Option Investor
Newsletter

Daily Newsletter, Tuesday, 10/09/2001

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                 Tuesday 10-09-2001
Copyright 2001, All rights reserved.                       1 of 2
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/1612_1.asp

Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
       10-9-2001           High     Low     Volume Advance/Decline
DJIA     9052.44 - 15.50  9086.97  9004.14  1.1 bln   1488/1595
NASDAQ   1570.19 - 35.76  1607.20  1565.97  1.5 bln   1422/2094
S&P 100   541.84 -  3.04   545.44   540.30   Totals   2910/3688
S&P 500  1056.75 -  5.69  1063.37  1053.83
RUS 2000  408.68 -  3.50   412.27   407.87
DJ TRANS 2128.67 - 54.57  2185.91  2128.67
VIX        36.06 +   .15    36.62    35.57
VXN        66.26 +   .13    67.20    65.86
TRIN        1.18
Put/Call Ratio       .97
*************************************************************

Markets Holding Their Breath!

Traders spent another day watching TV instead of the stock market
and the averages reflected investor apathy. The mood of the
average consumer/investor/citizen is "what's next?" America has
leveled anything of military significance in Afghanistan and Osama
has yet to launch another threatened strike. Everyone knows it is
coming but just not when or where. The mentality of America is
slowly withdrawing inwardly as the constant bombardment of negative
news makes even opening the mail a greater risk than usual. The
markets are actually holding up rather well given the scenario
above.





The main reason the markets lost so much ground today was Microsoft
not Bin Laden. The Supreme Court said they would not hear the case
and left it in the hands of the appeals court. This puts even more
pressure on Microsoft to settle and possibly take more of a beating
than was previously acceptable to Microsoft management. This also
gives the Justice Dept a stronger position and bolstered their
confidence in getting their pound of flesh from the software giant.
(If you are in the editors play for the last two weeks, did you
buy that Put on Monday like I suggested?) Had it not been for MSFT
the Dow would have finished in positive territory. MSFT delayed
until next year the deadline for the new licensing scheme for their
software which created doubts that maybe even Microsoft was under
some revenue pressure as a result of the attack.

While talking about news events regarding Dow components, Intel
also made the news with a class action suit being filed by an
institutional investor. The investor took exception with bullish
statements about demand, improved manufacturing processes and new
products in the summer of 2000. The stock fell from $75 to $35
in the three months following those statements. They eventually
cancelled some of the products mentioned due to technical problems
and lack of market demand. Intel disagreed strongly with the claims
and vowed to aggressively defend itself in the suit. Intel lost
-$.79 for the day.

The brokerage sector bucked the trend today after a news report
that said they would lose $200 million for the quarter compared
with an expected $1.2 billion profit for the group. LEH, MWD, MER
and BSC all closed strongly positive despite the report from the
Securities Industry Association which also said the sector began
to rebound from the attack losses almost immediately.

One sector that did not rebound from a verbal bashing was the
networking sector. JP Morgan cut estimates on Cisco and others
based on falling capital spending. They feel the spending will
continue to decline in 2001 and also drop another -20% in 2002.
The semiconductor sector also drew its share of detractors after
gaining +17% over the prior three trading sessions. Merrill
Lynch. ABN-Amro and CSFB made some cautious comments about the
sector. CSFB said Intel would barely meet estimates or come in
just below them thanks to some "frantic scrambling". ABN-Amro
changed their weighting to "underweight" claiming that investors
have already priced in too much growth. After the recent gains
the sector was due for profit taking regardless of the news.

In the too little too late department an institutional investor
tried to sell twenty-nine million shares of Global Crossing at
the close. The stock had already fallen -47% for the day from
$.73 to $.38. That position fell from $21 million at the open
to $11 million at the close but that pales in comparison from
the $58 million value the prior week or the $290 million from
July. Just suppose you owned it in January for $750 million or
even the $290 million in July, what would you gain from blowing
it out at $11 million at the close today? Commissions, management
fees? While I have no opinion on the survival prospects on Global
Crossing, I do think the investors in that fund should worry
about the survival prospects for their management. We have all
(if we are honest) closed positions in expiration week on options
for an eighth or less that we paid substantially more for weeks
earlier. We made the mistake "with our own money" of failing to
set stop losses and closing those positions. We all make bad bets
and then try to rationalize the poor results but we expect better
from people who manage money professionally. Whoever was trying
to sell at the close was in plenty of company since 141 million
shares of GX traded for the day. Creating the rush for the exits
was a downgrade of their debt, a reshuffle of their management
and being dropped from the S&P-500. Just proves that when you
are on the wrong side of a trade everything seems to go against
you. We all know this feeling!

Say goodbye to the second half recovery, at least for 2001. The
2H recovery is officially dead. In a subtle sleight of hand the
new target for the recovery is now 2H of 2002. Several companies
led by Cisco and Dell have now said that summer of 2002 could be
the earliest a recovery would appear. Analysts are now anticipating
the worst fourth quarter earnings in a decade and there are no
signs of any improvement. This is of course not "new news" but
the numbers of analysts that are now verbalizing what they knew
behind closed doors is increasing. Consumer confidence is eroding
daily as the continued threats from the terrorists are discussed
over and over on TV. The Bin Laden spokesman today that warned of
a "storm of airplanes" in the future and the continued call for a
holy war against the U.S. along with the growing anti-American
demonstrations are causing second thoughts by Americans. "What if?"
is the topic of conversation at the dinner table instead of the
normal family chatter. This is not conducive to a bullish market.

However, the markets once again held above support at 9000 and
1550. Those levels are critical to any future market direction.
The Dow tested 9000 twice at 10:30 and 4:30 and rallied slightly
into the close. The Nasdaq however closed only four points above
the low of the day and but was heavily influenced by the MSFT news.
I know you hear constantly that this or that level is critical to
future market direction until you are totally confused. This
one is really critical. If these levels fail then the odds are
very good we will see a retest of the September lows. The market
has shown very good relative strength the last four days. After
the big rebound we could have easily sold off substantially again
but didn't. The markets are simply stuck in the quicksand of
indecision and uncertainty. While stocks are cheap there is no
rush to buy. Which sector will get hit with the next terrorist
attack? Nobody knows. When will it occur? Nobody knows. Buyers
from last week have disappeared and internals have turned
negative although on low volume.

We are in a news driven environment rather than an economically
driven environment. This may change as earnings announcements
increase in intensity. There are well over 100 companies
announcing this week but next week there are two to three times
that many and most of the big guns. If the unthinkable happens
and companies start giving positive guidance then we could
move up again. The possibility for negative news is greater but
much of that is already priced into the market. The best thing
that could happen to us is nothing. If a week of two goes buy
without an attack on U.S. soil then Americans will start ignoring
the daily threats as harmless. Just another Saddam Hussein with
a big mouth and no way to back up his claims. There have been
618 individuals arrested in the U.S. for suspected terrorist
involvement and over 200 more on the wanted list. The rapid
mobilization of our defensive and protective resources may have
crippled prior plans for follow up attacks. Every day that passes
puts us closer to each terrorist still on the ground in the U.S.
The high profile "bombing war" in Afghanistan is over. The war
that is visible to Americans on nightly TV will decrease as the
job falls to special forces troops on the ground moving under
the cover of night. Once the 24hr intravenous news feed goes back
to regular programming the "threat" will also move back into our
subconscious. We have been bombing Iraq almost weekly since 1998
and nobody has paid any attention. Until the Afghan war fades from
view you know what to do. Go flat or short under 9000/1550 and go
long on any rebound from under those levels.

Definitely, enter passively, exit aggressively!

Jim Brown
Editor


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

THE EDGE IS OPTIONSXPRESS TECHNOLOGY

* Real-Time Buying Power, Account Balances or Cancels
* Option Chains Linked to Order Screens, and Interactive Charting
* NBBO Guaranteed so you get Best Execution Prices
* Stock and Option Watch Lists
Visit: http://www.optionsxpress.com/marketing.asp?source=optinv4

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


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

Waiting, But For What?
By Eric Utley

The major market averages didn't make much progress in either
direction Tuesday.  Sure, the Nasdaq Composite (COMPX) shed
more than 2 percent, but it was due for a pullback.  But can we
read into the decline in tech Tuesday?  Aside from Microsoft
(NASDAQ:MSFT), there wasn't much happening ahead of the
earnings reports.

Meanwhile, the Dow Jones Industrial Average ($INDU) and S&P
500 (SPX.X) did a whole lot of nothing.  Many of the indicators
I follow have been reflecting the sideways trading so far this
week.  For example, bullish percent data has been relatively
unchanged.

In addition to the indicators flashing apathy, or perhaps
hesitation, many individual stocks are revealing a more telling
picture.  Take General Electric (NYSE:GE), for example.

The stock ramped from its lows a few weeks back, rolled over
last week, and has been holding tight so far this week.  So
tight, in fact, that GE has traced two consecutive "inside days"
so far this week.  That price pattern, which is defined by a
day-over-day decrease in trading range, is indicative of a
consolidation period and is usually a prelude to a big move in
one direction or another.



The chart above reveals GE's coiling price action.  Note that
Monday's high was lower than last Friday's, but its low was
higher than last Friday's.  Fast forward to Tuesday, and we
observe the same pattern.

(GE is a good stock to represent the sentiment across the
broader market because of its size and diversity -- it's the
largest component of the S&P 500 and one of the most diverse
companies in the world.)

If GE's price action is telling of the current market sentiment,
then I think that a big move is around the corner.  I don't
know in which direction the move will unfold and I don't really
care because there are a few ways to trade it.

The first way to trade a big move is to be reactionary.  That's
my least favorite way to trade because I normally have to chase
stocks along with the crowd.  And I've to be honest, I very much
dislike crowds.  But, taking GE for example, a trader could
simply trade in the direction in which the stock breaks from its
consolidation.

The second way to trade a big forthcoming move is to look for
divergences in leading sectors of the market, or stocks for
that matter.  In other words, you can look for the stock/sector
that typically leads the broader market.  This is my favorite
way to trade a big move because it's the most lucrative, but
it's the most difficult.

The third way a trader can profit from a big move, should it
occur, is to slip into a pair of chaps and straddle the market,
a sector, and/or stock by entering the options market.  The
only problem with a straddle/strangle in the current market
environment is that fear is still pretty high judging by the
level of the CBOE Market Volatility Index (VIX.X).  The VIX
closed Tuesday at 36.  Granted, the VIX has recently retreated
from its extreme levels but it's still well above its historical
norm.  Because of the high level of fear, traders have to pay up
in the options market in the form of implied volatility.  But,
if the move in the underlying is big enough, then the current
premium price of implied volatility won't matter as much.

The notion that the market is ready to make a big move is
further reinforced by the bullish percent data we've been
monitoring, specifically the Dow Jones Industrial Average Bullish
Percent ($BPINDU) and Nasdaq-100 Bullish Percent ($BPNDX).  Both
charts are very close to giving a Bull Confirmed buy signal,
which is an aggressively bullish buy signal.  At the same time,
though, both the Dow and NDX Bullish Percent charts could
reverse from their current levels as I've stated in recent
columns, which could lead to the eventual retest of the lows
put in a few weeks back.

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

Market Volatility

VIX   36.06
VXN   66.26

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.99        427,030       414,740
Equity Only    0.98        328,661       320,439
OEX            1.55          7,453        11,581
QQQ            0.69         15,818        10,903

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

Bullish Percent Data


           Current   Change   Status
NYSE          24      + 0     Bear Confirmed
NASDAQ-100    45      - 1     Bull Alert
DOW           37      + 0     Bull Alert
S&P 500       37      + 0     Bull Alert
S&P 100       29      + 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  1.04
10-Day Arms Index  1.05
21-Day Arms Index  1.09
55-Day Arms Index  1.25

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

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

        Advancers     Decliners
NYSE      1488           1595
NASDAQ    1422           2094

        New Highs      New Lows
NYSE       53             72
NASDAQ     49            109

        Volume (in millions)
NYSE     1,173
NASDAQ   1,570

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

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

NASDAQ-100

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

DOW JONES INDUSTRIAL

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

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


************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****
CMCSK $36.90 -0.07 (-0.61) CMCSK looks tired at current levels.
The stock may continue pulling back, so we're dropping coverage
ahead of any potential weakness.  Traders with open positions
can use any strength early Wednesday to exit plays or consider
a stop around its last two days' intraday lows at $36.72.

ORCL $13.70 -0.20 (-0.50) ORCL has had trouble getting over the
$14 level in the past few sessions.  The stock staged a nice
run late last week, so a little breather isn't out of the
ordinary.  Strength over $14 could be used as an exit point
Wednesday.


PUTS:
*****
TQNT $17.15 +0.65 (+1.09) TQNT continued higher Tuesday on a
day that the Nasdaq finished lower.  Its relative strength is
a cause for concern.  Although it may rollover Wednesday,
we're dropping coverage this evening.


************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


FREE TRIAL READERS
******************
If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.


We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


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

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


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

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support

The Option Investor Newsletter                  Tuesday 10-09-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/1612_2.asp


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

THE EDGE IS OPTIONSXPRESS TECHNOLOGY

* Real-Time Buying Power, Account Balances or Cancels
* Option Chains Linked to Order Screens, and Interactive Charting
* NBBO Guaranteed so you get Best Execution Prices
* Stock and Option Watch Lists
Visit: http://www.optionsxpress.com/marketing.asp?source=optinv4

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


********************
PLAY UPDATES - CALLS
********************

ATK $90.85 -1.75 (+1.24) ATK rallied above the $90 level Monday,
following the military action in Afghanistan last weekend.  But
the stock pulled back Tuesday in the wake of continued military
action.  Its pullback Tuesday, although mild, may indicate that
much of the news of military action is already in the stock.
While the news itself doesn't necessarily concern ATK, it may
be a reason to take profits in the stock.  The defense related
issues such as ATK have had a big run recently so there are
plenty of profits to be had in ATK around its current levels.
Hopefully that's the case for some of our OI readers too.  For
those with open positions at much lower levels, ATK's current
price should offer plenty of profitable exit points.  As for
new entries, it just doesn't make sense chasing the stock
higher at current levels.  The pattern that has been working
is entering on pullbacks down to support, then waiting for a
breakout to new highs to exit.  That being the case, it makes
sense to wait for further weakness before considering new
entries.  We look closer at new plays when ATK approaches
support around the $87 level.

MO $50.97 +0.33 (+0.81) MO is working splendidly.  Albeit
slowly, the stock is steadily moving above the $50 level, from
which is broke above last Friday.  MO even managed to charge
past its relative high traced back in late June at the $50.75
level.  Those who entered the play back down around the $48 to
$49 area should be looking to book partial gains around current
prices.  Sure, it's only a $2 move, but MO's implied volatility
is so low that the options are really responsive to a modest
move in the underlying.  And since MO's made a modest move over
the past week, we expect profit taking in the next few days.
That's why entering new positions at current levels is more
risky than waiting for a pullback.  That said, a light volume
retreat down to the $50 level may serve as an entry point for
those not yet in the play.  To reiterate, those already in
the play who've captured some good gains should consider
booking profits, or at the very least tightening stops.

ENZN $57.78 +2.07 (+1.38) ENZN rebounded with the BTK.X Tuesday,
which was logical.  The stock is one of the stronger issues in
the group, so we expect ENZN to perform if the BTK.X continues
higher over the short term.  For its part, the BTK.X seems
like its stuck around the 450 level.  Therefore, bullish traders
in ENZN will want to make sure to keep a close eye on the price
action of the BTK.X over the coming days.  Of course further
strength in the sector should allow for ENZN to work higher.
But a breakdown in the BTK.X below the 445 level may cause
some sector induced selling in ENZN.  If the BTK.X is advancing,
bullish traders might look for ENZN to breakout above its 200-dma
as a possible action point, with the potential for a move up to
the mid $60s.

IP $35.31 +0.31 (-0.79) We were a little disappointed with IP's
failure to follow-through Monday.  Recall that the stock made
a nice move last Friday which is what attracted us to the play.
But its pullback Monday was cause to re-evaluate the position.
Although the rebound Tuesday was encouraging while the Dow
finished lower, we're still cautious on the play.  We'd grow
more confident in this play if the Dow and FPP.X advanced in
conjunction with a rally in IP.  If those conditions arise in
the coming days, then bullish traders could look for entry
points in IP around its current levels.

GE $36.82 +0.02 (-0.63) GE is tracking the S&P pretty closely,
but that's not too surprising.  The stock appears to be
consolidating right around the $36.50 level.  Readers should
note that GE has traced two consecutive "inside days" which
reinforces the fact that the stock is consolidating around its
current levels.  It's going to break one way or the other and
it's likely that it's going to be a big move.  With that being
the situation, bullish traders with open positions should slide
stops up.  Those looking for a breakout to the upside can
detect such by monitoring closely the price action of the S&P
and Dow.  An advancing market combined with a breakout in GE
above the $36.20 could reveal that the stock is heading much
higher over the short-term.  However, bullish traders watching
for that scenario will definitely want to confirm directional
progress with an advance past $37.70.

PPG $47.00 +0.69 (-0.50) Following its pullback Monday, PPG
rebounded with gusto Tuesday.  The stock bounced right off of
its 10-dma Tuesday morning.  Hopefully that bounce offered
traders a favorable entry into this play.  From current levels,
PPG is most likely subject to broader market pressures.  The
stock is likely to be influenced by the direction of the S&P,
so traders will want to do their best to monitor the action
in the broader markets as it relates to PPG.  Strength above
current levels will need to be confirmed with an advance
above PPG's relative high at $48.40, which would also serve as
a nice exit point for those who entered on the early morning
dip Tuesday.

TEVA $65.64 +0.60 (+0.78) TEVA traded pretty well Tuesday,
climbing back up to its relative highs around the $66 level.
The stock wasn't able to breakout above that level, but might
be able to do so with further strength in the BTK.X.  Traders
might consider using a breakout above the $66 level as an
entry point if individual style and risk preference permit.
Otherwise, a low volume pullback down around the $64 area
would offer another favorable entry point into the play.  We
think a pullback to $64 would be "favorable" because it would
allow traders to set a tight stop in order to mitigate risk,
while having upside to around $66 over the very short-term.


**************
NEW CALL PLAYS
**************

PLCM - Polycom $31.56 +1.01 (+2.69 this week)

Polycom develops, manufactures and markets communications
equipment that enables enterprise users to access broadband
network services and leverage increased bandwidth to more
conveniently conduct voice, video and data communications.

Videoconferencing stocks have rallied in the wake of the
terrorist attacks.  The allure for users of videoconferencing
technology is that they don't have to travel to conduct
business.  Shares of Polycom have been reflecting a pickup
in business as the stock broke out above a long standing
resistance level recently.  The stock decidedly moved above
the $30 level Tuesday, trading as high as $32.55 on a day
when the broader markets had difficulty getting out of their
own way.  The stock is technically and fundamentally sound
at current levels and is positioned to move higher.  New
positions can be taken at current levels if the broader
market is advancing.  Traders seeking confirmation from others
in the business can monitor WEBX.  Of course an advance above
the relative high at $32.55 would confirm any further strength
above current levels.  The stock has solid support at the $30
level which could serve as a solid entry point should the
stock pullback.  Below, our stop is set at the $28.25 level.
The company announces earnings on October 17.

***October contracts expire next week***

BUY CALL OCT-30*QHD-JF OI=2846 at $2.85 SL=1.50
BUY CALL OCT-35 QHD-JG OI= 543 at $0.80 SL=0.25
BUY CALL NOV-30 QHD-KF OI= 100 at $4.50 SL=3.50
BUY CALL NOV-35 QHD-KG OI=1764 at $2.25 SL=1.75

Average Daily Volume = 1.87 mln



SEPR - Sepracor $39.10 +1.04 (+0.83 this week)

Sepracor is a research-based pharmaceutical company dedicated
to treating and preventing human disease through the discovery,
development and commercialization of pharmaceutical products
that are directed toward serving unmet medical needs.

SEPR has been trading well relative to the AMEX Biotechnology
Sector Index (BTK.X).  The stock didn't falter much during the
group's recent pullback.  That relative strength should help
to carry SEPR higher over the short-term if the BTK.X moves
higher.  Over the past three weeks, SEPR has traced a mini
cup-with-handle formation that could catapult the stock higher.
The formation is normally indicative of a bottom and often
leads to advancing prices.  In this case, it's a much shorter
time period, but we're concerned with short time periods because
we trade a decaying asset.  The pivot point in SEPR's current
formation is right around current levels, up to around the
$39.50 level.  Any traders who enter a breakout above the
$39.50 level should only do so after confirming direction in
the BTK.X.  From there, confirmation of trend would be provided
with a breakout above the $40 level.  If the stock does pullback
once more before attempting a breakout, bidders should
gather around the $38 level.  The company announces earnings on
the 19th of this month, so we have about a week and a half to
play.  Our stop is initially in place at $37.

***October contracts expire next week***

BUY CALL OCT-35 ERQ-JG OI=1106 at $4.80 SL=3.25
BUY CALL OCT-40*ERQ-JH OI=3954 at $1.65 SL=1.00
BUY CALL NOV-40 ERQ-AH OI= 729 at $5.70 SL=4.50
BUY CALL NOV-45 ERQ-AI OI=1414 at $3.90 SL=2.75

Average Daily Volume = 775 K



************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


*******************
PLAY UPDATES - PUTS
*******************

QCOM $40.85 -0.37 (+2.39) QCOM traced a higher relative high
early Tuesday, but fell as low as the $40 level during a late
day pullback.  The stock could continue higher if the Nasdaq
strengthens from current levels, so traders should have the
appropriate risk management procedures in place to protect
against any potential loss.  With that said, the stock's
current levels could offer favorable entry points into new
put plays if the Nasdaq weakens from its current levels.
Ideally, readers should be looking for entry points on strength
rather than trying to trade with the trend and entering new
put plays into weakness.  By fading the prevailing trend,
readers can better manage risk and set up trades that can
capture the "easier move" in the stock on any pullback after
rallying.

JPM $32.95 +0.51 (-0.46) Not to be unexpected, JPM is tracking
the trading in the bank sector (BKX.X) closely.  The BKX.X
traded lower Monday and so did JPM, but the two rebounded
Tuesday despite the weakness in the broader market.  Therefore,
it should be clear after the last two days of trading that
readers should follow the BKX closely for insight into JPM's
short term direction.  In terms of JPM's levels, the stock
closed its gap around the $33.25 level Tuesday - that level may
be the site of future rollovers.  For support, JPM bounced from
the $32 level again Tuesday, so traders will want to pay
special attention to that price area in the coming days for
signs of a potential short term bottom.

CHKP $25.99 -1.42 (-0.82) CHKP hasn't made a lot of progress in
either direction over the last few days, but the stock is still
relatively overbought in the short term.  What's more, the
stock's descending trend line is pretty much keeping in check
any rally attempt.  CHKP could very well ride that resistance
line lower over the short term if the Nasdaq doesn't trade
higher in the meantime.  Bearish traders looking to enter new
puts into weakness can use any breakdown below the $25.45 level
for an entry point.  Those who prefer entering puts near
resistance can use a rollover around $28.

AIG $77.35 +0.50 (-1.67) AIG rebounded Tuesday despite the
continued weakness in the broader markets.  The stock put in
a consolidation day so we'll want to be on the alert for the
potential of a short-term bottom being in place around
current levels.  If the stock does pause at current levels,
traders will want to be cognizant of the potential for decay
in time premium, which can erode into profits are increase
loses.  For AIG to continue lower, we need to see the S&P
along with the Insurance Sector Index (IUX.X) continue
lower.  Stabilization in either of the aforementioned would
help to prop up AIG.


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

CIMA - Cima Labs $58.68 -2.69 (-3.36 this week)

Cima Labs develops and manufactures pharmaceutical products
based on its proprietary OraSolv and DuraSolv fast dissolve
technologies.

Behind the brokers and oil service stocks, the biotechnology
group was the third best performing sector Tuesday as measured by
the price action of the AMEX Biotechnology Sector Index (BTK.X).
But for some reason, CIMA didn't participate.  There wasn't
any news concerning CIMA's under performance Tuesday, but they
are a few healthcare conferences taking place this week, which
may result in a negative announcement from CIMA.  Of course
that much is only speculation, but the point that we're focusing
on is CIMA's divergence Tuesday, no matter the reason.  The
stock closed 4 cents from its day low and volume was a bit
more active than it was yesterday.  Bearish traders who are
keen to the momentum-based entry can look for a breakdown below
the $58 level early Wednesday.  Ideally, we'd like to see
weakness in the BTK.X too, but since this is more of a play on
divergence, we might not be so lucky.  If the shorts cover
and CIMA rallies, then look for a rollover near the $60 area.
Our stop is initially in place at $62.

***October contracts expire next week***

BUY PUT OCT-60*UVK-VL OI=20 at $3.60 SL=2.25
BUY PUT OCT-55 UVK-VK OI=50 at $1.45 SL=0.75

Average Daily Volume = 383 K



************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


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

CHKP - Check Point Software $25.99 -1.42 (-0.82 this 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.

Most Recent Update

CHKP hasn't made a lot of progress in either direction over the
last few days, but the stock is still relatively overbought in
the short term.  What's more, the stock's descending trend line
is pretty much keeping in check any rally attempt.  CHKP could
very well ride that resistance line lower over the short term
if the Nasdaq doesn't trade higher in the meantime.  Bearish
traders looking to enter new puts into weakness can use any
breakdown below the $25.45 level for an entry point.  Those who
prefer entering puts near resistance can use a rollover around
$28.

Comments

The GSO.X, led by Microsoft, rolled over Tuesday and looks to
be heading lower over the short-term.  If that happens, then
CHKP will most likely be pressured lower.  Traders with a
bearish bias on software shares might look for CHKP to breakdown
in Wednesday's session.

***October contracts expire next week***

BUY PUT OCT-30*KEQ-VF OI= 5229 at $4.60 SL=2.75
BUY PUT OCT-25 KEQ-VE OI=14333 at $1.50 SL=0.50

Average Daily Volume = 3.26 mln



************************Advertisement*************************
Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


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

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


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

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support

DISCLAIMER

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

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

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives