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[Weekend Summary]

Dear Member,

Definitely a ho-hum week for me. Oil prices and Pfizer (PFE) contributed to putting a lid on the major indices at the end of the week. In my view, it has become a cautious time for bulls. The Dow Industrials bounced down off resistance on high volume. However, 10% of the volume on the NYSE was Pfizer (PFE) which wound up losing more than $3 on news that patients who overdosed themselves with Celebrex had a higher liklihood of heart attacks. The Nasdaq also hit a resistance and dropped. There is mild support just below 2100. The SP-500 also hit a resistance established in 2002 and fell back. Quite interestingly, and maybe quite importantly, the volatility indices continue down and have reached levels last seen in 1995. Generally, as volatility declines, stock prices often increase and when volatilities increase, stock prices often decrease. So far, the market is still uptrending in the bigger picture and volatility is still declining. However, the markets are at resistance levels and volatilities are getting quite low. I am watching for a turn at some point.

I saw nothing too exciting in my own positions this past week. The credit spread on EBAY (short the 105 puts and long the 100 puts) remains in good shape as the stock inched up over last week's close. As long as the stock stays above 105, I get to keep all of the original credit. It is currently at $114.75. That doesn't mean that I will do nothing until expiration. If the stock shows signs of turning, I would consider closing the short leg if I am able to do that for less than the credit I received when I originally entered the whole position ($1.00 a share). Such an adjustment makes the whole trade profitable and I then own the long puts for free so that I can add to the profits if the stock then moves down.

Siebel Systems (SEBL) and Eresearch (ERES) are both stocks on which I own LEAPS calls. SEBL is consolidating a bit, but both stocks remain in modest uptrends.

I bought the '06 40 calls on Chiron (CHIR), a drug/biotech. Fortunately, the plummet suffered by Pfizer (PFE) didn't harm the position.

I am watching the positions in YHOO and HDI quite carefully. YHOO was somewhat disappointing this week. It is currently flirting with the 40 day moving average which it has only done once before since September. My remaining Feb 60 calls on Harley Davidson (HDI)may need to be closed out as well since the stock has also retreated nearly to the 40 day moving average.

I want to take a moment to discuss some of my trading other than options. I am a full time stock and options trader and have accounts and positions that include positions other than just options. I only publish options trades with MarketFN and InvestmentHouse because other folks publish their trades in other areas. I believe hedging or protecting against big losses is something everyone who trades should strive to do. I know I will have losses, but what is important to me is that I keep them as small as I can. Sometimes that doesn't work. For example, if I have a stop in place but the stock gaps against me I may lose more than anticipated. I say all this because I do have a fairly substantial position in Pfizer (PFE)stock in an investment account. Yesterday, PFE was down as much as $7 a share at one time. Guess what. I didn't care because I also owned protective puts on PFE. I had bought LEAPS puts on PFE to protect my position. I have the right to require someone to buy my shares at $30 anytime between the time I bought the puts and expiration in Jan of 2006. I didn't have to pay very much for that protection. As the price of PFE falls, the price of my puts just goes up. While everyone was panic selling their PFE yesterday, I didn't have to do anything; my puts were saving my bacon. As the stock dropped, volatility went up, making options more expensive so I just sold some out of the money calls as covered calls at a very nice premium. A lot of yesterday's selling was emotional. I was protected so I had no emotional reaction.

At CutLoss, we teach trading seminars. If you are ever interested, send me an email and I'll be happy to get in touch and let you know what we are doing.

Have a great weekend.

Bill

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