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Daily Newsletter, Sunday, 10/28/2001

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The Option Investor Newsletter                   Sunday 10-28-2001
Copyright 2001, All rights reserved.                        1 of 5
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 10-26         WE 10-19         WE 10-12         WE 10-7
DOW      9545.17 +341.06  9204.11 -140.05  9344.16 +224.39 +272.56
Nasdaq   1768.96 + 97.65  1671.31 - 32.09  1703.40 + 98.10 +106.50
S&P-100   567.98 + 14.18   553.80 -  6.98   560.78 + 11.40 + 16.28
S&P-500  1104.61 + 31.13  1073.48 - 18.17  1091.65 + 20.27 + 30.44
W5000   10185.53 +290.64  9894.89 -154.23 10049.12 +212.01 +274.18
RUT       438.65 + 12.95   425.70 -  2.89   428.59 + 13.62 + 10.10
TRAN     2247.58 + 73.30  2174.28 - 60.45  2234.73 + 25.31 + 15.43
VIX        30.53 -  5.31    35.84 -   .61    36.45 +  1.79 -   .53
VXN        56.91 - 12.37    69.28 +  3.30    65.98 +  2.63 -  1.84
TRIN        0.87             1.19             1.08            1.14
TICK        +828             +342             +283            +290
Put/Call     .53              .80              .76             .96
******************************************************************


A Banner Week!
by Jim Brown

The Dow managed to tack on +341 points while the Nasdaq squeezed
out a respectable +97. While these numbers may not be as large as
investors would like we need to realize that there have already
been some great moves in the last few weeks. The Dow has posted
a +18% gain since the Sept-21st low of 8062 and the Nasdaq is now
up +27.5% since the low of 1387. These moves are larger than most
entire years and they occurred in the last four weeks. Don't
complain that the Nasdaq lost -6 points on Friday. It was just
profit taking after a very nice run!





After the great run described above we are now on our own and at
the mercy of the markets. Confused? Earnings are over for all
practical purposes. There will continue to be a trickle all the
way into late November but the lions share of the S&P companies
have all reported. There are some who feel that these earnings
gave us a boost out of the depths. The reasoning is that the bar
was set so low it would be hard for any company to miss the estimates.
Sorry folks, some managed to do it anyway. Those who beat the
lowered bar were not rewarded in general. There were some but
they were the exceptions. Regardless of your feelings about the
impact to the markets by this earning season, the impact is over.

We are now watching carefully as next week looms ahead of us.
The few companies that will announce are not expected to move
the markets. Instead traders will start looking at economic news
much more carefully as we get closer to the Nov-6th Fed meeting.
Will they or won't they? Zero, +25 or +50 basis points? Reports
that will impact that decision include the Consumer Confidence
on Tuesday and 3Q GDP on Wednesday. The week is loaded with
economic news and analysts are fairly confident that the Fed
will drop rates by another 25 points. The common idea is that
the supply of bullets is running low and they need to ration
those that are left. You can make more small cuts than large
ones and even if they are not making a difference on the surface
the continued press is positive. The Fed will probably try to
choose their shots carefully and we can expect the public
appearances and statements to increase as they try to talk the
economy back into growth mode.

The wild card on our side is now the mutual fund community.
Historically the last five days of October are used for end of
year window dressing. There is a flurry of activity and most
selling is already out of the way. This coming week is reserved
for buying winners as a sales tool for fund shoppers. Many funds
have October as a year end and this provides the incentive. Also
historically the best six months of the investing year begins
Nov-1st and many investors have made fortunes by using the
strategy of buying in Nov and selling in late spring.

While you may not subscribe to this theory it does exist. However
the January effect was once a valid investment tool as well. That
strategy has gone the way of all prior repeatable trends. Once
they are commonly known traders try to beat the trend by buying
earlier and selling sooner and the trend disappears. The January
effect moved into late December then early December and then into
the Thanksgiving week. Recently it has faded from view as buying
and selling became more spread out. The end of October trend could
be the next sacrificial offering. As traders buy earlier and earlier
to capitalize there is nobody left to buy during the last week.
Funds are not stupid, at least most of them. They plot these trends
and attempt to profit from them. Those that wanted to profit from
the last week of October would have bought over the last two weeks
and they would sell into any window dressing next week. If the
window dressing does not appear then funds who had speculated on
it would still be forced to sell rather than hold stocks they had
no long term desire to own.

For traders the markets have been very exciting to watch. Lower
openings with acceleration into the close. Poetry in motion!
Volume on Friday was even decent with the NYSE trading over 1.2
billion shares and the Nasdaq nearing 2 billion. Decent, not
strong. Advancers beat decliners even on the Nasdaq which lost
ground on profit taking on a couple big caps. The comment was
heard several times last week that happy hour had been moved
up to 3:PM in the markets as the last hour has produced some
strong moves. From a technical and sentiment standpoint the
markets have been performing extremely well. Investors are
counting on fiscal stimulus, tax cuts and increased government
spending to bolster the economy and keep it from crashing. The
GDP is estimated to be reported next week at -0.8% but nobody
appears to care that the recession will be confirmed. They are
looking 6-12 months into the future and counting on the rate
cuts to provide long term growth again. Historically once in
a recession the markets tend to do very well over the next 24
months and investors are taking that bet. It is the decline
into a recession that crashes markets and we have already seen
that chapter of this movie.

Investors are so positive that earnings will improve shortly
that they have ignored the continuing anthrax news and weak
economic data. It is tough to fight the tape when it powers
through all the bad news we have had over the last several
weeks. This bullishness has a catch. The VIX closed at another
post attack low of 30.53 and lost over five points for the week.
The VXN is now at pre-attack levels and could break under 50
next week. Granted the monstrous volatility we have had over
the last several weeks has created havoc with bid/ask spreads
and increased premium prices, the threat of it collapsing is
also real. When everyone lines up on the buyers side in the
markets there is nobody left to buy. Once the current buyers
are fully invested they need new buyers to push the prices up
to the next level. If there are no buyers ready to pay higher
prices then the rally will fail. Falling volatility means that
nobody is buying puts to protect their positions because they
do not expect the prices to fall. Great if it happens but
Murphy is still alive and well.

Several problems facing the markets next week are simply a
factor of cycles. The biotechs have been storming to higher
levels for several weeks. Many of them are approaching levels
of resistance dating back many months. The BTK.X is only 23
points away from serious resistance at 600 and is up +38%
since 9/11. Any reasonable trader would tell you that a pause
for a rest was imminent. The SOX.X is nearing resistance at
500 (19 points away) and has rallied substantially since 9/11.
The Nasdaq has reaped the benefits of the Biotechs and Semis
in its +27% rally. Take out those two sectors and the Nasdaq
is devoid of any other leadership groups. Retail (RLX.X) has
run into trouble in the 825 range and will be no help. Software
has been strong but is also ready for profit taking.

My advice is simply this. We have had a great run and "historically"
next week is a bullish week. We hope history repeats itself and
the Dow duplicates this week with another +341 point gain. The
Nasdaq basically held its ground despite profit taking in techs
on Friday and is only 150 points away from serious resistance
at 1920. I will take it! Give us a +150 point week and then
take a well deserved rest before heading for 2000 again! The
problem as I see it is the already over extended markets. We
are due for profit taking next week. The farther up we go the
more likely and more severe it could be. I have been telling
you to go long and I am not changing that instruction. As traders
we need to set some stop losses on those plays and be prepared
to move to the sidelines for a day or two. Any pullback will
be another buying opportunity and we should be looking forward
to getting into our next series of positions cheaper. For those
of you in cash the prospect of another pullback is exciting.
For those currently long it is an opportunity to take profits
and reload again. Either way the long term outlook is still
positive and the prospect of having a new bull market ahead of
us will do wonders for consumer sentiment. An October without
a crash? It is almost a reality!

Sell Too Soon!

Jim Brown
Editor


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

Top 20 and Betting on Profit Taking

I said last week I would post a top-20 list each Sunday
in this column and the first list is at the bottom of this
article.

In my commentary this weekend I talked about the possible
profit taking in the biotech and semiconductor sectors. If
it is too late to enter plays in those sectors then why not
plan to capitalize on the profit taking when it comes?

I looked at the BBH (Biotech Holders) and I think there is
a great opportunity to buy puts when the BBH trades between
135-140.



The ideal scenario would be to see the BBH trade up to 139
or above and then roll over for a multiple day profit taking
session. The way I would play this would be to place an
order to buy the Nov-135 put at market if the BBH touches 139.

If your broker does not let you place option orders based on
the stock price like Preferred Trade then place a limit order
for the option. I would estimate the price of this option to
be in the $3.50-$4.00 range if the BBH trades 139.
You could place a buy limit of GBZ-WG at $3.75 that is good
until cancelled.

Evidently there is someone else that thinks this may be a
good play since almost 1000 contracts traded at ask just
minutes before the close on Friday.

Exiting the play: I would target $130 as my exit point and
should the BBH hit $130 again I would close the trade. Also,
should the BBH continue through $142 I would close the trade
for a loss and re-enter the trade at $145 using the Nov-140
option. $145 is the next level of resistance for the BBH.


The same is possible for the SMH (semiconductor holders).
While currently in a bullish uptrend the trend could be
subject to profit taking in the $42-$45 level.



I would buy puts "ON ANY WEAKNESS" over $42. I would buy
the Nov-$40 and estimate them to be in the $1.50 range at
that time.

The Oil Service Sector also shot up last week and is over
extended. The OIH could be a play if the OIH trades over $67.



Profit taking would be very likely at $67.


I must emphasize that these are speculative plays and could
result in a loss of all or part of your investment should
the bullish trends continue.


Top 20 List

The following list is stocks that appeared as I was
doing my research for the weekend articles. I make no
representations for any individual stock but each has
a trend which I would not hesitate to play. Please do
your own research before going long on any of these
stocks.

ATML $ 9.27 resistance at 10.50
CNXT $11.85 resistance at 12.50 but blue sky over that
CY   $20.51 resistance at 24.50
IBM  111.15 resistance at 117.50 blue sky over $120
ITWO $ 5.31 cheap w/positive trend forming
IWOV $ 8.03 at resistance, if successful next level is $11.00
MXIM $48.79 Buy over $50-$51
NVLS $35.50 close over $36 could send it to $45
NVDA $45.79 -5 off Friday high = entry point?, $50 all time high
PMTC $ 7.85 9.65-10.00 next resistance
PRIA $17.40 wait for break over $18.50
QLGC $41.60 wait for $44.25, next resistance $54
RBAK $ 3.85 new relative high, cheap as an option
SEPR $49.05 buy breakout over $50
ABGX $31.65 buy breakout over $32
AXP  $30.72 indicators turning bullish
CLS  $38.48 buy breakout over $40
COST $40.53 strong retailer in weak sector, resistance $44
CTIC $34.10 new relative high
JBL  $24.64 next resistance $33
MYGN $49.40 strong trend, new relative high, buy over $50
SPW  104.08 strong chart, resistance $114

These are just food for thought and not expected to be
guaranteed winners.

Good Luck

Jim Brown


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

Fearless
By Eric Utley

"Fearlessly the idiot faced the crowd.  Smiling."
- Roger Waters, David Gilmour

Last week, the fear gauges of the market fell well below the
levels that were set around the September 11 attacks.  I'm not
sure if it was a sign of complacency or courage.  Whatever the
case may be, options market participants grew more bullish last
week, or perhaps less bearish as measured by the drops in the
CBOE Market Volatility Index (VIX.X) and Nasdaq-100 Volatility
Index (VXN.X).

The volatility indexes are coincidental indicators, so they
don't offer much insight into the future.  Instead, they reveal
the current emotional state of the market, either revealing fear
or complacency.  The use of the fear gauges is predicated on the
crowd mentality and contrary opinion.  In other words, high
levels of fear indicate that the crowd is selling, while low
levels of fear reveal that the crowd is buying.  And the crowd
can't be right indefinitely, so it pays to fade the fear
gauges over time.

For its part, the VIX, which is a measure of implied volatility
in the S&P 100 (OEX.X), has retraced a great deal of its
recent rally.  The index is a few points away from its 200-day
simple moving average, which can serve as a mean.  While still
above its historical norm, however, the recent retreat in the
VIX is a blessing for buyers of volatility.



However, a further slide in the VIX could foretell of a
retreat in the major market averages.  The VIX traced an
important relative low on August 27 down around 22.  That same
day, the major market averages traced an important relative
high, followed by a sharp sell-off that only ended on September
21.

The VIX, seeing that it's still above its historical norm, could
fall further while the broader markets work higher.  But if that
happens, eventually, there will be a point where the buying is
exhausted and the crowd is left holding stock with only sellers
remaining.  And those sellers are not idiots.

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

Market Volatility

VIX   30.53
VXN   56.90

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.53        707,634       375,529
Equity Only    0.43        628,278       273,278
OEX            1.63         11,831        19,322
QQQ            0.54         44,020        23,656

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

Bullish Percent Data


           Current   Change   Status
NYSE          29      + 1     Bull Alert
NASDAQ-100    62      + 0     Bull Confirmed
DOW           53      + 7     Bull Confirmed
S&P 500       47      + 2     Bull Alert
S&P 100       45      + 3     Bull Alert

Bullish percent measures the number of stocks in an index
currently trading on a buy signal on their point and figure
chart.  Readings above 70 are considered overbought, and readings
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend

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

 5-Day Arms Index  0.90
10-Day Arms Index  1.07
21-Day Arms Index  0.99
55-Day Arms Index  1.20

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

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

        Advancers     Decliners
NYSE      1836           1259
NASDAQ    1951           1664

        New Highs      New Lows
NYSE       47             62
NASDAQ     37             33

        Volume (in millions)
NYSE     1,215
NASDAQ   1,967

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

Commitments Of Traders Report: 10/23/01

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 remained relatively flat week-over-week.
In the 10/16 reporting period, commercial interests reached
their most bullish reading of the year by collectively holding
a net short position of 36,423.  That net position barely
changed last week, but small traders grew more aggressive.
Small traders increased long positions while covering short
positions last week, in all, increasing their collective net
long position by more than 5,000 contracts.

Commercials   Long      Short      Net     % Of OI
10/12/01      369,049   407,804   (38,755)   (4.9%)
10/16/01      378,866   415,289   (36,423)   (4.5%)
10/23/01      377,177   413,658   (36,481)   (4.6%)

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
10/12/01      122,292     74,539   47,753     24.0%
10/16/01      124,568     73,779   50,789     25.4%
10/23/01      127,016     71,212   55,804     28.2%

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

NASDAQ-100

Commercial interests, for the most part, left short positions
alone last week, while adding to long positions.  The drop in
% of OI short reveals the bullish positioning last week.
Meanwhile, small traders' net long position dropped by more
than 1,000 contracts.

Commercials   Long      Short      Net     % of OI
10/12/01       24,662     38,020   (13,358)  (21.4%)
10/16/01       27,398     40,397   (12,999)  (19.2%)
10/23/01       29,920     40,358   (10,438)  (14.9%)

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
10/12/01       11,948     7,012    3,936      20.6%
10/16/01       12,901     6,893    6,008      30.5%
10/23/01       11,567     6,934    4,633      25.0%

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

DOW JONES INDUSTRIAL

Commercial traders grew a little less bullish last week as
measured by the nearly 6 percent drop in % of OI long.  Small
traders, on the other hand, went the other direction.  While
still decidedly bearish, small traders did bring in some short
positions last week and added to longs.

Commercials   Long      Short      Net     % of OI
10/12/01       24,873    10,194   14,679     41.7%
10/16/01       25,402    10,267   15,135     42.5%
10/23/01       25,568    11,832   13,736     36.7%

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
10/12/01        3,517    12,294    (8,777)   (55.5%)
10/16/01        4,514    12,104    (7,590)   (45.7%)
10/23/01        4,902    11,900    (6,998)   (41.6%)

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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***************
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The Insurance Sector (IUX.X) Triangle
By Eric Utley

Something a little different this weekend, hope you like it.

But first, I've been incorporating a lot of point & figure and
relative strength work in this column recently.  I know that
these topics are new to most of my readers.  That being the
case, I'm considering putting on a couple of online seminars
in the coming month or two to better educate subscribers on
these topics (P&F Charts and Relative Strength).  If you'd
be interested in a seminar on these topics, or any other
topic for that matter, please let me know through the e-mail
link below.

Please send your questions and suggestions to:

Contact Support

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

The Insurance Sector (IUX.X) Triangle

I noticed an interesting development in the Insurance complex
Friday and, in the interest of potential profits, thought I'd
pass it along.

For those relatively new to point & figure charting, a
triangle is a consolidation-type pattern in price that is
usually a prelude to a big forthcoming move.  Like most
consolidation patterns, the point & figure triangle is
formed by a tightening price range, namely lower highs and
higher lows.

Reprinted from Jeff Bailey's 3:00 P.M. Intraday Update last
Friday afternoon, with his permission, of course:

The "bullish triangle" and the "bearish triangle" are two
patterns that point and figure aficionados look for.  Why is
that?  You may ask.  A Purdue University study by Professor Earl
Davis found that on average, the "bullish triangle" was
profitable 71.4% of the time with an average gain of 30.9% in a
5.4 month time frame.  The "bearish triangle" was profitable
87.5% of the time, with an average gain of 33.3% in a 2.5 month
time frame.

A consolidation in price reveals indecisiveness on the part of
market participants.  And it generally foretells of a large
move in one direction or another once price breaks from its
tightening range.  The tightening of price is a powder keg
of sorts, in that buyers and sellers grow increasingly
reluctant to commit to positions, thus the lower highs and
higher lows.  But once price breaks from its range, the
reluctance and indecisiveness of market participants quickly
morphs into a call to arms and necessitates action, either in
the form of buying or selling.

The indecisiveness currently on display in the IUX is
unmistakably a triangle.  Following the IUX's 125 point rally
from its September 21 lows, the index pulled back into a column
of 9 'Os' to the 685 level, from where it reversed back into a
column of 'Xs,' trading as high as 740.  The triangle began to
take shape at the 740 level.  On the chart below, it's easy to
see why the pattern is labeled a triangle.  Observe how the
relative highs in each column of 'Xs' have been traced at
sequentially lower levels, while the lows in each column of
'Os' have been traced sequentially higher.

The IUX.X Triangle



Which direction is the IUX going to break?  I don't have a
bias either way.  Plus, I'm not concerned with the proposal
to assist insurance companies in the event of future terrorist
attacks, which was presented to the Senate Banking Committee
Thursday.  Nor am I concerned with the massive losses that many
insurers suffered in the wake of the 09/11 attacks.  What I'm
concerned with is which direction the IUX is going to break.

To gain another metric, I've done some retracement work with
the IUX, going back to early 2000 to find a fit.  I believe
that the bracket that I've used on the chart below is a good
fit.  As is obvious, the IUX has closely followed the levels of
the bracket, noting the rebound in January of this year at 647
and the bounce in September at 600, in addition to earlier
observations.

IUX.X Weekly Retracement



With the aid of the above chart, I can make a few observations
with a longer-term perspective.  Notably, the IUX, at this
point, has traced two consecutive lower relative highs since
peaking around 864 in late 2000, while its lows this year have
been traced at sequentially lower levels.  I don't ignore this
trend, and admit that it's a cause to lean slightly bearish on
the IUX.  But, I want to remain objective about it, so I'm
still willing to trade either side.

To gain yet another metric - Hey, I like to be informed - I've
done some relative strength work on the IUX versus the S&P
500 (SPX.X).  The IUX has traded very strongly relative to the
S&P 500 this year.  In fact, it hasn't under performed the
S&P 500 since late January of this year.  You can see on the
relative strength chart below that since February, the IUX
has given one buy signal after another versus the S&P 500.  Or,
in other words, the IUX has been STRONG this year.

IUX.X Relative Strength Versus S&P 500



The trend I observed on the Weekly chart with the retracement
bracket, namely the lower highs and lows, is in contrast with
what I saw on the relative strength chart.  But, the S&P 500
has been in an ugly descending trend all year long.  So, while
the S&P has been sliding, the IUX has been sliding to a lesser
extent this year.  If I were to view the IUX's relative
strength chart in a vacuum, which I won't, I might lean to
the bullish side on the index.  The conflict between the IUX's
trend on the Weekly chart and its relative strength chart is
all the more reason to remain unbiased in this situation.  Either
I'm betting on the IUX ultimately breaking down and losing
relative strength, or I'm betting on its trend of relative
strength continuing and betting on a breakout.  I'm not placing
any bets yet, because I don't know which way the IUX will break.
But I do have some ideas on how to trade the break when it comes.

***Execution***

The IUX closed last Friday at 724.  It is a mere two boxes
away from breaking out, which would be signaled with an advance
past the 735 level at this point in the pattern and complete
a bullish triangle.  Conversely, a reversal into a column of
'Os' and subsequent breakdown below the 700 level would signal
the completion of a bearish triangle.  At this point in the
pattern, the two aforementioned levels are the ones to watch.

Bullish or Bearish Triangle?



(The one "issue" with a breakout above 735 is that the IUX's
current bearish resistance line rests at 740.  That line may
or may not impede any breakout attempt, so it's something to
consider.)

The options on the IUX are so illiquid it's funny.  So
instead of being able to trade the IUX itself, I'm having to
use the components of the index for this set-up.  Here's the
list of IUX components in alphabetical order:

IUX.X Components



I found four components that are highly correlated with the
IUX: Chubb (NYSE:CB), American International (NYSE:AIG),
Hartford (NYSE:HIG), and St. Paul (NYSE:SPC).  These are the
three stocks to use if I were to employ a straddle or
strangle on the IUX set-up.  If I was going to use a
straddle or strangle to trade the IUX set-up, then I'd like
to buy a little more time and not use front month contracts
because it may take a while for the trade to completely
unfold.  Recall the following:

A Purdue University study by Professor Earl Davis found that
on average, the "bullish triangle" was profitable 71.4% of
the time with an average gain of 30.9% in a 5.4 month time
frame.  The "bearish triangle" was profitable 87.5% of the
time, with an average gain of 33.3% in a 2.5 month time frame.

Again, it takes some time for these patterns to unfold, which
is why I will buy some time if I use a straddle or strangle.
But the strangle or straddle is the preferred strategy if I
want to put on the position now and give it quite some
time to work, instead of waiting for the break and placing a
directional bet.

Obviously my preference in the IUX set-up is for a bearish
triangle because it's a higher probability pattern, shorter in
duration, and more profitable.  But, I'll take the bullish
triangle if it comes along.

In the event of the bullish triangle coming to fruition, I want
to be in the strongest stocks within the IUX.  The reasoning
behind that notion should be obvious: Buy the strong.
Progressive (NYSE:PGR) is probably the strongest stock in the
group currently and SAFECO (NASDAQ:SAFC) is gaining some serious
strength.

In the event of the IUX breaking down and completing a bearish
triangle, then I want to focus my bearish operations on the
weakest stocks within the group, whether my operations be
shorting the underlying or buying puts.  Two of the weaker
components currently are: Aflac (NYSE:AFL) and Hartford.

***Summary***

I think that the IUX is going to make a big move over the coming
months.  And I want to be there when it does.  Whether or not
you trade the set-up, I hope that this process has shed some
light on a way to view the market and how to find high
probability trades.

I'll be watching this set-up over the coming weeks and, from
time to time, providing updates on the IUX through Intraday
Updates and the Market Monitor, so be sure to look for future
observations, starting next week.

The Point & Figure charts that appear in this column were
created using www.StockCharts.com - one of the best charting
Web sites, in this trader's opinion.

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

DISCLAIMER:
This column is an information service only.  The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind.  The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options.  It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security.  The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.


*************
COMING EVENTS
*************

===============================================================
Economic Reports

While many investors remember the month of October for normally
being volatile and the time of painful market drops, it is more
correctly called the "bear-killer" month where bear markets
usually meet there untimely end.  This time it looks like the
bottom came early in September due to the tragedy on the 11th.
There are numerous smaller economic reports this week but the
military action abroad, bioterrorism issues at home and another
week of earnings announcements will grab the headlines and
investor focus.

===============================================================

Monday, 10/29/01
None

Tuesday, 10/30/01
Consumer Confidence    Oct  Forecast:   95.0  Previous:   97.6

Wednesday, 10/31/01
GDP-Adv.               Q3   Forecast:  -0.7%  Previous:   0.3%
Chain Deflator-Adv.    Q3   Forecast:   1.8%  Previous:   2.1%
Chicago PMI            Oct  Forecast:  43.0%  Previous:  46.6%

Thursday, 11/01/01
Initial Claims       10/27  Forecast:    N/A  Previous:   504K
Auto Sales             Oct  Forecast:   5.9M  Previous:   5.7M
Truck Sales            Oct  Forecast:   7.2M  Previous:   7.1M
Personal Income        Sep  Forecast:   0.1%  Previous:   0.0%
PCE                    Sep  Forecast:  -0.9%  Previous:   0.2%
Construction Spending  Sep  Forecast:  -0.7%  Previous:  -1.1%
NAPM Index             Oct  Forecast:  44.8%  Previous:  47.0%

Friday, 11/02/01
Average Workweek       Oct  Forecast:   34.0  Previous:   34.1
Nonfarm Payrolls       Oct  Forecast:  -275K  Previous:  -199K
Unemployment Rate      Oct  Forecast:   5.2%  Previous:   4.9%
Hourly Earnings        Oct  Forecast:   0.3%  Previous:   0.2%
Factory Orders         Sep  Forecast:  -0.9%  Previous:   0.0%


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The Option Investor Newsletter                   Sunday 10-28-2001
Sunday                                                      2 of 5

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

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

SMH - Semiconductor HOLDRs $38.56 -0.20 (+4.56 last week)

See details in sector list




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

STJ - St. Jude Medical $71.50 (-3.30 last week)

See details in sector list




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

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


CALLS
^^^^^
NVDA $45.79 (+1.44) NVDA pulled back in a big way last Friday
after popping above the $50 level.  Hopefully traders with
open positions took that opportunity to book some gains.  The
stock's big drop Friday may indicate that a period of
consolidation might be in order for NVDA.  As such, we're
dropping coverage on the play.  Traders with open positions
should look for any strength early next week to exit plays.


PUTS
^^^^
MBI $48.01 (+3.97) No matter how patient we were, shares of MBI
just wouldn't reverse back into our favorite downtrend.  The
final straw came on Friday as the stock finally crested the
20-dma ($47.79) in a persistent refusal to sell off.  The
Stochastics oscillator is in overbought, which likely means some
weakness will appear soon, but the descending trend we were
riding has now been broken.  We'll take our exit and move on,
thankful that the damage wasn't worse.

ADVS $43.00 (+1.22) ADVS' reluctance to breakdown last week
has given us reason to drop the play this weekend.  The stock
hasn't made much progress to the upside, which may lead to
weakness if the GSO.X pulls back next week.  But with the
GSO.X looking strong, we're letting ADVS go.


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

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

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

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

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

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

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


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

ZION - Zions Bancorp $48.45 (+4.65 last week)

Zions Bancorporation is a financial holding company that owns and
operates six commercial banks with a total of 374 offices.  The
company provides a full range of banking and related services
through its banking and other subsidiaries, primarily in Utah,
Idaho, California, Nevada, Arizona, Colorado, and Washington.

The Bank Sector Index (BKX.X) broke out above a key resistance
level last week at the 800 level.  That breakout could signal
further upside in the group.  A component of the Bank Sector
Index, ZION had taken a beating up until last week, when the
stock rebounded in spectacular fashion.  The stock finished
strongly last Friday and has a solid trend working in its
favor.  To the upside, ZION doesn't have much resistance until
the $52 level.  If the BKX.X continues trading higher into next
week, ZION should follow.  Traders bullish on bank shares
could look for ZION to advance past its intraday high last
Friday at the $48.66 level as a possible entry point into the
trend.  Just make sure that the BKX.X is advancing before
entering new call positions into further strength above current
levels.  In the event of a pullback, traders can look for a
bounce from the $47.50 area for a possible entry point on
weakness.  In the event of a sustained pullback, bullish
traders could look for a rebound from the $46.25 area.  Our
stop is initially in place at the $46 level.

BUY CALL NOV-45*ZNQ-KI OI=212 at $4.10 SL=3.00
BUY CALL NOV-50 ZNQ-KJ OI=430 at $1.10 SL=0.50
BUY CALL DEC-45 ZNQ-LI OI= 60 at $4.90 SL=3.50
BUY CALL DEC-50 ZNQ-LJ OI=443 at $2.10 SL=1.25

Average Daily Volume = 602 K



SMH - Semiconductor HOLDRs $38.56 -0.20 (+4.56 last week)

HOLDRs are trust-issued receipts that represent beneficial
ownership of a specified group of stocks.  HOLDRs allow traders
to benefit from the ownership of the stocks in a particular
industry, sector or group.

The Semiconductor Sector Index (SOX.X) rebounded last week,
along the way breaking out above a key resistance level at
475.  Although the SOX.X pulled back last Friday down to the
480 level, its breakout the day before may have set the stage
for further upside over the short term.  The SOX.X doesn't
have major resistance until the 550 level, which is quite a
distance from current levels.  If the Nasdaq continues higher
next week, then the SOX.X should continue working higher as
well.  With some good upside potential in the SOX.X, the SMH
looks ripe for a call play.  On its part, the SMH broke out
above the $38 level last week, which was in synch with the
SOX.X's breakout above 475.  The SMH looks to have upside
potential to around the $42 to $43 range over the short
term if the Nasdaq works higher.  Bullish traders can look for
an advance past the $40 level early next week as a possible
entry point.  The SMH has strong support at the $38 level
now, so that area may serve as an entry point on weakness.
Below, the SMH has more support between the $35.50 to $36.75
range.  A protracted pullback could take the SMH down into the
range, where traders could target entries.  Our stop is
initially in place at the $35.50 level.

BUY CALL NOV-35*SMH-KG OI=3775 at $4.80 SL=3.25
BUY CALL NOV-40 SMH-KH OI=3035 at $1.85 SL=1.00
BUY CALL DEC-35 SMH-LG OI=  40 at $6.10 SL=4.25
BUY CALL DEC-40 SMH-LH OI= 472 at $3.30 SL=2.50

Average Daily Volume = 3.21 mln



SPW - SPX Corp. $104.08 (+5.43 last week)

SPX Corp is a global provider of technical products and systems,
industrial products and services, service solutions and
vehicle components  Its products include storage area network,
fire detection and building life-safety products, television and
radio broadcast antennas and towers, transformers, substations
and industrial mixers and valves.

Since finding bottom down around the $80 level, SPW has worked
higher in a strong trend.  The stock broke back above the
psychological $100 level last week, which in itself may portend
further upside over the short term.  The stock's most recent
upside move has been at work for over a week, so a pullback may
be in order.  A profit taking pullback back down to the $100
level may provide an opportune entry into new call plays at
this point in the trend.  We're initially placing our stop
just below the $100 level at $98, which is also just above the
10-dma at $97.50.  If the stock continues along its trend
of higher highs, traders can use strength above its intraday
high last Friday at $104.47 as a momentum-based entry point.
The stock's 200-dma lurks above current levels at $108, which
seems like a logical place for SPX to pause and consolidate.
As such, entries at or around current levels might use the
200-dma as a possible exit point.

BUY CALL NOV-100 SPW-KT OI= 42 at $8.00 SL=6.25
BUY CALL NOV-105*SPW-KA OI=  4 at $5.20 SL=4.00
BUY CALL NOV-110 SPW-KB OI=237 at $3.00 SL=1.75
BUY CALL DEC-105 SPW-LA OI= 64 at $8.40 SL=6.50
BUY CALL DEC-110 SPW-LB OI=425 at $6.00 SL=4.50

Average Daily Volume = 410 K



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


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

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The Option Investor Newsletter                   Sunday 10-28-2001
Sunday                                                      3 of 5

To view this email newsletter in HTML format with embedded
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Note: Options involve risk. Risk disclosure:
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**************************************************************


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

BRCM - Broadcom Corporation $37.05 (+7.80 last week)

Sitting in the sweet spot between the Broadband and
Semiconductor sectors, BRCM is a provider of highly integrated
silicon solutions that enable broadband digital transmission
of voice, video and data to and throughout the home and within
the business enterprise.  These integrated circuits permit the
cost-effective delivery of high-speed, high-bandwidth networking
using existing communications infrastructures that were not
originally designed for the transmission of broadband digital
content.  Using proprietary technologies, the company designs,
develops and supplies integrated circuits for several markets
including digital cable set top boxes, cable modems, high-speed
office networks, home networking, and digital subscriber lines.

BRCM led the Semiconductor sector higher this week, and it was
really encouraging to see the way the stock blasted through
resistance, first at $33 and then $35.  This is in the face of a
series of ugly economic reports, that featured the Semiconductor
industry as one of the few bright spots.  This came from the
Durable Goods Orders on Thursday morning, which showed an uptick
of 16% for chip stocks while the overall economy declined by a
whopping 8.5%.  Coming on the heels of Wednesday's more than $4
advance, the report vaulted BRCM to the $39 level by Thursday's
close and enthusiastic bulls actually probed above the $40 level
early Friday morning before the stock succumbed to profit taking.
The pullback came on rather light volume, and looks constructive
for setting up the next dip to buy.  Look for intraday support
at $36 or perhaps down at $34 to provide that level, so long as
the Semiconductor index (SOX.X) continues working higher, using
the $450 level as support.  Keep stops at $32.

BUY CALL NOV-35 RCQ-KG OI=5477 at $4.30 SL=2.75
BUY CALL NOV-40*RCQ-KH OI=4638 at $2.00 SL=1.00
BUY CALL NOV-45 RCQ-KI OI=2795 at $0.80 SL=0.00
BUY CALL DEC-40 RCQ-LH OI= 936 at $4.00 SL=2.50
BUY CALL DEC-45 RCQ-LI OI= 734 at $2.45 SL=1.25

Average Daily Volume = 11.6 mln



IMNX - Immunex Corporation $25.51 (+2.97 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.

Ignoring the weakness on the NASDAQ on Friday, the Biotechnology
sector (BTK.X) continued to rocket higher, underscoring its
tremendous relative strength.  For the week, the BTK tacked on
an impressive 15% and handily cleared the pesky $550 resistance
level.  IMNX posted a similar advance for the week, adding on
more than 13% and solidified its breakout over the $24 level,
which should now act as support.  Daily Stochastics are getting
a bit top-heavy here, as they have flattened out in overbought
territory, but that doesn't mean that the stock has finished
its advance.  As long as the BTK can continue to work higher,
IMNX should continue to rally towards mild resistance at $27.50,
followed by the more formidable obstacle at $30.  Both the
ascending trendline and intraday support point to support in
the $24.00-24.50 area as a likely level for buyers to step up
to the plate again, and that's the level we'll be targeting for
fresh entries.  More support exists at both $23 and $22, also
the level of the 20-dma and our stop, and dips near these levels
can be used as entry triggers by more aggressive traders.
Alternatively, traders can target a breakout over $26.50, the
highs from Friday for fresh entries as well.

BUY CALL NOV-22 IUU-KX OI=8487 at $3.70 SL=2.25
BUY CALL NOV-25*IUU-KE OI=7093 at $1.85 SL=1.00
BUY CALL DEC-22 IUU-LX OI=3013 at $4.40 SL=2.75
BUY CALL DEC-25 IUU-LE OI=4174 at $2.95 SL=1.50
BUY CALL DEC-30 IUU-LF OI= 818 at $0.95 SL=0.50

Average Daily Volume = 9.65 mln



JNJ - Johnson & Johnson $58.67 (+0.25 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.

Our JNJ play is at a critical juncture right now.  After
breaking out above the $57 level 2 weeks ago, the stock is
starting to stall, and this is clearly reflected in the daily
Stochastics oscillator rolling down from overbought territory.
So far, price has been holding up pretty will, using the $58
level as support as traders take some profits off the table.
Trading volume has been on the decline in recent days as well,
and we'll need to see the buyers show some muscle if JNJ is
going to continue its advance.  Use intraday pullbacks to the
$58 level, confirmed by the 10-dma ($58.15) for initiating new
positions, or else target a renewed rally through the $60 level
before playing.  For now, our stop remains at the $57 level.

BUY CALL NOV-55*JNJ-KK OI= 3975 at $4.30 SL=2.75
BUY CALL NOV-60 JNJ-KL OI= 8483 at $0.90 SL=0.50
BUY CALL DEC-55 JNJ-LK OI=  705 at $5.00 SL=3.00
BUY CALL DEC-60 JNJ-LL OI= 1520 at $1.70 SL=1.00

Average Daily Volume = 8.00 mln



JNPR - Juniper Networks $25.00 (+1.34 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.

Is the party over?  That's the question that bullish traders
in JNPR were asking themselves over the past couple days and the
stock has seen several attempts to move higher, each of which
have been thwarted by the bears.  To be fair, JNPR has had one
heck of a run over the past month, and a bit of profit taking is
to be expected.  The daily Stochastics have been buried in
overbought for the better part of 3 weeks, and are threatening
to drop below the 80 level as of this weekend.  On a more
encouraging note, price is holding up fairly well, with support
at $25 holding up throughout the day on Friday.  Adding credence
to the bullish case is the whole Networking sector (NWX.X),
which pushed through resistance at $284 on Thursday and held
above that level as the markets closed for the week.  Look for
JNPR to bounce from the $24-25 area next week, accompanied by
continued strength in the NWX to usher in new call positions, so
long as we see the return of robust buying volume.  Keep your
stops in place at $24.

BUY CALL NOV-22 JUX-KX OI= 7116 at $4.10 SL=2.50
BUY CALL NOV-25*JUX-KE OI=12600 at $2.70 SL=1.25
BUY CALL NOV-30 JUX-KF OI= 7814 at $0.95 SL=0.50
BUY CALL DEC-25 JUX-LE OI=  455 at $4.10 SL=2.50
BUY CALL DEC-30 JUX-LF OI= 1362 at $2.20 SL=1.10

Average Daily Volume = 16.8 mln



SNPS - Synopsis, Inc. $49.40 (+2.24 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.

After breaking out above the $45 level a couple weeks ago, SNPS
obviously needed to catch its breath and has been trading in a
fairly narrow range for the past 4 days.  Depending on your
bias, it could either be coiling for a breakout over the next
level of resistance at $50, or losing steam and ready to head
back down towards $45.  Either way, we win, as both scenarios
will provide attractive entries into the play.  A breakout over
$50 (actually $50.75, to clear the 200-dma) will provide entry
for momentum traders, as it will open the door for SNPS to work
towards the next major level of resistance at $55.  But a dip
back down towards $45, will likely give us a more attractive
entry , allowing us to enter as we see a resurgence in buying
volume, possibly in the $47-48 area.  A dip to $46 would be even
better, but would carry more risk, as it takes our play closer
to our stop, currently resting at $45.  Target the entry point
that fits your risk profile, and then strike when the gyrations
of the market deliver it to you.

BUY CALL NOV-45 YPQ-KI OI= 237 at $5.50 SL=2.75
BUY CALL NOV-50*YPQ-KJ OI=1118 at $2.40 SL=1.25
BUY CALL DEC-45 YPQ-LI OI= 233 at $7.00 SL=4.00
BUY CALL DEC-50 YPQ-LJ OI= 498 at $4.10 SL=2.50
BUY CALL DEC-55 YPQ-LK OI= 656 at $1.95 SL=1.00

Average Daily Volume = 1.18 mln



VRTS - Veritas Software $31.68 (+2.60 last week)

As an independent supplier of storage management software,
VRTS develops and sells products that protect against data
loss and file corruption, allowing rapid recovery after disk
or computer system failure.  The company's products provide
continuous data availability in clustered computer systems with
shared resources. This enables IT managers to work efficiently
with large file systems, making it possible to manage data
distributed on large computer network systems without harming
productivity or interrupting users.  VRTS provides products for
most popular operating systems, including UNIX and Windows NT,
as well as a full range of services to assist its customers in
planning and implementing their storage management solutions.

It didn't take a rocket scientist to figure out that VRTS was
going to have a challenge cresting the $35 resistance level,
especially after Thursday's huge rally that came to a stop right
at that pivotal level.  Sure enough, Friday's action was mostly
to the downside, as traders harvested profits from the stock's
run over the past 3 weeks.  Volume was still on the heavy side,
but thankfully, below the levels seen on Thursday's rally, as
VRTS dropped almost all the way back to the $31 support (prior
resistance) level.  What we need to see here, is for the bulls
to form up and defend the $31 level, the site of the 3-week
ascending trendline, intraday support and the level of our stop.
A dip and bounce near this level will set the stage for fresh
entries, as we position ourselves for a renewed run at the $35
resistance level.  Confirm the stock's strength by watching for
continued health in the Software sector (GSO.X).

BUY CALL NOV-30*VIV-KF OI=19138 at $3.90 SL=2.50
BUY CALL NOV-35 VIV-KG OI= 9255 at $1.55 SL=0.75
BUY CALL DEC-30 VIV-LF OI= 3245 at $5.40 SL=3.50
BUY CALL DEC-35 VIV-LG OI=  538 at $3.10 SL=1.50
BUY CALL DEC-40 VIV-LH OI=  368 at $1.90 SL=1.00

Average Daily Volume = 13.9 mln



FFIV - F5 Networks $16.55 (+1.12 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 followed through last Friday morning in a strong way from
its charge higher Thursday afternoon.  Early Friday, the stock
traded as high as the $17.50 level, hitting our short term
target to the upside.  Hopefully that quick charge higher
allowed traders to book some quick short term gains in this
play because FFIV pulled back later in the day.  But you had
to be quick to take that high tick up around $17.50.  Going
forward, instead of looking for a breakout above the $17.50
level, we're going to look for a pullback to gain new entry
points.  FFIV may bounce from the $16 level on weakness down
to that level, which may provide an entry point next week.
But the $16.50 level could continue to hold in the short term.
Bullish traders could consider taking entries around current
levels if the NWX.X and Nasdaq continue moving higher early
next week.  Over the near term, traders should keep an eye on
the $17.50 level as resistance.  If FFIV gets above that level
it could migrate towards the $20 level.  We're moving stops up
to $15.

BUY CALL NOV-12 FLK-KV OI=165 at $4.60 SL=3.20
BUY CALL NOV-15 FLK-KC OI=772 at $2.50 SL=1.75
BUY CALL NOV-17*FLK-KW OI=502 at $1.40 SL=0.75
BUY CALL JAN-17 FLK-AW OI=359 at $2.80 SL=2.00
BUY CALL JAN-20 FLK-AD OI=368 at $2.10 SL=1.25

Average Daily Volume = 530 K



DELL - Dell Computer $25.50 (+1.45 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 provided a nice short term trade last week with its
breakout and advance up to the $26 level.  But the stock ran
into the $26 level again last Friday and wasn't able to push
higher above there.  The stock may continue to find resistance
at $26 if the Nasdaq takes a breather early next week.  Then
again, if the Nasdaq continues along its path higher, DELL
could breakout above the $26 level.  A breakout above that
level could serve as an entry point early next week in an
advancing market, as well as strength in DELL's sector, the
Box Maker Sector Index (BMX.X), or traders can also monitor
the Hardware Sector Index (GHA.X).  If DELL does breakout above
the $26 level, traders might use the $27.50 level for a short
term upside target.  As for pullbacks, traders might look for
a bounce from first the $25.25 level, which is the current
site of DELL's short term support line.  Below there, DELL
may find support at the $25 level, and lower still around the
$24.50 area.  Just make sure that volume is relatively lighter
on any weakness and wait for the bounce.  We're raising stops
up to the $24.25 level.

BUY CALL NOV-22 DLQ-KX OI=16223 at $3.50 SL=2.50
BUY CALL NOV-25*DLQ-KE OI=42790 at $1.70 SL=1.00
BUY CALL NOV-27 DLQ-KY OI=39572 at $0.60 SL=0.25
BUY CALL JAN-25 DLQ-AE OI=47207 at $3.20 SL=2.50
BUY CALL JAN-27 DLQ-AY OI=12560 at $2.00 SL=1.25

Average Daily Volume = 27.3 mln



CSCO - Cisco Systems $17.29 (+0.57 last week)

Cisco Systems is engaged in networking for the Internet Cisco
Internet Protocol (IP)-based networking solutions are installed
at corporations, public institutions and telecommunications
companies, and are found in a growing number of medium-sized
commercial enterprises.

CSCO pulled back on profit taking last Friday following its
breakout above the $17.50 level last Thursday.  The stock has
strong support at its upward trend line that currently sits at
the $17 level.  The stock has found support at that line over
the past two weeks, and could do so again on further weakness
from current levels.  A bounce from the $17 level could serve
as a solid entry point into new call positions.  When looking
for a bounce, watch for others in the networking group such as
JNPR, CIEN, and FDRY for strength.  Also, watch the NWX.X for
signs of stability when targeting an entry on weakness.  If
the NWX.X and Nasdaq rebound and continue higher next week,
look for CSCO to break back above the $17.50 level, which
could serve as an entry into the trend.  To the upside, CSCO
has some resistance around the $18.50 level, which could serve
as our short term upside target.  Beyond that level, CSCO
doesn't have much resistance until the $20 level.  Keep in mind
that the company reports earnings the Monday after next week,
so we may see an earnings run develop next week ahead of that
report.

BUY CALL NOV-15 CYQ-KC OI=44974 at $2.80 SL=2.00
BUY CALL NOV-17*CYQ-KW OI=70985 at $1.15 SL=0.75
BUY CALL DEC-17 CYQ-LW OI= 8857 at $1.70 SL=1.25
BUY CALL DEC-20 CYQ-LD OI=14664 at $0.85 SL=0.50

Average Daily Volume = 69.1 mln



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The Option Investor Newsletter                   Sunday 10-28-2001
Sunday                                                      4 of 5

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

MDT - Medtronic, Inc. $42.25 (-1.35 last week)

As a medical technology company that provides lifelong solutions
for people with chronic disease, MDT offers therapies to restore
patients to fuller, healthier lives.  Reading like a medical
journal, applications for the company's primary products
include bradycardia pacing, tachyarrhythmia management, atrial
fibrillation, heart failure, coronary and peripheral vascular
disease, cardiac surgery, spinal and neurosurgery and
neurodegenerative disorders.

After recovering much of their pre-attack altitude, healthcare
related stocks are having a difficult time holding their ground,
and medical device maker, MDT is no exception.  The last 3 price
highs have built a solid descending trend, which currently rests
up near $45 and is likely to cap any rally attempts by the bulls.
But with selling volume on the rise and daily Stochastics once
more headed south, we may not be so lucky as to see a retest of
that lofty level before MDT drops back under the $40 level.  For
those eternal optimists, we'll look for an intraday rally near
the 20-dma ($44.06) or the $45 level to provide us with an
attractive entry, particularly if the rollover is accompanied by
increasing selling volume.  Should the current decline continue
unabated, look for a drop through the $41.75 support level to
pave the way for new positions, as MDT drills down towards $40
support and then $38.  Initial stops are in place at $45.25.

BUY PUT NOV-45*MDT-WI OI=4886 at $3.10 SL=1.50
BUY PUT NOV-40 MDT-WH OI=7352 at $0.65 SL=0.00

Average Daily Volume = 3.72 mln



STJ - St. Jude Medical $71.50 (-3.30 last week)

St. Jude Medical is engaged in the development, manufacturing
and distribution of medical technology products for the cardiac
rhythm management, cardiology and vascular access and cardiac
surgery markets.  The company has two principal business
segments, Cardiac Rhythm Management (CRM) and Cardiac Surgery
(CS).  The CRM division is focused on bradycardia pulse
generator and tachycardia implantable cardioverter defibrillator
systems, interventional cardiology catheters and vascular
closure devices.  The CS group provides mechanical and tissue
heart valves and valve repair products as well as suture-free
devices to facilitate coronary artery bypass operations.

How about another bearish medical stock play?  After tagging a
new all-time high of $75.37, late last week, shares of STJ have
lost their lustre and have been seeing increasing selling
pressure over the past week.  What was looking like simple
profit taking up until Friday, turned ugly in a hurry, as
selling volume nearly doubled the ADV, pushing the stock down to
the 20-dma at $71.39.  While that doesn't necessarily make a
bearish trend, it sets us up for a significant decline,
especially with daily Stochastics falling sharply.  Not only
that, but they have formed some bearish divergence, which makes
the picture tilt even more strongly towards the bears.  Give us
a drop through the $70 support level and the bears will really
be licking their chops.  Target new positions on a drop through
$71, confirmed when STJ breaks below $70 on increasing volume.
Alternatively, look for a failed bounce near $73 or $74 to
provide more attractive entries.  Place stops at $75, which is
above the stock's highest close last week.

BUY PUT NOV-75 STJ-WO OI=54 at $4.70 SL=2.75
BUY PUT NOV-70*STJ-WN OI=63 at $2.05 SL=1.00

Average Daily Volume = 630 K



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

AIG - American International Grp. $83.80 (+2.20 last week)

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

If you've been looking at the Insurance sector (IUX.X) for a
possible put play, then you aren't alone.  After such a sharp
rebound from the post-attack lows, the IUX is looking vulnerable
to a bearish attack, and a drop below the pivotal 700 level
would just get the feeding frenzy started.  AIG is looking
similarly weak after rolling over near $86 and beginning to
build a bearish trendline over the past couple weeks, currently
resting at $84.  A rollover in the IUX would likely pressure AIG
back down towards its 200-dma (currently $81.49) and open the
door for the stock to close back under the critical $80 support
level.  Aggressive entries can be taken based on failed attempts
to rally through the descending trendline, although the more
cautious approach will be to target new positions as the stock
drops through the 200-dma, or even the $80 support level on
increasing volume.  Daily stochastics have been rising in agony
for the past week, despite the continued price weakness.  When
the oscillator does roll over, it will likely drive price down
towards the $76 level, the next probably level of support.  Our
stop is initially set at $86.50, just above the recent highs.

BUY PUT NOV-85*AIG-WQ OI=1092 at $3.00 SL=1.50
BUY PUT NOV-80 AIG-WP OI=7184 at $1.20 SL=0.50

Average Daily Volume = 7.00 mln



GDW - Golden West Financial $48.96 (+0.14 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
Illinois.

GDW rebounded last Friday, but only by 22 cents.  The stock is
still under performing the broader market and its sector, so
any weakness in the two should carry the stock measurably lower
over the short term.  But the variables in this play are the
short term direction of the market and GDW's sector in the
Bank Sector Index (BKX.X).  The BKX.X broke out last week,
but GDW remained mired in weakness near its relative lows.
Still, the strength in the BKX.X could continue, which should
buoy GDW, if not carry it higher.  With that being the case,
traders should keep a close eye on the BKX.X early next week
when gaming GDW.  The stock is approaching strong resistance
near the $50 level, which is not only the site of our current
stop, but also the level of the stock's 10-dma.  That should
serve as strong resistance and a possible rollover point.  But
the important aspect of gaming any rollover is seeing weakness
in the BKX.X.  If the BKX.X continues higher and GDW approaches
$50 then all bets are off.  But if the BKX.X pulls back, then
traders might look for an entry near the $50 resistance level
and use a tight stop to manage risk.

BUY PUT NOV-55 GDW-WK OI=533 at $6.60 SL=5.50
BUY PUT NOV-50*GDW-WJ OI=181 at $3.00 SL=2.25

Average Daily Volume = 966 K



EBAY - eBay $57.00 (+5.05 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.

EBAY rolled over right on cue last Friday, after filling its
gap the day before.  Although EBAY did lose more than $2 last
Friday, the stock did rebound from its upward support line.
That line currently resides at the $56.50 level, not by
coincidence EBAY bounced from that area late last Friday.
Going forward, we need to see EBAY breakdown below that level
in order to confirm that the stock is heading lower over the
short term.  A breakdown below $56.50 could serve as an entry
point into weakness, but we need to see the Nasdaq and the
Internet Sector Index (INX.X) weaken in order for entries on
a breakdown to be successful.  If the INX.X strengthens next
week, EBAY will most likely find some support around its
current levels.  As well, broad based buying of technology
shares could prop the stock up too.  Ideally, we'd like to
see the Nasdaq and INX.X sell-off and a breakdown below the
$56.50 level in the stock, that would position us for the
most success in this play.  Also, future rollovers around the
$59 level may provide solid entries into put plays, which could
be managed with tight stops at the $60 level.

BUY PUT NOV-60 QXB-WL OI=2689 at $5.40 SL=4.00
BUY PUT NOV-55*QXB-WK OI=3636 at $3.00 SL=2.25
BUY PUT NOV-50 QXB-WJ OI=5976 at $1.55 SL=0.75

Average Daily Volume = 7.50 mln



THQI - THQ Inc. $52.32 (+2.47 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 popped above its resistance range at the $54 level last
Friday, but suffered a big sell-off in the latter part of the
session.  The stock has sold heavily into the close of trading
last Friday, which may indicate further weakness early next
week if that selling continues.  Traders who entered puts on
the failure at the $54 level last week could use any future
weakness down to the $50 level as an exit point to book partial
gains on positions.  Conversely, those looking for new positions
might wait for a breakdown below the $50 level before pulling
the trigger.  We'd like to see weakness in the GSO.X and the
Nasdaq before entering new put plays on a breakdown below the
$50 level.  Also, look for high volume on a breakdown.  Below
$50, THQI could find support around the $48.50 to $49 level.
But below that area the stock doesn't have much support until
the $46 area.

BUY PUT NOV-55 QHI-WK OI= 35 at $4.80 SL=3.25
BUY PUT NOV-50*QHI-WJ OI=182 at $2.10 SL=1.25

Average Daily Volume = 1.10 mln



*****
LEAPS
*****

The Rally Continues, But How Much More Upside Is There?
By Mark Phillips
Contact Support

Like most traders, I spent much of the week trying to determine
how much more life exists in the current rally.  Going back to
some of my commentary from late September and early October, I
recalled that I had been looking for the S&P500 to recover into
the 1090-1100 range before the next major downward leg would be
ready to present itself.  Well, don't look now, but we actually
cleared the upper end of that range over the past couple days.
But just barely.  Given the severity of some of the negative
economic reports this week, the resiliency of our precious
markets has clearly surprised me.

The best explanation that I can come up with is that investors
have looked at the reports and inferred that as bad as things
are in the wake of the WTC disaster and the subsequent changes
to the world as we know it, things are about as bad as they are
likely to get.  While I would like to believe that is the case,
it certainly isn't a premise on which I want to base my
investing decisions.  I want to see actual evidence of
improving, or at least stabilizing conditions before I really
start getting bullish.  And I actually saw a hint of that coming
from the Semiconductor sector this week.  Despite the severed
decline in Durable Goods Orders, I really liked the fact that
orders for Semiconductors actually moved up, and by a whopping
16%!

That actually has me looking for a tangible bottom in the sector
over the next couple of quarters, and I'm cautiously leaning
towards nibbling on some of the stronger players in that
industry.  Accordingly, we're adding a new Call play on Broadcom
(NASDAQ:BRCM), but I'm forcing myself to exercise patience.  We
don't want to chase this one higher; rather, we want to wait for
the next major dip to provide us with an attractive entry point
for the long-term recovery.  See the writeup below for details.

Coming back to the broad markets, one of the major factors that
has me leaning to the downside over the near-term is my favorite
little fear indicator, the VIX.  It's been on a steady decline
since tagging the extreme of 57.31 on September 21st and is
approaching support (prior resistance) near 28.50, and the
200-dma, which is resting at 28.67.  Combined with the
Stochastics oscillator bottoming in oversold territory, it looks
like we are primed for a bullish reversal...and that is bearish
for the broader market.

Does that mean I'm looking for new multi-year lows in the major
indices in the near future?  Not by a long shot!  I think the
lows seen in late September, accompanied by the extreme reading
on the VIX, served to put in a major low that could very well be
THE BOTTOM.  But I expect that low will have to be tested to
confirm its validity.  Should the next move down succeed in
putting in a higher low in the market, I would consider it to be
a very positive sign and an optimum time to be adding new
long-term bullish positions.  But that time resides in our
future, as the broad markets are struggling to advance further
without any significant bullish catalyst on the horizon yet.

I think that's enough about the general markets for this week.
Let's take some time to look at our Portfolio and Watch List,
as there are some significant developments there.  Starting
first with the Portfolio, we can see that all of our current
plays are holding up nicely.  Philip Morris (NYSE:MO) is still
struggling to get back over the $50 level, but support is
holding up nicely at $49, leaving our $48 stop in place.  The
dip at the end of last week had us biting our nails on our
Sprint PCS (NYSE:PCS) play, as the stock closed a mere 2-cents
above our $23 stop.  It looks like we picked that level well,
as it served as a rebound point for the stock to regain some of
its losses this week, keeping the long-term uptrend intact.
We're not out of the woods yet, but this week's recovery was
very encouraging.

Our patience in waiting for Eli Lilly (NYSE:LLY) to come back
and give us the entry point we wanted was clearly worth it,
based on the continuing recovery this week.  Although LLY is
once again challenging the $80 resistance level, I'm not ready
to raise our stop just yet.  The stock is still mired in a
long-term neutral wedge, and while I think the bulls are going
to win this one and send LLY much higher over the next year, I
want to avoid risking being stopped out until we see the stock
move decisively through the $82 level before moving our stop
above the September lows.

Which brings us to the newest Portfolio play, Calpine
(NYSE:CPN).  Long time subscribers will remember that we had a
couple of profitable plays on the stock last year, as it ran to
new all-time highs, and we finally got an opportunity to try for
a repeat performance.  While we don't expect to see new price
highs any time soon, it looks like most of the froth has been
taken out of the share price, now that the PE ratio has come
back to the 16-17 level.

But all is not rosy in the Energy sector, as you can see with
our drop of Enron (NYSE:ENE) this weekend.  The recent price
weakness, along with continuing negative news developments has
driven the stock to multi-year lows, and I decided that we are
better served by removing it from the Watch List, rather than
continue to lower our price target.  We've got another drop from
the Watch List this weekend too.  We added General Dynamics
(NYSE:GD) back in September in expectation that it would benefit
from increased Defense spending, but the recent price action has
me rethinking that particular stock.  It is currently looking a
little top-heavy, and that isn't the stuff of which winning LEAP
plays are made.  So we're nixing that one for now.

That leaves our LEAP Put on eBay (NASDAQ:EBAY), and it is
getting tantalizingly close to providing us with an entry.  I
actually considered taking a position on the afternoon weakness
on Friday, but the daily/weekly oscillators kept me on the
sideline as it looks like they may have a bit more upside before
our optimum entry arrives.  Next week could see us entering the
play, but for now we'll hold off, keeping our eye on that
critical $60 level, which should reject any breakout attempt by
the bulls.

In my search for additional put plays, I found the Insurance
sector grabbing my attention this week.  The Insurance index
(IUX.X) is setting up a neutral wedge right now, but I want to
see which way it breaks before adding a play from the sector.
Although I didn't select any specific stocks to play, those that
are looking attractive to me are AIG, CB, JHF, and HIG.  I'll
look at them in more detail next week, and expect that one of
them will find their way onto the Watch List in the near future.
If you'd like to follow along with me, keep an eye on the IUX,
with an eye towards a breakdown below the $700 level.  For more
details about this particular setup, I'd suggest taking a look
at the 3:00pm ET intraday update and Eric's Ask The Analyst
column this weekend.  Eric promised to delve into the sector in
greater detail this weekend, and I for one am looking forward to
finding the nuggets of wisdom he was able to dig up.

And that just about wraps things up for this week.  I'm out of
time and space, and need to get this turned in.  Keep an eye out
for that trade entry on EBAY and start setting up your entry
plan for those Watch List call plays.  The entry points aren't
close right now, but I expect that the next leg down in the
broad markets are going to set us up nicely for a long-term
bullish move.

Have a great week!


Mark Phillips
Contact Support



LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

MO     07/30/01  '03 $ 45  VPM-AI  $ 6.10  $ 8.90   45.90%  $ 48
PCS    09/17/01  '03 $ 25  VVH-AE  $ 5.00  $ 5.20    4.00%  $ 23
                 '04 $ 25  LVH-AE  $ 7.10  $ 7.50    5.63%  $ 23
LLY    10/17/01  '03 $ 75  VIL-AO  $10.80  $13.60   25.93%  $ 72
                 '04 $ 80  LZE-AP  $12.20  $15.60   27.87%  $ 72
CPN    10/25/01  '03 $ 25  OLB-AE  $ 6.00  $ 7.10   18.33%  $ 19
                 '04 $ 30  LZC-AF  $ 6.50  $ 7.40   13.85%  $ 19



LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
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
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
BRCM   10/28/01  $27-28        JAN-2003 $ 30  OGJ-AF
                            CC JAN-2003 $ 25  OGJ-AE
                               JAN-2004 $ 30  LGJ-AF
                            CC JAN-2004 $ 25  LGJ-AE

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


New Portfolio Plays

CPN - Calpine $23.80

It's been a long wait, but CPN finally obliged to give us an
entry point we could believe in this week.  As expected, the
late September bounce put in a solid bottom, and after that
rally ran its course, CPN came back to earth and on Thursday,
just kissed our entry target at $23.  This was the second day
of heavy volume (double the ADV) and the stock quickly proceeded
to recover throughout the day.  Energy prices have begun to
stabilize recently, and forecasts for a colder winter point to
the likelihood that demand for CPN's chief product (energy)
will increase over the next several months.  The recovery in
price is still tenuous, but weekly Stochastics are well on their
way towards overbought and the daily is just starting to poke up
out of oversold territory.  There is some formidable resistance
in the $28-30 area, but once free of that obstacle, CPN looks
like work its way into the mid-$30s over the next several months.
A renewed dip into the $23-24 area still looks good for new
entries, as we position ourselves for a long-term recovery in
price.  We're protecting our positions with a stop at $19, right
at the September low and just below the supportive 200-week
moving average.

BUY LEAP JAN-2003 $25.00 OLB-AE $6.00
BUY LEAP JAN-2004 $30.00 LZC-AF $6.50


New Watchlist Plays

BRCM - Broadcom Corporation $37.05

Semiconductor stocks have been leading the recent Technology
recovery and have been showing impressive resilience in the face
of the continuing economic weakness.  Part of the rationale for
this behavior was revealed on Thursday with the Durable Goods
Orders, which came in much weaker than expected with a decline
of 8.5%.  Bucking this trend, orders for Semiconductors showed
an increase of 16%, bolstering beliefs that the bottom of this
economic cycle is at hand and conditions will be markedly better
6 months from now.  BRCM has been one of the strongest performers
since the September lows, up more that 100% since early October.
While we don't want to jump into the current move, which is
getting a bit toppy, the great relative strength the stock is
demonstrating indicates that BRCM will be one of the leaders in
the Technology recovery over the next several months.  Both the
daily and weekly Stochastics are entering overbought territory,
and this isn't where we want to consider new positions.  We want
to set our action plan in place and then wait for our entry
conditions to be met.  That will consist of having the daily and
weekly oscillators descend back into oversold, followed by the
daily oscillator once again showing signs of life, ideally with
price bouncing from solid support.  Looking at the daily chart,
the most likely level of support to provide us with an attractive
entry will be the bottom of the gap from October 11th near $27.
Accordingly, we are setting our entry target at $27-28, but
we'll want to wait for the appropriate move in the oscillators
as described above to usher us into new positions.  It won't
happen over the next few weeks, but when price does roll over,
we can start to watch and wait.  After entry, we'll be setting a
fairly tight stop, likely near the $24 support level.

BUY LEAP PUT JAN-2003 $30.00 OGJ-AF
BUY LEAP PUT JAN-2003 $25.00 OGJ-AE **Covered Call**
BUY LEAP PUT JAN-2004 $30.00 LGJ-AF
BUY LEAP PUT JAN-2004 $25.00 LGJ-AE **Covered Call**




Drops

ENE $15.40 We've had ENE sleazing around on the Watch List for
3 months now without even a hint of an entry point, as the stock
has continued to march lower.  At first it looked like the
weakness was likely due to falling natural gas prices, but that
thesis proved incorrect as natural gas prices have been
recovering lately and ENE is once again trading at new multi-year
lows.  The latest challenge for the company are concerns about
credit quality, and that just doesn't sit well with me.  While
the stock is now decidedly cheap, I think we are better served
by removing ENE from the Watch List so that we can focus on
healthier plays.

GD $86.00 We added GD to the Watch List on the heels of the
September 11th disaster on the idea that the Defense stock would
benefit from strength in the overall industry, leading it to a
solid breakout.  While we did see a breakout, we haven't seen
any follow through and the trading action has continued to
become more volatile.  At the same time, the weekly Stochastics
oscillator has rolled over from overbought territory, and is
pointing to further price weakness ahead.  Not only that, but
the monthly Stochastics is starting to rollover and is setting
up for some powerful bearish divergence.  Rather than let that
developing weakness put us into a position poised for a major
bearish reversal, we'll remove GD from the Watch List this
weekend and focus on plays with more upside potential.


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The Option Investor Newsletter                   Sunday 10-28-2001
Sunday                                                      5 of 5

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*************
COVERED CALLS
*************

Conservative Option Trading: A Simple Approach
By Mark Wnetrzak

Success in the stock market depends on many things and those who
have learned how to consistently profit in this game are few and
far between.  There are numerous approaches to determining market
direction including: charting with technical trend or momentum
indicators, contrarian systems that use sentiment indexes or put
and call ratios, and valuation techniques such as fundamental
analysis.  One of the most important issues that new investors
overlook is, regardless of the method, the stock market is very
difficult to predict and the value of time spent trying can often
outweigh the gains from the outcome.

We all use different systems to determine when to buy and sell
specific issues (most of them based on technical analysis) but
to profit with directional option trading, a trader must correctly
predict the movement of the underlying issues as well as the time
frame in which the move will occur.  A successful trader must also
have a solid understanding of implied volatility in order to enter
the position at a fair price and determine a reasonable goal for
the outcome of the play.  Even with the best techniques, this type
of trading involves above average skill and timing, including the
initial selection of the position (and its size) along with risk
management in identifying target exit points and the correct use
of stops to preserve capital.  To complicate matters, some experts
suggest that success from directional strategies can be virtually
impossible on a regular basis and the inconsistency of returns
will prevent all but the most wealthy traders from surviving the
short-term losses.

With all of the difficulties involved in directional trading, are
there any techniques that offer the average investor a reasonable
opportunity to profit in a comfortable, low maintenance strategy?
We believe that writing covered-calls fits this description quite
successfully.  A strategy based on stock ownership is much easier
to manage on a day to day basis than directional trading and it
offers a favorable balance of risk versus profit potential for
those who attempt to predict stock movement and magnitude.  The
strategy is more conservative than just buying stock, due to the
fact that a premium is collected, lowering the break-even price on
the stock position, and the concept is attractive to the investor
who is willing to limit his upside potential in exchange for some
downside protection.  In addition, the technique is well suited
for individual retirement accounts.

Investors that hold large positions in a specific stock can choose
a form of risk/reward diversification by spreading the sold calls
over time as well as different strike prices.  A trader can gain
several benefits by writing a portion of the calls near-term and
the remaining calls further in the future.  In the event of large
stock price fluctuations, all of the various positions will not
need to be adjusted at the same time.  This activity may include
either having the stock called away, or buying back a particular
written call and selling another.  Another advantage is that the
level of option premiums may become more favorable than when the
original series of calls were written.  At worst, only one group
of options would be sold when the premiums are low and hopefully
they would increase in value before the next expiration period.
This type of diversification will also allow an investor to own
various positions at different prices, smoothing the portfolio
balance as the market fluctuates cyclically.  This also prevents
all of one's stock from being committed at a single price.  With
these unique combination positions, the covered write offers an
excellent balance between potential return and favorable downside
protection.

Although this strategy might not be suitable for everyone, many
investors will find the technique fits their comfort level and
lifestyle much better than other stock option strategies.

Good Luck!


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

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

INFA    7.99   8.85   NOV   7.50  1.20  *$  0.71  11.4%
AMLN    8.59   8.94   NOV   7.50  1.65  *$  0.56   7.0%
ISSX   19.01  26.90   NOV  15.00  5.10  *$  1.09   6.8%
KROL   13.75  14.72   NOV  12.50  2.10  *$  0.85   6.3%
TERN    9.22  11.35   NOV   7.50  2.10  *$  0.38   5.8%
FFIV   15.43  16.55   NOV  12.50  3.50  *$  0.57   5.2%
BRCD   25.36  25.12   NOV  17.50  8.80  *$  0.94   4.9%
CIEN   17.13  19.80   NOV  12.50  5.30  *$  0.67   4.9%
ISSX   25.16  26.90   NOV  20.00  6.00  *$  0.84   4.8%
AFCI   21.98  20.14   NOV  17.50  5.20  *$  0.72   4.7%
OVER   19.19  25.50   NOV  15.00  4.80  *$  0.61   4.6%
BRCD   24.69  25.12   NOV  17.50  7.90  *$  0.71   4.6%
MCAF   21.35  23.20   NOV  17.50  4.70  *$  0.85   4.4%

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

Comments:

Everybody that wished they had bought (and then sold?) calls
this week raise your hands.  Memories of times past?  The recent
bullish momentum has provided some nice downside protection.
Kroll (NASDAQ:KROL) appears determined to correct in a lateral
fashion though it may still test its 30-dma around $12.  SBC
Communications (NYSE:SBC) put the kibosh on Advanced Fibre
(NASDAQ:AFCI) before Monday's open this week, when SBC reported
dismal earnings and said it would slash capital spending by about
20%.  Those that entered the position should have a lower cost
basis than shown above.  According to analysts, while SBC wasn't
a large customer of AFCI, it does signal business will likely
grow more slowly than earlier expected.  Monitor the position
closely as a test of the October low may follow.


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

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

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

TIVO    5.38  NOV  5.00   TUK KA  0.70 1521   4.68   21    9.9%
ZIXI    8.71  NOV  7.50   HQU KU  1.65 94     7.06   21    9.0%
RSAS   12.18  NOV 10.00   QSD KB  2.70 619    9.48   21    7.9%
AZPN   13.35  NOV 12.50   ZQP KV  1.40 0     11.95   21    6.7%
GMST   23.19  NOV 20.00   QLF KD  4.00 3586  19.19   21    6.1%
AMCC   12.92  NOV 10.00   AEX KB  3.30 11925  9.62   21    5.7%
MCAF   23.20  NOV 20.00   CFU KD  3.90 42    19.30   21    5.3%
MWY    16.05  NOV 15.00   MWY KC  1.55 413   14.50   21    5.0%
TDY    15.96  NOV 15.00   TDY KC  1.45 2     14.51   21    4.9%
ASIA   13.75  NOV 12.50   EUJ KV  1.65 130   12.10   21    4.8%


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

Success Basics: Some Simple Guidelines
By Ray Cummins

Developing a reliable and effective approach to trading is the
first step in becoming successful in the stock market.  Managing
a winning portfolio requires planning, patience and good judgment.
In addition, you should use simple, proven methods for realizing
profits and limiting losses.

The first step in constructing a profitable system is to identify
the proper risk/reward perspective and select a favorable trading
strategy.  Next, you must develop a technique for managing the
position that fits your experience level and portfolio outlook.
There are a number of factors necessary for a successful trading
system but the most important components are: planning the trade,
entering the position, and establishing the exit points.  Each of
these phases should be created (and modified) to fit the needs of
a particular situation, and they must all be present in order to
achieve consistent results.  A successful system is one that will
identify the most appropriate time to enter the market; when the
potential for profit is most favorable, and exploit winning trades
for maximum return while simultaneously limiting losses in those
positions that don't perform as expected.

Learning when to enter and exit specific issues requires a solid
understanding of technical analysis and market trends.  The setup
for a specific trade should indicate that market conditions have
become favorable for entering a new position.  It should also help
determine what actions to consider, based on the character of the
selected issue or instrument: trending or consolidating, stagnant
or volatile.  The appropriate trading strategy will profit from a
correct forecast of the issue's future price action thus, it is
crucial to initiate new positions only in those situations where
the probability of success is highest.  A precise, detailed plan
for identifying these conditions will save money, time, and most
importantly, it will prevent you from participating in the market
when circumstances are less than ideal.

The target entry point is based on criteria identified in the
planning stages of a potential trade.  It is usually determined
through a combination of technical analysis and an assessment of
current market trends.  The profit/loss targets (exit points) are
also based on criteria established in pre-trade objectives and in
many cases, they are determined prior to initiating the position.
Defining the correct exit points is generally the most important
part of preparing to execute a profitable trade but new investors
rarely devote much effort to completing this task.  Most rely on
spontaneous profit targets and the casual placement of trailing
stops.  For those of you who are unfamiliar with this technique,
a trailing stop (sell order) is placed a fixed distance below the
current price of a (long) stock or option position.  As the issue
moves higher, the trailing stop is raised, locking-in potential
profits.  This type of (sell) order closes out the position when
the price of the issue falls to the level of the stop.  There is
an alternative to exiting positions with a trailing stop.  Some
traders use a profit target, exiting the trade when the issue's
price reaches a specified objective.  A favorite combination
involves selling half of the position at a specified target and
when that order is executed, using a conservative trailing stop
to maximize profits in the remaining portion of the position.

There is of course, the need to follow the rules once they have
been established.  It doesn't matter how well your system works
if you can't follow the rules with perfect discipline on a daily
basis.  Most traders do not like to take losses, even small ones
but the fact is, every investor, professional or novice will, at
one time or another, participate in positions that turn out to be
losers.  It is very important to realize that anyone who trades,
in any type of financial market, will end up with a percentage of
losing positions.  The difference between successful traders and
those who eventually fail, is how they react to unfavorable plays
and the manner in which they manage losses.  For most of us, (and
I am included in this group) that aspect of trading is usually
learned the hard way!

Good Luck!

                      *** WARNING!!! ***
Occasionally a company will experience catastrophic news causing
a severe drop in the stock price. This may cause a devastatingly
large loss which may wipe out all of your smaller gains. There is
one very important rule; Don't sell naked puts on stocks that you
don't want to own! It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops. Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a buy-to-close STOP at a price that is no more than twice
the original premium from the sold option.


SUMMARY OF PREVIOUS CANDIDATES
*****

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

CNXT   10.15  11.85   NOV   7.50  0.35  *$  0.35  12.8%
GNSS   39.18  46.14   NOV  30.00  0.90  *$  0.90  11.2%
JNPR   23.66  25.00   NOV  15.00  0.50  *$  0.50  10.4%
QLTI   23.71  22.77   NOV  20.00  0.60  *$  0.60  10.2%
EMLX   24.65  25.23   NOV  15.00  0.45  *$  0.45   9.1%
SAGI   21.65  25.61   NOV  17.50  0.40  *$  0.40   8.8%
NETA   18.38  20.43   NOV  15.00  0.45  *$  0.45   8.8%
RFMD   24.30  22.49   NOV  15.00  0.55  *$  0.55   8.8%
IMMU   16.30  18.71   NOV  12.50  0.35  *$  0.35   8.4%
CMNT   15.25  14.39   NOV  12.50  0.35  *$  0.35   8.2%
BRCM   31.80  37.05   NOV  20.00  0.60  *$  0.60   7.5%
QLGC   37.06  41.65   NOV  22.50  0.65  *$  0.65   7.0%
WEBX   29.77  33.55   NOV  20.00  0.35  *$  0.35   6.0%
QLGC   38.50  41.65   NOV  22.50  0.45  *$  0.45   6.0%
VRTS   29.08  31.68   NOV  17.50  0.30  *$  0.30   5.3%

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

Comments:

It was another great week for the Naked-Puts section thanks to
a healthy rebound in the U.S. equity markets.  During the past
five sessions, the Dow industrial average climbed 341 points,
the NASDAQ composite gained 97 points and the S&P 500 index was
up 31 points.  Technology issues were strong early in the week
and blue-chip stocks finished Friday with a strong upside bias.
The close near the October highs suggests the fall rally remains
intact and sets the stage for continued upside activity in the
coming sessions, barring any unfavorable news over the weekend.
The only issue on our watch-list is QLT Inc. (NASDAQ:QLTI) as it
is falling back into a recent trading range near our sold strike
price.  A close below the support level near $20 would signal a
potential early-exit in the bullish position.



NEW CANDIDATES
*********

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

AFFX   31.70  NOV 25.00   FIQ WE  0.35 542   24.65   21    7.6%
FFIV   16.55  NOV 12.50   FLK WV  0.30 369   12.20   21   12.0%
OVER   25.50  NOV 20.00   GUO WD  0.40 70    19.60   21   10.5%
PWAV   16.20  NOV 12.50   VFQ WV  0.25 945   12.25   21   10.4%
SMTC   40.21  NOV 32.50   QTU WT  0.60 610   31.90   21    9.7%
STE    23.24  NOV 20.00   STE WD  0.30 54    19.70   21    6.8%
SURE   13.25  NOV  7.50   UGN WU  0.25 104    7.25   21   12.5%
TTN    27.00  NOV 22.50   TTN WX  0.60 1537  21.90   21   12.6%

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

TTN    27.00  NOV 22.50   TTN WX  0.60 1537  21.90   21   12.6%
SURE   13.25  NOV  7.50   UGN WU  0.25 104    7.25   21   12.5%
FFIV   16.55  NOV 12.50   FLK WV  0.30 369   12.20   21   12.0%
OVER   25.50  NOV 20.00   GUO WD  0.40 70    19.60   21   10.5%
PWAV   16.20  NOV 12.50   VFQ WV  0.25 945   12.25   21   10.4%
SMTC   40.21  NOV 32.50   QTU WT  0.60 610   31.90   21    9.7%
AFFX   31.70  NOV 25.00   FIQ WE  0.35 542   24.65   21    7.6%
STE    23.24  NOV 20.00   STE WD  0.30 54    19.70   21    6.8%


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).

*****
AFFX - Affymetrix  $31.70  *** Merrill Upgrade! ***

Affymetrix (NASDAQ:AFFX) is engaged in the field of DNA chip
technology.  Affymetrix has developed and intends to establish
its GeneChip system and related micro-array technologies as
platforms for acquiring, analyzing and managing information in
the field of genetics.  Their system consists of disposable DNA
probe arrays containing gene sequences on a chip, reagents for
use with the probe arrays, a scanner and other instruments to
process the probe arrays and software to analyze and manage
genetic information from the probe arrays.  The company sells
its products directly to pharmaceutical and biotechnology
companies, academic research centers, private foundations and
clinical reference laboratories in the United States and Europe.
AFFX rallied last week after Affymetrix and Hyseq (Nasdaq:HYSQ)
announced the settlement of all existing litigation between the
two companies that began in March of 1997.  The companies also
announced that they have formed a new collaborative venture to
accelerate the development of opportunities in the DNA array
market.  Merrill Lynch raised its intermediate-term rating on
the company to "buy" and this position offers a discounted cost
basis in the issue.

NOV 25.00 FIQ WE LB=0.35 OI=542 CB=24.65 DE=21 TY=7.6%


*****
FFIV - F5 Networks   $16.55   *** Favorable Earnings ***

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 Thursday, FFIV reported fourth
quarter earnings that were in line with management's October 9
guidance.  The CEO said that the company achieved more than 90%
of their revenue goal for the quarter and saw improvement in the
gross margin, which came in nearly a full percentage point above
the high end of the target range."  Investors were pleased with
the news and now the issue appears ready to test the yearly highs.

NOV 12.50 FLK WV LB=0.30 OI=369 CB=12.20 DE=21 TY=12.0%


*****
OVER - Overture Services  $25.50   *** A Big Day! ***

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.  Shares
of OVER jumped 30% Friday following the company's earnings report,
which easily surpassed analysts' expectations.  Merrill's popular
analyst Henry Blodget noted that in addition to achieving a profit
and a rapid rate of sales growth, Overture has increased operating
margins and grown the rate it charges its advertisers as well.
Investors can use this position to establish a conservative cost
basis in the company's stock.

NOV 20.00 GUO WD LB=0.40 OI=70 CB=19.60 DE=21 TY=10.5%


*****
PWAV - Powerwave  $16.20  *** Cheap Speculation! ***

Powerwave Technologies (NASDAQ:PWAV) designs, manufactures and
markets ultra-linear radio frequency (RF) power amplifiers for
use in the wireless communications market.  RF power amplifiers,
which are key components of wireless communications networks,
increase the signal strength of wireless transmissions from the
base station to the handset while reducing interference, or
"noise."  Powerwave manufactures both single and multi-carrier
RF power amplifiers for a variety of frequency ranges and
transmission protocols.  PWAV shares rallied in early October
after the company posted losses that were higher than expected,
but forecast meaningful growth in the coming quarters.  Company
officials noted the strength in Powerwave's newest product area,
amplifiers for the emerging 3G W-CDMA market, which accounted for
over 25% of third quarter revenue.  Some analysts offered bullish
recommendations after the news and investment bank Morgan Stanley
suggested the stock was a "deal" at its current price.  We would
rather own it at a cost basis near technical support.

NOV 12.50 VFQ WV LB=0.25 OI=945 CB=12.25 DE=21 TY=10.4%


*****
SMTC - Semtech  $40.21  *** Break-out Coming? ***

Semtech (NASDAQ:SMTC) is a supplier of analog and mixed-signal
semiconductors.  Semtech designs, manufactures and markets a wide
range of products for commercial applications, the majority of
which are sold to the communications, industrial and computer
markets. Semtech's semiconductors enable power management, test,
protection and a wide range of other functions in products that
require analog or mixed-signal processing.  Semtech's customers
are primarily original equipment manufacturers that produce and
sell electronics.  Readers have requested some candidates in the
semiconductor group so we decided to look for an issue with solid
technical support near our cost basis and a bullish trend.  SMTC
emerged as the top selection with those attributes and investors
who are interested in the chip sector can use this position to
speculate on its performance.  The company's quarterly earnings
are due November 19.

NOV 32.50 QTU WT LB=0.60 OI=610 CB=31.90 DE=21 TY=9.7%


*****
STE - Steris  $23.24  *** Anthrax Prevention! ***

Steris (NYSE:STE) develops, manufactures and markets infection
prevention, contamination prevention, microbial reduction and
therapy support systems, products, services and technologies for
healthcare, scientific, research, food and industrial customers
throughout the world.  Steris operates a major business in low
and high temperature sterilization, washing and decontamination
systems, surgical tables, surgical lights and related consumables.
Steris has expanded to become a multi-faceted global organization
that serves healthcare, scientific, research, food and industrial
markets.  Stocks of food decontamination companies rallied last
week on speculation the Postal Service could use their technology
to kill anthrax spores in the mail.  These companies may also need
to develop processes to destroy smallpox or any of the other germs
that could be used in a biological attack.  Traders can speculate
on that outcome with this conservative position.

NOV 20.00 STE WD LB=0.30 OI=54 CB=19.70 DE=21 TY=6.8%


*****
SURE - SureBeam  $13.25  *** Titan Contract Supplier ***

SureBeam (NASDAQ:SURE) is a provider of electronic irradiation
systems and services for the food industry.  Their electronic food
irradiation process significantly improves food safety, prolongs
shelf life and provides disinfestation, without compromising food
taste, texture or nutritional value.  The company offers services
for the electronic irradiation of food through in-line turnkey
systems and centrally located service centers allowing growers,
packers and processors to choose the most convenient and effective
way to utilize its SureBeam system for electronically irradiating
their products.  Titan Corporation (NYSE:TTN) received a contract
from the U.S.P.S. to irradiate the mail and they said they will
subcontract the order for the systems, which use electron beam and
X-ray technology to destroy harmful bacteria, to its majority owned
subsidiary SureBeam.  Use this position to speculate on the outcome
of that deal.

NOV 7.50 UGN WU LB=0.25 OI=104 CB=7.25 DE=21 TY=12.5%


*****
TTN - Titan  $27.00  *** New U.S.P.S Contract ***

The Titan Corporation (NYSE:TTN) is a diversified technology
company whose business is to create and launch technology-based
businesses.  The company has organized its business into four
core segments and its Emerging Technologies and Businesses
segment: Titan Systems offers unique information technology and
communications solutions, services and products for defense,
intelligence, and other U.S. and allied government agencies;
SureBeam offers electronic food irradiation systems and services;
Titan Wireless offers satellite/wireless-based communication
services and systems that provide cost-effective voice, facsimile,
data, Internet and network communications services in developing
countries; Cayenta is a total service provider of information
technology services and software applications for its customers'
business and governmental functions; and Emerging Technologies
and Businesses pursues commercial applications for technologies
originally developed by Titan.  TTN shares rallied last week on
news that the Postal Service will buy up to 20 of its electron
beam systems to sterilize mail and remove the threat of anthrax
contamination.  The upward move was on heavy volume and we like
the technical support near our cost basis.

NOV 22.50 TTN WX LB=0.60 OI=1537 CB=21.90 DE=21 TY=12.6%


*****

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

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

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

ITMN   46.41  NOV 45.00   IQY WI  1.80 0     43.20   21   13.8%
RSTN   13.65  NOV 10.00   RQJ WB  0.25 208    9.75   21   12.2%
ISIP   21.88  NOV 20.00   QIS WD  0.50 125   19.50   21    9.8%
PDLI   36.43  NOV 30.00   PQI WF  0.55 1147  29.45   21    9.2%
WBSN   23.86  NOV 20.00   DQH WD  0.35 1     19.65   21    8.4%
ACTN   26.25  NOV 22.50   QNC WX  0.40 26    22.10   21    8.1%
NETA   20.43  NOV 17.50   CQM WW  0.25 792   17.25   21    6.6%


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

A Respectable Finish!
By Ray Cummins

******************************************************************
                         - MARKET RECAP -
******************************************************************
Friday, October 26

The major equity averages ended the week on optimistic note as
blue-chip stocks traded higher while technology issues took a
breather after outperforming over the past few sessions.

Despite continued bad earnings reports, anthrax scares and weak
economic data, the Dow Industrials gained 82 points to end the
day at 9,545.  Topping the old-economy winners list were shares
of Boeing (NYSE:BA), Caterpillar (NYSE:CAT), DuPont (NYSE:DD),
General Electric (NYSE:GE), Honeywell (NYSE:HON), McDonald's
(NYSE:MCD) and United Technologies (NYSE:UTX).  Meanwhile, the
NASDAQ consolidated after an early foray into the plus column
as big-cap technology components pulled the index down 6 points
to 1,768.  In the broad market, buyers emerged in oil service,
natural gas, biotechnology, financial, chemical, and cyclical
stocks while drug, utility and gold issues generally retreated.
The Standard & Poor's index of 500 stocks finished the session
up almost 5 points at 1,104.  Volume came in at 1.20 billion on
the NYSE and at 2.01 billion on the NASDAQ.  Market breadth was
marginally positive, with winners beating losers 18 to 13 on the
Big Board and 19 to 17 on the technology exchange.  Bonds have
been on the move over the past week, buoyed by expectations for
additional Fed rate cuts.  Friday saw similar activity with the
10-year note up 1/4 to yield 4.52% and the 30-year bond adding
14/32 to yield 5.27%.


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

Microsoft  (NSDQ:MSFT)  J0365C/N65C   $8.00  debit   LEAPS/CCs
Seachange  (NSDQ:SEAC)  JAN30C/J20P   $0.50  debit   synthetic
Murphy Oil  (NYSE:MUR)  NOV85C/N70P   $3.00  credit  strangle
Merck       (NYSE:MRK)  NOV75C/N70C   $0.55  credit  bear-call
S&P 100     (CBOE:OEX)  NOV480P/490P  $0.50  credit  bull-put
S&P 100     (CBOE:OEX)  NOV610C/600C  $0.80  credit  bear-call

Our new long-term calendar spread in Microsoft (NASDAQ:MSFT) was
the top play of the week.  The position was easily initiated at
the target debit of $8.00 and by Friday afternoon the spread had
already yielded a $1.50 profit.  The bullish synthetic position
in Seachange (NASDAQ:SEAC) was also an upside mover but with the
rally on Monday morning, there was no opportunity to enter the
play at the target credit (on a simultaneous order basis).  The
OEX spreads offered a combined credit near our suggested target
price and the bearish position in Merck (NYSE:MRK) was available
at a favorable premium.  Murphy Oil (NYSE:MUR) is the only issue
that requires close attention as the stock is poised to test our
sold Call at $85 in the coming sessions.


Portfolio Positions:

There was some excellent activity in the Spreads/Combos section
this week as a number of our old time-selling issues moved higher
in conjunction with the broader market.  Hollywood Entertainment
(NASDAQ:HLYW), Interactive Data Corp. (NASDAQ:IDCO) and Newell
Rubbermaid (NYSE:NWL) all rallied, providing additional profits
for traders that remained in those positions.  RPM Inc. (NYSE:RPM)
was a big winner in the synthetic group and our bullish position
in the play provided a $0.30 closing credit ($0.50 profit) during
Tuesday's session.  Powerwave (NASDAQ:PWAV) was a solid performer
and traders who are still in the (November) bullish position were
rewarded with excellent gains.  The (adjusted) diagonal spread in
Drexler (NASDAQ:DRXR) is also currently at maximum profit and the
underlying issue is well above the sold strike price at $17.50.
Thursday's rally in JDS Uniphase (NASDAQ:JDSU) took the issue to
a 3-month high, providing another great early-exit opportunity in
the bullish, covered-put combination (Jim's favorite strategy).
Overall, it was a great week and with option premiums returning
to past levels and the stock market poised for additional upside
movement in the coming months, we expect to get back into our old
habits, trading some of the more popular strategies like bullish
debit (and diagonal) spreads and Covered-calls on LEAPS.

Good Luck!

Questions & comments on spreads/combos to Contact Support
******************************************************************
                           - NEW PLAYS -
******************************************************************
LMT - Lockheed Martin  $49.92  *** New Government Contract! ***

Lockheed Martin (NYSE:LMT) is engaged in the conception, research,
design, development, manufacture, integration and operation of
advanced technology systems, products and services.  Its products
and services range from aircraft, spacecraft and launch vehicles,
to missiles, electronics, advanced information systems and global
telecommunications.  The company operates in five major business
segments consisting of Systems Integration, Space, Aeronautics,
Technology Services and Global Telecommunications.  The company
serves customers in both domestic and international defense and
commercial markets, with its principal customers being agencies
of the United States Government.

Shares of Lockheed Martin became very popular Friday after the
company announced it had been selected over Boeing (NYSE:BA) for
the rights to build an entire family of next-generation fighter
jets that are expected to become the most sophisticated warplanes
in history.  In announcing Lockheed as the victor, government
officials said the company's test versions of the Joint Strike
Fighter were "head and shoulders" above its Boeing counterpart.
The amount actually awarded Friday was for an initial $19 billion
to develop the plane further and if the program goes through to
full production for the Pentagon, it could become a $200 billion
package, making it the biggest contract ever awarded by the U.S.
military.  In addition, international sales could double the size
of the deal to $400 billion over the program's life, which could
be nearly a half-century.

The recent trading-range support near $40 provides stability for
future upside activity in LMT's share value and the premiums in
the spread offer a relatively low risk position with a reasonable
expectation of profit.

PLAY (moderately aggressive - bullish/credit spread):

BUY  PUT  NOV-40  LMT-WH  OI=428   A=$0.50
SELL PUT  NOV-45  LMT-WI  OI=3097  B=$1.40
INITIAL NET CREDIT TARGET=$0.90-$1.00 PROFIT(max)=24%


******************************************************************
PDLI - Protein Design Labs  $36.43  *** On The Rebound! ***

Protein Design Labs (NASDAQ:PDLI) is engaged in the development of
humanized monoclonal antibodies for the prevention and treatment
of disease.  The company has licensed certain rights to its first
humanized antibody product, Zenapax, to Hoffmann-La Roche and its
affiliates (Roche), which markets Zenapax for the prevention of
kidney transplant rejection.  The company is also testing Zenapax
for the treatment of autoimmune disease.  In addition, the company
has several other humanized antibodies in clinical development for
autoimmune and inflammatory conditions, asthma and cancer.  The
company has fundamental patents in the United States, Europe and
Japan, that cover many humanized antibodies. Eleven companies have
licenses under these patents for humanized antibodies that they
have developed.  The company receives royalties on sales of the
three humanized antibodies developed by other companies that are
currently being marketed.

Biotechnology stocks have rallied in recent sessions and traders
say PDLI shares are also being driven by speculation over its
upcoming earnings report.  Protein Design Labs will announce its
financial results for the quarter following the close of trading
on November 1, 2001.  Analysts believe the company has a positive
future and optimistic investors have pushed the issue up $10 in
just one week.  We simply favor the bullish technical indications
and our conservative position offers a method to participate in
the post-earnings movement of the issue with relatively low risk.

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-27.50  PQI-WY  OI=1340  A=$0.35
SELL PUT  NOV-30.00  PQI-WF  OI=1147  B=$0.60
INITIAL NET CREDIT TARGET=$0.30-$0.35  PROFIT(max)=14%


******************************************************************
CCMP - Cabot Microelectronics  $72.51  *** Speculation Only! ***

Cabot Microelectronics (NASDAQ:CCMP) is a worldwide supplier of
high performance polishing slurries used in the manufacture of
advanced integrated circuit devices, within a process called
chemical mechanical planarization.  Cabot supplies slurries to
IC device manufacturers worldwide.  Most of the company's CMP
slurries are used to polish insulating layers and the tungsten
plugs that go through the insulating layers and connect the
multiple wiring layers of IC devices.  The company is developing
and selling new slurries used to polish copper, a new metal used
in wiring layers of IC device fabrication.  The company has also
developed and begun sales of new slurries designed for polishing
several components in hard disk drives, specifically rigid disks
and magnetic heads.  In addition, the company has recently begun
producing and selling polishing pads used in the CMP process.

Cabot Micro's stock has been "on the move" since Thursday when
the company reported that fiscal year 2001 revenues were up 26%
and full year net income was up 42% over the fiscal year 2000.
Cabot officials said that their results benefited from copper
product revenues, which grew 56% sequentially from the third
quarter and 2.5 times on a full year-over-year basis.  They also
noted that business trends suggest leading-edge technology chip
activities appear to have been less impacted during the recent
industry downturn and the continued pace of product advancement
is expected to provide additional growth for their company over
time.  Analysts say the company's ability to benefit from new
products and future slurry demand is still not fully reflected
in its current share value.  Our opinion is simply that CCMP is
in the midst of a strong recovery rally and traders can speculate
on additional upside movement in the issue with this synthetic
position.  Target a small credit in the play initially, to allow
for any consolidation after the recent rally.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  DEC-80  UKR-LP  OI=0   A=$2.75
SELL PUT   DEC-55  UKR-XK  OI=77  B=$2.25
INITIAL NET CREDIT TARGET=$0.00-0.20  TARGET PROFIT=$1.25-$1.50

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,600 per contract.


******************************************************************
OTEX - Open Text  $26.93   *** Solid Earnings! ***

Open Text (NASDAQ:OTEX) designs, develops and delivers Web-based
collaborative capabilities to Intranets and Extranets for many
organizations of all sizes.  Open Text products connect employees,
business partners and customers across global organizations and
online trading communities, enabling them to collaborate on new
projects, share business-critical information, reduce the current
time-to-market and realize significant returns on investment.
Open Text solutions help organizations to achieve success by
unleashing collective knowledge and creating an environment that
promotes innovation, leveraging the most valuable assets in an
organization: its people and knowledge.

Shares of Open Text rallied late last week after the Canadian
software maker said that first-quarter revenues rose 17% from
the previous year as demand for its LiveLink software increased
due to new customers looking for productivity enhancing tools.
The company, which makes a unique product allowing employees to
collaborate on projects from multiple locations, said adjusted
earnings in the quarter rose to $3.1 million, or $0.15 a share,
up from $3 million or $0.14 a share in the year-ago period.
Revenues in the quarter rose 17% to $35.3 million, up from $30
million in the same quarter of 2000.  Investors were apparently
pleased by the news as the issue rallied over 10% in three days.
Technically, the stock seems to have successfully completed a
recent consolidation phase and we expect OTEX's share value to
benefit significantly from any further rally in the technology
group.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  NOV-30  QFT-KF  OI=253  A=$0.80
SELL PUT   NOV-25  QFT-WE  OI=77   B=$0.80
INITIAL NET CREDIT TARGET=$0.15-$0.30  TARGET PROFIT=$0.75-$1.00

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $950 per contract.


******************************************************************
TNL - Technitrol  $26.98  *** Time-Selling Play! ***

Technitrol (NYSE:TNL) is a worldwide manufacturer of electronic
components and electrical contact products.  The company operates
two business segments: the Electronic Components Segment and the
Electrical Contact Products Segment.  The company's strategy is
to grow its electronic components business through a combination
of internal expansion and acquisitions.  Some of the company's
recent acquisitions include FEE Technology, S.A., GTI Corporation
and EWC, Inc.

Here's a great candidate for a time-selling play, based on the
current price and trading range of the underlying issue and its
recent technical history.   This position is a bullish version
of a calendar spread, where the underlying issue is some distance
below the strike price of the options.  The play is speculative
with low initial cost and large potential profits.  Two favorable
outcomes can occur: the stock rallies in the short-term and the
position is closed for a profit as the time value erosion in the
short option produces a net gain or; the stock consolidates,
allowing the sold option to expire and then eventually rallies
above the long options' strike price, thus producing a positive
return.  Of course, the cost basis of the long option can be
further reduced through the sale of additional calls prior to
its expiration in January.

For more information, read the appropriate chapters in McMillan's
"Options as a Strategic Investment" and Natenburg's "Option
Volatility and Pricing", both available in the OIN's bookstore.
These are two of the bibles of floor traders and they will shed
some light on the subject of calendar spreads and the appropriate
entry/exit/adjustment strategies.

PLAY (conservative - bullish/calendar spread):

BUY  CALL  JAN-30  TNL-AF  OI=176  A=$1.70
SELL CALL  NOV-30  TNL-KF  OI=14   B=$0.35
INITIAL NET DEBIT TARGET=$1.25  TARGET PROFIT=25%-40%


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


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