Volatility Arise!

The market is going to gap lower
this morning. Even though Intel
(
INTC |
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PowerRating) reported
better-than-expected earnings, their lower-than-expected projection for capital
expenditures in 2002 dropped the hammer on several chip equipment issues —
(
AMAT |
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(
KLAC |
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(
NVLS |
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(
EBAY |
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made cautious comments, and, well, you know.

The economic numbers this morning had little or no effect
as market participants are focusing on the INTC statement. For the record,
business inventories came in at -1.0% vs. expectations of -.5%, and December
Core CPI came in at .1%, right on the nose.

Volatility Arise!

With several technical pegs about to be kicked out from
under the market and a new sense of nervousness about not only Q4, but also the
outlook going forward, expect volatility to crank up today. Once again, I urge
long-term investors who will be holding stock no matter what to make use of any
pre-earnings volatility pump by writing calls against holdings!

January Positions Update

(
AMR |
Quote |
Chart |
News |
PowerRating) — Sold the AMR Jan. 25 calls at $.75 yesterday,
closing the position.

(
AWE |
Quote |
Chart |
News |
PowerRating) — Long Jan. 15 calls at an effective cost of
$.10. (We bought the Jan. 12.5/15 reverse collar at $.05, and then covered the
Jan. 12.5 puts at $.05, leaving us long the calls at $.10.) Going out worthless.

(
JDSU |
Quote |
Chart |
News |
PowerRating) — Long the Jan. 10 calls at an effective cost
of $.90 credit (due to “rolling”). Let it ride — monster open
interest at the 10 and 12.5 strikes (relative to the lower strikes) means that
we are in with a chance!

JDSU — Long the Jan. 12.5 buy-write at $9.60. Hold, same
reasoning as above.

(
UAL |
Quote |
Chart |
News |
PowerRating) — Long the Jan. 25 calls at $.75. Going out
worthless.

Retailer Trades

These stocks closed higher yesterday (no idea why), and
Wal-Mart
(
WMT |
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PowerRating) had an outside reversal up day, ending its short-term
weakness. We are liquidating these positions this morning (except for
(
TGT |
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PowerRating)
which has no value).

My timing was horrendous on these trades, but this sector
still looks very overbought and toppy, and we will probably come back for more
later.

(
BBY |
Quote |
Chart |
News |
PowerRating) — Long the Jan. 60/70 put spread at $3.00
(50%). Liquidating this morning.

TGT — Long the Jan. 35 puts at $1.15 (100%). Going out
worthless, hold for “lotto ticket.”

WMT — Long the Jan. 55 puts at $2.35 (50%). Liquidating
this morning.

Straddles

(
GENZ |
Quote |
Chart |
News |
PowerRating) — Effectively whacked out the 60 puts at
$8.00, calls have no value.

(
BBBY |
Quote |
Chart |
News |
PowerRating) — stock looks a bit heavy, holding straddle
into tomorrow.

Updates

(
AMD |
Quote |
Chart |
News |
PowerRating) — Still working to buy the April 25/15 reverse
collar (buying the April 25 calls, selling the April 15 puts) for $.40 credit
(50%).

Gamma Scalping

GENZ — See above.

BBBY — See above.

Current Recommendations:

AMD — Buy the April 25/15 reverse collar (buying the
April 25 calls, selling the April 15 puts) for $.40 credit (50%).

Rolls/Adjustments

Watch alerts!

Recap of open trades:

Long-term

Airline calendar spreads

(
AMR |
Quote |
Chart |
News |
PowerRating) — Sold 50% of the Jan. 25 calls for $1.50, sold
the remaining 50% yesterday at $.75 for an average sale price of $1.125, a $.375
profit.

(
UAL |
Quote |
Chart |
News |
PowerRating) — Jan./Oct. 25 call calendar @ .70 — Oct.’s
went out worthless, holding Jan. 25 calls, looking like rip-ups.

Reverse Collars

(
AWE |
Quote |
Chart |
News |
PowerRating) — Jan. 12/15 reverse collar (long the Jan. 15
calls, short the Jan. 12.5 puts) @ .05 average. Note: We have covered the
Jan. 12.5 puts at $.05. This effectively leaves us long the Jan. 15 calls at
$.10, eliminating the need for a stop.

(
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 $.40 (50%).

Buy-writes

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

*
(
JDSU |
Quote |
Chart |
News |
PowerRating) Jan. 12.5 buy-write @ 9.60 — hold.

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

JDSU — Long 1 unit of the Jan. 10 calls at $.90 credit.
(Due to “roll.”)

GENZ — Effectively exited at $8.00 yesterday (not
counting gamma scalping profits).

BBBY — Long the Jan. 35 straddle at $2.85 (100%) — hold.

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

(
TGT |
Quote |
Chart |
News |
PowerRating) — Long the Jan. 35 puts @ 1.15 (100%) — hold.

(
WMT |
Quote |
Chart |
News |
PowerRating) — Long the Jan. 55 puts @ 2.35 (50%) — hold.

Put Spread Positions

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

(
BBY |
Quote |
Chart |
News |
PowerRating) — Long the Jan. 60/70 put spread @ 3.00 (50%)
— hold.

STOPS

(
TLAB |
Quote |
Chart |
News |
PowerRating): Stop @ 11.95 close only.