   GOOG, IBM, MHK, RAI, UTX, WFMI, ZBRA
New Calls Plays: CTX, JCI
Put Play Updates: GCI
New Put Plays: None


****************
PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

None


PUTS:
*****

None


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before a big price jump? 
 
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********************
PLAY UPDATES - CALLS
********************

Ambac Fincl Group - ABK - cls: 83.03 chg: +0.78 stop: 79.89     

After several days of consolidating between $81.80 and $83.00 
shares of ABK are finally turning higher again.  Shares started 
the session strong and bounced back from an early afternoon dip.  
The close over $83.00 is the highest in several days.  This could 
be a new bullish entry point yet we remain somewhat cautious.  
The IUX insurance index remains extended.

Picked on December 01 at $82.26
Change since picked:     + 0.77
Earnings Date          10/20/04 (confirmed)
Average Daily Volume =      490 thousand
Chart =


---

Alcon Inc - ACL - close: 80.57 chg: -1.37 stop: 77.85

ACL continues to trade sideways above the $80.00 level.  
Yesterday traders bought the dip near $80.00 and its simple 10-
dma.  Today ACL bucked the market-wide up trend to turn lower.  
As long as shares of ACL remain above the $80 mark we're not 
going to worry but readers may want to look for signs of a bounce 
and a new relative high over $82 before considering new 
positions. 

Picked on December 22 at $ 81.74 
Change since picked:      - 1.17
Earnings Date           02/09/05 (unconfirmed)
Average Daily Volume =       773 thousand
Chart =



---

Black Box - BBOX - close: 47.73 change: +1.50 stop: 43.99*new*

BBOX turned in a strong session adding 3.2 percent to out perform 
its rivals and the NWX networking index.  We don't see any news 
to account for the strong session but the bounce from $46 looks 
like an entry point.  We're encouraged by the close over 
resistance at the $47.50 level.  We are going to raise our stop 
loss to $43.99.  More conservative types might want to put their 
stop under $45. 

Picked on December 22 at $ 46.15 
Change since picked:      + 1.58
Earnings Date           01/18/05 (unconfirmed)
Average Daily Volume =       128 thousand
Chart =



---


Black & Decker - BDK - close: 88.01 chg: +2.60 stop: 83.49

We don't see any news to account for BDK's strong three-percent 
rally today so it could be year-end window dressing.  Of course 
BDK tested rising technical support at its 40-dma on Monday and 
bounced.  This new all-time high looks like a bullish entry 
point, especially with the new MACD buy signal.  

Picked on December 22 at $ 87.01
Change since picked:      + 1.00
Earnings Date           01/24/05 (unconfirmed)
Average Daily Volume =       656 thousand 
Chart =



---

Biogen Idec - BIIB - close: 67.86 change: +2.31 stop: 64.49*new*

The BTK biotech index surged 2.2 percent to breakout over 
resistance and hit new eight-month highs.  This gave shares of 
BIIB support for its own 3.5 percent rally to hit new highs of 
its own.  Today's move in BIIB is a breakout from its two-week 
trading range above $65.50.   We would use today's strength as a 
new momentum entry point.  We're raising our stop loss to $64.49.

Picked on December 9 at $ 65.25
Change since picked:     + 2.61
Earnings Date          01/26/05 (unconfirmed)
Average Daily Volume =      3.5 million  
Chart =


---

Capital One Financial - COF - cls: 83.95 chg: +1.14 stop: 79.50*new*

Strong consumer confidence numbers and big holiday sales figures 
has credit card issuer COF gapping to new highs.  We're not 
complaining.  Shares do look a little overbought but we're not 
expecting any weakness.  Should a dip occur a bounce from $82 
might be a good entry point.  We're raising our stop loss to 
$79.50.  There has been some news articles published recently 
noting that credit card transactions topped written checks for 
the first time this year. 

Picked on December 12 at $ 81.12
Change since picked:      + 2.83
Earnings Date           01/19/05 (unconfirmed)
Average Daily Volume =       1.4 million  
Chart =


---


Entergy Corp - ETR - close: 67.60 chg: +0.54 stop: 64.95     

ETR's bullish consolidation under resistance at $68.00 continues.  
Readers can choose an entry point on a dip/bounce at $66 near its 
rising 50-dma or a breakout over $68.20.  No change in our target 
or our stop loss at $64.95.

Picked on December 21 at $ 67.62
Change since picked:      - 0.02
Earnings Date           01/31/05 (unconfirmed)
Average Daily Volume =       1.1 million  
Chart =


---

Freddie Mac - FRE - close: 72.49 chg: +0.70 close: 67.99*new*

The talk on Wall Street continues to focus on FRE's sister FNM.  
Fortunately that is not hindering FRE's ascent.  Shares of FRE 
added another 0.9 percent on Tuesday.  We are raising out stop 
loss to $67.99. 

Picked on December 21 at $ 71.80
Change since picked:      + 0.79
Earnings Date           00/00/05 (unconfirmed)
Average Daily Volume =       2.8 million  
Chart =


---

Fisher Scientific - FSH - cls: 61.74 chg: +0.07 stop: 57.95     

FSH has hit some profit taking in the last couple of sessions.  
While the stock is holding at its simple 10-dma we would not be 
surprised to see FSH retest the $61 or $60 level as support.  
Look for the bounce before considering new positions. 

Picked on December 21 at $ 61.70
Change since picked:      + 0.04
Earnings Date           02/02/05 (unconfirmed)
Average Daily Volume =       1.3 million  
Chart =



---

Google Inc - GOOG - close: 192.76 change: +0.85 stop: 181.99*new*

GOOG started off the holiday week with a strong rally on Monday 
to breakout over the $190 level, which was resistance last week.  
Shares look poised to run toward our target in the $199-200 range 
and we're raising our stop loss to $181.99.  We're really not 
suggesting new positions but nimble and aggressive traders might 
look for a bounce from $190.

Picked on December 20 at $183.01
Change since picked:      + 9.75
Earnings Date           01/20/05 (unconfirmed)
Average Daily Volume =        10 million  
Chart =



---

Intl Business Mach. - IBM - close: 98.30 chg: +0.80 stop: 95.99*new*

Yeah!  It's about time.  IBM has finally cracked resistance and 
closed above the $98 level after three weeks of consolidating 
sideways between $96 and $98.  Odds are growing that IBM will hit 
our target in the $99-100 range before the week is out.  Readers 
can prepare to exit!  We are raising our stop loss to $95.99.

Picked on October 27 at $90.00
Change since picked:    + 8.30
Earnings Date         10/18/04 (confirmed)
Average Daily Volume =     4.7 million 
Chart =



---

Mohawk Industries - MHK - close: 90.50 chg: +1.76 stop: 86.99

The recent consolidation in MHK appears to be over.  Shares added 
another 2 percent on Tuesday to breakout above the $90 level and 
into its small gap down on Dec. 17th.  We would use this move as 
a new bullish entry point.  

Picked on December 14 at $ 91.00
Change since picked:      - 0.50
Earnings Date           02/15/05 (confirmed)
Average Daily Volume =       319 thousand   
Chart =


---

Reynolds American - RAI - close: 80.25 change: +0.73 stop: 75.99

RAI continues to trade near all-time highs but failed to keep up 
with its larger rival MO who added more than one percent in 
Tuesday's rally.  We're not expecting any weakness but if RAI 
does dip look for a bounce near $78.00.  No change in our 
strategy, target or stop loss.

Picked on December 22 at $ 80.11
Change since picked:      + 0.12
Earnings Date           01/24/05 (unconfirmed)
Average Daily Volume =       1.0 million  
Chart =



---

United Tech. - UTX - close: 104.74 change: +0.47 stop: 99.95     

UTX is still trading near all-time highs but the stock has paused 
to catch its breath following the December breakout.  Meanwhile 
its peers in the Dow Industrials are hitting new 3 1/2 year 
highs.  We remain bullish and continue to target a run towards 
$110.  Short-term traders may want to consider taking some 
profits here.  We would not be surprised to hear UTX announce a 
stock split at its January earnings report.

Picked on December 1 at $100.15
Change since picked:     + 4.59
Earnings Date          10/20/04 (confirmed)
Average Daily Volume =      1.8 million  
Chart =


---

Whole Foods - WFMI - close: 95.40 chg: -0.03 stop: 91.49

We remain untriggered in WFMI.  Our plan is to go long/buy calls 
if/when WFMI trades at $97.51 or higher.  Until then we'll sit on 
the sidelines but readers should be ready.  The intraday action 
in WFMI suggests we could see a bounce back above the $96 level 
soon.

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 =



--

Zebra Technologies - ZBRA - close: 56.15 chg: +0.39 stop: 51.99

On your mark.  Get set.  Go!  Traders bought the dip this morning 
to $54.95 and shares of ZBRA began climbing this afternoon on 
rising volume.  We are looking for some follow through tomorrow 
although ZBRA still has some overhead resistance near $57.  
Readers could use today's intraday bounce near $55 as a new entry 
point.  

Picked on December 15 at $ 55.21
Change since picked:      + 0.94
Earnings Date           02/09/05 (unconfirmed)
Average Daily Volume =       709 thousand 
Chart =



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

Centex - CTX - close: 58.85 change: +2.18 stop: 55.90

Company Description:
Dallas-based Centex Homes is one of the nation's leading 
homebuilders, operating in more than 90 U.S. markets in 26 
states. Its brands include entry-level builder Fox & Jacobs 
Homes, on-your-lot builder Wayne Homes and resort/second 
homebuilder Centex Destination Properties. Centex Homes delivered 
30,358 homes in the Unites States in its most recent fiscal year 
ended March 31, 2004. (source: company press release)

Why We Like It:
We think the homebuilders are ready to run again.  The group 
soared in mid-December but has spent the last two weeks 
consolidating those gains.  Yesterday the whole group slipped on 
more profit taking but traders jumped in to buy the dip.  You can 
see it on CTX where traders bought the dip toward $56.00.  Yes, 
it's true that the technical picture isn't that hot for CTX but 
the P&F chart remains bullish with a $74 long-term target. We 
want to go long now and target a run to $65 before CTX's earnings 
report in mid-January.  It was only eight days ago that BAC
upgraded several homebuilders and raised their price targets.

Suggested Options:
We are going to suggest the January and February calls even 
though we do not plan to hold past CTX's January earnings date.

BUY CALL JAN 55 CTX-AK OI=1756 current ask $4.70
BUY CALL JAN 60 CTX-AL OI=2342 current ask $1.50

BUY CALL FEB 60 CTX-BL OI= 108 current ask $2.70

Annotated Chart:

 

Picked on December 28 at $ 58.84
Change since picked:      + 0.00
Earnings Date           01/18/05 (unconfirmed)
Average Daily Volume =       1.4 million  
Chart =


---

Johnson Controls Inc - JCI - cls: 63.21 chg: +1.24 stop: 60.49

Company Description:
Johnson Controls is a global market leader in automotive systems 
and facility management and control. In the automotive market, it 
is a major supplier of integrated seating and interior systems, 
and batteries. For non- residential facilities, Johnson Controls 
provides control systems and services, including comfort, energy 
and security management. Johnson Controls, founded in 1885, has 
headquarters in Milwaukee, Wisconsin (U.S.A.).
(source: company press release)

Why We Like It:
The auto parts makers are on the move again.  JCI has rallied 
from the bottom of its recent trading range and broken out to new 
highs.  We like the technical picture with its MACD nearing a new 
buy signal and its P&F chart with a buy signal pointing to a $70 
target.  It would be tempting to go long at current levels but we 
want to see some confirmation so we're going to use a TRIGGER at 
$63.51.  If JCI can trade at or above this level we'll go long 
with a $70 target.  The challenge here is that we want to hit our 
target before JCI's January earnings report.

Suggested Options:
We are going to suggest the January and February options although
we plan to exit this play before JCI's January earnings report.

BUY CALL JAN 60 JCI-AL OI=1066 current ask $3.70
BUY CALL JAN 65 JCI-AM OI= 623 current ask $0.60

BUY CALL FEB 60 JCI-BL OI=   0 current ask $4.20
BUY CALL FEB 65 JCI-BM OI=  14 current ask $1.20

Annotated Chart:

 

Picked on December xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           01/19/05 (unconfirmed)
Average Daily Volume =       669 thousand 
Chart =




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


*******************
PLAY UPDATES - PUTS
*******************

Gannett Co Inc - GCI - close: 80.89 chg: +0.17 stop: 82.51

We remain very cautious with GCI above the $80.00 mark.  
Aggressive traders can use any failed rally under $82.00 as a new 
entry point but we'd prefer to see GCI trade back under $80 and 
even $79 before initiating new plays.  

Picked on December 16 at $ 79.39
Change since picked:      + 1.50
Earnings Date           01/31/05 (unconfirmed)
Average Daily Volume =       1.0 million  
Chart =



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

None

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


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

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support

The Option Investor Newsletter                  Tuesday 12-28-2004
Copyright 2004, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Watch List: Auto makers to Banks and more!
Spreads & Straddles: The Holiday Buying Spree Continues!
Premium Selling Plays: Naked Puts & Calls


**********
WATCH LIST
**********

Auto makers to Banks 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.
___________________________________________________________________


PACCAR Inc - PCAR - close: 79.75 change: +1.71

WHAT TO WATCH: We came very close to adding PCAR to our play list 
tonight as a call play.  Our plan was to use a TRIGGER over $80 
or $81 to go long/buy calls.  The technical picture is improving 
and its MACD is nearing a new buy signal.  Plus, its P&F chart is 
very bullish with a $114 target.  After sevens weeks of 
consolidating sideways PCAR looks ready to breakout. 

Chart=


---

Pitney Bowes Inc - PBI - close: 46.88 change: +1.12

WHAT TO WATCH: PBI is breaking out to new four-year highs with 
today's 2.4 percent gain.  The $45 and $46 levels were major 
resistance and PBI has broken through both in the last few weeks.  
The P&F chart shows a triple-top breakout buy signal with a $67 
target.  Look for a dip back to $46 and consider buying the 
bounce.  Our short-term target would be $50.

Chart=


---

MGIC Investment - MTG - close: 69.61 change: +1.40

WHAT TO WATCH: MTG added more than two percent on Tuesday with 
decent volume considering the holidays.  The move through its 
simple 200-dma looks tempting but we expect the $70 level to 
offer more round-number resistance.  Use a breakout over $70.00 
as a potential entry point.  The P&F chart is bullish with an $88 
target but we see resistance near $72 so bear that in mind.

Chart=


---

Potlatch - PCH - close: 51.03 change: +0.76

WHAT TO WATCH: The pattern of higher lows and its MACD and RSI 
indicators are suggesting that PCH is ready to run higher again.  
Shares just close above minor resistance at $51.00 and the move 
could be used as an entry point.  The P&F chart points to a $69 
target.

Chart=



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

DE $74.42 +1.57 - DE is nearing major resistance at the $75 
level.  Watch for the breakout.

AET $125.83 +1.73 - As overbought as AET looks the recent 
consolidation is turning bullish again.

ACS $60.76 +1.24 - ACS is not the fastest moving stock but shares 
do look bullish a breakout over $61 could be an entry point. 
Looking at the long-term chart ACS also looks like a covered call 
candidate.

PGR $85.17 +0.98 - PGR is still trying to bounce back over its 
simple 200-dma.  


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In the last few weeks, we have pinpointed insider buying on six 
stocks that have the potential to deliver stratospheric gains. 
 
Click here for our SPECIAL REPORT on these 6 stocks insiders are 
buying and why you should too. 
 
 
http://www.insidermoves.com/default.asp?aid=618
 
**************************************************************


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

The Holiday Buying Spree Continues!
By Ray Cummins

Stocks rallied Tuesday on encouraging retail sales reports and
a surge in consumer confidence.

The Dow Jones Industrial Average closed up 78 points at 10,854,
with all but a handful of the Dow's 30 components moving higher.
The NASDAQ Composite added 22 points to 2,177 as strength across
the board in technology shares helped the index break through
technical resistance and close at levels not seen since 2001.
The S&P 500 Index rose 8 points to 1,213 amid buying pressure
in homebuilding, transportation, retail, health care, energy,
financial, and materials stocks.  Winning issues enjoyed a 2 to
1 advantage over losing shares on the major exchanges.  Volume
was slightly under 1 million shares on the Big Board, while 1.6
billion shares changed hands on the NASDAQ.  Bond prices were
virtually unchanged despite the stronger-than-expected consumer
confidence data.  The benchmark 10-year Treasury note closed up
2/32, yielding 4.29%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 12/28/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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  35.22  JAN  25.0  27.5  0.40   27.10   0.40   Open
CFC    33.21  36.86  JAN  27.5  30.0  0.30   29.70   0.30   Open
EBAY  112.20 116.16  JAN  95.0 100.0  0.60   99.40   0.60   Open
LEND   46.85  50.00  JAN  35.0  40.0  0.50   39.50   0.50   Open
LEN    50.11  55.35  JAN  42.5  45.0  0.30   44.70   0.30   Open
PHM    59.65  63.24  JAN  50.0  55.0  0.75   54.25   0.75   Open
MRVL   34.89  35.22  JAN  27.5  30.0  0.30   29.70   0.30   Open
VRTS   27.38  27.59  JAN  22.5  25.0  0.45   24.55   0.45   Open
ERTS   61.71  62.83  JAN  55.0  57.5  0.35   57.15   0.35   Open
PENN   59.87  62.34  JAN  50.0  55.0  0.50   54.50   0.50   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  32.17   JAN  50.0  45.0  0.60   45.60  0.60   Open
LLY    53.33  57.43   JAN  65.0  60.0  0.65   60.65  0.65   Open
NVLS   26.94  27.16   JAN  32.5  30.0  0.35   30.35  0.35   Open
CCU    33.15  33.57   JAN  40.0  35.0  0.50   35.50  0.50   Open
UVN    29.06  28.33   JAN  35.0  30.0  0.80   30.80  0.80   Open
ADI    36.42  36.23   JAN  45.0  40.0  0.50   40.50  0.50   Open
KOSP   35.13  37.80   JAN  45.0  40.0  0.55   40.55  0.55   Open
TTWO   33.45  34.48   JAN  40.0  37.5  0.30   37.80  0.30   Open
MSTR   56.22  62.00   JAN  70.0  65.0  0.65   65.65  0.65   Open?
ABC    57.09  57.50   JAN  65.0  60.0  0.45   60.45  0.45   Open
RIMM   83.49  85.01   JAN  100.0 95.0  0.45   95.45  0.45   Open

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

Special Tuesday Note: Microstrategy (NASDAQ:MSTR) is a candidate
for early exit on any move above the sold strike at $65.


DEBIT STRADDLES

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

BZH    144.85  143.50  JAN   145.0  145.0  12.00   11.25    Open

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

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

NVT - Navteq  $47.90  *** New "All-Time" High! ***

Navteq (NYSE:NVT) is a provider of digital map information and
related software and services used in a variety of navigation,
mapping and geographic-related applications, including products
and services that provide maps, driving directions, turn-by-turn
route guidance, fleet management and tracking and geographic
information systems.  These products and services are provided
to end users by its customers on various platforms, including
self-contained hardware and software systems installed in
vehicles; personal computing devices, such as personal digital
assistants and cell phones; server-based systems, including
Internet and wireless services, and paper media.

NVT - Navteq  $47.90

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JAN-40.00  NVT-MH  OI=378  ASK=$0.30
SELL PUT  JAN-45.00  NVT-MI  OI=178  BID=$0.80
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$44.45


__________________________________________________________________

YHOO - Yahoo!  $37.90  *** Uptrend Intact! ***

Yahoo! (NASDAQ:YHOO) is a worldwide Internet business and consumer
services company that offers a comprehensive branded network of
properties and services to more than 200 million individuals
worldwide.  The company offers an online navigational guide to the
Internet via its www.yahoo.com Website, which is a guide in terms
of traffic, advertising and household and business user reach.
Through Yahoo! Enterprise Solutions, the firm also provides many
business services designed to enhance the productivity and Web
presence of its clients.  Yahoo! has offices in the United States,
Europe, Asia, Latin America, Australia and Canada.

YHOO - Yahoo!  $37.90

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JAN-32.50  YHQ-MZ  OI=20716  ASK=$0.20
SELL PUT  JAN-35.00  YHQ-MG  OI=24082  BID=$0.45
INITIAL NET-CREDIT TARGET=$0.30-$0.35
POTENTIAL PROFIT(max)=14% B/E=$34.70



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

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.

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

PKZ - Petrokazakhstan  $32.99  *** Profit-Taking In Progress! ***

Petrokazakhstan (NYSE:PKZ) is an international energy firm
engaged in the acquisition, exploration, development and
production of oil and gas, and the refining and sale of oil
and refined products in the Republic of Kazakhstan.  The
company's oil and gas exploration and production operations
are located in the South Turgai Basin, where it owns and
operates the Shymkent refinery, which refines most of its
production.  PetroKazakhstan sells a range of petroleum fuel
including diesel and gasoline.

PKZ - Petrokazakhstan  $32.99

PLAY (speculative - bearish/credit spread):

BUY  CALL  JAN-40.00  PKZ-AH  OI=738  ASK=$0.20
SELL CALL  JAN-35.00  PKZ-AG  OI=440  BID=$1.00
INITIAL NET-CREDIT TARGET=$0.85-$0.90
POTENTIAL PROFIT(max)=20% B/E=$35.85


__________________________________________________________________

UHS - Universal Health Services  $44.51  *** Profit Warning! ***

Universal Health Services (NYSE:UHS) owns and operates acute
care hospitals, behavioral health centers, ambulatory surgery
centers and radiation oncology centers in the United States,
Puerto Rico and France.  As part of its ambulatory treatment
centers division, Universal Health owns, or in partnership
with physicians, and operates or manages, a number of surgery
and radiation oncology centers located in the U.S. and Puerto
Rico.  Services provided by its hospitals include general
surgery, internal medicine, obstetrics, emergency room care,
radiology, oncology, diagnostic care, coronary care, pediatric
services and behavioral health services.

UHS - Universal Health Services  $44.51

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JAN-50.00  UHS-AJ  OI=196  ASK=$0.15
SELL CALL  JAN-45.00  UHS-AI  OI=327  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$45.60



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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 12/28/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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    9.38    0.40   7.51%   5.63%
RHAT     JAN    12.50   12.05   13.16    0.45   6.06%   3.73%
NCRX     JAN    25.00   24.40   31.00    0.60   4.78%   2.46%
NTGR     JAN    15.00   14.65   16.64    0.35   4.58%   2.39%
RMBS     JAN    17.50   17.10   21.87    0.40   4.87%   2.34%
TLCV     JAN    10.00    9.65   10.38    0.35   6.91%   3.63%
WITS     JAN    15.00   14.55   17.75    0.45   5.38%   3.09%
IDCC     JAN    17.50   16.95   23.28    0.55   6.62%   3.24%
NVTL     JAN    17.50   17.20   20.06    0.30   3.95%   1.74%
MSO      JAN    17.50   17.05   30.94    0.45   5.62%   2.64%
MSO      JAN    20.00   19.60   30.94    0.40   5.28%   2.04%
ACF      JAN    22.50   21.65   24.34    0.85   6.54%   3.93%
USNA     JAN    30.00   29.00   36.50    1.00   6.12%   3.45%
DHB      JAN    15.00   14.35   19.48    0.65  10.38%   4.53%
MOGN     JAN    25.00   24.05   27.95    0.95   7.47%   3.95%
GTOP     JAN    12.50   12.05   16.40    0.45   8.45%   3.73%
CMVT     JAN    22.50   22.05   24.29    0.45   3.93%   2.04%
RMBS     JAN    20.00   19.35   21.87    0.65   8.12%   3.36%
IDCC     JAN    17.50   17.05   23.28    0.45   6.77%   2.64%
NFLD     JAN    17.50   17.05   20.22    0.45   6.15%   2.64%
ADLR     JAN    12.50   11.85    9.70   (2.15)  0.00%   0.00% *
NCRX     JAN    25.00   24.55   31.00    0.45   4.60%   1.83%
RMBS     JAN    20.00   19.45   21.87    0.55   7.18%   2.83%
NKTR     JAN    17.50   17.05   20.07    0.45   5.64%   2.66%
ALXN     JAN    20.00   19.65   24.88    0.35   4.51%   1.78%
AMLN     JAN    20.00   19.65   23.78    0.35   4.07%   1.78%
SWFT     JAN    20.00   19.65   21.77    0.35   4.60%   1.78%
NEOL     JAN    10.00    9.70   12.76    0.30  10.31%   3.09%
ARBA     JAN    15.00   14.70   16.82    0.30   5.62%   2.04%
KFX      JAN    12.50   12.20   14.79    0.30   7.80%   2.46%
NAVR     JAN    15.00   14.50   17.32    0.50   8.94%   3.45%
IDCC     JAN    17.50   17.25   23.28    0.25   5.28%   1.45%
NTGR     JAN    15.00   14.60   16.64    0.40   7.61%   2.74%
CTIC     JAN     7.50    7.00    8.39    0.50  16.41%   7.14%
 
Special Tuesday Note: The position in Adolor (NASDAQ:ADLR) was
closed after its stock price declined sharply on reports that
an advanced trial of a key gastrointestinal drug failed to
meet initial goals.
   

NAKED CALLS

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

XLNX     JAN    32.50   33.00   29.51    0.50   3.96%   1.52%
SCSS     JAN    17.50   18.05   17.76    0.29   4.05%   3.05%
PLAY     JAN    35.00   36.05   26.00    1.05  12.22%   2.91%
AFCO     JAN    22.50   22.80   21.32    0.30   3.92%   1.32%
SYMC     JAN    32.50   33.00   25.04    0.50   6.06%   1.52%
PDII     JAN    30.00   30.30   21.84    0.30   4.64%   0.99%
AGIX     JAN    30.00   30.30   24.00    0.30   5.80%   0.99%
EPIX     JAN    20.00   20.45   17.86    0.45   8.03%   2.20%
SWIR     JAN    20.00   20.50   17.30    0.50   8.74%   2.44%

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.

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

NEW NAKED-PUT CANDIDATES

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

FXEN   10.96  JAN 10.00  IWQ-MB 0.70  591  9.30  25   9.2%  20.7%
ELN    26.78  JAN 25.00  ELN-ME 0.55 16K+ 24.45  25   2.7%   7.1%
MSO    30.94  JAN 25.00  MSO-ME 0.40 4896 24.60  25   2.0%   7.1%
JUPM   23.49  JAN 20.00  EUU-MD 0.35   67 19.65  25   2.2%   6.8%
VRX    26.63  JAN 25.00  VRX-ME 0.45  272 24.55  25   2.2%   5.8%
IDCC   23.28  JAN 20.00  DAQ-MD 0.25 2830 19.75  25   1.5%   4.8%
NTMD   26.69  JAN 22.50  QNR-MX 0.25  209 22.25  25   1.4%   4.5%
MOGN   27.95  JAN 25.00  QOG-ME 0.25  348 24.75  25   1.2%   3.6%

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.
_________________________________________________________________

FXEN - FX Energy  $10.96  *** Energy Sector Speculation! ***

FX Energy (NASDAQ:FXEN) is an independent oil and gas company
focused on exploration, development and production opportunities
in the Republic of Poland, in association with the Polish Oil
and Gas Company and others.  The company's ongoing activities
in Poland are conducted in five project areas: Fences I, II and
III, Pomeranian and Wilga.  It is working almost exclusively on
these project areas, where the gas-bearing Rotliegendes sandstone
reservoir rock in Poland's Permian Basin may be a direct analog
to the Southern North Sea gas basin, offshore England.

FXEN - FX Energy  $10.96

JAN 10.00 IWQ-MB LB=0.70 OI=591 CB=9.30 DE=25 TY=9.2% MY=20.7%


_________________________________________________________________

ELN - Elan Corporation  $26.78  *** New FDA Approval! ***

Elan Corporation (NYSE:ELN) is an integrated biopharmaceutical
firm engaged in research and development in Alzheimer's disease,
Parkinson's disease, multiple sclerosis, pain management and
autoimmune diseases.  The company's objective is to discover and
develop products that will fulfill the unmet medical needs of
patients.  Elan conducts its global business, including research,
development, manufacturing and marketing, through subsidiaries
incorporated in Ireland, the United States, the United Kingdom
and other countries.

ELN - Elan Corporation  $26.78

JAN 25.00 ELN-ME LB=0.55 OI=16K+ CB=24.45 DE=25 TY=2.7% MY=7.1%


_________________________________________________________________

MSO - Martha Stewart  $30.94  *** Pure Premium-Selling! ***

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

MSO - Martha Stewart  $30.94

JAN 25.00 MSO-ME LB=0.40 OI=4896 CB=24.60 DE=25 TY=2.0% MY=7.1%


_________________________________________________________________

JUPM - Jupitermedia  $23.49  *** Rally Mode! ***

Jupitermedia (NASDAQ:JUPM) is a global provider of original
online information, images, research and events for information
technology, business and creative professionals.  The company
operates four major interrelated and complementary businesses.
JupiterWeb is its online media business.  JupiterImages is its
online images business.  JupiterResearch is the firm's market
research and consulting business.  JupiterEvents is an offline
conference and trade show business.

JUPM - Jupitermedia  $23.49

JAN 20.00 EUU-MD LB=0.35 OI=67 CB=19.65 DE=25 TY=2.2% MY=6.8%


_________________________________________________________________

VRX - Valeant Pharmaceuticals  $26.63  *** Near 2004 Highs! ***

Valeant Pharmaceuticals International (NYSE:VRX) is a global,
research-based specialty pharmaceutical firm that discovers,
develops, manufactures and markets a range of pharmaceutical
products.  Its products are sold in 128 markets around the
world and encompass a range of therapeutic areas, with a
primary focus upon the three-targeted areas of infectious
disease, neurology and dermatology.  The company's research
and development efforts focus on hepatitis C, hepatitis B,
HIV/AIDS and cancer.

VRX - Valeant Pharmaceuticals  $26.63

JAN 25.00 VRX-ME LB=0.45 OI=272 CB=24.55 DE=25 TY=2.2% MY=5.8%


_________________________________________________________________

IDCC – Interdigital Commmunications  $23.28  *** 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  $23.28

JAN 20.00 DAQ-MD LB=0.25 OI=2830 CB=19.75 DE=25 TY=1.5% MY=4.8%


_________________________________________________________________

NTMD - NitroMed  $26.69  *** New "All-Time" High! ***

NitroMed (NASDAQ:NTMD) is an emerging pharmaceutical company
with substantial expertise and intellectual property in nitric
oxide-based drug development.  The firm is applying its nitric
oxide technology to develop new pharmaceuticals, as well as
safer and more effective versions of existing pharmaceuticals
to target diseases and commercial markets.  Its lead nitric
oxide-enhancing medicine, BiDil, which is being developed to
reduce mortality and hospitalization and to improve quality of
life for African Americans diagnosed with heart failure is the
subject of a Phase III confirmatory clinical trial.

NTMD - NitroMed  $26.69

JAN 22.50 QNR-MX LB=0.25 OI=209 CB=22.25 DE=25 TY=1.4% MY=4.5%


_________________________________________________________________

MOGN - MGI Pharma  $27.95  *** Target-Shoot An Entry Point? ***

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

MOGN - MGI Pharma  $27.95

JAN 25.00 QOG-ME LB=0.25 OI=348 CB=24.75 DE=25 TY=1.2% MY=3.6% 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.

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

CTAS - Cintas  $43.66  *** In A Trading Range? ***

Cintas (NASDAQ:CTAS) provides highly specialized services to
businesses of all types throughout North America.  Cintas
designs, manufactures and implements corporate identity
uniform programs, and provides entrance mats, restroom
supplies, promotional products and first aid and safety
products for over 500,000 businesses.  Cintas classifies its
businesses into two operating segments: rentals and other
services. The rentals operating segment designs and makes
corporate identity uniforms that it rents, along with other
items to its customers.  The other services operating segment
involves the design, manufacture and direct sale of uniforms
to its customers, as well as the rental or sale of ancillary
services.

CTAS - Cintas  $43.66

PLAY (sell naked call):

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

SELL CALL  JAN 45    NQQ-AI    1565   0.45  45.45   3.3%   1.0% TS


_________________________________________________________________

SPW - SPX Corporation  $40.10  *** Consolidation Underway! ***

SPX Corporation (NYSE:SPW) is a global provider of technical
products and systems, industrial products and services, flow
technology and service solutions.  The firm offers a collection
of products, including scalable storage networking solutions,
fire detection and building life-safety products, television
and radio broadcast antennas and towers, life science products
and services, transformers, compaction equipment, high-tech die
castings, dock systems, cooling towers, air filtration products,
valves, back-flow prevention and fluid handling equipment and
metering and mixing solutions.  Its products and services also
include specialty service tools, diagnostic systems, service
equipment and technical information services.  SPX' products
are used by customers in various industries, including chemical
processing, pharmaceuticals, infrastructure, mineral processing,
petrochemical, telecommunications, transportation, power, and
financial services.

SPW - SPX Corporation  $40.10

PLAY (sell naked call):

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

SELL CALL  JAN 42.5  SPW-AV    6132   0.40  42.90   3.5%   0.9% TS



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

SEE DISCLAIMER - SECTION 1

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


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