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Daily Newsletter, Wednesday, 02/20/2002

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The Option Investor Newsletter                Wednesday 02-20-2002
Copyright 2001, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
      02-20-2002           High     Low     Volume Advance/Decline
DJIA     9941.17 +196.03  9956.05  9734.21 1.42 bln   1893/1221
NASDAQ   1775.57 + 24.96  1777.18  1729.20 1.89 bln   1980/1532
S&P 100   557.49 +  8.37   557.87   544.82   Totals   3873/2753
S&P 500  1097.98 + 14.64  1098.32  1074.36             
RUS 2000  467.25 +  7.27   467.29   457.21
DJ TRANS 2697.13 + 24.73  2697.13  2652.98
VIX        24.26 -  2.11    27.00    24.09
VXN        46.68 -  0.55    47.92    46.30
TRIN        0.85 
PUT/CALL    0.66
*******************************************************************
Squeeeeeezed!
Austin Passamonte

We knew downside pressure was building up in the market, no 
surprise there. But it sure release with impressive fashion! 

Three down session behind us had the Dow off –300 points and SPX 
down –50 points at today's low. We even saw S&P and NASDAQ indexes 
press below recent lows that previously held two or three times 
this month. When selling didn't accelerate from there, shorts 
covered and buyers started snapping up selected Dow issues and 
that spilled over into techs.

Whenever large-range market moves as witnessed the past several 
sessions occur, three distinct camps are formed. Shorts who want 
to sell everything down to zero, longs who can't wait to buy the 
first bounce when stocks are so "cheap" and the third group safely 
in cash and destined to stay there for a long time. Eventually the 
battle comes to a halt and the other side now prevails. Such is 
the case with today. No monstrous up-volume on the rally or broad 
measure of stocks making new highs. Just a decline petered out via 
shorts covering in domino effect.

(Weekly/Daily Charts: OEX)


 

Our first stop for tonight is the OEX, a good market proxy for all 
major indexes. We immediately see oscillators are still in full-
bear decline, which tells us underlying price strength is weak. 
Various measures of overhead resistance can noted in both time 
frame charts via Fib Retracements, moving averages and trend 
lines. My guess? Goes slightly higher or stalls right here before 
moving back down. A clean break to the upside of that blue trend 
line in the daily chart (right) would have me looking for 
continued upside to the next measures of resistance above.

(Weekly/Daily Charts: Dow)


 

Surprisingly, the Dow's weekly stochastic values are rising in 
bullish fashion. Well waddya know! Should we read much into this? 
I'd look at the NDX and S&Ps to gauge what may happen next myself. 
Meanwhile, looks like plenty of congestion near the 10,100 level 
if price action tests the upside further from present.

(Weekly/Daily Charts: QQQ)


 

NDX/QQQ is still riding its long-term descending channel in well-
behaved fashion. Weekly stochastic values are oversold but daily 
charts show zero sign of price strength in the current move. If 
this index can reach 40 area in the QQQ, it will be met with two 
measures of resistance and eager selling there.

(60/30 Min Charts: SPX)


 

When we look at all these various index charts I hope you realize 
our study doesn't just apply to them alone. Every sector or stock 
that appears the same way will lead the indexes and every 
leadership stock in turn within noted sectors lead those up or 
down.

In this case the SPX 60 and 30-minute intraday charts are copied 
from my service just the way they appear for tomorrow's trading. I 
want to see how price action behaves near pivot points when 
stochastic values go extreme in unison, preferably in harmony with 
the trend. We already looked at OEX weekly/daily charts still 
bearish, right? If these intraday chart signals tip over tomorrow 
it's time to play the downside once again. Follow the trend!

I Truly Sympathize...
"Dear Austin, Jeff, and Eric:
I have been a subscriber on and off for a couple of years. I have 
had my successes in the market in part thanks to recommendations 
received from OI. However, this has not been very easy and it has 
required a lot of work on my part. The reason for my email is that 
you are (collectively) causing great frustration with your changes 
in state of mind from one day to the next or from one hour to the 
next. At times you provide suggestions or recommendations that do 
not make any sense if one is to profit from the investment 
results. Last week you guys alluded to the "Perfect Storm". What 
was all that about? We know the market tanked.
 
...My point is your credibility and that of OI has been suspect 
and irregular. Please think about the effect that your 
recommendations may have a serious effect on your subscriber's 
account if we take you for it. You have begun to sound like the 
guys and gals on the financial networks. Please clean up your act 
and start issuing some great stock recommendations one can really 
get excited in the subsequent research so that we may agree with 
you. [MG]"

MG's letter to me is not uncommon at all. I honestly sympathize 
and can only imagine how it sounds on the other side of this 
screen to you when I'm bullish one day and bearish the next. But 
then again, have you seen the markets lately? Today was nothing 
unusual over the past two years and we all better get used to it. 
Major indexes are going absolutely nowhere close to new highs this 
year but new recent lows are a distinct possibility. Along the way 
there will be plenty of sideways, volatile chop for us to navigate 
& endure.

Any trader with longer-term outlook in their personal holding 
period who want to get excited about making money might simply 
look to short every rally that stalls using stocks or long LEAP 
puts. Picking stocks that will go down far more than up this year 
is easy: reminds me of that TV commercial on CNBC where guys play 
pin the tail on a stock pick to go long. We can probably wait for 
each bear-market rally to stall, do that for any "big cap" getting 
smaller and do just fine.

But for shorter-term plays with more precise entries it gets 
tricky. Here's a prime example of how to play today:

(10/5 Min Charts: S&P 500)


 

Another template plucked right from my trading platform to your 
home tonight. This 10/5-minute chart setup also has a 1-minute 
tick and Time & Sales window open alongside too, but that's 
another story.

We have two different channels drawn in these windows. Note where 
the 1075 and then 1080 levels appear on both. See where price 
action reacted to each of them? When initial lows were hit this 
morning, 60/30 min chart signals showed no signs of sustained 
life. But scalpers could test the bounce from there using these 
short-term charts and in this case it worked. Once price action 
broke above the next measure of support and held, upside plays 
could be tested with greater conviction from there.

If we tried shorting those moves and got stopped out quickly, 
that's a clear sign we need to reassess the situation. What was 
clearly bearish in the morning became decidedly bullish in the 
afternoon. For how long? I have no idea and didn't hold long over 
the close to find out. Thursday may bring a return to sharp 
selling soon after the early noise settles out.

So where exist all the juicy stock picks a reader can get excited 
about? Unless it's a short-term play I wouldn't dare say. My best 
guess on enter & hold plays would be that short shares or long 
distant-month put options will pay off much bigger than bullish 
plays between now and Halloween if not beyond.

Summation
I'm fairly sure there exist some decent enter & hold plays on 
stocks somewhere in both directions. But we'll leave that to the 
other teammates for now. I myself would not play long-term bets on 
the indexes in either direction, especially to the upside right 
now. We can be sure a number of bear-market rallies will emerge 
this year for quick upside plays and terrific trend plays back 
down, but I'm content to be small, nimble and brief in my trades 
right now. The customary nightly scan of all indexes and sectors 
that trade options or shares show long-term chart signals all over 
the map. That's usually a strong sign that neither direction has 
an upper hand right now. 

My personal advice is to trade a bit (or considerably) smaller 
than usual and for shorter duration than preferred. When profits 
accrue it is vital to harvest or defend them immediately, lest 
days like this whisk them from our accounts in the blink of a 
byte.

Don't Fall In Love With Either Market Direction,
austinp@OptionInvestor.com


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


***********
OPTIONS 101
***********

Oh, That Vexing Volatility
By Mark Phillips
mphillips@OptionInvestor.com

Over the past month, we've been working our way through an
educational minefield, discussing each of the Greeks that affect
option pricing.  Beginning with Delta and Gamma, we addressed
the issue of what strike price to buy based on our assumptions
about the near-term future for the underlying security.  Then
last week, we added the time factor to the equation, spending our
time together discussing time decay, or Theta, with an eye
towards selecting the appropriate expiration month.  This week,
we're going to delve into the concept of Volatility or Vega, and
I think you'll quickly notice that the question we're trying to
answer here is very different.

But first some housekeeping for any latecomers that happened to
miss the first three articles on their initial release dates.
I've listed the links here for quick reference, in order of
publication.

The Greeks, Part I - Delta and Gamma
Application of Gamma and Delta to Strike Selection
Back to the Olympians of Old

Alright, like I mentioned above, volatility helps us answer a
slightly different question than the other Greeks we've looked
at.  Volatility tells us whether now is a favorable time to buy
or sell.  We've all, at one time or another, bought an option,
had the stock move in our favor and been stymied by the fact
that our option hasn't appreciated much, or even worse, has lost
value.  The reason, as you've probably already surmised is
volatility.  After purchasing the option, the appreciation we
would have expected from the price movement of the underlying
security was diminished (or even absorbed) by the effect of
declining volatility.

While volatility is not one of the DOMINANT determinants of an
option's value, looking at this confusing Greek can tell us
whether a particular option is likely to be overpriced at any
given point in time.  

Here is the simple rule.  High volatility results in expensive
options and low volatility results in cheap options.  We normally
want to be buying options when they are cheap and selling them
when they are expensive, but application of this rule takes many
forms.  My intent here today is simply to lay the groundwork so
that in our next visit, we can delve into the details of how to 
pecifically apply volatility data to our day to day trading
decisions.

You've all heard the saying, "Those that fail to learn the
lessons of history are doomed to repeat them".  Well, the value
of volatility comes from looking at historical volatility (HV)
and determining how it relates to the current or implied
volatility (IV).  First off, let's remove an issue of confusion
for many.  HV is a historical measure of a stock's volatility,
while IV is a volatility measure that applies to the underlying
options.  Please don't ask me how either of these are created,
as I don't know.  More importantly, we don't need to know that
answer in order to profitably apply the knowledge that they
provide.

While much of what we're going to cover is also applicable to
discussions of the VIX, I really don't want to delve into that
topic here.  We're covering actual volatility levels on specific
stocks, whereas the VIX is a synthetic volatility measure created
by the CBOE.  What the CBOE has created is a hypothetical value
for volatility of a fictional ATM OEX option with 30 days until
expiration.  For those of you that want further details on the
VIX, both its construction and application, I'll refer you to a
couple of articles I wrote last year.

Measuring the Mood of the Markets
VIX Details for the Masochist

If the IV of a given option is near the upper range of the
stock's HV chart, then it’s a pretty good bet that the option
is overpriced.  On the other hand, if the IV is poking around
near the lower end of the HV chart, then we can at least say that
the option is reasonably priced.  In some instances, we might
even stumble across a bargain.  But I haven't seen too many of
those lately.  It takes a better bloodhound than I to sniff out
those bargains, and that is a topic that would take us far afield
of our intended subject today.

So where do we find data on these mythical volatility measures?
I thought you'd never ask.  By far, the best resource on the
Internet for researching volatility is found at
http://www.ivolatility.com.  The industrious folks behind that
site have put together quite a collection of volatility
information, option calculators, and numerous other little tools
that can enable us to delve into issues like ranking volatility
of one option against another and searching for volatility skew.
Don't even ask about that one right now -- it'll have to wait
for a future article, after we've finished covering the basics.

Rather than duplicate any of their volatility charts here today,
I want to encourage you to head on over to their site and pull up
some volatility charts on your own.  Next week I'm going to delve
into some examples and I think it will be far more instructive if
you can look at the charts on your own, rather than looking at
whatever static charts I might choose to include this week.  Once
you bring up the main page, there is a symbol entry field all the
way at the upper right hand corner.  Put in your favorite symbol
and click the 'Go' button.  Voila!  There you have a cornucopia
of volatility information available, including historical
volatility over various timeframes, along with implied volatility
for several near-the-money strikes for the current and next
expiration months.  But the item I find the most useful is the
tiny little Volatility Chart.

Click on that little chart and you'll be presented with a larger
chart showing a graph of HV vs. IV for the past year.  On a whim,
I pulled up the HV/IV chart for Tyco International (NYSE:TYC) and
the result is rather interesting.  While the HV (volatility of
the stock) peaked in early February, the IV (that of the options)
is still climbing and is currently at its high of the past 12
months, more than 2.5 times its prior peak last April.  This
chart speaks volumes to us in telling us that the options in TYC
are still VERY expensive relative to their historical norm.  Even
after the volatility in the underlying stock has passed (at least
for now), the uncertainty (due to the accounting issues) remains
and is reflected in the option prices as a volatility premium.

While there is definitely more ground to cover on the subject
of volatility, I think this is a good point to end for the day.
Take some time this week and look at some volatility charts,
getting a feel for what they look like and how the HV relates to
the IV.  Take particular notice of the fact that there is
normally an offset between the two.  Next week we'll delve into
the details of HOW to use this new-found knowledge to initiate
trades with a better understanding of the field on which we are
playing.

Have a great week!

Mark


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


***********************
INDEX TRADER GAME PLANS
***********************

IS Swing Trade Model: Thursday 2/20/2002
Expected Pop Today


News & Notes:
------------
Here it is... our relief rally delivered to us right on a silver 
platter. What do we do with it from here?


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


 

As noted in tonight's Market Wrap, the OEX has bearish weekly and 
daily charts with intraday signals nearing overbought. I expect 
price action to go higher before lower, probably reaching the 560 
area first. We have put play entry triggers listed in case of an 
opening drop, but hopefully we can trail them higher in the early 
going first.

[60/30-Min Chart: SPX]


 

Same for the SPX. Tuesday's gap begs to be filled as we noted last 
night, but once it is the chances of rejection and downside follow 
thru are high.

[60/30-Min Chart: QQQ]


 

If the QQQs break below Wednesday's open I'd get short there, but 
would be nicer to try entering near the 36 area instead.


Summation:
---------
Here's our rally, right up to resistance as long-term charts look 
bearish. Couldn't ask for it to be scripted any better than this. 
From here we test the downside at first opportunity, and our 
fondest wish would be a strong upside move at the open that smacks 
resistance and rolls.

Hey... a fella can dream, can't he?


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 none            Long: BREAK ABOVE none
Stop:                             Stop: 
                                

Mar Puts: 34 (QQQ-OH)             Mar Puts: 98 (DJV-OS) 
Long: BREAK BELOW 34.85           Long: BREAK BELOW 99.00
Stop: Break Above 35.75           Stop: Break above 100.00


=====


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


Mar Puts: 550 (OEB-OJ)            Mar Puts: 1075 (SPQ-OO)
Long: BREAK BELOW 557.00          Long: BREAK BELOW 1096.00
Stop: Break Above 561.00          Stop: Break Above 1104.00



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


IS Position Trade Model: Wednesday 2/20/2002
Selling The Rally?

News & Notes:
------------
Short-term traders might do very well going short soon. But enter 
& hold players face a bigger dilemma: long-term charts for indexes 
and sectors are mixed across the board tonight.


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


Summation:
---------
Traders who feel compelled to enter something will probably fare 
best looking for overbought charts and shorting any initial signs 
of a failed rally ahead. Don't be surprised if upside plays are in 
the works soon as well. Nothing high-odds enough to list in this 
model 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:
----------
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 [hit]              Stop:  1.50 [hit]


Sector Share Trade Model: Wednesday 2/20/2002
Relief Is At Hand

News & Notes:
------------
A blow-off short squeeze may fail tomorrow or be the sustained 
rally numerous pundits are calling for. Which is it? Our nightly 
scan of the indexes and sectors find weekly/daily chart signals 
all over the map. 


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


Summation:
---------
This environment is easy to pick a few plays and scalp a point or 
two out of them, and better for the intraday player. However, 
enter & hold attempts right now are futile at best and probably 
going to get worse with volatile chop. No new entries planned to 
track at this time.


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


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* EASY screens for spreads, collars, covered calls or 
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* 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
Go to 
http://www.optionsxpress.com/marketing.asp?source=oinvestor010

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


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The Option Investor Newsletter                Wednesday 02-20-2002
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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

BARRON'S SAYS OPTIONSXPRESS HAS "a lot of bang for the buck"

* IRA Accounts Available
* 8 different FREE options pricing, strategy, and charting tools
* Real-Time Buying Power, Account Balances or Cancels
* EASY screens for spreads, collars, covered calls or 
butterflies!
Go to 
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Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm
**************************************************************


*****************
STOP-LOSS UPDATES
*****************

SPW  - call
Adjust from $117 up to $117.50

KSS  - put
Adjust from $70.25 down to $69.75

TLAB - put
Adjust from $13 down to $12.80


*************
DROPPED CALLS
*************

UNH $73.88 +0.07 (-0.43) UNH staged a sharp intraday drop
which took the stock down near its 50-dma.  UNH rebounded to
fill its morning gap lower, but failed to advance past its
short-term congestion near the $74.50 area.  Its 10-dma is
in the same vicinity.  With the potential for a rollover
high at current levels, we're dropping coverage on UNH this
evening.  Traders with open positions can look to exit on
any strength early tomorrow.


************
DROPPED PUTS
************

None


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* EASY screens for spreads, collars, covered calls or 
butterflies!
* 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
Go to 
http://www.optionsxpress.com/marketing.asp?source=oinvestor010

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


*********************
PLAY OF THE DAY - PUT
*********************

KSS - Kohls $67.33 -0.37 (-1.17 this 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. 

Most Recent Update

The earnings report from Wal Mart (NYSE:WMT) didn't help to
boost retail shares in today's trading.  The S&P Retail Sector
Index ($RLX) finished 1.33% lower for the day, mirroring the
performance of the Dow Jones Industrial Average ($INDU).  For
its part, KSS tracked the performance of the $RLX.  We'd like
to see the stock lose some relative strength versus the market
and its sector.  Until that happens, KSS will most likely
track that $RLX and broader market closely.  The stock closed
near its 10-dma in today's session.  The 10-dma currently sits
at $67.83.  A continuation of the recent sell-off through that
level into tomorrow's session could have KSS lower in the short
term.  Confirmation of weakness would be provided on a decline
below the $67 level.  From there, we'll look for the stock to
trade down to the $65 level if the $RLX continues to weaken.
Watch for volume to increase on further weakness.

Comments

KSS traded lower in today's session on increased volume.  The
stock's weakness came in spite of strength in its sector,
the Retail Sector Index (RLX.X), and the broader market.  Its
decline below the $67 level confirmed the weakness from earlier
in the week.  We're looking for the stock to continue lower,
especially on weakness in the RLX.X.  Look for a rollover on
intraday strength from the $68.25 resistance zone or for a
breakdown below the $66 support level.

BUY PUT MAR-70*KSS-ON OI= 677 at $3.80 SL=2.50
BUY PUT MAR-65 KSS-OM OI=1625 at $1.40 SL=0.75

Average Daily Volume = 1.78 mln



*****************************************
BIG CAP COVERED CALLS & NAKED PUT SECTION
*****************************************

BIG-CAP COVERED CALLS, NAKED PUTS & COMBINATIONS
***************
Stocks Rebound After Post-Holiday Slump!
By Ray Cummins

U.S. equities rallied today with blue-chip issues leading the way
amid an unexpected buying spree by "bargain-hunting" investors.

The Dow Jones Industrial Average gained 196 points to 9,941 after
falling 157 points on Tuesday.  The recent "tech wreck" also ended
with the NASDAQ Composite recovering 24 points to 1,775 in the
wake of yesterday's slide to a new low for the year.  The broader
market S&P 500 stock-index ended 12 points higher at 1,096, even
as accounting worries continued to affect market sentiment.  The
rally in industrial shares was underpinned by Honeywell (NYSE:HON),
which jumped almost 6% after the company's board selected David M.
Cote, the current chairman and CEO of TRW, to take over as chairman
and chief executive.  Strength in the blue-chip group was also seen
in Walt Disney (NYSE:DIS), which vaulted over 5% after a U.S. Court
of Appeals handed down two rulings that could positively affect the
the broadcasting industry.  The rebound in the technology segment
was led by semiconductor, hardware, and telecommunications issues.

Despite some hopeful news about the economy, today's session was
plagued by additional accounting concerns as a new company became
the focus of an investigation.  According to Newsday and the New
York Times, the Federal Bureau of Investigation is now trying to
determine whether Computer Associates (NYSE:CA) overstated its
earnings to inflate its stock price.  The company, however, said
it hasn't been contacted by authorities and doesn't know what, if
anything, is being investigated.  It staunchly defended its past
accounting practices, saying it has been "in accordance with all
applicable accounting principles."  Another market catalyst in
today's session was the activity among Wall Street analysts and
the big loser in this category was media and entertainment giant
AOL Time Warner (NYSE:AOL).  The company saw its rating slashed by
Lehman Brothers to a "market perform" on lowered growth estimates
for the American Online unit.  The announcement sent shares of AOL
tumbling and the issue was the most heavily traded on the NYSE.
In the broader market, biotechnology, major drug, cyclical, retail,
consumer and financial issues edged higher, reflecting the appeal
of discounted prices in both defensive and aggressive areas of the
market, while losses were seen in oil and oil service, gold and
natural gas stocks.

***************
Summary of Current Positions (as of 02-19-2002):
***************

Covered Calls: (Margin not used in calculations)

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

RTEC    MAR     40    37.64   38.25   0.61    1.6%

The sell-off in technology shares has affected a number
of bullish issues in the semiconductor group and Rudolph
Technologies (NASDAQ:RTEC) may be our first "early-exit"
of the new expiration period.  Any close below the cost
basis of the position should be a suitable exit signal
for short-term traders while longer-term investors may
choose to focus on the 30-dma for further indications of
a new bearish trend.
    

Naked Puts:

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

INVN    MAR     25   24.20   37.50   0.80    7.2%
MU      MAR     30   29.20   36.59   0.80    7.5%
NVDA    MAR     47.5 46.45   53.55   1.05    6.4%
KLAC    MAR     50   48.55   58.47   1.45    7.4%
AMAT    MAR     40   39.40   45.80   0.60    5.1%
KLAC    MAR     50   48.95   58.47   1.05    7.5%
RTEC    MAR     35   34.25   38.25   0.75    6.9%
TER     MAR     27.5 27.00   31.59   0.50    6.3%

Shares of Nvidia (NASDAQ:NVDA) came under fire last week after
officials disclosed that the Securities and Exchange Commission
has asked 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 the company's B+
corporate credit and other ratings on credit watch with negative
implications to reflect uncertainties about its reserves and the
future potential for additional disclosures.  From a technical
viewpoint, the near-term trend has certainly turned "bearish"
and traders should monitor the issue closely for an early exit.


Naked Calls:

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

VRTS    MAR    45    45.80   34.16   0.80    8.2%


Credit Spreads:

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

CYMI   41.37    37.94  MAR30P/35P   0.75   34.25   0.75   Open
AZN    47.60    49.43  MAR40P/45P   0.40   44.60   0.40   Open
NOC   109.32   114.90  MA95P/100P   0.80   99.20   0.80   Open
PG     82.50    84.00  MAR75P/80P   1.00   79.00   1.00   Open
TGH    77.00    74.96  MAR65P/70P   0.45   69.55   0.45   Open
BVF    42.05    44.00  MAR55C/50C   0.60   50.60   0.60   Open
WHR    65.50    65.49  MAR75C/70C   1.10   71.10   1.10   Open
ROOM   54.72    47.95  MAR40P/45P   0.70   44.30   0.70   Open
HIG    67.00    65.49  MAR60P/65P   0.90   64.10   0.90   Open
PGR   152.90   150.36  M140P/145P   0.90  144.10   0.90   Open
XL     97.11    92.50  MAR85P/90P   0.60   89.40   0.60   Open
AHC    64.48    65.00  MAR55P/60P   0.50   59.50   0.50   Open
BGEN   54.45    53.21  MAR65C/60C   0.50   60.50   0.50   Open
TEVA   59.99    57.27  MAR70C/65C   0.60   65.60   0.60   Open


Index Credit Spreads:

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

OIH    56.65    58.23  MAR45P/50P   0.60   54.40   0.60   Open


Synthetic Positions:

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

WMT    59.86    59.29  MAR65C/55P   0.25   54.75   0.20   Open


New Candidates:

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

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

BULLISH PLAYS - Naked Puts (Same Stocks - Different Week!)

The list of favorable issues in this category has not changed
much over the last week, despite the market's volatility, and
some of today's candidates are already posted in our portfolio.
However, investors with a bullish outlook on the underlying
issues, who plan to use the recent share-value slump to initiate
new positions, may find the risk-reward outlook in these plays
attractive.  All of these companies have reported earnings this
quarter and have favorable fundamentals and relatively positive
technical indications.  At the same time, they should also be
evaluated for portfolio suitability and reviewed with regard to
your personal investing criteria.

***************
ACS - Affiliated Computer Services  $94.70  *** Split Coming! ***

Affiliated Computer Services (NYSE:ACS) is a global Fortune 1000
company that delivers comprehensive business process outsourcing
and information technology outsourcing solutions, as well as
system integration services, to commercial and federal government
clients.  In the commercial sector, ACS provides its clients with
business process outsourcing, systems integration services and
technology outsourcing.  Within the federal government sector, ACS
provides business process outsourcing and systems integration
services.

The recent slump in the value of ACS appears to be coming to an
end, despite the selling pressure in broader-market issues.  Some
analysts say the reason for the renewed interest in the company's
stock is the forecasted 20% growth in revenues and earnings per
share beyond 2002.  Others believe the recovery in the issue is
due to the upcoming 2-for-1 stock split, which will occur on 2/25.
Regardless of the reason for the activity, the current technical
indications suggest the stock is preparing for a bullish move and
traders who agree with that outlook can speculate on the future
movement of the issue with these positions.

ACS - Affiliated Computer Services  $94.70

PLAY (sell naked put):

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

SELL PUT  MAR 85   ACS OQ  150       1.10    83.90      5.0% ***
SELL PUT  MAR 90   ACS OR  139       2.00    88.00      7.5%
SELL PUT  MAR 95   ACS OS  956       3.80    91.20     12.0%


***************
AMAT - Applied Materials  $46.57  *** 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.  Applied has five single-wafer,
multi-chamber platforms: the Precision 5000, the Centura, the
Endura, the Endura SL and the Producer.  These platforms currently
support chemical vapor deposition, physical vapor deposition, etch
and rapid thermal processing technologies.  Customers for their
products include semiconductor wafer manufacturers and integrated
circuit (or chip) manufacturers.

Shares of Applied Materials rallied last week after the company
posted a fiscal first quarter net loss of $45 million, or 6 cents
a share, on revenue of $1 billion.  During the same quarter last
year, net income was $156 million, or 19 cents a share, on revenue
of $2.36 billion.  The consensus expectation was for "break-even"
results, excluding charges, on revenue of $1.01 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
semiconductor revenues have apparently reached a bottom because
memory chip prices have risen and activity in chip factories has
increased.  The issue is performing well, despite the slump in
technology stocks, and traders who agree with a bullish outlook
for AMAT can speculate on the future movement of its stock price
with these positions.

AMAT - Applied Materials  $46.57

PLAY (sell naked put):

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

SELL PUT  MAR 37.5 ANQ OU  1,075     0.35    37.15      4.7% "TS"
SELL PUT  MAR 40   ANQ OH  5,390     0.60    39.40      6.3% ***
SELL PUT  MAR 42.5 ANQ OV  8,160     1.05    41.45      8.9%
SELL PUT  MAR 45   ANQ OI  9,303     1.80    43.20     12.6%


***************
IDPH - Idec Pharmaceuticals  $62.10  *** New Drug Approval! ***

IDEC Pharmaceuticals (NASDAQ:IDPH) is a biopharmaceutical company
engaged in the research, development and commercialization of
targeted therapies for the treatment of cancer and autoimmune and
inflammatory diseases.  The company's first commercial product,
Rituxan, and its most advanced candidate, ZEVALIN (ibritumomab
tiuxetan), are for use or intended for use in the treatment of
certain B-cell non-Hodgkin's lymphomas (B-cell NHLs).  B-cell NHLs
currently afflict over 300,000 patients in the United States.  The
Company is also developing products for the treatment of various
autoimmune diseases, such as rheumatoid arthritis and psoriasis.

Shares of IDEC Pharmaceuticals soared today in the wake of news
that the FDA had issued an earlier-than-expected marketing approval
for the company's cancer-killing radiation product Zevalin.  The
U.S. Food and Drug Administration approved its new drug for the
treatment of non-Hodgkin's lymphoma, a form of lymph cancer that
is treatable in its early stages but which typically resurfaces
and becomes very difficult to control.  Analysts were bullish on
the announcement, saying it will substantially boost the company's
revenues in the current year.  Investors were also optimistic in
light of the new developments and they drove the issue up over 10%
to a recent high near $62.  

Traders who believe the rally will continue can profit from that
outcome with these bullish positions.  Target a higher premium
in the options initially, to allow for a brief consolidation in
the issue.

IDPH - Idec Pharmaceuticals  $62.10

PLAY (sell naked put):

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

SELL PUT  MAR 50   IDK OJ  577       0.45    49.55       4.5% "TS"
SELL PUT  MAR 55   IDK OK  598       1.00    54.00       7.1% ***
SELL PUT  MAR 60   IHD OL  912       2.10    57.90      11.2%


***************
KLAC - KLA Tencor  $59.77  *** Still A Favorite! ***

KLA-Tencor (NASDAQ:KLAC) is a supplier of process control and
yield management solutions for the semiconductor and related
microelectronics industries.  The company's large portfolio
of products, software, analysis, services and expertise is
designed to help integrated circuit manufacturers manage yield
throughout the entire wafer fabrication process, from research
and development to final mass production yield analysis.  The
company offers a broad spectrum of products and services that
are used by every major semiconductor manufacturer in the world.
These customers turn to the company for in-line wafer defect
monitoring; reticle and photomask defect inspection; CD SEM
metrology; wafer overlay; film and surface measurement; and
overall yield and fab-wide data analysis.  

KLAC has consolidated after last week's rally but the issue is
definitely a "favorite" in the semiconductor-equipment group
and today's bullish activity suggests there is still optimism
for a few companies in that sector.  The long-term technical
outlook remains favorable and the premiums in these options
offer excellent reward potential for traders who are bullish
on the issue.

KLAC - KLA Tencor  $59.77

PLAY (sell naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield
 
SELL PUT  MAR 50   KCQ OJ  4,484     0.80    49.20      7.1% ***
SELL PUT  MAR 55   KCQ OK  7,307     1.65    53.35     10.5%
SELL PUT  MAR 60   KCQ OL  10,070    3.40    56.60     16.3%


***************
TER - Teradyne  $33.59  *** Sector Leader! ***

Teradyne (NYSE:TER) is a manufacturer 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 backplanes 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 slump and
today's rally in Teradyne confirmed its position as a leader in
the sector.  Based on the current technical indications, Teradyne
is one of the stronger stocks in the chip-equipment segment and
traders who wouldn't mind owning the issue at discounted cost
basis should consider these positions.
  
TER - Teradyne  $33.59

PLAY (sell naked put):

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

SELL PUT  MAR 27.5 TER OY  200       0.40    27.10       6.8% ***
SELL PUT  MAR 30   TER OF  686       0.80    29.20       9.9%
SELL PUT  MAR 32.5 TER OZ  226       1.45    31.05      13.9%


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

Credit Spreads

All of these plays are based on the current price or trading
range of the underlying issue and its recent technical history
or trend.  The probability of profit from these positions may
also be higher than other plays in the same strategy based on
disparities in option pricing.  However, current news and market
sentiment will have an effect on these issues so review each
play individually and make your own decision about the future
outcome of the position.

***************
ACE - ACE limited  $42.50  *** Bullish Industry Outlook! ***

ACE Limited (NYSE:ACE), through its many subsidiaries, provides
a broad range of insurance and reinsurance products to customers
in the United States and almost 50 other countries.  In addition,
ACE, through ACE Global Markets, provides various funds at Lloyd's,
mainly in the form of letters of credit, to support underwriting
capacity for their syndicates managed by Lloyd's managing agencies
that are wholly owned subsidiaries of ACE.  The company derives
its revenue principally from premiums, fees and investment income.
ACE operates through six business segments: ACE Bermuda, ACE Global
Markets, ACE Global Reinsurance, ACE USA, ACE International and ACE
Financial Services.

ACE - ACE limited  $42.50

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-35  ACE-OG  OI=855  A=$0.25
SELL PUT  MAR-40  ACE-OH  OI=344  B=$0.65
INITIAL NET CREDIT TARGET=$0.50-$0.55  PROFIT(max)=11%


***************
DIAN - Dianon Systems  $62.25  *** Earnings Play? ***

Dianon Systems (NASDAQ:DIAN) provides a full line of anatomic
pathology testing services and a number of genetic and clinical
chemistry testing services to patients, physicians and managed
care organizations throughout the United States.  The company's
principal physician audience for these services includes 50,000
clinicians engaged in the fields of medical oncology, urology,
dermatology, gynecology and gastroenterology.  Dianon performs
all testing at either its main facility in Stratford, Connecticut,
or at its other facilities located in Tampa, Florida; New City,
New York; Woodbury, New York, or Englewood, Colorado (acquired
in October 2000).  The company provides most test results to
physicians within 48 hours.

Note: Dianon Systems is expected to announce earnings tomorrow,
possibly before the market opens, but since the company has
already offered a complete preview of its quarterly performance,
the report (without a significant surprise) is likely to have
little effect on its share value.

DIAN - Dianon Systems  $62.25

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-50  UID-OJ  OI=20  A=$0.45
SELL PUT  MAR-55  UID-OK  OI=36  B=$0.95
INITIAL NET CREDIT TARGET=$0.55-$0.60  PROFIT(max)=12%


***************
ETN - Eaton  $78.45  *** Merrill Upgrade! ***

Eaton Corporation (NYSE:ETN), incorporated in 1916, is a global
diversified industrial manufacturer.  Eaton is in the business
of fluid power systems, electrical power quality and controls,
automotive air management and fuel economy, and intelligent truck
components for fuel economy and safety.  The company is also a
global manufacturer of highly engineered products that serve
industrial, vehicle, construction, commercial, aerospace and
semiconductor markets.  The company segments its business as
Automotive, Fluid Power, Industrial and Commercial, Controls,
and Truck.

Note: Target a higher credit in the spread initially, to allow
for a brief consolidation from today's rally.

ETN - Eaton  $78.45

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-70  ETN-ON  OI=188  A=$0.25
SELL PUT  MAR-75  ETN-OP  OI=26   B=$0.70
INITIAL NET CREDIT TARGET=$0.55-$0.60  PROFIT(max)=12%


***************
MRK - Merck  $61.26  *** Bottom-Fishing! ***

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

MRK - Merck  $61.26

PLAY (moderately aggressive - bullish/credit spread):

BUY  PUT  MAR-55  MRK-OK  OI=4597   A=$0.20
SELL PUT  MAR-60  MRK-OL  OI=11540  B=$0.95
INITIAL NET CREDIT TARGET=$0.80-$0.85  PROFIT(max)=19%


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

BEARISH PLAYS - Naked Calls & Combinations

***************
EMLX - Emulex  $38.03  *** Premium Selling! ***

Emulex is a designer, developer and supplier of a broad line of
Fibre Channel host adapters, hubs, application-specific computer
chips (ASICs), and software products that provide connectivity
solutions for Fibre Channel storage area networks (SANs), network
attached storage (NAS), and redundant array of independent disks
(RAID) storage.  Its products are based on internally developed
ASIC technology, and are deployable across a variety of SAN
configurations, system buses and operating systems, enhancing data
flow between computers and peripherals.  Emulex's products offer
customers a combination of critical reliability, scalability, and
high performance, and can be also customized for mission-critical
server and storage system applications.

Emulex is an excellent candidate in the premium-selling category
of options trading, especially for those investors with a neutral
to bearish outlook on the issue.  The popular technology stock has
higher than average premiums in its options, a defined resistance
area near the target strike price ($45), and has recently fallen
below a major moving average (30-dma) on increasing volume.  The
stock's near-term technical history suggests that further downside
activity is likely in all but the most bullish market environments
and traders can speculate on that outcome with these positions.

EMLX - Emulex  $38.03

PLAY (aggressive - sell naked call):

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

SELL CALL MAR 47.5 UMQ CW  464       0.45    47.95      7.4% ***
SELL CALL MAR 45   UMQ CI  1,613     0.85    45.85     12.4%
SELL CALL MAR 42.5 UMQ CV  6,738     1.50    44.00     16.2%


***************
LXK - Lexmark International  $50.48  *** Sell-Off In Progress! ***

Lexmark International (NYSE:LXK) is a developer, manufacturer and
supplier of printing solutions such as laser and inkjet printers,
associated supplies and services for offices and homes.  Lexmark
develops and owns most of the technology for its laser and color
inkjet printers and associated supplies, and that differentiates
the company from a number of its major competitors, including
Hewlett Packard, which purchases its laser engines and cartridges
from a third party.  Lexmark also markets dot matrix printers for
printing single and multi-part forms by business users.  Lexmark
also develops, manufactures and markets a line of other office
imaging products, which include supplies for select IBM branded
printers, aftermarket supplies for original equipment manufacturer
products, and typewriters and typewriter supplies that are sold
under the IBM trademark.

Lexmark has long been regarded as a solid portfolio holding among
technology investors but recently, the issue has struggled under
the weight of profit-taking and a new downtrend appears to be well
established.  The current activity suggests a future drop to the
previous trading range near $45-$48 and with the current overhead
supply at $54, this spread offers a favorable risk/reward outlook
for traders who agree with a bearish outlook for the issue.

LXK - Lexmark International  $50.48

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-60  LXK-CL  OI=282  A=$0.20
SELL CALL  MAR-55  LXK-CK  OI=392  B=$0.65
INITIAL NET CREDIT TARGET=$0.55-$0.60  PROFIT(max)=12%


***************
SUPPLEMENTAL CREDIT-SPREAD CANDIDATES
***************

BULLISH PLAYS:

Stock  Last   Short    Bid    Long     Ask   Target  Monthly
Symbol Price  Option   Price  Option   Price Credit   Gain

MGA    66.15  MAR65P   1.40   MAR60P   0.40   1.10     28%
DD     46.83  MAR45P   0.85   MAR40P   0.15   0.75     18%
SRCL   62.41  MAR60P   1.25   MAR55P   0.55   0.75     18%
HSY    71.16  MAR70P   0.80   MAR65P   0.20   0.65     15%
GM     52.28  MAR50P   0.55   MAR45P   0.15   0.50     11%


BEARISH PLAYS:

Stock  Last   Short    Bid    Long     Ask   Target  Monthly
Symbol Price  Option   Price  Option   Price Credit   Gain

EBAY   54.26  MAR60C   1.05   MAR65C   0.40   0.70     16%
ENZN   45.40  MAR50C   0.90   MAR55C   0.25   0.70     16%
MERQ   34.89  MAR40C   0.85   MAR45C   0.25   0.65     14%
CCMP   57.04  MAR65C   0.95   MAR70C   0.35   0.65     14%
ERTS   54.61  MAR60C   0.85   MAR65C   0.35   0.55     12%
CEPH   60.85  MAR70C   0.70   MAR75C   0.25   0.50     11%
SEPR   38.97  MAR45C   0.75   MAR50C   0.30   0.50     11%

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

INDEX-OPTION SPREADS

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

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

***************
OEX - S&P 100 Index  $557.59  *** OTM Credit-Spread ***

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

Traders who participate in index-based spreads often utilize S&P
100 (OEX) options because they generally contain more premium
than options on individual stocks and also provide an underlying
instrument less prone to gapping moves.  In this case, today's
broad recovery in share values has boosted the front-month call
option premiums, providing a favorable spread credit for traders
who agree with a bearish stance on stocks in the near-term.  The
position will profit if the OEX remains below the sold strike at
590, which corresponds to the index's 50-dma.  From a technical
viewpoint, the market seems likely to move in constrained price
pattern as the long-term outlook is somewhat uncertain.  Please
review the OIN's Market Sentiment section for specific technical
information on the current trends in equities.

OEX - S&P 100 Index  $557.59
 
PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-595  OEB-CS  OI=687   A=$1.00
SELL CALL  MAR-590  OEB-CR  OI=2750  B=$1.40
NET CREDIT TARGET=$0.50-$0.55 PROFIT(max)=11%

Traders should target a higher premium in the spread initially,
to allow for a brief continuation in today's bullish activity
and increase the overall return on investment in the position.


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




SEE DISCLAIMER
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**************
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letters like these keep us motivated daily to share our collective 
knowledge with readers on how to earn money from the markets.  But 
it's even better when readers are willing to share their ideas 
with us.  That said, I hope R.D. won't mind if we use NAT as a way 
to show others how we might go about researching any company for 
more information.

Well, I'd never heard of NAT, but I was curious.  Are you?  The 
first thing I did was pop this company up on Q-Charts.  Drat!  All 
I got when I plugged the symbol NAT into Q-Charts was NASDAQ:NAT 
and a screen that refused to paint the candles.  OK, how about 
NYSE:NAT?  After all, only four-letter stocks show up on NASDAQ.  
Three letter symbols or less ought to show up on the NYSE.  Still 
no luck.  OK, last shot.  I tried AMEX:NAT.  Jackpot!  (Hope I'm 
this lucky at the gambling table some day when I'm down to my last 
dollar.)  

I have to say, the chart looked unremarkable.


 


The first thing I saw was support at roughly $13 (solid red line) 
and resistance (at least since late-November) of $15.  Hmmm - kind 
of rangebound I thought.  Maybe it could make a good range-trading 
stock.  You know, buy at $13, and sell at $15.  Short at $15, 
cover at $13.  Repeat.  Maybe, but what if they are optionable?  
Would I be better off trading the options.  Oops, dead end.  No 
options available.  So who are these guys and what do they do?

Before we find the answer, I want to point out that Fundamentals 
Guy did a very UN-fundamental thing and went straight to the 
charts first with only a secondary care for fundamentals, thus 
demonstrating that he considers technicals primarily in a trading 
environment rather than an investing environment, as many wish we 
had now.  Whether we like it or not, this is not an investor's 
market.  It is a trader's market and I will play it that way as a 
matter of survival unless and until I have reason to do otherwise.  
So on with the story.

Who these guys are - Nordic American Tanker Shipping Ltd.  A 
shipping company?  Yup.  What do they ship?  For that answer, I 
like to go to Yahoo Finance because they are low on graphics and 
the pages tend to load fast - a real time saver when performing my 
"ferret research" duties.  Type in the symbol (plain old NAT), 
click on "profile" and up comes the following business 
description:

"Nordic American Tanker Shipping Limited was incorporated on June 
12, 1995 under the laws of the Islands of Bermuda for the purpose 
of acquiring, disposing, owning, leasing, and chartering three 
double hull Suezmax oil tankers (the Vessels). Each of the 
Company's Vessels is a 1997-built, 151,459 dwt (dead-weight tons) 
double hull Suezmax oil tanker built at Samsung Heavy Industries 
Co. Ltd. in South Korea. Each Vessel is chartered to BP Shipping 
Ltd. pursuant to separate "hell and high water" bareboat 
charters."

Oh, so that's what they do.  New oil tankers on lease under 
contract to BP - just like R.D. said.  How about the financial 
summary?

"Nordic American Tanker Shipping Ltd. was formed for the purpose 
of acquiring, disposing, owning, leasing and chartering three 
double hull Suezmax oil tankers and engaging in activities 
necessary, suitable or in connection with the foregoing. For the 
fiscal year ended 12/31/01, revenues fell 22% to $28.4 million. 
Net income fell 30% to $19.4 million. Results reflect a down 
market for Suezmax tankers in the fourth quarter and lower 
financial income."

Hmmm - that doesn't sound so great on the surface with revenues 
and income falling.  Show me the numbers.  Scrolling down the page 
a bit further, we see the following table:



 


Very interesting, as my eyes focus straight on the red circle 
reflecting a dividend of 10.93%.  It pays $1.44 annually.  Seems 
awfully high percentage wise for what ought to be a stable 
business hauling oil over the long-term for BP.  Must mean there's 
a big risk in there somewhere that I haven't figured on.  I always 
want to balance risk with reward.  What could it be?

Well, for starters, how secure is that long-term contract with BP 
and how long does it run?  Any early cancellation provision for BP 
that would leave the company scrambling to fill those ships with 
another company's oil.  How does the boat payment get made if BP 
cancels?  Enquiring trader's leaning toward investing want to 
know.  If only there were information to fill in the gaps.

Now for the good news.  Information is usually just a few 
keystrokes and/or a phone call away.  In the case of NAT on the 
Yahoo! Page, there is almost always a link to the company's home 
page in the left-hand margin and all we do is click on it.  More 
to the point, almost every company's homepage will contain some 
sort of link for press releases and financial information and I 
wasn't disappointed by NAT.  The answers were all there in black 
and white.

"NAT owns 3 Suezmax tankers (150 000 dwt), “British Hawk”, 
“British Hunter” and “British Harrier”, all on charter to BP 
Shipping until September 2004. BP has an option to prolong the 
charter by 7 x 1 year. 

BP Amoco Plc. guarantees the charters. 
NAT is paying dividend to its shareholders on a quarterly basis. 
The minimum guaranteed annual dividend until 2004 is USD 1.35 per 
share. If the timecharter equivalent for Suezmax tankers is above 
an average of USD 22,000 per day during a quarter – the dividend 
will increase correspondingly. 
NAT receives a minimum of USD 22,000/day per vessel on a 
timecharter basis from BP. If the market for Suezmax tankers is 
above USD 22,000, based on an agreed formula and specific trades, 
NAT will receive additional charter hire from BP. The additional 
revenue is being calculated and paid in arrears. NAT will 
distribute all excess earnings to the company’s shareholders. 

If the market for Suezmax tankers is less than USD 22,000/day, NAT 
will still receive the minimum timecharter equivalent of USD 
22,000. 

No off-hire risk. The vessels receive hire 365 days a year. 

No management risk or costly administration. Ugland Nordic 
Shipping ASA is the commercial manager of NAT. 

Fixed interest costs on loan. 

All of a sudden, that dividend looks a whole lot safer with a 
guaranteed minimum from BP Amoco even of the ship sails empty.  
Not bad.  But there is one big gotcha.  Also contained on the 
homepage in the narrative section was the following information.  
Read on:

"The charter party with BP is valid until September 2004 with a 
further seven one-year options in BP's favor. The contract ensures 
that the ships receive a minimum rate of USD 22,000 per day per 
ship on a time charter basis, but in periods when the tanker 
market is stronger the company will receive the market rate. The 
market rate is calculated quarterly in arrears on the basis of a 
formula set out in the contract. If the market is below USD 22,000 
per day, NAT will still receive the minimum rate of USD 22,000." 

Translation:  Contract with BP expires in September 2004 and even 
if renewed is only done so on an annual basis.  2.5 years 
remaining at 11% annual dividend reduces the current $13 stock 
price to a basis of $9.50.  And remember that in the IRA, the 
dividend is tax free.  Yes, there is a risk that BP does not renew 
and we would be stuck with empty boats looking for a contract.  
What then?

Let's see. . .9.71 mln shares outstanding times $9.50 per share 
values the company at $92.25 mln plus debt (currently about $35 
mln), which amounts to $127.25 mln or about $42.42 mln per ship.  
That seems pretty reasonable for double-hulled tankers (the newest 
standard).  They could possibly be liquidated (sold) for that 
amount in the worst case scenario.

However, I note here just from experience that NAT is more likely 
to renew the lease with BP since the boats are now partially paid 
for.  For BP to build new ships would likely cost them more - the 
same for anyone else.  New costs more, thus they are likely not to 
walk away from a perfectly good deal on a perfectly good ship.  
But, it is only my gut talking and nobody should take this as 
investment advice.  It's just me thinking out loud.  

One way this deal could go sideways for an investor is for the 
world economy to continue slowing, the price of oil to drop, the 
shipping of oil to slow, and for the US to develop yet more supply 
in the Gulf of Mexico and Alaskan fields in order to become less 
dependent on foreign energy.  That could really kill shipping 
rates and thus dividends.  While these boats will stand a better 
shot at hauling cargo thanks to their newness, everybody 
considering NAT as an addition to the portfolio will have to 
evaluate the risks for themselves.  Personally the "what if" makes 
me nervous, but the dividend makes up for that.  While the ships 
may still sail, the rate of return thanks to downward price 
pressure may not be as great in the future. 

Full disclosure:  I don't own any NAT shares but I will keep an 
eye on industry developments with the idea that I may buy at a 
later date.  It stays on the radar.

One other feature of the Yahoo! site is the industry button that 
can also be accessed on the left hand Profile Page margin.  So, if 
the shipping industry has a high payer like this (it's not like 
shipping will just come to a stop one day and all the money will 
vaporize), there must be others that pay well too.  Lo and behold, 
I found Knightsbridge Tankers (VLCCF) Ltd. who pays a bigger 
dividend of 11.63%.

So I start the same process all over again.  I'll save you the 
details, but in a nutshell, I checked the chart, check the 
business description, which sounded and looked remarkably like the 
NAT descriptions above.  However, no homepage link this time in 
the left margin.  Undaunted, Fundamentals Guy got his favorite 
search engine to ferret out Knightsbridge' home page.  Whadda ya 
know!  It's managed and operated by the same group as NAT!  

"Knightsbridge Tankers Limited owns five Very Large Crude Carriers 
("VLCCs") built in Korea in 1995 and 1996. The five VLCCs are 
bareboat chartered to a company in the Shell Group ("Shell") for 
an initial period of 7 years, starting in February 1997, with the 
option for Shell to extend the charters for an additional period 
of 7 years at the end of the initial period. The charterhire 
payable by Shell is the higher of a base rate and a market related 
rate which is determined by market assessments made for each 
quarter by the London Tanker Broker Panel."

"Knightsbridge's policy is to distribute to shareholders all 
charterhire proceeds, less the Company's expenses, after the end 
of each quarter. The distribution for each quarter will thus 
depend on the tanker market in such quarter."

"The Company is managed by ICB Shipping (Bermuda) Ltd., a 
subsidiary of Frontline Ltd. (Bermuda). Frontline Ltd. is the 
world's leading crude oil tanker owner."

Same deal.  Interesting concept, but VLCCF leases five boats to 
Shell oil and the option to renew is a flat seven years.  A nice 
deal for shareholders if Shell exercises, but a risky proposition, 
which explains the hefty 11.63% dividend.


But how to get that information. . .I'll say it again.  
Information is almost always just a few keystrokes or a phone call 
away.  Corporate web sites are usually packed with information on 
the company's business and financial information.  Use them.  
Search them.  Ferret through them.  They often contain links to 
real 10K information too.  They are a treasure trove of knowledge 
for those with a fundamental bent (Huge grin)

Anyway, just as we tried to figure the downside with NAT should 
the oil companies not renew, the VLCCF website provides the answer 
if we dig enough (Oh, so that's where he was going with that last 
statement.)  

Straight from VLCCF's Frequently Asked Questions (FAQ) page:

"When is the end of first period of the charter to Shell and what 
happens if Shell fails to renew?

The initial charter period is about 7 years, starting February 
1997, and expires early [March] 2004. Shell has an option to 
extend the charters for another 7 years. Should Shell decide not 
to renew the charters after the initial period, the Board will be 
asked by shareholders to propose alternative such as: 

selling the VLCCs 

seeking other period employment for the VLCCs 

entering the VLCCs in the spot market 
etc.

The shareholders will vote on the Board’s proposal(s) and decide 
on the future of the Company."  

Question answered.  And since NAT is known to be of the same 
heritage, we were likely on the right track in figuring that the 
BP boats would be subbed out to another oil company or simply 
liquidated, as might be the VLCCF boats should things turn for the 
worst.

One other thing I like about these two companies (Full disclosure: 
I don't own any VLCCF either, but will keep it on the watch list 
too.), there isn't much volume in the shares (average daily volume 
is 80K for VLCCF and 35K shares for NAT) and they don't appear to 
be closely watched by many analysts.  Thank goodness.  They are 
off the radar and have not thus been subject to wild speculation 
and are likely rationally priced by fundamental-type investors.  
That said, if a gazillion readers jump on these tomorrow like dogs 
on a bone, the price is going to spike.  Remember, I am not 
recommending their purchase.  I bring this information up merely 
as a place to start, not a place to end the research.  There are 
big risks for big dividends and we should avoid the temptation to 
jump in headlong.

That's it for tonight!  Chalk up a good one for the loyal readers 
- Thanks R.D. - and keep the comments coming.  More on Q-Charts 
tomorrow.


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MARKET WATCH
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