Option Investor

Daily Newsletter, Wednesday, 10/03/2001

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The Option Investor Newsletter                Wednesday 10-03-2001
Copyright 2001, All rights reserved.                        1 of 1
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MARKET WRAP  (view in courier font for table alignment)
      10-03-2001          High     Low     Volume Advance/Decline
DJIA     9123.78 +173.19  9148.35  8860.84 1.53 bln   1493/1648	
NASDAQ   1580.81 + 88.48  1595.48  1473.22 1.73 bln   1380/2243
S&P 100   550.60 + 11.03   552.51   533.64   Totals   2873/3891
S&P 500  1072.28 + 20.95  1075.38  1041.48
RUS 2000  413.22 + 11.43   413.85   399.64
DJ TRANS 2222.86 + 52.42  2232.20  2166.20
VIX        33.13 -  0.92    35.00    32.46
VXN        62.17 -  1.67    64.84    60.85
TRIN        0.61
Put/Call    0.47

Silly Snakes, Brassy Bulls, And A Heap of Homeruns

Tech was due for a big day.  And like Barry Bonds, the Nasdaq
stepped up to the plate and hit the long ball Wednesday.  In
retrospect, the nearly 6 percent gain in the Composite (COMPX)
wasn't that out of whack.  After all, that was an awful chunky
pitch that Chambers & Co. lobbed over the Nasdaq's home plate
Wednesday afternoon.

Despite earnings warnings from Prozac maker Eli Lilly (NYSE:LLY)
and beat down networker Nortel (NYSE:NT), the broader market was
off to a bullish start Wednesday morning.  That's because the
National Association of Purchasing Management said its
service-related index rose during the month of September.  While
some economists questioned the accuracy of the report in light
of the September 11 attacks, the market received the favorable
economic news rather well.  In addition to the positive NAPM
report, President Bush reassured business leaders Wednesday
morning that the government is taking measures to boost the
sagging U.S. economy, which includes a $60 to $75 billion fiscal
stimulus package.

But the news that really got things rolling higher Wednesday were
the remarks made by Cisco Systems' (NASDAQ:CSCO) CEO, John
Chambers, at a Goldman Sachs conference.  Regarding fiscal
first-quarter estimates, Chambers said, "I am very comfortable
with the consensus estimates."

Bears have been betting heavily that Cisco and many of its
networking cohorts would fall short of estimates this quarter
and be forced to, once again, guide estimates lower.  Indeed,
that's what Nortel did Tuesday night and what Corning (NYSE:GLW)
did after the bell Wednesday.  Apparently Cisco is taking so
much market share from its beleaguered competitors that its
business remains stable.  But the operative idea is 'stable.'
Chambers didn't say business was getting better.  Nevertheless,
stability was good for a 21 percent gain in shares of Cisco
Wednesday, which goes to show just how many traders were betting
on the company warning.

Being the big cap that it is, Cisco helped to carry the Nasdaq-100
(NDX.X) to a 7.76 percent gain.  It's interesting to note that
the NDX - the 100 largest stocks on the Nasdaq market - out
performed the COMPX by nearly 2 percent, which reveals that a lot
of Wednesday's buying was focused on big caps.

It could be argued that of the three (INDU, SPX, NDX) major market
averages, the NDX is still the most oversold.  In all reality, the
Dow Jones Industrial Average (INDU) and S&P 500 (SPX.X) have been
rallying for about the last eight trading sessions, while the NDX
bounced above its relative low.  In the words of Jeff Bailey, the
INDU and SPX are the "head of the snake," while the NDX is the
"tail of the snake."  In this trader's words, the INDU and SPX
are leading indexes, while the NDX is a lagging index.  That being
the case, the NDX has some more catching up to do to the upside,
which could mean that tech has further upside from current levels,
while INDU and S&P issues pause or pullback.

But for tech to have further upside, the NDX needs to clear
resistance at 1270.  Not by coincidence, the 19.1 percent
retracement level of the NDX's descent since mid-May lies at the
1270 level.  And it's this trader's opinion that the NDX's intraday
high of 1267.51 was no coincidence either.

Like the NDX, the SPX has resistance nearby.  For its part, the SPX
is about 10 points away from its 38.2 percent retracement level
around the 1083 area, plus or minus 5 points.  (This particular
retracement bracket, in my opinion, is quite accurate.  The SPX has
followed this bracket closely, noting the triple bottom at the 1170
(61.8 percent) level and various support and resistance

Unlike the NDX, the SPX's Stochastics reading on a daily timeframe
is well into bought territory, which reinforces the fact that the
SPX has been advancing for about the last eight days.  Again, the
SPX and INDU have out performed to the upside recently, which is
why we call them the "head of the snake."

The technical setup of the INDU is very similar to that of the
SPX.  The chart below is displayed with a retracement bracket
similar to the ones we're using for the NDX and SPX.  We're
simply anchoring at the mid-May high and at the relative low
traced a few weeks back.  For its part, the INDU is about 200
points away from its 38.2 percent level at 9308.  And like the
SPX, the INDU's Stochastics reading is well into overbought

With the SPX and INDU in overbought territory by way of
Stochastics and approaching resistance, it's hard to argue a
strong case for chasing stocks higher in those indexes.  In fact,
banks and healthcare under performed the SPX and INDU Wednesday
and those two groups were the driving forces behind the advance
over the last eight days.  The softness in banks and healthcare
may have been an indication that the INDU and SPX are about to

On the other hand, Stochastics is an oscillator and both the
SPX and INDU are trending higher.  Furthermore, bullish percent
for both the SPX and INDU are on bull alert, which is a
cautiously bullish stance.

With as oversold as tech shares are and the NDX not yet
overbought insofar as Stochastics is concerned on a daily
timeframe, there's a better argument for being bullish on
tech issues.  The one problem with being overtly bullish on
tech issues is the massive amount of "homeruns" hit on
Wednesday.  By that I mean stocks were up 20, 30, some even
40 percent.  Just take a look at the Nasdaq-100 components
such as QLogic (NASDAQ:QLGC), which was up 32 percent Wednesday!
That's a whole year worth of gains in the underlying in just one

In addition to the fact that the market was up so much Wednesday,
there's reason to be cautious ahead of economic data set for
release Thursday and Friday morning.  Jobless claims are expected
to be reported at 472,000 Thursday and the unemployment rate is
expected to be reported at 5 percent Friday.  Negative surprises
in either of those reports could bring a harsh dose of reality
back to the market following Wednesday's massive short-covering
rally in tech.

Eric Utley
Option Investor



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Fine Points of the LEAP Puts Strategy
by Mark Phillips

Last week, we finally kicked off our discussion of LEAP Puts by
defining some basic parameters that need to be satisfied and
then examining a historical chart of General Electric (NYSE:GE)
to demonstrate what we should be looking for in terms of entry

To recap, here are the basic features I want to see in a
long-term put candidate.

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

With those guidelines, I went on a quest for possible
candidates.  Given the degree to which our precious markets have
been beaten down over the past 9 months, you would expect to
find slim pickings according to those 3 criteria, but I
neglected to add the most obvious one -- the stock has to have
LEAPS available.  With a field of thousands of optionable
stocks, and only about 300 with LEAPS available, you can see
that the field of candidates is much narrower than we would
like.  But I did find some attractive candidates that, although
they are not providing good entries at this point in time, I
expect they will in the weeks ahead.  In no particular order of
preference, here are the 5 possible candidates I was able to

1. AMGN - P/E=54, Rev. Growth=8%, Earn Growth=7%, Price=$59
2. TMPW - P/E=43, Rev. Growth=10%, Earn Growth=30%, Price=$27
4. EBAY - P/E=157, Rev. Growth=84%, Earn Growth=100%, Price=$51
5. DIS - P/E=97, Rev. Growth=-1%, Earn Growth=0%, Price=$19
6. KO - P/E=35, Rev. Growth=-3%, Earn Growth=20%, Price=$46

Like I said above, slim pickings!  High P/E ratios combined with
slow to non-existent growth is the kind of thing that gets my
attention and motivates me to dive into the charts looking for
possible entry points.  Now is definitely not the time to be
adding new long-term bearish positions on these stocks, but that
time may come soon.  Let's dive into one of these charts
and see what we can find in terms of possible opportunities.
It may seem that EBAY doesn't really belong in this list due to
the fact that earnings and revenue are still growing at a
respectable clip.  While that much is true, I still have a hard
time swallowing a P/E ratio north of 150, especially in the
current market environment.  Like the other candidates I listed,
it isn't ready for us yet.  But it could be soon.

Let's use AMGN for the purposes of discussion, as it presents
the kind of picture we're looking for.

If I'm looking for a bearish long-term trade, AMGN is delivering
many of the components I like.  A high P/E ratio coupled with a
slow growth rate tell me that the stock is vulnerable, and the
fact that it is trading in the $50-65 range says there is plenty
of downside available.  All I have to do is pick the right entry
point.  Clearly, from the weekly chart, that is not right now,
but the stock bears watching.

Let the weekly Stochastics bottom in oversold and recover back
into the overbought zone.  Judging by the past 3 cycles, this
overbought condition should coincide with price rolling over
near the descending trendline, likely in the neighborhood of
$65.  When the stochastics on the weekly chart reach overbought
again, we'll want to drill down to the daily chart and look for
stochastics to roll over from overbought in that timeframe to
initiate the position.

As you can see, this is simply the inverse of the entry setup
we look for in our LEAP Call strategy, and all of the rules that
we have developed for that strategy apply equally well here.
Stop losses are essential, and it is much easier to manage risk
when we pick a good entry point.

To round out this discussion, I think a few words about exit
strategy are in order.  Assuming we get the entry we are looking
for and are not stopped out of the play, the logical exit point
will come when the weekly stochastics once again bottoms in the
oversold region.  This should correspond to a price in the
mid-$50s, but it might make sense at that point to simply
tighten our stop.  Afterall, our long-term focus is that we
expect the stock to break the $54 support level, and we would
like to be on board when that occurs.

Unfortunately, we don't have any candidates that we can consider
for pending entries, which makes our discussion more
hypothetical than I would like.  The other candidates I listed
above are far from being entry candidates in the near-term as
well, largely due to the sharp market decline over the past
month.  But I am still of the opinion that we could see some
attractive long-term bearish trades setting up in the weeks
ahead.  I'll keep an eye on these 5 stocks and we can revisit
the possibility of entering new trades when they get closer to
providing us with the type of setup we are looking for.  In the
meantime, I'm always open to suggestions.  If you have some
other candidates that you think might provide good
opportunities, based on the criteria I've outlined here, send
them along.  Making the search for attractive plays more
interactive will likely be educational and profitable for all.

When I return from my honeymoon later this month, I'll finish
off the topic of using LEAP Puts, but in a bullish manner.  One
of my long-time readers, Tony B. was kind enough to bring the
idea to my attention in response to my request for reader input
on the topic of whether it made sense to incorporate LEAP Puts
into our strategies here.  He chimed in with his opinion that
we may be a bit too late to the game with LEAP Puts, but
followed up with this insightful comment that I share with you
just as I received it.

"However, before turning your back on LEAP Puts, why not look
at LEAP Put Credit Spreads??  I've been trading these for some
time now and have done very well with them.  Often I leg into
the Spread.  Open the short leg when the stochastic on a weekly
and daily chart are bottomed.  Look for the daily stochastics
to cross over and start up.  After the stock has moved up
(stochastic half-way up) I enter the long side.  When
stochastics peak and start to roll over, I buy to close the
short and hold the long for the ride down.

As for candidates for this play, I've been using your list on
Call LEAPS since I prefer selling as opposed to buying."

Does that concept sound intriguing to any of you?  It did to me
too!  Thanks for sharing with all of us Tony.  For those that
are interested, tune in for our visit on October 24th, and we'll
delve into all the nitty-gritty details in our quest to add one
more powerful tool to our arsenal.

Until then, stick to your trading plan.  The erratic markets of
last month are starting to calm down, but that doesn't mean that
the danger is gone.  I still believe that the eventual bottom
lies ahead of us and likely at levels we have not yet seen.
Remember, patience is a virtue AND a trading skill!

Best Wishes for a profitable month!

Mark Phillips
Contact Support


ATK  - call
Adjust from $82 up to $83

ENZN - call
Adjust from $50 up to $54

MTG  - call
Adjust from $62 up to $63.50

CMCSK - call
Adjust from $34.50 up to $35.50

ORCL - call
Adjust from $11.75 up to $12.25

GE   - call
Adjust from $36 up to $36.50

BAC  - call
Adjust from $57.50 up to $58.50

PPG  - call
Adjust from $43.60 up to $45.00


No Dropped Calls for Wednesday.


BBY $48.80 +3.70 (+3.35) BBY was bolstered by the strength in
the S&P Wednesday and positive analyst comments about the
broader retail sector.  The stock's 200-dma currently sits at
the $50.54 level, which may serve as a rollover point if BBY
follows through into Thursday's session.

SV $21.26 +1.35 (+1.76) SV charged higher Wednesday on what
appeared to be a combination of short covering and broad market
strength.  The stock edged past our stop at the $21 level and
didn't give back much of its gains near the end of the session.
We're dropping coverage in light of the stop violation and
traders with open positions should turn to any weakness early
Thursday for a chance to cut losses.

EBAY $49.95 +2.46 (+4.20) EBAY's short-term base lifted the stock
as high as its 200-dma around $51 today.  The stock is getting
overbought, but the violation of its stop at $49 has forced us
to drop coverage today.  Bearish traders could look to establish
new positions on any future rollovers at the 200-dma, but we're
dropping coverage for the time being.

MVSN $33.06 +5.30 (+4.65) MVSN rallied nearly 20 percent today.
It's quite possible that the stock was being sold short yesterday,
noting its poor performance.  The stock decidedly closed above our
protective stop, which hopefully got traders out of their
positions in time before MVSN went on to advance above the $33
level.  Traders with open positions should look for any pullback
Thursday or Friday to cut losses.

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MO - Phillip Morris $49.45 +0.05 (+1.16 this 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

Most Recent Update

MO is working exceptionally well for us so far this week.  But,
that shouldn't be too unexpected.  After all, the highly
expected 50 basis point reduction in interest rates makes MO's
big dividend yield all the more attractive.  As for the stock
itself, MO is inching towards a breakout above the $50 level.
But, MO will most likely need the support of the Dow to
successfully breakout above $50.  With that being the case,
bullish traders should confirm direction in the Dow if new
positions are to be taken on advance above $50.  On the other
hand, perhaps the best strategy with MO is to be in plays ahead
of any forthcoming breakout.  For readers who like that idea,
new entries on pullbacks from current levels is the "better"
strategy.  In executing new trades on a pullback, support appears
to be around the $48 to $48.50 area, so bullish traders might
look for bids to materialize in that general location.  We're
ratcheting our stop up to the $48 level.


MO may be setting up for another big day Thursday.  The stock
lagged the Dow Wednesday, which may have been a product of
rotation out of defensive issues.  The stock made a run on the
$50 level, but missed it by just $0.04.  Look for a breakout
Thursday if the buyers move back into defensive issues.

BUY CALL OCT-45*MO-JI OI=39472 at $4.80 SL=3.75
BUY CALL OCT-50 MO-JJ OI=23125 at $0.90 SL=0.25
BUY CALL DEC-45 MO-LI OI= 2616 at $5.90 SL=4.75
BUY CALL DEC-50 MO-LJ OI=19626 at $2.55 SL=1.75

Average Daily Volume = 5.89 mln


Relief Rally Underway!
By Ray Cummins

The bulls regained control of the market today amid optimism the
government will do all it can to keep the economy healthy.  The
broad recovery in equities was due primarily to reports that the
White House and Congress are finalizing a package to inject $60
billion to $75 billion of additional stimulus into the economy.

President Bush told business leaders in New York that the federal
government stands ready to boost the economy following the recent
tragedies and Treasury Secretary Paul O'Neill notified the Senate
Finance Committee that their package must work to address three
priorities: helping those most affected by the terrorist attacks,
restoring consumer demand, and supporting business investment.
The bullish comments came just one day after the Federal Reserve
slashes interest rates by 50 basis points and analysts jumped on
the "buy it now" bandwagon with a slew of upgrades on downtrodden
blue-chip companies.  Among the Dow's biggest winners were Boeing
(NYSE:BA), Caterpillar (NYSE:CAT), Home Depot (NYSE:HD), Honeywell
(NYSE:HON), Kodak (NYSE:EK), and United Technologies (NYSE:UTX).
In the technology segment, semiconductor and computer hardware
issues led the advance with news from Cisco Systems (NASDAQ:CSCO)
adding to the optimistic attitude.  The networking giant said it
is comfortable with its fiscal-first quarter earnings estimates
and upbeat statements from Cisco's CEO John Chambers at a Goldman
Sachs conference incited a bull stampede in the networking sector.
Communications-chip stocks also moved sharply higher in sympathy
with Cisco's sanguine outlook and software issues remained near
the top of the leader-board for a second consecutive session with
Siebel Systems (NASDAQ:SEBL) and Oracle (NASDAQ:ORCL) guiding the
trend.  Priceline (NASDAQ:PCLN) was a top performer among Internet
issues, climbing almost 15% after informing investors late Tuesday
that it now expects to generate sales of $300 million versus the
previously projected $280 million as travel activity rebounds.  In
the broader market, shares of airline companies recovered for the
fourth straight session and financials moved higher after analysts
at Merrill Lynch noted, "Value buyers, with patience, could reap
good investment returns in the group over the coming year."  Among
other S&P 500 sectors, insurance, utility, transportation, retail
and biotechnology issues moved higher while gold, drug, and paper
stocks generally retreated.

Summary of Previous Candidates (as of 10/02/01):

Covered Calls: (Margin not used in calculations)

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

GILD    OCT    55    47.65   56.62   2.35     6.3%
ACDO    OCT    45    33.21   36.33   3.12    11.9%

Accredo Health (NASDAQ:ACDO) closed at a recent low Tuesday
and the issue is at a "key" moment.  A move below near-term
technical support at $34 would be a potential early-exit

Naked Puts:

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

IMCL    OCT     40   39.30   59.84   0.70     5.9%
ACDO    OCT     30   29.65   36.33   0.35     4.8%
ATK     OCT     70   69.25   85.00   0.75     4.6%
GILD    OCT     45   44.55   56.62   0.45     4.4%
LLL     OCT     70   69.10   89.38   0.90     5.6%

Naked Calls:

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

ABK     OCT     55   55.75   54.21   0.75    5.9%

Ambak (NYSE:ABK) has enjoyed a significant rebound since we
initiated this bearish play and traders must be careful to
protect against further upside activity as the broad market
recovers.  With solid overhead supply near $60, a possible
adjustment would be to roll to a NOV-$60 Call (short) for a
small credit, if the issue continues to rally through the
sold strike at $55.

Sell Strangles:

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

IVGN    OCT    50-P  49.20   67.27   0.80     7.0%
IVGN    OCT    70-C  70.85   67.27  (1.10)    6.9%

Closed Positions:

Invitrogen (NASDAQ:IVGN) finished near $69 on Monday after a
series of bullish sessions and the change in character was
sufficient to warrant an early exit in the bearish position.
With an overall credit of $1.80 in the original play, a small
loss (or break-even) exit should have been easily achieved.

Credit Spreads:

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

IBM    91.30   93.77  OCT105C/100C  0.70  100.70   0.70   Open
JEC    64.63   63.00   OCT50P/55P   0.70   54.30   0.70   Open
NOC    97.00  105.20   OCT85P/90P   1.00   89.00   1.00   Open
PGR   119.01  137.45  OCT135C/130C  0.65  130.65  (1.85) Closed
SBC    47.44   47.00   OCT40P/45P   0.60   44.40   0.60   Open
SZA    63.00   62.22   OCT55P/60P   0.85   59.15   0.85   Open
VZ     53.90   55.70   OCT45P/50P   0.70   49.30   0.70   Open

Closed Positions:

Shares of PGR continued to move higher last week (a day after we
placed the issue on our exit/adjustment watch-list) amid a robust
recovery in the Property and Casualty Insurance group.  Analysts
say the bullish outlook among investors is due to the assumption
that PGR is a leader in a sector that now has fewer competitors
and they will be able to charge higher prices for their products.
Regardless of the reason, the issue moved through our sold strike
last Thursday and a closing transaction (simultaneous orders with
no legging) was initiated near the end of the session for a debit
of $2.50.  Of course, the upward trend has been so strong that a
roll-out would have yielded a much smaller loss (possibly a gain)
but we will record the actual cost to exit the position with no
adjustments.  Last week's forced exit from Affiliated Computer
(NYSE:ACS) will likely qualify as the Murphy's Law "Play of the
Month" for October as the issue has rebounded on new strength in
the software segment and appears to be comfortably above the sold
strike in our bullish spread.

New Candidates:

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.  (We monitor the positions marked with ***).


BULLISH PLAYS - Covered Calls, Naked Puts, & Combinations

ADRX - Andrx  $75.07  *** On The Move! ***

Andrx (NASDAQ:ADRX) formulates and commercializes controlled
release oral pharmaceuticals using its proprietary drug delivery
technologies.  Andrx markets and sells Cartia XT and Diltia XT,
its generic or bioequivalent versions of Cardizem CD and Dilacor
XR.  Andrx uses its proprietary drug delivery technologies and
formulation skills to develop bioequivalent versions of selected
controlled-release brand name pharmaceuticals; and brand name
controlled-release formulations of existing immediate-release or
controlled-release drugs.  Andrx is also developing bioequivalent
versions of specialty or niche pharmaceutical products.  Through
its distribution operations, Andrx primarily sells bioequivalent
drugs manufactured by third parties primarily to independent
pharmacies, pharmacy chains which do not maintain warehousing
facilities, pharmacy buying groups and physicians' offices.

The big news for specialty pharmaceuticals firm Andrx is that
the company will replace Excite@Home (NASDAQ:ATHM), which filed
for bankruptcy protection last Friday, on the NASDAQ 100 index.
The NASDAQ 100 is an index of the largest non-financial stocks
in the NASDAQ Composite, weighted according to market cap.  The
inclusion of ADRX in the index means the company is considered
to be one of the leaders in the drug and biotechnology sector.
According to analyst Jerry Treppal of Banc of America Securities,
Andrx has stable products and a "very bright future," especially
if it succeeds in getting approval for a generic version of the
ulcer drug Prilosec.  Treppal, who has a "buy" rating and a $92
price target on Andrx, believes the company will get approval
early next year to start selling the drug and the expectation of
that event should provide a catalyst to move the issue higher in
the coming months.

ADRX - Andrx  $75.07

PLAY (sell naked put):

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

SELL PUT  OCT 65   QAX VM   2,569     0.55   64.45      4.8% ***
SELL PUT  OCT 70   QAX VN   179       1.30   68.70      8.9%
SELL PUT  OCT 75   QAX VO   264       3.30   71.70     17.8%

ADVP - AdvancePCS  $73.60  *** Bracing For A Rally? ***

AdvancePCS (NASDAQ:ADVP) is a provider of health improvement
services in the United States.  As a pharmacy benefit management
company (PBM) AdvancePCS currently serves more than 75 million
health plan members and manages $20 billion in prescription drug
spending on an annualized basis on behalf of the company's health
plan sponsors.  In addition, the company offers a range of other
health improvement products and services, such as prescription
discount cards for the uninsured and under-insured, Web-based
programs, ongoing disease management, clinical research trials
and outcomes studies. The Company generates revenues by providing
its health improvement services to two primary customer groups:
health plan sponsors and pharmaceutical manufacturers.

ADVP made the news today in a Wall Street Journal editorial about
finding companies with good value in today's economy.  Analysts
at Merrill Lynch were part of the article's focus because they
are utilizing some unique methods to evaluate stocks, including
screening the market for companies with the most stable earnings
growth in the past five years and the highest return on equity;
which looks at trailing net income as a percentage of book value.
Analysts believe companies that achieve high marks based on this
criteria can grow by using their own resources and AdvancePCS was
one of the two issues that qualified in that regard.  In addition,
AdvancePCS recently approved a 2-for-1 stock split in the form of
a dividend.  Upon approval, shareholders of record as of 10/23/01
will receive one additional share of common stock for every one
share held on that date.  The new shares will be distributed on
or after 11/30/01 and the transaction will increase the amount of
common stock outstanding to 91.8 million shares.

ADVP - AdvancePCS  $73.60

PLAY (sell naked put):

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

SELL PUT  OCT 65   QVD VM   83        0.65    64.35       5.4% ***
SELL PUT  OCT 70   QVD VN   70        0.70    68.30      11.0%

ENZN - Enzon  $57.98  *** New Product On The Market! ***

Enzon (NASDAQ:ENZN) 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.  The company also applies its
single-chain antibody technology to discover and produce unique
antibody-like molecules that offer the therapeutic benefits of
monoclonal antibodies, while addressing some of their limitations.

Enzon reported today that Schering-Plough Corporation (NYSE:SGP)
has announced the United States launch of a combination therapy
using PEG-INTRON Powder for Injection and REBETOL Capsules for
treating chronic hepatitis C.  PEG-INTRON is a longer-acting form
of INTRON A (interferon alfa-2b, recombinant), an injection that
uses proprietary technology developed by Enzon, and under the
company's licensing agreement with Schering-Plough, Enzon is
entitled to royalties on worldwide sales of PEG-INTRON.  It is
predicted that direct U.S. medical costs to treat HCV-related
disease will exceed $13 billion for the years 2010 through 2019
and analysts believe the company's ability to benefit from this
and other products is still not fully reflected in the issue's
current share value.

ENZN - Enzon  $57.98

PLAY (sell naked put):

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

SELL PUT  OCT 50   QYZ VJ   51       0.60    49.40       6.8% ***
SELL PUT  OCT 55   QYZ VK   125      1.80    53.20      14.6%

HB - Hillenbrand Industries  $56.72  *** Solid Earnings! ***

Hillenbrand Industries (NYSE:HB) is a diversified, public holding
company and the owner of 100% of the capital stock of its three
operating companies serving the funeral services and healthcare
industries.  The company's Health Care Group consists of Hill-Rom
Company, a manufacturer of equipment for the healthcare market and
provider of wound care and pulmonary/trauma management services.
Hillenbrand's Funeral Services Group consists of Batesville Casket
company, a manufacturer of caskets and many other products for the
funeral industry, and Forethought Financial Services, a provider
of funeral-planning financial products.

Hillenbrand shares rallied this week after the company reported
outstanding quarterly earnings.  The company announced yesterday
that net income for the fiscal 2001 third quarter was $41 million,
or $0.65 per share, up 21% from net income of $34 million earned
in the year-ago quarter.  Earnings per share rose 23% during the
quarter while revenue rose 4% to $514 million.  Cash flow from
operating activities in the quarter was an amazing $114 million,
up 159% from last year, and the results were due to strong demand
in both their capital sales and therapy product lines.  The CEO
said the company will continue a determined drive to lower costs,
improve asset utilization and find innovative pathways to achieve
profitable growth, and that's exactly what investors want to hear
in these troubled times.

The stock is poised to move higher in the coming sessions and
traders who believe the issue is destined for a continued rally
can profit from additional bullish movement with this position.

HB - Hillenbrand Industries  $56.72

PLAY (moderately aggressive - bullish/credit spread):

BUY  PUT  OCT-50  HB-VJ  OI=41  A=$0.35
SELL PUT  OCT-55  HB-VK  OI=3   B=$1.15

MRX - Medicis Pharmaceutical  $55.73  *** Rally Mode! ***

Medicis Pharmaceutical (NYSE:MRX) is a specialty pharmaceutical
company and an independent pharmaceutical company in the United
States focusing primarily on the treatment of dermatological
conditions.  The company offers prescription products and an
over-the-counter product line.  Medicis develops and markets
products for major segments within dermatology, including acne,
rosacea, antifungals, eczema, hyperpigmentation, pediculosis
(head lice), psoriasis, seborrheic dermatitis and cosmesis
(improvement in the texture and appearance of skin).  Medicis'
products include the prescription brands Dynacin (minocycline
HCl), Triza (benzoyl peroxide), Loprox (ciclopirox), Lustra and
Lustra-AF (hydroquinone), Ovide (malathion), Plexion (sodium
sulfacetamide), Lidex (fluocinonide), Synalar (fluocinolone
acetonide), Topicort (desoximetasone), and Buphenyl (sodium
phenylbutyrate), a prescription product indicated in the
treatment of Urea Cycle Disorder.  Medicis also markets the OTC
brand Esoterica.

There is little news to explain the recent rally in MRX shares
but some traders suggest it is related in part to the company's
decision to acquire Ascent Pediatrics, a pharmaceutical company
focused on the marketing and sale of prescription products to
pediatricians.  Medicis and Ascent announced they have entered
into a merger agreement to broaden the business development and
research and development opportunities for the parent company.
Ascent's portfolio of specialty pharmaceutical pediatric products
currently includes a popular oral liquid steroid for children
with asthma and other respiratory inflammatory conditions, an
antibiotic oral solution for children with ear infections, and
an over-the-counter saline nasal mist, as well as other projects
that are under development.  In addition to the acquired brands,
Medicis believes the pediatric market represents an opportunity
for several of its current dermatological products and the merger
provides the company with the critical mass to assist with its
entrance into the category of pediatrics.

We simply favor the recent technical trends and these positions
offer a great way to speculate on the future movement of the
issue in a conservative manner.

MRX - Medicis Pharmaceutical  $55.73

PLAY (sell naked put):

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

SELL PUT  OCT 50   MRX VJ  117       0.75     49.25       7.8% ***
SELL PUT  OCT 55   MRX VK  33        2.20     52.80      16.6%

NNS - Newport News Shipbuilding  $68.15  *** Defense Sector! ***

Newport News Shipbuilding (NYSE:NNS) is a non-government-owned
shipyard in the United States.  Its primary business is the design,
construction, repair, maintenance, overhaul and refueling of nuclear
powered aircraft carriers and submarines for the United States Navy.
Newport's operating segments include three areas involving United
States Naval and commercial ships: Construction, Fleet Services and

The Defense sector is in "rally mode" and this company is one of
the leaders in the industry.  In addition, the ongoing competition
between Northrop Grumman (NYSE:NOC) and General Dynamics (NYSE:GD)
to buy the outstanding shares of Newport News Shipbuilding common
stock will likely keep the price stable for the next few weeks.
Both defense firms are trying to purchase NNS and the U.S. Defense
Department hopes to make a recommendation to the Justice Department
this week on the $2.1 billion fight between two giants.  General
Dynamics' all-cash offer is for $2.1 billion and the assumption of
about $500 million in debt while Northrop's bid is $67.50 a share
for all the outstanding Newport News stock.  The Pentagon is trying
to decide whether either or both might stifle competition and hurt
the defense industry but regardless of the outcome, the share value
of NNS should remain above $65 until the October expiration.

NNS - Newport News Shipbuilding  $68.15

PLAY (sell naked put):

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

SELL PUT  OCT 65   NNS VM  10,350     0.80    64.20       5.8%

PRX - Pharmaceutical Resources  $37.19  *** Generic Drugs! ***

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.  Pharmaceutical
Resources operates primarily through its wholly owned subsidiary,
Par Pharmaceutical, a manufacturer and distributor of generic
drugs.  The company's product line consists of both prescription
and over-the-counter generic drugs.  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 major 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.

PRX was in the news today but not on its own merits.  The company
was listed as one of the primary reasons why drug-maker Eli Lilly
& Company (NYSE:LLY) will not meet previous quarterly earnings
forecasts of between $0.63 and $0.67 per share.  A sharp decline
in sales of the antidepressant Prozac is behind the shortfall and
the reason is that competing generic products from companies like
Pharmaceutical Resources have stolen market share from Prozac
since its patent expired in early August.  This is great news for
PRX and the scenario will likely be repeated with other products
in the coming months.  Investors who agree with a bullish outlook
for the company can used these positions to establish a low risk
cost basis in the underlying issue.

PRX - Pharmaceutical Resources  $37.19

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

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

SELL CALL OCT 35   PRX JG  608       3.40    33.79       6.4%
- or -
SELL PUT  OCT 35   PRX VG  1,020     1.20    33.80      15.5%

VRSN - VeriSign  $46.17  *** Software Sector Surge! ***

VeriSign (NASDAQ:VRSN) is a provider of infrastructure services
to Website owners, enterprises, e-commerce service providers and
individuals.  The company is organized into two customer-focused
lines of business.  The Mass Markets group focuses on delivering
all of its products and services to smaller enterprises, as well
as to consumers that wish to establish a presence on the Web.  The
Enterprise and Service Provider Division focuses on delivering all
of its products and services to larger enterprises and service
providers around the world that want to establish and deliver
a range of secure Internet-based services to their customers in
both business-to-consumer and business-to-business environments.

Despite the recent slump in technology share values, Verisign is
one of the top companies in the Internet Software group and among
many institutional investors, it is also a core holding.  From a
technical viewpoint, the software segment is one of the strongest
sectors and the issue appears to have successfully completed a
near-term consolidation.  We expect the share value of VRSN to
benefit significantly from the current recovery rally and our
target position offers an excellent reward potential at the risk
of owning this industry-leading issue at a favorable cost basis.

VRSN - VeriSign  $46.17

PLAY (sell naked put):

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

SELL PUT  OCT 35   QVR VG  5,119     0.30    34.70       5.6% ***
SELL PUT  OCT 40   QVR VH  3,983     0.95    39.05      12.8%
SELL PUT  OCT 45   QVR VI  1,021     2.60    42.40      23.4%



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