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Daily Newsletter, Sunday, 09/30/2001

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The Option Investor Newsletter                   Sunday 09-30-2001
Copyright 2001, All rights reserved.                        1 of 5
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 9-28          WE 9-21          WE 9-14           WE 9-7
DOW     8847.21 +611.40  8235.81 -1369.7  9605.51 -   .34  -343.90
Nasdaq  1498.80 + 75.61  1423.19 -272.18  1695.37 +  7.67  -117.73
S&P-100  533.10 + 41.40   491.70 - 66.88   558.58 +  4.69  - 23.51
S&P-500 1040.94 + 75.14   965.80 -126.74  1092.54 +  6.76  - 47.80
W5000   9562.93 +662.48  8900.45 -1203.9 10104.44 + 37.95  -448.60
RUT      404.87 + 25.98   378.89 - 61.84   440.73 -  4.46  - 23.37
TRAN    2193.99 +139.15  2054.84 -621.65  2676.49 - 36.65  -100.27
VIX       35.19 - 13.08    48.27 + 13.67    34.60 +   .24  +  6.51
VXN       65.19 - 12.54    77.73 + 13.89    63.84 -  1.61  + 12.59
TRIN        .73              .60              .68             1.25
TICK       +995              +21             +100             -113
Put/Call    .61             1.27             1.01              .84
******************************************************************

 
Not Out Of The Woods Yet!
by Jim Brown

The Dow gained +611 points for the week and retraced 44% of the 
prior weeks loss but very few traders expect it to last. The Dow 
ended September with a +166 point Friday gain but a -15.7% loss 
for the quarter. This was the worst quarter since Q4 of 1987. The
Nasdaq lost a whopping -30.7% for the quarter for the second worst
quarter ever. The worst quarter was 4Q-2000 when it lost -33%. 
According to fund analysts over 95% of U.S. stock funds have lost
ground with many down over -50%. The broad market, as tracked by 
the Wilshire 5000, lost $1.14 trillion in September and -$2.25 
trillion in the third quarter. 

 

 

Can the markets still be oversold after a +44% retracement of the
prior weeks drop? Yes, they can but that does not mean they are 
ready to rock next week. The rally on Friday was "reported" to be
specifically from portfolio rebalancing. This is when funds which
advertise certain percentages of cash, bonds and stock in their
portfolios, must buy/sell to maintain those averages. A fund with
a 70/30 mix of stocks/bonds could have seen its stock holdings
drop significantly in the third quarter. If they had $10 billion
under management that would equate to $3 bln of bonds and $7 bln
of stock. If that stock position had fallen to $4 bln then bonds
would have to be reduced and stocks increased. That would equate
to selling $1 bln in bonds and buying stock with the cash. 

According to several analysts this quarter required more balancing
than any other quarter in recent memory. The buying was widespread
with small and mid caps getting special attention. Managers looked
to them as not "highly visible global targets" likely to attract a
terrorist attack. There were not a few big winners but more of a
general broad market gain. Advancers beat decliners on the NYSE
by almost a 4:1 margin and better than 2:1 on the Nasdaq. Volume
was still anemic at 1.6 bln on the NYSE and barely two bln on
the Nasdaq. There was no conviction and no "get me an at any cost"
buying. 

The economic reports encouraged some traders to tip toe back
into the markets but they were in the minority. The GDP report
actually came in higher than expected at +0.3%. Most analysts
expected a dip into negative territory and the first quarter
of retraction in years. This is of course a picture of the
2Q economy, long before the WTC attack. 3Q capital spending 
continued the down trend from the 2Q and it is now almost
impossible for anyone to expect a positive GDP in a post
attack economy. Consumer sentiment also fell to 81.8 for
the final September report which was only slightly below the 
83.6 initial reading. Still it was significantly down from 
the 91.5 number in August. 

The sentiment number is closely watched by the Fed and is 
expected to fall even further. Critics are going to have a
hard time building a case for rising patriotic sentiment
when employers are handing out hoods, face masks, gloves and 
flashlights along with instructions on how to escape a disaster.
These supplies and instructions are for the lucky employees
who did not get pink slips instead. The government is now
warning that travel overseas could be very dangerous, another 
U.S. attack could be eminent, U.S. planes can be shot down
and biological/chemical attack concerns are increasing. How
can that in any way build consumer sentiment? Still the Fed
is likely to cut rates again on Tuesday in order to continue
stimulating the economy. Also the Fed has increased the amount
of liquidity they have been putting into the system in the
last week. Initially after the attack there was a huge infusion
but then they pulled back a little. Conditions must have gotten
worse because the infusion rate jumped significantly on Thr/Fri. 

The liquidity may be used to hold off further problems in 
the brokerage community. Two brokers with over a 100,000
accounts were closed this week for failing to meet margin
calls. The circumstances were exceptional with GENI stock
being the primary cause. It fell from $18 to under $5 and 
trading was halted by the Nasdaq until the drop was investigated.
Millions of shares of this stock had been borrowed by Miller 
Johnson from another unnamed broker on the East Coast and then 
reloaned to short sellers among their clients and other brokers. 
When the stock fell from $18 to $5 there was a sequence of margin 
calls which eventually fell on the first firm to cover. They were 
unable to produce the cash and closed their doors. That default then 
fell on Miller Johnson with a margin call for about $60 million.
They had insufficient capital to cover the call and were forced
by the SEC to discontinue operations. Customers could sell stocks 
they owned but could not open any new positions. The company is 
in talks with several larger brokers including Dain Rauscher and
Fahnestock regarding a bailout. Miller Johnson oversees $12 
billion in customer investments with over 100,000 accounts. This
is exactly what the Fed is trying to prevent. A breach of confidence
in the financial system which could cause a run on banks and 
brokers. Miller Johnson is not a high profile name but let this
happen to somebody like Ameritrade and things could get worse
quickly. There are undoubtedly many more "unreported" problems
in the system that were caused by the recent market drop and
the Fed is working behind the scenes to prevent a disaster.

The SEC extended for the second time the deadline for allowing
free market stock buybacks. The deadline is now Oct-12th. The
fact that they extended it again is a warning to me that things
are still risky. They obviously need the floor under the market
that unrestricted buybacks provide. There is no doubt that they
were instrumental in providing a positive stabilizing influence
this past week. The last I heard over 200 companies were taking
advantage of the relaxed rules and probably many more were simply
unreported. 

The Fed meets on Tuesday and is expected to cut rates for the
ninth time. They will be cutting not only for the U.S. economy
but for the global economy. The title, "worlds banker", was
never more appropriate. The global economy had been slipping
into recession before the attack but almost every major country
was betting on a quick U.S. rebound to pull them out of the
drop as well. In a post attack economy they now realize that the
U.S. is not going to be coming to their rescue with a massive
rebound anytime soon. By all accounts it will easily be 2Q or 3Q
of 2002 before the U.S. is going to be seeing aggressive growth
again and this is the kiss of death for many countries that
depend on us. Greenspan has to continue to act on the rate front
to send the message to the world that he will get control of the
problem quickly. What he is afraid of is an over stimulation
event. Just like he went two rate hikes too far and created this
problem he is afraid of going two cuts too low and creating
rampant inflation and an excessive unsustainable rebound. He
will be cussed by the markets if he only cuts 25 points. After
eight cuts however another 50 point drop could also be seen as Fed
fear over something the analysts have not yet factored into the 
picture.

Either way the Fed will be the highlight of the news on Mon/Tue.
After that the corporate earnings warnings will be flying fast.
As of Friday we had only seen 577 Q3 warnings compared to 622
for the last quarter. First Call went on record saying they 
expected Q3 to still set a warnings record. That means we
could see over 100 warnings in the next two weeks. Many analysts
feel that the WTC disaster is a "get out of jail free" card for
the corporate world. Those who have not warned can throw every
junk item on their balance sheet into this warning and blame it
on the terrorists. Since many companies do not report monthly
numbers it would be impossible to determine what their business
looked like in the two months prior to the attack. The performance
for the "quarter" would be all that is reported. Smoke and mirrors
to deflect negative investor sentiment. Many may actually be
waiting for the Fed announcement hoping to slide in unnoticed 
in the press. Another problem we will see is the lack of guidance.
While it was getting harder to get guidance from tech companies
before the disaster it will be next to impossible to get it now.
Everyone will take advantage of the confusion on the economic
front to avoid being held accountable to a guesstimate for 4Q.

Sony (SNE) was one of the biggest companies to use the terrorist
excuse last week. On Friday they said profits would fall nearly -90%
from the July estimate of $755 million to $84 million partly as a 
result of the attack. This was down from the April estimate of
$1.3 billion. Now that is a serious shortfall and while a week
of missing sales would hurt I can't see the connection to that
large of a drop. If anything consumers staying home could equate
to more TV and game sales eventually. My point is simply this.
The global economy was already in the tank and betting on us. 
The quarter is over and it is time to confess and it will not be 
pretty. 

A leading indicator for the quarterly results was the warning by
UPS on Friday that shipments had declined by more than 10% since
the attack. Yellow Freight also warned that profits would be cut
in half by falling shipments. Equipment rental companies, temporary
staffing agencies and chemical companies were all warning that
business had dropped significantly since the attack. Parts
manufacturers were seeing cancellations in orders for components
in almost every sector. Many economists and major companies had
previously gone on record saying that the economic slowdown was
the sharpest anyone had ever seen. Unfortunately this was last
quarter and well before the September event. Those benchmarks
for "worst ever" will obviously need to be revised. 

The coming week in the markets is likely to be very tough. The
month of October is typically known for the biggest drops. This
is because summer is a slow time for business and the October
earnings report this. The last quarter was the worst quarter ever 
for the Dow and the second worst for the Nasdaq. This could temper
any further losses to some extent but the odds of another negative
market event are very high. The +611 point gain for the Dow last
week relieved much of the grossly oversold conditions. The index
is ripe for profit taking with some companies showing significant
gains since black Monday two weeks ago. The VIX has come back down
to almost exactly where it was the Monday before the attack and 
the put/call ratio is neutral. The retail investor has drifted
back into complacency. The window dressing/rebalancing week is
over and everyone is holding their breath. Five of the last seven
days the Nasdaq has bounced off resistance at 1500. There is no
overwhelming desire to be in the markets until after the October
earnings are known.

With all the pessimism about the future economic outlook any
good news may look like a life boat on the Titanic. Investors
could seize on that hope. Still, the odds for bad news greatly
outweigh chances for good news over the next two weeks. Once the
first two weeks of earnings are over I would suspect we will know
what the bottom was for October. Until then I could easily see
the 8000 level on the Dow tested again as well as something below
1400 on the Nasdaq. Friday the 21st was a buying opportunity for
long term stock investors and leap buyers. Last week was a great 
trading rally. If you missed both you should be getting ready 
for another buying opportunity. The rebound off any serious
October dip could easily set new records but a word to the wise.
Don't buy the first dip. We want to look for the next washout,
not the next dip. I doubt it will come this week and as a betting
man I would look for it between the 10th and 19th. This week will
best be traded on the sidelines and on paper. Patience is a
profitable virtue! Profit from it!

Definitely, enter passively, exit aggressively!

Jim Brown
Editor


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**************
Editor's Plays
**************

Time Running Out For Microsoft

The judge in the Microsoft antitrust case ordered the company
and the government into "round the clock" settlement talks through
November 2nd. She said "I expect you to meet seven days a week
around the clock". She said that in light of the significant 
impact to the economy from the terrorist attack it was in the
best interest of the country to settle the case quickly. She
also ordered mandatory mediation if it is not settled by Oct-12th.
She scheduled a hearing for Nov-5th to hear their resolution and
threatened to act swiftly and decisively to determine a remedy
if they had not settled by then.

The get tough approach and the threat of "serious remedies" 
is likely to make Microsoft much more agreeable in the settlement
process. They won a battle when the case was kicked back to the
lower court and to give up those gains by being stubborn in
the settlement period would be stupid.

The point to all this is simple. There is a very good possibility
that the case will be settled by Nov-5th. If it goes past the
5th it will not likely be in Microsoft's favor. 

MSFT gained +1.21 on the news and is now just slightly over
strong support at $50. 

The way I would play this is a strangle. Since we know the 
time frame it is easy to choose an option that will fit the
case.

 

I would buy the Jan-$55 call MSQ-AK @ $4.10. This allows for
time premium after the November 5th deadline. Buying a Nov
call would not allow for any slippage in the court dates and
have little time premium left by the announcement.

I would also buy the Jan-$50 put MSQ-MJ - BUT NOT NOW!

The stock may gain over the next two weeks with any kind of
positive comments coming out of the talks. The Jan-$50 put
is currently trading at $5.40. I would put in a limit order
for $4 and hope to get filled on any bounce. For those who
want to be a little more aggressive I would put in a $5 limit
order for the Jan-$55 put (currently $8.00) and hope to get
filled on a bounce. 

The stock could easily move $20 points in either direction
upon a settlement of the case. The trouble is we just do not
know which direction. The tough talk from the judge could 
embrazen the justice dept to be tough in the negoiations
knowing that the judge was on their side. Also they could
be getting heat to settle the case from the Bush administration
and we are not privy to that.

Either way the case could be coming to a close and Microsoft
or a bunch of baby Microsofts wil be free to trade when it is 
over. Microsoft generates huge amounts of free cash and will
survive in whatever form the courst dictate. That could easily
mean that a call only play would work just as well. Assuming
that even the worst outcome is still a conclusion the Jan call
could be a good bet.


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

Good Luck

Jim Brown


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

Quite a Quarter
By Jeffrey Canavan

As the third quarter comes to a close, the numbers aren't very
encouraging for bulls.  The Dow and S&P 500 lost over 15%, and
the Nasdaq Composite lost 30.6%.  Ouch!

It doesn't get any better for tech bulls in October.
Traditionally October is the worst month for the Nasdaq, Losing
a total of 10.5% for the month between years 1971 and 2000.
October is the only month with a cumulative net loss.  The good
news is that the end of October marks the end of worst six-month
period for the Nasdaq (May to October).   Could this October be
different?  Certainly, we are in uncharted waters.

Dow Jones Industrial and Nasdaq Composite Daily Charts

 

While the waters may be uncharted, we do have charts.  A chart
of the Dow is telling us that we are starting to get a little
overbought.  There might be a little more room for the Dow to
rise to 9,000, but the stochastic is saying that a reversal
looks imminent.  

The Nasdaq continues to struggle compared to the Dow.  The tech
index has yet to climb above its 10-day moving average, or take
out Tuesday's high of 1528.  It's not quite as overbought as
the Dow, but the stochastic could quickly roll over.  

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

Market Volatility
    
VIX   35.19
VXN   65.44

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.61        745,773       456,710
Equity Only    0.49        657,681       320,749
OEX            1.55         14,674        22,738
QQQ            0.45         59,287        26,829
 
-----------------------------------------------------------------

Bullish Percent Data


           Current   Change   Status
NYSE          18       -      Bear Confirmed
NASDAQ-100    12      +12      Bear Confirmed
DOW           18       -      Bear Confirmed
S&P 500       16       -      Bear Confirmed
S&P 100       16       -      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  0.91
10-Day Arms Index  0.95
21-Day Arms Index  1.18
55-Day Arms Index  1.23

Extreme readings above 1.5 are bullish, and readings below .85 
are bearish.  These signals don't occur often and tend be early, 
but when the do, they can signal significant market turning 
points.

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

        Advancers     Decliners
NYSE      2501            691
NASDAQ    2539           1177

        New Highs      New Lows
NYSE       58            102
NASDAQ     46            162

        Volume (in millions)
NYSE     1,646
NASDAQ   2,086
-----------------------------------------------------------------

Advisory Sentiment 

Bullish  Bearish  Correction  Net Bullish   Change 
  35.7%    37.6%     26.7%       -1.9%      -15.3%

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: 09/25/01

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

Bears have gotten 40% less bearish over the past two weeks, but
the numbers are a bit deceiving.  Rather than institutions adding
new long positions, there was a mass exodus out of S&P 500
futures.  For the period ending 9/25, open interest, the number
of contracts outstanding, fell 103,420, or 17%.  The 64,787 drop
in institutional short positions suggests short covering, and
the lack of new positions, long or short, being added echoes the
wait and see approach.

Commercials   Long      Short      Net     % Of OI 
9/10/01      359,360   442,070   (82,710)   (10.32%)
9/18/01      406,387   471,823   (65,436)   ( 7.45%)
9/25/01      357,873   407,036   (49,163)   ( 6.43%)

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
9/10/01      156,500     69,090   87,410     38.75%
9/18/01      172,988    100,531   72,457     26.49%
9/25/01      122,613     71,721   50,892     26.19%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year:  91,122 - 3/06/01
 
NASDAQ-100

Nasdaq futures - big drop in open interest, but little change in
commercial net positions.

Commercials   Long      Short      Net     % of OI 
9/10/01       26,784     37,912   (11,128)  (17.20%)
9/18/01       35,497     45,731   (10,234)  (12.60%)
9/25/01       26,761     36,812   (10,051)  (15.81%)

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
9/10/01       15,263    12,555    2,708       9.73% 
9/18/01       22,876    21,702    1,174       2.63%
9/25/01       10,699     6,580    4,119      23.84% 

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

DOW JONES INDUSTRIAL

Slight drop in institutions net bullish stance, but the % of
open interest jumped due to the drop in open interest.

Commercials   Long      Short      Net     % of OI
9/10/01       25,445    13,033   12,412     32.3% 
9/18/01       28,425    15,077   13,348     30.7%
9/25/01       20,013     7,806   12,207     43.9%

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
9/10/01        7,460    12,735    (5,275)   (26.12%) 
9/18/01        7,335    15,044    (7,709)   (34.45%)
9/25/01        4,530    12,621    (8,091)   (47.18%)

Most bearish reading of the year:  (8,091) - 9/25/01*
Most bullish reading of the year:   1,909  - 1/16/01

COT Commercial Net Position Charts

 

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


***************
ASK THE ANALYST
***************

$5 Shake
By Eric Utley

They told me in Econ 101 that a recession is defined by two
consecutive quarters of contraction in gross domestic product
(GDP).  They also told me that six consecutive quarters of
contraction is also known as a depression.  They sure do say
a lot.

I wonder if the economy does slip into a recession whether or
not I'll be able to order another $5 shake.  I know, a $5 shake
is most certainly excessive.  It's irrational, inefficient, and
some might argue that it goes against the tenants of capitalism,
but some don't have the luxury of retrospect.  After all, it's
just milk and ice cream.   

Heck, just last week, two proprietors of $5 shakes turned the
page to the ever-dreaded chapter 11 in the book of business.

Actually, now that I think back, the last time I downed a $5 shake
it really wasn't that good.  In fact, I thought it was a waste of
space on the menu.  For $5, I'll opt for the crème brule, thank
you very much.

With the $5 shake going by the wayside, I wonder what impact that
will have on the menu going forward.  My guess is that it's going
to be a very positive thing.  Less competition and less supply
could lead to a much quicker recovery for the crème brules of the
menu.

At any rate, I've got a date with Mia Wallace this weekend.  Wish
me luck!

Please send your questions and suggestions to:

Contact Support 

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

Sun Micro - SUNW

Following [last] Sunday's bit on bearish price objectives, I
took a shot at figuring one for SUNW.  I came up with $2.5 as
an objective.  Please tell me I've made a mistake.  Also, in
general, what is your opinion of SUNW here at $8.00.  It seems
pretty cheap, but it also seemed that way at $40, then $20, the
$10... - Thanks a lot, Michael

Thank you for the excellent questions, Michael.

The bearish price objective I came up with for Sun Micro
(NASDAQ:SUNW) is a bit higher than $2.50.  Let's review the
process of determining a bearish price objective.

First, we determine where the latest buy signal was generated on
the Point & Figure chart.  Sun's last buy signal was given in
late July when the stock exceeded a previous column of X's at
the $16.50 mark (Exhibit A).  On that buy signal, Sun traded as
high as $18 (Exhibit B).  Second, we want to determine the sell
signal generated immediately after the most recent buy signal.
The sell signal we want to concentrate on was given in August
when Sun took out its previous column of O's with a print at
$13.50 (Exhibit C).

Once we have identified the appropriate sell signal, we then
attain a vertical count by counting the number of O's in the
column of the sell signal we are interested in.  In this case,
Sun generated a total of 9 O's during its sell signal (Exhibit 
D).

Once we have the vertical count, which, in this case, is 9, we
then multiply that number by the scale of the chart.  If the
stock is trading between $20 and $100, the scale will ALWAYS be
$1.  But, when the stock is trading between $5 and $19.50, the
scale will ALWAYS be $0.50.  Therefore, in this case, the scale
we'll be working with is $0.50.  We multiply that scale by our
vertical count of $9 to arrive at $4.50.  After that calculation,
we then throw in our multiplier of $2 since this is a bearish
price objective calculation.  Multiplying our post-scale number
of $4.50 by $2, we arrive at our subtractor of $9.

(Conversely, if we were performing a bullish price objective
calculation, we'd use the same process, expect our multiplier
would be $3 instead of $2.  We use $3 in the case of bullish
price objectives because: 1) Stocks can only go to zero; 2)
Stocks could potentially go to infinity; in other words, there's
no limit to the upside in a stock.)

Once we have our subtractor, which, in this case, is $9, we take
that number away from the first O in the sell signal column we're
concerned with (Exhibit E).  In Sun's case, the O from which we
subtract $9 is at $17.50.  Take $9 from $17.50 and we arrive at
$8.50.

 

Analysis:

As you can see on the chart, Sun traded below its bearish price
objective last week by $0.50 (Exhibit F).  Its print at the $8.00
box violated its price objective of $8.50.  Because the stock
violated its price objective, I would guess that Sun has further
downside from current levels over the intermediate-term.  However,
remember that the bearish price objective is NOT an exact science.
Because Sun is trading "around" its bearish price objective,
bullish traders could consider "nibbling" FOR A TRADE down around
current levels.  But, only with a very tight stop and defined
upside of about $1 or $1.25.  But, to reiterate, the violation of
its bearish price objective suggests further downside.

LOW PRICE DOES NOT EQUATE TO CHEAPNESS!

Sure, Sun is selling for $8, but does that make it cheap?  The
company is expected to earn 12 cents per share this year.
Taking Friday's closing price of $8.27, 12 cents per share in
earnings gives the stock a multiple of around 69.  Is a PE of
69 cheap?  Not by any stretch of the imagination is that cheap!

To be fair, Sun is expected to earn 39 cents per share next year,
which, if met, would give the stock a forward-looking multiple
of around 21.  That's much more reasonable, but still relatively
expensive in terms of historical means.  And, what if Sun doesn't
make its numbers next year?  The range in estimates for Sun next
year is extremely wide.  On the optimistic end, one analyst
expects Sun to earn 70 cents next year, while the most pessimistic
analyst is predicting 12 cents on the low-end.  In other words,
Wall Street is quite uncertain what Sun will earn next year.

One problem with these big cap techs is that they split their
stock so many times during the great bull market, in addition to
issuing a ton of new stock to pay for all of their acquisitions
in many cases.  As a result, there's so much damn stock
outstanding that a low share price, i.e. $8.27, doesn't make 'em
"cheap."  Consider the fact that Sun has about 3.25 BILLION shares
outstanding.

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

Potpourri

Enjoy your column very much and have learned much about Point
& Figure charting.  Three questions for you:

1) What's your favorite book and author for a comprehensive
discussion of point & figure charting?

2) What's your outlook for BEAS?

3) What's your outlook for CIEN?

These stocks are very interesting inasmuch both companies
appear to be well positioned in their respective markets, have
decent fundamental prospects going forward, and both are trading
at or near 52-week lows.  Will these stocks lay on the bottom
(the current $10 levels, or possibly lower still at $5-$6) or
are they positioned to rebound if we see an economic recovery
sometime in the future? - Anonymous

Very good questions!  And, thanks for the compliment!

Bookstore

First, the ONLY book one ever needs to read concerning Point & 
Figure charting was written by Thomas Dorsey.  The title of the
book is Point and Figure Charting: The Essential Application
for Forecasting and Tracking Market Prices, 2nd Edition.  It's
expensive, but well worth the $60.  You can order the book from
most online bookstores, and most chain stores carry the book.

The Call

Before I touch upon the specifics of BEA Systems (NASDAQ:BEAS)
and CIENA (NASDAQ:CIEN), let me throw an idea on the table.
Consider the following discussion between a money manager and
one of his clients.  After receiving and thoroughly reading his
end-of-year investment report, the client discovers a
peculiar position in the fund and phones the money manager...

"Hey, Martyr the Money Manger, I know you believe strongly in
tech, but that doesn't mean I have to suffer because of your
beliefs."

With bewilderment, the money manager replies, "Why, Carl the
Client, whatever do you mean?"

Carl the Client retorts, "You know damn well what I'm talking
about...What the hell is BEAS doing in the fund?  Are you
aware that the stock is down 86 percent year-to-date?"

The money manager cowers, but tries to appease his client, "Don't
you worry, Carl, BEAS is coming back in 2002!  Have you seen
the company's balance sheet?  Squeaky clean.  I know for a fact
that BEAS will hit its numbers next year.  We're talking about
a triple, maybe even more.  That's why I've been buying it all
the way down."

Carl, now bewildered, enters a state of calmness, and requests,
"Send me my money, you're fired."

Moral

If I'm managing a mutual fund, hedge fund, or pension fund, I
don't ever want to have the above conversation with my clients.
And that goes for most money managers who want to keep their jobs.
As a result, stocks that have been literally taken apart through
the course of the year are often dumped at the end of the year
so that money managers don't have to explain their mistakes to
clients.

In other words, the months of October, November, and most of
December are not months in which to be a hero and try to pick a
bottom in beaten up stocks.  Stocks that are down 60, 70, and 80
percent near the end of the year tend to go lower.  If you're
considering bottom fishing for beaten up tech stocks, think about
waiting until the last two weeks of December, preferably the
last week.  This applies to CIENA and BEA Systems and, for that
matter, most of the Nasdaq-100.

(In fact, there exists a trade at the end of the year of buying
the most beaten up stocks in the last week of December, then
flipping those stocks in January.  We put on this trade last year
with several stocks.  One of them was Worldcom (NASDAQ:WCOM),
which netted us a 50 percent return in the underlying in the
space of about two weeks!  And don't you worry, I'll be ahead of
that trade again this year and will dedicate a column to that
event.)

Specifics

BEA's chart looks terrible.  There's one dominant theme on the
chart and that is supply, supply, and more supply.  The stock
hasn't even tried to trace a bottom, and I wouldn't consider
stepping in at current levels.  Sure, the company is pretty
clean financially, but what software company isn't?  The
dominant them is that its earnings expectations have been in
free fall for the last six months.  Those estimates need to
come down further, which should continue pressuring the stock
on top of the end-of-year selling.

 

CIENA is also a financially "clean" company, which is a little
more rare in the networking space.  It's going to make it and
could do well once spending rebounds.  But, like BEA, CIENA's
numbers continue coming down.  Until that trend reverses, the
stock should remain under pressure.

However, I will say three positive things concerning CIENA.
First, the nature of its products makes them in high demand by
the carriers.  CIENA's stuff saves the carriers money.  Second,
CIENA was one of the last networkers to stumble, which is a
testament to the demand of its products.  The company should
be one of the first to benefit from an up-tick in demand.
Finally, the price action in the big carriers recently, such
as SBC, BellSouth, Ma Bell, and Verizon, has been quite
positive.  Sure, it's been associated with wireless, but bigger
profits for those carriers could translate into an increase
in capital expenditures.

 

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

Another Tech Take

Can you give me your take on DIGL and AMD?  I asked this question
two weeks ago and no one has replied. - Thank YOU!, Anonymous

Sorry for the delay.  Let's get to it!

Digging Into Digital

Digital Lightwave (NASDAQ:DIGL) is a networking company, so
naturally I'm going to want to know how the Networking Sector
(NWX.X) is trading.  Although Digital isn't a component of
the index, it's paramount to get a sector view in any market
operation.

The sector has been trading "like a dog with fleas" relative
to the broader market (S&P 500) and the Nasdaq-100.  I don't
like being bullish on sectors that are demonstrating poor
relative strength.  Instead, I like to buy stocks in sectors
that are trading better than the overall market.  Because the
NWX is trading so poorly, I'd tend to avoid bullish bets in
the group.  At the same time, however, stocks like Digital,
and CIENA for that matter, are trading at such low prices that
shorting them doesn't make a whole lot of sense.  Personally,
I tend to avoid shorting stocks below $15.

But, to be objective, the NWX has put in some preliminary
basing work, for the short-term anyway.  The index did trace
a 3-box reversal last week and is currently about 17 points
away from a buy signal.  If one were leaning bullish on
networking shares FOR A TRADE, they should be watching for the
NWX to print 232 next week.  A trade at 232 would put the NWX
on a buy signal based on its current point & figure setup.
On the other hand, if the NWX takes out its relative lows down
around 204, all bullish bets are off.

 
Digital's rate of decline versus the NWX is slowing, which may
be the preliminary signs of a bottom.  But, picking bottoms is
a risky business.  So, in order to take a stab at quantifying
risk, I've fitted a retracement bracket on Digital's decline.
I've simply fitted the retracement levels of the bracket with
meaningful resistance levels in Digital.  It's an art, I know,
but I'd be willing to bet that a few market makers in Digital
are using the same technique.

I wouldn't be surprised to discover that those market makers
are clearing inventory to get ready for another leg lower
in Digital.  Although the stock has recently paused around the
$10 level, I wouldn't be jumping in at current levels.  It makes
more sense, judging by the bracket, to start to look for a bottom
around the $6.75 to $7.00 area.  That's where the lower-end of
the bracket lies and I'd be willing to bet that that's the level
where market makers will begin building inventory (Read: Bid).

 

Microprocessor Malaise

Intel (NASDAQ:INTC) and Advanced Micro (NYSE:AMD) are duking
it out.  You don't want to buy the stock of a company that is
engaged in a price war.  Lower margins mean lower profits mean
lower stock prices!

In the case of AMD, it's a triple-whammy losing proposition.
The company's profits are falling because of the price war
with Intel.  The company is losing market share to Intel in
a big way; several of the large box makers have recently
announced that they'd quit using AMD's chips.  Finally, the
market for AMD's chips is in terrible shape.  Gateway (NYSE:GTW)
at $5, enough said.

The stock's too low to short and AMD's business is too ugly to
buy.  In a word: AVOID!

 

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

Natty Gas

Your column is always insightful, really appreciate how you look
at the requests different analysis, whichever you think is most
appropriate I suppose...Two requests...If limited to one, please
do...TRP. - Thanks, James

You're far too kind, James.  Thank you.

I thought it would be interesting to take a look at TransCanada
Pipelines (NYSE:TRP) for two reasons.  First, it's a nice change
of pace from tech, which seems to be a predominant theme in the
requests I receive.  And second, the stock is trading like a 
champ!

James was kind enough to offer the following:

With regards to TRP, it's a Canadian company dual listed on the
TSE and on NYSE.  Trading volume is higher on the TSE.  Options
are available through  the MSE on the Canadian.  Just realized
there's no options on TRP in the US.

Unfortunately, my faithful and incredibly accurate energy contact
was unavailable for comment this weekend.  I think he's somewhere
in the Rocky Mountains, but I was unable to confirm that much.
It's been about a week since I've received his insight into the
energy market, so I don't dare take a guess on the supply/demand
situation of the natural gas market, which most certainly concerns
TransCanada as does the power market.  My contact has been so
accurate in calling the prices of energy recently that I'd rather
wait for his insights instead of passing along inaccurate or dated
information.  I'll be sure to get his thoughts next week and pass
along my findings as they relate to TransCanada.

In the meantime, I'll give my readers the technical and 
company-specific fundamental takes.

So a 4 percent earnings growth rate isn't all that sexy.  But,
earnings growth, in itself, is becoming a rare commodity in
certain sectors of the market.  Maybe 4 percent EPS growth isn't
that bad?  In all seriousness, there are a couple of things to
like about TRP.  Lower interest rates should be of benefit
because of the company's debt-financed operations, which is
the case for most utilities.  In addition, the company's
chunky dividend yield is something to consider.  At current
levels, TRP yields about 4.5 percent - - that's before any
potential capital appreciation.  How much is your savings
account yielding?

On the technical front, TRP's chart is a thing of beauty.
The stock's up about 20 percent year-to-date.  But, lookout for
that 200-weekly moving average.  Could be a site of consolidation
for a few weeks.

If my energy contact has good things to say about the natural
gas and power markets, then I think TRP is worth a closer look
for an intermediate- to long-term position.  If the stock
continues along its trend, I'd give it a one-year price target
between $15.60 and $16. 

 

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

DISCLAIMER:
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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*************
COMING EVENTS
*************

For the week of October 1, 2001

Amongst a barrage of economic releases, the Federal Open Market 
Committee meets on October 2.  Analysts are expecting a 25 
basis point rate cut, the second cut in a period of just three 
weeks.


Monday
======
Auto Sales             Sep  Forecast:   5.5M   Previous:   5.8M
Truck Sales            Sep  Forecast:   6.7M   Previous:   7.4M
Personal Income        Aug  Forecast:   0.3%   Previous:   0.5%
PCE                    Aug  Forecast:   0.3%   Previous:   0.1%
Construction Spending  Aug  Forecast:  -0.4%   Previous:  -0.1%
NAPM Index             Sep  Forecast:  45.0%   Previous:  47.9%


Tuesday
=======
FOMC Meeting


Wednesday
=========
NAPM Services          Sep  Forecast:  43.8%   Previous:  45.5%


Thursday
========
Initial Claims        9/29  Forecast:    N/A   Previous:   450K
Factory Orders        Aug   Forecast:  -0.5%   Previous:   0.1%
FOMC Minutes          8/21


Friday
======
Nonfarm Payrolls      Sep   Forecast:  -100K   Previous:  -113K
Unemployment Rate     Sep   Forecast:   5.0%   Previous:   4.9%
Hourly Earnings       Sep   Forecast:   0.3%   Previous:   0.3%
Average Workweek      Sep   Forecast:   34.0   Previous:   34.1
Consumer Credit       Aug   Forecast:    N/A   Previous:   0.0B


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The Option Investor Newsletter                   Sunday 09-30-2001
Sunday                                                      2 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/3593_2.asp


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and their options based upon various criteria, like stock or option
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Note: Options involve risk. Risk disclosure:
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**************************************************************


********************
THE PLAYS OF THE DAY
********************

Call Play of the Day:
*********************

GE - General Electric $37.20 (+5.90 last week)

See details in sector list




Put Play of the Day:
********************

PGR - Progressive Corp. $133.90 (+17.92 last week)

See details in sector list




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**************************
PICKS WE DROPPED THIS WEEK
**************************

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.


CALLS
^^^^^
No Dropped Calls for the weekend.
 

PUTS
^^^^
No Dropped Puts for the weekend.


***********
DEFINITIONS
***********

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.

RISKS of SELLING PUTS:
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.


*************
NEW CALL PLAY
*************

PPG - PPG Industries $45.75 (+5.04 last week)

PPG manufactures a variety of products for the manufacturing,
construction, automotive and chemical processing industries.
The company also helps do-it-yourself homeowners brighten up
their house with its Lucite brand of house paints.  Paints,
stains, and other coatings account from almost half of the
company's sales, with the balance coming from the glass
products and chemicals divisions.  PPG has over 75
manufacturing facilities in 16 countries, but North America
accounts for 70% of company sales.

Despite a sharp intraday dip on September 21st, PPG managed to
hold above the critical $40 support level on a closing basis and
then spent most of last week consolidating between $42-43.  Then
on Friday, a surge of buying volume (30% above the ADV) launched
the stock through near term resistance and brought it within
striking distance of the $46 resistance level, also the bottom
of the gap created when trading resumed on September 17th. 
Daily Stochastics are still on the rise, and that may be enough
to lift PPG to the 20-dma ($48.54) before profit taking emerges.
While we could see a bit of weakness next week, we're looking
for the $43 support level to provide solid support on any dip.
A solid bounce near that level would provide attractive entry
points, as would a volume-backed rally through the $46 level.
We are initiating the play with a $42.50 stop.

BUY CALL OCT-45*PPG-JI OI= 29 at $1.95 SL=1.00
BUY CALL NOV-45 PPG-KI OI= 22 at $2.85 SL=1.50
BUY CALL NOV-50 PPG-KJ OI= 24 at $0.80 SL=0.00
BUY CALL JAN-50 PPG-AJ OI=170 at $1.75 SL=1.00

Average Daily Volume = 548 K



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


**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

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or any Premier Investor Network newsletter please contact:

Contact Support








The Option Investor Newsletter                   Sunday 09-30-2001
Sunday                                                      3 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/3593_3.asp


************************Advertisement*************************

ENTER THE DRAGON™

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
http://www.optionsxpress.com/marketing.asp?source=optinv2

Note: Options involve risk. Risk disclosure:
http://www.optionsxpress.com/welcome_risk_index.htm
**************************************************************


******************
CURRENT CALL PLAYS
******************

ATK - Alliant Techsystems $85.60 (+4.99 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 pulled back Friday despite the strength across the broad
markets.  In fact, the majority of defense-related issues
were weak last Friday, including NOC and GD.  There are two
explanations for the weakness.  First, ATK could've been
taken lower on profit taking after its solid showing through
Thursday.  The profit taking scenario is the most favorable
in our opinion, because a pullback at this point is natural
and routine.  The second, and less favorable scenario, is that
the defense-related issues have lost their appeal.  For
whatever reason, it seems a little fishy that ATK didn't trade
higher last Friday on a day when the Dow gained 1.9 percent
and the S&P gained over 2 percent.  It could've been just
normal profit taking, but we want readers to be on alert of
the divergence in price last Friday.  Of course last Friday's
pullback may have traders on alert for an entry point near
support.  For those looking for entries near support, watch
for a bounce near the stock's ascending support line currently
sitting at $84.50.  Below, the $82.25 to $83 area may attract
dip buyers.  But, if you're going to enter on a dip, which is
the preferred entry strategy at this point, make sure to
confirm strength in other defense-related issues such as NOC,
GD, and LLL.

BUY CALL OCT-80 ATK-JP OI=  46 at $8.80 SL=6.75
BUY CALL OCT-85*ATK-JQ OI= 132 at $5.70 SL=4.00
BUY CALL OCT-90 ATK-JQ OI=  65 at $3.30 SL=2.00
BUY CALL NOV-85 ATK-KQ OI=1042 at $7.70 SL=6.00
BUY CALL NOV-90 ATK-KR OI=  20 at $5.60 SL=4.00

Average Daily Volume = 152 K



MO - Phillip Morris $48.29 (+.61 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
products.

The good news last Friday was that MO put in some consolidation
work around the $49 level, which is what we were looking for
in our update last Thursday.  The bad news was that the Dow
finished solidly higher.  MO, of course, is a component of the
Dow and its relative weakness is something to consider going
forward.  We can't have it both ways, but we want traders to
be very cognizant of MO's under performance last Friday.  In
fact, other tobacco-related issues such as RJR and UST under
performed the broader market averages.  The sector's and,
indeed, MO's under performance may have been a byproduct of
end-of-quarter shenanigans, but that remains to be seen.  Turning
back to our consolidation thesis, as long as MO can hold above
the roughly $47.50 level, we feel that the stock could be
setting up for a breakout above near-term resistance at $49.50.
If the stock begins to stumble below that level, it may be an
indication that its relative weakness last Friday is something
more than a one-day event.  Nevertheless, future pullbacks down
to the $47.50 level may offer favorable entry points in terms
of risk versus reward.  In other words, an entry at $47.50 can
be accompanied with a conservative stop.  On the flip side,
momentum fans can consider using an advance above the $49
level as an entry point, with the understanding that the
$49.50 resistance level sits just above that entry point.

BUY CALL OCT-45*MO-JI OI=39397 at $3.70 SL=2.50  
BUY CALL OCT-50 MO-JJ OI=21540 at $0.50 SL=0.25  
BUY CALL DEC-45 MO-LI OI= 2684 at $5.00 SL=3.75  
BUY CALL DEC-50 MO-LJ OI=18760 at $1.95 SL=1.00  

Average Daily Volume = 5.89 mln



RTN - Raytheon $34.75 (+0.71 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.

RTN held up pretty well last Friday considering its performance
the day before.  The fact that the stock only gave back $0.05 of
its gains from Thursday was encouraging, especially after
considering the weakness in other defense-related issues.
However, it was discouraging that RTN didn't participate in
last Friday's rally.  It's therefore becoming evident that the
$35 area is going to serve as formidable resistance going
forward.  The stock attempted to move above that level again
Friday morning, only to be "leaned" on the rest of the day.
Granted, the longer that RTN bumps against the $35 level, the
sooner that the seller at that level loses his/her supply.
Once out of the way, RTN should trade up to the $36 level.
In summary, if the stock bases right below the $35 early
next week, bullish traders might look for a rally attempt
above that level, but only after confirming direction in the
broader market as well as sector cohorts such as NOC, GD, ATK,
and LLL.  Additionally, one variable in this play is how the
market is going to react once military action is taken.  Of
course we don't know when that's going to happen, but traders
should consider their risk tolerance ahead of forthcoming
military action.  One on side, the defense stocks may pop
higher on the news.  Then again, they could sell-off in typical
"buy the rumor, sell the news" fashion.  Just something to
consider.

BUY CALL OCT-30 RTN-JF OI= 521 at $5.10 SL=3.75
BUY CALL OCT-35*RTN-JG OI= 136 at $1.60 SL=0.75
BUY CALL NOV-30 RTN-KF OI=2291 at $5.70 SL=3.50
BUY CALL NOV-35 RTN-KG OI=1541 at $2.60 SL=1.75

Average Daily Volume = 1.68 mln



ENZN - Enzon $51.00 (+6.02 last week)

Enzon is a biopharmaceutical company that develops and
commercializes enhanced therapeutics for life-threatening
diseases through the application of its two proprietary platform
technologies: polyethylene glycol (PEG) and single-chain antibody
(SCA).  The company applies its PEG technology to improve the
delivery, safety and efficacy of proteins and small molecules
with known therapeutic efficacy.

We're on alert for further weakness in the biotech sector.  The
AMEX Biotechnology Index (BTK.X) traced an ominous reversal
last Friday, which was evident in the price action in ENZN.
Volume was a little less active in ENZN Friday, which may suggest
that its late-day pullback was profit taking-related.  But other
biotech issues, such as AMGN and BGEN, saw a slight up-tick in
volume in conjunction with their respective weakness.  That
slight day-over-day increase in volume may have been attributable
to end-of-quarter adjustments, but we'll want to be on the alert
next week nonetheless.  ENZN did stage a nice recovery last
week, so a little pullback is not out of the ordinary.  Plus,
we initiated coverage Thursday with the understanding that ENZN
was, at the time, a momentum play.  Still, those traders who
took positions last Friday should be thinking about ways of
managing risk going into next week's trading.  The $50 level is
both technically and psychologically significant insofar as
support is concerned, so bullish traders could turn to that level
when managing risk.  On the other hand, those waiting for an
entry point could take a bounce from the $50 level if the BTK
rebounds.  If ENZN loses the $50 level, the next logical level
to turn towards for support is the 10-dma currently at $48.  As
such, traders with open positions should take that into account
and manage risk accordingly.

BUY CALL OCT-50*QYZ-JJ OI=2284 at $4.70 SL=3.00
BUY CALL OCT-55 QYZ-JK OI=1342 at $2.25 SL=1.00  
BUY CALL NOV-50 QYZ-KJ OI=  68 at $6.20 SL=4.25
BUY CALL NOV-55 QYZ-KK OI= 763 at $4.00 SL=3.00  
BUY CALL NOV-60 QYZ-KL OI= 445 at $2.40 SL=1.75  

Average Daily Volume = 1.37 mln



MTG - MGIC Invest $62.89 +2.58 (+6.70 this week)

MGIC Investment is a holding company that, through its wholly
owned subsidiary, Mortgage Guaranty Insurance Corp., is a
provider of private mortgage insurance coverage in the United
States to the home mortgage lending industry.

MTG staged another stellar day last Friday, but obviously its
gap higher didn't warrant the best entry point.  It's probably
unlikely that readers were able to get a favorable entry point
into the play unless the opening low around the $64 level was
used to gain entry.  Going forward, if the IUX.X continues its
journey higher, bullish traders can watch for MTG to breakout
above its 200-dma currently at $65.84.  Perhaps an advance
above the $66 level would confirm any breakout attempt above
the 200-dma.  For those traders looking for new entries,
however, make sure to consider that this play is currently
momentum-based in nature.  A pullback may be in the offing, so
traders should take that into account before entering new plays.
That's not to say that the stock won't work higher, it's just
that managing risk in a momentum play is harder.  For those
who did enter plays last Friday, perhaps a stop just below
entry points would make sense.  But, that's only a suggestion,
in the end it's up to the individual to make the best
decision.  If MTG does continue working higher next week and
passes the $66 level early on, look for resistance around $67
as a possible exit point, or higher around $68.

BUY CALL OCT-60*MTG-JL OI=  5 at $7.50 SL=5.00  
BUY CALL OCT-65 MTG-JM OI=315 at $3.30 SL=2.25  
BUY CALL DEC-60 MTG-LL OI=120 at $8.70 SL=6.50  
BUY CALL DEC-65 MTG-LM OI= 12 at $4.40 SL=3.50  

Average Daily Volume = 634 K



QCOM - Qualcomm $47.54 (+2.65 last week)

Qualcomm is engaged in developing and delivering digital wireless
communications products and services based on the company's
CDMA digital technology.  The company's business area include
integrated CDMA chipsets and system software; technology
licensing; Eudora email software for Windows and Macintosh
computing platforms; satellite-based systems including portions
of the Globalstar system and wireless fleet management systems,
OmniTRACS and OmniExpress.

QCOM just could not get above the $49.30 level last Friday,
which was its day high last Wednesday.  It was a little
disappointing to see the Nasdaq end solidly higher, while QCOM
couldn't muster a close in positive territory.  Being one of
the larger components of the Nasdaq, we expected a little bit
more from QCOM.  It remains to be seen whether or not the stock's
under performance last Friday had anything to do with the end
of the quarter rebalancing.  We'll most likely find out early
next week if QCOM rebounds.  But because QCOM is in between is
resistance and support levels currently, bullish traders who
are looking for new entry points into the play may want to wait
for one of two things to occur.  The first would be a strong
advance above the $49.30 level in conjunction with an advancing
Nasdaq.  That scenario could allow momentum traders to gain
new entries.  The second scenario to consider using for an
entry point is a pullback down to support at the $45 level.
Some might use a bounce around the $47 level, but $45 may
provide a better risk/reward setup.

BUY CALL OCT-45*AAO-JI OI=10120 at $4.90 SL=2.75
BUY CALL OCT-50 AAO-JJ OI=10055 at $2.20 SL=1.00  
BUY CALL NOV-45 AAO-KI OI= 2334 at $6.70 SL=5.00  
BUY CALL NOV-50 AAO-KJ OI= 1522 at $4.10 SL=3.00  

Average Daily Volume = 11.8 mln
 


BAC - Bank of America Corp. $58.40 (+7.40 last week)

Providing a diversified range of banking and certain
non-banking financial products and services, BAC's operations
consist of Consumer Banking, Commercial Banking, Global
Corporate and Investment Banking, and Principal Investing and
Asset Management.  Consumer Banking targets individuals and
small businesses, while Commercial Banking targets businesses
with annual revenues up to $500 million.  Global Corporate
and Investment Banking provides investment banking, trade
finance, treasury management, leasing and financial advisory
services.  Principal Investing includes direct equity
investments in businesses and general partnership funds, while
the Asset Management businesses are split into three branches;
Private Bank, Banc of America Capital Management and Banc of
America Investment Services.

The banking sector (BKX.X) has staged an impressive rebound
since September 21st, regaining nearly 15% from its lows.  While
the economy is clearly worse than before the attack, investors
are apparently gaining confidence that we are not falling into
an abyss.  Our BAC play is doing even better than the broad
sector, vaulting nearly 17% higher on the week and clearing the
20-dma ($57.67) on Friday.  A good measure of this
outperformance is the fact the BKX is still below its own
20-dma, which sits at $801.78.  While the daily Stochastics for
both the BKX and BAC have now entered overbought territory, BAC
also showed its strength by attracting buying volume nearly 50%
above the ADV as funds redressed their portfolios.  So, what can
we expect from next week?  Uncertainty ahead of the Fed meeting
could give us another entry point, possibly near $57 (old
resistance becomes support) or even at the 200-dma ($55.08).
We've moved our stop up to $55 as a drop below the 200-dma would
indicate the bulls are in trouble.  Buying further strength
above Friday's closing price may be a little to risky at this
juncture, as we have solid resistance looming at the $60 level.
That would be a good place to consider taking some profits in
anticipation of another dip and entry opportunity.

BUY CALL OCT-55*BAC-JK OI= 3640 at $4.50 SL=2.75
BUY CALL OCT-60 BAC-JL OI= 6553 at $1.25 SL=0.50
BUY CALL NOV-60 BAC-KL OI= 9907 at $2.50 SL=1.25
BUY CALL NOV-65 BAC-KM OI=13698 at $0.90 SL=0.00
BUY CALL JAN-60 BAC-AL OI=25174 at $3.60 SL=1.75

Average Daily Volume = 5.51 mln



CMCSK - Comcast Corp. $35.87 (+3.36 last week)

Comcast and its subsidiaries are involved in three principal
lines of business: cable, commerce and content.  The cable
communications side of the business in involved in the
development, management and operation of broadband cable
networks in the United States.  Electronic retailer QVC
constitutes the company's commerce arm, through which a wide
variety of products are marketed directly to consumers on
merchandise-focused television programs.  Content is provided
through CMCSK's subsidiaries Comcast-Spectator, Comcast
SportsNet and E! Entertainment Television Inc., and through
other programming investments including The Golf Channel,
Speedvision and Outdoor Life.

Early trading in shares of CMCSK was favoring the bears on
Friday as the stock seemed unable to hold above the 20-dma
(currently $35.35).  But as the day drew to a close and the
broad markets moved to close near their highs, the bulls gained
the upper hand, ending the day just below the $36.25 resistance
level.  Perhaps adding fuel to the bullish case was the
bankruptcy announcement from ExciteAtHome, and their agreement
to sell their Internet access business to AT&T for $307 million
in cash.  This announcement hit the newswires after CMCSK
confirmed it was in exclusive talks on its $40 billion bid to
buy AT&T's broadband division, a unit that would presumably
include the ExciteAtHome's assets if that deal is completed.
Buying volume remained above the ADV as CMCSK inched closer to
a serious challenge of resistance, but with daily Stochastics
now in overbought, the bulls may be running out of momentum.
The best risk/reward approach for new positions is now to buy
the dips, targeting a bounce in the $34.50-35 area, accompanied
by continued strong volume.  Our stop has now moved up to the
$34.50 level, as a drop below that would signal a possible
retest of the September 21 lows.

BUY CALL OCT-35*CQK-JG OI=1928 at $2.00 SL=1.00
BUY CALL OCT-37 CQK-JU OI=2551 at $0.80 SL=0.00
BUY CALL NOV-35 CQK-KG OI=4814 at $2.75 SL=1.25
BUY CALL NOV-37 CQK-KU OI= 575 at $1.55 SL=0.75
BUY CALL JAN-37 CQK-AU OI=3409 at $2.65 SL=1.25

Average Daily Volume = 7.44 mln



GE - General Electric $37.20 (+5.90 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
services.

After gapping sharply higher on Monday, shares of GE remained
locked in a narrow trading range for much of the week before
finally breaking above the $36 level on Friday.  Closing above
$37 for the first time since trading resumed on September 17th,
the stock saw strong volume of more than 32 million shares.
That's the good news.  Now the bulls are really going to have a
fight on their hands, as the share price has risen to the
descending 20-dma ($37.46), and will also need to fight with
resistance created near $38 with the March lows.  With daily
Stochastics now in overbought territory, and GE more than 30%
above its recent lows, it would seem logical that we'll have
some profit-taking next week.  A dip and bounce in the $35-36
area would be the most likely entry setup, as we are expecting
our $33.50 stop to provide solid support on any weakness.  Above
the $37 level, GE will start to encounter formidable resistance
in the $39-40 area, and we would look to take profits near that
level.

BUY CALL OCT-35 GE-JG OI=16862 at $3.10 SL=1.50
BUY CALL OCT-37*GE-JS OI=19013 at $1.60 SL=0.75
BUY CALL NOV-35 GE-KG OI= 6773 at $3.80 SL=2.25
BUY CALL NOV-37 GE-KS OI= 1845 at $2.30 SL=1.25
BUY CALL NOV-40 GE-KH OI= 8765 at $1.25 SL=0.50

Average Daily Volume = 22.0 mln



ORCL - Oracle Corporation $12.58 (+1.82 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.

After rocketing higher on Monday, ORCL spent much of the week
being pushed lower by its declining 20-dma.  Friday's buying
surge provided the necessary boost to get the stock heading
north again and it cleared the 20-dma (currently $12.07) to
close just below the $13 resistance level on average volume.
With a 17% weekly gain, ORCL was the best performer of the
NASDAQ large-cap stocks, and this relative strength could bode
well for the week ahead.  Of course we need to pay attention to
the daily Stochastics, which appear to be losing strength, and
this is somewhat disconcerting, as they have yet to enter
overbought territory.  Our stop is still in place at $11.50,
which leaves us with a possible dip and bounce above this level
as one possible entry point.  The other strategy will be to
watch for a strong-volume rally through the $13 level, ideally
with the NASDAQ remaining in a positive (if weak) trend.

BUY CALL OCT-10*ORQ-JB OI= 5736 at $2.85 SL=0.75
BUY CALL OCT-12 ORQ-JV OI=40369 at $0.95 SL=0.50
BUY CALL NOV-12 ORQ-KV OI= 1751 at $1.40 SL=0.75
BUY CALL DEC-12 ORQ-LV OI= 9130 at $1.85 SL=1.00
BUY CALL DEC-15 ORQ-LC OI=15826 at $0.85 SL=0.00

Average Daily Volume = 38.7 mln



PPDI - Pharmaceutical Product Dev. $29.29 (+3.67 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.

While a rising tide certainly lifts all boats, there is no
question that PPDI has been leading the fleet.  The stock found
bottom a couple days before the rest of the market (September
19th) and since then has rallied more than 50%.  It looked like
the ride might be ending in the middle of last week, but then
PPDI found support first at the 20-dma (then at $27.60) and then
the 200-dma ($28) on Friday.  This brings the bulls that much
closer to a serious challenge of the $30 resistance level, but
we'll need to approach new entries with caution from here on.
Daily Stochastics are starting to weaken in overbought
territory, and volume has dropped back to the ADV over the past
2 days, indicating that the oversold extreme has definitely been
relieved.  Now PPDI will have to trade on the underlying health
of its business, making further upward moves more challenging.
The best approach for new positions will be to target intraday
dips, either to the 200-dma, or even to the $26 level, but only
if the rebound comes on solid volume.  This weekend, we're
moving our stop up to $26, as a drop below that level would
point to significant weakness ahead.

BUY CALL OCT-27 PJQ-JY OI=309 at $3.40 SL=1.75
BUY CALL OCT-30*PJQ-JF OI=874 at $1.90 SL=1.00
BUY CALL OCT-32 PJQ-JZ OI=634 at $1.00 SL=0.50
BUY CALL NOV-30 PJQ-KF OI= 29 at $3.20 SL=1.50
BUY CALL JAN-30 PJQ-AF OI=475 at $4.60 SL=2.75
BUY CALL JAN-35 PJQ-AG OI=103 at $2.80 SL=1.50

SELL PUT OCT-27 PJQ-VY OI=511 at $1.25 SL=2.50
(See risks of selling puts in play legend)

Average Daily Volume = 785 K



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The Option Investor Newsletter                   Sunday 09-30-2001
Sunday                                                      4 of 5

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*************
NEW PUT PLAYS
*************

AHP - American Home Products $58.25 (+4.27 last week)

American Home Products is engaged in the discovery,
development, manufacture, distribution and sale of a diversified
line of products in two primary businesses, Pharmaceuticals and
Consumer Health Care.  Pharmaceuticals products include branded
and generic human ethical pharmaceuticals, biologicals,
nutritionals and animal biologicals and pharmaceuticals.

Drug shares saw a massive allocation of capital last week.
Part of that buying may have stemmed from bottom fishers looking
for bargains following the big dip in the Dow.  Another reason
for the buying could've been portfolio managers allocating
capital to stocks and away from bonds.  Those who were deploying
capital into stocks could've used the drug sector as a means to
gain exposure to equities because of the business's relatively
defensive and stable nature.  The parabolic moves in some of
the drug stocks including AHP were large and unsustainable last
week.  As such, a retracement in the group should come as no
surprise.  In fact, the retracement of the group may already be
under way.  The Drug Sector Index (DRG.X) under performed the
broader market last Friday, and many components in the group
turned negative, including AHP, hence our bearish focus.  What's
appealing about the potential for a pullback in the DRG is that
risk can be easily managed in a play on the speculation through
AHP.  For its part, AHP ran right up to its long standing
descending trend line, which has been in place since June.  As
such, we're setting our stop at the $60 level, and looking for
downside around the $56 level, which is the 50% retracement of
AHP's recent advance.  That set up gives us a pretty good
risk/reward scenario.  An entry closer to AHP's relative high
around $59.50 would improve the risk/reward ratio in this play.
But, if the stock doesn't get that high, look for a rollover
around $58.50 or a breakdown below $57.25.

BUY PUT OCT-60*AHP-VL OI=1633 at $2.75 SL=1.50
BUY PUT OCT-55 AHP-VK OI=9413 at $0.75 SL=0.25

Average Daily Volume = 3.02 mln



PGR - Progressive Corp. $133.90 (+17.92 last week)

Traditionally a leader in non-standard, high-risk personal auto
insurance, PGR has moved into standard-risk and preferred auto
insurance, as well as other personal use vehicle coverage, such
as motorcycles and recreational vehicles.  The company's
property-casualty insurance products protect its customers
against collision and physical damage to their vehicles and
liability to others for personal injury or property damage.

Insurance stocks were one of the hardest hit sectors after
trading resumed following the September 11th terrorist attack,
and the depth of the decline can be seen in the Insurance index
(IUX.X).  After falling as low as $600, the IUX has now recovered
all of its losses and then some, and is approaching the $710
resistance level.  PGR has followed the broader sector quite well
over the past 2 weeks and has had a near vertical rise, which has
brought the stock back up near its $135 resistance level.  With
the daily Stochastics now buried in overbought, the upper
Bollinger band looming just above $135, and significant overhead
resistance, it looks like a lead-pipe lock for a bearish trade.
After the opening gains, PGR traded flat throughout the day on
Friday, and it looks like the bulls have run out of momentum,
giving us a high odds entry.  Target any rollover between current
levels and the $135 level for a return to lower price levels.
We're placing a tight stop on the play at $136.50, as a rally
through resistance would indicate more upside ahead.  While a
return to the recent lows seems unlikely, it wouldn't be
unreasonable to look for PGR to drop back to the $125 support
level, also the site of the 20-dma.

BUY PUT OCT-135*PGR-VG OI=  1 at $4.60 SL=2.75
BUY PUT OCT-130 PGR-VF OI= 66 at $2.55 SL=1.25
BUY PUT OCT-125 PGR-VE OI=287 at $1.40 SL=0.75

Average Daily Volume = 344 K



*****************
CURRENT PUT PLAYS
*****************

BBY - Best Buy $45.45 (+2.05 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.

BBY rebounded in a big way last Friday on the heels of favorable
economic news.  But, was last Friday's nearly 7 percent gain
a solid entry point into new put plays?  Only time will tell.
Despite last Friday's advance, BBY is still under performing
the broader Retail Sector Index (RLX.X).  We maintain that the
stock should out perform to the downside if the S&P and RLX
weaken early next week.  If bearish traders observe weakness in
the RLX and S&P early next week, then new put positions in BBY
at its current levels may be a favorable proposition, especially
because risk can be fairly easily measured and managed at current
levels.  The stock stalled right at its 10-dma last Friday, which,
at the time, sat at $45.75.  Therefore, if the S&P and RLX
pullback early next week, new entries at current levels in BBY
can be managed with an ultra tight stop just above the 10-dma.
Picking tops is a lucrative game, but should only be attempted
with the proper risk management procedures in place!

BUY PUT OCT-45*BBY-VI OI=2769 at $3.00 SL=2.00
BUY PUT OCT-42 BBY-VV OI=2417 at $2.00 SL=1.25

Average Daily Volume = 2.62 mln



SV - Stillwell Financial $19.50 (+0.52 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.

Sure, SV rebounded with the broader market last Friday.  But,
we'd like to point out two things.  First, the relative lows in
the stock continue getting lower.  Second, the relative highs
in the stock continue getting lower.  If this pattern continues,
which we believe it will, something should be painfully
obvious concerning entry and exit points: Enter new put positions
on strength and exit on weakness.  Furthermore, it's becoming
evident that this stock is a slow mover, at least that was the
case late last week.  Now, a slow moving stock isn't necessarily
a bad thing.  It just requires patience and careful execution.
Moving forward, rollovers near the $20 level accompanied with
a tight stop may prove to be favorable entry points.  For
entries taken at that level, exits may be pin pointed down around
the $18 level.  Now, that's only $2 in the underlying, but
consider the fact that the cost to carry SV's options is pretty
darn low, and its implied volatility is creeping lower, too.
Therefore, a $2 move is quite large and could be very profitable
if captured!  For insights into SV's price action, bearish
traders can use the Securities Broker/Dealer Index (XBD.X) for
one reference.  But, a better reference is probably others in
the asset management business such as TROW, FII, WDR, and NEU.

BUY PUT OCT-22 SV-VX OI=474 at $3.50 SL=2.25
BUY PUT OCT-20*SV-VD OI= 86 at $1.65 SL=1.00

Average Daily Volume = 948 K



EBAY - eBay, Inc. $45.75 (+1.96 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.

Shares of online auction site, EBAY have tried valiantly to put
in a bottom, but the recovery is looking tenuous at best.  While
volume is running well above the ADV and daily Stochastics are
on the rise, the share price has really gone nowhere over the
past 6 sessions.  Support is resting near $44 and then between
$41.50-42.00, while resistance looms just overhead at $48.  An
additional bearish indication is that the stock has been unable
to clear the 10-dma (currently $46.51), and it is worth noting
that this moving average has been providing formidable
resistance since early August.  The stock's valuation is still
lofty with a PE of 151, and we're looking for the stock to
continue its downward trend, with occasional tests of the
10-dma.  Target failed intraday rallies below $48 for fresh
entry points, and look to ride EBAY down to its next support
level near $35.  A volume-backed move below $40 could provide
attractive entries as well, but keep your stops in place.  For
now, our stop is resting at the $48 level.

BUY PUT OCT-50 QXB-VH OI=5523 at $6.10 SL=4.00
BUY PUT OCT-45*QXB-VI OI=7068 at $3.30 SL=1.75
BUY PUT OCT-40 QXB-VH OI=4702 at $1.75 SL=0.75

Average Daily Volume = 6.44 mln



ENE - Enron $27.23 (-1.07 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.

Holding true to form, ENE traced another yearly low last week,
before giving us another positive day to break up the monotony.
Energy stocks, regardless of their specific sub-sector (Oil,
Natural Gas, or Electricity) continue to be under pressure due
to concerns about reduced energy demands in a recessionary
economy.  With the 10-dma (currently $27.35) continuing to cap
any bullish move, the fact that ENE closed just below that level
on Friday makes it look like another attractive entry point.
Volume remains heavy, demonstrating the current uncertainty in
the stock, as prices see-saw their way lower.  Our outlook for
ENE is that it will eventually drop to the $20-21 level before
finding any sustained buying support, and that will be a good
place to consider taking some profits off the table.  In the
meantime, target rollovers near the 10-dma for initiating new
positions, and follow the stock down with a trailing stop loss.
For now, we have our stop set at $28.50.

BUY PUT OCT-30 ENE-VF OI=15559 at $3.90 SL=2.50
BUY PUT OCT-27*ENE-VY OI= 4504 at $2.30 SL=1.25
BUY PUT OCT-25 ENE-VE OI= 6794 at $1.25 SL=0.50

Average Daily Volume = 4.86 mln



MVSN - Macrovision Corp. $28.41 (-3.24 last week)

Helping to keep intellectual property rights intact, MVSN
designs, develops and licenses copy protection and rights
management technologies.  Integral to the entertainment
industry, the company provides copy protection for major
Hollywood studios, independent video producers, PC games,
digital set-top box manufacturers and digital pay-per-view
(PPV) network operators.  In addition to helping content
owners protect content such as videocassette, DVD and PPV
movies, and PC games, MVSN also provides the ability to
electronically market that content in a secure manner.

When we added MVSN to the put list on Thursday, it was with the
premise that the stock was weak and likely to Underperform the
broad market.  How true that was on Friday.  While the stock
only suffered a minor loss, it looked particularly weak when
compared to the broad market, which had virtually all sectors in
rally mode.  Any further market weakness next week should have
MVSN setting new yearly lows, and we're planning to be along for
the ride.  Stochastics paint a weak picture, after rolling over
in the middle of last week, and it looks like they are headed
back for oversold territory.  Additionally, MVSN is trading at
new yearly lows, well below the lows of March/April.  And don't
forget the volume which has been running close to double the ADV
over the past 2 days.  Solid resistance now rests near $32, also
the site of the 10-dma, and a failed rally there would make for
an attractive entry into the play.  Momentum players can consider
new positions on a drop under $28, as we are looking for a
decline to solid support near $22-23 before the buyers start to
participate in earnest.  That will likely be a good time to
harvest some profits.  For now, our stop is resting at $34, as a
rally through that level would be a strong indication that we're
on the wrong side of the trade.

BUY PUT OCT-30*MVU-VF OI=2177 at $3.80 SL=2.25
BUY PUT OCT-25 MVU-VE OI=  24 at $1.80 SL=1.00

Average Daily Volume = 1.07 mln



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*****
LEAPS
*****

Holding Action, But No Bullish Victory Yet
By Mark Phillips
Contact Support

To those who were tiring of triple-digit days in the red, the
trading action over the past week has been a great relief.  The
path has definitely not been smooth, but it is good to see all
the major indices trading off their lows of one short week ago.
The debate rages on about whether there is any real buying
taking place, or if it is just nervous short covering their
massive profits.  With significant chunks of cash flowing out of
equity funds ($20 billion since the attack according to
TrimTabs.com), it is hard to make a case that there is any
significant cash finding its way from the sidelines and into
stocks.

With the constant barrage of negative news, it is no wonder
investors are biding their time.  The economy continues to
worsen, with the spectre of recession now acknowledged to be a
near certainty by many of those that denied its existence in the
not-so-distant past.  The economy will eventually find a firm
bottom, and as has been the pattern as long as there have been
equity markets, the market will lead that charge.  If we are
only going to trade the long side of the market, it is our job
to preserve capital long enough that we can participate in the
next bull market.

When will it arrive?  Having heard optimists proclaim its
arrival in early 2002 and the perma-bears' dire prediction of a
decade-long basing process, I find myself without an opinion.
As I've mentioned before, this is the first real bear market
that I have personally traded through, and I am applying all I
have learned to profit from the experience just like the rest of
you.  The most valuable lesson I have learned over the past 18
months has been that profits come from listening to what the
markets are saying, not by telling them what to do.  They don't
give one whit what I think and laugh when I place my hard-earned
capital contrary to their chosen direction.  Another important
lesson is that no matter how cheap a stock is, it can ALWAYS go
lower!

Nowhere is this lesson more evident than by taking a quick
glance at the Watch List.  When we initiated coverage of Calpine
(NYSE:CPN), I never would have believed we'd be so lucky as to
get an entry point near $20, but here we are.  In fact, CPN hit
an intraday low of $18.90 on Thursday and amazingly it still
isn't a buy.  Even with a PE ratio of 13, concerns about
declining energy demand from a slowing economy are keeping all
the utilities under pressure.  But I still expect the stock to
be a solid play when it finally finds support and firms.  That
process may have gotten started Friday, as the company
re-affirmed its guidance for the fourth quarter, as well as for
the full-year for 2001 and 2002.  To that end, we continue to
hold our current entry target, and we'll take an entry when we
see the stock move steadily higher from our entry target without
this gapping action that is typical of a volatile and weak
market.  The story is much the same for our Enron (NYSE:ENE)
play -- no entry yet, but the one thing we do know is that the
cheaper the stock gets, the closer we get to actually being
ushered into the play.

Our Industrial plays similarly kept us on the sidelines this
week.  Both General Electric (NYSE:GE) and Tyco International
(NYSE:TYC) gapped above our entry targets and crept higher
throughout the week, keeping us on the sidelines.  Remember
that we don't want to chase our long-term entries higher,
especially on those gap moves.  We'll sit patiently and wait
for the next dip, which will hopefully take place in a more
orderly manner.

Remember my hypothesis of what the market-bottoming picture is
likely to look like?  If the lows of a week ago are really a
part of a significant low (although not necessarily THE BOTTOM),
I'm looking for a W-bottom formation where we bounce off the
lows (similar to March/April of this year), retrace most of that
bounce and then retest the lows.  That scenario is off to a good
start, with the broad market struggling higher over the past
week and pushing the daily Stochastics into overbought for both
the DJIA and the S&P500 (SPX.X).  I'm looking for significant
resistance to be encountered at the 20-dma on these indices,
which corresponds to 1070 for the SPX and 9300 on the DJIA.
That is if we get that high.  Optimism ahead of next Tuesday's
Fed meeting is the best near-term catalyst I can come up with
and then we'll be plunging headlong into what promises to be a
dismal earnings cycle.

I'm expecting that earnings weakness to propel the markets back
down for a retest of their recent lows and will look for a
successful retest to usher in the next significant bullish move.
The rebound off those lows for the broad market should create
similar patterns in charts of several of our Watch List plays
like GE and TYC, as well as Eli Lilly (NYSE:LLY) without the
untradable gaps that we saw earlier this week.  Despite the way
that General Dynamics (NYSE:GD) has run away from us since we
added it to the Watch List, I'm not willing to raise our entry
target just yet.  Trading has been rather erratic and I still
expect that gap down to the $76 level to be filled.  That will
be the high-odds entry that we want to see, and I am willing to
wait for it.

Friday's positive action was likely due to portfolio rebalancing
of the funds, so I'm having a hard time getting excited about
the strong moves.  Our 2 existing Portfolio plays are actually
treating us fairly well, with Philip Morris (NYSE:MO) regaining
the $48 level and Sprint PCS (NYSE:PCS) advancing sharply.  In
fact, PCS is currently challenging the $27 resistance level,
which has kept a lid on rally attempts for the past 7 months.  A
push through that level will definitely be a good sign for our
play!  Notice that we've ratcheted our stop up to the new
location of the ascending trendline.  We're looking to ride this
one higher for the long term, but with the solid gains over the
past 2 weeks, more reactive traders may want to tighten their
stops further to ensure that at worst, they will get out with a
break-even trade.

My near-term focus is still being influenced by the action of
the VIX which spent the entire week in the red, falling all the
way to 35.19 at the close on Friday -- 38% off its high six days
ago, and right on the 20-dma.  Recall that the 20-dma frequently
acts as support and if it does so in this case, it will likely
launch the VIX higher again.  This would be a precursor to
forming the double-top in the VIX and double-bottom on the SPX
that would indicate a more reasonable entry point for new
long-term positions.

 

While a VIX at 35 still indicates a fair amount of fear in the
market, the chart above has me thinking it is time for another
spike in our fear index.  Whether that comes from economic news,
earnings disappointments or military action around the world, I
don't know.  But I be keeping a low risk profile with any
bullish trades right now.

While I'm as anxious as the rest of you to see our precious
markets find that elusive bottom, if it happens in the next 3
weeks, it will do so without me.  The terror of September 11th
reminded me how insignificant the actions of the equity markets
are in the grand scheme of life.  Doing my part to help keep our
economy churning along, I'm headed to the island of Maui to
marry my best friend and spend a couple weeks in the sun, away
from the harried pace of everyday life.  Needless to say, the
laptop is not traveling with me on this trip, so the LEAPS
column will be idle for the next 2 weeks.  My trusted colleague,
Eric Utley has promised to provide any updates that are
necessary to the Portfolio, but due to his numerous other
responsibilities, will only do so if warranted by market
conditions.

I'll be back in the saddle on October 21st, refreshed and ready
to do battle with these turbulent markets.  While I never could
have known when I planned this hiatus back in February that it
would occur with the markets beaten down as far as they
currently are, I have no doubt that I will return in plenty of
time to witness the beginning of the next solid bullish move in
the broad markets.  Remember, if the markets refuse to deliver
favorable trading conditions, it may just be a subtle reminder
to step back for a bit and spend time with the ones you love.
Amazingly, when you return to the Great Game, you'll likely find
a renewed vigor for the work required, and maybe even a fresh
perspective.

See you soon!

Mark Phillips
Contact Support



LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

MO     07/30/01  '03 $ 45  VPM-AI  $ 6.10  $ 7.90   29.51%  $ 46
PCS    09/17/01  '03 $ 25  VVH-AE  $ 5.00  $ 7.00   40.00%  $ 23
                 '04 $ 25  LVH-AE  $ 7.10  $ 9.60   35.21%  $ 23


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

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

None


New Watchlist Plays

None


Drops

None


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The Option Investor Newsletter                   Sunday 09-30-2001
Sunday                                                      5 of 5

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

Charting Basics: Looking For The Bottom
By Mark Wnetrzak

In response to a reader's request for additional discussions
about technical analysis, today we will review some popular
candlestick reversal patterns.

One of the most commonly used indicators in candlestick chart
analysis is the "Star."  The Star is a signal that a trend may
be coming to an end.  The pattern occurs when the current day's
candlestick has a small body that gaps away from a large body in
the prior session.  Stars can occur near resistance or support
and the color of the Star is generally not significant.  If the
Star has no body, it is called a "Doji" Star.  The significance
of this pattern is a change in the market environment.  The
appearance of a Star during a substantial rally indicates that
buying strength is dwindling and the stock is susceptible to a
correction.  In contrast, a Star that occurs in the middle of a
major downtrend suggests that buyers may be gaining control of
the issue.  Overall, the emergence of a Star indicates that the
previous bias in the market (buying or selling) is beginning to
equalize and thus a change in character may soon occur.

The Star is the primary indication in a number of basic reversal
patterns; Shooting Star, Doji Star and the Morning/Evening Star.
The Morning Star pattern occurs at the end of a downtrend.  It
consists of a lengthy black body followed by a small body which
begins below the previous day's (closing) low.  The final line
is a white body that is enveloped by the black body of the first
session.  The appearance of the small body (the Star) after a
major downtrend suggests that selling is at an end and when the
following session produces an opening gap with a white body, the
bullish pattern is confirmed.  While the gap-up is not necessary
to define the pattern, it does produce much better results.  Of
course there are many variations of the Morning Star, the most
common of which includes more than one Star in the reversal
pattern.

 



In bullish markets, the Evening Star is often the kiss of death.
It is also an important "exhaustion" signal when observed in an
area of congestion and confirmed by other negative signals.  The
pattern is similar to an "Island Top" reversal used by bar chart
technicians but the candlestick version reflects the potential
reversal in a much better fashion.  When the Evening Star occurs
during a major up-trend, there is cause for concern.  The first
line is the last bullish indication; a long, white body.  The next
candlestick is the Star, the first signs of a top formation.  The
final candlestick is a black body that intrudes well into the body
of the initial (white) candlestick.  As with the previous reversal
pattern (Morning Star), it is best when there is a gap between the
body of the middle candlestick (Star) and the opening (or closing)
prices of the surrounding sessions.  In any case, the low point of
the Star's body should be well above the closing high of the first
candlestick.


 



Volume is an important component of technical reversal patterns.
When trading volume is light during the final phase of a trend
(the first candlestick) and increases during the beginning stages
of a reversal (the candlestick following the last Star), there is
a higher probability of follow-through in the new character.  The
enthusiasm with which investors accept the new direction can be
defined by the presence (or lack) of trading activity.  In fact,
when the overall trend is less defined, the change in volume can
be almost as significant as the actual candlestick formation.

Next week, we'll look at another group of reversal patterns; the
Dark Cloud Cover and its counterpart, the Piercing Pattern.

Good Luck!      


SUMMARY OF PREVIOUS CANDIDATES
*****
Note:  Margin not used in calculations.

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

GNSS   28.34  28.14   OCT  22.50  7.30  *$  1.46   7.5%
TQNT   18.08  15.99   OCT  15.00  3.90  *$  0.82   6.3%
BLDP   18.55  19.56   OCT  15.00  4.30  *$  0.75   5.7%
BSX    18.50  20.50   OCT  17.50  1.75  *$  0.75   4.9%
PDG    13.32  12.79   OCT  12.50  1.35  *$  0.53   4.8%
IMNX   17.59  18.68   OCT  15.00  3.20  *$  0.61   4.6%
WEBX   21.60  21.24   OCT  17.50  4.80  *$  0.70   4.5%

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

Comments:

The major averages began to show strength this week though
investors struggled to decipher the economic impact of 9-11.
Next week begins the dreaded month of October and the start
of earnings season, not to mention Tuesday's FED meeting.
Extreme caution still reigns as the modus operandi.  Of the
positions in the summary above, Triquint Semi (NASDAQ:TQNT) 
warrants close monitoring as the stock tests the June low
after failing to move above its 30 dma.  If the markets do
in fact firm up, Placer Dome (NYSE:PDG) may experience some
selling pressure as investors reduce their hedge positions.
Monitor a violation of the 30 dma on a closing basis as a 
short-term exit signal.  Long-term investors could use the
150 dma as an exit signal.  Genesis Microchip (NASDAQ:GNSS)
rebounded off its 150 dma after announcing the acquisition
of Sage (NASDAQ:SAGI) on Friday.  A move back above its
30 dma would improve the short-term outlook.  


NEW CANDIDATES
*********

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

EPIQ   25.50  OCT 22.50   FQU JX  3.70 42    21.80   21    4.7%
IMMU   11.97  OCT 10.00   QUI JB  2.30 55     9.67   21    4.9%
IMNX   18.68  OCT 17.50   IUU JW  1.85 5696  16.83   21    5.8%
MOGN   13.37  OCT 12.50   QOG JV  1.45 247   11.92   21    7.0%
PDX    40.79  OCT 40.00   PDX JH  2.50 45    38.29   21    6.5%
PXLW   12.60  OCT 10.00   PUO JB  3.10 298    9.50   21    7.6%
SANG   18.43  OCT 17.50   QDY JW  1.50 160   16.93   21    4.9%

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

PXLW   12.60  OCT 10.00   PUO JB  3.10 298    9.50   21    7.6%
MOGN   13.37  OCT 12.50   QOG JV  1.45 247   11.92   21    7.0%
PDX    40.79  OCT 40.00   PDX JH  2.50 45    38.29   21    6.5%
IMNX   18.68  OCT 17.50   IUU JW  1.85 5696  16.83   21    5.8%
IMMU   11.97  OCT 10.00   QUI JB  2.30 55     9.67   21    4.9%
SANG   18.43  OCT 17.50   QDY JW  1.50 160   16.93   21    4.9%
EPIQ   25.50  OCT 22.50   FQU JX  3.70 42    21.80   21    4.7%


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).

*****
EPIQ - EPIQ Systems  $25.50  *** When "Bad" Means Good! ***

EPIQ Sys. (NASDAQ:EPIQ) develops, markets and licenses proprietary 
software solutions for workflow management, electronic banking and 
communications infrastructure that serve the bankruptcy management
and financial services markets.  In the bankruptcy management 
market, the company develops, markets, licenses and supports 
internally developed proprietary software products primarily to 
trustees under Chapter 7 and Chapter 13 of the federal bankruptcy 
system, as well as to other users of the federal bankruptcy system, 
including trustees in Chapter 11 and Chapter 12.  For the financial 
services market, the company's DataXpress product line provides a 
cross-platform, software-based communications infrastructure that 
enables corporate customers to route, format and secure business 
critical data over the Internet and private networks.  In July,
EPIQ announced record results for the second quarter ended June 30,
2001, with bankruptcy services revenue growth of 31% and overall 
revenue growth of 23%.  It appears when business is bad, business
is good for EPIQ.  EPIQ Systems could be resuming its up-trend as 
investors anticipate this quarter's earnings report.  We favor the
technical support near $22.

OCT 22.50 FQU JX LB=3.70 OI=42 CB=21.80 DE=21 TY=4.7%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=EPIQ
*****
IMMU - Immunomedics  $11.97  *** New Trading Range! ***

Immunomedics (NASDAQ:IMMU) is a biopharmaceutical company 
applying innovative proprietary technology in antibody selection,
modification and chemistry to the development of products for the
detection and treatment of cancers and other diseases.  Integral
to these products are highly specific monoclonal antibodies 
designed to deliver radioisotopes, chemotherapeutic agents, 
toxins, dyes or other substances to a specific disease site or 
organ system.  The company currently markets and sells CEA-Scan
in the U.S., and CEA-Scan and LeukoScan throughout Europe and in
certain other markets outside the United States.  Immunomedics
appears to be forming a new trading range with support near
$10.  Reasonable speculation for those investors who have
researched this company and desire a low-risk entry point. 

OCT 10.00 QUI JB LB=2.30 OI=55 CB=9.67 DE=21 TY=4.9%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=IMMU
*****
IMNX - Immunex  $18.68  *** Stage I 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.  Recently, 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.  IMNX continues to forge a Stage I base and this
position offers a low-risk entry point from which to speculate
on the company's future.  

OCT 17.50 IUU JW LB=1.85 OI=5696 CB=16.83 DE=21 TY=5.8%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=IMNX
*****
MOGN - MGI Pharma  $13.37  *** Bracing For A Rally? ***

MGI Pharma (NASDAQ:MOGN) is an oncology-focused pharmaceutical
company that acquires, develops and commercializes proprietary
pharmaceutical products that meet patient needs.  The company 
markets four cancer-related products in the US: Salagen Tablets
which treats symptoms known as chronic dry mouth;  Didronel I.V. 
Infusion, which is approved for the treatment of elevated blood
calcium in late-stage cancer patients; Hexalen Capsules, a 
second-line chemotherapy for ovarian cancer patients; and 
Mylocel Tablets, a treatment for certain malignancies.  This
week, MGI announced that it has initiated a Phase 1 clinical
trial of irofulven, its novel anti-cancer compound, in combination
with the anti-cancer drug Taxotere® (docetaxel), in patients with 
advanced cancers.  We simply favor the bullish move above the
150-dma on increasing volume with technical support at $12.

OCT 12.50 QOG JV LB=1.45 OI=247 CB=11.92 DE=21 TY=7.0%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=MOGN
*****
PDX - Pediatrix Medical  $40.79  **** The Trend Is Your Friend ***

Pediatrix Medical (NYSE:PDX) is a provider of physician services
at hospital-based neonatal intensive care units (NICUs).  NICUs 
are staffed by neonatologists, who are pediatricians with 
additional training to care for newborn infants with low birth 
weight and other medical complications.  In addition, the company
is a provider of perinatal physician services.  Perinatologists
are obstetricians with additional training to care for women with
high risk and/or complicated pregnancies and their fetuses.   PDX
also provides physician services at hospital-based pediatric ICUs
and pediatrics departments in hospitals.  Pediatrix recently 
expanded into Atlanta and Dallas and closed on a new $100 million,
three-year senior revolving credit facility.  One of the few 
stocks showing sustained strength during the broader market
deterioration and which has sufficient financial resources to 
continue to execute its growth strategy into to future.

OCT 40.00 PDX JH LB=2.50 OI=45 CB=38.29 DE=21 TY=6.5%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=PDX
*****
PXLW - Pixelworks  $12.60  *** A Little Bottom-Fishing ***

Pixelworks (NASDAQ:PXLW) is a designer, developer and marketer
of semiconductors and software for the advanced display industry. 
The company develops products that integrate a microprocessor,
memory and image processing circuits that function as a computer
on a single chip, or system-on-a-chip.  PXLW began developing 
its products for the most technically demanding advanced display
devices; multimedia projectors, multimedia flat panel monitors,
and high-definition televisions.  During 2000, the company
expanded into lower cost flat panel monitors designed for the 
15-inch XGA monitor market segment.  To further its efforts in
this area, in January 2001, Pixelworks completed the acquisition
of Panstera, which is developing a broad line of mixed signal 
ICs that provide a family of products for mass-market, XGA-
resolution LCD monitors.  Low-risk speculation on a stock that 
appears to have made a successful test of the April low. 

OCT 10.00 PUO JB LB=3.10 OI=298 CB=9.50 DE=21 TY=7.6%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=PXLW
*****
SANG - SangStat Medical  $18.43  *** Rally Mode! ***

SangStat Medical (NASDAQ:SANG) is a global biotechnology company
building on its foundation in transplantation to discover, develop
and market therapeutic products in the transplantation, immunology
and hematology/oncology areas.  The company sells Thymoglobulin 
(sold under the name Thymoglobuline outside the United States); 
Gengraf cyclosporine capsule (co-promoted with Abbott Laboratories 
in the United States); SangCya Oral Solution - cyclosporine (outside
the United States); Lymphoglobuline (outside the United States), 
and Celsior.  Its principal products under development include a 
generic cyclosporine capsule, ABX-CBL (anti-CD147 antibody in co-
development with Abgenix, Inc.) and RDP58.  The Biotech Sector has
been one of the few sectors to draw investor interest.  The bullish
move to a new 52-week high on heavy volume suggest higher prices
in the future.

OCT 17.50 QDY JW LB=1.50 OI=160 CB=16.93 DE=21 TY=4.9%

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

*****************
SUPPLEMENTAL COVERED CALL CANDIDATES
*****************

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

ROXI   15.20  OCT 15.00   RXU JC  1.40 11    13.80   21   12.6%
PFCB   35.92  OCT 35.00   HUO JG  3.70 89    32.22   21   12.5%
IDX     8.14  OCT  7.50   IDX JU  1.10 230    7.04   21    9.5%
CCUR    9.08  OCT  7.50   URC JU  1.95 50     7.13   21    7.5%
WEBX   21.24  OCT 17.50   UWB JW  4.30 23    16.94   21    4.8%
TDY    15.95  OCT 15.00   TDY JC  1.40 270   14.55   21    4.5%
GLC    20.76  OCT 17.50   GLC JW  3.70 172   17.06   21    3.7%


*****************
NAKED PUT SECTION
*****************

Trading Basics: A System For Success
By Ray Cummins

Using a trading system is the easiest way to a be successful in
the stock market.  A concise plan of attack helps new traders
learn proper money management and the correct use of technical
analysis in identifying precise entry and exit points.  Trading
in a systematic manner is also more likely to produce consistent
profits than a scheme based on intuition, emotion, or the trend
of the day.  The benefits to this approach are many but most
importantly, you can eliminate the guesswork that comes from
trying to manage an active position without realistic goals or
loss limits.  The targets and exit strategies are predefined,
leaving no doubt as to when and how to get out of a position if
the market moves against you.  Potential risk is identified prior
to beginning the trade, with a fixed limit on maximum losses and
a formula for taking profits.  There are no positions initiated
without a complete assessment of the capitalization necessary to
carry out the entire strategy, even in the worst case scenario.
A careful study of the underlying issue's historical data is used
to provide objective goals for future movement, based on expected
volatility and technical indications.  With all of these elements
properly evaluated and arranged, you can develop an effective plan
that contains a suitable risk-reward outlook based on appropriate
strategies that are compatible with your personal trading style.

The first step in developing a practical method for participating
in the market is to determine your comfort threshold and stress
level.  Think about the unique emotional effects of your trading
activities and managing an investment portfolio.  Are you usually
a cautious person or do you feel comfortable traveling at "warp"
speed?  How will a specific type of trading affect you mentally?
Can you handle the volatility of day-trading options or are you
happier with conservative, longer-term plays.  After you identify 
the appropriate trading attitude, it is important to decide what
type of market activity is most favorable to your personal style.
Some traders prefer strategies that profit from trending markets
such as those characterized by a sustained advance or decline.
Techniques that benefit from this type of movement include Put or
Call buying and high potential spreads or combinations.  Another
tactic might be to focus on changes in volatility.  Traders using
this approach buy or sell premium in an attempt to profit from
transitions in market character.  Some utilize neutral positions
such as calendar or ratio spreads when the technical outlook for
the underlying issue is range-bound or static.  Regardless of the
method you prefer, each category of price action demands a unique
type of trading system.  The key to success is to specialize in a
specific kind of market activity and utilize trading strategies
that perform well in that particular environment.

One of the most important steps in developing a profitable system
is identifying the appropriate level of complexity when selecting
trading techniques.  The simplest approach is most often the best
but every strategy has risk and it is impossible to classify any
particular technique as the absolute perfect method.  In most
cases, there is more than one favorable technique and even though
each strategy has different attributes, they can all be useful in
a trader's arsenal at the proper time.  The easiest way to become
successful is to completely understand the mechanics of any
technique that you are using and try to construct a group of
diverse positions based on the correct market outlook.  Of course
you must remember that the individual investment objectives are
far more important than the merits of the technique itself.  If a
specific strategy is not suitable for you or your trading style
then it should not be used, no matter how attractive it appears.
In addition to selecting the proper trading techniques, you must
also identify the appropriate time frame in which to participate
in the market.  Most investors are suited to longer-term plays as
they require less attention and are easy to manage for those who
have full-time commitments to work or family.  Traders who have
the temperament and resources to follow the markets at all hours
should consider short term techniques based on intraday data and
momentum-based trends.  Using the appropriate strategy when the
markets dictates action is the fundamental step in developing the
ability to trade in a disciplined manner.

After you have identified the characteristics of the market and
selected the correct technique to profit from future trends, the
next task is to determine specific entry and exit points for the
underlying instrument.  In most cases, technical analysis should
be used to ascertain the correct parameters for risk and reward.
With this approach, a simple mechanism for money management is
built into the initial position.  Entry timing can be based on a
number of different indicators and the criteria used to identify
a trading opportunity is a personal choice.  The great thing is,
you don't have to open any position until you are satisfied with
the probability of a profitable outcome.  You can search through
charts for the perfect pattern, perform extensive due-diligence,
and wait for the best combination of technical indicators and
favorable market conditions.  In short, you can forego any trade
until the number of reasons to participate becomes overwhelming.
Remember, the market does not care whether you play along or sit
on the sidelines.  In addition, when you trade without a system,
it's amazing how confusing the situation can become.  Once you
are committed, you are playing by the market's rules, not your
own.

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.


SUMMARY OF PREVIOUS CANDIDATES 
*****

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

TERN    7.01   7.19   OCT   5.00  0.30  *$  0.30  12.8%
AEM    11.18  10.36   OCT  10.00  0.35  *$  0.35  10.4%
FTO    15.32  17.15   OCT  12.50  0.35  *$  0.35  10.4%
PLCM   27.37  24.37   OCT  20.00  0.40  *$  0.40   7.4%
KNDL   19.65  19.74   OCT  17.50  0.40  *$  0.40   7.1%
RTN    34.04  34.75   OCT  30.00  0.65  *$  0.65   6.9%
IMCL   53.30  56.55   OCT  40.00  0.60  *$  0.60   5.8%
AH     20.00  19.80   OCT  17.50  0.30  *$  0.30   5.6%

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

Comments:

There was little significant activity in the portfolio this
week and only two issues rate a comment.  Three-Five Systems
(NYSE:TFS) is continuing to establish a base near $15 and as
long as that support area remains intact, our position will
be successful.  However, a move below $14 in the coming week
would likely be an early-exit signal.  The gold sector hedge
in Agnico-Eagle Mines (NYSE:AEM) was available at a higher
premium than initially quoted when the issue slumped below
$11 on Monday and the stock continued to decline in Tuesday's
session.  The issue has yet to show signs of firming near the
support area at $10 but there is consolation in the fact that
December gold futures closed $0.80 higher Friday at $294 per
ounce.  Gold prices have been trading sideways to higher and
consolidating at higher levels, thus indicating a potentially
bullish trend in the commodity.  Lets hope that translates to
higher share values for AEM in the coming month.


NEW CANDIDATES
*********

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

ARXX   11.00  OCT 10.00   ARX VB  0.40 101    9.60   21   15.2%
DRXR   15.50  OCT 12.50   RXQ VV  0.30 32    12.20   21   12.4%
ILXO   26.26  OCT 22.50   IUE VX  0.45 0     22.05   21    9.1%
PLCM   24.37  OCT 15.00   QHD VC  0.50 460   14.50   21   13.5%
PRX    35.75  OCT 30.00   PRX VF  0.70 82    29.30   21   11.0%
SAGI   15.25  OCT 12.50   UEJ VV  0.45 50    12.05   21   17.2%
TTN    19.60  OCT 17.50   TTN VW  0.30 105   17.20   21    7.2%

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

SAGI   15.25  OCT 12.50   UEJ VV  0.45 50    12.05   21   17.2%
ARXX   11.00  OCT 10.00   ARX VB  0.40 101    9.60   21   15.2%
PLCM   24.37  OCT 15.00   QHD VC  0.50 460   14.50   21   13.5%
DRXR   15.50  OCT 12.50   RXQ VV  0.30 32    12.20   21   12.4%
PRX    35.75  OCT 30.00   PRX VF  0.70 82    29.30   21   11.0%
ILXO   26.26  OCT 22.50   IUE VX  0.45 0     22.05   21    9.1%
TTN    19.60  OCT 17.50   TTN VW  0.30 105   17.20   21    7.2%


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).

*****
ARXX - Aeroflex  $11.00  *** Defense Industry Rally! ***

Aeroflex (NASDAQ:ARXX) uses its advanced design, engineering and
manufacturing abilities to produce microelectronic, integrated
circuit, interconnect and testing solutions.  The company's many
products are used in the fiber-optic, broadband cable, wireless
and satellite communications markets.  The company also designs
and manufactures motion-control systems and shock and vibration
isolation systems, which are used for commercial, industrial and
defense applications.  The company's operations are grouped into
three segments: Microelectronics, Test, Measurement and Other
Electronics, and Isolator Products.  Shares of defense issues
rallied last week in the wake of terrorist attacks on New York
and the Pentagon.  In addition, the recently renamed "Operation
Enduring Freedom" may be the catalyst the defense industry needs
to reestablish a bullish outlook and this position offers a way
to speculate on a future bullish movement in the issue with low
risk.

OCT 10.00 ARX VB LB=0.40 OI=101 CB=9.60 DE=21 TY=15.2%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=ARXX
*****
DRXR - Drexler Technology  $15.50  *** 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 attacks
have put the U.S. on alert at its many borders and DRXR's unique
product line stands to benefit from the new demand for personal
identification services.  Drexler's highly secure optical memory
cards are slated for use by the U.S. Department of State as part
of an $81 million procurement program for the Immigration and
Naturalization Service.  Traders who believe the upward momentum
will continue can profit from that activity with this position.

OCT 12.50 RXQ VV LB=0.30 OI=32 CB=12.20 DE=21 TY=12.4%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=DRXR
*****
ILXO - ILEX Oncology  $26.26  *** On The Move! ***

ILEX Oncology (NASDAQ:ILXO) is building an oncology-focused
pharmaceutical company by assembling and developing a portfolio
of novel treatments both for advanced-stage cancers and for early
stage cancers and pre-malignant conditions.  The company has a
portfolio of eight anticancer product candidates in clinical
development and several preclinical stage product candidates.
In addition to its clinical development programs, ILEX is also
conducting drug discovery research, translational research and
pre-clinical studies in the fields of angiogenesis inhibition
and targeted medicinal phosphonate chemistry, laying the initial
groundwork for bringing other new proprietary product candidates
into its pipeline.  The company's leading product is Campath,
which the U.S. FDA has cleared for marketing as a treatment for
specific patients with B-cell chronic lymphocytic leukemia and
Schering AG announced last week that Campath was successfully
tested in a clinical trial for the treatment of T-PLL (T-cell
prolymphocytic leukemia).  The issue is in "rally mode" after
a recent consolidation and traders who want to speculate on a
unique biotechnology company should consider this position.

OCT 22.50 IUE VX LB=0.45 OI=0 CB=22.05 DE=21 TY=9.1%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=ILXO
*****
PLCM - Polycom  $24.37  *** 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 earlier this month after the
companies said they had received an antitrust clearance from U.S.
authorities, giving them a green light to merge.  Analysts see
the union as beneficial to both companies and they also believe
that videoconferencing in its various forms is likely to achieve
increased popularity in the coming months.  Investors who want
to own the new combined entity can use this play to establish a
very conservative cost basis in the issue.

OCT 15.00 QHD VC LB=0.50 OI=460 CB=14.50 DE=21 TY=13.5%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=PLCM
*****
PRX - Pharmaceutical Res.  $35.75  *** Consolidation Complete? ***

Pharmaceutical Resources (NYSE:PRX) is a holding company that,
through its subsidiaries, develops, manufactures and distributes
a line of generic drugs in the United States.  PRX operates mainly
through its wholly owned subsidiary, Par Pharmaceutical, a maker
and distributor of generic drugs.  The company's products consist
of prescription and over-the-counter generic drugs and Par markets
approximately 58 products, representing various dosage strengths
for 22 drugs that are manufactured by PRI, and approximately 45
additional products, representing various dosage strengths for 23
drugs that are manufactured for it by other companies.  Products
are marketed principally in solid oral dosage form, consisting of
tablets, caplets and two-piece hard-shell capsules.  The company
also distributes one product in the semi-solid form of a cream.
Traders who want a favorable cost basis in a solid pharmaceutical
services company should consider this position.

OCT 30.00 PRX VF LB=0.70 OI=82 CB=29.30 DE=21 TY=11.0%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=PRX
*****
SAGI - Sage  $15.25  *** GNSS Buyout! ***

Sage (NASDAQ:SAGI) is a leading provider of digital display
processors, enabling superior picture quality for a variety of
consumer technology and PC-display products ranging from web
appliances to TVs and flat panel monitors.  Sage is developing
products that bring the home theater experience to the mass
consumer and PC-display market through digitally enhanced TV,
projection displays, DVD players and internet appliances.  NEC
Corporation has recently selected Sage's Jaguar processor for
their new Valuestar monitors.  SAGI shares rallied last week
after Genesis Microchip (NASDAQ:GNSS), a maker of semiconductors
used in graphics and video applications, said it would buy Sage
for $241 million in stock to expand in the market for chips used
in flat-panel displays.  Genesis will issue 0.571 share of GNSS
for each outstanding share of SAGI and the deal currently values
Sage's stock at over $15 a share.  For traders who wouldn't mind
owning a stake in the combined company, this position offers a
very favorable risk-reward outlook.

OCT 12.50 UEJ VV LB=0.45 OI=50 CB=12.05 DE=21 TY=17.2%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=SAGI
*****
TTN - Titan  $19.60  *** Bracing For A Rally! ***

The Titan Corporation (NYSE:TTN) is a diversified technology
company whose business is to create and launch technology-based
businesses.  The company has organized its business into four
core segments and its Emerging Technologies and Businesses
segment: Titan Systems offers unique information technology and
communications solutions, services and products for defense,
intelligence, and other U.S. and allied government agencies;
SureBeam offers electronic food irradiation systems and services;
Titan Wireless offers satellite/wireless-based communication
services and systems that provide cost-effective voice, facsimile,
data, Internet and network communications services in developing
countries; Cayenta is a total service provider of information
technology services and software applications for its customers'
business and governmental functions; and Emerging Technologies
and Businesses pursues commercial applications for technologies
originally developed by Titan.  Titan is benefiting from the
rally in defense and security-based issues and this position
offers a conservative method to speculate on its future share

OCT 17.50 TTN VW LB=0.30 OI=105 CB=17.20 DE=21 TY=7.2%

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

*****************
SUPPLEMENTAL NAKED PUT CANDIDATES
*****************

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

GOTO   12.55  OCT 10.00   GUO VZ  0.40 275    9.60   21   19.9%
GNSS   28.14  OCT 22.50   QFE VX  0.70 64    21.80   21   16.0%
VAST   11.20  OCT 10.00   AQY VB  0.30 0      9.70   21   12.1%
TECD   37.90  OCT 35.00   TDQ VG  1.10 441   33.90   21   11.9%
MCHP   26.80  OCT 22.50   QMT VX  0.55 85    21.95   21   11.4%
ATVI   27.22  OCT 22.50   AQV VX  0.50 11    22.00   21   10.9%
TRDO   25.66  OCT 22.50   UNC VX  0.55 57    21.95   21   10.4%



************************
SPREADS/STRADDLES/COMBOS
************************

Have We Finally Seen The Bottom?
By Ray Cummins

******************************************************************
                         - MARKET RECAP -
******************************************************************
Friday, September 28

The major equity averages moved higher again today as investors
reacted positively to data showing an encouraging outlook for the
U.S. economy.  New reports from the Commerce Department and the
National Association of Purchasing Management's (NAPM) Chicago
unit suggested that prior to the attacks, the economy may have
been starting to recover.  The Dow Jones Industrial Average ended
up 166 points at 8,847 and the NASDAQ Composite index finished 38
points higher at 1,498.  The S&P 500 stock index gained 22 points
to close at 1,040.  On the Big Board, 1.56 billion shares traded
with 2,477 stocks advancing while 704 issues declined.  More than
1.95 billion shares traded on the NASDAQ with advancers outpacing
decliners more than 2 to 1.  Despite the brief rally, the S&P 500
stock index has dropped 21% during the current year and the Dow
marked its worst quarterly performance since 1987.  Those numbers
pale in comparison to the NASDAQ which is off 39% since January,
making the past three quarters the worst sustained decline in the
history of the technology-heavy market measure.


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

Drexler  (NASDAQ:DRXR)  JAN15C/OCT15C  $1.05  debit  calendar
Astoria  (NASDAQ:ASFC)  JAN50P/OCT50P  $1.35  debit  calendar
Alltel   (NYSE:AT)      OCT65C/OCT60C  $0.75  credit bear-call
Boeing   (NYSE:BA)      JAN30C/JAN30P  $7.75  debit  straddle

Our new selection of combination positions offered mixed results
this week with the lone bullish play benefiting from a rally in
security-technology issues while the bearish candidates suffered
from a broad-based recovery in the equity markets.  DRXR opened
higher on Monday and continued to rise every session until Friday,
finishing just above the sold strike at $15.  The issue is now at
a key resistance level and a heavy-volume rally through the $16
range will be the signal to make a (bullish) adjustment in the
spread.  ASFC also opened higher on Monday and the issue closed
the week with five straight days of gains on optimism from two
brokerage upgrades and rumors of a buyout offer from Washington
Mutual (NYSE:WM).  The abrupt change in character was completely
unexpected and in most cases would have produced a substantial
loss in any bearish trade however, the large disparity in option
premiums provided an excellent cost basis in the spread and even
with Friday's rally to $59.26, the value of the long (Put) option
is slightly higher than our overall debit in the position.  The
current option premium will erode quickly if the stock continues
to climb above resistance (near $60) in the coming sessions, so
monitor the play closely and consider an early (break-even) exit
if the bullish trend persists.  Alltel was another bearish issue
at the end of last week but the selling came to a temporary end
with the renewed optimism for stocks.  Our position is intact as
long as the issue remains in the current range but a close above
$59 would signal a potential change in character.  Boeing was a
big mover on Monday, preventing any entry near the target price
and the issue continued to trade in a volatile manner during the
early part of the week.  The position was not as favorable at the
higher debit but it has already achieved profitability for traders
who entered the play, based on an opening (overall) cost below $8.


Market Activity

Stocks rose again Friday with the broader market ending higher
for the fourth session in five days as investors speculated on
downtrodden issues in the wake of the "post-attack" sell-off.
The recent recovery rally has been a welcome event for nearly
everyone involved in the equity markets and now the question is
how long can the upward trend can be sustained in anticipation
of an economic rebound before sellers regain the upper hand.
Most analysts agree that the outlook is cautiously optimistic
in the near-term and many fund managers have been raising cash
in anticipation of market rebound fueled by interest-rate cuts.
The Federal Reserve recently reduced its benchmark overnight
lending rate for the eighth time this year and analysts expect
another cut, perhaps as much as a half percentage point, when
the central bank's policymaking Federal Open Market Committee
meets next Tuesday.  Lowering the cost of borrowed capital is
one of the primary steps to rejuvenating corporate profits and
the prospect of improving earnings has apparently led investors
to renew their search for undervalued stocks, even as group of
blue-chip companies issued warnings on how much the attacks on
the World Trade Center and Pentagon would hurt future revenues.
Traders were also comforted by the announcement that the Gross
Domestic Product or GDP, the total value of goods and services
produced within the economy, grew 0.3% in the second quarter.
The growth rate was unexpectedly higher than the 0.1% forecast
by Thomson Global Markets and that gave analysts additional
confidence on the outlook for U.S. companies.  Another bright
spot for investors was the data from the National Association
of Purchasing Management's Chicago unit, which reported that
its index of business activity was 46.6 in September, compared
with the 43.5 reported in August.  A number below 50 indicates
shrinking economic activity, but the activity index was higher
than expected and that gave investors some confidence that the
Fed's aggressive rate-management policy will eventually bolster
the U.S. economy.

Next week, Wall Street will focus on additional economic data
such as the National Purchasing Managers' Index and the Labor
Department's unemployment report for September.  In addition,
Federal Reserve policy-makers will meet Tuesday to determine
their outlook for the economy and if they choose to reduce the
federal funds rate, the cost of borrowing money would fall to
the lowest level in more than 40 years.  Although most experts
agree that a recession is inevitable, many have recently become
optimistic that when a recovery finally occurs, it will be much
stronger due to the amount of liquidity that has been infused
into the economy by the Federal Reserve.  Analysts see mid-2002
as the likely period when the world's most productive nation
could return to prosperity and that's an event we can all look
forward to with impatience and enthusiasm.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                     - Speculation Plays -

One of our readers asked for some low cost speculation positions.
All of these plays offer favorable risk-reward potential however
they should be evaluated for portfolio suitability and reviewed
with regard to your strategic approach and trading style.

******************************************************************
ELNK - Earthlink  $15.23  *** Rally Underway? ***

EarthLink (NASDAQ:ELNK) is a major Internet service provider,
providing nationwide Internet access and related value-added
services to individual and business customers.  The company's
primary service offerings include Dial-up Internet access; high
speed access via DSL, cable modem, fixed wireless or dedicated
circuits; Web hosting; and content, commerce and advertising.
Their business services consist of Web hosting, the business
of maintaining a customer's Internet Website, Web page design,
domain name registration and e-commerce solutions.

ELNK shares rallied Friday after an analyst commented that the
company was an attractive takeover candidate and would achieve
profitability due to price increases and cost cutting measures.
We will use any near-term pullback from Friday's rally to open
this play at a small credit and if the issue continues to rally,
we will likely leave the sold Put open (in anticipation of its
eventual expiration) when we sell the Call for a profit.
  
PLAY (very speculative - bullish/synthetic position):

BUY  CALL  OCT-17.50  MQD-JW  OI=2476  A=$0.35
SELL PUT   OCT-12.50  MQD-VV  OI=692   B=$0.20
INITIAL NET CREDIT TARGET=$0.05-$0.10  TARGET PROFIT=$0.35-$0.50

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $360 per contract.

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=ELNK
******************************************************************
IDCO - Interactive Data  $13.10  *** Cheap Speculation! ***

Interactive Data (NASDAQ:IDCO) is a leading global provider of
securities pricing, financial information, and analytic tools
to institutional and individual investors.  The company supplies
time-sensitive pricing, dividend, corporate action, and unique
descriptive information for the more than 3 million securities
traded around the world, including hard-to-value, unlisted fixed
income instruments.  The company also has links to most of the
world's best-known financial service and software companies for
trading, analysis, portfolio management and share valuation.

Shares of IDCO closed at an 18-month high Friday despite the
fact that some of its collection and distribution facilities
were subject to the effects of the recent terrorist attacks on
the World Trade Center in New York City.  In the aftermath of
the attack, traders were fearful that the stock markets might
not be able to function effectively but companies like IDCO
continued to provide pricing and related data for equities
with little difficulty.  The company has a diverse system of
information resources and the CEO says their institutional
business has been particularly strong in recent months.  That
factor, combined with the long-term trends of growth in funds
under management and securitization of assets helps underpin
the company's future in the finance industry.

With excellent disparities in the front-month premiums, this
position offers a favorable speculation play for those who
are bullish on the issue.

PLAY (speculative - bullish/calendar spread):

BUY  CALL  DEC-15  BQD-LC  OI=129  A=$0.95
SELL CALL  OCT-15  BQD-JC  OI=50   B=$0.20
INITIAL NET DEBIT TARGET=$0.65-$0.70  TARGET PROFIT=25%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=IDCO
******************************************************************
JDSU - JDS Uniphase  $6.32  *** Pure Bottom-Fishing! ***

JDS Uniphase (NASDAQ:JDSU) is a provider of advanced fiber optic
components and modules.  These products are sold to telecom and
cable television system and subsystem providers (OEMs) including
established system providers as well as emerging system providers.
The telecommunication system and subsystem providers use these
components and modules as the building blocks for the systems
that they ultimately supply to telecommunications carriers.  In
February 2001, the company completed its merger with SDL, Inc.
As a result of the merger, SDL became a wholly-owned subsidiary
of JDS Uniphase.  SDL's products power the transmission of data,
voice and Internet information over fiber optic networks to meet
the needs of telecommunications, data transmission, wavelength
division multiplexing and cable television applications.

JDS Uniphase is certainly one of the most volatile stocks in the
history of the NASDAQ, having traded in the "triple-digits" just
one year ago before a massive sell-off erased the inflated market
capitalization of almost every technology issue.  Now the stock
languishes in the $5 range but analysts say the slump in sales
of the company's products is stabilizing and they expect JDSU's
share value to begin a long-term recovery in the coming months.

This position utilizes Jim Brown's popular technique of writing
"deep-in-the-money" Puts to take advantage of upward movement
in the underlying issue.  A near-term Put is also purchased to
limit downside risk in the play if the recovery does not begin
as soon as expected.

More information on this unique strategy can be found at:

http://members.OptionInvestor.com/editorplays/042201_1.asp


PLAY (speculative - bullish/short-put combination):

SELL PUT  JAN03-15.00  OVU-MC  OI=6342  B=$9.10
BUY  PUT  DEC01-5.00   UQD-VA  OI=1755  A=$0.55
INITIAL NET CREDIT TARGET=$8.50 TARGET PROFIT=?!?

Note:  There is a collateral requirement for the sold (short)
Put, whether it is partially covered in the initial spread or
exists "naked" when the long option expires.  Please review
the terms of the collateral requirements with your broker.

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=JDSU
******************************************************************
                     - TECHNICALS ONLY -

These plays are based on the current price or trading range of
the underlying issue and the recent technical history or trend.
Current news and market sentiment will have an effect on these
issues so review each position individually and make your own
decision about its future outcome.

******************************************************************
GD - General Dynamics  $88.32  *** Defense Sector Rally! ***

General Dynamics (NYSE:GD) is engaged primarily in the businesses
of shipbuilding, marine systems, business aviation, information
systems, and land and amphibious combat systems.  Each of these
businesses involves design, manufacturing and program management
expertise, advanced technology and integration of complex systems.
The primary customers for the company's businesses are the United
States military, the armed forces of allied nations, and other
government organizations as well as a diverse base of corporate
and industrial buyers.

Few stocks survived the "post-attack" selling binge but with the
nation possibly gearing up for a long-term battle with terrorism,
defensive companies are seen as a solid bet to attract investors
in the coming months.  Indeed, shares of defense contractors have
been "on the move" in recent sessions and 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 day terrorists struck fear into the heart of Americans with
their bold strikes on the World Trade Center and the Pentagon.
The upcoming earnings report from GD may also contribute to the
bullish trend in the coming weeks and we are going to use this
limited-risk spread, with a cost basis well below the current
price of the stock, to profit from any future upside activity.

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-75  GD-VO  OI=121  A=$0.50
SELL PUT  OCT-80  GD-VP  OI=133  B=$0.90
INITIAL NET CREDIT TARGET=$0.50-$0.60  PROFIT(max)=11%

http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=GD
******************************************************************
VOD - Vodaphone  $21.96  *** On The Rebound! ***

Vodafone Group Plc (NYSE:VOD) is a wireless telecommunications
company with worldwide operations through its subsidiary, joint
venture and associated undertakings.  Vodafone has interests in
wireless telecommunications businesses in the Middle East and
Africa and 25 countries across five continents.  The company
provides a full range of wireless telecom services, including
cellular, personal communications services, paging and data
communications.  Vodafone currently has more than 40 million
customers and serves markets covering a total population of 400
million people worldwide.  Vodafone's operations are currently
divided into the geographic areas of Europe, Middle East and
Africa; the United Kingdom, and the United States and Asia.
Vodafone also owns 45% of Verizon Wireless, a wireless operator
formed by the combination of the U.S. cellular operations of
Vodafone, Bell Atlantic and GTE.

This position emerged in a search for bullish candidates with
favorable premiums for speculative option-buying strategies
and the recent technical indications suggest the issue has
excellent potential for upside activity in the coming months.

PLAY (conservative - bullish/synthetic position):

BUY  CALL  NOV-25  VOD-KE  OI=263  A=$0.85
SELL PUT   NOV-20  VOD-WD  OI=55   B=$0.85
INITIAL NET CREDIT TARGET=$0.10-$0.25  TARGET PROFIT=$0.75-$1.25

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $775 per contract.

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


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