Option Investor

Daily Newsletter, Sunday, 09/23/2001

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The Option Investor Newsletter                   Sunday 09-23-2001
Copyright 2001, All rights reserved.                        1 of 5
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MARKET WRAP  (view in courier font for table alignment)
        WE 9-21          WE 9-14           WE 9-7          WE 8-31
DOW     8235.81 -1369.7  9605.51 -   .34  9605.85 -343.90  -473.42
Nasdaq  1423.19 -272.18  1695.37 +  7.67  1687.70 -117.73  -111.37
S&P-100  491.70 - 66.88   558.58 +  4.69   553.89 - 23.51  - 29.31
S&P-500  965.80 -126.74  1092.54 +  6.76  1085.78 - 47.80  - 51.35
W5000   8900.45 -1203.9 10104.44 + 37.95 10066.49 -448.60  -433.32
RUT      378.89 - 61.84   440.73 -  4.46   445.19 - 23.37  - 12.25
TRAN    2054.84 -621.65  2676.49 - 36.65  2713.14 -100.27  - 40.98
VIX       48.27 + 13.67    34.60 +   .24    34.36 +  6.51  +  5.56
VXN       77.73 + 13.89    63.84 -  1.61    65.45 + 12.59  +  5.16
TRIN        .60              .68             1.25              .71
TICK        +21             +100             -113              -74
Put/Call   1.27 

The best news of the week came from General Electric on Friday.
GE CEO, Jeffrey Immelt, said he had only been the CEO for two
days when an airplane with engines they lease hit a building
that they insured while their network reported on the tragedy.
This created huge losses on multiple fronts. But the punch line
was that GE would still provide double digit growth because of
their wide diversification. They affirmed their recent estimates
and the news rallied the Dow back to positive territory for a
brief moment. GE closed up nearly $1 at $31.50 but nearly $3 off
their intraday low of $28.50. They said because of the decline
in the markets they would use excess cash to buyback stock and
make acquisitions while companies were cheap. He did say they
did not expect an economic rebound this year and maybe not until
late in 2002. Still I think the power of GE is evident and it
is a stock that every investor should own. (See editors plays

The SEC extended the "get your buyback free" deadline for another
week to allow corporations time to shuffle money and take advantage
of the cheap prices. Several new companies indicated they were
going to institute new buybacks. This is a good sign that the
government is really interested in the markets putting in a bottom.
I may be stretching here but that should also mean they will be
putting pressure on Greenspan to cut rates again on Oct-2nd.
Over 100 companies have announced new buyback programs in excess
of $110 billion.

While companies are jumping on the buy stock bandwagon individuals
are not yet convinced. AMG Data released a report that said $66
billion, a record amount, went into money market funds between
Sept-6th and Sept-19th. They also said equity fund outflows only
amounted to 5.9 billion for the week ended 9/19. The AMG data and
the TrimTabs.com data is always different due to the methods used
to collect it. TrimTabs said $9 billion left stock funds in the
week ended on Wednesday. The bottom line is that there is money
still available and in record amounts. That $66 billion in new
money market cash joined an estimated $2.5 trillion that is
waiting safely and patiently on the sidelines. This brings back
visions of those old westerns with hundreds of homesteaders
lined up and waiting for the cannon to signal a new land rush.
The stock buyers are lining up but are currently in no hurry
for that starters gun.

Technically the markets are extremely oversold and ready to
rebound. The spring has been compressed so far that it will
be very hard to sell off any further without at least a short
relief rally to relieve the pressure. The Dow is now down for
eight days in a row, a string not seen since May-1989. The Dow
drop from an intraday high of 10440 on August 27th to an
intraday low of 8062 on Friday was -2358 points or -22.6%. The
drop this week alone of -1369 points was over -14%. These numbers
are almost unheard of in recent times. There have been big
percentage drops but all were accompanied by almost immediate
rebounds. This week on the Dow represented the fifth worst
percentage decline ever and the closest event to us was back
in 1940. The four largest prior weeks were in 1914 -24.4%,
1933 -16.7%, 1940 -15.5% and 1932 -15.1%. The current oversold
conditions on the NYSE have only been exceeded twice before
and that was in 1940 with the fall of France and during the
1987 crash.

The Nasdaq has not escaped damage either. This was the second
worst percentage week with April-2000 being the worst. The
Nasdaq lost -16% last week. The Nasdaq VXN reached a record
high at the open on Friday of 91.79 and then fell to close at
the low of the day at 77.73. The VIX also hit 57.31 at the open
which neared the high of 60.63 set in October 1998. This is the
second highest reading in the last four years. The TRIN also
hit an astronomical high of 12.24 at the open which was the
second highest reading in the last four years. The put/call
ratio on Thursday at 1.27 was the highest reading on record.
I said I was going to be positive today and these facts are
leading me to only one conclusion. There is not much downside

The selling on Friday was easily discernable. The morning
drop was dramatically influenced by margin calls and investor
washout. We were estimating in the office that the drop over
the last 30 days and the, (and I am going to use the C word),
capitulation event on Friday morning had washed out nearly
one million investors out of the market. There were 66 million
active brokerage accounts two years ago and by some estimates
only around 40 million today. Of those 40 million it is easy
to speculate that 2-3% were either liquidated or suffered
serious margin calls in the last week. That dip at the open
was not only retail selling but selling by institutions as
well. As I have said before, being big does not make you right
and heavy institutional selling along with retail selling paints
a vivid picture of capitulation. The volume on the NYSE was
2.3 billion shares of which 1.5 billion was down volume.
Declines beat advancers 3:1 at the close and that was much
improved over the numbers earlier in the day. The Nasdaq
volume was 2.5 billion with only a 2:1 D/A ratio. This is
positive, bear with me.

Life must go on. The brain numbing impact of the attack is
wearing off. Businesses are picking up the pieces. Airlines
are getting billions in aid but life is changing as we know
it. At the GE analyst meeting Friday morning, which is normally
attended by everyone possible, they had 75 unclaimed name tags
from analysts and reporters who decided the trip risk was not
worth it. Still the meeting went on as scheduled and the
market benefit was the same. The coming Dell analyst meeting
has been changed to a conference call because traveling to
Round Rock Texas was not high on the risk/return/reward
profile of many analysts. Still the call will go on and
information will flow. Life as we know it has changed but
business will continue to be conducted.

Warnings continued and analysts continued to predict a dire
future. Ashok Kumar said we are in the perfect economic storm
and he did not see things turning around anytime soon. However
he also said that valuations were becoming very attractive.
Semiconductors attractive? Other analysts were also starting
to go out on a limb about different sectors or the markets
in general. I am not talking about the highly visible lightning
rod analysts but those who just keep their head down and work
hard at analyzing events. Even Art Cashin, who never makes a
real market call for fear of being wrong on TV, said he expected
a market bottom by Tuesday. That pretty well isolates the

What, other than severely oversold, will cause this bottom?
First, the big event is over. The shock of the tragedy and
the constant replay of the collapsing towers is over. We
are either still numb or have made a conscious effort to
get back to our daily routines. The market reaction to major
news events is usually in the several days afterwards and is
almost always overdone. This is way overdone. Yes, we are in
a recession. Yes, it will be worse because of the tragedy and
yes, it may be longer than previously expected. However the
market had already priced in a recession before the attack.
We were approaching the September warnings season and now
that season is almost over with a surprisingly small number
of warnings. Microsoft did warn on Friday but only that their
XBox would be delayed a week due to parts shortages from
shipping delays. No big deal!

Second the quarter is almost over. Stock funds have one more
chance to dress up portfolios before the quarter end. This
will involve more selling but I think most of it is over.
Those with airline, insurance and hotel stocks will be dumping
their positions and buying defense, software, energy and
maybe even some financial stocks. Tech stocks are likely
to find fund buyers as well. What is the risk reward ratio
on SUNW at $8, Nokia at $16, GE at $31? Very slim! Should
SUNW go to $5 that is hardly a big loss but let it go to
$25 as the country adds backup computing power and more
disaster recovery sites and that is a big win. Expect the
big caps to see bargain hunting next week. Also, there is
a strong rumor that more pension funds are going to take
profits in bonds and move into stocks because of the very
low stock prices coupled with an interest rate that is not
likely to drop much more. Already several funds have swapped
well over $100 million each in the last two days to position
themselves for the eventual rebound.

Third, the insurance companies that needed to raise cash
by selling stock should be done. Fourth, the "speech" is over.
Bush did an excellent job of delivering the speech and it was
met with almost universal acceptance and goodwill. The allies
are lining up on the side of the coalition and even though it
will be a long fight the nation appears ready. Even better
it appears it will be a low intensity campaign with no major
battles, no major opportunity for loss of coalition lives
and will be fought against an enemy with no planes or serious
ground to air missile capability. Simply stated the risk is
mostly on the side of the terrorists. Security has been
increased to almost insane levels in the U.S. and the fear
of a quick repeat of the WTC disaster is dwindling.

I am not claiming that the market is going to rocket on
Monday morning. That is not my point. I do think we will see
a rebound but there will still be some margin selling on Monday
if not Tuesday. What I think we will see to begin with is some
selective buying, bargain hunting in a select few stocks. There
will be some short covering, assuming there is not some news
event over the weekend that changes the picture, and then there
will be another attempt to drive the markets down by the shorts.
In my opinion the Dow drop to 8062 on very heavy volume at the
open on Friday was the "capitulation" event traders always look
for. Had this not been on a Friday before a war I suspect we
would have seen a better close.

I think this is going to be a stock pickers market until after
we get past the October earnings and tax selling. It is hard
for me to expect any serious tax selling since winners are
almost nonexistent but there could still be some. Also, if
funds have not already sold their losers by now they need a
new fund manager. We are trying to focus on stocks on our
play list with real stories behind them because that is what
will power investor interest. Today for instance we added
Symantec because of the increased potential for a quality
network virus solution. If you doubt this need try this link:

Another new play for instance is Raytheon, a defense contractor.
RTN gapped up almost 50% on Monday as a prime candidate for
billions of dollars in consumable defense spending. Things
that need to be replaced constantly in a prolonged conflict.
It refilled half of that gap since Monday and is threatening
to make a new high.

Unfortunately not all plays in the new war economy will be
bullish. Stilwell Financial (SV) is a diversified global
financial company which owns 82.5% of Janus Capital Corp.
As we all know there are literally millions of investors
who are either not stock/fund investors any more or will not
be after they get their next fund statement. Back to the
money markets and CDs and a drop in fees for funds. With
over one million new layoffs expected from the new economy
and employment expected to reach as high as 6% by year end,
there is not likely to be a wave of workers rushing out to
buy new big screen TV sets or computers. Best Buy (BBY) is
going to find sales and margins tougher to come by as we
enter the holiday season. EBAY has struggled to maintain its
share price as the Internet sector got crushed. True, it has
actual earnings which is something most other Internet stocks
cannot claim, but with a PE of 150 compared with the sector
PE of 26 and the S&P PE of 24, it is having a tough time. The
PE compression for all the major tech/internet stocks has
leveled the playing field in general and EBAY is one of the
last stocks to succumb.

While I would like to call the bottom and suggest a bullish
stance for next week I can't. Nobody can. We can only look
at the indicators and the data we are given and try to trade
the current trend. We try to predict the changes by watching
the indicators and individual stocks. If you only looked at
the Nasdaq big caps after the close on Friday you would see
nothing to cheer about. CSCO, DELL, ORCL, INTC, MSFT, SUNW,
JDSU, QCOM, YHOO, EBAY, the pillars of the Nasdaq, all were
off their lows of the day but still trending down. It would
appear the selling is not yet over. The Dow 30 did not look
any better with only eight of the thirty stocks closing in
positive territory. I suggest you read carefully the market
sentiment section this weekend, it is very informative.

If I had to place a bet on the market direction on Monday it
would involve margin selling again but less as the week wore
on. If pensions funds continue to move to equities and mutual
funds start buying for the end of the quarter then shorts
might get scared. With the Fed meeting on Oct-2nd and likely
to cut rates again the shorts could decide that 2000 Dow points
are enough and move to the long side for a pre Fed bounce. It
is just my opinion but there is a relief rally here somewhere
and as you have seen the last two days the Dow can move very
fast when motivated. I try to keep things simple and to me
the risk of buying stocks this coming week for long term is
very low. The Nasdaq is at lows not seen since 1997 and others
should see this as well. For us as option investors the
opportunity has never been better! The only caveat is time.

This is not the time to be going long with short term positions.
If you are going to attempt to pick a bottom here, PLEASE use
longer term options, at least Dec/Jan or longer. This may not
be the bottom but we are very close and longer term options
will hold their value better through any further dips and
then accelerate in value quicker once the market recovers.
Let me qualify this one more time. I am not recommending you
go long on Monday morning. We need to trade in the direction
of the trend or not trade at all. What I am suggesting is that
the current trend could change very quickly one day next week
and those prepared for that change will profit handsomely.
Be prepared!

Definitely, enter passively, exit aggressively!

Jim Brown



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Note: Options involve risk. Risk disclosure:

Editor's Plays

The Mother of All Buying Opportunities?

I am going to deviate from the standard type of article this
weekend. I personally think that the bottom is near and any
long positions we take, UNDER THE RIGHT MARKET CONDITIONS,
could be highly profitable.

Those market conditions would be a rebound from any Monday
or Tuesday margin selling drop and no negative news to send
the markets into another death spiral.

With this in mind I am going to list several stocks and
the option I would play for long term profits. Using a
front month option (October) could be very risky since
October is not a month known for positive surprises.

Most readers know I favor a strategy of selling naked puts
over buying long calls since the time decay works in my favor
instead of against me but I will list the calls also because
I know many readers cannot sell naked. There are still huge
profits to be made LONG TERM regardless of which strategy
you use.

No lengthly explanations will be provided. These are simply
bullish plays based on extremely oversold stocks with good

If you don't want to go naked or long just yet you can
limit your risk by purchasing an insurance put. I would
buy October strikes since any further drop should be between
now and the end of October. If the stock should drop you
sell the put for a profit and keep the long call position
with a lower basis. Your risk is limited to the price of
the put.


GE - General Electric  $31.30

BUY CALL MAR-2002 $30 GE-CF  $4.80
BUY LEAP JAN-2004 $40 LGR-AH $4.60
SELL PUT JAN-2003 $55 VGE-MK $23.60 (31,664 open interest)


BUY PUT OCT $30 GE-VF $1.60


IBM - $90.50

BUY CALL JAN $100 IBM-AT $6.20
BUY LEAP CALL JAN 2004 $100 LIB-AT $18.30
SELL LEAP PUT JAN 2003 $150 VIB-MJ $59.40


BUY PUT OCT $90 IBM-VR $5.90  (expensive but the $85 at 3.80 allows risk)


SUNW - SunMicro $7.96

BUY CALL LEAP JAN 2003 $10 VZX-AB $2.20
BUY CALL LEAP JAN 2004 $20 LSU-AD $1.30
SELL PUT LEAP JAN 2003 $50 VSU-MJ $41.90


BUY PUT OCT $7.50 SUQ-VU $ .80  (cheap !!)


BA - Boeing $30.10

BUY CALL LEAP JAN 2004 $30 LBO-AF $7.60
SELL PUT LEAP JAN 2004 $70 LBO-MN $39.60


BUY PUT OCT $30 BA-VF $2.25  (cheap - risk gone?)


CIEN - Ciena $10.54

BUY CALL LEAP JAN 2004 $20 LGE-AD $3.30
SELL PUT LEAP JAN 2004 $60 LGE-ML $49.30


BUY PUT OCT $10 EUQ-VB $1.40


CSCO - Cisco $12.09

BUY CALL APR $12.50 CYQ-DV $2.50
BUY CALL LEAP JAN 2004 $20 LCY-AD $2.80
SELL PUT LEAP JAN 2003 $55 VYC-MK $42.80


BUY PUT OCT $12.50 CYQ-VV $1.50


Remember, wait for the bounce before entering these plays!

Good Luck

Jim Brown

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John Templeton
By Jeffrey Canavan

A 14% drop in the Dow, a bullish percent reading of zero for the
Nasdaq-100, a plethora of layoffs and constant prattle about a
global recession is enough to make any investor want to join the
$66 billion that has found its way into money market funds over
the past two weeks.  Admittedly the constant barrage of bad news
was even starting to wear on my psyche.

So I was thumbing through my mail last night when I came upon a
belated birthday present from my brother.  As is customary
between us, any birthday or Christmas present is somehow related
to trading.  This particular gift was an audiotape series -
Secrets of Great Investors - Bargain Hunters, Contrarians,
Cycles, and Waves.

So I popped in the tape on my way to work this morning, and here
was the very first story.  It was 1939 and war had broken out in
Europe.  U.S. Investors were paralyzed with fear.  A young John
Templeton borrowed some money from his father, called up his
broker friend and said that he wanted to buy $100 worth of every
stock that was trading under $1.  He ended up buying stock in 104
companies, 34 that were bankrupt.  After four years his
investment had climbed to $40,000.

Timely story, but can we expect the same results now?  Over the
years contrarians have developed tools to help identify extremes
in market sentiment, and two of those, the VIX and Put/Call
ratios, have been screaming that the market is oversold.  Yet we
continue to head lower, so what's a trader to do?  Keep the
defense on the field.  Sellers remain in control, and any bounce
continues to elude us.

Nasdaq Composite and S&P 500 Monthly Charts

Technically the October 1998 lows continue to hold for the Nasdaq
and S&P 500, and those will be the levels to monitor next week.
Other than that there are not a lot of support levels to rely on,
apart from a bunch of oversold indicators.

Tuesday should be an interesting day with pre and post-attack
consumer confidence numbers, existing home sales, and API energy
stocks being released.  Thursday sees the release of initial
jobless claims, durable orders, help wanted index, and new home
sales data.  Nervous investors don't need much of a reason to
keep selling.


   Market Volatility
      Close   High
VIX   48.27   57.31
VXN   77.73   91.79


          Put/Call Ratio  Call Volume   Put Volume

Data not available, but it's safe to assume all put/call ratios
are overly bearish.

Total          1.23
Equity Only


Bullish Percent Data

The bullish percent for the Nasdaq-100 has dropped to zero.  That
means no Nasdaq-100 stocks are currently trading on a buy signal.

           Current   Change   Status
NYSE          18      -4      Bear Confirmed
NASDAQ-100     0      -2      Bear Confirmed
DOW           18      -2      Bear Confirmed
S&P 500       16      -6      Bear Confirmed
S&P 100       16      -2      Bear Confirmed

Bullish percent measures the number of stocks in an index
currently trading on a buy signal on their point and figure
chart.  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  1.16
21-Day Arms Index  1.21
55-Day Arms Index  1.26

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       799           2433
NASDAQ    1198           2693

        New Highs      New Lows
NYSE       18            766
NASDAQ     12            735

        Volume (in millions)
NYSE     2,310
NASDAQ   2,584

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: 09/18/01

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

This week's data only reflects trading on Monday and Tuesday, but
in those two days commercial traders added 47,027 long positions
and only 29,753 short positions.  That drops their net bearish
stance by 17,274 contracts.  Small traders on the other hand
loaded up with 31,441 short contracts.  Right now it looks like
small traders made the right move, but we shall see next week.

Commercials   Long      Short      Net     % Of OI
9/04/01      350,626   430,613   (79,987)   (10.24%)
9/10/01      359,360   442,070   (82,710)   (10.32%)
9/18/01      406,387   471,823   (65,436)   ( 7.45%)

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
9/04/01      147,080     62,004   85,076     40.69%
9/10/01      156,500     69,090   87,410     38.75%
9/18/01      172,988    100,531   72,457     26.49%

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


Small traders have gotten more bearish, and are approaching their
most bearish levels of the year.

Commercials   Long      Short      Net     % of OI
9/04/01       28,757     38,119   ( 9,362)  (14.00%)
9/10/01       26,784     37,912   (11,128)  (17.20%)
9/18/01       35,497     45,731   (10,234)  (12.60%)

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
9/04/01       12,341     9,806    2,535      11.45%
9/10/01       15,263    12,555    2,708       9.73%
9/18/01       22,876    21,702    1,174       2.63%

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


Institutions continue to increase their net long position in Dow

Commercials   Long      Short      Net     % of OI
9/04/01       23,459    14,099    9,360     24.9%
9/10/01       25,445    13,033   12,412     32.3%
9/18/01       28,425    15,077   13,348     30.7%

Most bearish reading of the year: (8,322) - 1/16/01
Most bullish reading of the year: 13,348  - 9/18/01

Small Traders  Long      Short     Net     % of OI
9/04/01        6,952    12,744    (5,792)   (29.41%)
9/10/01        7,460    12,735    (5,275)   (26.12%)
9/18/01        7,335    15,044    (7,709)   (34.45%)

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


Uno - Eins - One
By Eric Utley

So I've made it clear that a passion of mine is fly fishing.
I've hinted that I enjoy reading, too.  But another of my
loves is music; most music, but specifically rock & roll.  That
includes bands ranging from Pink Floyd to Tool.  But, my band of
choice that falls into the genre is U2 - the Irish quartet who
have produced politically-concerned and emotionally moving music
for more than two decades.  The band released an album in November
of 1991 titled Achtung Baby.  Or, in English, Caution Baby.  (The
album really isn't that dangerous, so don't be afraid to buy it.)

The third song on the album is a little number known as One
(Pardon the pun).  If you don't own the album, you've probably
heard the song on the radio.  Many leisure listeners believe One
to be a love song of sorts.  You know, the romantic stuff.  Its
deeply touching lyrics, soul-filled vocals, gentle guitar, and
frequent mention of love lead the easy listener to places of
romance.  But those who've taken the romantic path by way of One
have lead themselves astray.  The song is about love, but not the
romantic kind.  Instead, Bono & the boys sing about the universal
love, the altruistic kind.  Take the following verse:

One love, one blood, one life, you got to do what you should
One life, with each other; sisters, brothers
One life, but we're not the same
We get to carry each other, carry each other

I'm sorry to disprove any preconceived notions about this song.
Heck, I know a bunch of people who've played this tune at their
weddings.  But, the song has nothing to do with romance.  The song
is about celebrating the differences in each of us, embracing that
which is unique.  In the song, there are no races, no genders, no
creeds, no religions, no colors.  Just one.  And that, my friends,
is a beautiful thing.

What does this have to do with trading, you might ask?  Nothing.
And I'm sure it sounds mushy, and some readers may even be
angry at me for wasting their time.  But, in light of the new
world in which we all live, I thought it would be appropriate.

Please send your questions and suggestions to:

Contact Support


Strategies & Tactics For Picking A Bottom

I didn't receive too many stock requests during the past two
weeks, which was certainly understandable.  So, I decided to
elaborate on a few intelligent techniques when trying to pick
a bottom in either a stock, sector, or market.

The current market environment is one filled with so much
emotion that an intelligent market participant cannot afford
to ignore technical analysis.  In the short-term, emotion
trumps fundamentals.  But a few things that remain constant,
even during times of fear, are supply and demand and risk
versus reward.  It is with the following three technical
analysis techniques that traders can get a better grasp on the
risk side of the equation when trying to pick a bottom.

Retracement Brackets

Retracement brackets are an integral part of every market
operation that I'm involved with.  If you're unfamiliar
with the tool, I'd suggest reading my series on retracement
brackets.  The following address will take you to a page that
is linked to all five parts of the series:


On the chart below, I've taken a long-term view of shares of
Citigroup (NYSE:C) - the definition of a money-center bank.
I anchored the lower-end of the bracket to Citi's October 1998
lows.  And here's why: In the fall of 1998, Russia defaulted on
its debt, the massive Long-Term Capital Management hedge fund
effectively failed, and the world feared a global economic
meltdown.  Those who bought Citi in the fall of 1998 were the
smartest of money and, in buying the stock down around $14,
created a meaningful bottom in the stock.

The upper-end of the retracement bracket is at Citi's high of
around the $60 level, which was traced in the fall of 2000.  As
you can see, the stock subsequently slid below its various
retracement levels, starting at $42, then $36.75, and now is in
danger of losing the $31.50 level.  Will it hold?  Maybe.  The
$31.50 level acted as support during most of 1999.

If Citi continues sliding lower into next week, a trader who is
bullish on the banks could employ a retracement bracket similar
to this one when timing the trade.  What's more, should Citi
trade down to the $32ish area and begin basing, a trader could
use this retracement bracket to easily measure risk, which makes
the management of risk easy, i.e. buy @ $32, stop-loss @31.50.
Now, I'm not telling readers to buy Citi at $32.  The process,
however, of using a retracement bracket is worth considering.

Point & Figure: Bullish Support Line

If I'm trying to pick a bottom in a stock, sector, or market, what
I'm most concerned with is where my risk is.  How much risk do I
have to take when buying a stock?

Point & Figure charts are an incredibly useful tool when
determining risk.  They can be used simply by monitoring certain
meaningful levels of support and resistance.  Or, they can also be
used to pick bottoms in a different fashion through the use of the
bullish support line.  The bullish support line, like its cousin on
the bar chart, is a trending support line.  But, unlike its cousin
on the bar chart, is more objective.  A support, or resistance line
for that matter, on a bar chart is left to the subjectivity of
the analyst.  It can be tweaked and turned to fit the eye of the

The bullish support line on the Point & Figure chart, however, is
matter of fact.  Take the Tricon Global (NYSE:YUM) example below.
The stock first formed its bullish support line, indicated by the
line of blue crosses, when it rebounded from the $26 level.  That
line had not been tested since it was formed until last Friday,
when Tricon printed $38.

Now, the picture on Tricon's bar chart is one of ugliness.  In
fact, it begs to be shorted.  But, the Point & Figure chart above
would give me reason not to short Tricon because the stock is
on its bullish support line.  And as my spiritual advisor, Jeffrey
Canavan, once said, "A stock almost always bounces from its bullish
support line on the first test."

The appealing thing about stocks at their bullish support lines is
that risk is so, so easy to measure.  Take Tricon at $38, and set
a stop at $37.  In this case, you've got $1 of risk to the downside,
while the upside could be defined by a rebound to $40, or a three
box reversal up to $41.  In both cases, the potential reward
outweighs the risk.  Again, I'm not telling readers to go out and
buy Tricon.  But, I must confess that I'm a patron of one of their
fine establishments...Please pass the Gordita.

Bearish Price Objective

A bit of voodoo that is associated with Point & Figure charts is
the determination of price targets, both bullish and bearish.  I
won't go into the philosophy that is associated with determining
price targets.  But, I will take you through the methodology.

When determining a bearish price target, which is what I'll focus
on in this example due to market conditions, we want to zero in on
a stock's first sell signal generated after its latest buy signal.
For this example, we'll use Smith International (NYSE:SII).

The stock went on a buy signal in late July by printing an X up
at $57, taking out its previous column of X's at $56.  However,
almost immediately after $56 was printed, Smith headed back down
to a sell signal by taking out its last column of O's at $52.
When the move down was completed, Smith printed its final O in the
column at $47.  So, including the reversal at $56, Smith printed
a total of 10 O's in its column after it stopped dropping at $47.
The number of O's in the column, which followed the latest buy
signal but also generated a sell signal, is our magic number.  In
the case of Smith, our number is 10.  We then take that number,
multiply by 2, and arrive at our subtracting amount: $20.  We
subtract $20 from the first O in the column that followed the
latest buy signal and also generated the sell signal.  In
Smith's case, that O lied at $56.  Well, guess what?  When we
subtract $20 (our subtracting amount) from $56, we arrive at $36.
Guess where Smith rebounded from last week...

This practice is half voodoo, half market psychology, and half...
wait, that's too many halves.

The point with bearish price objectives is that, once again, a
bullish trader trying to pick an intelligent bottom can get a
much better hold on risk through employing this practice.  In
Smith's case, buy the stock at its bearish price objective of
$36.  If you get stopped out at $35, so what?  The stock isn't
paying attention to its bearish price objective so it's
probably headed much lower.  And again, I'm not telling you to
buy Smith.  Like the DISCLAIMER below says: "This column is an
information service only."  WHOA!  I hope that I provide something
more than plain ole' information.


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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For the week of September 24, 2001

Next week's main economic events include the Consumer
Confidence report, Existing Home Sales and New Home Sales.
Earnings warnings from several sectors will garner some
additional attention, but the political front is likely
to be the primary focus.

Leading Indicators     Aug  Forecast:  -0.1%   Previous:   0.3%

Consumer Confidence    Sep  Forecast:  109.0   Previous:  114.3
Existing Home Sales    Aug  Forecast:  5.20M   Previous:  5.17M


Initial Claims        9/22  Forecast:   410K   Previous:   387K
Durable Orders         Aug  Forecast:  -0.4%   Previous:  -0.7%
Help-Wanted Index      Aug  Forecast:    N/A   Previous:     58
New Home Sales         Aug  Forecast:   922K   Previous:   950K

Chain Deflator-final    Q2  Forecast:   2.2%   Previous:   2.2%
GDP-final               Q2  Forecast:   0.1%   Previous:   0.2%
Mich sentiment-rev     Sep  Forecast:   79.0   Previous:   83.6
Chicago PMI            Sep  Forecast:  42.3%   Previous:  43.5%

Week of October 1
Oct 01 Auto Sales
Oct 01 Truck Sales
Oct 01 Personal Income
Oct 01 PCE
Oct 01 Construction Spending
Oct 01 NAPM Index
Oct 02 FOMC Meeting
Oct 03 NAPM Services
Oct 04 Initial Claims
Oct 04 Factory Orders
Oct 04 FOMC Minutes
Oct 05 Nonfarm Payrolls
Oct 05 Unemployment Rate
Oct 05 Hourly Earnings
Oct 05 Average Workweek
Oct 05 Consumer Credit

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The Option Investor Newsletter                   Sunday 09-23-2001
Sunday                                                      2 of 5

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Note: Options involve risk. Risk disclosure:


Call Play of the Day:

GE - General Electric $31.30 (-8.05 last week)

See details in sector list

Put Play of the Day:

BBY - Best Buy $43.40 (-10.65 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.

QQQ $28.19 (-5.91) Our QQQ play came to an end last Friday as the
contract took out its lows set during the prior sessions.  The
game of picking bottoms is difficult, but should only be pursued
with stringent risk management.  Hopefully traders took the
appropriate steps to manage risk in this play.  Those with open
positions should look to any strength early next week as a
possible exit point.

AMGN $56.02 (-8.11) The biotech sector succumbed to heavy selling
last Friday, which was most unfortunate for our AMGN play after
it rebounded last Thursday.  Nevertheless, we're dropping the
play this weekend.  Traders should look for a bounce from the
$55.25 level early next week if the stock continues falling.
Conversely, to the upside, resistance is around the $58.25 level.

BGEN $53.30 (-7.01) Bullish Biotech investors tried valiantly
to buck the sharp downward all week, but in the end the bears
won out.  The Biotech index (BTK.X) fell again on Friday, coming
to rest just above the April lows, and that dragged our BGEN
play sharply lower.  Despite sharp rally after the negative
open, BGEN succumbed to the bears, falling all afternoon and
giving up all it's intraday gains.  Given the poor performance
and a violation of our $55 stop, there's no way to rationalize
keeping the play active.  Use any rally next week as an
opportunity to exit open positions at a better price.

FDX $34.45 (-5.53 last week) There's no question it was a rough
week and FDX fell sharply with the rest of the Transportation
sector early in the week.  Given the fact that the company very
quickly got back to normal operations and Energy prices were
expected to fall, it looked like a solid bullish play.
Unfortunately, it never really got moving and fell below our stop
on Friday.  We're dropping the play this weekend, as the daily
highs have continued to fall, possibly pointing to a new breakdown
next week.

P $54.17 (-4.39) We initially added P as a play on decreasing
energy costs and reduced demand for that energy.  With profits
likely to be squeezed, it seemed like a no-brainer.  But the
market had other things in mind.  Even though crude oil prices
continue to fall, the Oil Services sector seems to be finding
support near current levels and P staged a pretty solid gain on
Friday.  Our $56 stop is still in place, but we're going to take
a pre-emptive exit due to the strength of Friday's gains.


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.


SYMC - Symantec $36.96 (-4.54 last week)

Symantec Corp. provides a broad range of content and network
security solutions to individuals and enterprises. The Company
is a provider of virus protection, firewall, virtual private
network (VPN), vulnerability management, intrusion detection,
remote management technologies and security services to consumers
and enterprises around the world.

The Nimba virus is wreaking havoc on networks across the world.
It's been overshadowed, and rightfully so, by the terrorist
events in the United States.  But the virus is a threat in its
own right and is sparking demand for software from the likes of
Symantec.  For its parts, SYMC appeared to trace somewhat of a
short-term bottom late last week, which may portend further
upside in the stock once the selling pressure across the
broader markets subsides.  The stock charged higher going into
the weekend last Friday, on only faces some minor challenges
above current levels.  The stock has slight, short-term
resistance around the $37.50 area, but beyond that it has a
relatively clear path to $40.  The favorable technical set-up
combined with the demand for the company's product makes SYMC
an enticing play at current levels.  Any strength in the GSO.X
earlier next week in conjunction with a firming of the Nasdaq
should allow SYMC to work higher.  In that event, bullish
traders can use a solid advance through the aforementioned
resistance area to take new entries in this play.  If the
stock does pullback, however, look for a bounce from the $36
level.  Our stop is initially set at the $34 level.

BUY CALL OCT-35*SYQ-JG OI= 86 at $4.40 SL=3.00
BUY CALL OCT-40 SYQ-JH OI=343 at $2.45 SL=1.25
BUY CALL JAN-35 SYQ-AG OI=  2 at $7.50 SL=5.25
BUY CALL JAN-40 SYQ-AH OI= 66 at $5.40 SL=3.75

Average Daily Volume = 2.02 mln

RTN - Raytheon $34.04 (+9.19 last week)

Raytheon Company is in the business of defense electronics,
including missiles; radar; sensors and electro-optics;
intelligence, surveillance and reconnaissance; command, control,
communication and information systems; naval systems; air traffic
control systems; aircraft integration systems; and technical
services. Raytheon's commercial electronics businesses leverage
defense technologies in commercial market.

Raytheon's products are in high demand.  And for good reason.
The market is betting that Raytheon is going to see a surge in
new orders for its defense-related products as the United States
Defense Department ramps capital expenditures.  The stock's
price action seems to confirm those leanings.  Like many
defense sector stocks last week, RTN gapped enormously higher
Monday morning, but pulled back throughout the week.  While
others in the group retraced about half of their first day
moves and remained near the lower-end of last week's ranges,
RTN rallied higher into the close Friday, which reinforced the
bullish outlook of this company.  Bullish traders looking for
new plays in the defense sector can consider taking call
positions in RTN at current levels, around the $34 area.  Those
momentum traders seeking further confirmation of upside can
use a solid advance above the $35 level to take new entries into
this play.  The stock spiked up to that level late last Friday,
and it may serve as short-term resistance going forward.  Above
that level, the stock's high last Monday was right at the $36
level.  Again, bullish trades will want to be cognizant of that
level in terms of resistance before entering new plays.  Below
current levels, the stock should see support around $33, which
may also provide an entry point on any forthcoming weakness.
Stops are initially in place at the $32 level.

BUY CALL OCT-30*RTN-JF OI= 475 at $4.80 SL=3.00
BUY CALL OCT-35 RTN-JG OI= 136 at $1.65 SL=0.75
BUY CALL NOV-30 RTN-KF OI=2304 at $5.50 SL=3.25
BUY CALL NOV-35 RTN-KG OI=1471 at $2.60 SL=1.75

Average Daily Volume = 1.68 mln

GE - General Electric $31.30 (-8.05 last week)

As one of the largest and most diversified industrial companies
in the world, GE's products include major appliances, lighting
products, industrial automation equipment, medical diagnostic
equipment, electrical distribution and control equipment and
power generation and delivery products.  Additionally, GE
provides commercial and military aircraft jet engines,
locomotives and nuclear power support services.  Through the
National Broadcasting Company (NBC), GE delivers network
television services, operates television stations and provides
cable, Internet and multimedia programming and distribution

It was a heck of a week and there were few stocks that managed
to survive without some serious collateral damage.  GE saw it's
share price cut by more than 20%, hitting a low of $28.50 Friday
morning.  But buyers snapped up the stock right from the open,
helping the industrial giant to recover back over the $31 level.
Driven by scared investors running for the exits, GE had its
worst week ever.  So why is it on the call list?  Consistency.
The company confirmed Friday morning that they would continue
to deliver double-digit revenue growth from their diversified
operations.  This is a play on a broad market recovery as GE
moves in tandem with the DJIA.  It was encouraging to see
Friday's rebound come on such heavy volume, and we're betting
this was a solid reversal.  Accordingly, we'll target fresh
intraday dips near the $30-31 level and hold on for the rebound.
Resistance is looming overhead near $32.50, followed by $36.
Traders waiting for strength before entering will want to target
a high-volume move above $32.50.  We are setting our stop at $28,
just below Friday's intraday low.

BUY CALL OCT-30*GE-JF OI= 2204 at $3.10 SL=1.50
BUY CALL OCT-32 GE-JZ OI= 5968 at $1.75 SL=1.00
BUY CALL OCT-35 GE-JG OI=10856 at $0.85 SL=0.00
BUY CALL DEC-30 GE-LF OI= 2230 at $4.10 SL=2.50
BUY CALL DEC-32 GE-LZ OI=  338 at $2.80 SL=1.50
BUY CALL DEC-35 GE-LG OI= 1959 at $1.75 SL=1.00

SELL PUT OCT-30   GE-VF OI= 3500 at $1.50 SL=3.00
(See risks of selling puts in play legend)

Average Daily Volume = 19.5 mln

NOK - Nokia Corporation $15.65 (+1.90 last week)

Nokia is a mobile phone manufacturer and a supplier of mobile,
fixed and Internet protocol (IP) networks and related services.
The company has two primary business groups, Nokia Networks and
Nokia Mobile Phones.  Nokia Networks is a supplier of mobile,
broadband, IP network infrastructure and related services.  It
also develops mobile Internet applications and solutions for
operators and Internet service providers.  Nokia Mobile Phones
is the world's leading mobile phone manufacturer, having won
the war of attrition against rivals Motorola and Ericsson.

Information and intelligence will be the most valuable weapons
in the war on terrorism, and the use of cell phones on September
11th demonstrated just how useful these wireless communications
devices can be.  In fact, recent events are forcing analysts to
re-examine their assumptions about total market penetration that
they can ultimately expect, as consumers that never considered
owning a wireless phone are now viewing them as essential
personal security devices.  That realization hit the markets
early on Monday, helping NOK (the dominant player in the
wireless handset game) to continue its rebound off it's recent
lows near $12.75.  While the broad markets spent all week in
free fall, NOK tacked on a respectable 10%...and on heavy volume.
We're looking for the trend to continue, especially if the broad
markets can shake off their fascination with the law of gravity.
Monday's gap still needs to be filled and then we should see the
stock take a run at resistance, first at $17-18, and then $20-21.
We're initially placing our stop at $13, just in case the bulls
lose their way.

BUY CALL OCT-15*NOK-JC OI= 8445 at $2.25 SL=1.00
BUY CALL OCT-17 NOK-JW OI=34528 at $1.10 SL=0.50
BUY CALL JAN-15 NOK-AC OI=25254 at $3.30 SL=1.50
BUY CALL JAN-17 NOK-AW OI=10885 at $2.10 SL=1.00
BUY CALL JAN-20 NAY-AD OI=46472 at $1.45 SL=0.75

SELL PUT OCT-12.5 NOK-VV OI= 6469 at $0.40 SL=1.00
(See risks of selling puts in play legend)

Average Daily Volume = 12.3 mln

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The Option Investor Newsletter                   Sunday 09-23-2001
Sunday                                                      3 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:



With an optionsXpress account, you have access to our easy-to-use,
online analysis tools, like our new Option Dragon!  The Dragon can
scan the market in real time for a top 50 ranking of matching stocks
and their options based upon various criteria, like stock or option
volume, P/E, volatility, open interest, etc. Find out more at

Note: Options involve risk. Risk disclosure:


ATK - Alliant Techsystems $80.61 (+15.32 last week)

Alliant Techsystems conducts business through three industry
segments: Aerospace, Conventional Munitions and Defense
Systems.  Within these segments, Alliant has four business
lanes: Propulsion and Composites, each of which falls within
the company's Aerospace segment; Conventional Munitions, which
corresponds to the Company's Conventional Munitions segment;
and Precision Capabilities, which corresponds to the company's
Defense Systems segment.

ATK traded as high as $85 early Friday morning, which most
certainly should've allowed those traders who entered on the dip
down at the $75 level to book some gains.  After all, $10 is a
meaty move in just two days.  It seems that market participants
in the underlying were thinking along those lines anyway.  ATK's
intraday pullback down to the $78 level last Friday could've
again offered favorable entry points.  With as much as the stock
is up last week, it only makes sense to look for pullbacks when
searching for entry points.  That way, bullish traders can
measure and manage risk much more effectively rather than trying
to chase the stock higher.  Stops are easy to quantify near
support levels, rather than trying to guess where to manage risk
after the stock has already made a run higher.  On that note,
we'll be looking for future pullbacks to gain entry into this
play.  The $78 level may continue to produce bids, and if it
does, bullish traders can use bounces from there to enter new
call positions.  Over the short-term, we'll reference the $85
level as resistance, thus an exit point.

BUY CALL OCT-75 ATK-JO OI=   0 at $9.10 SL=7.50  Wait for OI!!
BUY CALL OCT-80*ATK-JP OI=  28 at $6.00 SL=4.75
BUY CALL OCT-85 ATK-JQ OI=  68 at $4.00 SL=3.00
BUY CALL NOV-80 ATK-KP OI=1104 at $7.70 SL=6.00
BUY CALL NOV-85 ATK-KQ OI=1000 at $5.30 SL=4.00

Average Daily Volume = 152 K

MO - Phillip Morris $46.68 (-1.47 last week)

Phillip Morris is a holding company whose principal wholly
owned subsidiaries, Phillip Morris Inc., Phillip Morris
International, Kraft Foods, and Miller Brewing Company, are
engaged in the manufacture and sale of various consumer

MO succumbed to further market-related selling early last Friday,
but was able to rebound into the close.  We say 'market-related'
because there aren't too many fundamental reasons to be selling
MO at its current levels.  To revisit, its businesses are
relatively immune from the ebbs and flows of the economy, the
government, for the most part, is of its back, and the stock
yields an enticingly high dividend.  Those three factors are
all reasons to be buying the stock at current levels.  Its
weakness, on the other hand, could've stemmed from margin call
selling, insurance companies raising cash if they held MO, or
a variety of other broader market forces.  As such, we expect
MO to snapback once the Dow does the same thing.  In fact, we
expect MO to lead any forthcoming rebound.  That said, bullish
traders who are keen on timing the Dow can employ momentum based
strategies when trading MO.  In other words, if you're good at
timing market direction, consider using a breakout in MO above
its resistance levels for an entry point.  For resistance, MO
could face some congestion at the $47 level as that is the site
of its former support we touched upon late last week.  Beyond
that level, there exists some general congestion between the $48
and $49 levels.  But if we were to see a substantial recovery
rally in the coming weeks, MO could very well make its way above
the $50 level.

BUY CALL OCT-45*MO-JI OI=37420 at $3.00 SL=2.00
BUY CALL OCT-50 MO-JJ OI=18483 at $0.80 SL=0.25
BUY CALL DEC-45 MO-LI OI= 2469 at $4.30 SL=3.00
BUY CALL DEC-50 MO-LJ OI=17191 at $1.95 SL=1.00

Average Daily Volume = 5.89 mln

CMVT - Comverse Technology $25.08 (+3.08 last week)

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

For the most part, CMVT held up pretty well last Friday in light
of the weakness across the broader markets.  That price action
reinforced our stance on CMVT's relative strength.  However, the
stock once again ran into resistance at the $26.50 level, which
is roughly the site of its 200 PERIOD moving average on the 60
MINUTE chart.  For whatever reason, market participants are
using that level as a reference point when giving some supply to
the stock.  Going forward, it's going to take a solid rebound in
the Nasdaq to carry CMVT higher.  In addition, we need to see
confirming direction in the Networking Sector (NWX.X).  If we
see both the Nasdaq and the NWX advancing in conjunction with
a rally attempt in CMVT, then bullish traders could use a
breakout above the $26.50 level as a momentum-based entry point.
Otherwise, entries around current levels, namely, $25, can be
approached if CMVT continues to hold.  Further weakness could
see the stock down around the $24 are, which would also allow
for a low risk/potentially high reward entry point.  It would
be low risk because stops can be set relatively tight down
around the $24 area.

BUY CALL OCT-25 CQV-JE OI= 832 at $2.75 SL=1.25
BUY CALL OCT-30 CQV-JF OI=1755 at $1.05 SL=0.50
BUY CALL JAN-25 CQV-AE OI= 882 at $4.90 SL=3.00
BUY CALL JAN-30 CQV-AF OI=3264 at $3.00 SL=1.50

Average Daily Volume = 6.07 mln

ORCL - Oracle Corporation $10.76 (-0.70 last 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.

The historic market decline continued on Friday, driving ORCL
just below our $10.25 stop at the open, but strong buying volume
quickly lifted the stock back over the $10.60 level.  The stock
was clearly subject to the whims of the broad markets all day,
and after the opening volatility, settled into a narrow 30-cent
range, with the top near $11.10.  While it was encouraging to
see the stock recover off its lows, there just wasn't any buying
follow-through.  So that leaves us waiting for developments next
week to stimulate trading action.  Our plan is the same;
consider new positions on a volume-backed rebound above our
stop, or else wait for that buying volume to propel ORCL through
near-term resistance at $11.50.  The Software index (GSO.X) has
continued to decline all week, and if bargain hunters show up
there, ORCL could see a beneficial effect.  Keep in mind that
there is likely to be some significant resistance at $12 and
then again at $14.

BUY CALL OCT-10*ORQ-JB OI= 3646 at $1.60 SL=0.75
BUY CALL OCT-12 ORQ-JV OI=14260 at $0.55 SL=0.00
BUY CALL DEC-10 ORQ-LB OI= 1185 at $2.20 SL=1.00
BUY CALL DEC-12 ORQ-LV OI= 6573 at $1.15 SL=0.40
BUY CALL DEC-15 ORQ-LC OI= 9489 at $0.60 SL=0.00

SELL PUT OCT-10   ORQ-VB OI= 5855 at $0.70 SL=1.50
(See risks of selling puts in play legend)

Average Daily Volume = 36.8 mln

PPDI - Pharmaceutical Product Dev. $25.62 (+2.51 last 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.

In light of the wild gyrations in the broader market, trading
in shares of PPDI was rather calm, with the stock trading within
a $2 range all day, and posting a small fractional loss at the
close.  That keeps our play looking like a good bullish
candidate, owing to the impressive relative strength.  No doubt
a big part of that strength stems from the company raising its
Q3 earnings guidance Wednesday night, an uncommon event in the
current economic climate.  While volume fell back significantly
from Thursday's heavy action, we still saw 70% more shares trade
hands than the daily average.  With Stochastics on the rise, it
looks like there is still some room to run.  We're still looking
at intraday dips in the $23-24 area as attractive entries,
although more cautious traders will want to see PPDI clear the
$26 resistance level before taking a position.  Needless to say,
volume is going to be the key.  We're keeping our stop in place
at $22.

BUY CALL OCT-25*PJQ-JE OI=160 at $2.90 SL=1.50
BUY CALL OCT-27 PJQ-JY OI=309 at $1.70 SL=1.00
BUY CALL OCT-30 PJQ-JF OI=761 at $0.95 SL=0.50
BUY CALL JAN-25 PJQ-AE OI=  7 at $4.90 SL=3.00
BUY CALL JAN-30 PJQ-AF OI=464 at $2.90 SL=1.50
BUY CALL JAN-35 PJQ-AG OI= 92 at $1.60 SL=0.75

SELL PUT OCT-22 PJQ-VX OI=150 at $1.20 SL=2.50
(See risks of selling puts in play legend)

Average Daily Volume = 729 K

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The Option Investor Newsletter                   Sunday 09-23-2001
Sunday                                                      4 of 5

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BBY - Best Buy $43.40 (-10.65 last week)

Best Buy Company, Inc. is a specialty retailer of consumer
electronics, home office equipment, entertainment software and
appliances. The Company operates retail stores and commercial
Websites under the brand names Best Buy (BestBuy.com), Media Play
(MediaPlay.com), On Cue (OnCue.com), Sam Goody (SamGoody.com),
Suncoast (Suncoast.com) and Magnolia Hi-Fi (MagnoliaHiFi.com).
Best Buy stores account for 68% of the Company's total retail
square footage.

We completed a few checks of local malls last week.  And our
findings were most disconcerting.  Relatively empty parking lots,
an obvious lack of patrons, and few cash registers ringing all
pointed to one thing: No consumers.  The sad fact is that the
attacks on America have shunned consumers from spending.  The
price action in major retailers last week revealed that much.
And BBY is no exception.  Its high ticket electronic items have
seen a huge slump in demand in the week following the terrorist
attacks, and we see that trend continuing over the short-term.
The stock traced yet another relatively low last Friday, and
appears to be headed to the $35 to $30 area.  Bearish traders,
who prefer entering plays with the trend, can look to take new
put positions early next week on further weakness below current
levels.  Just make sure to confirm weakness in the SPX.X and
the RLX.X before pursuing a momentum strategy.  BBY could
rebound next week if the shorts decide to cover, so we're
going to start with a loose stop up at $49.  If the stock does
rebound, start looking for rollover entries around the $45 to
$46 range.

BUY PUT OCT-45*BBY-VI OI=3010 at $5.40 SL=3.00
BUY PUT OCT-42 BBY-VV OI= 371 at $4.10 SL=2.75

Average Daily Volume = 2.62 mln

SV - Stillwell Financial $18.98 (-6.89 last week)

Stilwell Financial Inc. is a diversified, global financial
services company with operations through its subsidiaries and
affiliates in North America, Europe and Asia. Stilwell's
subsidiaries and affiliates are engaged in a variety of asset
management and related financial services to registered investment
companies, retail investors, institutions and individuals. The
primary entities comprising Stilwell, as of December 31, 2000,
were Janus Capital Corporation, an approximate 82.5%-owned
subsidiary; Stilwell Management, Inc.

Mutual funds are seeing massive redemptions as investor flee
the risks associated with equities.  Granted, bond funds have
seen large inflows.  But unfortunately, Janus isn't known as
a bond shop.  Its specialty is, or perhaps was, high growth
equities.  And high growth equities are among the least favorite
of the individual investor.  Janus is of course a subsidiary of
Stilwell, and its stock is reflecting the pessimism surrounding
the asset management business.  Janus funds were struggling
before the terrorist attacks, but the sell-off across the
market last week only added to the poor performance of their
funds.  That will only add for investors' distaste of aggressive
growth funds, and should continue to pressure shares of the
parent, Stillwell.  SV broke below the psychologically significant
$20 last Friday and traced a most bearish candlestick pattern on
its daily chart.  The reversal last Friday portends further
downside over the short-term, and bearish traders looking to
enter new put plays can use a breakdown below SV's intraday low
last Friday at the $18.70 level as an entry point.  A gap filling
rally back up to the $20.75 level would also provide a solid
entry should SV rebound.  Our stop is initially in place just
above that gap at the $21.00 level.
BUY PUT OCT-22 SV-VX OI=506 at $4.00 SL=3.00
BUY PUT OCT-20*SV-VD OI= 10 at $2.10 SL=1.25

Average Daily Volume = 948 K

EBAY - eBay, Inc. $43.79 (-10.78 last week)

After developing a Web-based community in which buyers and
sellers are brought together in an efficient format, EBAY has
emerged as the dominant online auction site.  The eBay dynamic
pricing format permits sellers to list items for sale, buyers to
bid on items of interest and all eBay users to browse through
listed items.  Items listed on eBay include collectibles,
automobiles, art objects, jewelry, consumer electronics and a
host of practical and miscellaneous items.  Although based in
the United States, through its subsidiaries, EBAY also operates
trading platforms in Germany, the United Kingdom, Australia,
Japan, Canada, France, Austria, Italy and South Korea.

As the last of the surviving Internet stocks that hasn't been
reduced to a mere shadow of its former self, EBAY sports
something that is getting the bears' attention.  A PE ratio of
145!  That's right, a triple-digit PE ratio.  One-by-one, all
of yesteryear's high-flying Tech stocks have had their wings
clipped.  Now it's EBAY's turn and from the looks of things the
party already started without us.  We've attempted to game this
stock to the downside a couple times recently, but every time we
do, those stubborn bulls refuse to go along.  Well, after the
drubbing they took last week, and with numerous support (well,
previous support) levels now looming overhead, it looks like
the momentum has shifted in favor of the bears.  Now that the
200-dma (currently $50.30) has been broken, we've got a
formidable resistance level to give us a ceiling for the stock.
EBAY is oversold along with the rest of the market and screaming
for a bounce.  When it comes, we'll be looking for a fresh Put
entry as the stock rolls over, so long as it comes below the $50
level (the site of our stop).  A weaker rebound may run into
resistance near the $47 resistance level and that would likewise
provide for an attractive entry.  Now that we've got some
downward momentum working for us, EBAY seems likely to revisit
its April lows near $30, and we want a piece of that action.

BUY PUT OCT-45*QXB-VI OI=3900 at $5.60 SL=3.50
BUY PUT OCT-40 QXB-VH OI=2544 at $3.30 SL=1.75

Average Daily Volume = 6.06 mln


NVLS - Novellus Systems $28.55 (-9.28 last week)

Novellus manufactures, markets and services advanced systems
used to deposit think conductive and insulating films on
semiconductor devices, as well as equipment for preparing
the device surface for these deposition processes.

NVLS appeared to have completed somewhat of a short-term
bottom last Friday, even though the Philadelphia Semiconductor
Index (SOX.X) continued lower.  We don't want to alarm bears
with that suggestion.  Rather, bearish traders with open
positions in NVLS should be on alert for possible upside from
current levels.  Unless we see a rollover early next week in
this play, those traders with open positions should be thinking
about ways to lock in some of the gains we captured last week.
That could take the form of setting tight stops to the upside,
or even taking positions in the underlying, on a ratio basis,
against the puts open.  Either way, traders should be thinking
about risk management at current levels.  If the stock does
rebound early next week, it could set up another favorable entry
opportunity as NVLS approaches resistance.  In terms of
resistance, however, there are not a lot of levels to
reference.  Our first thought is that the $30 level could lure
the shorts back into this stock.  It proved to be resistance
last week, and could do the same next week.  Above that, NVLS'
day high last Wednesday was around the $32 level, which is the
site of our lowered stop.  That level could prove formidable
should $30 be broken above.  To better time new entries, traders
should keep tabs on the SOX for sector confirmation.

BUY PUT OCT-30*NLQ-VF OI=556 at $4.20 SL=2.75
BUY PUT OCT-25 NLQ-VE OI=286 at $1.85 SL=1.00

Average Daily Volume = 6.52 mln

PMCS - PMC-Sierra $14.96 (-9.78 last week)

PMC-Sierra designs, develops, markets and supports high
performance semiconductor networking solutions.  The company's
products are used in high speed transmission and networking
systems, which are being use to restructure the global
telecommunications and data communications infrastructure.

When we suggested last week that PMCS would go the way of its
fallen brethren in the Networking sector we didn't expect it to
happen so quickly.  But last Friday's massive sell-off took
PMCS down to the mid-teens.  Now, bearish traders with open
positions have some decisions to make.  Obviously PMCS' drop
Friday could've allowed traders to book some handsome profits
into the weakness.  And that's what we'd prefer traders to do
when exiting plays.  Namely, exit for profit into weakness
instead of being stopped out to the upside on any short
covering rally.  The question at this juncture is whether or
not PMCS is going to work towards the $10 level, adding to
the profits of those with open positions.  We don't like
being greedy, so at the very least we'd suggest that traders
use any further weakness below current levels to take some
money off the table.  But, that much is up to each individual
reader.  For entering new plays, we'd actually like to see
PMCS rebound, thus entering at higher levels.  Although the
stock could continue lower, the risk in entering new positions
at current levels is difficult to quantify, let alone manage.
That said, a rebound up around $17 to $18 would offer a much
better entry in terms of risk management.  We've lowered our
stop down to the $17 level.

BUY PUT OCT-17 SQL-VW OI=168 at $4.10 SL=2.75
BUY PUT OCT-15*SQL-VD OI=233 at $2.55 SL=1.75

Average Daily Volume = 8.53 mln

CHKP - Check Point Software $24.12 (-8.87 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.

We're facing a dilemma in the CHKP play that is similar to
other put plays on the Option Investor put list.  The stock is
extremely oversold, so it's difficult determining risk in
entering new plays at current levels.  Of course, its further
weakness last Friday should've given those with open positions
plenty of opportunities to take some profits.  We tend to
think that the stock has further downside from current levels,
but exactly how much is hard to determine in the current
economic and market uncertain environment.  The $24 level held
pretty well last Friday, which may have been a site where
shorts were taking in some of their bearish bets.  That said,
if the $24 level gives way early next week, we could see CHKP
ultimately make its way down to the psychologically significant
$20 level.  In the meantime, we'd feel more comfortable entering
new positions on a rebound back up to a meaningful resistance
level, such as $26 or higher around $28.  For OI's part, we've
lowered our stop on this play down to the $29 level, but
individual traders should consider a tighter stop, depending
on risk tolerance and unique entry points.

BUY PUT OCT-25*KEQ-VE OI=5779 at $3.90 SL=2.50
BUY PUT OCT-22 KEQ-VX OI=2321 at $2.60 SL=1.50

Average Daily Volume = 10.5 mln

HDI - Harley Davidson $38.71 (-5.47 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).

Harley traded as low as $32 Friday morning!  That was almost $7
away from where the stock closed.  Although its rebound from its
opening gap lower, hopefully bearish traders with open positions
had the opportunity to take profits into that overwhelming
weakness.  Sell limit, anyone?  In all seriousness, HDI's
reassuring comments Friday morning, which sparked the rebound,
should be taken with a grain of salt.  It's tough to imagine that
HDI won't be impacted by a drop in consumer spending.  After all,
its bikes were selling at a decreasing pace before the attacks!
But, HDI's comments Friday morning, and the ensuing price action
in the stock, may have been a good thing as far as we're
concerned.  The stock is now setting up for future entry points
from the short side, and a rollover near the $40 level early
next week would offer a favorable entry point.  Our stop resides
at that level for good reason, and bearish traders who take
entries at that level can use an ultra tight stop to manage risk
in new put entries.  Beyond $40, the stock should face congestion
up around $41.50.

BUY PUT OCT-40*HDI-UJ OI= 201 at $3.90 SL=2.75
BUY PUT OCT-35 HDI-UI OI=6854 at $1.70 SL=1.00

Average Daily Volume = 1.49 mln

CHV - Chevron $84.01 (-7.69 last week)

Chevron manages its investments in, and provides administrative,
financial and management support to, United States and foreign
subsidiaries and affiliates that engage in fully integrated
petroleum operations, chemicals operations, coal mining and
energy services.

Of course we were happy to see CHV dip down to the $81 level
last Friday morning.  Hopefully, that dip allowed traders to
book some chunky gains in this play because there were a few
signs in the energy market last Friday that were a cause for
concern, at least for us leaning bearish.  Although the Oil
Index (OIX.X), of which CHV is a member, finished decidedly
lower, the Oil Service Index (OSX.X) finished strongly.  In
fact, the OSX looks like it's putting in a short-term bottom.
We're not sure what the catalyst is behind this move.  But
isn't that always the case?  The bids in the OSX could've been
short covering, but they also could've been foreshadowing a
military strike in the oil rich middle east.  It's difficult
to intelligently speculate on the outcome at this point, but
we wanted to pass along our observations nonetheless.  CHV
will likely lag any rebound in energy due to its integrated
nature.  The simple fact remains that demand is on the down
low for energy.  Nevertheless, bearish traders should be
ratcheting down stops in open positions.  We'd like to see a
rollover from current levels early next week, which would
allow for new positions to be taken, but pay attention to that
stochastics reading on the daily chart!

BUY PUT OCT-90*CHV-VR OI= 973 at $7.10 SL=5.00
BUY PUT OCT-85 CHV-VQ OI=1292 at $3.80 SL=2.75

Average Daily Volume = 2.38 mln

CTX - Centex $30.08 (-8.26 last 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

Our Centex add Thursday and its subsequent rebound Friday is
a pertinent study of the risks of entering oversold short plays.
But that's why we initiated coverage with a liberal stop.  We
strongly believe that the housing market has further downside.
Anything consumer related, unfortunately, appears susceptible
to further downside from current levels.  In the meantime, we
could see further upside in this play as the shorts cover and
the stock's oversold condition is worked off.  But to be
perfectly honest, that would be alright with us.  If CTX works
higher from current levels, that would only allow us to gain
better put entries at higher prices and with "easier" risk
management procedures.  Looking higher, resistance could form
around the $31.50 level first, possibly a little higher around
$32.  Above that, we're likely to see sellers emerge around the
$34 level.  Granted, $4 from current levels is a LARGE move,
but it could set up a very nice put entry, so we'll take it
if it comes our way.

BUY PUT SEP-35 CTX-VG OI=4027 at $6.50 SL=5.00
BUY PUT SEP-30*CTX-VF OI=  67 at $3.20 SL=1.75

Average Daily Volume = 795 K

ENE - Enron $28.30 (-4.46 last week)

Originally only an energy company, in recent years ENE has moved
into the communications market as well.  Through its
subsidiaries, the company is primarily engaged in the
transportation of natural gas through pipelines throughout the
United States, and the generation, transmission and distribution
of electricity to markets I the northwestern United States.  ENE
also markets natural gas, electricity and other commodities and
finance services worldwide.  Most recently, the company has
moved into the Communication business, developing an intelligent
network platform to provide bandwidth management services and
deliver high bandwidth applications.

Despite our premise that Energy stocks would be squeezed by
declining prices and reduced demand, we've seen the Oil Services
sector (OSX.X) and the Natural Gas index (XNG.X) firm over the
past few days.  That's not the kind of market action we're
looking for in our quest to ride ENE lower.  While it hasn't
started what we could call a rebound, the stock has definitely
found some support near $26.  Of course, it did the same thing a
week ago near $30, posted two modest green candles and then
promptly turned around and smashed through support.  Well, we're
looking for a repeat performance.  ENE has been in an
ever-tightening downward spiral for months now, and managed to
find some support at $25.50 last week.  We're looking for the
$30 level to turn back the bulls, so we've set our stop at
$30.25 and are looking for any rollover below that level to
trigger new entries into the play.  Then we'll ride the next leg
down, as we expect to see a test of the $20-21 support level in
the near future.  That will be a good level to harvest some

BUY PUT OCT-30*ENE-VF OI=15678 at $3.80 SL=2.25
BUY PUT OCT-27 ENE-VY OI= 5524 at $2.35 SL=1.25
BUY PUT OCT-25 ENE-VE OI= 4252 at $1.40 SL=0.75

Average Daily Volume = 4.67 mln

PHA - Pharmacia $38.35 (-1.80 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.

Much like the broad markets, PHA gapped significantly lower
($36.96) Friday morning and then recovered sharply.  Agile
traders took the opportunity to harvest some gains on the
opening dip and spike in volatility, putting them in a position
to watch for a fresh entry point.  Drug stocks as measured by
the Pharmaceutical index (DRG.X) didn't fare nearly as well, and
we'd look for the sector weakness to continue dragging PHA lower
in the week ahead.  With solid resistance at $40, we're shifting
our stop down to that level, and will look for fresh entries on
a failed rally that runs out of steam in the $39-40 area.
Otherwise, target a drop under $37 for fresh positions.  So long
as the DRG remains weak and selling volume is strong, PHA should
have a hard time managing anything approaching a sustained rally.

BUY PUT OCT-40*PHA-VH OI=2173 at $3.10 SL=1.50
BUY PUT OCT-35 PHA-VG OI=2761 at $0.95 SL=0.50

Average Daily Volume = 4.63 mln

SEBL - Siebel Systems $13.33 (-6.25 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.

Another stellar Put play, SEBL is the stock that just can't
shake its fascination with the law of gravity.  Of course, it
doesn't help that the Software sector (GSO.X) is in a
never-ending descent as well.  Friday's weakness dropped both
the GSO index and SEBL to new yearly lows, but our play is
starting to show some signs of life.  Increasing buying volume
as we headed into the close for a potentially news-filled
weekend has me a little nervous.  We've managed to enjoy quite
a ride from SEBL since we picked it near $22, and now that
we've tightened our stop to $14, we're guaranteed to harvest a
sizable gain.  Any failed rally attempt below that level could
be used for a fresh entry for a decline into the $9 area, but
now is the time to be careful.  The market is just looking for
an excuse to rally, and if it does, SEBL will likely go along
for the ride.  If the selling does continue next week, consider
taking profits near the $12 or even $9 support levels.

BUY PUT OCT-15*SGQ-VC OI=1074 at $3.10 SL=1.50
BUY PUT OCT-12 SGQ-VV OI=1138 at $1.60 SL=0.75

Average Daily Volume = 13.4 mln

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Capitulation?  Not Yet, But We're Getting Close!
By Mark Phillips
Contact Support

For those that caught my mid-week update, you know I was
questioning the validity of the late-day bounce on Wednesday, as
I felt it didn't have enough "oomph" to be called a reversal.
Sure enough, Thursday morning proved that it had only been
short-covering as we saw the indices wilt throughout the day,
with the S&P500 (SPX.X) coming to rest below 1000 for the first
time since late 1998.

In a rare deviation from my normally strict discipline, I'm
going to keep Philip Morris (NYSE:MO) alive in the Portfolio,
even though it violated our $47 stop.  I was really impressed
with its strength on Friday afternoon, and I think this is a
clear case of setting the stop too tight.  So I'm lowering the
stop slightly to $46, and we'll stick with it at that level.

On Wednesday I discussed the drops of both Walt Disney
(NYSE:DIS) and Global Marine (NYSE:GLM) and tonight I'm adding
Clorox (NYSE:CLX) to the list.  That leaves us with 2 itty-bitty
plays in the Portfolio, and one of them is new this week.  It's
hard to pinpoint decent long trades that don't get wiped out
when the broad markets are in free fall, so it should come as
no surprise that our Portfolio is so thin.

But this too shall change.  With extreme oversold conditions and
the VIX charging as high as 57.31 level Friday morning, we are
getting very close to the next reversal, in my opinion.  How
long it will last is anyone's guess, but you can bet we'll be
playing it here in the LEAPS column and following our positions
up with tight stops.  If you remember from my Wednesday update,
I'm looking for the SPX to test the 900-950 level before we get
a good tradable rally.  I've copied my monthly SPX chart below,
along with my Wednesday comments for those of you that missed it
the first time around.  The SPX dropped right to the 944 level
on Friday morning before the short-covering bounce.  Whether
we'll continue that rebound on Monday is anyone's guess and
depends heavily on what news breaks between now and the next
opening bell.  But we've now reached the upper level of what I
consider to be a key technical level.  Heaven help us if the
bears manage to push the SPX below 900, as that could open the
door to a lot more pain, with 800 being the next level of
potential support.

Whether that is THE BOTTOM is anyone's guess.  I won't even
insult your intelligence by trying to answer that question from
here.  Simply put, nobody knows...and anyone who tells you
differently is either a complete fool or a liar.  Either way,
you don't want to listen to them.  I've said it before -- when
you see signs of economic improvement in your own neighborhood,
then you'll know that we've reached the bottom.  Until then, it
is only a guessing game, as the Fed and our government race the
now-full-blown recession, still trying to head it off at the

Before the devastating events of September 11th, the water was
still murky, but now it is crystal clear and there is an ugly
monster lurking just under the surface.  You know the one I'm
talking about...earnings warnings.  What was going to be another
negative quarter is likely to be filled with dire predictions
now, following the collapse of the Travel and Leisure industries,
and Retail and Housing are not far behind.  This bear market is
18 months old now and from the looks of the last week's trading
activity, he's just starting to hit his stride.  Playing the
long side has been a risky game lately (that is if you can find
a bullish chart to trade) and stop losses are the only thing
that can keep you out of the poor house, even when you pick the
right plays.

In contrast to the nearly-empty Portfolio, the Watch List is
getting pretty full, as we endeavor to line up high-odds plays
with reasonable entry targets prior to the next rally.  Note
that several of our Watch List stocks are currently trading
right in the middle of our targets, just begging us to jump into
them.  But that's not going to happen until we see signs of
strength and solid buying volume to propel them above these
ranges.  And gaps don't count!  As I've pointed out here in the
past, we don't want to chase gaps, as these always need to be
filled.  When the price comes back to fill the gap, that's when
we want to strike.

General Dynamics (NYSE:GD) is a good example of this, in my
opinion.  Gapping sharply higher on Monday morning, we didn't
get anywhere near our previously issued entry target, and we
have yet to have seen a decent entry.  I fully expect the
emotionally charged markets to allow GD to fall back a bit and
give us a solid entry near $75-76...possibly on the next cycle
of the daily Stochastics.  So what if I'm wrong, and the stock
continues up from here?  We don't enter the play and miss out
on some profits.  But I think that is far preferable to rushing
our entry and then having the position move against us.
Remember, discipline is the skill that will keep you alive as
a trader over the long run.

There's a gap to fill on the daily chart of our newest Watch
List play as well, and I fully expect Nokia (NYSE:NOK) to fill
that gap before it really gets moving significantly higher.
Remember, patience is a virtue, not a weakness.

I really wanted to cover LEAP Puts in my Wednesday column before
now, but external events have conspired to take precedence over
the past 2 weeks.  Barring another unforeseen disaster, we
should be on schedule to cover that topic starting on Wednesday.
Then, when the next rally attempt fails, we'll be ready with a
longer-term down-side strategy.

I actually have a hypothesis on how the next bottoming process
will play out, but unfortunately I don't have the time or space
to cover it this weekend.  So, I'll devote my Monday article to
explaining what I'll be looking for in terms of chart formations
to convince me we have a high-odds bullish trading opportunity.
Needless to say, I don't expect it to materialize on Monday, and
realistically it should take a couple weeks to set up after the
first apparent bottom.

Of course I could be full of beans, and I'll rely on you, my
loyal readers, to point that out if need be.  But here's the tip
of the iceberg...Have you noticed that the last several major
lows in the market have been accompanied by TWIN PEAKS in the
VIX?  Well, Friday's spike above 57 in the VIX certainly
qualifies as a peak.  Will we get another one to go along with
it?  I think so.  Take a look back through your charts of the
VIX and the S&P500 (SPX.X) this weekend and see if you don't see
what I do.  Then we can compare notes on Monday.

In closing, I want to say a heartfelt thank you to all who wrote
with encouraging comments about the mid-week update.  All the
kind words are greatly appreciated, and I'm sorry I don't have
the time to respond to each of you personally.  I will endeavor
to provide mid-week commentary and Portfolio updates as time
permits and market conditions warrant.  And of course, questions
and comments are always welcome.

Best Wishes for a safe and profitable week!

Mark Phillips
Contact Support

LEAPS Portfolio

Current Open Plays


MO     07/30/01  '03 $ 45  VPM-AI  $ 6.10  $ 7.20   18.03%  $ 46
PCS    09/17/01  '03 $ 25  VVH-AE  $ 5.00  $ 5.30    6.00%  $21.50
                 '04 $ 25  LVH-AE  $ 7.10  $ 7.50    5.63%  $21.50

LEAPS Watchlist

Current Possibles


CPN    07/08/01  $22-23        JAN-2003 $ 25  OLB-AE
                            CC JAN-2003 $ 25  OLB-AE
                               JAN-2004 $ 30  LZC-AF
                            CC JAN-2004 $ 30  LZC-AF
ENE    07/29/01  $24           JAN-2003 $ 25  VEN-AE
                            CC JAN-2003 $ 20  OFE-AD
                               JAN-2004 $ 25  LYN-AE
                            CC JAN-2004 $ 20  LYN-AD
LLY    08/05/01  $73-74        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  $32-33        JAN-2003 $ 40  VGE-AH
                            CC JAN-2003 $ 30  VGE-AF
                               JAN-2004 $ 40  LGR-AH
                            CC JAN-2004 $ 30  LGR-AF
GD     09/16/01  $75-76        JAN-2003 $ 75  VJH-AO
                            CC JAN-2003 $ 65  VJH-AM
                               JAN-2004 $ 80  KJD-AP
                            CC JAN-2004 $ 70  KJD-AN
TYC    09/16/01  $40-42        JAN-2003 $ 45  VYL-AI
                            CC JAN-2003 $ 40  VYL-AH
                               JAN-2004 $ 50  LPA-AJ
                            CC JAN-2004 $ 40  LPA-AH
NOK    09/23/01  $13-14        JAN-2003 $ 15  VOK-AC
                            CC JAN-2003 $12.5 VOK-AV
                               JAN-2004 $ 15  LOK-AC
                            CC JAN-2004 $ 10  LOK-AB

New Portfolio Plays

PCS - Sprint PCS $23.20

It is hard to find a stock in any sector that has held up better
than PCS recently.  Even with the worsening recession and the
devastating effects of last week's tragedy, PCS has held support
near $22 and has spent the past 4 trading days recovering from
6-month ascending trendline.  That's right...the stock is still
posting higher lows in the face of economic and political
uncertainty.  Ironically, last week's tragedy has many consumers
that didn't think about it before, considering the need to have
a cell phone.  Stocks throughout the Wireless sector have been
showing signs of strength all week, but none have shown the
resilience or consistent buying volume of PCS.  We've been
watching the stock for some time now, as the weekly Stochastics
oscillator has been trying to enter a new uptrend.  And with the
strong surge seen on the daily chart this week, it looks like
the move may be underway.  With the stock's refusal to sell off
with the broad markets on Monday, we took our position, and from
the action over the past 2 days, it looks like it was a good
move.  Particularly encouraging is the strong buying volume
(more than double the ADV) seen on Wednesday as PCS powered
through its 20-dma (currently $24).  As good as things look
right now, we must keep in mind that the markets are still very
unsettled and we must protect our position with a tight stop.
We are initially placing it at $21.50, just below the stock's
recent lows and the ascending trendline.  Those that are
looking to initiate a new position will want to look for an
intraday dip into the $23-24 range that is met by solid buying
support.  The stock appears positioned to challenge its recent
highs at $26, and then $27.  If the bulls can clear those
levels, we could see PCS charge into the $30-32 range in the
months ahead.

BUY LEAP JAN-2003 $25.00 VVH-AE $5.00
BUY LEAP JAN-2004 $25.00 LVH-AE $7.10

New Watchlist Plays

NOK - Nokia Corporation $15.65

There's no doubt that analysts are re-evaluating their
projections for the wireless handset industry in the wake of
the recent terrorist attacks in New York and our nation's
capital.  Suddenly it looks like these devices could see much
deeper penetration into the fabric of our society after we saw
how they can be used to contact loved ones or even thwart the
terrorists.  NOK has emerged from the handset war as the 800-lb
gorilla and is likely to profit handsomely from the next wave
of new purchases and upgrades.  While the company lost a bit of
market share to competitors Motorola and Ericsson recently, it
is clear that those companies gained share by cannibalizing
their own profits.  NOK definitely has the best chart of the
three too, indicating that the market sees the company as the
de-facto leader in this market.  The stock has endured a long
and painful slide over the past year, but all the charts are
pointing to an impending recovery, especially now that the
fundamentals may be improving.  Monthly and weekly Stochastics
are struggling to turn up after the recent strong showing on the
daily chart.  The daily is just starting to weaken, and we want
to catch the next dip for new positions.  The gap from Monday
was almost filled this morning, and we will be looking for
another dip into the $13-14 range followed by enthusiastic
buyers to trigger our entry into the play.  After entry, we'll
set a tight stop at $12, and hold for the (hopefully) long

BUY LEAP JAN-2003 $15.00 VOK-AC
BUY LEAP JAN-2003 $12.50 VOK-AV  For Covered Call
BUY LEAP JAN-2004 $15.00 LOK-AC
BUY LEAP JAN-2004 $10.00 LOK-AB  For Covered Call


CLX $37.70 It took awhile to get moving, but our CLX play
actually performed rather well, especially over the past couple
months.  And while the rest of the market has been in free fall
in recent days, the stock has only begun to show signs of
weakness.  That's the mark of a good defensive play.
Wednesday's weakness dropped the stock right to our $38 stop,
and it looked like it might hold...that is until Thursday's
sharp decline in the markets.  We had a tight stop precisely
because we didn't want to give back our gains, and the stop did
just what it was supposed to do; get us out with a gain.  While
there may be more upside in the stock over the months ahead,
with the daily and weekly Stochastics rolling over and the stock
unable to penetrate formidable resistance near $40, I think the
prudent move is to take the money and run.

DIS $18.50 The events of the past 9 days have had a devastating
effect on consumer confidence and their willingness to spend
money on entertainment.  DIS has taken a major hit, and in
Wednesday's trading, the stock fell below $17 for the first time
since early 1995.  While we could set a stop below the day's
lows and wait for the recovery, I think the stock will be hard
pressed to stage much of a recovery in the next several months.
One particular development that really has me concerned is the
way the company went about its share-repurchase program.
DIS sold $1 billion of bonds to raise cash so that they
could buy 50 million shares of their own stock when Sid Bass
had to sell 135 million shares to satisfy a $2 billion margin
call.  That just doesn't seem too smart to me, and it will
clearly have a depressive effect on the stock as the company
struggles to recover from the inevitable drop in revenue.  I
feel more comfortable taking the loss and finding a more
attractive play in the days and weeks ahead.  Use any strength
in the days ahead to exit open positions, but not to initiate
new plays.

GLM $13.20 Contrary to what we would typically expect with
increased tensions in the Middle East, Crude Oil and stocks in
the Oil sector have come under strong selling pressure in recent
days.  Anticipation that OPEC will continue to keep supplies
flowing, while domestic demand for the black gold will fall
sharply has the entire sector feeling the attack of the bear.
Our $14 stop finally got smashed on Wednesday, and while we are
tempted to hang on for a sustained bounce, we will stick with
our discipline and exit the play tonight.  The fundamental
picture has clearly made a turn for the worse, and appears
unlikely to reverse any time soon.

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The Option Investor Newsletter                   Sunday 09-23-2001
Sunday                                                      5 of 5

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Covered-Calls: Adjustment Strategies
By Mark Wnetrzak

This week, we will review the proper management of covered-call
positions.  As you know, writing a covered call consists of the
sale of a call while simultaneously owning the underlying stock.
An investor would write calls against the stock that he owns to
increase income and decrease the volatility of his portfolio by
lowering the overall cost basis in the issue.  Unfortunately,
the downside margin provided in this strategy is not always
sufficient to offset the capital losses endured in a significant
market downturn and that is why it is so important to understand
the common adjustment techniques associated with this type of

When the share price falls below the sold strike, an investor has
several choices.  Since the covered-write strategy provides a
limited profit potential, it is imperative that action is taken to
limit losses.  Otherwise, one losing position could negate several
winning positions.  The simplest form of follow-up action to a
decline in the value of the underlying issue is to close out the
position (buy back the calls and sell the stock).  This exit
strategy can be triggered by a percentage decline in the share
value of the underlying issue or a move below a pre-determined
technical support level.

Rolling down is a technique often used to avoid potential loss and
reduce one's cost basis in the underlying issue.  Generally, an
investor buys back the original call (presumably at a profit as
the underlying stock has declined), and then sells a new call with
a lower striking price.  The idea is to provide more downside
protection against a further drop in the stock price and yet offer
the potential for additional income if the share value stabilizes.
Though rolling down generally reduces the maximum profit potential
of the covered write, obtaining additional downside protection
is often the more pressing concern.  The use of a more distant
expiration month should also be considered when rolling down and
aggressive investors may want to adjust only part of the covered
call position to allow for increased profit potential.  In all of
these situations, one generally has a bearish outlook for the
underlying issue and doesn't believe current prices will hold.
The problem is that by using a longer-term call, one is reducing
his profit potential for a longer period of time.  Again, that
could be of secondary concern.  A combination of the two; rolling
down half the current position near term and the other half to a
longer-term call allows an investor to obtain maximum protection
on at least part of his investment and still retain reasonable
upside potential.

In extreme cases, rolling down can only provide a locked-in loss.
Although it is not a pleasant experience, it may be beneficial to
make the adjustment to protect as much of the stock price decline
as possible.  Using near-term calls allows an investor to attempt
to recover the available premium in the sold call, in the least
amount of time.  The bearish strategy is difficult to implement
successfully, but as the overall cost basis in the position is
reduced each month, an astute investor may eventually achieve a
profitable outcome.

The key is to evaluate the risk-reward outlook of all the possible
scenarios and construct a position that fits your trading plan and
your future outlook for the underlying issue.

Good Luck!


There is no need to dwell on the breakdown that occurred in the
Markets this week and reigned havoc across the boards.  Traders
interested in capital preservation should have exited short-term
positions on Monday, and definitely by Tuesday when a snap-back
rally failed to appear.  With all the uncertainty surrounding
the horrendous attack on America, even positions that might have
finished positively were candidates for an early exit.  Traders
who did not exit this week now have a tougher decision to make
as they carefully evaluate their outlook for each individual
issue, its sector or industry, and the overall market.  They
must decide whether to ride out the storm and the ramifications
of a jittery market, exit for a loss, or adjust their positions
as they deem appropriate.   Hopefully, this week's educational
discussion in the above narrative will be of some assistance in
that task.


Why provide new plays in the current environment?  Well, because
it's our job!  Besides, option premiums have now inflated which
will offer reasonable speculation plays as well as low-risk entry
opportunities for long-term portfolio candidates.  Remember, the
decision to enter a play and the responsibility to monitor, and
possibly adjust the position rests squarely on your shoulders.

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

BLDP   18.55  OCT 15.00   DUJ JC  4.30 314   14.25   28    5.7%
BSX    18.50  OCT 17.50   BSX JW  1.75 1001  16.75   28    4.9%
GNSS   28.34  OCT 22.50   QFE JX  7.30 0     21.04   28    7.5%
IMNX   17.59  OCT 15.00   IUU JC  3.20 948   14.39   28    4.6%
PDG    13.32  OCT 12.50   PDG JV  1.35 1907  11.97   28    4.8%
TQNT   18.08  OCT 15.00   TQN JC  3.90 79    14.18   28    6.3%
WEBX   21.60  OCT 17.50   UWB JW  4.80 22    16.80   28    4.5%

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

GNSS   28.34  OCT 22.50   QFE JX  7.30 0     21.04   28    7.5%
TQNT   18.08  OCT 15.00   TQN JC  3.90 79    14.18   28    6.3%
BLDP   18.55  OCT 15.00   DUJ JC  4.30 314   14.25   28    5.7%
BSX    18.50  OCT 17.50   BSX JW  1.75 1001  16.75   28    4.9%
PDG    13.32  OCT 12.50   PDG JV  1.35 1907  11.97   28    4.8%
IMNX   17.59  OCT 15.00   IUU JC  3.20 948   14.39   28    4.6%
WEBX   21.60  OCT 17.50   UWB JW  4.80 22    16.80   28    4.5%

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).

BLDP - Ballard Power Systems  $18.55  *** Change of Character ***

Ballard Power Systems (NASDAQ:BLDP) develops and commercializes
proton exchange membrane (PEM) fuel cells and fuel cell systems.
A PEM fuel cell is an environmentally clean power generator,
which combines hydrogen fuel with oxygen, without combustion,
to produce electricity, with pure water and heat as the only
byproducts.  It is an electrochemical device that produces
electricity efficiently, and continuously, as long as fuel is
supplied.  Along with its alliance partners, BLDP is developing
PEM fuel cell and PEM fuel cell system products for applications
in the transportation, stationary power and portable markets.
The fuel cell industry is gaining attention amid worry over
energy sources in light of the recent attack and California's
decision to look at the technology as a way to help meet its
power needs.  The technical indications in BLDP suggest a change
in character as a move towards accumulation is indicated.  A
reasonable entry point in a speculative issue.

OCT 15.00 DUJ JC LB=4.30 OI=314 CB=14.25 DE=28 TY=5.7%

BSX - Boston Scientific  $18.50  *** Favorable Ruling ***

Boston Scientific (NYSE:BSX) is a worldwide developer, manufacturer
and marketer of less-invasive medical devices.  Their products
are used in a broad range of interventional medical specialties
such as pulmonary medicine, interventional radiology, oncology,
urology, vascular surgery, etc. Boston Scientific's products are
generally inserted into the human body through natural openings
or small incisions in the skin, and can be guided to most areas
of the anatomy to diagnose and treat a wide range of medical
problems.  This week, a federal court in California ruled that
medical device maker Medtronic (NYSE:MDT) must cease U.S. sales
of perfusion rapid-exchange balloon catheters and stent delivery
systems.  The ruling upholds a July 18 decision by an arbitration
panel awarding Boston Scientific $169 million in damages, as well
as costs and attorneys' fees arising from Medtronic's use of the
systems.  We simply favor the current bullish momentum and the
technical support near our cost basis.

OCT 17.50 BSX JW LB=1.75 OI=1001 CB=16.75 DE=28 TY=4.9%

GNSS - Genesis Microchip  $28.34  *** Raising the Ante ***

Genesis Microchip (NASDAQ:GNSS) designs, develops and markets
integrated circuits that receive and process digital video and
graphic images.  Its integrated circuits are typically located
inside a display device and process images for viewing on that
display.  The company also supplies reference boards and designs
that incorporate its proprietary integrated circuits.  Genesis
is focused on developing and marketing image-processing solutions
and targets the flat-panel computer monitor and other potential
mass markets.  Genesis appears ready to resume it up-trend (Market
permitting) after the company raised its revenue estimates for the
2nd-quarter, ending Sept. 30, 2001 to approximately $30 million;
due to significant design wins in previous quarters which resulted
in strong product shipments.  We simply favor the rally back above
the 150-dma on extremely heavy volume -- which suggests new trend.

OCT 22.50 QFE JX LB=7.30 OI=0 CB=21.04 DE=28 TY=7.5%

IMNX - Immunex  $17.59  *** Low Risk Entry Point! ***

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.  Last Monday, Immunex stated it would receive a
speedy review of the firm's request to widen the approved use
of its Enbrel arthritis drug to include patients with psoriatic
arthritis.  Additionally, it was announced that Immunex will
replace Tosco (NYSE:TOS) in the S&P 500 Index.  IMNX continues
to forge a Stage I base and this position offers a favorable
entry point from which to speculate on the company's future.

OCT 15.00 IUU JC LB=3.20 OI=948 CB=14.39 DE=28 TY=4.6%

PDG - Placer Dome  $13.32  *** Gold Sector Hedge ***

Placer Dome (NYSE:PDG) is principally engaged in the exploration
for, and the acquisition, development and operation of gold
mineral properties, although significant quantities of silver
and copper are also produced.  The company's share of gold
production in 1999 was derived from mines in Canada (25%), the
U.S. (37%), Australia (16%), Papua New Guinea (17%), South Africa
(4%) and Chile (1%).  After the recent attack on the World Trade
Center, investors have moved to gold as a safe haven during the
ensuing Market turmoil.  With a pending U.S. retaliation, gold
and gold stocks should continue to offer value in these uncertain
times as reflected by the bullish breakouts in many of the gold
stocks.  We favor the safety of gold stocks but prefer an entry
point closer to support from which to speculate on the future of
the issue.

OCT 12.50 PDG JV LB=1.35 OI=1907 CB=11.97 DE=28 TY=4.8%

TQNT - TriQuint Semiconductor $18.08  *** Upping Estimates ***

TriQuint Semiconductor (NASDAQ:TQNT) develops, manufactures and
markets high-performance integrated circuits for communications
markets.  The company's integrated circuits are incorporated
into a variety of products, including cellular phones and pagers,
fiber-optic telecommunications equipment, satellite communications
systems, high-performance data networking products and aerospace
applications.  The Company uses its proprietary gallium arsenide
technology to enable its products to overcome the performance
barriers of silicon devices.  In early September, TQNT reaffirmed
that it expected to earn 3 cents a share in the 3rd-quarter,
before merger costs, with revenues seen stabilized at $80 million.
This week, during a monthly business update, TriQuint CEO Steven
Sharp confirmed previous revenue estimates but raised earnings
estimates to 4 cents a share.  This increase was due to better-
than-expected cost savings, as well as some other factors, which
helped raise margins.  We simply favor the technical support near
our cost basis as TriQuint continues to build a Stage I base.

OCT 15.00 TQN JC LB=3.90 OI=79 CB=14.18 DE=28 TY=6.3%

WEBX - WebEx Communications  $21.60  *** Video Conferencing ***

WebEx Communications (NASDAQ:WEBX) develops and markets services
that allow end users to conduct meetings and share software
applications, documents, presentations and other content on the
Internet using a standard Web browser.  WEBX's architecture
consists of WebEx Interactive Services, WebEx Interactive
Platform and WebEx Interactive Network.  Video and audio
conferencing stocks have gained attention as air travel came
to a halt after the terrorist attack on America.  Some companies
have reported service usage increased up to 50% as well as a
significant rise in new customers.  CSFB and Jefferies & Co
have issued "buy" recommendation on WebEX as speculators look
to the future of business communication.  This position offers
an entry point with a cost basis near a key support area and the
current bullish move above the mid-August high suggests a bias
towards higher prices in the near future.

OCT 17.50 UWB JW LB=4.80 OI=22 CB=16.80 DE=28 TY=4.5%



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

INTV   10.01  OCT 10.00   VQN JB  0.90 1922   9.11   28   10.6%
PLCM   27.37  OCT 25.00   QHD JE  3.80 1228  23.57   28    6.6%
JBL    16.15  OCT 12.50   JBL JV  4.30 0     11.85   28    6.0%
VRSN   38.30  OCT 30.00   QVR JF  9.70 72    28.60   28    5.3%
TDY    16.05  OCT 15.00   TDY JC  1.70 270   14.35   28    4.9%
TTN    17.51  OCT 15.00   TTN JC  3.10 77    14.41   28    4.4%


Trading Strategies: Position Management
By Ray Cummins

With the recent sell-off in the equity markets, the number of
requests for portfolio management techniques has increased
substantially.  This week's discussion focuses on the most
common adjustment strategy for a sold (short) put when the
underlying issue has experienced a severe decline.

There are two basic strategies that traders use to profit from
the sale of naked puts.  The first technique involves writing
"at-the-money" puts to take advantage of a bullish movement in
the underlying stock for large, short-term profits.  The less
aggressive method involves writing "out-of-the-money" puts,
hoping that the sold position will expire worthless.  Either
technique can be used to take a position in a specific issue
but in most cases, our approach to naked put writing is applied
as a "deep-out-of-the-money" strategy in which the trader uses
the collateral value of his portfolio to return a consistent,
limited profit.

The strategy of selling "out-of-the-money" naked puts on bullish
issues is a relatively conservative technique but occasionally,
you will be faced with a position that is "in-the-money" as the
expiration date approaches.  One of the most common methods for
preventing a potential loss in this situation is the "roll-out"
and it is used when the underlying issue falls to (or below)
the strike price of the sold option.  Remember, selling a Put
obligates the writer to purchase the underlying issue at the
sold strike price.  If the stock remains above the sold strike,
the writer retains the premium for the sold option.  However,
if the stock price falls, the writer may need to roll out and
forward in his position, to avoid potential assignment of the
stock.  He can repurchase the puts that were sold initially and
sell new longer-term options.  Generally, the new options are
written at the next lower strike price, or in greater quantity
so as to generate a credit.  In this simple recovery method, no
debits are incurred but a realized loss is taken in the short
term.  If the stock price continues to decline, the process is
repeated.  Eventually, the issue stock should stop falling and
the last set of written options will expire worthless.  At that
time, the traders' overall profit will consist of the sum of
all the previous credits.

There are two requirements for success in this strategy.  The
first prerequisite is that the underlying stock must eventually
rebound and the second condition is that the trader have enough
portfolio collateral to stay with the strategy even if the issue
falls significantly.  A large stock portfolio is best for this
type of trading because the collateral required for naked option
writing may be in the form of cash or securities.  There are no
margin interest charges and the positions in the portfolio are
unaffected unless there is a need for additional funds to close
the play prematurely.  This simple exit strategy offers a high
degree of (eventual) success although in some cases, there may
be an accumulation of losses before a profit is achieved.

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.


All of the bullish plays for the month of September were closed
last Monday in the interest of capital preservation.  Because of
the uncertainty surrounding the Market's initial reaction to the
terrorist activity, even those positions that might have finished
positive became potential candidates for an early exit.  Traders
who decided to remain in any of the current portfolio positions
should carefully evaluate their outlook for each individual issue,
its sector or industry, and the overall market before deciding on
the appropriate recovery strategy to pursue in the future.  This
week's educational discussions may be of some assistance in that
task as they will focus on the most common methods for recovering
losses in a covered-call or naked-put position.


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

AEM    11.18  OCT 10.00   AEM VB  0.35 145    9.65   28   10.4%
AH     20.00  OCT 17.50    AH VW  0.30 90    17.20   28    5.6%
FTO    15.32  OCT 12.50   FTO VV  0.35 15    12.15   28   10.4%
IMCL   53.30  OCT 40.00   QCI VH  0.60 202   39.40   28    5.8%
KNDL   19.65  OCT 17.50   KQR VW  0.40 0     17.10   28    7.1%
PLCM   27.37  OCT 20.00   QHD VD  0.40 115   19.60   28    7.4%
RTN    34.04  OCT 30.00   RTN VF  0.65 588   29.35   28    6.9%

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

AEM    11.18  OCT 10.00   AEM VB  0.35 145    9.65   28   10.4%
FTO    15.32  OCT 12.50   FTO VV  0.35 15    12.15   28   10.4%
PLCM   27.37  OCT 20.00   QHD VD  0.40 115   19.60   28    7.4%
KNDL   19.65  OCT 17.50   KQR VW  0.40 0     17.10   28    7.1%
RTN    34.04  OCT 30.00   RTN VF  0.65 588   29.35   28    6.9%
IMCL   53.30  OCT 40.00   QCI VH  0.60 202   39.40   28    5.8%
AH     20.00  OCT 17.50    AH VW  0.30 90    17.20   28    5.6%

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).

AEM - Agnico-Eagle Mines  $11.18  *** Precious Metals Rally! ***

Agnico-Eagle Mines Limited (NYSE:AEM) is an established Canadian
gold producer with operations located principally in northwestern
Quebec and exploration and development activities in Quebec,
Ontario and Nevada.  The company's operating history includes 25
years of continuous gold production primarily from underground
operations.  In 1999, the company produced approximately 90,000
ounces of gold and since its formation in 1972, the company has
produced approximately 2.6 million ounces of gold.  AEM shares
hit a new high on Thursday as gold futures rallied in the wake
of the sell-off in the equity markets.  The issue will continue
to perform well as long as there is concern about the economy
and traders can establish a conservative cost basis in the stock
with this position.

OCT 10.00 AEM VB LB=0.35 OI=145 CB=9.65 DE=28 TY=10.4%

AH - Armor Holdings  $20.00  *** A Premium On Security ***

Armor Holdings (NYSE:AH) is a manufacturer of security products
for law enforcement personnel around the world through its Armor
Holdings Products division.  The company is also a global provider
of security risk management service to multi-national corporations
and governmental agencies through its ArmorGroup Services division.
Armor Holdings Products Division offerings include: ballistic
resistant vests and tactical armor, hard armor, police batons,
forensic, fingerprint/evidence collection equipment, less-lethal
munitions, holsters and duty gear, and anti-riot products, among
others.  ArmorGroup Services provides security planning and risk
management, humanitarian support, de-mining, and mine awareness
training, electronic security systems, forensic, consulting and
training services, as well as property asset protection, business
intelligence and investigative services.  The increased threat of
terrorism has put a premium on business and personal security and
investors who think the trend will continue can profit from the
success of that market segment with this conservative play.

OCT 17.50 AH VW LB=0.30 OI=90 CB=17.20 DE=28 TY=5.6%

FTO - Frontier Oil  $15.32  *** A Demand For Oil ***

Frontier Oil (NYSE:FTO) is an independent energy company engaged
in crude oil refining and the wholesale marketing of refined
petroleum products.  The company operates refineries in Cheyenne,
Wyoming and in El Dorado, Kansas with a total crude oil capacity
of over 150,000 barrels per day.  Both refineries are complex and
can process heavier, less expensive types of crude oil and still
produce a high percentage of gasoline, diesel fuel and other high
margin refined products.  The company focuses its marketing efforts
in the Rocky Mountain region and the Plains States.  The demand is
strong for refined oil products and Frontier Oil recently announced
that it now expects to earn at least $1.25 per share for the third
quarter, up from the previous estimate of at least $0.85 per share
and more than triple their third quarter 2000 earnings.  Analysts
are bullish on the company and Friedman Billings upgraded the issue
Wednesday, based on the revised earnings outlook.

OCT 12.50 FTO VV LB=0.35 OI=15 CB=12.15 DE=28 TY=10.4%

IMCL - ImClone  $53.30  *** New Alliance With BMY! ***

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.  Shares of IMCL were up significantly last week on news of a
new alliance with Bristol-Myers Squibb (NYSE:BMY) in which the two
companies will co-develop a cancer treatment based on IMC-C225 in
Canada, Japan and the United States.  The issue has since retreated
and this position offers a conservative entry point in the company
for investors who favor the outlook for its products.

OCT 40.00 QCI VH LB=0.60 OI=202 CB=39.40 DE=28 TY=5.8%

KNDL - Kendle International  $19.65  *** Speculation Only! ***

Kendle International (NASDAQ:KNDL) is a unique contract research
organization that provides a broad range of Phase I through IV
clinical research and drug development services to the growing
pharmaceutical and biotechnology industries.  The company augments
the research and development activities of pharmaceutical and
biotechnology companies by offering value-added clinical research
services and proprietary information technology designed to reduce
drug development time and expense. The company is organized into
two segments for financial reporting purposes.  Their contract
research services group conducts clinical trial management, data
management, statistical analysis, medical writing and regulatory
consulting and representation.  The medical communications group,
Health Care Communications, provides organizational, management
and publication services to a range of professional associations
and pharmaceutical companies.  Kendle offers a unique service in
a niche industry and the company has a number of revenue sources
to provide steady income.  In addition, the issue rebounded nicely
off of a recent support area near $18 and appears ready to test
near-term resistance at $21.  Watch for a failure at that price
range, which would be a potential "early exit" signal in this
speculative position.

OCT 17.50 KQR VW LB=0.40 OI=0 CB=17.10 DE=28 TY=7.1%

PLCM - Polycom  $27.37  *** PictureTel Merger Approved! ***

Polycom (NASDAQ:PLCM) develops, builds and sells communications
equipment that enables enterprise users to access broadband
network services and leverage increased bandwidth to conveniently
conduct voice, video and data communications.  Their NetEngine
family of network access products enables enterprises to more
easily and cost-effectively utilize broadband communications
services.  In addition, its enterprise communications products
enable businesses and other organizations to utilize bandwidth
intensive voice and video applications to effectively communicate
with employees, customers and partners.  Shares of PictureTel
(NASDAQ:PCTL) and Polycom rallied last week after the companies
said they had received an early antitrust clearance from U.S.
authorities, giving them a green light to merge.  Analysts see
the union as beneficial to both companies and investors who want
to own the new combined entity can use this play to establish a
conservative cost basis in the issue.

OCT 20.00 QHD VD LB=0.40 OI=115 CB=19.60 DE=28 TY=7.4%

RTN - Raytheon  $34.04  *** Defense Sector Rally! ***

Raytheon (NYSE:RTN) is in the business of defense electronics,
including missiles; radar; sensors and electro-optics; unique
intelligence, surveillance and reconnaissance; command, control,
communication and information systems; naval systems; air traffic
control systems; aircraft integration systems; and other technical
services.  Raytheon's commercial electronics businesses leverage
defense technologies in commercial markets. Raytheon Aircraft is
a provider of business and special mission aircraft and delivers
a broad line of jet, turboprop, and piston-powered airplanes to
corporate and government customers worldwide.  Defense issues have
soared during the past week as the threat of war increased and the
nation geared-up for a battle with terrorism.  Stocks in the group
are expected to perform well in the coming weeks amid an increase
in defense spending and SG Cowen recently upgraded its investment
rating on Raytheon to a "trading buy" due to the bullish outlook.

OCT 30.00 RTN VF LB=0.65 OI=588 CB=29.35 DE=28 TY=6.9%



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

PSFT   20.24  OCT 15.00   PQO VC  1.00 977   14.00   28   21.5%
TFS    15.56  OCT 12.50   TFS VV  0.55 35    11.95   28   16.1%
BRCM   23.98  OCT 15.00   RCQ VC  0.60 322   14.40   28   12.1%
TDY    16.05  OCT 15.00   TDY VC  0.65 646   14.35   28   11.7%
EPIQ   21.97  OCT 17.50   FQU VW  0.45 0     17.05   28   10.1%
ABI    22.60  OCT 17.50   ABI VW  0.35 20    17.15   28    7.8%
LMT    42.20  OCT 40.00   LMT VH  1.10 580   38.90   28    7.6%
NEM    22.27  OCT 20.00   NEM VD  0.50 525   19.50   28    7.6%


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A Terrible Way To End The Week!
By Ray Cummins

                         - MARKET RECAP -
Friday, September 21

The major equity averages moved lower again today as investors
dumped stocks amid anxiety of a recession in the U.S. economy.
Analysts say the market, which was in a slump before the recent terrorist
attack, will likely get worse before it improves and
the negative effect on America's wealth will be felt for years.

Blue-chips suffered the largest drop since the Depression of the
1930s, falling 1370 points in just one week as Americans worried
about massive layoffs and the long-term effects of terrorism on
our flagging financial system.  The NASDAQ lost a staggering 16%
as investors fled technology stocks in an emotional exodus that
far exceeded the most optimistic expectations of market bears.
The broader S&P 500 index tumbled 11% as traders focused on the
inevitable decline in productivity and the outlook for corporate
earnings.  Last month, America's economic growth was the slowest
in eight years with the gross domestic product (GDP), a measure
of total economic output, up just 0.2%.  Experts say the second
quarter GDP will eventually be revised to negative and consumer
confidence, which has been steadfast even as businesses suffered
from the downturn, sank in September to the lowest levels of the
past year.  The belated policy of the Federal Reserve (to lower
interest rates) has yet to have a material affect on the economy
and some analysts believe that when conditions finally begin to
improve, the growth rate will be modest because the slowdown is
the result of decreased spending, which does not respond quickly
to a reduction in borrowing costs.  Based on the on the growing
list of problems facing the economy, the best we can hope for is
a slow-but-steady recovery beginning in the latter part of 2002
and until the public gets back into a "buying" frame of mind,
there is little chance for a rebound in the stock market.

Portfolio Activity:

Despite the recent precipitous decline in equity values, there
have been numerous opportunities for profitable option plays
and the Spreads/Combos portfolio provided some great candidates
during the month of September.  The Straddles section offered
the most lucrative positions and all but one issue in the group
generated favorable returns.  Among the winners in that category
were Amdocs (NYSE:DOX), Jacobs Engineering (NYSE:JEC), Protein
Design Labs (NASDAQ:PDLI), Photon Dynamics (NASDAQ:PHTN), Serena
Software (NASDAQ:SRNA) and Teradyne (NYSE:TER).  While strategies
based on volatility produced the largest profits, the bearish
combination positions were the most successful portfolio on a
percentage basis with spreads in Best Buy (NYSE:BBY), Electronic
Data Services (NYSE:EDS), Shire Pharmaceuticals (NASDAQ:SHPGY),
Stericycle (NASDAQ:SRCL) and Whirlpool (NYSE:WHR) expiring at
maximum profit.  Unfortunately, the downward market movement
virtually guaranteed the majority of bullish selections would
finish negative and Amerisource-Bergen (NYSE:ABC) and Southwest
Securities (NYSE:SWS) were the only positions in the group that
provided profitable opportunities.  Looking forward, the rise in
Implied Volatility in equity options is one of the few favorable
consequences of the recent sell-off and we hope the activity will
eventually result in additional premium-selling opportunities.
With that outlook in mind, our first two combination candidates
are speculative calendar spreads with low initial cost and high
potential profit.

Questions & comments on spreads/combos to Contact Support
                          - NEW PLAYS -
ASFC - Astoria Financial  $54.60  *** Disparity Play! ***

Astoria Financial Corporation (NASDAQ:ASFC) is a unitary savings
and loan association holding company for Astoria Federal Savings
and Loan Association (Astoria Federal).  The company's primary
business is the operation of its wholly owned subsidiary, Astoria
Federal.  In addition to directing, planning and coordinating the
business activities of Astoria Federal, the company also invests
in U.S. Government and federal agency securities, mortgage-backed
securities and other securities.

Astoria shares have been quite volatile in recent sessions and
despite a valiant effort to recover from the downward pressure
among broader-market issues, the stock has fallen substantially
over the past three days with Friday's close ending squarely in
the middle of an old trading range.  There is little indication
that a bullish trend will resume anytime in the near future and
with favorable disparities in the front-month premiums, this
position offers a great speculation play for traders who are
bearish on the issue.

Strategy Description:

The basic premise in a calendar spread is simple; time erodes
the value of the near-term option at a faster rate than it will
the far-term option.  It is generally best to establish this
type of spread at least 2 - 3 months before the long option
expires, capitalizing on the ability to sell another option
against the longer-term position.  That is the basic idea in
this spread play; selling time value in the options when they
are overpriced (high implied volatility) and buying it back (if
necessary) when they return to intrinsic value.  Ideally, the
trader would like to have the stock finish just above the sold
strike when the near-term option expires.  If the short options
are "in-the-money" at expiration, he will have to buy them back
to preserve the long-term position.

PLAY (conservative - bearish/calendar spread):

BUY  PUT  JAN-50  AQR-MJ  OI=5    A=$2.55
SELL PUT  OCT-50  AQR-VJ  OI=150  B=$1.15

DRXR - Drexler Technology  $13.35  *** Border Patrol! ***

Drexler Technology Corporation (NASDAQ:DRXR) develops, produces
and markets optical data storage products and systems featuring
LaserCard optical memory cards and chip-ready Smart/Optical cards.
Drexler-made LaserCard optical memory cards are used for "digital
governance" applications such as immigration services, visas,
cargo manifests, motor vehicles, import-duty collection, standard
pay-per-use systems, and ID/access; and for healthcare and other
digital read/write wallet-card applications.

The recent terrorist attacks have put the U.S. on alert at its
many borders and Drexler's unique product line stands to benefit
from the increased demand for personal identification services.
In fact the company announced last week that they received a $5
million order for LaserCard. Triple-Image identification cards
for an ongoing U.S. border-crossing ID card program.  The highly
secure optical memory cards are slated for use as U.S. Department
of State and is part of an $81 million government procurement
program for the Immigration and Naturalization Service.  With
the receipt of this order, the company expects record shipments
of more than 5 million optical cards for fiscal year 2002 and
investors are obviously excited about the news.  Traders who
believe the upward momentum will continue can profit from that
activity with this time-selling strategy.

PLAY (speculative - bullish/calendar spread):

BUY  CALL  JAN-15.00  RXQ-AC  OI=40   A=$1.50
SELL CALL  OCT-15.00  RXQ-JC  OI=273  B=$0.40

Note: A bullish (speculative) type of calendar spread is when the
underlying issue is some distance below the strike price of the
options.  This play is low risk with a small initial investment
and large potential profits.  Two favorable outcomes can occur:
the stock rallies in the short-term and the position is closed
for a profit as time value erosion in the short option produces
a net gain or; the underlying stock consolidates, allowing the
sold option to expire and then eventually rallies above the long
option strike price.

AT - Alltel  $55.25  *** Technicals Only! ***

Alltel Corporation (NYSE:AT) is a customer-focused information
technology company that provides common wire-line and wireless
communications and information services.  The company operates
in two principal areas, communications and information services.
The company's communications operations consist of its wireless,
wire-line (local and long-distance) and emerging businesses
segments.  Emerging businesses are the company's key new product
offerings, and include the company's long-distance, competitive
local exchange carrier (CLEC), Internet access, and personal
communication system and network management operations.  Alltel
also owns subsidiaries that provide unique wide-area paging and
information processing management services, and other advanced
application software along with telecommunications products.
A subsidiary publishes telephone directories for affiliates and
other independent telephone companies.

This position emerged in a scan for bearish technical patterns
with speculative options activity.  In this case, the premiums
for the (Call) options are slightly inflated and the potential
for a successful (technical) recovery is significantly affected
by the resistance below the sold (Call) strike price; a perfect
condition for a bearish credit spread.

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-65  AT-JM  OI=656  A=$0.40
SELL CALL  OCT-60  AT-JL  OI=956  B=$0.90

                   - STRADDLES AND STRANGLES -
BA - Boeing  $30.10  *** Cheap Options! ***

The Boeing Company (NYSE:BA), 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 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.  Boeing's Space and
Communications segment is involved in the research, development,
production, modification and support of space systems, missile
defense systems, satellites and satellite-launching vehicles,
rocket engines and information and battle management systems.

With the recent volatility in the equity markets, there are very
few straddle candidates however, this issue meets our criteria
for a favorable position; cheap option premiums, a history of
adequate price movement and future events or activities that may
generate volatility in the issue or its industry.  This selection
process provides the best combination of low risk and potentially
high reward.  As with any recommendation, it must be evaluated for
portfolio suitability and reviewed with regard to your strategic
approach and trading style.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  JAN-30  BA-AF  OI=551   A=$3.90
BUY  PUT   JAN-30  BA-MF  OI=4119  A=$3.70



Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

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