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[Weekend Summary]

Dear Member,

This week, I saw something that amazed me even though I have been trading for a living for years. EBAY gapped down more than $16! and closed down almost $20! AFTER IT MISSED EARNINGS BY ONLY A PENNY!! It also announced a 2:1 split which is usually a positive. As a result of that gap, I had no way to adjust my credit spread on EBAY and I had to close both legs for a loss. Though I realize that losses are part of the business, I just hate to lose. Initially, I entered a credit spread. The fact that I was in a spread saved the day. My loss was quite limited and could not exceed $4. Compare that to anyone owning the stock (more than a $19 a share loss) or to anyone who was just short the puts. Ugly. The plummet also gave rise to a decent buying opportunity in my view. When the stock bounced Friday, I bought some Jan '07 80 LEAPS calls. These are in the money and the number of contracts will double and the strike halve to 40 when the stock splits. I plan to sell shorter term calls against this position as time passes.

Some good did come my way, though. I had had a bullish put spread in place on Briggs and Stratton (BGG). I had sold the Jan 40 puts and bought the Jan 37.50 puts for an original credit of 45 cents. This week, I rolled the 40 puts from Jan to Feb by buying back the Jan 40's and selling the Feb 40's. That move resulted in an additional credit of 40 cents and I also closed out the Jan 37.50 leg by selling those puts for an additional 15 cents.

I own an Aug 30 straddle on Nextel NXTL. The stock seems to be cooperating by dropping fairly rapidly. Of course, that movement helps the put side of the straddle. Generally, volatility is increasing and implied volatility has just turned up on NXTL. Increasing volatility should help both the put and the call legs of the straddle.

I closed a profitable leg in the Yahoo (YHOO) trade before expiration. I own the Jan '06 35 calls and had sold the Jan '05 calls as a spread against the initial position. I bought them back and pocketed a 20 cent gain (2.5% RETURN FOR 13 DAYS). YHOO is at a support now.

Siebel Systems (SEBL) is bumping against support as well. I have some cheap out of the money LEAPS calls against which I sold some shorter term calls. Harley Davidson (HDI) on which I still own the Feb 60 calls as a remnant of an original straddle is doing nothing at the moment. Increasing volatility as well as a directional move would help each of these positions.

Nanometrics (NANO) broke below support yesterday. I have a calendar spread (long the Jun 12.50 calls and short the Feb 15 calls). If the stock stays below support on Monday, I may roll the Feb 15 calls down to 12.50 to pick up a little more credit.

Overall, it looks like the bears are gaining some control. Each of the indices broke down through a minor support yesterday. Volatilities are increasing. Each of those developments certainly calls for caution on the part of the bulls. In my view, it is time to tighten stops on bullish positions and make sure hedges are in place. February is often a down month in the market so I'll probably be looking for bearish plays next week.

I hope you enjoy your weekend.

Bill







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