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Daily Newsletter, Sunday, 01/09/2005

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The Option Investor Newsletter                   Sunday 01-09-2005
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap:  Follow The Money
Futures Wrap: See Note
Index Trader Wrap:  REVERSAL WARNINGS
Editor's Plays:  Reverse Directions
Market Sentiment:   Confused?
Ask the Analyst: Adding a mid cap and small cap (01/02/05 continued)
Coming Events: Earnings, Splits, Economic Events 


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 01-07        WE 12-31        WE 12-24        WE 12-17 
DOW    10603.96 -179.34 10783.3 - 43.82 10827.1 +177.20 +106.70 
Nasdaq  2088.61 - 86.16 2174.77 + 14.15 2160.62 + 25.42 +  7.13 
S&P-100  566.38 -  8.64  575.02 -  1.04  576.06 +  8.67 +  1.89 
S&P-500 1186.19 - 25.46 1211.65 +  1.52 1210.13 + 15.93 +  6.20 
W5000  11648.89 -323.90 11972.8 + 38.98 11933.8 +150.45 + 91.38 
SOX      407.56 - 25.72  433.28 +  6.85  426.43 +  2.68 +  1.00 
RUT      613.21 - 37.87  651.08 -  1.71  649.37 +  7.29 +  9.84 
TRAN    3636.78 -160.56 3797.34 +  9.56 3787.78 + 36.71 + 65.04  
VXO       13.85           13.58           11.23           12.71 
VXN       19.15           18.37           16.80           18.21
******************************************************************


Follow The Money
by Jim Brown

It has been a long time since funds have seen cash outflows
in January. For the week ended on Wednesday $3.7 billion
flowed out of U.S. funds. $3.1 billion flowed into funds
that invest internationally. $1.3B also flowed into bond
funds. If we see this same ratio of fund flows next week
it could be a real change in direction for investors. If 
the majority of fund inflows continues to head for 
international funds the U.S. markets could experience 
further withdrawal symptoms. This resulted in a very 
rocky start to 2005 but the biggest damage was not done 
by withdrawals. The damage was simply profit taking. That
profit taking should be over and beginning next week it 
will be fund inflows that give us direction. 

Dow Chart


Nasdaq Chart


SOX Chart


The Jobs Data came in just right and exactly where traders
wanted it at +157,000 jobs. This was less than the consensus
but still a decent gain. This was market neutral and traders
hope Fed neutral as well. The November number was revised
upward to 137K from 112K and the October number was revised
up to 312K from 303K. This was a net gain for the day of
+191,000 jobs and gave us a total jobs gain for 2004 at
+2.2 million jobs. This was the biggest gain in five years.
The gains for the month were still less than the consensus 
and the bond groupies were able to relax slightly with the
Fed more than three weeks away. There is a positive trend
towards the creation of better paying jobs as professional
and technical categories continue to post better gains than
the retail and hotel businesses. With job gains for 2004
at 2.2M it puts us back at 1999 pre recession levels after
46 months. Normal recession recovery averages 22 months
but normal recessions don't come after Y2K Internet bubbles
with the largest terrorist attack in history in the middle.

This market neutral report should have given the bulls a
reason to celebrate but they may have been knocked off
balance by a serious case of sticker shock. When the news
initially hit the wires someone reported that the November
jobs had been revised to 312K. In reality it was October 
being revised to that level for a gain of +9K. On the 
surface it appeared initially that it was a November 
number which would have been a gain of +200,000 in 
November plus the +157K in December. The bond market went
crazy and there was a huge spike/dip in the equity futures
that blew out stops in both directions in a 10 point range
on the S&P. The range in bonds was a full two points and 
something that is nearly unheard of in only several seconds
of trading. Those bond traders that blew out positions when
it appeared jobs had exploded found themselves on the wrong
side of the market when the news was clarified. There were
huge amounts of money made and lost in just seconds as the
electronic markets reacted to the conflicting news and stops
were triggered in both directions.

This sticker shock may have cooled any real interest to
rush into the equity market. However, it does appear they
are willing to enter at the right price. After some strong
volatility at the open a strong sell program hit the 
markets at 10:00 and knocked the Dow back to 10571 and
the Nasdaq to 2076. Buyers immediately appeared and pushed
the indexes right back to their opening levels or higher.
Even the SOX rebounded +11 points from its 401 support 
low. The rebound had all the appearances of a V bottom 
liftoff but resistance held across the board. 

The Dow rebounded to 10650, the Nasdaq to just over
2100 but they lost traction once again. The highs of the
day were seen at 12:30 as a result of the rebound but 
there was a steady bleed the rest of the day. All the 
indexes except the SOX closed in negative territory once 
again with a strong flush cycle in the last 15 min. The
Russell was the hardest hit once again dropping back to
613 and an 8-week closing low. Both the Dow and the 
Nasdaq have held at their 25% retracement points for
the last two days. This is a logical place to pause
and could be a launch point if the funds quit selling. 

Where is this craziness going to stop? I have two possible
scenarios. If next week was going to be positive I would
have expected a little bullishness at the close in 
anticipation of a rebound. There was obviously no bullish
bias after 12:30 and there was almost no attempt to buy
the dip in the last 30 min. This suggests the selling 
may not be over. Even the shorts failed to cover and 
that leads me to believe they see more downside ahead. 

The second scenario revolves around the closing flush.
As a fund manager tasked with getting rid of a certain
amount of stock this week to capture profits and get
ready to rebalance the portfolio for 2005 the time was
expiring. With the sharp drops early in the week there
may have been some funds waiting on the bounces trying
to maximize their gains and hoping for a bounce on volume
to help them unload. With progressively lower highs all
week those sellers had to keep lowering their ask as the
price ran away from them. When it appeared the day was 
going to expire without a closing bounce they rushed to
clear the remaining orders so they could switch to the 
buy side for new positions next week. This may sound over
simplified but until you actually sell the winners and 
convert them into cash you really don't know how much 
cash you have to spend. That projected number has been
shrinking all week with the drop in the market. 

I favor the second scenario but I am concerned about the
lack of cash inflows. As I reported above Trimtabs said
U.S. funds had outflows for the week BUT they did report
inflows on Thursday. We will not know about Friday until
next week. If the tide has turned then next week should
begin the normal liquidity bounce. 

The talking heads on stock TV have been making a big
deal about the drop for the week. I believe that we 
have only done what is normally expected. The Nasdaq
normally corrects -5% in January. The -115 point drop
from the Monday high at 2191 to today's low at 2176
was -5.2%. If we are going to have a "normal" bout of
profit taking then we should stop here. I agree we did
not have a normal Q4 and gained much more than expected.
That could easily mean we should correct more as well. 
A -10% correction would take us to 1975 on the Nasdaq
and a reversion to seriously oversold. I do not expect
that but it is possible. That would undoubtedly take 
the Dow back to 10425 and very strong support as well. 

To assume we are going to take that dip you have to 
believe the market bias is changing. We are still in a
cyclical bull market and this is January. TrimTabs has
not changed their estimate for $31B to flow into the
market. That will float a lot of stocks from what could
be considered bargain levels at today's closing prices. 
The arguments for that change in bias are rising rates
and slowing earnings. After Friday's jobs numbers most
doubt the Fed will depart from its measured pace of
increases. No real harm there. Earnings are likely to 
slow but until we get past the next couple weeks we will
not know to what degree. I believe it is too soon to be
exiting the equity market and from the drop in treasuries
on Friday they are not rushing into bonds. 

I believe the SOX may be giving us a leading indicator
of market direction. After four days of strong selling
in the chips there was a strong buy program at 10:45
that pushed the SOX from 401 to 412. It would take a
lot of money to push the SOX that hard and the big
money is seldom wrong. There were several attempts to
sell it off but support held until the last 10 min. 
Chips normally lead the Nasdaq and this could be a sign
of coming times. Intel will announce earnings on Tuesday
and I doubt anybody wants to be short chips going into
their announcement. There are numerous reports that PC
sales gained speed going into late December and most
analysts are expecting Intel to report good results. 

That brings us to another point. The entire earnings
parade begins next week and will ramp up to full speed
the following week just as the fund flows are expected
to peak. Where we go after earnings is anybody's guess
but I am going to be real surprised if we don't move
higher over the next week. Of course an Intel miss
could erase this entire train of thought. 

The first week of January is history and when measured
by the various historical statistics the outlook is not
good. Since 1950 there have been 34 years where the first
week of January was positive. 85% of those years the 
markets finished with a gain for the year averaging +14%.
In the 20 years where the first week was negative only
50% of the time did the market finish higher for the
year. On the surface this would appear the odds were
stacked against the bulls. However, since 1890 there
has NEVER been a year that ended in five that finished
in the red. There is something about mid decade cycles
that favors the economy and the bulls. 

Just to show I try to present a fair and balanced view
the Nasdaq just finished its worst week since 1991. 
There have been fund outflows from tech funds for the
last seven consecutive weeks. Before that there was a
string of eight weeks of outflows despite the Q4 rally.
The bears would look at that as a glass half empty but
the bulls are thinking half full and it must be about
time to put money back into techs. Next week will prove
which view was correct. 

Oil briefly topped $46 again on Friday after it was
reported that three Chinese oil firms are trying to 
buy a stake in the Alberta oil sands in Canada. Let's
see if my geography is correct I don't think Canada
is anywhere near China. If you continue to connect the
dots of Yukos, China's CNOOC rumored $13 billion bid
for Unocal, joint Russian/China military exercises and
the attempt to lockup reserves in Canada I think you
will eventually get a picture of a coming oil shortage.
Just a hunch but the more you study the subject the 
more these moves seem to suggest long term consequences.

For next week any further drops should be confined to
Monday/Tuesday and any weakness after Tuesday negates
the entire bullish scenario. If we do dip again on
Monday I would still be a dip buyer as long as we 
stay above Dow 10425 and Nasdaq 2000. 

Jim Brown

"In the old days people quit spending when
they ran out of money"


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

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


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

The Rising wedge
By Leigh Stevens
lstevens@OptionInvestor.com 

THE BOTTOM LINE – 
The two technical negatives or reversal warnings of the bearish 
risking wedge (chart) pattern and the price/RSI divergence I've 
been highlighting, along with volume contractions during recent 
weeks, did have their predictive value as the index trends 
reversed last week. The failure of most of the major indices, 
with the exception so far, of the S&P 500 (SPX) and the Nasdaq 
100 (NDX), to hold above their prior 12-month highs tends to rule 
out a next up leg also. Meaning, a new second phase to the 
recovery rally seen from August until recently. Further potential 
earnings growth isn't strong enough to support such a new leg.  

The last spurt up in stocks appeared to be money managers 
following the trend, as they always do and have to – that, and 
some year end money flowing into stocks as real estate has cooled 
off and stocks got cheaper in non-dollar terms. Moderate fixed-
income and low money market rates haven't been a competition 
either.  This backdrop may not mean much to traders anyway. We 
could get a rebound anytime in here but it now looks like it 
would be an opportunity to take out or add to put positions.    

THE WEEK'S CLOSING NUMBERS – 

The S&P 500 Index (SPX) fell 1.7 points on Friday, to close the 
week at 1,186.19, off a bit more than 2% for the week. The Dow 30 
Average (INDU) was down 18.9 points, to 10,603, for a weekly 
decline of 1.6% and holding up better than SPX. Bellwether Dow 
and tech stock Intel (INTC) which announces its quarterly 
earnings on Tuesday, bucked the trend and gained 1.5 percent.

The Nasdaq Composite Index (COMP) fell slightly on Friday, by 
1.39 points, to close at 2,088.6. COMP fell nearly 4% on the 
week, the weakest of the major indices – but what had led on the 
way up, led on the way down.

FRIDAY'S TRADING  –

A combination of end-of-week profit taking and some uncertainty 
by the Federal Reserve being putting out word of a continued 
concern about inflation (yikes, still higher rates) put the 
market on the defensive.

U.S. non-farm payrolls grew a seasonally adjusted 157,000 and the 
unemployment rate remained steady at 5.4%, per the release by the 
U.S. Labor Department on Friday. 

Some talk was for a payroll increase that would come out closer 
to 200,00.  The released report however seemed to bring back many 
or most market participants that there was no level of weakness 
showing that would stem the Fed from continuing to ratchet up 
interest rates and help the weak dollar.

And with upward revisions of 34,000 to prior months, payroll 
growth was not far off consensus expectations of 178,000. For all 
of 2004, 2.23 million jobs were added, the best showing since 
1999. 

EARNINGS SEASON –

It's starting gang!  

Alcoa (AA) is due to report on Monday – also, tech biggies Intel 
(INTC), Apple (AAPL) and Sun (SUNW). 

Thomson indicates expected Q4 earnings growth for the S&P 500 
stands at 15.3%, below the 15.5 percent estimate at the start of 
the quarter.  This growth rate is weaker than the 16.8% of Q3 and 
Well under the 28.3% of Q4 of the prior year, 2003.

A dollar rally was set off last week by talk by Treasury 
Secretary John Snow on his backing a stronger greenback. The euro 
fell to as low as $1.30 in morning trade, close to its November 
low.  It then finished New York trade at $1.3045, off over a 
percent from its high on Thursday.

Investors are realizing that: 
1. We face likely further interest rate increases and 
2. Slowing corporate earnings growth. 

Factor this in with an expectation that consumer spending will 
probably slow this year.  There will be a point when enough 
people say, hey I got enough stuff and maybe I should pay off 
some of my debt. 

All in all, the market is adjusting its expectations and you may 
wonder why it took as long as it did. But, when the market is 
running, there is not much thought about whether the move is 
racing ahead of the fundamentals or future fundamentals or what 
happens next month, next quarter!  

MY INDEX OUTLOOKS – 

S&P 500 Index (SPX) – Daily chart:

I mentioned the rising wedge pattern before and went into the 
technical aspects of this pattern and what it tends to predict. 
No point in highlighting this again – if interested, see my most 
recent trader's corner article at –
http://www.OptionInvestor.com/traderscorner/tc_010605_1.asp 
This article also has an explanation of why bearish divergences 
between price action and the Relative Strength Index often also 
predict eventual sharp reversals.   

I think that the correction will go on for some time yet – the 
key area on the downside in the S&P 500 (SPX), assuming it's 
reached or breached, is the old highs around 1160.  If this index 
is going to remain technically strong, it ought to hold above its 
prior peak – resistance, once broken, "becomes" new support or 
should if it’s a solid bull trend.  The 1160 area becomes a 
downside target or objective and I would put puts on rallies back 
to near resistance in the 1200 area. 

Even more significant SPX resistance is around 1220, more major 
support should come into play in the 1140 area, at the old 
resistance or down trendline and at the 200-day moving average. 



SPX is heading toward an oversold reading but can fall some 
distance still before we can say its at any kind of an extreme.

S&P 100 Index (OEX) – Daily chart:

The S&P 100 (OEX) has turned near-term bearish in its pattern as 
prices fell under the 21-day moving average and failed to stay 
above the hold highs.  However, OEX has not pierced its minor 
uptrend line at 562 and the index may find support in this area, 
at least for a bounce.  Near resistance looks like 569-571 
currently on up to around 575.  

I suggest buying puts on rallies.  Downside potential next looks 
to be to 555.  More major support ought to come in at 547-548, at 
the prior double top – again, (prior) resistance will tend to 
become support. Key resistance is 579-580, with a close over 580 
needed to resume a bullish chart.  



The other thing to watch here is whether put activity, relative 
to calls, continues to grow.  Traders got more bearish in the 
past week.  If this continues, it may reach the extremes that 
tends to precede a rebound. 

Use of the hourly chart highlights an uptrend channel that OEX 
has been in for some time – stay tuned on whether it stays in it. 
The S&P 100 is at the low end of its channel. The index is either 
building a small base ahead of a rebound or this recent sideways 
hourly trend is a pause before another downswing.  

Hard to tell which direction for the next short-term move right 
now, but OEX is at a key near-term test at the low end of its 
hourly uptrend channel.      

S&P 100 Index (OEX) – Hourly chart:



Dow 30 Average (INDU) - Daily: 

The rally failure and reversal to below the prior high in the Dow 
30 (INDU) is significant.  Before this it looked like the market 
was on to something not apparent in the current known 
fundamentals – like maybe job creation was really going to 
finally accelerate or some such development.

10600 at the top of the last consolidation or trading range is 
near support, with more significant support around 10425, at the 
38% retracement mark and the low end of the cluster of previous 
lows. The 10,300 area, if seen, would represent a 50% retracement 
of the October-December advance.  A technically strong rally will 
tend not to give back more than 38% of its prior advance – a very 
strong trend may see only a 25% retracement.  Stay tuned on that!

10,700 is near resistance, on up to the old high around 10,750. 
As with the S&P, I favor buying puts and other bearish option 
strategies, particularly as INDU was lagging the S&P – it may now 
be the weaker in a correction phase. 
 


As I said last week, the 21-day stochastic doesn't often  
"hang" up in an overbought area for as long as it did.  I would 
just repeat that the long period in an extreme will be unlikely 
to have happened ahead of short correction.  I will be reluctant 
to call the end of a correction before we see this indicator in 
oversold territory again.

Nasdaq Composite (COMP) Index  – Daily chart:

The Nasdaq Composite (COMP) is falling toward a key area, 
representing its longer range up trend. So, my green support 
arrow is at 2080, the intersection of this trendline on the line 
(close only) chart below  – 

A close under 2080 would suggest further downside potential to as 
low as back to the 2000 area eventually.  I peg COMP's key 
resistance at around 2145 at its 21-day moving average, although 
I think selling interest will start or pick up first around 2130.    
The 21-day average is a good one for traders to use – piercing it 
suggests a loss of upside momentum and a subsequent rebound to 
it, will likely act as resistance.  



The shorter 14-day RSI is getting nearer to a typical oversold 
reading.  I suspect we'll see a rally from at or near the up 
trendline, then a further fall later – and, which would then put 
COMP in a more oversold extreme and for a longer period than a 
day or two.  

Nasdaq 100 (NDX) Index  – Daily and Hourly:

As usual the Nasdaq 100 (NDX) present a telling chart picture. 
This index, a favorite of traders of course, tends to often be 
quite predictable from its technicals. NDX made an exact double 
top and then fell below its 21-day average – the next day's 
rebound to that same average was the predictable place to go long 
puts. 

That is, if puts were not bought when the rally failed in the 
same top area as before.  I like this kind of speculation – to 
"assume" a double top may be forming, because the risk can be 
kept low.  If prices go even a very little distance above the 
first top, then exit.  Downside potential is often very large, 
relative to this risk. Especially when the other signs are there; 
e.g., an overbought market, a long run up, a declining RSI, etc. 

By the end of the week past, the index reached its prior (12-
month) high where some buying interest was coming in.  If support 
in the 1550 area gives way, a more key support around 1510 is 
suggested by a well-defined up trendline highlighted on the chart 
below and also represents a Fibonacci 38% retracement of the 
August-December rally.



If there was rebound to the 1600 area, this is an area to buy NDX 
puts in my estimation, looking for an eventual decline to the 
1500 area – if this area is reached first I suggest taking 
profits on at least half of any puts held already.  A couple of 
closes over 1600 would turn the chart potentially bullish again 
and would be a put stop or exit point for me.    

Nasdaq 100 tracking Stock (QQQ) Daily chart:

As with the Nasdaq Index itself, we're at a key near-term point 
to determine a rebound potential. Unlike the NDX, QQQ is already 
at its up trendline.  If support implied by this trendline is 
penetrated, especially on a closing basis, an objective to around 
36.50 is established.  A close over 39.00 is needed to regain its 
bullish footing, but this would not be surprising and may be 
short-lived. 



I favor selling shorting rallies back up the 40-40.25 area, 
figuring the stock has made at least a minor top and the Q's will 
have lower to go, at least to around 36.50-36.75.

Good Trading Success!
 



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

Reverse Directions

We finally got our DIA-Jan-108 puts triggered on Monday
when the DIA bounced to 108.59 and over our Dow 10850
trigger. The price when triggered was 90 cents. 

The stated exit was "Profit target Dow 10700. If the 
Dow is falling below that level then wait for a bottom
to appear before exiting."  The official exit was $2.00
on Tuesday when the Dow hit 10700 and the option did
move to a high of $2.35 that day. For those that took
the trade it was worth the wait. 

With the Dow at 10600 we are going to reverse the
trade and go LONG using the DIA Feb-107 calls DIA-BC
at $1.35. I looked at a cheap January put as insurance
but with the Dow closing near the low for the week they
were not cheap. Instead we will just put a stop at
Dow 10400. That should knock about 50 cents off the
price and that was how much the Jan-105 put would
have cost. 

If we buy the put the 50 cents is gone on day one
because it will only recover the lost value in the
call on a drop. Our best case is breakeven on a drop
and it would take 50 cents off any upside move. In
this instance I would rather risk the 50 cents given
the potential for a bounce to 10800 more than a drop
to 10400 over the next two weeks. It is your choice.

BUY DIA Feb-$107 Call DIA-BC currently $1.35

Target Dow 10800 for a profit exit but if the market
catches fire just follow it up with a trailing stop.

Stop loss Dow 10400. 

DIA Chart


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

RIMM - $74.33 Combination Play 

I am looking for a support bounce at $72 for RIMM. It
bounced there on Friday but it was not convincing. I
want to believe it is going to hold support at $72 but
there are no guarantees in life. 

Currently this is the way the play shapes up. We sold
the Jan-06 $110 covered call @ $11.70 against stock
we bought at $88. We bought the March $85 put for $8.50.

When the court announcement was made the volatility
spike to $104 stopped us out on the put for about a
-$2 loss. We reentered the March $80 put for $6.80
about what we were stopped at on the $85. 

Currently the components look like this: (round numbers) 

JAN-06 $110 WLJ-AB @ $11.70 now $4.80  +6.90 gain
MAR-05 $ 80 RUP-OP @ $ 6.80 now $10.50 +3.70 gain
MAR-05 $ 85 RUP-OQ stopped -$2.00
RIMM $88 now $74  -$14 loss on stock. 

Total loss all positions due to premature stop = $5.40

What I would personally do now is close the $110
covered call for the $6.90 gain. I would write the
Jan-06 $75 call for $15.30. With RIMM at $74 and the
$80 put already $6 in the money it would be practically
impossible to lose any money on any further drop. The 
$15.30 proceeds, +10.50 net, recovers the loss from the 
premature stop and the drop in the stock price.

You would now have a put $6 in the money and a covered
call at the money with a couple dollars in your pocket
from a busted play. If RIMM continues down you are 100%
protected by the ITM put. If it dropped another $10 we
can close the $75 call for a profit and write the $65
call. Heck, if it fell to $50 we could do it twice and
have zero risk both times. 

This is all hypothetical but it provides a good training
exercise to illustrate how traders can work their way
out of a problem as long as the initial concept was
firm. If we had never been stopped on that first insurance
put we would be strongly profitable already just by the
stepped down call with no offset. Not the way I would
have scripted it but we have to play what we are given. 

The risk if you write the new call is that RIMM will
go higher and your put premium decrease. You can offset
that by writing the call $5 higher so that the increase
in call premium + stock appreciation offsets the loss
of the put. At some point if RIMM moves higher you 
will have to close the put and go with a stop loss
on the balance of the trade.  

http://members.OptionInvestor.com/editorplays/edply_121204_1.asp
http://members.OptionInvestor.com/editorplays/edply_121904_1.asp

RIMM Chart



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

Confused?
- J. Brown

Yuck!  The first week of 2005 was just painful to watch.  Where 
was the continuation of the Santa Claus rally?  Where was the 
January effect?  Where was all the new money that was supposed to 
be hitting stocks this month?  Some market pundits are suggesting 
that all the tax loss selling that was suppose to occur at the 
end of December is happening now.  

I'd like to think a 250-point pull back in the Industrials and a 
110-point drop in the NASDAQ is enough to satisfy this sell-off 
but from the looks of the intraday charts it may not be enough.  
No one feels very confident about next week.  Everyone seems to 
be in a wait and see mode and oh by the way I'll do some profit 
taking before my Q4 winnings evaporate.  The recent rise in oil 
and the prospect of higher rates as the Fed frets over inflation 
doesn't inspire anyone.  

You may remember me mentioning the early January barometer as 
veteran traders watch the first five days of the year as an early 
warning system for the month.  The pattern isn't fool proof but 
this past week does not bode well for the rest of January and the 
maxim says "so goes January so goes the year".   There is still 
an expectation for money to begin flowing back into stocks in the 
second half of January but that probably depends on how investors 
interpret the Q4 earnings reports.  Earnings season actually 
begins next week with Dow-component Alcoa (AA) reporting on 
Tuesday.  Yet it won't be until Tuesday, January 18th that the 
real flood of earnings reports will begin.  

Stocks look short-term oversold but I can't think of anything 
that will drive the rebound.  Be careful out there!


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

Market Averages

DJIA ($INDU)

52-week High: 10868
52-week Low :  9708
Current     : 10603

Moving Averages:
(Simple)

 10-dma: 10722
 50-dma: 10533 
200-dma: 10272 




S&P 500 ($SPX)

52-week High: 1217
52-week Low : 1060
Current     : 1186

Moving Averages:
(Simple)

 10-dma: 1200
 50-dma: 1182
200-dma: 1131




Nasdaq-100 ($NDX)

52-week High: 1635
52-week Low : 1301
Current     : 1564

Moving Averages:
(Simple)

 10-dma: 1596
 50-dma: 1575
200-dma: 1463 




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

CBOE Market Volatility Index (VIX) = 13.49 -0.09	
CBOE Mkt Volatility old VIX  (VXO) = 13.85 -0.32
Nasdaq Volatility Index (VXN)      = 19.15 -0.98 


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.97        867,875       840,718
Equity Only    0.78        665,551       517,598
OEX            0.69         35,626        24,731
QQQQ           1.05         63,277        66,847


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

Bullish Percent Data

           Current   Change   Status
NYSE          74.0    - 0.3   Bear Correction
NASDAQ-100    75.0    - 0     Bull Confirmed
Dow Indust.   73.3    + 0     Bull Confirmed
S&P 500       75.0    - 0.6   Bull Confirmed
S&P 100       75.0    - 1     Bull Confirmed


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

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


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

 5-dma: 1.42
10-dma: 1.21 
21-dma: 1.05
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    1074      1148
Decliners    1741      1842

New Highs      54        39
New Lows       15        22

Up Volume    662M     1098M
Down Vol.   1162M     1059M

Total Vol.  1843M     2183M
M = millions


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

Commitments Of Traders Report: 01/04/05


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

Not much change in the large S&P futures contracts.  
Professionals remain net bearish and small traders remain
net bullish.


Commercials   Long      Short      Net     % Of OI
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%)
01/04/05      456,255   505,042   (48,787)   (5.0%)

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

Small Traders Long      Short      Net     % of OI
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%
01/04/05      159,197   111,900    47,297    17.4%

Most bearish reading of the year:  (1,657)- 5/27/03
Most bullish reading of the year: 114,510 - 3/26/02


E-MINI S&P 500

Commercial traders have increased their bearish bias
just as small traders have increased their bullish bias.


Commercials   Long      Short      Net     % Of OI 
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%)
01/04/05      302,339   620,759   (318,420)  (34.5%)

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

Small Traders Long      Short      Net     % of OI
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%
01/04/05      279,274     71,151   208,123    59.4%

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


NASDAQ-100

Commercial traders have turned significantly more bearish
on the NDX just as the small traders has turned sharply 
more bullish.

Commercials   Long      Short      Net     % of OI 
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%)
01/04/05       27,226     44,600   (17,374) (24.1%)

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
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%
01/04/05       22,227     8,293    13,934    45.6%

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 are increasing their bearish bias on
the Dow Industrials but small traders have jumped ahead
in their bearish attitude for the index.


Commercials   Long      Short      Net     % of OI
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%)
01/04/05       24,704    32,916   (8,212)    (14.2%)
 
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
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%)
01/04/05        5,166     7,596   (2,430)   (19.0%)

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



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

Adding a mid cap and small cap (01/02/05 continued)

In last week's column we brought some closure to an investors 
question if quarterly rebalancing of an investment portfolio 
could enhance its performance.  

While 2004 was kind to both bonds and broader equity markets, I 
thought the discipline of rebalancing the hypothetical "Beetle's 
Balanced Benchmark Fun" not only showed how rebalancing enhanced 
performance over a one-year period, but also showed how 
rebalancing that took place at the end of the first quarter in 
2004, cushioned declines in the second quarter when fixed income 
and gold stocks vastly under performed the broader market 
averages.

In 2004, one dynamic that the hypothetical Beetle's Balanced fund 
did not show was just how different various market capitalized 
stocks performed, with small caps vastly outperforming large 
caps.  Sometimes, size does matter, and in 2004, smaller and mid-
cap would have enhanced a balanced portfolios return.

So for 2005, a few investors thought it would be good to add some 
various market cap observations to the Beetle's Balanced, and I 
couldn't have agreed more.  For 2004, I've added both a mid-cap 
and small-cap ETF to the Beetle's Benchmark.

Let's pick up where we left off in last week's column when we 
took a snapshot of the Beetle's Balanced portfolios.  One had not 
been rebalanced since the close of trade on 12/26/2003, while the 
second Beetle's Balanced was our "guinea pig," or test case to 
see if quarterly rebalancing could enhance the Beetle's Balanced 
portfolio's return.

Beetle's Balanced- No rebalance (top) / Qtrly rebalanced (bottom)




While many investors continually add capital to their investment 
accounts during the course of a year, for a second-year, I'm 
going to just roll the ending VALUE (12,153.20) of the 09/30/04 
rebalanced (bottom) portfolio into 2005.  

But this year, I'm adding the iShares S&P Mid-cap 400 (AMEX:IJH) 
and the iShares Russell 2000 (AMEX:IWM) to the Beetle's Balanced 
Benchmark fund.  Both of the securities vastly outperformed other 
asset classes last year.

Aha!  Chasing returns are we?  Perhaps.  However, we also use the 
the Beetle's Balanced throughout a year, in order to try and 
ascertain where money is moving, and I'll even try to analyze 
just what the heck the MARKET is saying.  

Excellent firms don't believe in excellence - only in constant 
improvement and constant change. - Tom Peters (In Search of 
Excellence)

In 2003, gold stocks, which is represented in the Beetle's 
Balanced by the AMEX Gold Bugs Index ($HUI.X) was one of the 
stronger performing indices, and investors that plowed the bulk 
of their assets into gold stocks for 2004 were disappointed, 
especially if they thought gold stocks would be a hedge for a 
declining dollar.

Here's a look at the "new" Beetle's Balanced, where all I did was 
take the 12/30/04 ending value of our rebalanced portfolio, and 
equally divide that amount among 12 different asset classes.  I 
used the 12/30/04 ending market values as the newest benchmark, 
and in 2005, I'll continue to leave one of the Beetle's Balanced 
portfolios "unbalanced," but also continue to track a quarterly 
rebalanced portfolio, for it is the unbalanced versus rebalanced 
observations that gives us the observation of where capital/money 
may be moving throughout a year.

Beetle's Balanced - 01/07/05 Close (rebalanced 12/30/04)




With the first 5 days of trading now complete, equities have 
found selling.  Perhaps many investors decided to lock in some 
gains from the third-quarter, or simply reallocate assets.

As the calendar turns to anew year, the dollar shows some signs 
of renewed strength against a weighted basket of 6 major foreign 
currencies with the U.S. Dollar Index (dx00y) 83.61 up a rather 
sharp 3.71% since December 30, 2004.

Some flight to quality perhaps?  Nnnnnnnnnnnot necessarily.  
Perhaps the "safest" security outside the dollar (cash) would 
have shorter-dated Treasuries as depicted by the SHY fractionally 
lower, yet the much "riskier" junk bond asset class, where we've 
been using the closed-end Pacholder High Yield Fund (AMEX:PHF), 
has investors seeking out some higher dividend.

Profit taking, and some tax-gain and loss selling among equities?  
Could well be.  The Dow Diamonds (DIA), which under performed the 
SPY, QQQQ, IJH and IWM in 2004, while down 1.86% since its 
12/30/04 close, has "outperformed" those equity-classes, which on 
a YrNet% basis, would have shown greater percentage gain, perhaps 
subject to greater tax-gain selling.

Gold stocks as depicted by the AMEX Gold Bugs Index ($HUI.X)?  
What can you say.  Several gold bugs I know can draw up the most 
bearish scenarios for disaster regardless of what gold stocks, or 
gold prices are doing.  The divergences noted between gold stocks 
and the dollar, even when the dollar was lower, may have well 
been the MARKET'S all-knowing forecast for some renewed strength 
in the greenback.  

Here too the dollar's rise could be simply due to some tax-gain 
buying from dollar bears that had profited in 2004.  And perhaps 
they were selling their gold stocks first.

We'll be back to visit the Beetle's Balanced Fund from time to 
time in 2005, not only when reminding investors to reallocate 
their assets, but to also test any stated scenarios (bullish or 
bearish) and see if we can't figure out if the MARKET is 
confirming them, or disputing them.  

Stay diversified, rebalance, and don't put all your eggs in one 
basket.  Even the "golden" ones.

Jeff Bailey

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

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

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


Symbol  Co               Date           Comment          EPS Est

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

AA   Alcoa Inc            Mon, Jan 10  After the market     0.41
DNA  Genentech            Mon, Jan 10  After the market     0.22
NT   Nortel Networks      Mon, Jan 10  ----- n/a -----      0.02
GBX  The Greenbrier Co    Mon, Jan 10  Before the bell      0.39

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

CAMP CalAmp Corp          Tue, Jan 11  After the market     0.08
CACB Cascade Bancorp      Tue, Jan 11  ----- n/a -----      0.26
MTB  M&T Bank             Tue, Jan 11  Before the bell      1.59
SVU  SuperValue Inc       Tue, Jan 11  Before the bell      0.58
WNI  Weider Nutrition     Tue, Jan 11  Before the bell      0.06

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

AAPL Apple Computer Inc   Wed, Jan 12  ----- n/a -----      0.48
CBSH Commerce Bancshares  Wed, Jan 12  Before the bell      0.79
INFY Infosys Technologies Wed, Jan 12  ----- n/a -----      0.38

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

CREE Cree Inc.            Thr, Jan 13  After the market     0.32
MTG  MGIC Investment      Thr, Jan 13  Before the bell      1.34
SRR  Stride Rite          Thr, Jan 13  Before the bell     -0.01
SUNW Sun Microsystems     Thr, Jan 13  After the market     0.01
VASO Vasomedical          Thr, Jan 13  After the market     n/a

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

AIT  Applied Ind. Tech    Fri, Jan 14  ----- n/a -----      0.32


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

Symbol  Company Name              Ratio    Payable     Executable

MTH   Meritage Homes              2:1      Jan  7th    Jan 10th
LSTR  Landstar System             2:1      Jan  7th    Jan 10th
ACET  Aceto Corp                  3:2      Jan 10th    Jan 10th
CMC   Commercial Metals Co        2:1      Jan 10th    Jan 11th
WHI   W Holding Co                3:2      Jan 10th    Jan 11th
MDC   MDC Holdings               13:10     Jan 10th    Jan 11th
CMN   Cantel Medical              3:2      Jan 12th    Jan 13th
CVBF  CVB Financial               5:4      Jan 13th    Jan 14th
SHFL  Shuffle Master              3:2      Jan 14th    Jan 18th
EV    Eaton Vance                 2:1      Jan 14th    Jan 18th
AGP   Amerigroup                  2:1      Jan 18th    Jan 19th
CRDN  Ceradyne                    3:2      Jan 18th    Jan 19th
BCP   Balchem Corp                3:2      Jan 20th    Jan 21st

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

Believe it or not but earnings season is starting up again.
Alcoa starts it off on Monday but the real earnings season doesn't
begin until Tuesday, Jan. 18th.  As far as economic events go this
week look for the retail sales report and the PPI report. 

==============================================================
                       -For-           
----------------
Monday, 01/10/05
----------------
Wholesale Inventories for November
FOMC Governor Guynn speaks on U.S. Economy

-----------------
Tuesday, 01/11/05
-----------------
..none..

-------------------
Wednesday, 01/12/05
-------------------
Trade Balance for November
Treasury Budge for December


------------------
Thursday, 01/13/05
------------------
Weekly Initial Jobless Claims
Import and Export Prices for December
Retail Sales for December
FOMC Governor Poole speaks 

----------------
Friday, 01/14/05
----------------
Producer Price Index (PPI) for December
Industrial Production and Capacity Utilization


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

Please read our disclaimer at:
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The Option Investor Newsletter                   Sunday 01-09-2005
Sunday                                                      2 of 5

In Section Two:

Watch List: Delivery, Energy and Advertising!
Dropped Calls: WFMI, UTX
Dropped Puts: None


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

Delivery, Energy and Advertising!

___________________________________________________________________

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.
___________________________________________________________________


United Parcel Service - UPS - close: 83.50 change: -0.16

WHAT TO WATCH: We strongly considered adding UPS to the play list 
this weekend as a put candidate.  Shares tried to rally Friday 
morning but the rally failed under the $85 level and closed near 
its low for the day.  This looks like bad news and shares could 
be poised to move toward the $80 region.  We chose to wait 
because we already have FDX on the play list as a put.  



---

Energy Transfer Partners - ETP - close: 56.10 change: +1.75

WHAT TO WATCH: ETP is looking bullish with a 3.2 percent rally 
from rising technical support at its simple 40-dma.  The bounce 
back above the $55 level could be a new bullish entry point for 
quick run towards the $60 level.  The P&F chart is very bullish 
with a $79 target. 



---

Omnicom - OMC - close: 85.07 change: +0.15

WHAT TO WATCH: OMC has spent the last few days digesting its 
breakout over the $85 level.  Now the stock looks ready to make a 
run towards the $90 region. Friday's close over $85 is a new 52-
week high and the P&F chart points to $89. 



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

FBP $59.50 -1.51 - After a month of consolidating between $60 and 
$65 shares of FBP are breaking down with the ongoing weakness in 
the banking sectors.  Friday's drop under the $60 level looks 
like an entry point for a play towards $55.  Unfortunately FBP 
does not have options available.

AAPL $69.25 +4.70 - AAPL soared on Friday breaking its 
consolidating wedge and pushing it towards resistance at $70.  
The MACD is very close to a new buy signal.  Watch for the 
momentum to continue until its earnings on Jan. 12th.

GS $104.78 -0.45 - We're still watching GS for a breakout over 
the $106 level.

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**************************
PICKS WE DROPPED THIS WEEK
**************************

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS
^^^^^ 

United Tech. - UTX - close: 100.02 change: -1.09 stop: 99.95  

Hmm.. so much for support at $100 mark.  UTX dropped right 
through it on Friday morning and didn't bounce until shares hit 
the 50-dma.  Even then the bounce began to fade and only the 
closing bell probably saved UTX from ending under the $100 mark.  
After two weeks of declines the stock is oversold and due for a 
bounce but the technical picture is mixed.  It wouldn't surprise 
us to see UTX go either direction from here although the downside 
does have more support near $98 and $96.  We're stopped out at 
$99.95. 

Picked on December 1 at $100.15
Change since picked:     - 0.13
Earnings Date          10/20/04 (confirmed)
Average Daily Volume =      1.8 million  
Chart =


---

Whole Foods - WFMI - close: 93.07 chg: -0.18 stop: 91.49

We've decided to close WFMI unopened.  We'll keep an eye on it 
and reconsider it for a play if it breaks $90 or trends back 
towards $97. 

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



PUTS
^^^^

None


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


OI  = Open Interest - the number of open contracts outstanding.
Last Trade @ = Indicates where the option traded last.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


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

 

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

Please read our disclaimer at:
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The Option Investor Newsletter                   Sunday 01-09-2005
Sunday                                                      3 of 5

In Section Three:

Current Calls: RAI, JCI, FSH, FRE, COF, BBOX
New Calls: PD, TXI
Current Puts: ADBE, CAI, FDX
New Puts: None

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





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


Black Box - BBOX - close: 45.71 change: -0.69 stop: 44.99 *new*

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:
Hmm... with the NWX networking index now in a major breakdown 
under its simple and exponential 200-dma's it may be time for us 
to look for the exit door in BBOX.  Thursday's bounce has failed 
at the 10-dma overhead.  Conservative traders can exit now.  
We're going to hold out some hope and raise our stop loss to 
$44.99. 

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

Annotated chart:


Picked on December 22 at $ 46.15 
Change since picked:      - 0.44
Earnings Date           02/01/05 (confirmed)
Average Daily Volume =       128 thousand
Chart =



---

Capital One Financial - COF - cls: 81.96 chg: -0.49 stop: 79.95 *new*

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

Why we like it:
The action in the banking indices doesn't look so hot and both 
the BIX and BKX appear poised for more declines next week.  That 
doesn't bode well for COF.  Shares of COF managed to bounce from 
their 40-dma on Thursday but that bounced failed at its 10-dma 
overhead on Friday.  We're not giving up hope yet but we're not 
suggesting new bullish positions at this time either.  We are 
going to raise our stop loss to $79.95. 

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

Annotated chart:


Picked on December 12 at $ 81.12
Change since picked:      + 0.84
Earnings Date           01/19/05 (confirmed)
Average Daily Volume =       1.4 million  
Chart =


---

Freddie Mac - FRE - close: 71.71 chg: -0.04 close: 69.49     

Company Description:
Freddie Mac is a stockholder-owned company established by 
Congress in 1970 to support homeownership and rental housing. 
Freddie Mac fulfills its mission by purchasing residential 
mortgages and mortgage-related securities, which it finances 
primarily by issuing mortgage-related securities and debt 
instruments in the capital markets. Over the years, Freddie Mac 
has made home possible for one in six homebuyers in America.
(source: company press release)

Why We Like It:
Shares of mortgage lender FRE have managed to hold their own the 
last couple of sessions.  We weren't very excited that it failed 
to bounce much on Thursday but it made up for it failing to sell-
off on Friday.  The sideways chop could be a sign of strength in 
this short-term market downtrend.  Still we would be cautious.  
Bulls looking for new positions may want to wait for a dip toward 
round-number, psychological support near $70.00.  Technicals are 
mixed but the MACD is in a sell signal.  Look for a reaction, 
possibly negative, on Monday morning.  Evidently a paper from the 
Federal Reserve economics came out on Friday after the closing 
bell that suggested the government sponsored mortgage lenders FRE 
and FNM do little to help "stabilize the markets in difficult 
periods" (Reuters).  The Fed has had unkind things to say about 
FRE and FNM before but it's unsure how investors will react to 
this new bit of news if they react at all.  Continue to watch 
the banking indices.  If they continue to decline we would be 
very hesitant to begin new bullish plays.

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

BUY CALL APR 65 FRE-DM OI=12592 current ask $7.90
BUY CALL APR 70 FRE-DN OI= 2903 current ask $4.00
BUY CALL APR 75 FRE-DO OI=15583 current ask $1.40

Annotated chart:


 
Picked on December 21 at $ 71.80
Change since picked:      - 0.09
Earnings Date           00/00/05 (unconfirmed)
Average Daily Volume =       2.8 million  
Chart =


---

Fisher Scientific - FSH - cls: 60.40 chg: -0.17 stop: 59.85*new*

Company Description:
Founded in 1902, Fisher Scientific International Inc. is a 
leading provider of equipment, supplies, and services for the 
clinical laboratory and global scientific research markets. 
Through our broad product offering, electronic-commerce 
capabilities, integrated global logistics network, and 
manufacturing facilities, we provide more than 600,000 products 
to over 350,000 customers in 145 countries.
(source: company press release)

Why We Like It:
Thus far FSH has been holding round-number, psychological support 
at the $60.00 mark.  That's good because that is what we expected 
it to do.  Unfortunately, with a weeklong down turn in the 
markets FSH has been testing this level for four days in a row.  
Our indicators suggest that FSH is going to breakdown under the 
$60 mark soon.  If that occurs we would expect shares to fall 
back toward $57.50 near its 200-dma or maybe all the way back 
toward the bottom of its old channel.  Conservative traders may 
want to exit now.  We're going to hold on and let the $60 level 
do it's job.  If it breaks we'll exit with our new stop loss at 
$59.85.  If it doesn't then bulls can look for a new entry point 
on a strong bounce higher.  

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

Annotated chart:


Picked on December 21 at $ 61.70
Change since picked:      - 1.30
Earnings Date           02/02/05 (unconfirmed)
Average Daily Volume =       1.3 million  
Chart =



---


Johnson Controls Inc - JCI - cls: 61.10 chg: -0.13 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:
JCI's chart is starting to look pretty ugly and we're tempted to 
exit now that shares have broken the rising 50-dma.  However, 
we're going to hold on for a couple of more days.  After six 
declines in a row JCI is overdue for an up day or two and the 
short-term stochastics agree.  The question we posed on Thursday 
is whether or not we should use any sort of bounce as an exit.  
That probably depends on what it looks like and the volume behind 
it.  Right now we are not suggesting new positions as the 
indicators are mixed.  The intraday chart does not look healthy 
and suggests that we'll be stopped out at $60.49 as soon as 
Monday.  Use your best judgment.

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

Annotated Chart:


Picked on December 29 at $ 63.51
Change since picked:      - 2.41
Earnings Date           01/19/05 (unconfirmed)
Average Daily Volume =       669 thousand 
Chart =


---


Reynolds American - RAI - close: 78.12 change: +0.47 stop: 75.99

Company Description:
R.J. Reynolds Tobacco Company (R.J. Reynolds) is an indirect 
wholly owned subsidiary of Reynolds American Inc. R.J. Reynolds 
is the second-largest tobacco company in the United States, 
manufacturing about one of every three cigarettes sold in the 
United States. R.J. Reynolds' product line includes five of the 
nation's 10 best-selling cigarette brands: Camel, Winston, Kool, 
Salem and Doral. (source: company press release)

Why We Like It:
Tobacco stocks seem to be on the mend with MO bouncing on Friday 
with decent volume and RAI actually up two days in a row with 
strength at its rising 40-dma.  This could actually be a new 
bullish entry point for RAI but we might suggest waiting for 
shares to trade back over $79 or even $80 before going long.  

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

BUY CALL FEB 75 RAI-BO OI= 2092 current ask $5.40
BUY CALL FEB 80 RAI-BP OI= 3149 current ask $2.50
BUY CALL FEB 85 RAI-BQ OI=  250 current ask $0.95

Annotated chart:



Picked on December 22 at $ 80.11
Change since picked:      - 1.99
Earnings Date           01/24/05 (unconfirmed)
Average Daily Volume =       1.0 million  
Chart =





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


Phelps Dodge - PD - close: 97.65 change: +5.44 stop: 92.00

Company Description:
Phelps Dodge Corp. is the world's second-largest producer of 
copper, a world leader in the production of molybdenum, the 
largest producer of molybdenum-based chemicals and continuous-
cast copper rod, and among the leading producers of magnet wire 
and carbon black. The company and its two divisions, Phelps Dodge 
Mining Co. and Phelps Dodge Industries, employ more than 14,000 
people worldwide. (source: company press release)

Why We Like It:
We're getting a bit aggressive here with PD.  Normally we don't 
like to chase a big move but PD is bouncing sharply from the 
bottom of its rising channel and if we don't act soon it could 
get away from us - at least that is a distinct possibility.  
There's always a chance that PD could continue to churn higher 
instead.  The stock soared more than 5.8 percent on Friday with 
volume more than double the average.  The move was fueled by 
rumors that PD was looking to sell its 14 percent stake in 
Southern Peru Copper.  Oh and some positive comments from a 
Prudential analyst who raised his earnings estimates for PD and 
raised his price target from $156 to $170.  Technically it is 
worth noting that PD's Point & Figure chart is currently in a 
sell signal and we see on its daily chart a bearish divergence in 
the MACD indicator.  However, the P&F chart is bouncing from 
rising support and has already produced a low-pole reversal.  
We're going to speculate on a rally back toward the top of the 
channel in the $105-110 region.  More conservative traders may 
want to be patient and look for a pull back toward $96 or a 
breakout over $100-101.   Just remember we want to be out of the 
play before PD's late January earnings report. 

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

BUY CALL FEB 95 PD-BS OI=2876 current ask $6.70
BUY CALL FEB 100PD-BT OI= 700 current ask $4.00
BUY CALL FEB 105PD-BA OI=1379 current ask $2.20

Annotated chart:



Picked on January 09 at $ 97.65
Change since picked:     + 0.00
Earnings Date          01/27/05 (unconfirmed)
Average Daily Volume =      2.2 million  




---

Texas Industries - TXI - close: 60.18 change: +1.42 stop: 58.00

Company Description:
TXI is a leading supplier of building materials, primarily cement 
and structural steel. Cement operations serve Texas and 
California, the two largest cement markets in the nation. 
Structural steel products are distributed throughout North 
America. (source: company press release)

Why We Like It:
TXI might also be considered a more aggressive play.  The average 
daily volume is a bit light for what we like to trade and the 
option volume is pretty light too.  Traders should be careful 
when placing their orders.  We like the stock because like PD 
shares of TXI are bouncing from the bottom of their long-term 
rising channel.  The relative strength on Friday is also a bonus.  
We're going to use a relatively tight stop and target a quick run 
toward $65.00.

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

BUY CALL FEB 55 TXI-BK OI= 3 current ask $6.50
BUY CALL FEB 60 TXI-BL OI= 1 current ask $3.30
BUY CALL FEB 65 TXI-BM OI= 0 current ask $1.30

BUY CALL APR 60 TXI-DL OI=54 current ask $4.70
BUY CALL APR 65 TXI-DM OI=51 current ask $2.65

Annotated chart:



Picked on January 09 at $ 60.18
Change since picked:     + 0.00
Earnings Date          12/16/04 (confirmed)
Average Daily Volume =      238 thousand 




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

Adobe Systems - ADBE - close: 58.78 change: +0.04 stop: 62.26

Company Description:
Adobe is the world's leading provider of software solutions to 
create, manage and deliver high-impact, reliable digital content.
(source: company press release)

Why We Like It:
So far so good.  ADBE has set another new relative low on Friday 
with volume rising all week.  Granted shares did bounce from 
Friday's low but that bounce failed near $59.51 so this looks 
like a new potential entry point for the bears.  The P&F chart 
has produced a new triple-bottom breakdown sell signal with a $52 
target.  Our short-term target is only $55.  It's not too late to 
consider new plays.  Although it is worth noting that the stock
is looking short-term oversold and its short-term stochastics
are reaching oversold extremes.  

Suggested Options:
This is a short-term play.  We're going to suggest the January 
and February puts.

BUY PUT JAN 60 AEQ-ML OI=5055 current ask $2.05

BUY PUT FEB 60 AEQ-NL OI= 283 current ask $3.00

Annotated chart:



Picked on January 06 at $ 58.99
Change since picked:     - 0.21
Earnings Date          03/17/05 (unconfirmed)
Average Daily Volume =      2.3 million 
Chart =


---

CACI Intl - CAI - close: 61.71 change: -1.60 stop: 65.01*new*

Company Description:
CACI International Inc provides the IT and network solutions 
needed to prevail in today's new era of defense, intelligence, 
and e-government. From systems integration and managed network 
solutions to knowledge management, engineering, simulation, and 
information assurance, we deliver the IT applications and 
infrastructures our federal customers use to improve 
communications and collaboration, secure the integrity of 
information systems and networks, enhance data collection and 
analysis, and increase efficiency and mission effectiveness. Our 
solutions lead the transformation of defense and intelligence, 
assure homeland security, enhance decision-making, and help 
government to work smarter, faster, and more responsively.
(source: company press release)

Why We Like It:
CAI is looking better as a bearish candidate with Friday's 2.5 
percent decline.  The three-day action looks like a failed rally 
at $64 that bears can short.  Granted we're still cautious about 
the $58.50-59.00 level and the rising 100-dma we expect it to 
breakdown.  We're lowering our stop loss to $65.01.  Our target 
remains near the $55 region.

Suggested Options:
This is a short-term play so we're suggesting the January or
February puts.

BUY PUT JAN 65 CAI-MM OI=121 current ask $4.00
BUY PUT JAN 60 CAI-ML OI=101 current ask $1.15

BUY PUT FEB 65 CAI-NM OI=107 current ask $4.90
BUY PUT FEB 60 CAI-NL OI= 17 current ask $2.25

Annotated chart:



Picked on January 05 at $ 61.95
Change since picked:     - 0.14
Earnings Date          01/19/05 (unconfirmed)
Average Daily Volume =      348 thousand
Chart =


---

Fedex Corp - FDX - close: 94.91 change: -0.28 stop: 97.51

Company Description:
FedEx Corp. provides customers and businesses worldwide with a 
broad portfolio of transportation, e-commerce and business 
services. With annual revenues of $27 billion, the company offers 
integrated business applications through operating companies 
competing collectively and managed collaboratively, under the 
respected FedEx brand. Consistently ranked among the world's most 
admired and trusted employers, FedEx inspires its more than 
250,000 employees and contractors to remain "absolutely, 
positively" focused on safety, the highest ethical and 
professional standards and the needs of their customers and 
communities. (source: company press release)

Why We Like It:
Perfect!  FDX rallied to $97.49 on an upgrade to "overweight" 
on Friday morning and then promptly failed.  We had the $97.50 
level pegged as overhead resistance and the failed rally there 
and breakdown under support at $95.00 looks like a great bearish 
entry point.  FDX hit our entry point at $94.95 on Friday 
afternoon.  Volume was very heavy suggesting more weakness to 
come.  The P&F chart has reversed into a double-bottom breakdown 
sell signal with an $89 target.  Our short-term target is only 
the $90 region and/or its 100-dma.  

Suggested Options:
We are going to suggest the January and February puts but
our preference would be February's.

BUY PUT JAN 95 FDX-MS OI=3051 current ask $1.60
BUY PUT JAN 90 FDX-MR OI=2143 current ask $0.30

BUY PUT FEB 95 FDX-NS OI= 532 current ask $2.55
BUY PUT FEB 90 FDX-NR OI= 351 current ask $0.90

Annotated chart:


Picked on January 07 at $ 94.95
Change since picked:     - 0.04
Earnings Date          03/17/05 (unconfirmed)
Average Daily Volume =      1.6 million 
Chart =


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

None


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The Option Investor Newsletter                   Sunday 01-09-2005
Sunday                                                      4 of 5

In Section Four:

Leaps:    Buying Opportunity Has Arrived
Spreads and Straddles:  Privatization Of Social Security -- A Dangerous Proposition

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*****
LEAPS
*****

Buying Opportunity Has Arrived

I mentioned over the last couple weeks that we were
approaching a buying opportunity. I think it surprised
quite a few people including me. I did not expect the
bullishness to disappear so quickly and so completely. 

But, we took profits on ten positions over the last
several weeks and we are ready to invest those profits
in new stocks at bargain prices. 

However, they are bargain prices only if the rebound
appears on schedule. We are at that point in the market
where we could go either way. The war of words is
underway and nobody has a lock on the outcome. 

Personally I still have an upside bias as long as
Dow 10400 and Nasdaq 2000 don't break. We are a long
way from those levels and I would hate to be long 
from here and hoping we don't get there. This means
every new play will be covered by insurance just in
case. 

We lost three more positions this week with the tight
stops and that gives us more room to take advantage
of the drop.  

I do not want to get too aggressive until we see
what next week brings. If we close lower for the 
week we will be changing the bias for future plays. 

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

leaps @ OptionInvestor.com  


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

None 


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

ETR - Entergy Corp. $68.16   **Stopped $66.50 **

COP - Conoco Phillips $86.80    ** Stopped 85.00 **

HIG - Hartford Financial $68.98  ** Stopped $67.50 **


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

ADBE - Adobe Systems $58.78

EBAY - eBay Inc $106.51

RIMM - Research in Motion $74.33

XMSR - XM Satellite $34.08


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

Position Summary Table



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


ADBE - Adobe Systems $58.78     ** No Stop **

Adobe is the king of the document and image business
and continues to announce new products. The company
announced earnings in December that rose +33% and beat
estimates. Income for the year rose +69% on a +29%
increase in revenue. Adobe affirmed guidance for 2005
and the stock has been beating the Nasdaq in percentage
gains. In 2004 the stock rose +60%. Since they have
already announced earnings we have very little event
risk over the next month. 

ADBE fell from $64 to $58 over the last week on profit
taking and has pulled back to support at the $57.50
level. If the market turns around ADBE should find
willing buyers ready and waiting. 

I am recommending the February $55 put as insurance
at $1.00. That gives us six weeks for the Q1 earnings
to cycle and for ADBE to pick a direction. If we are
not profitable by Feb-18th expiration we will close
and take our lumps.  

Buy Jan-06 $60 LEAP Call WAE-AL currently $7.50

Put Insurance
Buy Feb-05 $55 Put AEQ-NK currently $1.00

Entry $58.78 (01/09)
ADBE Chart



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

EBAY - eBay Inc $106.51    ** Stop $95.00 **

eBay finally showed a crack in its armor as profit
taking knocked it back from over $118 to $106.50 at
Friday's close. This is a serious bout of profit 
taking with the stock finding no bidders until late
Friday afternoon. Over the past year the stock price
has doubled and plenty of funds needed to turn profits
into cash and diversify. 

Options on EBAY are not cheap because of the wide
trading range and the expectations they will double
again over the next year. They are continuing to 
expand and earnings should be strong this quarter. 

I am recommending the Jan-06 $110 LEAP Call YRL-AB
which at $14.80 is expensive but the LEAP strike $10
higher at $120 is nearly $11. I would rather pay the
extra $3 for $10 of potential gain. 

It is hard for me to recommend an insurance put due
to the high prices. The Feb-$100 is $2.75 and too
expensive in my view but the $95 is too fare away
from the current price to do any good. 

One alternative would be to sell the Jan-06 $90 LEAP
Put YRL-MR at $6.90. It is $16 under the current
stock price and under several levels of rising support
where buyers should appear. You would have to be
convinced that EBAY is only going higher in 2005 to
take that chance. 

EBAY is well into split territory and could announce
a 2:1 with their earnings on Jan-19th. 


Buy Jan-06 $110 LEAP Call YRL-AB currently $14.80  

Insurance alternative
Sell Jan-06 $90 LEAP Put YRL-MR currently $6.90
(selling the put offsets the price of the call
but increases risk)

No insurance put

Stop loss $95.00

Entry 106.58 (01/09)
EBAY Chart




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

RIMM - Research in Motion $74.33  ** No Stop **

I know this is going to raise some eyebrows but I think
RIMM is still poised for success. The court case will
be back in court for a long time and RIMM is still
selling and improving the Blackberry. They are 
escrowing a required portion of the sales to satisfy
the judgment should the case eventually go against 
them. 

RIMM is very profitable and should continue to be
profitable. Hardly a week goes by that we don't see
some new development in their product line. 

RIMM has risk but the stock has pulled back to $74
and well off the $104 spike on the announcement. This
is strong support at $72.50 and I am willing to take
the chance. 

I am suggesting the 2006 $80 Call and the Feb-$70 Put
as insurance. We should know within the next six weeks
if RIMM is going to rebound. 

This is not for those with a low risk profile.

Buy Jan-06 $80 LEAP Call WLJ-AP currently $13.20

Insurance put
Buy Feb-$70 Put RUP-NN currently $3.50. 
(I chose a higher strike to avoid bracket bleed. The
put should increase at the same rate as the call
decreases on a continued drop.)  

Entry $74.30 (01/09)
RIMM Chart



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

XMSR - XM Satellite $34.08   ** Stop $30.00 **

XMSR has pulled back significantly from its near $41
level where we exited the last LEAP position for a 
nice profit. At $34 it is in a strong support range
of $32-$34. 

As the radio wars progress it is SIRI that is 
announcing some new effort almost daily and spending
itself into a hole. XMSR has three times the subscribers
as SIRI and SIRI's market cap is $2.5 billion more than
XMSR. 

There are a lot of differing views on this battle but
I am sticking on the biggest of the two. I believe
SIRI is overbought and XMSR is oversold. As long as
XMSR continues to put the subscribers in the seats
it will win in the end. XMSR is the only one with a
satellite portable iPod like device. At $349 it offers
the capability of all the channels plus a recording
capability of five hours of streaming content when 
you can't listen live. 

Buy Jan-06 $35 LEAP Call YLX-AG currently $6.70

Insurance Put
Buy Feb-$32.50 Put QSY-NZ currently $1.45
Six weeks should be enough time to confirm a rebound. 

Stop loss $30 

Entry $34.09 (01/09)
XMSR Chart




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


SYMC $23.81 Symantec - Veritas  ** no stop **

SYMC broke the 200 dma on Thursday when Microsoft
announced its long awaited entry into the spyware
market. This is another overdone sound bite and it
does not impact the long term aspects of this play.   

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

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

2007 $25 LEAP Call OBL-AE @ $6.30

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

Entry $25.37 (12/19)

SYMC Chart


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


XLE - S&P Energy SPDR $34.97  ** No Stop **

The XLE declined slightly on profit taking but with oil
rising again the XLE has found support at $34. The bid
for Unocal should also help fuel speculation in the oil
stocks and force a reevaluation.  

This is a long-term play and we could see some
volatility but we have an insurance put to protect us.    

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

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


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

Entry $35.55 on 12/12

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

XLE Chart



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

COP - Conoco Phillips $84.78    ** Stopped 85.00 **

COP took a hit early in the week dropping more than
-$4 on the drop in oil, profit taking and worries 
over Russia. On the chart you can see that it only
pulled back to its 100 day average and then rebounded.
I probably had the stop too close given the fear of
a new years dip. I am not going to put it back on
right away because of the Russian problem. COP just
bought several billion in Russian oil assets from 
Lukoil and some fear those could be at risk. 


Current position:
Jan-2006 $90 LEAP Call YRO-AR at $5.90 exit $5.20
Jan-2007 $90 LEAP Call OJP-AR at $9.10 exit $8.50
Insurance Put: Feb $80 PUT COP-NP at $1.75 exit $1.15

Entry $84.74 Dec-12th, exit 1/3/05

COP Chart



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

MRO - $36.81 Marathon Oil    ** No Stop **

Marathon took a minor hit on profit taking and the early
week drop in oil prices. We are down about 40 cents on 
the leaps and I am not worried as long as oil stays over 
$42.   

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

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

Marathons chart shows strong support at the 200-day 
average which has been tested three times over the 
past year. 

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

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

Entry $36.67 (12/12)
MRO Chart




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

ETR - Entergy Corp. $64.92   **Stopped $66.50 **

ETR fell off the charts on profit taking in the 
energy sector. It went from a new high on Dec-30
near $69 to close at 64.92 on Friday. We were stopped
out at $66.50 when it fell out of its channel. 

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

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

The LEAPs are very cheap. 

Current position:
2007 $70 LEAP Call ODF-AN @ $5.20 exit 4.90

Entry (11/22) $65.51

ETR Chart




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


HIG - Hartford Financial $67.51  ** Stopped $67.50 **

Hartford suffered the same fate as the energy stocks after
three months of vertical growth. HIG set a new high on
the 3rd at $69.73 and fell back to nick our stop at
$67.50 by about a quarter to force an exit.  

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


Entry $65 (12/1)
2007 $70 LEAP Call OZJ-AN @ $6.20 exit 8.30 +2.00
(No insurance put)

HIG Chart




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

Hits and Misses

Last week I put eight potential targets on the watch list
and we added four of those as new plays this week. RIMM,
ADBE, XMSR and EBAY either hit my target price or came
close enough to produce an entry. 

UNH barely dipped on profit taking to 85.50 before 
rebounding and did not come close to the $80 target. I
raised it to $84 and the 30dma. 

I lowered the entry on HET from 63 to 61 after a couple
weeks of waiting and we saw another dip from 67.25 back
to just over 63 and a quick rebound. That is twice we
missed an entry because support at 64 found waiting
buyers. I am changing the entry to 64 in hopes of one
more dip. 

DHI came very close to our $36 target to close the week
at $37.43 after spending four days at $37. It is showing 
no signs of a bounce and I am going to leave the target
at $36 in hopes of one more dip on Monday. 

DGX came within 17 cents of the $91 target and is
showing a steep decline. I am going to lower the target
to $90 and just under the $91 support and just over the 
100 day average. 

IBM dipped to $95.75 at Friday's close and is nearing
the $94 target. With earnings ahead I am in no rush to
move it higher and will wait. 

I am adding QCOM at $41 and the 100 dma. QCOM has been
acting better than the rest of the chip sector and is
only $2 below its recent high at $45. I hate to buy
the high and would like to see a pullback to the 100dma.

I am also adding TOL at $64. It has dipped to that
level twice in the last month and I am hoping we get
another chance. The builders refuse to die and TOL
is one of the strongest. 

Elan (ELN) has been performing very well and could be
about to breakout of its current range. I am going to
add it with a target of $25.50 and a breakout entry
at $28.50. If we do move higher from here I don't 
want to miss the train. A reader emailed me a couple
weeks ago asking what he should do with his $5 leaps
he had been holding for two years. With ELN at $27 I
told him to celebrate. 

I really do not want to add too many potential positions
because we don't know for sure that the market is going
higher. By all accounts it should follow the pattern
of a January bounce and February fade. If it follows
the pattern of years ending in five since 1890 the 
lows for the year are made in the first week. That is
a strong possibility but not one on which I am willing
to bet the farm. 

I am changing the watch list format slightly. I am no
longer going to provide a big play description for the
watch list. I am only going to list the targets and the 
leaps along with a chart. If we are triggered I will
add the commentary when it  

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

leaps @ OptionInvestor.com 




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

None


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

ELN - Elan Pharma (Target 25.50, breakout 28.50)

TOL - Toll Brothers (Target 64.00)

QCOM - Qualcomm (Target $41.00)


*************************
Current Watch list
*************************    



HET $66.45 Harrah's Entertainment  **New Target $64.00**

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

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

HET Chart


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

UNH - United Health Group $87.25 (Target $84.00)

Buy 2006 $90 LEAP Call WUH-AR currently 8.70

Insurance Put
Buy MAR-2005 $80 Put UHB-OP currently $1.55

UNH Chart



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

DHI - D R Horton $37.43  (Target $36.00)

Buy 2006 $40 LEAP Call YRI-AH Currently $4.90

No insurance

Stop loss $32.00

DHI Chart



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

DGX - Quest Diagnostic $91.42 (Target $90.00) 

Buy 2006 $95 LEAP Call YFK-AS currently $9.00

Insurance put
Buy Feb-$85 Put DGX-NQ currently 70 cents. 

DGX Chart


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

IBM - IBM $95.78 (Target 94.00)

Buy 2006 $100 LEAP Calls WIB-AT currently $6.00

Insurance put
Buy April $90 Put IBM-PR currently $1.35

IBM Chart


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

TOL - Toll Brothers $67.12 (Target 64.00)

Buy 2006 $70 LEAP Call YKW-AN currently 9.00

Insurance put
Buy March $60 Put TOL-OL currently $1.80

TOL Chart


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

QCOM - Qualcomm $43.19 (Target $41.00)

Buy 2006 $42.50 LEAP Call AAO-GV currently $4.40 

Insurance put
Buy April $40.00 Put AAO-PH currently $1.50

QCOM Chart


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

ELN - Elan Pharma $27.69

(Target 25.50, breakout entry 28.50)

Buy 2006 $30 LEAP Call WTB-AF currently $5.00

Insurance Put - none

Stop loss = $24.00

ELN Chart



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

Privatization Of Social Security -- A Dangerous Proposition
By Mike Parnos

A lot of people are rooting for the government to privatize 
Social Security.  It could actually happen.  When it happens, I 
want a ringside seat.   It will be like lambs being led to the 
slaughter.   The Christians didn't have a chance against the 
lions (unless they were the Detroit Lions).  Why would this be 
any different?

In the investment world, ignorance is not bliss -- it's costly – 
and it's everywhere.  Market makers depend on the ignorance of 
the masses -- and they live pretty well.  What do you suppose 
will happen to the millions of people who think they know what 
they're doing?  They will have a whole other source of money to 
throw at the stock market?  Say "goodbye" to a comfortable 
retirement and say "hello" to working till you're 80.  We can 
look forward to a whole new generation of Walmart greeters.  
There won't be enough Walmarts to go around.  (When I grow up, I 
want to be a Victoria's Secret greeter).

All the retirees who congregate at McDonalds every morning, 
getting free refills on their $.50 coffee, will soon be 
dispensing coffee and fries and wearing those nifty uniforms.  
Government cheese will then become a delicacy. 

As we know, most people who trade their own money lose their 
family jewels.  Are we to assume that they're going to go to the 
retirement doctor and get an injection of common sense?  It's not 
like a flu shot.  Will they learn how to trade through osmosis?  
Perhaps it will come to them in a vision.  If they don't smarten 
up, they're going to be in big trouble.

Then there are those who realize they don't know what the hell 
they're doing.  They turn their money over to strangers to invest 
for them -- that bottomless pit of financial advisors and mutual 
fund managers.  The thought of placing my financial future in 
their hands might result in a nightmare or two.

The consensus is that investment savvy people would gravitate 
toward bonds.  The returns are not huge, but it's relatively safe 
-- safer than stocks.  It's the lottery-ticket buyers who we're 
worried about.

The United States is a wonderful place.  The government wants to 
take on the roll of being their brother's keeper.  Look how much 
money we throw at foreign countries to get them to like us when 
there are people who are starving right here in America.  I still 
haven't figured that out.  Well, to be consistent with the 
"brothers keeper" mentality, what do you suppose will happen when 
people's new "privatized" retirement accounts begin to lose 
money?  Gee, who do you think these folks are going to come 
crying to?  The government will feel obligated to bail out the 
losers with the losers.  And what have we accomplished?
 
Privatization of Social Security could conceivably work.  I 
suggest, however, that people be required to take a test to find 
out if they're capable of handling their own retirement before 
they're handed the responsibility.  But, then again, they don't 
give tests for motherhood or fatherhood.  
__________________________________________________________

Reminder
I will be away this week.  Let's hope the market behaves itself.  
I going on my annual family cruise where we will be stopping at 
four ports where islanders will be trying to sell us $.50 items 
for $5.00.    Where will I be?  It starts with a "B", ends with a 
"T", with a "UFFE" in between.
___________________________________________________________

February Position #1 - SPX Iron Condor - 1186.19
Sell 10 SPX Feb. 1255 calls
Buy 10 SPX Feb. 1265 calls
Credit of about: $.50 ($500)

Sell 10 SPX Feb. 1140 puts
Buy 10 SPX Feb. 1130 puts
Credit of about: $1.00 ($1,000)

Total net credit of about $1.50 ($1,500).  Maintenance of 
$10,000.  We've created a maximum profit range of 1140 to 1255 – 
that's 115 points.  If everything works out as planned, our 
return on risk will be 17.6%.  We're still conservative and 
defensive minded.  That's why we're limiting our spread size to 
10 points or less.  
_________________________________________________________

February Position #2 - OEX Bull Put Spread - 566.38
Sell 15 OEX Feb 530 put
Buy 15 OEX Feb 520 put
Credit of about: $.50 ($750)

Net credit and potential profit of $750.  Maintenance of $15,000.  
We're going to be content to put on the bull put spread for now.  
If/when the time is right, we'll put on the bear call spread to 
complete the Iron Condor.
___________________________________________________________

JANUARY CPTI POSITIONS:
January CPTI Position #1 - SPX Iron Condor (Part 1) - 1186.19
We sold 20 January SPX 1125 puts and bought 20 January SPX 1110 
puts for a credit of about $.50 ($1,000).  Profit potential 
$1,000.  Maintenance: $30,000.  I know I said I prefer not to use 
anything larger than five or ten-point spreads, but this is 
almost 80 points out of the money that I'm going to make an 
exception.  This seems incredibly safe, but then we thought that 
before, didn't we?

January CPTI Position #2 - SPX Sure Thing Credit Spread - 1186.19
We're still in an up-trend and we might as well try to take 
advantage of it.  Our "sure thing" spread worked to perfection 
for the December cycle.  So, until the market tells us otherwise, 
we're going to continue with the strategy.  Again, remember that 
this strategy is for only those who have a lot of maintenance 
dollars available, because you may need them.  Eventually, we'll 
be right, but you may need that staying power (money, financial 
Viagra). You have to be able to withstand being whipsawed back 
and forth.

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

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


January CPTI Position #3 - MSH Iron Condor (Part 1) - 484.65
This is the Morgan Stanley High Tech Index.  We haven't traded it 
before, so now is as good a time as any.  Maybe it will turn out 
to be a usable replacement for the RUT.  We're going to continue 
to be conservative.

We sold 15 MSH January 450 puts and bought 15 MSH January 440 
puts for a credit and potential profit of about $.55 ($825). 
Maintenance: $15,000.

January CPTI Position #4 -- SPX Iron Condor  (Part 1) - 1186.19
Put on two weeks ago -- and a wise choice it was (so far).  I've 
become very conservative -- even more so after our unpleasant 
experience in the November cycle.  I saw an opportunity to put 
some serious distance between a bull put spread and where the SPX 
was trading.   With the SPX at 1179, I noticed the January 
1100/1090 bull put spread would yield about $.70.  Being still 
somewhat bullish for the next few months, I was willing to go out 
to January.  I like that almost 80-point (now over 100 points) 
cushion and I'm willing to wait the eight weeks.  When the 
opportunity presents itself, we can always add the other side of 
the condor.

We sold 15 SPX January 1100 puts and bought 15 SPX January 1090 
puts for a credit of about $.70 ($1,050).  Maintenance: $15,000
____________________________________________________________
ONGOING POSITIONS
QQQ ITM Strangle - Ongoing Long Term -- $38.55
We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts 
of the 2005 QQQ $29 calls for a total debit of $14,300. We make 
money by selling near term puts and calls every month. Here's 
what we've done so far: Oct. $33 puts and Oct. $34 calls - credit 
of $1,900. Nov. $34 puts and calls - credit of $1,150. Dec. $34 
puts and calls - credit of $1,500. Jan. $34 puts and calls – 
credit of $850. Feb. $34 calls and $36 puts - credit of $750. 
Mar. $34 calls and $37 puts - credit of $1,150. Apr. $34 calls 
and $37 puts - credit of $750. May $34 calls and $37 puts – 
credit of $800. June $34 calls and $37 puts -- total net credit 
of $750. We rolled out to the July $34 calls ($.20 credit) and 
$37 puts ($.60 credit) and took in a credit of $.80 ($800). We 
rolled to the August $34 calls and $37 puts, taking in a credit 
of $900. We rolled to the Sept. $34 calls and $37 puts, yielding 
$.45 or $450 for the cycle. For October we took in $.45 ($450) 
rollout. We rolled to the November. $34 calls and $37 puts for 
$.70 ($700).  Last week we rolled in the December $34 calls and 
$37 puts for a total of $.50 ($500).  New total: $13,400.  
We rolled out the Dec. $34 calls at break even and then sold the 
January $40 puts for $.80 ($800).  Our new total premium is about 
$14,200.

ZERO-PLUS Strategy. OEX - 566.38
In my Feb. 8th column, I outlined a strategy based on an initial 
investment of $100,000. $74,000 was spent on zero coupon bonds 
maturing in about seven years at a value of $100,000. The 
principal $100,000 investment is guaranteed. We're trading the 
remaining $26,000 to generate a "risk free" return on the 
original investment. We own 3 OEX December 2006 540 calls @ $81 
(x 300 = $24,300). Our cash position as of August expiration was 
$8,390. In September we added another $975 for a total of $9,365. 
In October we added $650 for a new total of $10,675. 

Zero-Plus Position Adjustment
Prior to expiration, we bought back our Nov. 555 calls and rolled 
it to six contracts of the January 580 calls for a credit of 
about $100.  We also put on five contracts of a December 540/530 
bull-put spread for an $.80 credit ($400).  New cash total: 
$11,175.

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

 

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

 

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




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

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


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The Option Investor Newsletter                   Sunday 01-09-2005
Sunday                                                      5 of 5

In Section Five:

Covered Calls:  CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS
Spreads and Straddles:  Bears Binge As 2005 Begins!
Premium-Selling Plays: Naked Puts and Calls


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

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUPPLEMENTAL COVERED-CALL CANDIDATES
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

_________________________________________________________________

Editors Note: This week's positions are very conservative as
the current technical indications suggest the possibility of
a continued decline in equity values.
   
Sequenced by Target Yield (monthly basis/no margin)

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

CTIC    8.65  FEB  7.50  CUC-BU 1.80 3420  6.85  43   6.7%
FXEN   13.80  FEB 12.50  IWQ-BV 2.30  818 11.50  43   6.2%
AMLN   23.10  FEB 22.50  AQM-BX 1.75  214 21.35  43   3.8%
OTEX   20.58  FEB 20.00  QFT-BD 1.55  669 19.03  43   3.6%
INTV   13.33  FEB 12.50  VQN-BV 1.40  251 11.93  43   3.4%
VTIV   20.57  FEB 20.00  QBP-BD 1.40   80 19.17  43   3.1%
PDLI   20.49  FEB 20.00  PQI-BD 1.30 1313 19.19  43   3.0%
HLEX   16.24  FEB 15.00  HUE-BC 1.75   10 14.49  43   2.5%
CREAF  14.53  FEB 12.50  RFQ-BV 2.45   90 12.08  43   2.5%
DCLK    8.00  FEB  7.50  QWE-BU 0.75  118  7.25  43   2.4%
SAPE    8.26  FEB  7.50  SQC-BU 1.00   25  7.26  43   2.3%
SONS    5.80  FEB  5.00  UJS-BA 0.95  915  4.85  43   2.2%
IMMR    6.50  FEB  5.00  IMU-BA 1.65 1158  4.85  43   2.2%



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

Bears Binge As 2005 Begins!
By Ray Cummins

Stocks closed lower Friday amid concerns about rising interest
rates and the upcoming corporate earnings season.

The Dow Jones Industrial Average ended down 18 points at 10,603,
despite renewed buying pressure in Alcoa (NYSE:AA) and Intel
(NASDAQ:INTC), which are scheduled to report quarterly earnings
next week.  The NASDAQ Composite finished down 1 point at 2,088,
with strength in chip and Internet stocks helping to limit the
day's losses.  The S&P 500 Index slid 1 point to 1,186 as gains
in airline, materials, utility, and consumer stocks outpaced
losses in energy, transportation, homebuilding, and financial
shares.  There were roughly 3 losers for every 2 winners on the
major exchanges.  Volume was nearly 1.5 billion on the Big Board
and 2.1 billion on the NASDAQ.  U.S. Treasury prices were little
changed after the lackluster employment data.  The price of the
benchmark 10-year note ended down 4/32 at 99 24/32, while its
yield rose to 4.27%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 01/09/05
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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  34.50  JAN  25.0  27.5  0.40   27.10   0.40   Open
CFC    33.21  35.32  JAN  27.5  30.0  0.30   29.70   0.30   Open
EBAY  112.20 106.58  JAN  95.0 100.0  0.60   99.40   0.60   Open
LEND   46.85  46.14  JAN  35.0  40.0  0.50   39.50   0.50   Open
LEN    50.11  53.87  JAN  42.5  45.0  0.30   44.70   0.30   Open
PHM    59.65  61.40  JAN  50.0  55.0  0.75   54.25   0.75   Open
MRVL   34.89  34.50  JAN  27.5  30.0  0.30   29.70   0.30   Open
VRTS   27.38  26.23  JAN  22.5  25.0  0.45   24.55   0.45   Open
ERTS   61.71  58.94  JAN  55.0  57.5  0.35   57.15   0.35   Open
PENN   59.87  59.81  JAN  50.0  55.0  0.50   54.50   0.50   Open
YHOO   37.90  35.96  JAN  32.5  35.0  0.30   34.70   0.30   Open
ANF    47.28  49.50  JAN  42.5  45.0  0.35   44.65   0.35   Open
KMRT  101.35  93.71  JAN  90.0  95.0  0.55   94.45  (0.74) Closed

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

Kmart Holdings (NASDAQ:KMRT) plunged Wednesday due to widespread
selling pressure and weakness in retail issues.  Traders who used
the move as an entry opportunity were likely out of the position
by Friday afternoon, when the stock closed below the break-even
point near $94.50.  The bullish position in Navteq (NYSE:NVT) has
previously been closed to limit potential losses.


CALL-CREDIT SPREADS

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

SINA   37.93  30.45   JAN  50.0  45.0  0.60   45.60  0.60   Open
LLY    53.33  56.26   JAN  65.0  60.0  0.65   60.65  0.65   Open
NVLS   26.94  25.88   JAN  32.5  30.0  0.35   30.35  0.35   Open
CCU    33.15  31.89   JAN  40.0  35.0  0.50   35.50  0.50   Open
UVN    29.06  27.37   JAN  35.0  30.0  0.80   30.80  0.80   Open
ADI    36.42  35.55   JAN  45.0  40.0  0.50   40.50  0.50   Open
KOSP   35.13  33.52   JAN  45.0  40.0  0.55   40.55  0.55   Open
TTWO   33.45  32.25   JAN  40.0  37.5  0.30   37.80  0.30   Open
MSTR   56.22  56.31   JAN  70.0  65.0  0.65   65.65  0.65   Open
ABC    57.09  57.90   JAN  65.0  60.0  0.45   60.45  0.45   Open
RIMM   83.49  74.30   JAN 100.0  95.0  0.45   95.45  0.45   Open
PKZ    32.99  35.30   JAN  40.0  35.0  0.85   35.85  0.85   Open?
UHS    44.51  44.00   JAN  50.0  45.0  0.60   45.60  0.85   Open
JNPR   25.80  25.46   JAN  30.0  27.5  0.35   27.85  0.85   Open
DNA    51.75  54.25   JAN  57.5  55.0  0.35   55.35  0.85   Open?

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

Genetech (NYSE:DNA) and the speculative spread in PetroKazakhstan
(NYSE:PKZ) are on the "watch" list.


DEBIT STRADDLES

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

BZH    144.85  137.20  JAN   145.0  145.0  12.00   11.25    Open

Beazer Homes (NYSE:BZH) approached the "break-even" point during
Wednesday's slide to $134, however the straddle has yet to earn
a profit on a simultaneous order basis.

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

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

MRVL - Marvell Technology  $34.50  *** Uptrend Intact! ***

Marvell (NASDAQ:MRVL) designs, develops and markets integrated
circuits utilizing proprietary communications mixed-signal and
digital signal processing technology for communications-related
markets.  Marvell offers its customers a wide range of integrated
circuit solutions using proprietary communications mixed-signal
processing and digital signal processing technologies.  Marvell's
product groups include: storage products, consisting of a variety
of read channel, system-on-chip and preamplifier products; and 
broadband communications products, consisting of a variety of
transceiver products, switching products, internetworking
products and wireless LAN products.

MRVL - Marvell Technology  $34.50

PLAY (speculative - bullish/credit spread):

BUY  PUT  JAN-30.00  UVM-MF  OI=810   ASK=$0.15
SELL PUT  JAN-32.50  UVM-MZ  OI=2089  BID=$0.40
INITIAL NET-CREDIT TARGET=$0.30-$0.35
POTENTIAL PROFIT(max)=14% B/E=$32.20


__________________________________________________________________

PIXR - Pixar  $86.36  *** An "Incredible" Stock! ***

Pixar (NASDAQ:PIXR) is a digital animation studio that uses
its creative, technical and production capabilities to create
animated feature films and related products, such as video
products, toys, interactive games and other merchandise.  The
company has created and produced five full-length animated
feature films: Toy Story, A Bug's Life, Toy Story 2, Monsters,
Inc., and Finding Nemo, which were marketed and distributed by
The Walt Disney Company.  Pixar also produces short films, which
allows the company to develop creative talent and computer
animation technology.  In addition, Pixar markets its RenderMan
software to other visual effects studios.

PIXR - Pixar  $86.36

PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-75.00  PQJ-NO  OI=440  ASK=$0.55
SELL PUT  FEB-80.00  PQJ-NP  OI=73   BID=$1.20
INITIAL NET-CREDIT TARGET=$0.70-$0.80
POTENTIAL PROFIT(max)=15% B/E=$79.30



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

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.

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

BJS - BJ Services  $43.09  *** Sector Slump! ***

BJ Services (NYSE:BJS) is a provider of pressure pumping and
other oilfield services serving the petroleum industry worldwide.
The company's pressure pumping services consist of cementing and
stimulation services, and are used in the completion of new oil
and natural gas wells and in remedial work on existing wells,
both onshore and offshore.  BJ's other oilfield services include
completion tools, completion fluids and casing and tubular
services provided to the oil and natural gas exploration and
production industry, commissioning and inspection services
provided to refineries, pipelines and offshore platforms and
production chemical services.

BJS - BJ Services  $43.09

PLAY (very conservative - bearish/credit spread):

BUY  CALL  FEB-50.00  BSB-BJ  OI=303  ASK=$0.25
SELL CALL  FEB-47.50  BSB-BW  OI=282  BID=$0.50
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$47.80


__________________________________________________________________

MERQ - Mercury Interactive  $41.25  *** New Downtrend Underway? ***

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

MERQ - Mercury Interactive  $41.25

PLAY (less conservative - bearish/credit spread):

BUY  CALL  FEB-47.50  RQB-BR  OI=650  ASK=$0.50
SELL CALL  FEB-45.00  RQB-BI  OI=348  BID=$0.95
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=25% B/E=$45.50



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
STRADDLES AND STRANGLES
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable volatility-based plays.
_________________________________________________________________

IIVI - II-VI Inc.  $39.91  *** Earnings Speculation! ***

II-VI Inc. (NASDAQ:IIVI) develops, manufactures and markets
high-technology materials and derivative products for used
in industrial, medical, military, security and aerospace
applications. The Company uses advanced material growth
technologies coupled with high-precision fabrication,
micro-assembly and thin-film coating production processes.
The resulting optical and optoelectronic devices are supplied
to manufacturers and users of a variety of laser, sensor and
military components and systems.  II-VI focuses on providing
critical components to its customers' assembly lines for
products, such as high-power laser material processing systems,
military fire control, missile guidance devices, and advanced
medical and security scanning systems.  Earnings are due on
or about 1/19/05.

IIVI - II-VI Inc.  $39.91

PLAY (speculative - neutral/debit straddle):

BUY CALL  JAN-40.00  JIU-AH  OI=102  ASK=$1.50
BUY PUT   JAN-40.00  JIU-MH  OI=175  ASK=$1.45
INITIAL NET-DEBIT TARGET=$2.75-$2.80
INITIAL TARGET PROFIT=$1.20-$1.95





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

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 01/09/05
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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     8.27    0.40   7.51%   5.63%
RHAT     JAN    12.50   12.05   12.15    0.10   1.35%   3.73%
NCRX     JAN    25.00   24.40   30.35    0.60   4.78%   2.46%
NTGR     JAN    15.00   14.65   16.50    0.35   4.58%   2.39%
RMBS     JAN    17.50   17.10   21.42    0.40   4.87%   2.34%
TLCV     JAN    10.00    9.65   10.05    0.35   6.91%   3.63%
WITS     JAN    15.00   14.55   16.98    0.45   5.38%   3.09%
IDCC     JAN    17.50   16.95   20.32    0.55   6.62%   3.24%
MSO      JAN    17.50   17.05   28.75    0.45   5.62%   2.64%
MSO      JAN    20.00   19.60   28.75    0.40   5.28%   2.04%
ACF      JAN    22.50   21.65   23.58    0.85   6.54%   3.93%
USNA     JAN    30.00   29.00   33.53    1.00   6.12%   3.45%
DHB      JAN    15.00   14.35   15.96    0.65  10.38%   4.53%
MOGN     JAN    25.00   24.05   27.00    0.95   7.47%   3.95%
GTOP     JAN    12.50   12.05   15.14    0.45   8.45%   3.73%
CMVT     JAN    22.50   22.05   23.04    0.45   3.93%   2.04%
RMBS     JAN    20.00   19.35   21.42    0.65   8.12%   3.36%
IDCC     JAN    17.50   17.05   20.32    0.45   6.77%   2.64%
NFLD     JAN    17.50   17.05   22.15    0.45   6.15%   2.64%
NCRX     JAN    25.00   24.55   30.35    0.45   4.60%   1.83%
RMBS     JAN    20.00   19.45   21.42    0.55   7.18%   2.83%
NKTR     JAN    17.50   17.05   19.19    0.45   5.64%   2.66%
ALXN     JAN    20.00   19.65   23.73    0.35   4.51%   1.78%
AMLN     JAN    20.00   19.65   23.10    0.35   4.07%   1.78%
SWFT     JAN    20.00   19.65   19.93    0.28   3.68%   1.78%
NEOL     JAN    10.00    9.70   11.90    0.30  10.31%   3.09%
ARBA     JAN    15.00   14.70   13.53   (1.17)  0.00%   0.00%
KFX      JAN    12.50   12.20   12.88    0.30   7.80%   2.46%
NAVR     JAN    15.00   14.50   18.08    0.50   8.94%   3.45%
IDCC     JAN    17.50   17.25   20.32    0.25   5.28%   1.45%
NTGR     JAN    15.00   14.60   16.50    0.40   7.61%   2.74%
CTIC     JAN     7.50    7.00    8.65    0.50  16.41%   7.14%
FXEN     JAN    10.00    9.30   13.80    0.70  20.65%   7.53%
NTMD     JAN    22.50   22.25   25.85    0.25   4.52%   1.12%
ELN      JAN    25.00   24.45   27.70    0.55   7.06%   2.25%
VRX      JAN    25.00   24.55   25.22    0.45   5.78%   1.83%
JUPM     JAN    20.00   19.65   19.65   (0.00)  0.00%   0.00%
IDCC     JAN    20.00   19.75   20.32    0.25   4.84%   1.27%
MOGN     JAN    25.00   24.75   27.00    0.25   3.59%   1.01%
MSO      JAN    25.00   24.60   28.75    0.40   7.12%   1.63%
SONC     JAN    30.00   29.65   31.42    0.35   5.15%   1.18%
ALVR     JAN    12.50   12.15   13.33    0.35  12.44%   2.88%
NFLD     JAN    20.00   19.65   22.15    0.35   8.66%   1.78%
BCSI     JAN    17.50   17.20   18.31    0.30   8.29%   1.74%
JUPM     JAN    20.00   19.60   19.65    0.05   1.16%   2.04%
HLEX     JAN    15.00   14.75   16.24    0.25   7.47%   1.69%
FLML     JAN    17.50   17.25   19.34    0.25   7.05%   1.45%

Ariba (NASDAQ:ARBA) became an "early-exit" candidate after the
stock plunged below the sold strike on heavy trading volume.
Comverse Technology (NASDAQ:CMVT), DHB Industries (NYSE:DHB), 
Interdigital (NASDAQ:IDCC), KFX Inc. (NYSE:KFX), Jupitermedia
(NASDAQ:JUPM), Redhat (NASDAQ:RHAT), Swift Transportation
(NASDAQ:SWFT), and Valeant Pharmaceuticals (NASDAQ:VLNT) are
among the most obvious issues on the "watch" list.  Positions
in Novatel Wireless (NASDAQ:NVTL) and Adolor (NASDAQ:ADLR)
have previously been closed to limit potential losses.


NAKED CALLS

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

XLNX     JAN    32.50   33.00   27.33    0.50   3.96%   1.52%
SCSS     JAN    17.50   18.05   17.00    0.55   7.68%   3.05%
PLAY     JAN    35.00   36.05   22.00    1.05  12.22%   2.91%
AFCO     JAN    22.50   22.80   19.24    0.30   3.92%   1.32%
SYMC     JAN    32.50   33.00   23.79    0.50   6.06%   1.52%
PDII     JAN    30.00   30.30   20.07    0.30   4.64%   0.99%
AGIX     JAN    30.00   30.30   19.01    0.30   5.80%   0.99%
EPIX     JAN    20.00   20.45   16.30    0.45   8.03%   2.20%
SWIR     JAN    20.00   20.50   16.00    0.50   8.74%   2.44%
CTAS     JAN    45.00   45.45   43.77    0.45   3.30%   0.99%
SPW      JAN    42.50   42.90   38.75    0.40   3.47%   0.93%
FHRX     JAN    22.50   22.75   19.27    0.25   5.97%   1.10%
MACR     JAN    30.00   30.35   27.23    0.35   6.71%   1.15%
CELG     JAN    27.50   27.85   27.23    0.35   7.31%   1.26%

Celgene (NASDAQ:CELG) is on the "watch" list after the recent
rebound in its share value.

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

CTIC   8.65   JAN  7.50  CUC-MU 0.25 7035  7.25  13   8.1%  22.8%
FXEN   13.80  JAN 12.50  IWQ-MV 0.30  298 12.20  13   5.8%  15.5%
INTV   13.33  JAN 12.50  VQN-MV 0.30  331 12.20  13   5.8%  14.6%
NTGR   16.50  JAN 15.00  TUD-MC 0.30  641 14.70  13   4.8%  13.0%
VTIV   20.57  JAN 20.00  QBP-MD 0.40   51 19.60  13   4.8%  11.6%
IFLO   18.79  JAN 17.50  QIF-MW 0.25  563 17.25  13   3.4%   9.0%
PDLI   20.49  JAN 20.00  PQI-MD 0.25  111 19.75  13   3.0%   7.4%
BLUD   25.91  JAN 25.00  QMQ-ME 0.30   15 24.70  13   2.8%   7.2%

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.
_________________________________________________________________

Editor's Note: Most of this week's positions are speculative in
character as the overall market "technicals" suggest a high
probability of continued bearish activity in the near-term.
_________________________________________________________________

Cell Therapeutics  $8.65  *** Drug Speculation Only! ***

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  $8.65

JAN  7.50 CUC-MU LB=0.25 OI=7035 CB=7.25 DE=13 TY=8.1% MY=22.8%


_________________________________________________________________

FXEN - FX Energy  $13.80  *** Up, Up & Away! ***

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  $13.80

JAN 12.50 IWQ-MV LB=0.30 OI=298 CB=12.20 DE=13 TY=5.8% MY=15.5%


_________________________________________________________________

INTV - Intervoice  $13.33  *** In A Trading Range? ***

Intervoice (NASDAQ:INTV) provides converged voice and data
solutions for network and enterprise operators.  The Intervoice
Omvia Voice Framework is built on an open-standard, distributed
architecture and provides a comprehensive platform that allows
organizations to connect, develop, run, manage and report on
voice-driven solutions.  The firm offers a range of voice-driven
technology, including messaging, payment and portal solutions
with expertise in voice development, management and application
solutions.  It also offers solutions that include professional
services, such as speech prototyping, remote monitoring, disaster
recovery, system installation and integration, technical training
and solutions tuning.

INTV - Intervoice  $13.33

JAN 12.50 VQN-MV LB=0.30 OI=331 CB=12.20 DE=13 TY=5.8% MY=14.6%


_________________________________________________________________

NTGR - Netgear  $16.50  *** Own This One!  ***

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

NTGR - Netgear  $16.50

JAN 15.00 TUD-MC LB=0.30 OI=641 CB=14.70 DE=13 TY=4.8% MY=13.0%


_________________________________________________________________

VTIV - Ventiv Health  $20.57  *** Near Multi-Year Highs! ***

Ventiv Health (NASDAQ:VTIV) is a provider of outsourced sales
and marketing solutions for the pharmaceutical, biotechnology
and life sciences industries.  The company offers a range of
services, using a consultative partnership that identifies
strategic goals and applies targeted, tailored solutions.  The
company's portfolio of offerings includes integrated sales
force recruitment, training and management; standalone sales
force recruitment and regulatory compliance services; product,
sample and literature fulfillment; product/brand management;
brand/portfolio analytics and forecasting, and strategic and
tactical planning.

VTIV - Ventiv Health  $20.57

JAN 20.00 QBP-MD LB=0.40 OI=51 CB=19.60 DE=13 TY=4.8% MY=11.6%


_________________________________________________________________

IFLO - I-Flow  $18.79  *** Consolidation Complete? ***

I-Flow (NASDAQ:IFLO) manufactures a line of compact, portable
infusion pumps, catheters and pain kits that inject medication
directly to the wound site, and administer local anesthetics,
chemotherapies, antibiotics, diagnostic agents, nutritional
supplements and other medications.  I-Flow sells and ships its
products throughout the United States, Canada, Europe, Asia,
Mexico, Brazil, Australia, New Zealand and the Middle East.
Through InfuSystem, a wholly owned subsidiary, I-Flow is also
engaged in the rental of infusion pumps on a month-to-month
basis for the treatment of cancer.

IFLO - I-Flow  $18.79

JAN 17.50 QIF-MW LB=0.25 OI=563 CB=17.25 DE=13 TY=3.4% MY=9.0%


_________________________________________________________________

PDLI - Protein Design Labs  $20.49  *** Next Leg Up? ***

Protein Design Labs (NASDAQ:PDLI) discovers and develops a wide
range of humanized monoclonal antibodies for the treatment of
disease, particularly inflammatory bowel disease and cancer.
The firm has four antibodies in clinical development: Zenapax,
Nuvion, HuZAF, and M200, of which the most advanced are Nuvion
for potential treatment of severe steroid-refractory ulcerative
colitis, and Zenapax for the treatment of ulcerative colitis.
All of the firm's revenues are currently derived from licensing,
humanization and royalty arrangements.

PDLI - Protein Design Labs  $20.49

JAN 20.00 PQI-MD LB=0.25 OI=111 CB=19.75 DE=13 TY=3.0% MY=7.4%


_________________________________________________________________

BLUD - Immucor  $25.91  *** Rally Mode! ***

Immucor (NASDAQ:BLUD) develops, manufactures and sells a line
of reagents and automated systems used primarily by hospitals,
clinical laboratories and blood banks in a number of tests
performed to detect and identify certain properties of the cell
and serum components of human blood prior to blood transfusion.
Immucor is part of the immunohematology industry.

BLUD - Immucor  $25.91

JAN 25.00 QMQ-ME LB=0.30 OI=15 CB=24.70 DE=13 TY=2.8% MY=7.2%



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

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.

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

NOI - National-Oilwell  $33.23  *** Merger = Trading Range? ***

National-Oilwell (NYSE:NOI) designs, manufactures and sells
systems, components and products used in oil and gas drilling
and production, as well as distributes products and provides
services to the exploration and production segment of the oil
and gas industry.  The firm's Products and Technology segment
designs and manufactures complete land drilling and workover
rigs, as well as drilling-related systems on offshore rigs.
National Oilwell's Distribution Services segment provides
maintenance, repair and operating supplies and spare parts to
drill site and production locations throughout North America
and to offshore contractors worldwide.

NOI - National-Oilwell  $33.23

PLAY (sell naked call):

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

SELL CALL  JAN 35    NOI-AG    3150   0.25  35.25   5.0%   0.7%


_________________________________________________________________

SYNA - Synaptics  $26.60  *** Profit-Taking In Progress! ***

Synaptics (NASDAQ:SYNA) is a worldwide developer and supplier of
custom-designed user interface solutions for notebook computers.
The company's original equipment manufacturer customers include
ten large personal computer OEMs.  Synaptics generally supplies
its OEM customers through its contract manufacturers, which take
delivery of its products and pay the company directly for the
OEMs.  Synaptics family of product solutions include TouchPad,
TouchPad Under Plastic, TouchStyk, dual pointing solutions,
ClearPad, Spiral, QuickStroke, TouchPad with embedded Chinese
character recognition, Fingerprint TouchPad, TouchRing and
TouchScreen.

SYNA - Synaptics  $26.60

"SPECULATIVE" PLAY (sell naked call):

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

SELL CALL  JAN 30    QYG-AF    1797   0.50  30.50  15.1%   1.6%


_________________________________________________________________

TASR - TASER International  $22.72  *** SEC Inquiry! ***

TASER International (NASDAQ:TASR) develops and manufactures a
range of less-lethal self-defense devices.  The firm's primary
product lines include the ADVANCED TASER and the TASER X26, a
recently introduced weapon system offering a new "shaped pulse"
technology, and a smaller form factor.  TASER has thousands of
law enforcement agencies deploying its weapons platforms, with
over 500 agencies implementing a full deployment of one weapon
for each patrol or line officer.

TASR - TASER International  $22.72

"VERY SPECULATIVE" PLAY (sell naked call):

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

SELL CALL  JAN 25    QUR-AE    3052   0.75  25.75  23.2%   2.9%





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