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Daily Newsletter, Thursday, 09/20/2001

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The Option Investor Newsletter                Thursday 09-20-2001
Copyright 2001, All rights reserved.                       1 of 2
Redistribution in any form strictly prohibited.

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************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
       9-20-2001           High     Low     Volume Advance/Decline
DJIA     8376.21 -382.92  8748.82  8375.72  1.9 bln    548/2637
NASDAQ   1470.93 - 56.87  1513.24  1467.10  2.0 bln    938/2906
S&P 100   501.02 - 17.83   518.85   500.95   Totals   1486/5543
S&P 500   984.54 - 31.56  1016.10   984.49
RUS 2000  387.65 - 15.55   403.20   386.68
DJ TRANS 2033.86 -132.00  2165.62  2026.95
VIX        49.04 +  5.80    49.04    45.76
VXN        82.49 +  5.56    82.49    76.73
TRIN        1.17
Put/Call Ratio      1.27
*************************************************************

One Million Layoffs?

Grab the Maalox, it is not over yet. The flood of bad news that
we were expecting is starting to accelerate. Job losses are mounting
with huge numbers from airlines, 20K each from AMR and UAL and 30,000
from Boeing. Hotels, autos, retail, home builders, banks, it appears
there is no safe haven. Economic analysts on Wednesday night estimated
the over one million workers would lose their jobs as a direct result
of the attack. Ordinarily this would not have been as critical but
many sectors were only hanging on by a thread due to the economy and
that was before the WTC.





There was a flurry of bad news on almost every front on Thursday.
The news that 135 million shares in Disney had to be sold to cover
a $2 billion margin call by the Sid Bass family rocked the markets.
If billionaires were liquidating to cover margin calls then how
were the average retail investors covering their bets? Tracking
margin calls is spotty at best but several brokers did admit that
they were considerably higher than usual. With each leg down the
average retail investor averages down by buying more stock at the
lower prices. If done on Margin the trap is severe. Each share
increment becomes its own margin drain and the investor finds
himself locked into the trade because of a lack of cash to bail
out. Eventually he loses the majority of his investment. This eventual
flushing of margin investors typically signals a bottom in the
market once all the stock ends up back in institutional hands.
Over $1 trillion in investor wealth has evaporated from the markets
in the last four days and with the accelerated drop on Thursday
it could have serious margin call implications for Friday's trading.

The Disney sale emphasizes that big money is not always right and
when they make the same mistakes it is just more expensive. Actually
the news from TrimTabs.com regarding fund flows for this week was
not as bearish as I expected. For the three days ending Wednesday
there was a $9 billion outflow from stock funds. Despite what the
talking heads on stock TV have been saying about no real redemptions
it appears the opposite is true. That number was for only three days
and represents $3 billion per day. That is not as big as some
expected but still huge. Funds were also selling for their own
accounts. There was seven times the normal volume of asset rotation
from stocks to bonds on Monday than normal. Tuesday was flat but
Wednesday saw double the normal volume. The flight to safety has
begun in earnest. The shorter end of the spectrum, two years,
appears to be the preferred bet. Just get them out of harms way
until the global events are more clear and any 2002 recovery is
underway.

The signs of falling consumer confidence were obvious. New mortgages
fell -11% and refinancings fell -13% in the last week. This in spite
of the continued drop in the interest rates. Analysts were downgrading
hotels, entertainment companies, casinos and consumer products
companies almost hourly. Eastman Kodak warned that film sales had
already fallen. Boeing said it would probably make -20% fewer planes
for at least the next three years. United Technology said their
exposure to the airlines would substantially impact earnings. They
lost almost -$7 on the news. They said they had been notified by
their insurers for the airplanes they lease to domestic carriers
that they were going to cancel the coverage. UTX said that if the
insurance was cancelled they would tell the airlines not to fly
the planes. The tip of the iceberg is growing as the ramifications
of the attack are felt through the supporting economy. Insurers are
afraid that they will be at risk for catastrophe claims now that
the world has changed as we know it. Does insurance for skyscrapers
now go up? Can they even get insurance? Nobody knows.

The airlines appear to be ground zero for the economic impact and
the $20-$30 billion they asked for is not likely to occur. The
government offered $5 billion. The government realizes that the
sector was under pressure from unrestrained growth and was very
saturated before the attack. They do not want to go on the hook
for bad business decisions over the last ten years. Paul O'Neil
said in testimony today that once the security problems had been
cured and travel recovered over the next year or two that "truly
viable carriers would have no trouble raising capital in the
normal equity markets." What this means is they fully expect a
number of carriers to go out of business, soon, and they are going
to let it happen.

In the same testimony Greenspan stunned the markets with negative
comments. He urged the government to think twice before suggesting
economic initiatives including tax incentives. He said it was much
more important to be right about direction and method instead of
quick. Thanks, Alan! He continually stressed that a wait and see
posture was best which threw doubt about another aggressive rate
cut at the October meeting. While the attack on the WTC may have
been the Pearl Harbor event in the new war on terrorism the result
from the disaster could easily be a trillion dollar impact to
the GDP and the economy. A trillion dollars! That conjures up visions
of surpluses turning into deficits and tax increases instead of
tax cuts. How quickly things change and this is why the markets
are in full flight. The economic outlook is not cloudy any more.
It is ugly.

One of the bright spots in the business world is the upsurge in
cell phone sales. From all accounts there has been a run on
phones as families decide they want to be in contact with each
other in troubled times. Analysts say the burst of activity has
caused them to rethink total market penetration. With stories of
victims calling from the WTC to say goodbye or from blocks away
to say I am safe, families are rethinking the advantages of
pocket communications. Nokia is the obvious beneficiary of this
change in mindset.

Switching from one disaster to another for a moment the Nimba
virus has literally shutdown some Internet operations and many
businesses over the last three days. This virus is much more
malicious than any prior variant and much more aggressive.
Virus checking programs are racing to keep up with the mutations.
We were hit with it on Tuesday night and even with virus programs
it literally wiped out almost a dozen computers before it was
stopped. Our web hosting company had to shut down FTP to and from
their center to prevent massive failures. According to an alert
I saw this morning over 20 million computers have been infected
already. I spent a good day and a half reevaluating the different
virus programs available and attempting to find the best method
for cleaning up the problem and preventing the next new attack.
Everyone may believe all virus programs are alike. I found out
through research that this is far from the truth. We had been
using McAfee but I now believe the Norton/Symantec product to
be better for a large network. The bottom line to this paragraph
is you need to have a program and price is not important. It
needs to be kept current with at least daily virus file updates.

After spending literally five plus hours on hold to the various
virus firms I did some research on their stocks. McAfee (NETA)
and Symantec (SYMC) are both in the tank despite the outbreak
of the worst virus ever. These attacks are only going to grow in
intensity and frequency and once the terrorists figure out that
they can cause trouble without becoming a human sacrifice I
believe they will attempt this as well. One sleeper company that
is going to benefit from the increased web buying of these programs
is DigitalRiver.com. They do order fulfillment and billing for
Symantec through most of their distributors. Buy through OfficeMax.com,
DownloadWarehouse.com or others and DigitalRiver will complete the
transaction. Personally, after spending almost five hours in their
hold queue in five different phone calls about broken download
links, script failures, billing problems, etc, I think it should
be aggressively shorted due to poor operations. However, they
are reaping a commission on every sale from dozens of retail
chains and they will eventually profit significantly from the
trend. Just shows that if you are in the right place at the right
time you can make a profit without being good at what you do. My
money is still on SYMC in the long term.

Ugly is the only thing I can say about the markets. The short
covering rally on Wednesday afternoon was brief but strong as
news reports were initially misunderstood that we had launched
strikes against Afghanistan. Shorts were afraid of the patriotic
bounce potential and took some profits. Once the news was reported
completely the shorts piled on again. The global warnings about
the economic impact overnight simply drove futures down and
Thursday never had a chance. What we are facing is not only an
economic crisis but a crisis of confidence. Fortress America
has been seen by global investors as vulnerable and at high risk.
World markets are tanking, led by Japan and global investors are
pulling money out of U.S. stocks to cover losses at home. While
U.S. stocks are normally seen as only one level of quality below
U.S. bonds that view is changing. Massive drops in many sectors
including some Dow components have sent a sell signal to global
investors. Hedge funds, smelling easy money, are aggressively
shorting the major stocks and are accelerating the decline.

Bush will attempt to rally the country in a joint address to
Congress and the American people tonight. It will be a must
win speech. Bush will try to be the cheerleader for democracy
and freedom and the American way of life. Leading analysts are
saying that the battle could last years, 5-10 years by some
accounts. Does the American public have the stomach for a ten
year war? One with no visible targets other than Bin Laden?
I think yes but they need to have their hand held and be reassured.
If the speech comes off well then we could see a patriotic bounce
at the open tomorrow. That bounce could create another short
covering rally but I strongly doubt anybody wants to go into
the weekend long. Anything could happen over the weekend with
another terrorist attack, warnings from the Taliban, more
corporate warnings or even a bankruptcy of the first airline.
The possibility for positive news rests on a military strike
and any strike by us could prompt a retaliatory strike by those
terrorists still in the United States. Bin Laden is not stupid.
He knew there would be repercussions from the attack and could
easily have setup the retaliation well in advance so he could
be seen as a hero when bombs start falling on his people.

The Dow is down -1229 points for the week. The Nasdaq -225. It
is the longest losing streak for the Dow, seven days, since 1989
and can get longer. The Nasdaq is struggling to hold 1475 which
is support from Oct-1998 and should that fail some analysts
think 1200 is possible. 7500 is now the bearish target for the
Dow in some circles. The VIX at 49 is at levels not seen since
October 1998 "BUT" the conditions are not even close to the same.
The Nasdaq VXN at 82.49 is off the scale. Add these to the put/call
ratio at 1.27 and technically everything is a screaming oversold
buy. However, technicals do not work in a news driven environment.
What they do tell us is that when sentiment changes there is
going to be one heck of a rebound rally. When that will occur
is anybody's guess. The negative sentiment is so bad that we
are close to the "all bad news is factored in" level. Margin
selling for the next three days will still dampen any bargain
hunting and with global funds moving out of stocks the odds of
any major market improvements are slim. The wave of "attack
related" earnings warnings is picking up with PALM, EMC, DIS,
AMAT, etc continuing after the bell. Even MSFT is under attack
with the DOJ saying they will focus on features in XP as evidence
that MSFT had not changed its ways. XP will be allowed to ship
as is but the question now is "who wants it?" Let MSFT make a
serious "attack profit warning" and traders will want to move
to Afghanistan to escape the carnage in the markets. Bottom line
for Friday, it depends on the speech and traders desire to hold
over the weekend. I would not bet heavily on a positive close.

Definitely, enter passively, exit aggressively!

Jim Brown
Editor


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****************
MARKET SENTIMENT
****************

Sellers Still Subsist
By Jeffrey Canavan

Profit warnings and a deteriorating housing market augmented
investors concerns about a weakening economy, and stocks posted a
loss for the fourth straight day.

Alan Greenspan tried to ease investors minds by saying, "I am
confident that we will recover and prosper as we have in the
past," but also added that, "nobody has the capacity to fathom
fully how the tragedy of September 11 will play out. But in the
weeks ahead, as the shock wears off, we should be able to better
gauge how the ongoing dynamics of these events are shaping the
immediate economic outlook."

Until that fog clears, a - when in doubt get out - mindset
continues to consume Wall Street.  That mindset has lead to $7.8
billion in mutual fund redemptions on Monday and Tuesday, most
likely forcing fund managers to sell assets.  The Bass family was
also forced to sell 135 million shares of Disney today after
receiving a margin call.  Throw in some selling by bottom fishers
who got burned on Monday and Tuesday and insurance companies
liquidating assets to cover claims, and it's hard to get a gauge
on when the selling might subside, regardless of what the VIX and
other contrarian indicator are telling us.  The market will
reverse, but the question remains when.

Nasdaq Composite and S&P 500 Weekly Charts



Perhaps we need to test October 1998 lows before the market
reverses.  That would be 1,357 for the Nasdaq and 923 for the S&P
500.

With only treasury budget data being released tomorrow, earnings
announcements will sway the markets, but President Bush's speech
tonight could have the biggest impact on the markets.

As far as Joe Retail Investor's sentiment goes, I think the
following e-mail being circulated around the web sums it up.

If you bought $1000 worth of Nortel stock one year ago, it would
now be worth $49. If you bought $1000 worth of Budweiser (the
beer, not the stock) one year ago, drank all the beer, and traded
in the cans for the nickel deposit, you would have $79.

My advice to you is to start drinking heavily and recycle.

-----------------------------------------------------------------

Market Volatility

VIX   49.04
VXN   82.04

-----------------------------------------------------------------

          Put/Call Ratio  Call Volume   Put Volume
Total          1.27        950,940     1,205,780
Equity Only    1.21        761,762       919,256
OEX            1.47         39,474        58,343
QQQ            1.03         61,833        63,767

-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          22      -4      Bear Confirmed
NASDAQ-100     2      -4      Bear Confirmed
DOW           20      -4      Bear Confirmed
S&P 500       22      -4      Bear Confirmed
S&P 100       18      -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  0.98
10-Day Arms Index  1.20
21-Day Arms Index  1.30
55-Day Arms Index  1.28

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
points.

-----------------------------------------------------------------

        Advancers     Decliners
NYSE       547           2641
NASDAQ     935           2902

        New Highs      New Lows
NYSE       22            571
NASDAQ     12            449

        Volume (in millions)
NYSE     1,939
NASDAQ   2,065
-----------------------------------------------------------------

Advisory Sentiment

*New data not yet available

Bullish  Bearish  Correction  Net Bullish   Change
  44.3%    30.9%     24.8%       13.4%       +0.1%

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: 09/10/01

This data is from 9/10/01, and does not reflect positions taken
after last week's terrorist attacks.

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

As of last Monday, Commercial traders got 3.4% more bearish.  This
is still below the most bearish reading of the year, but marks
three straight weeks of increasing bearishness.

Commercials   Long      Short      Net     % Of OI
8/28/01      342,742   421,868   (79,126)   (10.35%)
9/04/01      350,626   430,613   (79,987)   (10.24%)
9/10/01      359,360   442,070   (82,710)   (10.32%)

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
8/28/01      141,046     58,001   83,045     41.72%
9/04/01      147,080     62,004   85,076     40.69%
9/10/01      156,500     69,090   87,410     38.75%

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

NASDAQ-100

Commercial traders dumped 207 short positions, but also dropped
1,973 long positions, causing the net bearish position to
increase by 1,766.

Commercials   Long      Short      Net     % of OI
8/28/01       29,255     36,551   ( 7,296)  (11.09%)
9/04/01       28,757     38,119   ( 9,362)  (14.00%)
9/10/01       26,784     37,912   (11,128)  (17.20%)

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
8/28/01       11,131     9,694    1,437       6.90%
9/04/01       12,341     9,806    2,535      11.45%
9/10/01       15,263    12,555    2,708       9.73%

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

DOW JONES INDUSTRIAL

The Dow continues to be the only index with a commercial net
bullish position.  12,412 is the most bullish reading of the
year, but that may change next week.

Commercials   Long      Short      Net     % of OI
8/28/01       22,141    14,959    7,182     19.4%
9/04/01       23,459    14,099    9,360     24.9%
9/10/01       25,445    13,033   12,412     32.3%

Most bearish reading of the year: (8,322) - 1/16/01
Most bullish reading of the year: 12,412  - 9/10/01

Small Traders  Long      Short     Net     % of OI
8/28/01        5,240     9,835    (4,595)   (30.48%)
9/04/01        6,952    12,744    (5,792)   (29.41%)
9/10/01        7,460    12,735    (5,275)   (26.12%)

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



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PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

DJX $83.76 -3.83 (-12.30) Our attempt to catch the knife that
has become the Dow Jones Industrial Average entered poorly.
The Dow has obviously fared poorly in recent sessions, which
has brought an end to our DJX play.  Any open positions can be
exited on any strength during Friday's session.

AMR $18.45 -1.55 (-11.25) Amid additional layoff announcements,
investors grew fearful that the government's bailout package
was both too small and too slow in the workings.  Those fears
pressured shares of carriers Thursday.  Although AMR held up
relatively well versus other major carriers, we're dropping
coverage this evening ahead of any continued fears and weakness
in shares.


PUTS:
*****

QLGC $21.80 -0.52 (-4.98) Time to book our gains on another
winning play.  We've been leaning on QLGC since it broke below
$30 and it has been nothing if not consistent, gradually moving
lower day-by-day.  We're starting to see some signs of strength
over the past couple days, and with juicy gains, we'll take this
opportunity to close out the play while we're still winning.  The
stock will likely continue to suffer weakness, but we'd rather
wait for a significant bounce before playing puts again.


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The Option Investor Newsletter                 Thursday 09-20-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
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********************
PLAY UPDATES - CALLS
********************

QQQ $28.97 -1.00 (-5.13) The QQQs reversed lower Thursday and
look like their going to revisit their lows around the $28.25
level.  For those who entered the play Wednesday, you should be
thinking about how you're managing risk in the play if you haven't
done so already.  We can't tell you exactly where to put a stop,
but the QQQs relative low may be a good place to start.  Going
forward, bullish traders looking for new entry points might
consider waiting for a move back above the $30 level, signaling
that the buyers might be for real.  Those who like to enter
bullish plays on weakness can be thinking about entries down
around current levels, with the understanding that a tight
stop should accompany any new entries around current levels.
Keep close tabs on the SOX.X, GSO.X, BTK.X, and the GHA.X when
trading the QQQs.

ATK $81.39 +4.39 (+16.10) The defense sector was on the move
again Thursday, in the face of a nasty market for bulls.  For
its part, ATK moved back above the $80 level in strong
fashion.  The stock's pullback down to the $75 level Wednesday
offered an excellent chance to enter this play, and hopefully
some of our readers were able to do so.  For those who did
enter on the pullback, realize that the stock is up about $6
from the $75 level.  That means taking some profits off the
table up here might not be a bad idea.  At the very least,
traders with open positions should be moving stops up.  We are
sliding our stop up to the $78 level, but traders should take
into account their unique entry points when determining stop
levels.  As for new entries, again we're going to be looking
for a pullback.  A bounce from $78 would work well, or
possibly higher from the $79 to $80 level.  Watch for light
volume on any pullback, and monitor others in the group such
as NOC, GD, and LLL.

AMGN $59.00 +1.05 (-5.13) We think that AMGN will lead any
rebound in the Nasdaq whenever that happens.  The difficulty lies
in timing the rebound.  AMGN's relative strength Thursday
reinforced that notion.  The positive news Thursday may have been
the catalyst for AMGN's out performance, but we're more concerned
with the price action itself.  After all, price tends to lead
news.  To digress, bullish traders can consider new positions on
a move above the $60 level, but only if the Nasdaq and BTK.X are
simultaneously advancing.  In addition, a pullback down to the
$58 area might offer those dip buyers another chance to enter
bullish plays on weakness.  As for future resistance, the
aforementioned $60 level may serve as congestion, as well as the
$61 level.  Pick your exit points according to time horizon,
risk tolerance, and entry point.  Either of the aforementioned
resistance levels may serve as an exit point depending upon where
you enter this play.

MO $47.43 -0.57 (-0.72) MO's trading sideways, and that's not a
bad thing.  Our best guess is that the stock is slumping in the
wake of the heavy supply across the broader market.  It could
very well be that MO has been the target of some margin selling,
or possibly even mutual fund redemptions.  However, seeing that
the stock is a component of the Dow, we're not the least bit
disappointed with its price action over the past couple of days.
With Thursday's drop, MO is moving down to the lower-end of its
range at the $47 level.  That might be the spot for bullish
traders to start thinking about entry points.  A tight stop
can accompany any entry at the $47 level, so the risk to reward
at that point is quite favorable.  Our feeling is that once the
Dow stabilizes, MO could see some significant upside not only
for its relative strength, but because of the issues we discussed
in our initial write-up.  Namely, the stock's high dividend
yield.

CMVT $25.99 +1.59 (+4.00) Momentum traders were offered an
opportunity to get into new CMVT positions at the opening
Thursday.  The stock charged higher out of the gates and held
incredibly well throughout the remainder of the session.  In
fact, its brief dip down to the $25 level was the only sign of
weakness throughout Thursday's session.  And that weakness
felt like it was merely a natural reaction to the stock's earlier
run.  The company could be benefiting from the surge in demand
for wireless communications as well as its enterprise-related
communications services.  Whatever the reason, its relative
strength is most encouraging.  The only "real" resistance that
CMVT faces above immediate levels is at $26.50.  Beyond that
level, it could make its way up to $28 with little effort as
that is the site of its most recent gap lower.  The stock has
had an impressive run over the past few days, so it may pause
around the $26 level to consolidate.  However, if CMVT continues
working higher, look for a breakout above $26.50 to enter new
call plays.  Conversely, if the stock does weaken from current
levels, look for support at $25 and again at $23.50.

BGEN $56.46 +0.25 (-3.85) There were very few sectors with green
arrows on Thursday, and the Biotech index (BTK.X) was one of the
lucky few.  While a 0.5% advance is normally nothing to get
excited about, it is far better than the sharp losses seen in
the broad market and underscores the BTK's relative strength.
Benefiting from the sector strength, BGEN managed to hold its
ground, recovering from the morning dip to $54.55 to close
nearly $2 higher.  Traders that took advantage of the bounce
are sitting on modest gains tonight.  We'll continue to target
entries on intraday bounces above our $55 stop in anticipation
of a solid oversold bounce in the broad markets.  Due to its
relative strength, the BTK and BGEN should help to lead that
recovery.  More cautious investors will want to look for BGEN
to clear the $57 resistance level on solid volume before taking
a position.

FDX $34.95 +0.12 (-5.03) Unfortunately we missed the fact that
FDX was set to report earnings this morning when we initiated
coverage of the shipping company on Tuesday.  Be that as it may,
the announcement seemed to be a nonevent, with the stock posting
a modest advance despite a decline in year-over-year revenues.
Since we're already in the play and there was no effect from the
announcement, we'll stick with the play on the premise that
energy prices are coming down, which should cause FDX's profits
to rise.  Additionally, the company reported that disruptions to
its business last week were minimal and they are now back to a
normal schedule.  While the day's gain was minimal, it was a
gain nonetheless.  We'll continue to look for intraday dips to
provide attractive entry points into the play, but keep a
watchful eye on the $34.50 stop level.  If it's violated on a
closing basis, then we'll have no choice but to move on.  More
conservative entries will materialize as the stock gets moving
to the upside, clearing the $36 intraday resistance level on
solid volume.


**************
NEW CALL PLAYS
**************

ORCL - Oracle Corporation $11.31 +0.11 (-0.15 this week)

According to the company's ads, "Software powers the Internet".
ORCL is a supplier of software for information management,
servicing two broad product categories - systems software and
business applications software.  Systems software is a complete
Internet platform to develop and deploy applications for
computing on the Internet and corporate Intranets.  Business
applications software automates the performance of specific
business data processing functions for customer relationship
management (CRM), supply chain management, financial management,
procurement, project management, and human resources management.

Despite being bogged down by a technology market that is
continuing to decline to fresh 3-year lows, ORCL is showing some
amazing relative strength this week.  Of course it didn't hurt
that the company just reported earnings a penny ahead of
estimates.  Amazingly, the company's forecast for flat earnings
this year due to weakness in its end markets didn't crater the
stock and it has held up well, finding support just above $10
throughout the week.  This is a speculative play where we are
looking for ORCL to lead any rebound in the deeply oversold
technology sector, so we are placing a tight stop at $10.25 in
case the play goes against us.  The best entries will come from
target shooting intraday dips above our stop, although more
cautious traders may want to wait for ORCL to clear $11.50
before playing.  Keep in mind that there is likely to be some
significant resistance at $12 and then again at $14.

BUY CALL OCT-10.0*ORQ-JB OI= 2838 at $2.00 SL=1.00
BUY CALL OCT-12.5 ORQ-JV OI=13832 at $0.75 SL=0.00
BUY CALL DEC-10.0 ORQ-LB OI= 1154 at $2.55 SL=1.25
BUY CALL DEC-12.5 ORQ-LV OI= 6264 at $1.40 SL=0.75
BUY CALL DEC-15.0 ORQ-LC OI= 8421 at $0.70 SL=0.00

SELL PUT OCT-10.0 ORQ-VB OI= 5855 at $0.50 SL=1.25
(See risks of selling puts in play legend)

Average Daily Volume = 36.8 mln



PPDI - Pharmaceutical Product Dev. $25.92 +4.41 (+2.81 this week)

PPDI and its subsidiaries provide a broad range of research,
development and consulting services in two segments, development
and discovery sciences.  In the development segment, the company
provides worldwide clinical research and development of
pharmaceutical products, medical devices and analytical
laboratory services.  The discovery sciences division pursues
target identification and validation, compound creation,
screening and compound selection.  PPDI provides services under
contract to clients in the pharmaceutical, general chemical,
agrochemical, biotechnology and other industries.

Investors looking for a solid bullish play will have to look
long and hard in this market to find a better candidate than
PPDI.  After being trashed with the rest of the market, the
stock seemed to be finding support near $22.  Then last night,
the company RAISED its guidance for Q3 earnings from 20 to 22
cents.  When was the last time you heard a company raising
guidance?  Yep, it's been awhile.  Investors clearly liked what
they heard, as they stepped up and bought the stock with a fury,
driving it up for a 20% gain on volume more than 4 times the
daily average.  Daily Stochastics are just starting to emerge
from oversold and we could easily see the stock top the 200-dma
(currently $27.73) as bullish traders drive the price up towards
major resistance at $30.  The current market uncertainty could
give us an intraday dip and that could provide for attractive
entry points near $23.  We are placing a tight stop at $22, just
below Thursday's low.  New positions can also be considered as
PPDI breaks out above the $26 level, but only if buying volume
remains robust.

BUY CALL OCT-25*PJQ-JE OI=154 at $3.00 SL=1.50
BUY CALL OCT-30 PJQ-JF OI=759 at $1.10 SL=0.50
BUY CALL JAN-25 PJQ-AE OI=  7 at $5.20 SL=3.25
BUY CALL JAN-30 PJQ-AF OI=474 at $3.40 SL=1.75
BUY CALL JAN-35 PJQ-AG OI= 90 at $1.75 SL=1.00

SELL PUT OCT-22.5 PJQ-VX OI=150 at $1.05 SL=2.25
(See risks of selling puts in play legend)

Average Daily Volume = 729 K



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*******************
PLAY UPDATES - PUTS
*******************

CHKP $25.41 -1.52 (-7.58) We had sensed that there was something
special about the $30 level a few weeks back, when CHKP refused
to fall beneath that price.  So it's not surprising to see the
stock weaken further after losing the $30 level a few days back.
Its subsequent weakness down into the $25 vicinity Thursday
hopefully allowed for traders to book some very nice gains in
this play.  With as oversold as CHKP is, it's hard to justify
entering new plays on further weakness below current levels.
That said, we'd like to see a light volume short covering rally
back up to a resistance level such as $28 before entering new
plays.  But, if you haven't been willing to be bearish into
further weakness in this market, then you've probably missed a
lot of moves lower.  That being the case, and with the
understanding that the software sector (GSO.X) is extremely
oversold, bearish traders could consider a breakdown below the
$25 level as an entry point.

HDI $36.04 -2.86 (-8.04) Harley is steadily working lower, which
is certainly welcome from where we sit.  The stock's further
weakness Thursday should've allowed for bearish traders to take
some nice profits off the table.  After all, the stock has shed
about $4 from its opening price Monday.  While we appreciate the
possibility for further weakness, we also recognize that HDI is
approaching some pretty significant historical support between
the $34 and $36 level.  That may partially explain the stock's
snapback rally near the close Thursday, i.e. bottom fishing.
If Harley motors past the $34 level Friday, or early next week,
it would be a good indication that the stock is heading much
lower over the short-term.  But make no mistake about, support
around current levels is solid, so bearish traders with open
positions should, at the very least, be employing tight stops
to protect profits.  As far as new entries are concerned, we'd
prefer to see a rally up to resistance around $38 before
taking on new put plays.

CHV $83.70 -1.20 (-8.00) CHV's steady, systematic decline
Wednesday should've offered momentum traders several entry
opportunities into new put plays.  The stock's further
weakness Thursday hopefully allowed those who entered Wednesday
with an opportunity to register some profits.  Those who
didn't take some money off the table should recognize that CHV
traced an "inside day" Thursday and its fast Stochastic on the
daily chart turned ever-so-slightly higher.  Those two price
derivations may indicate a reversal of trend over the short
term.  While that's only speculation, it should have bearish
trades with open positions on alert.  New positions at current
levels isn't the best idea.  Instead, we'd prefer to take new
puts on up around the $86.75 to $88 area.  That way, risk can
be manage much more easily.

NVLS $28.00 -1.16 (-9.83) The SOX.X is dirty, to say the least.
And as goes the SOX.X, so goes NVLS.  We've been seeing breakdowns
across the board in the semiconductor sector, and NVLS is no
exception.  The stock is approaching its October 2000 lows,
which were traced down around the $25 level.  We expect that
NVLS will fall that low over the short-term.  However, we're
not sure what path the stock will take.  Of course we'd like to
see NVLS head straight for $25, which would allow bearish traders
with open positions to book some tidy profits.  Then again, the
stock could zig and zag its way lower if we see a short
covering rally transpire over the coming sessions.  If that
happens, we're looking for sellers to emerge around the $30
level (Read: Resistance).  A rally up to the $30 level would
offer those still on the sidelines a chance to enter new put
positions and it would allow NVLS to work off its oversold
nature.

PMCS $17.16 -1.94 (-7.58) PMCS fell solidly below its April
lows Thursday, which could've allowed bearish traders with
momentum leanings a chance to enter new put plays.  The stock
is below all of its relative support levels.  In fact, one
has to go back to early 1999 to find any support.  That support
from back in 1999 lies around the $17 level, which is where
PMCS bounced from Thursday.  We think that PMCS is headed the
way of CSCO, JNPR, and CIEN - all of which are in the low, low
teens.  But we may see some short covering in the interim.  A
rally from this point could take PMCS back up to the $19 to $20
range, which would offer new entries into the play.

ENE $28.39 +1.98 (-4.37) After such a long and protracted
decline, ENE is clearly approaching more attractive valuations,
but the negative sentiment in the Energy sector has kept it
moving to the downside.  Buyers actually supported the stock
on Thursday, pushing it up for a nearly $2 gain in another
strong negative day in the broad markets.  The positive momentum
seemed to run out of steam towards the end of the day, and could
be setting us up for another attractive entry to the downside.
Should price head lower from current levels on Friday, that
could be used to open new positions, although a better entry
could come from an intraday spike closer to our $30 stop.
Alternatively, look for the stock to fall under the $26 level
(the site of Wednesday's lows) before adding new positions.

P $53.25 +0.41 (-5.31) Oil and Oil Service stocks are being
squeezed by the twin demons of decreasing demand and increasing
supply in the wake of last week's terrorist attacks.  Since
trading resumed on Monday, P had declined more than 10% and was
due for a bounce.  As the broad markets continued their slide,
P managed a modest gain, but there sure isn't a lot of
conviction.  This could be setting us up for a fresh entry to
the downside, so we'll be looking for the stock to rollover
near intraday resistance at $54, or even near our $55.50 stop
loss.  A lower risk entry strategy may be to wait for the stock
to fall through the $52 support level.  This level has been
providing support since last December, and if it fails, there
could be a quick drop to the next level of support near $48.
Monitor the Oil index (OIX.X) as P will likely move with the
broader sector.

PHA $38.91 -1.09 (-1.24) Despite its usual defensive nature,
Drug stocks have been unable to buck the bearish trend in the
broad markets lately.  The DRG index has now broken the July
lows and is fast approaching a test of the April lows near $355.
The picture for PHA is even worse, as it continues in its
protracted decline, dating all the way back to the beginning
of the year.  Support at $39.50 gave way on Thursday under the
pressure of increasing selling volume (roughly 50% higher than
the daily average).  It is hard to gauge a downside target, with
the stock trading at new all time lows, but a break below $38
can be used for initiating new positions.  Bargain-hunters can
target shoot new entries on a failed intraday rally that runs
out of steam below our $40.50 stop.

SEBL $14.00 -1.01 (-5.58) The seemingly endless decline in
Software stocks is showing no signs of letting up, as the GSO
index fell to a new all-time low of $120 on Thursday.  That
downward pressure hasn't been lost on SEBL investors, as they
have continued to lighten up on the stock, dragging it down to
its lowest close since the middle of 1999.  Even after such a
protracted decline, it looks like SEBL has downside risk to the
$12 level and possibly even $9.  The stock is overdue for a
bounce, but we will likely look at that bounce as a fresh entry
point, so long as the bulls are unable to push SEBL above our
$17.50 stop.  Use any failed rally below that level to initiate
new positions, at least until we see an improvement in the GSO
index and the broad technology market.  Consider taking profits
should SEBL find support at the $12 level, as we are fast
approaching some major support and the stock is extremely
oversold.


************
NEW PUT PLAY
************

CTX - Centex $29.15 -0.85 (-9.19 this week)

Centex is a multi-industry company that operates in six
principal business segments.  Conventional Homes, Investment
Real Estate, Financial Services, Construction Products,
Contracting and Construction Services, and Centex HomeTeam
Services.

Prior to last week's terrible acts of terrorism on the United
States, anecdotal evidence was surfacing of slumping demand in
the housing market.  For its part, the housing market had been
the last bastion of strength in the U.S. economy.  But it
would appear the continued layoffs, a deteriorating economy,
and worsening stock market have begun to weigh on the minds'
of consumers.  That's not accounting for the impact of what
last week's events have had on consumers' purchasing habits,
especially of homes.  Thursday's release of housing starts
revealed that demand for housing had begun falling during the
month of August.  And we're certain that last week's Attack on
America will further weaken demand for new homes.  The
aforementioned has been partially discounted in shares of
major homebuilders such as Centex, but it is our sense that
the stock have further to fall as demand for housing slumps.  We
are cognizant of CTX's oversold nature, but we wanted to add
coverage on a housing stock as feel that there's money to be
made from the short side in this sector.  But because CTX is
so oversold, execution in this play is critical.  The "best"
approach is to probably wait for the stock rally on short
covering, then enter puts as it rolls over near a resistance
level, such as $30, or higher around $32.  Bearish traders
would also do well to monitor Stochastics across multiple
timeframes in an attempt to gauge if/when CTX works off its
oversold condition.  Our stop, which is rather liberal, is
in place at $34.  The reason for the liberal nature of our
stop is so that we have plenty of room to gain entry into this
play.

BUY PUT SEP-35 CTX-VG OI=4032 at $6.70 SL=5.00
BUY PUT SEP-30*CTX-VF OI=  60 at $3.10 SL=1.75

Average Daily Volume = 795 K



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**********************
PLAY OF THE DAY - CALL
**********************

CMVT - Comverse Technology $25.99 +1.59 (+4.00 this week)

Comverse Technology designs, develops, manufactures, markets
and supports computer and telecommunications systems and
software for multimedia communications and information
processing applications.

Most Recent Update

Momentum traders were offered an opportunity to get into new
CMVT positions at the opening Thursday.  The stock charged
higher out of the gates and held incredibly well throughout
the remainder of the session.  In fact, its brief dip down to
the $25 level was the only sign of weakness throughout
Thursday's session.  And that weakness felt like it was
merely a natural reaction to the stock's earlier run.  The
company could be benefiting from the surge in demand for
wireless communications as well as its enterprise-related
communications services.  Whatever the reason, its relative
strength is most encouraging.  The only "real" resistance that
CMVT faces above immediate levels is at $26.50.  Beyond that
level, it could make its way up to $28 with little effort as
that is the site of its most recent gap lower.  The stock has
had an impressive run over the past few days, so it may pause
around the $26 level to consolidate.  However, if CMVT continues
working higher, look for a breakout above $26.50 to enter new
call plays.  Conversely, if the stock does weaken from current
levels, look for support at $25 and again at $23.50.

Comments

With any strength in the Nasdaq Friday, we're expecting CMVT
to continue working higher.  But it's important that we see
broad market strength.  If the market does rally Friday, CMVT
could easily breakout above the $26.50 level, which served as
a bit of resistance during Thursday's session.  Monitor the
NWX.X and the NDX.X early Friday morning to get a handle on
market direction as it concerns CMVT.

BUY CALL OCT-20 CQV-JD OI= 37 at $6.70 SL=4.75
BUY CALL OCT-22 CQV-JX OI= 75 at $4.70 SL=3.25
BUY CALL OCT-25*CQV-JE OI=776 at $3.20 SL=1.75
BUY CALL JAN-25 CQV-AE OI=866 at $5.40 SL=3.75

Average Daily Volume = 6.07 mln



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