Option Investor

Daily Newsletter, Sunday, 10/07/2001

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The Option Investor Newsletter                   Sunday 10-07-2001
Copyright 2001, All rights reserved.                        1 of 5
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MARKET WRAP  (view in courier font for table alignment)
        WE 10-7          WE 9-28          WE 9-21          WE 9-14
DOW     9119.77 +272.56  8847.21 +611.40  8235.81 -1369.7  -   .34
Nasdaq  1605.30 +106.50  1498.80 + 75.61  1423.19 -272.18  +  7.67
S&P-100  549.38 + 16.28   533.10 + 41.40   491.70 - 66.88  +  4.69
S&P-500 1071.38 + 30.44  1040.94 + 75.14   965.80 -126.74  +  6.76
W5000   9837.11 +274.18  9562.93 +662.48  8900.45 -1203.9  + 37.95
RUT      414.97 + 10.10   404.87 + 25.98   378.89 - 61.84  -  4.46
TRAN    2209.42 + 15.43  2193.99 +139.15  2054.84 -621.65  - 36.65
VIX       34.66 -   .53    35.19 - 13.08    48.27 + 13.67  +   .24
VXN       63.35 -  1.84    65.19 - 12.54    77.73 + 13.89  -  1.61
TRIN       1.14              .73              .60              .68
TICK       +290             +995              +21             +100
Put/Call    .96              .61             1.27             1.01

A Chicken In Every Pot!
by Jim Brown

President Bush went on TV and called for an additional $60
billion tax cut and the markets rallied off their lows to
post solid gains on Friday. Now what will he do for an encore?
Clearly the administration had to take center stage after the
dismal Jobs Report showed a loss of -199,000 jobs in September.
The Jobs Report confirmed the trend continued by the unemployment
report on Thursday which soared to over 528,000 new claims in
the last week. This is the highest level since the 1991 recession.
Unfortunately the Jobs Report showed the state of the economy
before the attack meaning next months numbers will be
significantly worse. The Bush administration is scrambling
to pull a rabbit out of the hat to stimulate the falling economy
and the markets loved it. They see even more stimulus in the
future and a blank check for government spending. Maybe more
than a chicken in every pot!

As investors, whether you are republican or democrat, pro
stimulus or not, you will reap the rewards of these programs
in the markets. The effects will be temporary but welcomed.
Greenspan, if he is still on the job, will work aggressively
to take back the rate cuts and slow the economy once again
but he may be a little more restrained than usual. Nobody in
the financial community wants to relive the last two years
again soon, least of all Greenspan.

For traders the good news appears to be breaking out all over.
John Chambers, the Ralph Acompora of the networking sector,
said on Wednesday that he was "very comfortable" with analysts
estimates. CSCO stock jumped +33% and powered a huge rally
on the Nasdaq. Tuesday there was a press release that Michael
Dell had bought something close to $75 million of Dell stock.
Thursday the president of Dell reaffirmed guidance for the
October quarter and the only warning they issued was to their
rivals. Michael Dell said he sees a rebound.....by summer 2002,
but it was enough to capitalize on the Cisco news and gain $5
or more over the average $16.72 price he paid for 4.3 million
shares. A cool $20 million payday for Michael Dell. You don't
think he knew he was going to make those statements when he
was buying the stock do you?

Who are we to complain about a few million here and there if
the cumulative impact is a tech rally of +106 points for the
week. Rather than look at the positive spin and the impact
on the market I think it is more interesting to look at the
ones that didn't. AMD warned that sales were plummeting and
their losses could be as high as $220 million. They claimed
that they were facing very aggressive competition which resulted
in sharply lower average selling prices for the chips they did
sell. The warning was basically ignored.

Gateway warned again and said that PC sales had fallen
significantly since the attack and they would lose as much
as four times what they had originally forecast. GTW gained
+.15 on the news. On Friday SunMicro warned that it would
post a wider than expected loss and cut 4,000 jobs due to
uncertainties relating to the attack. SUNW gained +.56 on
the news. About the only major warning that resulted in a
big drop in stock price was Corning. GLW said that they would
cut 4,000 more jobs and post an even larger loss due to the
deterioration in global economic conditions. They said the
fiber business was simply dreadful. The gloomy outlook and
emphasis on the negative words are probably the reason for
their drop. The other companies mentioned above still maintain
a positive outlook and gave investors hope. Even Compaq gained
over $1.00 from Tuesday's opening price after warning again.

So, at the risk of being labeled pessimistic let's recap.
CSCO and DELL affirmed their previously lowered estimates.
Yawn. Michael Dell sees a "possible" rebound by summer 2002.
Yawn. Corning said new business is dreadful. Hmmmm. SUNW is
cutting almost 10% of its workforce because of slowing global
demand but COULD return to profitability by the June-2002
quarter. Are you excited yet? So, in the words of the old
Wendy's commercials, "where's the beef". Where is the good
economic news that is moving the markets?

The bottom line is simply we had a great rally on some weak
spin from the tech giants because the markets were ready to
grasp at any lifeline out of the September disaster. The real
question is how far will it go before the negative news starts
weighing on the markets again. The Dow is now up +877 points
from the Sept-21st low. That is a +10% rebound. The Nasdaq has
gained +217 points from that dip which is over a +15% gain.
Normally, and I stress NORMALLY, that type of rebound would
generate a week long pause for profit taking. This is not
a normal circumstance and from our severely oversold condition
we could continue moving up from here. How high and for how
long is still anybody's guess.

The internals are not shouting rally. The Dow gain on Friday
was done on almost dead even NYSE advance/declines of 1569/1530.
The Nasdaq gained +8 on with decliners beating advancers by 305.
Unfortunately you cannot draw any long term conclusions by
analyzing Friday's trading. There was a fear that a coalition
strike over the weekend could cause a retaliation strike in
the U.S. Shorts were afraid to hold over in case a patriotic
rally from a strike came on Monday. Longs were afraid to hold
on the impact of a retaliation strike. The volume on the NYSE
was positively anemic at only 1.3 billion.

The news reports were filled with negative outlooks on future
terrorist attacks. With warnings that there is a "100% chance
of retaliation", along with "credible and ominous evidence" of
other plans in progress. Officials warned that "sleeper" agents
were already in the country and targeting tunnels, dams, tankers,
refineries and symbolic military and civilian locations. That
is certainly not a setup for a continued bullish rally.

Still, all the major indexes posted gains. Bullish results from
bearish news and continuing profit warnings. The markets are
moving on sentiment alone and almost in denial of the facts.
This bullish sentiment caused the first positive inflow of
cash into stock funds in the last 10 weeks. Not much, only
+$200 million. Compared with last weeks -$10 billion outflow the
$200 million is only a drop but the most important fact is that
the bleeding has stopped for the moment. Most investors know
that this is the best time to be taking long term positions.
Every day that passes in October without a directional change
in the markets is a great day. The closer we get to expiration
Friday the closer we get to the normal end of October rally as
investors look forward to the next year.

There is no beef! The earnings and signs of economic recovery
are absent. Investors have been conditioned by history and the
constant barrage of news reporters and financial analysts that
this is a buying opportunity. They looked at CSCO at $11 last
week and took Chambers comments as a signal to buy. Considering
how vocal he has been in talking down the prospects for the last
year maybe the "very comfortable with estimates" was very bullish
for investors.

The September lows exhausted the sellers. The margin calls are
over and the markets are technically stronger. Even another drop
on profit taking should not create the serious selling that we
saw in September. This is why the market is surprising analysts
in the face of earnings warnings from tech giants. The sellers
ran out of stock and the shorts are nervous.

Bulls are still bullish, just nervously bullish. Abbey Cohen
abandoned her year end price targets for the S&P after being
burned repeatedly by reality. She has now instituted "rolling
price targets" for 2002. Her target for the S&P for EOY 2002 is
1300 to 1425. Significantly less bullish than her prior 1525 EOY
target for 2001 but still bullish. She is telling her listeners
to "buy stocks now" and up their portfolios to at least 75%
stocks to benefit from any profit recovery in 2002.

The economic calendar is light next week with the biggest numbers
due on Friday. Traders will be paying more attention to the
final warnings and the start of real earnings. Make no mistake,
there is a lot of bad news already priced into the market. There
is however a lot of bad news still unknown. Now that earnings are
going to start flooding out there will be some high volatility
events. The VIX is still high at 34 even though it is down
significantly from 57 in September. The wall of worry the market
will have to climb from here is huge. Guidance from companies
announcing earnings will be more critical than ever. How high and
how far this rally will climb is anybody's guess. This is October
and typically the coming week is very risky for bulls. Last Tuesday
I suggested going long if the Nasdaq broke through resistance at
1550 and the Dow at 9050. Both of those events occurred on
Wednesday. The Nasdaq pulled back on Friday to exactly 1549 before
rebounding again. I would continue to use these levels as entry/exit
points. Stay long above them and go flat if we fall below them again.
The excitement is building in the investor community. Let's just
hope it is warranted!

Definitely, enter passively, exit aggressively!

Jim Brown



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Editor's Plays

Did You Play Microsoft?

The Microsoft play from last week is right on schedule. If
you did not read this section last week then go back and
read the article for background.

To recap:

The Jan-02 $55 call which was $4.10 last Sunday is now bid
at $7.10 for a +75% gain on the price. The Jan-02 $50 put
is now $2.85 and well below my $4 entry target. The Jan-02
$55 put is now only $4.20 and well under the $5 target.

If you are in this play and have not bought the puts yet,
I would do so immediately. October 12th is the court deadline
for mediation.

The gains from last week were outstanding. The stock moved
up from $51.17 to $57.74 and closed just a quarter under
the high of the day on Friday.

Most investors are bullish on Microsoft now because of
comments made by Steve Ballmer this week. He said they
would like to settle and go on with life. Of course what
happens in public and what happens in the back room may
be entirely different.

Either way Microsoft is getting ready for a huge influx
of cash. The Xbox is coming, new handheld agreements are
in the news, XP is shipping and a new licensing scheme is
underway. The new licensing will force corporations to
"lease" software forever instead of buying it. Previously
if a corporation bought the "Office" product one time they
owned that version forever. Now they will have to lease it
with an annual fee. Critics are mixed about the timing of this
announcement and if big corporations will revolt and refuse
to pay. Still there are many that will simply pay the bill
and software as we know it from Microsoft will become a
renewable service and not an asset.

Now back to the play! Why buy the insurance put on a call
play that is working so well? The answer is for the same
bullish reasons I listed above.

The Justice Dept lawyers may simply dig in and with the
weight of the court ruling on their side demand a price
that Microsoft is not willing to pay either in cash or in
future business rules. Enter the judge and a wildcard

The Xbox could flop and/or companies revolt and refuse
to license the new software. Or the market could simply
decide that weekly terrorist attacks are a reality and
move back into bonds until the future is clearer.

Microsoft has been quiet on the impact of the attack and
could easily say something negative with earnings.

If I were currently on the call side of the play I
would put in a limit buy on the put side for the Jan-$55
put - MSQ-MK for $4.00 or the Jan-$50 put MSQ-MJ for $2.50
and hope to get filled at the open on Monday.

If you see the market is going to open down then I would
place the order thirty minutes after the open at whatever
price the option was trading.

While I believe the risk of another retest of the September
lows is unlikely we do not know what will happen when the
next terrorist strike is announced. I would not want ANY
long play to be uninsured in the current market.

Remember October 12th is the deadline for the mediation
if there is no settlement. Act swiftly or don't act at all!

New readers:

If you are not currently in this play I would go back to
last weeks newsletter and read the play description.

I would then buy the put side, whichever strike you like,
and watch for a dip on profit taking to enter the call
side. A dip below $55 would signify an entry point to me.

You are not going to get the call as cheap as we saw it
last week but it can still be a great play.


Good Luck

Jim Brown

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Where's The Fear Gone?
By Eric Utley

After the major market averages rebounded following the terrorist
attacks, fear measurably subsided in the options market.  That's
understandable because rising stock prices tend to calm the

The CBOE Market Volatility Index (VIX.X), or Fear Gauge, traded
as high as 57.30 in the week following the terrorist attacks.
Since then, the VIX has reverted back to its mean as is normally
the case following extreme levels of fear.  However, it's still
trading well above its longer term averages, such as its 200-dma,
for example.

Nevertheless, the pullback in the VIX has made it easier on
buyers of volatility.  But traders as a whole may do well to
monitor the price action of the VIX in the coming weeks.

The VIX hung around the 34.50ish area last Friday despite the
rebound across the broader markets.  I viewed that as a positive
sign for the potential of further strength in the broader
markets.  A little bit of skepticism in the face of higher
prices is also known as a wall of worry over which the markets
have a tendency to climb.

But, too much complacency, defined by a declining VIX, may
indicate that the crowd has once again got it all wrong.  The
above chart of the VIX with the overlaid retracement bracket
may serve as a good tool for the rest of the year when
determining the level of fear in the market.


I'm on pins and needles watching the bulls and bears battle
over the Dow Jones Industrial Average Bullish Percent ($BPINDU).
Hey!, this is exciting stuff.  For those keeping score at home,
the Dow's Bullish Percent was unchanged last Friday.
Interestingly enough, the Bullish Percent readings across the
major market averages were all virtually unchanged.  That tells
me we're at a crossroads of sorts, which may lead to much
higher prices or the eventual retest of the lows put in a few
weeks back.

There are a few Dow components that are close to giving buy
signals, which would tip the scale in favor of the bulls in a big
way.  Watch General Motors (NYSE:GM) at $44, Honeywell at $29,
and Merck (NYSE:MRK) at $70.  A print in either of the
aforementioned at the respective prices would place the Dow in
Bull Confirmed mode, assuming no more components reverse from buy
to sell signals.


Market Volatility

VIX   34.66
VXN   63.43


          Put/Call Ratio  Call Volume   Put Volume
Total          0.96        457,932       441,709
Equity Only    0.79        407,145       322,903
OEX            1.42         12,827        17,376
QQQ            0.94         37,210        34,948


Bullish Percent Data

           Current   Change   Status
NYSE          24      + 0     Bear Confirmed
NASDAQ-100    43      + 0     Bull Alert
DOW           37      + 0     Bull Alert
S&P 500       36      + 0     Bull Alert
S&P 100       30      + 0     Bull Alert

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  0.99
10-Day Arms Index  0.97
21-Day Arms Index  1.07
55-Day Arms Index  1.24

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


        Advancers     Decliners
NYSE      1569           1530
NASDAQ    1610           1915

        New Highs      New Lows
NYSE       46             62
NASDAQ     40            115

        Volume (in millions)
NYSE     1,310
NASDAQ   1,817


Commitments Of Traders Report: 10/02/01

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

Commercials   Long      Short      Net     % Of OI
09/18/01      406,387   471,823   (65,436)   (7.45%)
09/25/01      357,873   407,036   (49,163)   (6.43%)
10/02/01      365,200   408,567   (43,367)   (5.56%)

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
09/18/01      172,988    100,531   72,457     26.49%0
09/25/01      122,613     71,721   50,892     26.19%
10/02/01      124,249     73,882   50,367     25.38%

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


Commercials   Long      Short      Net     % of OI
09/18/01       35,497     45,731   (10,234)  (12.60%)
09/25/01       26,761     36,812   (10,051)  (15.81%)
10/02/01       26,703     37,669   (10,966)  (17.02%)

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
09/18/01       22,876    21,702    1,174       2.63%
09/25/01       10,699     6,580    4,119      23.84%
10/02/01       10,918     6,804    4,114      23.16%

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


Commercials   Long      Short      Net     % of OI
09/18/01       28,425    15,077   13,348     30.7%
09/25/01       20,013     7,806   12,207     43.9%
10/02/01       22,755    10,124   12,631     38.3%

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
09/18/01        7,335    15,044    (7,709)   (34.45%)
09/25/01        4,530    12,621    (8,091)   (47.18%)
10/02/01        4,731    11,868    (7,137)   (43.00%)

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


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Invest In Bonds
By Eric Utley

I've seen a lot of good assets turn bad in my lifetime.  Exodus
and At Home come to mind.  Alright, maybe they weren't good
investments to begin with.

But, how about McGwire's 71st dinger.  Didn't some guy pay
$2 million for that ball of twine?  Don't get me wrong, I'm
not making a judgment on the holder of that ball.  But, I wonder
what it's worth now?  Brings a new meaning to the idea of a
depreciating asset.

Natty Gas Update

Come to find out, my energy contact was off to the racetrack
recently, watching some drag racing.  Shocking, I know.

"Stable" was the word he used to describe the market, which
is highly dependent on temperature, I was reminded.  I don't
know about others, but my gas has been burning the last
couple of days here in Denver.  That skiff of snow on the
ground the other morning has me wondering if Transcan (NYSE:TRP)
might not be a bad little stock to cozy up with this winter.

Please send your questions and suggestions to:

Contact Support


Point & Figure Probabilities

Thanks a lot for turning me onto P&F charts.  They've added a
systematic element to my trading that was missing.  Regarding
the charts:  Occasionally, there will be a reference to the
probabilities or percentages that predict the behavior of stocks
that exhibit a given pattern i.e. X% of triple top breakouts
appreciate in value.  Can you tell me where can I find this
information? - Thanks, Ray

I'm glad the point & figure method has helped you, Ray.

The probabilities that you refer to were published by Tom Dorsey
in his book Point & Figure Charting: The Essential Application
for Forecasting and Tracking Market Prices.  If you haven't
read the book already, I highly recommend doing so.  Like I have
written in this column many times, Dorsey's book is the only
read you need concerning point & figure charting.

Bull Market Results

Formation           Profitable      Average Gain        Time

Double Top               80.3%         38.7%     11.5 months
Triple Top               87.9%         28.7%      6.8 months
Spread Triple Top        85.7%         22.9%      7.7 months
Bullish Triangle         71.4%         30.9%      5.4 months
Bullish Signal           80.4%         26.5%      8.6 months
Bearish Signal Reversed  92.0%         23.2%      2.5 months
Combinations             79.5%         36.0%      8.0 months

Bear Market Results

Formation           Profitable      Average Gain        Time

Double Bottom            82.1%         22.7%      4.7 months
Triple Bottom            93.5%         23.0%      3.4 months
Spread Triple Bottom     86.5%         24.9%      4.6 months
Bearish Triangle         87.5%         33.3%      2.5 months
Bearish Signal           88.6%         21.9%      4.9 months
Combinations             83.3%         22.9%      3.4 months

I'd like to make a few observations concerning these tables.
First, let's define a bull market and bear market.  A bull
market is defined by a market or sector in bull confirmed status
on the bullish percent chart.  Just the opposite is true for a
bear market.

Second, notice that the average duration for the bear market
results is much shorter than the average duration for the bull
market results.  The reason behind that is because fear is the
strongest of emotions in the market.  Because of its overwhelming
nature, fear causes stock prices to drop three times faster than
stock prices rise.  That's a general rule, of course, but should
be given a great deal of credence, especially by options traders.
Time is of the essence to options traders, literally, so the
sooner a trade meets its objective, the better.

Finally, I wish I had the time and resources to publish a lengthy
piece on the above table because there are many, many ideas we
could explore just in those numbers.  But, unfortunately, I'm
very, very short on time and resources.  So, the best thing I can
do is recommend Dorsey's book.  I know that it's an expensive book,
but if you're serious about learning more about the point & figure
methodology then buy the book.  I'm not associated with Dorsey in
any way, but I can honestly say that his book has helped me make
more money.


Baxter - BAX

I've only recently started following your column, and I've gone
back a few months to go over the series on Retracements etc.
I've been looking at P&F charts for some time, but had no idea
they contain so much info.  Thank you for a real eye-opener!
Could you look at Baxter (BAX)?  I keep feeling it should fall,
but the P&F chart is not cooperating (LOL). - Thanks again,

Thanks for the question, George.

Let me start by noting that Baxter (NYSE:BAX) hasn't given a
sell signal year-to-date.  The stock has gone from $45 in early
January as high $56 recently with little interruption in trend.
That alone signals that the stock is under steady institutional

I'm not sure if you're looking to short Baxter, George, because
you wrote that you "keep feeling it should fall..."  I for one
wouldn't look to short this stock because of its exceptionally
strong chart.  As a general rule, I don't short stocks that are
at or near 52-week highs, let alone all-time highs, which is
where Baxter is currently trading.

In addition, the company has been hitting its estimates with
regularity this year.  Those estimates have been stable, too,
which is another reason to avoid a bearish bias.  Although I'm
not real familiar with the company, my preliminary findings
suggest that it's doing pretty well.  In fact, I think
healthcare, in general, is a good place to look for longer
term buys currently.

In the case of Baxter, if one were to buy the stock, I think
the best way to enter positions in a stock that is near its
all-time high is on pullbacks to support.  The stock rebounded
from the $50 level during its last pullback, which would be a
good place to look for future bounces.


Autozone - AZO

I was wondering if you would address AZO in your "Ask the
Analyst..."  I shorted this stock back in the summer when it
was in the mid-40s.  Of course it pulled back rather nicely.
However, as we are fond of saying around here "it has gone
ignorant" lately.  I bought puts on it when it went over 49
and looked like it would rollover.  Obviously it has reached
new highs.  I just don't understand why a stock like this
takes off so much and can sustain its lofty levels like this
one has done.  I would appreciate your covering it; I think
others might profit from it.  I know there are other stocks
which have run up incredibly during this "long" bear market
(KKD comes to mind).  Is there a trend here?  Are there
reasons one should recognize what's happening here?  I would
appreciate any insight. - Sincerely, Michael

Thanks for the excellent question, Michael!  By the way, I
like the "it has gone ignorant" quip.

For those who don't know, Autozone (NYSE:AZO) operates about 3,000
retail stores that sell automotive parts and accessories.

There are a few ideas that I'd like to elaborate upon in the
request above.  First, price and valuation are two different
animals.  Just because a stock is priced high and going higher
doesn't mean it's expensive, per se.  Reading the request, I get
the feeling that Autozone was perceived as expensive because of
its "lofty levels."  In all reality, the stock is pretty cheap
relative to the broader retail industry.  Autozone is currently
trading 19 times next year's earnings, which is well below the
retail industry average of 27 times next year's earnings.

Now, let's address why the stock has had such a terrific year
(It's up 85 percent year-to-date) in the face of a recession
and nasty bear market.

In the end, stock prices are driven by earnings.  There are
plenty of companies that have been able to grow their earnings
this year, including Autozone.  But, Autozone's case is
rather unique.  The company, even prior to the September 11
attacks, was benefiting from the economic slowdown, which may
sound contradictory on the surface.  However, consider the fact
that sales of new autos have been in the dumps.  Just take a
look at the charts of the big three: Ford, GM, and
DaimlerChrysler.  So, if consumers are buying fewer new
automobiles, that probably means they are holding on to their
existing automobiles longer.  And anyone who's ever owned an
older vehicle knows about repairs, up-keep, and maintenance.

But, let's take this one step further.  If I'm a consumer,
seeing a lot of people around me getting laid off, hearing of
unemployment rates approaching 5 percent, then I might be a
little scared about having a job in the next 3 to 6 months.
And if I'm scared of losing my job, I'm obviously going to be
watching the budget.  So, if my car needs a little work, I'm
going to shun the idea of seeking the services of an expensive
mechanic, especially if I drive a Land Rover.  Instead, I'd
rather spend $10 on a do-it-yourself manual and buy the parts
myself from Autozone, in the process saving a lot of cash on

In summary, that's why Autozone has been able to grow its
earnings this year at an exceptional rate and continue to
raise the bar as it did during its last quarterly report.  The
company has taken steps to manage inventory and boost
earnings, but the primary driver behind the company's growth
has been the demand for its products.  And as earnings rise,
so does the stock price.

I don't know how long Autozone will be able to maintain its
growth.  The company's last forecast was pretty bullish and
the parking lot at the store by my house here in Denver is
generally full.  I suppose that keeping a close eye on new
car sales would be a good leading indicator to discern when
demand for auto parts may subside.  And the best way to do
that would be to monitor price in the aforementioned auto

In the meantime, one would think that the stock would retrace
part of its big rally following the September 11 attacks.  The
stock was up by almost 40 percent during that period.  If
Autozone does pullback, I'd look for it to consolidate
somewhere around the $46 area, plus or minus $2.


Long-Term Investing

I know the idea is for us to ask about a specific stock, but
I was wondering if I could get some ideas from you on some
long-term stocks to buy as I'm starting a long-term account
for my family.  My plan is to invest a set amount monthly. -
Thanks, Anonymous

This guy I don't know very well recently asked, "I've got some
money to invest, what stock will go up over the next five years
no matter what?"

I replied, "Brother, if you find it, let me know."

The excessive nature of the market prior to March of 2000,
especially through late 1998 to March of 2000, tainted many
investors' perceptions of...well...investing.  The excess
nature of the market made investing look easy.  But that's the
farthest from the truth.  Successful investing, in my opinion, is
more difficult than short-term trading.  Investing, which I define
as holding a particular asset for several years, requires much
more discipline and hard work than short-term trading.

I think the above question is most pertinent to my readers, so
I'd like to spend some time on this topic over the next few
weeks.  But, instead of simply listing a few stocks or sectors
that I think will do well over the long-term, I'd like to
explore a few ideas that investors should seriously consider
before employing a long-term investment strategy.  So, let me
throw out a few random thoughts from which we can begin to build
a better approach to investing:

1)  As I stated in the Autozone review above, in the end, stock
    prices are driven by earnings and earnings expectations.
    Before going into any stock investment, an investor must etch
    that notion into stone!  Earnings are all that matter over

2)  A sound investing methodology must be in place before placing
    the first buy order.  Every good trader has a methodology
    with which he/she conducts business and so should every
    investor.  The number of sound investing methodologies are
    many and diverse in nature.  The methodology isn't as
    important, however, as the investor's adherence to it.  The
    point here is discipline.  The successful investor needs to
    have a set of guidelines, checks and balances, procedures,
    and rules before buying a stock.

3)  If you want to make more money you have to take greater risks.
    Investing is a risk taking business, like all others, but
    investors have to appreciate that in order to take more out of
    the market they have to be willing to give more in the form of

4)  Like sound trading, sound investing requires appropriate risk
    management procedures.  Hey, even smart ones like Buffett
    sometimes have it all wrong.  But the smart ones always hedge
    their bets, which can take the forms of hard stops, protective
    puts, covered calls, or offsetting positions Alfred Jones

5)  Diversification is very cool.  The Janus Twenty Fund (JAVLX),
    which is down by about 34 percent year-to-date and employs
    a very focused methodology of investing in a concentrated
    number of stocks of which 50 percent are currently tech, is
    very un-cool!

The list could go on, but I hope I'm getting my point across.
The rudimentary aspects of investing are generally the first to
be overlooked.  But, the basics are the most important.

I'll begin getting into specifics over the next few weeks, using
current market examples to better illustrate some of the above
ideas and more.  Any suggestions or ideas are welcome, just send
them to the e-mail address near the top of the column.


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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The Option Investor Newsletter                   Sunday 10-07-2001
Sunday                                                      2 of 5

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Note: Options involve risk. Risk disclosure:


Call Play of the Day:

IP - International Paper $36.10 (+1.26 last week)

See details in sector list

Put Play of the Day:

QCOM - Qualcomm $38.46 (-9.08 last week)

See details in sector list

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Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.

RTN $34.97 (-0.22) Try as it might, RTN could not stay above
the $35 level last week even though other defense related
issues performed extremely well.  The stock is suspect to
weakness if it can't get above the $35 level so we're dropping
the play ahead of that.

MTG $63.16 (-2.18) MTG rolled over in a big way last Friday,
falling all the way down to $63.13, on the way to shedding
over 6% on the day.  The stock edged beneath our stop and
we're dropping coverage in light of that violation.

BAC $56.13 (-2.27) BAC gave back a lot of its recent gains
last Friday with its nearly 5% sell-off.  The stock looks
weak at current levels.  Plus the stock's close below our
stop at the $58.50 price has us dropping coverage this

No Dropped Puts for the weekend.


SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


IP - International Paper $36.10 (+1.26 last week)

International Paper is a global forest products, paper and
packaging company that is complemented by an extensive
distribution system, with primary markets and manufacturing
operations in the United States, Canada, Europe, the Pacific
Rim, and South America.

IP made a bold move last Friday that looks like it has room
to run.  The stock broke above the $36 level and has little
in the way of resistance above current levels.  The stock
traded as high as $36.49 the day the market opened following
the terrorist attacks, but beyond that level on the 200-dma
at $37.92 stands in the way of the stock's further
advancement.  Bullish traders can look for follow-through
early next week.  But traders will want to make sure to see
confirmation in the Dow before entering any new positions into
strength.  The stock could very easily work higher if it has
the help of the Dow and its sector, the Forest and Paper
Products Index (FPP.X).  For its part, the FPP has some
resistance at 295, but a breakout above that level could
allow for IP to work higher.  If the Dow and FPP pullback
early next week, bullish traders looking for a buyable dip
can focus on the $35 level for potential support.  A light
volume dip down to that level and subsequent bounce could be
a solid entry point.  Our stop is initially in place at the
$34 level, which is just beneath IP's 10-dma at $34.31.

***October contracts expire in two weeks***

BUY CALL OCT-35*IP-JG OI=5335 at $1.85 SL=1.00
BUY CALL OCT-37 IP-JU OI=3456 at $0.65 SL=0.00
BUY CALL NOV-35 IP-KG OI= 816 at $2.70 SL=1.75
BUY CALL NOV-37 IP-KU OI= 447 at $1.45 SL=0.75

Average Daily Volume = 2.47 mln

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The Option Investor Newsletter                   Sunday 10-07-2001
Sunday                                                      3 of 5

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



* EASY screens for covered calls, spreads, and straddles
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Note: Options involve risk. Risk disclosure:


GE - General Electric $37.45 (+0.25 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

GE appears to be growing a little top heavy judging by its
trading last week.  The stock traded as high at $38.70 last
Thursday, but rolled over in concert with the broader market.
Its rebound Friday into the close was encouraging, but the
stock lagged the broader market which reinforces our belief
that it may be due for a pullback.  If the stock continues to
weaken early next week, traders with open positions with gains
should be looking to lock in profits.  The stock did bounce
near its 10-dma last Friday, which may be a level to
reference early next week.  Currently, the 10-dma sits at the
$36.75 level, with our coverage stop just beneath at $36.50.
It's natural that GE would pullback after its big rally over
the past two weeks, but we want to be careful that we don't
give back too much of the gains we've captured.  However,
that's not to say that GE can't and won't go higher into next
week's trading.  If the Dow and S&P 500 continue higher, GE
should follow.  Traders will want to monitor the price action
closely in the Dow and S&P for an indication of the direction
of GE.  If the market does rally next week, traders looking
for new positions can watch for a breakout above the $38
level.  Conversely, a bounce from $36 to $36.50 may offer
dip buyers an entry point with a tight stop just below their

***October contracts expire in two weeks***

BUY CALL OCT-35 GE-JG OI=18190 at $3.00 SL=2.00
BUY CALL OCT-37*GE-JS OI=19772 at $1.45 SL=0.65
BUY CALL NOV-35 GE-KG OI= 7190 at $3.80 SL=2.75
BUY CALL NOV-37 GE-KS OI= 3297 at $2.35 SL=1.00
BUY CALL NOV-40 GE-KH OI=18205 at $1.25 SL=0.50

Average Daily Volume = 22.0 mln

PPG - PPG Industries $47.50 (+1.75 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.

PPG continued higher, above its gap, last Friday.  The
stock, despite its wild opening, worked higher through the
afternoon and into the weekend.  In fact, PPG out performed
to the upside, which was in concert with the rally in other
business cycle sensitive stocks last Friday.  Going forward,
traders can look for a breakout above the $48 level on
healthy volume as an entry point into strength.  However,
traders should only consider such a strategy in an advancing
market.  For PPG, traders can monitor the S&P 500.  Since
the stock has had a nice run recently, a pullback may be in
order, especially if the broader markets weaken.  Traders
can look for support to materialize between the $46.50 and
$47 levels like it did last week.  If that general area of
support fails, PPG could trade down to the $46 level, where
buyers may decide to step in.  But if PPG does continue
trading higher, traders might look for the stock to make its
way up to the $50 to $51 area, which is the site of its
still unfilled gap.  Those with entries at lower prices may
look to book profits into any forthcoming strength into that
gap area.

***October contracts expire in two weeks***

BUY CALL OCT-45*PPG-JI OI= 71 at $3.10 SL=1.25
BUY CALL NOV-45 PPG-KI OI= 22 at $3.85 SL=2.50
BUY CALL NOV-50 PPG-KJ OI= 31 at $1.25 SL=0.50
BUY CALL JAN-50 PPG-AJ OI=153 at $2.15 SL=1.00

Average Daily Volume = 548 K

TEVA - Teva Pharmaceutical Inds. $64.86 (+4.41 last week)

Producing drugs in all major therapeutic categories, TEVA is a
fully integrated global pharmaceutical company.  In the area of
proprietary drugs, TEVA has focused on products for the central
nervous system disorders, primarily the development of Copaxone,
a treatment for relapsing-remitting multiple sclerosis.  Through
its U.S.-based subsidiary, the company manufactures 137 generic
products in 210 generic forms, which are distributed and sold in
the United States.  TEVA also manufactures over 270 generic
products, which are sold primarily in the Netherlands, the
United Kingdom and Hungary.

TEVA came very close to filling its pre-attack gap lower last
Thursday before the stock rolled over into Friday's trading.
The stock's pullback Friday felt like routine profit taking
after its big run-up earlier in the week.  From here, TEVA
could continue higher as long as the DRG.X and BTK.X continue
advancing.  Bullish traders seeking new positions should be
monitoring the price action closely in the broader drug
sector by monitoring both the DRG.X and BTK.X.  For those who
are looking for a pullback before entering new positions in
TEVA, make sure that the two aforementioned sectors are
stable before attempting to pick a bottom.  Entering on a
pullback from current levels is a logical approach due to
TEVA's short-term overbought conditions.  A good place to
look for support would be around the $63.50 area, or quite a
bit lower down around the $61.20 level.  The $61.20 level is
currently the site of the converged 10-dma and 200-dma, which
makes that site all the more likely support.  If the stock does
begin to pullback next week, traders with open positions
should consider raising their stops to protect any gains
that have been captured.  Although, our stop remains in place
at the $60.50 level for coverage purposes.

***October contracts expire in two weeks***

BUY CALL OCT-60 TVQ-JL OI= 254 at $5.60 SL=3.00
BUY CALL OCT-65*TVQ-JM OI=1186 at $2.30 SL=1.00
BUY CALL NOV-60 TVQ-KL OI=   8 at $6.90 SL=4.50
BUY CALL NOV-65 TVQ-KM OI= 357 at $3.90 SL=2.50

Average Daily Volume = 1.26 mln

ATK - Alliant Techsystems $89.61 (+4.01 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.

With the President spending the weekend finalizing the first
few stages of the war on terrorism, defense bulls are probably
gearing up for another positive week.  There is a growing
expectation that as soon as the first bomb is dropped or missile
launched that the buying we have found in the defense sector will
see a ramp up in its intensity.  Trying to take a step back from
our patriotic stirrings we're a little concerned that these stocks
are already up quite a bit in the last few weeks.  As a trader,
we know that stocks tend to move in cycles.  That means that a lot
of these defense players need to take a break.  Yet we've mentioned
that these are not normal times and the rules of the game are always
changing.  These equities could easily see another 5% to 10% in the
short-term and there is no telling how far they will go in the
long-term.  Before we take a look at ATK, we glanced at other
big stocks in the sector and saw that several were starting to
slow down and take that pause we discussed.  RTN, BA, TDY were
all pretty much flat on Friday; NOC +1.4%, LMT +4.67%, EASI +1.32%,
and GD +1.2%.  Lockheed Martin was the standout as it soared on
news that the Pentagon will make a decision on its $500 billion
Joint Strike Fighter program by the end of the month.  LMT and BA
are major contractors bidding on the project.  We have no doubt
that ATK will enjoy a nice portion of the $345 billion defense
bill passed by the Senate last week and it shows in the current
up trend of the stock price.  Shares have continued to climb
towards overhead resistance at $90.  Friday morning saw a dip
with the markets and steady buying through the afternoon actually
trading to 91.00 before a dip at the close.  We mentioned on
Thursday that profitable traders should protect their profits
and consider taking some money off the table while looking for
the next entry point.  New positions could be taken with a solid
close over the $90 mark or possible dips back to $85 or $86 (the
10-dma is just under $86).  Be aware that ATK is expected to
announce earnings on October 25th, 2001.  It is hard to determine
just how long the up trend will remain intact but the increase
in investor interest and the thought of a prolonged conflict
in our fight against terrorism could keep ATK and its sector-mates
in the spotlight for a while.  Thus, we have a wide stop that
remains at $83 on the stock to allow for some maneuverability.
This may be too wide for your own risk tolerance so make

***October contracts expire in two weeks***

BUY CALL OCT-85 ATK-JQ OI= 121 at $7.00 SL=5.00
BUY CALL OCT-90*ATK-JR OI= 612 at $3.60 SL=2.00
BUY CALL NOV-85 ATK-KQ OI=1046 at $9.60 SL=7.00
BUY CALL NOV-90 ATK-KR OI= 120 at $6.60 SL=4.50

Average Daily Volume = 152 K

MO - Phillip Morris $50.16 (+1.87 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

After weeks of slowly trading up to overhead resistance at
$49 and $50 shares of MO have finally made the big breakout
everyone was looking for.  Except for one thing.  There was
no big breakout.  This stock has been creeping along, little
by little, and managed a less than spectacular close over the
$50 mark.  We are quite positive that option traders every
where were overjoyed at this event.  You may detect a little
sarcasm in our comments here.  I'll tell you why.  We are
happy to see the strong steady climb for shares of MO.  This
observation is even more positive because while several sectors
of the market were rapidly rebounding investors could have
sold their interest in MO for the more exciting, oversold
tech issues.  They did not and MO has show consistent strength.
For this, traders should be thankful.  However, we have been
expecting a more interest, more buying pressure for a great
defensive play like Phillip Morris.  Unless you've been
living in a cave you know that the U.S. economy is not going
to be returning to normal any time soon.  Yes, we're confident
the turnaround is coming but there is great argument to when
it will finally get here.  In the mean time, a strong company
like MO with an economically defensive product line and a
great dividend should be seeing strong investor interest.  To
us, this last week has looked anemic but it is probably due
to the explosive moves in other sectors.  If there is another
downturn in the market MO may finally get a chance to show its
true strength.  We currently have a stop on this play at $48.
That's only allowing for a couple of points worth of volatility.
For a lot of us, we could probably due with a little less
volatility.  However, we're option traders and need to see
some movement.  If you're looking for new entry points we would
consider MO a buy here over the $50 mark.  However, if you
expect a dip in the share price, a bounce at $49.00 or $48.50
might make an ideal entry to buy calls.  With such a tight
stop at $48 the risk should be minimized.  Looking ahead traders
should see that MO has overhead resistance at $52 and $54.

***October contracts expire in two weeks***

BUY CALL OCT-45 MO-JI OI=39501 at $5.30 SL=3.25
BUY CALL OCT-50*MO-JJ OI=23647 at $1.15 SL=0.50
BUY CALL DEC-45 MO-LI OI= 2626 at $6.30 SL=4.50
BUY CALL DEC-50 MO-LJ OI=22565 at $2.85 SL=1.50

Average Daily Volume = 5.89 mln

ENZN - Enzon $56.40 (+5.40 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.

Forgive us for the corny write up on Thursday but ENZN has
been a real performer this last week.  Anyone who caught the
dip to 49.26 on Monday has seen a heck of a ride up to $60
intraday on Wednesday.  The stock did it again, trading to $60,
on Thursday before succumbing to some normal profit taking
that was also affecting the sector.  On Thursday, we discussed
how the BTK was showing signs of normal profit taking and
would likely see another down day with a bounce at 450 or
440.  Well, Friday's low for the BTK was 445 before bouncing
back to 459.  ENZN turned in a similar performance.  Wednesday,
we had raised our stop up to $54 but we still expected the
stock to dip further Friday morning.  Observant traders could
have caught the dip towards 55.50 on Friday before the stock
starting bouncing higher in the afternoon.  These pullbacks
probably have bulls looking for another chance to jump in
on a sector that many analysts feel should be sheltered from
any further recessionary impacts in the economy.  We are going
to keep our stop at $54 but would be looking for the stock to
trade higher next week if the broader markets cooperate.
Traders should note that ENZN does have some tough overhead
resistance with the 50-dma at 59.17, the 200-dma at 58.67 and
price resistance at $60.  Plan your entries and exits carefully
and keep an eye on the Biotech index.

***October contracts expire in two weeks***

BUY CALL OCT-50 QYZ-JJ OI=1872 at $7.60 SL=5.25
BUY CALL OCT-55*QYZ-JK OI=2223 at $3.70 SL=1.50
BUY CALL NOV-55 QYZ-KK OI= 753 at $6.20 SL=4.00
BUY CALL NOV-60 QYZ-KL OI= 447 at $3.80 SL=1.75

Average Daily Volume = 1.37 mln

CMCSK - Comcast Corp. $37.51 (+1.64 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.

There has been nothing new to report from our comments on Thursday.
CMCSK had enjoyed a strong move in the early part of the week and
Thursday's trading did see the stock attempt another run past
overhead resistance at $38.50.  Unfortunately, this area has proved
a tough obstacle in the past (just look to most of August) and
the broader markets were suffering their own bout of profit
taking on Thursday.  The good news is we saw a bounce at
potentially new support of $37 on Friday.  There is stronger
support at $36 and any down turn in the markets might send
CMCSK there to test it again but a bounce at $36 could also
make a good entry to go long calls.  Considering that our
stop is at 35.50 it should help minimize any risk but traders
need to wait and watch for the bounce up to begin first.
Earnings are not expected until October 31st.

***October contracts expire in two weeks***

BUY CALL OCT-35 CQK-JG OI=2065 at $2.95 SL=1.25
BUY CALL OCT-37*CQK-JU OI=2786 at $1.30 SL=0.00
BUY CALL NOV-35 CQK-KG OI=5814 at $3.60 SL=1.50
BUY CALL NOV-37 CQK-KU OI=1734 at $2.10 SL=1.00
BUY CALL JAN-37 CQK-AU OI=3459 at $3.30 SL=1.50

Average Daily Volume = 7.44 mln

ORCL - Oracle Corporation $14.20 (+1.62 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.

Like the markets, shares of ORCL dipped early Friday before
staging a nice comeback rally to end the day positive up almost
3%.  To many this last week has helped change the sentiment
in the technology group from dismal to hopeful.  Yes, most
analyst don't believe any significant turnaround will prove
itself until the 2nd half of 2002 but with so many beleaguered
stock prices of tech heavyweights like CSCO and ORCL, investors
have a hard time saying no to scooping up a few shares while
they are still under $15, $17 or even $20.  No, we're not giving
a price target of $20 on ORCL.  It's possible that a strong,
prolonged rally in the software group or the Nasdaq could
push it there in a couple of weeks but that has not been the
trend for ORCL.  The stock is currently seeing some resistance
at 14.50 even though there is stronger resistance at 15.25.
We were encourage by the strong bounce on Friday at 13.37 and
feel our stop at 12.25 may be a bit low.  However, since this
could prove to be a call play with life to it, buying on dips
and selling at resistance, we don't want to be stopped out
prematurely.  Besides, if the Nasdaq does see some weakness
next week, ORCL will likely come back to the $13 level.  If
you're looking for new positions, don't rush.  Lately, ORCL
seems to trade sideways for a few days before mounting an
ascent to the next level.  Wait for the dip or the next breakout
over resistance.  Traders need to keep their eye on the 50-dma
currently at 14.49.  This could be the resistance we're seeing
on Thursday and Friday.  Confirm market direction before playing.

***October contracts expire in two weeks***

BUY CALL OCT-10 ORQ-JB OI= 5477 at $4.30 SL=2.25
BUY CALL OCT-12 ORQ-JV OI=41878 at $2.00 SL=0.88
BUY CALL NOV-12*ORQ-KV OI= 8124 at $2.45 SL=1.00
BUY CALL DEC-12 ORQ-LV OI=10005 at $2.85 SL=1.50
BUY CALL DEC-15 ORQ-LC OI=22675 at $1.50 SL=0.75

Average Daily Volume = 38.7 mln

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The Option Investor Newsletter                   Sunday 10-07-2001
Sunday                                                      4 of 5

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QCOM - Qualcomm $38.46 (-9.08 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 traded exceptionally poorly last week.  In fact, the
stock hit a new 52-week low during Friday's session at a time
when the Nasdaq was actually climbing higher.  The stock is
now below all of its meaningful near-term resistance, which
makes this play a momentum play into further weakness.
Although QCOM is trading relatively weak versus the broader
tech sector, ideally we'd like to see the Nasdaq pullback
from current levels in order to make this play a success.
Bearish traders looking for new entries can turn to further
weakness below QCOM's intraday low last Friday at the $38.31
level.  A declining Nasdaq and a breakdown below $38.31
in QCOM would offer momentum traders an entry point into this
play.  But because QCOM is oversold, a rebound in the Nasdaq
may lead to a short covering rally in the stock.  A rally,
on lighter volume, from current levels would offer bearish
traders a chance to enter put plays at higher levels.  A
bounce back up to the $42 level, which is the site of QCOM's
unfilled gap, would offer traders a favorable entry point.
However, the stock could very well rollover at the $40
level if in fact it does rebound from current levels.  Our
stop is initially in place at the $44, which is liberal, so
traders will want to take into account their own risk
tolerance when setting stops.

***October contracts expire in two weeks***

BUY PUT OCT-40*AAW-VH OI=8951 at $3.90 SL=2.25
BUY PUT OCT-35 AAW-VG OI=7346 at $1.60 SL=0.50

Average Daily Volume = 11.8 mln

JPM - J.P. Morgan Chase $33.41 (-0.74 last week)

JPMorgan Chase is a global financial services firm with
operations in over 60 countries.  The company's principal
bank subsidiaries are The Chase Manhattan Bank, Morgan
Guaranty Trust Company and Chase Manhattan Bank USA, National

The banks rolled over last week in a big way as measured by
the KBW Bank Sector Index (BKX.X).  JPM, a component of the
BKX, followed the index lower.  The combination of an economy
in recession and the prospects of the Fed nearing the end of
its easing cycle has investors in the bank sector on high
alert.  The weak employment reports last week didn't help
either.  With credit concerns increasing, the banks could be
poised for further downside.  JPM, because of its commercial
and investment banking exposure, could be especially hard
hit.  The stock failed to get above the $35 level last week,
which would be a solid entry point if JPM does rebound back
up to that level next week.  Our stop is in place at the $35
level, but JPM may not see that level over the short term
judging by its close last Friday.  The stock closed below
its 10-dma and looks to be headed back below the $30 level.
Bearish traders can take new put plays at current levels if
the S&P 500 and BKX weaken early next week.  The stock does
have some minor support between the $32 and $33 levels, but
could easily make its below back below $30 if that support
area is lost.

***October contracts expire in two weeks***

BUY PUT OCT-40 JPM-VH OI= 4239 at $6.70 SL=5.25
BUY PUT OCT-35*JPM-VG OI=13407 at $2.10 SL=1.00

Average Daily Volume = 6.23 mln

CHKP - Check Point Software $26.81 (-4.79 last week)

Check Point Software is the worldwide leader in securing the
Internet.  The company's Secure Virtual Network (SVN)
architecture provides the infrastructure that enables secure
and reliable Internet communications.

We're turning to CHKP again for potential downside.  The stock
rallied up to its two month downward trend line last week,
which currently sits right around $28 level.  Combine that
resistance with the fact that CHKP is overbought over the
short-term, and looks like it could be headed back down
towards the $20 level.  There's no denying that software
stocks were deeply oversold going into last week's trading,
but not much in the way of fundamentals changed last week.
In fact, some might argue that the fundamentals may have
gotten worse.  As such, a retracement of CHKP's rally last
week seems very possible.  Bearish traders can take new
entries at current levels early next week if the Nasdaq and
software sector (GSO.X) turn lower.  Over the short-term,
traders can target the $23.70 level as a possible target,
which is the site of CHKP's 10-dma.  For those that prefer
more confirmation of weakness, a breakdown below the $25.50
level would offer a momentum-based entry point.  Our stop
is initially in place at the $29 level.

***October contracts expire in two weeks***

BUY PUT OCT-30*KEQ-VF OI= 5767 at $4.20 SL=2.75
BUY PUT OCT-25 KEQ-VE OI=16529 at $1.35 SL=0.50

Average Daily Volume = 3.26 mln

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AIG - American International Grp. $79.02 (-3.26 last week)

Engaged in a broad range of insurance and insurance-related
activities through its subsidiaries, AIG's primary focus is on
its general and life insurance businesses.  Additionally, the
company is growing its presence in financial services and asset
management.  Other operations include auto insurance, mortgage
guaranty, annuities, and aircraft leasing.  With operations in
130 countries, AIG generates more than half of its revenues
outside the United States.

Following last Thursday's rollover, AIG continued lower into
Friday's session.  The stock's price action reflected the
trading in the broader insurance sector as the Insurance Sector
Index (IUX.X) shed about 1.8 percent on the day.  AIG fell as
low as the $77.50 level in Friday's trading, but that level
acted as a floor for the majority of midday trading.  From
the $77.50 level, AIG rebounded into the close of trading
along with the broader markets.  We tend to think that AIG
is a good candidate for further downside if the broader markets
pullback last week.  But, bearish traders should be on the
lookout for further strength in the Dow and S&P.  A rally in
those indexes will most likely carry AIG higher.  However,
that could set the stock up for another rollover, possibly
around the $80 level, which would complete a pattern of
relatively higher short-term highs.  If that happens it would
reinforce our bearish stance on the stock over the short-term.
Conversely, if the IUX and broader markets weaken, bearish
traders in search of momentum plays might consider using a
breakdown below $77.50 to enter new plays.  However, make sure
to confirm a breakdown in the IUX below the 700 level if
you're going to trade AIG in the same manner.

***October contracts expire in two weeks***

BUY PUT OCT-80*AIG-VP OI=1621 at $2.45 SL=1.00
BUY PUT OCT-75 AIG-VO OI=3759 at $0.75 SL=0.00

Average Daily Volume = 6.41 mln

TQNT - Triquint Semiconductor $16.06 (+0.07 last week)

A leading global supplier of a broad range of high performance
integrated circuits, TQNT offers standard and customer specific
products as well as foundry services.  The company uses gallium
arsenide (GaAs) instead of silicon as the substrate (base) for
its analog, digital, and mixed-signal integrated circuits (ICs).
GaAs ICs operate at greater speeds than silicon chips, or at
the same speeds with less power consumption, making them ideal
for all sorts of gadgets, such as cell phones, pagers,
fiber-optic and satellite telecom equipment, and data
networking devices.  Playing with the big boys, its clientele
includes Nortel, Alcatel, Ericsson, Lucent, and Raytheon.

The Semiconductor Sector Index (SOX.X) finished fractionally
higher last Friday while TQNT finished fractionally lower.
Albeit fractionally, its relative weakness confirmed our
bearish sentiment on this stock.  However, for this play to
be successful, we need to see the SOX as well as the broader
Nasdaq pullback in the coming sessions.  Bearish traders
looking for new entries can use rollovers up at the 10-dma,
which currently sits at $16.40.  In fact, TQNT rolled over
from that level last Friday, so we'll want to watch for
further resistance at that level in the future.  On the other
hand, if the SOX and Nasdaq weaken early next week, bearish
traders could take entries around current levels.  The $15
level may serve as support over the short-term, so any
positions taken around current levels will want to be
confirmed with weakness below the $15 level.  Over the
intermediate-term, we're looking for TQNT to breakdown below
its double-bottom at the $13.75 level, which should see the
stock make its way to the $10 in due time.  Because TQNT is
a lower priced stock we want to be careful in our execution
of new entries, which is why entering new plays near
resistance may be a better strategy than entering on

***October contracts expire in two weeks***

BUY PUT OCT-17*TQN-VW OI=1034 at $2.55 SL=1.25
BUY PUT OCT-15 TQN-VC OI=1264 at $1.15 SL=0.50

Average Daily Volume = 3.26 mln

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The Option Investor Newsletter                   Sunday 10-14-2001
Sunday                                                      5 of 5

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Note: Options involve risk. Risk disclosure:


Candlestick Basics: The All Important Doji
By Mark Wnetrzak

Last month, we discussed the significance of the "Star" and its
tendency to indicate a trend reversal.  Another powerful reversal
indicator is the Doji: a candlestick in which the opening and
closing prices are the same, or within a very small range.

A Doji can be a significant warning, especially at important
junctions or during the mature portion of a bull or bear market.
The likelihood of a reversal increases if subsequent candlestick
patterns confirm the doji's potential for a change in character.
The Doji's greatest value is its ability to indicate market tops.
This is particularly important after a long white candlestick
during a sustained up-trend, where a Doji candlestick represents
indecision.  If buyers become uncertain about the future of the
issue, and the current condition is "overbought," there may not
be enough momentum to sustain the rally.  Most forms of Western
technical analysis don't infer any conclusions from a session
with the same opening and closing price.  To the Japanese, such
an occurrence, especially after a sharp advance, is a critical
reversal signal.

Generic DOJI Examples

There are other important indications associated with rare Doji
candlesticks such as the Long-legged Doji (Rickshaw Man) and the
Gravestone Doji.  The long-legged Doji has extended upper and
lower shadows, which indicate indecision.  This type of Doji is
especially important near market tops and known resistance areas.
If the opening and closing are in the center of the session's
range, the line is referred to as a Rickshaw Man.

DELL Chart

The Gravestone Doji is another distinctive candlestick where the
opening and closing prices are at the low of the day.  Though it
may be found at market bottoms, it's best used for signaling
market tops.  The longer the upper shadow (especially if it hits
a new high), the more bearish the signal given by the Gravestone
Doji.  (Yes, the Gravestone Doji looks like a Shooting Star near
the top of a trend, but it has no real body and is considered to
be a more bearish indication.  An Evening Star that is made with
a Gravestone Doji does not bode well for the bulls.

DOW-30 Chart

At significant tops and bottoms, Doji tend to define new support
and resistance areas.  However, Doji are not quite as accurate at
indicating potential reversals in downtrends and it is advisable
to obtain additional confirmation when attempting to identify a
market bottom with this pattern.  The more conservative trading
style used, the more important it is to wait for verification of
a trend reversal.  The trade off for less risk, of course, is the
potential for less reward.

Steve Nison's "Japanese Candlestick Charting Techniques" is an 
excellent resource for learning technical analysis.  The book is
available in the OIN bookstore.

Good Luck!

Note:  Margin not used in calculations.

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

JNPR   15.08  21.06   OCT  12.50  3.30  *$  0.72  13.3%
SCTC   10.45  10.99   OCT  10.00  1.00  *$  0.55  12.6%
CMNT   13.01  15.25   OCT  12.50  1.00  *$  0.49   8.9%
PXLW   12.60  14.10   OCT  10.00  3.10  *$  0.50   7.6%
GNSS   28.34  34.85   OCT  22.50  7.30  *$  1.46   7.5%
MOGN   13.37  15.85   OCT  12.50  1.45  *$  0.58   7.0%
TFS    18.03  20.99   OCT  15.00  3.50  *$  0.47   7.0%
QLGC   27.50  37.06   OCT  22.50  5.70  *$  0.70   7.0%
MSCC   30.87  35.44   OCT  25.00  6.60  *$  0.73   6.5%
TQNT   18.08  18.45   OCT  15.00  3.90  *$  0.82   6.3%
IMNX   18.68  22.52   OCT  17.50  1.85  *$  0.67   5.8%
BLDP   18.55  24.60   OCT  15.00  4.30  *$  0.75   5.7%
IMMU   11.97  16.30   OCT  10.00  2.30  *$  0.33   4.9%
SANG   18.43  21.38   OCT  17.50  1.50  *$  0.57   4.9%
BSX    18.50  22.16   OCT  17.50  1.75  *$  0.75   4.9%
PLCM   28.87  33.37   OCT  25.00  4.40  *$  0.53   4.7%
EPIQ   25.50  30.67   OCT  22.50  3.70  *$  0.70   4.7%
IMNX   17.59  22.52   OCT  15.00  3.20  *$  0.61   4.6%
WEBX   21.60  29.86   OCT  17.50  4.80  *$  0.70   4.5%
PDG    13.32  11.93   OCT  12.50  1.35   $ -0.04   0.0%

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


Another week and the major averages have clawed higher causing
surprised shorts to cover.  Will the pattern continue into 
expiration week before the inevitable pullback?  Will the next
'news' story be the death knell for the current rally?  Time
to re-evaluate any positions that have acted weaker than 
expected.  Last week it was mentioned that the pullback in
Pediatrix Medical Group (NYSE:PDX) was a bit worrisome and 
a violation of the 30-dma could be used as an exit signal. 
Those investors listening to the tape exited for a small loss
on Monday or on Tuesday's technical bounce.  The reason for 
the horrid drop finally became known on Friday:  a criminal
investigation.  Placer Dome (NYSE:PDG) has continued to weaken
with the broader Market strength and has violated its 30-dma.
Exiting the position may be a prudent move for short-term 
traders.  Again, long-term investors would use a violation 
of the 150-dma to signal an exit.  Triquint Semi (NASDAQ:TQNT)
has moved back above its 30-dma but is now testing resistance.
A move above the Sept. high would improve the technical outlook.

Position closed:  Pediatrix Medical Group (NYSE:PDX) 


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

AMLN    8.59  NOV  7.50   AQM KU  1.65 92     6.94   35    7.0%
BRCD   25.36  NOV 17.50   BQB KW  8.80 8041  16.56   35    4.9%
CIEN   17.13  NOV 12.50   EUQ KV  5.30 5508  11.83   35    4.9%
ISSX   19.01  NOV 15.00   ISU KC  5.10 48    13.91   35    6.8%
KROL   13.75  NOV 12.50   KRQ KV  2.10 15    11.65   35    6.3%
MCAF   21.35  NOV 17.50   CFU KW  4.70 97    16.65   35    4.4%
TFS    20.99  OCT 17.50   TFS JW  3.90 339   17.09    7   10.4%

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

TFS    20.99  OCT 17.50   TFS JW  3.90 339   17.09    7   10.4%
AMLN    8.59  NOV  7.50   AQM KU  1.65 92     6.94   35    7.0%
ISSX   19.01  NOV 15.00   ISU KC  5.10 48    13.91   35    6.8%
KROL   13.75  NOV 12.50   KRQ KV  2.10 15    11.65   35    6.3%
BRCD   25.36  NOV 17.50   BQB KW  8.80 8041  16.56   35    4.9%
CIEN   17.13  NOV 12.50   EUQ KV  5.30 5508  11.83   35    4.9%
MCAF   21.35  NOV 17.50   CFU KW  4.70 97    16.65   35    4.4%

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).

AMLN - Amylin Pharmaceuticals  $8.59  *** Diabetes Drug ***

Amylin Pharmaceuticals (NASDAQ:AMLN) is engaged in the discovery,
development and commercialization of potential drug candidates for
the treatment of metabolic disorders.  The company is developing 
Symlin (pramlintide acetate) for the treatment of diabetes patients
who use insulin.  Symlin is a synthetic analog of the human hormone
amylin that was invented by the company's scientists. Amylin Pharma
submitted a New Drug Application for Symlin to the FDA in DEC 2000,
and this application was filed for review by the FDA in JAN 2001. 
In July, Amylin's shares fell after an FDA advisory panel rejected
Symlin.  This Friday, the stock rallied sharply after Amylin said
that the FDA issued an "approvable letter", meaning the drug could
be approved if additional clinical testing were done by the company.
This position offers investors who have researched this issue a
reasonable cost basis near $7.00 from which to speculate on the
company's future.

NOV 7.50 AQM KU LB=1.65 OI=92 CB=6.94 DE=35 TY=7.0%

BRCD - Brocade  $25.36  *** Bottom Fishing! ***

Brocade Communications Systems (NASDAQ:BRCD) is a provider of 
storage area networking infrastructure solutions.  The Brocade 
family of hardware and software products provides the networking
foundation for storage area networks (SANs), which bring a net-
working model to storage environments.  Using Brocade Fibre 
Channel fabric switches and software, customers can connect 
servers with external storage devices through a SAN, creating
a highly reliable and scalable environment for data-intensive 
storage applications.  Brocade products are sold through OEM 
partners, system integrators and resellers.  Near the end of
September, Network equipment companies suffered from downgrades
and estimates cuts by several analysts fearing that tech 
spending would further decline in the remainder of the year. 
In a Bloomberg article this week, Brocade's CEO mentioned he
would be surprised if the company didn't meet estimates for 
the 4th-quarter.  Brocade and Veritas Software (NASDAQ:VRTS) 
also announced this week a joint project to help Japanese 
corporations build and test storage area networks.  We simply
favor the bullish move above the September high which suggests
further upside potential.

NOV 17.50 BQB KW LB=8.80 OI=8041 CB=16.56 DE=35 TY=4.9%

CIEN - Ciena  $17.13  *** A Little Help From Juniper? ***

Ciena (NASDAQ:CIEN) is engaged in the intelligent optical 
networking equipment market.  CIENA offers a comprehensive 
portfolio of products for communications service providers 
worldwide.  CIENA's customers include long-distance carriers,
competitive and incumbent local exchange carriers, Internet 
service providers and wholesale carriers.  CIENA offers optical 
transport and intelligent optical switching systems that enable 
service providers to provision, manage and deliver high-bandwidth
services to their customers.  The bullish momentum started when
Cisco's (NASDAQ:CSCO) CEO mentioning in early October that the
company's estimates were in-line.  Now Juniper (NASDAQ:JNPR) beat
estimates when it reported earnings this week and is forcing 
analysts to rethink their estimates.  Ciena could also benefit
from some positive comments in a Barron's article over the 
weekend.  Favorable speculation in a recovering sector.

NOV 12.50 EUQ KV LB=5.30 OI=5508 CB=11.83 DE=35 TY=4.9%

ISSX - Internet Security Systems  $19.01  *** A Safe Internet! ***

Internet Security Systems (NASDAQ:ISSX) is a global provider of 
security management solutions for protecting digital business 
assets.  ISSX's continuous-lifecycle approach to information 
security protects distributed computing environments, such as
internal corporate networks, inter-company networks and electronic
commerce environments, from attacks, misuse and security policy 
violations, while ensuring the confidentiality, privacy, integrity
and availability of proprietary information.  The company delivers 
an end-to-end security management solution through its SAFEsuite 
security-management platform of software products, its around-the-
clock remote security monitoring and its professional services, 
comprised of both consulting and education services.  ISSX rallied
at the beginning of October after the company 3rd-quarter revenues
were within previous guidance.  Investors have also been buying
internet security stocks after increased demand for internet 
security  due to the recent virus attacks and post WTC threats. 
We simply favor the bullish move above the September high.  The
company's earnings are due October 17. 

NOV 15.00 ISU KC LB=5.10 OI=48 CB=13.91 DE=35 TY=6.8%

KROL - Kroll  $13.75  *** Personal Security Rally! ***

Kroll (NASDAQ:KROL) formerly known as The Kroll-O'Gara Company,
is a global risk consulting company specializing in investigative, 
intelligence and security services.  Kroll serves a multinational 
clientele of individuals, law firms, corporations, non-profit 
institutions and government agencies.  Through its operating 
subsidiaries, Kroll provides a broad spectrum of services to 
help clients reduce risks, resolve problems and capitalize on 
opportunities.  These services include business investigations
and intelligence; employee and vendor screening; substance abuse 
testing; surveillance; forensic accounting; business valuation and 
recovery; crisis management; corporate, personal and architectural 
security; travel and political risk information; and information 
security consulting, investigations and training.  In August 2001,
the Company sold the Security Products and Services Group.  This
is another issue the will benefit from the increased demand for
security services.  We simply favor the breakout on heavy volume;
a Stage II rally, but prefer a conservative entry point

NOV 12.50 KRQ KV LB=2.10 OI=15 CB=11.65 DE=35 TY=6.3%

MCAF - McAfee.com  $21.35  *** Beats Wall Street Estimates! ***

McAfee.com (NASDAQ:MCAF) provides online personal computer (PC) 
management products and services for consumers.  Through its 
Website, www.McAfee.com, the company allows consumers to secure,
repair, update and upgrade their PCs.  As an applications service 
provider (ASP), McAfee.com generates revenue by encouraging PC 
users to subscribe to its service.  McAfee.com's applications 
allow its subscribers to manage their PCs by checking for and 
eliminating viruses, optimizing PC system performance, repairing 
problems and updating outdated software.  The company also offers 
relevant content and contextual e-commerce services that enable 
users to maximize their PC investment.  On Thursday, McAfee.com
reported 3rd-quarter results that were stronger than expected 
and said the current quarter and next year would also beat Wall
Street expectations because of the success of its turnaround 
effort.  Yep, growing consumer interest in PC security after 
high virus activity and terrorist worries, should bode well for
the future.  A conservative entry point into a bullish issue
with a cost basis within technical support.

NOV 17.50 CFU KW LB=4.70 OI=97 CB=16.65 DE=35 TY=4.4%

TFS - Three-Five Systems  $20.99  *** Short-Term Speculation ***

Three-Five Systems (NYSE:TFS) designs and manufactures display 
modules for use in the end products of OEMs.  The company 
specializes in custom liquid crystal display (LCD) components 
and technology, and collaborates with its customers in providing
design and manufacturing services.  Three-Five's LCD modules are
used in mobile handsets and other wireless communication devices,
as well as in the data collection, medical electronics and other
commercial and consumer marketplaces.  TFS is also pursuing the
commercialization of its liquid crystal on silicon (LCoS) micro-
displays, following three years of research and development. 
Three-Five markets its services in North America, Europe and 
Asia, primarily through a direct technical sales force.  No
recent news as Three-Five forms a Stage I base with support near
$16 and the move above the late-September high bodes well for
future upside activity.  A one week speculation play takes
advantage of overpriced options in a basing issue.  Remember,
earnings are due on Wednesday, October 17.

OCT 17.50 TFS JW LB=3.90 OI=339 CB=17.09 DE=7 TY=10.4%



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

EMLX   20.94  OCT 17.50   UML JW  3.90 1180  17.04    7   11.7%
RSTN   11.88  NOV 10.00   RQJ KB  2.60 230    9.28   35    6.7%
EIX    15.34  NOV 15.00   EIX KC  1.30 149   14.04   35    5.9%
DCGN    8.04  NOV  7.50   DOZ KU  1.00 71     7.04   35    5.7%
AMCC   13.10  NOV 10.00   AEX KB  3.70 11432  9.40   35    5.5%
FFIV   15.80  NOV 12.50   FLK KV  4.00 91    11.80   35    5.2%


Trading Basics: Strategy Selection
By Ray Cummins

This week I received a request for information on spreads and
other combination positions.  Since this section is focused on
the sale of puts, most readers are familiar with the put-credit
spread.  However, there is another popular combination strategy
that works well with bullish issues.

There are many types of traders and no single strategy can work
for all of them.  Suitability: a trader's risk-reward attitude
and financial condition, is the key to determining which method
may be best for a specific individual.  There is a wide range of
trading strategies from which to choose, both aggressive and
conservative.  From speculative debit-spreads, ratio positions
and short straddles to covered-call writing on LEAPS, calendar
spreads, butterflies and everything else in between.  Regardless
of the approach you favor, every strategy has risk and it is
impossible to classify any one technique as the absolute best
method.  The most important factor is to completely understand
the mechanics of any strategy you are using and try to construct
a group of diverse positions based on a suitable trading style
and the correct portfolio outlook.

There are a number of issues to consider when determining which
is the most appropriate trading strategy.  The character of the
position (aggressive or conservative), the technical pattern of
the underlying issue and the market, option volatility levels
and the probability of a successful outcome.  In many cases,
there is more than one favorable strategy and even though each
technique has different attributes, they can all be useful in a
trader's arsenal at the appropriate time.  Most market players
are interested in returning a reasonable profit and at the same
time, limiting their exposure to financial risk.  For those with
a conservative outlook, this can be a difficult undertaking in
the wake of the recent rally.  The bullish, limited-risk approach
falls into two primary categories; option buying and (covered)
option selling.  The most commonly used method of option trading
among retail participants has always been the purchase of calls.
This technique can be very profitable but also leaves the trader
exposed to a large amount of downside risk.  From a technical
viewpoint, it is more favorable in stocks with well established
up-trends; a rare occasion in the current market.  In addition,
traders who purchase options after the recent run-up will be
forced to pay high premiums for positions in the more volatile
stocks, significantly reducing the probability of profit.  Those
who are intelligent enough to realize the uncertainty associated
with this type of approach are generally forced to remain on the
sidelines until they discover a favorable alternative.

Fortunately, there are numerous combination strategies that can
reduce risk and simultaneously benefit from high premiums.  The
first technique that meets this criteria is the "in-the money"
debit spread.  This strategy is considered conservative because
the risk is limited and the position is generally low cost with
no margin or collateral requirements.  The spread is initiated
with the purchase of an in-the-money option and the sale of an
at-the-money option, both with the same expiration.  The strategy
requires that you pay a premium; the cost difference between the
option bought and the option sold, in exchange for the potential
of receiving the difference between the two option strike prices.
This conservative spread strategy has substantial benefits over a
long option including lower cost, lower risk, and the ability to
benefit from premium disparities in both options.  The risk in
this type of combination play is limited to the amount paid for
the spread (plus commissions).  The break-even point is equal to
the long option's strike price plus the initial debit.  From a
risk standpoint, the long call is hedged for loss by gains from
the sale of the short option.  This factor can be very important
to a trader who can forecast market direction but can't withstand
the normal market fluctuations, even when the issue is trending
in his favor.  The potential for significantly lower losses will
allow the position to survive all but the worst corrections and
can often be the difference between a winning and losing trade.

Here is an example of an "in-the-money" debit spread: 

JDSU - JDS Uniphase  $9.04  *** Telecom Equipment Rally! ***

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.

PLAY (speculative - bullish/debit spread):

BUY  CALL  NOV-7.50   UQD-KU  OI=5568  A=$2.10
SELL CALL  NOV-10.00  UQD-KB  OI=3821  B=$0.80
INITIAL NET DEBIT TARGET=$1.20-1.25 Profit(max)=100% B/E=$8.75


The advantages of this bullish technique appear so overwhelming
that many traders wonder why anyone would consider buying "naked"
options.   However, there are several limitations that should be
considered before a position is initiated.  The first of course,
is the extra commission; hardly a consideration with discount
brokerages.  Second, spread and combination plays are subject to
slippage that can occur when two or more positions are opened at
different times, while the price of the underlying fluctuates.
This unfavorable affect can be virtually eliminated through the
use of simultaneous or contingency (net-debit/net-credit) orders.
Another method that is commonly used to increase the probability
of profit in this strategy requires an understanding of implied
volatility in option pricing.  When opening any type of spread,
it's important to take advantage of disparities in option pricing
to create the best possible position.  Always try to initiate new
positions when there is little premium in the long option and
excess value in the sold option.  This approach allows you to
enter the position at a discount, with a theoretical edge.  The
most obvious drawback to this type of position is the limited
profit potential.  Fortunately, the ability to return a favorable
profit, even in the case of static or slightly declining issues
is more than enough reason to utilize this conservative strategy.

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.


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

EMLX   16.40  20.94   OCT  12.50  0.35  *$  0.35  20.9%
SAGI   15.25  19.10   OCT  12.50  0.45  *$  0.45  17.2%
ARXX   11.00  12.31   OCT  10.00  0.40  *$  0.40  15.2%
WEBX   26.75  29.86   OCT  20.00  0.40  *$  0.40  15.1%
PLCM   24.37  33.37   OCT  15.00  0.50  *$  0.50  13.5%
ORCL   14.20  14.94   OCT  12.50  0.25  *$  0.25  12.8%
TERN    7.01   8.50   OCT   5.00  0.30  *$  0.30  12.8%
MOT    16.90  17.64   OCT  15.00  0.30  *$  0.30  12.6%
DRXR   15.50  19.00   OCT  12.50  0.30  *$  0.30  12.4%
OCLR   21.85  21.09   OCT  20.00  0.40  *$  0.40  11.9%
DELL   22.56  24.13   OCT  20.00  0.35  *$  0.35  11.2%
PRX    35.75  36.11   OCT  30.00  0.70  *$  0.70  11.0%
FTO    15.32  18.99   OCT  12.50  0.35  *$  0.35  10.4%
IMNX   20.11  22.52   OCT  17.50  0.25  *$  0.25   9.6%
ILXO   26.26  28.50   OCT  22.50  0.45  *$  0.45   9.1%
PLCM   27.37  33.37   OCT  20.00  0.40  *$  0.40   7.4%
TTN    19.60  19.93   OCT  17.50  0.30  *$  0.30   7.2%
KNDL   19.65  19.35   OCT  17.50  0.40  *$  0.40   7.1%
RTN    34.04  33.80   OCT  30.00  0.65  *$  0.65   6.9%
IMCL   53.30  58.03   OCT  40.00  0.60  *$  0.60   5.8%
AH     20.00  24.46   OCT  17.50  0.30  *$  0.30   5.6%
AEM    11.18   9.80   OCT  10.00  0.35   $  0.15   4.5%

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


The gold sector hedge in Agnico-Eagle Mines (NYSE:AEM) was an
active position this week and most conservative traders exited
the play Wednesday when the issue moved below a recent support
level on increasing volume.  The stock started to drift lower
Tuesday in opposition to the broad market rally and that was
the best opportunity to close the play for a profit.  Now the
issue is trading below the sold strike price and a small debit
is required to exit the play.  Our speculative position in
drug-manufacturer Kendle International (NASDAQ:KNDL) is still
on the watch-list and a close below support near $18 will be a
potential exit signal.  Monitor the daily activity in the issue
for signs of a new bearish trend.


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

BRCM   31.80  NOV 20.00   RCQ WD  0.60 2709  19.40   35    7.5%
CMNT   15.25  NOV 12.50   QDO WV  0.35 0     12.15   35    8.2%
CNXT   10.15  NOV  7.50   QXN WZ  0.35 918    7.15   35   12.8%
IMMU   16.30  NOV 12.50   QUI WV  0.35 300   12.15   35    8.4%
NETA   18.38  NOV 15.00   CQM WC  0.45 39    14.55   35    8.8%
QLGC   37.06  NOV 22.50   QLQ WX  0.65 541   21.85   35    7.0%
RFMD   24.30  NOV 15.00   RFZ WC  0.55 1467  14.45   35    8.8%

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

CNXT   10.15  NOV  7.50   QXN WZ  0.35 918    7.15   35   12.8%
NETA   18.38  NOV 15.00   CQM WC  0.45 39    14.55   35    8.8%
RFMD   24.30  NOV 15.00   RFZ WC  0.55 1467  14.45   35    8.8%
IMMU   16.30  NOV 12.50   QUI WV  0.35 300   12.15   35    8.4%
CMNT   15.25  NOV 12.50   QDO WV  0.35 0     12.15   35    8.2%
BRCM   31.80  NOV 20.00   RCQ WD  0.60 2709  19.40   35    7.5%
QLGC   37.06  NOV 22.50   QLQ WX  0.65 541   21.85   35    7.0%

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).

BRCM - Broadcom  $31.80  *** Earnings Rally? ***

Broadcom (NASDAQ:BRCM) is a provider of highly integrated silicon
solutions that enable broadband communications and networking of
voice, video and data services.  Using proprietary technologies
and advanced design methodologies, Broadcom designs, develops and
supplies system-on-a-chip solutions for applications in digital
cable set-top boxes, cable modems, high-speed local, metropolitan
and wide area and optical networks, home networking, Voice over
Internet Protocol (VoIP), carrier access, residential broadband
gateways, direct broadcast using both satellite and terrestrial
transmitters, digital subscriber line, wireless communications,
server solutions, and network processing.  BRCM is in the midst
of a technical recovery rally and traders who want to speculate
on the company's upcoming earnings report should consider this

NOV 20.00 RCQ WD LB=0.60 OI=2709 CB=19.40 DE=35 TY=7.5%

CMNT - Computer Network Technology  $15.25  *** Break-Out! ***

Computer Network Technology Corp. (NASDAQ:CMNT) is a provider
of hardware and software products, related professional services
and managed services in the growing storage networking market. 
The company focuses primarily on helping its customers design, 
develop, deploy and manage storage networks; the high speed
networks within a business' existing computer system that allows
the business to manage its data storage needs with efficiency.
CMNT designs, manufactures, markets and supports a wide range of
products for critical storage networking applications, such as
disk mirroring; the real-time backup of data to remotely located
disks.  Remote tape vaulting, or the backup of data to remotely
archived tapes, is supported as well.  The CMNT rally began in
early October after the company sold Propelis Software, Inc. to
Jacada Ltd. for $6 million in cash.  Now the stock has climbed
to a 8-month high on heavy volume and our position offers a low
risk cost basis in the issue.

NOV 12.50 QDO WV LB=0.35 OI=0 CB=12.15 DE=35 TY=8.2%

CNXT - Conexant Systems  $10.15  *** Entry Point! ***

Conexant Systems (NASDAQ:CNXT) provides semiconductor products
and system solutions for a variety of communications electronics.
Conexant delivers semiconductor integrated circuit products and
system-level solutions for a range of communications applications.
These products allow communications globally through wire-line
voice and data communications networks, cordless and cellular
wireless telephony systems, personal imaging devices and equipment,
and emerging cable and wireless broadband communications networks.
The company operates in two primary business segments: Personal
Networking and Internet Infrastructure, which it plans to spin-off
in the future.  CNXT has established a relatively stable support
area near $7 and this position offers a conservative entry point
in that price range.

NOV 7.50 QXN WZ LB=0.35 OI=918 CB=7.15 DE=35 TY=12.8%

IMMU - Immunomedics  $16.30  *** On The Move! ***

Immunomedics (NASDAQ:IMMU) is a unique 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 new products are highly specific monoclonal antibodies
that 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 other markets.  IMMU
broke through resistance (near $15) during last week's technology
rally and now the stock is poised for a test of the yearly highs.
A cost basis near $12 offers favorable speculation for traders who
have researched the company and wouldn't mind owning its stock.

NOV 12.50 QUI WV LB=0.35 OI=300 CB=12.15 DE=35 TY=8.4%

NETA - Networks Associates  $18.38  *** Recovery In Progress! ***

Networks Associates (NASDAQ:NETA) is a supplier of security and
availability solutions for e-business.  Their products focus on
two important areas of e-business, network security and network
management.  Most of the company's revenue has been derived from
its McAfee anti-virus products and its Sniffer network management
products.  These two flagship groups form the customer base and
technology base from which the balance of the company's software
products have as developed.  Last week, Network Associates posted
per-share profits of $0.05, compared with a range of "break-even"
to $0.03 a share that the company set in July.  The company also
announced plans to sell two units, including the PGP encryption
business, saying there is limited growth potential in the market
for scrambling communications.  Analysts hailed the decision and
the improving outlook for the company justifies a conservative
position in the issue.

NOV 15.00 CQM WC LB=0.45 OI=39 CB=14.55 DE=35 TY=8.8%

QLGC - QLogic  $37.06  *** Second Chance Entry! ***

QLogic (NASDAQ:QLGC) is a designer and supplier of Storage Area
Networking (SAN) infrastructure building blocks.  Its SAN infra-
structure building blocks are integrated into storage networking 
solutions of the world's leading system and storage manufacturers.
Companies such as Sun Microsystems (NASDAQ:SUNW), IBM (NYSE:IBM),
Dell Computer (NASDAQ:DELL), etc., use some or all of QLogic's
components in the storage and systems solutions they sell.  In 
in January 2000, QLGC started delivering selected fiber-channel
building blocks through leading distributors, systems integrators
and resellers, thereby expanding its reach and visibility to the
information technology community.  We recently offered this issue
as a "Blue Light Special" but now that it has rallied another $10,
the best way to profit from future upside activity is with this
low risk position.  Earnings are due on October 23.

NOV 22.50 QLQ WX LB=0.65 OI=541 CB=21.85 DE=35 TY=7.0%

RFMD - RF Micro Devices  $24.30  *** Portfolio Position! ***

RF Micro Devices (NASDAQ:RFMD) designs, develops, manufacture and
market proprietary radio frequency integrated circuits primarily
for wireless communications products and applications.  RFMD's
products are included in cellular and personal communications
service phones, base stations, wireless local area networks, and
cable television modems.  The majority of the company's revenue is
derived from sales of RFICs designed for cellular and PCS phones.
The company offers an array of products including amplifiers,
mixers, modulators/demodulators and single chip transmitters,
receivers and transceivers that represent a substantial majority
of the RFICs required in wireless subscriber equipment.  These
RFICs perform the transmit-and-receive functions that are critical
to a phone's performance.  RF Micro is our long-term portfolio
selection in the Integrated Semiconductor group and this position
establishes a conservative cost basis in the issue.

NOV 15.00 RFZ WC LB=0.55 OI=1467 CB=14.45 DE=35 TY=8.8%



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

VRTS   28.18  OCT 22.50   VIV VX  0.60 1360  21.90    7   41.8%
PWAV   13.82  NOV 10.00   VFQ WB  0.35 5345   9.65   35    9.8%
MRVL   22.77  NOV 15.00   UVM WC  0.50 68    14.50   35    8.6%
MOT    17.64  NOV 15.00   MOT WC  0.45 6345  14.55   35    8.0%
SCI    22.79  NOV 17.50   SCI WW  0.30 0     17.20   35    5.4%
NVDA   40.43  NOV 25.00   UVA WE  0.50 648   24.50   35    5.1%


Gloomy Economic News Halts The Rally
By Ray Cummins

                         - MARKET RECAP -
Friday, October 12, 2001

The major equity averages ended lower today as industrial stocks
retreated amid weak retail sales data and a report of increasing
wholesale inflation.  September retail sales tumbled 2.4% while
the monthly producer price index climbed 0.4%, well above the
expected 0.1%.  On a positive note, technology issues continued
to rebound in the wake of a bullish earnings report from Juniper
Networks (NASDAQ:JNPR).  The broader market witnessed the worst
action in airline, retail, financial and cyclical companies but
defensive areas such as gold, drug and utility stocks saw small
gains.  The Dow Jones Industrial Average fell 66 points to 9,344
after plunging over 200 points earlier in the day.  The NASDAQ
Composite added 2 points to 1,703 after declining as much as 50
points in early trading.  The broader S&P 500 index finished 5
points lower at 1,091.  Trading volume was average on the NYSE
with 1.32 billion shares exchanged and heavier on the NASDAQ
where over 2 billion shares changed hands.  Market breadth was
negative, with decliners outpacing advancers 3 to 2 on the NYSE
and 19 to 17 on the technology exchange.  In the bond market,
the U.S. 30-year treasury closed down 11/32 to yield 5.42%.

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

Aventis     (NYSE:AVE)  OCT85C/OCT80C  $0.55   credit   bear-call
Hollywood   (NSDQ:HLYW) JAN15C/OCT15C  $1.30   debit    calendar
Newell      (NYSE:NWL)  DEC25C/OCT25C  $0.90   debit    calendar
Spectralink (NSDQ:SLNK) NOV22C/NOV12P  $0.10   credit   synthetic

Aventis was a popular issue early in the week but the excitement
faded as it reached a recent resistance area near $80.  The next
few days will have a significant effect on our play as investors
decide whether or not to support the stock in the wake of profit
taking in the drug manufacturing sector.  Our new "time-selling"
spread in Newell is off to a good start and we expect the issue
to trend higher in the coming weeks.  The calendar position in
Hollywood Entertainment was less favorable, as it did not offer
the target entry debit on a simultaneous order basis.  However,
the current consolidation pattern suggests there will be other
profitable opportunities in the coming months.  Spectralink was
very active this week, trading in a $2.50 range in anticipation
of the upcoming earnings announcement.  The company's quarterly
report is due on October 17 and that event will likely determine
the success of the play.

Portfolio Activity:

The rally in technology issues resulted in a number of favorable
outcomes in our current combination positions.  One of the best
performers was Vodaphone (NYSE:VOD), and our synthetic position
in the issue provided the target exit profit in only two weeks.
JDS Uniphase (NASDAQ:JDSU) was another outstanding issue and the
bullish, covered-put combination has already yielded a favorable
early-exit opportunity.  The speculative position in Earthlink
(NASDAQ:ELNK) achieved the target return in less than one week
and our (adjusted) diagonal spread in Drexler (NASDAQ:DRXR) is
now profitable.  Among the other time-selling positions, Astoria
Financial (NASDAQ:ASFC) is starting to perform as expected and
traders who remained in the bearish play should realize a small
credit as they roll into November (put) options.  Interactive
Data (NASDAQ:IDCO) is the only issue in that group that has yet
to reach profitability but there is plenty of time for the play
to succeed.  Among the credit-spread candidates, the original
positions in Electronic Arts (NASDAQ:ERTS) and General Dynamics
(NYSE:GD) are at maximum return and the bearish play in Alltel
(NYSE:AT) is slightly above the break-even point.  Our solitary
play in the Straddles group; Boeing (NYSE:BA) is profitable and
should produce additional gains in the coming months.

Questions & comments on spreads/combos to Contact Support
                           - NEW PLAYS -
NVDA - Nvidia  $40.43  *** An Old Favorite! ***

Nvidia (NASDAQ:NVDA) designs, develops and markets video graphics
processors and related software for personal computers and digital
entertainment platforms.  Nvidia provides a "top-to-bottom" family
of performance graphics processors and graphics processing units
that, in the company's opinion, sets the standard for performance,
quality and features for a broad range of desktop computers, from
 professional workstations to low-cost PCs, and mobile PCs, from
performance laptops to thin-and-light notebooks.

Nvidai shares have been "on the rebound" in recent sessions along
with other technology issues as investors move back into popular
NASDAQ stocks.  NVDA is widely recognized as a leader its sector
and with quarterly earnings due next week, it's important to note
that the balance sheet for the company has historically been very
stable.  The company is innovative and they are moving into other
growth opportunities such as products for Microsoft's Windows XP
operating system.  The technical outlook for NVDA is bullish and
our conservative position offers an excellent way to participate
in the future movement of the issue with relatively low risk.
PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-25  UVA-WE  OI=648  A=$0.65
SELL PUT  NOV-30  RVU-WF  OI=739  B=$1.15

                      - Speculation Plays -

These positions are based on recent increased activity in the
stock and underlying options.  All of these plays offer favorable
risk/reward potential but they should be evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and trading style.
PWAV - Powerwave  $13.82  *** Cheap Speculation! ***

Powerwave Technologies (NASDAQ:PWAV) designs, manufactures and
markets ultra-linear radio frequency (RF) power amplifiers for
use in the wireless communications market.  RF power amplifiers,
which are key components of wireless communications networks,
increase the signal strength of wireless transmissions from the
base station to the handset while reducing interference, or
"noise."  Powerwave manufactures both single and multi-carrier
RF power amplifiers for a variety of frequency ranges and
transmission protocols.

Powerwave shares rallied Friday after the company posted losses
that were higher than expected, but forecast meaningful growth
in the coming quarters.  Company officials blamed the worldwide
economic recession that has delayed tech spending in the telecom
equipment market for the shortfall.  However, they also noted the
strength in Powerwave's newest product area, amplifiers for the
emerging 3G W-CDMA market, which accounted for over 25% of third
quarter revenue.  Revenue from all PCS amplifiers totaled $13.6
million in the third quarter, up 68% from the second quarter of
2001.  Analysts weighed-in with bullish recommendations after the
news and investment bank Morgan Stanley suggested the stock was
a "deal" at its current price.

We will need a brief pullback in the issue to enter this play at
a favorable debit but after Friday's big rally, a consolidation
is likely to occur during the next few sessions.
PLAY (very speculative - bullish/synthetic position):

BUY  CALL  NOV-17.50  VFQ-KW  OI=108   A=$0.70
SELL PUT   NOV-10.00  VFQ-WB  OI=5345  B=$0.35

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $325 per contract.

RPM - RPM Incorporated  $11.40  *** Optimistic outlook! ***

RPM Incorporated (NYSE:RPM) manufactures and markets protective
coatings for use in both industrial and consumer applications.
RPM markets its products in approximately 130 countries and
operates manufacturing facilities in 62 locations in the United
States, Argentina, Belgium, Brazil, Canada, China, Colombia,
Germany, Italy, Malaysia, Mexico, New Zealand, The Netherlands,
Poland, South Africa, the United Arab Emirates and the United
Kingdom.  RPM is organized into two operating groups according
to the primary markets served by the company: the Industrial
Division and the Consumer Division.

Shares of RPM closed near a new 2-year high Friday after the
company held its annual meeting in Strongsville, Ohio.  The
conference was attended by hundreds of shareholders and the
overall outcome of the event was positive for both company
officials and public investors.  New officers were elected and
the Board of Directors declared a regular quarterly dividend
of $0.125 per common share, despite the weakening economy and
general uncertainty caused by the unprecedented tragic events
of September 11.  The RPM Board voted to maintain the dividend
in light of the 27% gain in quarterly earnings and a favorable
outlook for the fiscal year.

Investors applauded the news and with no resistance near the
current price, the issue is poised for future gains.  Traders
can speculate on that outcome with this low cost position.

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  NOV-12.50  RPM-KV  OI=154  A=$0.25
SELL PUT   NOV-10.00  RPM-WB  OI=132  B=$0.20

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $340 per contract.

                   - STRADDLES AND STRANGLES -
FDC - First Data  $65.25  *** Expiration Week Straddle! ***

First Data (NYSE:FDC) is a financial services entity that operates
in four primary business segments of payment services, merchant
services, card issuing services and emerging payments.  Payment
services includes Western Union, Integrated Payment Systems and
Orlandi Valuta Companies, and is a provider of non-bank money
transfer and other payment services to consumers and commercial
entities.  The merchant services segment is comprised of First
Data Merchant Services, TeleCheck and Financial Services.  The
segment provides merchants with credit and debit card transaction
processing services.  The card issuing services segment, offered
by First Data Resources, provides a range of products and other
processing and related services to financial institutions, Visa
and MasterCard issuers and other bank-debit cards.  The emerging
payments segment is comprised solely of eONE Global.

We recently listed FDC as a bullish spread candidate after the
company announced that quarterly profits rose 15%.  First Data,
which also owns money transfer company Western Union, earned $273
million in the third quarter, or $0.69 a share, on an operating
basis.  That compares with $238 million, or 0.58 a share, a year
earlier.  Analysts had expected First Data to earn 0.66 a share,
thus the earnings announcement was an upside surprise and the
issue reacted accordingly.  Now the stock has reached a previous
resistance area near $65 and the upside momentum should either
continue or collapse, depending on the strength of the rally.
The option premiums for the issue are at recent lows and traders
who believe the volatility will continue can speculate on that
outcome with this neutral position.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  OCT-65  FDC-JM  OI=280  A=$1.55
BUY  PUT   OCT-65  FDC-VM  OI=413  A=$1.30

IVGN - Invitrogen  $71.94  *** Revenge Play! ***

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

Invitrogen is a good candidate for premium-selling strategies,
based on the underlying issue's technical background and its
robust option premiums.  Unfortunately, the issue rallied up to
our sold position in the October strangle ($70 Call - $50 Put)
and we were forced to close the play early to minimize losses.
With the recent volatility, a new opportunity has emerged for
this strategy and since IVGN has a relatively stable trading
range and no (expected) upcoming events that will change its
fundamental or technical character prior to expiration, we are
going to initiate another position.  From a long-term viewpoint,
the issue is moving laterally in a Stage I base with a trading
range from $50 to $85 and near-term activity suggests the trend
will continue.  However, current news and market sentiment will
have an effect on the position, so review the play thoroughly
and make your own decision about its outcome.
PLAY (aggressive - neutral/credit strangle):

SELL CALL  NOV-85  IUV-KQ  OI=2757  B=$0.75
SELL PUT   NOV-55  IUV-WK  OI=207   B=$0.60
UPSIDE B/E=$86.45 DOWNSIDE B/E=$53.55


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