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Daily Newsletter, Sunday, 01/16/2005

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The Option Investor Newsletter                   Sunday 01-16-2005
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In Section One:

Wrap:  Back From the Brink
Futures Wrap: See Note
Index Trader Wrap:  Giving ground grudgingly 
Editor's Plays:  Double Up
Market Sentiment: Look Out!  Earnings Ahead.
Ask the Analyst: Time can heel most wounds, when a stock gaps on "bad news"
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 01-14        WE 01-07        WE 12-31        WE 12-24 
DOW    10558.00 - 45.96 10603.9 -179.34 10783.3 - 43.82 +177.20 
Nasdaq  2087.91 -  0.70 2088.61 - 86.16 2174.77 + 14.15 + 25.42 
S&P-100  564.44 -  1.94  566.38 -  8.64  575.02 -  1.04 +  8.67 
S&P-500 1184.52 -  1.67 1186.19 - 25.46 1211.65 +  1.52 + 15.93 
W5000  11652.74 +  3.85 11648.9 -323.90 11972.8 + 38.98 +150.45 
SOX      403.14 -  4.42  407.56 - 25.72  433.28 +  6.85 +  2.68 
RUT      617.48 +  4.27  613.21 - 37.87  651.08 -  1.71 +  7.29 
TRAN    3569.16 - 67.62 3636.78 -160.56 3797.34 +  9.56 + 36.71 
VXO       12.43           13.85           13.58           11.23 
VXN       18.57           19.15           18.37           16.80
******************************************************************


Back From the Brink
by Jim Brown

Friday's trading was erratic, lackluster and directionless
and on low volume BUT we did pull back from the brink of a
potential disaster. Traders should be breathing easier this
weekend with the decent gains but we are not out of the woods
yet. 

Dow Chart


Nasdaq Chart



If it were not for the economic reports on Friday we would
have had nothing to talk about. Stock news was nonexistent
and the bond and commodities markets closed early. Volume
was very light and choppy. The leading report on Friday
was the Producer Price Index which fell -0.7% and about
twice what was expected. On the surface it appears that
inflation is actually getting weaker but the energy was
the key component once again. The drop in oil prices in
December skewed the headline number substantially. Without
food and energy the core prices rose by +0.1%. Components
at the early stage of processing actually showed a rapid
increase in inflation. Core prices were also up for the
fifth consecutive month. We are beginning to see some pass
through of these rising prices to the consumer level and
that will pose a real risk of escalating consumer inflation
in the future. The Fed will not be blind to this and we are
only two weeks away from the next Fed meeting. 

Industrial Production rose more than expected in December
at +0.8% which was also twice the consensus estimate. This
helped push Capacity Utilization up by +60 basis points to
79.2. The headline number of 117.8 was the highest level 
since early 2004. This is a strong number and suggests that
the slack in production is slowly being reduced. However, 
that also means capacity utilization is approaching ranges
that could be consistent with increasing inflationary 
pressures.

Business Inventories spiked +1.0% in November and nearly
twice the consensus estimate. October levels were also
revised higher. The pace of sales eased and gave us a
slight uptick in the inventory to sales ratio to 1.31
but it is still nothing to brag about. It has been hugging
the lows at 1.30 for months. Business Inventories is a
lagging report and not really a market mover but it does
give us the long term trends. 

The net result of those three reports was more fear of the
Fed and comments from Fed President Poole helped to add to
that fear. The dollar shot higher after Poole said the Fed
would eventually remove its "measured pace" phrase in order
to be ready to fight inflation head on. While he did not
predict it would be at the February meeting or any specific
meeting the market always expects the worse. Bush also said
he was going to freeze funding for some programs and deny
funding to others to cut the budget deficit. The combination
of these comments sent the dollar soaring and it extended
its rally against the Euro to +3.2% for the year. The dollar
had fallen -34% over the last three years against the Euro.
By the way, in case you haven't heard, Bush restated his
support for a strong dollar. That has become the administration
catch phrase of the day. Every news report is not complete
without the phrase and everybody knows they don't mean it.
Elections in Iraq will be held on schedule and we support a
strong dollar. Meteor heading our way and we support the
strong dollar. I wonder if somebody at the White House is 
keeping track of how many times an administration official
repeats that phrase with a prize for the winner?

Oracle announced the Peoplesoft layoff numbers Friday and
they are cutting 5000 employees, -9%. They said they were
keeping 90% of the employees in development and support. 
Their goal is to cut 6000 but the remaining cuts will take
place over time. The first 5000 will be dumped next week.
The sense of foreboding created a somber atmosphere at 
PeopleSoft's Pleasanton headquarters as employees gathered
in small groups to say their final goodbyes. Hours before 
Oracle's Friday announcement, employees turned a PeopleSoft
sign into a makeshift shrine of flowers, candles and company
memorabilia. An inflatable doll dressed in black wore a 
button that read "Oracle" with a slash through it. Other 
PeopleSoft employees said they would rather be fired than 
work for Oracle. Obviously they have not noticed the current
job market.

Friday was the five-year anniversary of the Dow's all time
high at 11722. With Friday's close at 10558 we are -1164
points from that high. There are many analysts that still
think we will top that number in 2005 despite the slow start.
Those predictions are beginning to soften and maybe that is
what we really need. There was entirely too much optimism
at the end of 2004. Now we are starting to see the Fed hawks
circling with the increased prospects of inflation and they
found a nice thermal to keep them flying with the Poole
comments today. 

Another problem the bulls will have to overcome on our 2005
climb is the rising price of oil. You have heard the reasons
here many times and I will not repeat it now but there are
higher prices ahead. Those of you with the Oil Crisis report
already know why. It will not go straight up and we are 
likely to see a dip in the spring but I would use it as a 
buying opportunity for energy stocks. The rest of the market
will have to fight sticker shock again before the year is over.
Oil closed at a six week high again on Friday at $48.38 and
just one good day away from $50. 

Part of that price was due to the coming cold front and
the coming political events. The FBI reported that there
had already been some suspicious events noted around the
inauguration site and security was already at a stepped
up level. The event takes place on Thursday and it is
bound to cause some market worries. Also there has been
increased oil attacks in Iraq and the Nigerian strike
continues. 

Crude Oil Chart


In the markets we saw a surge of buying early in the day as
fund managers and traders cleared their desks before leaving
early. Reporters mentioned that less than 50% of traders
remained at their desks by noon and volume slowed to a 
trickle. The bounce was weak and appeared to be propelled
by two buy programs. Once past 10:30 the markets flat lined
and all traces of direction disappeared. There is simply
no conviction left in the market but it appears that goes
for both buyers and sellers. The plunge at the close on
Thursday that created some serious sentiment questions was
completely forgotten on Friday. 

Fund flows continued to be absent with the numbers through
Thursday reported to be only a +$495 million inflow for the
week. This massive shortfall in cash has fund managers 
scratching their heads in bewilderment but analysts remain
undaunted. Buy, buy, buy, good times are ahead is the cheer
but nobody is acting on the plan. That could change next
week as the earnings tsunami appears.

Monday is a market holiday but that just means we will cram
more earnings into a four day week. Leading off the list on
Tuesday morning will be C, PH, RF, ASO, BAC, ABT, ACO, FRX,
FCX, JCI, MMM, NCC, STT, USB, WFC, AMTD, FLWS, CRAI and FITB. 
The list is weighted heavily to the financial sector and we
will see what guidance they give in the face of higher rates
ahead. If the guidance is positive then traders might return
to the market after the inauguration. After the bell we will
see earnings from AMD, IBM, JNPR, CHKP, EAG, FSL, KMI, LLTC,
MOT, PHHM, PVSW, PLT, RMBS, RYL, SBSE, STX, TER, VSGN, YHOO.
Considering this is just one day you can see how we will be
trading on information overload all week. We had so few 
warnings the earnings are not the focus and this is not 
expected to be a disappointing cycle. The key is the outlook
for 2005. The economic calendar is steady next week with the
Fed Beige book on Wednesday and the Philly Fed Survey on 
Thursday as the highlights. 

The Dow needs a highlight or maybe a headlight to find its
way out of the cellar. It continues to hover just over 10500
despite the +50 gain on Friday. The close at 10558 was a
slight pull back from the brink of disaster I wrote about
on Thursday but you can still see the cliff edge from here.
We definitely need a goal line stand at 10500 and unless
earnings produce a negative surprise next week we may be 
in luck. 

The Nasdaq is showing even less life than the Dow with the
entire week spent with 2080 as the level defended by both the
buyers and sellers. We closed last week at 2088.61 and this
week at 2087.91. I would call that a dead heat or maybe just 
dead since there was not much heat. 

The Dow was the only major index to post a change for the
week greater than single digits with a -45 loss. The rest
were mixed around zero with a couple points either way.
Surprisingly the Russell and the Wilshire both finished
in the green with +4 point gains for the week. Considering
the beating the Russell took through Wednesday it is amazing
it pulled off that rebound. The Russell hit 604 on Wednesday,
down from 656 on Dec-31st, a -8% drop. By Friday's close
it had rebounded to 617 and erased 25% of the loss. If I
had to point to any single indicator that next week could
be the start of a general market rebound it would be the 
Russell rebound off the lows this week. As the index with
the worst profit taking it should lead the rebound as the
most undervalued. 

Russell Chart - Daily


The second indicator would be the SOX, which closed at a
four day high despite the -$9 drop in CREE and the negative
outlook. While the four day high was only +3 points over
400 it was a psychological victory. The SOX needs to stay
over its cycle low at 395 and preferably over 400 for next
week to have a chance. 

The move away from SPX 1175 has renewed my bullish bias 
and I would look to buy dips as long as we stay above that
level. Next week may not be highly directional with the
inauguration risk on the radar and it is an expiration week.
We could maintain a directional bias but it may not be very
strong. I would like to believe the bottom is in but we need
for that to be proven rather than be a guess. Right now the
focus is earnings guidance and that should provide direction
for the next six months. Let's just hope it is up. 

Jim Brown

"One of life's hardest jobs is to keep 
making the easy payments"



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

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


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

Giving ground grudgingly 
By Leigh Stevens
lstevens@OptionInvestor.com 

THE BOTTOM LINE – 

The market is still in a corrective mode – the indices, 
especially the S&P related ones are giving ground grudgingly, as 
the market awaits a clearer earnings picture. The rally on Friday 
looked like it could have been profit taking ahead of a 3-day 
trading hiatus, what with Monday being Martin Luther King Day.

While the S&P 500 (SPX) could hold recent, and prior, support in 
the 1180 area, it's vulnerable to a decline to better technical 
support around 1160; the S&P 100 (OEX) might hold 558-560, but 
its best support looks to be 548-550; the Dow 30 (INDU) may not 
find a lot of buying interest before 10,425 – it’s the weakest 
here.  

The Nasdaq presents a clearer chart picture for a continued 
decline.  The Nas 100 (NDX) is finding some minor support in the 
1550 area, but has better technical support around 1525.  

None of the indexes are fully oversold yet, but INDU is getting 
closer.  Sentiment has yet to have one day of a fully bullish 
reading, so traders and investors are probably too 
bullish/optimistic for a rally to be sustained – hey, that's the 
theory of CONTRARY opinion.  

Bottom line, a sideways to lower drift most likely in the Nasdaq, 
probable in the S&P and Dow indices.     

THE WEEK'S CLOSING NUMBERS – 

The S&P 500 (SPX) was up 7 points to close at 1,184.5 but off a 
tenth of percent only for the week. The Dow 30 (INDU) was higher 
by 52 points to 10,558 and off four tenths of percent for the 
week. 

The Nasdaq Composite (COMP)was up a substantial 17.3 points 
(+0.8%) to close at 2,087.9.

FRIDAY'S TRADING  –

The bullishness of the biggest monthly drop in U.S. wholesale 
prices in close to two years was partly offset by a renewed jump 
in oil prices and the release of a record U.S. trade deficit for 
November. 

Analysts interviewed on my favorite talking heads market channel, 
seemed to point mostly to good economic and earnings news over 
the week just ended and wondered why the market was not climbing 
– they may not understand that the rally into year end was 
anticipating quite positive news – more than we got actually.

January often sees some weakness if the market was strong toward 
the year-end. Stocks are also adjusting to a less strong economic 
and earnings outlook for the first half of the coming year. Could 
a dose of reality have set in on the Street of Dreams? – I think 
yes.  

For the week, blue chips were a bit "blue" on some earnings 
disappointments from Alcoa, General Motors and Verizon, while the 
Nasdaq market was steady, helped by better than anticipated 
results from Intel and Apple Computer. Not that there was not 
some earnings disappointments during the week from tech-land 
also; e.g., AMD, SUNW and CREE.  A still very spotty recovery 
going on in technology companies.  

Setting a positive tone for stocks was the Labor Department's 
report that U.S. wholesale prices (the Producer Price Index, PPI) 
0.7% in December. This was the largest monthly decline in 
wholesale prices since April 2003 and substantially more than 
expected. Excluding volatile food and energy costs, December's 
core PPI rose 0.1 percent.

In addition to the bullish PPI report, the Federal Reserve said 
earlier in Friday's session that the output of U.S. factories, 
mines and utilities rose a 0.8% in December, which was also 
better than expected.

The capacity utilization rate rose to 79.2 percent, the highest 
in four years. Economists had been expecting 0.4 percent growth 
in December output along with a utilization rate of 78.8 percent, 
up a bit only from a revised 78.7 percent in November. 

Also, the Commerce Department said U.S. business inventories 
jumped 1% in November, more than double the 0.4 percent gain in 
sales, a not so good ratio.  A build up of inventories is not 
what investors want to see in the months ahead.  

OTHER MARKETS - 
In bond trading, the 10-year Treasury note was off 13/32 to 100 
9/32, which raised its yield to 4.22%

Meanwhile, the U.S. dollar was up 0.9% against the euro at 
$1.3093 and up 0.4% against the Yen, which finished New York 
trading at 101.99. 

February crude contract closed up 26 cents to $48.30 a barrel on 
the New York Mercantile Exchange – when are we going to see this 
black gold head down under $40 again!?  It seems to go more 
easily to 50, then to 40.  A worrisome trend!!
 
The U.S. equities markets will be closed Monday, observing the 
Martin Luther King Jr. birthday holiday.


MY INDEX OUTLOOKS – 

S&P 500 Index (SPX) – Daily chart:

There were some bearish indicators and divergences prior to this 
recent decline, but just from the chart alone, the S&P 500 (SPX) 
as well as other major indices had key (downside) reversals at 
the recent top – this is when, typically, after a trend is 
getting far along, there is a higher high (enough to notice), 
followed by a close under the prior low or prior 2-days low in 
the case of a 2-day reversal. This pattern often signals at least 
a good-sized correction. I wrote about this in my last week's 
Trader's Corner, my most recent attempt to make some sense out of 
technical analysis. Found at – 
http://www.OptionInvestor.com/traderscorner/tc_011305_1.asp

Anyway, noting the key reversal and more important action on it 
could have put you into puts above 1200 and like levels in OEX 
and NDX. Unfortunately, key reversals don't say anything about 
how low she will go.  That's the next attempted task!

SPX broke its minor up trendline, which should now define 
significant resistance around 1200.  A close over 1200 would 
cause me to exit those puts I mentioned.  Although, if the close 
is just over (1200) I might give it another day, or morning, to 
see if there is much or any upside follow through. 

There's minor support in the 1180 – I don't think this would be a 
"final" bottom of this current correction as this would consist 
of only the shallowest of corrections.  A re-test of prior highs, 
in the 1160 to see if significant buying interest shows up – 
resistance, once broken, tends to "become" support.  Long time 
followers of this column probably would like to have a quarter or 
so for every time they've heard that from me!  



Of course, just because 1160 is probably best support doesn't 
mean it will get all the way there. More major support I pet at 
1140. 

In the broken record department - SPX is nearing an oversold 
extreme but it may take some time yet to get there, if it does.  
Note the tendency for second oversold readings in the RSI, after 
the first one.  The market wouldn't want to make it easy for you. 
Anyway the trendline is developing whereby another decline to the 
1140 area would be at this potential bullish intersection.

S&P 100 Index (OEX) – Daily chart:

The 570 area is key resistance – this was the "breakdown" point 
so to speak.  A close above 570, at the 21-day moving average, 
would be bullish.  Look for this key trading average to act as 
resistance however.   

The 558-560 area, at the low end of the consolidation trading 
range of November, is the key near technical support. More major 
support begins in the 550 area, extending to around 548, at two 
prior tops.  557 is the Fibonacci 38% retracement and 550 is a 
50% retracement of the Oct – Dec advance.  When a retracement is 
only 38%, or less, this is a still-strong uptrend.  



You can see that my "sentiment" indicator went up last week in 
the face of a sideways to lower trend – hey, hooray for the 
bulls. They see this recent decline as a buying opportunity.  I 
don't trust this view overly much, rather will be anticipating a 
market that socks it to the bulls another time and turns enough 
traders bearish and into puts to pull my indicator down closer to 
a bullish reading.  

At a minimum, this kind of pattern on my Call to Put indicator, 
suggests that the correction has more to go. It may not be real 
deep, but the length or time spent chopping around, could stretch 
out.       

Dow 30 Average (INDU) - Daily: 

The 10600 area in the Dow 30 (INDU) average is immediate overhead 
resistance, represented by the down trendline and around the 50-
day moving average. Next resistance begins at 10650, extending to 
10680.  

10425 is support implied by the low end of the consolidation 
prior to the last sky shoot and also by the 38% retracement.  
10300 is a more major support – again, as suggested by a 
retracement – 50% in this case – and by the 200-day moving 
average.  

The 200-day average is a benchmark mostly.  Trading under the 
200-day puts money managers into a bit more nervous mode and 
holding above it is something they will tend to find encouraging 
– unless they're short!  But, most of course are only ever long 
stock. 

I think INDU is headed still lower – I don't see real support, 
only temporary support, at 10500. 



The Dow is getting down toward an oversold reading on the longer 
range stochastic (length = 21, measuring 21-days), but the first 
time there is not necessarily the last.  

Nasdaq Composite (COMP) Index  – Daily chart:

The chart pattern continues bearish as the Nasdaq Composite 
(COMP) closed this past week under its up trendline. This same 
trendline suggests resistance if the index rebounds back to the 
2100 area.  More major resistance begins in the area of the prior 
highs before this most recent one, at 2150. 

Absent a bullish close back above 2100-2105 resistance, I think 
the Composite is headed lower. Targets are tough, but mine are to 
the 2015-2025 area; then, if exceeded, eventually to around 1965.  



The Composite often seems to resist getting fully oversold, which 
was common last year.  The overbought/oversold studies are the 
least useful in the Composite I suppose, but I think COMP will 
get more "oversold" or lower still on the Relative Strength Index 
(RSI), before this current correction is over. 

Nasdaq 100 (NDX) Index  – Daily and Hourly:

I said last week that the Nasdaq 100 (NDX) tends to offer some 
clearer chart patterns than the Composite and would note that 
prices are coming down towards a well-defined up trendline, 
implying potential support in the 1575 area.  It may well get 
pierced but it presents the pattern to watch if it does not. I 
also peg support at 1510, representing a 38% retracement of the 
August to December advance. 

With another index, I might be tempted to think that we could see 
a lengthily period where NDX trades in a 1500-1600 range, but, 
being a more volatile and speculative group of stocks, I wouldn't 
bet on the length of time that this index gets stuck in a trading 
range.  I would say that 1500 is my maximum downside objective 
currently and 1600 is the max on the upside for a while.



Holding above the prior high is a bullish sign that is worth 
commenting on.  The longer it does it the more chance for a 
shallow correction only.  Stay tuned – it’s a short week ahead 
but it could resolve this chart.     

Nasdaq 100 tracking Stock (QQQ) Daily chart:

The Nasdaq tracking stock presents another slightly different 
pattern in that here, the trendline was broken and should offer 
resistance on a rebound to the 39 area. The Q's chart here gets 
me a little more bearish on the Nasdaq index itself – unless, the 
stock can get back above 39 and stay there.  Absent that, 37 
looks a possible downside objective.  



Volume jumped on the decline indicating heavy liquidation and 
shorting. If volume was a confirming bullish indicator, volume 
should have fallen off on the break below 39.  Volume tipped it's 
hand in the very low volume on the last phase of the rally – 
bearish, big time – at least predicting a break of some degree.  

Good Trading Success!
 


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

Double Up

The Russell rebounded from its 604 low on Wednesday to 
close at 617 on Friday. This is far from a roaring recovery
but it could be the start of something for the bulls. With
earnings busting out all over next week we have plenty of
stock news, hopefully positive, and option expiration to
give us lift. 

I would like to play the Russell because it was the most
beaten down of the indexes that we can play. The Transports
were positively hammered but there is no easy way to play
a rebound there and with oil rising there may not be one. 

Using the Russell Index Ishares (IWM), currently $123 I
want to speculate that we will at least return to $128
before the earnings excitement fades. The IWM has strikes
for every dollar so it should provide some cheap thrills
for this play. 

I am going to use the Feb-$124 Call option DIW-BT at $2.60.

Because we have the inauguration risk on Thursday I want
to buy some cheap insurance in the January $122 put that
should decline to about 50 cents on Tuesday. This is a
very short fuse option and expires on Friday after the
event. If a disaster did happen it would be worth the
investment. If not it is cheap insurance. 

Buy IWM Feb-$124 Call Option DIW-BT currently $2.60 

Insurance put
Buy IWM Jan-$122 Put Option DIW-MR currently 85 cents.
Target 50 cents on the put purchase. 

Both options should open down substantially on Tuesday
after three days of premium decay. 
     
Profit target IWM $128

Stop loss IWM $120 

IWM Chart




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

The DIA Feb $107 Calls DIA-BC opened at $1.20 last Monday
and we are LONG with a stop loss at $104. The profit 
target was Dow 10800 but I am changing it to Dow 10750.
That is only +200 points from our Friday close and we
still have a decent chance of reaching it over the next
two weeks. 

LONG DIA Feb-$107 Call DIA-BC @ $1.20

Target Dow 10750 for a profit exit but if the market
catches fire just follow it up with a trailing stop.

Stop loss Dow 10400. 

DIA Chart
 


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

RIMM - $76.32 Combination Play 

We had a nice bounce on RIMM this week and hopefully the
worst is behind us. I had a reader ask me if I considered
RIMM a busted play and was my strategy last week just an
attempt to recover losses with no attempt to make a profit.

Yes, I considered it a busted play when we had that nearly
20 point spike on the court announcement that stopped us
out of our $85 protective put. Any play that does not go
as scripted is a busted play. 

However, I believe I outlined a method last week to not
only recover our losses but make a profit. I still believe
RIMM will move higher and I think the market meltdown was
as much to blame for the drop as the announcement. Check
any chart and you will see a major drop begin on Jan-3rd
when it was legal for funds to take profits. 

If the market is going higher I expect RIMM to be a leader.
The +5 point jump on Wednesday should be an example. I 
looked at the option list for a short term call we could
add to increase our potential but they were all too expensive
for me. If we get another dip I might speculate on the Feb
or Mar $80 but only if I could buy it on a dip.  

http://members.OptionInvestor.com/editorplays/edply_121204_1.asp
http://members.OptionInvestor.com/editorplays/edply_121904_1.asp
http://members.OptionInvestor.com/editorplays/edply_010905_1.asp

RIMM Chart




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

Look Out!  Earnings Ahead.
- J. Brown

The first two weeks of January are behind us and they have not 
been kind.  Stocks may have ended Friday on an up swing but the 
short-term trend is still a bearish one.  The question will be 
how will investors react to the first full week of corporate 
earnings news next week?  Thus far the earnings headlines we have 
received has been less than inspiring.  Sure, Intel and Apple 
managed to issue upside surprises but these failed to spark any 
meaningful market turnaround.  

In addition to corporate earnings the market will be digesting a 
handful of economic data with the NY Empire State index, the CPI, 
housing starts, building permits, the Fed's Beige book report, 
leading indicators and the preliminary Michigan sentiment 
numbers.  Yes, Tuesday begins a very full week.  Make sure you're 
ready for it.



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

Market Averages

DJIA ($INDU)

52-week High: 10868
52-week Low :  9708
Current     : 10558

Moving Averages:
(Simple)

 10-dma: 10604
 50-dma: 10585 
200-dma: 10279 



S&P 500 ($SPX)

52-week High: 1217
52-week Low : 1060
Current     : 1184

Moving Averages:
(Simple)

 10-dma: 1187
 50-dma: 1187
200-dma: 1132



Nasdaq-100 ($NDX)

52-week High: 1635
52-week Low : 1301
Current     : 1561

Moving Averages:
(Simple)

 10-dma: 1565
 50-dma: 1581
200-dma: 1467 



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

CBOE Market Volatility Index (VIX) = 12.43 -0.41	
CBOE Mkt Volatility old VIX  (VXO) = 12.85 -0.22
Nasdaq Volatility Index (VXN)      = 18.57 -0.52 


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.72        843,562       611,182
Equity Only    0.58        648,600       378,385
OEX            0.72         41,464        30,109
QQQQ           1.15         46,451        53,455


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

Bullish Percent Data

           Current   Change   Status
NYSE          73.3    + 0.2   Bear Correction
NASDAQ-100    73.0    + 0     Bull Correction***
Dow Indust.   73.3    + 0     Bull Confirmed
S&P 500       74.6    + 0.2   Bull Confirmed
S&P 100       76.0    + 0     Bull Confirmed


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

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


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

 5-dma: 1.17
10-dma: 1.30 
21-dma: 1.10
55-dma: 1.02


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    1975      2017
Decliners     818       982

New Highs      94        67
New Lows       17        24

Up Volume   1147M     1310M
Down Vol.    431M      720M

Total Vol.  1631M     2057M
M = millions


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

Commitments Of Traders Report: 01/11/05


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

There was very little movement in the latest data leaving
commercials slightly bearish and small traders bullish on the
large S&P futures contracts.


Commercials   Long      Short      Net     % Of OI
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%)
01/11/05      457,383   509,892   (52,509)   (5.4%)

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
12/14/04      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%
01/11/05      157,131   110,174    46,957    17.5%

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 slightly increased their bullish positions
but everything else remained pretty much flat with the new data.

Commercials   Long      Short      Net     % Of OI 
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%)
01/11/05      322,800   622,509   (299,709)  (31.7%)

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
12/14/04      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%
01/11/05      277,808     73,288   204,520    58.2%

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


NASDAQ-100

Commercials upped both their longs and shorts for a minor 
decrease in bearishness.  Small traders upped their longs 
for a bump in bullishness.

Commercials   Long      Short      Net     % of OI 
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%)
01/11/05       31,984     49,244   (17,260) (21.2%)

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
12/14/04       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%
01/11/05       27,186     8,470    18,716    52.4%

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

There isn't much movement in the commercials' positions but
small traders significantly reduced their short positions.

Commercials   Long      Short      Net     % of OI
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%)
01/11/05       25,254    32,568   (7,314)    (12.6%)
 
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
12/14/04       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%)
01/11/05        5,141     5,389   (  248)   ( 2.3%)

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




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

Time can heel most wounds, when a stock gaps on "bad news"

Hi Jeff,

I'm enjoying Market Monitor and transforming from a "buy and 
hold" investor into one who actually makes a profit in today's 
market using OIN's excellent service! 

Unfortunately, I still had CREE and AMD shares in my portfolio, 
both of which TANKED 20-25% on earnings news.

My question... is there any way to "repair" a broken stock after 
it tanks by selling calls, LEAPS etc. to recover some $$$?  
What's the best strategy other than just taking my lumps and 
selling?

Thanks for any advice!

Reply:

Trade or invest long enough and there's a high likelihood that 
that a stock we own long, or have sold short, will gap in the 
opposite direction we would have wanted it to.  

While it is little consolation, I would rather be long a stock 
and have it gap lower on me, than I would want to be short a 
stock and have it gap higher.  After having experienced both, I 
can say that with some conviction.  A stock that gaps lower can 
only fall to zero, where an ultimate loss can be immediately 
assessed.  However, a stock you're short, that gaps higher on 
unexpected "good news" can always run to infinity, or some 
unknown price level, and can cause sever damage to an investment 
account, and sometimes, an investors entire net worth.

Other than just taking a "lump," and selling either of the 
aforementioned stocks when they opened for trading, there are 
some option strategies that investors can use, in an attempt to 
eventually recover from some loss of capital.  But the PRIMARY 
goal when a stock gaps against an investors wishes, is to 
immediately try and mitigate any further damage, but then try and 
allow for time to eventually heel the wound.

One thing I would ask any trader or investor to do though, it to 
view the stock that gaps against you as being equivalent to a 
stray dog that showed up on your doorstep a couple of days ago, 
where you simply couldn't resist those droopy eyes that 
"promised" you some type of futures reward if you'd just take him 
in, pet him, feed him, and nurture him.  Then imagine that two 
days later you took him to your veterinarian, who then told you 
the dog had an illness, where only a costly surgery could save 
his life.

A stock trader, or investor, that hasn't yet become attached to 
the dog, may decide on one course of action.  While another stock 
trader, or investor, might decide that the dog is worth the some 
time, nurturing, and addition money to try and save, as the "dog" 
does show some type of longer-term promise.

Here's how I would attempt to describe how an INVESTOR might try 
and allow time to heal a wound, but not unlike the "dog scenario" 
described above, only YOU can determine if the stock position is 
worth trying to save, or if it is better to cut the trade, take 
the loss and the heartbreak, and move on.

Let's use Cree, Inc. (NASDAQ:CREE) $25.88 -26.20% as today's 
example, and work through a process of trying to determine if the 
position is worth saving.

For the sake of some brevity, I'll address the technical aspects 
of the stock, and options strategies available to an investor.  I 
won't address the business aspects of Cree, Inc., fundamentals, 
products, industry trends for the LED market and growth trends 
for LCD TVs.

I asked the reader how many shares he/she owned, and what their 
cost basis was, so that I could then use these important facts to 
try and walk through a thought process of risk/reward, to then 
make a more informed investment decision.  The reader owned 200 
shares at a cost basis of $36.83.

Here's what I did in this morning's (Friday January 14, 2005) 
OptionInvestor.com Market Monitor, to try and at least give the 
investor some idea of where to assess near-term resistance 
(capping a possible rebound) and support levels, where further 
DOWNSIDE risk must immediately be assessed at.

Sometimes a stock that gaps down will stabilize at the gap lower 
level.  Sometimes they gap down and keep falling if other bullish 
investors pull the plug, with few buyers willing to step in and 
catch the proverbial "falling knife."

Cree, Inc. (CREE) Chart - Daily Intervals



The first thing I did was place a "fitted 38.2%" retracement 
(PINK) on the bar chart of CREE.  I could see in pre-market trade 
that the stock was going to open below the resulting 100% of 
$30.20, but that might have been a level where the stock could 
have immediately bounced to after the regular session began.  But 
I also needed to identify a LOWER level to immediately assess 
further potential downside to, as this is what an investor must 
begin to assess, when trying to determine what steps need to be 
taken to protect the account.

Cree opened pretty darned close to a conventional (BLUE) use of 
fibonacci retracement, so I can assume that either that level is 
being used by the bulk of market participants, if not the 200-day 
SMA.

From a fibonacci point of view, downside risk would have been 
assessed to $22.51.

Now, I also not the $23 level.  This $23 level is where CREE's 
point and figure chart would show its bullish support trend 
rising to.  Here too we find a potential support level.  In the 
above chart I calculate "risk to bullish support" as $2.89.  I'm 
going to use this $2.89 value in a moment, when we try and figure 
out if it is "worth the cost" of trying to protect against 
further decline, or cut the trade from the account.

In early January, CREE's point and figure chart did give a double 
bottom sell signal at $35.00.  Since that time (including 
Friday's gap lower), the point and figure chart of CREE has built 
a bearish vertical count to $9.00.  Again I calculate further 
potential downside risk.  This time it's $16.89.

I'll ask this question.  What is the risk profile telling me at 
this point?  I think it is saying that if I'm considering holding 
this position, then I've got to try and hedge against more 
potential downside.

The FACTS at this point is that the investor's position is at a 
loss of ($25.89 - $36.83 = $10.94/share) $10.94 per share, or 
$2,188.

I'll use BOTH values when trying to explore an option strategy.

Again, the first point of order is to hedge further loss of 
capital, or RISK.  The second point of order, is to try and allow 
time to heal this wound.  How much time?  It has been my 
experience that when a stock gaps lower to the extent that CREE 
did, the MARKET is saying the news was a BIG surprise, and it 
will most likely take at least one quarter, until the next 
earnings report, for the MARKET to gather more information as to 
what lies ahead.  With this in mind, it may take at least 3-month 
of "nurturing" before CREE shows any sign of health.

As we begin to assess further DOWNSIDE RISK, and some sense of 
time that it will take for the market to gather more information, 
I begin to develop an idea of not only what we need to hedge 
against, at least $2.89 further loss per share, but possibly 
$16.89 per share.

As it relates to "saving the dog's life" I'll start with the 
$2.89 per share amount.  Is it worth it?

Here's Cree's option montage, where I begin with March 
expiration, which would still be shy of approximating at least 
one calendar quarter of time from today, but this is what we're 
dealing with, when trying to figure out just what to do.  It 
would be nice if April expiration were available, as that would 
give the needed time until Cree's next quarterly earnings report, 
where for a bull, might allow some time for business conditions 
to improve, or the company's management to make appropriate 
adjustments.

We'll start by keeping in mind that we're trying to assess 
MINIMUM DOWNSIDE RISK of $2.89 per share to $23.00.

Cree, Inc. (Option Montage) - March, June, Jan06



Strike alternative for HEDGING RISK would probably be best 
identified at $25.00, or $22.50.  But is March going to be enough 
time?  It is if the company updates investors before March 18, 
and the additional COST of some insurance, or "buying of time and 
hedging risk" can now start to be weighed.  In order to hedge 200 
shares at either the $25.00, or $22.50 level into March, it is 
going to cost $360.00, or $190.00.  

The trader/investor that is long 200 shares of CREE is already 
down $2,188, and the cost of insurance to March 18 can be 
weighed.

For June, I mark only the $25.00 strike, where this would give 
more than enough time for CREE to reveal a quarterly earnings 
report, and future business outlook.  This insurance policy is 
going to cost $570.  

As you can see, the cost of insurance, may soon find the 
trader/investor really beginning to wonder if the stray dog, that 
is certainly ill, is worth the cost of this type of surgery.

But the cost of this insurance policy can be partially paid for, 
if the investor (the definition of an investor is a short-term 
trade that has gone bad, and only a longer-period of time brings 
hope the stock will recover) that is long-term oriented would 
consider writing a covered LEAPs call on the position.

I marked the January 2006 $30 call as one possibility.

One way to think of this is that between now and January 2006 
expiration, the investor would be willing to sell their 200 
shares of CREE at ($30 + $3.50) $33.50.  That's certainly better 
than current price of $25.89.

When considering the PURCHASE of the June $25 puts for a debit of 
$570 to the account, that does seem expensive when considering 
the CREE stock could be sold for a $2,188 loss.  

However, when considering the SALE of the January 2006 $30 call 
for $3.50 per contract, which would generate a credit of $700, a 
longer-term investor has now generated some cash to fully pay for 
the cost of much needed insurance (based on assessments of 
potential downside risk) until June, when further information can 
then allow the investor to make judgments about CREE.

You can see how difficult it becomes to deliver a blanket answer 
to the investor's question.  

Is the current 200 shares long position worth the cost and 
nurturing?  It may be if the current value (200 x $25.89 = 
$5,178) of $5,178 is now sitting in an investment, where there is 
no next-best alternative, such as another security, and the 
investor still has cash in his/her account that is waiting to be 
invested.

While tax considerations should never be an overriding reason for 
a buy/sell decision, is the cost of insurance, and the further 
nurturing of the position needed, if the 200 shares of CREE were 
to be sold and a tax loss realized, which can offset any realized 
capital gains from other investments that have been profitable.

Sometimes, when the cost of insurance and further time needed to 
try and allow a losing investment the time to eventually become 
profitable, it can be the realization of a tax-loss, which 
offsets any tax-gains, that then becomes the last determiner if 
it isn't best to simply cut the losing trade and move on.

Hopefully this column will serve as a reference as it relates to 
the steps of determining if there is a way to "repair" a broken 
stock after it tanks.

But before we try and "repair" the damage, remember to HEDGE the 
RISK of further damage first.

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

FDEF First Defiance Fncl  Mon, Jan 17  After the market     0.50
MCBC Macatawa Bank        Mon, Jan 17  After the market     0.43


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

MMM   3M Company          Tue, Jan 18  Before the bell      0.91
ABT   Abbott Labs         Tue, Jan 18  Before the bell      0.67
AMD   Advd Micro Devices  Tue, Jan 18  After the market     0.09
AMTD  Ameritrade          Tue, Jan 18  Before the bell      0.19
BAC   Bank of America     Tue, Jan 18  ----- n/a -----      0.94
CHKP  Check Point Softw   Tue, Jan 18  After the market     0.29
FRX   Forest Labs         Tue, Jan 18  Before the bell      0.69
IBM   Intl Bus. Mach.     Tue, Jan 18  After the market     1.76
JCI   Johnson Controls    Tue, Jan 18  Before the bell      0.80
JNPR  Juniper Networks    Tue, Jan 18  After the market     0.14
LLTC  Linear Technology   Tue, Jan 18  After the market     0.32
MOT   Motorola            Tue, Jan 18  After the market     0.24
PCP   Precision Castparts Tue, Jan 18  Before the bell      0.88
RMBS  Rambus              Tue, Jan 18  ----- n/a -----      0.08
RYL   Ryland Group        Tue, Jan 18  After the market     2.08
STX   Seagate Technology  Tue, Jan 18  After the market     0.23
TER   Teradyne Inc.       Tue, Jan 18  After the market     0.02
WFC   Wells Fargo         Tue, Jan 18  Before the bell      1.06
YHOO  Yahoo, Inc.         Tue, Jan 18  After the market     0.11

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

DOX   Amdocs Ltd          Wed, Jan 19  After the market     0.3
AMR   AMR Corp            Wed, Jan 19  Before the bell     -3.10
ASML  ASML Holdings       Wed, Jan 19  During the market    0.26
COF   Capital One Fincl   Wed, Jan 19  After the market     0.67
EBAY  eBay Inc            Wed, Jan 19  After the market     0.34
FFIV  F5 Networks         Wed, Jan 19  After the market     0.21
FAST  Fastenal            Wed, Jan 19  Before the bell      0.40
GM    General Motors      Wed, Jan 19  Before the bell      0.91
JPM   J.P.Morgan          Wed, Jan 19  Before the bell      0.68
LU   Lucent               Wed, Jan 19  Before the bell      0.04
NWAC Northwest Airlines   Wed, Jan 19  Before the bell     -3.90
QLGC QLogic               Wed, Jan 19  After the market     0.45
QCOM Qualcomm Inc.        Wed, Jan 19  ----- n/a -----      0.27
SLM  SLM Corp             Wed, Jan 19  Before the bell      0.57
LUV  Southwest Airlines   Wed, Jan 19  Before the bell      0.08
SYMC Symantec             Wed, Jan 19  ----- n/a -----      0.22
WB   Wachovia             Wed, Jan 19  Before the bell      0.98
WM   Washington Mutual    Wed, Jan 19  After the market     0.75

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

ACS   Affiliated Cmptr    Thr, Jan 20  ----- n/a -----      0.73
BEBE  Bebe Stores         Thr, Jan 20  Before the bell      0.40
ELY   Callaway Golf       Thr, Jan 20  After the market    -0.31
CKFR  CheckFree           Thr, Jan 20  ----- n/a -----      0.31
C     Citigroup           Thr, Jan 20  Before the bell      1.02
DAL   Delta Airlines      Thr, Jan 20  ----- n/a -----     -5.38
ELX   Emulex              Thr, Jan 20  ----- n/a -----      0.19
GDW   Golden West Fncl    Thr, Jan 20  ----- n/a -----      1.06
HDI   Harley Davidson     Thr, Jan 20  Before the bell      0.69
IGT   Intl Game Tech.     Thr, Jan 20  Before the bell      0.33
KLAC  KLA-Tencor          Thr, Jan 20  After the market     0.59
LRCX  Lam Research        Thr, Jan 20  ----- n/a -----      0.53
KRB   MBNA                Thr, Jan 20  ----- n/a -----      0.58
PVN   Providian Financial Thr, Jan 20  ----- n/a -----      0.29
SAY   Saytam Computer     Thr, Jan 20  ----- n/a -----      0.23
SFA   Scientific Atlanta  Thr, Jan 20  After the market     0.37
STI   SunTrust            Thr, Jan 20  Before the bell      1.27
PGR   Progressive         Thr, Jan 20  Before the bell      1.67
UNH   United Health       Thr, Jan 20  Before the bell      1.08
XLNX  Xilinx              Thr, Jan 20  After the market     0.18

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

AT    ALLTEL Corp         Fri, Jan 21  Before the bell      0.83
ADP   Automatic Data Prc  Fri, Jan 21  Before the bell      0.42
BGG   Briggs Stratton     Fri, Jan 21  Before the bell      0.49
FO    Fortune Brands      Fri, Jan 21  Before the bell      1.21
KEY   KeyCorp             Fri, Jan 21  Before the bell      0.62
UTX   United Technologies Fri, Jan 21  Before the bell      1.27
WY    Weyerhaeuser Co     Fri, Jan 21  ----- n/a -----      1.14

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

Symbol  Company Name              Ratio    Payable     Executable

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
NCR   NCR Corp                    2:1      Jan 21st    Jan 24th
JOYG  Joy Global                  3:2      Jan 21st    Jan 24th
CPO   Corn Products               2:1      Jan 25th    Jan 26th
BRN   Barnwell Industries         2:1      Jan 28th    Jan 31st
CVCO  Cavco Industries            2:1      Jan 31st    Feb 01st

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

Earnings season hits full swing during this holiday-shortened 
trading week.  We'll also hear plenty from the various FOMC
governors.  The markets will also be digesting another round
of economic data.

==============================================================
                       -For-           
----------------
Monday, 01/17/05
----------------
... Markets closed ... Martin Luther King, Jr. Day


-----------------
Tuesday, 01/18/05
-----------------
NY Empire State Index for January
FOMC Governor Santomero speaks
FOMC Governor Stern speaks

-------------------
Wednesday, 01/19/05
-------------------
Federal Reserve's Beige Book Report
Consumer Price Index (CPI) for December
Housing Starts for December
Building Permits for December

------------------
Thursday, 01/20/05
------------------
Weekly Initial Jobless Claims
Leading Indicators for December
Philly Fed Index for January
Semi Book-to-Bill numbers
FOMC Governor Poole speaks
FOMC Governor Yellen speaks

----------------
Friday, 01/21/05
----------------
Michigan Sentiment numbers for January (preliminary reading)
FOMC Governor Stern speaks
FOMC Governor Bies speaks



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The Option Investor Newsletter                   Sunday 01-16-2005
Sunday                                                      2 of 5


In Section Two:

Watch List: Homebuilders, Biotech and more!
Dropped Calls: COF, FRE
Dropped Puts: NTES


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TITLE: Homebuilders, Biotech and more!

___________________________________________________________________

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


Standard Pacific - SPF - close: 65.75 change: +0.62 

WHAT TO WATCH: Homebuilders are on the rise again and the sector 
index just broke out to new all-time highs.  SPF followed suit 
with a breakout over resistance at $65 to hit new highs of its 
own.  After five weeks of consolidating sideways SPF looks ready 
to run towards the $70 level.  Just watch out for earnings in 
early February. 

Chart=


---

Invitrogen - IVGN - close: 68.41 change: +1.69

WHAT TO WATCH: IVGN has been a frequent candidate on our watch 
list recently.  Shares have been consolidating sideways between 
$64 and $68.50 for five weeks.  Now the stock is poised to 
breakout over resistance and its technical picture supports such 
a move.  We would consider going long over $69 or $70 with a $74-
75 target.  The P&F chart is more optimistic with an $81 target.  
Watch for earnings around Jan. 27th.

Chart=


---

Illinois Tool Works - ITW - close: 91.61 change: +1.36

WHAT TO WATCH: We have mentioned ITW in recent watch lists due to 
its pull back toward major support at the $90 level and its 
rising long-term trendline.  Shares are beginning to bounce and 
Friday's rebound could be a bullish entry point for traders brave 
enough to take it.  We would target the $96 level.  Watch for 
earnings on or around Jan. 27th.

Chart=




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

GCI $81.00 -0.55 - We mentioned GCI in the MarketMonitor on 
Friday.  The stock has been testing resistance at the $82 level 
and its descending trendline dating back to September.  

UTIW $70.81 +1.99 - The breakout over $70.00 looks tempting but 
we'd watch for a move over resistance at $72.50.  UTIW does not 
have options.

WFMI $94.89 +1.23 - We're still watching WFMI.  A move over 
$95.00-95.50 would break the short-term trend of lower highs.  

IR $76.95 +1.20 - IR is bouncing sharply from the $74 level.  If 
shares can pass minor resistance at $77 we might consider bullish 
positions with an $82 target.


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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
^^^^^

Capital One Financial - COF - cls: 82.12 chg: +0.08 stop: 79.95      

We are quickly running out of time with COF.  The company is 
expected to report earnings on January 19th after the closing 
bell.  That means anyone not willing to hold over the earnings 
report only has a couple of sessions to exit.  We're going to 
close the play now but readers can choose to exit on Tuesday or 
Wednesday before the report.  

Picked on December 12 at $ 81.12
Change since picked:      + 1.00
Earnings Date           01/19/05 (confirmed)
Average Daily Volume =       1.4 million  



---

Freddie Mac - FRE - close: 69.99 chg: -0.12 close: 69.49     

FRE performed as we expected it would by pulling back toward 
round-number, psychological support at the $70 mark.  
Unfortunately, shares broke that support level on Friday morning 
after an article appeared in the news suggesting that law makers 
are going to target certain "hidden" fees in FRE and FNM's 
mortgage loans to consumers.  FRE bounced back from the intraday 
weakness but it was enough to hit our stop loss at $69.49.  

Picked on December 21 at $ 71.80
Change since picked:      - 1.81
Earnings Date           00/00/05 (unconfirmed)
Average Daily Volume =       2.8 million  




PUTS
^^^^

Netease.com - NTES - close: 51.17 chg: +0.32 stop: 52.65

It doesn't look like the NTES play is going to work out for us.  
The recent rebound back above the $50 mark combined with a 
similar rebound in the INX Internet index smells like trouble for 
the bears.  We're going to cut our losses now.  

Picked on January 11 at $ 49.97
Change since picked:     + 1.20
Earnings Date          02/15/05 (unconfirmed)
Average Daily Volume =      1.0 million 




***********
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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Contact Support




The Option Investor Newsletter                   Sunday 01-16-2005
Sunday                                                      3 of 5

In Section Three:

Current Calls: AET, ARLP, AMGN, BBOX, FRO, KBH, PD, RAI, TXI
New Calls: CMI, PHM
Current Puts: ZMH, FDX, CAI, ADBE
New Puts: None

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

Aetna Inc - AET - close: 127.90 change: -0.27 stop: 119.99
 
Company Description:
As one of the nation's leading providers of health care, dental, 
pharmacy, group life, disability and long-term care benefits, 
Aetna puts information and helpful resources to work for its 
approximately 13.6 million medical members, 11.6 million dental 
members, 8.3 million pharmacy members and 13.3 million group 
insurance members to help them make better informed decisions 
about their health care and protect their finances against 
health-related risks. Aetna provides easy access to cost-
effective health care through a nationwide network of more than 
646,000 health care professionals, including over 385,000 primary 
care and specialist doctors and 3,908 hospitals.
(source: company press release)

Why We Like It:
AET is a relatively new call play we added this past week with a 
trigger to catch the breakout over resistance at $127.50.  AET 
burst through this level on Thursday to hit new all-time highs.  
Technicals are bullish and its MACD indicator is very close to a 
new buy signal.  We like the relative strength AET has shown the 
past couple of weeks and shares look poised to continue their 
climb.  Readers can choose to buy a bounce from $125-126 or wait 
for a breakout over the $130 level.  Our short-term target is the 
$135-140 range even though the bullish P&F chart points to a $213 
target.  


Suggested Options:
We are not planning on holding any options over the February 10th 
earnings report so we're only suggesting the February calls.

!Alert - January options EXPIRE this coming Friday!

BUY CALL FEB 125 AET-BE OI=2066 current ask $6.80
BUY CALL FEB 130 AET-BY OI= 651 current ask $4.00
BUY CALL FEB 135 AET-BX OI= 302 current ask $2.05


Annotated Chart:



Picked on January 13 at $127.61
Change since picked:     + 0.31
Earnings Date          02/10/05 (confirmed)
Average Daily Volume =      2.2 million  



---

Alliance Resource - ARLP - close: 72.48 chg: +1.35 stop: 67.49*new*

Company Description:
Alliance Resource Partners is the nation's only publicly traded 
master limited partnership involved in the production and 
marketing of coal. Alliance Resource Partners currently operates 
mining complexes in Illinois, Indiana, Kentucky and Maryland.
(source: company press release)

Why We Like It:
Our bullish, momentum play in coal-producer ARLP continues to do 
well.  After a brief consolidation above the $70 level shares are 
trekking higher again.  The breakout over the $72 mark is also a 
minor victory for the bulls.  Technicals are positive and its 
MACD indicator is nearing a new buy signal.  Readers have a 
choice.  Our short-term target was only the $74.50-75.00 region 
and ARLP is nearing this range now.  Given the strength in ARLP 
more aggressive traders may want to hold on to their positions 
with the expectation that ARLP will breakout to new highs.  Right 
now we're learning toward the latter strategy of holding ARLP for 
a possible breakout.  We're going to set a secondary target at 
the $79.50-80.00 range.  We're going to raise our stop loss to 
$67.49 near the 50-dma. 

Suggested Options:
We're going to suggest the February calls because this a short-
term trade.

!Alert - January options EXPIRE this coming Friday!

BUY CALL FEB 65 AFV-BM OI= 38 current ask $8.50
BUY CALL FEB 70 AFV-BN OI=162 current ask $4.80
BUY CALL FEB 75 AFV-BO OI= 72 current ask $2.00

Annotated Chart:
 

Picked on January 10 at $ 69.80
Change since picked:     + 2.68
Earnings Date          10/28/04 (confirmed)
Average Daily Volume =      115 thousand 



---

Amgen Inc - AMGN - close: 63.81 change: -0.08 stop: 62.00

Company Description:
Amgen is a global biotechnology company that discovers, develops, 
manufactures and markets important human therapeutics based on 
advances in cellular and molecular biology.
(source: company press release)

Why We Like It:
AMGN is a relatively new bullish play we added to the list this 
past week with a trigger to go long on a breakout over resistance 
at $65.00.  That breakout occurred on Thursday with an intraday 
spike to $65.24.  Unfortunately, AMGN was unable to hold its 
gain.  Shares spent much of the Friday session churning sideways 
save for a brief spike lower around noon.  The weakness was 
fueled by news that AMGN and the FDA had just released new, 
updated safety guidelines for AMGN's Aranesp drug, for 
chemotherapy-induced anemia.  Traders used the weakness as a 
chance to buy the dip near AMGN's rising 40-dma.  Overall we 
remain bullish on AMGN but we are cautious with shares the $65 
level.  We would wait for AMGN to trade back above $65.25 before 
considering new bullish positions.  Remember, we do not plan to
hold over AMGN's Jan. 26th earnings report.

Suggested Options:
This is a short-term, two-week play.  We are suggesting the
February calls.

!Alert - January options EXPIRE this coming Friday!

BUY CALL FEB 60 YAA-BL OI= 554 current ask $4.60
BUY CALL FEB 65 YAA-BM OI=7854 current ask $1.30
BUY CALL FEB 70 YAA-BN OI=2737 current ask $0.20

Annotated Chart:



Picked on January 13 at $ 65.05
Change since picked:     - 1.24
Earnings Date          01/26/05 (confirmed)
Average Daily Volume =      7.3 million  



---

Black Box - BBOX - close: 46.37 change: +0.89 stop: 44.99      

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... what do we do with BBOX?  The pull back to support near 
the $45.00 level was not unexpected but then shares failed to 
bounce.  Every other day it looked like BBOX would breakdown just 
as the NWX networking index slipped lower.  We've been leaning 
toward an early exit in BBOX for days and suggested that more 
conservative traders do just that.  Yet so far support at the $45 
level is holding up.  We are going to continue to hold on to BBOX 
and given the minor up trend in Friday's session we have hope 
that shares might actually breakout of this two-week trading 
range.  We're not suggesting new positions but aggressive traders 
may want to consider one if BBOX moves over the $47 level.  We'd 
probably exit if BBOX came close to the $50 mark, which is bound 
to be round-number, psychological resistance.  

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

!Alert - January options EXPIRE this coming Friday!

Annotated chart:


Picked on December 22 at $ 46.15 
Change since picked:      + 0.22
Earnings Date           02/01/05 (confirmed)
Average Daily Volume =       128 thousand




---


Frontline Ltd - FRO - close: 48.75 chg: +1.06 stop: 43.49*new*

Company Description:
FRONTLINE Ltd. is a major, Bermuda based, tanker company. The 
fleet, which is the largest and one of the most modern in the 
world, consists of 31 Suezmax tankers (of which 8 are Combination 
Carriers) and 35 VLCC tankers, totaling 15.3 million dead weight 
tons. The Company has also two VLCC new buildings to be delivered 
in 2006. (source: company press release)

Why We Like It:
The rally in shipping/oil-tanker stocks continues and FRO added 
another 2.2 percent on Friday.  Shares are starting to look a 
little short-term overbought and with the 100-dma overhead it may 
be time for a dip.  The fact that shares traded sideways in a 
tight, 50-cent range for most of Friday suggest the buyers are 
running out of steam and need to catch their breath.  Short-term 
traders may want to consider taking some profits if FRO can tag 
the $50 mark, which should be some level of overhead resistance.  
Our initial target was the $50-52 region but the descending 40 
and 50-dma's may make that a challenge for us.  We're going to 
raise our stop loss to $43.49.  

Suggested Options:
We are going to suggest the February calls although May strikes
are available.

!Alert - January options EXPIRE this coming Friday!

BUY CALL FEB 45 FRO-BI OI=512 current ask $5.60
BUY CALL FEB 50 FRO-BJ OI=341 current ask $2.95


Annotated Chart:


Picked on January 12 at $ 46.06
Change since picked:     + 2.69
Earnings Date          02/00/05 (unconfirmed)
Average Daily Volume =      1.1 million  



---

KB Home - KBH - close: 109.41 change: +3.41 stop: 99.50

Company Description:
Building homes for nearly half a century, KB Home is one of 
America's premier homebuilders with domestic operating divisions 
in some of the fastest-growing regions and states: West Coast-
California; Southwest-Arizona, Nevada and New Mexico; Central-
Colorado, Illinois, Indiana and Texas; and Southeast-Florida, 
Georgia, North Carolina and South Carolina. Kaufman & Broad S.A., 
the Company's majority-owned subsidiary, is one of the largest 
homebuilders in France. In fiscal 2004, the Company delivered 
homes to 31,646 families in the United States and France. It also 
operates a full-service mortgage company for the convenience of 
its buyers. Founded in 1957, and winner of the 2004 American 
Business Award for Best Overall Company
(source: company press release)

Why We Like It: (Original Play from Thursday)
We have had our eye on the homebuilders again recently and KBH 
has made it to our nightly watch list as a potential candidate 
multiple times.  Fundamentally business is great and KBH 
reporting record profits.  The company was recently added to the 
Forbes 2005 list of "Supercharged" companies.  Technically the 
stock is turning bullish again as well.  Granted the stock price 
looks a little extended from its Q4 run up shares have actually 
been consolidating in a bull-flag pattern the last few weeks.  
We've been looking for a breakout above the $105 level and its 
short-term trend of lower highs and that breakout occurred today 
with volume about double the norm.  The bull-flag pattern 
suggests a $125-130 price target but it's worth noting that the 
P&F chart, while bullish, only points to a $107 target.  
Fortunately the DJUSHB sector index is also in break out mode 
hitting a new all-time high today.  We're going to suggest an 
aggressive bullish entry point at current levels with a $115-120 
target over the next four to six weeks.  

Weekend Update:
As expected the homebuilders are breaking out to new all-time 
highs.  The DJUSHB index added 2.3 percent on Friday.  Shares of 
KBH out performed its peers with a 3.2 percent rally on strong 
volume.  Shares of KBH almost broke through the $110 level.  
Meanwhile its MACD just produced a new buy signal.  If KBH offers 
a dip we'd take it as a new entry point.  Otherwise bulls are 
going to be stuck chasing it.

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

!Alert - January options EXPIRE this coming Friday!

BUY CALL APR 100 KBH-DT OI= 952 current ask $13.80
BUY CALL APR 110 KBH-DU OI= 438 current ask $ 7.60
BUY CALL APR 115 KBH-DC OI= 468 current ask $ 5.40
BUY CALL APR 120 KBH-DV OI=  60 current ask $ 3.70

Annotated Chart:


Picked on January 13 at $106.00
Change since picked:     + 3.41
Earnings Date          03/17/05 (unconfirmed)
Average Daily Volume =      1.1 million  





---

Phelps Dodge - PD - close: 101.66 change: +1.01 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:
PD continues to display great relative strength by adding another 
one-percent gain on top of Thursday's rally.  Technicals are 
positive and the MACD indicator has produced a new buy signal.  
Given the short-term and long-term up trend in copper prices and 
the expanding U.S. and Chinese economies we don't expect any slow 
down in demand for copper and neither does the market.  We would 
still consider bullish positions at current levels but readers 
can look for a possible dip back toward $98, which should be 
short-term support.  Our target remains the $105-110 range near 
the top of its rising channel.  Some of our suggested options are 
already up 50 percent or more in value and it would be perfectly 
acceptable to do some profit taking at current levels.  FYI: We 
do note the bearish divergence in the MACD indicator's peaks but 
thus far it hasn't hindered PD's ascent.

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

!Alert - January options EXPIRE this coming Friday!

BUY CALL FEB 95 PD-BS OI=3759 current ask $9.30
BUY CALL FEB 100PD-BT OI=1315 current ask $6.00
BUY CALL FEB 105PD-BA OI=1777 current ask $3.70

Annotated chart:



Picked on January 09 at $ 97.65
Change since picked:     + 4.01
Earnings Date          01/27/05 (confirmed)
Average Daily Volume =      2.2 million  



---

Reynolds American - RAI - close: 79.74 change: +0.82 stop: 76.75*new*

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:
It looks like our patience might pay off.  The bullish 
consolidation in shares of RAI is nearing resistance at the $80 
mark and RAI looks ready to breakout.  RSI and stochastic 
indicators are positive and its MACD is nearing a new buy signal.  
Furthermore Prudential just upgraded RAI from "under weight" to 
"neutral weight" on Friday.  What's more larger rival Altria 
Group (MO) just raised its cigarette prices, which is good news 
for the whole industry.  We're going to raise our stop loss to 
$76.75.  Don't forget we want to close this play before RAI's 
Jan. 24th earnings report.

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

!Alert - January options EXPIRE this coming Friday!

BUY CALL FEB 75 RAI-BO OI= 2059 current ask $6.40
BUY CALL FEB 80 RAI-BP OI= 3273 current ask $3.00
BUY CALL FEB 85 RAI-BQ OI=  278 current ask $1.10

Annotated chart:



Picked on December 22 at $ 80.11
Change since picked:      - 0.37
Earnings Date           01/24/05 (unconfirmed)
Average Daily Volume =       1.0 million  




---


Texas Industries - TXI - close: 63.28 change: +1.38 stop: 59.00*new*


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:
We can't complain with the action in TXI.  The stock continues to 
rebound from its recent test of technical support at the rising 
50-dma.  Technical oscillators like the RSI and stochastics are 
bullish and its MACD is nearing a new buy signal.  Conservative 
traders can prepare to exit as TXI nears our initial target in 
the $64.50-65.00 range.  More aggressive traders can hope for a 
breakout above this resistance level.  Right now we're planning 
to exit at $65. Meanwhile we're going to raise our stop loss to 
$59.00 under the 50-dma.   Many of our suggested options have 
already risen significantly in value and readers may want to 
strongly consider taking some money off the table. 


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

!Alert - January options EXPIRE this coming Friday!

BUY CALL FEB 55 TXI-BK OI= 3 current ask $8.80
BUY CALL FEB 60 TXI-BL OI= 9 current ask $4.80
BUY CALL FEB 65 TXI-BM OI=30 current ask $2.05

BUY CALL APR 60 TXI-DL OI=80 current ask $6.40
BUY CALL APR 65 TXI-DM OI=60 current ask $3.80

Annotated chart:



Picked on January 09 at $ 60.18
Change since picked:     + 3.10
Earnings Date          12/16/04 (confirmed)
Average Daily Volume =      238 thousand 




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

Cummins Inc - CMI - close: 76.40 chg: +0.82 stop: 73.99

Company Description:
Cummins Inc., a global power leader, is a corporation of 
complementary business units that design, manufacture, distribute 
and service engines and related technologies, including fuel 
systems, controls, air handling, filtration, emission solutions 
and electrical power generation systems. Headquartered in 
Columbus, Indiana, (USA) Cummins serves its customers through 
more than 680 company-owned and independent distributor locations 
in 137 countries and territories. Cummins also provides service 
through a dealer network of more than 5,000 facilities in 197 
countries and territories. With more than 24,000 employees 
worldwide, Cummins reported sales of $6.3 billion in 2003.
(source: company press release)

Why We Like It:
We're adding CMI as a technical bounce play.  The stock has been 
churning higher since May and traders have bought the dip to the 
100-dma in the past.  It looks like buyers are doing it again 
with the current bounce from $74 near its 100-dma.  Short-term 
technicals like RSI and stochastics support the move and the MACD 
is coming around.  The first challenge for CMI is its 10-dma 
directly overhead.  We're going to suggest longs at current 
levels although a dip/bounce from $75 would work well.  Our 
initial target is the $80 level.  Making this play just a little 
more tricky is the time frame.  We want to be out before CMI's 
February 2nd earnings report.

Suggested Options:
This is a short-term two-week play.  We're suggesting the 
February calls.

BUY CALL FEB 75 CMI-BO OI=300 current ask $3.90
BUY CALL FEB 80 CMI-BP OI=266 current ask $1.60

Annotated Chart:


Picked on January 16 at $ 76.40
Change since picked:     + 0.00
Earnings Date          02/01/05 (confirmed)
Average Daily Volume =      785 thousand 



---

Pulte Homes - PHM - close: 65.99 chg: +1.94 stop: 61.00

Company Description:
Pulte Homes, Inc., based in Bloomfield Hills, Mich., has 
operations in 45 markets across the U.S. Under its Del Webb 
(www.delwebb.com) brand, the company is the nation's leading 
builder of active adult communities for people age 55 and older. 
Over its history, the company has constructed more than 370,000 
homes. In 2004, J.D. Power and Associates ranked Pulte Homes No. 
1 in customer satisfaction in 14 U.S. markets, and among the top 
three homebuilders in 23 of 25 total markets surveyed. J.D. Power 
and Associates also named Pulte Homes the inaugural recipient of 
its Platinum Award for Excellence in Customer Service among the 
nation's largest new homebuilders in 2004. Pulte Mortgage LLC is 
a nationwide lender committed to meeting the financing needs of 
Pulte Homes' customers by offering a wide variety of loan 
products and superior customer service.
(source: company press release)

Why We Like It:
The homebuilders have been a real pocket of strength in this 
market and the DJUSHB home construction index just broke out over 
resistance to hit new all-time highs.  PHM is helping lead the 
way with its own breakout over resistance at $65.00 after four 
weeks of consolidating sideways.  Technicals are positive and its 
MACD is in a new buy signal.  Given the strength in the sector 
and PHM we would open positions at current levels and target a 
move towards $70.00 before its Feb. 2nd earnings report. 

Suggested Options:
This is a short-term momentum play and we're suggesting the
February calls.

BUY CALL FEB 65 PHM-BM OI=2252 current ask $3.80
BUY CALL FEB 70 PHM-BN OI= 381 current ask $1.50

Annotated Chart:


Picked on January 16 at $ 65.99
Change since picked:     + 0.00
Earnings Date          02/02/05 (confirmed)
Average Daily Volume =      1.5 million 



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 * Access to options specialists via email, phone or live chat online
 * Real-Time Buying Power, Account Balances or Cancels

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Note: Options involve risk. Risk disclosure: 
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*****************
CURRENT PUT PLAYS
*****************

Adobe Systems - ADBE - close: 58.23 change: +0.01 stop: 61.01         

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:
The battle continues as ADBE churns sideways between $57.70 and 
$59.50.  Yet bears can probably take comfort in ADBE's relative 
weakness on Friday.  The stock only added a penny versus the 1.4 
percent rebound in the GSO software index.  We do need to keep an 
eye on the GSO, which suggests the sector is short-term oversold 
and traders are buying the bounce from support at the 160 level.  
If the bounce in the GSO continues it could be bad news for our 
bearish positions in ADBE.  Aggressive traders can still use 
failed rallies under $60 as entry points but we would be careful. 
Our target remains the $55 region and its 100-dma. 

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

!Alert - January options EXPIRE this coming Friday!

BUY PUT JAN 60 AEQ-ML OI=5252 current ask $2.00

BUY PUT FEB 60 AEQ-NL OI= 554 current ask $3.10

Annotated chart:


Picked on January 06 at $ 58.99
Change since picked:     - 0.76
Earnings Date          03/17/05 (unconfirmed)
Average Daily Volume =      2.3 million 



---

CACI Intl - CAI - close: 59.39 change: +0.09 stop: 63.01     

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 continues to look weak and the lack of participation with 
Friday's market bounce is good news.  The recent failed rally at 
the descending 10-dma after an upgrade is also good news as is 
the close under round-number support at the $60 level.  Yet bears 
have their work cut out for them as CAI tries to find support 
near the 100-dma.  Our target remains the $55 region and another 
failed rally under $62 might be a tempting entry point although 
in reality we'd prefer to see CAI remain under the $60 level.  
Some of our suggested options have already risen significantly so 
readers may want to consider doing some profit taking.  Remember,
we want to be out of this play before its Jan. 24th earnings
report.

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

!Alert - January options EXPIRE this coming Friday!

BUY PUT JAN 65 CAI-MM OI= 79 current ask $5.90
BUY PUT JAN 60 CAI-ML OI=119 current ask $1.55

BUY PUT FEB 65 CAI-NM OI=102 current ask $6.50
BUY PUT FEB 60 CAI-NL OI= 35 current ask $3.00 

Annotated chart:



Picked on January 05 at $ 61.95
Change since picked:     - 1.25
Earnings Date          01/24/05 (unconfirmed)
Average Daily Volume =      348 thousand



---

Fedex Corp - FDX - close: 93.32 change: -0.44 stop: 96.01     

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:
The lack of relative strength in FDX on Friday is good news 
for the bears.  The Dow Transportation index managed a one-
percent bounce during Friday's session but FDX continued to 
slip hitting a new eight-week low.  We continue to target the 
100-dma, which is currently near $91.25.  We're going to widen 
our profit target to the $91.00-91.50 range.  If FDX can trade 
into this range we'll close the play.  We're not suggesting 
new positions at this time. 

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

!Alert - January options EXPIRE this coming Friday!

Annotated chart:



Picked on January 07 at $ 94.95
Change since picked:     - 1.63
Earnings Date          03/17/05 (unconfirmed)
Average Daily Volume =      1.6 million 



---


Zimmer Holdings - ZMH - close: 78.77 chg: +1.61 stop: 80.26

Company Description:
Founded in 1927 and headquartered in Warsaw, Indiana, Zimmer is 
the worldwide #1 pure-play orthopaedic leader in the design, 
development, manufacture and marketing of reconstructive and 
spinal implants, trauma and related orthopaedic surgical 
products. In October 2003, the Company finalized its acquisition 
of Centerpulse AG, a Switzerland-based orthopaedics company and 
the leader in the European reconstructive market. The new Zimmer 
has operations in more than 24 countries around the world and 
sells products in more than 80 countries.
(source: company press release)

Why We Like It: (Thursday's Original Play Description)
We like ZMH for its technical breakdown on multiple levels.  The 
stock has been suffering under a trend of lower highs for the 
last four weeks.  That consolidation gave way today with a three-
percent decline on volume that was more than twice the average.  
The breakdown under $79 and its 200-dma and 100-dma's looks like 
a bearish entry point.  Not helping matters is the new MACD sell 
signal on its weekly chart and the new sell signal on its P&F 
chart.  The daily chart suggests we could target a drop towards 
the $70 region but the P&F chart shows support near $72.  We're 
going to follow the P&F chart and plan to exit near $72 for a 
quick $5 decline.  The challenge here is that ZMH is due to 
report earnings at the end of January and we do not want to hold 
over the event.  

Weekend Update:
ZMH is not exactly off to the strongest start here.  Shares 
bounced with a two-percent gain on Friday.  We suspect it is 
merely market related as the stock remains under technical 
resistance at the 200-dma and round-number resistance at the $80 
mark.  A failed rally under $80 would actually offer us a better 
bearish entry point.  


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

BUY PUT FEB 80 ZMH-NP OI= 389 current ask $3.60
BUY PUT FEB 75 ZMH-NO OI=2111 current ask $1.60

Annotated Chart:


Picked on January 13 at $ 77.16
Change since picked:     + 1.61
Earnings Date          01/31/05 (unconfirmed)
Average Daily Volume =      1.6 million  



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

None


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The Option Investor Newsletter                   Sunday 01-16-2005
Sunday                                                      4 of 5

In Section Four:

Leaps:  Time For the Real Buyers To Appear
Spreads and Straddles:  A Question Of Volume – Coming Through Loud & Clear

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*****
LEAPS
*****

Time For the Real Buyers To Appear

We have attempted to put in a bottom for a week and it
appears to be holding. That bottom would be Dow 10500,
Nasdaq 2075 and SPX 1175. However the bottom that most
attracts me and suggests the worst is over is the 
Russell at 604. The Russell has already rebounded +12
points from its lows and erased 25% of its 2005 drop.

I view the Russell as the leading indicator for the
broader market just like I view the SOX as the leading
indicator for the Nasdaq. Coincidentally both appeared
to mount a light rally off the lows on Friday. 

While I believe there is still event risk ahead I also
believe the buyers are waiting on the sidelines to buy
the earnings if the guidance is positive. That buying
may not appear until Friday and it may not last more
than a couple weeks. 

That means any new plays will have to be monitored
closely and stops moved quickly to protect profits.
I am going to continue to add plays where appropriate
because there is no guarantee that any February sell
cycle will appear and historically a sharp drop in
January tends to produce a February rebound. 

I don't want to be caught with only three positions if
a real rally breaks out and we can protect ourselves
in case it doesn't.

Considering the damage to the market recently I feel
pretty good that the biggest loss we currently have 
is a -$1.40 drop in our SYMC LEAP. 

We were triggered on three watch list plays this week
and we had three explode and run away from us. Those
things happen and we take the good with the bad. 

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

leaps @ OptionInvestor.com  


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

IWM - Russell Index Ishares $123.05


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

None


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

HET - Harrahs $64.93

ELN - Elan Pharma $28.27

IBM - IBM $93.97


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

Position Summary Table

 


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

HET $64.93 Harrah's Entertainment  **Stop loss $60.00**

Harrah's has been on a roll since August and has recently
set a new high at just over $67. We saw a pullback to our
$64 entry point Monday.  

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

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

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

2006 $65 LEAP Call WBI-AM @ $6.20
2007 $70 LEAP Call VKH-AN @ $7.00

Insurance Put
Feb-2005 $60 Put HET-NL @ $0.85

Entry (01/10) $64.00
HET Chart


 

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

ELN - Elan Pharma $27.69   **Stop loss $24.00**

We were triggered on the Elan Leap on Tuesday when ELN
broke out to $28.50. Earnings are Feb-8th.

Elan is a neuroscience-based biotechnology company that
is focused on discovering, developing, manufacturing, 
selling and marketing advanced therapies in 
neurodegenerative diseases, autoimmune diseases 
and severe pain.

In neurology, Elan is focused on building upon its 
breakthrough research and extensive experience in the
area of neuropathology-based disorders. In addition 
to Alzheimer’s disease, Elan is also studying other 
neurodegenerative diseases, such as Parkinson's disease. 

On December 28, 2004, the U.S. Food and Drug Administration
approved Prialt for the management of severe chronic pain.

On November 23, 2004, the U.S. Food and Drug Administration
approved TYSABRI, formerly referred to as Antegren, as 
treatment for relapsing forms of multiple sclerosis (MS) 
to reduce the frequency of clinical relapses.

2006 $30 LEAP Call WTB-AF @ $5.30

Insurance Put - none

Entry $28.50 (01/11)
ELN Chart



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


IBM - IBM $95.78 (Target 94.00)  ** No Stop **

IBM dipped back to support at $94 and exactly where we
wanted to enter. This was the resistance high in April 
and a double bottom in November. Why is it that when we
get an entry on a dip that I always wonder if I really
wanted it the next day? Buy stocks when nobody else
wants them. 

IBM has earnings on Tuesday and we will know immediately
if this one will be successful or not. We have insurance
with the $90 put and IBM did not warn. I believe the
drop over the last two weeks was profit taking in front
of earnings and on fear that earnings would disappoint. 
With them selling their PC business I am hoping their
earnings will improve. Also, there was a large tax credit
for systems installed by 12/31 so they could have seen a
large boost in year end business. 

Also, IBM is moving strongly into even more areas of
system and software services and maintains a huge backlog
of orders. 

IBM is the world's largest information technology company,
with 80 years of leadership in helping businesses innovate.
IBM Software offers a wide range of middleware and operating
systems for all types of computing platforms, allowing 
customers to take full advantage of the on demand era 


2006 $100 LEAP Calls WIB-AT @ $5.00

Insurance put
April $90 Put IBM-PR @ $1.40

IBM Chart



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

IWM - $123.05 Russell Index Ishares

The Russell rebounded from its 604 low on Wednesday to 
close at 617 on Friday. This is far from a roaring recovery
but it could be the start of something for the bulls. With
earnings busting out all over next week we have plenty of
stock news, hopefully positive, and option expiration to
give us lift. 

I would like to play the Russell because it was the most
beaten down of the indexes that we can play. 

Using the Russell Index Ishares (IWM), currently $123 I
want to speculate with the May $125 calls DIW-EU. I am
not using LEAPS for this play because I do not expect to
keep it more than 4-6 weeks and LEAPS are very expensive.
We will look to get into LEAPS on a dip later in the
summer.  

Because we have the inauguration risk on Thursday I want
to buy some cheap insurance in the January $122 put that
should decline to about 50 cents on Tuesday. This is a
very short fuse option and expires on Friday after the
event. If a disaster did happen it would be worth the
investment. If not it is cheap insurance. 

A stop loss will not work on a disaster. The only real
protection is a put. 

Buy IWM MAY-$125 Call Option DIW-EU currently $5.20 

Insurance put
Buy IWM Jan-$122 Put Option DIW-MR currently 85 cents.
Target 50 cents on the put purchase on Tuesday or 
maybe less on Wednesday. 

The put option should open down substantially on Tuesday
after three days of premium decay. 
     
Stop loss IWM $120 

Entry $123.05 (Jan-18th)
IWM Chart




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


ADBE - Adobe Systems $58.23     ** 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 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.  

Jan-06 $60 LEAP Call WAE-AL @ $7.50

Put Insurance
Feb-05 $55 Put AEQ-NK @ 80 cents

Entry $58.78 (01/09)
ADBE Chart



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

EBAY - eBay Inc $105.19    ** Stop $95.00 **

eBay is still clinging to $105 as we head into 
earnings next week. EBAY should beat the street 
and raise guidance based on comments last week 
about raising prices and strong business in Q4.   

I looked at the January puts as potential earnings
insurance but at the money was $3 and $5 OTM was 
$1.30. I don't think it is worth the money. 

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 to offset the price of the LEAP
call. 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. 


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 $76.32  ** No Stop **

We got a nice bounce from RIMM this week and I
expect it to continue if the market recovers. The
support at $73 appears to have held and the bounce
from Wednesday is also holding. 

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.

Jan-06 $80 LEAP Call WLJ-AP @ $12.40

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 $35.68   ** Stop $32.00 **

We nailed XMSR on the exact bottom with the gap down
on Monday morning to $31.62. Anybody wanting to get
into this position found themselves with a free ride
on that opening dip and rebound. Unfortunately the
insurance put spiked +30 cents to $1.75 at the open. 
The chart below is the picture of a perfect entry.

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. 

Jan-06 $35 LEAP Call YLX-AG currently $6.20

Insurance Put
Buy Feb-$32.50 Put QSY-NZ currently $1.75
Six weeks should be enough time to confirm a rebound. 

Stop loss $32 

Entry $34.09 (01/09)
XMSR Chart



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


SYMC $24.53 Symantec - Veritas  ** no stop **

SYMC finally started rebounding after a double bottom
test at $23. The uptrend appears to have taken hold and
I am feeling much better about the coming weeks. 

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 $36.45  ** No Stop **

The XLE has blasted off on the jump in oil prices.
The 100 day average was support once again and I am 
looking for a break over $37 before next weekend. 

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



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

MRO - $38.31 Marathon Oil    ** No Stop **

Marathon finally took off from last weeks dip to $35.50.
It is not performing as well as the XLE or COP, which was
stopped last week just before heading back to attempt a
new high. I am going to be cautious with MRO and will
likely bail on the next sign of trouble. I don't like
plays where the action does not meet or exceed the rest
of the sector. Something is wrong and we don't know what
it is.     

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





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

50% is Not Bad

Unfortunately we may have gotten triggered on the wrong
50%. Three of our watch list entries from last week 
were triggered, HET, ELN and IBM. Three that were not
triggered, UNH, DHI and TOL exploded to the upside and
are probably out of range for the current cycle. With
eleven current plays I am going to drop those that
ran away from us and keep only QCOM and DGX. 

DGX missed our entry by 31 cents on Tuesday and
then ran for +4 the next two days. 

With the market still not showing a rebound I am 
hesitant to pick any new ones until we see what the 
earnings guidance is like. We also have event risk
over the next two weeks. 

The LEAPS section is also changing format sometime
over the next two weeks and I would like to have a
solid portfolio when we make the switch. 

The emphasis here is on profit not quantity. 

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

UNH - $89.51 Blew out to a new high and ran away.

DHI - $41.00 Jumped +10% and ran away from us.

TOL - $74.38 Jumped +$7 to a new high.

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

None


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


DGX - Quest Diagnostic $93.23 (Target $91.00) 

Raised target to support at $91.00

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

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

DGX 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





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

A Question Of Volume – Coming Through Loud & Clear
By Mike Parnos

I received some emails asking about “volume.”  It’s time to clear 
things up.  Well, here it is.  “Volume” – the second most 
important button on your remote control.  The first, of course, 
is “channel selection” and the third is “channel recall.” 

At the CPTI (Couch Potato Trading Institute), never let it be 
said that we don’t go devote valuable space to going over basics.  
It looks like I’m going to have to publish a CPTI Trading Manual 
– with the important stuff.

By the way, “volume” has a secondary meaning.  It can be an 
indicator when evaluating trading strategies – especially when 
trying to guess a direction.

Why do people send ME questions about technical analysis?  I’m 
pretty good on support and resistance levels.  I can even draw a 
trend line now and then and identify a moving average here and 
there.  Anything more than that is like getting too many toppings 
on a pizza.  Any more than a few toppings, and you won’t be able 
to taste any of them – and all you’ve done is spoil a perfectly 
good pizza.  
__________________________________________________________

Dear Mike,
I know that volume is one of the many indicators for past, 
current and or future performance. However, I’m often confused. I 
understand a price increase should be supported by an increase in 
volume, and a decrease in price should be reflected by lighter 
volume (if I’m looking at a stock with upside potential).  I am 
long the stock and I want it to go higher). However, do I compare 
the volume against the previous day's volume, average volume for 
the stock (3 mo., 6 mo., etc), or do I look at the overall trend 
of the volume? -- Rick

Answer:  Hello, Rick, my directional friend.  Usually, when you 
see a stock moving higher, you want volume to increase over what 
you saw the previous day.  You want to compare individual volumes 
to the 50-day volume average.  For a breakout, a general rule is 
for volume to be 1.5 times the average daily volume on the move.  
This is not a 100% rule.  For instance, let’s say the stock has 
been consolidating for a week and showing solid volume all week 
in anticipation of a breakout.  Then, the breakout can occur on 
solid, but not blowout volume.  

Sometimes a breakout move will not be on the increased targeted 
volume, but stock may still hit your buy point.  Look for the 
volume to be moving steadily higher as the stock moves higher.   
If the market is in an uptrend, we are a little more flexible 
because the rising tide helps all stocks.  But, if the market 
isn’t moving up, you need to be sure there is a volume surge. 
Why?  Because we need to see those big institutional buyers 
enthusiastically moving into the stock.

Checking out the stock's chart can be useful.  While a stock is 
consolidating, especially inside a base, look for overall volume 
to fall down to very low levels near the bottom of the base – 
preferably below the average daily volume levels.   This can last 
from a few weeks to a few months.  When the stock begins to rise 
in the right side of the base, volume should start rising to 
above average levels on moves up, falling back on pullbacks, as 
it makes its way up.  

When we look at a stock's chart, we look at volume trends 
throughout the pattern, and even count the accumulation and 
distribution weeks to show if the stock is being bought or sold 
by institutions.  Since it is institutions that move stocks, this 
is an important aspect of our analysis.  We look at the larger 
picture, based on weekly totals, rather than daily totals.
___________________________________________________________

January Position Adjustment
Earlier this week our “sure thing” credit spread went a little 
too far to the downside.  We closed out our two contracts of the 
1190/1165 bull put spread for $13.90 ($2,780).  Now, we had to 
make up the $2,780.  So, we had a choice.  We could put on a 
total of five contracts of the January 1190/1215 bear call spread
for January at $6.15 ($3,050), or just four February bear call 
spreads for $7.35 ($2,940).  The maintenance for the January 
alternative was $12,500 and the four February bear call spreads 
would require only $10,000.  With a little less than two weeks to 
go, I opted for the January alternative.
___________________________________________________________

A New Beginning 
This week marks the beginning of a new era – in many respects.  
I’ll go into more detail in upcoming columns.  Suffice it to say, 
we’re going to re-examine our strategies and the timing of our 
plays.  We’re going to still be conservative and make 
improvements.  This year is going to be another good year for 
CPTI students.  Grab hold.  It’s going to be a fun ride.
___________________________________________________________

February Position #1 - SPX Iron Condor - 1186.19
We sold 10 SPX Feb. 1255 calls and bought 10 SPX Feb. 1265 calls 
for a credit of about: $.50 ($500).  Then we sold 10 SPX Feb. 
1140 puts and bought 10 SPX Feb. 1130 puts for a credit of about: 
$1.00 ($1,000).  Our total net credit was $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 
We sold 15 OEX Feb 530 puts and bought 15 OEX Feb 520 puts for a 
credit of about $.50 ($750).  Our net credit and potential profit 
is $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 Bull Put Spread
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
(See Adjustment Description Above) 
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 Bull Put Spread
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 Bull Put Spread
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
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 
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 01-16-2005
Sunday                                                      5 of 5

In Section Five:

Spreads and Straddles:  A Morsel Of Optimism!
Premium-Selling Plays: Naked Puts and Calls


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


A Morsel Of Optimism!
By Ray Cummins

Stocks rebounded Friday on tame inflation data and hopes that
profit reports will improve when the quarterly earnings season
continues next week.

The Producer Price Index retreated 0.7 percent in December, far
more than the 0.2 percent decline economists expected.  It was
also the steepest drop in the PPI since April 2003.  Investors
were encouraged by the news and the blue-chip Dow Jones average
jumped 52 points to 10,558.  The NASDAQ Composite index climbed
17 points to 2,087 with semiconductor shares enjoying a burst of
buying pressure.  The Standard & Poor's 500 index finished up 7
points at 1,184, supported by advances in airline, homebuilding,
retail, transportation, materials, utility, health care, and
financial issues.  Big Board volume was 1.3 billion, while 2.0
billion shares were crossed on the NASDAQ.  Advancing equities
outpaced declining stocks roughly 2 to 1 on the major exchanges.
Bonds drifted lower with the benchmark 10-year note down 12/32,
while its yield rose to 4.21%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 01/14/05
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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  34.89  JAN  25.0  27.5  0.40   27.10   0.40   Open
CFC    33.21  36.75  JAN  27.5  30.0  0.30   29.70   0.30   Open
EBAY  112.20 105.20  JAN  95.0 100.0  0.60   99.40   0.60   Open?
LEND   46.85  49.06  JAN  35.0  40.0  0.50   39.50   0.50   Open
LEN    50.11  57.53  JAN  42.5  45.0  0.30   44.70   0.30   Open
PHM    59.65  65.99  JAN  50.0  55.0  0.75   54.25   0.75   Open
MRVL   34.89  34.89  JAN  27.5  30.0  0.30   29.70   0.30   Open
VRTS   27.38  26.94  JAN  22.5  25.0  0.45   24.55   0.45   Open
ERTS   61.71  59.84  JAN  55.0  57.5  0.35   57.15   0.35   Open
PENN   59.87  62.27  JAN  50.0  55.0  0.50   54.50   0.50   Open
YHOO   37.90  36.70  JAN  32.5  35.0  0.30   34.70   0.30   Open
ANF    47.28  50.33  JAN  42.5  45.0  0.35   44.65   0.35   Open
MRVL   34.50  34.89  JAN  30.0  32.5  0.30   32.20   0.30   Open
PIXR   86.36  85.99  FEB  75.0  80.0  0.70   79.30   0.70   Open
CECO   42.05  41.00  FEB  30.0  35.0  0.65   34.35   0.65   Open
CVS    47.11  47.00  FEB  42.5  45.0  0.30   44.70   0.30   Open

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

The position in Kmart Holdings (NASDAQ:KMRT), which is currently
profitable, and the Navteq (NYSE:NVT) spread, have previously been
closed to limit potential losses.  Ebay (NASDAQ:EBAY) is the most
prominent candidate on the "watch" list with its earnings report
due this week.


CALL-CREDIT SPREADS

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

SINA   37.93  30.00   JAN  50.0  45.0  0.60   45.60  0.60   Open
LLY    53.33  57.25   JAN  65.0  60.0  0.65   60.65  0.65   Open
NVLS   26.94  26.80   JAN  32.5  30.0  0.35   30.35  0.35   Open
CCU    33.15  32.00   JAN  40.0  35.0  0.50   35.50  0.50   Open
UVN    29.06  27.92   JAN  35.0  30.0  0.80   30.80  0.80   Open
ADI    36.42  35.64   JAN  45.0  40.0  0.50   40.50  0.50   Open
KOSP   35.13  33.12   JAN  45.0  40.0  0.55   40.55  0.55   Open
TTWO   33.45  34.84   JAN  40.0  37.5  0.30   37.80  0.30   Open
MSTR   56.22  58.16   JAN  70.0  65.0  0.65   65.65  0.65   Open
ABC    57.09  57.27   JAN  65.0  60.0  0.45   60.45  0.45   Open
RIMM   83.49  76.39   JAN 100.0  95.0  0.45   95.45  0.45   Open
PKZ    32.99  37.44   JAN  40.0  35.0  0.85   35.85 (1.59) Closed
UHS    44.51  44.33   JAN  50.0  45.0  0.60   45.60  0.60   Open
JNPR   25.80  26.60   JAN  30.0  27.5  0.35   27.85  0.35   Open
DNA    51.75  50.10   JAN  57.5  55.0  0.35   55.35  0.35   Open
BJS    43.09  45.71   FEB  50.0  47.5  0.30   47.80  0.30   Open
MERQ   41.25  40.68   FEB  47.5  45.0  0.50   45.50  0.50   Open
IMCL   42.70  41.16   FEB  55.0  50.0  0.45   50.45  0.45   Open
NTES   49.97  51.17   FEB  60.0  55.0  0.80   55.80  0.80   Open

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

The speculative position in PetroKazakhstan (NYSE:PKZ) has been
closed to limit potential losses.  Netease.com (NASDAQ:NTES) is
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?
IIVI    39.91   40.13  JAN    40.0   40.0   2.75    2.50    Open

Beazer Homes (NYSE:BZH) came up just short of the "break-even"
point in the position with the bearish portion of the straddle
nearly paying for the entire play during it's recent slide to
$134.  Now the issue seems destined to climb to new highs and
traders who used the sell-off to unload the JAN-$145 puts are
holding nearly "risk-free" calls.  II-VI is scheduled to post
its second quarter earnings on Thursday, January 20.

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

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

LPNT - LifePoint Hospitals  $37.63  *** Bullish Sector! ***

LifePoint Hospitals (NASDAQ:LPNT) is engaged primarily in the
operation and management of healthcare facilities, mostly
general, acute care hospitals in non-urban communities in the
United States.  Through its hospitals, the company provides a
range of healthcare services, including medical and surgical
services, as well as outpatient and ancillary services such as
rehabilitation, radiology, respiratory therapy.  Its hospitals
receive payment for patient services from the federal government
primarily under the Medicare program, state governments under
Medicaid programs, health maintenance organizations, preferred
provider organizations and other private insurers, as well as
directly from patients.

LPNT - LifePoint Hospitals  $37.63

PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-30.00  PUN-NF  OI=745   ASK=$0.25
SELL PUT  FEB-35.00  PUN-NG  OI=3221  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$34.50


__________________________________________________________________

AMZN - Amazon.com  $44.55  *** Rally Mode! ***

Amazon.com (NASDAQ:AMZN) is a website where customers can find
and discover anything they may want to buy online.  The company
lists millions of items in categories such as books, music, DVDs,
videos, consumer electronics, toys, camera and photo items, PC
software, computer and video games, tools and hardware, outdoor
living items, kitchen and house-wares products, toys, baby and
baby registry, travel services and magazine subscriptions.  At
its Amazon Marketplace, Auctions and zShops services, businesses
and individuals can sell virtually any product to millions of
customers, and with Amazon.com Payments, sellers are able to
accept credit card transactions in addition to other methods of
payment.  The company operates a U.S.-based Website: amazon.com,
and four internationally focused Websites: www.amazon.co.uk,
www.amazon.de, www.amazon.fr and www.amazon.co.jp.

AMZN - Amazon.com  $44.55

PLAY (less conservative - bullish/credit spread):

BUY  PUT  FEB-37.50  ZQN-NU  OI=3169   ASK=$0.55
SELL PUT  FEB-40.00  ZQN-NH  OI=10971  BID=$0.90
INITIAL NET-CREDIT TARGET=$0.40-$0.45
POTENTIAL PROFIT(max)=19% B/E=$39.60



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

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.

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

SLAB - Silicon Laboratories  $30.47  *** In A Trading Range? ***

Silicon Laboratories (NASDAQ:SLAB) designs proprietary, analog
intensive, mixed-signal integrated circuits for use in a range
of applications.  The firm groups its products into two major
categories: mobile handset products and mixed-signal products.
Its mobile handset products include the Aero transceivers and
radio frequency synthesizers.  Its broad-based, mixed-signal
products include silicon Direct Access Arrangement, ISOmodem,
ProSLIC (subscriber line interface circuits), digital subscriber
line analog front end, clock chips, SiPHY, optical transceivers
and clock and data recovery ICs, RF Synthesizers for non-handset
applications, as well as the Cygnal eight-bit microcontroller
family of products.  Earnings are due 1/24/05.

SLAB - Silicon Laboratories  $30.47

PLAY (very conservative - bearish/credit spread):

BUY  CALL  FEB-40.00  QFJ-BH  OI=332   ASK=$0.15
SELL CALL  FEB-35.00  QFJ-BG  OI=1009  BID=$0.50
INITIAL NET-CREDIT TARGET=$0.40-$0.50
POTENTIAL PROFIT(max)=8% B/E=$35.40


__________________________________________________________________

ONXX - Onyx Pharmaceuticals  $30.31  *** Waiting On The FDA ***

Onyx Pharmaceuticals (NASDAQ:ONXX) is a biopharmaceutical firm
developing therapies that target the molecular mechanisms that
cause cancer.  With its collaborators, the company is developing
small-molecule, orally available drugs with the goal of changing
the way cancer is treated.  By exploiting the genetic differences
between cancer cells and normal cells, the Company aims to create
anti-cancer agents that minimize damage to healthy tissue.  Its
lead product candidate, BAY 43-9006, is in Phase III development
with the company's collaborator, Bayer Pharmaceuticals.

ONXX - Onyx Pharmaceuticals  $30.31

PLAY (less conservative - bearish/credit spread):

BUY  CALL  FEB-40.00  OIQ-BH  OI=1267  ASK=$0.60
SELL CALL  FEB-35.00  OIQ-BG  OI=8312  BID=$1.20
INITIAL NET-CREDIT TARGET=$0.65-$0.75
POTENTIAL PROFIT(max)=15% B/E=$35.65



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

EBAY - eBay  $105.20  *** Earnings Speculation Only! ***

eBay (NASDAQ:EBAY) is a web-based community in which buyers and
sellers are brought together to browse, buy and sell items such
as collectibles, automobiles, high-end or premium art items,
jewelry, consumer electronics and a host of practical and other
miscellaneous items.  The eBay trading platform is an automated,
topically arranged service that supports an auction format in
which sellers list items for sale and buyers bid on items of
interest, and a fixed-price format in which sellers and buyers
trade items at a fixed price established by sellers.  Through
its wholly owned and partially owned subsidiaries and affiliates,
the Company operated online trading platforms directed towards
the United States, Australia, Austria, Belgium, Canada, France,
Germany, Ireland, Italy, Japan, the Netherlands, New Zealand,
Singapore, South Korea, Spain, Sweden, Switzerland and also the
United Kingdom.

EBAY - eBay  $105.20

PLAY (speculative - neutral/debit straddle):

BUY CALL  JAN-105.00  XBA-AA  OI=9716   ASK=$3.20
BUY PUT   JAN-105.00  XBA-MA  OI=14884  ASK=$3.00
INITIAL NET-DEBIT TARGET=$5.75-$6.00
INITIAL TARGET PROFIT=$1.75-$2.90




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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 01/14/05
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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    7.85    0.40   7.51%   5.63%
RHAT     JAN    12.50   12.05   11.83   (0.22)  0.00%   3.73%
NCRX     JAN    25.00   24.40   30.50    0.60   4.78%   2.46%
NTGR     JAN    15.00   14.65   16.06    0.35   4.58%   2.39%
RMBS     JAN    17.50   17.10   21.14    0.40   4.87%   2.34%
TLCV     JAN    10.00    9.65    9.10   (0.55)  0.00%   0.00%
WITS     JAN    15.00   14.55   16.80    0.45   5.38%   3.09%
IDCC     JAN    17.50   16.95   17.90    0.55   6.62%   3.24%
MSO      JAN    17.50   17.05   28.13    0.45   5.62%   2.64%
MSO      JAN    20.00   19.60   28.13    0.40   5.28%   2.04%
ACF      JAN    22.50   21.65   24.45    0.85   6.54%   3.93%
USNA     JAN    30.00   29.00   33.18    1.00   6.12%   3.45%
DHB      JAN    15.00   14.35   15.54    0.65  10.38%   4.53%
GTOP     JAN    12.50   12.05   15.68    0.45   8.45%   3.73%
CMVT     JAN    22.50   22.05   22.72    0.45   3.93%   2.04%
RMBS     JAN    20.00   19.35   21.14    0.65   8.12%   3.36%
IDCC     JAN    17.50   17.05   17.90    0.45   6.77%   2.64%
NFLD     JAN    17.50   17.05   21.02    0.45   6.15%   2.64%
NCRX     JAN    25.00   24.55   30.50    0.45   4.60%   1.83%
RMBS     JAN    20.00   19.45   21.14    0.55   7.18%   2.83%
NKTR     JAN    17.50   17.05   18.61    0.45   5.64%   2.66%
ALXN     JAN    20.00   19.65   22.65    0.35   4.51%   1.78%
AMLN     JAN    20.00   19.65   23.59    0.35   4.07%   1.78%
SWFT     JAN    20.00   19.65   19.84    0.19   2.50%   1.78%
NEOL     JAN    10.00    9.70   11.09    0.30  10.31%   3.09%
KFX      JAN    12.50   12.20   12.91    0.30   7.80%   2.46%
NAVR     JAN    15.00   14.50   16.76    0.50   8.94%   3.45%
IDCC     JAN    17.50   17.25   17.90    0.25   5.28%   1.45%
NTGR     JAN    15.00   14.60   16.06    0.40   7.61%   2.74%
CTIC     JAN     7.50    7.00    8.00    0.50  16.41%   7.14%
FXEN     JAN    10.00    9.30   14.88    0.70  20.65%   7.53%
NTMD     JAN    22.50   22.25   23.70    0.25   4.52%   1.12%
ELN      JAN    25.00   24.45   28.25    0.55   7.06%   2.25%
VRX      JAN    25.00   24.55   24.80    0.25   3.21%   1.83%
IDCC     JAN    20.00   19.75   17.90   (1.85)  0.00%   0.00% *
MSO      JAN    25.00   24.60   28.13    0.40   7.12%   1.63%
SONC     JAN    30.00   29.65   31.21    0.35   5.15%   1.18%
ALVR     JAN    12.50   12.15   12.69    0.35  12.44%   2.88%
NFLD     JAN    20.00   19.65   21.02    0.35   8.66%   1.78%
BCSI     JAN    17.50   17.20   19.09    0.30   8.29%   1.74%
HLEX     JAN    15.00   14.75   16.60    0.25   7.47%   1.69%
FLML     JAN    17.50   17.25   18.13    0.25   7.05%   1.45%
CTIC     JAN     7.50    7.25    8.00    0.25  22.85%   3.45%
FXEN     JAN    12.50   12.20   14.88    0.30  15.53%   2.46%
INTV     JAN    12.50   12.20   12.40    0.20   9.74%   2.46%
NTGR     JAN    15.00   14.70   16.06    0.30  13.00%   2.04%
VTIV     JAN    20.00   19.60   20.81    0.40  11.61%   2.04%
IFLO     JAN    17.50   17.25   17.91    0.25   9.03%   1.45%
PDLI     JAN    20.00   19.75   19.62   (0.13)  0.00%   0.00%
BLUD     JAN    25.00   24.70   28.07    0.30   7.20%   1.21%
GLBC     FEB    15.00   14.35   20.52    0.65   9.34%   4.53%
TSRA     FEB    30.00   29.50   38.31    0.50   4.41%   1.69%
ELN      FEB    25.00   24.50   28.25    0.50   4.59%   2.04%
ZGEN     FEB    20.00   19.60   22.10    0.40   4.31%   2.04%
NCRX     FEB    27.50   26.90   30.50    0.60   4.76%   2.23%
CVC      FEB    22.50   22.05   24.35    0.45   4.33%   2.04%
CYBX     FEB    15.00   14.50   23.44    0.50   7.53%   3.45%

The "watch-list" position in Interdigital (NASDAQ:IDCC) should
have been closed Thursday when the stock plunged after Nokia
(NYSE:NOK) filed a lawsuit to invalidate some of IDCC's 3G
mobile phone patents.  A number of other issues are potential
"early-exit" candidates.  Redhat (NASDAQ:RHAT) and TLC Vision
(NASDAQ:TLCV) are among the most obvious, however Comverse
Technology (NASDAQ:CMVT), DHB Industries (NYSE:DHB), KFX Inc.
(NYSE:KFX) and Swift Transportation (NASDAQ:SWFT) remain on
the "watch" list with a slew of newcomers.  Positions in Ariba
(NASDAQ:ARBA), Adolor (NASDAQ:ADLR), Jupitermedia (NASDAQ:JUPM),
MGI Pharma (NASDAQ:MOGN), and Novatel Wireless (NASDAQ:NVTL)
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   26.52    0.50   3.96%   1.52%
PLAY     JAN    35.00   36.05   24.51    1.05  12.22%   2.91%
AFCO     JAN    22.50   22.80   20.26    0.30   3.92%   1.32%
SYMC     JAN    32.50   33.00   24.51    0.50   6.06%   1.52%
PDII     JAN    30.00   30.30   19.09    0.30   4.64%   0.99%
AGIX     JAN    30.00   30.30   20.14    0.30   5.80%   0.99%
EPIX     JAN    20.00   20.45   10.67    0.45   8.03%   2.20%
SWIR     JAN    20.00   20.50   15.47    0.50   8.74%   2.44%
CTAS     JAN    45.00   45.45   43.33    0.45   3.30%   0.99%
SPW      JAN    42.50   42.90   38.67    0.40   3.47%   0.93%
FHRX     JAN    22.50   22.75   19.10    0.25   5.97%   1.10%
MACR     JAN    30.00   30.35   27.73    0.35   6.71%   1.15%
NOI      JAN    35.00   35.25   35.96   (0.71)  0.00%   0.00%
TASR     JAN    25.00   25.75   19.64    0.75  23.22%   2.91%
SINA     JAN    30.00   30.50   30.00    0.50  15.11%   1.64%
X        JAN    50.00   50.30   50.45   (0.15)  0.00%   0.00%
RIGL     JAN    40.00   40.35   21.77    0.35  12.22%   0.87%
ASKJ     FEB    30.00   30.60   30.04    0.56   7.27%   1.96%

Ask Jeeves (NASDAQ:ASKJ) quickly became an exit candidate when
the issue rallied Wednesday afternoon despite a lack of public
news.  National Oilwell (NYSE:NOI) and U.S. Steel (NYSE:X) were
also closed in the wake of unexpected bullish activity.  Select
Comfort (NASDAQ:SCSS) and Celgene (NASDAQ:CELG) have previously
been closed to limit potential losses.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW POSITIONS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As with
any new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.

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

NEW NAKED-PUT CANDIDATES

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

ASKJ   30.04  FEB 25.00  AUK-NE 0.70 4522 24.30  34   2.6%   8.2%
PMTI   24.81  FEB 20.00  HKQ-ND 0.45   72 19.55  34   2.1%   7.2%
IFLO   17.91  FEB 15.00  QIF-NC 0.35   12 14.65  34   2.1%   6.8%
GLBC   20.52  FEB 15.00  GQC-NC 0.30   91 14.70  34   1.8%   6.1%
PHTN   24.58  FEB 20.00  PDU-ND 0.35  505 19.65  34   1.6%   5.6%
JCOM   33.56  FEB 30.00  JQF-NF 0.60  675 29.40  34   1.8%   5.1%
CENX   25.49  FEB 22.50  CQL-NX 0.25    0 22.25  34   1.0%   3.0%
RIO    29.03  FEB 25.00  RIO-NE 0.25 1393 24.75  34   0.9%   2.9%

Abbreviations:

LB-Last Bid price, OI-Open Interest, CB-Cost Basis (or break-even
point), DE-Days to Expiry, SY-Simple Yield (monthly basis without
margin), MY-Maximum Yield (monthly basis with margin), TS-Target
Shoot.
_________________________________________________________________

ASKJ - Ask Jeeves  $30.04  *** Revenge Play! ***

Ask Jeeves (NASDAQ:ASKJ) is a provider of Internet-wide search,
providing consumers with authoritative and fast ways to find
relevant information to their everyday searches.  Ask Jeeves
deploys its search technologies on Ask Jeeves (Ask.com and
Ask.co.uk), Teoma.com, and Ask Jeeves for Kids (AJKids.com).
In addition, to its internet sites, Ask Jeeves syndicates its
monetized search technology and advertising units to a network 
of affiliate partners.  The company is based in Emeryville,
California, with offices in New York, Boston, New Jersey, Los
Angeles, London and Dublin.
 
ASKJ - Ask Jeeves  $30.04

FEB 25.00 AUK-NE LB=0.70 OI=4522 CB=24.30 DE=34 TY=2.6% MY=8.2%


_________________________________________________________________

PMTI - Palomar Medical  $24.81  *** Consolidation Complete? ***

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

PMTI - Palomar Medical  $24.81

FEB 20.00 HKQ-ND LB=0.45 OI=72 CB=19.55 DE=34 TY=2.1% MY=7.2%


_________________________________________________________________

IFLO - I-Flow  $17.91  *** Entry Point? ***

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  $17.91

FEB 15.00 QIF-NC LB=0.35 OI=12 CB=14.65 DE=34 TY=2.1% MY=6.8%


_________________________________________________________________

GLBC - Global Crossing  $20.52  *** Rally Underway! ***

Global Crossing (NASDAQ:GLBC) is a provider of telecom services
to carriers and commercial enterprises around the world.  The
principal services the company offers to its customers include
voice, data and conferencing services.  Global Crossing offers
these services using a global Internet protocol-based network
that directly connects more than 300 cities in over 30 countries
and delivers services to more than 500 major cities in over 50
countries around the world.  The firm also provides installation
and maintenance services for subsea telecommunications systems
through its subsidiary, Global Marine Systems Limited.

GLBC - Global Crossing  $20.52

FEB 15.00 GQC-NC LB=0.30 OI=91 CB=14.70 DE=34 TY=1.8% MY=6.1%


_________________________________________________________________

PHTN - Photon Dynamics  $24.58  *** "Bottom-Fishing" Only! ***

Photon Dynamics (NASDAQ:PHTN) is a provider of yield management
solutions to the flat-panel display industry.  The company's
solutions are used to collect data, analyze product quality and
identify and repair product defects at critical steps in the
manufacturing processes.  Photon's test, repair and inspection
systems increase manufacturing yields of high-performance flat
panel displays used in a number of products, including notebook
and desktop computers, televisions and advanced mobile electronic
devices, such as cellular phones, personal digital assistants and
portable video games.

PHTN - Photon Dynamics  $24.58

FEB 20.00 PDU-ND LB=0.35 OI=505 CB=19.65 DE=34 TY=1.6% MY=5.6%


_________________________________________________________________

JCOM - j2 Global Communications  $33.56  *** Uptrend Intact! ***

j2 Global Communications (NASDAQ:JCOM) provides outsourced,
value-added messaging and communications services to more than
five million customers around the world.  j2 Global's network
spans more than 1,100 cities in 20 countries on five continents.
The company offers its services and software under the j2, eFax
 jConnect, jFax, Consensus, Hotsend, PaperMaster, Protofax, M4
Internet, Electric Mail and Documagix brands.

JCOM - j2 Global Communications  $33.56

FEB 30.00 JQF-NF LB=0.60 OI=675 CB=29.40 DE=34 TY=1.8% MY=5.1%


_________________________________________________________________

CENX - Century Aluminum  $25.49  *** Low Risk = Low Reward!  ***

Century Aluminum Company (NASDAQ:CENX) is a holding company,
whose principal subsidiaries are Century Aluminum of West
Virginia, Inc., Berkeley Aluminum, Inc. and Century Aluminum
of Kentucky, LLC.  Through its ownership interests, the company
has an annual production capacity of approximately 1.2 billion
pounds of primary aluminum.

CENX - Century Aluminum  $25.49

FEB 22.50 CQL-NX LB=0.25 OI=0 CB=22.25 DE=34 TY=1.0% MY=3.0% TS


_________________________________________________________________

RIO - Vale do Rio Doce  $29.03  *** Target-Shoot An Entry! ***

Vale do Rio Doce (NYSE:RIO) is an American Depository Receipt
(ADR) for Companhia Vale do Rio Doce (CVRD), which produces and
sells iron ore, pellets, manganese, iron alloys, gold, kaolin,
bauxite, alumina, aluminium, and potash.  The company also owns
stakes in several steel companies.  CVRD is based in Brazil,
where it owns and operates railroads and maritime terminals.

RIO - Vale do Rio Doce  $29.03

FEB 25.00 RIO-NE LB=0.25 OI=1393 CB=24.75 DE=34 TY=0.9% MY=2.9% TS



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

BEARISH PLAYS - NAKED CALLS

Based on analysis of option pricing and the underlying stock's
technical background, these positions meet our fundamental
criteria for bearish "premium-selling" strategies.  Each issue
has robust option premiums, a well-defined resistance area and
a high probability of remaining below the target strike prices.
As with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered calls entails considerable financial risk,
far more than the initial margin or collateral required to open
the position.  The maximum financial obligation for the sale of a
naked option is the strike price (of the underlying stock) that
is sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of options must have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  The simple fact is: stocks often experience large price
swings, exponentially increasing the margin maintenance and very
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock price moves in
a volatile manner.  Many professional traders suggest closing the
position when the underlying share value moves beyond the sold
strike, or using a "buy-to-close" stop order at a price that is
no more than twice the original premium received from the sold
option.

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

CNCT - Connetics  $22.73  *** Consolidation In Progress ***

Connetics (NASDAQ:CNCT) is a specialty pharmaceutical company
focusing exclusively on the treatment of dermatological
conditions.  It markets two pharmaceutical products: OLUX Foam
and Luxq Foam.  The company acquired exclusive United States
rights to Soriatane-brand acitretin, an approved oral medicine
for the treatment of severe psoriasis.  Connetics also recently
announced the U.S. commercial launch of Evoclin, delivered in
Connetics' proprietary VersaFoam vehicle for the treatment of
acne vulgaris.
 
CNCT - Connetics  $22.73

PLAY (sell naked call):

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

SELL CALL  FEB 25    UXU-BE    2009   0.50  25.50   6.1%   2.0%


_________________________________________________________________

CREE - Cree Inc.  $25.88  *** Downgrade = Sell-Off! ***

Cree (NASDAQ:CREE) develops and makes semiconductor materials
and devices based on silicon carbide, Group III nitrides,
silicon and related compounds.  The company's SiC and GaN
materials technology is the basis for many of the devices
that it develops and produces.  Cree focuses its expertise
in SiC and GaN materials on four major product areas: light
emitting diodes, including blue, green and near ultraviolet
LED chips and high-power packaged LEDs; power switching
products; radio frequency and microwave devices, and near UV
lasers.

CREE - Cree Inc.  $25.88

"SPECULATIVE" PLAY (sell naked call):

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

SELL CALL  FEB 30    CQR-BF     498   0.65  30.65   8.4%   2.1%


_________________________________________________________________

WEBX - WebEx Communications  $22.05  *** In A Trading Range? ***

WebEx Communications (NASDAQ:WEBX) develops and sells services
that allow end users to conduct meetings and share software
applications, documents, presentations and other content on
the Internet using a standard Web browser.  Integrated telephony
and Web-based audio and video services are also available using
standard devices such as telephones, computer Web cameras and
microphones.  The company's Web communications services provide
a range of features that build on the real-time functionality
and capabilities of the WebEx MediaTone Network; a private,
global-switched, redundant network that is designed to deliver
scalable, secure, real-time communications services.

WEBX - WebEx Communications  $22.05

PLAY (sell naked call):

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

SELL CALL  FEB 25    UWB-BE     681   0.30  25.30   4.3%   1.2% TS




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