Option Investor

Daily Newsletter, Wednesday, 10/31/2001

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The Option Investor Newsletter                Wednesday 10-31-2001
Copyright 2001, All rights reserved.                        1 of 1
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MARKET WRAP  (view in courier font for table alignment)
      10-31-2001          High     Low     Volume Advance/Decline
DJIA     9075.14 - 46.84  9223.07  9064.41 1.32 bln   1929/1172
NASDAQ   1690.20 + 22.79  1721.69  1677.71 1.87 bln   2220/1367
S&P 100   544.43 -  0.63   552.84   543.55   Totals   4149/2539
S&P 500  1059.48 -  0.01  1074.79  1057.55
RUS 2000  428.17 +  5.34   429.48   422.83
DJ TRANS 2195.84 +  0.58  2221.20  2194.82
VIX        35.28 +  0.13    35.55    33.67
VXN        62.42 -  0.99    64.27    60.66
TRIN        1.51
Put/Call    0.50

Tricks And Treats

The U.S. Treasury Department played a trick on bond market
participants Wednesday.  The Commerce Department delivered a
treat, and a worse case scenario morphed into a better case

The Commerce Department reported Wednesday morning that the
U.S. economy shrank by a 0.4 percent annual rate during the
third-quarter.  The drop in Gross Domestic Product (GDP) - the
broadest measure of economic activity - marked the sharpest
decline since early 1991 - the last recessionary period.
Going into Wednesday morning, the consensus among economists
was for a 1.1 percent annual rate of contraction in GDP, so
the upside surprise was welcome by the bulls, who carried
stocks higher earlier in the day.

Whether or not GDP declines sequentially in the fourth-quarter
is up for debate.  Some economists expect the U.S. economy to
contract by as much as 4 to 5 percent annually during the current
quarter.  While others are more upbeat, pointing to the
government's fiscal stimulus package, suggesting that the
economy could actually grow during the fourth-quarter.  Such is
the dismal science.

Treasury Secretary O'Neill opined that the economy could grow
during the fourth-quarter on the heels of the fiscal stimulus
package, but his opinion of the economy's prospects wasn't the
exciting news from the Treasury Department Wednesday.

Rising Fear, Falling Yields...

When I wrote about the bond market in the Market Sentiment
Tuesday night, I had it all wrong.  The recent rally in bonds
has been fear-induced, but not the fear of future terrorist attacks.

The government announced it would stop new issuance of 30-year
Bonds (TYX.X).  The news caused a historic plunge in yield as
buyers scrambled to lock-up existing bonds.

The Treasury said that it no longer needed the 30-year Bond to
finance the government's operations, adding that it's more
expensive to issue because of the longer maturity.  The
Treasury's stance is that the U.S. government will run at a
surplus once the current economic setback passes, possibly as
soon as '03.  Apparently, the government is confident that the
economy will rebound soon.  It would make sense for the government
to lock in the currently low rates, so the Treasury's decision to
cease issuing 30-year debt was a bold move.  In essence, the
government wants to cutback on debt payments by eliminating the
most expensive aspect of its debt structure: The 30-year.

More On The IUX.X

What Jeff Bailey and I are trying to figure out is if the
Treasury's decision is going to adversely impact the Insurance
Sector (IUX.X).  I wrote about a set-up in the IUX over the
weekend, and both Jeff and I have been covering the sector this
week.  Enough readers are following the IUX's set-up that I
think it warrants an update, especially in light of Wednesday's
development in the sector.

There's debate over whether or not organizations, such as
insurance companies, will be able to find an equivalent to the
30-year Bond for hedging and investment purposes.  Mine and
Bailey's work is preliminary on this idea, so I'd rather have
some more research in place before elaborating, so stay tuned.

In the meantime, the dynamic in the IUX.X dramatically changed
from Tuesday to Wednesday.  I wrote about a worse case scenario
Tuesday afternoon in that the IUX had given its sell signal at
the 700 level earlier in the day, completing the bearish
triangle, but had rebounded and gained strength later in the day.
Fast forward to Wednesday and that scenario reversed.  So much so
that the IUX lost a significant amount of strength relative to
the market Wednesday.

Now below the 700 level, from where I sit, the IUX has some
support between the 680 and 685 area.  That's the area where the
IUX has paused in recent past descending trends.  I think there's
the potential for a rebound in the IUX Thursday, but I'm not
convinced of that.  For that reason, we're trying another put
play in the Insurance Sector with St. Paul (NYSE:SPC).  We've
had a lot of success with our put play on American Int'l Group
(NYSE:AIG) in conjunction with the IUX set-up, and I've always
been told that great traders add to their winners.  The key
level for the IUX currently is 680; a breakdown below that
level could confirm further measurable downside.

IUX.X 60-minute

I was pretty excited about this IUX set-up last weekend and it's
my sincere hope that many of our readers have been able to share
in my excitement, if you know what I mean.  If you haven't been
sold on the benefits of point & figure charting, I hope the
recent IUX trade has created some conviction in the tool.

Major Market Averages

The 9050 to 9100 area provided support during the Dow Jones
Industrial Average's ($INDU) most recent pullback a few weeks
ago.  The same area has propped the average up so far this
week.  A breakdown below the 9050 area should cause the Dow to
test 9000 in short order.  The real question is whether or not
9000 holds.  There's some significant historical support at
that level and I'd be willing to bet that buyers try to defend
that level if the Dow tests it.

However, a breakdown below 8950 over the short-term would
cause some significant technical damage in the Dow.  While I
subscribe to Jim's notion of buying a rebound back above 9000,
I would also caution that there exists downside potential on
a breakdown below 8950, potentially to the 8800 level.  Then
again, a rebound from current levels is certainly possible, but
that will depend upon the upcoming economic data.

Dow - 60-minute

Like the Dow, the S&P 500 (SPX.X) is nearing a key support
level at 1050.  And like the Dow, the S&P could see some
downside upon a breakdown below support.  Also evident on the
S&P's 60-minute interval chart is the curling of the 200-period
moving average.  That moving average has provided support for the
two averages in the last several sessions, and could carry them
both higher.  Keep an eye on bounces from the 200-period moving
average, especially if the continue tracing at higher relative

S&P - 60-minute

Big-cap tech was a bastion of strength again Wednesday.  The
Nasdaq-100 (NDX.X) gapped higher and tested the 1400 level twice
during the day, but was unable to breakout.  A breakout above
1400 could be used as an entry point into big cap tech, but I'd
be cautious about the 1410 level.

Head-And-Shoulders Top?

Not only is 1410 a key retracement level, but it could
potentially be the right shoulder of a head-and-shoulders top in
the NDX on the 60-minute chart.  I'd be especially suspicious of
a rollover around 1410 because that would complete the pattern.
Of course a breakout above 1410 would negate the pattern, and
probably lead to a short covering rally back up to relative
highs.  But, I'd suggest watching for the potential of a
head-and-shoulders top here in the NDX, you know I will.

To the downside, the NDX has been catching bids around 1335.
A breakdown below there could pressure the NDX down to 1300,
which is the key short-term support level in my mind.

Nasdaq-100 - 60-minute

There are two more big economic reports due Thursday and
Friday.  The NAPM number is due out Thursday morning, followed
by the big one in the employment report Friday.  Good economic
news should now translate into good new for the market, seeing
that the Fed is nearing the end of its easing cycle.  Although,
an exceptionally weak NAPM and/or jobs number could lead the
market to believe that Greenspan is bringing rates down by
another 50 basis points in November.  The Fed's lost credibility
this year, though, so that prospect may be a moot point.

Eric Utley
Option Investor



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SPC - St. Paul Companies $45.90 -2.61 (-4.06 this week)

The St. Paul Companies is a management company principally
engaged, through its subsidiaries, in providing commercial
property-liability insurance, and reinsurance products and
services worldwide.  The company owns F&G Life Insurance
Company and, through its majority ownership of The John
Nuveen Company, has a presence in the asset management industry.

In keeping with the recent Insurance Sector (IUX.X) breakdown,
we're adding SPC to the put play list.  The stock slid lower
today in concert with the IUX.X en route to generating a sell
signal with its break below $46.  The stock has traded lower
in the past three sessions and has lost more than $4 this
week, which may necessitate a relief rally in the coming days.
Nevertheless, we were attracted to the play because of its
sell signal.  While there exists the possibility of a bounce
over the next few days, we feel that this stock should work
lower over the next few weeks.  The difficulty lies in finding
favorable execution.  The sell signal today may indicate further
downside into tomorrow's session, which, if happens, could
offer momentum traders entry points at current levels.  SPC's
200-day moving average sits at $45.80, so any weakness below
that level could be used to confirm trend.  Conversely, a rebound
from the 200-day could see SPC retrace back up to the $48.50
level, which would provide a favorable entry point upon a
rollover.  But the stock will only make it that far if the
IUX.X rebounds, so make sure to monitor the price action of the
sector closely.  Stops are initially in place at $49.

BUY PUT NOV-50*SPC-WJ OI=276 at $4.20 SL=2.75
BUY PUT NOV-45 SPC-WI OI=419 at $1.55 SL=0.75

Average Daily Volume = 1.49 mln


AIG - put
Adjust from $86.50 up to $83.50

MDT - put
Adjust from $42.75 down to $42.50


No Dropped Calls for Wednesday.


No Dropped Puts for Wednesday.


Sooner Than Expected...But Not Quite Yet
By Mark Phillips
Contact Support

Can you believe it has only been a week and a half since we
first featured EBAY as a LEAP Put?  More amazing to me is the
rapidity with which it has moved up from a play to Watch to one
that is just daring us to take an entry.  While I haven 't done
so yet, we are getting oh so close.  In fact, observant
investors could have nabbed a great entry point earlier this
week.  But due to the fact that the LEAPS Portfolio can only
take a position based on closing prices, I opted not to chase
EBAY lower on the heels of the volatility-inducing analyst

So I thought it would be instructive to dissect the charts
tonight, with an eye towards identifying the entry point that
materialized earlier this week and more clearly defining the
future entry point we are looking for before the Portfolio takes
a position.  Ready?

Let's start with the weekly and daily charts we looked at a week
ago.  Shares of the online auction website were showing some
early signs of weakness at the time, leading us to look for a
high-odds long-term bearish play.

After the sharp earnings-related drop on the daily chart
(October 19th), bargain-hunters appeared, driving the price back
towards the $60 resistance level.  More importantly though, at
least for our purposes is the setup on the weekly chart.  The
large drop caused the stochastics to flatten out, threatening to
move into descent mode.  By last Friday, price had risen to
within a fraction of the $60 resistance level, but we didn't yet
have the needed turn on the weekly Stochastics, which kept us
out of the play last week.  Here is the chart montage as it
appeared last Friday.

As you can see, it was tough to make a case for a new entry as
of Friday's close, as the weakness we were awaiting had yet to
appear.  This Monday provided a pivotal event though, as EBAY
hosted their annual analyst meeting.  Switching now to an
intraday chart, we can see the stock trading in a very narrow
range, right up to 3pm ET.  Then we saw the bottom fall out,
likely in response to the company trimming their earnings
estimates, even if the reduction was minor.

This is the kind of reaction that can occur on minor changes to
guidance when the underlying stock has such a rich valuation.
Vigilant traders could have taken an entry as EBAY fell under
the $55.50 level.  But for the LEAPS Portfolio, the entry point
looked far less attractive after the stock had declined to near
the $52 level at the closing bell.  Taking an entry at that
point had the feel of "chasing" the stock lower, and I fully
expected that we would get a rebound off of that low to provide
a better entry on the next cycle of the daily oscillator.

Take another look at our weekly/daily montage and see how the
picture has changed.  This week's price drop has given us the
bearish cross and has now set the stage for a long-term put play.

Recall that the monthly chart already has its Stochastics
oscillator pointing south in bearish fashion.  With the weekly
chart now in bear mode, we can drill down to the daily chart and
look for the optimum entry point to set up for us.  So let's
apply some of our favorite technical indicators and see where
the most likely entry point should materialize.

With the abrupt reversal in the daily Stochastics, which is once
again nearing oversold territory, we are looking forward to one
more reversal of this indicator into overbought to provide our
high-odds entry.  With the long-term descending trendline
resting near $60, we should see that level provide formidable
resistance for the bulls.  I would expect to see the $56 level
(aggressive trendline resistance and the level of the 20-dma) be
the resistance level at which EBAY once again becomes overbought,
and that is where I will be targeting new entry points.

Look for the daily oscillator to bottom in the next few days and
then rise back towards overbought before initiating new
positions.  Then the rollover should coincide with price
weakness near $56, or even a bit higher (so long as we don't see
a violation of the long-term trendline).

I know we went into a lot of detail on the EBAY charts here
tonight, but it is my hope that the process helps to clarify
both the entry point we are awaiting on EBAY and the analysis
process that is necessary to pinpoint optimal trade entries on
any potential play.  Please refer to the LEAPS Watch List for
the specific strike prices we will target.  I will also update
the entry target on the Watch List as needed.

As always, questions are welcome:

Contact Support

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EBAY - eBay $52.48 -0.93 (-4.52 this 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.

Most Recent Update

It's been a volatile two days for our EBAY put play.  The company
held its analyst meeting yesterday and initially said some good
things concerning the future, which had the stock higher earlier
in the day.  But near the close of trading, the company guided
lower for next year, which sent the stock sliding lower in a big
way.  EBAY's weakness yesterday could've allowed for a favorable
exit point for those who entered up around the $59 area last week,
when EBAY filled its gap.  Again Tuesday, EBAY slid further, down
to the $50 level, which allowed for yet another exit point, but
rebounded sharply in the middle of the day.  With its big move
down yesterday, the stock could continue higher, retracing its
recent losses.  At this point, a rollover at the $55 level could
serve as another entry point into put positions, or possibly
higher around $56.  In either case, wait for the market to weaken
before gaming a rollover.


EBAY didn't participate in today's rally of tech stocks.  The
stock rolled over at the $55 resistance level, actually $54.90,
and proceeded lower throughout the day.  Weakness in the Nasdaq
Thursday could pressure EBAY back down to the $50 level.  Look for
a break below $51.50, or an intraday rollover near $54.

BUY PUT NOV-60 QXB-WL OI=2859 at $8.40 SL=7.00
BUY PUT NOV-55*QXB-WK OI=3420 at $4.80 SL=3.75
BUY PUT NOV-50 QXB-WJ OI=6359 at $2.60 SL=1.75

Average Daily Volume = 7.50 mln


Investors Shift To Technology Shares
By Ray Cummins

The major equity averages ended mixed today after a volatile
session that saw industrial stocks finish lower while hi-tech
issues rallied, even as new production data indicated the U.S.
economy is in a recession.  The technology index was inspired
by strength in networking, computer and biotech shares after
two consecutive days of severe declines.

A nose-dive in the price of Eastman Kodak (NYSE:EK) kept the Dow
Industrials in the red during most of the session but blue-chip
stocks rebounded late in the day in an attempt to end the recent
sell-off.  The market reacted favorably to news that third-quarter
GDP fell only 0.4% versus the 1% decline that had been projected
by economists.  Analysts noted that inventories had shrunk at the
fastest pace so far this cycle, offering some hope that they will
make a positive contribution to fourth-quarter growth.  Government
spending was also somewhat restrained in the third quarter, rising
only 1.8%, and some experts believe it will be up sharply in the
fourth quarter.  At the same time, economists suggest the economy
is suffering for a lack of demand that is to no small extent the
result of an unwillingness to spend, not so much an inability to
spend, and that effect reduces the effectiveness of "supply-side"
fiscal policy.  Some believe that until consumer demand improves,
the economy will remain in a slump.

Among the Market's big movers, semiconductor stocks propelled the
tech sector higher with all of the index's components rebounding
nicely.  Bellwether chipmakers Intel (NASDAQ:INTC) and arch-rival
Advanced Micro Devices (NYSE:AMD) led the way after Dataquest, a
unit of Gartner, said that 2002 will mark the start of a recovery
for the industry and that by 2003, the semiconductor segment is
expected to be in the midst of a full-blown growth cycle.  Intel
also sounded a bullish note for long-term growth, saying that the
billions of dollars it's spending this year will yield profits and
market share gains once the technology recession abates and growth
resumes.  Telecom equipment stocks also rebounded behind a series
of recent declines with Motorola (NYSE:MOT) pacing the group after
the wireless giant announced its global market share rose in the
July-September quarter from the second quarter, boosted by sales
of new products.  Computer and networking issues rallied on the
heels of positive news from Sun Microsystems (NASDAQ:SUNW), which
said orders were tracking higher this quarter than they were this
time last year.  Among the top performers on the Dow were shares
of Honeywell (NYSE:HON), Wal-Mart (NYSE:WMT), Disney (NYSE:DIS),
and Home Depot (NYSE:HD).  In the broader market, retail issues
saw the heaviest buying pressure while oil service, natural gas,
insurance, financial, airlines and gold stocks slumped.  The bond
market saw investors flock to long-term debit instruments after
the government announced it would eliminate the issuance of the
30-year Treasury.  Officials believe the decision will save the
government money by shifting its focus to short-term debt, a move
that has become necessary to reduce the recent strain on federal
coffers.  The yield on the 30-year bond fell to its lowest level
in three years.

Summary of Current Positions (as of 10/30/01):

Covered Calls: (Margin not used in calculations)

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

EBAY    NOV     50   47.28   53.41   2.72     4.6%
ELNT    NOV     30   28.95   32.10   1.05     4.6%

Naked Puts:

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

CERN    NOV    45    44.20   52.53   0.80     5.0%
EBAY    NOV    40    39.05   53.41   0.95     6.2%
GILD    NOV    50    48.85   64.62   1.15     6.7%
IMCL    NOV    45    43.85   59.54   1.15     7.2%
SYMC    NOV    35    34.40   54.55   0.60     4.8%
ACS     NOV    80    78.90   90.60   1.10     4.1%
ELNT    NOV    25    24.60   32.10   0.40     7.0%
GILD    NOV    55    54.30   64.62   0.70     6.0%
IMCL    NOV    50    49.35   59.94   0.65     6.1%
SEPR    NOV    40    39.35   47.29   0.65     7.2%
SYMC    NOV    45    44.40   54.55   0.60     6.3%

Naked Calls:

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

ABK     NOV     60   60.85   48.50   0.85     4.1%
ADVP    NOV     75   75.65   59.54   0.65     6.8%

Sell Strangles:

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

IDPH    NOV    40-P  39.25   59.21   0.75     6.6%
IDPH    NOV    65-C  65.65   59.21   0.65     5.8%

Credit Spreads:

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

FDC    66.02   67.08   NOV55P/60P   0.70   54.30   0.70   Open
PCSA   58.17   52.88   NOV45P/50P   0.75   49.25   0.75   Open
PEP    49.90   48.75   NOV45P/47P   0.45   47.05   0.45   Open
JNJ    57.77   57.85   NOV50P/55P   0.65   49.35   0.65   Open
MMC   102.51   98.27   NOV85P/90P   0.50   89.50   0.50   Open
ERTS   52.70   51.21   NOV65C/60C   0.90   60.90   0.90   Open
LLY    75.00   77.27   NOV85C/80C   1.00   81.00   1.00   Open
IBM   108.57  108.65   NOV95P/100P  0.60   99.40   0.60   Open
TECD   45.00   43.11   NOV35P/40P   0.55   39.45   0.55   Open
HI     55.44   53.52   NOV65C/60C   0.65   60.65   0.65   Open

Closed Positions: SBC Communications (NYSE:SBC)

New Candidates:

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


BULLISH PLAYS - Covered Calls, Naked Puts, & Combinations

CCMP - Cabot Microelectronics  $66.28  *** Rally Underway! ***

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 share value has been moving steadily higher since
last 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% from the
third quarter of 2001 and 2.5 times on a year-over-year basis.
They also noted that recent business trends suggest leading-edge
technology chip activities appear to have been far less impacted
during the 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 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 further upside movement in the issue with these conservative

CCMP - Cabot Microelectronics  $66.28

PLAY (sell naked put):

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

SELL PUT  NOV 55   UKR WK  1,083     0.70    54.30       7.9% ***
SELL PUT  NOV 60   UKR WL  735       1.65    58.35      13.5%
SELL PUT  NOV 65   UKR WM  808       3.00    62.00      19.0%

CHIR - Chiron  $53.82  *** Solid Outlook! ***

Chiron (NASDAQ:CHIR) is a biotechnology company that applies
leading scientific approaches to discover and develop innovative
healthcare products to prevent and treat cancer and infection.
The company brings products to the global healthcare market
through collaborations with major healthcare companies and also
hrough three growing businesses: biopharmaceuticals, vaccines,
and blood testing.  Chiron acquired PathoGenesis Corporation, a
biotechnology company that is developing drugs to treat unique
infectious diseases, particularly serious lung infections, where
there is significant need for improved therapy.  The company also
established an alliance with Novartis AG, a life sciences company
headquartered in Basel, Switzerland.

CHIR shares have been "on the move" since the company announced
third-quarter results that topped expectations, and said it is
confident it can easily meet its 2001 earnings goals and that
2002 earnings should be above current targets.  Chiron reported
third-quarter net income of $52.9 million, or $0.27 per share,
compared with net income of $43.1 million, or $0.23 per share,
for the same period a year before.  Biopharmaceutical product
sales came in at $86 million, a 42% increase from the third
quarter of 2000 and its vaccine product sales increased 47% to
$115 million, while revenue from its blood-testing unit rose to
$53 million, up from $41 million a year earlier.  The numbers
were outstanding and analysts say the outlook is very favorable.
Investors appear to agree with the bullish assessment as the
stock has moved up over 15% in one week and the robust option
premiums in this spread will allow traders to speculate, in a
conservative manner, on the future movement of the company's
share value.

CHIR - Chiron  $53.82

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-45  CIQ-WI  OI=487  A=$0.25
SELL PUT  NOV-50  CIQ-WJ  OI=547  B=$0.75

SEPR - Sepracor  $48.58  *** Own This One! ***

Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company
dedicated to treating and preventing human disease through the
discovery, development and commercialization of pharmaceutical
products that are directed toward serving unmet medical needs.
Sepracor's drug development program has yielded an extensive
portfolio of pharmaceutical candidates that are focused on the
treatment of respiratory, urology and central nervous system

There is still no news to explain the early-October rally in SEPR
but analysts say the company has one of the best pipelines in the
specialty pharmaceuticals business and Sepracor stands to benefit
financially as new drug manufactures enlist the company to improve
products already on the market.  The fundamental outlook for the
company is improving and their segment of the pharmaceutical sector
is performing well.  Sepracor is also one of the top companies in
its industry group and among many institutional investors, it is
a core holding.  The current technical trend is "recovering" and
our target position offers an excellent reward potential at the
risk of owning this unique issue at a favorable cost basis.

SEPR - Sepracor  $48.58

PLAY (sell naked put):

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

SELL PUT  NOV 40   ERQ WH  270       0.55    39.45      8.1% ***
SELL PUT  NOV 45   ERQ WI  243       1.75    43.25     17.1%

WLP - WellPoint Health  $111.59  *** Excellent Earnings! ***

WellPoint Health Networks (NYSE:WLP) is a United States managed
healthcare company.  WellPoint offers a broad spectrum of network
based managed care plans.  WellPoint provides these plans to the
large and small employer, individual, Medicaid and senior markets.
The company's many managed care plans include preferred provider
organizations, health maintenance organizations, point-of-service
and other hybrid plans and traditional indemnity plans.  Also,
the company offers managed care services, including underwriting,
actuarial services, network access, medical cost management and
claims processing.  In addition, the company provides a range of
specialty products; pharmacy, dental, utilization management,
life insurance, preventive care, disability insurance, behavioral
health, COBRA and flexible benefits account administration.

Shares of WellPoint Health Networks rallied last week after the
company announced that its third-quarter profits rose 21%, easily
beating expectations, as enrollment in its major health plans grew.
The nation's largest publicly traded Blue Cross/Blue Shield health
plan said net income climbed to $108 million, or $1.64 per diluted
share, from $89.5 million, or $1.38 a share, a year ago.  Analysts
expected WellPoint, which has consistently posted strong earnings
growth for many quarters, to earn only $1.57 per share and Goldman
Sachs quickly upgraded the issue to its "recommended" list, citing
an improved profit outlook for 2002.

The Health Services sector is performing very well and WellPoint
is one of the leading companies in the industry.  In addition,
WLP's share value has moved above a recent resistance area near
$110 on heavy volume and this conservative position offers a great
method to participate in the future movement of the issue with
relatively low risk.

WLP - WellPoint Health  $111.59

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-100  WLP-WT  OI=822  A=$0.30
SELL PUT  NOV-105  WLP-WA  OI=426  B=$0.75


Neutral Plays - Straddles & Strangles

CVTX - CV Therapeutics  $39.44  *** Premium Selling! ***

CV Therapeutics (NASDAQ:CVTX) is a biopharmaceutical company that
is engaged in the discovery and development of new small-molecule
drugs to treat cardiovascular disease.  The company is conducting
clinical trials for three of its drug candidates.  Ranolazine, the
first in a new class of compounds known as partial fatty acid
oxidation (pFOX) inhibitors, is in Phase III clinical trials for
the potential treatment of chronic angina.  Another drug, CVT-510,
an A1 adenosine receptor agonist, is in Phase II clinical trials
for the potential treatment of atrial arrhythmias.  CVT-3146, an
A2A adenosine receptor agonist, is in Phase I clinical trials for
the potential use as an adjunctive pharmacologic agent in cardiac
perfusion imaging studies.

Trading has been very active in CVTX shares during the past few
days and the implied volatility in the underlying options is at
a recent high due to "premium buying" in anticipation of a big
move in the stock.  Analysts say an upcoming announcement about
the Phase III trial of Ranolazine is the reason for the activity
and the company is expected to release results from the latest
trial of its experimental heart drug on 11/14 at the American
Heart Association meeting in Anaheim, California.  Louis Lange,
chief of executive of CV Therapeutics, said the company is also
on track to file an new drug application for Ranolazine with the
U.S. Food and Drug Administration in the third quarter of 2002.

Traders are buying premium and that activity has increased the
option prices significantly.  We are going to sell that premium
with the expectation of closing the play for a profit, prior to
the announcement on November 14.

CVTX - CV Therapeutics  $39.44

PLAY (aggressive - neutral/credit strangle):

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

SELL CALL NOV 55   UXC KK  316       1.20    56.20      23.6%
SELL PUT  NOV 25   UXC WE  70        1.40     1.75      27.0%


BEARISH PLAYS - Naked Calls & Combinations

ACS - Affiliated Computer  $88.05  *** Taking Profits! ***

Affiliated Computer Services (NYSE:ACS) provides a full range of
information technology services to clients, including technology
outsourcing, business process outsourcing and systems integration
services.  The company serves two primary markets: the commercial
sector and the Federal Government market.  Within the commercial
sector, Affiliated provides business process outsourcing, systems
integration services and technology outsourcing to a variety of
clients nationwide, including retailers, local municipalities,
state agencies, healthcare providers, telecom companies, wholesale
distributors, manufacturers, utilities, financial institutions and
insurance companies.  Services in the federal government market
are comprised of business process outsourcing, systems integration
services and technology outsourcing.  The company has offices in
North America, as well as Central America, South America, Europe,
Africa and the Middle East.

ACS has been in a steady up-trend since early October and traders
say the main reason for the issue's recent bullish activity is
that the company is fundamentally sound and will benefit from
increased spending by the U.S. government.  That's great news for
long-term investors but the stock has begun a necessary period of
consolidation and the current yearly high (near $92) provides a
solid resistance area that must be overcome before the rally can
continue.  In addition, the break-even point ($95.40) in this
position is unlikely to be surpassed in the next few weeks and
this conservative spread offers a low risk method to profit from
the new selling pressure.

ACS - Affiliated Computer Services  $88.05

PLAY (conservative - bearish/credit spread):

BUY  CALL  NOV-100  ACS-KT  OI=361  A=$0.30
SELL CALL  NOV-95   ACS-KS  OI=692  B=$0.65

QCOM - Qualcomm  $49.12  *** Range-bound? ***

Qualcomm (NASDAQ:QCOM) is engaged in developing and delivering
digital wireless communications products and services based on
the Company's CDMA digital technology.  The company's business
areas include integrated CDMA chipsets and system software;
technology licensing; Eudora email software for Windows and
Macintosh computing platforms; satellite-based systems including
portions of the Globalstar system and wireless fleet management
systems, OmniTRACS and OmniExpress.  Qualcomm owns patents that
are essential to all of the CDMA wireless telecommunications
standards that have been adopted or proposed for adoption by
standards-setting bodies worldwide.  Qualcomm has licensed its
essential CDMA patent portfolio to over 80 telecommunications
equipment manufacturers worldwide.

Shares of QCOM have been very active during the past few sessions
and after a recent rally to the $55 range, the stock retreated on
news of a downgrade from analysts at Credit Suisse First Boston.
The brokerage said on Tuesday it cut its 2002 earnings forecast
for QCOM to $1.10 a share, down from $1.22 a share, ahead of the
wireless technology company's fourth-quarter earnings report next
week.  CSFB said it expects Qualcomm's fourth-quarter results to
be in line with its forecast of earnings of $0.25 a share, with
sales up 10% from the prior quarter.  CSFB also said its forecast
of 13.5 million chipset units for the quarter might be too high,
due to the recent strong sales of specific Motorola and Nokia
wireless telephone handsets, which do not use Qualcomm chips.  The
firm said it expects Qualcomm's outlook for the first quarter of
2002 to be "cautious" but if the company provides guidance on
chipset sales for the quarter that is below 15 million units,
investors would view that as a major disappointment.

With short-term resistance areas near $55 and $60, traders can use
our target position to speculate conservatively on the outcome of
Qualcomm's quarterly earnings report.

QCOM - Qualcomm  $49.12

PLAY (aggressive - sell naked call):

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

SELL CALL NOV 60   AAO KL  28,536    0.45    60.45      7.8% ***
SELL CALL NOV 55   AAO KK  17,864    1.20    56.20     14.3%



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