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Daily Newsletter, Sunday, 02/10/2002

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The Option Investor Newsletter                   Sunday 02-10-2002
Copyright 2001, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


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Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
         WE 2-8           WE 2-1          WE 1-25          WE 1-18
DOW     9744.24 -163.02  9907.26 + 67.18  9840.08 + 68.23  -215.68
Nasdaq  1818.88 - 92.36  1911.24 - 26.46  1937.70 +  7.36  - 92.12
S&P-100  557.28 - 12.07   569.35 -  5.79   575.14 -   .10  -  8.96
S&P-500 1096.22 - 25.98  1122.20 - 11.08  1133.28 +  5.70  - 18.02
W5000  10249.32 -240.85 10490.17 - 86.35 10576.52 + 67.16  -188.86
RUT      466.67 - 13.37   480.04 +   .69   479.35 +  4.98  - 15.57
TRAN    2659.94 - 99.39  2759.33 - 20.59  2779.92 +112.67  - 39.52
VIX       25.47 +  2.60    22.87 +   .94    21.93 -  2.41  +   .36
VXN       49.28 +  6.20    43.08 -  2.59    45.67 -  3.22  +   .52
TRIN        .64             1.44              .82             1.13
TICK       +957             +652             +885             +522 
Put/Call    .73              .67              .68              .85  
******************************************************************

 
Short Covering Rally Right on Queue 
by Jim Brown

The five session losing streak was snapped when stocks rebounded
from several high level news stories. The markets sold off again 
in the morning as rumors flew on Honeywell, Qualcomm and Global
Crossing. Volume was light however and the gains only powered
the averages right back to prior resistance levels. The Dow may
have closed the day with a +118 point gain but it finished the
week with a -163 point loss. The Nasdaq ended the week at 1818
with a -92 point loss for the week.



 



 



 

Friday was another news driven day with rumors and accusations
flying everywhere. Leading the list was Qualcomm, which fell to
a new low after Maryland based Center for Financial Research and
Analysis cited accounting irregularities and potential conflicts
of interest between the board and auditors as well as family
members working at the company. CFRA was responsible for wiping
out nearly $3 billion in market cap at the lows of the day and
all their complaints were really already known. The family members
had been there for 15 years according to some commentators reports.
The "revenue in exchange for non-cash consideration" claims amounted
to only $30 million and was previously disclosed in their published
accounting papers. The Qualcomm COO complained that they took old
data out of context and attempted to create a news event to capitalize
on the current accounting witch hunt. QCOM dropped from $40 to
$34.60 on the initial report but rebounded to close at $37.46.

Honeywell came under attack just before lunch after news broke
that a verdict had been rendered in New York in an asbestos case
against 36 companies. The jury award was $53 million and the
Honeywell portion only $1.1 million. The stock dropped -$4.30 on
the initial news even though Honeywell has $2 billion in insurance
to cover potential claims. A clear case of investor fright and 
over reaction. HON recovered from the intraday dip to close down
only -1.21. In other asbestos news the major automakers lost 
their bid to transfer thousands of nationwide cases into one
case for ease of processing. Thirty-one companies had asked for
some 15,000-20,000 cases to be combined but the District Court 
Judge ruled that he did not have jurisdiction to make the move.
  
Whirlpool stock lost -$10 over the last two days after rumors
of accounting problems were leaked. CEO David Whitwam said on
Friday they know the source of the rumor and that it was malicious
and they were considering legal action. This type of comment has
been rampant over the last two weeks and nearly caused the worst 
week for the Dow since last September.

Tyco, the accounting target of choice for the last week is 
fighting back. The CEO said on CNBC that they had no problems
and no accounting issues. He said they had $4 billion cash in
the bank which could grow to $5 billion by quarter end. The
company has been the target of several aggressive attacks by
short sellers and hedge funds. The stock has dropped from $60
to under $25 in just a month and we think the selling has been
way over done. We are initiating TYC as a call play this weekend.
Once institutions are convinced there are no problems this $40
billion company will be a buying target. 

Global Crossing was the target of the alphabet soup groups on 
Friday with the FBI and SEC announcing investigations of their
accounting practices. It appears there is the possibility they 
deceived investors intentionally with accounting for some bandwidth
swaps in the last several quarters. The way I understand it
they would swap $100 million in bandwidth across their network
for $100 million across other networks. They would book the 
$100 million as immediate income for the bandwidth they would 
receive but booked the identical bandwidth they were giving
away over much longer periods. They did 13 of these swaps in
order to meet earnings estimates on paper even though it was
an even swap and no cash changed hands. (details are from news
reports believed to be accurate) Their auditors, Arthur Anderson,
blessed these "Lazy Susan" deals it appears. 

On a better note AOL has put together a string of gains for
three whole days. The gains came on the news that Steve Case 
had purchased one million shares in the market in the $24 
range bringing his total owned to around eleven million shares.
In a prepared statement Case said he had been a net seller of
AOL in the past in order to diversify his holdings but as of
last week he became a buyer again based on the confidence he
has in AOL and its growth prospects. I tried to get the OIN
team to make AOL a call play this weekend but Eric was steadfast
in his refusal. Even Jeff Bailey likes AOL on a pullback to $26.
If AOL is up next week you can pick on Eric in the Market 
Monitor. If it is down, Jeff and I want you to forget this 
paragraph!!

Dell was one of the few stocks not to participate in the end
of day rally. The reason was a note from Lehman that the 4Q
gains were really one time gains and not repeatable. Dan Niles
thinks current estimates of 17 cents per share are too high.
He also expects that guidance will be as much as $400 million
below the fourth quarter or about $7.6 billion. He thinks there
is a high likelihood Dell will forecast sequentially down 
revenue when they report on Feb-14th.

Will Enron ever go away? With CEO Ken Lay scheduled to testify
on Tuesday we will get to see trading come to a halt again as
curiosity draws investors to live TV. What they will see is a
"baked Lay" as the heat for the entire Enron debacle comes to 
bear on him. The lights, cameras and lack of action, unless you
count watching him sweat, will be anticlimactic to the hype 
that has gone before. Does anybody really expect him to say
anything important? Do they expect him to incriminate himself
on national TV? I think they will take the opportunity to flog
him verbally and try to win votes for the next election as 
opposed to actually get information they can use. That comes
from real discovery and court proceedings not TV proceedings. 

If you left your PC/TV at 1:45 on Friday with the Dow at 9580
and heading down, you would have been really surprised to hear
that the close was +164 points higher at nearly 9750. Same with
the Nasdaq which was trading at 1772 but closed +46 points
higher. This is the same Nasdaq that has been on a steep dive
since entering February. Advances/decline ratios reversed to 
2:1 positive for the first time in ages. So what happened?

Multiple events caused the reversal. First the day started
out flat to bullish as short sellers tried to decide which 
way the market was going. When the attacks on HON and QCOM
came just before lunch the shorts smelled blood and piled 
on their positions. When both those companies and others 
came out and violently denied any problems the shorts got
caught going the wrong way down a one way street. Immediately
the volume picked up and 90% of it was up volume as those
shorts scrambled to cover positions. Not only new positions
but when faced with rising volume and sentiment, positions
from the entire down week as well. I said Thursday we should
expect short covering into the close but the news conditions
accelerated this much more than I expected.

It did not hurt that several tech stocks received bullish 
upgrades as well. SUNW, TXN received bullish comments. TQNT
beat the street and raised its guidance. Corning said it
will meet estimates and that the 1Q will be the bottom in
the fiber sector. Even financials struggled back into the
green after MER was upgraded to "strong buy" at CSFB. 
Euphoria, although the weakened version, was breaking out
all over. However the $64 question is will it hold.
When the markets were dropping like a rock all week it was
on high volume. 1.7 bil on the NYSE and 2.0 bil on the Nasdaq.
Friday's volume was much weaker at 1.3/1.7 bil respectively.
It would have been much less without the HON/QCOM induced
volatility. As such we cannot assume the trend has changed. 

The best example of support holding was the S&P with 1080
holding the line for the last three days. The low on Friday
was 1079.91. Talk about a line in the sand! The S&P was
probably responsible for the strength of the rally with
heavy volume in the futures every time 1080 was hit. Also
impacting the rally was the influx of 457 pension money
which normally hits on the 10th of the month. Analysts
suspect that hedge funds and floor traders were buying in
anticipation of selling into this cash influx on Monday. 

In deciding what will happen next week we need to decide
what is different. Corning called a bottom but after missing
every call for the last two years are you going to believe
them? Dell, AMAT, NTAP and NVDA will announce earnings and
traders are likely to avoid those stocks/sectors until after
the announcements. No help there. Biotechs rallied from an
extreme oversold position with huge short covering gains.
They are not likely to repeat this performance. IDPH +5.44,
GENZ +4.19, SEPR +3.67, AFFX +3.63, CEPH +3.51, ENZN +3.26. 

In reality nothing really changed. Stocks are still counting
on a 2H recovery that has not come. Accounting problems and
suspicions are still with us and will be at the forefront 
of investors minds next week with the Ken Lay flogging. The
economic calendar is light until Thr/Fri where the deck is
stacked against us. The bottom line is nothing changed and
nobody knows which way the market will move. With two months
before the next earnings cycle there are likely more worries
than positives. Many analysts are now saying that 1Q earnings
could actually be worse than expected due to a drop in activity
that began in late January. Great, just something else to 
worry about.

As traders we need to play the trend until the trend changes.
The trend as I see it is to watch for another bout of selling
if the gains from Friday fail to carry through on Monday. The
sell the rally crowd have got to be drooling with excitement
after Friday's bounce. The S&P has resistance at 1100,
the Dow at 9775. The Nasdaq has resistance at about every 
20 point increment between here and 1960. There is no yellow
brick road in front of the bulls. They will have to fight
for every inch of ground they take. The road ahead is rocky
and fraught with negative accounting news. Volume will be
light as many traders will be focused on the testimony and
the Olympics instead. However, light volume tended to work
in the bulls favor on Friday.

Despite what I said above about the possibility of another
rally failure there is another scenario. The very strong
short covering rally on Friday is a symptom of the underlying
market. Short interest is very high and for good reason.
Should a flood of 457 pension money hit the markets on 
Monday it could ignite another bout of covering which could
ignite another bout, etc. Am I conjuring up too bullish a
picture for you? We can dream can't we? The most positive
event for me last week was the S&P holding support at
1080. I would venture a guess that if the S&P can break
over 1125 again next week there would be a lot of bears
deciding to change sides. 1140 would be the last real 
hurdle and decision point for the bears.

I have painted both sides of the market Olympics above and
just like the real Olympics starting this weekend we will
not know who wins until the finish line is crossed. The lines
we should cross as investors seem pretty clear cut today. I
am changing them from past recommendations based on Friday's
market action. I would go long above Dow 9775, Nasdaq 1870
and S&P 1100. Use those same levels as stops once long positions
are open. Unfortunately these three levels may not coincide
with each other. When in doubt use the S&P first, Nasdaq and
then the Dow simply because of the number of stocks in each.
If the markets move down from here I would go flat/short if 
the S&P breaks 1080 or the Nasdaq breaks 1775. Hope that
is clear enough! 
    
Enter Very Passively, Exit Aggressively!

Jim Brown
Editor@OptionInvestor.com


Have you tried the Market Monitor yet?

http://www.OptionInvestor.com/itrader/marketbuzz/


********************
INDEX TRADER SUMMARY
********************

Turning Tides?
Austin Passamonte

Selling all rallies has worked for six weeks and counting but that 
party may be nearing its end, as all good things eventually do. I 
think it might get a bit tougher to print money in the near term, 
as the picture begins to change.

Disregarding Friday's short squeeze close, there is evidence that 
the indexes and sectors will soon begin a sustained push higher in 
the next few weeks. 

(Weekly/Daily Charts: BTK)


 

First of all, we've noted for several visits now that tech looks 
closer to a bottom than the S&Ps and Dow. The Biotech index 
appears first in line to pop higher and soon.

Today's rally was no surprise to OI readers as we've talked about 
this one plenty for a week. All longer-term chart signals are in 
the early stages of bullish reversal attempts. Price action has 
been wedging up in its weekly chart for years and just tested 
support successfully. First real congestion lies about 50 index 
points higher, but the BBH shares and call options should have 
more room to run. Stock players can comb the sector for strongest 
leaders and buy strength individually as well. Might be a tad 
early in this move, but downside is minimal compared to upside 
ahead.


(Weekly/Daily Charts: SOX)


 

The SOX is preparing itself for battle as well. Note how both 
chart's stochastic values are almost ready to turn bullish? A 
break above that weekly chart wedge would be one confirmation of 
upward action. I'd be tempted to go long the SOX or its strongest 
components if the lower wedge line (left chart) was touched once 
again and holds. Buying support early in the move is a far better 
idea. If the wedge breaks and price action moves higher, the best 
entry would come on a pullback to the upper wedge line as test of 
what is then support.

(Daily Chart: BIX)


 

Turning to the old economy, we still have some weakness issues. 
The BIX Banking index has held within its ascending channel at 
lower support from late September until this week. Stochastic 
values are turning bullish and higher prices would be expected, 
except weekly chart signals (not shown) remain weak to bearish.

What does that mean when weekly chart stochastic values head one 
direction and daily charts oppose them? Usually sideways chop 
until both align in unison, from which the next strong directional 
trend resumes.

(Weekly/Daily Charts: RXH)


 

Morgan Stanley Healthcare Index (RXH) is also consolidating as 
well. Looks almost like Banking index in that weekly/daily chart 
signals diverge. Might be a little early to this bullish party too 
and I wouldn't be an aggressive long or short until both time 
frame charts agree. Held at gunpoint I would be long right now 
near support and short/flat if price action breaks below the 
wedge.

(Daily Chart: SPX)


 

Speaking of divergence, funny you should mention that! We have a 
case of bullish divergence building in various indexes and 
sectors. Note how the SPX (and host of others) posted far lower 
lows than last oversold extreme while oscillator failed to go 
lower? That tells us internal price strength is relatively 
stronger now than the last trip down stochastic values posted. 
This tells us that a snapback move is pending and will happen 
soon. When? I'd say it's possible to begin next week and more 
certainly the week after that.

On Drugs
(Weekly/Daily Chart: PPH)


 

Look what we found in the pharmacy cabinet: a bonafide bullish 
engulfing candle. That's an outside-day pattern in bar chart 
lingo, but either way we speak it the result is bullish from here. 
Look for higher prices in the PPH (and tech sectors) ahead. With 
all chart signals oversold, it could go lower but odds are the 
upside comes next.

Summation
Indexes seem to be at an inflection point. We reveled in easy 
money these past few weeks but readily recall how choppy things 
were at the most recent top. I'd expect that same turbulence to 
visit us right here if this week marked a near-term bottom. Don't 
expect strong directional trends to break out right away, but 
let's keep an eye on weekly chart stochastic values. When they 
turn up and rise above 20% oversold extreme, it's time to buy 
every dip with gusto.

Hey, it's a dynamic market we play in now. Gone are the days of 
late 1990's when trends ran endlessly. Print c-notes while the 
brief trends move these days and protect those gains in between. 
This is our fate for the next many months or years to come, so we 
had best get good at it!

Buy Support, Sell Resistance Until A Trend Resumes
austinp@OptionInvestor.com


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

Expiration week is here again!

Just what we need an expiration week with high volatility!
The possibilities are endless. Several high profile names
are announcing earnings as well. 

The first candidate is Dell computer, which announces earnings
on Thursday the 14th. Dell was talked down on Friday by Dan
Niles who thinks Dell will guide analysts lower for the 
current quarter.

Dell closed at $26.25 giving us several opportunities.
The $25 puts are only .45 cents and the $27.50 calls are
only .40 cents. Surely one of these options will finish
in the money. Possibly by a dollar or two.



 

There is only one day left in February options but at $.85 
for the straddle it may be worth the risk. Either option 
could be in the money by the Thursday earnings and a warning 
or surprise could make it very profitable. Cautious traders 
should use the March options to allow any play ample time to 
develop. The equivalent straddle for March is only $2.10.



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

NTAP announces earnings on Tuesday and based on the price for
the calls it appears that investors are expecting a bounce instead
of a drop. 

Using the same strategy outlined for Dell above might not work
as well. The March option prices are too expensive for my taste
to use in an effective straddle. 



 


I got to thinking that there is another way to win this war.
You could get nearly a 20% return for one month by simply 
buying the stock at $15.80 and writing the March $15 covered
call. ($2.45 - $.80 (itm) / $7.80 (margin) = 20%)

What would happen if the stock fell below the $15 level? 

First, it would have to fall below $13.35 for you to lose 
money. That would be easy to do if the earnings were bad. 
But what if the earnings were good? Then the stock should
rise and be called away for a profit. 

You could protect yourself against the down side by purchasing
the Feb $15 put for $.65. This reduces your risk to nearly
zero since any drop under $15 will be reflected in the put.

The catch here is that the put expires next Friday. The key
is that earnings are Tuesday. Assume disaster strikes. When
will the stock drop? Wednesday! Assume the worst case and
the stock drops to $10. You sell the stock for $15 with the
put buy back your calls for pennies on the dollar.

You could also expand your profit potential by selling the
March $17.50 call instead for $1.50. If the stock drops the
result is the same, you exercise your put and close the calls.
If the stock goes up the put expires worthless but if the 
stock closes over $17.50 your profit will be $2.55 ($17.50 -
$15.80 (cost) +1.50 call premium, -.65 put cost) That is 
about a 32% profit if my calculations are right.



I have built several complicated scenarios here but I think
the best play may simply be buying the Feb $15 put for $.65
and hoping for an earning miss. Considering the state of
the storage market lately anything is possible.


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

As always, these plays are more for education of the 
possibilities instead of the best plays available on
any given day.

Good Luck

Jim


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

Reversal or Not?
By Eric Utley

The recent issues afflicting the market went away last Friday
afternoon.  But will they return?  And so, too, the bears.

The tech sector lead the market higher last Friday.  The Nasdaq
100 (NDX.X) gained 2.70 percent on the day.  Through last
Thursday and most of Friday, the NDX traded down around the
1410 level.  That level happens to be the 50 percent retracement
of last fall's rally.  It's a natural place for the recent
selling to have exhausted and for the bears to cover their
shorts and take profits.  Until we see substantial upside
work, it's clear to me that last Friday's rally was short
covering and no more.

The bullish percent data last Friday supports my view.  Across
the major averages, bullish percent readings were flat.  In
other words, stocks neither generated new buy signals nor sell
signals.  That lack of new buy signals reveals two things.
First, stocks were oversold and due for a bounce.  Second, the
buying wasn't strong enough last Friday to generate new sell
signals.  Until we see the averages add some points to the
bullish percent readings, it remains a short covering bounce.

What's more, the aggressive buying of gold in conjunction with
bonds revealed continued defensive positioning.  If bonds and
gold are higher, that's not an indication of inflation.  That's
an indication of risk aversion.  The Gold and Silver Index
(XAU.X) finished 1.39 percent higher last Friday.  The 10-year
yield (TNX.X) finished 1.05 percent lower.

Finally, the nearly 8 percent drop in the VIX last Friday was
troubling for bulls.  The first sign of strength in stocks in
this market is calming the bulls.  Think contrarian.

Until otherwise noted, I think the risk is weighted to the
downside and that rallies to resistance, in whatever you're
trading, are good opportunities to be bearish.

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

Market Averages


DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     :  9744

Moving Averages:
(Simple)

 10-dma:  9747
 50-dma:  9914
200-dma: 10087



S&P 500 ($SPX)

52-week High: 1383
52-week Low :  945
Current     : 1096

Moving Averages:
(Simple)

 10-dma: 1104
 50-dma: 1136
200-dma: 1163



Nasdaq-100 ($NDX)

52-week High: 2771
52-week Low : 1089
Current     : 1452

Moving Averages:
(Simple)

 10-dma: 1496
 50-dma: 1591
200-dma: 1606



Biotech ($BTK)

The biotech sector was by far the best performing sector in
last Friday's session.  The group, as measured by the $BTK,
gained 7.25 percent.

Leaders in the sector included Affymetrix (NASDAQ:AFFX) higher
by 15.36 percent, Protein Design Labs (NASDAQ:PDLI) better by
14.08 percent, and Genzyme (NASDAQ:GENZ) up by 10.71 percent.

52-week High: 676
52-week Low : 382
Current     : 490

Moving Averages:
(Simple)

 10-dma: 490
 50-dma: 554
200-dma: 545


Health Care ($HMO)

The $HMO index was the worst performing sector in last Friday's
session with its mere 0.38 percent drop.  The weakness was most
likely profit taking.

Friday morning, Trigon Healthcare (NYSE:TGH) reported solid
fourth-quarter profits and raised guidance for the its fiscal
2002 financial performance.  There's a trend in this group of
solid earnings outlook, pay attention to it!  

52-week High: 503
52-week Low : 366
Current     : 495 

Moving Averages:
(Simple)

 10-dma: 494
 50-dma: 556
200-dma: 546

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

Market Volatility

The fear gauges took a dive in last Friday's session on the
broad strength in stocks.  The VIX gapped below its 200-dma
and headed down to its 10-dma.

The VXN finished back below the 50 level, but still quite the
distance from its 10-dma below at 46.

CBOE Market Volatility Index (VIX) - 25.50 -2.18
Nasdaq-100 Volatility Index  (VXN) - 49.26 -1.85

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.73        575,956       418,596
Equity Only    0.65        477,466       310,166
OEX            0.77         22,107        17,059
QQQ            0.62         35,683        21,959
 
-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          50      + 0     Bull Alert
NASDAQ-100    30      + 0     Bear Confirmed
DOW           53      + 0     Bull Correction
S&P 500       54      + 0     Bull Correction
S&P 100       54      + 0     Bull Correction

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

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

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

 5-Day Arms Index  1.43
10-Day Arms Index  1.43
21-Day Arms Index  1.36
55-Day Arms Index  1.23

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

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

Market Internals

        Advancers     Decliners
NYSE      2071           1042
NASDAQ    2328           1190

        New Highs      New Lows
NYSE       86             50
NASDAQ     68             56

        Volume (in millions)
NYSE     1,369
NASDAQ   1,774

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

Commitments Of Traders Report: 02/05/02

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

The prior week was fairly quiet in the S&P.  Commercials added
a few longs, while small traders added a few shorts.  No major
changes to report as you'll see the positions remained similar
to the prior week.

Commercials   Long      Short      Net     % Of OI 
01/22/02      342,841   394,041   (51,200)   (6.9%)
01/29/02      345,583   401,923   (56,340)   (7.5%)
02/05/02      347,583   401,569   (53,986)   (7.2%)

Most bearish reading of the year: (111,956) -   3/6/01
Most bullish reading of the year: ( 36,481) - 10/16/01

Small Traders Long      Short      Net     % of OI
01/22/02      125,451     65,423   60,028     31.4%
01/29/02      128,826     63,127   65,699     34.2%
02/05/02      128,235     64,404   63,831     33.1%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year:  91,122 - 3/06/01
 
NASDAQ-100

Commercials added a few more shorts than longs in the last
week for a net gain in the group's bearish position.  Meanwhile,
small traders added longs and subtracted shorts.

Commercials   Long      Short      Net     % of OI 
01/22/02       30,671     34,103    (3,432)  (5.3%)
01/29/02       31,577     33,651    (2,074)  (3.2%)
02/05/02       32,357     35,405    (3,048)  (4.5%)

Most bearish reading of the year: (15,521) -  3/13/01
Most bullish reading of the year:   7,774  - 12/21/01

Small Traders  Long     Short      Net     % of OI
01/22/02       11,885     8,787     3,098     15.0% 
01/29/02        9,709     8,293     1,416      7.9%
02/05/02       10,416     8,173     2,243     12.1%

Most bearish reading of the year:  (9,877) - 12/21/01
Most bullish reading of the year:   8,460  -  3/13/01

DOW JONES INDUSTRIAL

Commercial traders grew more bullish last week by adding to
their longs and taking away from their short positions.  The
result was a net increase in the bullish position by about
2,000 contracts.  Small traders, as they often do, went in
the opposite direction by growing more bearish.  The group
added nearly 1,000 shorts to their net bearish position.

Commercials   Long      Short      Net     % of OI
01/22/02       18,152    11,013    7,139     24.5% 
01/29/02       19,956    12,171    7,785     24.2%
02/05/02       21,868    12,068    9,800     28.9%

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
01/22/02        5,424     8,969    (3,545)   (24.6%) 
01/29/02        5,872     9,709    (3,837)   (24.6%)
02/05/02        5,764    10,528    (4,764)   (29.2%)

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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***************
ASK THE ANALYST
***************

January Barometer: More On Sectors
By Eric Utley

I wrote last week that I'd get back to reader requests
this weekend.  I changed my mind.  Plus, I haven't been
receiving many requests, so I thought I'd do something a
little different again this weekend.

I keep going back to the January Barometer.  That is, the
market and sectors that lead in January tend to do so through
the remainder of the year.  And those that lag in January tend
to under perform for the year.  I recently wrote that I didn't
put much faith in the January Barometer, but I'm changing my
stance.  Hey, I'm a Capricorn, so be easy on me.  Plus, if you
can't adapt you're a loser in this game.  Right, Darwin?

To recall, here's how the major averages finished January,
with special emphasis on the S&P 500 ($SPX):

Standard & Poor's 500 ($SPX) -1.56%

Dow Jones Industrial ($INDU) -1.01%
Nasdaq-100            ($NDX) -1.70%

Last weekend, we reviewed the best performing sectors through
the month of January.  If you're a bull and you missed it, shame
on you.  It's a must read:

http://www.OptionInvestor.com/ask/020302_1.asp

This weekend, I review January's poorest performing industry
groups.

Please send your questions and suggestions to:

Contact Support 

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

Wireless Services ($YLS) -14.57%

I was bearish on wireless stocks in early January after learning
of Verizon's (NYSE:VZ) short-fall.  The company failed to reach
its new subscription target by about 250,000 customers.  That
was a pretty big miss and I turned my bearish focus on the
component makers such as RF Micro Devices (NASDAQ:RFMD), which
was a mistake.  As it turned out, I should've been more focused
on the service providers and carriers.  Sprint (NYSE:FON)
recently echoed Verizon's earlier sentiments and the former's
stock price was the short of the month in early January.

End demand remains lackluster and the recent price action of
the $YLS certainly reflects that much.  That puts risk into
the whole sector, ranging from the aforementioned companies to
the handset makers such as Nokia (NYSE:NOK), the hybrid
Qualcomm (NASDAQ:QCOM), and the component suppliers such as
RF Micro and Tellabs (NASDAQ:TLAB).


$YLS Components:

Aether Systems   (NASDAQ:AETH)
AT&T Wireless       (NYSE:AWE)
Crown Castle        (NYSE:CCI)
China Mobile        (NYSE:CHL)
Deutsche Telekom     (NYSE:DT)
Ericsson        (NASDAQ:ERICY)
Lucent               (NYSE:LU)
Motorola            (NYSE:MOT)
Nokia               (NYSE:NOK)
Nortel               (NYSE:NT)
Nextel           (NASDAQ:NXTL)
Palm             (NASDAQ:PALM)
Sprint PCS          (NYSE:PCS)
Qualcomm         (NASDAQ:QCOM)
RF Micro         (NASDAQ:RFMD)
Tellabs          (NASDAQ:TLAB)
U.S. Cellular       (AMEX:USM)
Vodafone            (NYSE:VOD)
Verizon              (NYSE:VZ)
Western Wireless (NASDAQ:WWCA)


$YLS Daily


 

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

Biotechnology ($BTK) -13.88%

The biotech sector was hit on several fronts during the month
of January.  First, missteps in product development hammered
stocks like Protein Design (NASDAQ:PDLI) last December.  Those
fears carried over into January.  Second, ImClone's (NASDAQ:IMCL)
deceitful management sparked a wave of multiple compression as
investors grew weary of the FDA's application process.  Third,
the seemingly expensive consolidation in the sector was
frowned upon by the market.  And, finally, accounting fears
surfaced with Cephalon (NASDAQ:CEPH), which brought into focus
the biotech industry's accounting practices.

The contrarian in me thinks this group could be one of the
best turnaround sectors over the intermediate-term.  But more
on that later...

$BTK Components:

Affymetrix       (NASDAQ:AFFX)
Amgen            (NASDAQ:AMGN)
Celera Genomics     (NYSE:CRA)
Biogen           (NASDAQ:BGEN)
Cephalon         (NASDAQ:CEPH)
Chiron           (NASDAQ:CHIR)
COR Therapeutics (NASDAQ:CORR)
Genzyme          (NASDAQ:GENZ)
Genentech           (NYSE:DNA)
Gilead Sciences  (NASDAQ:GILD)
Human Genome     (NASDAQ:HGSI)
IDEC Pharma      (NASDAQ:IDPH)
Immunex          (NASDAQ:IMNX)
Medimmune        (NASDAQ:MEDI)
Millennium       (NASDAQ:MLNM)
Protein Design   (NASDAQ:PDLI)
Vertex Pharma    (NASDAQ:VRTX)

$BTK Weekly


 

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

Natural Gas ($XNG) -9.41%

The natural gas stocks were hard hit in January, particularly
two of the components in the sector: Dynergy (NYSE:DYN) and
Williams (NYSE:WMB).  Of course the Enron debacle didn't help,
much of which was related to the weakness in the group.

Williams' communications group, Williams Communications
(NYSE:WCG), is on the brink of bankruptcy.  The parent company
and component of the $XNG has been raising money recently
through asset sales in order to meet the communications'
groups obligations.  It's an ugly situation that doesn't
appear as if it's going to turnaround.  Shares of Williams
precipitously dropped in the final week of January, dragging
the $XNG lower.

Dynergy is involved in the trading of energy.  So was Enron.

The pure play natural gas stocks in the sector haven't fared
as poorly as the "diversified" firms mentioned above.  For
instance, Apache (NYSE:APA), an explorer and producer, has
held up relatively well compared to the $XNG.

$XNG Components:

Anadarko Petro    (NYSE:APC)
Apache            (NYSE:APA)
Burlington         (NYSE:BR)
Dynergy           (NYSE:DYN)
El Paso            (NYSE:EP)
Nicor             (NYSE:GAS)
EOG Resources      (NYE:EOG)
Kinder Morgan     (NYSE:KMI)
National Fuel Gas (NYSE:NFG)
NiSource           (NYSE:NI)
Noble Affiliates  (NYSE:NBL)
Ocean Energy      (NYSE:OEI)
Pogo Producing    (NYSE:PPP)
Questar           (NYSE:STR)
Williams          (NYSE:WMB)

$XNG Weekly


 

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

Telecommunications ($XTC) -8.46%

The woes of telecom are continuing.  The long distance business
is on its way to zero.  And I don't know how a company makes
money from something that is at least next to free.  Declining
revenues and a heavy debt load make this sector one to avoid
this year.

A lot of readers have been sending e-mails, asking whether
or not this is a time to bottom fish in telecom stocks.  I
think not, especially when the risk is so very dynamic and
difficult to grasp.

If you want to bottom fish, do so with the lone bright spot in
the telecom sector and that is Telefonos De Mexico (NYSE:TMX).
This Latin America bellwether is not alone.  South-of-the-
border stocks have been among the strongest in the market
recently.  It's kind of interesting given that Argentina is
on the brink of insolvency.  At any rate, I like TMX.

$XTC Components:

Alltel               (NYSE:AT)
Bellsouth           (NYSE:BLS)
Sprint              (NYSE:FON)
Lucent               (NYSE:LU)
Level-3          (NASDAQ:LVLT)
Nortel               (NYSE:NT)
Nextel           (NASDAQ:NXTL)
Qwest                 (NYSE:Q)
SBC Communications  (NYSE:SBC)
AT&T                  (NYSE:T)
Telefonos De Mexico (NYSE:TMX)
Verizon              (NYSE:VZ)
Worldcom         (NASDAQ:WCOM)


$XTC Weekly


 

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

Box Makers ($BMX) -3.97%

Of the pure tech sectors, the box makers traded the worst during
January.  It was a month that saw IBM miss revenue estimates
for the third consecutive quarter.  If Big Blue isn't telling
of the current state of information technology spending, then
I don't know what is.

It was thought that Windows XP would spur a new upgrade cycle
among businesses, but that hasn't happened yet.  Instead, the
buyers of information technology equipment and services are
more concerned with making it through this downturn than spending
money.  That's translated into continued weakness in demand.

In the meantime, the heavyweights in the group that have financial
clout are punishing the weaker competitors.  In the mainframe and
storage space, IBM is squashing Sun Micro (NASDAQ:SUNW).  And in
the personal computer space, a business IBM is exiting, Dell is
whacking the weaklings in Hewlett-Packard (NYSE:HWP), Gateway
(NYSE:GTW), and Compaq (NYSE:CPQ).  In a shrinking market, you
have to stick with the big boys, and that means IBM and Dell.

$BMX Components:

IBM             (NYSE:IBM)
Sony            (NYSE:SNE)
Veritas      (NASDAQ:VRTS)
Dell         (NASDAQ:DELL)
Apple        (NASDAQ:AAPL)
Hewlett-Packard (NYSE:HWP)
Compaq          (NYSE:CPQ)
Unisys          (NYSE:UIS)
Sun Micro    (NASDAQ:SUNW)
Gateway         (NYSE:GTW)

$BMX Daily


 

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

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

-----------------------------------------------------------------
Major Earnings This Week...
-----------------------------------------------------------------

Symbol  Company               Date           Comment      EPS Est

AIV    Apartment Invest Man   Mon, Feb 11  -----N/A-----     1.30
ASN    Archstone Communities  Mon, Feb 11  Before the Bell   0.51
CNT    CenterPoint Prop Trust Mon, Feb 11  After the Bell    0.98
CHTR   Charter Communications Mon, Feb 11  Before the Bell  -1.08
CHD    Church & Dwight        Mon, Feb 11  Before the Bell   0.28
CUZ    Cousins Properties     Mon, Feb 11  After the Bell    0.55
DTE    DTE Energy             Mon, Feb 11  Before the Bell   1.42
INET   Instinet Group Llc     Mon, Feb 11  After the Bell     N/A
IDCO   Interactive Data Corp  Mon, Feb 11  Before the Bell    N/A
LNCR   Lincare Holdings       Mon, Feb 11  After the Bell    0.36
NHY    Norsk Hydro            Mon, Feb 11  Before the Bell    N/A
OCR    Omnicare               Mon, Feb 11  Before the Bell   0.27
PRE    PartnerRe              Mon, Feb 11  After the Bell    0.56
SCZ    Security Capital Group Mon, Feb 11  After the Bell    0.57
TTN    Titan                  Mon, Feb 11  After the Bell    0.14
TKTX   Transkaryotic          Mon, Feb 11  -----N/A-----    -0.67
YUM    Tricon Global Rest     Mon, Feb 11  After the Bell    1.04
VAL    Valspar                Mon, Feb 11  -----N/A-----     0.25
WLP    WellPoint Health Ntwrk Mon, Feb 11  After the Bell    1.59

ALKS   Alkermes               Tue, Feb 12  Before the Bell  -0.27
AMAT   Applied Materials      Tue, Feb 12  After the Bell   -0.01
BBI    Blockbuster            Tue, Feb 12  Before the Bell   0.28
BP     BP Amoco               Tue, Feb 12  -----N/A-----     0.56
CDX    Catellus Development   Tue, Feb 12  After the Bell     N/A
CEFT   Concord EFS            Tue, Feb 12  Before the Bell   0.17
COX    Cox Communication      Tue, Feb 12  Before the Bell  -0.18
CRWN   Crown Media Holdings   Tue, Feb 12  Before the Bell  -0.44
DE     Deere & Company        Tue, Feb 12  Before the Bell  -0.24
EVC    Entravisions Com Corp  Tue, Feb 12  After the Bell   -0.14
EXPD   Expeditors Inter WA    Tue, Feb 12  -----N/A-----     0.50
FOX    Fox Entertainment      Tue, Feb 12  After the Bell    0.08
KEA    Keane                  Tue, Feb 12  After the Bell    0.08
KQIP   KPNQwest NV            Tue, Feb 12  Before the Bell  -0.13
LRY    Liberty Property Trust Tue, Feb 12  -----N/A-----     0.86
MET    Metropolitan Life Ins  Tue, Feb 12  Before the Bell   0.58
MLI    Mueller Industries     Tue, Feb 12  Before the Bell   0.42
NOI    National-Oilwell       Tue, Feb 12  Before the Bell   0.34
NTAP   Network Appliance      Tue, Feb 12  After the Bell    0.02
NWS    News Corporation       Tue, Feb 12  After the Bell    0.17
OSI    Outback Steakhouse     Tue, Feb 12  -----N/A-----     0.43
OVER   Overture Services, Inc Tue, Feb 12  After the Bell    0.19
PER    Perot Systems          Tue, Feb 12  Before the Bell   0.17
PRU    Prudential Finan, Inc. Tue, Feb 12  After the Bell    0.14
STR    Questar                Tue, Feb 12  After the Bell    0.47
RTRSY  Reuters Group          Tue, Feb 12  Before the Bell    N/A
STOSY  Santos ADR             Tue, Feb 12  -----N/A-----      N/A
SIAL   Sigma-Aldrich          Tue, Feb 12  After the Bell    0.44
SPW    SPX                    Tue, Feb 12  Before the Bell   2.03
SWMAY  Swedish Match          Tue, Feb 12  -----N/A-----      N/A
SCMR   Sycamore Networks      Tue, Feb 12  After the Bell   -0.12
TMS    Thomson Multimedia     Tue, Feb 12  -----N/A-----      N/A
TZH    Trizec Hahn            Tue, Feb 12  Before the Bell   0.56
VFC    VF                     Tue, Feb 12  After the Bell    0.48
WSH    Willis Grp Hldgs Limit Tue, Feb 12  Before the Bell   0.25
XL     XL Capital             Tue, Feb 12  After the Bell    0.13

ABB    ABB                    Wed, Feb 13  -----N/A-----      N/A
ACE    ACE Limited            Wed, Feb 13  Before the Bell   0.15
AW     Allied Waste Industres Wed, Feb 13  After the Bell    0.06
APPB   Applebee`s Inter       Wed, Feb 13  After the Bell    0.44
ATR    AptarGroup             Wed, Feb 13  After the Bell    0.26
AVE    Aventis                Wed, Feb 13  -----N/A-----      N/A
BRCD   Brocade Com Systems    Wed, Feb 13  After the Bell    0.05
CSG    Cadbury Schweppes      Wed, Feb 13  -----N/A-----      N/A
CPB    Campbell Soup          Wed, Feb 13  Before the Bell   0.49
DCN    Dana                   Wed, Feb 13  -----N/A-----    -0.06
DRYR   Dreyer's Grd Ice Cream Wed, Feb 13  Before the Bell   0.00
ENZN   Enzon                  Wed, Feb 13  Before the Bell   0.18
FNF    Fidelity Nat Financial Wed, Feb 13  Before the Bell   0.97
FAF    First American Finan   Wed, Feb 13  Before the Bell   0.66
FR     First Ind Realty Trust Wed, Feb 13  After the Bell    0.95
FST    Forest Oil             Wed, Feb 13  After the Bell    0.05
GALN   Galen Holdings PLC     Wed, Feb 13  -----N/A-----     0.32
HNT    Health Net, Inc.       Wed, Feb 13  Before the Bell   0.44
HWP    Hewlett-Packard        Wed, Feb 13  After the Bell    0.16
ITMN   InterMune, Inc.        Wed, Feb 13  After the Bell   -0.71
INTU   Intuit                 Wed, Feb 13  After the Bell    0.57
JBX    Jack in the Box        Wed, Feb 13  Before the Bell   0.64
LZB    La-Z-Boy               Wed, Feb 13  -----N/A-----     0.31
LH     Laboratory Corp.       Wed, Feb 13  After the Bell    0.55
MAR    Marriott International Wed, Feb 13  -----N/A-----     0.25
NXY    Nexen                  Wed, Feb 13  After the Bell     N/A
OO     Oakley                 Wed, Feb 13  -----N/A-----     0.04
ODP    Office Depot           Wed, Feb 13  -----N/A-----     0.18
RUK    Reed International     Wed, Feb 13  -----N/A-----      N/A
RSE    Rouse                  Wed, Feb 13  -----N/A-----     0.93
SCG    SCANA                  Wed, Feb 13  Before the Bell   0.54
SRA    Serono S.A.            Wed, Feb 13  -----N/A-----     0.12
TFX    Teleflex               Wed, Feb 13  After the Bell    0.74
TTEC   TeleTech Holdings      Wed, Feb 13  After the Bell    0.08
TMO    Thermo Electron        Wed, Feb 13  After the Bell    0.23
THQI   THQ Inc                Wed, Feb 13  After the Bell    1.08
TLRK   Tularik                Wed, Feb 13  -----N/A-----    -0.40
VIAb   Viacom                 Wed, Feb 13  Before the Bell  -0.10
WE     Westcoast Energy       Wed, Feb 13  -----N/A-----      N/A
WFMI   Whole Foods Market     Wed, Feb 13  After the Bell    0.33
YCC    Yankee Candle          Wed, Feb 13  -----N/A-----     0.63

ABN    ABN Amro Holdings      Thu, Feb 14  -----N/A-----      N/A
ADI    Analog Devices         Thu, Feb 14  -----N/A-----     0.11
BHI    Baker Hughes           Thu, Feb 14  Before the Bell   0.35
BCS    Barclays PLC           Thu, Feb 14  -----N/A-----      N/A
BHP    BHP Billiton Ltd       Thu, Feb 14  Before the Bell   0.12
BNN    Brascan Corporation    Thu, Feb 14  Before the Bell    N/A
CVC    Cablevision Systems    Thu, Feb 14  Before the Bell  -1.12
CNA    CNA Financial Corp     Thu, Feb 14  Before the Bell  -1.08
DF     Dean Foods Company     Thu, Feb 14  Before the Bell   1.09
DELL   Dell                   Thu, Feb 14  -----N/A-----     0.17
GSK    GlaxoSmithKline        Thu, Feb 14  Before the Bell   0.58
HRH    Hilb, Rogal&Hamilton   Thu, Feb 14  Before the Bell   0.20
HRL    Hormel Foods           Thu, Feb 14  Before the Bell   0.36
IM     Ingram Micro           Thu, Feb 14  After the Bell    0.08
MTA    MATÁV                  Thu, Feb 14  -----N/A-----      N/A
MAY    May Department Store   Thu, Feb 14  -----N/A-----     1.37
NFX    Newfield Exploration   Thu, Feb 14  -----N/A-----     0.46
NVDA   NVIDIA                 Thu, Feb 14  After the Bell    0.33
PDG    Placer Dome            Thu, Feb 14  After the Bell    0.09
PDS    Precision Drill Corp   Thu, Feb 14  Before the Bell   0.36
RMG    Rainbow Media Group    Thu, Feb 14  Before the Bell    N/A
IMI    SanPaolo IMI SpA       Thu, Feb 14  -----N/A-----      N/A
SBL    Symbol Technologies    Thu, Feb 14  After the Bell    0.06
TU     TELUS Communications   Thu, Feb 14  -----N/A-----      N/A
TEVA   Teva Pharmaceutical    Thu, Feb 14  Before the Bell   0.61
UBS    UBS AG                 Thu, Feb 14  -----N/A-----      N/A
UN     Unilever N.V.          Thu, Feb 14  -----N/A-----      N/A
BER    W.R. Berkley           Thu, Feb 14  -----N/A-----     0.23
WPI    Watson Pharmaceutical  Thu, Feb 14  -----N/A-----     0.36

ABX    Barrick Gold           Fri, Feb 15  -----N/A-----     0.14
DP     Diagnostic Products    Fri, Feb 15  Before the Bell   0.35
FS     Four Seasons Hotels    Fri, Feb 15  Before the Bell   0.12
LYG    Lloyds TSB Group       Fri, Feb 15  -----N/A-----      N/A
MAS    Masco                  Fri, Feb 15  -----N/A-----     0.25
NAV    Navistar International Fri, Feb 15  Before the Bell  -0.94
ZLC    Zale Corporation       Fri, Feb 15  Before the Bell   2.63

=================================================================
Upcoming Stock Splits This Week & Next...

Symbol  Company Name              Ratio    Payable     Executable

SONC    Sonic Corp                3:2      02/08       02/11
MGAM    Multimedia Games Inc.     3:2      02/10       02/11
RSC     REX Stores                3:2      02/11       02/12
HIBB    Hibbett Sporting Goods    3:2      02/18       02/19
HTLD    Heartland Express      3.15:2      02/18       02/19
BLL     Ball Corp                 2:1      02/21       02/22
CEBC    Centennial Bank          21:20     02/22       02/25
ACS     Affiliated Computer Svcs  2:1      02/22       02/25

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

We still have a full week of earnings ahead of us but they are
starting to wind down.  There is also a number of stock splits
over the next couple of weeks.  The major economic reports that
analysts will be following are the retail sales numbers on
Wednesday and the PPI report at the end of the week.

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

Monday, 02/11/02
None

Tuesday, 02/12/02
None

Wednesday, 02/13/02
Retail Sales (BB)        Jan  Forecast:  -0.2%  Previous:   -0.1%
Retail Sales ex-auto (BB)Jan  Forecast:   0.2%  Previous:   -0.1%

Thursday, 02/14/02
Business Inventories (BB)Dec  Forecast:  -0.5%  Previous:   -1.0%
Initial Claims (BB)    02/09  Forecast:    N/A  Previous:    376K
Export Prices ex-ag (BB) Jan  Forecast:    N/A  Previous:   -0.4%
Import Prices ex-oil (BB)Jan  Forecast:    N/A  Previous:   -0.3%

Friday, 02/15/02
PPI (BB)                 Jan  Forecast:   0.2%  Previous:   -0.7%
Core PPI (BB)            Jan  Forecast:   0.1%  Previous:   -0.1%
Industrial Production(DM)Jan  Forecast:   0.0%  Previous:   -0.1%
Capacity Utilization(DM) Jan  Forecast:  74.3%  Previous:   74.4%
Mich Sentiment-Prel (DM) Jan  Forecast:   94.3  Previous:    93.0

Definitions:
DM=  During the Market
BB=  Before the Bell
AB=  After the Bell


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The Option Investor Newsletter                   Sunday 02-10-2002
Sunday                                                      2 of 5


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**********************
INDEX TRADER GAMEPLANS
**********************

IS Swing Trade Model: Friday 2/08/2002
Squeezed At The End

News & Notes:
------------
A choppy session today ends with short squeeze rally to cap it 
off. The indexes were building very nice wedge formations I hoped 
would hold, but hope seldom pans out when trading.


Featured Markets:
----------------
[60/30-Min Chart: OEX]


 

Nice bullish setup in the OEX, but wedges (pink) broke to the 
upside late in the day. 552 would have been the entry here, but 
who wants to hold long calls over the weekend? Feb contracts leak 
theta decay something fierce, and March contracts don't offer the 
type of gains we seek just yet. 

[60/30-Min Chart: SPX]


 

Same for the SPX... 1085 was the entry point on any day other than 
Friday afternoon.

[60/30-Min Chart: QQQ]


 

QQQs are topping faster but still have room to run.


Summation:
---------
A pullback to the top of these wedges and/or channel lines and 
bounce higher from there is a long play. Failure and drop below is 
a short play. The wildcard will be stochastic values position at 
the time. Still bullish now, but could reverse at any time on 
Monday. We will refer to these points of action during the session 
as price action unfolds via Market Monitor.


Trade Management:
----------------
Option traders may choose listed In-The-Money (ITM) or Out-The-
Money (OTM) contracts by personal preference. They are selected 
based on volume, open interest and "Delta" values in that order. 
Our preference is usually OTM contracts except for the last few 
days of expiration when ATM or ITM contracts are preferred.

Entry triggers are points where plays are tracked when price 
action breaks above for calls or below for puts. Stops are the 
exact opposite of that. Sell targets are points to exit based on 
index levels or %gain on option contract price as noted.

*No entry targets listed mean the models are idle at that time.


New Play Targets:
----------------
         QQQ                          DJX
Feb Calls: 38 (QQQ-BL)            Feb Calls: 98 (DJV-BT)  
Long: BREAK ABOVE none            Long: BREAK ABOVE none
Stop: Break Below                 Stop: Break Below 
                                

Feb Puts:  36 (QQQ-NJ)            Feb Puts: 96 (DJV-NR) 
Long: BREAK BELOW none            Long: BREAK BELOW none
Stop: Break Above none            Stop: Break Above 


=====


         OEX                         SPX
Feb Calls: 570 (OEB-BN)           Feb Calls: 1125 (SPT-BE)
Long: BREAK ABOVE none            Long: BREAK ABOVE none
Stop: Break Below                 Stop: Break Below 


Feb Puts: 540 (OEB-NH)            Feb Puts: 1075 (SPQ-NO)
Long: BREAK BELOW none            Long: BREAK BELOW none
Stop: Break Above                 Stop: Break Above 



Open Plays:
----------
None


IS Position Trade Model: Saturday 2/09/2002
Tech's Getting Bullish?

News & Notes:
------------
We're holding Feb puts and now targeting a few March calls on what 
appear to be theearly stages of bullish reversals in certain 
sectors. A complete list is posted in Sector Share model, but the 
choicest call option plays are filtered below.


Featured Plays:
--------------
As depicted in Index Wrap & other Gameplans


Summation:
---------
We will hold current Feb contract put plays to gains or 
expiration, whichever comes first. Meanwhile, a few sectors are 
looking to advance so we'll attempt to get ahead of that using 
March contracts with five weeks of lifespan left.


Trade Management:
----------------
Option traders may choose listed In-The-Money (ITM) or Out-The-
Money (OTM) contracts by personal preference. They are selected 
based on volume, open interest and "Delta" values in that order. 
Position Trade model usually tracks OTM contracts with several 
weeks of time premium left until expiration for buy & hold plays.

Entry triggers are points where plays are tracked when price 
action breaks above for calls or below for puts. Stops are the 
exact opposite of that. 

*No entry targets listed means the model is idle at this time.


New Play Targets:
----------------
QQQ                            SMH
March Calls: 36 (QQQ-CJ)       March Calls: 44 (SMH-CI) 
Long: BREAK ABOVE 36.25        Long: BREAK ABOVE 44.00
Entry:                         Entry: 
Stop: 100% risk-loss capital   Stop: 100% risk-loss capital

BBH                            HHH
March Calls: 125 (GBZ-CE)      March Calls: 30 (HHH-CF)
Long: BREAK ABOVE 117.75       Long: BREAK ABOVE 31.00
Entry:                         Entry: 
Stop: 100% risk-loss capital   Stop: 100% risk-loss capital

BBH                            OIH
March Calls: 95 (PPH-CS)       March Calls: 60 (OIH-CL)
Long: BREAK ABOVE 95.00        Long: BREAK ABOVE 56.75
Entry:                         Entry: 
Stop: 100% risk-loss capital   Stop: 100% risk-loss capital



Open Plays:
----------
Feb Puts: 36 (QQQ-NJ)          Feb Puts: 96 (DJV-NR) 
Long: BREAK BELOW 36.00        Long: BREAK BELOW 96.50
Entry: 1.10                    Entry: 1.30
Stop: 100% risk-loss capital   Stop: 100% risk-loss capital

Feb Puts: 540 (OEB-NH)         Feb Puts: 1075 (SPQ-NO)
Long: BREAK BELOW 549.00       Long: BREAK BELOW 1083.00
Entry: 5.40                    Entry: 14.00
Stop: 100% risk-loss capital   Stop: 100% risk-loss capital


Sector Share Trade Model: Friday 2/09/2002
Market Turn?


News & Notes:
------------
A short squeeze ending for the week popped out many of our short plays and set up a bunch of longer-term charts for bullish bias, in particular the technology issues.


Featured Plays:
--------------
(Weekly/Daily Charts: PPH


 

Our highest-odds play of all is the PPH Pharmaceutical HOLDR. With all chart signals oversold extreme, it posted a bullish engulfing candle or outside day. We want to be long this one on a break above Friday highs from here!


Summation:
---------
A host of long plays were found in tonight's screen and we'll see if the awaited relief rally soon emerges in the continuing bear market.

Trade Management:
----------------
Entry triggers are points where plays are tracked when price 
action breaks above for calls or below for puts. Stops are the 
exact opposite of that. Sell targets are points to exit based on 
index levels or %gain on share price as noted.

No entry targets listed mean the model is idle at that time.

* Asterisk means stop-loss level changed since prior posting


New Play Targets:
----------------
LONG
QQQ
Long: BREAK ABOVE 36.25
Stop: Break below 35.00

SMH
Long: BREAK ABOVE 44.00
Stop: Break below 42.00

BHH
Long: BREAK ABOVE 3.80
Stop: Break below 2.90

BDH
Long: BREAK ABOVE 14.00
Stop: Break below 12.90

HHH
Long: BREAK ABOVE 31.00
Stop: Break below 29.75

IAH
Long: BREAK ABOVE 35.00
Stop: Break below 33.00

TTH Telecom
Long: BREAK ABOVE 39.00
Stop: Break below 37.00

OIH Oil Services
Long: BREAK ABOVE 56.75
Stop: Break below 54.00

MKH Market 2000+ Big Caps
Long: BREAK ABOVE 57.25
Stop: Break below 55.00

IYH Healthcare
Long: BREAK ABOVE 59.75
Stop: Break below 56.50

PPH Drugs
Long: BREAK ABOVE 94.75
Stop: Break below 91.50

BBH Biotech
Long: BREAK ABOVE 117.75
Stop: Break below 113.00

XLE Energy
Long: BREAK ABOVE 25.75
Stop: Break below 24.00

XLB Basic Technology
Long: BREAK ABOVE 22.00
Stop: Break below 20.50



Open Short Plays:
----------------
SWH Software HOLDR
Short: BREAK BELOW 45.50 
Stop:  Break Above 41.50 [hit]
Result: +4.00 [+08.8%]

02/06
XLV U.S. Cyclical/Transport
Short: BREAK BELOW 28.50 
Stop:  Break Above 27.50

SMH Semi-Conductor HOLDR
Short: BREAK BELOW 43.50 
Stop:  Break Above 42.50 [hit]
Result: +1.00 [+02.29%]

UTH Utilities HOLDR
Short: BREAK BELOW 84.50 
Stop:  Break Above 85.50

RTH Retail HOLDR
Short: BREAK BELOW 96.40 
Stop:  Break Above 97.00

RKH Regional Banks HOLDR
Short: BREAK BELOW 106.90 
Stop:  Break Above 108.00 [hit]
Result: -1.10 [-01.02%]

IDU Dow Jones U.S. Utilities
Short: BREAK BELOW 60.00 
Stop:  Break Above 60.50 *

IYF Dow Jones U.S. Financials
Short: BREAK BELOW 74.50 
Stop:  Break Above 77.00 *

IYR Dow Jones U.S. Real Estate
Short: BREAK BELOW 80.00 
Stop:  Break Above 81.00

IJJ Mid-Cap 400 BARRA SPDRs
Short: BREAK BELOW 88.20 
Stop:  Break Above 89.00

MDY Mid-Cap SPDRs
Short: BREAK BELOW 90.00 
Stop:  Break Above 89.00 [hit 81.10]
Result: +0.90 [ +01.00%


Open Long Plays:
---------------
XLP Consumer Staples
Long: BREAK ABOVE 25.30 
Stop: Break below 24.75 [hit]
Result: +1.55 [+06.13%]


***********************************************************
DAILY RESULTS
***********************************************************

CALLS              Mon    Tue    Wed    Thr   Week

UPS      56.35   -0.23   0.34  -0.74  -0.53  -0.44  200-dma bounce
ASYT     16.24   -0.63  -0.02   0.07  -0.71  -0.63  Needs SOX.X
UNH      74.43   -1.07   1.10  -0.40   0.50  -0.54  Watch $75
LH       87.50    0.53   0.67  -0.41   0.82   5.79  Very nice day
ESRX     50.05   -0.46   2.50  -0.25   1.18   4.19  New, $50
TYC      29.88   -5.73  -6.80   2.82   2.13  -5.75  New, rebound
TRW      42.79   -0.44  -0.41  -0.67   0.69  -0.21  New, defense


PUTS

IVGN     54.59   -3.04   2.13  -0.33  -0.96   0.44  Dropped
GNSS     49.24   -4.80  -1.10  -0.18  -9.48 -10.57  Dropped
CCMP     63.53   -1.11  -2.01   0.00  -0.04  -1.59  Entry point
GS       83.80   -2.90  -1.46   0.86  -0.79  -1.60  Resistance
AT       55.12   -0.94  -0.33  -1.46   1.70  -0.54  Dropped
AGN      68.45   -5.41   3.33  -1.05   0.90  -0.46  Dropped
VRSN     27.06   -2.10  -2.45  -2.52   0.17  -3.94  Dropped
EBAY     58.61   -2.49  -1.06   0.70  -0.24   0.56  Dropped
TLAB     13.54   -0.96  -0.67  -0.24   0.15  -1.48  Short covering
THQI     42.44   -0.80  -3.02   0.63   0.09  -0.81  Dropped
ADI      38.87   -0.86  -0.26  -1.01  -1.67  -4.27  Working well
MMS      30.36   -0.50  -2.30  -0.04  -1.11  -4.74  New
KLIC     14.69   -0.21  -0.14   0.19  -0.79  -1.16  New
A        25.98   -1.03  -1.42  -0.18  -0.59  -3.63  New


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

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

ESRX – Express Scripts $50.05 (+4.29 last week)

See details in play list




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

KLIC - Kulicke and Soffa $14.69 (-1.16 last week)

See details in play list




**************************
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
^^^^^

None


PUTS
^^^^

AGN $68.45 (-0.46) AGN managed to break and close above its
10-dma last Friday for the first time in ten sessions.  The break
was on the back of strength in the drug sector.  The advance past
the 10-dma combined with the close above our stop at $67 gives us
reason to drop coverage this weekend.  If you weren't stopped out
in last Friday's session, watch for a rollover early next week as
an exit point to cut losses.

AT $55.12(-0.54 ) AT finally managed to close above its 10-dma in
last Friday's trading.  The continued bounce in the broader
telecom space helped the stock higher late last week.  One thing
we noticed is that volume remained relatively light in Friday's
session, which could lead to a rollover next week if the
telecom space weakens again.  Keep that in mind when searching
for an exit point if you weren't already stopped out.

EBAY $58.61 (+0.56) Did anyone get the number of that rally
truck?  After a nice methodical decline over the past month,
EBAY punctuated the move with a swift drop to $53.50 on Wednesday
before beginning to build a bottom.  The warning signs were there
with a series of higher intraday lows leading up to Friday's
afternoon session, and when the bulls got going, they did so with
a vengeance.  The stock exploded higher in the final 3 hours, and
in the end our $58 stop was taken out, bringing the play to a
close.  Traders that wisely harvested their profits when the
stock began to recover are smiling tonight, while those that
tried to milk "just a little bit more" are licking their wounds.
Discipline is the name of the game.

GNSS $49.24 (-10.56) GNSS gave us a great roller coaster ride
down to the $44 level at the close yesterday, making for a nearly
$16 decline from the prior week's close.  Taking profits at the
end of the day yesterday was clearly the way to go, as the stock
popped higher this morning on positive analyst comments and
continued that recovery right into the closing bell.  Going along
for the ride as the broad market did some rapid damage control
in the final 2 hours on Friday, GNSS pushed through our $48.50
stop (good thing we tightened it up!) to close just off the day
highs.  While GNSS was a big winner for us, the last day of the
play drives home the point that when huge gains are on the table,
we need to harvest them, and quickly.

IVGN $54.59 (+0.44) With the Biotech sector (BTK.X) being the
best performing sector on Friday with a stellar 7.25% advance, it
is no wonder that IVGN blasted off for better than a 5% gain of
its own.  Apparently the $51 support level was too much for the
bears to break down.  IVGN gave us some nice steady gains as we
rode the long-term trend down.  Even though this trend hasn't
been broken, there was too much strength for our comfort level.
With the strong rally on Friday and the BTK starting down the
rally path, it looks like it is time to harvest our gains and
look for the next winning play.

THQI $42.44 (-0.81) Arriving too late to the party, we added THQI
just in time to watch the stock drop to the $37 support level and
then immediately snap back, denying us the opportunity to enter
the play.  The past 2 days bullish action along with a violated
stop leave us no choice but to relegate the stock to the drop
list.  Keep a sharp eye on this one, as it will likely give us
another opportunity to play the downside next time it rolls over
from resistance.

VRSN $27.06 (-3.94) As fun as that 30% decline in shares of VRSN
was, like all good things it has come to an end.  We arrived on
the scene just as the stock was breaking down and once it fell
under the $30 level, it just picked up speed.  The selling
frenzy reached a crescendo with the stock's dip to the $21.50
level on Wednesday, before a slow recovery got started.  That
recovery picked up steam Friday afternoon as the broad markets
rallied strongly in the final two hours.  This is a perfect
example of why you should always fat profits when they are
available.  Over the past 2 days, VRSN has had a solid bounce,
recovering more than $5 of the $9 decline.  Don't get greedy,
harvest profits and then look for the next winning play.


***********
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.


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


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

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


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

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

Contact Support

The Option Investor Newsletter                   Sunday 02-10-2002
Sunday                                                      3 of 5


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

ESRX – Express Scripts $50.05 (+4.29 last week)

Express Scripts provides health care management and
administration services on behalf of clients that include
health maintenance organizations, health insurers,
third-party administrators, employers and union-sponsored
benefit plans.  The company's fully integrated pharmacy
benefit management services include network claims processing,
mail pharmacy services, benefit design consultation, drug
utilization review, formulary management, disease management,
medical information management services and informed decision
counseling services through its Express Health Line division.

Investors looking for a solid bullish play will have to look
awfully hard to find a better sector than the Health Care index
(HMO.X).  Reflecting investors' positive reception of earnings
in this sector, the HMO index has rocketed higher over the past
month, clearing resistance first at $450, then $480, and on
Friday eclipsing its all-time high of $503.  There must be some
tasty grass in these pastures, because the bulls seem very
happy.  After consolidating in the wake of its addition to the
NASDAQ-100 in late December, shares of ESRX have gone along for
the ride, completing their own breakout on Friday by pushing
through the $49 resistance level and simultaneously clearing the
200-dma (currently $48.45).  While there is definitely some
congestion immediately overhead, near $51, resistance doesn't
become heavy until the $53 level.  Clearly investors were pleased
with the company's earnings report last Wednesday, as it was
followed by the buying surge that propelled the stock through
resistance.  Look for a pullback to support in the $48-49 area
to provide attractive entry opportunities.  Set stops at $47.

*** February contracts expire this week ***

BUY CALL FEB-50 XTQ-BJ OI=1229 at $1.35 SL=0.75
BUY CALL MAR-50*XTQ-CJ OI= 219 at $2.80 SL=1.50
BUY CALL MAR-55 XTQ-CK OI=  25 at $0.95 SL=0.50
BUY CALL MAY-55 XTQ-EK OI= 101 at $3.30 SL=1.75

Average Daily Volume = 1.47 mln


TRW – TRW Inc. $42.79 (-0.21)

TRW is an international company that serves the automotive,
space and defense, and computer industries.  The company serves
the auto market (which accounts for 70% of sales) with airbags,
antilock brake and traction-control systems, seat belt systems,
and steering and suspension systems.  TRW's space and defense
products include spacecraft and satellite technology, defense
communications equipment, and high-energy lasers.  The company
also provides computer systems to government and private-sector
clients through its information technology unit.

Defense stocks went vertical again in the final week of January,
and now that some consolidation has taken place, there are some
good bullish opportunities waiting for us.  Although only in
existence since late October, the Defense Industry index (DFI.X)
shows us just how strong the sector is.  After blasting through
the $568 resistance level in late January, the DFI has come back
to confirm that level as new support.  During the latest sector
rally, shares of TRW have had quite a run surging from the $35
level to as high as $43 at the end of January.  Since then the
stock has consolidated those gains and is finding support at the
10-dma ($41.74) and looks ready to run again.  Driving the sector
higher is the knowledge that drastically increased government
spending on defense is going to be the norm for the foreseeable
future.  Case in point was Wednesday's announcement that TRW
received a $47 million missile circuits upgrade contract.  While
it is tempting to trade the breakout after the stock has
demonstrated its ability to surge sharply higher, we need to
exercise caution, as there is some heavy resistance in the $44-45
area.  The better entry strategy will be to target intraday
pullbacks to support for new entries, ideally near $42 or the
10-dma.  We can set a nice tight stop at $41, just below the lows
from last week, which confirmed that level as strong support.

*** February contracts expire this week ***

BUY CALL FEB-40 TRW-BH OI=189 at $3.20 SL=1.50
BUY CALL MAR-40*TRW-CH OI= 89 at $3.50 SL=1.75
BUY CALL MAR-45 TRW-CI OI= 59 at $0.95 SL=0.50
BUY CALL JUN-45 TRW-DI OI=512 at $1.30 SL=0.75

Average Daily Volume = 466 K


TYC – Tyco International $29.88 (-6.99 last week)

Tyco is a diversified manufacturing and service company.  Through
its subsidiaries, the company designs, manufactures and
distributes electrical and electronic components and multi-layer
printed circuit boards; designs, engineers, manufactures,
installs, operates and maintains undersea cable communications
systems; designs, manufactures and distributes disposable medical
supplies and other specialty products.  In addition, TYC designs,
manufactures, installs and services fire detection and
suppression systems and installs, monitors and maintains
electronic security systems.  In December 2000, TYC acquired
Lucent's Power Systems business unit, which provides a full line
of energy solutions and power products for telecommunications
service providers and the computer industry.

Adrenaline junkies that live for volatility have been having the
time of their lives with any stock subject to the dreaded
"accounting issues" accusation.  While Enron is in the news ad
nauseum, there are other stocks with questionable accounting
practices that have been quite exciting of late.  Chief among
them is TYC, which has had one press story after another citing
how the company's accounting is questionable to company responses
that tell us how the stock is grossly overvalued and should be
trading much higher.  Regardless of the outcome of the accounting
debate, what matters is that we have extreme volatility.  Since
the beginning of the year, TYC has dropped from the $58 area to
as low as $22 and in the past 3 days it has recovered back to the
$30 level.  Make no mistake, this is a very risky play, where we
are speculating that the fears have been overblown and TYC is
headed back towards the $40 level.  There's a powerful trend in
place that says we're wrong on this one, with all the major
moving averages pointing steeply south.  And while buying volume
was strong on the initial rebound off the lows, it has been
declining the past few days.  This may not be a real issue
however, as Friday's volume was still almost 75% above the ADV.
What we're really focused on is the pattern over the past 3 days
where the stock gaps higher and holds onto those gains at the
closing bell.  We're looking for the pattern to continue, so
we'll target new positions on a dip near intraday support at $29
or $28 and will place our stop at $27.  Traders looking for
conviction will want to wait for TYC to push back through the
$31 level (intraday resistance on Friday) before taking a
position.

*** February contracts expire this week ***

BUY CALL FEB-27 TYC-BY OI=11727 at $3.10 SL=1.50
BUY CALL FEB-30 TYC-BF OI=25871 at $1.60 SL=0.75
BUY CALL MAR-27 TYC-CY OI= 8068 at $4.90 SL=3.00
BUY CALL MAR-30*TYC-CF OI=24502 at $3.40 SL=1.75
BUY CALL MAR-32 TYC-CZ OI= 5087 at $2.35 SL=1.25

Average Daily Volume = 26.9 mln



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stop loss online option orders offers contingent option orders 
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order entry for net debit or credit offers fast option executions

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

UPS - United Parcel Service $56.35 (-0.44 last week)

United Parcel Service Inc. (UPS) is an express carrier, package
delivery company and a global provider of specialized
transportation and logistics services. Over the course of more
than 90 years, the Company has expanded from a small regional
parcel delivery service into a global company. UPS delivers
packages each business day for 1.8 million shipping customers
to six million consignees. The Company's primary business is
the time-definite delivery of packages and documents throughout
the United States and in over 200 other countries and territories.

UPS announced late last week that it would provide trackside
services to Nascar.  The company said it would deliver on call
pick up at weekend events, targeting garage, merchandising and
hospitality.  Yep, it was a pretty quiet on the news front late
last week.  Earlier, rumors and reports had surfaced that UPS
was interested in Tyco's (NYSE:TYC) finance division.  UPS
quickly refuted that rumor.  Still, our play could have suffered
from guilt by association with Tyco last week.  More likely,
the broad market weakness pressured the stock back down to its
200-dma, where it rebounded from Thursday.  The weakness last
week was on relatively lower volume, which is normally indicative
of profit taking.  The rebound from the 200-dma was encouraging
as it told us that the buyers are still interested in this
stock.  Plus it offered traders a most favorable entry into new
bullish plays.  Those who took entries on the rebound from the
200-dma last week can turn to the Dow and Transport Index ($TRAN)
for confirmation in next week's trading.  The stock should be
able to at least retest the upper end of its trading range in a
favorable market next week.  Look to take profits near the $57.50
level.  Those still waiting for entries can look for an advance
past the 10-dma at $56.63.  From there we'll address a potential
breakout above short-term resistance.

***February contracts expire in two weeks***

BUY CALL FEB-55 UPS-BK OI= 3445 at $1.60 SL=1.00 
BUY CALL MAR-55*UPS-CK OI=  890 at $1.95 SL=1.25 
BUY CALL MAR-60 UPS-CL OI= 4707 at $0.20 SL=0.00 
BUY CALL APR-60 UPS-EI OI=15444 at $0.35 SL=0.00 

Average Daily Volume = 1.26 mln
 


ASYT - Asyst Technologies $16.24 (-0.63 last week)

Asyst Technologies, Inc. is a provider of integrated automation
systems for the semiconductor manufacturing industry. The Company
designs systems that enable semiconductor manufacturers to
increase their manufacturing productivity and protect their
investment in silicon wafers during the manufacture of integrated
circuits. The Company offers isolation systems, work-in-process
materials management, substrate-handling robotics, automated
transport and loading systems, and connectivity automation
software. The Company has incorporated the technologies from these
areas to create its Plus-Portal System for OEMs (original
equipment manufacturers).

Asyst announced last Friday that it would hold a joint
conference call with VLSI Research.  The call will detail the
current state of the semiconductor fabrication automation
business.  The conference call is scheduled for Thursday,
February 14, at 11:00 a.m. PST.  It is scheduled to last for
45 minutes.  Traders should be aware of the conference call
going into Thursday's session as good or bad news could have
an impact on our play.  In last Friday's action, ASYT rebounded
after weakening earlier in the week.  Its weakness stemmed from
the pullback in the Semiconductor Sector Index (SOX.X).  The
stock was able to advance in Friday's session because the SOX.X
reversed higher.  It's paramount to continue monitoring the
SOX.X when gauging this play, for ASYT is closely tied to its
sector's price action.  In terms of new entries, look for
continued bounces on intraday weakness from the $15.75 area.
Those in search of confirmation can look for an advance on
healthy volume past the short-term congestion above $16.50 to
$16.75. 

***February contracts expire in two weeks***

BUY CALL FEB-15 QQY-BC OI=854 at $1.50 SL=0.75 
BUY CALL MAR-15 QQY-CC OI=238 at $2.15 SL=1.25 
BUY CALL MAR-17*QQY-CY OI=378 at $0.75 SL=0.25 
BUY CALL JUN-17 QQY-FY OI=146 at $1.90 SL=1.00 

Average Daily Volume = 371 K
 

LH – Laboratory Corp. of America $87.50 (+5.79 last week)

Laboratory Corporation of America Holdings (LabCorp) is the #2
clinical laboratory service in the world, behind Quest
Diagnostics.  LH performs 2000 types of tests for more than
100,000 clients, including health care providers, pharmaceutical
firms, physicians, government agencies and employers.  With 25
major laboratories and some 1200 service sites nationwide, the
company emphasizes specialty and niche testing such as allergy
tests, HIV tests, blood analyses, and substance abuse
screenings.

Not wasting any time in getting the party started, shares of
LH rocketed higher right from the opening bell on Friday, and
by the closing bell the stock had posted better than a 5% gain
on nearly triple the average daily volume.  So did you jump
aboard on the breakout over the $83.50 level?  Volume told us
in no uncertain terms that the bulls were in chart on this one,
making for a nice high-odds entry.  The pullback at the end of
the day could have just been in sympathy for the Health Care
index (HMO.X) which managed to briefly push to a new all time
high before pulling back for most of the day.  But the sector
trend is still bullish and LH looks destined to test the $90
resistance level, and soon.  While trading the breakout made
sense on Friday, with our proximity to resistance, we now want
to focus on buying a dip near support.  The stock should have
some intraday support near $86, with more support near $84.75.
Target a dip near either level for new positions, and move
stops up to $84.  Remember, LH posts its earnings Wednesday
afternoon after the closing bell, so we'll want to be out of
the play by that time.

*** February contracts expire this week ***

BUY CALL FEB-85 LH-BQ OI= 712 at $3.20 SL=1.50
BUY CALL FEB-90 LH-BR OI= 954 at $0.65 SL=0.00
BUY CALL MAR-85 LH-CQ OI= 159 at $4.70 SL=2.75
BUY CALL MAR-90*LH-CR OI= 251 at $2.05 SL=1.00
BUY CALL MAY-90 LH-ER OI= 110 at $4.70 SL=2.75

Average Daily Volume = 551 K


UNH – UnitedHealth Group $74.43 (-0.54 last week)

Providing a broad range of resources to help people improve
their health through all stages of life, UNH forms and operates
markets for the exchange of health and well being services.
The company's Health Care Services segment consists of the
UnitedHealthcare and Ovations businesses.  UnitedHealthcare
coordinates network-based health services on behalf of local
employers and consumers in six broad regional U.S. markets.
Ovations is a business dedicated to advancing the health and
well-being goals of Americans over the age of 50.  Additionally,
the company's Ingenix business operates in the field of health
care data and information, analysis and application.

Is that another entry point brewing?  It certainly looks that
way, as UNH pulled back from the $75 level again on Friday,
bouncing right at the $74 level before recovering strongly into
the close.  This action should have come as no great surprise,
given the fact that the Health Care index (HMO.X) suffered some
profit taking as soon as it pushed through its all-time highs
near $503.  Of course the intraday highs on Friday ($505) push
that bar a little higher, but the point is that UNH (which has
been riding the positive sector momentum) pulled back as
expected following another positive earnings report in the
morning (this one from TGH).  As long as HMO remains in rally
mode, we can continue to buy the dips in UNH.  No slacker in
the earnings department, UNH is looking like a standout bullish
play in the sector, especially after the company reported a 28%
rise in 4Q profits and raised its 2002 earnings outlook.  Dips
near the $74 level are still looking attractive for new entries,
and we're keeping our stop set at $73.  Momentum players will
want to be very careful about trading a breakout in UNH unless
volume is on the rise.

*** February contracts expire this week ***

BUY CALL FEB-75 UHB-BO OI=3599 at $0.75 SL=0.00
BUY CALL MAR-75*UHB-CO OI=2847 at $2.10 SL=1.00
BUY CALL MAR-80 UHB-CP OI=3654 at $0.60 SL=0.00
BUY CALL JUN-80 UHB-FP OI= 446 at $2.30 SL=1.25

Average Daily Volume = 1.58 mln



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

MMS - Maximus $30.36 (-4.74 last week)

MAXIMUS, Inc. is a provider of program management and consulting
services to government agencies throughout the United States.
The services that MAXIMUS provides are designed to make
government operations more efficient and cost-effective, while
improving the quality provided to program beneficiaries.

Earnings short falls are increasing in frequency in certain
areas of the market.  The information technology area remains
under pressure.  Early last week, Maximus reported first
quarter earnings that increased by 72%.  The company fell a
penny short of its estimates.  More importantly, Maximus said
that its earnings for this year would fall.  The company
guided expectations much lower.  Analysts had been expecting
the firm to earn as much as $2.30 per share for fiscal 2002.
But the company warned that it could only make between $2.05
and $2.10 this year.  The news sent the stock lower and it
hasn't yet shown signs of stabilizing.  Volume continued at
a healthy clip in last Friday's session when the stock dropped
by another $1.  Bearish momentum traders can look for the
selling to continue in next week's trading by watching for
a breakdown below the $30 level on heavy volume.  From there,
the stock doesn't have support until the $27 level, which
will serve as our short-term downside target.  Stops are
initially set at the 10-dma at $33.25.

***February contracts expire next week***

BUY PUT FEB-30 MMS-NF OI=20 at $0.60 SL=0.00
BUY PUT MAR-30*MMS-OF OI=83 at $1.55 SL=0.75

Average Daily Volume = 274 K



KLIC - Kulicke and Soffa $14.69 (-1.16 last week)

Kulicke and Soffa Industries Inc. is a supplier of semiconductor
assembly interconnect equipment, materials and technology. Chip
and wire solutions combine wafer dicing, die bonding and wire
bonding equipment with saw blades, die collets, wire and
capillaries.  

The bearish news delivered by Intel and Texas Instruments
recently caught up with chip equipment makers last week.  The
SOX.X was hard hit during last Thursday's broad tech sell off.
One of the weaker stocks in the capital equipment segment of
the semiconductor sector is KLIC.  The company said early
last week that it would lay off another 200 employees during
the second quarter.  The company said it would take a charge
for the elimination of jobs in conjunction with announcing a
restructuring of some of its manufacturing operations.
Clearly the company is not performing financially and its
stock reflects that.  Its poor relative strength was again
displayed in last Friday's session when the stock failed to
rally along with the rest of the chips.  We're looking for
the selling to continue into next week's trading.  Watch for
signs of weakness in the SOX.X and consider entries into
KLIC put plays at current levels.  Those seeking confirmation
can look for a breakdown below $14 on heavy volume.  Our
first downside target is $13, where KLIC could find some
support.  From there, support is non existent to the $10 to
$10.50 area. The company will hold a conference call next
week on Friday, February 15, at 9:00 a.m. EST.  The call
could move the stock in Friday's session.  Hopefully they'll
warn again.  Stops are in place at $16.

***February contracts expire next week***

BUY PUT FEB-15 KQS-NC OI=140 at $0.85 SL=0.25
BUY PUT MAR-15*KQS-OC OI=119 at $1.50 SL=0.75

Average Daily Volume = 1.30 mln


A – Agilent Technologies $25.98 (-3.63 last week)

Agilent Technologies is a global diversified technology company
that provides enabling solutions to high growth markets within
the communications, electronics, healthcare and life sciences
industries.  The company provides test instruments, standard
and customized test, measurement and monitoring instruments and
systems for the design, manufacture and support of electronics
and communications devices.  Additionally, A provides fiber
optic communications devices and assemblies, integrated circuits
for wireless applications, application-specific integrated
circuits, optoelectronics and image sensors.  Agilent also
supplies patient monitoring, ultrasound imaging, and cardiology
products and systems for the healthcare industry.

As if the CIEN earnings warning wasn't bad enough last week,
CSCO followed up with a less than inspiring performance on
Wednesday, with the net effect being that investors were once
again reminded that the Networking sector won't be returning to
its glory days any time in the foreseeable future.  Despite
having a presence in the Health Care field, A really exists in
the Communications and Networking world, and with the Networking
sector (NWX.X) off sharply from its December highs and still
falling, it is clear that sector weakness is in favor of the
bears.  After last week's breakdown in the stock, A finally
caught a decent bounce from the $25 level late on Friday coming
to rest just above the 50% retracement of the stock's
September-January advance.  Lest the bulls get excited from the
late day bounce on Friday, we hasten to point out that it came
on rather light volume, and there is some pretty solid
resistance overhead in the vicinity of $27.50, also the site of
the 38% retracement.  That's right, we're thinking entry point
when the current bounce runs out of steam and rolls over, as the
stock works lower.  While the current count on the PnF chart
(after last week's double bottom sell signal) gives A a bearish
target of $19, we may not be fortunate enough to see that level
during the life of this play.  The company reports earnings on
February 19th, leaving us just over a week to play the downside.
Set stops at $28.

*** February contracts expire this week ***

BUY PUT FEB-25*A-NE OI=2231 at $0.45 SL=0.00
BUY PUT MAR-25 A-OE OI= 281 at $1.25 SL=0.50
BUY PUT MAR-22 A-OX OI=   1 at $0.55 SL=0.00

Average Daily Volume = 2.61 mln



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The Option Investor Newsletter                   Sunday 02-10-2002
Sunday                                                      4 of 5


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

CCMP - Cabot Microelectronics $63.53 (-1.59 last week)

Cabot Microelectronics Corporation is a supplier of high
performance polishing slurries used in the manufacture of the
most advanced integrated circuit (IC) devices, within a
process called chemical mechanical planarization. The Company
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.

It looked as if CCMP was going to trace its second consecutive
inside day in last Friday's session.  But the late day pop
higher in the Semiconductor Sector Index (SOX.X) induced a
round of short covering in the stock which carried it above its
10-dma.  The pop higher in CCMP came on relatively light volume
which added credence to the notion of shorts covering.  The
stock never broke below last Wednesday's low, so traders still
looking for new entries into this play should focus on entering
puts near resistance levels in the very short-term.  If the
SOX.X continues dragging CCMP higher into early next week,
traders can look for a rollover near the 200-dma, which rests
overhead at the $66.43 level.  Our coverage stop remains at
$66.50, so you see why entries near the 200-dma are appealing
in terms of risk management.  It's possible that CCMP could
rollover before hitting its 200-dma, but that will depend on
the action in the SOX.X, so keep a close eye on the broader
chip space.  Momentum traders can continue watching for the
breakdown below last Wednesday's low at the $59.90 level.
Just make sure that the SOX.X is weak before entering new put
plays in CCMP into its own weakness.

***February contracts expire in two weeks***

BUY PUT FEB-65 UKR-NM OI=445 at $3.20 SL=1.75
BUY PUT MAR-60 UKR-OL OI=231 at $3.70 SL=2.25

Average Daily Volume = 1.17 mln



TLAB - Tellabs $13.54 (-1.48 last week)

Tellabs, Inc. designs, manufactures, markets and services
optical networking, next-generation switching and broadband
access solutions. The Company also provides professional
services that support its solutions. Products provided by
Tellabs include optical networking systems, broadband access
systems and next-generation switching systems.

TLAB bounced back in last Friday's session on what was
clearly a short covering rally.  The stock only traded 2.26
million shares.  Compare that trading total to the days in
which TLAB was trading lower.  For example, last Tuesday
the stock traded 4.79 million shares during its big down day.
That tells us that the sellers remain more convinced about
this stock than the buyers do.  In addition to the relatively
light volume last Friday, TLAB traced an inside day.  That
creates a relatively easy execution for new entries in next
week's trading.  Traders searching for new put entries have
two choices.  First, if the tech sector continues higher look
for TLAB to advance up to resistance then rollover.  That
resistance could come at the 10-dma at $14.31.  Or, use the
inside day from last Friday to gain entries into new
positions on weakness.  Simply look for TLAB to breakdown
below the $13.30 level on increased volume, which would
reveal that the sellers have returned.  Monitor the telecom
space through the Telecom Sector Index (XTC.X) and the
Wireless Sector Index (YLS.X) in addition to the Semiconductor
Sector Index (SOX.X).

***February contracts expire next week***

BUY PUT FEB-15 TEQ-NC OI=2656 at $1.75 SL=1.00
BUY PUT MAR-15*TEQ-OC OI=2569 at $2.10 SL=1.25
BUY PUT MAR-12 TEQ-OV OI= 934 at $0.70 SL=0.25

Average Daily Volume = 5.60 mln


ADI - Analog Devices $38.87 (-4.27 last week)

Analog Devices, Inc. is engaged in the design, manufacture and
marketing of high-performance analog, mixed-signal and digital
signal processing (DSP) integrated circuits (ICs) used in
signal processing applications. The Company has a generic list
of approximately 2,000 products, with the highest revenue
product accounting for approximately 4% of its revenue in fiscal
2000. Analog also designs, manufactures and markets a range of
assembled products. 

Analog Devices formally announced last Friday the time and
date of its first-quarter earnings announcement and conference
call.  The company plans to release its financial results at
4:00 p.m. EST on Tuesday, February 14.  That gives us two more
days in this play, which is working according to plan.  Going
into the play, we were very short-term inclined.  And that's
working just fine through Friday's trading.  The stock lost a
significant amount of relative strength versus both the broader
market as well as the tech sector.  The under performance on ADI's
part late last week was very encouraging.  We're looking for the
stock to continue lower into its earnings announcement.  Hopefully
we'll see selling return to the Semiconductor Sector Index (SOX.X)
early next week, which should exacerbate ADI's downside potential.
Speaking of which, the stock has potential support around the
$37 level.  Short-term traders who took entries during ADI's
routine decline last Friday might turn to a move down to the
$37 level early next week for a possible exit point.  However, a
breakdown below the $37 level could have ADI measurably lower
ahead of its numbers.  Watch for a move down to the $35 to $36
range on a breakdown below $37.

***February contracts expire next week***

BUY PUT FEB-40*ADI-NH OI=1044 at $2.40 SL=1.00
BUY PUT MAR-40 ADI-OH OI=1577 at $4.20 SL=2.75

Average Daily Volume = 3.30 mln


GS – Goldman Sachs Group $83.80 (-1.60 last week)

The Goldman Sachs Group is a global investment banking and
securities firm that provides a wide range of services worldwide
to a substantial and diversified client base that includes
corporations, financial institutions, governments and high
net-worth individuals. The company provides investment banking,
which includes financial advisory and underwriting, and trading
and principal investments, which includes fixed income, currency
and commodities, equities and principal investments.  GS
recently completed the acquisition of Spear, Leeds & Kellog,
which is engaged in securities clearing, execution and market
making, both floor-based and off-floor.

After such a profitable move to the downside, traders may be
wondering if we aren't pushing our luck by keeping GS on the put
list this weekend.  The answer is that we just might be, at that.
After declining from the $550 level in early January, the
Broker/Dealer index (XBD.X) looks like it is trying to put in a
bottom near the $465 level, with the bulls defending that level
several times in the past 2 weeks.  The real cause for concern is
the descending trendline ($490) on the XBD, because the price
moved right up to that level on Friday.  If it pushes through
that level, it will be clear that bullish sentiment in the sector
is picking up steam and should have bears getting more cautious.
So what does all this have to do with our GS play, you ask?
Simple.  The downtrend in the stock looks almost identical to
that of the XBD and after defending the $80 support level
numerous times last week, the bulls managed to stage a rally
(with volume too) right to the descending trendline ($83.80) at
the close on Friday.  Look for the rebound to roll over near
current levels before initiating new positions, and make sure
that volume is strong.  With the PnF chart giving us a bearish
target of $78, we want to use any dip into the $78-80 range as
an opportunity to harvest the gains we have accrued in the play.
Keep stops set at $84.50.

*** February contracts expire this week ***

BUY PUT FEB-85 GS-NQ OI=4922 at $2.60 SL=1.25
BUY PUT FEB-80 GS-NP OI=3166 at $0.65 SL=0.00
BUY PUT MAR-85 GS-OQ OI= 581 at $4.90 SL=3.00
BUY PUT MAR-80*GS-OP OI=1750 at $2.85 SL=1.50

Average Daily Volume = 3.01 mln



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*****
LEAPS
*****

Help!  I've Fallen And I Can't Get Up!
By Mark Phillips
Contact Support

That statement is an apt description of market action last week,
as all the major indices fell through recent support and
struggled mightily to recover, but to no avail.  It is also an
apt description of the state of my computer throughout the week,
as I spent more time rebooting and recovering lost work than
actually watching the markets.  What I originally thought was a
problem with my charting application or ISP now looks to be an
issue of trying to make a rapidly aging machine perform more and
more work.  Looks like it is time to do my part to stimulate the
economy and buy a new machine.  Too bad the solution to our
languishing markets isn't that simple.

The term "Crisis of Confidence" has been making the rounds with
increasing regularity as accounting concerns continue to plague
companies, both good and bad.  Like it or not, much of the
investing public is focused on the Enron hearings and two big
fears are driving their investing decisions.  The first is that
there may be more Enrons and Global Crossings out there and they
desperately want to avoid getting burned by the next one.  So if
a company doesn't have a pristine balance sheet, it is getting
sold, and sold hard.  Heck, even companies that don't have any
accounting issues are being hit hard.  Look at the likes of GE
and CSCO, both of which are struggling to hold onto support, $36
for the former and $16 for the latter.  I tend to watch these two
stocks on a regular basis because of my belief that they are each
good benchmark's for their respective indices, GE for the DJIA
and CSCO for the NASDAQ.

The second issue that is getting investors' attention is the
question of what remedial action will be taken once all of the
evils of Enron's shenanigans are revealed.  Will corporate
America be saddled with more regulations?  How will those
possible regulations affect the efficient conduct of business,
as we know it?  I obviously don't have the answer, and neither
does anyone else; hence the uncertainty that plagues the broad
markets.  When in doubt, stay out!  Aside from the Health Care
sector (HMO.X) and Gold index (XAU.X), both of which are viewed
as defensive areas, few areas of the market are demonstrating
any significant strength.  This is precisely the type of weakness
I've been concerned about for the past few months.  The thing I
didn't know was when it would commence, or what the catalyst
would be.  Well, now we know!

By the way, remember last year when we were playing LEAPS on
Barrick Gold (NYSE:ABX) in anticipation that investors would
give gold stocks some serious attention when it became clear
that economic recovery is much further away than advertised?  We
played it from the $14 level and netted a modest profit.
Clearly I should have rolled than one back onto the Watch List
as we got another great entry on the stock last November, and
look at ABX go...testing 2-year resistance on Friday.  Coulda,
woulda, shoulda!

Several sectors have broken down in a big way over the past
couple weeks, and therein lies the problem in picking new plays
for our Watch List.  What sector is going to be next to give up
on recent support?  What about those that are trading near their
lows?  Are they likely to find support near those lows again, or
is it merely a speedbump on the way to new lows?  Will winning
sectors continue to shine, or are they setting up for a fall as
well?  It is all about timing, as we meander along in rangebound
markets, lacking a sufficient catalyst to push the pile very far
in either direction.

Making the point for me in crystal clear fashion is the late-day
rally across the broad markets.  I wrote the first 5 paragraphs
of this commentary during the morning session on Friday, and then
a rally comes out of left field.  While a large part of it was
likely short-covering going into the weekend, you can see what
I'm getting at.  The markets don't want to break down any
further, yet the catalyst to give us a sustained rally is
lacking.  That leaves us stuck in a range.  Buy and hold is a
tough proposition in either direction, as you can see by the
pain inflicted on our Portfolio this week.

Both EMC and NOK got stopped out on mid-week weakness, before
snapping back significantly on Friday afternoon.  The plays are
dropped this weekend, but if you're still holding open positions
in those plays, it just might make sense to wait for the current
rebound to run out of steam before closing them out.  Our put
plays aren't faring much better, as each of them stubbornly
refused to break down this past week.  I'll say it again,
RANGEBOUND MARKETS ARE PERILOUS for long-term investors.  What
we're trying to do here is position ourselves as the markets move
from one extreme to the other, and it is a tough proposition.
How many times have we watched a play give us a solid entry,
move against us just far enough to stop out the play and then
head in the direction we initially expected, going on to become
quite profitable long after we exited the play?  Too many!
That's why I put so much effort into trying to pick the optimum
entry points for our plays.  That way it is far easier to exit a
play with a profit when it begins to move against us.  At least
that is the way it is supposed to work!

It almost seems pointless to discuss the VIX with it sitting
right in the middle of its historical range at 25.50.  There's
nothing that we can read into its current reading, except that we
are likely to continue to trade in the current range in the
markets.  Now where have I heard that before?

So with that as preamble, I must say that there wasn't much to
report relative to our LEAPS plays.  Here's where things rest
this week.

Watch List:

Calls:
General Electric (NYSE:GE) - Weakness in the weekly Stochastics
and the breakdown early in the week, I think GE works lower
before it is ready for a sustained bullish move.

Broadcom (NASDAQ:BRCM) - Broke down below the $42 level last week
and then bounced right at the $36 support level.  I do not think
this is a meaningful bottom as the weekly Stochastics still has
lots of room to fall.  Patience on this one.

Johnson & Johnson (NYSE:JNJ) - Another breakdown and then tepid
recovery.  Wait for the next cycle on the daily oscillators.  I
think we're going to get a nice entry on this one near $54.  This
should coincide with a better picture on the weekly Stochastics.

Goldman Sachs (NYSE:GS) - What do you think of that meltdown in
the Broker/Dealer index (XBD.X)?  Brought GS down right to the
$80 support level, but still some room to go.  PnF chart is
pointing to a dip near $78 as the eventual target of the move.
But weekly Stochastics are starting to recover, so I'm
reinstituting our entry target at $78-80.  A renewed bounce in
that area looks buyable to me, with a stop set at $76.

Puts:
Eastman Kodak (NYSE:EK) - Daily Stochastics just starting to
emerge from oversold.  Look for price to rollover with Stochs
near the $29-30 level.  Note that we have slightly reduced the
Entry Target.

That just about does it for me this week.  Rangebound markets
mean that we want to enter call plays near major support and put
plays near resistance and harvest profits when they are
available.  Whether playing with front-month contracts or 2004
LEAPS, we have to play the hand we are dealt.  And right now,
that means taking profits when they are offered.

Let the Olympics begin!



Mark Phillips
mphillips@OptionInvestor.com



LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
None

Puts:
JNY    01/09/02  '03 $ 35  OOR-MG  $ 6.70  $ 6.00  -10.45%  $35
                 '04 $ 30  KKZ-MF  $ 5.60  $ 5.00  -10.71%  $35
GM     01/10/02  '03 $ 50  VGN-MJ  $ 6.50  $ 5.60    1.54%  $53.50
                 '04 $ 50  LGM-MJ  $ 8.40  $ 8.70    3.57%  $53.50
MO     02/04/02  '03 $ 50  VPM-MJ  $ 5.40  $ 5.20  - 3.70%  $51.50
                 '04 $ 50  LMO-MJ  $ 7.80  $ 7.60  - 2.56%  $51.50


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
GE     08/12/01  $32           JAN-2003 $ 40  VGE-AH
                            CC JAN-2003 $ 30  VGE-AF
                               JAN-2004 $ 40  LGR-AH
                            CC JAN-2004 $ 30  LGR-AF
BRCM   10/28/01  $31-32        JAN-2003 $ 35  OGJ-AG
                            CC JAN-2003 $ 30  OGJ-AF
                               JAN-2004 $ 35  LGJ-AG
                            CC JAN-2004 $ 30  LGJ-AF
JNJ    12/09/01  $54           JAN-2003 $ 55  VJN-AK
                            CC JAN-2003 $ 50  VYN-AJ
                               JAN-2004 $ 55  LJN-AK
                            CC JAN-2004 $ 50  LJN-AJ
GS     01/06/02  $78-80        JAN-2003 $ 85  VSD-AQ
                            CC JAN-2003 $ 80  VSD-AP
                               JAN-2004 $ 90  KGS-AR
                            CC JAN-2004 $ 80  KGS-AP
IBM    02/03/02  $100, $95     JAN-2003 $110  VIB-AB
                            CC JAN-2003 $100  VIB-AT
                               JAN-2004 $110  LIB-AB
                            CC JAN-2004 $100  LIB-AT
BBH    02/10/02  $114-115      JAN-2003 $120  OEE-AD
                            CC JAN-2003 $110  OEE-AB
                               JAN-2004 $120  KBB-AD
                            CC JAN-2004 $120  KBB-AD


PUTS:

EK     01/27/02  $29-30        JAN-2003 $ 30  VEK-MF
                               JAN-2004 $ 30  LEK-MF




New Portfolio Plays

MO - Philip Morris $49.32 **Put Play**

No matter how many times I say it, I still wonder if I've truly
grasped the concept of patience in trading.  Did I plunge into
new put positions in MO too soon?  Only time will tell, but we
aren't off to a stellar start with the stock rebounding on
Friday to close just above the $50 level.  Keep in mind, that
we are playing MO for a fairly small decline into the low $40s,
as this is the lower end of the range the stock has been stuck
in for more than a year.  As I mentioned in the Market Monitor
early in the week, I decided to take the position based on
weekly oscillators topped out in overbought and the daily
beginning to roll.  Several readers asked me whether it might
not be more prudent to wait for the next cycle up on the daily
chart before taking a position.  That would put us in a position
of jumping in with both the daily AND weekly showing signs of
weakness.  Based on the price action Friday, it seems that my
readers have grasped the concept of patience and waiting for the
right entry even better than I myself have!  Be that as it may,
we have a new put position in the portfolio, and we'll track it
keeping a tight stop at $51.50, just above the descending 3-year
trendline.  A rally through that level will tell us that I am
clearly wrong on this play, and if so, you'll all be here to
witness the event.  For those still looking to enter the play, I
would advocate waiting for the daily Stochastics to roll over
from overbought territory again and then take a position.  But
ONLY if the price rolls over below the level of our stop.

BUY LEAP JAN-2003 $50.00 VPM-MJ $ 5.40
BUY LEAP JAN-2004 $50.00 LMO-MJ $ 7.80


New Watchlist Plays

BBH - Biotech HOLDRs $117.70  **Call Play**

Market action over the past couple years has shown that the
Biotechnology sector (BTK.X) tends to lead the broader NASDAQ
up and down, calling the major turning points in the Technology
market.  If that pattern holds true, then the BTK should be one
of the first sectors to bottom in the current decline.  And
according to our longer-term charts, a potentially important
inflection point is drawing near.  For those of you that follow
the Market Monitor, Eric Utley did a great job of highlighting
this inflection point in his commentary on Thursday afternoon.
So please forgive the repetition for those that don't have the
ability to follow the intraday commentary.  The $455 level on the
BTK is an important long-term support level, as demonstrated by
the current bearish count on the Point and Figure chart.  I'm not
saying the BTK has to stop at that level, as it could continue
to decline to the 10-month ascending trendline near $440 before
finding strong bullish arms of support.  Fortunately for us, we
don't have to try to pick an individual stock in the group
(fraught with all the individual company risk), because the
Biotech HOLDR (BBH) is one of the few that have LEAPS available.
While they are a bit on the pricey side, I think they are worth
the price due to the potential reward.  The BTK rebounded from
the $450 and looks like it has upside potential into the $600
area.  Those levels translate to $110 and $140 on the BBH;
plenty of room to harvest some profits.  With weekly Stochastics
bottomed and flattening out, daily Stochastics emerging from
oversold again, and solid support just below current levels, this
looks like a great long-term balance of risk and reward.  After
Friday's 7.25% rally, we'd really like to see a bit of a pullback
before entering the play.  Target new entries on a bounce from
the $114-115 area on the BBH.  Remember that we want to buy a
bounce from support, not a drop through it.  If support fails to
hold, then we'll stand aside and either buy the rally back
through that support level or consider lowering our target.  This
is clearly a higher risk play, but one that should reward that
higher risk with a proportionately higher reward if the sector
continues with the rally that looks like it got started on
Friday.  Once filled, we'll set a fairly tight stop at $108, -- a
close below that would give us a broken trendline and tell us
that we are in danger of trying to catch a falling knife.

BUY LEAP JAN-2003 $120.00 OEE-AD
BUY LEAP JAN-2003 $110.00 OEE-AB For Covered Call
BUY LEAP JAN-2004 $120.00 KBB-AD
BUY LEAP JAN-2004 $120.00 KBB-AD For Covered Call


Drops

NOK $21.50 While NOK may be the strongest and most stable stock
in the Wireless sector (YLS.X), that wasn't enough to keep it
from feeling the sector-wide pain last week.  With the YLS
breaking to new all-time lows, it was all NOK could do to keep
from going down with the ship.  The bulk of the pain was
delivered on Monday and Tuesday, prompting our exit from the
play with our violated stop at $22 on Tuesday.  While I still
like the long-term prospects for NOK when the economy shifts to
recovery mode, it is clear from the recent price action that the
market isn't yet ready to reward eager bulls in the sector.
While there were some significant profits to be had in the short
period of time we had the play in the Portfolio, the stock didn't
move far enough to allow us to move our stop high enough to
guarantee locking in those profits.  If not for tightening our
stop last weekend, we would be closing the play out for a loss
rather than a slight gain.

EMC $14.50 There seems to be no end to the negative effects of
the current crisis of confidence on Wall Street and Technology
stocks continue to bear the brunt of the selling.  We thought
we had nabbed a very nice entry point on EMC just over a month
ago, but the price action last week proved just how wrong we
were.  Part of the catalyst for the selloff last week may be
due to rumors that EMC is losing market share to Hitachi, and
is having to cut prices to retain their customers.  We all know
what that means -- thinner profit margins and subsequently
lower earnings.  Not a pretty picture.  EMC has been building a
neutral wedge for some time now, and when the stock broke back
below $14.50, the wedge became bearish.  Adding insult to injury
is the fact that on the Point and Figure chart, this breakdown
gives a bearish target of $8.50, a level which would constitute
a new 4-year low. UGLY!!  This is what stop losses are for,
allowing us to stay alive to play another day.  In the meantime,
we're just glad to be out of the play before things get any
worse.


**************
TRADERS CORNER
**************

Type-A Chart Screening Service
Austin Passamonte

We get plenty of email questions asking where the chosen stock 
plays come from for OI. Many seem to think we use some super-
secret software that screens out favorable setup plays. Unless 
someone is keeping me out of the loop, such is not the case. Even 
if I were in the dark, let me share with you that which has always 
worked for me.

(Weekly/Daily Chart Scan: Index - Sector Shares)


 

Back in the day when I actively traded equity options and stocks 
as a whole, I ran thru a two or three-step process that takes 
inside of 30 minutes per night. Mind you now, this is just a 
filtering process to find potential play setups, not drill down 
into entry point nuances, etc. First we need to screen out the 
overburden with our trommel (gold miner's jargon) before finding 
the nuggets that shine.

I have multiple screens setup in my chart service like the one you 
see above. The first one to look at would be major indexes and 
their various sectors. This gives us the initial feel for being 
bullish, bearish or bewildered. These days I log every index, 
sector, basket share (listed on www.amex.com) and bonds along with 
volatility indexes, etc. Scanning thru here gives me the first 
look at what is overbought/oversold on a weekly and daily chart 
basis for good directional odds.

From there I write down symbols aligned in extreme zones across 
both charts under one of two columns: long or short. Usually one 
side or the other fills with names. If I find the sheet sort of 
balanced both directions, that is a warning of near-term top or 
bottom in the overall market. Loaded to one side suggests a trend 
is in place, but we don't force the issue just to create our own 
market reality, either.

Then I take this list and dial down to 60/30 min charts and see 
where viable entry points may lie. With low beta issues like most 
basket shares there are usually well-defined entries visible, but 
that's a different series of articles altogether. Make note of the 
hottest ones (up or down) to be played alone or used in our next 
step.

(Weekly/Daily Chart Scan: Nasdaq 100 Index)


 

Technology addicts can use the same process via NDX setup. Here we 
have all 100 components arranged in alphabetical order but it 
could be by volume, price, percent change or any other value your 
chart service and preference offers. 

Click, click, click, click, click... one hundred times in about 
ten minutes or less. We're looking for weekly/daily chart 
stochastic values aligned together in overbought or oversold 
extreme. I can do this in less than five minutes if pressed but 
ten is more viable. I only stop on the ones dually aligned towards 
extreme and quickly note the symbol under a column for "long" or 
"short". Can you see yourself doing that? During commercial breaks 
of any tired sitcom is plenty of time enough if you must multi-
task like that.

Now we have two sheets with long and short columns: sectors and 
stocks. Cross reference the bullish sectors and bullish stocks 
within for best long play candidates. Cross reference bearish 
sectors and bearish stocks within for best short play candidates. 
How difficult is that?

(Weekly/Daily Chart Scan: S&P 500)


 

I personally prefer to cruise the SPX instead. That gives me the 
Dow, OEX and most NDX components within, one fell swoop. Do I look 
thru 500 charts every time? Not at all... just sort the list by 
volume and stop at 500,000 shares volume or whatever your personal 
cutoff happens to be. On nights & weekends with plenty of idle 
time (what's that?) I might cruise all 500 and it doesn't take an 
hour total for the process.

Can't imagine looking at 500 stocks, or even 100 in that stretch? 
Neither can I. Never said I look at them, more aptly it's a quick 
glance. Click-click-click-click-stop... click-click-click-stop... 
is the staccato rhythm used. Both long-term chart stochastic 
values spread across the range? Click. Not even worthy of two 
second's glance beyond there.

Summation
This one's easy to arrange in Qcharts, if I may horn in on Buzz' 
series there. These indexes are already defaulted in. I just close 
out all of the junk screens except for Time & Sales chart listed 
and open two more bar charts. Align vertically, adjust to suit you 
and arrange chart signals to taste.

Click, click, click, click, click... find yourself some high-odds 
setups to play next week tonight!

Hope This Helps!
austinp@OptionInvestor.com


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************
MARKET WATCH
************

Going contrarian with two new additions to the Watch List.  How about a bullish communication stock and an oil stock?


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/020902.asp


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

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


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The Option Investor Newsletter                   Sunday 02-10-2002
Sunday                                                      5 of 5


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

Trading Strategies: More Q&A with the Covered-Calls Editor
By Mark Wnetrzak

The recent volatility in the market has generated some great
questions from readers who are interested in our conservative
approach to selling covered-calls.


Dear OIN,

I am new reader participating in a trial of the newsletter and
I am interested in your selection method for covered-calls.  My
question is, when trying to decide which stocks to use for your
final (published) list, what criteria do you use?  Also, after
I have initiated the covered-call, how much loss should I accept
before closing the position?

Thanks,

TR


Regarding the Selection of Covered-Call Candidates:

In my research, I use a two-pronged approach to produce a list of
covered-call candidates to supplement your search for profitable
trading positions: technical searches and option premium scans.
I search through hundreds of charts looking for technically strong
stocks with robust option premiums.  Then I sort through several
lists of "overpriced" options and identify stocks with favorable
technical trends.  In evaluating potential positions, I consider
the covered write as a single entity and I am not interested so
much in stock ownership or bullish movement, but in obtaining a
consistent (monthly) return on investment.  This means that I am
less concerned about the fundamental outlook for a company, and
will focus more on the technical aspects of the underlying issue.
However, it is also good advice to only purchase stocks you really
would like to own, thus you must also conduct thorough research on
any potential candidates.  You alone must satisfy all the reasons
for entering a specific position regardless of whether it is based
on favorable technical signals (above a bullish moving average,
positive stochastics or MACD, a heavy-volume rally), fundamental
strength (strong earnings, cash flow, revenue), or another type of
short-term momentum such as a merger, buyout or stock split.  Of
course, any situation where the covered-write strategy is applied,
short-term or longer-term, requires a neutral to slightly bullish
outlook on the underlying equity and the overall market.  Don't
use this approach on any issue which has unfavorable technical
indications.

As far as position management, most traders suggest limiting the
losses in a single position to a percentage that will not severely
impact your overall portfolio if there is a catastrophic loss.
This could be anywhere from 5% to 20%, depending on one's personal
risk-reward tolerance and portfolio size.  You will have to decide
what level of capital you are comfortable risking in one position.
Obviously, no one knows how a particular stock is going to perform
in the future and you do not want to have "one ship that sinks the
whole fleet."  The fact that we really can't predict share values
also supports our reasoning in choosing to hedge against downside
activity with ITM covered-writes.

Best regards,

Mark W.
OIN


Attn: Covered-Calls Editor,

First, I must compliment you on your choice of stocks in this
difficult market environment.  It's hard to find any issues that
are moving higher and yet you offer a number of good plays each
week.  My problem comes in choosing the right call to sell.  I
don't always agree with the "in-the-money" approach because it
seems that some stocks could support a more bullish outlook.  To
remedy this problem, I have often considered selling a combination
different strike options on the stocks you recommend to achieve
better upside potential in the overall position.  Is this a good
strategy for more aggressive investors and if so, how should I
divide the sold options among the various strikes?  More to the
point, is there a common ratio that allows for a higher return at
the risk of limited downside loss?

Thank You,

RB


Regarding Multiple Option Strikes in the Covered-Call Position:

There is definitely something to be said for diversity, even with
regard to combined covered-write positions in a single portfolio.
The goal of the covered-call writer is to have a good combination
of high potential returns and adequate downside protection.  The
problem is; selling an "out-of-the-money" call may offer higher
returns but affords only a modest amount of downside protection.
Selling an "in-the-money call" will provide more downside cushion
but generally offers a lower return.  Some traders try to overcome
this dilemma by writing "out-of-the-money" calls in some plays and
"in-the-money calls" with others.  This unique approach may work
periodically but will not produce superior results on a consistent
basis.  Indeed, conservative traders may do best by selecting a
bullish issue and writing half of the position "in-the-money" and
the other half "out-of-the-money."  By spreading out the options
among different strike prices, the writer may be able to acquire a
favorable return potential as well as adequate downside protection.

Investors who have large positions in a specific stock can choose
even greater diversification by spreading the sold calls over time
as well as different strike prices.  One 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, unexpected move in
the stock, the combination of time frames in each position reduce
the need to make immediate adjustments.  This type of activity may
include buying-back one written call and selling another or simply
having the stock called away, but with a mixture of sold options,
all of the different positions will not need to be adjusted at the
same time.  Another advantage to this technique 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 small and hopefully they would
increase in value before the next expiration period.  This type of
diversification will also allow you to establish various positions
at different strike prices, smoothing the portfolio balance as the
market fluctuates cyclically.  It also prevents all of one's stock
from being committed at a single price.  It's obvious the strategy
of the "combined" write, whether by time period or strike price,
offers an excellent balance between potential return and favorable
downside protection.

Trade Wisely!


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

TSTN    5.19   4.95   FEB   5.00  0.55   $  0.31   9.7%
CYMI   37.22  38.88   FEB  35.00  3.50  *$  1.28   8.2%
MONE   14.01  14.63   FEB  12.50  2.25  *$  0.74   6.8%
MONE   14.83  14.63   FEB  12.50  3.20  *$  0.87   6.5%
ELON   16.73  18.20   FEB  15.00  2.40  *$  0.67   5.1%
PLCE   32.00  31.35   FEB  30.00  2.90  *$  0.90   4.5%
ELON   19.50  18.20   FEB  17.50  2.50  *$  0.50   4.3%
PWAV   18.15  17.61   FEB  15.00  3.70  *$  0.55   4.1%
CECO   37.07  36.00   FEB  35.00  2.70  *$  0.63   4.0%
AMZN   14.44  12.52   FEB  12.50  2.25  *$  0.31   3.7%
WEBM   23.07  19.64   FEB  20.00  3.60   $  0.17   1.9%
WEBM   24.20  19.64   FEB  20.00  4.80   $  0.24   1.8%
UCOMA   5.50   4.46   FEB   5.00  1.00   $ -0.04   0.0%
RATL   23.92  21.35   FEB  22.50  2.35   $ -0.22   0.0%
RBAK    6.20   4.31   FEB   5.00  1.55   $ -0.34   0.0%
STOR    5.34   4.23   FEB   5.00  0.65   $ -0.46   0.0%
PCLN    5.52   4.16   FEB   5.00  0.85   $ -0.51   0.0%
PLUG   10.58   8.65   FEB  10.00  1.40   $ -0.53   0.0%
CLRS    5.60   4.10   FEB   5.00  0.95   $ -0.55   0.0%
ADIC   18.32  16.00   FEB  17.50  1.70   $ -0.62   0.0%
RNWK    8.13   6.15   FEB   7.50  1.30   $ -0.68   0.0%
EPNY   10.97   8.68   FEB  10.00  1.50   $ -0.79   0.0%
FCEL   18.08  15.95   FEB  17.50  1.25   $ -0.88   0.0%
NETA   30.26  26.69   FEB  30.00  1.40   $ -2.17   0.0%

PKTR    7.69   7.00   MAR   7.50  0.85   $  0.16   1.7%

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

Comments:

As I noted a couple weeks ago, "Lost opportunity is easier to 
replace than lost equity!"  Even Friday's rally did little to 
change the belief of professional traders that further con-
solidation in the major averages will continue.  Many stocks
have violated their September to January trend-lines such as:
Network Associates (NASDAQ:NETA), Webmethods (NASDAQ:WEBM), 
Rational Software (NASDAQ:RATL), UnitedGlobalCom (NASDAQ:
UCOMA), and E.piphany (NASDAQ:EPNY).  Depending on your out-
look, using any rally to exit or roll down may be prudent.  
Plug Power (NASDAQ:PLUG), FuelCell Energy (NASDAQ:FCEL)), 
Redback Networks (NASDAQ:RBAK), and Storagenetworks (NASDAQ:
STOR) continue to act worrisome as they forge Stage I bases.
If they can hold support, a rally should offer a chance to
roll forward, and in the case of Plug Power or FuelCell, 
roll down.  Priceline.Com (NASDAQ:PCLN), has suffered a bit
more than expected during these horrid market conditions. 
We will show the position closed though investors with a 
long-term bullish outlook may consider lowering their cost
basis.
 
Positions Closed: Riverstone Networks (NASDAQ:RSTN), Bruker 
Daltonics (NASDAQ:BDAL), ADC Telecommunications (NASDAQ:ADCT),
Sycamore Networks (NASDAQ:SCMR) and Acacia Research (NASDAQ:ACRI).



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

AVII   10.50  MAR 10.00   QVI CB  1.45 294    9.05   35    9.1%
DCTM   20.39  MAR 17.50   QDC CW  3.90 114   16.49   35    5.3%
INRG   13.65  MAR 12.50   UME CV  2.00 27    11.65   35    6.3%
MDR    12.36  MAR 10.00   MDR CB  3.40 18     8.96   35   10.1%
PECS   28.55  MAR 25.00   PQD CE  5.00 21    23.55   35    5.4%
VPHM   19.50  MAR 17.50   HPU CW  3.00 65    16.50   35    5.3%
XMSR   13.98  MAR 12.50   QSY CV  2.25 502   11.73   35    5.7%

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

MDR    12.36  MAR 10.00   MDR CB  3.40 18     8.96   35   10.1%
AVII   10.50  MAR 10.00   QVI CB  1.45 294    9.05   35    9.1%
INRG   13.65  MAR 12.50   UME CV  2.00 27    11.65   35    6.3%
XMSR   13.98  MAR 12.50   QSY CV  2.25 502   11.73   35    5.7%
PECS   28.55  MAR 25.00   PQD CE  5.00 21    23.55   35    5.4%
DCTM   20.39  MAR 17.50   QDC CW  3.90 114   16.49   35    5.3%
VPHM   19.50  MAR 17.50   HPU CW  3.00 65    16.50   35    5.3%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
AVII - AVI BioPharma   $10.50  *** New Drug Speculation ***

AVI BioPharma (NASDAQ:AVII) is a development-stage biopharma-
ceutical company focusing on developing therapeutic products 
using two distinct platform technologies, Cancer Immunotheraphy
and Gene-targeted drugs, called New-Genes.  AVII's principal 
focus is developing treatments for life-threatening diseases, 
specifically cancer and heart disease.  The company's two plat-
forms are specially aimed at solving the challenges faced by
pharmaceutical products.  AVII's therapeutic cancer vaccine, 
Avicine, which is in clinical trials, is designed to produce 
an immune response against human chorionic gonadotropin (hCG).
The company has completed the pre-clinical development of two
Neu-Gene agents, Resten-NG and Oncomyc-NG, and has filed NDAs
with the FDA.  AVI BioPharma recently announced the opening of
its state-of-the-art good manufacturing practices (GMP) manu-
facturing facility for NEUGENEŽ antisense drugs.  This pharma-
ceutical manufacturing plant will be the site for production 
of bulk NEUGENE drugs for preclinical and clinical development,
product launch and commercialization.  We simply favor the 
support area near our cost basis as this position offers a
favorable entry point from which to speculate on the company's
new drug pipeline.

MAR 10.00 QVI CB LB=1.45 OI=294 CB=9.05 DE=35 TY=9.1%


*****
DCTM - Documentum  $20.39  *** On The Mend ***

Documentum (NASDAQ:DCTM) develops, markets and supports an open,
flexible, Internet-scalable content management platform that 
enables companies to create, deliver, publish and personalize 
content in various formats across e-business applications. 
The company shipped the 1st commercial version of its Documentum
Server product in late 1992, and since then, substantially all
of its revenue has been from licenses of its family of Internet-
scale content management system products and related services, 
which include maintenance and support, training and consulting 
services.  In January, Documentum beat expectations, posting a
fourth-quarter loss and said it expects to return to operating
profits by the 2nd-quarter of 2002.  Merrill Lynch has raised
its long-term rating to a "strong buy" from "buy," saying changes
in Documentum's sales organization are a significantly positive.
Recently, Deutsche Banc Alex. Brown started coverage on DCTM
with a "buy" rating and a 12-month price target of $28.50.  We
simply favor the bullish technical indications and our low risk
position offers a method to profit from future bullish movement
in the issue.

MAR 17.50 QDC CW LB=3.90 OI=114 CB=16.49 DE=35 TY=5.3%


*****
INRG - Inrange Technologies  $13.65  *** Next Step Up? ***

Inrange Technologies (NASDAQ:INRG) designs, manufactures, sells
and services switching and networking products for storage, data
and telecommunications networks.  Their products are designed to
address the volume of information that is captured, processed,
stored and manipulated over storage, data and telecommunications
networks, and to enhance the management capabilities of these
networks as they become more essential to business success.  The
company's key products include the IN-VSN family of directors,
switches, channel extenders and optical networking products for
storage networks; the Universal Touchpoint family of switches,
control systems and management applications used for management
of data networks, and their unique 7-View family of equipment for
monitoring telecommunications networks.  INRG shares rallied early
in December after the company upped its fourth-quarter targets and
announced a buyback of up to $20 million worth of its common stock.
This week, Inrange reported a 4th-quarter net loss (with special
charges) while its revenues rose 32%, driven by sales its open 
storage networking business.  Inrange Tech expects full year 2002
pro forma earnings to be approximately $0.12 per share.  The stock 
appears poised to step higher in the coming sessions and traders
who believe the issue is destined for a future rally can profit 
from upside movement with this position.

MAR 12.50 UME CV LB=2.00 OI=27 CB=11.65 DE=35 TY=6.3%


*****
MDR - McDermott International  $12.36  *** Favorable Ruling! ***

McDermott International (NYSE:MDR) is the parent company of the
McDermott group of companies that includes J. Ray McDermott, S.A.,
McDermott Incorporated, Babcock & Wilcox Investment Company, BWX
Technologies, Inc., and The Babcock & Wilcox Company.  The company
operates in four business segments, Marine Construction Services,
Government Operations, Industrial Operations and Power Generation
Systems.  McDermott's significant customers include oil and gas
companies, including several foreign government-owned companies,
oil and natural gas producers, the electric power generation
industry, petrochemical and chemical processing companies, state
and federal government agencies and nonprofit utility groups.  
McDermott International has delayed the release of its financial 
results until after a court rules on the solvency of its Babcock
& Wilcox subsidiary, which has filed for bankruptcy protection.
On Friday, the court ruled in McDermott's favor, stating that
McDermott was solvent at the time certain assets were transferred
from B&W to its parent, Babcock & Wilcox Investment Company, in
1998.  McDermott is due to report earnings on Monday, February 11.
We favor the bullish technical indications and our conservative
position offers a method to participate in the future movement of
the issue with relatively low risk.

MAR 10.00 MDR CB LB=3.40 OI=18 CB=8.96 DE=35 TY=10.1%


*****
PECS - PEC Solutions  $28.55  *** Upgrade = Rally! ***

PEC Solutions (NASDAQ:PECS) is a professional services company
specializing in high-end solutions that help government organiza-
tions capitalize on the Internet and other advanced technologies.
The company migrates paper-intensive procedures to Web-enabled 
processes using e-government solutions, which help its clients
enhance their productivity and improve the services they offer 
to the public.  PEC Solutions' clients have included every 
cabinet-level department of the federal government, as well as
numerous additional entities at the federal, state and local 
levels.  UBS Warburg on Thursday said it raised its rating on 
the company to a "buy" rating which resulted in a heavy volume
rally.  UBS Warburg said it is looking at the company's sales 
pipeline related to security projects and that it is encouraged
about near-term growth opportunities.  The long-term up-trend
remains intact and our position offers an excellent reward 
potential at the risk of owning this industry-leading issue at
a favorable cost basis.

MAR 25.00 PQD CE LB=5.00 OI=21 CB=23.55 DE=35 TY=5.4%


*****
VPHM - ViroPharma  $19.50   *** Waiting On FDA Review ***

ViroPharma (NASDAQ:VPHM) is a pharmaceutical company dedicated
to the commercialization, development and discovery of new anti-
viral medicines.  The company has focused its current product 
development and discovery activities on a number of ribonucleic
acid, or RNA, virus diseases.  These include viral respiratory 
infection, often referred to as the common cold; hepatitis C;
and respiratory syncytial virus disease.  The company currently
is developing its most advanced product candidate, Picovir 
(pleconaril), for the treatment of common diseases caused by 
picornaviruses.  In preclinical studies, Picovir has been 
demonstrated to inhibit picornavirus replication in vitro by
a novel, virus-specific mode of action.  ViroPharma submitted
a new drug application (NDA) for marketing approval of Picovir
to the FDA in July 2001. In late September 2001, ViroPharma was 
notified that the Picovir(TM) NDA submission was accepted for 
filing.  Also in September, ViroPharma and Aventis (NYSE:AVE) 
signed an agreement to co-develop and co-promote Picovir(TM) 
in the United States.  This week, VPHM and Aventis announced 
that the NDA for Picovir(TM) is scheduled to be reviewed by the
Antiviral Drugs Advisory Committee of the FDA on March 19, 2002,
four days after the March options expiration.  The current 
technicals suggest speculators are moving in ahead of the FDA
review.  This position offers a reasonable reward on a stock 
that should be range-bound (buy the rumor, sell the news) prior
to the FDA meeting.

MAR 17.50 HPU CW LB=3.00 OI=65 CB=16.50 DE=35 TY=5.3%


*****
XMSR - XM Satellite  $13.98  *** Pull Back = Entry Point ***

XM Satellite Radio Holdings (NASDAQ:XMSR) is a development stage
company that seeks to become a premier nationwide provider of 
audio entertainment and information programming.  The company 
owns one of two FCC licenses to provide a satellite digital radio
service in the United States.  It plans to transmit its XM Radio
service by satellites to vehicle, home and portable radios.  The
company will offer a wide variety of music, news, talk, sports 
and other specialty programming on up to 100 distinct channels.
Salomon Smith Barney recently raised its rating on XM Satellite
due to the recent pull-back in its share price.  XM Satellite 
is the current leader in providing satellite radio, completing
a nationwide rollout in the 4th-quarter of 2001 and concluding
an agreement with GM for factory installation in 23 of its 2003
models.  Its competitor, Sirius Satellite (NASDAQ:SIRI), has
delayed its launch by over a year and pushed out OEM factory 
installations until late '03.  XM Satellite appears to be form-
ing a long-term "double bottom" with a support area near $10.
This position offers a reasonable entry point for speculators
who believe XM Satellite is the best thing since FM radio.

MAR 12.50 QSY CV LB=2.25 OI=502 CB=11.73 DE=35 TY=5.7%


*****

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

ORB     5.14  MAR  5.00   ORB CA  0.75 549    4.39   35   12.1%
AMZN   12.52  MAR 12.50   ZQN CQ  1.35 3943  11.17   35   10.3%
NMSS    5.40  MAR  5.00   YHG CA  0.90 12     4.50   35    9.7%
BEAS   16.25  MAR 15.00   BUC CC  2.45 4705  13.80   35    7.6%
NETE   13.59  MAR 12.50   UPN CV  2.00 397   11.59   35    6.8%
PLMD   18.85  MAR 17.50    PM CW  2.55 497   16.30   35    6.4%
SATC    5.59  MAR  5.00   UIG CA  0.90 45     4.69   35    5.7%
FCEL   15.95  MAR 15.00   FQG CC  1.80 72    14.15   35    5.2%


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

Investing 101: Which Type of Analysis is Best?
By Ray Cummins

New readers are always asking what type of analysis we use and
how we choose the candidates for this section.  More important
however, is that any technique used to evaluate a position be
appropriate for the current environment and it should be based
on your personal investing criteria and risk-reward outlook.


With the recent slump in share prices and the renewed concerns
about future corporate earnings, now is an excellent time to
review the different types of stock analysis and decide which
technique is most appropriate for your investment portfolio.

There are three types of information that most traders use to
determine a bias or opinion on a specific stock.  The first is
"fundamental" analysis; income statements, balance sheets, and
the future projections for revenues and earnings.  The second
is "sentiment" analysis; investor expectations of market and
individual stock performance, news or upcoming events and other
possible activities such as mergers and stock splits.  The final
category is "charting."  This method relies on the history of
trading and price movement in a specific stock.  The issue can
also be a future, index, or industry group.  Most analysts (and
we agree with this outlook) believe that charts reflect all of
the known information and public opinion surrounding a specific
stock or security.

Technical analysis involves the use of historical pricing to
identify trends and patterns.  Many different indicators are
displayed on price charts.  Moving averages, support/resistance
lines, envelopes, Bollinger bands, and momentum curves are all
common measures.  Price, time and volume are basic inputs into
these indicators.  Price reflects the level of change in the
attitude of investors.  Time measures the cycle or period of
change and volume (relative to its past history) measures the
intensity of that change.  Together, these indicators reveal
buying and selling patterns that are difficult to discern by
tracking stock quotes in a textual format.  Charting can also
display selling pressure that develops when an issue reaches a
certain level, or repeated buying at a lower price.  There are
a variety of simple charting techniques that can help a trader
better understand the market and technicians have popular names
for the most common patterns.  To avoid complexity, new traders
should focus on three basic concepts: the stock's price trend;
its support and resistance levels (the prices at which a stock
typically reverses course); and the relationship between price
movement and volume activity.

A number of systems have been developed to help traders form an
opinion based on chart patterns and predict the future turning
points (and the magnitude of movement) in the underlying issue.
The analysis begins by determining the strength and direction of
a trend.  The basis for future predictions is supported by the
fact that once a trend is in place, the issue will continue in
that direction until a change in character occurs.  The more
times the stock tests and remains above the current trend-line,
the greater the significance of the trend, and any subsequent
share price activity that violates the line.  Sometimes stocks
simply bounce back and forth in a trading range and when that
happens, it's helpful to identify the boundaries of the pattern
for clues to its future direction.  For example, if a specific
stock breaks decisively below a support level, it is likely to
continue falling until a new level of support is established.
In contrast, when an issue rallies above a previous resistance
level, it is likely to continue higher as there is no overhead
supply to restrict its upward movement.

Successful traders will look at various indicators from different
perspectives and identify signals that suggest upcoming changes
or trend reversals.  When you can do this with a minimum measure
of accuracy on a regular basis, and adapt the results to your
personal trading style, the value of your portfolio will grow
consistently, regardless of the overall market character.

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

MDR    12.52  12.36   FEB  10.00  0.25  *$  0.25  19.8%
DGIN   24.77  24.95   FEB  22.50  0.50  *$  0.50  13.3%
PCX    28.30  28.75   FEB  25.00  0.75  *$  0.75  12.4%
ISLE   16.45  15.73   FEB  15.00  0.30  *$  0.30  12.0%
ESST   22.89  20.72   FEB  20.00  0.35  *$  0.35  11.5%
TMCS   21.50  22.03   FEB  20.00  0.60  *$  0.60  11.3%
FCN    29.10  25.13   FEB  25.00  0.40  *$  0.40  10.9%
ENER   23.27  21.10   FEB  20.00  0.30  *$  0.30  10.3%
TYC    35.63  29.88   FEB  27.50  0.35  *$  0.35  10.2%
CRUS   19.15  16.15   FEB  15.00  0.45  *$  0.45   9.1%
SPCT   15.10  14.21   FEB  12.50  0.30  *$  0.30   8.7%
ISSX   39.00  34.82   FEB  30.00  0.30  *$  0.30   8.0%
TMCS   19.78  22.03   FEB  17.50  0.40  *$  0.40   7.2%
SFA    26.70  22.77   FEB  22.50  0.45  *$  0.45   7.1%
ICST   25.69  21.34   FEB  20.00  0.45  *$  0.45   7.0%
FCN    26.85  25.13   FEB  23.38  0.35  *$  0.35   6.7%
TMCS   19.95  22.03   FEB  17.50  0.45  *$  0.45   6.5%
MERQ   37.51  37.65   FEB  30.00  0.35  *$  0.35   6.5%
JDAS   28.10  26.15   FEB  22.50  0.35  *$  0.35   6.3%
IONA   24.25  17.31   FEB  17.50  0.50   $  0.31   6.3%
PPD    23.21  19.75   FEB  17.50  0.35  *$  0.35   6.1%
MEDC   23.34  19.44   FEB  17.50  0.35  *$  0.35   6.1%
IRF    39.19  39.12   FEB  35.00  0.50  *$  0.50   6.0%
MROI   29.20  26.18   FEB  25.00  0.40  *$  0.40   5.5%
LIN    27.64  26.96   FEB  25.00  0.45  *$  0.45   5.5%
SEBL   37.20  34.11   FEB  30.00  0.30  *$  0.30   5.4%
CMNT   23.75  19.84   FEB  20.00  0.50   $  0.34   4.7%
JBHT   28.10  22.65   FEB  25.00  0.40   $ -1.95   0.0%


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

Comments:

The recent broad-market slump has put pressure on almost
all the stocks in the portfolio.  With this abrupt change
in the overall market character, traders should be wary
of remaining in bullish positions that have anything less
than outstanding technical strength.  Issues currently on
the early-exit "watch" list include ESS Tech. (NASDAQ:ESST),
Isle of Capris, (NASDAQ:ISLE) and FTI Consulting (NYSE:FCN).
Positions in Computer Network Technology (NASDAQ:CMNT) and
Iona Technologies (NASDAQ:IONA) finished Friday's session
positive, but both plays should have been previously closed
due to activity earlier in the week.  The position in Tyco
(NYSE:TYC), although profitable, was not initiated Monday
morning due to the opening gap down in the company's share
value (almost $5) and it will be removed from the monthly
summary.

Positions Closed:

Jb Hunt (NASDAQ:JBHT), Digital River (NASDAQ:DRIV), Finisar
(NASDAQ:FNSR) and Med-Design (NASDAQ:MEDC); $20 strike, and
MIM Corporation (NASDAQ:MIMS).



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

AMZN   12.52  MAR 10.00   ZQN OB  0.50 1075   9.50   35   14.5%
ASW    10.81  MAR  5.00   ASW OA  0.35 30     4.65   35   12.1%
HAL    13.95  MAR 12.50   HAL OT  0.70 1599  11.80   35   12.6%
MANH   29.80  MAR 22.50   MQR OX  0.65 55    21.85   35    8.5%
MU     34.90  MAR 27.50    MU OR  0.60 960   26.90   35    6.9%
OSIS   22.06  MAR 17.50   UOJ OW  0.70 36    16.80   35   11.9%
PMCS   22.50  MAR 15.00   SQL OC  0.30 708   14.70   35    5.4%
TXN    30.29  MAR 27.50   TXN OY  0.85 1922  26.65   35    7.3%

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

AMZN   12.52  MAR 10.00   ZQN OB  0.50 1075   9.50   35   14.5%
HAL    13.95  MAR 12.50   HAL OT  0.70 1599  11.80   35   12.6%
ASW    10.81  MAR  5.00   ASW OA  0.35 30     4.65   35   12.1%
OSIS   22.06  MAR 17.50   UOJ OW  0.70 36    16.80   35   11.9%
MANH   29.80  MAR 22.50   MQR OX  0.65 55    21.85   35    8.5%
TXN    30.29  MAR 27.50   TXN OY  0.85 1922  26.65   35    7.3%
MU     34.90  MAR 27.50    MU OR  0.60 960   26.90   35    6.9%
PMCS   22.50  MAR 15.00   SQL OC  0.30 708   14.70   35    5.4%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
AMZN - Amazon.com  $12.52  *** Entry Point! ***

Amazon.com (NASDAQ:AMZN) is a Website where customers can find
and discover anything they may want to buy online.  The company
lists millions of unique items in categories such as books, music,
DVDs, videos, consumer electronics, toys, etc.  The company's 
Amazon Marketplace, Auctions and zShops services, allows any 
business or individual to sell virtually anything to nearly 30
million cumulative customers, and with Amazon.com Payments,
sellers can accept credit card transactions.  The company also
operates four internationally focused Websites: www.amazon.co.uk,
www.amazon.de, www.amazon.fr and www.amazon.co.jp.  AMZN also 
operates the Internet Movie Database (www.imdb.com), a thorough
source of information on movies and entertainment titles, and
cast and crewmembers.  Amazon.com rallied strongly in January
after posting its first ever net profit following strong holiday
sales.  The company also benefited when Moody's Investors Service
raised AMZN's ratings to reflect improved operating measures and
a sharply lower cash drain from operations.  This position offers
a low risk entry point with a cost basis near technical support.

MAR 10.00 ZQN OB LB=0.50 OI=1075 CB=9.50 DE=35 TY=14.5%


*****
ASW - A.C.L.N. Ltd.  $10.81  *** Speculation Only! ***

A.C.L.N. Ltd. (NYSE:ASW) is an independent logistics provider
and wholesale automobile dealer operating primarily between
Europe and North and West Africa.  The company operates in the
following two business segments, with individuals and port
agents in 15 ports located in 13 countries in North and West
Africa, from four ports in established markets in Northern
Europe: door-to-door logistics services for cars and light
trucks consisting of the delivery of new and pre-owned cars and
light trucks to purchasers; and wholesale automobile business
consisting of the delivery of new cars, which the company
purchased on a bulk-discounted basis, against pre-existing
orders, to purchasers.  Based on the recent bullish technical
indications, it appears all of the "bad" news has finally been
"priced" into this issue.  Traders who favor speculative
"premium selling" plays should consider this position.

MAR 5.00 ASW OA LB=0.35 OI=30 CB=4.65 DE=35 TY=12.1%


*****
HAL - Halliburton  $13.95  *** Bottom Fishing! ***

Halliburton (NYSE:HAL) provides services and equipment to energy,
industrial and governmental customers.  The company operates in
two business segments: Energy Services Group and Engineering and
Construction Group.  The Energy Services Group provides a range
of discrete services and products for the exploration, development
and production of oil and gas.  The segment serves independent,
integrated and national oil companies.  The Engineering and
Construction Group segment, consisting of Kellogg Brown & Root
and Brown & Root Services, provides a range of services to energy
and industrial customers and government entities worldwide.  The
company has been under pressure due to widespread concerns over
asbestos-related lawsuits but Halliburton argues that asbestos
claims won't ruin their finances.  Ole Slorer, a Morgan Stanley
Dean Witter analyst agrees.  He estimates that future asbestos
claims against the company will be less than $1 billion, or $2.30
a share, well under Halliburton's insurance coverage for asbestos
claims.  Investors can speculate on the company's future with this
conservative position.

MAR 12.50 HAL OT LB=0.70 OI=1599 CB=11.80 DE=35 TY=12.6%


*****
MANH - Manhattan Associates  $29.80  *** Outstanding Earnings! ***

Manhattan Associates (NASDAQ:MANH) a provider of technology-based
solutions to improve supply chain effectiveness and efficiencies.
The company's solutions enhance distribution efficiencies through
the integration of supply chain constituents; manufacturers,
distributors, retailers, suppliers, transportation providers and
consumers.  Their solutions focus on supply chain execution, which
begins with the execution of an order and ends with the fulfillment
of the order to the end customer.  The company's solutions consist
of software, including products to enable the execution, fulfillment
and delivery of customer orders, the optimization of distribution
center operations and the collaboration between and among trading
partners; services, including design, configuration, implementation,
and training services, plus customer support services and software
enhancement subscriptions; and hardware.  Shares of MANH soared more
than 18% Friday, after the company reported quarterly earnings that
beat analysts' expectations on strong revenue.  The company received
upgrades from J.P. Morgan and Bear Stearns and traders can profit
from the new upside momentum in the issue with this position.

MAR 22.50 MQR OX LB=0.65 OI=55 CB=21.85 DE=35 TY=8.5%


*****
MU - Micron Technology  $34.90  *** Chip Sector Favorite! ***

Micron Technology (NYSE:MU) and its subsidiaries are principally
engaged in the design, development, manufacturing and marketing
of semiconductor memory products.  The company offers products
that include dynamic random access memory, synchronous dynamic
random access memory, double data rate dynamic access memory,
legacy dynamic random access memory products, static random
access memory products and Flash products.  Dynamic random
access memory (DRAM) is the Company's primary semiconductor
memory product.  DRAMs are high-density, low-cost-per-bit,
random access memory components that store digital information
and provide high-speed storage and retrieval of data and DRAMs
are a widely used semiconductor memory component in computer
systems.  DRAM sales represented approximately 87%, 94% and 95%
of the company's net sales in 2001, 2000 and 1999, respectively.
Micron has been a popular position in our portfolio over the
past few weeks and the recent recovery in the company's share
value has brought it back in favor with technology investors.
The current technical outlook for Micron is bullish and our
position offers an excellent way to speculate on the future
movement of the issue with relatively low risk.

MAR 27.50 MU OR LB=0.60 OI=960 CB=26.90 DE=35 TY=6.9%


*****
OSIS - OSI Systems  $22.06  *** Bomb Detection! ***

OSI Systems (NASDAQ:OSIS) is a vertically integrated, worldwide
provider of devices, subsystems and end products based on
optoelectronic technology.  The company designs and manufactures
optoelectronic devices and value-added subsystems for original
equipment manufacturers for use in a broad range of applications,
including security, medical diagnostics, fiber optics, telecom,
gaming, office automation, aerospace and defense electronics,
computer peripherals and industrial automation.  In addition,
the company utilizes its optoelectronic technology and design
capabilities to manufacture security and inspection products
that are used to inspect people, baggage, cargo and other objects
for weapons, explosives, drugs and other contraband.  In the
medical field, OSI manufactures and sells bone densitometers,
which are used for bone loss measurements in the diagnosis of
osteoporosis.  Rapiscan Security Products, a subsidiary of OSI,
and a worldwide leader for providing security solutions to
airports, customs facilities, correctional facilities, and
governments, said Friday it received a bridge order for FAA
certified carry-on baggage X-ray screening systems outfitted
with Threat Image Projection (TIP) valued at approximately $5
million.  The increased interest in these types of products
may result in additional, future revenues for OSI and traders
can speculate on that outcome with this position.

MAR 17.50 UOJ OW LB=0.70 OI=36 CB=16.80 DE=35 TY=11.9%


*****
PMCS - PMC-Sierra  $22.50  *** Entry Point! ***

PMC-Sierra (NASDAQ:PMCS) is a provider of high speed broadband
communications semiconductors and MIPS-based processors for
Enterprise, Access, Metro Optical Transport and Wireless network
equipment that makes up the backbone of the Internet.  PMC-Sierra
offers worldwide technical and sales support, including a network
of offices throughout North America, Europe and Asia.  Goldman
Sachs recently added PMC-Sierra to its "recommended list" after
the communications chip maker reported fourth-quarter results in
line with expectations.  Goldman raised its target price on the
stock to $30 based on significant operating leverage and future
revenue improvements.  Investors who wouldn't mind owning PMCS
can establish a discounted basis in the stock with this position.

MAR 15.00 SQL OC LB=0.30 OI=708 CB=14.70 DE=35 TY=5.4%


*****
TXN - Texas Instruments  $30.29  *** Major Upgrade! ***

Texas Instruments (NYSE:TXN) is a global semiconductor company
and a designer and supplier of digital signal processors and
analog integrated circuits, the engines driving the digitization
of electronics.  These two types of semiconductor products work
together in digital electronic devices such as digital cellular
phones. TI also designs and manufactures other semiconductor
products.  Their many products include standard logic devices,
application-specific integrated circuits, reduced instruction-set
computing microprocessors, microcontrollers and digital imaging
devices.  In addition to semiconductors, TI has two other primary
segments.  Sensors & Controls markets electrical and electronic
controls, sensors and radio-frequency identification systems to
commercial and industrial markets.  Educational & Productivity
Solutions is a supplier of graphing and educational calculators.
Shares of TXN rallied Friday after UBS Warburg said it upgraded
the world's leading maker of computer chips for mobile phones to
a "buy" and raised its price target to $37, based on a improving
earnings.  Analysts are now forecasting higher operating margins
than previously expected, do to "cost-of-sales" improvements and
management's plan to control operating expenses.  Traders can
speculate the future movement of TXN shares with this position.

MAR 27.50 TXN OY LB=0.85 OI=1922 CB=26.65 DE=35 TY=7.3%


*****

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

PECS   28.55  FEB 25.00   PQD NE  0.30 99    24.70    7   16.0%
MRVL   36.46  MAR 30.00   UVM OF  1.40 187   28.60   35   12.8%
SONE   14.59  MAR 12.50   FBZ OV  0.60 15    11.90   35   12.0%
NEWP   23.25  MAR 20.00   NZZ OD  0.80 10    19.20   35   10.1%
RMCI   22.95  MAR 20.00   UHU OD  0.80 5     19.20   35    9.9%
IDXC   13.10  MAR 12.50   XQW OV  0.55 0     11.95   35    9.2%
SEBL   34.11  MAR 27.50   SGQ OY  0.75 515   26.75   35    8.4%
CELG   28.14  MAR 22.50   LQH OX  0.40 90    22.10   35    5.8%


SEE DISCLAIMER IN SECTION ONE
*****************************


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

A Late-Session Surge Ends The Recent Slump!
By Ray Cummins

******************************************************************
                         - MARKET RECAP -
******************************************************************
Friday, February 8

The major equity averages roared back to life today on the wings
of an unexpected buying spree as investors shopped for bargains
among recently downtrodden issues.

The Dow Jones Industrial Average led the afternoon rally, up 118
points to finish at 9,744.  Strength in the blue-chip segment
came from J.P. Morgan Chase (NYSE:JPM), General Motors (NYSE:GM),
International Paper (NYSE:IP), AT&T (NYSE:T), American Express
(NYSE:AXP), Citigroup (NYSE:C), Walt Disney (NYSE:DIS) and Alcoa
(NYSE:AA).  Technology stocks also advanced with semiconductor,
networking and computer hardware companies leading the NASDAQ to
a 36 point gain at 1,818.  The S&P 500 stock index rose 16 points
to close at 1,096 as financial shares rallied and biotechnology
stocks soared after recent precipitous declines.  Shares of gold
companies also continued their astonishing upward trajectory as
gold futures reached $304, a level that hasn't been seen for two
years.  Trading volume came in at 1.36 billion on the Big Board
and at 1.8 billion on the technology exchange.  Market breadth
was bullish with winners pacing decliners 2 to 1 on the NYSE and
23 to 12 on the NASDAQ.  In the treasury market, bonds regained
traction after an early morning slump with the 10-year note up
11/32 to yield 4.89% while the 30-year long bond rose 1/2 point
to yield 5.37%.  One analyst noted that the lack of a "flight to
quality" bid in bonds amid growing anxiety in the stock arena is
telling.  Tony Crescenzi, the chief bond market strategist at
Miller Tabak noted, "The signals coming from the bond market are
significant and suggest the anxieties in the (equity) markets
are likely to dissipate."  (I, for one, favor of that opinion!)


Last week's new plays (positions/opening prices/strategy):
 
C.R. Bard   (NYSE:BCR)   FEB50C/FEB50P  $3.75  debit   straddle
Elan        (NYSE:ELN)   MAR30C/MAR30P  $0.00  debit   straddle
Waste Mgmt. (NYSE:WMI)   MAR25C/MAR25P  $2.60  debit   straddle
Cephalon    (NSDQ:CEPH)  MAR80C/MAR75C  $0.55  credit  bear-call
Gilead      (NSDQ:GILD)  MAR55P/MAR60P  $0.75  credit  bull-put
L-3 Comm.   (NYSE:LLL)   MAR90P/MAR95P  $0.80  credit  bull-put

Our new straddle issues were an active group but unfortunately,
the best play in the portfolio did not offer a viable entry
opportunity as the company posted its quarterly profits before
Monday's market open.  After a very unfavorable earnings report,
shares of Elan plunged from $29.85 to $14.85 in one session; an
unbelievable $15 move!  The movement in C.R. Bard was far less
extreme, but the straddle came close to hitting the break-even
points on both sides of the neutral position in only 5 days.
With a recent trading range of almost $6, aggressive straddle
players should have little difficulty in achieving a profitable
exit in the position.  The WMI straddle did not offer the target
entry price until late in the week, but the company's quarterly
report is not expected until February 26, so traders had time to
be patient.  The new credit spreads were a mixed lot with only
L-3 and Gilead offering the suggested opening credits and both
of those issues experienced unfavorable downside activity in
the process.  Cephalon traded just as expected, but Monday's
brisk sell-off reduced the available premium in the position.


Portfolio Activity:

The recent volatility in the market has been an unexpected boon
for straddle traders and the Spreads/Combos portfolio enjoyed a
number of winning positions this week.  Neutral plays in Agilent
(NYSE:A) and BEA Software (NASDAQ:BEAS) achieved gains of 25% or
more and our previously struggling position in Jabil (NYSE:JBL)
moved into the "profitable" category with a credit of $1.00 on
$4.40 invested.  The bearish portion of the straddle easily paid
for the entire position and traders who were wondering how they
might escape the play with limited losses were more than happy
with a 20% profit.  Juniper (NASDAQ:JNPR), Mirant (NYSE:MIR) and
J.P. Morgan Chase (NYSE:JPM) were the most successful straddles
of the month with each position offering profits in excess of 60%
on the initial investment.  The neutral-outlook play in Schering
Plough (NYSE:SGP) provided a favorable "early-exit" opportunity
Wednesday when the straddle credit moved as high as $3.00, a 20%
gain on the $2.50 invested in only two weeks.  The speculative
position in Intervoice-Brite (NASDAQ:INTV) also offered traders
an acceptable "break-even" exit when the stock fell to $8.75 in
Thursday's session.  The activity boosted the bid price of the
bearish portion of the straddle (FEB-10P) to the $1 range, very
near the overall cost of the play.


Reader's Write:

One of our more observant subscribers was kind enough to mention
that the strategy explanation in last week's "Editors Note" was
incorrect.  The description (which was summarized from a recent
article on Long Synthetic Straddles) should have read:

For those of you who are unfamiliar with this technique, synthetic
straddles use the "long" options of your choice (ATM, ITM, or OTM)
to offset the fixed delta of the underlying stock.  Since buying
100 shares of stock produces a delta of 100, a trader would buy 2
ATM puts to create an overall position delta of zero.  Conversely,
going short 100 shares creates a delta of -100, which requires the
PURCHASE of 2 ATM calls to create a perfectly delta neutral trade.

We apologize for the oversight with this late addition to the
narrative and I would like to personally thank the perceptive
trader for bringing this error to my attention.  Readers of the
Spreads/Combos section are always welcome to submit comments and
questions (and any corrections!) to: Contact Support

Until Next Week...

******************************************************************
                          - NEW PLAYS -

One of our readers asked for some speculative "earnings-related"
straddles in the technology group and despite the recent market
volatility, there are a number of great candidates for neutral,
option-buying strategies.  Here are three favorable candidates,
based on analysis of historical option pricing and technical
background.  Each company is scheduled to announce quarterly
earnings late next week, thus providing an increased potential
for volatility.  As with any recommendations, they should also
be evaluated for portfolio suitability and reviewed with regard
to your strategic approach and trading style.

******************************************************************
CVTX - CV Therapeutics  $41.32  *** Big Mover! ***

CV Therapeutics (NASDAQ:CVTX) is a biopharmaceutical company
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. 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.

The Delta or "hedge ratio" in the position suggests we should buy
1 call for every 2 puts (1:2 ratio) to maintain a neutral outlook.
However, any downward trading activity in the issue Monday should
allow both sides of the position to be purchased at similar prices.
In addition, the current bid/ask spreads are very large, so target
a slightly lower debit in the play to allow for a consolidation
in the option premiums.

PLAY (extremely speculative - neutral/debit straddle):

BUY  CALL  FEB-40  UXC-BH  OI=411  A=$2.65
BUY  PUT   FEB-40  UXC-NH  OI=448  A=$1.20
INITIAL NET DEBIT TARGET=$3.50-$3.60  TARGET PROFIT=15%-25%


******************************************************************
LTXX - LTX Corporation  $19.95  *** Cheap Options! ***

LTX Corporation (NASDAQ:LTXX) designs, manufactures, markets and
services semiconductor test equipment.  The company sells its
systems to semiconductor designers and manufacturers worldwide,
such as Texas Instruments, Philips Semiconductor, National Semi,
Motorola, NEC, Vitesse Semiconductor, Agere Systems, Infineon
Technologies and Hitachi.  These customers use semiconductor test
equipment to test every semiconductor device at two different
stages during the manufacturing process.  These devices are also
incorporated in a range of products including data communications
equipment such as switches, routers and servers, broadband access
products such as cable modems and Ethernet accessories, personal
communication devices such as cell phones and personal digital
assistants, consumer products such as televisions, videogame
systems, digital cameras and automobile electronics, and personal
computer accessory products such as disk drives and 3-D graphics
accelerators.

PLAY (very speculative - neutral/debit straddle):

BUY  CALL  FEB-20  UXT-BD  OI=392  A=$0.90
BUY  PUT   FEB-20  UXT-ND  OI=984  A=$0.95
INITIAL NET DEBIT TARGET=$1.75  TARGET PROFIT=15%-25%


******************************************************************
AGIL - Agile Software  $12.35  *** Straddle With A Twist! ***

Agile Software (NASDAQ:AGIL) develops and markets collaborative
manufacturing commerce solutions that speed the "build" and "buy"
process across the virtual manufacturing network.  The Agile
Products are Agile Anywhere Product Suite, Agile eHub, Agile
Integration Products, Agile EMSdirect Service, and Agile Buyer
Solution.  The company's customers include, among others, Amkor,
Altera, Dell Computer, Flextronics International, GE Medical
Systems, Hewlett-Packard, Jabil Circuit, Lucent Technologies,
Philips, SCI and Texas Instruments.

There is very little "Open Interest" in the near-term options,
so we thought this position would be a great opportunity to try
the Long Synthetic Straddle mentioned in last week's narrative.
In this case, the trader would buy AGIL stock for the bullish
portion of the position and two (2) ATM put options for each 100
shares of AGIL purchased.  

For more information about the strategy, read the description
in the summary narrative above and refer to the previous edition
of the OIN Spreads/Combos section (2/3/02):

http://members.OptionInvestor.com/combos/020302_1.asp


PLAY (very speculative - long synthetic straddle):

BUY  SHARES  STOCK   NASDAQ:AGIL  LAST=$12.35
BUY  PUTS (2 PER 100 SHARES AGIL) MAR-12.50 AUG-OV OI=15 A=$1.35
INITIAL NET DEBIT TARGET FOR OPTIONS=$1.25  TARGET PROFIT=25%


******************************************************************
                      - SPREADS & COMBOS -
******************************************************************
SEE - Sealed Air Corporation  $40.62  *** Time Selling! ***

Sealed Air Corporation (NYSE:SEE, operating through its many
subsidiaries, is engaged in the manufacture and sale of a wide
range of food, protective and specialty packaging products.  The
company conducts substantially all of its business through two
direct wholly owned subsidiaries, Cryovac, Inc. and Sealed Air
Corporation.  These two subsidiaries directly and indirectly own
substantially the assets of the business and conduct operations
themselves and through subsidiaries around the globe.  Sealed Air
operates in the United States and in 45 other countries, and its
products are distributed in those countries as well as in other
parts of the world.  In recent years, the company has extended
its protective packaging operations into countries where the
company previously had established food packaging operations,
including several European, Latin American and Asia/Pacific
countries and South Africa, as well as also extending its
protective packaging operations into Israel.

It's rare these days to see a candidate for a "time-selling" play
but this issue emerged in a scan for neutral to bullish issues
with premium disparities between different expiration periods.
The differences in front-month implied volatility are relatively
small but in the current environment, they seem extreme.  With the
favorable technical outlook and recent resistance near the sold
strike price, this position may appeal to those of you who like
to participate in low risk calendar spreads.  In this case, the
underlying issue is some distance below the strike price of the
options, providing a speculative position 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 time value erosion in the short option produces
a net gain or; the underlying stock consolidates, allowing the
sold option to expire and then eventually rallies above the long
options' strike price, thus yielding a positive return.  The cost
basis of the long option can also be reduced through the sale of
additional calls prior to its expiration in July.

PLAY (conservative - bullish/calendar spread):

BUY  CALL  JUL-45  SEE-GI  OI=221  A=$3.20
SELL CALL  MAR-45  SEE-CI  OI=45   B=$0.90
INITIAL NET DEBIT TARGET=$2.00-$2.10  TARGET PROFIT=50%


******************************************************************
                       - TECHNICALS ONLY -

These plays are based on the current price or trading range of
the underlying issue and its recent technical history or trend.
Current news and market sentiment will have an effect on these
issues so review each position individually and make your own
decision about its future outcome.

******************************************************************
ESRX - Express Scripts  $50.05  *** Solid Earnings = Rally! ***

Express Scripts (NASDAQ:ESRX) provides health care management and
administration services on behalf of clients that include health
organizations, health insurers, third-party administrators,
employers and union-sponsored benefit plans.  The company's fully
integrated pharmacy benefit management services include network
claims processing, mail pharmacy services, benefit consultation,
drug utilization review, formulary management, disease management,
medical and drug data analysis, medical information management
services, disease management support and outcome assessments and
informed decision counseling services through its Express Health
Line division.  Express also provides non-PBM services including
distribution services through its Specialty Distribution Services
subsidiary.

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-40  XTQ-OH  OI=16  A=$0.25
SELL PUT  MAR-45  XTQ-OI  OI=69  B=$0.80
INITIAL NET CREDIT TARGET=$0.65-$0.70  PROFIT(max)=16%


******************************************************************
SLM - USA Education  $91.50  *** Hot Sector! ***

USA Education (NYSE:SLM) is the nation's largest private source
of funding and servicing support for higher education loans for
students and their parents.  The company provides a wide range
of financial services, processing capabilities and information
technology to meet the needs of educational institutions, lenders,
students, and guarantee agencies.  The company's managed portfolio
of federally insured student loans totals billions of dollars and
the company also has commitments to purchase a large number of
of additional student loans.  Primarily a provider of education
credit, the company serves a diverse range of clients, including
approximately 5,500 educational and financial institutions and
state agencies.  The company serves millions of borrowers through
its ownership and management of approximately $67.5 billion in
student loans.

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-80  SLM-OP  OI=22  A=$0.30
SELL PUT  MAR-85  SLM-OQ  OI=44  B=$0.80
INITIAL NET CREDIT TARGET=$0.60-$0.65 PROFIT(max)=14%


******************************************************************
FNM - Fannie Mae  $79.50  *** Range-Bound? ***

Federal National Mortgage Association (NYSE:FNM), commonly known
as "Fannie Mae", is a private, shareholder-owned company that
works to assure that mortgage money is readily available for
existing and potential homeowners in the United States.  Fannie
Mae does not directly lend money to homebuyers, but works with
lenders to make sure that there is no shortage of funds available
for mortgage loans.  The method in which Fannie Mae accomplishes
this is by purchasing mortgages from a variety of institutions
that make up the primary mortgage market.  Primary market lenders
include mortgage companies, savings and loans, commercial banks,
credit unions, and state and local housing finance agencies.
These are the businesses where the mortgages are originated and
the funds are loaned directly to the borrower.  Fannie Mae then
buys the mortgage, thus allowing the primary market lender to
replenish their funds and lend more money to homebuyers.

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-90  FNM-CR  OI=1706  A=$0.10
SELL CALL  MAR-85  FNM-CQ  OI=2993  B=$0.55
INITIAL NET CREDIT TARGET=$0.50-$0.60  PROFIT(max)=11%


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


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