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Daily Newsletter, Wednesday, 09/26/2001

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The Option Investor Newsletter                Wednesday 09-26-2001
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*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
        9-26-2001          High      Low     Volume Advance/Decline
DJIA     8567.39 - 92.58  8718.16  8527.05 1.53 bln   1493/1648	
NASDAQ   1464.04 - 37.60  1516.12  1458.34 1.73 bln   1380/2243
S&P 100   516.29 -  1.63   522.45   513.29   Totals   2873/3891
S&P 500  1007.04 -  5.23  1020.29  1002.62
RUS 2000  389.79 -  6.39   397.66   389.11
DJ TRANS 2076.79 - 16.01  2118.36  2072.70
VIX        39.26 +  0.39    39.71    37.95
VXN        65.94 -  1.63    68.67    65.65
TRIN        1.63
Put/Call    0.74
*******************************************************************

The Buyer's Dilemma

With tensions escalating in the Middle East, earnings
disappointments increasing in frequency and magnitude, and Yom
Kippur around the corner, there weren't many reasons to buy
stocks Wednesday.  The decrease in day-over-day volume reflected
the market's apathetic and reluctant nature.

It's difficult to discern whether or not the anti-American
demonstrations in Kabul, Afghanistan, played a role in Wednesday's
pullback.  But, the images of the abandoned U.S. Embassy set a
light may have caused some uneasiness among already shaken bulls.
If not, then the tensions in Afghanistan contributed to the
rumor mongers' causes Wednesday.  Talk of large blocks of stock
for sale ran rampant following that big margin call in Disney
(NYSE:DIS) stock last week.  It's unfortunate, but times of
uncertainty such as these allow stock manipulators greater
freedom, so to speak.  However, those spreading rumors in an
attempt to knock down stocks and profit from their manipulations
will eventually face justice in the form of a massive short
squeeze.

On the topic of short covering, Monday and Tuesday's advance
across the broader markets is shaping up to be another failed
bear market rally in light of the lack of follow-through
Wednesday.  Then again, Wednesday's price action could've been
a precursor to a basing period.  Some might argue that the light
volume pullback was constructive, while others might argue that
we've witnessed the pattern of failed rallies for the last 18
months.  Only price and time will tell.

Both the S&P 500 (SPX.X) and the Nasdaq-100 (NDX.X) have worked
off some of their oversold condition judging by daily Stochastics
readings.  Of course Stochastics is only one measure of
overbought versus oversold, so it must be taken in context with
other indicators such as Bullish Percent.  Both the S&P and NDX
remain grossly oversold by way of Bullish Percent.



On a shorter time period, such as the 30-minute charts below,
it's easy to see that the SPX is holding up much better than
the NDX.  The SPX has managed to stay above the psychologically
significant 1000 level during Wednesday's pullback, while the
NDX settled below the psychological 1150 level.



The SPX's out performance can be attributed to several sectors,
most notably the financial sector.  Both the Insurance Sector
(IUX.X) and the Bank Sector (BKX.X) finished in positive
territory - the former tacked on almost 2 percent.  The Insurance
sector has been an inspiring source of strength over the last
three days.  Its bids are most likely stemming from bargain
hunters who were reassured by the industry's comments that it
would be able to handle the more than $30 billion in claims
from the terrorist attacks.  Also, industry representatives were
meeting with government officials Wednesday to propose government
backing for insurance claims in any future attacks.  In the wake
of the talks on Capitol Hill, industry leaders such as AIG, CB,
JHF, AFL, PGR, and ALL worked higher.

The bid in banks Wednesday may have stemmed from the Fed's
upcoming meeting.  The FOMC meets next Tuesday and is expected to
cut rates again.  The consensus is currently calling for another
50 basis points which, if the Fed actually cuts by that much,
will take Fed Funds down to 2.50 percent - the current target
rate is 3.00 percent.

While the financial sector has helped prop up the SPX, it hasn't
been able to do the same for the NDX.  That's because the NDX
does not include any financial components.  But the NDX does
contain a whole lot of technology.

The three worst performing sectors within technology Wednesday
were Semiconductors (SOX.X), Internets (INX.X), and Softwares
(GSO.X).  The semiconductor and software sectors are the
heart and soul of the NDX, and neither the SOX nor GSO look
very technically strong at current levels.

Micron's (NYSE:MU) disappointing results Tuesday night resulted
in a slew of lowered earnings estimates and downgrades across
the chip spectrum.  For the day, the SOX shed nearly 8 percent and
shares of Micron lost almost 19 percent.



On top of the downgrades in the chip sector, three prominent
brokerages cut their third-quarter and full year 2001
estimates on several software companies.  Merrill, Prudential,
and U.S. Banc Piper Jaffray reduced ratings on the likes of
BEA Systems (NASDAQ:BEAS), i2 (NASDAQ:ITWO), and Ariba
(NASDAQ:ARBA).  The GSO finished lower by 4.46 percent.



There are a total of 37 semiconductor and software companies in
the Nasdaq-100, which goes to show just how influential the SOX
and GSO are on the broader tech sector.  The downgrades across
both sectors Wednesday in addition to Micron's earnings report
Tuesday might be a precursor to third-quarter earnings
season.  As Jim alluded to Tuesday, the third-quarter is typically
back-end loaded, which means a lot of business is done in the
final two weeks of the quarter.  Since this week is the last in
the quarter, companies may be scrambling to make sales in order
to meet their quarters, which may also be the reason that we
haven't heard many warnings this week.

Because many buyers are taking a 'wait and see' approach to the
third-quarter, especially in technology, some of the defensive
sectors caught a bid as capital flowed to quality.  Both the
Healthcare Index (HCX.X) and Drug Index (DRG.X) performed quite
well Tuesday, with roughly 2.3 percent gains in each.  Indeed,
the flight to quality in the bond market Wednesday seemed to
reflect defensive positioning.  Part of the flight to defensive
issues Wednesday may have stemmed from Yom Kippur, which also
explained the rather light volume.  Whether or not the defensive
positioning continues this week will probably depend on news on
the earnings and military fronts.  There may be a trade looming
in the HCX and DRG to the upside this week, but one would think
that some end of quarter window dressing would unfold Thursday.
If the mutual fund buyers show up, targets of window dressing
may include some of the defense industry stocks that have
done extremely well in the wake of the terrorist attacks.

Aside from the window dressing that may or may not occur in
the next two days, there are not a lot of reasons to be buying
stocks in the current economic and political environment.  Of
course contrary opinion suggest to buck conventional wisdom
and swim against the tide.  But, with so much uncertainty in
the market, it's hard to get a hold on what exactly conventional
wisdom is currently.

Eric Utley
Option Investor


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

Snap

Stocks snapped a two-day winning streak under the weight of
profit warnings, downgrades and margin call rumors.

The Dow avoided a triple digit loss, but still closed down 92
points.  On a percentage basis the S&P 500's 0.51% drop was the
best amongst the major indices, and the Nasdaq's 2.50% drop was
the worst.

Micron Weekly Chart



Part of the Nasdaq's woes can be attributed to awful earnings, or
lack thereof, from Micron Technology (MU).  The chipmaker
reported a loss of $575 million compared to a profit of $726
million a year ago.  $289 million of the loss was due to
inventory write-downs, and an additional $118 went to a write
down of its equity investment in Interland Inc.  The 96 cents per
share loss was well below analysts' expectations of 34 cents,
excluding write downs, and the 18% drop in stock price reflected
investors' disappointment with a 79% drop in sales.  The company
declined to give future guidance, but Micron's future stock price
could be $10 if support at $17 is broken.

Semiconductor Index Daily Chart



Micron's bleak outlook had semiconductor stocks reeling, and the
Semiconductor Index lost 7.89%.  Yesterday it looked like the SOX
was trying forming a small base, but today's drop could have the
sector being one of the first to test last week's low.  Should
that fail to hold, support looks like 345.

IBM Daily Chart



A downgrade from Goldman Sachs helped to spark a $3.15 decline in
IBM, making it the biggest loser on the Dow.  Analyst Laura
Conigliaro noted that the effects of the September 11th attacks
appear sizable, and could effect corporate spending on IBM
products.  She also lowered estimates for Sun and EMC.  If that
is indeed the case, IBM stock might need to rely on support at
$90, or even $80, if sales do continue to decline.

Healthcare, drug and gold stocks found some buyers as investors
look for something a little more defensive, and bank stocks
attracted interest, perhaps due to low interest rates.

Tomorrow the markets will have to digest another batch of
earnings warnings from Sonus Networks (SONS), Allegiance Telecom
(ALGX), Guitar Center (GTRC), and Speedway Motorsports (TRK).
Not quite the magnitude of Micron, but could nevertheless be a
drag on investor psychology.

We also get a full plate of economic data.  Durable goods and
initial jobless claims are released before the bell tomorrow, and
new home sales and the Help-Wanted Index is released at 10:00
a.m.

*************************Sector Watch****************************

            Support                Close              Resistance
DJIA       | 8,062  |      |      | 8567 |      |      |   9,110|
NASD       | 1,385  |      | 1464 |      |      |      |   1,670|
S&P 500    |   944  |      |      | 1007 |      |      |   1,100|
Rus 2000   |   373  |      |  390 |      |      |      |     420|
Semis      |   363  |  371 |      |      |      |      |     455|
Biotech    |   405  |      |  424 |      |      |      |     475|
Internet   |    70  |      |   81 |      |      |      |     105|
Networking |   210  |  214 |      |      |      |      |     260|
Software   |   100  |      |  117 |      |      |      |     159|
Banking    |   550  |      |      |      |  585 |      |     595|
Retail     |   695  |      |      |      |  743 |      |     765|
Drugs      |   353  |      |      |      |      |  374 |     377|

Support Alerts: Internets
Resistance Alerts:
            ____________________________________________________
           |   Long    |   Short   |   Strength    | Relative   |
           |   Term    |   Term    |     of        | Strength   |
           |   Trend   |   Trend   |   LT Trend    | vs S&P 500 |
DJIA       |  Bearish  |  Bearish  |    Strong     |  Negative  |
NASD       |  Bearish  |  Bearish  |    Strong     |  Negative  |
S&P 500    |  Bearish  |  Bearish  |    Strong     |    --      |
Rus 2000   |  Bearish  |  Bearish  |    Strong     |  Negative  |
Semis      |  Bearish  |  Bearish  |    Strong     |  Negative  |
Biotech    |  Bearish  |  Bearish  |    Strong     |  Negative  |
Internet   |  Bearish  |  Bearish  |    Strong     |  Negative  |
Networking |  Bearish  |  Bearish  |    Strong     |  Negative  |
Software   |  Bearish  |  Bearish  |    Strong     |  Negative  |
Banking    |  Bearish  |  Bearish  |    Strong     |  Positive  |
Retail     |  Bearish  |  Bearish  |    Strong     |  Neutral   |
Drugs      |  Bearish  |  Bearish  |    Strong     |  Positive  |

            _____________________________________
           | Short-Term  |          | Point and |
           | Overbought/ | Momentum |   Figure  |
           | Oversold    |          |   Signal  |
DJIA       | Oversold    |  Falling |   Sell    |
NASD       | Oversold    |  Falling |   Sell    |
S&P 500    | Oversold    |  Falling |   Sell    |
Rus 2000   | Oversold    |  Falling |   Sell    |
Semis      | Oversold    |  Falling |   Sell    |
Biotech    | Oversold    |  Falling |   Buy     |
Internet   | Oversold    |  Flat    |   Sell    |
Networking | Oversold    |  Falling |   Sell    |
Software   | Oversold    |  Falling |   Buy     |
Banking    | AP OB       |  Falling |   Sell    |
Retail     | AP OB       |turning up|   Buy     |
Drugs      | Oversold    |turning up|   Sell    |
             AP OB = Approaching Overbought
             AP OS = Approaching Oversold

*****************************************************************


***********
OPTIONS 101
***********

Bearish For The Rest of The Year?  Consider LEAP Puts
By Mark Phillips

It has been a long time coming, due to delays necessitated by
the tragic events of September 11th, but I've finally found both
the time and space to address the issue of LEAP Puts and how we
might apply them to our never-ending quest for profits.  As I've
mentioned recently, I've had a number of emails requesting the
addition of LEAPS Put plays to our LEAPS Portfolio.

I want to send my sincere thanks to all who have written,
voicing their opinions and suggestions on whether it makes sense
to utilize LEAP Puts in the current market, and possible
strategies for doing so.  Where possible, I've tried to
integrate your comments into my ever-developing LEAPS strategy,
and I hope all readers will benefit from your insights.

Prior to the terrorist attacks of 2 weeks ago, my personal
belief was that we had passed the point in the current market
decline where buying LEAP Puts was a high-odds strategy.  Just
as we need an equity to stage a substantial advance to generate
profits when we purchase LEAP Calls, we need a substantial
decline in order to profit from LEAP Puts.  Hindsight is 20-20,
and looking at historical charts, it is clear we should have
been playing LEAP Puts aggressively over the past 18 months.

But that is water under the bridge.  Instead of an economy
flirting with recession, we now have one that has no hope of
avoiding the official "recession" label that comes from 2
consecutive quarters of negative GDP growth.  I expect this
quarter to be the first, and only time will tell how many will
follow it before we reach that final bottom.  While the eventual
TRUE market recovery will precede the actual rebirth of the
expanding economy, I now feel that there will be ample
opportunity to apply LEAP Puts to the pursuit of profits.

LEAP Puts are to LEAP Calls, as normal puts are to normal calls.
The only difference being that there is more time involved.
Entry points materialize in much the same way that they do for
LEAP calls, only we are looking for overbought conditions on the
daily and weekly charts to align with a rollover from significant
resistance levels.

As with LEAP Calls, the Puts can be used for long-term to
short-term trading, depending on the action of the underlying
equity and the individual trader's time horizon and tolerance
for risk.  Before we delve into specific examples and potential
trade candidates, we need to talk about the relative dynamics of
the equity markets and their relative propensity to move up or
decline.

Barring a protracted economic downturn like the Japanese economy
has seen for the past 17 years, the broad markets have a natural
tendency to move up over time.  When we are applying bearish
strategies, we need to remain cognizant of the fact that we are
trading against the market's natural tendency.  That means that
we need to look a bit deeper into the underlying company's
condition when searching for LEAP Put candidates.  If we are
taking a position for an expected protracted decline, we want to
pick on a weakling that is not only unlikely to move up, but
likely to fall considerably due to a worsening economic
condition.  But given the historic market decline over the past
18 months, there is no question that there are ample
opportunities to apply both short- and long-term bearish
strategies, particularly in the wake of a massive speculative
bubble.

A study of historic charts for any equity or index will show
that the downward moves are much steeper and faster than the
rallies, meaning that our holding time for bearish trades should
on average be shorter than that for bullish trades.  That may
lead you to ask the question, "Why use LEAPS?  Can't we just
use shorter-term (cheaper) puts instead of paying all that
extra premium for the additional time?".  The simple answer is
"Yes", but there are some important advantages of LEAPS over
near-term options.

First, an At-the-Money (ATM) LEAP will have a significantly
higher Delta than that of a near-term option.  While the latter
should have a delta of approximately 50 (meaning that the option
will appreciate 50-cents for each favorable $1 move in the
underlying equity), the ATM LEAP may have a delta of 65-70, due
to the greater time value.

Some readers have written to me, asking why we need to use LEAPS
to capture these downward moves, pointing out that if we want to
capture a high delta, all we need to do is purchase Deep
In-the-Money (DITM) near-term Puts.  This is actually a very
good suggestion, but there are two strong reasons why it isn't
quite as good in reality.  First of all is the cost -- the cost
of the DITM near-term option usually is higher than that of the
LEAP.  For example, if we were bearish on General Electric
(NYSE:GE) and we opted to purchase a DITM Oct-45 Put, it would
currently cost $9.70 or $970.  By contrast, using the LEAP Put
(I would choose the JAN-2003 $35 Put) would only cost $5.40 or
$540.  The delta of the two options would be very similar, and
LEAP traders would have the added advantage that the LEAP would
be far less susceptible to wild swings in volatility like we
have seen over recent weeks.

But there is another, possibly more important reason why I like
LEAPS over near-term options, and that is the time window.  When
you are trading a front-month option, you have a much narrower
window of time for your trade to be proven correct.  The move
needs to take place shortly after you place the trade, because
even though you may have a DITM option (which will suffer
minimal time-decay losses), when expiration Friday arrives, that
option is no longer viable and we would need to roll out to the
next expiration month.  The LEAP on the other hand, gives us the
luxury of time and we can wait for the market to prove us right
(so long as the stock doesn't move sharply against us, stopping
us out of the trade).

So now that we've laid out the basic dynamics and motivations
for LEAP Put trading, what are the basic parameters that I look
for when searching for an attractive candidate?  While this is
by no means a comprehensive list, it is a good starting point.

1. Earnings declining on a quarter-over-quarter basis,
   particularly in a deteriorating business climate.  One
   example might be a company that is losing market share
   and suffering margin compression due to competition in
   a shrinking market.  PC box makers like Hewlett-Packard
   (NYSE:HWP) and Compaq (NYSE:CPQ) certainly come to mind
   as satisfying this first requirement.
2. Excessive valuation relative to either the rest of the
   market or other companies in the same sector.  Just
   having a high P/E ratio isn't enough here, as we also
   want to see it as unjustified based on the company's
   recent earnings and revenue growth.  A P/E ratio that
   is justified when the company is growing revenue and
   profits by 40% quarter-over-quarter will be utterly
   ridiculous if the growth slows to 20%.
3. Of course we also need a stock price that hasn't
   already been hammered into the dirt.  No doubt, shares
   of Nortel (NYSE:NT) are in trouble according to the
   first two criteria, but at $5, the stock just doesn't
   have enough downside to get our attention.

Just those three can identify some good candidates, but then we
have to go to the charts.  Entry points are important here just
like in all trading and as I mentioned above, the picture we
are looking for is daily and weekly Stochastics rolling over
from overbought territory, and ideally this will occur at a
major resistance level.  Even better is if we have the monthly
Stochastics rolling over at the same time, but I'll exclude that
time-frame from our discussion tonight.  Since we've already
talked about GE up above, I'll continue to use it as my example,
searching back through the historical charts to find what would
have been a high-odds entry point to the downside.  Needless to
say, it didn't take long to find one!  The Weekly/Daily chart
montage shown below shows 2 attractive Put entries roughly a
month apart.



Price began to roll over from the formidable $53 resistance
level towards the end of May, with the added bearish weight of
Stochastics rolling over in both the daily and weekly
timeframes.  As if that weren't enough, GE was banging up
against the upper Bollinger band in both timeframes and the band
on the daily chart was completely flat, indicating that this
barrier wasn't going to give way easily.  For those that missed
the entry point, there was another invitation almost exactly one
month later as the stock ran out of steam, posting a lower high
with oscillators rolling over yet again.

A little research could likely unearth some even better
candidates both in the past several months and in the current
market.  I've rambled on far too long for tonight, but we'll
pick up the discussion next time, highlighting some potential
LEAP Put candidates and attractive conditions for ushering us
into new positions.  Until then, remember that preservation of
capital is our primary focus.  Trade only when it is profitable
to do so.

Questions are always welcome!

Mark Phillips
Contact Support


*****************
STOP-LOSS UPDATES
*****************

ATK  - call
Adjust from $79 up to $80

CHKP - put
Adjust from $27 down to $26

CHV  - put
Adjust from $82 down to $81

PMCS - put
Adjust from $16.50 down to $15

BBY  - put
Adjust from $49 down to $47

EBAY - put
Adjust from $50 down to $49

ENE  - put
Adjust from $30 down to $28.50

*************
DROPPED CALLS
*************

CMVT $21.40 -3.09 (-3.68) Salomon Smith Barney cut its rating
on CMVT to a neutral rating from buy.  That downgrade combined
with an already weak tech sector ruined our play on CMVT.  The
stock fell back towards the $20 level and looks like it wants
to head lower over the near-term.  Bullish traders who weren't
stopped out today can use any relief rally tomorrow to exit
plays.

SYMC $34.69 -3.81 (-2.27) SYCM took it on the chin Wednesday
following several downgrades in the software sector.  The
stock succumbed to heavy sector selling and fell below its
near-term support at $35.  The stock clearly violated our stop
that was recently raised to $36.  We're dropping coverage in
light of SYMC's steep pullback.  Bullish traders with open
positions can use any strength early Thursday to exit positions.


************
DROPPED PUTS
************

No Dropped Puts for Wednesday.


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**************************************************************


*********************
PLAY OF THE DAY - PUT
*********************

EBAY - eBay, Inc. $44.04 -2.85 (+0.25 this 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.

Most Recent Update

Select Internet stocks have managed to recover this week on the
back of the broad market rebound, and we've seen the AMEX Internet
index (IIX.X) recover off the $100 lows.  EBAY has benefited from
the rebound, briefly pushing above the $48 level on Tuesday before
falling back for much of the day.  Daily stochastics are moving
higher as well, but the stock is about to run into some
formidable resistance near $49, reinforced by the 200-dma ($50.42).
We gave this play a wide stop because we were expecting a rebound
from the recent low at $41.50.  That rebound looks like it is
running out of steam and we should get an attractive entry into
the play as EBAY rolls over in the $49-50 range.  One other
interesting observation is that the daily Stochastics hasn't been
able to move above the mid-line since early August, so it would
seem reasonable to expect a rollover in this oscillator in the
near term, especially with the RSI indicator continuing to post
lower highs.

Comments

EBAY reliably rolled over near its 10-dma Wednesday, and looks to
be headed the way of the Internet Sector Index (INX.X).  The stock
has very short-term support at the $44 level, which may be broken
with further weakness in tech.  Look for a break below that level
early Thursday in conjunction with further weakness in the COMPX
and INX.

BUY PUT OCT-45*QXB-VI OI=7172 at $4.40 SL=3.50
BUY PUT OCT-40 QXB-VH OI=4688 at $2.40 SL=1.50

Average Daily Volume = 6.06 mln



*****************************************
BIG CAP COVERED CALLS & NAKED PUT SECTION
*****************************************

Profit Warnings Renew Fear Among Investors
By Ray Cummins

Stocks retreated today, ending a brief recovery from last week's
massive sell-off as nervous investors attempted to dissect new
profit warnings and the continued outlook for a recession.  The
attitude among traders remained tenuous as reports of declining
product orders and additional layoffs eroded the prospects for a
broad-market rally and spoiled optimism for a near-term economic
rebound.  The Market also continued to suffer the emotional and
financial effects stemming from the recent terrorist attacks that
left thousands of people dead and missing in New York's business
district and at the Pentagon in our nation's capital.  Investors
pushed share values higher early this week after the major stock
averages slumped to three-year lows but the bullish activity was
short-lived as confidence in a recovery faded with the negative
reports issued by Goodyear (NYSE:GT), AES Corp. (NYSE:AES) and
Textron (NYSE:TXT) during the morning session.  Goodyear reduced
its third-quarter earnings outlook due to weak markets that were
further disrupted by the recent attacks and said it now expects
net income for the third quarter to be only $0.05 a share.  First
Call had expected earnings of $0.22 a share.  Textron lowered its
second-half financial targets and announced it plans to slash an
additional 2,500 jobs in the face of the slow economy, citing the
impact of the terrorist bombings.  The company now expects a loss
of $0.25 per share in the third quarter.  Power-company AES said
its full-year earnings would fall below expectations due to the
weakening Brazilian currency, falling electricity prices in the
United Kingdom, and slowing economic growth.  In the technology
group, the slide in shares of Micron Technology (NYSE:MU) after
its earnings announcement sapped enthusiasm from the chip sector.
Micron reported Tuesday evening a quarterly sequential decline in
revenue of 41% while posting a loss of $0.76 a share, much wider
than the $0.34 loss that had been expected by analysts.  Almost
every other technology segment followed the semiconductor sector
lower, led by software and Internet issues.  Among broader-market
industries, stocks in the banking and finance segment were active
as traders took shares of both Goldman Sachs (NYSE:GS) and Bear
Stearns (NYSE:BSC) higher in the wake of "better-than-expected"
earnings results.  However, the group eventually retreated after
early gains amid bearish analysts' comments on the investment
banking industry.  In the S&P 500 sectors, utility, oil service,
natural gas and cyclical stocks endured another drubbing while
select biotechnology, insurance, gold and drug issues saw limited
buying pressure.


Summary of Previous Candidates (as of 9/25/01):

Naked Puts:

Stock  Strike Strike Cost   Current   Gain   Potential
Symbol Month  Price  Basis   Price   (Loss)  Mon. Yield

IMCL    OCT    40    39.30   54.75    0.70     5.9%


Naked Calls:

Stock  Strike Strike Cost   Current   Gain   Potential
Symbol Month  Price  Basis   Price   (Loss)  Mon. Yield

ABK     OCT    55    55.75   51.39    0.75     5.9%


Credit Spreads:

Stock  Pick     Last    Position   Credit    C/B    G/L   Status

ACS    86.90   78.80   OCT75P/80P   0.60    79.40  (0.60) Closed
JEC    64.63   61.21   OCT50P/55P   0.70    54.30   0.70   Open
NOC    97.00   98.13   OCT85P/90P   1.00    89.00   1.00   Open
PGR   119.01  124.50  OCT135C/130C  0.65   130.65   0.65  Watch!
VZ     53.90   53.95   OCT45P/50P   0.70    49.30   0.70   Open

Closed Positions:

Shares of ACS plunged unexpectedly Tuesday after the company said
it will commence a public offering of 7 million Class A shares
and may offer up to $300 million in senior notes.  The company
plans to use with proceeds used to repay all or part of a $550
million bridge loan taken in connection with the acquisition of
Lockheed Martin's IMS unit.  Investors were unhappy with the news
and the drop in price left little opportunity to exit the play
with a favorable debit.


New Candidates:

This following group of plays is simply a list of 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
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.  (We monitor the positions marked with ***).


***************

BULLISH PLAYS - Covered Calls, Naked Puts, & Combinations

***************
ACDO - Accredo Health  $35.11  *** On The Rebound! ***

Accredo Health (NASDAQ:ACDO) provides unique contract pharmacy
and related services pursuant to agreements with biotechnology
drug manufacturers relating to the treatment of patients with
certain costly chronic diseases.  The company addresses the
needs of the manufacturers by providing specialized services
that facilitate product launch and patient acceptance including
the collection of timely drug utilization and patient compliance
information, patient education and monitoring through the use of
written materials and telephonic consultation, reimbursement
expertise and overnight drug delivery.  The company has designed
its specialty services to focus primarily on biotechnology drugs
that are used on a recurring basis to treat chronic, and life
threatening diseases, are expensive, are administered through
injection, and require temperature control or other specialized
handling as part of their distribution process.

There is little news to explain the recent bullish activity in
ACDO but this week the issue rebounded off of an old support area
amid renewed buying pressure and excellent volume.  Traders say
the rally may be related to a recovery in the Pharmaceutical
Services industry and the potential for positive announcements
at the company's upcoming presentation during the Raymond James
Healthcare Conference in Nashville, Tennessee on October 1, 2001.
Regardless of the reason for the movement, ACDO is once again
established in a strong up-trend and those who favor the outlook
for its share value can use these positions to speculate on the
future activity of the issue.

ACDO - Accredo Health  $35.11

PLAY (buy stock and sell covered call; or sell naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL CALL OCT 35   DZU-JG   372      1.90    33.21      6.8% ***

SELL PUT  OCT 30   DZU-VF   25       0.35    29.65      4.8% ***

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=ACDO
***************
ATK - Alliant Techsystems  $83.55  *** Defense Sector Rally! ***

Alliant Techsystems (NYSE:ATK) conducts business through three
industry segments: Aerospace, Conventional Munitions and Defense
Systems.  Within these segments, ATI has four primary business
lanes: Propulsion and Composites, each of which falls within the
company's Aerospace segment; Conventional Munitions, which now
corresponds to the company's Conventional Munitions segment; and
Precision Capabilities, which corresponds to the company's main
Defense Systems segment.  In fiscal 2001, the company moved its
missile products business, Alliant Missile Products Company, to
its Aerospace segment.  In February 2001, ATI sold its infrared
decoy flare business, Alliant Kilgore Flares Company.  Also, the
company recently sold the secure electronics product line of
Alliant Integrated Defense Company.

Shares of the nation's defense contractors kept their winning
streak intact this week with a robust rally in the wake of
terrorist attacks on New York and the Pentagon.  The primary
players in the group, Northrop Grumman (NYSE:NOC), Lockheed
Martin (NYSE:LMT) and General Dynamics (NYSE:GD) have posted
substantial gains since the terrorist attacks and the recently
renamed "Operation Enduring Freedom" has all the looks of the
catalyst the defense industry needs to reestablish a bullish
outlook.  A Gallup Poll of Americans also revealed that 73% of
the public believes we're at war, while nine in 10 respondents
think the campaign will be both long and difficult.  At the same
time, government spending on defense equipment is at a historic
(proportional) low and for analysts, lobbyists and politicians,
the current situation provides a number of convincing arguments
for hefty increases in military spending.

It is obvious that defense industry stocks are performing very
well and our target position offers a method to participate in
the future movement of this issue with relatively low risk.

ATK - Alliant Techsystems  $83.55

PLAY (sell naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL PUT  OCT 70   AKA-VN  181      0.70     69.30      4.3% ***
SELL PUT  OCT 73   AKA-VY  11       1.10     72.28      5.7%
SELL PUT  OCT 75   ATK-VO  50       1.65     73.35      7.9%

Note: The bid/ask spreads in these options are very large so you
should target shoot a higher entry price initially to improve the
monthly yield.

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=ATK
***************
GILD - Gilead Sciences  $54.96  *** On The Rebound? ***

Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical
company that seeks to provide accelerated solutions for patients
and the people who care for them.  Gilead discovers, develops,
manufactures and commercializes proprietary therapeutics for
challenging infectious diseases (viral, fungal and bacterial
infections) and cancer.  Gilead also has expertise in liposomal
drug delivery technology.  Currently, Gilead markets AmBisome
(amphotericin B) liposome for injection), an antifungal agent,
DaunoXome (daunorubicin citrate liposome injection), a drug
approved for the treatment of Kaposi's Sarcoma, and VISTIDE
(cidofovir injection) for the treatment of cytomegalovirus (CMV)
retinitis.  Roche markets Tamiflu (oseltamivir phosphate) for the
treatment of influenza, in a collaborative agreement with Gilead.
In addition, Gilead is developing products to treat diseases
caused by human immunodeficiency virus and hepatitis B virus,
bacterial infections and cancer.

The recent buying interest in Gilead Sciences began last month
after the company said that a U.S. Food and Drug Administration
panel is scheduled to review Viread, the company's drug intended
to treat HIV infection, on October 3.  Viread is a single tablet
taken once daily and works by blocking an enzyme crucial to the
replication of HIV.  The company filed a New Drug Application for
Viread earlier in the year and the agency issued priority review
status that could allow for action by the FDA by November 1.  In
the weeks following the news, GILD shares suffered from extreme
profit-taking but yesterday, Goldman Sachs gave investors a new
catalyst to buy the issue as they initiated coverage of Gilead
with a "market out-performer" rating, saying the company's future
growth is linked to their unique AIDS drug.  The brokerage said
the company had established a strong clinical and commercial
track record and that at maturity, Viread may see a market worth
more than $400 million.

Investors were pleased with the upgrade and the issue has shown
new signs of a bullish trend.  These positions offer a way to
speculate conservatively on the company's future share value.

PLAY (buy stock and sell covered call; or sell naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL CALL OCT 50   GDQ-JJ  1505      6.60    47.65      6.3% ***

SELL PUT  OCT 45   GDQ-VH  2281      0.45    44.55      4.4% ***

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=GILD
***************
LLL - L-3 Communications Holdings  $84.30  *** Rally Underway! ***

L-3 Communications Holdings (NYSE:LLL), including its wholly
owned subsidiary L-3 Communications, is a merchant supplier of
sophisticated secure communication systems and specialized
communication products.  Its customers include the United States
Department of Defense (DoD), certain United States government
intelligence agencies, major aerospace and defense contractors,
foreign governments and commercial customers.  The company has
two major business segments, Secure Communication Systems and
Specialized Communication Products.

Shares of security device companies have been among the best
performing issues in the stock market since hijacked commercial
jets destroyed the World Trade Center and damaged the Pentagon
earlier this month.  L-3 Communications Holdings, which supplies
secure communications and specialized products for aerospace and
military industries, has also been in a strong up-trend in the
wake of the attack, due to bullish expectations for the security
industry.  Technology from L-3 is used in a number of security
devices including a bomb detection system that can reconstruct
the entire contents of a travelers baggage in three dimensions.
The demand in that industry alone could easily rise into the
billion-dollar range, based on the tens of millions of bags that
are inspected daily and that's one of the reasons analysts say
L-3 will be a popular issue in the coming months.

LLL - L-3 Communications Holdings  $84.30

PLAY (sell naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL PUT  OCT 70   LLL-VN  112       0.90    69.10      5.6% ***
SELL PUT  OCT 75   LLL-VO  336       1.45    73.55      7.1%
SELL PUT  OCT 80   LLL-VP  955       2.35    77.65      9.4%

http://www.OptionInvestor.com/charts/aug01/charts.asp?symbol=XXX
***************
SBC - SBC Communications  $47.34  *** Reader's Request! ***

SBC Communications (NYSE:SBC) is a holding company that, through
its many subsidiaries, provides a comprehensive offering of
communications services and products in the United States and
has investments in more than 20 countries.  The company's many
services and products are marketed under several established
brands including Ameritech, Nevada Bell, Pacific Bell, SBC
Telecom, SNET, Southwestern Bell, and its newly formed joint
venture with BellSouth Corporation, Cingular Wireless.  The
company offers its unique services and products to businesses,
consumers and other providers of telecommunications services.

One of our readers submitted this issue for a bullish position
and based on the upside activity in the stock and its industry
group, SBC warrants consideration from conservative investors.
The stock has excellent buying support near our cost basis and
the favorable option premiums in this spread will allow traders
to speculate, in a conservative manner, on the future movement
of the company's share value.

SBC - SBC Communications  $47.34

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-40  SBC-VH  OI=10305  A=$0.20
SELL PUT  OCT-45  SBC-VI  OI=5219   B=$0.75
INITIAL NET CREDIT TARGET=$0.60-$0.65  PROFIT(max)=14%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=SBC
***************
SZA - Suiza Foods  $63.00  *** Dean Foods Merger! ***

Suiza Foods (NYSE:SZA) is a manufacturer and distributor of dairy
products in the United States.  Since the acquisition of Suiza
Dairy in 1993, the company has completed 43 dairy acquisitions,
including seven during 2000.  The company sells primarily fresh
dairy products through Suiza Dairy Group, with the product mix
weighted heavily toward fluid milk, including flavored milks and
buttermilk.  Other products that the company sells through Suiza
Dairy Group include ice cream and novelties, half-and-half and
whipping cream, condensed milk, cottage cheese, cream, yogurt,
dips, coffee creamers, juice drinks and water.  Morningstar Foods
sells primarily extended shelf life fluid, aerosol and other dairy
and non-dairy products. Its product offerings include dairy and
non-dairy coffee creamers, flavored and unflavored ESL milks,
lactose-free milks and soymilk, aerosol whipped topping, dairy and
non-dairy frozen whipped topping, egg substitute and cultured
dairy products.

The long-awaited merger between Dean Foods (NYSE:DF), the second
largest U.S. dairy, and Suiza is now expected to be completed by
the end of the calendar year and investors are apparently happy
with the news.  Shareholders from both companies approved the deal
earlier in September and today Dean's Chief Executive reiterated
that the merger is expected to close in the next few months.  In
a conference call with analysts, Dean said that after discussions
with the U.S. Justice Department, he is more confident that the
deal will close before the end of 2001, and the share values of
both companies moved higher after the announcement.

We simply favor the bullish technical indications of SZA (and DF)
and our conservative position offers a method to participate in
the future movement of the issue with relatively low risk.

SZA - Suiza Foods  $63.00

PLAY (moderately aggressive - bullish/credit spread):

BUY  PUT  OCT-55  SZA-VK  OI=549  A=$0.40
SELL PUT  OCT-60  SZA-VL  OI=58   B=$1.25
INITIAL NET CREDIT TARGET=$0.85-$1.00  PROFIT(max)=20%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=SZA
***************

Neutral Plays - Straddles & Strangles

***************
IVGN - Invitrogen  $60.57  *** Technicals Only! ***

Invitrogen Corporation (NASDAQ:IVGN) develops, manufactures and
markets more than 10,000 products for the life sciences markets.
The company's products are principally research tools in reagent
and kit form, biochemicals, sera, media, and other products and
services, which the company sells to corporate, academic and
government entities.  The company focuses its business on two
principal segments, Molecular Biology Products and Cell Culture
Products.

Invitrogen is a good candidate for "premium-selling" strategies,
based on the underlying issue's technical background and the
robust option premiums.  IVGN has a relatively stable trading
range and no (expected) upcoming events that will substantially
alter its fundamental or technical character prior to the October
options expiration.  The issue continues to move laterally in a
Stage I base within a short-term trading range from $55 to $70
and near-term indications suggest the current trend will continue.
At the same time, news and market sentiment will have an effect
on the position, so review the play thoroughly and make your own
decision about its outcome.

IVGN - Invitrogen  $60.57

PLAY (aggressive - neutral/credit strangle):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL PUT  OCT 50   IUV-VJ  169       0.80    49.20      7.0%

SELL CALL OCT 70   IUV-JN  64        0.85    70.85      6.9%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=IVGN
***************

BEARISH PLAYS - Naked Calls & Combinations

***************
IBM - Intl. Business Machines  $91.30  *** Bearish Outlook! ***

International Business Machines Corporation (NYSE:IBM) utilizes
advanced information technology to provide customer solutions.
The company operates using several segments that create value by
offering a variety of solutions, including, either singularly or
in some combination, technologies, systems, products, services,
software and financing.  Organizationally, the company's three
hardware product segments are comprised of Technology, Personal
Systems and Enterprise Systems.  IBM's other major operations
consist of the Global Services segment, the Software segment,
the Global Financing segment and Enterprise Investments segment.

Shares of International Business Machines retreated today after
a pair of influential Wall Street analysts cut their earnings
and revenue expectations for the global computer hardware and
services company.  The brokerage houses that lowered earnings on
IBM for 2001 and 2002 were Goldman Sachs and Merrill Lynch and
the analysts said it was clear that "Big Blue," like many other
companies, will be affected by the business disruptions and the
uncertain economic outlook following the terrorist attacks on
the World Trade Center and the Pentagon.  In addition, Merrill
analysts say they believe technology spending will be down in
the September quarter despite incremental replacement hardware
sales related to companies relocating after the attacks.  IBM
hasn't given new guidance for the current third quarter, but
industry experts noted there have been a number of downwardly
revised estimates and the sense is that the company has sort of
been suggesting that it would be appropriate for numbers to be
lower.

With the today's activity the short-term technicals have become
very bearish and the high-volume trading suggests that a "sell"
mentality is firmly in place, further reducing the probability
of a sustained upward move in the coming sessions.

IBM - Intl. Business Machines  $91.30

PLAY (moderately aggressive - bearish/credit spread):

BUY  CALL  OCT-105  IBM-JA  OI=9783   A=$0.45
SELL CALL  OCT-100  IBM-JT  OI=19602  B=$1.05
INITIAL NET CREDIT TARGET=$0.70-$0.75  PROFIT(max)=16%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=IBM
***************


SEE DISCLAIMER
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