Option Investor

Daily Newsletter, Sunday, 10/21/2001

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The Option Investor Newsletter                   Sunday 10-21-2001
Copyright 2001, All rights reserved.                        1 of 5
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The Option Investor Newsletter         Sunday  10-21-2001
Copyright 2001, All rights reserved.
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
        WE 10-19         WE 10-12          WE 10-7         WE 9-28
DOW      9204.11 -140.05  9344.16 +224.39  9119.77 +272.56 +611.40
Nasdaq   1671.31 - 32.09  1703.40 + 98.10  1605.30 +106.50 + 75.61
S&P-100   553.80 -  6.98   560.78 + 11.40   549.38 + 16.28 + 41.40
S&P-500  1073.48 - 18.17  1091.65 + 20.27  1071.38 + 30.44 + 75.14
W5000    9894.89 -154.23 10049.12 +212.01  9837.11 +274.18 +662.48
RUT       425.70 -  2.89   428.59 + 13.62   414.97 + 10.10 + 25.98
TRAN     2174.28 - 60.45  2234.73 + 25.31  2209.42 + 15.43 +139.15
VIX        35.84 -   .61    36.45 +  1.79    34.66 -   .53 - 13.08
VXN        69.28 +  3.30    65.98 +  2.63    63.35 -  1.84 - 12.54
TRIN        1.19             1.08             1.14             .73
TICK        +342             +283             +290            +995
Put/Call     .80              .76              .96             .61

Happy Anniversary!
by Jim Brown

The markets celebrated the 14th anniversary of the October 19th,
1987 crash by ending with a minor gain. The start was rocky with
the Dow losing over 80 points but bargain hunting after 1:PM rallied
the index +120 points off its lows to finish with a +40 point gain.
The Nasdaq followed suit after being down -20 and closing up +18.
We did not see earnings magically improve and Bin Laden was not
captured but shorts did decide that discretion was the better
part of valor and they covered their positions in the last two

That was the last good thing that happened to me all day. I
Began writing my Sunday commentary about 1:PM Denver time and
on a normal Friday I research and write until around midnight.
With time out for cake and a going away party as well as the usual
fires to be put out in the office I did not finish until around
1:50 AM. As I was putting the finishing touches on my editor's
plays I completed the last spell check and hit save. My computer
froze for several seconds, an eerie scream came from the hard drive
and the blue screen of death appeared. "Unable to write to C:"
"Possible Loss of Data." Those of you who understand computers
know what is coming next. The end of the world as I know it.

Not only did I lose the 12+ hours of research and writing but
the entire hard drive. Newsletters from the beginning of time.
Countless spreadsheets, correspondence, contracts, charts, etc.
Four years (5GB) of email archives from and to readers, bookmarks,
trading records, workspaces, portfolios, etc, etc, etc. The
moral to this story is simple. Murphy is alive and well. The
longer you go without a comprehensive backup the more likely
you will wish you had one. I do have backups taken routinely
for most of the components but if you have had this happen before
you know that there are things that will never be recovered. So
after playing PC tech for several hours it is 6:30 AM on Saturday
and I am starting again. All the editors/writers here hate this
with a passion. After spending countless hours on writing,
researching, rewriting, editing, spell checking, adding,
correcting, arguing and cussing it is a given that several times
a year something goes wrong. Just doing it over is not the problem,
we love our work. It is just you can never get the same feeling
the second time around. You end up leaving something out, wording
it differently, following a different train of thought and being
more pessimistic and hostile which is human nature after the error.

Enough moaning! You realize those two paragraphs were more for
my benefit than yours, kind of a pressure release to keep me from
hurting myself I guess.

In the real world there was good news, bad news and no news. The
press is beating themselves up for sensationalizing the anthrax
problem and for good reason. I suspect that there was some heat
coming from the government as well to layoff the headline grabbing
bioterror stories. The numbers that kept making the rounds on
Friday were the 20,000 people who would die from the flu this
year and most of us don't even care enough to get flu shots. In
the wildest possible anthrax exposure scenario there is likely to
be less than a couple dozen deaths for the year. Yet the press was
acting like the end time was at hand.

The reduction in intensity by the press allowed investors to focus
on actual earnings for a change. The bombing continued, yawn, and
Bush is in China, yawn, and Emulex said they expected business to
pickup going forward. WoW!, to heck with Afghanistan, let's buy
some stock. (pardon my literary license) Actually it appears some
shorts did buy EMLX stock since it gained +4.60 for the day. Don't
look now but the news really was not that good.

Microsoft actually gained on the day as well after dropping -$2
from the open. The giant gave so many mixed messages in their
earnings announcement that traders did not know whether to buy or
sell. Some felt that the launch of Windows XP next week would provide
enough positive sentiment that being short was no longer a good
idea. Everyone expected them to warn and fall after earnings
and when they didn't it surprised the shorts into covering.

Guidant also announced earnings and matched last years performance
but they said that the forecast was positive for the 4Q and the
year and raised their guidance to $1.93 and a nickel over analyst's
estimates. GDT tacked on +3.22 on the news.

Nokia said that sales were down by -7% over last year but market
share was increasing and new 3G products were doing excellent.
The Nokia competitors, Motorola and Ericsson, are struggling while
NOK managed to post profits of .15 euros per share, which was down
only slightly from last year. The CEO was pounding the table on
their outlook and the stock gained +1.32 on top of a +50% gain
over the last few weeks.

Gillette also announced and reported a -16% drop in sales but
said market share was increasing with Mach3 and Venus taking
top spots in blade sales. I don't have the patience to invest
in Gillette but those who do saw a +1.58 gain on the news.

While GDT, NOK and Gillette earnings news may not make you want
to rush out and buy stock, I reported on them for a reason. There
are bright spots in the market if you look for them. Actually,
much brighter than G, GDT and NOK. In doing my research today
I looked at over 1000 charts. A process that takes about five
hours but it gives me a very good feel for what is actually
going on in the market. I took the time on Friday to see if
there was any evidence of a pending October crash. There were
several hundred stocks with down trends as you would expect.
There were however many more with bullish trends. Breakouts,
rising bases, wedges and new relative highs. For example, INFY,
ACS, AZO and LH. These are just random sample that I could remember
but I mention them for a reason. They encompass chips, software,
drugs, biotech, food, computer sales and computer services.
A very mixed sample. There are stocks making money if investors
will only do their homework.

This was encouraging for me as I tried to get a feel for our
immediate future. With eight days to go in October many traders
are chomping at the bit to buy something, if only we could get
another dip. If you copied the big institutional traders back
in September when the market took the dive, you held off backing
up the truck because you expected another October crash. With
that crash still in hiding and possibly not going to appear
you are now sweating the next week. Do I buy something or do
I wait for a dip that may never come?

I know a lot of you are thinking that if we can just get to
November we will be safe and the long-term rally will begin.
Maybe and maybe not! For the last five years the Dow point
gain from November 1st to December 31st might surprise you. In
1996 it was +427 points, 1997 +234, 1998 +475, 1999 +849 and
in 2000 we lost -113 points. What also might surprise you
is that except for 1999 there were significant drops between
those dates. It was not a constant rally. While +400 points
may seem positive we have gained +952 from the September lows
in the last four weeks.

Why am I boring you with these statistics? Simply because
I want everyone to realize that there is no sure thing. Just
like the October crash may not occur the year end rally could
also be a figment of our imagination. With the current economic
and political climate it is very possible that this may not be
a record breaking year end. Should you buy a gas mask and
run hide in a cave. Not unless your name is Osama.

I think the biggest risk we have today is not being in the
markets when the eventual rally comes. Almost everyone realizes
that the market will eventually rally, the economy will flourish
and Greenspan will raise rates again. Growth will be busting
out all over and even Corning will have to increase output
of fiber optic cable. (Well, maybe not that part about Corning)
Dow 15,000 you bet. Just don't go trying to pick a date yet.

As investors we need to be prepared for either direction. There
is a good chance we could see a dip before the end of October.
There is a better chance that prices will be higher on Nov-1st
than they are today. The best scenario the bulls could hope
for would be a drop on Monday back to 8500 and a bounce by
Tuesday close back to today's levels. Sorry, guys, I doubt
they will get their wish. They are praying for that elusive
double bottom and second washout that makes good rally starting
points. They just can't stand a V bottom rally. It makes them
constantly look over their shoulder for the next dip.

For us as option investors we need to be in the market but be
careful about how we do it. There are many ways to be in the
market today without risking your retirement. Spending all you
have on long calls on Monday morning is not it. I will highlight
several ways to invest safely in today's editors plays. For
those of us that want to be in the market for a rebound but
not for a dip that means we need to be patient about our entry
points. We need to buy options when the stock dips or the
market cycles. We need to take smaller positions and then add
to them if the market turns bullish.

The market will rise again but it may be two weeks, six weeks
or even twelve weeks or more. But if you look hard enough there
are stocks on the move now. Those with a plan can make money in
any market if they are patient enough on the entry points
and aggressive enough on the exits. My pledge to you is that
every Sunday for the rest of the year I will find twenty
stocks in addition to the regular plays that we can make
money on the following week. I will post them in the editors
plays. I can't do it today because my QCharts quote sheets
were lost in the crash but you can use the 15 stocks I
listed above as a start. We are the survivors and we have
a plan. Are your ready?

Definitely, Enter passively, exit aggressively!

Jim Brown



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Note: Options involve risk. Risk disclosure:

Editor's Plays

Maximum Potential, Minimum Risk

Yes it can be done by anyone who can buy stock and trade
options. I have four scenarios here where for from $1 to
$4 maximum risk an investor could make as much as $35 profit.

Sounds like I am smoking something I rolled myself but
it is true. These plays are less risky than buying a call
option and just as profitable.

The concept I am going to show today is like a covered
call with an insurance policy. These covered calls are
not the $2-$3 profit kind. I am shooting for $20-$35 of
profit or more than 100% gain on your investment.

Would you like to make an investment next week that had
a maximum risk of $4 but could make you $35 and be able
to sleep at night? This is how.

I am going to use the stock with the smallest risk first.
For about $1.00 risk we are going to try and make $25.

If you buy 100 shares of CIEN on Monday for $16.43 it will
cost you $1643. You should immediately write a covered call
on the stock for the Jan-2004 Call Leap for $2.70 or income
of $270. We will now use this income to buy an insurance
put of the April-2002 $15.00 for $3.70 or $370.

Now you own the stock and have all the appreciation rights
between $16.43 and $40 by Jan-2004. That would be a $2357
profit on the stock if it closed over $40 in Jan-2004. In
reality anything over $17.43 is profit. (Remember we spent
$3.70 for the put and only took in $2.70 for the leap call)
That is our $1 risk.

Obviously you have noticed the put is for April and the
Call for two years later. This is simple logic for me.
If the stock falls under $15 and stays there until April
2002 then I would sell the put for a profit, buy back the
call for a profit and sell the stock for a loss. The
combination of the three positions would be a wash and
you lost the $1 you had at risk. Buy only taking out
insurance until April we give the stock plenty of time
to rally well above our put strike. If it is not moving
in our direction by then we do not want to be in the play.
Take your money and put it in a different play.

Using an example of a $10 stock price the put would be
worth $5, the call probably $1.00 and the stock $10.
Remember you paid for the put with the money you took
in from the call so the cost to you was only $1.00.

It will never exactly work out to a $1 loss because of
premium decay but it is very close.

Would you risk $1 to possibly make $25?

You can use the same strategy with Juniper. Buy the stock,
sell the $60 2004 call for $3.90 and buy the Apr-$22.50
put for $5.20. Your up front risk is $1.30 and your maximum
profit is $35.04.

Sepracor has a little higher premiums and therefore a little
more risk. $3.90 to have a good chance at $35.00.

Lottery play:

Lucent to me is the perfect lottery play. The Jan-2004
$10 leap calls are only $2.35 and I think it is nearly
impossible for them to not be in the $20 range by then.
Once good news starts coming out again, investors will
rush back into the stock. It will not even have to be
great news, just profits and potential and the $20-$30
range is only a matter of time. At $2.35 for the option
it is not like your kids college tuition you are risking.
But if you had 10 contracts and LU went to $40 you could
pay for their college. Notice the little hook up in


Obviously there are no fool proof plays but with the combination
plays above they are about as safe as you can get.

It is 10:AM Saturday morning, I am out of here !!!!

Good luck!

Jim Brown


By Eric Utley

It's amazing how one very big reversal can impact an indicator.
I'm referring to last Wednesday's massive reversal across the
major market averages.  Up through Wednesday morning, the
averages were grossly overbought according to Stochastics.

I've been writing that Stochastics is only one indicator, so make
sure to view the following in perspective and not solely defer to

One problem I had with last week's early strength was the
overbought nature of the averages.  But Wednesday's huge
outside day helped to quickly work off the overbought way of the
market.  But, does that now mean that the averages are
under bought?  Not necessarily.

While the averages have worked off a lot of the froth that had
been built up over the past three weeks, they have a bit more
work to do before I would label them oversold.  But, there might
be an interesting scenario setting up for next week that I
want to take a closer at, specifically in the Dow Jones
Industrial Average ($INDU) and Nasdaq-100 (NDX.X).

The INDU violated key support last Friday at the 9150 level,
although it did close back above that level later in the day.
Its violation has me thinking that the INDU has further downside
over the short-term.  And I think the potential for a move down
to the 9000 level makes sense at this point.  Depending on if
and how the INDU reaches the 9000 level over the next few days,
we could its Stochastics reach an oversold reading.

The 9000 level, in my mind, is significant for three reasons:
First, it's a psychological level because of its easiness to
relate to.  Second, its the site of the 38.2 percent retracement
level of the bracket on the chart below.  Third, the 9000 box
on the point & figure chart is the level from which the INDU
reversed earlier this month.

The NDX is setting up in a similar fashion.  The NDX did a lot
to work off its overbought status last week with its massive
reversal Wednesday.  But it still has either some basing work
or further weakness ahead before its Stochastics reach an
oversold level.

The level I'll be watching to act as support should the NDX
pullback further is around 1270.  The 1270 level is the 19.1
percent retracement level on the bracket below.  (The 19.1
level is simply half the range between the O and 38.2 percent
retracement levels.)

I think the set-ups in the INDU and NDX are interesting going
into next week, and potentially profitable.  Averages approaching
significant support levels and growing increasingly oversold over
the short-term set-up potential rebound trades either in the
averages themselves (DJX.X and QQQs) or in the strongest stocks
within each average.

The INDU and NDX could decline below their respective support
levels.  Or, not even reach them next week.  But the reason I'm
attracted to set-ups like the current INDU and NDX dynamics is
because risk is so very easy to manage.  If I buy, for example,
Citi (NYSE:C) and/or J&J (NYSE:JNJ) - two of the stronger INDU
components - next week expecting a rebound, but witness the
INDU trade below, say 8950, then I bail out and concede that I
was wrong.  It's the easiness of quantifying and managing risk
in this scenario that I like very much.  I'll know if I'm wrong
pretty quickly after putting on the trade.

But if I'm right, I'll make money.


Market Volatility

VIX   35.84
VXN   69.28


          Put/Call Ratio  Call Volume   Put Volume
Total          0.80      1,104,878       886,790
Equity Only    0.68        986,135       670,978
OEX            1.92         30,501        58,545
QQQ            0.63         85,325        53,936


Bullish Percent Data

           Current   Change   Status
NYSE          27      + 0     Bull Alert
NASDAQ-100    56      - 2     Bull Correction
DOW           53      + 0     Bull Confirmed
S&P 500       42      - 1     Bull Alert
S&P 100       41      - 2     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  1.23
10-Day Arms Index  1.07
21-Day Arms Index  1.03
55-Day Arms Index  1.23

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


        Advancers     Decliners
NYSE      1685           1373
NASDAQ    1976           1532

        New Highs      New Lows
NYSE       41             26
NASDAQ     48             51

        Volume (in millions)
NYSE     1,273
NASDAQ   1,577


Commitments Of Traders Report: 10/16/01

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

Commercial interests continued to posture to increasingly
bullish levels last week.  While still net bearish, the % of
open interest is approaching 0.  The positioning of small traders
last week neither confirmed nor refuted what commercial traders
did, as small traders were relatively flat week-over-week.

Commercials   Long      Short      Net     % Of OI
10/05/01      365,200   408,567   (43,367)   (5.6%)
10/12/01      369,049   407,804   (38,755)   (4.9%)
10/16/01      378,866   415,289   (36,423)   (4.5%)

Most bearish reading of the year: (111,956) -   3/6/01
Most bullish reading of the year: ( 36,423) - 10/16/01

Small Traders Long      Short      Net     % of OI
10/05/01      124,249     73,882   50,367     25.4%
10/12/01      122,292     74,539   47,753     24.0%
10/16/01      124,568     73,779   50,789     25.4%

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


Commercial traders grew slightly more bullish last week from the
week ago period as measured by a slight drop in % of open interest
currently short.  Still, they remain decidedly bearish while small
traders grew more emboldened last week and added about 1,000 long
positions while short interest dropped among small traders.

Commercials   Long      Short      Net     % of OI
10/05/01       26,703     37,669   (10,966)  (17.0%)
10/12/01       24,662     38,020   (13,358)  (21.4%)
10/16/01       27,398     40,397   (12,999)  (19.2%)

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
10/05/01       10,918     6,804    4,114      23.2%
10/12/01       11,948     7,012    3,936      20.6%
10/16/01       12,901     6,893    6,008      30.5%

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


Commercial traders moved to their most bullish net stance of the
year last week in the Dow.  Meanwhile, small traders eased off
from their most bearish reading of the year two weeks ago, but
remained decidedly bearish on the prospects of the Dow.

Commercials   Long      Short      Net     % of OI
10/05/01       22,755    10,124   12,631     38.3%
10/12/01       24,873    10,194   14,679     41.7%
10/16/01       25,402    10,267   15,135     42.5%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
10/05/01        4,731    11,868    (7,137)   (43.0%)
10/12/01        3,517    12,294    (8,777)   (55.5%)
10/16/01        4,514    12,104    (7,590)   (45.7%)

Most bearish reading of the year:  (8,777) - 10/12/01
Most bullish reading of the year:   1,909  -  1/16/01


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How Much Did You Pay For That!?
By Eric Utley

Implied volatility is so often overlooked by options traders,
but such a very important ingredient to the recipe of
success.  Here's how you can find out how much you'll have to
pay for an option.

The Chicago Board Options Exchange (CBOE) has one of the better
calculators on the Web, for free that is.  Options traders can
access this calculator and input the various variables to gain
a better understanding of how much they're paying up for
implied volatility in any given contract:


The CBOE also publishes historical volatility data on quite a
few underlying issues.  Although the data is dated, it can be
useful for future references, or at least getting a better
understanding on how market makers price options:


You can e-mail me with questions on the calculator.

Please send your questions and suggestions to:

Contact Support



..I would really appreciate it if you could briefly mention
trailing stop strategies.  More specifically:

1) Do you employ them based more on the stock or the option
2) When do you tighten them?
3) What would you consider an aggressive trailing stop and a
loose one on a QQQ option that you bought, let's say, at $300
each and is currently bidding higher at $350 and rising

- Thanks, Silvio

Excellent question, Silvio!

1) Obviously the price action in the underlying is the largest
contributing factor to the premium of an option contract.  And
for that reason I think a trader has to consider the price of
the underlying when determining a stop on an option.  For
instance, a trader should take into account meaningful support
and/or resistance levels in the underlying when placing stops on
the option.

But, thanks to Black and Scholes, there's much more that goes
into the pricing of an option than merely the price of the
underlying.  The dilemma with setting a stop based upon the
movement of the underlying is that other factors, such as time
and volatility, have to be constant.  Of course we all know that
theta, vega, and gamma are anything but constant.  So, if a
trader sets a stop on an option based purely on the underlying,
then he/she runs the risk of "bleeding" premium if the
underlying sits still while time premium erodes and implied
volatility possibly declines.  In that scenario, a trader might
not be stopped out of the option while the underlying sits, but
could actually lose a lot of money through the loss of time
and volatility.

2) Before I put on any trade, the very first question I ask
myself is: How much am I willing to risk in this trade?  As
soon as I answer that question, then I know where to place my
stop in the trade, whether it be a mental stop or a hard stop
with my broker.  As soon as the trade begins working in my
favor, I immediately raise my stop to breakeven, but still try
to give the trade room to operate.  That's a very difficult
process because it is so subjective.

There have been times where I've placed a stop at breakeven only
to be stopped out then watched the trade work in what would've
been my favor to the tune of 300 or 400 percent.  That's the
most frustrating part of managing risk, but it's just part of
the process.

To be specific, I'll raise a stop to breakeven after a trade
has moved by about 15 to 20 percent in my favor.  After a trade
has moved by more than 30 percent in my favor, then I raise my
stop to a point where I'll make money on the trade.  But, I
bend those guidelines quite often, depending upon the
Greeks situation and market conditions.

3) Let me just point out that aggressive is relative to the
individual as well as the trading style and time frame.  But
in the example above, and relative to my trading style, I'd
label a stop at breakeven ($300) loose, and a more aggressive
stop at $325.

Options on the QQQs are an excellent instrument, in my opinion,
because they are so very liquid.  You can generally find a
bid/ask spread of $10 around the 50 delta contracts.  Such
a tight spread is most conducive to managing risk.

On a side note, liquidity in the options market is a necessity,
at least for this trader.  I almost never trade an option with
a bid/ask spread wider than $25.


Imunex - IMNX

I've been following the base in IMNX for investing and trading
since spring and finally jumped into it at the $16 range and am
now very happy with the result.  IMNX has been on the Option
Investor screen before and I want to know what you think about
the stock's prospects for trading here.  Thanks you for your
insights! - Sincerely, Scott

Well done, Scott, excellent buy!

I like the Imunex (NASDAQ:IMNX) chart quite a bit.  And I believe
buying the stock in the $16 area was a perfect, and I mean
perfect, buy point.  Scott obviously recognized the increasing
relative strength of Imunex early through the base it had traced
through last summer.  By anticipating the breakout, Scott was
able to get in ahead of the breakout and watch the profits
build.  Textbook, baby!

At this point in the trend, Imunex might need to do a little more
backing and filling.  So if I was to buy the stock around current
levels, I'd want to do so on a pullback to support, such as the
$20 level.  As you can see on the chart below, I've overlaid a
retracement bracket over Imunex's massive sell-off earlier this
year.  The company has obviously got its act together and the
stock is currently in the process of retracing that big sell

Therein lies the beauty of the retracement bracket.  A trader
or investor can measure the progress of Imunex's retracement by
monitoring the levels on the chart above.  As long as the stock
continues to push higher through each level all systems are
go.  In addition, the retracement bracket helps to determine
stop levels in case something goes wrong.

But, currently, everything "feels" right about this stock.  It
had a nice little pullback late last week after pushing above the
$23 level.  And its relative strength versus the broader market
and AMEX Biotechnology Sector Index (BTK.X) is confirming trend.


Long-Term Investing And Relative Strength

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

I can't emphasize enough how important it is to buy the strongest
stocks within the strongest sectors of the market, especially
when it comes to long-term investing.

Let's think of it this way:

  The S&P 500 pulls back by 5 percent in one week and XYZ pulls
  back by 2 percent in the same week.  Then, the next week, the
  S&P 500 advances by 3 percent, while XYZ rallies by 6 percent.
  Wouldn't it make sense to take a closer look at XYZ with
  bullish colored glasses?

Picking the direction of the broader market is difficult enough,
so it only makes sense to put your money on the strongest
horses of the market -- the ones who are pulling the most and
running the furthest ahead of the crowd.

Investors can use several relative strength tools to narrow
down the field of possible buy candidates.  One such tool is
Investor's Business Daily's (IBD) relative strength ranking.
If you don't subscribe to the paper, you can pick up the weekend
edition at most newsstands for a $1.  Simply tracking your
buy candidates once a week through IBD's relative strength
rankings will greatly improve your probability for investment

Investors can also do some relative strength work through the
QCharts program.  In order to judge relative strength in QCharts,
investors will need to use the following sequence of symbols:

SOX.X /SPX.X (Note the space.)

Here's what it looks like in QCharts:

In the above example, I'm measuring the relative strength of
the SOX.X versus the SPX.X.  Investors can compare any two
symbols, such as bond yields versus stocks, stocks versus
oil, stocks versus stocks, and so on.

Those familiar with point & figure charting can use
www.stockcharts.com, for free, to gain insight into relative
strength among stocks and sectors.  If you don't know how to
get relative strength charts through StockCharts you can
e-mail me and I'll give you the instructions.

I did some quick comparisons of sectors relative to the S&P
500 with the StockCharts program and here's what I found:



Currently, it would make sense for investors to stay the heck
away from technology and instead focus on groups such as
Retail, Insurance, Bank, Cyclical, Chemical, Paper, Utility,
Natural Gas, Oil, Biotech, and Drug.

After finding the strongest sectors of the market, investors
can use the same process to find the strongest stocks within
each group.  Then, after finding the strongest of the strongest,
you can begin to do some fundamental homework and find out which
companies make the most sense for long-term investing.

Who said this stuff was difficult?



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.


Economic Reports

Monday, 10/22/01
Leading Indicators     Sep  Forecast:  -0.5%  Previous:  -0.3%

Tuesday, 10/23/01

Wednesday, 10/24/01
Fed’s Beige Book       N/A  Forecast:    N/A  Previous:    N/A

Thursday, 10/25/01
Initial Claims       10/20  Forecast:    N/A  Previous:   490K
Employment Cost Index   Q3  Forecast:   0.9%  Previous:   0.9%
Durable Orders         Sep  Forecast:  -1.0%  Previous:  -0.3%
Existing Home Sales    Sep  Forecast:  5.20M  Previous:  5.50M
Help Wanted Index      Sep  Forecast:    N/A  Previous:     53

Friday, 10/26/01
Mich Sentiment-Rev     Oct  Forecast:    83.0 Previous:   83.4
New Home Sales         Sep  Forecast:    852K Previous:   898K
Treasury Budget        Sep  Forecast:   29.0B Previous:  65.7B

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The Option Investor Newsletter                   Sunday 10-21-2001
Sunday                                                      2 of 5

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Note: Options involve risk. Risk disclosure:


Call Play of the Day:

NVDA - NVDIA $44.35 (+3.96 last week)

See details in sector list

Put Play of the Day:

THQI - THQ Inc. $49.85 (-2.95 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.

No Dropped Calls for the weekend.

CIMA $59.82 (+0.27) Responding to renewed strength in the
Biotech sector, CIMA finally managed to start heading north
after meandering southward for the better part of 3 weeks.
While volume remained anemic on the bounce, what we are seeing
is a stock that really doesn't seem to want to head lower.
After once again holding support near $57, we are inclined to
take our leave of the play before the bulls erode all our
recent progress.  We're dropping CIMA this weekend and would
recommend taking advantage of any weakness next week to obtain
a better exit.

TGH $62.71 (-0.54) Without even really testing the $60 support
level, TGH found the support of buyers on Friday and if the
oscillators are to be believed, it looks like the stock has run
out of selling pressure and is favoring the bulls right now.
Our stop didn't get violated, and the downtrend is still intact.
But we're going to take our leave of TGH before the tide really
turns.  With the Healthcare sector (HCX.X) making a show of
strength, we don't want to press the downside to hard and end up
getting squeezed.  We'll drop TGH this weekend in favor of more
attractive plays.


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.


NVDA - NVDIA $44.35 (+3.96 last week)

NVIDIA designs, develops and markets graphics processors and
related software for personal computers and digital
entertainment platforms.  NVIDIA provides a "top-to-bottom"
family of performance 3D graphics processors and graphics
processing units that, in the company's opinion, has set the
standard for performance, quality and features for a broad
range of applications.

NVDA remains one of the stronger semiconductor stocks in the
market.  The stock has out performed the Philadelphia
Semiconductor Index (SOX.X) in a big way since the beginning of
October.  It looks like that trend of out performance may
continue over the next several weeks, especially if NVDA can
breakout above the $45 level.  The stock spent the latter half
of last week consolidating its recent gains.  And while the
consolidation was brief, NVDA is poised to breakout above the
$45 early next week.  A breakout above that level would most
likely cause the remaining shorts in the stock to capitulate to
the upside and drives NVDA higher, possibly towards its 52-week
high at the $50 level.  NVDA has a good chance of breaking out
if the Nasdaq and SOX.X continue higher.  Broad market and
sector-based demand should allow for the stock to advance past
the $45 level, so make sure to confirm direction in the two
aforementioned averages when entering a breakout above $45.  If
the Nasdaq and SOX.X weaken early next week, a pullback in
NVDA down to the $42 to $43 range would offer a favorable entry
point for those who like to enter bullish plays on weakness.
The company reports earnings on November 8, which could act as
a catalyst to help the stock breakout over $45 if buyers begin
to show up in anticipation of a good report.  Our coverage stop
is initially in place at $40.

BUY CALL NOV-40 RVU-KH OI=2158 at $7.30 SL=5.50
BUY CALL NOV-45*RVU-KI OI=2881 at $4.40 SL=2.75
BUY CALL NOV-50 RVU-KJ OI=1941 at $2.50 SL=1.25
BUY CALL DEC-45 RVU-LI OI=1639 at $6.30 SL=4.75
BUY CALL DEC-47 RVU-LW OI= 686 at $5.20 SL=4.00

Average Daily Volume = 6.67 mln

SNPS - Synopsis, Inc. $47.16 (+4.86 last week)

Synopsis is a supplier of electronic design automation software
to the global electronics industry.  The company's products are
used by designers of integrated circuits (ICs), including
system-on-a-chip ICs, and the electronic products (such as
computers, cell phones, and internet routers) that use such ICs
to automate significant portions of their chip design process.
SNPS' products offer its customers the opportunity to design ICs
that are optimized for speed, area, power consumption and
production cost, while reducing overall design time.

SNPS investors have had a rough go of things in recent months as
they have watched the stock fall from the low $60's in late May
into the mid $30's after the terrorist attacks of last month.
Since then the stock is showing a glimmer of hope, regaining
several prior levels of support and this week rallying through
the $45 resistance level on heavy volume on Wednesday.  SNPS is
likely to benefit from the current weak economic climate, as
their products and services help to streamline the chip design
process, and that will likely attract business from chip and
electronic manufacturers looking for any edge to trim costs.
The technical chart presents a mixed picture for us to evaluate
though.  While the past month has seen SNPS advance sharply,
building a nice upward trend which currently rests just above
$42.  The breakout over $45 was a nice development, but it
brought SNPS right up to the prevailing downtrend line in place
since late May (currently $48).  This trend turned back the
bulls in early August just before the stock plunged nearly $18
in a month.  So we have a couple ways to play.  Dip-buyers will
want to look for an intraday dip and bounce near $45 to initiate
new positions but will want to tighten their stops as SNPS
approaches the $48 level.  The more conservative strategy will
be to wait for a rally through $48 that comes with the conviction
of solid volume, before playing.  Either way, we are starting the
play with a stop at $44, as a failure to hold above that level
will be a strong indication of a failed breakout and we don't
want to be on the long side in that event.

BUY CALL NOV-45*YPQ-KI OI= 143 at $4.60 SL=2.75
BUY CALL NOV-50 YPQ-KJ OI=1078 at $2.10 SL=1.00
BUY CALL DEC-50 YPQ-LJ OI= 357 at $3.50 SL=1.75
BUY CALL DEC-55 YPQ-LK OI= 504 at $1.90 SL=1.00

Average Daily Volume = 1.16 mln

IMNX - Immunex Corporation $22.54 (+0.02 last week)

Immunex is a biopharmaceutical company dedicated to developing
immune system science to protect human health.  Applying its
scientific expertise in the fields of immunology, cytokine
biology, vascular biology, antibody-based therapeutics and
small molecule research, the company works to discover new
targets and therapeutics for treating rheumatoid arthritis,
asthma and other inflammatory diseases, as well as cancer and
cardiovascular diseases.

Shares of IMNX have been jumping over the past couple days in
response to the company's earnings report.  While IMNX only
managed to match estimates, investors seem to have liked the 26%
jump in sales of arthritis drug, Enbrel.  Since the news release
on Wednesday, IMNX found solid support at its converged 20-dma
(then at $20.16) and 200-dma (then at $20.68) and the fledgling
rally is helping the daily Stochastics oscillator to stop its
decline before entering oversold territory.  Volume is running
slightly ahead of the ADV, and the Biotech index (BTK.X) is
giving the appearance of a bullish recovery too.  Proof that
there is no consensus of opinion, on Thursday Morgan Stanley
downgraded IMNX to Neutral, while JP Morgan upgraded the stock
to a Buy.  Go figure...  We're looking to grab an attractive
entry on a dip and bounce from the vicinity of the 200-dma, and
we'll set a nice tight stop at $20.  More conservative players
will want to wait for IMNX to clear the $24 resistance level
before entering the play.  Clearing that resistance level should
open the door for IMNX to challenge the $30 level, the site of
major support that failed in March.

BUY CALL NOV-20 IUU-KD OI=2596 at $3.50 SL=1.75
BUY CALL NOV-22*IUU-KX OI=6165 at $1.90 SL=1.00
BUY CALL NOV-25 IUU-KE OI=1406 at $0.85 SL=0.50
BUY CALL DEC-22 IUU-LX OI=2929 at $2.80 SL=1.50
BUY CALL DEC-25 IUU-LE OI=1895 at $1.80 SL=1.00

Average Daily Volume = 9.51 mln

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The Option Investor Newsletter                   Sunday 10-21-2001
Sunday                                                      3 of 5

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



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* FREE REAL-TIME quotes and custom option chains
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* ZERO minimum deposit required to open an account
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Note: Options involve risk. Risk disclosure:


FFIV - F5 Networks $15.43 (-0.32 last week)

F5 Networks is the leader in Internet Traffic and Content
Management (iTCM), and delivers application aware networks
through its open Internet Control Architecture. F5 features the
industry's leading set of integrated products and services that
manage, control and optimize Internet traffic and content.

FFIV rebounded from its 10-dma at $14.30 last Friday.  The
stock gained momentum going into the close with its strong
advance past the $15.25 level.  The two aforementioned events
could've allowed for traders to gain entries into this play.
With FFIV's strong finish last Friday, the stock is poised to
work towards its relative highs early next week.  As it stands
now, FFIV's relative highs are about $1 from current levels,
around the $16.50 mark.  Because the stock is low in price, a
$1 move in FFIV could lead to some decent gains in its options,
so traders with open positions might look for strength up around
the $16.50 level early next week as a possible exit point.  As
long as the $14 level continues to hold, as is did late last
week, FFIV will have a better chance to work substantially
higher over in the near future.  Therefore, while some
consolidation between the $14 and $16 levels next week might
not sit well with those with open positions, it could ultimately
lead to a solid breakout and a trip up to $17.50.  Keep a close
eye on the price action of the Networking Index (NWX.X) as it
should continue to offer insight into FFIV's trading.

BUY CALL NOV-12 FLK-KV OI=152 at $3.80 SL=2.20
BUY CALL NOV-15 FLK-KC OI=253 at $2.20 SL=1.25
BUY CALL NOV-17*FLK-KW OI=278 at $1.10 SL=0.50
BUY CALL JAN-17 FLK-AW OI=316 at $2.50 SL=1.25
BUY CALL JAN-20 FLK-AD OI=353 at $1.80 SL=0.75

Average Daily Volume = 530 K

DELL - Dell Computer $24.05 (-0.05 last week)

Dell Computer is a direct computer systems company.  The
company offers its customers a full range of computer systems,
including desktop computer systems, notebook computers,
workstations, network servers and storage products, as well as
an extended selection of peripheral hardware, computing
software and related services.

DELL staged a nice rebound from the lower-end of its recent
trading range last Friday.  Going forward, the better entries
might be found on a pullback down to support, which is currently
located around the $22.75 level.  That particular level
supported DELL on several occasions last week during its pullbacks
and may continue to do so on any future weakness.  To the upside,
we need to see DELL break its short-term string of relatively
lower highs.  For that to happen, DELL needs to advance past
the $25 level.  A move above $25 may offer an entry point for
those who favor the momentum approach, but it's important to
point out that DELL has resistance just above that level around
$25.25.  So an entry on an advance past $25 might not offer the
best risk/reward scenario, which is why an entry on a pullback
down around $22.75 might be the better approach because it would
offer less in the way of risk and more in the way of potential
reward.  On the other hand, if DELL does a little more base
work around its current levels, then it could breakout above the
$25 level and make its up towards the $27.50 efficient zone of
historical trading.  The company reports on November 15, so a
little more consolidation over the next week or two could lead
to an earnings run.  But, we need to see the stock hold its
relative lows in order for it to gain the necessary strength to
run into earnings.  Both the Hardware (GHA.X) and Box Maker
(BMX.X) Indexes traded strongly Friday, so look for further
strength in those two indexes when gauging DELL's upside
potential - DELL is a component of both.

BUY CALL NOV-22 DLQ-KX OI=16532 at $2.80 SL=1.50
BUY CALL NOV-25*DLQ-KE OI=41466 at $1.40 SL=0.75
BUY CALL NOV-27 DLQ-KY OI=34803 at $0.60 SL=0.25
BUY CALL JAN-25 DLQ-AE OI=44639 at $2.60 SL=1.75
BUY CALL JAN-27 DLQ-AY OI=10798 at $1.70 SL=1.00

Average Daily Volume = 27.3 mln

JNJ - Johnson & Johnson $58.42 (+3.07 last week)

Johnson & Johnson is engaged in the manufacture and sale of a
broad range of products in the healthcare field.  The company
conducts business in virtually every corner of the globe.
JNJ's activities are divided into three primary business
segments; Consumer, Pharmaceutical and Professional.  The
Consumer division is focused on personal care and hygiene
products, while the Professional segment provides a wide range
of products used by the healthcare profession.  The
Pharmaceutical group provides a broad range of over-the-counter
and prescription medications for the treatment of afflictions
ranging from antifungal to dermatological to pain management
conditions.  In June of 2001, the company merged with ALZA Corp,
a research-based pharmaceutical company which became a direct,
wholly owned subsidiary of JNJ.

Continuing to ride the bullish trend in Health Care stocks, JNJ
advanced a bit further on Friday, underscoring the significance
of the stock's breakout through the $58 level.  The main concern
here is the fact that buying volume is declining and Friday came
in under the ADV again.  Could it be that the bulls are running
out of conviction?  Probably not, but they may need to take a
breather before extending their gains any further.  And that will
be our opportunity to strike.  Look for an intraday dip into the
$56-57 area on lighter volume, and then enter new positions as
buying volume returns.  We're retaining our $54.50 stop, as a
close below that level would violate major support near $55.
Stochastics are getting quite overextended and a mild pullback
at this point would be healthy for the current bullish move.

BUY CALL NOV-55*JNJ-KK OI= 3370 at $4.30 SL=2.75
BUY CALL NOV-60 JNJ-KL OI= 4292 at $1.05 SL=0.50
BUY CALL JAN-55 JNJ-AK OI=11773 at $5.50 SL=3.50
BUY CALL JAN-57 JNJ-AY OI=14729 at $3.70 SL=2.25
BUY CALL JAN-60 JNJ-AL OI=27291 at $2.40 SL=1.25

Average Daily Volume = 8.04 mln

JNPR - Juniper Networks $23.66 (+2.60 last week)

As a provider of Internet infrastructure solutions, JNPR serves
Internet service providers and other telecommunications service
providers, helping them to meet the demands resulting from the
rapid growth of the Internet.  The company delivers next
generation Internet backbone routers that are specifically
designed for service provider networks.  JNPR's flagship product
is the M40 Internet backbone router, which complements the
recently-introduced M20, which is a router built specifically
for emerging service providers.  The routers provided by the
company combine the features of the JUNOS Internet Software,
high performance ASIC-based packet forwarding technology and
Internet-optimized architecture into a purpose-built solution
for service providers.

Bullish traders tried to rally JNPR right out of the gate on
Friday, but a lack of strength in the Networking sector (NWX.X)
conspired to send the stock down for a retest of the $22 level
before any bullish move could stick.  Starting with the
lunchtime lull, buyers began showing up to support the stock and
volume built throughout the afternoon.  By the closing bell,
volume had swelled to 60% above the ADV and had temporarily
lifted the stock right to the $24 resistance level.  JNPR fell
back a bit at the close, but still managed to end the day with a
gain, which is another sign of strength given the fact that the
NWX ended the day with a 1% loss.  The series of higher lows
continues to build and now we are looking at possible support at
$22, $21 and then finally $20, just above our $19.50 stop.
Target a breakout over $24.25 (just above Wednesday's opening
high) on continued strong volume for new momentum-based entries.
More intraday dips can be used for entering the play at a
slightly better price, but make sure the pullbacks continue to
occur on reduced volume.  And continue to monitor the NWX for
renewed strength, as significant weakness there will likely hold
back any significant rally in shares of JNPR

BUY CALL NOV-22 JUX-KX OI=5977 at $3.80 SL=2.25
BUY CALL NOV-25*JUX-KE OI=5929 at $2.65 SL=1.25
BUY CALL NOV-30 JUX-KF OI=1394 at $1.20 SL=0.50
BUY CALL JAN-25 JUX-AE OI=3855 at $4.10 SL=2.50
BUY CALL JAN-30 JUX-AF OI=4064 at $2.90 SL=1.50

Average Daily Volume = 15.2 mln

ORCL - Oracle Corp $14.54 (-0.40 last week)

One of the giants in the software world, Oracle is a heavy weight
in the database industry.  The focus their products at two different
areas: systems software and Internet business applications software.
Yearly sales have been over $10 billion with profit margins over
23% (both trailing twelve months).

ORCL has been showing impressive consistency over the past
month, gradually moving higher in a series of higher highs and
higher lows.  The stock's most recent dip found support right at
the converged 20-dma and 50-dma near $13.60 on Thursday, and
buyers are once again pushing the share price higher.  Despite
the fact that daily Stochastics are weakening, the candles are
not following suit, and that divergence speaks to the underlying
strength in ORCL.  The $13.50 level is emerging as solid support
as ORCL is now holding above the spring lows.  Not only that,
ORCL is setting up to challenge the $15 level, which is the 50%
retracement of the stock's loss from the May highs to the
September lows.  Target new entries on a dip and bounce near the
$13.50-14.00 level, possibly at the 20-dma.  Otherwise wait for
strong buying volume to clear the $15.40 level before taking a

BUY CALL NOV-12 ORQ-KV OI= 9839 at $2.55 SL=1.25
BUY CALL NOV-15*ORQ-KC OI=29737 at $0.95 SL=0.50
BUY CALL NOV-17 ORQ-KW OI= 5728 at $0.30 SL=0.00
BUY CALL DEC-15 ORQ-LC OI=27786 at $1.60 SL=0.75
BUY CALL DEC-17 ORQ-LW OI=19848 at $0.80 SL=0.40

Average Daily Volume = 40.4 mln

ABGX - Abgenix $28.31 (+0.89 last week)

Abgenix is a biopharmaceutical company that develops and
intends to commercialize antibody therapeutic products for the
treatment of a variety of disease conditions, including
transplant-related diseases, inflammatory and autoimmune
disorders, cardiovascular disease, infectious diseases and

Bullish Biotech investors responded positively to strong
earnings from GENZ on Thursday and that sentiment seems to have
spilled over into trading of our ABGX play.  The stock managed
to solidify its support near $27 over the past 2 days and looks
poised to take another shot at breaking above the $30 resistance
level, which has twice turned back the bulls in the past 2 weeks.
The Biotech index (BTK.X) is showing renewed signs of life, once
more regaining the $500 level.  The real test will come next week
when we see whether the bulls can push the BTK back through the
$520 level, which would pave the way for a push back towards the
$540 level.  ABGX would clearly benefit from such a move by
pressing back towards $30.  Consider new entries either on a
renewed dip and bounce from the $27 level or on a volume-backed
rally that manages to clear the $30.50 level.  Keep stops in
place at $26 for now.

BUY CALL NOV-25 AZG-KE OI=164 at $4.90 SL=3.00
BUY CALL NOV-30*AZG-KF OI=236 at $2.30 SL=1.25
BUY CALL JAN-30 AZG-AF OI=186 at $4.50 SL=2.75
BUY CALL JAN-35 AZG-AG OI=148 at $2.80 SL=1.50

Average Daily Volume = 1.51 mln

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The Option Investor Newsletter                   Sunday 10-21-2001
Sunday                                                      4 of 5

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CMA - Comerica $44.98 (-5.01 last week)

Comerica is a multi state financial services provider formed to
acquire the outstanding common stock of Comerica Bank.  As of
December 31, 2000, Comerica owned, directly or indirectly all
the outstanding common stock of seven banking and 35 non banking
subsidiaries.  Comerica has strategically aligned its operations
into the three major lines of the Business Bank, the Individual
Bank, and the Investment Bank.

CMA's out performance to the downside continued again last
Friday.  The stock, which is a member of the Bank Sector
Index (BKX.X), hit a fresh 52-week low, while the BKX.X is
currently more than 70 points away from its yearly low.  CMA's
relative weakness, by that comparison alone, is obvious.  We're
looking for the stock's downside to continue over the next
several weeks as it enters a new distribution phase.  The loss
of the $45 level late last week could lead to continued selling
early next week, possibly down to the $44 level.  If the BKX.X
continues into the red early Monday, new entries on weakness
could be had in CMA.  However, it should be noted that at this
point CMA is a momentum play.  So only those who favor going
with the trend should look for new entries on further weakness
below current levels.  Plus, the daily stochastics are in
oversold territory, but that indicator doesn't work as much
during a trend, and CMA is most definitely in a trend
currently, to the downside!  If the stock does rebound along
with the BKX.X early next week then traders should give the
stock some room to work higher up to resistance as high as
$46 or even $48.  A pause and subsequent rollover at either of
those levels may offer an entry point.  Our stop is initially
in place at the $48 level.

BUY PUT NOV-50 CMA-WJ OI=141 at $5.70 SL=4.00
BUY PUT NOV-45*WFC-WI OI= 68 at $2.50 SL=1.50

Average Daily Volume = 772 K

THQI - THQ Inc. $49.85 (-2.95 last week)

THQ Inc. is a developer, publisher and distributor of interactive
entertainment software for hardware platforms in the home video
game market.  The company publishes titles for Sony's PlayStation
and PlayStation 2, Nintendo 64, Nintendo Game boy Color and
personal computers in most interactive software genres, including
children's action, adventure, driving, fighting, puzzle, role
playing, simulation, sports and strategy.

THQI reported earnings late last week that were impressive
indeed.  But offered guidance that was less than welcomed.  The
company's failure to "raise the bar" caused a steep sell-off
last Friday to the tune of almost 7%.  The stock actually
closed a mere 10 cents off of its day low, which was in stark
contrast to the broader tech sector and its rally into the
close.  THQI's failure to appease its investors last Friday
could lead to a long lasting liquidation of its shares over
the next several weeks.  Technically, the stock failed to hold
its $50 support level last Friday, with its overwhelming
weakness near the close.  The loss of the $50 support level
reinforces the likelihood of further downside early next week.
If the Nasdaq is weak early next week, bearish traders might
look to jump into new put plays at current levels.  Any rally
back up to the $52.50 to $53 are should be met with strong
selling and provide a solid entry point into put positions.
To the downside, we'll target the $42 level initially.   And
our stop is initially set at $54.

BUY PUT NOV-50*QHI-WJ OI=149 at $4.10 SL=3.00
BUY PUT NOV-45 WFC-WH OI=179 at $2.10 SL=1.25

Average Daily Volume = 1.10 mln

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GDW - Golden West Financial $48.82 (-4.57 last week)

Golden West Financial is a savings and loan holding company,
the principal business of which is the operation of a savings
bank business through its wholly owned savings bank subsidiary,
World Savings Bank, FSB.  The company operates in California,
Florida, Colorado, Texas, Arizona, New Jersey, Kansas, and

GDW made little effort to rebound with the broader market last
Friday.  In fact, the stock continued along its path of lower
lows, which was most encouraging for those of us who are
betting bearishly on this stock.  The Bank Sector Index (BKX.X)
finished in the red last Friday, despite the strong closes in
the Dow and S&P 500.  Further weakness in the BKX.X should help
to pressure GDW, although the stock is not a member of the
index.  Moving into next week's trading, if the BKX.X continues
demonstrating weakness relative to the broader market, then
new entries can be had in GDW around its current levels.  While
a relief rally and subsequent rollover might offer a better
risk/reward scenario, the stock is trading weak enough that
momentum-based entries are worth considering at current levels.
To the downside, we're still targeting the $45 level as a
potential exit point over the next week or two.  But because
GDW isn't the most volatile stock, it might be more prudent to
use contracts that are higher in delta when trading GDW
options.  We're sliding our coverage stop down to the $51 level,
which still gives GDW plenty of room to work lower.  The more
likely point of short-term resistance is at the $50 level.

BUY PUT NOV-55 GDW-WK OI=733 at $7.10 SL=5.50
BUY PUT NOV-50*GDW-WJ OI= 69 at $3.50 SL=2.25

Average Daily Volume = 966 K

ADVS - Advent Software $41.78 (-2.78 last week)

Advent Software is a provider of Enterprise Investment
Management solutions that automate and integrate mission
critical functions of investment management organizations
through software products, services and data integration.

ADVS traded down towards its $40 support level last Friday,
but rebounded into the close, following the tech sector and
the Software Sector Index (GSO.X) higher into the close.  The
good news is that the stock's rally was capped below its most
recent relative high around the $43, which means that ADVS'
string of relatively higher lows is intact.  We would expect a
rollover from current levels early next week if the Nasdaq and
GSO.X pullback.  If that's the case, then entries around
current levels would offer a favorable risk situation.  As long
as ADVS doesn't advance past $43 early next week, then that
could lead to the eventual breakdown below the $40 level.  The
relatively higher lows tells us that supply is meeting each
rally attempt, which are growing sequentially weaker, judging
by last Friday's short-fall.  If the stock continues to trade
in this fashion, it should eventually breakdown below $40 as
supply overwhelms demand at that level.  Any future breakdown
below $40 is certainly tradable, but it may be better in terms
of risk management to enter plays ahead of the breakdown before
the crowd rushes in to short the stock.  If the breakdown does
come, we'll turn to the $35 level as a possible downside target.

BUY PUT NOV-45*UIV-WI OI= 60 at $6.40 SL=5.00
BUY PUT NOV-40 UIV-WH OI=187 at $3.50 SL=3.00

Average Daily Volume = 851 K

EBAY - eBay $51.95 (-7.08 last week)

eBay is a United States based dynamic pricing online trading
platform located at ebay.com.  eBay developed a Web based
community in which buyers and sellers are brought together in
an efficient format to buy and sell items, such as collectibles,
automobiles, high end or premium are times, jewelry, electronics
and a host of other items.

After last Friday's showing of weakness, we have a feeling that
this EBAY trade is going to work in our favor.  The stock didn't
even attempt to rally in the close along with its tech sector
counterparts.  EBAY instead finished just a few cents off of its
lows for the day.  That divergence indicates that EBAY could see
further weakness early next week.  Of course if the broader tech
sector pulls back early next week, then EBAY is all the more
likely to continue declining.  Those aggressive traders who
entered put plays near the open last Friday were able to capture
maybe $2 or $2.50 to the downside in the play.  Those who got
the early entry might consider booking some very quick gains if
EBAY drops to the $50 level early next week as it could bounce
from that level.  Conversely, a relief rally early next week
could allow for traders to enter new plays on a rollover at
resistance near $53.25 or higher around the $54.50 level.  Just
make sure that volume is lighter on strength than it is on
weakness.  Our shorter term downside price target is at the $48
level, which could potentially be reached next week if the
Nasdaq weakens.  Our longer term price target is at the $45
level.  And our stop has been lowered to the $57 level, which
is the site of EBAY's gap lower.

BUY PUT NOV-60 QXB-WL OI=1217 at $9.50 SL=7.75
BUY PUT NOV-55*QXB-WK OI=1964 at $6.40 SL=5.25
BUY PUT NOV-50 QXB-WJ OI=3964 at $3.90 SL=2.50

Average Daily Volume = 7.50 mln

WFC - Wells Fargo $39.00 (-2.08 last week)

Wells Fargo & Company is a diversified financial services company
providing banking, mortgage and consumer finance through stores,
the Internet and other distribution channels throughout North
America and elsewhere internationally.

WFC displayed a bit of divergence last Friday.  The stock only
lost 0.17% while the Bank Sector Index (BKX.X) shed 0.67%.  We
know that that's a very small amount to be concerned with, but
it should be known nonetheless.  Hopefully that was just a one
day event and WFC will continue lower early next week as we
have about $1 in the play.  While a $1 move in the stock isn't
big, it's enough to be concerned with.  As such, those traders
who were in early on the play should consider entering tight
stops, or at least moving stops down to a break even point.
Because if the divergence continues, we might see WFC gain some
strength relative to the BKX.X which could spell trouble for
our bearish play.  If the stock does rebound next week in
synch with the BKX.X, then traders might look for a rollover
near $40.  But if it moves higher on its own merits, or out
performs its sector to the upside, then it might be wise to get
out of the way.  On the other hand, further weakness from current
levels is certainly possible if the BKX.X continues to weaken
early next week.

BUY PUT NOV-45*WFC-WI OI=50656 at $6.50 SL=5.25
BUY PUT NOV-40 WFC-WH OI=22705 at $2.50 SL=1.25

Average Daily Volume = 4.23 mln

ADI - Analog Devices $36.17 (-6.94 last week)

Analog Devices is a leading maker of analog (linear and
mixed-signal) and digital integrated circuits (ICs), including
digital signal processors.  The company's broad line of ICS
incorporate analog, mixed-signal and digital signal processing
technologies that translate real-world phenomena such as
pressure, temperature, and sound into digital signals.  ADI's
products are used in communications equipment (40% of sales),
computers and peripherals, and medical and scientific
instruments.  Among ADI's more notable customers are Motorola,
Dell, Lucent, and Sony.

Early weakness in Semiconductor stocks gave way on Friday to
buying pressure and the bulls managed to eke out a small victory
at the closing bell.  That positive movement helped shares of
ADI to recover from the morning lows and actually post a
fractional gain on the day.  This is far from a reversal of trend
though, as the stock is still pinned under its 20-dma (currently
$37) and Stochastics are not yet into oversold territory.  We are
seeing the bulls defending the $35 support level, and this bounce
could be setting us up for a fresh entry near the $39-40
resistance level.  Action points remain at these two levels.
Consider new entries either on a rollover from the $39-40 level
if accompanied by renewed Semiconductor sector (SOX.X) weakness.
Alternatively, momentum traders can target new positions as ADI
drops through the $35 support level, on its way back to retest
the $30-31 lows from late September.  Keep stops in place at $40.

BUY PUT NOV-35*ADI-WG OI=523 at $3.10 SL=1.50
BUY PUT NOV-30 ADI-WF OI=320 at $1.25 SL=0.50

Average Daily Volume = 3.57 mln

MBI - MBIA Inc. $44.04 (-4.10 last week)

MBIA is engaged in providing financial guarantee insurance and
investment management and financial services to public finance
clients and financial institutions on a global basis.  Financial
guarantee insurance provides an unconditional and irrevocable
guarantee of the payment of the principal of, and interest or
other amounts owing on, insured obligations when due.

As the selloff in shares of MBI have continued over the past few
days, the stock has now fallen through the 38% retracement of
the September gains.  MBI is fast approaching the 50%
retracement at $43.43 as well, while selling volume remains
robust.  Financial stocks remain under pressure and news of PVN's
woes Thursday night didn't help the bullish case any.  Resistance
now rests near $46 and we have moved our stop to that level.  Any
intraday rally near this level could be just what we are looking
for in terms of fresh entry points, as there is not much in the
way of positive catalysts to push MBI higher than that.  A
rollover near resistance may make for the best entry, but that
doesn't mean we can't step into the play on further weakness.
The next major support level rests at $43, and continued strong
selling volume that pushes price below that point will present
another solid entry point as the bears take aim on the $40 level.

BUY PUT NOV-45*MBI-WI OI=1390 at $2.75 SL=1.50
BUY PUT NOV-40 MBI-WH OI= 304 at $1.25 SL=0.50

Average Daily Volume = 628 K


Rumors of My Demise Have Been Greatly Exaggerated...
By Mark Phillips
Contact Support

Actually, I have no idea if any such rumors ever got started,
but if they did, I have this to say.  I'm Back!  And as I
promised before I left for a couple weeks of adjusting to
changes in my life, I'm once again recharged and ready to do
battle in the markets.  Many thanks to all those that sent along
their well wishes.  They were much appreciated, and I'm sure
contributed to a trouble-free and quite enjoyable 2 weeks of

I must say that I was pleasantly surprised to return to the
markets Thursday morning and find that in my absence I had not
missed any great market moves, but rather the major indices had
each struggled higher for much of my absence.  So now that I'm
back, let's see if we can decipher what is in the works for
these crazy markets we call home.  It doesn't matter whether I
look at the NASDAQ, DJIA or S&P indices, I see the same pattern.
A market that has been rising in agony, although it has given
back a bit of ground in the past few days.  Daily oscillators
are approaching oversold territory, while the candles have
stubbornly refused to give up much ground.

And then we have the VIX still lurking around in the 35 region,
well into the historical buy zone.  That paints a pretty decent
bullish picture, don't you think?

Not so fast, Sparky!  The weekly timeframe is flashing some
major warnings on all these indices, with oscillators
approaching overbought without coming anywhere near reclaiming
all the ground that has been lost since the last overbought
cycle.  When the Stochastics roll over here, we're likely to have
some divergence setups that could be quite profitable for
downside movement in the weeks following.

Earnings have largely been a non-event, with no great upside
surprises and the disappointments already largely factored into
the respective stock prices.  So we have a market rising in
agony...but what is going to lift stock prices once earnings
wind down?  More rate cuts?  New product announcements?  Analyst
upgrades?  Companies guiding revenue and earnings estimates
higher?  Positive economic developments?  World peace?  NOT!!
We're likely to get the opposite of each of these bullish
developments and I don't expect that is the sort of thing that
is going to motivate investors to go on a buying spree.

My bias for the near to medium term is to the downside and
here's a simple, down-home, explanation of why.  I returned home
from a 2-week vacation to find the corner grocery store going
out of business.  I talked to the manager, and he said there
just wasn't enough business for him to compete in the current
economy.  That also means the bank and pharmacy inside the store
will go away.  And in the shopping center in which this store
resides, there are numerous other businesses that will likely
suffer and possibly fold due to the reduced business traffic.
Think this is an isolated case?  Think again!  Drive through
your home town and keep an eye out for "Going Out of Business
Sale" signs.  They're there, and becoming all to frequent in a
troubled economic, social and political climate.

Putting my money where my mouth is, we're finally adding a LEAP
Put play to the Watch List this weekend, and eBay (NASDAQ:EBAY)
gets the nod as the first one into the chute.  I've written an
extensive play writeup below and we'll go into further detail on
Wednesday.  This is NOT a play to go out and enter on Monday and
we're just in the process of setting up for what will likely be
a very profitable Portfolio play.

Speaking of the Portfolio, notice that both of our current plays
survived intact and we're raising the stop on Philip Morris
(NYSE:MO) to $48.  Alas, the past 2 days have not been kind to
our Sprint PCS (NYSE:PCS) play.  It plunged through its 20-dma
and came to rest on Friday right on the ascending trendline, and
2 red cents above our $23 stop.  Ouch!  I'm keeping the play
alive and hoping for a rebound on Monday, as the decline seems a
bit severe.  Afterall, the company announced strong subscriber
growth with its earnings report and managed a couple of analyst
upgrades to boot.  Of course there is always a dark cloud to go
along with that silver lining.  Despite strong subscriber
growth, the real bottom line number, net income fell 60%, and
that isn't good.  We're leaving our stop at $23, and a close
below that will have PCS moving to the drop list in short order.

On the brighter side, Eli Lilly (NYSE:LLY) finally rewarded our
vast patience with an entry point earlier this week and made it
into the Portfolio.  It's about time, don't you think?  Aside
from raising the entry target on Tyco International (NYSE:TYC)
to $45, the Watch List remains largely unchanged, as it is
looking more likely that we'll get filled at or below our
aggressive target levels listed below

I apologize for the rambling and fragmented nature of the
commentary this weekend.  I'm still trying to settle my mind
back into the pattern of the markets after far too many Mai Tais
and Pina Coladas.  In an attempt to compensate, I'll use my
Monday column to further clarify my thinking about medium and
long-term market direction.  And then on Wednesday, we'll talk
in more detail about the EBAY play and more importantly how the
LEAP Put play differs from the LEAP Call plays that we have all
become so familiar with.

Until then, keep your trading capital safe.  Remember, when in
doubt, stay out.

See you Monday!

Mark Phillips
Contact Support

LEAPS Portfolio

Current Open Plays


MO     07/30/01  '03 $ 45  VPM-AI  $ 6.10  $ 9.00   47.54%  $ 48
PCS    09/17/01  '03 $ 25  VVH-AE  $ 5.00  $ 4.60  - 8.00%  $ 23
                 '04 $ 25  LVH-AE  $ 7.10  $ 6.70  - 5.63%  $ 23
LLY    10/17/01  '03 $ 75  VIL-AO  $10.80  $11.90   10.19%  $ 72
                 '04 $ 80  LZE-AP  $12.20  $13.30    9.02%  $ 72

LEAPS Watchlist

Current Possibles


CPN    07/08/01  $22-23        JAN-2003 $ 25  OLB-AE
                            CC JAN-2003 $ 25  OLB-AE
                               JAN-2004 $ 30  LZC-AF
                            CC JAN-2004 $ 30  LZC-AF
ENE    07/29/01  $24           JAN-2003 $ 25  VEN-AE
                            CC JAN-2003 $ 20  OFE-AD
                               JAN-2004 $ 25  LYN-AE
                            CC JAN-2004 $ 20  LYN-AD
GE     08/12/01  $32-33        JAN-2003 $ 40  VGE-AH
                            CC JAN-2003 $ 30  VGE-AF
                               JAN-2004 $ 40  LGR-AH
                            CC JAN-2004 $ 30  LGR-AF
GD     09/16/01  $75-76        JAN-2003 $ 75  VJH-AO
                            CC JAN-2003 $ 65  VJH-AM
                               JAN-2004 $ 80  KJD-AP
                            CC JAN-2004 $ 70  KJD-AN
TYC    09/16/01  $45           JAN-2003 $ 45  VYL-AI
                            CC JAN-2003 $ 40  VYL-AH
                               JAN-2004 $ 50  LPA-AJ
                            CC JAN-2004 $ 40  LPA-AH
NOK    09/23/01  $13-14        JAN-2003 $ 15  VOK-AC
                            CC JAN-2003 $12.5 VOK-AV
                               JAN-2004 $ 15  LOK-AC
                            CC JAN-2004 $ 10  LOK-AB

EBAY   10/19/01  $58-59        JAN-2003 $ 50  OIY-MJ
                               JAN-2003 $ 60  OIY-ML

New Portfolio Plays

LLY - Eli Lilly $75.00

Mixed news from various Drug companies has served to keep the
Pharmaceutical index (DRG.X) stuck in a rut for the past 3
weeks, vacillating around the 200-dma, which is hovering between
support near $390 and resistance near $400.  We've been patiently
waiting for LLY to come back to earth and give us an attractive
entry near the $73-74 level since its last visit to that area a
month ago.  Recall that last time we avoided taking a position
due to the gapping movement of the stock.  Those gaps
historically get filled, and that is precisely what happened on
Wednesday as the stock dropped right to $74 in response to news
of slowing Prozac sales.  That filled the gap and gave us a solid
entry with a solid gain from the lows by the closing bell.  Since
then we have seen modest gains with no gaps and our entry from
Wednesday looks like it should be solid.  The main cautionary
note pertains to the unfavorable positioning of our oscillators.
Weekly Stochastics are looking a bit week and threatening to
reverse into a downward trajectory as of this writing.  And don't
look for any help from the daily oscillator, as it has been cast
adrift in no-man's land between overbought and oversold for the
past 3 weeks.  Despite a less than ideal technical picture, we
are looking for defensive stocks like LLY to continue to attract
buyers over the months ahead.  Our first obstacle to scale will
be the $80 resistance before taking aim at the bottom of the June
gap near $83.50.  We are protecting the position with a tight
stop at $72.  Closing below that level would represent the a new
yearly low closing price and would make it clear that we are on
the wrong side of both the stock and Drug sector movement in

BUY LEAP JAN-2003 $75.00 VIL-AO $10.80
BUY LEAP JAN-2004 $80.00 LZE-AP $12.20

New Watchlist Plays

EBAY - eBay $51.95  ** PUT PLAY**

As I mentioned in my LEAP Puts article a few weeks back, EBAY is
one of those stocks that still fits my criteria for a long-term
bearish play.  With a PE ratio still north of 170, if investor
expectations are not aggressively met by continued revenue
growth, we could see a rapid and significant contraction of that
rich multiple.  Much like the deflation of the Internet bubble
last year, we are starting to see those signs of weakness
emerging from company officials, specifically Thursday night
when EBAY announced its most recent quarterly results.  EBAY
managed to beat estimates by a penny, and delivered better than
70% revenue growth on an annualized basis, but there are some
distinct chinks in the armor of the reigning champ of Internet
stocks.  Notice that this is the second quarter in a row where
the company has shrouded the true results by reporting pro-forma
earnings, which exclude those pesky one-time charges.  That is a
warning sign to me that those expectations are getting harder to
meet, especially after the company reported true earnings in the
January and April quarters.  Management also expressed concerns
about future revenue if the fourth quarter does not deliver the
robust results typically expected from the holiday shopping
season.  I may be jumping too quickly here, but I think we are
seeing the early signs of the deflation of that last bastion of
the Internet bubble, and I'd like a piece of that action.  Now I
won't be rushing to open that new position, as daily Stochastics
are now approaching oversold and the weekly oscillator is still
rising towards overbought.  We could very easily see another
cycle or two on the daily chart before that weekly chart is
flashing its sell signal, but now is the time to be laying out
those plans of action when the conditions are ripe.  Friday's gap
lower will likely need to be filled in the weeks ahead, but the
top of that gap could create some solid resistance that gives us
an entry...if the oscillators line up, that is.  So here's the
deal.  We'll be targeting new positions near the $58-59 area,
but we won't leap in until we see the weekly Stochastics topping
out in overbought territory at the same time that we see that
daily oscillator begin to fall out of overbought.  Since this is
our first LEAP Put play in the Watchlist, I'll be delving into
greater detail on this play and our strategy for LEAP Puts in
general in my Wednesday LEAPS column for those that would care
to join me.  It is a safe bet that we won't miss out on a
rational entry point between now and then.




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The Option Investor Newsletter                   Sunday 10-21-2001
Sunday                                                      5 of 5

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Position Exit Guidelines: Know When It's Time To Go!
By Mark Wnetrzak

One of the most common questions we receive from new readers
concerns the correct timing of early exits for Covered-Call
and Naked-Put positions.  While there is no perfect answer or
solution to this dilemma, one of the most practical closing
strategies is based on the target ROI for the position.  If a
play originates with a 15% monthly return target and a slightly
smaller but reasonable profit becomes available at an earlier
time (based on a lower yield and shorter time period), the play
is a candidate for early closure.  Of course, most positions
that meet this criteria will appear to be so successful they
can't possibly lose before expiration.  That aspect, along with
commission considerations and the overwhelming effects of human
nature, which urges you to simply hold the play and hope for
maximum profit, will prevent most traders from closing the
position early.  As you know, even when the underlying issue
moves in the forecast direction, an option position is always
at risk from a variety of unexpected events or changes or in
the market.  These effects are reduced with hedged positions
or limited risk strategies but the end result can still be very
unfavorable.  Due to the recent bearish activity, the concept
of an "early-exit" has become far more important in portfolio
management.  In fact, there were a number of positions in this
month's play list, including some which would have been our most
profitable selections, except that they were closed prematurely
in the interest of sound money management.

That brings us to an important question concerning the section
summaries (weekly profit/loss results) and portfolio management.
That is, how to determine when to exit a play (or identify when
one should have been closed) without the added mental baggage
that comes with the potential for financial failure.  It's easy
to trade successfully, based on unemotional technical analysis,
when your actions are not affected by the possibility of monetary
loss.  Without actually trading the positions, the best we can do
is follow the basic rules (Jim's "Top-Ten" trading axioms on the
OIN web-site are ageless!) and try to manage the plays just as we
would if they were in our own portfolio.  I mention this because
each week we receive numerous requests for advice or assistance
with various positions and unfortunately, the answer we must give
is simple: "Deciding when to enter and exit a play is a matter of
personal preference."  Fortunately, there is one secret to winning
in this game.  You must trade on your own terms and according to
your personal level of knowledge and experience!  You must not
allow the effects of outside opinion or extraneous information
influence your judgment!  You are the only one who can decide how
YOU will trade.  While professional traders generally strive for
consistent monthly returns of 10% to 15%, your specific style or
risk/reward attitude may require a less aggressive approach.  If
you can not afford the potential loss associated with a position,
don't make the trade!  It's difficult to foresee initially, but
success will come when you create a favorable balance of proven
strategies and sound money-management techniques.  As with any
worthwhile endeavor, this task requires patience and hard work,
and the fact is, many traders give up after only a few losing
plays, long before they have time to learn (and understand) the
various methods required for profitable trading.

New traders can easily fall into that trap but fortunately, there
is a way out.  Read the newsletter, including the back-issues on
the web-site, and especially Jim's commentary.  Subscribe only to
worthy publications and study all you can about option trading.
Review the current bibles: Options as a Strategic Investment, by
Lawrence McMillan; Option Volatility and Pricing Techniques, by
Sheldon Natenburg; Secrets for Profiting in Bull and Bear Markets,
by Stan Weinstein; and Trading for a Living, by Dr. Alex Elder.
Learn the rules and live by them and repeat the things that you
do best.  Don't use complicated strategies just because they are
unique or intriguing.  Often the best course of action is the
simplest and it's imperative to remember that the objectives are
more important than the merits of the technique itself.  If the
strategy is not suitable for your portfolio, then it should not
be used, no matter how attractive it appears!

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  23.66   OCT  12.50  3.30  *$  0.72  13.3%
SCTC   10.45  10.95   OCT  10.00  1.00  *$  0.55  12.6%
CMNT   13.01  14.90   OCT  12.50  1.00  *$  0.49   8.9%
PXLW   12.60  10.01   OCT  10.00  3.10  *$  0.50   7.6%
GNSS   28.34  39.18   OCT  22.50  7.30  *$  1.46   7.5%
MOGN   13.37  15.00   OCT  12.50  1.45  *$  0.58   7.0%
TFS    18.03  16.06   OCT  15.00  3.50  *$  0.47   7.0%
QLGC   27.50  38.50   OCT  22.50  5.70  *$  0.70   7.0%
MSCC   30.87  34.60   OCT  25.00  6.60  *$  0.73   6.5%
TQNT   18.08  16.74   OCT  15.00  3.90  *$  0.82   6.3%
IMNX   18.68  22.54   OCT  17.50  1.85  *$  0.67   5.8%
BLDP   18.55  24.24   OCT  15.00  4.30  *$  0.75   5.7%
IMMU   11.97  16.48   OCT  10.00  2.30  *$  0.33   4.9%
SANG   18.43  22.97   OCT  17.50  1.50  *$  0.57   4.9%
BSX    18.50  22.69   OCT  17.50  1.75  *$  0.75   4.9%
PLCM   28.87  30.62   OCT  25.00  4.40  *$  0.53   4.7%
EPIQ   25.50  27.30   OCT  22.50  3.70  *$  0.70   4.7%
IMNX   17.59  22.54   OCT  15.00  3.20  *$  0.61   4.6%
WEBX   21.60  29.77   OCT  17.50  4.80  *$  0.70   4.5%
PDG    13.32  11.37   OCT  12.50  1.35   $ -0.60   0.0%
TFS    20.99  16.06   OCT  17.50  3.90   $ -1.03   0.0%

AMLN    8.59   8.60   NOV   7.50  1.65  *$  0.56   7.0%
ISSX   19.01  25.16   NOV  15.00  5.10  *$  1.09   6.8%
KROL   13.75  13.00   NOV  12.50  2.10  *$  0.85   6.3%
BRCD   25.36  24.69   NOV  17.50  8.80  *$  0.94   4.9%
CIEN   17.13  16.43   NOV  12.50  5.30  *$  0.67   4.9%
MCAF   21.35  20.62   NOV  17.50  4.70  *$  0.85   4.4%

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


The major averages pulled back this option-expiration week as
investors digested earnings amidst the latest Anthrax news.
Most of the October positions above benefited from the recent
bullish momentum and closed above the sold strikes.  There is
a chance you will still own Pixelworks (NASDAQ:PXLW) on Monday.
With the recent price action and Wednesday's downgrade, exiting
the position on Monday may be prudent.  Placer Dome (NYSE:PDG)
still remains above its 150-dma and is still a viable hedge for
for those with a long-term outlook.  Three-Five Systems (NYSE:
TFS) suffered after reporting dismal earnings this week.  Exit
on Monday for a loss or roll-down and tie up capital trying to
break-even?  As for the November positions, Kroll (NASDAQ:KROL)
appears ready for a consolidation phase and may test support
near its 30-dma and the September high.

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

AFCI   21.98  NOV 17.50   AQF KW 5.20  3089  16.78   28    4.7%
BRCD   24.69  NOV 17.50   BQB KW 7.90  8011  16.79   28    4.6%
FFIV   15.43  NOV 12.50   FLK KV 3.50  152   11.93   28    5.2%
INFA    7.99  NOV  7.50   UYF KU 1.20  256    6.79   28   11.4%
ISSX   25.16  NOV 20.00   ISU KD 6.00  128   19.16   28    4.8%
OVER   19.19  NOV 15.00   GUO KC 4.80  257   14.39   28    4.6%
TERN    9.22  NOV  7.50   TUN KU 2.10  209    7.12   28    5.8%

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

INFA    7.99  NOV  7.50   UYF KU 1.20  256    6.79   28   11.4%
TERN    9.22  NOV  7.50   TUN KU 2.10  209    7.12   28    5.8%
FFIV   15.43  NOV 12.50   FLK KV 3.50  152   11.93   28    5.2%
ISSX   25.16  NOV 20.00   ISU KD 6.00  128   19.16   28    4.8%
AFCI   21.98  NOV 17.50   AQF KW 5.20  3089  16.78   28    4.7%
BRCD   24.69  NOV 17.50   BQB KW 7.90  8011  16.79   28    4.6%
OVER   19.19  NOV 15.00   GUO KC 4.80  257   14.39   28    4.6%

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).

AFCI - Advanced Fibre Communications  $21.98  *** Stage I ***

Advanced Fibre Communications (NASDAQ:AFCI) develops, manufactures
and supports telecommunications access products and services that
enable telecommunications companies and other service providers to
connect their central office switches to end users for voice and
high-speed data communications.  The company's products include
integrated multi-service access platforms, integrated access
devices, network management systems, indoor and environmentally
hardened outdoor cabinets for the portion of the telecom network
between the service provider and their customers, often referred
to as the "local loop," or "last mile."  On Thursday this week,
AFCI posted lower 3rd-quarter earnings, excluding a gain and said
it was cutting its work force by 9%.  With the current CAPEX slow-
down, the company plans to restructure and focus on their core
customers, markets, and products.  AFCI has been forging a Stage
I base over the last year and this play offers a reasonable cost
basis from which to speculate on the company's future.

NOV 17.50 AQF KW LB=5.20 OI=3089 CB=16.78 DE=28 TY=4.7%

BRCD - Brocade  $24.69  *** Entry Point ***

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.
Brocade's CEO recently mentioned he would be surprised if the
company didn't meet estimates for the 4th-quarter.  On Monday,
Brocade will host a live web-cast of a news conference at Storage
Networking World Fall 2001 for press, industry, and financial
analysts.  We simply favor the bullish change in character, which
suggests further upside potential.

NOV 17.50 BQB KW LB=7.90 OI=8011 CB=16.79 DE=28 TY=4.6%

FFIV - F5 Networks   $15.43   *** Bracing For A Rally? ***

F5 Networks (NASDAQ:FFIV) is a provider of integrated Internet
traffic and content management solutions designed to improve the
availability and performance of mission-critical Internet-based
servers and applications.  F5's products monitor and manage local
and geographically dispersed servers and intelligently direct
traffic to the server best able to handle a user's request.  Its
content management products enable network managers to increase
access to content by capturing and storing it at points between
production servers and end users and ensure that newly published
or updated files and applications are replicated uniformly across
all target servers.  When combined with its network management
tools, these products help organizations optimize their network
server availability and performance and cost-effectively manage
their Internet infrastructure.  On Tuesday this week, F5 said its
fiscal fourth-quarter loss will be wider than expected due to a
disruption in business caused by the Sept. 11 attacks.  Prior to
September, the company had said it expected to achieve revenue
in the range of $28 million to $30 million with a net loss of
$0.03 to $0.06 per share.  F5 is due to report earnings on Oct.
25, and this play offers a favorable entry point for speculators
who believe the "bad" news is already factored in.

NOV 12.50 FLK KV LB=3.50 OI=152 CB=11.93 DE=28 TY=5.2%

INFA - Informatica   $7.99  *** Cheap Speculation ***

Informatica (NASDAQ:INFA) is a provider of e-business infra-
structure and analytic software that enables its customers to
automate the integration, analysis and delivery of critical
corporate information.  The company provides its customers with
a comprehensive family of software products that are designed
to support more effective and timely business decision-making.
Shares of Informatica rallied over 14% on Friday, a day after
the company posted 3rd-quarter revenues higher than a year ago
and a pro forma loss that met analyst expectations.  Though
several brokerages lowered their 2002 estimates, analysts said
they believe Informatica is poised to take advantage of an
improving market for analytic software.  We simply favor the
recent bullish technical signals and feel $6.79 is a reasonable
price from which to speculate on the company's future.

NOV 7.50 UYF KU LB=1.20 OI=256 CB=6.79 DE=28 TY=11.4%

ISSX - Internet Security Systems  $25.16 *** 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 said 3rd-quarter
revenues were within previous guidance.  On Wednesday this week,
ISSX reported pro forma third-quarter results that exceeded
expectations on slightly higher revenues as the company's products
kept up demand in light of Internet worms such as Nimda, Code Red
and Code Blue.  Analysts remain bullish on security companies,
saying threats from recent viruses and increased international
conflicts will only improve sales of security products and
services going forward.  We simply favor the bullish move that
has now taken out the August high.

NOV 20.00 ISU KD LB=6.00 OI=128 CB=19.16 DE=28 TY=4.8%

OVER - Overture Services  $19.19   *** A New Name, A New Trend ***

Overture Services (NASDAQ:OVER) formerly known as GoTo.com,
operates an online marketplace that introduces consumers and
businesses that search the Internet to advertisers who provide
products, services and information.  Advertisers participating
in its marketplace include retail merchants, wholesale and
service businesses and manufacturers.  OVER facilitates these
introductions through its search service that enables advertisers
to bid in an ongoing auction for priority placement in its search
results.  Consumers access the GoTo search service primarily
through its affiliates, a network of Websites that have integrated
Overture Services' search service into their sites or that direct
consumer traffic to its site.  Consumers can also access Overture
Services' search service directly through OVER's Website.  Not
much news on Overture other than the name change last month.  We
simply favor the current bullish trend that has moved the stock
back above its 150-dma and the support area near our cost basis.

NOV 15.00 GUO KC LB=4.80 OI=257 CB=14.39 DE=28 TY=4.6%

TERN - Terayon Communication  $9.22  *** Entry Point! ***

Terayon Communication (NASDAQ:TERN) develops, markets and sells
broadband access systems that enable cable operators, telco
carriers and providers of broadband services to cost-effectively
deploy reliable voice, video and data services over cable, copper
wire (DSL) and satellite networks.  Terayon sells its broadband
access products through a direct sales force worldwide, and also
distributes its products via resellers and systems integrators.
Its major cable customers include Adelphia Communications, Cox
Communications, Rogers Cable, Shaw Communications and Crossbeam.
Some of its major telco customers include many popular ILEC's
(incumbent local exchange carriers) in the United States such as,
Southwestern Bell, Bell South, Qwest Communications and Verizon,
and CLEC's (competitive local exchange carriers) including NUBOX
Communications, Matanuska Telephone Association and Encore.  TERN
is working higher in the recent stair-step pattern and a move to
the upside appears imminent.  Investors can speculate on that
outcome in a conservative manner with this position.

NOV 7.50 TUN KU LB=2.10 OI=209 CB=7.12 DE=28 TY=5.8%



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

CCUR   10.20  NOV 10.00   URC KB  1.25 4013   8.95   28   12.7%
STOR    5.85  NOV  5.00   OSU KZ  1.30 5450   4.55   28   10.7%
TTWO   11.08  NOV 10.00   TUO KB  1.85 277    9.23   28    9.1%
TIVO    5.65  NOV  5.00   TUK KA  0.95 1132   4.70   28    6.9%
JBL    23.06  NOV 20.00   JBL KD  4.10 407   18.96   28    6.0%
SLAB   20.55  NOV 17.50   QFJ KW  3.90 2     16.65   28    5.5%
RCOM    8.70  NOV  7.50   RAU KU  1.55 104    7.15   28    5.3%
MCAF   20.62  NOV 17.50   CFU KW  3.90 97    16.72   28    5.1%
YELL   21.87  NOV 20.00   YUX KD  2.60 0     19.27   28    4.1%


Put Writing: A Simple And Effective Strategy
By Ray Cummins

One of our new readers requested an explanation of the basic
approach to selling puts for monthly income, or establishing a
discounted cost basis in a particular issue.

Put writing is designed to complement a stock-trading portfolio
because it offers two methods for generating profits: collecting
premium by selling out-of-the money options and/or acquiring a
stock at a reduced price.  In our current approach, we focus on
out-of-the-money (OTM) options with average position returns of
5-8% per month.  We expect you to initiate our plays at or near
the premium that is quoted in the play narrative.  That's the
only way you can expect to achieve the overall return we list
for each candidate.

The easiest way to utilize this section is to take our wide range
of selections and narrow them down through your own due diligence
until you find plays that meet your risk-versus-reward tolerance.
Always research the company and its calendar of upcoming events,
earnings dates and other scheduled announcements.  When you have
up-to-date information about a stock and its industry, you will
be way ahead of traders who buy and sell on rumors or comments
from the online message boards.  The axiom, "Knowledge is Power!"
was never more appropriate than with investing and with the tools
on the Internet, there is no excuse for being uninformed about a
company or its industry group.

After you have selected a candidate, you must decide how much
stock you are willing to (potentially) purchase through the sale
of puts.  Usually, it's a minimum of 5 - 10 contracts (to prevent
commissions from significantly affecting the ROI) and we suggest
that you place the opening order with your broker as a "limit"
rather than a "market" because some of the positions are thinly
traded.  After your order is filled, monitor the play until it
expires or needs to be closed for other reasons.  We track the
portfolio on a weekly basis but we may not make comments about
every position after the initial recommendation.  The ongoing
summary narrative is a service we provide to help novice traders
understand when and why various plays might be opened and closed.
However, it is not intended as a substitute for your personal
trading techniques nor does it replace your duty to manage the
positions in your portfolio.

Early Exits and Potential Adjustments:

A "short" put position generally requires the underlying issue to
remain above a specific price in order to generate profits.  You
must be confident of this outcome before initiating any play on
our candidate list.  In addition, anytime you participate in an
option trade, you should know at what (stock) price the position
will be at "break-even."  You should also determine the price the
underlying issue would have to reach to generate unacceptable
losses.  Ideally, you will enter a position and then simply wait
for expiration.  Unfortunately, it doesn't always work that way.
To be successful on a consistent basis, option positions must be
closed or adjusted if predetermined exit points are reached.  You
must be prepared to make these adjustments when they are needed,
not after the position has moved beyond a reasonable loss level.
This type of money management requires advanced planning and the
discipline to execute preplanned strategies in adverse conditions,
regardless of your emotions or instincts.

With this form of trading, there is a large downside potential and
and in many cases, failure to adjust a position in a timely manner
can lead to catastrophic portfolio losses.  We publish the classic
"warning" paragraph in each week's play narrative for that reason
alone.  The last two sentences are paramount to success: "It is
also important that you consider using trading STOPS on any 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."  It is not uncommon for traders who have
enjoyed a long string of winning positions to get "wiped out" by
one bad play because they failed to limit their losses when the
market moved against them.  The problem is, the decision usually
has to be made under duress, at the worst possible moment.  The
only way to avoid this fate is to develop a plan with a target
exit (or adjustment) point, and stick to it.  This requirement is
difficult for new traders to adhere to but the simple fact is,
professionals use proven money management techniques to maximize
profits and limit losses and that's why they come out ahead in
the long run.

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  24.65   OCT  12.50  0.35  *$  0.35  20.9%
SAGI   15.25  21.65   OCT  12.50  0.45  *$  0.45  17.2%
ARXX   11.00  11.29   OCT  10.00  0.40  *$  0.40  15.2%
WEBX   26.75  29.77   OCT  20.00  0.40  *$  0.40  15.1%
PLCM   24.37  30.62   OCT  15.00  0.50  *$  0.50  13.5%
ORCL   14.20  14.54   OCT  12.50  0.25  *$  0.25  12.8%
TERN    7.01   9.22   OCT   5.00  0.30  *$  0.30  12.8%
MOT    16.90  17.50   OCT  15.00  0.30  *$  0.30  12.6%
DRXR   15.50  18.60   OCT  12.50  0.30  *$  0.30  12.4%
OCLR   21.85  21.40   OCT  20.00  0.40  *$  0.40  11.9%
DELL   22.56  24.05   OCT  20.00  0.35  *$  0.35  11.2%
PRX    35.75  37.48   OCT  30.00  0.70  *$  0.70  11.0%
FTO    15.32  18.10   OCT  12.50  0.35  *$  0.35  10.4%
IMNX   20.11  22.54   OCT  17.50  0.25  *$  0.25   9.6%
ILXO   26.26  28.98   OCT  22.50  0.45  *$  0.45   9.1%
PLCM   27.37  30.62   OCT  20.00  0.40  *$  0.40   7.4%
TTN    19.60  18.49   OCT  17.50  0.30  *$  0.30   7.2%
RTN    34.04  34.46   OCT  30.00  0.65  *$  0.65   6.9%
AEM    11.18   9.88   OCT  10.00  0.35   $  0.23   6.9%
IMCL   53.30  59.55   OCT  40.00  0.60  *$  0.60   5.8%
AH     20.00  23.48   OCT  17.50  0.30  *$  0.30   5.6%
KNDL   19.65  16.13   OCT  17.50  0.40   $ -0.97   0.0%

CNXT   10.15  10.04   NOV   7.50  0.35  *$  0.35  12.8%
NETA   18.38  19.04   NOV  15.00  0.45  *$  0.45   8.8%
RFMD   24.30  20.17   NOV  15.00  0.55  *$  0.55   8.8%
IMMU   16.30  16.48   NOV  12.50  0.35  *$  0.35   8.4%
CMNT   15.25  14.90   NOV  12.50  0.35  *$  0.35   8.2%
BRCM   31.80  29.25   NOV  20.00  0.60  *$  0.60   7.5%
QLGC   37.06  38.50   NOV  22.50  0.65  *$  0.65   7.0%

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


RF Micro Devices (NASDAQ:RFMD) and Broadcom (NASDAQ:BRCM) are
the only positions on our watch-list this week and as long as
both issues trade above their respective strike prices of $15
and $20, we will remain in the plays.


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

EMLX   24.65  NOV 15.00   UML WC  0.45 923   14.55   28    9.1%
GNSS   39.18  NOV 30.00   QFE WF  0.90 168   29.10   28   11.2%
JNPR   23.66  NOV 15.00   JUX WC  0.50 9746  14.50   28   10.4%
QLGC   38.50  NOV 22.50   QLQ WX  0.45 622   22.05   28    6.0%
QLTI   23.71  NOV 20.00   QTL WD  0.60 0     19.40   28   10.2%
SAGI   21.65  NOV 17.50   UEJ WW  0.40 5     17.10   28    8.8%
VRTS   29.08  NOV 17.50   VIV WW  0.30 4224  17.20   28    5.3%
WEBX   29.77  NOV 20.00   UWB WD  0.35 924   19.65   28    6.0%

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

GNSS   39.18  NOV 30.00   QFE WF  0.90 168   29.10   28   11.2%
JNPR   23.66  NOV 15.00   JUX WC  0.50 9746  14.50   28   10.4%
QLTI   23.71  NOV 20.00   QTL WD  0.60 0     19.40   28   10.2%
EMLX   24.65  NOV 15.00   UML WC  0.45 923   14.55   28    9.1%
SAGI   21.65  NOV 17.50   UEJ WW  0.40 5     17.10   28    8.8%
QLGC   38.50  NOV 22.50   QLQ WX  0.45 622   22.05   28    6.0%
WEBX   29.77  NOV 20.00   UWB WD  0.35 924   19.65   28    6.0%
VRTS   29.08  NOV 17.50   VIV WW  0.30 4224  17.20   28    5.3%

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).

EMLX - Emulex  $24.65  *** Second Chance Entry! ***

Emulex (NASDAQ:EMLX) is a designer, developer and supplier of a
broad line of Fibre Channel host adapters, application-specific
computer chips, hubs, and unique software products that provide
connectivity solutions for Fibre Channel storage area networks,
network attached storage and redundant array of independent disks
storage.  Its products are based on internally developed ASIC
technology, and are deployable across a variety of configurations,
system buses and operating systems, enhancing data flow between
computers and peripherals.  Emulex's products offer customers the
unique combination of critical reliability, scalability, and high
performance, and can be customized for mission-critical server
and storage system applications.  Shares of EMLX rallied Friday
after the company posted earnings that were a penny ahead of the
consensus estimate.  Of course, earnings expectations have been
sharply reduced in recent quarters but any upside surprise is
positive.  We believe Emulex is a great addition to a long-term
technology portfolio and this position allows investors a second
chance to establish a low risk entry point in the issue.

NOV 15.00 UML WC LB=0.45 OI=923 CB=14.55 DE=28 TY=9.1%

GNSS - Genesis Microchip  $39.18  *** Solid Earnings! ***

Genesis Microchip (NASDAQ:GNSS) is a leading supplier of cost
effective integrated circuits and software solutions, enabling
the convergence of Internet information and video.  Flat-panel
displays, digital televisions, digital CRTs and consumer video
products all benefit from Genesis technology, which connects
and formats any kind of source content to be displayed with the
highest image quality on any type of screen.  Shares of GNSS
jumped almost $6 Friday after the company announced quarterly
revenues of $36.1 million, up 140% over the previous year.  The
CEO said the company's strong performance for the quarter is
attributable to previous design wins and he expects continued
demand for their technology.  The recent price activity in GNSS
is bullish and this position establishes a cost basis near
technical support.

NOV 30.00 QFE WF LB=0.90 OI=168 CB=29.10 DE=28 TY=11.2%

JNPR - Juniper Networks  $23.66  *** Entry Point! ***

Juniper Networks (NASDAQ:JNPR) is a provider of purpose-built
Internet infrastructure solutions that meet the scalability,
performance, density and compatibility requirements of rapidly
evolving, optically enabled Internet Protocol networks.  The
company's products are specifically designed, or purpose-built,
for service provider networks and to accommodate the size and
scope of the Internet.  Juniper Networks' Internet backbone
routers offer customers increased reliability, performance,
scalability, interoperability and flexibility.  The company's
products combine high-performance, ASIC-based packet-forwarding
technology, the features of the JUNOS Internet software and an
Internet-optimized architecture into a purpose-built solution
for the service provider market.  The recovery rally in JNPR's
share value began last week after Cisco (NASDAQ:CSCO) offered
positive comments about their future earnings outlook.  Morgan
Stanley subsequently upgraded Juniper's stock to "outperform,"
based on the company's customer base and potential for growth.
This position simply offers a discounted price for the issue.

NOV 15.00 JUX WC LB=0.50 OI=9746 CB=14.50 DE=28 TY=10.4%

QLGC - QLogic  $38.50  *** Earnings Speculation! ***

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.  The recent consolidation in
QLGC shares appears to be over and now the issue is bracing for
a rally ahead of the company's quarterly earnings report.  The
best way to speculate on an earnings report is with a low risk
position and this play offers a cost basis near $22.

NOV 22.50 QLQ WX LB=0.45 OI=622 CB=22.05 DE=28 TY=6.0%

QLTI - QLT Inc.  $23.71  *** A Big Day! ***

QLT Inc. (NASDAQ:QLTI) is a world leader in photodynamic therapy,
a field of medicine using light-activated drugs in the treatment
of disease.  QLT's innovative science has led to the development
and commercialization of breakthrough treatments utilizing this
technology for applications in ophthalmology and oncology and is
exploring the potential in other diseases.  QLTI shares jumped
30% Friday on news that the U.S. government healthcare programs
Medicare and Medicaid would expand coverage for QLT's new drug
Visudyne.  QLT and Novartis AG co-developed Visudyne and they
say the expanded coverage includes reimbursement for patients
with an eye disease related to macular degeneration, a leading
cause of blindness.  Investors appear to favor the news and this
position offers a discounted cost basis in this unique company.
Target a slightly higher premium initially, to allow for a brief
consolidation in the issue.

NOV 20.00 QTL WD LB=0.60 OI=0 CB=19.40 DE=28 TY=10.2%

SAGI - Sage  $21.65  *** GNSS Merger Partner! ***

Sage (NASDAQ:SAGI) is a leading provider of digital display
processors, enabling superior picture quality for a variety of
consumer technology and PC-display products ranging from web
appliances to TVs and flat panel monitors.  Sage is developing
products that bring the home theater experience to the mass
consumer and PC-display market through digitally enhanced TV,
projection displays, DVD players and internet appliances.  NEC
Corporation has recently selected Sage's Jaguar processor for
their new Valuestar monitors.  Genesis Microchip (NASDAQ:GNSS),
a maker of semiconductors for graphics and video applications,
recently said it would buy Sage for $241 million in stock to
expand in the market for chips used in flat-panel displays.
Genesis will issue 0.571 share of GNSS for each outstanding
share of SAGI and the deal currently values Sage's stock at
$22.37 a share.  This position offers a favorable risk-reward
outlook for investors who wouldn't mind owning a stake in the
combined company.

NOV 17.50 UEJ WW LB=0.40 OI=5 CB=17.10 DE=28 TY=8.8%

VRTS - Veritas Software  $29.08  *** Another Entry Point! ***

Veritas Software (NASDAQ:VRTS) is a global supplier of data
availability software products.  Its products are designed to
enable continuous productivity for computing environments
ranging from the desktop computer to the large enterprise data
center, including storage area networks.  The company offers a
wide range of data availability software products to manage the
growth of available data and the increasing complexity and size
of networked environments.  Veritas also provides a full range
of services to assist its clients in planning and implementing
data availability solutions.  Shares of software companies have
performed very well in recent sessions and Veritas is one of a
small group of issues that some observers believe could benefit
from the aftermath of the recent terrorist attacks.  Veritas'
software helps businesses recover lost or damaged data and that
will always be an essential service for businesses that rely
heavily on computers.  The issue does not have one of the best
technical charts but the risk of owning VRTS shares at a cost
basis near $17 is acceptable.

NOV 17.50 VIV WW LB=0.30 OI=4224 CB=17.20 DE=28 TY=5.3%

WEBX - WebEx Communications  $29.77  *** Breakout Coming? ***

WebEx Communications (NASDAQ:WEBX) develops and markets services
that allow end users to conduct meetings and share software
applications, documents, presentations and other content on the
Internet using a standard Web browser.  WebEx's architecture
consists of WebEx Interactive Services, WebEx Interactive
Platform and WebEx Interactive Network.  Shares of WEBX rallied
Friday after the company reported that revenues for the third
quarter of 2001 were $22.1 million, a 196% increase from the
third quarter of 2000, and a 20% sequential increase from the
second quarter of 2001.  The company's outstanding performance
topped analysts' expectations for revenues and earnings for the
fifth consecutive quarter and despite the difficult economic
environment, WebEx achieved strong growth of customers across a
wide segment of their target market.  As companies seek safer,
more cost-effective alternatives for doing business, experts
say that web-conferencing will achieve increasing popularity
and WebEx will certainly benefit from that trend.

NOV 20.00 UWB WD LB=0.35 OI=924 CB=19.65 DE=28 TY=6.0%



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

PWAV   13.15  NOV 10.00   VFQ WB  0.40 5328   9.60   28   14.3%
PSFT   26.56  NOV 20.00   PQO WD  0.75 438   19.25   28   13.4%
DFXI   25.74  NOV 20.00   DQF WD  0.65 20    19.35   28   12.2%
CTXS   25.22  NOV 20.00   XSQ WD  0.60 887   19.40   28   11.5%
SEAC   24.15  NOV 20.00   UEG WD  0.65 0     19.35   28   11.5%
MRVL   21.36  NOV 15.00   UVM WC  0.50 110   14.50   28   11.4%
BRCM   29.25  NOV 20.00   RCQ WD  0.55 2886  19.45   28    9.3%
AMAT   32.55  NOV 25.00   ANQ WE  0.55 1412  24.45   28    8.5%
NTIQ   31.05  NOV 22.50   CQT WX  0.45 12    22.05   28    7.3%
FLEX   21.30  NOV 15.00   QFL WC  0.30 172   14.70   28    7.1%



Technology Stocks Fuel The Afternoon Rally!
By Ray Cummins

                         - MARKET RECAP -
Friday, October 19

The major equity averages rebounded from an opening sell-off to
finish the session with moderate gains on strength in computer
software, data storage, and semiconductor issues.  The NASDAQ
closed 19 points higher at 1,671.  Blue-chip shares also moved
higher with Coca-Cola (NYSE:KO), Hewlett-Packard (NYSE:HWP),
Boeing (NYSE:BA), Procter & Gamble (NYSE:PG), Disney (NYSE:DIS),
Wal-Mart (NYSE:WMT) and United Technologies (NYSE:UTX) leading
the Dow to a 40 point gain at 9,204.  The broader-market S&P 500
index climbed 5 points to 1,073 amid buying pressure in retail,
oil service, utility, natural gas, biotech and consumer stocks.
Trading volume checked in at 1.27 billion on the NYSE and at 1.6
billion on the NASDAQ.  Market breadth was bullish, with winners
outnumbering losers 17 to 14 on the Big Board and 4 to 3 on the
technology exchange.  In the treasury market, the U.S. 30-year
bond lost 18/32 to yield 5.36%.

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

Nvidia     (NSDQ:NVDA)   NOV25P/30P  $0.60   credit   bull-put
Powerwave  (NSDQ:PWAV)   NOV17C/10P  $0.10   debit    synthetic
RPM Inc.   (NYSE:RPM)    NOV12C/10P  $0.10   credit   synthetic
First Data (NYSE:FDC)    OCT65C/65P  $2.50   debit    straddle
Invitrogen (NSDQ:IVGN)   NOV85C/55P  $1.25   credit   strangle

The First Data (NYSE:FDC) straddle was the big winner this week,
providing a 35% gain in just five days.  The synthetic position
in Powerwave (NASDAQ:PWAV) also offered a favorable "early-exit"
profit on Wednesday and Nvidia (NASDAQ:NVDA) is up 10% since the
bullish play was initiated last week.  RPM Inc. (NYSE:RPM) and
Invitrogen (NASDAQ:IVGN) were less exciting but both positions
are off to a relatively good start and should generate profits
in the coming weeks.

Summary of Current Positions (as of Friday, October 19):

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

AT    $55.25   $59.03   OCT65C/60C   $0.75  $60.75  $0.75   Closed
AVE   $76.95   $75.28   OCT85C/80C   $0.55  $80.55  $0.55   Closed
ERTS  $56.14   $53.39   OCT70C/65C   $0.55  $65.55  $0.55   Closed
GD    $88.32   $82.86   OCT75P/80P   $0.50  $79.50  $0.50   Closed

A credit spread is profitable if the underlying stock finishes the
expiration period beyond (below call/above put) the sold option
in the position.
Stock  Pick    Last     Position     Debit   Value    G/L   Status

ASFC  $54.60  $52.25  JAN50P/OCT50P  $1.35   $2.75   $1.40  Closed
HLYW  $14.00  $13.80  JAN15C/OCT15C  $1.30   $1.50   $0.20  Closed
IDCO  $13.10  $12.97  DEC15C/OCT15C  $0.70   $0.60  ($0.10) Closed
NWL   $24.11  $24.99  DEC25C/OCT25C  $0.90   $1.25   $0.35  Closed

Note: All of these positions could have been "rolled" forward in
expectation of additional profits.  We will show them closed after
one expiration period simply to reduce the time required to track
the current plays in the portfolio.

The calendar (or time spread) is profitable if the value of the
position exceeds the initial debit (or cost-basis) at the end of
the expiration period for the long position.  However, because we
track the plays based on the current closing cost/value, the gains
for time spreads will rarely be reflected until the play closes.
Each month, as you sell another option against the long position,
the net cost should decline or the position value should increase.
Stock  Pick    Last     Position     Debit   Value    G/L   Status

DRXR  $13.35  $18.60  JAN15C/NOV17C  $1.95   $2.00   $0.05   Open

Note: The Drexler (NASDAQ:DRXR) position was a bullish adjustment
from the calendar spread section.  The new play reached a maximum
value near $2.20 earlier in the week, offering a favorable exit

The diagonal spread is profitable if the value of the position
exceeds the initial debit (or cost-basis) at the expiration of
the long option.
			      - DEBIT STRADDLES -
Stock  Pick     Last    Position    Debit    M/V     G/L    Status

BA    $30.10   $33.45  JAN30C/30P   $7.70   $9.10   $1.40   Closed

          M/V = Maximum Value  G/L = Potential Gain or Loss

Note: The Boeing (NYSE:BA) straddle did not meet our target entry
price but for those traders who opened the position at the higher
debit, a favorable "early-exit" profit was achieved in just a few

A debit-straddle is profitable when the closing credit in the
position exceeds the initial cost.
Stock  Pick     Last     Position    Credit   M/V    G/L    Status

ELNK  $15.23  $17.50    OCT17C/12P  ($0.25)  $0.70  $0.45   Closed
SLNK  $17.68  $14.22    NOV22C/12P   $0.10   $0.40  $0.50   Closed
VOD   $21.96  $23.37    NOV25C/20P   $0.25   $0.90  $1.15   Closed

          M/V = Maximum Value  G/L = Potential Gain or Loss

Note: All of these plays achieved acceptable "early-exit" profits
soon after they were initiated.  In addition, the "covered" put
combination in JDS Uniphase (NASDAQ:JDSU), which is not listed,
produced an excellent short-term gain for traders who chose to
exit the bullish position during the recent rally.

A synthetic position is profitable when both the short and long
options can be closed for an overall premium that is higher than
the initial cost basis in the play.

Questions & comments on spreads/combos to Contact Support
                           - NEW PLAYS -
MSFT - Microsoft  $57.90  *** Time-Selling Opportunity! ***

Microsoft (NASDAQ:MSFT) develops, manufactures, licenses and
supports a wide range of software products for a multitude of
computing devices.  Their software includes scalable operating
systems for servers, personal computers (PCs) and intelligent
devices; server applications for client/server environments;
knowledge worker productivity applications; and also software
development tools.  The company's online efforts include the
MSN network of Internet products and services and alliances with
companies involved with broadband access and various forms of
digital interactivity.  Microsoft also licenses various consumer
software programs; sells hardware devices; provides consulting
services; trains and certifies system integrators and developers;
and researches and develops advanced technologies for future
software products.  Microsoft has four product segments: Desktop
& Enterprise Software and Services; Consumer Software, Services
and Devices; Consumer Commerce Investments; and Other.

Subscribers have asked for new candidates for the strategy of
Covered-calls on LEAPS and since Microsoft has been the subject
of rampant speculation among analysts (and the OIN's editors) in
recent weeks, we decided to examine the issue's option premiums
for favorable combination positions.  The outcome was positive
as we have discovered an acceptable entry opportunity at the $65
strike price, just below the most current resistance area in the
underlying issue's technical pattern.  Traders that participate
in long-term calendar spreads should consider this position if
they have a neutral-to-bullish outlook for MSFT in the coming

PLAY (conservative - Covered-calls on LEAPS):

BUY  CALL   JAN03-65  VMF-AM  OI=54888  A=$9.00
SELL CALL   NOV01-65  MSQ-KM  OI=18362  B=$0.80

MRK - Merck  $65.38  *** Technicals Only! ***

Merck (NYSE:MRK) is a global research-driven pharmaceutical
company that discovers, develops, manufactures and markets a
broad range of human and animal health products, directly and
through its joint ventures, and provides pharmaceutical benefit
services through Merck-Medco Managed Care, L.L.C. (Merck-Medco).
The company's operations are principally managed on a products
and services basis and are comprised of two reportable segments,
Merck Pharmaceutical, which includes products marketed either
directly or through joint ventures, and Merck-Medco.  Merck
Pharmaceutical products consist of therapeutic agents, sold by
prescription, for the treatment of human disorders.  Merck-Medco
revenues are derived from the filling and management of
prescriptions and health management programs.

Shares of Merck have slumped in recent sessions after the company
announced that third-quarter earnings increased 6%, driven by sales
of key drugs and growth of its Merck-Medco prescription benefits
business but also warned that profits from its arthritis drug Vioxx
would be lower than previously expected.  The company also noted
that several lawsuits have been filed over the safety of Vioxx,
alleging that users may face an increased risk of heart attack or
gastrointestinal bleeding.  The news prompted a brisk sell-off in
the company's shares and now the issue is heading for a test of the
yearly lows near $61.  The premiums for the (OTM) call options are
slightly inflated and the potential for a successful (technical)
recovery is significantly affected by the resistance at the sold
strike price; a perfect condition for a bearish credit spread.

PLAY (conservative - bearish/credit spread):

BUY  CALL  NOV-75  MRK-KO  OI=2361  A=$0.20
SELL CALL  NOV-70  MRK-KN  OI=6343  B=$0.70

                      - Speculation Plays -

This position is based on recent increased activity in the stock
or its underlying options.  Although the play offers favorable
risk/reward potential, it must also be evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and trading style.

SEAC - SeaChange International  $24.15  *** Rally Mode! ***

SeaChange International (NASDAQ:SEAC) is the world leader in
digital video systems.  The company creates powerful server and
software systems that manage, store and distribute professional
quality digital video.  SeaChange's unique products are based
on a scalable, distributed software architecture and standard
technology components to continuously deliver exponential
improvements in digital video cost-performance.  As a result,
SeaChange enables broadband, broadcast, satellite and new media
companies to streamline operations and reduce costs, allowing for
expanded services, new applications and increased revenues.

Shares of SEAC have been "on the move" in recent sessions and
some traders say it's because of the new interest in the use of
video-on-demand services over the IP-based infrastructure of the
global marketplace.  SeaChange is a leader in this industry with
reliable, scalable, and cost-effective systems for delivering
interactive video over broadband and wireless infrastructures.
The company has achieved a dominant standing in the marketplace
through the development of its unique technology, an extensive
service organization dedicated to video server applications and
unparalleled expertise in digital advertising, which will be an
important source of revenue in interactive video presentation.

Analysts are bullish on the company's future and we favor the
recent technical indications in its stock.  Traders who want to
speculate on additional upside activity in SEAC shares can do so
in a conservative manner with this combination position.  Target
a credit in the position initially, to allow for a consolidation
from the recent rally.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JAN-30  UEG-AF  OI=203  A=$2.55
SELL PUT   JAN-20  UEG-MD  OI=10   B=$2.20

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

                   - STRADDLES AND STRANGLES -
MUR - Murphy Oil  $79.90  *** Premium Selling! ***

Murphy Oil (NYSE:MUR) is a worldwide oil and gas exploration and
production company with refining and marketing operations in the
United States and the United Kingdom.  Its operations are grouped
into two business activities, exploration and production, and
refining, marketing and transportation.  Murphy's exploration and
production activities are divided into five geographic segments,
the United States, Canada, the United Kingdom, Ecuador and all
other countries, while its refining, marketing and transportation
activities are divided into three geographic segments, the United
States, the United Kingdom and Canada.  The company's individual
subsidiaries are Murphy Exploration & Production, Murco Petroleum
Ltd., Murphy Oil Co. Ltd., Murphy Petroleum Ltd. and Murphy Oil
USA Inc.

With the recent surge in market volatility, we decided to offer
a new "premium selling" position for the more-aggressive trader.
Based on analysis of the historical option pricing and technical
background, this position meets our fundamental criteria for a
favorable credit-strangle.  The issue has overpriced options, a
relatively well-defined trading range, and with earnings coming
out next week, speculators are sure to keep the premiums high in
the OTM options.  The probability of profit from this position is
higher than other plays in the same strategy based on theoretical
option pricing but as with any recommendation, the play should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.

PLAY (moderately aggressive - neutral/credit strangle):

SELL CALL  NOV-85  MUR-KQ  OI=156  B=$1.80
SELL PUT   NOV-70  MUR-WN  OI=22   B=$1.20
INITIAL NET CREDIT TARGET=$3.00-$3.25  Profit(max)=15%
UPSIDE B/E=$88.00  DOWNSIDE B/E=$67.00

                     - INDEX OPTION SPREADS -

As a trader, you may be familiar with options on individual stocks
where you have the right to buy (call option) or the right to sell
(put option) a particular stock at some predetermined price within
some predetermined time.  The buyer has the rights and the seller
the obligations.  With index options the basic ideas are the same.
Index options allow you to make investment decisions on a specific
industry group or on the market as a whole.  Spread strategies can
be made with index options similar to those made with individual
stock options and professional traders also employ index spreads
in hedge strategies.  We favor debit spreads on the S&P 500 index
(SPX) for momentum and hedging as well as out-of-the-money credit
spreads on the S&P 100 index (OEX) when the risk-reward outlook is
acceptable.  Low risk disparity spreads will also be listed (when
available) for the conservative index trader.

OEX - S&P 100 Index  $553.80  *** OTM Credit-Spreads ***

The Standard & Poor's 100 Index is a capitalization-weighted index
of 100 stocks from a broad range of industries.  The component
stocks are weighted according to the total market value of their
outstanding shares.  The impact of a component's price change is
proportional to the issue's total market value, which is the share
price times the number of shares outstanding.

Traders who participate in OTM credit-spreads often utilize S&P
100 (OEX) options because they generally contain more premium
than options on individual stocks and also provide an underlying
instrument less prone to huge, gapping moves.  The strategy will
profit if the underlying remains in a relatively small range and
from a technical viewpoint, the overall market seems likely to
move in constrained price pattern as the long-term outlook is
somewhat uncertain.  Review the OIN's Market Sentiment section
for more specific technical information on the current trends in

A Neutral-Outlook Strategy:

By combining two credit-spread positions, you can participate
in a popular neutral strategy known as the "Long Iron Condor."
It is often used with range-bound issues and it is a limited
risk, limited profit position that gives you a wide range for
success.  The benefit to this technique is that some brokers
require less collateral for the combined position, as only one
spread can lose money at expiration.  You should consult your
brokerage to determine the maximum margin requirements before
initiating the position.

PLAY (conservative - bearish/credit spread):

BUY  CALL  NOV-610 OEY-KB  OI=1596  A=$1.80
SELL CALL  NOV-600 OEY-KT  OI=1744  B=$2.55
NET CREDIT TARGET=$0.75-$0.85 PROFIT(max)=8%

- and -

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-480  OXB-WP  OI=4018  A=$4.00
SELL PUT  NOV-490  OXB-WR  OI=572   B=$4.80
NET CREDIT TARGET=$0.80-$0.90 PROFIT(max)=8%


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