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Daily Newsletter, Sunday, 02/17/2002

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The Option Investor Newsletter                   Sunday 02-17-2002
Copyright 2001, All rights reserved.                        1 of 5
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Market Wrap

******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
          WE 2-15          WE 2-8           WE 2-1         
DOW       9903.04 +158.80  9744.24 -163.02  9907.26 + 67.18
Nasdaq    1805.20 - 13.68  1818.88 - 92.36  1911.24 - 26.46
S&P-100    559.65 +  2.37   557.28 - 12.07   569.35 -  5.79
S&P-500   1104.18 +  7.96  1096.22 - 25.98  1122.20 - 11.08
W5000    10315.48 + 66.16 10249.32 -240.85 10490.17 - 86.35
RUT        469.25 +  2.58   466.67 - 13.37   480.04 +  0.69
TRAN      2684.23 + 24.29  2659.94 - 99.39  2759.33 - 20.59
VIX         24.09 -  1.38    25.47 +  2.60    22.87 +   .94
VXN         44.99 -  4.29    49.28 +  6.20    43.08 -  2.59
TRIN         1.89              .64             1.44        
TICK         -128             +957             +652        
Put/Call      .90              .73              .67        
******************************************************************


Trade, Don't Invest
By Buzz Lynn
buzz@OptionInvestor.com

Notice anything funny about the box score numbers posted on the 
indexes above?  Before you read on, glance up and take a look at 
those numbers.  The Dow, NASDAQ, S&P, Wilshire, Russell, and Dow 
Tranports have traded in a tight range for the last three weeks.  
This is not environment in which we want to invest.  With turning 
or rising long-term oscillator patterns, we would expect the 
candles to be leading the charge up the charts.  They have not, as 
we'll see in a minute, and the charts are turning weak.  Getting 
long-term points from this market is like getting blood from 
turnips.  And based on Friday's methodical selling, might I 
suggest the turnip is getting blood from long-term investors?  
This is a market made for trading.

Not to be a pessimist here and drone on about old news, but 
accounting issues born of casual contact with "Enronitis" 
sufferers are infecting the brains of the investment community.  
Call it headline risk.  What were once considered to be safe 
investments (and especially speculative ones) now have investors 
on edge in anticipation of a sudden price implosion.  One can't 
protect against that (except to buy protective puts, which cost 
money), so the logical course of action is to protect capital, sit 
out, and let the dust settle.  Trouble is the dust may not settle 
too quickly.  Where you find one accounting cockroach, you usually 
find many - each one kicking up a new dust cloud as it scurries 
across the trading floor and front page news.  They are virulent 
little buggers

This is not going to end anytime soon as the companies engaged in 
opaque accounting techniques usually cloaked as "pro forma" income 
now face the choice to come clean and take a stock price hit, or 
be found out and take a bigger hit - caught between the devil and 
the deep blue sea.  We can see the resultant hesitancy of 
investors' commitment in the lack of volume on the NYSE and the 
NASDAQ.  If the rally that began in October represented a true 
anticipation of an economic bottom, volume should have been much 
stronger over the past few months.  This is not the stuff of which 
sustained bull markets are made.  The volume says that many would-
be participants are not participating.  By default, conviction is 
not there.

But back to the immediate Enronitis problem -- many news bits 
popped up last week that left investors feeling a bit anxious.  
For instance, SEC documents revealed that Warren Buffet's 
Berkshire Hathaway (BRK.A) sold most of its Citigroup (C) 
holdings, which put pressure on the financials upon the news 
release.  Think Warren and Charlie have high hopes for an 
accounting recovery or economic recovery in which banks are 
SUPPOSED to lead the way?  Don't bet on it.  That sale was as much 
a vote for economic non-recovery as it was to decrease exposure to 
bad loans and accounting cockroaches.  

Well, let them eat steak!  And so they shall as BRK.A also filed 
notice that they had acquired at least a 5% stake in Outback 
Steakhouse (OSI).  In my read between the lines, there's a vote 
that the economy isn't going into depression either as Berkshire 
believes that particular brand of dining will continue to grow 
without major economic recovery.

Recovery or not, the Telecom-related companies are going to burn a 
bigger hole in planet Earth and perhaps vaporize their bankers in 
the process (unless they are wearing asbestos bunny suits).  
Rumors - OK, forget rumors - facts of Qwest Communications (Q) 
accounting practices surfaced too, which revealed Q had drawn on 
its bank lines of credit because they could not refinance their 
commercial paper.  It suggests investors' lack of faith in Q's 
ability to repay loans and gives the banks major heartburn as 
their contingent liability get converted to a real one.  Look for 
banks to begin writing down telecom failures in bigger numbers.  
Neither sector should see any recovery until more pain is 
inflicted.  If you thought things were tough on JPM who had 
exposure to K-mart, Enron, and Global Crossing, stay tuned as the 
dominos continue to fall in banking and telecom.  WCOM ought to be 
on our "ball of flames" lists too.

IBM also took a big hit on accounting reports in the New York 
Times that it failed to book a subsidiary sale to JDSU as a one-
time gain, and instead, used the sale as regular income.  To boot, 
they are said to have applied it to the reduction of expense 
thereby manufacturing falsely inflated earnings when they last 
reported.  IBM was single-handedly responsible for roughly 25 
points loss in the Dow as it traded down $5 to $102.89 on nearly 
three times its average daily volume (ADV).  The company reports 
no SEC investigation (as though investors should have confidence 
in that factoid).  Hard to buy into that as a virtue though as the 
SEC also didn't investigate ENE and GX until after it was too 
late.

Just as a matter of note, rumors - only rumors - permeated some 
trading circles that Intel's (INTC) sales were off thanks to lower 
selling prices of the P4 chips.  While that would not surprise me, 
INTC declined comment until their mid-quarter update scheduled in 
early March.  I would be cautious on this stock for any continued 
upside action as INTC, along with CSCO and MSFT, have a long 
history of "managing" earnings.  I don't worry as much about MSFT 
because they still make money and have $36 bln cash - soon to be 
more I presume.

On the economic front, output fell in January though the decline 
was the smallest in the last eight months.  More disconcerting was 
the downward revision of December's figures to -0.3% from -0.1%.  
(OK, so the government makes them up as they go along too.  They 
ought to call them "pro forma" economic figures.  Take them with a 
grain of salt.)  However, industrial capacity utilization also 
fell to its lowest level since 1983.  The number itself (74.2%) 
isn't important, but it does go to show that huge capacity is 
meeting with little demand.  There is no pricing power, thus no 
inflation, and many think the Fed ought to be lowering rates 
still.  Flat to declining prices rule, which will make profits 
tough to grow organically.  That said, stock prices would have a 
hard time advancing in the long run if they remain at parody 
(oops, "parity") with earnings.

Other than a slightly down Preliminary Michigan Consumer Sentiment 
(from 93.0 to 90.9) mostly born of expectations rather than 
current conditions, Ken Lay taking the 5th, and Sharon Watkins 
Enron testimony helping Lay look like a Fastow/Skilling dupe, not 
much else to talk about.  And I'll bet you are glad about that!

Summary:  Finance and techs are weak.  Strength not likely to 
return soon.

So much for fundamentals and news.  Let's turn to technicals.  The 
battle cry in the previous week was to short every rally.  That 
turned into choppy but slightly up in the first four trading days 
of the past options expiration week.  What to expect this coming 
week?  Shall we take a peak at the charts?

[Note: U.S markets will be closed Monday in observation of a 
President's Day]

Dow Industrials weekly/daily (INDU):


Starting with the weekly Dow on the left, notice the tight candle 
range between roughly 9700-9900 with stray days of volatility 
displayed by the wicks.  The 5-period stochastic did manage to 
turn up, but not from oversold territory, indicating the move is 
suspiciously weak.  As noted earlier, low volume suggests the 
same.  The 10-period stochastic is still pointed down.

The daily chart however, appears to have reached the top of its 
game last week and is having a difficult time holding over 10,000.  
Points of resistance are plenty, which make bullish trading a bit 
dicey.  The first inflection point was 9712, which fell, became 
resistance for a short period of time, and now looks like it could 
act as support again.  Then there is the 50-dma (magenta line), 
currently 9925, which failed to hold as support.  Look for it to 
act as the first point of resistance.  After that, the upper 
Bollinger band (tagged and reversed by price action Thursday) at 
10,031 and the 200-dma (gray line) at 10,070 will be really tough 
to break without any volume to back it up.  If accounting and 
volume remain issues (bet on it), a break is extremely unlikely.  

Couple that with daily stochastic oscillators that now have 
entered overbought, and the next sustained move appears to be 
down, especially given the non-committal condition of the weekly 
chart.  Nothing says the Dow is going bullish this week.

However, there has been a great deal more strength in the cyclical 
index.  Take a look.

Cyclical Index weekly/daily (CYC.X):


Weekly oscillators are a bit stronger for the CYC than the Dow.  
However, note that it has nearly reached its declining top 
trendline, which could spell trouble for bulls at the 550-552 
level.  

The daily is a bit mixed as oscillators, including the upper 
Bollinger band, suggest these have topped out and are ready for a 
roll down.  Friday's final candle - that golf club looking thing - 
doesn't help the bullish cause.  Since the charts don't generally 
lie, there may be some downside action here too.  

However, my optimism is based on the candles giving very little 
back and continuing to find support for the last two days at the 
542 level.  Individual stocks like IP, DD, and X bucked the trend 
and made impressive gains on Friday despite the Dow's loss.

More optimism is based on the point and figure chart that reversed 
from a column of O's to a column of X's that has now exceeded the 
column of O's.  It already went green with one double-top 
breakout.  Risk/reward measures could take cyclicals bullishly to 
550 and perhaps another breakout at 555, while the downside 
support looks to be 535.  Thank Stockcharts.com for this one and 
see below:

PF chart on Cyclicals (CYC):


Some good strength here and pullbacks to 535 on the index makes 
individual hard resource issues - chemicals, steel, paper - look 
buyable.  Follow Eric and Jeff's comments in the Market Monitor 
next week, as I'll bet these show up bullish on many radar 
screens.

NASDAQ composite (COMPX) weekly/daily chart:


NASDAQ bulls. . .TOAST!  Declining trend line, rolling or already 
diving long-term stochastics, bullish divergence on the daily 
chart.  'Nuff said.  Bulls became steers long ago on the COMPX.  
Attractive short candidates will likely be had on any strength in 
the tech market, particularly among the walking dead telecom 
related companies.  Whirling knife blades - watch fingers!

S&P 500 (SPX) weekly/daily chart:


Sadly for bulls, wither the SPX too.  With so many financials and 
tech stocks included in the broad market, the bearish side looks 
to be more profitable in the coming week.  Evening star reversal 
on Thursday at the declining trend line with bearish divergence 
and rolling overbought stochastics on the daily chart favor bears.  
Weekly chart is already pointed down stochastically with 1100 
about to be mashed into the S&P cowcatcher and 1080 the next major 
support.  This along with the OEX make for great put opportunities 
on any strength.  

But watch the upper trend line to see if it holds at 1120.  A 
breakout while highly unlikely would send all above indicators the 
way of the Dodo and T-Rex - extinct.

Any clue from indicators of volatility, the VIX and VXN?  Not 
much.  The VIX is at 24.09 and possibly climbing based on oversold 
stochastic reversal.  The VXN is in the same boat.  Oscillators 
suggest they will climb, which would show investor favoritism 
toward puts and away from calls.  While it corroborates the coming 
bearishness in the air, it is no guarantee.

So for the coming week, all appearances are for bulls to buckle 
their seatbelts and bears to get honey pots at the ready.  Though 
it could always turn out different that's the way I see it in the 
charts this weekend.  

Fear not, be happy!  For this is the making of a profitable albeit 
short week, as long as we adhere to our charts, which objectively 
favor the bears.  Remember, no U.S. markets will be open Monday.  
Be well this President's Day extended weekend.  See you at the 
Tuesday morning bell!


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

Less Than One Week
Austin Passamonte

Last Friday afternoon saw the SPX bounce from an intraday low of 
1177 to close considerably higher. Monday followed thru in full 
rally fashion. Daily chart stochastic values began to emerge from 
oversold extreme and signaled a rally would continue.


(Weekly/Daily Charts: SPX)



But that didn't happen. Price action rose on Wednesday and maxed 
out Thursday before the afternoon slide began that ended at 
Friday's closing bell. Meanwhile, stochastic values ran the gamut 
from one extreme to the other via daily charts. What next? 1096 
area is a nearby floor that could be tested and from there we'd 
expect a visit to recent lows. No sign of upward strength at this 
point, and any further excuse will send index price action back 
down the hill.


(Weekly/Daily Charts: SOX)



The Sox is coiling into a lengthy wedge that promises to break 
soon. Meanwhile, price action sits on a 50% Fib retrace along with 
50 and 200 DMAs joining to offer strong arms below. If this 
support breaks it will become solid resistance instead.


(Weekly/Daily Charts: XBD)



One of the weakest sectors by far is the broker/dealers. A big 
breakdown on Friday looks to be merely a good start over here. I 
would avoid the long side of this at all costs and weak components 
should make excellent short candidates besides. Could easily shed 
another 50+ index points if Friday's close cannot hold, and daily 
chart stochastic values tell us it most assuredly won't!

Summation
Price action fell out of bed on Friday and never climbed near the 
covers again. I took 13 trades in round trip fashion to accomplish 
what only three of the right ones would have done: short, long and 
shoooorrrt was the order for that day. Next week ahead looks like 
a continuation of volatile markets with a distinct downside bias 
if daily charts roll bearish some more.

I'll enjoy a long weekend to recover from Friday's exhaustion and 
hope you do the same. Whatever happened to the times of position 
trading for days and weeks on end? Perhaps they are still here in 
front of us, and downside plays will likely be it. Trouble is the 
whole world is trying to short this market as well, and the crowd 
is seldom correct in a big way!

Should be interesting from here to say the least...

Best Trading Wishes,
austinp@OptionInvestor.com


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

Due to technical difficulties, there are no editor’s plays this 
week.


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

Fear Returns In The Same Form
By Eric Utley

Accounting woes resurfaced late last week, which brought an end
to the recent round of optimism.  Late Thursday, NVIDIA
(NASDAQ:NVDA) said that it was conducting an internal review.
And Friday morning, IBM (NYSE:IBM) fell under investor
scrutiny.  These accounting fears appear far from resolved as
even the most prestigious of American corporations, such as
Big Blue, are coming under suspicion.

The first wave of accounting fears primarily concerned
companies heavy in financing operations and those who are
acquisitive by nature.  Tyco (NYSE:TYC) and General Electric
(NYSE:GE) are good examples of the companies that bore the
brunt of the first wave.  Now those fears are spreading to
the likes of NVIDIA and IBM, which puts into question the
rest of the market.  The fears, whether founded or not, have
to be factored into a market thesis because perception is
reality in the marketplace.

The confidence crisis, which began with Enron, puts into
question the preliminary signs of bullishness we saw in
the bullish percent data last week, specifically in the
Nasdaq-100 Bullish Percent ($BPNDX).  

The Nasdaq-100 Bullish Percent reversed into Bull Alert from
its long-held Bear Confirmed stance.  That had me warming up
to the idea of being bullish on tech stocks, but unfortunately
the indicator can't be viewed in a vacuum and does not
discount investor psychology.  The indicator lost one stock
in Friday's sell-off, which was led by tech shares.  If we
see the indicator hold up in the face of continued weakness
early next week, then we might begin to draw some conclusions
about the internals of the Nasdaq, which could lead to a
strengthening of a bullish stance.  More to come next week...

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

Market Averages


DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     :  9903

Moving Averages:
(Simple)

 10-dma:  9804
 50-dma:  9926
200-dma: 10071



S&P 500 ($SPX)

52-week High: 1383
52-week Low :  945
Current     : 1104

Moving Averages:
(Simple)

 10-dma: 1100
 50-dma: 1134
200-dma: 1160



Nasdaq-100 ($NDX)

52-week High: 2771
52-week Low : 1089
Current     : 1437

Moving Averages:
(Simple)

 10-dma: 1459
 50-dma: 1579
200-dma: 1597



Defense ($DFI)

Defense stocks were the best performing group in last Friday's
session.  The $DFI finished 1.03 percent higher, far out pacing
the weakness in the broader market.

Leaders in the sector included Embraer Empresa (NYSE:ERJ),
higher by 6.06 percent, Northrup Gruman (NYSE:NOC), better by
5.01 percent, and Alliant Tech (NYSE:ATK), up by 3.82 percent.

52-week High: 594
52-week Low : 497
Current     : 589

Moving Averages:
(Simple)

 10-dma: 578
 50-dma: 540
200-dma: N/A


Networking ($NWX)

The deterioration of the networking sector continued last week,
led lower by the weakness in the telecom segment of the market.
The NWX finished lower by 4.24 percent.

Losers in the group included Symbol Tech (NYSE:SBL), shedding
28.75 percent, Riverstone Networks (NASDAQ:RSTN), lower by a
chunky 18.51 percent, and Tellabs (NASDAQ:TLAB), off by 7.53
percent.

52-week High: 707
52-week Low : 201
Current     : 254 

Moving Averages:
(Simple)

 10-dma: 272
 50-dma: 319
200-dma: 328

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

Market Volatility

Both volatility measures climbed in last Friday's session,
reversing the week-long slide.  However, with expiration of
February contracts, some of the spike in the VIX could've
been attributed to positioning into March contracts.  We'll
track the two closely next week.

CBOE Market Volatility Index (VIX) - 24.09 +1.20
Nasdaq-100 Volatility Index  (VXN) - 44.99 +2.77

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

          Put/Call Ratio  Call Volume   Put Volume
Total          1.15        730,639       840,499
Equity Only    1.08        642,312       693,379
OEX            1.13         38,543        43,511
QQQ            2.06         41,938        86,464
 
-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          52      + 0     Bull Alert
NASDAQ-100    38      - 1     Bull Alert
DOW           53      + 0     Bull Correction
S&P 500       58      + 0     Bull Correction
S&P 100       58      - 1     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  1.20
10-Day Arms Index  1.31
21-Day Arms Index  1.25
55-Day Arms Index  1.24

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      1546           1536
NASDAQ    1421           2053

        New Highs      New Lows
NYSE      122             64
NASDAQ     50             61

        Volume (in millions)
NYSE     1,358
NASDAQ   1,589

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

Commitments Of Traders Report: 02/12/02

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

Commercial traders grew more bearish last week with a net increase
in the group's bearish position by about 3,600 contracts.  Small
traders grew more bullish by shedding more shorts than longs.  The
group's net bullish position increased by about 3,000 contracts.

Commercials   Long      Short      Net     % Of OI 
01/29/02      345,583   401,923   (56,340)   (7.5%)
02/05/02      347,583   401,569   (53,986)   (7.2%)
02/12/02      355,276   412,868   (57,592)   (7.5%)

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
01/29/02      128,826     63,127   65,699     34.2%
02/05/02      128,235     64,404   63,831     33.1%
02/12/02      126,730     59,902   66,828     35.8%

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

Commercial traders shed a small number of shorts and added a
few longs for a decline in the group's net bearish stance.  Small
traders' actions resulted in a small decline in their net
bullish position.

Commercials   Long      Short      Net     % of OI 
01/29/02       31,577     33,651    (2,074)  (3.2%)
02/05/02       32,357     35,405    (3,048)  (4.5%)
02/12/02       32,712     34,841    (2,129)  (3.2%)

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
01/29/02        9,709     8,293     1,416      7.9%
02/05/02       10,416     8,173     2,243     12.1%
02/12/02        9,009     7,415     1,594      9.7% 

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 interests increased both long and short positions for
a net increase in the group's bullish position.  However, % of OI
dropped.  Small traders grew more bearish with an increase in
the group's net short position as well as % of OI.

Commercials   Long      Short      Net     % of OI
01/29/02       19,956    12,171    7,785     24.2%
02/05/02       21,868    12,068    9,800     28.9%
02/12/02       26,811    16,488   10,323     23.8% 

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
01/29/02        5,872     9,709    (3,837)   (24.6%)
02/05/02        5,764    10,528    (4,764)   (29.2%)
02/12/02        4,562    10,038    (5,476)   (37.5%) 

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

Crystal Ball
By Eric Utley

The market has an uncanny way of predicting the future.  It is,
after all, a forward-looking medium.  Good and bad news is
often priced in before the fact.  That's why stocks often defy
logic.  The market even has the ability to discount events
outside of the business world and in the realm of politics.

Three observations from last Friday's session caught my attention:
the rallies in bonds, defense, energy shares.  The combination
portends trouble.

Since the State of the Union address, the market has been on
alert for rising tensions in the Middle East.  There was a bid
in oil shares through most of last week that stemmed from the
potential for a disruption in supply from the Middle East.  The
defense stocks stand to benefit from increased military
activity.  Finally, bonds are a good place to park money during
times of conflict.

I think this complex, let's call it the "Axis of Evil Bid," is
worth monitoring into the next few weeks.  I'm not drawing
any conclusions just yet, but most certainly working the bid
into my market thesis.

The point and figure charts that appear in this column were
created using www.StockCharts.com.

Please send your questions and suggestions to:

Contact Support 

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

Harley Davidson (NYSE:HDI)

The fundamentals of HDI are reported to be deteriorating,
after hitting a 52-week high fairly recently.  What does the
technicals say? - Thanks, Dan

Thanks for the thoughtful question, Dan.

I worked at an oil refinery two summers while I was going to
school.  There were more than a few Harley riders at the
plant.  The brand was, and I believe still is, synonymous with
the hard working American.  The Harley represented more than
a motorcycle.  I remember a few of the guys at the refinery
were on two and three year waiting lists for the new model year.

I don't know if Harley's strategy was scarcity, thus raising
the price of its bikes, or if the scarcity was merely a product
of a supply/demand inefficiency, resulting from the essence that
is Harley, which was the appeal to the guys at the refinery.
Whichever the case, the stock has performed incredibly well over
the last five years; it's higher by more than 600 percent.

Short sellers have been jumping all over the stock up near
its all-time highs.  The reason behind the short activity is
due to the rising inventory levels.  What some short sellers have
spotted is rising inventory levels at dealers, which Harley
explains as positioning ahead of an economic rebound and in front
of its 100th anniversary bike.  I haven't researched the
company's inventory levels enough to give an intelligent
opinion, but I have heard that the waiting list for new Hogs is
not long, if existent at all.  The dealer I called here in Denver
seemed to have more than enough bikes in stock.

It's a risky bet for Harley to put a bunch of inventory onto
its dealers because if demand doesn't return, then the company
may run the risk of losing its image of scarcity.  From there,
I would think that the brand runs into danger of losing its
luster.

I don't know how the story is going to play out at Harley.
And I'm not going to guess.

The best I can give you, Dan, is the technical progression of
the stock.  What I find truly amazing is that Harley has
been trading better relative to the S&P 500 (SPX.X) since
early 1997.  In other words, Harley hasn't given a sell signal
on its relative strength chart versus the S&P 500 since
January of 1997.  The stock has been a picture of strength,
which is why I don't like the notion of shorting it right now.
A sell signal versus the S&P 500 might reveal the inflection
point if Harley's plan doesn't pan out and its business takes
a turn for the worse.  

The market can be as simple as buying strong stocks and
shorting weak stocks.  Right now, Harley is strong.  That
doesn't mean you should run out and buy it, but it does mean
that the risk in the stock is weighted to the upside.

HDI versus SPX.X - 1997



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

Countrywide Credit (NYSE:CCR)

What is your opinion on Countrywide Credit these days?  It's
on a quadruple bottom breakdown since it printed 38 and broke
below support...I'm thinking short below $37.94...Of course
I'm sure I've left something important out, what do you think? - 
Thanks, Michael

Very cool, intelligent question, Michael.

Credit quality is a concern among consumer finance firms.
That's because personal bankruptcies remain at relatively
high levels, although they are expected to ease this year.
Last year personal bankruptcies grew by 19 percent, while
they're expected to grow by about 15 percent this year.  The
deteriorating economic conditions and heavy debt burdens
have left many individuals with no alternative.  That has put
aggressive consumer lenders at risk.  Enter Countrywide.

The company is not a bank or a broker, so it's somewhat
difficult to make a comparison to broader gauges.  The company
is a specialty lender and that group as a whole has been
trading poorly.  Others in the group include Household
International (NYSE:HI), Americredit (NYSE:ACF), and some of
the credit card issuers such as Capital One (NYSE:COF).

CCR is trading poorly to relative the broader market (SPX.X),
which is one filter to either confirm or deny a bearish
stance.  The quadruple bottom that was broken about two weeks
ago, in my mind, increases bearish conviction.  

The bearish resistance line on the chart below would make for
an entry with quantifiable and manageable risk, while offering
good downside potential.

CCR - P&F



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

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

DA     Groupe Danone          Mon, Feb 18  11:30 am ET        N/A
NZT    Telecom New Zealand    Mon, Feb 18  Before the Bell    N/A

ANF    Abercrombie&Fitch      Tue, Feb 19  After the Bell    0.72
ADCT   ADC                    Tue, Feb 19  Before the Bell  -0.05
A      Agilent Technologies   Tue, Feb 19  After the Bell   -0.50
CEPH   Cephalon               Tue, Feb 19  After the Bell    0.14
KOF    Coca-Cola FEMSA,       Tue, Feb 19  Before the Bell   0.42
RE     Everest Reinsurance    Tue, Feb 19  After the Bell    0.75
FMX    FEMSA                  Tue, Feb 19  Before the Bell   0.82
FHCC   First Health Group     Tue, Feb 19  Before the Bell   0.26
GPC    Genuine Parts          Tue, Feb 19  -----N/A-----     0.51
IPCR   IPC Holdings           Tue, Feb 19  After the Bell    0.64
KG     King Pharmaceuticals   Tue, Feb 19  Before the Bell   0.30
MDT    Medtronic              Tue, Feb 19  -----N/A-----     0.30
MTGNY  Modern Times Group     Tue, Feb 19  Before the Bell    N/A
OMC    Omnicom Group          Tue, Feb 19  Before the Bell   0.87
QGENF  QIAGEN                 Tue, Feb 19  -----N/A-----     0.07
SRCL   Stericycle             Tue, Feb 19  After the Bell    0.31
TLTOB  Tele2 AB               Tue, Feb 19  -----N/A-----      N/A
TMPW   TMP Worldwide          Tue, Feb 19  After the Bell    0.24
TRI    Triad Hospitals        Tue, Feb 19  Before the Bell   0.17
WMT    Wal-Mart               Tue, Feb 19  After the Bell    0.49
WTW    Weight Watchers Int’l  Tue, Feb 19  After the Bell    0.04
WTM    White Mntns Ins Grp    Tue, Feb 19  After the Bell     N/A
YRK    York International     Tue, Feb 19  -----N/A-----     0.61

AAP    Advance Auto Parts     Wed, Feb 20  -----N/A-----     0.03
AOG    Alberta Energy         Wed, Feb 20  Before the Bell   0.13
ALD    Allied Capital         Wed, Feb 20  Before the Bell   0.45
AIB    Allied Irish Banks     Wed, Feb 20  -----N/A-----      N/A
ARW    Arrow Electronics      Wed, Feb 20  -----N/A-----    -0.03
BFb    Brown-Forman           Wed, Feb 20  Before the Bell   0.81
CYH    Community Health Sys   Wed, Feb 20  After the Bell    0.16
DCX    DaimlerChrysler        Wed, Feb 20  -----N/A-----     0.37
DCI    Donaldson              Wed, Feb 20  After the Bell    0.45
ASR    Grupo Aero Del Sureste Wed, Feb 20  -----N/A-----     0.12
HIW    Highwoods Properties   Wed, Feb 20  After the Bell    0.95
IIT    Indonesian Satellite   Wed, Feb 20  Before the Bell    N/A
JS     Jefferson Smurfit      Wed, Feb 20  -----N/A-----     0.64
MCCC   Mediacom               Wed, Feb 20  Before the Bell  -0.50
PCX    PanCanadian Energy Co  Wed, Feb 20  Before the Bell    N/A
PDCO   Patterson Dental       Wed, Feb 20  Before the Bell   0.36
PRS    Pure Resources, Inc.   Wed, Feb 20  -----N/A-----    -0.13
SNPS   Synopsys               Wed, Feb 20  After the Bell    0.26
TKP    Technip-Coflexip       Wed, Feb 20  After the Bell     N/A
TK     Teekay Shipping        Wed, Feb 20  -----N/A-----     0.84
WPPGY  WPP Group PLC          Wed, Feb 20  Before the Bell   1.07
XTO    XTO Energy             Wed, Feb 20  Before the Bell   0.40

AET    Aetna                  Thu, Feb 21  Before the Bell  -0.41
ADSK   Autodesk               Thu, Feb 21  -----N/A-----     0.55
BEAS   BEA Systems            Thu, Feb 21  After the Bell    0.07
BRG    BG Group               Thu, Feb 21  Before the Bell    N/A
BVF    Biovail Corporation    Thu, Feb 21  Before the Bell   0.43
CBRL   CBRL Group             Thu, Feb 21  During the Market 0.35
CIEN   CIENA                  Thu, Feb 21  Before the Bell  -0.20
CKC    Collins&Aikman         Thu, Feb 21  -----N/A-----    -0.10
CNC    Conseco                Thu, Feb 21  Before the Bell   0.14
CXR    Cox Radio              Thu, Feb 21  Before the Bell   0.03
CEI    Crescent R Est Eq Co   Thu, Feb 21  Before the Bell   0.50
DEG    Delhaize Group         Thu, Feb 21  Before the Bell    N/A
DEO    Diageo PLC ADS         Thu, Feb 21  -----N/A-----      N/A
ENL    Elsevier NV ADS        Thu, Feb 21  -----N/A-----      N/A
HAN    Hanson PLC             Thu, Feb 21  -----N/A-----      N/A
HCC    HCC Insurance Holdings Thu, Feb 21  After the Bell    0.38
JDEC   J.D. Edwards           Thu, Feb 21  -----N/A-----    -0.01
JCP    JC Penney              Thu, Feb 21  Before the Bell   0.30
LIZ    Liz Claiborne          Thu, Feb 21  Before the Bell   0.48
CLI    Mack Cali Realty       Thu, Feb 21  Before the Bell   0.92
MC     Matsushita Electric    Thu, Feb 21  Before the Bell    N/A
NXTL   Nextel Communications  Thu, Feb 21  Before the Bell  -0.45
JWN    Nordstrom              Thu, Feb 21  After the Bell    0.31
PCG    PG&E                   Thu, Feb 21  -----N/A-----     0.62
PWG    PowerGen plc           Thu, Feb 21  Before the Bell    N/A
PHCC   Priority Healthcare    Thu, Feb 21  Before the Bell   0.18
ROIA   Radio One              Thu, Feb 21  -----N/A-----    -0.21
RSH    Radio Shack Corp       Thu, Feb 21  Before the Bell   0.66
RUK    Reed International     Thu, Feb 21  -----N/A-----      N/A
ROP    Roper Industries       Thu, Feb 21  After the Bell    0.46
SCRI   SICOR                  Thu, Feb 21  Before the Bell   0.17
TD     Toronto Dominion Bank  Thu, Feb 21  -----N/A-----      N/A
TP     TPG NV                 Thu, Feb 21  -----N/A-----     0.33
UBB    Unibanco               Thu, Feb 21  -----N/A-----     0.67
VCI    Valassis               Thu, Feb 21  Before the Bell   0.51
WRE    WA Rl Est Invst Trst   Thu, Feb 21  After the Bell    0.51
WGR    Western Gas Resources  Thu, Feb 21  Before the Bell   0.29
WIND   Wind River Systems     Thu, Feb 21  After the Bell   -0.01

AKZOY  Akzo Nobel ADR         Fri, Feb 22  Before the Bell    N/A
DDR    Developer Divers Rlty  Fri, Feb 22  Before the Bell   0.62
ETP    Enterprise Oil PLC     Fri, Feb 22  -----N/A-----      N/A
HSP    Hispanic Brodcstng Co  Fri, Feb 22  Before the Bell   0.05
PSS    Payless ShoeSources    Fri, Feb 22  Before the Bell   0.36
RG     Rogers Communications  Fri, Feb 22  Before the Bell    N/A
RCN    Rogers Wrls Comm Inc.  Fri, Feb 22  Before the Bell  -0.34
RY  Royal Bank of Canada      Fri, Feb 22  -----N/A-----     0.54

=================================================================
Upcoming Stock Splits Over the Next Two Weeks

Symbol  Company Name              Ratio    Payable     Executable

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
FINB    First India Corp          5:4      02/26       02/27
FBCI    Fidelity Bancorp          3:2      02/28       03/01
CCBN    Central Coast Bancorp     5:4      02/28       03/01
NJR     New Jersey Resources      3:2      03/01       03/04

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

Earnings continue to pour in but investor focus has soured as
accounting concerns are popping up in the likes of IBM while
more Enron exposure hits TV during the day.  The big economic
report this week is the CPI.  Don't forget that markets are
closed on Monday.


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

Monday, 02/18/02
None                    -- Markets Closed --

Tuesday, 02/19/02
Housing Starts (BB)      Jan  Forecast:  1.59M  Previous:   1.57M
Building Permits (BB)    Jan  Forecast:  1.60M  Previous:   1.65M

Wednesday, 02/20/02
CPI (BB)                 Jan  Forecast:   0.2%  Previous:   -0.2%
Core CPI (BB)            Jan  Forecast:   0.2%  Previous:    0.1%

Thursday, 02/21/02
Initial Claims (BB)    02/16  Forecast:    N/A  Previous:     N/A
Trade Balance (BB)       Dec  Forecast:-$28.5B  Previous: -$27.9B
Leading Indicators (DM)  Jan  Forecast:   0.6%  Previous:    1.2%
Philadelphia Fed (DM)    Feb  Forecast:   10.0  Precious:    14.7
Treasury Budget (AM)     Jan  Forecast: $52.0B  Previous:  $76.4B

Friday, 02/22/02
None

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


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The Option Investor Newsletter                   Sunday 02-17-2002
Sunday                                                      2 of 5


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* EASY screens for covered calls, spreads, and straddles
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* $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees.
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**********************
INDEX TRADER GAMEPLANS
**********************

IS Swing Trade Model: Saturday 2/16/2002
Selling Rallies Again?


News & Notes:
------------
Friday's action offered more put than call play entries for day 
traders looking for solid returns. I didn't play the downside 
enough as market action began with a quick plunge and posted lower 
session highs from there. Where does that leave us for the week 
ahead? As noted in the weekend Index Wrap, longer-term charts are 
getting pretty bearish. That is our cue to eye the downside once 
again, but when & from where?


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



The indexes are trading within a slightly adjusted channel versus 
the one that held for six weeks. Meanwhile, price action has 
coiled itself into a tightly-packed bullish wedge and suggests an 
upside breakout is next. But is it a call play setup? Expect a 
bounce from 556 or higher but 570 area will likely offer solid 
rejection of any upward attempt from here.


[60/30-Min Chart: SPX]



Same for the SPX. 1094 area offers "solid" support while 1120 area 
will almost assuredly turn any rally over right there. In each 
case there is tradable room to the upside but it could end in a 
hurry from there.

[60/30-Min Chart: QQQ]



The QQQ is sitting right on channel support and looks to break 
higher from current consolidation next week. But when price action 
reaches the top of that channel near 37.25 we can look out below!

Summation:
---------
The outlook is cloudy. I would play calls on any oversold bounce 
from depicted lines of support as a preference and probably on a 
clean break out of the wedges as a lesser choice. I would refuse 
to buy any large gap-up opens no matter what.

But expect call plays to wither quickly, and put plays will become 
our focus if price action reaches resistance and meets rejection 
there with chart signals turning bearish at the same time. We'll 
keep an eye on these levels of interaction and do our best to stay 
on the proper side when things get rolling!


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
Mar Calls: 37 (QQQ-CK)            Mar Calls: 99 (DJV-CA)  
Long: BREAK ABOVE                 Long: BREAK ABOVE 
Stop:                             Stop: 
                                

Feb Puts: 35 (QQQ-OI)             Feb Puts: 97 (DJV-OR) 
Long: BREAK BELOW                 Long: BREAK BELOW 
Stop:                             Stop: 


=====


         OEX                         SPX
Mar Calls: 570 (OEB-CN)           Mar Calls: 1125 (SPT-CE)
Long: BREAK ABOVE                 Long: BREAK ABOVE none
Stop:                             Stop: 


Mar Puts: 550 (OEB-OJ)            Mar Puts: 1075 (SPQ-OO)
Long: BREAK BELOW none            Long: BREAK BELOW none
Stop:                             Stop: 



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


IS Position Trade Model: Saturday 2/16/2002
Nearly Flat For Now


News & Notes:
------------
Friday's market dive went low enough to take out stops on most 
March calls but stayed high enough to negate any intrinsic gains 
on Feb put contracts. So goes the volatile chop!


Featured Plays:
--------------
None


Summation:
---------
We are flat for now with mixed to weak longer-term charts. Looks 
like the indexes are setting up for another trip down the ladder 
but remains to be seen from here. No high-odds setups tonight.


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:
----------------
None


Open Plays:
----------
QQQ                            SMH
March Calls: 36 (QQQ-CJ)       March Calls: 44 (SMH-CI) 
Long: BREAK ABOVE 36.25        Long: BREAK ABOVE 44.00
Entry: 2.10                    Entry: 2.15
Stop:  2.10 [hit 2.00]         Stop:  2.15 [hit]

BBH                            HHH
March Calls: 125 (GBZ-CE)      March Calls: 30 (HHH-CF)
Long: BREAK ABOVE 117.75       Long: BREAK ABOVE 31.00
Entry: 2.10                    Entry: 2.50
Stop:  2.10 [hit]              Stop:  2.50 [hit]

PPH                            OIH
March Calls: 95 (PPH-CS)       March Calls: 60 (OIH-CL)
Long: BREAK ABOVE 95.00        Long: BREAK ABOVE 56.75
Entry: 2.20                    Entry: 1.50
Stop:  2.20                    Stop:  1.50


Sector Share Trade Model: Saturday 2/16/2002
Faltering

News & Notes:
------------
Broad indexes and numerous sectors gave up ground on Friday. Be it 
due to option expiration or factors larger than that will not be 
known until Tuesday, but it's safe to say upward strength does not 
exist in current market action.


Featured Plays:
--------------
None


Summation:
---------
A number of our current longs tracked met their trailed stops on 
Friday and are out. Our nightly scan of the indexes and sectors 
show little in the way of clear entry points for buy & hold 
fashion. Intraday trades for a point or two real quick? Never a 
problem. Entries that will stick & stay for several sessions or 
longer? None exist tonight.


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:
----------------
None


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

Open Long Plays:
---------------
LONG
QQQ
Long: BREAK ABOVE 36.25
Stop: Break below 36.50 [hit]
Result: + 0.25

SMH
Long: BREAK ABOVE 44.00
Stop: Break below 45.00 [hit]
Result: +1.00

BHH
Long: BREAK ABOVE 3.80
Stop: Break below 3.80 [hit]
Result: Par

HHH
Long: BREAK ABOVE 31.00
Stop: Break below 30.25 [hit]
Result: - 0.75

IAH
Long: BREAK ABOVE 35.00
Stop: Break below 35.00 [hit]
Result: Par

TTH Telecom
Long: BREAK ABOVE 39.00
Stop: Break below 38.00 [hit]
Result: -1.00

OIH Oil Services
Long: BREAK ABOVE 56.75
Stop: Break below 58.00 *

MKH Market 2000+ Big Caps
Long: BREAK ABOVE 57.25
Stop: Break below 57.00 

IYH Healthcare
Long: BREAK ABOVE 59.75
Stop: Break below 60.00 

PPH Drugs
Long: BREAK ABOVE 94.75
Stop: Break below 96.00 [hit]
Result: +1.25

BBH Biotech
Long: BREAK ABOVE 117.75
Stop: Break below 120.00 [hit]
Result: +2.25

XLB Basic Technology
Long: BREAK ABOVE 22.00
Stop: Break below 21.50 


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

Please view this in COURIER 10 font for alignment
*************************************************

CALLS              Mon    Tue    Wed    Thr   Week

UPS      57.00    1.43  -0.08  -0.02   0.27   0.65  Still strong
ASYT     17.30    0.95  -0.29   0.78  -0.36   1.06  RS Improving
UNH      74.31   -0.03   1.16  -0.36  -0.67  -0.12  Consolidating
ESRX     51.71    3.08  -0.52  -0.61   0.43   1.66  Pausing
TRW      45.04    1.18  -0.16   0.94  -0.11   2.25  Solid bull
CTX      56.21   -0.04   1.28  -0.22   0.21   0.21  Near support
IBM     102.89    2.39  -0.85   1.50  -0.18  -2.12  Dropped, acct
SII      57.88    2.39  -0.78   1.04   0.78   3.32  Pause in trend
APA      51.03    1.17  -0.47   0.83   0.48   2.24  New, energy


PUTS

TLAB     12.03    0.69  -0.48   0.20  -0.52  -1.51  Poor fundies
A        27.50    0.76  -0.58   0.70   0.44   0.52  Dropped, EPS
KSS      68.50    1.69  -0.08   0.79   0.40   1.80  Rolled over
CHKP     29.80   -1.03  -1.25   0.38  -0.99  -3.97  Breakdown Fri.
GNSS     44.76    0.92  -3.31   0.34  -2.19  -4.48  Watch $43
SFA      22.10    0.99  -0.72   0.28  -0.35  -0.67  New, poor
GS       82.76    1.05  -1.35   1.08   0.53  -1.04  New, broken


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

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

APA - Apache $51.03 (+2.24 last week)

See details in play list




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

SFA – Scientific-Atlanta $22.10 -0.87 (-0.67 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
^^^^^

IBM $102.89 (-2.12) IBM unfortunately entered the spotlight early
Friday when fears surfaced over the way it had accounted for the
sale of one of its division to JDS Uniphase.  Reports suggested
that the accounting procedures allowed IBM to lower its
operating costs and boost its earnings report.  The fears
caused IBM to gap substantially lower early Friday, from where
the stock drifted lower into the weekend.  We're obviously
dropping coverage in the wake of the news.  Look for any
strength early next week to cut losses.


PUTS
^^^^

A $27.50 +0.20 (+1.52) Relative weakness in reverse is relative
strength and that is what A has been delivering all weak.  The
stock has been marching steadily higher, despite the fact that
the Networking sector (NWX.X) broke down again over the past 3
days and seems intent on retesting its September lows.  In the
face of that sector weakness, A continues to march towards
resistance a little bit at a time.  While we haven't broken
through any meaningful resistance levels, time is marching
along swiftly, and with A reporting earnings Tuesday after the
closing bell, it seems the prudent course of action is to exit
the play this weekend in favor of higher odds candidates.  


***********
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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The Option Investor Newsletter                   Sunday 02-17-2002
Sunday                                                      3 of 5


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GREAT TECHNOLOGY, LOW RATES

* EASY screens for covered calls, spreads, and straddles
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Note: Options involve risk. Risk disclosure:
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**************
NEW CALL PLAYS
**************

APA - Apache $51.03 (+2.24 last week)

Apache Corporation is an energy company that explores for,
develops and produces natural gas, crude oil and natural gas
liquids. In North America, Apache's exploration and production
interests are focused on the Gulf of Mexico, the Anadarko Basin,
the Permian Basin, the Gulf Coast and the Western Sedimentary
Basin of Canada. Outside of North America, Apache has exploration
and production interests offshore Western Australia and in Egypt,
and exploration interests in Poland and offshore The People's
Republic of China. 

Signs of improvement in the price of natural gas have been
showing up recently.  Oversupply and slacking demand pressured
prices through last year.  But that trend may be showing signs
of reversing.  Supply pressures appear to be easing in the
natural gas market.  Analysts are predicting another drop in
production this, on average by about 3%.  That drop in supply
combined with the possibility for an economic recovery could
have the price of the commodity firming.  Equities have been
firming in anticipation of such a development which leads us
to Apache.  The stock has formed a solid base over the last
eight months, which resembles an inverted head-and-shoulders.
It closed above its 200-dma late last week for two
consecutive days, which could reveal that the stock is under
institutional accumulation.  We're looking for the recent
trend to continue into next week's trading with help from the
broader energy sector.  Turn to the Oil Index (OIX.X) and
Natural Gas Index (XNG.X) for sector confirmation.  Look for
bounces on weakness from the 200-dma currently at $50.37, or
an advance past the $52 level on sector strength.  Our stop
is initially in place at $48.50.

BUY CALL MAR-50*APA-CJ OI=1033 at $2.75 SL=1.50 
BUY CALL MAR-55 APA-CK OI=   9 at $0.80 SL=0.25 
BUY CALL APR-50 APA-DJ OI=3445 at $3.90 SL=2.25 
BUY CALL APR-55 APA-DK OI=1711 at $1.50 SL=0.75 

Average Daily Volume = 1.14 mln



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

UPS - United Parcel Service $57.00 (+0.65 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 Thursday night that its Board of
Directors had approved the use of up to $1 billion for share
repurchases.  The news was welcomed by bulls who bid the stock
fractionally higher in last Friday's session.  Sure, it was only
a fractional gain the stock last Friday, but a gain of any
magnitude during such an ugly day should've been viewed with
encouragement.  With its slight advance last Friday, on healthy
volume no less, the stock edged back up to its resistance zone
around the $57 level.  We continue to believe that it's going
to take the participation of the broader market as well as the
Dow Jones Transports Average ($TRAN) to push UPS above its short
term resistance zone.  A breakout would be signaled with an
advance past the $58 level.  If the broader market and $TRAN
turn bullish next week, then look for UPS to work its way
out of the congestion zone around the $57 level.  An advance
past $57.50 might set up the stock for a breakout attempt.
Those looking for new entries into this play can continue to
look for pullbacks near support.  Use the 10-dma at $56.57 in
the short-term for support.

BUY CALL MAR-55*UPS-CK OI= 2599 at $2.30 SL=1.50 
BUY CALL MAR-60 UPS-CL OI= 4707 at $0.20 SL=0.00 
BUY CALL APR-55 UPS-DK OI=22277 at $2.90 SL=1.75 
BUY CALL APR-60 UPS-DL OI=17492 at $0.45 SL=0.00 

Average Daily Volume = 1.26 mln
 


ASYT - Asyst Technologies $17.30 (+1.06 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).

ASYT continues to trade very well broader to the relative market
as signaled by its relative strength in last Friday's session.
The stock finished only a penny lower for the day, which was in
contrast to the weakness seen in the broader averages.  The
semiconductor sector as a group also continues to hold up well
relative to the broader market.  But we can't stress enough the
need for strength in the markets if this play is going to be
successful.  It's becoming clear that ASYT leads to the upside
on positive days in the market, but without participation from
the rest of tech, the stock's upside will most likely be
limited.  Going into next week's trading, look for strength up
above the $18 level for possible exit points for those who
are holding positions from the dip early last week.  In terms of
new entry points, turn to pullbacks on market and sector related
weakness.  A light volume retreat to the 10-dma at $16.74 could
be used as an entry point, provided that the stock bounces from
that level.  Wait for confirmation from the Semiconductor Sector
Index (SOX.X) before gaming an entry on weakness.

BUY CALL MAR-15 QQY-CC OI=258 at $2.85 SL=1.50 
BUY CALL MAR-17*QQY-CY OI=453 at $0.90 SL=0.25
BUY CALL MAR-20 QQY-CD OI=374 at $0.25 SL=0.00
BUY CALL JUN-17 QQY-FY OI=146 at $2.40 SL=1.25 

Average Daily Volume = 371 K
 



SII - Smith Int'l $57.88 (+3.32 last week)

Smith International, Inc. is a worldwide supplier of products and
services to the oil and gas exploration and production industry,
the petrochemical industry and other industrial markets. The
Company provides a comprehensive line of technologically advanced
products and engineering services, including drilling and
completion fluid systems, solids-control equipment, waste
management services, three-cone and diamond drill bits, fishing
services, drilling tools, underreamers, casing exit and
multilateral systems, packers and liner hangers. 

Oil stocks finished fractionally higher as whole in last Friday's
session, capping off a strong week for the group.  The
continued strength in the energy sectors stems from fears over
heightened tensions in the Middle East between the United
States and Iraq and Iran.  In the futures market last Friday,
crude rose modestly to finish the week at $21.50 a barrel.
The strength in crude went against data released by the American
Petroleum Institute, who reported that inventories had been
rising in the last week.  The rally in energy stocks in the
face of the fundamental data reinforces the notion that the
move is being driven by fear and could lead to a sharp move
if military action is taken.  Separately, fears over asbestos
were dampened when a court issued a temporary restraining order
on claims against Haliburton.  That news may help to lift
some of the pressure of off the oil service group as a whole.
For its part, SII flirted around the unchanged line for most
of trading last Friday.  The stock remains technically strong
and last Friday's action was most likely a pause in the recent
trend.  Traders looking for new entries can watch for an
advance in the Oil Service (OSX.X) group next week and look
for SII to breakout above $59.  Such entries can be
accompanied with a tight stop below $57.30.  If the sector
pulls back next week, look for the stock to bounce from its
200-dma, which is reinforced by the 10-dma, around the $55
area.

BUY CALL MAR-55*SII-CK OI= 525 at $4.90 SL=3.75 
BUY CALL MAR-60 SII-CL OI= 414 at $2.25 SL=1.25 
BUY CALL APR-55 SII-DK OI=1706 at $6.20 SL=4.75 
BUY CALL APR-60 SII-DL OI=3731 at $3.70 SL=2.25 

Average Daily Volume = 1.14 mln
 

CTX – Centex Corporation $56.21 -1.02 (+0.21 last week)

The top home builder in the U.S., CTX operates in 20 states and
Washington DC, as well as in Latin America and the UK.  The
company builds almost 19,000 homes a hear with an average price
tag of $190,000 for both first-time and move-up buyers.  The
company has subsidiaries that offer home security systems and
pest-control services, as well as construction contracting for
hospital, school, office building and hotel projects.  Rounding
out the picture, CTX has interests in land development, mortgage
banking, commercial real estate, and construction supply
manufacturing.

Behold the mighty homebuilders.  One of the few sectors of the
economy that hasn't felt the bite of the current recession (no
matter what the government calls it, it is still a recession),
the housing sector has continued to fire on all cylinders over
the past year.  Nowhere is this more apparent than in the current
picture depicted by the DJ U.S. Home Construction index
($DJUSHB).  The index rallied off the September lows in fine
fashion, setting new all time highs in December before undergoing
a bit of necessary consolidation near the $300 level (the site of
its breakout).  Then in the last week of January, the DJUSHB took
off again, propelled by continued strong housing numbers,
breaking out above resistance near $323 and running up near $347.
Although there has been a bit of consolidation over the past
couple weeks, the index is still finding support at its 20-dma
($330) and appears ready to run towards its highs again.  CTX is
trading near its all-time highs and we're looking for the stock
to bounce from its ascending trendline near $55.50, providing us
with attractive entries to the long side.  With further support
coming in from the rising 50-dma ($55.33) and the February lows
just below $55, odds are favoring the bulls here.  Target new
entries on a renewed bounce from support, using the DJUSHB as
your guide to sector strength.  Our stop remains at $54.75, just
below the lows from a week ago.

BUY CALL MAR-55 CTX-CK OI=  22 at $3.70 SL=2.00
BUY CALL MAR-60*CTX-CL OI= 183 at $1.35 SL=0.75
BUY CALL APR-55 CTX-DK OI=1397 at $4.90 SL=3.00
BUY CALL APR-60 CTX-DL OI=  92 at $2.60 SL=1.25
BUY CALL APR-65 CTX-DM OI= 137 at $1.15 SL=0.50

Average Daily Volume = 844 K


ESRX – Express Scripts $51.71 -1.00 (+1.66 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.

While the consolidation continues, it isn't likely to do so for
long.  After its sharp run upwards a little over a week ago,
shares of ESRX have been trying to decide what to do next.  With
significant resistance just overhead at the $53.50 level, the
bulls haven't been able to make any headway.  And the bears
aren't having much success at eroding ESRX's price with the solid
strength in the Health Care sector (HMO.X).  Although the HMO has
pulled back from its attempt at a breakout over the $503 level,
there hasn't been a rush for the exits, as the index has drifted
lower, allowing the daily Stochastics to drop out of overbought
and give the bulls room to run.  Even with our bullish conviction
and the fact that ESRX belongs to a strong sector, we've got to
be careful not to give back our gains from last week.  We're
willing to take new entries on a decent bounce near the $51.50
level, but don't forget that is also the level of our stop.  If
it is violated on a closing basis, we'll be moving ESRX to the
drop list.  Let the market be your guide as to whether to play.
A volume-backed rebound from support with the HMO index likewise
strengthening will open the door for new entries.  Otherwise,
stand aside and look for a play that is demonstrating more
conviction.

BUY CALL MAR-50*XTQ-CJ OI=571 at $3.60 SL=1.75
BUY CALL MAR-55 XTQ-CK OI=628 at $0.90 SL=0.50
BUY CALL MAY-55 XTQ-EK OI=209 at $2.55 SL=1.25

Average Daily Volume = 1.35 mln


TRW – TRW Inc. $45.04 +0.40 (+2.25 last week)

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.

What do you do in an uncertain market?  Why, play defense of
course!  In this case, the Defense sector, which has been a
favorite of the bulls ever since America went to war against
terrorism.  The Defense Industry index (DFI.X) is relatively new,
but up sharply since the first of the year.  On Friday, it
actually broke out to a new all time high and looks like it
wants to keep on running.  Shares of TRW show a similar picture,
with the stock breaking out above $45 on Friday to its highest
closing price since the middle of 2000.  What we're seeing here
is money rotating into a sector of the economy that the government
is virtually guaranteeing will see solid spending increases over
the long term.  All we have to do is ride the wave until it
crests.  With TRW's daily Stochastics overbought and the stock
trading right near resistance, it wouldn't be at all surprising
to see a bit of a pullback before the stock continues higher.
Target an intraday dip and bounce in the vicinity of $44.50, or
even as low as $44.  We've been following the stock up with our
stop, and this weekend it rises to $43.75, just below Tuesday's
close.

BUY CALL MAR-45*TRW-CI OI= 89 at $1.60 SL=0.75
BUY CALL APR-45 TRW-DI OI=699 at $2.20 SL=1.00
BUY CALL JUL-50 TRW-GJ OI=293 at $1.65 SL=0.75

Average Daily Volume = 458 K


UNH – UnitedHealth Group $74.31 -0.22 (-0.12 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.

The waiting game continues, as Health Care related stocks
continue to show their relative immunity to market weakness.
Sure, the HMO index has pulled back a bit from its highs of just
over a week ago, but the decline looks like nothing more than
much-needed consolidation before the bulls take their next shot
at new yearly highs.  Shares of UNH are essentially trading
sideways after pushing through the $75 level last week.  In fact,
things were looking a bit dicey in the middle of the day on
Friday near the lows, but the bulls came through, lifting UNH to
close back above the $74 level.  It looks like targeting new
entries near the $73.50 area continues to be the way to play
this one.  UNH will eventually gather its strength and blast to
a new all-time high, and taking a position ahead of that event is
the way to profit from it.  Of course, taking profits when the
surge runs its course is also a part of the formula for success.
Keep a sharp eye on the HMO index, as renewed strength here will
likely presage the next breakout move in UNH.  Keep stops set at
$73.50.

BUY CALL MAR-75*UHB-CO OI=3368 at $1.60 SL=0.75
BUY CALL MAR-80 UHB-CP OI=3754 at $0.25 SL=0.00
BUY CALL JUN-75 UHB-FO OI= 547 at $5.00 SL=3.00
BUY CALL JUN-80 UHB-FP OI=1197 at $1.95 SL=1.00

Average Daily Volume = 1.54 mln



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

GS – Goldman Sachs Group $82.76 -2.35 (-1.04 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.

When you find a consistent performer, it just makes you want to
come back for more.  We've frequently pointed out that the
Financial stocks need to participate in any sort of rally that
is going to have staying power.  Well the Financials are NOT
heading higher.  In fact, they really had a rough go of things
on Friday, with Broker/Dealer index (XBD.X) taking it on the
chin to the tune of 4%.  This makes perfect sense too.  Trading
volumes are still low and there is almost zero investment
banking business to be had.  Sure there are some small IPOs
sprinkled here and there, but hardly enough to even recall some
of the heady times in 1999 and 2000.  No matter how you slice it,
the Brokers are in a bad way and the XBD is on its way to testing
the $465 support level over the near term.  Which brings us to
our new play, GS.  The home of everyone's favorite myopic market
forecaster, Abbey Joseph Cohen.  The stock has been stumbling
lower since early January, and we got a nice confirmation of the
fact the bears are in control last Thursday.  GS ran right up to
its 200-dma near $86 before reversing sharply lower.  While there
is some support in the $81-82 level, this appears likely to give
way over the near term, allowing the stock to trade down to the
$78 level, the site of its PnF bearish price target.  Adding to
our conviction is the fact that the daily Stochastics are just
rolling down out of overbought territory and volume is on the
rise.  Use intraday rallies near resistance (currently near the
20-dma) to gain a more favorable entry and set stops initially
at $86.50.

BUY PUT MAR-85 GS-OQ OI=8429 at $5.00 SL=3.00
BUY PUT MAR-80*GS-OP OI=2616 at $2.70 SL=1.25

Average Daily Volume = 3.03 mln


SFA – Scientific-Atlanta $22.10 -0.87 (-0.67 last week)

SFA provides its customers with broadband transmission networks,
digital interactive subscriber systems, content distribution
networks and worldwide customer service and support.  The
company has evolved from a manufacturer of electronic test
equipment for antennas and electronics to a producer of a wide
variety of products for the cable television industry, including
digital video, voice and data communication products.  SFA is
changing the way consumers interact with their televisions, and
is a supplier of transmission networks for broadband access to
the home, digital interactive subscriber systems for video, high
speed Internet and voice over IP (VoIP) networks.

It seems like it wasn't so long ago that all a company had to
do to ensure success was to list something to do with broadband
in the company's function.  That has changed significantly over
the past 2 years, and now any mention of broadband is an excuse
to sell the stock and ask questions later.  Witness the share
price of SFA, which is languishing its way lower near the $22
level.  That's a far cry from the hey-day of the tech mania that
saw SFA trading north of $90 per share.  After bottoming in
mid-September near the $16 level, SFA managed to work its way
higher, all the way to the $31 level before the bears swooped in
for another party in early December.  Since then the stock has
been building a nice neutral triangle that just broke last week
to the downside.  It is a bit tough to see on the candle chart,
but is crystal clear on the PnF chart.  With the bearish
breakdown, SFA is giving us a fresh bearish price target of $16.
With the stock's weakness relative to almost any measure of the
market you might choose and a fresh PnF sell signal, you'd think
we'd be done.  But we've got more.  The daily Stochastics are
just rolling over again, without even traveling above the halfway
mark -- confirmation of weakness.  Consider new entries on either
a failed rally attempt near $23, or possibly higher in the
vicinity of $24.  Momentum traders will want to watch for a drop
below Friday's lows ($21.50) on strong volume before initiating
new positions.  If playing the breakdown, be on the lookout for
buying support near $20.50, as this level halted the stock's
decline in both late October and then again in the middle of
December.  Our stop is initially in place at $25.

BUY PUT MAR-22 SFA-OX OI=1183 at $1.90 SL=1.00
BUY PUT MAR-20*SFA-OD OI=1626 at $0.85 SL=0.25
BUY PUT MAR-17 SFA-OW OI=1450 at $0.40 SL=0.00

Average Daily Volume = 2.29 mln



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

GREAT TECHNOLOGY, LOW RATES

* EASY screens for covered calls, spreads, and straddles
* FREE REAL-TIME quotes and custom option chains
* $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees.
* ZERO minimum deposit required to open an account
Visit: http://www.optionsxpress.com/marketing.asp?source=optinv1

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



**********
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 02-17-2002
Sunday                                                      4 of 5


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

GREAT TECHNOLOGY, LOW RATES

* EASY screens for covered calls, spreads, and straddles
* FREE REAL-TIME quotes and custom option chains
* $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees.
* ZERO minimum deposit required to open an account
Visit: http://www.optionsxpress.com/marketing.asp?source=optinv1

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


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

TLAB - Tellabs $12.03 (-1.51 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.

The latest trouble in telecom land surrounded Qwest
communications last week.  The company outlined capital
spending cuts, which is a theme we've been hearing over and
over again from the big telecom carriers.  With less money
floating around, that pinch will eventually find its way
down to the food chain to the component suppliers such as
Tellabs, which is what investors realized late last week.
The Networking Sector Index (NWX.X) and Telecom Sectors
(YLS.X and XTC.X) were among the worst performing industry
groups in last Friday's session, a trend that has been
repeating for most of this year.  For its part, TLAB finally
broke below its very short-term support and steadily
declined through Friday's session.  Hopefully readers
found acceptable entries in last Friday's session.  To the
downside, we're now turning our attention to potential
support levels.  Probably the best chance for support
exists at the $11 level in the very short-term.  Depending
on entries and risk tolerance, the $11 level may offer a
short-term exit point.  Below there, TLAB doesn't have
much support to speak of until its September lows, which
are down around the $9 area.  That level could be used as
a good intermediate-term downside target.  For new entries,
we have rollovers near resistance given the breakdown
late last week.  Look for resistance near $13.

BUY PUT MAR-15*TEQ-OC OI=2538 at $3.20 SL=1.75
BUY PUT MAR-12 TEQ-OV OI=1009 at $1.20 SL=0.50

Average Daily Volume = 5.60 mln




KSS - Kohls $68.50 (+1.80 last week)

Kohl's Corporation currently operates 354 family oriented,
specialty department stores that feature quality, national
brand merchandise priced to provide value to customers. The
Company's stores sell moderately priced apparel, shoes,
accessories and home products targeted to middle-income
customers shopping for their families and homes. Kohl's
stores have fewer departments than traditional, full-line
department stores, but offer customers dominant assortments
of merchandise displayed in complete selections of styles,
colors and sizes. 

Several negative developments pressured retail stocks in
last Friday's session.  Gap Stores saw its debt rating
downgraded to junk status.  While an isolated event, it did
spark some fears in the sector.  The prospect of rising
interest rates later this year may stem consumer spending
and borrowing, the two have been the driver behind the
recent move in retail stocks.  Finally, and probably most
importantly, the preliminary Michigan consumer sentiment
reading declined for the first time since last September.
The news sparked fears that the consumer may curb spending
habits.  The shift in sentiment sparked a pullback in retail
stocks across the board.  The RLX.X finished the day lower
than the S&P 500 in terms of percent, which was a positive
development for our KSS put play.  For its part, KSS
slightly out performed the RLX.X to the downside.  We're
obviously happy with the slight loss of relative strength
in the RLX.X and into KSS.  We'll be looking for that
trend to continue into next week's trading.  In the very
short-term, KSS may find support at its converged 10-dma
and 50-dma, which are currently in the zone between $67.50
and $68.50.  A breakdown below the 10-dma could usher in
the retest of recent lows that we've been targeting.  Use
the 10-dma as an action point and confirm weakness in the
RLX.X before entering KSS put plays into weakness.  Market
and sector strength could lead to additional entry
opportunities near resistance at $70.

BUY PUT MAR-70*KSS-ON OI= 591 at $3.50 SL=2.25
BUY PUT MAR-65 KSS-OM OI=1543 at $1.40 SL=0.75

Average Daily Volume = 1.78 mln


CHKP - Check Point Software $29.80 –1.08 (-3.97 last week)

Check Point provides Internet security.  The company provides
secure enterprise networking solutions that enable customers
to implement centralized policy-based management with enterprise-
wide distributed deployment.  Simply put, CHKP has benefited
from rising demand for its virtual private networks software
which lets remote workers, business allies and customers
securely access corporate computer networks.

As has been its pattern of late, the Software index (GSO.X)
rolled over at resistance and headed south again from a lower
high.  The GSO is in full roll right now, below all of its
moving averages, all of which are pointing down.  We're
definitely in bear country!  Enter CHKP, which has been
performing poorly (even relative to the GSO) over the past few
weeks.  The retracement levels left over from the fall rally
are working nicely as action points on the way down.  After
spending the better part of 3 weeks vacillating around the 50%
retracement ($34.50), that support level gave way for good,
allowing the stock to work down to its 62% level at $31.  It
didn't last very long as support, as the bears sliced through
that level as well as the $30 level on Friday.  While there is
some historical support down below, first at $27-28 and then
again near $26, CHKP appears destined to test its September
lows.  While trading the breakdown below current levels may be
profitable, it is not as likely to be successful as waiting for
an oversold rally to fail.  If trading the breakdown, enter on
a drop below $29.50, but make sure the GSO is continuing to
weaken, preferably with a breakdown under the $163.50 level.  If
waiting for the bounce before entering, look for attractive
entries to materialize as CHKP runs out of gas and rolls over
near the $31.50 or $32.50 resistance levels.  Ratchet stops down
to $32.75 this weekend.

BUY PUT MAR-30*KEQ-OF OI=2915 at $2.50 SL=1.25
BUY PUT MAR-25 KEQ-OE OI=2293 at $0.75 SL=0.25

Average Daily Volume = 8.57 mln


GNSS – Genesis Microchip $44.76 -0.24 (-4.48 last week)

Genesis Microchip designs, develops and markets integrated
circuits that receive and process digital video and graphic
images.  Its integrated circuits are typically located inside a
display device and process images for viewing on that display.
The company also supplies reference boards and designs that
incorporate its proprietary integrated circuits.  GNSS is
focused on developing and marketing image-processing solutions
and targets the flat-panel computer monitor and other potential
mass markets.

The bullish glow has definitely dimmed for shares of GNSS
since the rocket ride that propelled the stock higher throughout
2001.  Since early January, it seems like this stock is one of
the bears' favorites, as they have dutifully sold into every
rally attempt.  Perhaps it is related to comments out of the
analyst community that the stock has just about reached the
limits of its upward potential.  Whatever the case, it is clear
that supply is in control here, as the stock continues to be
pressured by its descending trendline (which just happens to
rest at $50).  The fact that the Semiconductor index (SOX.X) is
rolling over again is just adding conviction for our bearish
thesis, as sector weakness will further pressure a weak stock.
This isn't necessarily the kind of stock that is well suited to
playing the breakdowns, but fading the rallies has been working
very well for the past month.  The bulls haven't given up on this
one yet, and each time the stock reaches a meaningful level of
support, the jump in to try and support it.  They are eventually
overrun by the bears, and we want to time our entries with the
failure of the rallies.  We couldn't have scripted Friday's
action any better if we had tried.  Sure enough, GNSS dropped
sharply Friday morning only to rebound from its near-term
oversold condition in the afternoon session to end the last day
of expiration week only fractionally lower.  This looks like
the beginning of another oversold bounce (and possibly a rally
attempt), so we'll be looking to initiate new positions on a
rollover from resistance between $47.50-48.50.  For those that
decide to play a breakdown from current levels, be on the lookout
for a bounce from the vicinity of $41-42.  And make sure to keep
an eye on the SOX.  Renewed buying in that sector will make
things tougher on GNSS bears.  For now, we have a fairly wide
stop at $50.

BUY PUT MAR-45 QFE-OI OI= 710 at $4.60 SL=2.75
BUY PUT MAR-40 QFE-OH OI=1220 at $2.55 SL=1.25

Average Daily Volume = 3.10 mln



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*****
LEAPS
*****

Let The Valuation Compression Begin
By Mark Phillips
Contact Support

With all eyes on the continuing Enron hearings, it was rather
refreshing to see the market moving to the upside for most of
the week.  Granted, it was recovering from a near-term oversold
condition and was rather weak towards the end of this expiration
week, but it was encouraging nonetheless.  To me, the most
telling development all week was the earnings report from Nvidia
(NASDAQ:NVDA) Thursday night.  As expected, the company handily
beat estimates, but as has become the pattern of late, what was
said in the conference call was what commanded investors'
attention.  Apparently the SEC is looking into the company's
accounting practices, with a specific focus on the last quarter
of 2000 and the first 3 quarters of 2001.  NVDA got whacked to
the tune of 7.7% in Friday's trading session.  It was only a
matter of time before an otherwise pristine Tech stock got hit
with these issues and I don't expect them to be the last.  This
will be the lasting effect of the Enron/Anderson fiasco as
companies will be forced to be more forthright with their
investors.

I would personally be suspect of any company that uses Arthur
Anderson as their accountant.  While there may be nothing hidden
in any of these other companies, I subscribe to the cockroach
theory.  Where there is one (Enron), there are many.  For the
record, I don't think NVDA uses AA to do their books, but the
near-term problems for that company are a direct result of the
loosey-goosey accounting standards that have crept into so many
companies SOPs (Standard Operating Procedures) in the name of
always painting company performance in the best possible light.

Away from accounting issues, it was another rangebound week.
What?  Who would have thought?  (BIG GRIN)  We had another rally
off of major support and from an oversold condition, but at the
week's high, there we were at resistance again; Dow - 10K,
S&P500-1120 and NASDAQ COMP - 1875.  All the daily charts are
showing signs of weakness again, and while we may probe a bit
higher first, I expect the next directional move to be down.

Just about everything that is on my radar screen posted another
lower high before the end-of-week weakness, so I'm clearly not
enthusiastic about initiating a new batch of bullish plays.  Look
at the likes of International Business Machines (NYSE:IBM)
dropping to test the $102 level again on Friday morning with
daily Stochastics near overbought.  Our first possible entry
target is $100, but I don't want to nibble on new positions
there without the daily oscillator reversing from near the
oversold region.  And then there's Broadcom (NASDAQ:BRCM).  The
stock has made for a very nice short-term play to the downside
and I noticed on Friday that it is starting to drop below the
$36 level.  It looks like we could see our $31-32 target achieved
in the near future, and hopefully a bounce there will coincide
with the weekly Stochastics once again bottoming in oversold
territory.  In fact, I like the entry targets listed for all of
our Call plays, but remember to wait for the oscillators to
confirm a bounce at our respective targets.  When trading in a
rangebound market, we need to wait for everything to align in
our favor before pursuing new entry points, and while we are
getting close, bullish long-term entries will need to wait for
another week.

And my favorite long play on the Watch List has to be the Biotech
HOLDR (AMEX:BBH) that we listed last week.  After running up to
near term resistance, it is obediently pulling back towards
support.  If the daily Stochastics goes oversold about the same
time that the BBH is finding support near our entry target, I'll
be all over that one.  And that could materialize next week.

But with the weekly charts starting to show signs of bullish
strength, neither am I thrilled with new long-term Puts.  Along
those lines, look what has been happening with the Puts in our
Portfolio.  They just keep stubbornly working higher, in
defiance of both my read of the fundamental situation and my
technical observations.  General Motors (NYSE:GM) is working
its way through the $51-52 level and I'm really starting to get
nervous on this one.  The price action is looking rather healthy
from a bullish perspective, with a series of higher lows.  I'm
tightening our stop to $51.50 this weekend, as a move above the
last two daily highs will make me want to get out in a hurry.
For now there is a neutral wedge in place, with the top just
over $51 and the bottom near $48.50.  When GM breaks out of
that pattern, we'll know which way is the proper direction to
play, but right now I'm getting nervous that I'm on the wrong
side of the play.  

The same thing can be said about the position we took in Philip
Morris (NYSE:MO) last week.  In fact, I'm pulling the plug this
weekend.  Not only did the stock push through its recent highs
near $50, it also punctured its long-term descending trendline.
Once again, my readers were right in stating that I was
premature on this play.  Maybe I'm becoming the ultimate
contrarian indicator?  "Phillips says go short, I'm going
long!"

And I'm stunned by the action in some of the Retailers, chief
among them our failed put play on Jones Apparel (NYSE:JNY).
While the catalyst for the Retail sector (RLX.X) to continue to
trade well appears to be coming from the strength in the likes
of Walmart (NYSE:WMT), the specialty names have been trading
well too.  With our violated stop on JNY on Thursday, I've got
no choice but to pull the plug and chalk it up as a failed play.

I still like the downside play we have listed in Eastman Kodak
(NYSE:EK), but given the strength the stock has seen this week,
I'm in no hurry to take a position.  I've shifted our entry
target back to the $31-32 area where I originally had it, and
given the sharp reversal in the weekly Stochastics, am content
to wait for that long-term oscillator to top out in overbought
before taking a position.  Patience is a virtue and one I'm
trying desperately to exercise in this rangebound market.

I really don't see anything meaningful to read into the action
in the VIX of late.  While it is trading near the lower end of
its historical range, at 23 and change, it is neither a warning
for bulls or bears.  Back to the 29-30 range and I'll start to
drool over calls again, and south of 21-22 gets my bearish nature
fired up for long-term puts.  In the middle of its range, it is
difficult to make any sort of informed decision about which way
the herd is likely to jump next.  Add to that the normal noise
that surrounds the VIX near option expiration, and I'll wait
until middle of next week (at least) to draw any conclusions
from the VIX.

Likewise, the new play generator is idle for this week.  No new
entries to take off of the Watch List and the new plays I am
considering for the Watch List are not yet ready for publication.
Besides, there are plenty of Watch List plays to focus our
attention on for the time being.

And that about does it for this week.  On a side note, I'm sure
you've noticed my absence in the Market Monitor last week.  That
isn't likely to change next week either, as I struggle with
technical issues.  Just adding the entry window onto my system
makes it incredibly crash prone, and I've had to make the
decision to keep it idle.  A new DELL power machine is on its way
to me, and it is my sincere hope that it will slay the
instability dragons I've been dealing with over the past couple
weeks.  As long as delivery doesn't slip, I should be firing on
all cylinders again by the end of the month.

Have a great extended weekend and I'll see you in the Options
101 column on Wednesday where we'll be talking about one of my
favorite topics - Volatility.

Mark Phillips
mphillips@OptionInvestor.com



LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
None

Puts:
GM     01/10/02  '03 $ 50  VGN-MJ  $ 6.50  $ 5.70  -12.31%  $51.50
                 '04 $ 50  LGM-MJ  $ 8.40  $ 7.90  - 7.90%  $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  $31-32        JAN-2003 $ 30  VEK-MF
                               JAN-2004 $ 30  LEK-MF




New Portfolio Plays

None


New Watchlist Plays

None


Drops

JNY $34.97 So much for my expectations of a breakdown in the
Retail sector (RLX.X).  Each time the RLX has dropped it has
bounce back from a higher low, and we've seen the same behavior
from our bearish JNY play.  This week the RLX managed to top
the $950 level before pulling back on Friday, and that bullish
sentiment carried into JNY, allowing the stock to push through
our $35 stop on Tuesday and Wednesday, and I pulled the plug on
Wednesday, even though JNY closed fractionally below our stop.
While my fundamental bias tells me that this whole group (JNY
included) should trade down over the intermediate term, it is
clear that the market disagrees at this point in time.

MO $51.48 Too early to get in and perhaps too early to get out,
but I just don't like the price action in MO.  As you could tell
from my tepid writeup when we added the play last week, the
bullish action in the stock had me nervous, and rightly so.  MO
spent the entire week working higher, even in the midst of
weakness in the broad market on Friday.  While our stop at $51.50
hasn't been tripped yet, in looking at the long term trendline, I
saw that the stock moved above that level this week and shows no
sign of reversing over the near term.  I continue to think that
the stock should trade back into the low $40s in the weeks ahead,
but with the broken bearish trendline, I've lost too much of my
conviction to keep the play alive.  Those that have the play open
might want to wait for the next cycle down on the daily chart to
obtain a more favorable exit, but as for me, I'm pulling the plug
this weekend.


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

Anatomy Of A Day
Austin Passamonte

"I hope you summarize your trading action for today in the weekend 
newsletter. I think it would be very educational. [LW]"

I'm not so sure Friday's effort was anything to be proud of but it 
sure merits review by myself. Matter of fact, reviewing my choice 
of plays and why things went that way is a customary weekend 
exercise in personal growth. Care to join me for the film session? 
Pour yourself a drink and let's see what went right, wrong and 
things we need to do next time.

(Daily Chart: SPX)


"I am curious if someone there could find my nagging question if 
it is true any correlation, that is I do notice if we have an up 
month, option expiration seems to have up bias. Negative month and 
it seems to have a negative bias. I know that goes against what 
might be technical, but I swear it seems to always work that way, 
and then the week after tends to reverse for a few days... anyhow 
take care! [Mike P]"

There are many assumptions we bring into every trading session 
from the past that may help (or sometimes hinder) performance for 
the day. One of those being the trend, of course. As Mike pointed 
out the monthly trend (20 candles) was decidedly down. It has 
formed a semblance of expanding wedge consolidation bearish by 
nature. Thursday's high tried to take out that upper measure but 
could not, and index rolled over in the afternoon.

One pattern I've noticed for expiration week is that a bullish 
week tends to have a bullish trend on Friday and the opposite is 
also true. Considering Friday opened higher than Monday did, this 
upward trend was in place even after the dip on Thursday from 
session highs. So now what? Another pattern I've noticed in the 
past is for expiration Friday to close market direction opposite 
its open. In other words a strong pop higher usually results in a 
series of lower highs through the day that ends up selling into 
the close. A strong push lower often results in higher lows being 
posted until shorts squeeze into the close.

One thing we know for sure: most expiration Fridays have a sudden 
move in the morning that soon counters in reversal, and another 
strong move from 3:00pm into the closing bell. The period in 
between can be quite flat under normal circumstance whatever the 
heck that is. So our prime opportunities to trade are in the first 
and last hours of this day.

(60/30 Min Chart: OEX)


Sticking with the S&P theme here, we noted on Thursday night via 
Index Wrap that the intraday charts for indexes showed signs of a 
possible early drop but chart signals were nearing oversold zones. 
Look for an early drop of small distance and quick bounce from 
there as a likely scenario.

To sum up our market posture Friday morning into the open, we new 
the Feb expiration month was bearish but this week was bullish, 
based on raw values or relative highs and lows. We also knew the 
VIX was low and near bearish territory but nowhere near screaming 
reversal readings. We knew IBM would shock price action at the 
open, which could be the expected down move to send all intraday 
charts oversold. We also knew that Thursday was actually a bearish 
finish of that session when the rally failed in typical bear 
market fashion.

Armed with this knowledge to filter trades, what should we do?

(10-Min Chart: S&P 500)


Let's begin with what should have been done. The opening ticks 
went up and immediately turned red, an expectation we had since 
IBM would drop the Dow and both S&Ps. Put option prices already 
reflected this drop as they are priced via S&P futures pricing and 
that market was trading 1116.00 at the open. Entry #1 (blue) shows 
where the futures market first broke. We watch this market because 
it leads the cash market price action and we need to be early in 
our entry/exit attempts on expiration days.

Now, anyone who simply went short in whatever manner right from 
the open caught that first draft down from roughly 1116.00 to 
1106.00 cash market values. Remember, OEX options are valued at 
where the S&P 500 futures market is trading at the time, not where 
we see OEX price levels noted on cash charts. The futures went 
down in a hurry along with cash markets as put option price values 
exploded.

The challenge with option trading on expiration morning is speed 
in which the price action moves. Many times a play will swell 
+100% to +400% in value within five or ten minutes only to 
immediately reverse and wipe out all gains. This shocks the new 
trader and usually causes them to freeze. Heck, even we old timers 
in this fast game pull triggers too late ourselves!

So play #1 was lucrative but fleeting. Those who missed the action 
as it fell straight down were indeed prepared to buy any dip that 
sends 60/30 min charts to oversold extreme, right? That was part 
of the plan. So we went long right at the morning bottom and rode 
the upside move higher.

Call options bought then swelled in value a bit more than +100%, 
but they too died an early death. Entry #2 showed where price 
action pinned for some time on both sides of the pink line. When 
stochastic values rolled bearish from overbought extreme while 
price action was at a lower relative high for the session, this is 
very bearish. That on its face is enough to cover longs and/or get 
short.

Confounding the problem though is our intraday trend charts. All 
60/30 min chart signals were rising in bullish fashion up from 
oversold extreme and warning us to play the upside. We all see 
this 10-min chart right now in hindsight, but going short near 
1108 could have easily hit a higher low or double bottom, turned 
tail and soared far into the green ahead. Who knew? Nobody. Not a 
single soul on earth knew but aggressive traders could get short, 
take their chances to the downside and exit in a flash if things 
turned on them.

As it was, selling every rally attempt was the right approach and 
those who did so or merely got trapped holding puts from the early 
gyration fared well. I now wish I'd done exactly that instead of 
taking another route that was quite grueling, far less fun  ended 
the day in black.

(5-Min Chart: S&P 500)


Instead of selling every top like I should have I played the green 
entries instead. I bought every dip expecting a reversal into the 
close from the open, a pattern that often occurs. The second long 
play entry was indeed at a higher low than first, which seemed to 
confirm early suspicions. I kept getting long on every oversold 
bounce and managed to scrape out modest gains or stopped out right 
near entry for par.

This went on until the last long play attempt fizzled near 3:00pm 
and it was clearly evident that downside strength prevailed that 
day. I stopped out my long play for a tiny gain and immediately 
switched to the short side with a tad more capital than played the 
upside with. Inwardly I feared that selling this move would be the 
one time market action reversed and soared to the upside now that 
I finally switched sides. Has that counter-market move ever bit 
you both ways in a day? Those who have suffered the same know from 
whence that fear of mine came.

But this time the markets rolled over in a hurry and I was short 
from 1108 to 1104 on the most capital in play for the day. That 
turned out quite well indeed. The first long-play entry and the 
final short play entry fared very well and the rest made a bit or 
lost less. How many other trades were there? I'm sorry to say it 
was thirteen round trips in all. Some plays were options and some 
weren't, but the crux of this example is I was out of synch with 
the intraday trend.

Friday's session only needed two to four entries at the most to 
capture plenty of profit. I worked my butt off fighting the proper 
direction and made about half the gains I should have over three 
times the needed activity. Had those 60/30 min charts been bearish 
all day, I'd have sold every rally that failed and ended the day 
refreshed, energized and exhilarated. Instead I fought the market 
and its mixed charts, earned favorable returns but limped away 
from the chair sweaty, exhausted and ready to collapse on the 
couch. 

I hope this lesson helps prove several things. No one is on the 
right side of market action every time, especially me. When we 
find ourselves riding the proper waves it's easy to prosper. When 
we find ourselves bucking the waves it's easy to lose. A key to 
long-term success is surviving or profiting when we're wrong. It 
is never too late to get flat, reassess the market and play the 
other direction without a second thought.

Short-term traders can indeed make money bucking the trend but it 
won't be easy, is terribly hard work and pays far less than 
catching the trend. Those who look at charts in hindsight while 
preparing themselves for action can be lulled into a false sense 
of security on how "easy" trading any time frame is. I drew these 
charts this morning after a good night's sleep and see all the 
entries that should have been taken. But under live fire with the 
trusted tools I had to work with my picture was quite cloudy 
indeed. 

Some days we make all the right reads, all the right moves. 
Trading is easy and money flows in. Some days we make the wrong 
reads and struggle to find the flow. What happens then? If we can 
manage to keep losses nil or even make money in the process I 
think that's one vital key to long-term success. Surviving the 
poor outings in between glory days keeps the equity curve pointed 
north. I'll review what I did on Friday versus what should have 
been done and keep that snapshot in mind's eye for next time. The 
best part about our profession is that the next opening bell is 
always right around the corner!

Hope This Helps,
austinp@OptionInvestor.com




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

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* FREE REAL-TIME quotes and custom option chains
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The Option Investor Newsletter                   Sunday 02-17-2002
Sunday                                                      5 of 5


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GREAT TECHNOLOGY, LOW RATES

* EASY screens for covered calls, spreads, and straddles
* FREE REAL-TIME quotes and custom option chains
* $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees.
* ZERO minimum deposit required to open an account
Visit: http://www.optionsxpress.com/marketing.asp?source=optinv1

Note: Options involve risk. Risk disclosure:
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**************************************************************

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

Trading 101: Option Pricing and Position Management
By Mark Wnetrzak

This week's discussion includes a question from one of our new
readers about option premiums and some excellent suggestions for
position management with covered-calls.


Dear OIN,

This is related to covered calls.  (I am not looking for advice on
a trade.)  Using PHSY as an example in a covered-call scenario.
Say you sold Feb. 20's on stock you owned.  The option expires
this Friday (let me know if I wrong here).  The bid/ask is still
.70/.90 for a stock that is trading approx. $1 below the strike
price with now 4 days to expiration.  Does this seem normal?  I
am trying to figure out if it because of a possible overreaction
to the news out today?  

I have been paper-trading covered-calls...thinking of using the
strategy if I can achieve approx 5% a month.  I first need to
have a better understanding of the downside; cutting losses.  In
general, I am looking for advice I setting the stops: closing out
covered-calls to minimize losses.  I am sure that every play will
have its own scenario but in this case a stop at $20 on the stock
looks like it would have got you out of the stock near $20.  In
theory, would you buy back the calls this close to expiration and
move on to the next position or let it play out with some type of
order to purchase the stock back if it recovers from the bad news?
In any covered call play, is it recommended to buy back the calls
if the stock hits the stop that's been set.  Would you set a stop
on the sold call (limit order) and what would determine its price?
(A percentage change in call price?)

I would like to learn more than the information on covered-calls
and stops...could you recommend a good book on this topic?

Thanks,

RZ


Concerning option pricing and position management:

One aspect of option pricing is "volatility."  PHSY recently made
some rather radical (news-related) moves in each direction, causing
a further rise in volatility, which would inflate the option price
and counter, to some degree, "time" decay.  Usually this effect is
resolved quickly, once the "market's" reaction to the news is known.

"Stop-loss" strategies protect investors from an excessive drain on
their capital by making a quick exit from a losing position when a
sell signal is triggered.  This could be a percentage (5%, 10%, ??%)
decline in position value or overall capital, a technical violation
in the stock chart, or simply a move to the break-even point.  This
is not dependent on expiration but rather a mechanical (or mental)
signal that one follows as soon as it is hit.  Remember, stop-loss
strategies are not a "perfect" solution and generally won't protect
for a catastrophic drop in the stock price, especially after the
close and before the open of trading.  There are other alternatives
too, such as adjusting a covered-write position by rolling forward
and/or down, as described in McMillan's book (mentioned below).

The following is a letter I received this week from a reader on the
subject of position management with covered-calls.  Remember, this
method works for S7: You need to find a method that works for you
and fits your personal risk-reward tolerance.

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

Mark,

  I notice many readers ask how much they should lose on a covered
write play and the answer is usually in percentage and psychological
terms.  My method is easier.  The cost basis for each play is listed
in OIN.  This is equivalent to "break even."  I simply place a stop
loss order at the cost basis and a "buy to close" (order) on the
option contingent on that price.  No muss no fuss.  Since the cost
basis is usually about 15%-20% below the original cost of the stock,
it's a pretty good bet that if it sinks that low, it's time to go.
This results in little or no loss and easy management.  It's also
important to figure your profit going in.  Is it worth risking $250
to make $500?  I think not.  OIN's plays have a terrific average and
I rarely lose overall.  (I do this on OptionsXpress, which has the
best covered-write screens I've seen.)

S7

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

The following books are well worth reading:

Options: As A Strategic Investment, by Lawrence McMillan.  The 
book gives a basic overview of options; chapter 2 is devoted to
the Covered-Write strategy; and the rest of the book covers almost
every conceivable option-trading strategy.
 
Secrets for Profiting in Bull and Bear Markets, by Stan Weinstein.
I like his simplistic approach to technical analysis as he defines
the four stages of a stock's share price activity.
    
Trading for a Living, by Dr. Alexander Elder.  This book covers the
psychology of trading and has some useful insights on why people
stay in losing position. However, it is geared towards day-trading.

It is very important to learn everything you can about a strategy
before you try to use it, because knowledge is "financial power."

Good Luck!


A personal note to S7:  Thanks for your E-mail.  You outlined an
excellent way to employ mechanical stops - the "no muss no fuss"
exit strategy.  Regardless of which method an investor uses, the
key to financial success is to find a method that "successfully"
limits their downside damage.  Mechanical stops work well most of
the time - a lesson you have learned!  I also like the way you
evaluate the reward potential verses the risk before entering a
trade - sound money management.

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

CYMI   37.22  38.45   FEB  35.00  3.50  *$  1.28   8.2%
UCOMA   5.50   4.83   FEB   5.00  1.00   $  0.33   8.0%
TSTN    5.19   4.89   FEB   5.00  0.55   $  0.25   7.8%
MONE   14.01  13.73   FEB  12.50  2.25  *$  0.74   6.8%
MONE   14.83  13.73   FEB  12.50  3.20  *$  0.87   6.5%
ELON   16.73  19.54   FEB  15.00  2.40  *$  0.67   5.1%
PLCE   32.00  32.28   FEB  30.00  2.90  *$  0.90   4.5%
ELON   19.50  19.54   FEB  17.50  2.50  *$  0.50   4.3%
PWAV   18.15  16.16   FEB  15.00  3.70  *$  0.55   4.1%
CECO   37.07  35.39   FEB  35.00  2.70  *$  0.63   4.0%
AMZN   14.44  13.41   FEB  12.50  2.25  *$  0.31   3.7%
RATL   23.92  21.32   FEB  22.50  2.35   $ -0.25   0.0%
PLUG   10.58   8.88   FEB  10.00  1.40   $ -0.30   0.0%
FCEL   18.08  16.31   FEB  17.50  1.25   $ -0.52   0.0%
RBAK    6.20   4.05   FEB   5.00  1.55   $ -0.60   0.0%
CLRS    5.60   3.96   FEB   5.00  0.95   $ -0.69   0.0%
RNWK    8.13   5.32   FEB   7.50  1.30   $ -1.51   0.0%
ADIC   18.32  12.85   FEB  17.50  1.70   $ -3.77   0.0%

MDR    12.36  13.93   MAR  10.00  3.40  *$  1.04  10.1%
AVII   10.50  11.22   MAR  10.00  1.45  *$  0.95   9.1%
INRG   13.65  13.17   MAR  12.50  2.00  *$  0.85   6.3%
XMSR   13.98  12.75   MAR  12.50  2.25  *$  0.77   5.7%
PECS   28.55  25.85   MAR  25.00  5.00  *$  1.45   5.4%
DCTM   20.39  19.16   MAR  17.50  3.90  *$  1.01   5.3%
VPHM   19.50  19.05   MAR  17.50  3.00  *$  1.00   5.3%
PKTR    7.69   6.42   MAR   7.50  0.85   $ -0.42   0.0%


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

Comments:

The near-term market outlook continues to be bearish as the
"questionable accounting" virus appears to be spreading, while
the long-term outlook seems neutral at best.  Hey, after the
Great Bull run of the '50s, the Dow Jones Industrials traded
relatively flat for almost 20 years.  The rally which started
last Friday offered ample opportunity to exit positions that
had reversed their previously bullish trends.  For Advanced
Digital (NASDAQ:ADIC), the final straw was Thursday's earnings
report and the position offered a great example of how to use
technical violations as an exit signal.  The play was listed
January 13: the stock violated its 30-dma on January 22; its
50-dma on February 4; and its 150-dma on February 5.  Hoping
for an earnings rally or a final move through the support area
near $14.50 proved costly.  As for the March positions, last
week's oil sector candidate, McDermott International (NYSE:MDR)
was unplayable due to Monday's gap-up open, and the play will
be removed from the summary list.  Keep a close watch on the
above issues as they test near-term support.  With the general
market malaise, a move lower could be forthcoming.

Positions Closed: Riverstone Networks (NASDAQ:RSTN), Bruker
Daltonics (NASDAQ:BDAL), ADC Telecommunications (NASDAQ:ADCT),
Sycamore Networks (NASDAQ:SCMR), Acacia Research (NASDAQ:ACRI),
priceline.com Inc. (NASDAQ:PCLN), Network Associates (NYSE:NET),
Webmethods (NASDAQ:WEBM), Storagenetworks (NASDAQ:STOR) and
E.piphany (NASDAQ:EPNY).


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   11.22  MAR 10.00   QVI CB  1.70 169    9.52   27    5.7%
BSML    5.22  MAR  5.00   BQX CA  0.65 30     4.57   27   10.6%
CANI    5.93  MAR  5.00   CDU CA  1.20 31     4.73   27    6.4%
HAL    16.27  MAR 15.00   HAL CC  1.85 8739  14.42   27    4.5%
IMCL   18.44  MAR 12.50   QCI CV  6.60 15    11.84   27    6.3%
OSIS   22.82  MAR 20.00   UOJ CD  3.80 122   19.02   27    5.8%
UTHR   11.20  MAR 10.00   FUH CZ  1.70 539    9.50   27    5.9%

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

BSML    5.22  MAR  5.00   BQX CA  0.65 30     4.57   27   10.6%
CANI    5.93  MAR  5.00   CDU CA  1.20 31     4.73   27    6.4%
IMCL   18.44  MAR 12.50   QCI CV  6.60 15    11.84   27    6.3%
UTHR   11.20  MAR 10.00   FUH CZ  1.70 539    9.50   27    5.9%
OSIS   22.82  MAR 20.00   UOJ CD  3.80 122   19.02   27    5.8%
AVII   11.22  MAR 10.00   QVI CB  1.70 169    9.52   27    5.7%
HAL    16.27  MAR 15.00   HAL CC  1.85 8739  14.42   27    4.5%


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  $11.22  *** 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 NEUGENE® antisense drugs.  This week, 
AVII announced the licensing of a patent regarding Calicivirus 
Infections.  AVII previously published data indicating that 
their proprietary 3rd-generation NEUGENE® antisense agents 
targeting calicivirus had successfully reduced viral infection,
viral replication and cell death in cells from two species.  
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=1.70 OI=169 CB=9.52 DE=27 TY=5.7%


*****
BSML - BriteSmile  $5.22  *** Bracing For A Rally? ***

BriteSmile (NASDAQ:BSML) develops, produces, sells and leases 
teeth whitening products, services and technology.  BriteSmile's
operations include the development of technologically advanced 
teeth whitening processes that are distributed in professional 
salon-like settings known as BriteSmile Professional Teeth White-
ning Centers, and in existing dental offices known as BriteSmile
Professional Teeth Whitening Associated Centers.  The company 
also sells BriteSmile brand post-whitening maintenance products,
including toothpaste and electric toothbrushes.  The Forsyth 
study recently presented at the IADR conference found that the
average BriteSmile patient received eight+ shades of whitening
in one hour, 50% more effective when compared to the "curing 
light" procedure, which produced approximately five shades in
the same amount of time.  Not much news though there are plenty
of commercials on TV.  We simply favor the improving technicals
and the long-term support near the cost basis.  The company is
due to report earnings on March 20.

MAR 5.00 BQX CA LB=0.65 OI=30 CB=4.57 DE=27 TY=10.6%


*****
CANI - Carreker  $5.93  *** Cheap Speculation! ***

Carreker (NASDAQ:CANI) is a provider of integrated consulting 
and software solutions that enable banks to identify and implement
e-finance solutions, increase their revenues, reduce their costs
and enhance their delivery of customer services.  The company's
offerings fall into four groups: Revenue Enhancement, which enable
banks to improve workflows, internal operational processes and 
customer pricing structures; PaymentSolutions, which address the 
needs of a critical function of banks, the processing of payments
made by one party to another; Enterprise Solutions, which provides
conversion, consolidation and integration consulting services and 
products on a bank-wide basis; and CashSolutions, which optimizes 
the inventory management of a bank's cash on hand.  CANI rallied
sharply on Friday after the company lifted its 4th-quarter earnings
guidance, citing revenues carried over from the previous quarter.
The company also said that it saw better-than-expected revenue from
its technology and revenue enhancement business units.  Carreker
has formed a 6-month Stage I base and this position offers a 
reasonable entry point for investors who have a bullish outlook
on the company.  Target shooting a lower "net-debit" (cost basis)
will enhance the potential yield as the stock may pull back next
week.

MAR 5.00 CDU CA LB=1.20 OI=31 CB=4.73 DE=27 TY=6.4%


*****
HAL - Halliburton  $16.27  *** Asbestos Claims Limit! ***

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.  On Friday, a judge delayed more than 200,000 pending
asbestos claims against a subsidiary, Dresser Industries.  UBS 
Warburg analyst James Stone said the judge's restraining order 
put Halliburton's most troublesome claims on hold.  He expressed 
confidence that the temporary order would be made permanent. 
Investors can speculate on the company's future with this low
risk position.

MAR 15.00 HAL CC LB=1.85 OI=8739 CB=14.42 DE=27 TY=4.5%


*****
IMCL - ImClone Systems  $18.44  *** Speculators Only! ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company that
is developing a portfolio of targeted biologic treatments designed
to address the medical needs of patients with a variety of cancers.
The company focuses on three strategies for treating cancer, growth 
factor blockers, cancer vaccines and angiogenesis inhibitors.  The
company's lead product candidate, IMC-C225, is a therapeutic mono-
clonal antibody that inhibits stimulation of a receptor for growth
factors upon which certain solid tumors depend in order to grow.
ImCLone's share price recently suffered over concerns regarding one
of its cancer drugs.  Now there is speculation that company may be
a take-over target.  IMCL said that it had adopted a shareholder 
rights plan or "poison pill," which would distribute new shares to
current stakeholders if anyone tried to acquire a greater than 15% 
stake in ImClone.  Was this in response to billionaire financier 
Carl Icahn, who is looking to buy $500 million worth of shares or 
is it a shield against a larger threat?  We favor the inflated
option premiums which offer a conservative entry point from which
to speculate on the company's future.

MAR 12.50 QCI CV LB=6.60 OI=15 CB=11.84 DE=27 TY=6.3%


*****
OSIS - OSI Systems  $22.82  *** 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, recently said 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 20.00 UOJ CD LB=3.80 OI=122 CB=19.02 DE=27 TY=5.8%


*****
UTHR - United Therapeutics  $11.20  *** A New Drug! ***

United Therapeutics (NASDAQ:UTHR) is a biotechnology company 
focused on combating cardiovascular, inflammatory, and infectious 
diseases with unique therapeutic products, which include pharma-
ceuticals, arginine products and telemedicine services.  Some
current products under development include Remodulin, for treating 
advanced pulmonary hypertension and late-stage peripheral vascular
disease and Beraprost, which is for the treatment of peripheral 
vascular disease.  United Therapeutics also intends to provide
telemedicine services which allows patients and physicians to 
periodically monitor certain bodily measurements such as heart 
and lung function.  UTHR's share price jumped this week after
the company said it received an "approvable" letter from U.S. 
regulators for its Remodulin drug for pulmonary arterial hyper-
tension.  This is usually the final step before a drug receives 
clearance for marketing from the U.S. FDA.  We simply favor the
support area around $10 and the improving technicals.  Investors
who wish to speculate on United Therapeutics' future can use this 
position to gain a conservative entry point.  

MAR 10.00 FUH CZ LB=1.70 OI=539 CB=9.50 DE=27 TY=5.9%


*****

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

NPRO   10.10  MAR 10.00   NYQ CB  1.05 56     9.05   27   11.8%
ONIS    5.54  MAR  5.00   EMU CA  0.95 1336   4.59   27   10.1%
OSTE    8.70  MAR  7.50   OQQ CU  1.65 170    7.05   27    7.2%
ASW    10.45  MAR  7.50   ASW CU  3.40 246    7.05   27    7.2%
NOVT    8.38  MAR  7.50   QOH CU  1.30 25     7.08   27    6.7%
FTUS   16.60  MAR 15.00   FEQ CC  2.25 20    14.35   27    5.1%
ACF    21.57  MAR 17.50   ACF CW  4.80 32    16.77   27    4.9%
PPD    26.11  MAR 22.50   PPD CX  4.50 712   21.61   27    4.6%


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

Success Basics: More Q&A on Position Management
By Ray Cummins

The proper use of trading stops is a common topic in discussions
among new traders and this week, we received another excellent
question on the subject.


Hi Ray,

I have been following with interest your naked put recommendations
on both Sundays and Wednesdays for quite some time now and have
had good success for the most part.

However, as I expected, there have been several occasions when it
seemed that an early exit was advisable, at which times I bought
back the sold put to close the position.  My method has been to
simply watch the stock as closely as possible and if it reached a
level near the strike price (maybe one dollar or less away), I
would place a limit order to close the position.  I also consider
where the underlying stock is relative to various resistance lines
on the chart and any news-related issues, but rely mostly on the
relative price of the stock to the strike price.

I would be interested to know if you consider this manual method
of monitoring and exiting positions to be adequate to minimize
losses on positions which require closing, or would it be more
likely to minimize losses by placing a contingent order with my
broker at the time the trade is initiated whereby the option would
be bought back if the stock dropped to a predetermined price, or
simply bought the option back at a predetermined price?

Is there any generally accepted belief among option traders, or
any statistical study available as to a preferred method of
closing naked put positions - manually versus automatically?

By the way, should it be preferable for me to have an account
which would allow stops on options and contingency orders it
would be necessary for me to open an account in the United States
as there are not as yet any brokers in Canada (where I live) which
offer these services.

Thanks very much for any thoughts you may have in this regard and
for your much-appreciated insightful articles.

GS
           

Regarding the use of trading stops in position management:


Hello GS,

First, thanks for the kind comments!

It sounds as though you have a very good grasp of the strategy
and the manner in which you must manage these types of positions
(limited profit/unlimited loss = no big losers!) to be successful.
Since you mentioned that you read the newsletter often, I won't go
into the details of closing a position (although I think you should
consider "shorting" the stock instead of repurchasing the put when
the premium of the put option is inflated - often the case after a
steep downward trend).

As far as the use of manual versus mechanical exit orders, I think
they both have merit in certain situations, but apparently you
don't have the ability to use the latter technique, due to the
limitations of your current broker.  I believe it is very important
to have all the necessary tools to manage your portfolio effectively
and that should include the ability to place trading stops on options
and also stops on stocks, which will trigger option-closing orders.
With regard to a "generally accepted" method for closing positions,
I would say the overwhelming number of traders use mechanical systems
on a regular basis, however there are many short-term strategies that
are better suited to manual order executions.  Keep in mind these
techniques require continuous monitoring of the position to make
sure the entry/exit trades are executed in a timely manner.
   
If you are going to open an account with a U.S. brokerage, I would
suggest you start with a discount broker (if that is agreeable with
your trading style) and consider one of the option specialists that
have all of the features we discussed, but at a fair commission rate
and with good history of order executions.  If you have a relatively
large portfolio balance, I highly recommend Preferred Trade (that's
the company most of us use) and I am including a list of candidates
to consider, based on the types of option trading they allow.  Of
course, many of the features of these brokers change regularly and
it is up to you to find one that fits your personal criteria (not an
easy job for sure...)

Good Luck!


Editors Note: Definitions of STOP Orders:

STOP ORDER

An option stop order is an order to buy or sell option contracts
when the market for a particular contract reaches a specified
price, called the stop price.  A stop order to buy becomes a
market order when the option contract trades or is bid at or
above the stop price.  A stop order to sell becomes a market
order when the contract trades or is offered at or below the
stop price.


STOP-LIMIT ORDER

An option stop-limit order is an order to buy or sell option
contracts at a specified price or better, after a given stop
price has been reached or exceeded.  A stop-limit order to buy
becomes a limit order when the option contract trades or is bid
at or above the stop-limit price.  A stop-limit order to sell
becomes a limit order when the contract trades or is offered at
or below the stop-limit price.  An option stop-limit order is a
combination of a stop order and a limit order.  Stop-limit orders
that have been triggered and converted into limit orders will
execute if the option is thereafter offered at or below the ask
price for buy orders or at or above the bid price for sell orders.

In layman's terms: If you use a STOP order and the instrument
trades at or below your stop loss, the order will become a market
order.  This is not the case with a stop-limit order.  If you use
a stop-limit order and the issue moves too quickly to trade at
the limit price, the order will not be executed.
 

                      *** 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  13.93   FEB  10.00  0.25  *$  0.25  19.8%
DGIN   24.77  25.78   FEB  22.50  0.50  *$  0.50  13.3%
PCX    28.30  28.10   FEB  25.00  0.75  *$  0.75  12.4%
ISLE   16.45  16.26   FEB  15.00  0.30  *$  0.30  12.0%
TMCS   21.50  23.08   FEB  20.00  0.60  *$  0.60  11.3%
FCN    29.10  28.05   FEB  25.00  0.40  *$  0.40  10.9%
ENER   23.27  20.03   FEB  20.00  0.30  *$  0.30  10.3%
CRUS   19.15  16.99   FEB  15.00  0.45  *$  0.45   9.1%
SPCT   15.10  13.63   FEB  12.50  0.30  *$  0.30   8.7%
ISSX   39.00  32.94   FEB  30.00  0.30  *$  0.30   8.0%
TMCS   19.78  23.08   FEB  17.50  0.40  *$  0.40   7.2%
FCN    26.85  28.05   FEB  23.38  0.35  *$  0.35   6.7%
TMCS   19.95  23.08   FEB  17.50  0.45  *$  0.45   6.5%
MERQ   37.51  36.64   FEB  30.00  0.35  *$  0.35   6.5%
JDAS   28.10  24.71   FEB  22.50  0.35  *$  0.35   6.3%
PPD    23.21  26.11   FEB  17.50  0.35  *$  0.35   6.1%
MEDC   23.34  18.08   FEB  17.50  0.35  *$  0.35   6.1%
IRF    39.19  39.64   FEB  35.00  0.50  *$  0.50   6.0%
MROI   29.20  25.91   FEB  25.00  0.40  *$  0.40   5.5%
LIN    27.64  27.19   FEB  25.00  0.45  *$  0.45   5.5%
SEBL   37.20  32.86   FEB  30.00  0.30  *$  0.30   5.4%
SFA    26.70  22.10   FEB  22.50  0.45   $  0.05   0.8%
ICST   25.69  19.08   FEB  20.00  0.45   $ -0.47   0.0%
ESST   22.89  19.06   FEB  20.00  0.35   $ -0.59   0.0%

AMZN   12.52  13.41   MAR  10.00  0.50  *$  0.50  14.5%
HAL    13.95  16.27   MAR  12.50  0.70  *$  0.70  12.6%
ASW    10.81  10.45   MAR   5.00  0.35  *$  0.35  12.1%
OSIS   22.06  22.82   MAR  17.50  0.70  *$  0.70  11.9%
MANH   29.80  29.17   MAR  22.50  0.65  *$  0.65   8.5%
TXN    30.29  31.50   MAR  27.50  0.85  *$  0.85   7.3%
MU     34.90  36.95   MAR  27.50  0.60  *$  0.60   6.9%
PMCS   22.50  20.71   MAR  15.00  0.30  *$  0.30   5.4%

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

Comments:

Friday's bearish activity did little to help the issues in our
portfolio but fortunately, the damage was minimal.  Integrated
Circuit Systems (NASDAQ:ICST) and Ess Technology (NASDAQ:ESST)
were the only positions that moved into the red as a result of
today's broad-market sell-off.  Of the plays closed earlier in
in the month, only Iona Technologies (NASDAQ:IONA) managed to
finish positive.  Looking forward, all of the current portfolio
positions are technically favorable, but we will be watching
PMC Sierra (NASDAQ:PMCS) for any move below the recent support
level near $18.
   
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

ACN    27.45  MAR 22.50   ACN OX  0.50 105   22.00   27    8.6%
AMAT   47.20  MAR 40.00   ANQ OH  0.60 5219  39.40   27    5.5%
DDS    17.40  MAR 15.00   DDS OC  0.30 995   14.70   27    7.0%
FFIV   23.15  MAR 17.50   FLK OW  0.45 116   17.05   27   10.0%
FTI    17.64  MAR 15.00   FTI OC  0.30 1000  14.70   27    7.2%
OII    23.79  MAR 22.50   OII OX  0.55 0     21.95   27    7.1%
PLMD   20.75  MAR 15.00    PM OC  0.25 612   14.75   27    6.4%
PPD    26.11  MAR 17.50   PPD OW  0.45 891   17.05   27    8.9%
TER    32.70  MAR 27.50   TER OY  0.60 180   26.90   27    8.0%

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

FFIV   23.15  MAR 17.50   FLK OW  0.45 116   17.05   27   10.0%
PPD    26.11  MAR 17.50   PPD OW  0.45 891   17.05   27    8.9%
ACN    27.45  MAR 22.50   ACN OX  0.50 105   22.00   27    8.6%
TER    32.70  MAR 27.50   TER OY  0.60 180   26.90   27    8.0%
FTI    17.64  MAR 15.00   FTI OC  0.30 1000  14.70   27    7.2%
OII    23.79  MAR 22.50   OII OX  0.55 0     21.95   27    7.1%
DDS    17.40  MAR 15.00   DDS OC  0.30 995   14.70   27    7.0%
PLMD   20.75  MAR 15.00    PM OC  0.25 612   14.75   27    6.4%
AMAT   47.20  MAR 40.00   ANQ OH  0.60 5219  39.40   27    5.5%


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).

*****
ACN - Accenture  $27.45  *** Technology Solutions! ***

Accenture (NYSE:ACN) is a management and technology consulting
organization with more than 75,000 employees based in more than
110 offices in 47 countries delivering a wide range of consulting,
technology and outsourcing services.  The company provides a range
of management and technology consulting services and solutions to
the communications, high technology, and media and entertainment
industries.  The company offers services that help its clients
stay ahead of major technology and industry trends, including the
proliferation of new wireless devices, next-generation networks,
digital content services, Web-enabled platforms and the industry
restructuring brought about by the convergence of these growing
technologies.  Accenture works with clients of all sizes and has
extensive relationships with the world's leading companies and
governments.  To be successful, you must stay ahead of the trends
in technology and ACN provides the information and guidance to
help companies do that in today's complex industrial environment.
Investors who want to establish a conservative cost basis in this
unique company should consider this position.

MAR 22.50 ACN OX LB=0.50 OI=105 CB=22.00 DE=27 TY=8.6%


*****
AMAT - Applied Materials  $47.20  *** Optimistic Outlook! ***

Applied Materials (NASDAQ:AMAT) develops, manufactures, markets
and services semiconductor wafer fabrication equipment and related
spare parts for the worldwide semiconductor industry.  Many of
Applied's products are single-wafer systems designed with two or
more process chambers attached to a base platform.  The platform
feeds wafers to each chamber, allowing the simultaneous processing
of several wafers to enable high manufacturing productivity and
precise control of the process.  Their platforms support chemical
and physical vapor deposition, etch and rapid thermal processing
technologies.  Customers for their products include semiconductor
wafer manufacturers and integrated circuit (chip) manufacturers.
Shares of Applied Materials rallied last week, even after the
company posted a fiscal first quarter loss of $45 million, or 6
cents a share, on revenue of $1 billion.  However, the company
surprised investors by announcing that new orders rose for the
first time in four quarters.  AMAT's CEO also noted that chip
revenues have apparently reached a bottom because memory prices
have risen and activity in chip factories has increased.  Traders
can establish a low risk entry point in the issue with this play.

MAR 40.00 ANQ OH LB=0.60 OI=5219 CB=39.40 DE=27 TY=5.5%


*****
DDS - Dillard's  $17.40  *** Buyout Speculation! ***

Dillard's (NYSE:DDS) operates retail department stores located
primarily in the Southeastern, Southwestern and Midwestern United
States.  Dillard's also operates a small-event ticket-sales chain
in the Southwest United States.  All of the company's stores are
owned or leased from a wholly owned subsidiary or from third
parties.  Dillard's has over 330 stores in operation with gross
square footage approximating 56.5 million feet.  The company owns
or leases from a wholly owned subsidiary a total of 250 stores
with 41.6 million square feet.  Dillard's sells name brand and
private-label merchandise and their customers are mostly people
with a middle to upper-middle income.  Shares of Dillard's soared
last week as investors continued to speculate that the founder's
recent death would precipitate a sale of the chain.  Most analysts
say that is unlikely but Dillard's was also the only one of the
top department-store chains to report positive same-store sales
results in January, up 4% against rivals' double-digit declines.
The encouraging performance was unexpected after nine months of
negative comparable-store sales and traders who think the upside
activity will continue can use this position to speculate on the
near-term movement of the issue.

MAR 15.00 DDS OC LB=0.30 OI=995 CB=14.70 DE=27 TY=7.0%


*****
FFIV - F5 Networks  $23.15  *** Internet Traffic Manager ***

F5 Networks (NASDAQ:FFIV) is a provider of integrated Internet
traffic and content management solutions designed to improve the
availability and performance of mission-critical Internet-based
servers and applications.  F5's products monitor and manage local
and geographically dispersed servers and intelligently direct
traffic to the server best able to handle a user's request.  Its
content management products enable network managers to increase
access to content by capturing and storing it at points between
production servers and end users and ensure that newly published
or updated files and applications are replicated uniformly across
all target servers.  When combined with its network management
tools, these products help organizations optimize their network
server availability and performance and cost-effectively manage
their Internet infrastructure.  FFIV has established a relatively
stable trading range near $20 and investors who favor the outlook
for this unique company can profit from future bullish activity in
its share value with this position.

MAR 17.50 FLK OW LB=0.45 OI=116 CB=17.05 DE=27 TY=10.0%


*****
FTI - FMC Technologies  $17.64  *** Oil Service Sector ***

FMC Technologies (NYSE:FTI) designs, manufactures and services
technologically sophisticated systems and products for customers
through its Energy Systems and Specialty Systems segments.  Energy
Systems is a supplier of systems and services used in the offshore,
particularly deepwater, exploration and production of crude oil
and natural gas.  Specialty Systems provides a range of advanced
handling and processing systems to industrial customers.  Until
December 2001, FMC Corporation was the primary shareholder of the
company, but now the company is fully independent.  Merrill Lynch
recently raised its mid-term rating on FMC to a "strong buy" with
a price target of $24.  Merrill said that the company's focus on
deepwater development should result in high future growth, with
the sector's expected average annual growth of 10% to 15% through
2005.  Investors must agree with the outlook as they have pushed
the issue to a new 6-month high and this position offers a great
way to profit from future bullish activity.

MAR 15.00 FTI OC LB=0.30 OI=1000 CB=14.70 DE=27 TY=7.2%


*****
OII - Oceaneering International  $23.79  *** Record Earnings! ***

Oceaneering International (NYSE:OII) is an applied technology
company that provides a range of integrated technical services and
hardware to customers that operate in harsh environments such as
underwater, space and other hazardous areas.  The company provides
most of its services and products to the oil and gas industry and
these include drilling support, sub-sea construction, design, lease
and operation of production systems, facilities maintenance and
repair, specialty sub-sea hardware and specialized onshore and also
offshore engineering and inspection.  The company operates in five
business segments and these are segments are contained within two
businesses.  Its business segments within the Offshore Oil and Gas
business are Remotely Operated Vehicles, Subsea Products, Mobile
Offshore Production Systems and Other Services.  OII reports its
Advanced Technologies business as one segment.  Shares of OII have
been "on the move" since the company announced quarterly earnings
that more than doubled those reported for the comparable periods
of 2000.  The CEO said the company is poised to set consecutive
earnings records in 2002/2003 and they have an excellent platform
for future sustained growth.  Investors who want to own the stock
can profit from future bullish activity or buy it at a discounted
price with this position.  Target a higher premium initially, to
allow for a brief consolidation in the issue.

MAR 22.50 OII OX LB=0.55 OI=0 CB=21.95 DE=27 TY=7.1%


*****
PLMD - PolyMedica  $20.75  *** Recovery Mode! ***

PolyMedica (NASDAQ:PLMD) is a provider of direct-to-consumer
specialty medical products and services, conducting business in
the Chronic Care, Professional Products and Consumer Healthcare
markets.  PolyMedica sells diabetes supplies and related products
through its Chronic Care segment and provides direct-to-consumer
prescription respiratory supplies to Medicare-eligible seniors
suffering from chronic obstructive pulmonary disease (COPD) and
also markets, manufactures and distributes a line of prescription
urological and suppository products with its Professional Products
segment.  PolyMedica's products for urinary health are distributed
mainly to food and drug retailers as well as mass merchandisers
nationwide through its Consumer Healthcare segment.  Shares of
PLMD were hammered late last year after the company announced it
was under investigation by the Securities and Exchange Commission
in connection with accounting matters, financial reports, other
public disclosures and sales of the company's securities.  Now it
appears the company's share value is "on the mend" and investors
who want to speculate on the future of its stock should consider
this position.  Remember, "due diligence" is always recommended
before initiating any new play.

MAR 15.00 PM OC LB=0.25 OI=612 CB=14.75 DE=27 TY=6.4%


*****
PPD - Pre-Paid Legal Services  $26.11  *** Solid Results! ***

Pre-Paid Legal Services (NYSE:PPD) was one of the first companies
in the United States organized solely to design, underwrite and
market legal expense plans.  The company's legal expense plans
(referred to as Memberships) currently provide for a variety of
legal services in a manner similar to medical reimbursement plans.
Plan benefits are provided through a network of independent law
firms, typically one firm per state or province.  Members have
direct, toll-free access to their Provider law firm rather than
having to call for a referral.  Legal services include unlimited
attorney consultation, traffic violation defense, auto-related
criminal charges defense, letter writing/document preparation,
will preparation and review and a general trial defense benefit.
Prepaid's share value jumped last week after the company reported
that 2001 annual membership revenue was up 24%, earnings were up
40% and cash flow was up 63%; an outstanding performance in the
current economic environment.  Investors who favor the outlook for
the company can establish a discounted entry point in the issue
with this conservative position.

MAR 17.50 PPD OW LB=0.45 OI=891 CB=17.05 DE=27 TY=8.9%


*****
TER - Teradyne  $32.70  *** Chip Sector Speculation! ***

Teradyne (NYSE:TER) is a maker of automatic test equipment
and related software for the electronics and communications
industries.  Products include systems to test and inspect
semiconductors; circuit boards; high-speed voice and data
communication, and software.  Teradyne is also a manufacturer
of back-planes and associated connectors used in performance
electronic systems.  Semiconductor and chip-equipment stocks
have been among the best performing technology groups during
the recent market sell-off and based on the current technical
indications, TER appears to be one the stronger issues in the
group. Investors who wouldn't mind owning TER at a discounted
cost basis can speculate on the future performance of the
chip-equipment group with this position.

MAR 27.50 TER OY LB=0.60 OI=180 CB=26.90 DE=27 TY=8.0%


*****

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

MSV     5.59  MAR  5.00   MSV OA  0.30 0      4.70   27   17.4%
ELON   19.54  MAR 17.50   EUL OW  0.70 57    16.80   27   12.2%
IMCL   18.44  MAR 10.00   QCI OB  0.40 496    9.60   27   11.0%
TDW    36.15  MAR 35.00   TDW OG  1.10 15    33.90   27    8.6%
MKSI   26.74  MAR 25.00   QQB OE  0.70 2     24.30   27    8.2%
OSIS   22.82  MAR 17.50   UOJ OW  0.35 42    17.15   27    8.0%
IGEN   40.05  MAR 35.00    GQ OG  0.75 1300  34.25   27    7.2%
SANG   19.76  MAR 17.50   QDY OW  0.35 53    17.15   27    6.6%
WSTC   27.35  MAR 25.00   HUD OE  0.50 0     24.50   27    6.2%

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

The Market Needs A Holiday!
By Ray Cummins

******************************************************************
                         - MARKET RECAP -
******************************************************************
Friday, February 15

The major equity averages slumped today after an unexpected drop
in consumer sentiment added to recent worries about questionable
accounting practices and future corporate earnings.

The Dow Jones Industrial Average closed down 98 points at 9,903
on weakness in International Business Machines (NYSE:IBM), which
was pummeled by investors after an article in the New York Times
questioned the accounting of a recent sales transaction.  One of
the most popular companies in the technology group was also the
target of an investigation, and that did little to support the
value of shares on the NASDAQ.  Nvidia (NASDAQ:NVDA), a maker of
graphics semiconductors, fell over 7% after the company reported
that the Securities and Exchange Commission is looking into its
accounting practices.  That was not good news for the technology
average and when added to the recent barrage of profit warnings,
there was little hope for a positive finish to the session.  The
NASDAQ Composite index tumbled 38 points to 1,805 with hardware
and networking companies leading the retreat.  The S&P 500-stock
index slid 12 points to 1,104 amid widespread selling pressure.
On the Big Board, where about 1.36 billion shares traded, 1,548
stocks rose and 1,537 fell.  Market breadth was much the same on
the technology exchange, where about 1.60 billion shares changed
hands.  The 10-year Treasury note moved up more than 5/8 point
while its yield fell to 4.86%.  The 30-year long bond was up 5/8
point to yield 5.37%.  On the fund flow front, Trim Tabs noted
that all equity funds had inflows of $3.9 billion in the week
ended 2/13, compared with inflows of $1.5 billion in the prior
week.  Equity funds that invest primarily in stocks had inflows
of $2.4 billion compared with inflows of $1.8. billion during the
prior week.


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

CV Thera.    (NSDQ:CVTX)  FEB40C/FEB40P  $3.10  debit  straddle
LTX Corp.    (NSDQ:LTXX)  FEB20P/FEB20C  $1.70  debit  straddle
Agile        (NSDQ:AGIL)  STOCK/MAR12P   $1.25  debit  straddle
Express Sc.  (NSDQ:ESRX)  MAR40P/MAR45P  $0.60  credit bull-put
Fannie Mae   (NYSE:FNM)   MAR90C/MAR85C  $0.50  credit bear-call
USA Educ.    (NYSE:SLM)   MAR80P/MAR85P  $0.50  credit bull-put
Sealed Air   (NYSE:SEE)   JUL45C/MAR45C  $2.45  debit  calendar

This week's big winner was the volatility play in CV Therapeutics
(NASDAQ:CVTX) and the neutral-outlook position provided up to a
100% gain in less than three days.  LTX Corporation (NASDAQ:LTXX)
was also a profitable position with the call portion of the debit
straddle trading as high as $2.30 on Thursday.  With the initial
investment of $1.70, the position yielded up to a 35% profit.
Agile (NASDAQ:AGIL) was very "agile," moving through an extreme
range during the period from Thursday's open to Friday's close,
which was a new 3-month low.  It appears the synthetic straddle
in the issue has good potential, depending on how low the share
value of AGIL falls in the coming weeks.  The new credit-spread
candidates performed well but the premium in the USA Education
(NYSE:SLM) position was slightly less than expected, due to the
upside activity in the issue.  We had high expectations for the
bullish calendar spread in Sealed Air (NYSE:SEE), but Monday's
"gap-up" open left no opportunity to initiate the play near the
suggested debit (on a simultaneous order basis).  Of course, the
issue eventually finished the week almost $4 higher, ending just
$0.55 beyond our sold strike at $45.  (Murphy's Law?!?)


Portfolio Activity:

Another month has come and gone and the strategy of choice in
the recent market environment has definitely been the (debit)
straddle.  Neutral-outlook positions in Agilent (NYSE:A), BEA
Software (NASDAQ:BEAS), C.R. Bard (NYSE:BCR), Intervoice-Brite
(NASDAQ:INTV), Jabil (NYSE:JBL), Juniper Networks (NASDAQ:JNPR),
J.P. Morgan Chase (NYSE:JPM), Mirant (NYSE:MIR), and Schering
Plough (NYSE:SGP) offered a number of profitable opportunities
with some plays yielding potential gains of 50% or more in less
than 30 days.  Indeed, the recent volatility in equity values
has been very favorable to option buyers, especially when the
purchases were timely and with the appropriate outlook.  Since
that ability is limited to a very small number of traders, it's
often best to focus on strategies that profit from other option
pricing characteristics such as volatility or time-value erosion,
as well as certain techniques that provide a larger margin for
error or reduced risk, such as spreads and combinations.  As an
investor, your goal is to maximize profits and preserve capital
in every position you take and those objectives are generally
much easier to achieve with methods that don't require perfect
timing and faultless directional forecasts.  Since the current
market conditions are ideal for a delta-neutral approach with
option-buying strategies, I have decided to review some of the
fundamental components that affect position selection in debit
straddles.


Success with Straddles:  Knowledge of Option Pricing Theory

Option premium consists of two components: Intrinsic Value and
Time Value.  Assume that a current stock price is equal to the
strike price.  In this case, the option premiums (both the call
and the put) do not have any intrinsic value, only time value.

The main factors that influence Time Value include:
 
1)  The number of days until expiration
2)  Implied Volatility
3)  How far the option is in- or out-of-the-money.

At-the-money options have the highest time value.  As the option
starts moving in- or out-of-the-money, the time premium begins to
lose value.  The closer an option is to expiration, the more an
option's premium will shrink (per day) due to time decay.

This gives us a guideline in selecting a straddle.  We should pick
an expiration month so that the price of the straddle will not be
too high (not too far from expiration).  However, it should still
provide enough time for the stock to perform as expected, before
the trade must be closed to preserve capital.  One important fact
to remember; the highest increase in time decay for "at-the-money"
options occurs in the last 30 days before expiration.  That means
we should rarely hold a straddle to expiration.  When you know
that time decay is working against you, you can begin to choose
trades in which the other beneficial components such as intrinsic
value and implied volatility, help your position profit, even as
time passes.

Now that we know time decay is working against us in a straddle,
what other factors can help us to achieve our goal of selling at a
higher price in the future?  Two components: Implied Volatility
and Intrinsic Value.

Implied volatility is a characteristic of an option's time value.
The higher the implied volatility, the higher the option's time
value is.  When you find a situation where implied volatility is
statistically low (probability dictates that it should start to
move higher), you can make a profit by selling your straddle at a
higher price, even if the underlying stock price doesn't move.
Obviously, any increase in implied volatility will boost the time
value of your position and move your trade closer to a profitable
outcome.

Another basic component that can help us profit in a straddle is
intrinsic value.  Once again, assume that the underlying price is
equal to the strike price; this means that our straddle does not
have any intrinsic value.  When the stock starts moving in either
direction, one of our options will become "in-the-money."  This
will cause the intrinsic value to grow in that option.  In contrast,
the time value of both of our positions begins to decrease as the
underlying moves away from the at-the-money strike.  Remember, the
further the option is in- or out-of-the-money, the less time value
it contains.

The rate of change for both of these values is very important.
Intrinsic value has a rate of change equal to one; if the stock
price moves one point into the money, intrinsic value increases by
one point.  Time value is much more complex.  The rate of change
depends on how far away the option is from the strike price: the
further the option is in- or out-of-the-money, the smaller the rate
of change on a one point move in the underlying issue.  With that
concept in mind, it is easy to see that when the stock price moves
away from the strike price, we gain more in intrinsic value than
we lose in time value and that's one way a straddle profits.  The
measurement of the underlying move is statistical volatility and
we look for straddle positions on issues where we expect that
component to increase.

To construct profitable straddle positions, it is important to be
aware of the effects of all these components.  A theoretical edge
in one or two of these factors can make a position favorable but
it is better to have the majority of them on your side.  The most
common mistake among new traders is the purchase of short-term
straddles.  You can profit from these positions but usually that
occurs only when the underlying starts moving immediately after
the play is initiated.  Of course, the straddle appears attractive
because it doesn't have a large amount of time value and the small
movement required for profit seems very probable.  The problem is,
if the underlying doesn't move right away, time decay will start
to increase rapidly and the position will suffer regardless of the
eventual stock price movement.  Most professional traders say that
2 or 3 months should be the minimum time frame for "conservative"
straddles and if you have a choice between different series of
expirations and the implied volatility in the longer-term options
is lower, you should probably purchase the additional time value
because those positions are theoretically cheaper.

Good Luck!

Questions & comments on spreads/combos to Contact Support
******************************************************************
                      - SPECULATION PLAYS -

This week we have a new selection of "earnings-related" volatility
plays, where the underlying issues have discounted option prices
and the potential to move significantly due to their quarterly
reports.  All of these issues are favorable straddle candidates,
based on analysis of historical option pricing and their technical
trends.  Each stock has a history of multiple movements through
a sufficient range in the required amount of time to justify the
overall risk of the straddle.  As always, review each position
individually and make your own decision about its future outcome.

******************************************************************
CMOS - Credence Systems  $15.27  *** Chip Sector Volatility! ***

Credence Systems Corporation (NASDAQ:CMOS) designs, manufactures,
sells and services automatic test equipment (ATE) used for testing
semiconductor integrated circuits (ICs).  Credence also develops,
licenses and distributes related software products.  The company
serves a broad spectrum of the semiconductor industry's testing
needs through a wide range of products that test digital logic,
mixed-signal, non-volatile memory and radio frequency chips and
semiconductors.  Credence utilizes its proprietary technologies to
design products that are intended to provide a lower total cost of
ownership than many competing products currently available while
meeting the increasingly demanding performance requirements of the
ATE market.  Its products are designed to test semiconductors that
are produced in high volume and its many customers include major
semiconductor manufacturers as well as assembly and test services
companies.  The company is expected to report earnings on 2/20/02.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  MAR-15  CQS-CC  OI=201  A=$1.25
BUY  PUT   MAR-15  CQS-OC  OI=55   A=$0.95
INITIAL NET DEBIT TARGET=$2.00  TARGET PROFIT=20%-35%


******************************************************************
FMX - Fomento Economico Mexicano  $40.00  ** Probability Play **

Fomento Economico Mexicano, S.A. de C.V. (NYSE:FMX), or FEMSA, is
Mexico's largest producer of beer and soft drinks, as well as a
major producer of beer and soft drinks in Argentina.  FEMSA's
principal activities are grouped under the following sub-holding
companies: FEMSA Cerveza, S.A. de C.V., which engages in the
production, distribution and marketing of beer; Coca-Cola FEMSA,
which engages in the production, distribution and marketing of
soft drinks; FEMSA Empaques, which engages in the production and
distribution of packaging materials; FEMSA Comercio, which is in
the operation of convenience stores; Desarrollo Comercial FEMSA,
S.A. de C.V., which owns 50.01% of the voting capital stock of
Empresas Amoxxo, S.A. de C.V., which operates convenience stores
adjacent to gasoline stations; Logística CCM, which provides
logistics management services to FEMSA Cerveza; and Logística,
which provides logistics management services to Coca-Cola FEMSA,
FEMSA Empaques, and third party clients.  The company is slated
to report earnings on 2/19/02 at 12:00 P.M. EST.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  APR-40  FMX-DH  OI=291  A=$2.10
BUY  PUT   APR-40  FMX-PH  OI=990  A=$2.00
INITIAL NET DEBIT TARGET=$3.80-$3.90  TARGET PROFIT=25%-50%


******************************************************************
SNPS - Synopsys  $49.78  *** Software Sector ***

Synopsys (NASDAQ:SNPS) is a supplier of unique electronic design
automation software to the global electronics industry.  Synopsys'
products are used by designers of integrated circuits, including
system-on-a-chip ICs, and the electronic products (such as PCs,
cell phones, and internet routers) that use such ICs to automate
significant portions of their chip design process.  ICs are often
distinguished by the speed at which they run, their volume/area,
the amount of power they consume, and the cost of production.  The
company's products offer its customers the opportunity to design
ICs that are optimized for speed, area, power consumption and
production cost, while reducing overall design time.  The company
also provides consulting services to assist customers with their
IC designs, as well as training and support services.  Synopsys is
scheduled to report earnings on 2/20/02.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  MAR-50  YPQ-CJ  OI=606   A=$2.90
BUY  PUT   MAR-50  YPQ-OJ  OI=2931  A=$2.95
INITIAL NET DEBIT TARGET=$5.55-$5.70  TARGET PROFIT=20%-35%


******************************************************************
SRNA - Serena Software  $22.38  *** Break-Out Coming? ***

Serena Software (NASDAQ:SRNA) is a provider of unique e-business
infrastructure software change management (SCM) solutions.  The
company's products and services are used to manage and control
software change for organizations whose business operations are
dependent on managing information technology.  Serena develops,
markets and supports a full suite of mainframe SCM products for
managing and controlling change in the software application life
cycle.  Serena's product offerings support the industry standard
IBM mainframe platforms.  In addition, the company develops,
markets and supports an SCM product suite for the distributed
systems environment to support Microsoft Windows 95/98/NT, UNIX,
LINUX and HP e 3000 platforms.  The company's earnings are due
on or about 2/21/02.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  MAR-22.50  NHU-CX  OI=20  A=$1.80
BUY  PUT   MAR-22.50  NHU-OX  OI=36  A=$1.85
INITIAL NET DEBIT TARGET=$3.40-$3.50  TARGET PROFIT=20%-35%


******************************************************************
QLGC - Qlogic  $45.80  *** Probability Play! ***

QLogic Corporation (NASDAQ:QLGC) is a designer and supplier of
Storage Area Networking infrastructure building blocks.  Its
SAN infrastructure building blocks, comprised of semiconductor
chips, host board adapters and switches, are integrated into
storage networking solutions of the world's leading system and
storage manufacturers.  Companies such as Sun Microsystems, IBM,
Dell Computer Corporation, Compaq Computer Corporation, Fujitsu
Microelectronics, and Hitachi Ltd. all use some or all of its
components in the storage and systems solutions they sell to the
world's largest information technology environments.  In addition
to its original equipment manufacturer relationships with these
and other companies, in January the company started delivering
selected Fibre Channel building blocks through other distributors,
systems integrators and resellers, thereby expanding its reach
and visibility to the information technology community.

This is not an earnings-related position, but the play does meet
our criteria for a favorable straddle: cheap option premiums, a
history of adequate price movement and the potential for future
volatility in the stock or its industry.  This selection process
provides the foremost combination of low risk and potentially
high reward but, as with any position, it must be evaluated for
portfolio suitability and reviewed with regard to your strategic
approach and trading style.

PLAY (speculative - neutral/debit straddle):

BUY  CALL MAR-45  QLC-CI  OI=693   A=$4.20
BUY  PUT  MAR-45  QLC-OI  OI=1987  A=$3.30
INITIAL NET DEBIT TARGET=$7.25-$7.30  TARGET PROFIT=20%-35%


******************************************************************
                     - SPREADS & COMBINATIONS -
******************************************************************
NVDA - Nvidia  $67.30  *** The Bad News Just Keeps Coming! ***

Nvidia (NASDAQ:NVDA) designs, develops and markets unique graphics
processors and related software for personal computers and digital
entertainment platforms.  Nvidia provides a "top-to-bottom" family
of performance graphics processors and graphics processing units
that has set the standard for performance, quality and features
for a broad range of desktop PCs, from professional workstations
to low-cost PCs, and mobile PCs, to performance laptops.

Nvidia is one of the top companies in the Specialty Semiconductor
group but this week the issue came under fire after officials
disclosed that the U.S. Securities and Exchange Commission has
inquired about the recording of certain reserves in the fourth
quarter of fiscal 2000 and the first quarter of fiscal 2001.  The
stock also suffered in the wake of an announcement from Standard
& Poor's, which said it was placing Nvidia's B+ corporate credit
and other ratings on credit watch with negative implications to
reflect uncertainties about certain of its reserves and the future
potential for additional disclosures.  From a technical viewpoint,
the near-term trend has certainly turned "bearish" and traders who
favor conservative combination plays should consider this position.

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-75  RVU-CO  OI=2146  A=$0.40
SELL CALL  MAR-70  RVU-CN  OI=8053  B=$0.80
INITIAL NET CREDIT TARGET=$0.50-0.60  PROFIT(max)=11%


******************************************************************
IMCL - ImClone Systems  $18.44  *** Speculators Only ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company that
is developing a portfolio of targeted biologic treatments designed
to address the medical needs of patients with a variety of cancers.
The company focuses on three strategies for treating cancer, growth 
factor blockers, cancer vaccines and angiogenesis inhibitors.  The
company's lead product candidate, IMC-C225, is a therapeutic mono-
clonal antibody that inhibits stimulation of a receptor for growth
factors upon which certain solid tumors depend in order to grow.
IMC-C225 has been shown in several Phase I/II trials to have an 
acceptable safety profile, to be well tolerated and, when it is
administered with either radiation therapy or chemotherapy, to
enhance tumor reduction.

ImCLone's share value recently suffered over concerns regarding one
of its cancer drugs.  Now there is speculation the company may be
a "take-over" target.  IMCL said that it has adopted a shareholder
rights plan or "poison pill," which would distribute new shares to
current stakeholders if anyone tried to acquire a greater than 15%
stake in ImClone.  Is this in response to the recent activities of
billionaire financier Carl Icahn, who is trying to buy $500 million
of IMCL stock.  Is it a shield against a larger threat?

Regardless of the reason, the inflated front-month option premiums
offer an excellent opportunity for traders that participate in
"time-selling" strategies.

PLAY (speculative - bullish/calendar spread):

BUY  CALL  AUG-25  QCI-HE  OI=559   A=$2.95
SELL CALL  MAR-25  QCI-CE  OI=2153  B=$1.00
INITIAL NET DEBIT TARGET=$1.80-$1.90  TARGET PROFIT=50%

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


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



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