Turnaround Tuesday!

Welcome to another episode of
“Turnaround Tuesday!” Futures are slightly better across
the board. The market once again looks set to open higher on the back of
better-than-expected earnings reports from the likes of Novellus Systems
(
NVLS |
Quote |
Chart |
News |
PowerRating) and Motorola
(
MOT |
Quote |
Chart |
News |
PowerRating).

Book-to-Bill came in at .78 vs. November’s .73, slightly
bullish…

Once again the market is oversold, but this does not mean
that it has to go up. Best to stand aside and let the bulls run this thing up
and then see if it can hold.

Volatility

So far this has been a rather orderly retreat, with
volatility relatively restrained. There have been no notable spikes in any of
the volatility indexes that we follow. Yesterday, the QQV (The AMEX QQQ
volatility index) had a nice run-up, but due to the three-day weekend effect,
might need to be discounted.

The question is whether the lack of a volatility explosion
on this leg down is a sign of a normal, more or less expected pullback, or
continued complacency. One view is bullish the other bearish.

With bellwether stocks IBM
(
IBM |
Quote |
Chart |
News |
PowerRating) and Microsoft
(
MSFT |
Quote |
Chart |
News |
PowerRating) in horrible technical condition, I believe there is further to go on
the downside, and I won’t be looking to get long until I see some serious
volatility spikes.

Updates

Sold the IBM Feb. 110/120 put spread (bought the Feb. 110
puts, sold the Feb. 120 puts) at $7.00 yesterday. This rolls our long Feb. 120
puts at $8.50 into long Feb. 110 puts at $1.50.

Bought another 25% of the
(
GILD |
Quote |
Chart |
News |
PowerRating) Feb. 70 straddle at
$8.00 yesterday, increasing our position to 50%.

Current Recommendations

Look to buy puts on rallies as stocks/indexes approach
resistance levels. We continue to be bearish on biotechs.

Rolls/Adjustments

If you were unable today, continue to offer the IBM Feb.
110/120 put spread at $7.00 to roll the puts down and extract money.

Recap of open trades:

Long-term

Reverse Collars

(
TLAB |
Quote |
Chart |
News |
PowerRating) — March 17.5/15 reverse collar (long the
March 17.5 calls, short the March 15 puts) at $1.50 credit average (50%).

(
AMD |
Quote |
Chart |
News |
PowerRating) — April 25/15 reverse collar (long the April 25
calls, short the April 15 puts) at $.05 credit (100%).

Buy-writes

*
(
AMZN |
Quote |
Chart |
News |
PowerRating) Jan. ’03 10 buy-write @ 5.15 (100%) — hold.

*
(
JDSU |
Quote |
Chart |
News |
PowerRating) Jan. ’02 12.5 buy-write @ 9.60 — options
expired worthless, now long the stock at $9.60, stop below.

Proxy buy-writes

(
BA |
Quote |
Chart |
News |
PowerRating) Jan. ’03 35/May 45 call calendar @ $4.75 — hold.

BA Jan. ’03 40/May 45 call calendar @ $2.75 — hold.

Complex Strategies

(
GILD |
Quote |
Chart |
News |
PowerRating) — Long the GILD Feb. 70 straddle at $8.00
(50%)

Short-term

Call Positions

None.

Call Spread Positions

(
DYN |
Quote |
Chart |
News |
PowerRating) — Long the March 30/40 1:2 call ratio spread @
$1.50 (100%) — hold.

(
TLAB |
Quote |
Chart |
News |
PowerRating) — Long the March 17.5/22.5 call spread at
$.80 credit average (50%). Note: This spread is a result of a reverse
collar roll.

Put Positions

(
IBM |
Quote |
Chart |
News |
PowerRating) — Feb. 110 puts long at $1.50 (result of spread
roll).

Put Spread Positions

(
AZO |
Quote |
Chart |
News |
PowerRating) — Long the March 55/65 put spread @ 2.125
(100%) — hold.

STOPS

TLAB: Stop @ 11.95 close only.

JDSU: Stop @ 7.60 close only.

*Because of the importance of tax considerations to all
options transactions, the investor considering options should consult with a tax
advisor as to how taxes may affect the outcome of contemplated options
transactions.

*Supporting documentation for claims, comparisons,
recommendations, statistics or other technical data will be furnished upon
request. One or more of the contributors to these commentaries may have a
position in one or more of the securities mentioned.

It is important to note that the options strategies
discussed herein are not suitable to all investors. Options are complex
investment tools and involve substantial risk. Moreover spreading strategies do
not eliminate risk and involve multiple commissions.

Note: All individuals must have read the ODD carefully
before trading options. To obtain the document, click on the OCC link: https://www.theocc.com/publications/risks/riskchap1.jsp