Option Investor

Daily Newsletter, Sunday, 09/09/2001

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The Option Investor Newsletter                   Sunday 09-09-2001
Copyright 2001, All rights reserved.                        1 of 5
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MARKET WRAP  (view in courier font for table alignment)
        WE 9-7           WE 8-31          WE 8-24          WE 8-17
DOW     9605.85 -343.90  9949.75 -473.42 10423.17 +182.39  -175.47
Nasdaq  1687.70 -117.73  1805.43 -111.37  1916.80 + 49.79  - 89.24
S&P-100  553.89 - 23.51   577.40 - 29.31   606.71 + 12.84  - 17.54
S&P-500 1085.78 - 47.80  1133.58 - 51.35  1184.93 + 22.96  - 28.19
W5000  10066.49 -448.60 10515.09 -433.32 10948.41 +188.32  -234.36
RUT      445.19 - 23.37   468.56 - 12.25   480.81 +  5.16  +   .13
TRAN    2713.14 -100.27  2813.41 - 40.98  2854.39 + 29.74  - 36.12
VIX       34.36 +  6.51    27.85 +  5.56    22.29 -  4.45  +  3.93
VXN       65.45 + 12.59    52.86 +  5.16    47.70 -  4.32  +  3.50
TRIN       1.25              .71              .70             2.67
TICK       -113              -74              351              201
Put/Call    .84              .82              .56             1.07

Are We There Yet?
by Jim Brown

Surprise, surprise, surprise! You can just hear Earnest T. saying
that after glancing at stock TV to see how his favorite stock (TR)
was doing on Friday. Gee wiz Vern, this may not be a recession but
it feels like it! Actually those comments came from SF Fed President
Perry who also said "we should expect more tech weakness before it
gets better." Gee thanks, any more insightful news? Perry made those
comments along with other market movers like "the Fed is worried
about consumer confidence after the jobs numbers today" and "we
are still expecting a rebound somewhere in the fourth quarter."
Now, let's see...would you buy a used car from this man? The
Fed has been wrong for so long you wonder if they just don't get
it or maybe they have just been misleading us to prevent an even
worse market crash.

The surprise of the day was of course the Jobs Report. The unemployment
number soared over estimates of 4.6% with a jump to 4.9%, the worst
level in four years. Jobs fell by a total of -113,000, more than
twice the consensus estimates. Manufacturers lost -141,000 with
retailers also trimming the ranks. August numbers tend to be volatile
with the shift from college workers to permanent employees and the
September report could see a balancing or smoothing of the numbers.
Still the 4.9% headline number had analysts calling for an intermeeting
rate cut and rumors abounded that the Fed held an emergency meeting
and would announce a 25 point rate cut on Monday or Tuesday. The
mainline analysts said don't hold your breath. There are enough
indicators that the economy is bottoming that the Fed "should" not
rush back into the market and risk scaring traders that things are
worse than we know or just simply over cutting as things are starting
to turn up.

The consumer sentiment numbers took another blow with a warning
from Circuit City. CC said same store sales fell -21% and expected
a lost for the first half of its year due to soft computer sales
and dropping out of the appliance business. Rival Radio Shack also
saw sales decline due to slowing computer sales. Thursday Best Buy
said it would exceed estimates but only due to DVD players, televisions
and cameras, not computers. A survey out on Friday showed that PC
sales could drop twice as much as was previously expected for the
year. This is already the first negative growth year since
1987 and sales could drop as much as 15% from last year.

The economy is continuing to impact other than tech sectors with
the AMR warning today a prime example. AMR, the parent of American
Airlines, said it expects to report significant losses in the third
and fourth quarter due to the weak economy, high fuel prices and
increased labor prices. They said revenue from business travel was
"plunging". They are canceling options to buy new jets and taking
older jets out of service earlier to reduce their capacity and
expenses. May domestic travel fell -11.8% the biggest decline in
two decades which was followed by June and July at -12% each. The
drop in travel is producing a price war for the open seats and
industry losses are expected to exceed $2.5 billion for 2001.

We just can't seem to get any positive news for the markets. The
global markets continue to fall with the Nikkei hitting another
17 year low. The FTSE also hit a 52-week low. Deep cyclicals like
Whirlpool, Georgia Pacific, Caterpillar, United Technology and
Boeing were weak as well as consumer cyclicals like BBBY, BBY,
LOW, HD, S and FD. Auto makers were slammed as investors fled
from high ticket sales. Consumers will buy food and clothes in
an extended recession but automobiles will be put off until the
economy improves and jobs are secure. GM, DCX and Ford all fell.

Nortel, the poster child for earnings warnings in 2001, had their
CEO, John Roth, say some bearish things. He said the next 12 months
would be a drought and they were racing to downsize fast enough
to simply break even. The stock finished slightly positive on
rumors that Cisco was going to buy them given their severely
depressed stock price of $5.00. Not that CSCO is doing much better
at $14.25 but you have to admit it may be the bottom on NT
and a good opportunity for Cisco.

Are we there yet? I doubt it but we are getting to the point where
you can see the destination just around the corner. The S&P-500
closed at a three year low of 1085 but showed no signs of slowing.
The intraday low back on March 22nd was 1081 and that is just a
heartbeat away. The consensus of opinion now is we will see a new
low number and it could be weeks away. 974 is the October 1998
closing low and that is the first real support in sight. Traders
are in denial that the markets can drop this far but without a
final washout of the remaining bubble holders the institutional
traders will not hurry back into the markets. The broadest market
indicator is the Wilshire 5000 Total Market Index (TMW.X) and it
is approaching historic lows. In March and April of 2001 the index
bottomed at exactly 10,000, this is the TMW not the Dow, from a
high of 14991. The index closed on Friday at 10,066, only 66 points
away from either a successful retest or a total breakdown.

It is not a simple coincidence that the index stopped EXACTLY on
10,000 twice before. Buy programs will kick in and the strength of
the short sellers will be tested. Dow 10,000 was tested last week
and failed. For five days the Dow traded back and forth across
the 10K level as buyers and sellers fought for control. Sellers
won and as evidenced by the lack of a bounce at the close Friday
they are firmly in control. True support on the Dow is not until

The Nasdaq is about to undergo a trial by fire as well. 1638 is
the closing low from last April and that is only 47 points away.
There will be a bounce at that number as bargain hunters try to
buy the dip in expectation of a bounce but without some positive
cash flow from investors the bounce will fail. If you remember
I reported on Thursday that TrimTabs.com shows a -$10.7 billion
cash outflow from stock funds for the week ended on Wednesday.
That includes the day off for Labor Day as well. In all the last
five weeks have seen -$25 billion in cash outflows. You cannot
build a rally on that kind of negative cash flow.

On the bright side the chip and chip equipment makers received
several upgrades and buy recommendations on Friday. The Intel
news as well as confirmations of estimates by companies like
TQNT helped the SOX hold the 500 level for the last three days.
There was a slight gain by many chip stocks on Friday but not
enough to actually say a rally was forming. We all know that
any tech rally must be led by the chip sector and any good news
at this point could provide the spark that is needed to hold the
Nasdaq at the 1638 level. Still, there are three major tech
conferences next week and chip companies, computer and software
companies will present and take every opportunity to hype their
business. We can only hope that several will strike a bullish
cord in the investor sentiment and help build a base at this level.

As much as we want to see a bottom here there has not been any
capitulation. Without the capitulation event we cannot build
a successful rally. Look at the April capitulation event. From
this level on March 21st there was a -500 point drop to the lows
on March 22nd and then a rebound of almost 900 points over three
days to 9947 on March 27th. This is the picture of a V bottom
and what the markets want to see again. A successful repeat
would be a huge buy signal and produce a monster short squeeze.

The concept that investors would come back from summer vacation
and the Labor Day holiday, flush with cash, and start picking up
stocks at bargain basement prices like a blue light special at
Kmart turned into a bait and switch. The better than expected
NAPM report lifted investor outlooks and the Jobs Report promptly
squashed them back into the dirt. Headlines in the Saturday papers
will scream "high unemployment returns" and "is a recession in our
future". Consumer confidence will evaporate. Instead of buying
bargains investors are now considering the benefits of tax loss
selling and buying puts on stocks they currently own. Funds are still
liquidating and the rumor on Friday was that a big fund was having
a cash run and was dumping $10 billion in equities. September is
the end of the quarter and decorating balance sheets for the quarterly
fund statements will be a challenge. October is typically tax
selling season for funds but they may not have any winners left
to sell if the current rate continues. Just another reason why
this season of the year is called "fall".

The strategy for the week would probably be sell the rally,
again. Just like buying the dips worked so well before, selling
the rally has been working well this summer. Eventually we will
get the rally that sticks but until then, trade the trend! Look
for a bounce at 1638 on the Nasdaq, 10000 on the Wilshire 5000,
9389 on the Dow or 975 on the S&P. Each is a critical support
level which will trigger buy programs. Falling under those
levels will trigger sell programs as nobody wants to be caught
holding if those levels fail. This is a great time to be a day
trader but unfortunately most of the prior graduates from Bubble
University had to get a job! You are an elite group, now go make
some money! How about that put play on Boeing this week. +400%
gain on a $1.00 option!

Definitely, enter passively, exit aggressively!

Jim Brown

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Editor's Plays
It is strangle time again!

It is that time of the month again when premiums are cheap
and indexes are moving by leaps and bounds. Since the high
dollar players on the OEX/SPX already know this game I am
going to illustrate the poor boy approach to playing the
moves on the Dow and Nasdaq.

The cheapest index options are on the DJX and the QQQ and
you can buy at the money options for about a $1.50 going
either way. The possibilities are endless for debit and
credit spreads and simple long plays in either direction.

Unless you absolutely know which direction the markets are
going in the next two weeks I suggest you hedge your bets
buy going both ways. You will lose on one but with September
volatility you could easily more than double or triple your
money on the other.


DJX (DOW) 96.27 (9627)

Multiple ways to play:

1. Buy both positions at the open on Monday for a net debit of
$3.60. Set a sell stop on the put at 94 to close the put for a
profit. Set a sell stop on the call at 98 (or higher) to sell
the call for a profit. Get stopped out of either side for a profit
and the other side becomes a free play.

The best scenario would be a sudden drop to support at 9389 in
a washout capitulation event and then a sudden rebound back to
the 10,000 level for a double on each side of the trade.


2. Buy only the put option on Monday. Buy at the open if dropping
or wait for the Dow to roll over if it is moving up. The higher
the better because the put will be cheaper. After you buy the put
set the sell stop at 94 to close the put play and set a buy stop
at 94 to open the call side. It will be cheaper then than now.
Once the call side is open set the sell stop at 98 and hope for a
quick rebound.

Using this method conserves cash and lets you leg into the play
when it is most advantageous to do so. The odds of a major move
off the 94 area is very good and the odds of a major drop below
94 are very slim.


Nasdaq QQQ

Using the same strategy on the QQQ I would buy the call on the
next dip. The strength of the Nasdaq on Friday would lead
you to believe that we could be near a bottom on the techs. The
April lows of 1638 are only a day away and we could see a couple
point bounce.

The Put side would then be opened if the QQQ traded under 33
in anticipation of a continued drop or on a bounce back over 36.
$36 should be resistance and would make a good entry point on
a bounce.

If you bought the call at $33 I would place a sell stop at 35.75
to scalp a quick profit on any bounce.

The QQQ option volume is extreme. I could not believe the
number of option contracts traded on Friday.

The call volume on Friday on the calls around 165,000 contracts.
Obviously the bulls are alive and hoping since there were only
around 49,000 contracts. Since the herd is normally wrong, what
does that tell us about next week?


Trade the trend or do not trade at all! That would be my
admonition for this week. Use any strength to enter plays
going the opposite direction. September is far from over
and we have no clue as to where it will end.

Good Luck

Jim Brown

Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

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Anything else is too slow!



By Jeffrey Canavan

The unemployment rate jumped to 4.9%, and bears pounced.  Tech
carcasses were already picked cleaned, so bears wondered over to
the Dow for a feast.

Dow Jones Industrial Average Daily Chart

The Dow started the day at 9,840, leaving plenty of room for
bears to feed.  Even though a 234 point chunk was taken out of
the Dow, mostly cyclical components, the April low is still 500
points away.  The Relative Strength Index (RSI) has touched
oversold territory, so perhaps 9,535 will offer the spot for a

S&P 500 Daily Chart

The S&P 500's RSI touched oversold territory back on February
22nd, but proceeded to fall 171 points lower over the next month,
so that alone is not a given.  We now find ourselves back at
April lows, and once again the RSI is oversold.

There's no arguing we are in an oversold condition and overdue
for a bounce, but we just keep getting more reasons to sell. The
first part of next week is relatively light on economic news,
with only consumer credit and wholesale trade due out, but
several technology conferences offer companies the platform to
spill their guts.


Market Volatility

VIX   34.36
VXN   65.45


          Put/Call Ratio  Call Volume   Put Volume
Total           .84        823,753       688,842
Equity Only     .70        643,535       448,464
OEX            1.14         31,260        35,487
QQQ             .41         73,984        30,065


Bullish Percent Data

           Current   Change   Status
NYSE          32       -      Bear Confirmed
NASDAQ-100    12      -2      Bear Confirmed
DOW           28      -2      Bear Confirmed
S&P 500       38      -4      Bear Confirmed
S&P 100       30      -2      Bear Confirmed

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-Day Arms Index  1.43
10-Day Arms Index  1.47
21-Day Arms Index  1.41
55-Day Arms Index  1.30

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 the do, they can signal significant market turning


        Advancers     Decliners
NYSE       883           2171
NASDAQ    1172           2383

        New Highs      New Lows
NYSE       61            150
NASDAQ     18            222

        Volume (in millions)
NYSE     1,340
NASDAQ   1,872

Advisory Sentiment

Bullish  Bearish  Correction  Net Bullish   Change
  43.9%    30.6%     25.5%       16.7%       -3.4%

A bearish reading of 25% to 30%, combined with a bullish reading
greater than 55% is typically considered bearish by contrairians.
A net percentage greater than 30% is also viewed as bearish.


Commitments Of Traders Report: 09/04/01
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

Commercials increased their net bearish position, but not by any
significant amount.

Commercials   Long      Short      Net     % Of OI
8/21/01      342,332   416,372   (74,040)   ( 9.76%)
8/28/01      342,742   421,868   (79,126)   (10.35%)
9/04/01      350,626   430,613   (79,987)   (10.24%)

Most bearish reading of the year: (111,956) - 3/6/01
Most bullish reading of the year: ( 41,144) - 5/1/01

Small Traders Long      Short      Net     % of OI
8/21/01      134,280     58,785   75,495     39.10%
8/28/01      141,046     58,001   83,045     41.72%
9/04/01      147,080     62,004   85,076     40.69%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year:  91,122 - 3/06/01


The net bearish position of commercial traders increased, but
that is subject to change weekly as institutions are having
trouble making up their minds.

Commercials   Long      Short      Net     % of OI
8/21/01       30,348     38,964   ( 8,616)  (12.43%)
8/28/01       29,255     36,551   ( 7,296)  (11.09%)
9/04/01       28,757     38,119   ( 9,362)  (14.00%)

Most bearish reading of the year: (15,521) - 3/13/01
Most bullish reading of the year:  (1,825) - 1/02/01

Small Traders  Long     Short      Net     % of OI
8/21/01       10,499     7,576    2,923      16.17%
8/28/01       11,131     9,694    1,437       6.90%
9/04/01       12,341     9,806    2,535      11.45%

Most bearish reading of the year:  (1,028) - 1/02/01
Most bullish reading of the year:   8,460  - 3/13/01


Institutions are the most bullish they have been all year.

Commercials   Long      Short      Net     % of OI
8/21/01       22,710    14,625    8,085     21.7%
8/28/01       22,141    14,959    7,182     19.4%
9/04/01       23,459    14,099    9,360     24.9%

Most bearish reading of the year: (8,322) - 1/16/01
Most bullish reading of the year:  8,925  - 9/04/01

Small Traders  Long      Short     Net     % of OI
8/21/01        5,059    10,410    (5,351)   (34.59%)
8/28/01        5,240     9,835    (4,595)   (30.48%)
9/04/01        6,952    12,744    (5,792)   (29.41%)

Most bearish reading of the year:  (7,572) - 5/08/01
Most bullish reading of the year:   1,909  - 1/16/01

COT Commercial Net Position Charts


By Eric Utley

Look, I realize that last week's decimation of the major market
averages is not going to sit well over the weekend.  Like I
discussed with Faust last weekend, there's not a lot of good
coming from this bear market.  Unless, of course, you've been
actively shorting stocks and/or buying puts.

Fortunately, I have a few escapes from the market and...well...
life, too.  And I hope that you have a few, too!  One of mine is
fly fishing, another is reading.  It was through the latter last
week that I ran across something I'd like to share.  In his
fabulous book, The Art of Contrary Thinking, Humphrey B. Neill
passed along a list that was published in 1930 by The Market
Cynic.  I hope you find it of some relief in the form of humor:

Ten Ways To Lose Money In Wall Street
The Market Cynic

1. Put your trust in board-room gossip.
2. Believe everything you hear, especially tips.
3. If you don't know, guess.
4. Follow the public.
5. Be impatient.
6. Greedily hang on for the top eighth.
7. Trade on thin margins.
8. Hold to your opinion, right or wrong.
9. Never stay out of the market.
10. Accept small profits and large losses.

Please send your questions and suggestions to:

Contact Support


Verisign - VRSN

Can you please give us your views on VRSN? - Regards, Sunil

Thanks, Sunil

In my mind, full-time short-sellers are the smartest of market
participants.  They have to be.  Short-sellers have to swim
against the tide, so to speak - the market's historical
return of 11 percent annually.  Of course the current bear
market has made any run-of-the-mill short-seller look like a
genius.  But the good short-sellers, the ones who really know
their stuff, are worth listening.  And it is this trader's
opinion that Manuel Asensio is one of those short-sellers who
is worth listening to.

For those who don't know, Manuel Asensio is President of
Asensio & Co., a specialty investment bank, and author of
Sold Short - a must read book in my opinion.  Asensio is the
antithesis of Wall Street in that he doesn't buy into the
hype and hucksterism that is the world's largest salesman.

So why am I praising this guy Asensio and what the hell does
he have to do with Verisign?  Good question.  Asensio & Co.
initiated a short sell recommendation on Verisign on May 3.
He's done some pretty solid homework on the company, and I'd
suggest reading his stuff through the following recent press


So there's your fundamental take on Verisign.  As for the
technical take, last Friday's rally smelled like short covering
among the trader types.  The stock could see upside to the $42
level, where it would become an excellent short/put entry point.
Why $42?  Because that level was previously a quadruple-bottom.
So, all those who bought at that level will be eager to sell in
order to breakeven on their losing positions, creating a large
amount of supply.


Comverse Technology - CMVT

What is your opinion of CMVT?  Would you consider this stock
oversold?  Is it time to take a future call option? - Thanks,

I've read, heard, and researched the bullish arguments for
Comverse Tech.  And I just don't buy into.  The company sells
its service platform to major carriers such as Ma Bell,
Deutsche Telekom, Bell Atlantic, BellSouth, Telmex, Sprint
PCS, and others.  How are these businesses doing?  And anyone
bullish on Comverse probably doesn't want to hear that the
company sells to Lucent and CMGI.

However, through its subsidiary Infosys, Comverse sells customer
relationship management applications to enterprise customers
such as Fidelity, TIAA-CREF, and Barclays Bank.  But that
business isn't compensating for its lines tied to telecom.

Onto to technicals.  I've been tracking Comverse, by hand, for
quite some because it's a component of the Nasdaq-100.  I
noticed through August that the stock just could not breakout
above its double-top at $30.  Each time it attempted to print
$31 it was knocked down, even when its sector and the NDX
were advancing.  As I noticed this peculiar pattern, I grew
wary of the stock's prospects over the short-term.  Its
subsequent sell signal at $25 sealed the deal.

Is the stock oversold?  Yes.  Is that a reason to be bullish?
No!  I don't prefer to buy charts like this:


This column is an information service only.  The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind.  The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options.  It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security.  The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.

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Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!



For the week of September 10, 2001

A bleak employment report capped off last week's attempt at
yearly lows for the major indices.  Could upcoming events
finally offer relief to the market? You won't bet the farm
if you look at what economists are expecting.

Consumer Credit        Jul  Forecast:  $3.0B   Previous: -$1.5B

Richmond Fed Manu Surv Aug  Forecast:   N/A    Previous:    -14

Current Account        Q2   Forecast:-$106.0B  Previous:-$109.6B
Oil/Gas Inventories  9/07   Forecast:    N/A   Previous: 302.5MB

Initial Claims      9/08    Forecast:    N/A   Previous:    402K
Export Prices ex-ag  Aug    Forecast:    N/A   Previous:   -0.5%
Import Prices ex-oil Aug    Forecast:    N/A   Previous:   -1.0%

PPI                  Aug   Forecast:    0.2%   Previous:   -0.9%
Core PPI             Aug   Forecast:    0.1%   Previous:    0.2%
Retail Sales         Aug   Forecast:    0.3%   Previous:    0.0%
Retail Sales ex-auto Aug   Forecast:    0.3%   Previous:    0.2%
Industrial Prod      Aug   Forecast:   -0.2%   Previous:   -0.1%
Capacity Util        Aug   Forecast:   76.8%   Previous:   77.0%
Mich Sentiment-Prel  Sep   Forecast:   92.9%   Previous:    91.5

Week of September 17
Sep 17 Business Inventories
Sep 17 Trade Balance
Sep 18 CPI
Sep 18 Core CPI
Sep 19 Fed Beige Book
Sep 20 Initial Claims
Sep 20 Housing Starts
Sep 20 Building Permits
Sep 20 Philadelphia Fed
Sep 21 Treasury Budget

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Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!



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The Option Investor Newsletter                   Sunday 09-09-2001
Sunday                                                      2 of 5

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MR. STOCK:  Your Expert Guide to the Dynamic World of Options
Trading Options aren't easy.  We know.  That's why, with over
20 years of trading experience, we've designed a website
specifically for options traders.  With fast executions, the
ability to place complex orders online, and option trades
starting at only $15.50, we have the tools you need to
implement your strategies.  To find out more or open an
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Sell Low Buy High!
By Robert J. Ogilvie

In a Bear Market, it isn't unusual to hit new lows on the broader
indexes.  Does this mean that everyone should buy puts?
Maybe it does.  But before doing anything, check the fear gauges.
Is the VIX high?  Is the VXN high relevant to its recent range?
Are the Put/Call ratios high?  If they are, what does all of this
suggest?  Only that a bounce is near.  The unknown factors are
from what level, when, and for how long it will last.

I don't write about Bullish strategies because I am Bullish.  I
cover these different strategies in order to take advantage of
the current market atmosphere.  Would you rather buy low at
oversold levels or high at overbought levels?  I continue to
write about various methods to make money in any market
condition.  Just because the markets are going down doesn't
mean that one can't be profitable.  The shorts are making a

"When the VIX is high, it's time to buy.  When the VIX is low
it's time to go."   The important question to ask at these
levels is whether or not to buy calls or sell puts in
anticipation of a bounce up.  If one buys calls with volatility
premium high, the price paid for those options is generally
higher.  If a move up occurs, there is a chance that the under
lying security may not be able to move up fast enough to
compensate for the decrease in volatility premium.  I disclose
this not to discourage readers, but to caution that the
volatility premium may decrease as the underlying security
increases in price.  This suggests that one may want to capture
one's profits early.  In short, when buying a call with a lot
of premium, a security's upward price movement may cause a
negative effect on the call option's volatility premium.  Be
careful and aware that this can happen.

How do we take advantage of this volatility depletion?  If one
is permitted and has sufficient capital, one can sell naked
puts on one's candidates.  If the security move up
sufficiently, selling the high premium can work to one's
benefit in two ways.  The first is the depletion of some of
the volatility premium.  The second is the negative delta
factor on puts which refers to if a security moves up, the
price of the put will theoretically decrease by the delta for
every $1.00 the security moves up in price.  The Delta also
increases and decreases by a factor known as Gamma.  Gamma
represents the amount of acceleration or deceleration of the
Delta.  The higher the delta on the put, the faster it will
depreciate in value if the underlying security moves up.  The
risk is that puts with higher deltas are in the money or
slightly out of the money, which increases the chance of
being assigned.  Deltas also measure the likelihood the
security will be at or above that strike price on expiration
for a call or at or below that strike price if a put.  Just
imagine the market as the bookie and the Deltas the odds.
The odds can change in a game just as they do in the market.
Note that the measurements are based on theory.

The strategy is simple.  Look for the oversold security of choice
with the best potential and find the option with the best premium
and Delta combination.  When the underlying security's price is
low Sell the Put to open.  And when the underlying security's
price is higher Buy the Put to close.  You have to use your own
discretion on this.  However, I will give you this one tip.
Calculate the premium versus the intrinsic value on various
strike prices.  For instance, the QQQ's closed at 33.70 on
Friday.  The October 35 Puts are bidding 3.00 with a Delta of
-0.55.  The difference between 35 and 33.7 is 1.30.  There is
1.30 of intrinsic value and 1.70 in premium.  The Oct 34 Puts
are bidding 2.55 with a Delta of -0.48. The difference between
34 and 33.7 is 0.30.  There is 0.30 of intrinsic value and 2.25
in premium. The Oct 33 Puts are bidding 2.05 with a Delta of
-0.40. The difference between 33 and 33.7 is 0.07.  There is no
intrinsic value and 2.05 in premium.  Which option has the most
premium?  Which option has the best Delta?  Which option has the
least chance of being prematurely assigned?  One could sell more
time in order to collect more initial time premium while
volatility is inflated.  This gives more time to be right as
well as more time to be wrong.  Don't let the extended time
until expiration trap you into staying in the position if it
drops below support.  Take the QQQ's again.  The intraday support
and new low is 33.35.  If you sold the 33's, don't let it break
the recent support.  There's no telling where it can go from
here.  Remember that this is a short-term strategy designed to
profit from the declining option value caused by the depletion
of volatility premium and negative Delta effect on the price.
You don't want to be assigned. You want to close the position
out before it can come back down.  Watch for the stock price to
fight the resistance at either the middle line (usually the
20DMA) or the upper Bollinger Band, if it gets that high, for a
signal to close out the position.  Another exit point is when
the Fast Stochastic line turns over to the downside.  One more
is the resistance at a specific price point.  For instance, old
support is new resistance.

The question "where's the bottom" is being asked all over Wall
Street and Main Street.  CNBC has been covering the contrarian
indicators everyday this week because they are peaking.  It
seems as though everyone is waiting for the "capitulation" to
come and flush out the rest of the scared money.  Most investors
still in the market are in retirement plans.  How many people do
you know that are still trading?  So if most of the volume in
the markets is from Mutual Funds and Institutions, where will
the capitulation volume come from?  The smart money is shorting
the market until they book enough losses from short covering
rallies to make them shift sides.  In addition to watching the
contrarian indicators for signs of peaking fear levels, the
smart money is watching the Economy for any signs of recovery.
I urge you to read my recent articles Trade Smart, Hope Fear
and Greed, and A Market Psychology Gauge to fully appreciate
the dynamics of the sentiment indicators.

Happy trading!

Robert J. Ogilvie, ROP
Cutter & Company, Inc.

I am an Options Broker and ROP that trades for and educates
investors on many strategies.  Please contact me via email at
Robert.Ogilvie@verizon.net if there are any questions.

Neither Cutter & Company, Inc. nor Robert J. Ogilvie makes any
representation as to the accuracy, reliability or completeness
of any charts, formulas, and /or research opinions presented
herein. This article is intended solely for educational
purposes. Nothing herein should be construed as an offer or
solicitation to buy or sell any securities. Cutter and Company
is a Member of the NASD, MSRB, and SIPC. Please read the
OptionInvestor.com's Disclaimer:


Recognizing The Stage and Process of Capitulation
By Renee White

I remember a time when new "traders" came into this market,
without any concept of how economics affected the stock market.
Business cycles affect all industries. To be a business owner,
without understanding where your particular business sits on that
cycle, is akin to playing Russian Roulette. It does not matter if
you trade full time, or have a commercial business, planning your
business moves with business cycles in mind, can make the
difference of boom or bust.

If traders were not aware before how economics affects business
cycles, they certainly have learned the hard way through a
difficult 18 months. Most people who have kept up with the
markets, have learned there are four clear cycles to a normal
business cycle, which on a graph resembles a sin wave pattern:
the rounded bottom, the ascent, the rounded topping out, followed
by the descending bear which lands in the mud at the bottom again.
Different sectors cycle at different times. Some businesses (or
bonds) cycle up, as others (like tech), cycle down.

Obviously, we have dealt with a severe descending market and
softening economy for many months now. Bond yields are at there
lowest levels, meaning bonds are selling at premium highs. Techs
have been in a meltdown, while gold moved higher. People waiting
to play the high-flyers again, have been trying to wait this
pattern out, but it felt like many gave up finally jumping ship,
this week. Thank Goodness! This was a long summer of watching the
volatility index (VIX), sit in the mid 20's, knowing that meant
the worst was yet to come. This has been a bad week, but I
breathed a sigh of relief when the VIX moved pass 33. Come on
Baby!  Give me another 40 reading!!!

Within each business cycle, mini stages occur. There are five
stages to a bear market. It is the capitulation stage of this
bear that we hear so much about these days. Many confuse a one
day event with the whole capitulation stage of a bear. Just as
business-cycle market tops, tend to lure the last people finally
into the market & into starting businesses, ....so too will the
capitulation stage of a bear market scare the devil out of people
who really want to have faith and put money to work.

It pays to be objective and to try to keep the emotionalism off
of your trading finger. So with CNBC volume turned down, here are
a few things for you to think about, as we work through this
capitulation stage of a typical bear market business cycle.

Naturally, as one would think, during early capitulatory stages,
defensive plays become the hottest topic. Growth stocks are way
out of favor and boring consumer cyclical and value plays out-
perform the growth stocks. They slowly inch their way, quietly and
consistently, to new highs. The large cap blue chips fall, as
highly visible plays get hit hard.  Small caps out perform large
caps partly due to tighter financing, lowered expectations,
smaller payrolls, and quieter visibility. During this time, the
contraction in earnings affects all sectors except for the every
day consumer staple goods, who normally get little coverage.

As the Fed continues to push short term rates down, the fear of
increasing loan default rates begins to affect commercial banks
and finance companies. This interest rate environment typically
helps the insurance and utility stocks, but then again, nothing
has been typical since Y2K.

It is important to know that capitulation is not necessarily a one
day event. We have become so spoiled at jumping in and out of
trades for short term gains, that I think it has poisoned our
brains necessitating our thirst for adrenaline driven perfection
of picking perfect tops and bottoms. A broader perspective is
necessary to make objective decisions.

This has been a long, difficult week. During weeks like this, I
hate booting up because I will hear one alert trigger after
another going off on my quote service, day after day. In our
current bear market, if Wednesday is bad and Thursday is really
breaking down, count on Friday to be even worse, with the
possibility of falling off the cliff after the gap down on
Monday morning....followed (HOPEFULLY), by a strong bounce.

I don't like selling into bear explosions. So why listen to all
those alerts? I do better clearing my head by avoiding the
excitement, the noise, the emotion. Walking away from the markets,
in order to clearly think without emotional bias is important and
frequently I find that by Sunday, my perspective is very clear.
Instead of watching scary charts on these type Fridays, a better
use of my time is avoiding the market all together with a market
review later in the weekend. I plan my moves for Monday after a
clear head and thorough evaluation from different perspectives.

Back to capitulation. I set several alerts for VIX readings
between 38 and 45. Tapping 28 these days is not enough. My
first alert is set for 30, then 35. Interest to me, comes above
38. I also re-set lower alerts, in case the VIX starts dropping
due to a hard market bounce, while I was doing something else.
So, if an alert goes off at 35, I set a lower alert for 33, along
with checking my 38 level.

As every one knows, a high VIX is a sign more fear is creeping
into the market, like this week. Good! Fear brings capitulation.
Fear brings the put/call ratio into a contrarian play. Fear makes
people give up. Unfortunately, we can not dictate that fear lasts
only one day. We may endure many days or even a couple of weeks
of fearful selling, especially at this time of the year. This
continued selling period escalates fear as the whole market sells
off, even those boring defensive stocks that have out-performed
the market for many months. Confusion erupts when everything
sinks together. Red is not a comforting feeling. But a VIX around
40 with a hard bounce certainly can taste likes capitulation.
Although more than one capitulatory feeling can occur, good
returns can be achieved for both the long and short term trader,
assuming the market is not cycling down for still another leg of
the bear.

Thankfully, capitulation eventually brings reversals. The market
is on sale. Defensive stocks start to look shaky, as it becomes
clear their best days are behind them for this cycle. People
begin to take profits in bonds, bond yields begin to rise, as the
price of bonds come down. The stocks that were decimated can
become value plays and take on new position of being low risk
trades. Average earnings stop falling in these groups, while
cyclicals and old fashion value stocks take over as the favored
sectors to trust. These are the guys to play on bounces here, for
their yearly earnings comparisons will outshine their pre-bear
market estimates. Techs will still be fighting with their 3rd and
4th quarter results to meet their already downward revised year
long estimates. Once their average earnings stop falling, these
benchmarks will be used as comparisons for next years gains,
which should be easy once the slide itself is over.

We are approaching this rare value oriented time in our markets.
These periods never feel comfortable at first and typically find
few buyers. They always come after massive pain. We are not
completely there yet because usually at this point, interest
rates have bottomed. This time around, we also have problems with
the global economy to worry about. Unfortunately, things are never
simple or clear cut.

With eventual recovery, share prices rise in almost all sectors,
as the normal ascending side of the business cycle returns to kill
the bears.  Value, cyclical, and small caps, can capture market
leadership for long periods, while big caps repair, rebuild,
restructure, and re-invent themselves or transform by merger
activity. Although all stock prices start recovering, some will
never return to their seat of power and prestige, having lost
market share to the smaller, newer, and more nimble companies who
are peddling the newest technologies.

Well into the recovery, a new surge in tech will occur, as more
and more of the new technologies surface to wake up our IPO
markets. By that time, the bottom has been well behind us for
some time. With new technologies, IPO's, and new toys on the
market, money will pour back in and interest the public again.
By then, more baby boomers will have more money to invest. Our
wounds will be healed, though thickly scarred, and we will know
we have learned a lesson of a lifetime.

The average bear market in the S&P 500 from 1926 till May, lasted
11 months. The way I count, this one is extended. That should
concern short sellers, and put buyers. How much further it has to
go is anyone's guess.

In the mean time, lets hope for a capital gains tax cut and for
help from our government to encourage capital expenditures.


Call Play of the Day:

BGEN - Biogen, Inc. $61.99 (+1.63 last week)

See details in sector list

Put Play of the Day:

PGR - Progressive $120.49 (-8.78 last week)

See details in sector list

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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.


STJ $67.84 (-0.96) STJ pulled back in a big way last Friday
thanks to the broader market.  The broad selling finally
dragged STJ below our stop at $68.25, and we're dropping it
ahead of further weakness.

ADVP $68.72 (-6.24) ADVP took it on the chin Friday morning
and never looked back.  The stock fell well below our stop
at $71 and we're dropping coverage in light of its violation.

VOD $19.60 (-0.55) VOD's weakness following the negative Journal
article spilled over into Friday's trading.  The weak market
didn't help neither.  The stock dipped below our stop last
Friday but managed to climb back above it.  We're dropping the
play this weekend ahead of any future weakness.

IBM $96.59 (-3.36) The oversold bounce we were looking for in
shares of IBM never materialized last week.  Although the
bulls tried valiantly to hold the stock above the $98 support
level, the abysmal Employment Report was too much to withstand
on Friday and that support level crumbled.  This just goes to
prove that oversold can always become more oversold.  With all
the major indices looking vulnerable to more downside, the
prudent move is to pull in our horns and move IBM off the play
list this weekend.


No Dropped Puts this weekend


SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
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.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

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.


BRCM - Broadcom $31.41 (-0.74 last week)

Broadcom Corporation is a provider of highly integrated silicon
solutions that enable broadband communications and networking of
voice, video and data services. Using proprietary technologies
and advanced design methodologies, Broadcom designs, develops and
supplies system-on-a-chip solutions for applications in digital
cable set-top boxes and cable modems, high-speed local,
metropolitan and wide area and optical networks, home networking,
Voice over Internet Protocol (VoIP), carrier access, residential
broadband gateways, direct broadcast satellite and terrestrial
digital broadcast, digital subscriber line (xDSL), wireless
communications, server solutions, and network processing.

BRCM refused to go down last week, which is saying a lot for a
chip stock.  The Philly Semi Index (SOX.X) fell to its knees
last week, while BRCM managed to form somewhat of a base off the
$30 level.  Its failure to fall may very well lead to a snapback
rally next week if the SOX rebounds from its own support level at
the 515 area.  Indeed, BRCM's Stochastics reading on its daily
chart crossed over late last week and moved out of oversold
territory.  While Stochastics is only one metric, it's worth
noting nonetheless.  With the Nasdaq finishing lower in each of
last week's four days of trading, an oversold bounce is due.
We think that BRCM could lead any such bounce due to its
resiliency last week in light of heavy selling pressure.  Its
wedge on the 60-minute chart indicates that a break is coming,
which if it occurs to the upside, would be confirmed with a
strong advance above the $32 level.  Should bullish traders use
a break above $32 to gain entry, make certain to confirm strong
volume on the move.  For bounces, look towards the ascending
trend line currently at $30.75, or lower at the $30 level.
Our stop is initially in place at the $29.50, which is the site
of BRCM's relative low.

***September contracts expire in two weeks***

BUY CALL SEP-30*RCQ-IF OI=6105 at $3.30 SL=1.50
BUY CALL SEP-35 RCQ-IQ OI=8687 at $1.30 SL=0.50
BUY CALL OCT-30 RCQ-JF OI= 227 at $4.90 SL=3.50
BUY CALL OCT-35 RCQ-JQ OI=1500 at $2.75 SL=1.50

Average Daily Volume = 10.2 mln

IMCL - ImClone Systems $53.30 (+1.90 last week)

ImClone Systems, Inc. is a biopharmaceutical company that is
developing a portfolio of targeted biologic treatments designed
to address the medical needs of patients with a variety of
cancers. The Company focuses on three strategies for treating
cancer, growth factor blockers, cancer vaccines and angiogenesis
inhibitors. The Company's lead product candidate, IMC-C225, is a
therapeutic monoclonal antibody that inhibits stimulation of a
receptor for growth factors upon which certain solid tumors
depend in order to grow.

IMCL is another play on relative strength in an individual
issue in a relatively strong group.  The biotech sector, for
the most part, has held up well relatively well.  And IMCL is
the epitome of a strong stock within that sector.  It closed
at its day high last Friday, which was a feat in and of itself
considering the rampant weakness prevalent across the broader
market.  The stock faces resistance above current levels at
$54.  Thereafter, it should be a straight shot to its relative
highs around the $56.25.  For those traders entering new
positions into strength, look for confirmation in direction in
the Biotech Sector (BTK.X).  The BTK has pulled back in recent
sessions on what appeared to be market-related weakness.  As
such, bullish traders might consider waiting for the BTK to
reverse course before entering bullish plays in IMCL.  At the
very least, look for the BTK to bounce from the 500 level.

***September contracts expire in two weeks***

BUY CALL SEP-50*QCI-IJ OI=11331 at $5.20 SL=3.50
BUY CALL SEP-55 QCI-IK OI= 4817 at $2.60 SL=1.50
BUY CALL OCT-50 QCI-JJ OI=  281 at $7.10 SL=5.50
BUY CALL OCT-55 QCI-JK OI=  473 at $4.30 SL=2.50

Average Daily Volume = 1.34 mln

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The Option Investor Newsletter                   Sunday 09-09-2001
Sunday                                                      3 of 5

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TSM - Taiwan Semiconductor $12.94 (-0.04 last week)

Taiwan Semiconductor Manufacturing Company Ltd. is a
dedicated semiconductor foundry. As a foundry, the Company
manufactures semiconductor designs using its advanced production
processes for its customers based on their own or third parties'
proprietary integrated circuit. The Company offers a
comprehensive range of wafer-fabrication processes, including
processes to manufacture CMOS logic, mixed-signal volatile and
non-volatile memory BiCMOS chips.

For the most part, TSM spent last week moving sideways.  After
all, the stock only lost 4 cents in the last four trading sessions.
But that's small in comparison to the damage across the broader
market and indeed TSM's sector.  Perhaps its basing action last
week may portend a short-term rally if the SOX and COMPX rebound
early next week.  But we've been waiting for that rebound for
quite some time now.  And until any rebound materializes in the
SOX and COMPX, it's probably best to wait on the sidelines in
this play.  But for those who are looking to trade TSM from the
long side, perhaps the best strategy in light of current market
conditions is to look for bounces from solid support levels.
That way, bullish traders - Is that a misnomer? - can manage risk
much more easily with ultra-tight stops.  For its part, TSM
seems to continue attracting bids around the $12.25 area, which
may be a good site to look for entries in new call plays.
Momentum types can look for an advance above $13.50 for new
entries, although that strategy involves more risk.  Because
TSM is such a low dollar stock, its options are relatively cheap
in terms of capital requirements.  At the same time, contracts
with lower deltas are subject to quick deterioration in
premiums.  Therefore, if you're looking to trade TSM, it may
be more prudent to use a higher delta contract.

***September contracts expire in two weeks***

BUY CALL SEP-10.0*TSM-IB OI=  50 at $3.10 SL=1.50
BUY CALL SEP-12.5 TSM-IV OI=3082 at $1.05 SL=0.00
BUY CALL OCT-10.0 TSM-JB OI=  45 at $3.30 SL=1.50
BUY CALL OCT-12.5 TSM-JV OI= 563 at $1.45 SL=0.50

Average Daily Volume = 4.70 mln

AMGN - Amgen $63.90 (-0.40 last week)

Amgen is a global biotechnology company that discovers, develops,
manufactures, and markets human therapeutics based on advances
in cellular and molecular biology.  The company manufactures and
markets four human therapeutic products, Epogen, Neupogen,
Infergen, and Stemgen.

As Murphy's Law would have it, AMGN pulled back right on cue after
we added that play Thursday evening.  But its weakness may have
offered a solid entry point during the pullback, as buyers pretty
much propped the stock up around the $64 level for the better part
of Friday's session.  There wasn't any company specific news to
induce the sell-off Friday.  Rather, its weakness was most likely
attributable to the gloomy view of stocks investors adopted
following the Jobs report.  Nevertheless, AMGN is one of the
strong stocks in the Nasdaq market and if the market is going to
rally, AMGN should lead any charge higher.  With that said, it
may be more prudent to wait on the sidelines before enter new
call positions in this play.  Ideally, we'd like to see the COMPX
and BTK move higher in concert with one another.  That would
allow for positions to be taken around current levels in AMGN.
If the COMPX and BTK do rebound early next week, AMGN could make
its way above the $66 level, which would offer breakout traders
a chance to gain entry into the play.  However, if the stock
continues pulling back from current levels early next week,
look for bounces around the $63.50 level, where buyers stepped
in last Friday.

***September contracts expire in two weeks***

BUY CALL SEP-60 YAA-IL OI= 4021 at $4.80 SL=2.75
BUY CALL SEP-65 YAA-IM OI=21529 at $1.65 SL=1.00
BUY CALL SEP-70 YAA-IN OI=12112 at $0.50 SL=0.25
BUY CALL OCT-65 YAA-JM OI=13111 at $3.50 SL=1.75
BUY CALL OCT-70 YAA-JN OI=21901 at $1.60 SL=1.00

Average Daily Volume = 3.13 mln

BGEN - Biogen, Inc. $61.99 (+1.63 last week)

Biogen is a biopharmaceutical company primarily engaged in the
business of developing, manufacturing and marketing drugs for
human healthcare.  BGEN currently derives revenues from sales
of its Avonex product for the treatment of relapsing forms of
multiple sclerosis and from royalties on worldwide sales by
the company's licensees of a number of other patented products.
Other products include certain forms of alpha interferon,
hepatitis B vaccines and hepatitis B diagnostic test kits.  In
order to maintain its leadership role in the industry, BGEN
continues to have an active research and development program.

Inching its way higher, BGEN is right on the cusp of a breakout,
despite the broad-based market weakness last week.  Even the
Biotech sector (BTK.X) has been selling off, underscoring BGEN's
impressive relative strength.  While it hasn't been advancing by
leaps and bounds, it has been reassuring to see the stock
continue to hug its ascending trendline, currently at $60.50.
It took some doing, but the bulls managed to push the stock
solidly through the 200-dma (currently $60.25) and with Friday's
closing high just below $62 on strong volume, it looks like the
breakout is for real this time.  Further strength in the stock
will provide for fresh entries as the stock pushes through
resistance (now at $62.50) on strong volume.  Of course bargain
hunters can still target intraday dips for initiating new
positions, preferably on a bounce from the vicinity of the
ascending trendline.  A dip to around $59 (the location of our
stop) is still buyable, but make sure the rebound comes on
strong volume.

***September contracts expire in two weeks***

BUY CALL SEP-60*BGQ-IL OI=2913 at $3.70 SL=2.25
BUY CALL SEP-65 BGQ-IM OI=1275 at $1.10 SL=0.50
BUY CALL OCT-60 BGQ-JL OI=4687 at $5.30 SL=3.25
BUY CALL OCT-65 BGQ-JM OI=9892 at $2.75 SL=1.50
BUY CALL OCT-70 BGQ-JN OI=4722 at $1.20 SL=0.50

Average Daily Volume = 2.95 mln

LH - Laboratory Corp. of America $75.20 (-2.70 last week)

Laboratory Corporation of America Holdings (LabCorp) is the #2
clinical laboratory service in the world, behind Quest
Diagnostics.  LH performs 2000 types of tests for more than
100,000 clients, including health care providers, pharmaceutical
firms, physicians, government agencies and employers.  With 25
major laboratories and some 1200 service sites nationwide, the
company emphasizes specialty and niche testing such as allergy
tests, HIV tests, blood analyses, and substance abuse

Still waiting.  After dropping and bouncing right at the
ascending trendline and 200-dma (currently $73.55) in the middle
of the week, LH has seen its trading volume start to dwindle
(now only running about triple the ADV) as the stock consolidates
its recent drop.  We're looking for the stock to stage a rally
from current levels, and all we need now is a cooperative
market.  Anybody know where we can find one of those?
Seriously, this is an aggressive play where we are looking for a
bounce from the $74-75 level to launch the stock on its next
upwards leg.  And due to the aggressive nature, we're playing it
with a tight stop at $73.50, just below the 200-dma.
Stochastics are still buried in oversold and we'll need to see
them return to ascent mode to confirm we're on the right side of
the trade.  The more cautious approach will be to wait for
confirmation of emerging strength in the form of daily
stochastics turning up and emerging from oversold with the price
clearing resistance near $76.50.

***September contracts expire in two weeks***

BUY CALL SEP-75*LH-IO OI=  38 at $2.75 SL=1.50
BUY CALL SEP-80 LH-IP OI= 517 at $0.80 SL=0.25
BUY CALL OCT-75 LH-JO OI=  18 at $4.70 SL=2.75
BUY CALL OCT-80 LH-JP OI=  20 at $2.55 SL=1.25
BUY CALL OCT-85 LH-JQ OI=  28 at $1.25 SL=0.50

SELL PUT SEP-75 LH-UO OI=1000 at $2.20 SL=3.75
(See risks of selling puts in play legend)

Average Daily Volume = 524 K

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The Option Investor Newsletter                   Sunday 09-09-2001
Sunday                                                      4 of 5

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ACF - Americredit $40.00 (-6.16 last week)

AmeriCredit Corp. and its subsidiaries, including AmeriCredit
Financial Services, Inc. (AFSI), operate in the automobile
finance business. Through its AFSI branch network, the Company
purchases loans made by franchised and select independent dealers
to consumers buying late-model used and, to a lesser extent, new
automobiles. The Company targets consumers that are typically
unable to obtain financing from traditional sources. Funding for
the Company's auto lending activities is obtained primarily
through the sale of loans in securitization transactions.

ACF closed below its 200-dma last Friday for the first time since
late last year.  The stock is under heavy distribution and
appears to be headed lower over the short-term.  The continued
weakening of the economy is weighing heavily on the stock.
Specifically, the potential for a drop-off in the consumer is
wreaking havoc on shares, in addition to credit concerns.  The
stock has sold off heavily in recent sessions, so we're gaming
its downward momentum at this point in the play.  If the stock
does rebound in coming days, in dead cat fashion, bearish
traders could look to secure new put positions near significant
resistance levels.  The stock has an unfilled gap up at the
$43.25 level, which could provide a solid entry point if ACF
advances as high as that level.  Further down, resistance could
form around the $41.50 level.  Additionally, entries could be
had on further weakness below ACF's intraday low last Friday
at the $39 level.

***September contracts expire in two weeks***

BUY PUT SEP-45*ACF-UI OI=1604 at $6.30 SL=4.55
BUY PUT SEP-40 ACF-UH OI=2229 at $2.85 SL=1.50

Average Daily Volume = 1.47 mln

PGR - Progressive $120.49 (-8.78 last week)

The Progressive Corporation is an insurance holding company. The
Company has 76 subsidiaries and two mutual insurance company
affiliates. The Progressive Corporation's insurance subsidiaries
and affiliates provide personal automobile insurance and other
specialty property-casualty insurance and related services
throughout the United States.

PGR had been one of the last remaining stocks to fall prior to
last week's trading.  It had maintained its lofty price above the
$130 level for three months, prior to its breakdown last week.
But with its breakdown last week, it looks like the downside
momentum in shares is beginning to pick up.  The Insurance Sector
Index (IUX.X) is surely weighing on PGR, and bearish traders in
this play might want to keep close tabs on that index going
forward.  PGR stopped right at the $120 level last Friday, during
its big sell-off.  Buyers may try to defend that level early
next week, which may result in a bounce in the stock.  If that
happens, look for the sellers to return around the $122.85
level, or a little higher around $125, which is the site of our
stop initially.  Conversely, a breakdown below $120 could lead
PGR to its 200-dma over the short-term, which currently lies at
the $112 level.  As such, the 200-dma will be the site of our
short-term target.  That's not to say we won't maintain coverage
on PGR if it falls that low.  It's simply our first level to turn
for when looking for exit points.

***September contracts expire in two weeks***

BUY PUT SEP-130 PGR-UF OI=123 at $10.00 SL=7.50
BUY PUT SEP-125*PGR-UE OI=168 at $ 6.00 SL=4.25

Average Daily Volume = 338 K

HDI - Harley Davidson $43.93 (-4.66 last week)

Harley-Davidson, Inc. conducts business in two segments:
Motorcycles and Related Products and Financial Services. The
Motorcycles and Related Products segment includes the group of
companies doing business as Harley-Davidson Motor Company, which
are subsidiaries of H-D Michigan, Inc., and Buell Motorcycle
Company. The Motorcycles segment designs, manufactures and sells
primarily heavyweight touring, custom and performance motorcycles
as well as a complete line of motorcycle parts, accessories and
general merchandise. The Financial Services segment consists of
the Company's wholly owned subsidiary, Harley-Davidson Financial
Services, Inc. (HDFS).

Shares of Harley took it on the chin last week.  The stock has
been a favorite among growth investors for quite some time.  But
its allure and luster may be wearing off.  That's because
consumers are losing their confidence, which translates into a
decrease in their spending habits.  Harley is most dependent on
the consumer and its spending habits.  Furthermore, the demand
for its motorcycles seems to be diminishing as consumers opt
for other recreational products.  In terms of technicals, the
stock closed below its 200-dma last Friday for the first time
since April.  A breach of that level can often induce heavy
institutional liquidation.  The stock did bounce from the $43.30
level last Friday, which may serve as an entry point going
forward for those who prefer trading breakdowns.  Also, entries
can be taken at current levels if the SPX and Dow continue
falling early next week.  If, however, HDI rebounds early next
week, bearish traders might look to initiate new positions
around its 200-dma, which now sits at $44.72.  A rollover near
that level would allow for solid risk management in this play.
If HDI does pop back above its 200-dma, look for resistance
around $46 to $46.50.  We've elected to set our stop at the
$46.50 level initially, while readers may prefer to use a
tighter stop initially.

***September contracts expire in two weeks***

BUY PUT SEP-50 HDI-UJ OI=4808 at $6.40 SL=4.55
BUY PUT SEP-45*HDI-UI OI=1575 at $2.55 SL=1.00

Average Daily Volume = 1.49 mln

MER - Merrill Lynch $46.09 (-5.51 last week)

Merrill Lynch & Co., Inc. is a holding company that, through its
subsidiaries and affiliates, provides investment, financing,
advisory, insurance and related products and services on a global
basis. Merrill Lynch provides these products and services to a
wide array of clients, including individual investors, small
businesses, corporations, governments, governmental agencies and
financial institutions. Merrill Lynch has three business
segments, the Corporate and Institutional Client Group, the
Private Client Group and Merrill Lynch Investment Managers. The
Company provides financial services worldwide through various
subsidiaries and affiliates that frequently participate in the
facilitation and consummation of a single transaction.

Judging by the price action in the Amex Securities Broker/Dealer
Index (XBD.X) last week, the brokers are broken.  The index took
out its relative lows and is heading for its April lows down
around the 390 level.  If the XBD continues shedding points, MER
is sure to follow.  For its part, MER is already trading below
its April lows, which is a testament to the stock's relative
weakness.  It broke down below the $50 level last Friday in
spectacular fashion - a level that had supported the stock for
nearly two months.  MER's breakdown came on heavy volume, which
reinforces its inclusion on the OI put play list this weekend.
Momentum traders can look for entries on further weakness
below the $46 level early next week.  Confirming weakness in the
Dow, S&P, and the XBD would serve bearish traders well in
this play.  If the stock does rebound, however, look for a
rollover near the $50 level (old support), which is also the
site of our stop to begin with.

***September contracts expire in two weeks***

BUY PUT SEP-50*MER-UJ OI=6824 at $4.70 SL=3.00
BUY PUT SEP-45 MER-UI OI=5055 at $1.70 SL=1.00

Average Daily Volume = 4.85 mln


CHKP - Check Point Software $30.51 (-1.48 last week)

Check Point Software is the worldwide leader in securing the
Internet.  The company's Secure Virtual Network (SVN)
architecture provides the infrastructure that enables secure
and reliable Internet communications.

CHKP continued its bouncing ways along the $30 level last
Friday.  The stock actually lifted in afternoon trading, as
high as the $31.38 level, before falling back to earth in
synch with the COMPX.  The good news is that CHKP's highs
continue getting lower.  If this pattern of relatively lower
highs persists, CHKP could rollover somewhere around the $33
level early next week if, and only if, it continues higher.
It could very well breakdown below the $30 level if the GSO
and COMPX continue experiencing heavy selling, which has been
the case for quite some time now.  Like we mentioned last
Friday, if the pressure continues from the sell-side, CHKP
will eventually lose the $30 level.  And again, we'll allude
to the fact that we've captured about $13 in this play since
inception.  So if you've got some decent gains built up, it only
makes sense to take some profits off the table down here.  For
those not in the play, execution is critical from current levels.
The ideal entry point would be a rollover near resistance, such
as the aforementioned $33 level.  If you're gaming a breakdown,
however, make sure to confirm weakness in the GSO and COMPX
before employing such a strategy.

***September contracts expire in two weeks***

BUY PUT SEP-35*KEQ-UG OI=5874 at $5.30 SL=3.55
BUY PUT SEP-30 KEQ-UF OI=4132 at $2.05 SL=1.00

Average Daily Volume = 10.5 mln

GMST - Gemstar-TV Guide $29.66 (-3.25 last week)

Gemstar-TV Guide is a global media and technology company focused
on developing, licensing and providing products and services that
simplify and enhance consumer entertainment.  Many of the
company's products have a special emphasis on television oriented
technologies and services, in particular, program guidance
products including those marketed under the TV Guide name.

So, we're at the $25 level...now what?  Hopefully, GMST's further
weakness Friday allowed for bearish traders to book some profits
in this play.  After $10 to the downside, traders in this play
should have some decent gains built up.  At this point, those in
at much higher prices should be thinking money management.  In
the end, it's an individual decision whether or not to take
profits in a play.  But, we don't like to see readers leave
money on the table, that's all.  Back to the play.  GMST looks
like it's going to retest its April lows, which would put the
stock around the $20 level.  That's about another $5 from
current levels, and worth shooting for.  In terms of new entry
points, we'd ideally like to get a light volume, short covering
rally back up to resistance around $29.  From there, new
positions could be taken with limited risk by way of a tight
stop.  Those favoring the momentum approach can enter new put
positions on a breakdown below the $25 level, with the
understanding GMST is oversold - just look at its Stochastics

***September contracts expire in two weeks***

BUY PUT SEP-35*QLF-UG OI=1887 at $9.60 SL=7.75
BUY PUT SEP-30 QLF-UH OI=2363 at $4.90 SL=2.75

Average Daily Volume = 3.70 mln

BA - Boeing $45.18 (-6.02 last week)

The Boeing Company, an aerospace company, operates, together
with its subsidiaries, in three principal segments: Commercial
Airlines Operations, Military Aircraft and Missiles, and Space
and Communications. Commercial Airplanes Operations is involved
in the development, production and marketing of commercial jet
aircraft. The segment also provides related support services,
principally to the commercial airline industry worldwide. The
Military Aircraft and Missiles segment is involved in the
research, development, production, modification and support of
military aircraft, including fighter, transport and attack
aircraft; helicopters; and missiles.

We could think of about a dozen different puns concerning
BA and its crash landing last Friday.  We could write about the
failure of its landing gear and its lack of lift-off.  But we
won't.  Instead, let's focus on the facts.  In the holiday
shortened trading week - a mere four days - following our
initiation of coverage on BA, the SEP 50 puts went from being
offered at $1.10 to being bid at $4.80 last Friday.  You can
do the math, but we'll emphasize that traders, for the sake of
discipline, should book some of those gains early next week,
if that hasn't been done already.  While BA may be headed
lower over the short-term, such a big gain over such a short
period of time should be met with discipline.  Don't let the
excitement of a home run cloud objectivity!  Volume last Friday
felt a bit like capitulation in BA, so traders might want to
keep an eye on BA's intraday low around the $45 level.  It may
well serve as support going forward.  Conversely, continued
weakness below that level on high volume would offer bearish
momentum traders new entries.  The stock doesn't have any
resistance to speak of until up around the $48.50 level, so
gaming rollovers near resistance may be a practice in
patience.  We're sliding stops down to the $50 level, which
is rather liberal.  Individual traders should take into
account their specific entries and risk tolerances when
determining their own stops.

***September contracts expire in two weeks***

BUY PUT SEP-50*BA-UJ OI=7995 at $5.10 SL=3.50
BUY PUT SEP-45 BA-UI OI= 312 at $1.50 SL=0.75

Average Daily Volume = 3.27 mln

VZ - Verizon $49.05 (-0.95 last week)

Verizon Communications Inc. provides communications
services. The Company has four reportable segments, which it
operates and manages as strategic business units and organizes by
products and services. Domestic wireline communications services
principally represent the Company's 16 operating telephone
subsidiaries that provide local telephone services in over 30
states. Domestic wireless products and services include cellular,
Personal Communications Services, paging services and equipment

VZ's out performance last Friday was a bit discouraging, at least
for those of us on the bearish side of things.  Albeit only a
penny higher, the fact that VZ settled in positive territory when
the Dow dropped 200 plus points has us on alert for further
strength.  Although VZ's strength may have been merely a product
of short covering, noting volume, we're cautious nonetheless.
Further strength, however, would allow for favorable entry points
near resistance, such as the $50 level, or near the 10-dma around
$50.20.  While that may sound contradictory, here's the
reasoning.  VZ traded higher on a day that the market got
hammered.  If the stock rallied in conjunction with an advancing
market, we wouldn't be so uneasy.  And the difficulty lies in
discerning whether or not its strength Friday was from short
covering (Read: Artificial) or real buying (Read: Not Artificial).
The only way we'll find the answer to that question will be
through monitoring price action through the window of the
broader market next week.

***September contracts expire in two weeks***

BUY PUT SEP-50*VZ-UJ OI=3213 at $1.70 SL=1.00
BUY PUT SEP-45 VZ-UI OI= 824 at $0.30 SL=0.00

Average Daily Volume = 4.40 mln

AIG - American International Grp. $73.15 (-5.05 last week)

Engaged in a broad range of insurance and insurance-related
activities through its subsidiaries, AIG's primary focus is on
its general and life insurance businesses.  Additionally, the
company is growing its presence in financial services and asset
management.  Other operations include auto insurance, mortgage
guaranty, annuities, and aircraft leasing.  With operations in
130 countries, AIG generates more than half of its revenues
outside the United States.

And the hits just keep on coming.  Only 3 days old and our AIG
play is performing beautifully, having solidly smashed the $75
support level.  Talk of more layoffs sent the stock south on
Wednesday, and despite an impressive recovery on Thursday,
Friday's Employment Report was too much for the stock to bear
(pun intended), and it fell back to once again test the $73
support level.  Volume has been particularly heavy the past 3
days, giving the appearance that this could be a pivotal point
for the stock.  Either it will find support near current levels
and recover, or it is getting set to break down in a big way.
Only time will tell.  With gains already built into our play,
our advice is to tighten up those stops or even take profits
near current levels and then wait for another failed rally in
order to initiate new positions.  Ideally, we'll get a rollover
from below the $77 level, also the site of our stop and
significant overhead resistance.  Those looking to trade a
continued breakdown will want to focus their attention on the
$72.50 level.  AIG has traced $72.65 three times now (March 22
and September 5 and 7) and if that level fails, it could be
profitable for those who are ready to play, as it would open
the door for a test of the $70 and then $67 support levels.

***September contracts expire in two weeks***

BUY PUT SEP-75*AIG-UO OI=14361 at $3.00 SL=1.50
BUY PUT SEP-70 AIG-UN OI= 3518 at $0.85 SL=0.25
BUY PUT OCT-75 AIG-VO OI= 1008 at $4.00 SL=2.50
BUY PUT OCT-70 AIG-VN OI=  812 at $1.70 SL=0.75

Average Daily Volume = 5.47 mln

JPM - J.P. Morgan Chase $37.00 (-2.40 last week)

JPMorgan Chase & Co. is a global financial services firm
with operations in over 60 countries. The Company's principal
bank subsidiaries are The Chase Manhattan Bank, Morgan Guaranty
Trust Company and Chase Manhattan Bank USA, National Association.
Its principal non-bank subsidiaries are its investment bank
subsidiaries, Chase Securities Inc. (CSI) and J.P. Morgan
Securities Inc. (JPMSI). The bank and non-bank subsidiaries of
JPMorgan Chase operate nationally, as well as through overseas
branches and subsidiaries, representative offices and affiliated

Weary bulls were glad to finally see JPM trace a green candle
for a change on Friday.  Of course, it was a small victory since
the candle began a full dollar below Thursday's close and by the
closing bell, the stock had only eked out a measly 6-cent gain
on the day.  Sure, volume was brisk, but that does little to
mask the fact that the stock is now pinned under the $38.50
level, which had acted as support up until last Wednesday.
Daily Stochastics are still diving into oversold, but the recent
slide could have bulls considering a relief rally.  So while we
continue to pressure the downside, we need to protect our gains
with a stop at $38.50.  The increase in buying volume at the end
of the day could be a taste of what's to come next Monday.
Until proven wrong though, we'll continue to work the downside
with gusto, buying puts on each failed rally as long as our
stop remains intact.  Momentum players will want to look for a
drop under $36, which will be their cue to initiate fresh

***September contracts expire in two weeks***

BUY PUT SEP-40*JPM-UH OI=27237 at $3.40 SL=1.75
BUY PUT SEP-35 JPM-UG OI= 3877 at $0.55 SL=0.00
BUY PUT OCT-40 JPM-VH OI= 4661 at $4.30 SL=2.75
BUY PUT OCT-35 JPM-VG OI= 6014 at $1.40 SL=0.75

Average Daily Volume = 6.54 mln

PHA - Pharmacia $40.27 (+0.67 last week)

Pharmacia Corporation is a pharmaceutical company that
operates in three segments: Prescription Pharmaceuticals,
Agricultural Productivity, and Seeds and Genomics. The
Prescription Pharmaceuticals segment involves the business and
activities engaged in, supporting or related to the research,
development, registration, manufacture and sale of prescription
pharmaceutical products. The Agricultural Productivity segment
consists of crop protection products, animal agriculture and the
environmental technologies business lines.

It was starting to look like a couple of rogue bulls had invaded
our camp early last week as PHA stubbornly rose in the face of
broad-based market weakness.  Fortunately, they were friendly
bulls, just helping us to gain a better entry point into the
play.  They brought the price right up to the $41 level on both
Thursday and Friday before heading out to pasture and then the
rollover began.  We're still waiting for the daily Stochastics
to roll, but the price has already gotten started after
unsuccessfully trying to clear the 10-dma (currently $40.69).
Unless the markets decide to rally next week, PHA looks ready
to head back down and test the $39 level.  And now that the
stochastics have been raised out of oversold, that should give
the bears that much more room to work with.  Another failed test
of our $41.50 stop would be a great entry point for the ride
down to $39, while momentum traders will want to wait for that
level to be violated before venturing into new positions.

***September contracts expire in two weeks***

BUY PUT SEP-45 PHA-UI OI= 151 at $4.90 SL=3.00
BUY PUT SEP-40*PHA-UH OI=2141 at $1.00 SL=0.50
BUY PUT OCT-40 PHA-VH OI=2041 at $1.90 SL=1.00
BUY PUT OCT-35 PHA-VG OI=2691 at $0.55 SL=0.00

Average Daily Volume = 4.51 mln

QCOM - Qualcomm, Inc. $49.18 (-9.67 last week)

Based on its proprietary CDMA technology, QCOM is engaged in
developing and delivering digital wireless communications
services.  The company's business areas include integrated
CDMA chipsets and system software and technology licensing.
QCOM owns patents that are essential to all of the CDMA
wireless telecommunications standards that have been adopted
or proposed for adoption by the worldwide standards-setting
bodies.  Currently, QCOM has licensed its CDMA patent portfolio
to more than 80 telecommunications equipment manufacturers
around the world.

As one of the few stocks helping to keep the NASDAQ afloat
(well almost) on Friday, QCOM actually managed to paint a
positive candle.  But it sure wasn't much to get excited about,
coming in at a gain of only 67 cents.  After dropping to major
support at $48.50 on Thursday, and with daily Stochastics deep
in oversold, a bounce was in order.  Its just too bad it wasn't
a little higher to give us a better entry for the next leg down.
Hopefully you took our advice and locked in profits from the
large decline the over the past week and are now on the prowl
for fresh entries.  We've got our stop ratcheted down to $54 and
we'd use any rollover below that level to jump back into the
play.  A volume-backed drop through $48.50 can also be used to
enter the play, but keep a tight reign on it (tighten stops) as
the price approaches the April lows near $44.

***September contracts expire in two weeks***

BUY PUT SEP-50*AAO-UJ OI= 6570 at $3.80 SL=2.25
BUY PUT SEP-45 AAO-UI OI= 3396 at $1.85 SL=1.00
BUY PUT OCT-50 AAO-VJ OI=19504 at $6.10 SL=4.00
BUY PUT OCT-45 AAO-VI OI= 4342 at $3.80 SL=2.25

Average Daily Volume = 11.7 mln

QLGC - QLogic Corporation $26.76 (-3.25 last week)

Somebody has to make the equipment that lets your computer talk
to all its peripheral equipment, and QLGC does it well.  A
leading designer and supplier of semiconductor and board-level
input/output (I/O) management products, QLGC has been providing
SCSI-based connectivity solutions to this market sector for over
12 years.  QLGC's I/O products provide a high performance
interface between computer systems and their attached data
storage peripherals, such as hard disk and tape drives,
removable disk drives and RAID (redundant array of independent
disks) subsystems.  The company is also the market share leader
in Fibre Channel host bus adapters, a market segment that is
receiving tremendous attention from investors.

It's about time we got a little bit of a bounce in shares of
QLGC to allow us another entry opportunity.  Anemic as it was,
the stock managed to post a 5% gain on Friday before it began to
weaken near the $27 level.  Ideally, we'd like to see more of a
jump for initiating fresh positions, but in this negative market,
we'll take what we can get.  The descending 10-dma (currently
$29.62) has continued to pressure shares of QLGC for the past
month and is showing no signs of letting up.  A rebound near $29
(also the site of our stop) would be great for new entries, but
we may not be that lucky as the negative news regarding the
economy in general and technology specifically continues to
flow.  Barring some really good news, QLGC looks destined to
test its spring lows near $18, and we can also jump into fresh
positions to take advantage of the slide if selling volume
intensifies, driving the stock below the $25 support level.

***September contracts expire in two weeks***

BUY PUT SEP-30*QLC-UF OI=8822 at $4.60 SL=2.75
BUY PUT SEP-25 QLC-UE OI=1124 at $1.75 SL=1.00
BUY PUT OCT-30 QLC-VF OI=8822 at $4.60 SL=2.75
BUY PUT OCT-25 QLC-VE OI=1124 at $1.75 SL=1.00

Average Daily Volume = 7.25 mln

SEBL - Siebel Systems $18.96 (-2.64 last week)

Siebel Systems is a provider of eBusiness applications.  The
company's products enable organizations to sell to, market to,
and service their customers across multiple channels, including
the Web, call centers, resellers, retail, and dealer networks.
SEBL's eBusiness applications are available in
industry-specific versions designed for the pharmaceutical,
healthcare, telecommunications, insurance, energy, apparel,
automotive, and finance markets.  Through SEBL's applications,
companies can create a single source of customer information
that sales, service, and marketing professionals can use to
tailor product and service offerings to meet each of their
customer's unique needs.

Lately it has seemed like the Software sector (GSO.X) has been
falling into a bottomless pit, making profits easy to come by
in our SEBL play.  Each day we witness a new yearly low in the
stock with nary an attempt by the bulls to stop the bleeding.
It has been a great play thus far, but we may be approaching the
end of the line.  The GSO, SEBL and the NASDAQ are all oversold
and begging for relief.  But without a strong positive catalyst,
SEBL is likely to remain in a bearish trend a little while
longer.  The open interest on the SEP-17.5 strike has
skyrocketed, and that level is likely to act as near term
support next week.  If you've got gains in the play we'd
recommend harvesting some profits near that level or at least
snugging up your stops.  It would be a shame to give back those
hard-won gains.  With our stop now resting at $22, we would use
any bounce and rollover below that level for opening new
positions, but wouldn't recommend chasing the stock lower until
some of the pent-up buying pressure is released.

***September contracts expire in two weeks***

BUY PUT SEP-20.0*SGQ-UD OI= 2590 at $2.20 SL=1.00
BUY PUT SEP-17.5 SGQ-UW OI=30240 at $0.90 SL=0.50
BUY PUT OCT-20.0 SGQ-VD OI= 1049 at $3.10 SL=1.50
BUY PUT OCT-17.5 SGQ-VW OI=  553 at $1.85 SL=1.00

Average Daily Volume = 14.3 mln

TSG - Sabre Holdings $40.60 (-1.58 last week)

Sabre Holdings Corporation markets and distributes travel
through its SABRE computer reservations system (the SABRE
system). In addition, the Company provides outsourcing and
software solutions to the travel and transportation industries.
The SABRE system creates an electronic marketplace where travel
providers display information about their products, and warehouse
and manage inventory. Travel agents can choose interfaces that
range from simple, text-based systems to feature-laden graphical
systems. The Company also has an approximate 70% ownership
interest in Travelocity.com Inc., a provider of online travel
services to consumers.

Continuing economic weakness and rising unemployment isn't
helping the travel industry, and with the almighty consumer
weakening, TSG is bound to see a further erosion in the demand
for its travel services.  The month-long slide in the share
price is showing no signs of letting up, despite the fact that
the stock is now well into oversold territory.  Support at $41
gave way on Friday and while there are numerous possible support
levels below, the continuing deterioration in the Stochastics
and RSI oscillators points to a long slow decline.  Bounces are
being contained by the 10-dma (currently $42.76) and a return
near that level could provide for attractive entries.  Of
course, further weakness can also be used for opening fresh
positions; just wait for the bears to push TSG under Friday's
low ($40.41) on solid volume and step aboard.  Our stop is
currently sitting at $43.

***September contracts expire in two weeks***

BUY PUT SEP-45 TSG-UI OI=2553 at $4.80 SL=3.00
BUY PUT SEP-40*TSG-UH OI=   8 at $1.30 SL=0.75
BUY PUT OCT-45 TSG-VI OI=  17 at $5.60 SL=3.50
BUY PUT OCT-40 TSG-VH OI=  46 at $2.70 SL=1.50

Average Daily Volume = 706 K

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Testing, 1-2-3, Testing...
By Mark Phillips
Contact Support

The phrase "Retesting the Lows" has become as overused recently
as "Stealth Rally" or "2nd Half Recovery".  It seems everybody
has been talking about the need to retest the April lows, with
some saying it was inevitable, and others saying it just wouldn't
happen.  I've become more and more certain lately that we would
in fact test the lows as the global economy has continued to

The big factor that has had me leaning to the bearish camp
lately was the lack of fear in the market, even as all the broad
indices continued to decline.  Fear, measured by the Volatility
index or VIX just hadn't been tracking with the market declines,
as I pointed out 2 weeks ago in my commentary:

"Underlying market sentiment is really the key to my skeptical
attitude.  I've been watching the Volatility Index more than
usual lately, because it really isn't acting the way it should
in a market that is getting ready to post a sustained advance.
Up days in the market give us sharp drops in the VIX (indicating
a sharp increase in call buying vs. put buying), while market
declines give us reluctant, and small increases in the VIX.  I
see a market (take your pick) that is still in trouble, but
there is no fear, as measured by the VIX.  That is not the sort
of condition that will lead to sustained rallies.  Investor's
Intelligence's most recent survey shows 47% of investors lined
up in the Bullish camp, with only 32% feeling Bearish.  No wall
of worry for investors to climb there.  Case in point, the VIX
dropped precipitously on Friday, losing 10.5% and closing at
22.29, it's lowest level since July 3rd."

If a slowly declining market couldn't incite some fear in
investors, it really was setting up to inject some serious fear
into the complacent masses if the markets really started to sell
off again.

Well, the bull/bear debate has ended in favor of the bears as
the S&P500 (INDEX:SPX)and NASDAQ-100 (INDEX:NDX) have now closed
below the lowest close from April.  On the heels of the abysmal
employment report Friday morning, my expectations came to pass
as the DJIA continued its fall from grace, falling as low as
9558 before some mild short-covering in the afternoon that
brought the index above 9600.  Over the past 2 weeks, the VIX
has gone almost vertical again, just like it did last October
and then again in March.  Support levels have been falling left
and right and investors are starting to get scared, as
demonstrated by the VIX closing at 34.36 on Friday.  And believe
it or not, that's actually the good news!

In order to effectively test the lows, it was necessary to shake
out the weak hands and re-inject some fear into the market,
because that will give the bulls a wall of worry to scale.  While
the VIX could still climb much higher, now that it is well above
30 again, the pressure will be building for a release to the
upside  As with any test, it is the result of the test that is
important.  And what we really need to see is whether current
levels of support will hold, or if we are heading much lower.

Although the SPX and NDX have now set new closing lows for the
year, the bulls will be trying to hold onto the intraday lows as
that last vestige of support before heading even lower.  Here
are the numbers for reference.  The SPX hit an intraday low of
1081.19 on March 22nd and an intraday low of 1082.12 on Friday.
Even with a mild afternoon recovery to 1085.78, the Big Index
has very little wiggle room before the bears set their sights on
breaching the 1000 level.

There hasn't been as much pain experienced in recent days on the
NDX, due to the fact that it has already fallen so far, but it
is also balanced on that knife-edge.  The intraday low on April
4th was 1348.52 and traded as low as 1339.89 on Friday before
clawing its way higher to end another dismal week at 1354.27.
Like the SPX, there is very little wiggle room before the
Tech-heavy NASDAQ will be looking at current levels as
resistance and focusing on 1260 and 1180 as the next possible
support levels.

What I'm trying to do here is divorce hope from reality and read
where the market wants to go, rather than dictate where I want
it to go.  Because the market doesn't give one whit about what I
think or want.  But until the market tells us what it is likely
to do next, the smart approach is to sit on the sidelines and
wait.  Difficult?  Yes.  Smart?  You betcha!

Notice that there are no new Portfolio plays this week?  That
should come as no surprise in such a negative week.  We need
some signs of bullishness at support to usher us into new plays,
and we sure didn't get it this week.  There were a couple plays
that came close, but never gave us a convincing entry trigger.
First up was Calpine (NYSE:CPN) which once again dropped into
the $29-30 range on Friday.  But it couldn't stage any
meaningful rebound, leaving us to watch carefully for any
substantial strength next week.  If $29 fails to provide
support, it looks like CPN could drop near $25 before the bulls
really get interested.

General Electric (NYSE:GE) is getting close to an entry now that
it has closed below $40, but there is a warning flag that has
now been raised.  GE closed below its 200-week moving average
for the first time...EVER!  At least it hasn't done so for the
past decade -- that's as far back as my charts go.  So while I
still like an entry at $38-39, the risk of the play has gone up
due to this technical failure.  We need a strong rebound above
this level to prompt me to actually take a position in the play.

With the continued deterioration in the price of Natural Gas,
Enron (NYSE:ENE) has continued to fall, and we're more than
happy to ratchet our entry target lower as well.  This play
should pay off nicely once we get a solid entry, but I for one
am not going to jump the gun.

Speaking of jumping the gun, you'll notice that even as the
stock is approaching our previous target of $75-76, I have put
Eli Lilly (NYSE:LLY) on Hold.  Take a look at the weekly chart
and I think you'll understand why.  Stochastics are diving back
to earth and it looks like we could see a violation of the
$73-74 support level.  I don't want to remove it from the Watch
List, as I still like the long-term prospects for the stock.
But I do want to wait for conditions to improve.

I had a list of possible new Watch List plays put together early
last week, but continued weakness had me pulling in my horns by
Friday and opting to keep the Watch List free and clear.  When
we get some evidence that the bulls are alive and kicking again,
I'll feel a lot more comfortable placing some new candidates on
our list.

Preserving capital is of paramount importance when trying to
apply a bullish strategy (buying LEAPS Calls) in a bearish
market.  With that in mind, we really tightened up our stops on
both Clorox (NYSE:CLX) and Philip Morris (NYSE:MO), both of
which have gains that I am unwilling to give back to Mr. Market.
I might miss out on the next upward move, but at least I won't
have to worry about a winning trade becoming a loss.  I think
that is the key point I want to stress this week.  Buying LEAPS
calls is a bullish strategy, and as recent events have shown, to
make money in a bearish market, we need to adopt a hit-and-run
strategy, taking small profits on a consistent basis.

My recommendation for the week ahead is to watch the bulls and
bears battle it out, but remain on the sidelines until you can
see the bulls gaining the upper hand.  In the long run, one week
isn't going to make that much difference in missed profits, but
unnecessary losses would be a shame.  I may change my tune soon,
especially if the bulls can step forward to defend critical
support levels.  Otherwise, cash is the way to be.  Remember,
we only want to trade when it is profitable to do so.

Don't forget to tune into my Wednesday column this week, as I'll
be addressing the issue of LEAPS Puts, and how we can apply them
for both bullish and bearish strategies.  There are some
distinct advantages to utilizing LEAPS Puts, although there are
some unique considerations we need to be aware of.  Until then,
take care to protect your trading capital.

Mark Phillips
Contact Support

LEAPS Portfolio

Current Open Plays


CLX    03/13/01  '03 $ 35  VUT-AG  $ 6.10  $ 8.20   34.43%  $ 38
MO     07/30/01  '03 $ 45  VPM-AI  $ 6.10  $ 7.30   19.67%  $ 47
GLM    08/15/01  '03 $ 20  OML-AD  $ 3.30  $ 2.60  -21.21%  $ 14
                 '04 $ 20  KLW-AD  $ 4.70  $ 4.00  -14.89%  $ 14
DIS    08/30/01  '03 $ 30  VDS-AF  $ 2.05  $ 2.05    0.00%  $22.50
                 '04 $ 30  LWD-AF  $ 3.60  $ 3.40  - 5.56%  $22.50

LEAPS Watchlist

Current Possibles


CPN    07/08/01  $29-30        JAN-2003 $ 30  OLB-AF
                            CC JAN-2003 $ 25  OLB-AE
                               JAN-2004 $ 30  LZC-AF
                            CC JAN-2004 $ 30  LZC-AF
ENE    07/29/01  $29-30        JAN-2003 $ 30  VEN-AF
                            CC JAN-2003 $ 25  VEN-AE
                               JAN-2004 $ 30  LYN-AF
                            CC JAN-2004 $ 30  LYN-AF
LLY    08/05/01  HOLD          JAN-2003 $ 75  VIL-AO
                            CC JAN-2003 $ 70  VIL-AN
                               JAN-2004 $ 80  LZE-AP
                            CC JAN-2004 $ 70  LZE-AN
GE     08/12/01  $38-39        JAN-2003 $ 40  VGE-AH
                            CC JAN-2003 $ 30  VGE-AF
                               JAN-2004 $ 40  LGR-AH
                            CC JAN-2004 $ 30  LGR-AF
PCS    08/26/01  $21-22        JAN-2003 $ 25  VVH-AE
                            CC JAN-2003 $ 20  VVH-AD
                               JAN-2004 $ 25  LVH-AE
                               JAN-2004 $ 20  LVH-AD

New Portfolio Plays


New Watchlist Plays



QQQ $35.47 Well, I knew it was a risky shot, trying to game a
bottom in the NASDAQ, and as it turned out, I should have left
it alone.  Support levels have been falling left and right, and
the NASDAQ-100 and QQQ are both trading at fresh yearly lows as
I write this.  This is a perfect example of why it is dangerous
to try to catch a falling knife...it can be very painful.  That
is why we have to have the discipline to stick with our stops.
That's our insurance plan.  And it did a good job for us.  Our
$36 stop was triggered on Tuesday, taking us out of the play
with a 10-15% loss.  That's a lot better than if we applied the
wait-and-hope philosophy.  That approach would have us sitting
on a 25-30% loss this weekend with no indication of when things
are going to turn around.  There are a couple lessons here for
the interested students.  First, trying to pick a bottom is
inherently dangerous and you can frequently get hurt.  But more
importantly, risk management through the use of stop losses is
essential to your financial survival.  Take advantage of my
errors in judgment so that you can learn these important lessons
without suffering the loss in your own account.

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The Option Investor Newsletter                   Sunday 09-09-2001
Sunday                                                      5 of 5

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Market Analysis: Gauging Investor Anxiety With The VIX
By Mark Wnetrzak

One of our readers commented on the recent rise in stock market
volatility, as indicated by the VIX and the VXN, and asked how
these indices can be used to help determine market direction.

The CBOE's Volatility Index is known by its ticker symbol VIX.
It is a measure of the level of Implied Volatility and was
developed by the CBOE in 1993.  VIX measures the volatility of
the U.S. stock market, based on S&P 100 Index, and it is updated
throughout the day by the CBOE in real-time using OEX quote data.
The VIX is calculated by taking the weighted average of the Ivs
of eight OEX calls and puts with an average time to maturity of
30 days.  VIX is therefore a measurement of 30-day index options.
It is not a measure of the volatility of one individual stock or
option and it does not measure the Implied Volatility of other
indices.  However, many traders use it as a general indication
of Implied Volatility in equity options.

In January, the Chicago Board Options Exchange launched a new
volatility index to estimate the amount of fear in the technology
market through the prices of a specific index options contract.
Never one to be outdone, the American Stock Exchange also began
its volatility index based on NASDAQ 100-related options.  Index
options on the NASDAQ 100, or NDX, trade at the CBOE, while at
the AMEX, options trade on the NASDAQ 100 unit trust, or QQQ.
The CBOE's technology volatility index has the ticker symbol VXN
(called Vixen) while the AMEX volatility index has the symbol QQV.
The demand for a VIX (a volatility index based on the S&P 100 or
OEX options) style indicator for NASDAQ stocks has increased in
recent years, in part because volume in OEX options has declined
and because gauging the volatility in the technology segment has
become more important to contrarian traders.  Implied Volatility,
a key factor in an option's price, is the annualized measure of
how much the market thinks a stock or index can potentially move.
It is a critical factor and generally measures uncertainty about
the prospects for the underlying stock or index.  The relative
value of the VIX reflects the market's overall anxiety by rising
when put-option buying increases on OEX options, thus reflecting
an increasing desire to hedge for downside movement.  Analysts
interpret the VIX using a theory of inverse proportion, meaning
low values on the VIX are bearish, while high values are bullish.

Using the traditional analysis, there is an inverse relationship
between the price of the S&P 100 Index and the OEX (and between
the VXN and the NASDAQ 100).  When the volatility in the gauge
moves higher, the market is expected to fall.  When volatility
spikes to extreme highs, that usually indicates a rapidly falling
market.  It is a sign of panic and when the VIX finally reaches a
peak, everyone who is going to sell has probably already done so,
thus it is generally a good time to add to your portfolio.  When
the VIX reaches extremely low levels, it means that traders are
complacent.  Option buyers are timid while sellers are aggressive,
and both for similar reasons: nobody is anticipating much movement
in the market.  Of course, when the majority of people agree on a
particular outlook, the opposite generally happens and in this
instance, upside surprises are a rare occurrence.

Over the past few months there have been extremely large swings
in the prices of stocks quoted on the major exchanges.  Experts
have tried to put forward theories to explain this phenomenon and
more still have tried to use these rationale in order to predict
future market character.  As it stands, analysts cannot agree on
whether or not it is economic or psychological realities that are
the major cause of price fluctuations in the stock market.  While
it's important to be aware of the reasons behind this volatility,
most investors would do better to simply understand the historical
relationships between popular indicators and market direction, and
use this knowledge to become a more successful trader.

Good Luck!

Note:  Margin not used in calculations.

Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

LCBM    6.35   9.04   SEP   5.00  1.75  *$  0.40  13.2%
CCRD   10.20  10.20   SEP  10.00  1.15  *$  0.95   9.1%
PRGN   26.18  24.47   SEP  25.00  2.70   $  0.99   6.4%
BPUR   22.36  20.85   SEP  20.00  3.10  *$  0.74   5.8%
FFIV   14.59  14.50   SEP  12.50  2.85  *$  0.76   5.6%
CCUR   11.60  10.35   SEP  10.00  2.15  *$  0.55   5.1%
SCTC   13.33  13.05   SEP  12.50  1.20  *$  0.37   4.6%
NMTC   28.87  25.20   SEP  25.00  5.10  *$  1.23   4.5%
ANSR    9.01   7.85   SEP   7.50  1.80  *$  0.29   4.4%
INTU   37.78  35.14   SEP  35.00  3.70  *$  0.92   4.1%
NTIQ   36.40  29.75   SEP  30.00  8.10   $  1.45   3.7%
NETA   16.36  14.67   SEP  15.00  2.45   $  0.76   3.4%
DAVX   10.26   9.81   SEP  10.00  0.75   $  0.30   2.7%
GERN   16.01  14.60   SEP  15.00  1.60   $  0.19   2.0%
R      22.59  22.16   SEP  22.50  0.65   $  0.22   1.5%
ISSI   15.00  13.99   SEP  15.00  1.25   $  0.24   1.1%
CTIC   31.39  28.45   SEP  30.00  3.20   $  0.26   1.0%
GSPN   16.24  13.80   SEP  15.00  2.30   $ -0.14   0.0%
ARTC   31.67  27.90   SEP  30.00  3.50   $ -0.27   0.0%
PTEC   15.05  13.27   SEP  15.00  1.20   $ -0.58   0.0%
SPCT   15.85  13.00   SEP  15.00  2.05   $ -0.80   0.0%
PRIA   17.89  15.29   SEP  17.50  1.55   $ -1.05   0.0%
WBSN   19.19  15.00   SEP  17.50  2.35   $ -1.84   0.0%
PMCS   34.40  25.60   SEP  30.00  6.50   $ -2.30   0.0%
HLIT   16.04  11.21   SEP  15.00  2.20   $ -2.63   0.0%

*$ = Stock price is above the sold striking price.


Ok, we're getting what we "asked" for; a test of the April lows.
The question is, do we rebound or fall over the cliff?  If you
believe the "Markets" (economy) are heading lower, exiting plays
that turn negative will preserve capital.  If you believe that
the downside risk is now negligible, rolling forward and/or down
may offer a profitable exit.  I'll use the Netiq (NASDAQ:NTIQ)
SEP-$35 position as an example, currently down about $2.35.  If
you believe the stock has little downside potential (it will hold
support near $26), you could roll down to a January $30 call which
would offer a new cost basis around $26.75.  The January $25 call
would offer even more downside protection (cost basis near $24.50)
but with reduced profit potential.  The April option series should
also be considered, depending on your risk-reward tolerance.  As
this section is short-term oriented (and with regard to the time
restraints in producing the summary), we will show the position
closed.  Network Associates (NASDAQ:NETA) appears to have failed
to overcome resistance near $16 for the third time.  Is a test of
the July low next?  Is it time to exit or adjust?  Phoenix Tech.
(NASDAQ:PTEC) is testing its April-July trend-line and it should
be monitored closely, along with any other stocks that are testing
key support areas,.  Spectrian (NASDAQ:SPCT) is acting horrid and
an early exit may be prudent as opposed to waiting for a violation
of the July low.  PMC-Sierra (NASDAQ:PMCS), Websense (NASDAQ:WBSN),
Pri Automation (NASDAQ:PRIA), and Harmonic (NASDAQ:HLIT) are also
testing key support areas.  Adjusting or exiting these positions
on any rallies may be prudent; again, depending on your overall
outlook on these issues, their sectors, and the broader Market.
To learn more on how to adjust covered calls, I suggest reading
Lawrence McMillan's "Options: As A Strategic Investment."

Positions Closed:

Netiq (NASDAQ:NTIQ); SEP-$35, IGEN International (NASDAQ:IGEN),
Photon Dynamics (NASDAQ:PHTN), Alamosa Holdings (NASDAQ:APCS) ,
Vical (NASDAQ:VICL), Integra LifeSciences (NASDAQ:IART), and
Seachange International (NASDAQ:SEAC) - A Murphy's Law Candidate?


Sequenced by Company
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

AVIR   25.01  SEP 22.50   QCV IX  3.10 148   21.91   14    5.9%
DP     44.05  SEP 42.50    DP IV  2.40 141   41.65   14    4.4%
IMNX   17.83  SEP 17.50   IUU IW  1.00 12042 16.83   14    8.6%
NEV    18.05  SEP 17.50   NEV IW  0.90 12    17.15   14    4.4%
NSM    31.61  SEP 30.00   NSM IF  2.60 4713  29.01   14    7.4%
RCOM   10.41  SEP 10.00   RAU IB  0.85 157    9.56   14   10.0%
UNFI   20.31  SEP 20.00   JQN ID  1.10 186   19.21   14    8.9%

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

RCOM   10.41  SEP 10.00   RAU IB  0.85 157    9.56   14   10.0%
UNFI   20.31  SEP 20.00   JQN ID  1.10 186   19.21   14    8.9%
IMNX   17.83  SEP 17.50   IUU IW  1.00 12042 16.83   14    8.6%
NSM    31.61  SEP 30.00   NSM IF  2.60 4713  29.01   14    7.4%
AVIR   25.01  SEP 22.50   QCV IX  3.10 148   21.91   14    5.9%
DP     44.05  SEP 42.50    DP IV  2.40 141   41.65   14    4.4%
NEV    18.05  SEP 17.50   NEV IW  0.90 12    17.15   14    4.4%

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

AVIR - Aviron  $25.01  *** Hope Springs Eternal! ***

Aviron (NASDAQ:AVIR) is a biopharmaceutical company focused on
the prevention of disease through innovative vaccine technology.
The company currently is focusing its product development and
commercialization efforts on its lead product candidate, FLUMIST,
an investigational live virus vaccine delivered as a nasal mist
for the prevention of influenza.  Aviron's goal is to become a
leader in the discovery, development, manufacture and marketing
of vaccines that are safe, effective and suitable for widespread
use. The company's vaccine development programs are based on
techniques for producing attenuated live virus vaccines and on
its proprietary genetic engineering technologies.  AVIR has once
again garnered investor favor after the company said it can
satisfy the concerns of U.S. regulators about its experimental
nasal flu vaccine, FluMist, without having to conduct additional
clinical trials.  Aviron's stock lost almost one third of its
value in late July after a federal advisory panel recommended
against approval of FluMist, saying more safety data was needed.
Reasonable short-term speculation with a favorable cost basis.

SEP 22.50 QCV IX LB=3.10 OI=148 CB=21.91 DE=14 TY=5.9%

DP - Diagnostic Products  $44.05  *** Blue Sky Territory ***

Diagnostic Products (NYSE:DP) develops, manufactures and markets
medical immunodiagnostic test kits that utilize technology derived
from immunology and molecular biology and automated laboratory
instruments that perform the tests.  The company's products are
used by hospital, clinical, veterinary, research and forensic
laboratories, as well as doctors' offices, to obtain precise and
rapid identification and measurement of hormones, drugs, viruses,
bacteria and other substances present in body fluids and tissues
at infinitesimal concentrations.  No news on this issue since July
when DP reported record sales of $72.8 million, a 14% increase, and
earnings of $10.0 million, or $0.34 per diluted share, up 42% over
the second quarter of 2000.  We simply favor the bullish break-out
above resistance and the move to a new all-time high.

SEP 42.50 DP IV LB=2.40 OI=141 CB=41.65 DE=14 TY=4.4%

IMNX - Immunex  $17.83  *** Bracing For A Rally! ***

Immunex (NASDAQ:IMNX) is a biopharmaceutical company dedicated
to developing immune system science to protect human health.
Applying its scientific expertise in the fields of immunology,
cytokine biology, vascular biology, antibody-based therapeutics
and small molecule research, the company works to discover new
targets and new therapeutics for treating rheumatoid arthritis,
asthma and other inflammatory diseases, as well as cancer and
cardiovascular diseases.  Immunex's product revenues come from
products in two major therapeutic classes, anti-inflammatory
and specialty therapeutics, principally oncology and multiple
sclerosis.  Immunex continues to forge a Stage I base and the
improving technicals suggest a bullish resolution.  Immunex will
present at the Bear Stearns Healthcare Conference on 9/14/01.

SEP 17.50 IUU IW LB=1.00 OI=12042 CB=16.83 DE=14 TY=8.6%

NEV - Nuevo Energy  $18.05  *** Oil Sector Hedge ***

Nuevo Energy (NYSE:NEV) is primarily engaged in the exploration
for, and the acquisition, exploitation, development and production
of crude oil and natural gas.  The company accumulates oil and gas
reserves through the drilling of exploratory wells on acreage owned
by or leased to the company, or through the purchase of reserves
from others.  Nuevo also owns and operates gas plants and other
facilities, which are ancillary to the main business of producing
oil and natural gas.  The company also owns certain surface real
estate parcels in California that are candidates for sale and/or
development in future years.  Nuevo has benefited from higher
crude prices and has seen a rise in the value of a number of the
company's thermal oil properties.  Over the last two years, the
stock has traded in a narrow range near $17 and this position
offers a reasonable cost basis for those wishing to add the issue
to their stock portfolio.

SEP 17.50 NEV IW LB=0.90 OI=12 CB=17.15 DE=14 TY=4.4%

NSM - National Semiconductor  $31.61  *** Fishing For A Bottom! ***

National Semiconductor (NASDAQ:NSM) designs, develops, manufactures
and markets a wide array of semiconductor products, including a
broad line of analog, mixed-signal and other integrated circuits.
The company formed three organizational units: the Analog Group,
which develops and manufactures numerous building block products;
the Information Appliance Group, which delivers component and
system solutions; and the Network Products Group, which offers a
line of ethernet products that address a range of applications.
On Thursday, National Semiconductor reported a fiscal 1st-quarter
loss on substantially lower revenues, but forecast a modest rise
in sales for the 2nd-quarter.  The company's CEO stated that "the
recent improvements in bookings suggests that the worst may be
behind us."  The semiconductor sector was relatively strong over
the last two days and this position offers favorable short-term
speculation on a potential rebound.

SEP 30.00 NSM IF LB=2.60 OI=4713 CB=29.01 DE=14 TY=7.4%

RCOM - Register.com   $10.41  *** Rally Mode? ***

Register.com (NASDAQ:RCOM) is a provider of Internet domain name
registration products and services worldwide for businesses and
individuals that want a unique address and branded identity on
the Internet.  The company also offers a suite of value-added
products and services targeted to assist its customers in
developing and maintaining their online identities, including
real-time domain name management, Website creation tools under
the name FirstStepSite, domain name forwarding and domain name
re-sale services, such as auctions, through its subsidiary
Afternic.com.  RCOM directly registers domain names across the
generic top-level domains .com, .net and .org, and registers
names in over 240 country-code domains.  No news to explain
this week's rally, but the move back above a long-term moving
average on heavy volume is interesting.  Does somebody know
something we don't?

SEP 10.00 RAU IB LB=0.85 OI=157 CB=9.56 DE=14 TY=10.0%

UNFI - United Natural Foods  $20.31  *** Earnings Rally! ***

United Natural Foods (NASDAQ:UNFI) is a national distributor of
natural foods and related products in the US.  UNFI is the main
supplier to a majority of its customers, offering high-quality
natural products consisting of groceries and general merchandise,
nutritional supplements, bulk and foodservice products, personal
care items, perishables and frozen foods.  The company serves
more than 7,000 customers in 50 states, including independent
natural products retailers, super natural chains and conventional
supermarkets; and are the primary distributor to the two largest
super natural chains:  Whole Foods Markets, Inc. (Whole Foods)
and Wild Oats Markets, Inc. (Wild Oats).  Through its subsidiary,
the Natural Retail Group, the Company also owns and operates 11
retail natural products stores located in the eastern US.  UNFI
reported on Thursday this week and said 4th-quarter earnings
increased as sales growth exceeded expectations.  The company
also raised its fiscal 2002 forecast by about $0.03 a share for
the year.  A reasonable entry point into the bullish food sector.

SEP 20.00 JQN ID LB=1.10 OI=186 CB=19.21 DE=14 TY=8.9%



The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

EXTR   15.25  SEP 15.00   EUT IC  1.40 441   13.85   14   18.0%
BRCM   31.41  SEP 30.00   RCQ IF  3.30 6105  28.11   14   14.6%
CVAS    7.92  SEP  7.50   CUG IU  0.85 134    7.07   14   13.2%
CNXT   10.45  OCT 10.00   QXN JB  1.50 9317   8.95   42    8.5%
VIP    17.58  SEP 17.50   VIP IW  0.65 20    16.93   14    7.3%
MOGN   15.75  OCT 15.00   QOG JC  1.95 189   13.80   42    6.3%
CTXS   31.48  SEP 27.50   XSQ IY  4.50 327   26.98   14    4.2%



Option Trading Mechanics: The Exchange System
By Ray Cummins

One of our new readers asked for an explanation of the terms
"market-maker" and "specialist" with regard to option trading.
In the U.S. equity markets, specialists are required to make a
market in a stock when public orders to buy or sell the issue
are absent.  They will buy and sell from their own inventory to
keep a position liquid.  They also maintain the public book of
orders (conditional orders to buy and sell at specific prices).
When option trading began in 1973, the Chicago Board Options
Exchange (CBOE) introduced a similar method of trading; the
market-maker and board-broker system.

Market-makers are floor traders who either are exchange members
or rent their seats from exchange members.  Their goal is to
trade for profit without risk due to unfavorable price movement
in the underlying issue.  The CBOE has several market-makers
for each optionable stock.  They provide bids and offers in the
absence of public orders.  These traders do not participate in
any retail trading; they buy and sell for their own accounts
only.  A separate specialist, the board broker, keeps the book
of limit orders.  The board broker cannot do any trading but he
manages the book so other floor traders can see how many orders
to buy and sell are near the current market (the highest bid and
lowest offer).  The CBOE system is very efficient because several
market-makers compete to create the market in a single security.
The "open book" method of public orders also provides an orderly
trading forum.

While the Pacific Options Exchange (PCX) and the CBOE utilize a
competitive market-maker system, the American Exchange (AMEX) and
the Philadelphia (PHLX) Exchange are "specialist" markets.  These
specialists are intended to have an exclusive franchise in the
maintenance of a market, subject to the specialists' capital
and inventory.  In addition, the AMEX uses specialists for option
trading, but it also has floor traders who function similarly to
market-makers.  Most of the regional option exchanges use various
combinations of the two systems and in many cases, there are also
traders referred to as "locals" that are funded by individuals or
institutions.  They buy and sell options for private accounts and
are not allowed to execute orders on behalf of public customers.
Since there must always be a buyer for each option sold (option
purchases and sales must match at the end of each day), these
locals help maintain liquidity and fair prices for retail traders.
Option markets that use competitive systems are consensual, where
the liquidity and capital is spread around to those in the crowd.
The PCX and the CBOE place certain market-makers (The Lead Market
Maker at PCX and the Designated Primary Market Makers at CBOE) in
a quasi-specialist role.  In exchange for assuming more marketing
and customer service responsibilities, these market-makers enjoy
a guaranteed order flow participation.  The result is increased
accountability with greatly enhanced customer convenience and the
traditional benefits of the competitive system are maintained.

The risk management strategies and floor mechanics are the most
difficult part of exchange trading.  Mistakes are expensive and
repeat offenders are short-lived.  Implied volatility and option
pricing theory are the mathematical principles that a specialist
must understand to be successful.  Most floor traders participate
in neutral combinations that don't require a specific movement in
the underlying security to be profitable.  They utilize the Gamma
in options to create profitable positions.  This type of trading
is much different than our retail style of buying/selling options
(or spreads) to profit from directional moves in the underlying
stock.  The concept involves being long or short Gamma in a class
of options at the right time.  Gamma is the ratio of a change in
the option's Delta to a small change in the price of the asset to
which the option represents.  You might think of it as a desire to
own options when there is a demand for them or be short options
when they are in great supply and inexpensive to repurchase.  The
most unique tool of the professional trader is the electronic,
hand-held terminal that brings computer support to specialists on
the trading floor.  These unique, state-of-the-art devices provide
market-makers with automated trading data, maintaining intra-day
positions with real-time risk assessment.  The computers store all
of the theoretical values and profit equations and offer portfolio
management ability to the associated clearing firm.

Those of you interested in more information on option trading at
the exchanges should visit the CBOE or the PCX.  The majority of
specialists are very friendly and the lessons learned are a basic
requirement for any option trader who is interested in becoming a
successful, long-term participant in the derivatives market.

Good Luck!

                      *** WARNING!!! ***
Occasionally a company will experience catastrophic news causing
a severe drop in the stock price. This may cause a devastatingly
large loss which may wipe out all of your smaller gains. There is
one very important rule; Don't sell naked puts on stocks that you
don't want to own! It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops. Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a buy-to-close STOP at a price that is no more than twice
the original premium from the sold option.


Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

PPD    20.50  19.05   SEP  15.00  0.80  *$  0.80  11.8%
MDCC   20.50  23.25   SEP  17.50  0.95  *$  0.95  11.2%
GERN   14.50  14.60   SEP  12.50  0.55  *$  0.55  11.0%
VPHM   35.59  30.15   SEP  30.00  0.95  *$  0.95  10.7%
CENT    8.98   9.50   SEP   7.50  0.35  *$  0.35  10.3%
PLXS   36.19  31.42   SEP  30.00  0.80  *$  0.80   9.6%
ALLY   18.23  19.06   SEP  15.00  0.50  *$  0.50   9.5% Adj 2-1 split
LBRT   14.32  13.23   SEP  12.50  0.25  *$  0.25   9.1%
KDE    28.00  26.55   SEP  25.00  0.50  *$  0.50   8.7%
ILUM   33.20  34.70   SEP  30.00  0.60  *$  0.60   8.5%
LBRT   15.35  13.23   SEP  12.50  0.25  *$  0.25   7.7%
PPD    21.09  19.05   SEP  15.00  0.40  *$  0.40   7.5%
ISIL   39.20  34.27   SEP  30.00  0.90  *$  0.90   7.5%
SAGI   17.75  15.41   SEP  15.00  0.40  *$  0.40   7.3%
URBN   15.04  16.35   SEP  12.50  0.25  *$  0.25   7.3%
CTXS   32.95  31.48   SEP  27.50  0.35  *$  0.35   6.6%
NEM    21.48  20.79   SEP  20.00  0.55  *$  0.55   6.2%
ILXO   29.15  27.29   SEP  25.00  0.45  *$  0.45   6.1%
PRGX   13.75  14.18   SEP  12.50  0.30  *$  0.30   5.7%
IMCL   44.89  53.30   SEP  30.00  0.70  *$  0.70   5.2%
GERN   17.40  14.60   SEP  15.00  0.45   $  0.05   1.1%
HDL    15.46  14.24   SEP  15.00  0.40   $ -0.36   0.0%
PPD    22.28  19.05   SEP  20.00  0.50   $ -0.45   0.0%
SPF    23.47  20.60   SEP  22.50  0.40   $ -1.50   0.0%

*$ = Stock price is above the sold striking price.


Higher unemployment figures fueled a broad sell-off in the
market today with the S&P 500 Index ending at its worst levels
since 1998.  Bearish investor sentiment affected a number of
industry groups including retail, biotechnology, financial,
cyclical, drug and airline issues.  Stocks in the Materials
and Construction segment also slumped, a sign that investors
are beginning to lose confidence in the housing market, which
has been a bastion of strength in the weakening economy.  Our
position in Standard Pacific (NYSE:SPF) was hammered, and it
is now a candidate for early exit.  Handleman (NYSE:HDL) fell
in sympathy with retail stocks and Pre-Paid Legal (NYSE:PPD)
tumbled along with a number of issues in the Personal Service
sector.  Evaluate your long-term outlook for those positions.
Concerns that future demand for personal electronic products
will decline in the slowing economy have weighed on stocks in
the semiconductor industry and positions in Sage (NASDAQ:SAGI)
and Plexus (NASDAQ:PLXS) should be monitored for any further
downside activity.  Among the positions previously listed as
possible "early-exit" candidates, Advanced Fibre (NASDAQ:AFCI),
and Alamosa Holdings (NASDAQ:APCS) were closed while Newmont
(NYSE:NEM), ViroPharma (NASDAQ:VPHM), and Geron (NASDAQ:GERN)
remain on the watch-list.

Positions Closed:

Powerwave (NASDAQ:PWAV), Advanced Fibre Comm. (NASDAQ:AFCI),
Alamosa Holdings (NASDAQ:APCS)


Sequenced by Company
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

BRCM   31.41  SEP 25.00   RCQ UE  0.55 1453  24.45   14   17.5%
CTXS   31.48  SEP 27.50   XSQ UY  0.60 5653  26.90   14   14.2%
FDP    15.18  SEP 15.00   FDP UC  0.40 0     14.60   14   13.8%
ICST   19.00  SEP 15.00   IUY UC  0.25 281   14.75   14   13.4%
IMCL   53.30  SEP 45.00   QCI UI  0.50 1654  44.50   14    8.0%
SCTC   13.05  SEP 12.50   YQS UV  0.30 10    12.20   14   13.1%
TERN    7.01  OCT  5.00   TUN VA  0.30 656    4.70   42   12.8%

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

BRCM   31.41  SEP 25.00   RCQ UE  0.55 1453  24.45   14   17.5%
CTXS   31.48  SEP 27.50   XSQ UY  0.60 5653  26.90   14   14.2%
FDP    15.18  SEP 15.00   FDP UC  0.40 0     14.60   14   13.8%
ICST   19.00  SEP 15.00   IUY UC  0.25 281   14.75   14   13.4%
SCTC   13.05  SEP 12.50   YQS UV  0.30 10    12.20   14   13.1%
TERN    7.01  OCT  5.00   TUN VA  0.30 656    4.70   42   12.8%
IMCL   53.30  SEP 45.00   QCI UI  0.50 1654  44.50   14    8.0%

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

BRCM - Broadcom  $31.41  *** Entry Point! ***

Broadcom (NASDAQ:BRCM) is a provider of highly integrated silicon
solutions that enable broadband communications and networking of
voice, video and data services.  Using proprietary technologies
and advanced design methodologies, Broadcom designs, develops and
supplies system-on-a-chip solutions for applications in digital
cable set-top boxes and modems, high-speed local, metropolitan
and wide area and optical networks, home networking, Voice over
Internet Protocol (VoIP), carrier access, residential broadband
gateways, direct broadcast satellite and terrestrial digital
broadcast, digital subscriber line, wireless communications,
server solutions, and network processing.  Chip stocks edged
higher Friday, even as the broader market retreated and traders
who believe the semiconductor group will lead the NASDAQ in its
eventual recovery can speculate on that outcome with a position
in this bellwether issue.

SEP 25.00 RCQ UE LB=0.55 OI=1453 CB=24.45 DE=14 TY=17.5%

CTXS - Citrix Systems  $31.48  *** Solid Performer! ***

Citrix Systems (NASDAQ:CTXS) develops, markets, sells and supports
comprehensive application delivery and management software that
enables the effective and efficient enterprise-wide deployment and
management of applications, including those designed for Microsoft
Windows operating systems and UNIX Operating Systems.  Their
products operate by executing the applications on a multi-user
Windows NT, Windows 2000 or UNIX server and provide end users
access to the server from a variety of client platforms through
the company's ICA protocol.  The company's primary market for its
products and services is large and medium-sized enterprises that
require the ability to securely deploy, manage and access business
applications across the extended enterprise.  Citrix also targets
application service providers that need products and technologies
to deliver the largest number of applications to the broadest array
of computing devices with minimum bandwidth requirements.  Citrix
is one of the smaller companies in the software industry but they
are succeeding in the tough economy with a unique, diverse product
line.  Traders who want to establish a discounted cost basis in
the issue should consider this position.

SEP 27.50 XSQ UY LB=0.60 OI=5653 CB=26.90 DE=14 TY=14.2%

FDP - Fresh Del Monte Produce  $15.18  *** Portfolio Hedge! ***

Fresh Del Monte Produce (NYSE:FDP), a holding company, produces,
transports and markets fresh produce worldwide.  Del Monte is 57%
owned by IAT Group, which is 100% beneficially owned by members
of the Abu-Ghazaleh family.  The company's products are sourced
from company-owned farms, through joint venture arrangements and
through supply contracts with independent growers in 15 locations
in North, Central and South America, the Asia-Pacific region and
Africa.  The company's produce is distributed in North America,
Europe, the Asia-Pacific region and South America.  Del Monte's
products, marketed throughout the world under the Del Monte brand
name, which has been in existence since 1892, includes the majority
of common consumable fruits and vegetables.  The Food and Beverage
sector is performing well and investors who want a solid company in
the group for their long-term portfolio can use this position to
target-shoot a favorable cost basis in the issue.

SEP 15.00 FDP UC LB=0.40 OI=0 CB=14.60 DE=14 TY=13.8%

ICST - Integrated Circuit Systems  $19.00  *** Trading Range! ***

Integrated Circuit Systems (NASDAQ:IDTC) was initially engaged in
designing and marketing custom application specific integrated
circuits (ASICs) for various industrial customers.  In particular,
the company focused on designing ASICs, which combined both analog
and digital, or mixed-signal, technology.  In 1988, the company
adopted a strategy of developing proprietary integrated circuits
to capitalize on its complex mixed-signal design technology and
pioneered the market for frequency timing generators or silicon
timing devices which provide the signals or "clocks" necessary to
synchronize high performance electronic systems.  More recently,
the company has expanded into communications, by developing high
performance clocking solutions supporting networking, telecom,
workstation and server applications.  ICST has a established a
well-defined trading range and a solid support area that should
continue to provide low risk speculation in the technology group.

SEP 15.00 IUY UC LB=0.25 OI=281 CB=14.75 DE=14 TY=13.4%

IMCL - ImClone  $53.30  *** Rally In Progress! ***

ImClone Systems (NASADAQ:IMCL) is a biopharmaceutical company that
is developing a portfolio of targeted biologic treatments designed
to address the medical needs of patients with a variety of cancers.
The company focuses on three strategies for treating cancer, growth
factor blockers, cancer vaccines and angio-genesis inhibitors.  The
company's lead product candidate, IMC-C225, is a unique therapeutic
monoclonal antibody that inhibits stimulation of a receptor for
growth factors upon which certain solid tumors depend in order to
grow.  IMC-C225 has been shown in several Phase I/II trials to have
acceptable safety, to be well tolerated and, when administered with
radiation therapy or chemotherapy, to enhance tumor reduction.
This issue has moved up and out of a recent trading range and the
bullish technical indications suggest it has a high probability of
remaining above the sold strike price.  Traders who are interested
in selling premium for credit using a popular biotechnology issue
should consider this speculative position.

SEP 45.00 QCI UI LB=0.50 OI=1654 CB=44.50 DE=14 TY=8.0%

SCTC - Systems & Computer Tech.  $13.05  *** Record Sales! ***

Systems & Computer Technology (NASDAQ:SCTC) provides technology
and business solutions for higher education, utilities and
process manufacturing.  SCTC works collaboratively with its
clients to deliver software and service solutions tailored to
their needs.  Industry expertise in each of the company's
markets enables SCTC to maximize its clients' customer
relationships and achieve significant, measurable improvements
for their organizations.  SCTC announced in July that it had
achieved an all-time high in total revenue for the 3rd-quarter,
which ended June 30, 2001.  The education business unit had
the highest 3rd-quarter ever in software sales and commissions,
which included $2.7 million in shares of WebCT, earned by signing
institutions with cumulative enrollments totaling one million
students.  We continue to favor the bullish chart, especially
with the current market conditions, and SCTC appears relatively
stable with buying support in the $11-$12 range.

SEP 12.50 YQS UV LB=0.30 OI=10 CB=12.20 DE=14 TY=13.1%

TERN - Terayon Communication  $7.01  *** Bottom Fishing! ***

Terayon Communication Systems (NASDAQ:TERN) develops, markets
and sells broadband access systems that enable cable operators,
telco carriers and other providers of broadband services to
cost-effectively deploy reliable voice, video and data services
over cable, copper wire and satellite networks.  Terayon sells
its broadband access products through direct sales worldwide,
and distributes its products via resellers and telecom systems
integrators.  Some of its major customers include Bell South,
Qwest Communications, Verizon, Adelphia Communications, Rogers
Cable TV, and Cox Communications.  Terayon shares have rallied
in recent sessions on news that CableLabs, a consortium of cable
companies, will include Terayon-developed technology within its
new cable modem standard that is expected to be completed by the
end of the year.  UBS Warburg, W.R. Hambrecht, Lehman Brothers,
and Deutsche Banc Alex. Brown raised their investment ratings on
the company and our cost basis offers a low-risk entry point in
the issue.

OCT 5.00 TUN VA LB=0.30 OI=656 CB=4.70 DE=42 TY=12.8%



The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

NFLD   15.97  SEP 15.00   DHQ UC  0.65 309   14.35   14   23.3%
EXTR   15.25  SEP 12.50   EXJ UV  0.30 949   12.20   14   17.9%
AMAT   40.28  SEP 35.00   ANQ UG  0.50 2606  34.50   14    9.6%
LSCC   22.52  SEP 20.00   LQT UD  0.30 570   19.70   14    9.6%
MOGN   15.75  OCT  5.00   QOG VV  0.35 100    4.65   42    7.2%
INTU   35.14  SEP 30.00   IQU UF  0.30 2240  29.70   14    7.1%


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Selling Climax Sends Stocks to New Lows!
By Ray Cummins

                         - MARKET RECAP -
Friday, September 7, 2001

The stock market plunged to its lowest level in three years today
amid new concerns over rising unemployment and falling corporate
profits.  Economically sensitive stocks were particularly weak,
dragging the Dow Industrial Average down more than 200 points to
9,605.  The NASDAQ Composite slid 18 points to 1,687 as software,
networking and Internet stocks recorded additional declines.  In
the broader market, retail and airline stocks posted some of the
worst losses, dragging the S&P 500 Index down 20 points to 1,085.
Trading volume on the Big Board reached 1.41 billion shares, with
losers beating winners 2 to 1.  Activity on the NASDAQ was heavy
at 1.7 billion shares exchanged, with declines doubling advances
2 to 1.  In the bond market, the U.S. 30-year Treasury rose 19/32,
pushing its yield down to 5.37%.

Last Sunday's new plays (positions/opening prices/strategy):

Whirlpool  (NYSE:WHR)   SEP75C/SEP70C  $0.60  credit  bear-call
Centex     (NYSE:CTX)   SEP35P/SEP40P  $0.60  credit  bull-put
Possis     (NSDQ:POSS)  JAN15C/SEP15C  $1.10  debit   calendar
Prot. Des. (NSDQ:PDLI)  SEP60C/SEP60P  $7.25  debit   straddle
Nat. Semi  (NYSE:NSM)   SEP35C/SEP30P  $0.05  debit   synthetic

This week's volatile market activity provided some excellent
entry opportunities for our new combination plays however, the
bullish candidates did not fare well in the current downtrend.
Centex was strong until Thursday, when shares of homebuilders
slumped as investors began to lose confidence in the housing
market.  While the latest housing figures show demand for new
homes, and mortgages are cheap, investors questioned how long
the housing market could stay strong as job losses mount and
consumer confidence fades.  The position is currently positive
but any further downside activity should be seen as a potential
"early-exit" signal.  Our speculation play in Possis was also a
disappointment as the issue retreated substantially from recent
highs.  The selling came on low volume but there is no reason
for investors to support the current price until the outlook
for the market improves.  The big winner this week was Protein
Design Labs.  The debit-straddle candidate offered a discounted
entry price on Monday and eventually achieved a 15% profit in
only four days.

Portfolio Activity:

Stocks in the Spreads portfolio drifted lower in conjunction with
the broader market this week as investors began to comprehend the
reality that the economy is slowing and is not going to recover
any time in the near future.  The unemployment rate rose to 4.9%
in August and analysts are now worried that the rise in jobless
consumers will dampen public sentiment and force a reduction in
retail spending.  Consumer spending makes up over two-thirds of
the U.S. economy and has been pivotal in keeping America out of a
recession.  Experts also believe the recent rise in unemployment
necessitates another rate cut by the Federal Reserve and based on
the view that "economic risks in the U.S. economy remain tilted
toward weakness," the Fed will likely adjust rates prior to the
next FOMC meeting.  Regardless of the future effects of a rate
cut, the current outlook for share values is less than favorable
and that's the reason our bearish plays are performing so well.
Positions in Best Buy (NASDAQ:BBY), Electronic Data (NYSE:EDS),
Stericycle (NASDAQ:SRCL), Whirlpool (NYSE:WHR) and Shire Pharma
(NASDAQ:SHPGY) are expected to expire at maximum profit.  Among
the bullish plays, Amerisource-Bergen (NYSE:ABC) and National
Semiconductor (NYSE:NSM) are the only issues that have held up
in the downbeat environment and even the rallies in Southwest
Securities (NYSE:SWS) and Fifth Third Bancorp (NYSE:FITB) came
to an abrupt end when the selling began in earnest.  One of the
top performing strategies this month has been the debit straddle
and September's winners include Amdocs (NYSE:DOX), Protein Design
(NASDAQ:PDLI) and Teradyne (NYSE:TER).  Of the remaining neutral
positions, Jacobs Engineering (NYSE:JEC) is again approaching a
break-even exit and Serena Software (NASDAQ:SRNA) traded at a new
low during today's session, suggesting that the position may yet
become profitable.

Questions & comments on spreads/combos to Contact Support
                           - NEW PLAYS -
CHV - Chevron  $92.40  *** Texaco Merger Approved! ***

Chevron (NYSE:CHV) manages its investments in, and provides its
administrative, financial and management support to, U.S. and
foreign subsidiaries and affiliates that engage in integrated
petroleum operations, chemicals operations, coal mining and other
energy services.  The company operates in the United States and
approximately 100 other countries.  Petroleum operations consist
of exploring for, developing and producing crude oil and natural
gas; refining crude into finished petroleum products; marketing
crude oil, natural gas and the products derived from petroleum,
and transporting crude oil, natural gas and petroleum products
by pipelines, marine vessels, motor equipment and rail car.  The
Chemicals operations include the manufacture and marketing of
commodity petrochemicals, plastics for industrial uses and fuel
and lubricating oil additives.

Chevron shares rallied late in the week amid speculation their
acquisition of Texaco (NYSE:TX) would be approved.  On Friday,
the Federal Trade Commission cleared the $45 billion merger
between the two companies, which creates the #3 oil producer in
the United States and the world's fourth largest conglomerate in
the oil industry.  The transaction was approved only after Texaco
agreed to divest its stakes in the two joint ventures with Royal
Dutch Shell and relinquish its interests in certain natural gas
processing and transportation facilities as well as a portion of
its general aviation fuel marketing business.  Shareholders of
both companies are expected to approve the merger on October 9 in
Houston.  The combined company will be called Chevron-Texaco and
the transaction is expected to achieve cost savings of at least
$1.2 billion in the coming year.

Investors are apparently happy with the FTC approval and traders
can profit from future bullish movement in the issue with this
combination position.

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-85  CHV-UQ  OI=1510  A=$0.20
SELL PUT  SEP-90  CHV-UR  OI=2934  B=$0.70

ERTS - Electronic Arts  $56.14  *** Technicals Only! ***

Electronic Arts (NASDAQ:ERTS) operates in two principal business
segments globally.  The EA Core business segment comprises the
creation, marketing and distribution of entertainment software,
while the EA.com business segment is composed of the creation,
marketing and distribution of entertainment software which can
be played or sold online, ongoing management of subscriptions of
online games and Website advertising.

Electronic Arts is old favorite in the Spreads/Combos/Straddles
section and we follow the issue on a regular basis for potential
portfolio plays.  The stock has performed relatively well over
the past few weeks, considering the broad-market slump but there
is little indication that the range-bound trend will change in
the near future.  The issue appears to be forming a significant
Stage III "top" and the recent chart pattern suggests the trend
will continue with a neutral-to-bearish technical outlook.  Past
rallies have failed well below the break-even point in this play
and with the current bearish environment, it appears the share
value has little chance of reaching our sold positions before
the October expiration.

PLAY (very conservative - bearish/credit spread):

BUY  CALL  OCT-70  EZQ-JN  OI=358  A=$0.55
SELL CALL  OCT-65  EZQ-JM  OI=247  B=$1.15

CLX - Clorox  $38.68  *** Reader's Request! ***

The Clorox Company (NSE:CLX) is engaged in the production and
marketing of non-durable consumer products sold primarily through
grocery and other retail stores.  These business operations are
represented by the Company's United States Household Products and
Canada, United States Specialty Products and the International
segment.  The United States Household Products and Canada segment
includes the company's household cleaning, bleach and other home
care products, water filtration products marketed in the United
States and all products marketed in Canada.  The United States
Specialty Products segment includes their charcoal, automotive
care, cat litter, insecticide, fire log, dressings, sauces,
professional products and food storage and disposal categories.
The International segment, which includes the company's overseas
operations (excluding Canada), exports and Puerto Rico, primarily
focuses on the laundry, household cleaning, automotive care and
food storage and disposal categories.

One of our readers commented on the increased bullish activity in
the Consumer Non-durables industry and he submitted a number of
issues for review.  He requested that we identify some favorable
spread positions in those issues and based on the recent technical
indications, we feel that Clorox is one of the best candidates for
future upside activity.  A great way to profit from directional
movement is the synthetic position and this play offers traders a
way to speculate conservatively on the company's long-term share

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JAN-45  CLX-AI  OI=614   A=$1.00
SELL PUT   JAN-35  CLX-MI  OI=1924  B=$1.30

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,250 per contract.

                   - STRADDLES AND STRANGLES -

Option premiums have increased slightly in recent sessions, but
the current conditions still favor option buying strategies and
we have some great straddle candidates for traders who like to
participate in short-term speculation plays.  These stocks have
statistically undervalued options and the potential to move high
or low enough to make the straddles profitable.  In addition, the
underlying issues have a history of multiple movements through a
sufficient range in the required amount of time to justify the
overall risk-reward of the position.  As with any recommendation,
each play should be evaluated for portfolio suitability and also
reviewed with regard to your strategic approach and trading style.

BRW - Broadwing  $15.44  *** Looking For A Bottom! ***

Broadwing (NYSE:BRW) is a unique full-service, local and national
provider of data and voice communications services and a regional
provider of wireless communications services.  The company seeks
to provide service on a national level by combining its nationwide
optical network and Internet backbone, and its brand name and
service in its local and regional franchise area.  The company has
principal businesses in four industry segments, Broadband, Local
Communications, Wireless and Other.  Broadwing Communications, a
subsidiary of the company, is a nationwide provider of data and
voice communications services.  These services are provided over
more than 18,000 miles of fiber-optic transmission facilities.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  SEP-15.00  BRW-IC  OI=0    A=$1.15
BUY  PUT   SEP-15.00  BRW-UC  OI=555  A=$0.75

Note: There is currently no Open Interest in the call options
so plan to target-shoot the entry to guarantee a good fill.  If
the call option is "in-the-money" at expiration but the bid/ask
spreads are unfavorable due to low volume, simply exercise the
position (and sell the stock) to lock-in the profit.

PHTN - Photon Dynamics  $30.10  *** Big Mover! ***

Photon Dynamics (NASDAQ:PHTN) is a provider of yield management
solutions to the flat panel display industry.  The company's
acquisition of CR Technology in November 1999 complemented its
core capabilities of data acquisition, image analysis and systems
engineering.  As a result, Photon Dynamics also offers numerous
yield management solutions for the printed circuit board assembly
and advanced semiconductor packaging industries.  The company's
test, repair and inspection systems are used by manufacturers to
collect data, analyze product quality and identify and repair
product defects at critical steps in the manufacturing process.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  SEP-30  PDU-IF  OI=25   A=$2.40
BUY  PUT   SEP-30  PDU-UF  OI=739  A=$2.20

SMTF - SmartForce  $23.97  *** Breaking Down! ***

SmartForce plc (NASDAQ:SMTF) provides e-learning solutions that
help businesses support their critical business initiatives and
deploy knowledge globally across their extended enterprise of
employees, customers, suppliers, distributors and other business
partners.  The company's hosted, scalable e-learning platform, e3,
is an integrated, object-based e-learning architecture that allows
the company to build e-learning solutions precisely targeted to an
enterprise's specific business requirements.  The unique platform
combines a learning management system with access to an inclusive
offering of learning events and resources comprising over 4,000
hours of e-Learning content, as well as 2,500 hours of localized
content, online SmartSeminars, SmartMentoring, SmartSimulations,
e-testing, articles, peer-to-peer collaboration and other online

PLAY (speculative - neutral/debit straddle):

BUY  CALL  SEP-25  QAG-IE  OI=55  A=$1.40
BUY  PUT   SEP-25  QAG-UE  OI=89  A=$2.55


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