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Daily Newsletter, Tuesday, 02/26/2002

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The Option Investor Newsletter                 Tuesday 02-26-2002
Copyright 2001, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.



Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************      
      02-26-2002           High     Low     Volume Advance/Decline
DJIA    10115.26 - 30.45 10186.88 10033.75 1.31 bln   1798/1320
NASDAQ   1766.86 -  3.02  1788.75  1750.36 1.64 bln   1827/1642
S&P 100   562.67 -  1.11   566.98   559.47   Totals   3625/2962
S&P 500  1109.38 -  0.05  1115.05  1101.72             
RUS 2000  471.29 +  3.10   471.93   466.60
DJ TRANS 2808.30 + 30.91  2820.56  2771.16
VIX        23.57 +  0.29    24.58    23.10
VXN        44.77 +  0.70    46.12    43.97
TRIN        1.04 
PUT/CALL    0.82
************************************************************ 

Dow Continues to Lead!

It is amazing what a couple of well placed comments can do to an
oversold market. Caterpillar soared after a bullish weekend article
in Barrons and Qualcomm said it was experiencing better than expected
demand for its cellphone chips. A revival in a heavy equipment and
a back from the dead telecom stock. Will wonders never cease! That
added to the explosion in existing home sales rocketed the Dow over
near term resistance and squeezed shorts yet again. Tuesday however
was a different story.



 



 



 

The "recovery in progress" crowd was thrilled with Monday's news
and voted with their money as the Dow rose 177 points. While this
was bullish the news on Tuesday failed to confirm the trend and 
the markets paused to digest their gains. The biggest heartburn on
Tuesday morning came from an unexpected drop in consumer confidence
to 94.1 from 97.8 in January. Both the expectations and current 
assessment indicators fell. This showed that after three months of
gains consumers may have decided that the economy could stay flat 
instead of rebound. The lack of an economic stimulus package and lack 
of an extension to the 26 week unemployment period were named as problems
impacting consumer confidence. The Fed is on hold as well as the
economic stimulus packages and consumers are beginning to fear a
dip back into recession over the summer. With two million workers
running out of unemployment benefits over the first six months of
this year, many are probably seeing the end approaching and are
still without a job prospect. This could continue to accelerate
a decline in confidence as workers run out of money. Shrinking 
profits continue to keep a lid on hiring producing a classic chicken
and egg scenario. Firms cannot hire until consumer spending picks
up and consumers cannot spend until they get a job.

After gaining at the open on a continuation of the short squeeze
from Monday, the markets immediately dropped to the lows of the day
by 10:30. The reason given by traders was a revived rumor that the
U.S. had advance troops in IRAQ and the Consumer Confidence release.
The Pentagon denied the rumor again for the second time in a week
and the markets recovered slightly. Oil stocks finished mixed on
the news after supplies of oil came in higher than expected.
Everyone expects the U.S. to eventually attack IRAQ, which accounts
for continued drops on false rumors. Nobody really expects oil 
supplies to suffer from any attack. There is a glut of production
and the drops in the stock market are simply a knee jerk reaction
to the news. It does show that there is no confidence in the current
market levels.

After the bell today several companies failed investor hopes and
may be setting the stage for future trends. The Gap, the nations
largest clothing chain, posted a loss for the 4Q and warned that
February same store sales are falling below expectations. Citing
the heavy markdowns required to move product the Gap said sales
had eroded in its basic lines. Inventory on hand had fallen to 
mid-1990 levels due to poor cash flow and was hampering its ability 
to make sales. They said the problems were due to internal struggles
and the evolution of consumer interest from traditionally boring
Gap styles. The Gap said it would close another 51 stores and two
distribution centers as same store sales fell -16%. 

Clear Channel Communications (CCU) the nations largest owner of
radio stations reported a 4Q loss that nearly doubled analyst's
estimates. The company cited a weak advertising climate prompted
by the September attacks. They said the cut of 2000 workers would
help profits going forward as they combined their divisions to create
cross selling opportunities. 

Tomorrow the markets will get another dose of Dr Death, otherwise
known as Alan Greenspan. This is the semiannual report to congress
on the state of the economy. He will likely be asked everything from
when interest rates will rise again to where is Osama Bin Laden. 
Many questions he will duck as each panel member gets their two minutes
of face time on camera but the markets will be holding their breath
as the tough questions are posed. Most likely the toughest ones will
be "where is the recovery", "will there be another dip" and "when
will the Fed start raising rates again." Any of those questions should
not provoke another "irrational exuberance" comment but each is loaded
with a minefield of negative possibilities. After admittedly coming 
off as too bearish on the economy last month Greenspan is likely to
tread lightly with the porridge not too hot and not too cold approach. 
The economy as Greenspan is likely to portray it is showing the first 
signs of recovering but the patients pulse is still to erratic 
to be let out of intensive care. The risks are probably still weighted 
to the downside but the key is in how he says it. If Alan paints a 
picture of another dip in our future then the markets are likely to
oblige quickly. He will probably avoid any reference to raising rates
unless they nail his hands to the table and start pulling out finger
nails. He will not want to play that card anytime soon because once
out of the box investors will expect a long string of hikes in their
future. 

He will probably be asked about Enron and the government response
but that should be a softball question. More important will be his
take on new capital investment by business or the lack thereof. Make
no mistake. Although I have poked fun at tomorrows barbecue I expect
Alan to make every effort to paint a rosy picture (if he can) of our
economic future. Without an optimistic view from Alan, investment will 
stop, business will stop, employment will stop, consumer spending will 
stop and the markets will stop. Some may disagree with me but he will
have far more impact on our future in his couple hours of fame tomorrow
than the coming months of interrogation of the Enron co-conspirators.  

Next target 10300. What the heck happened to the Dow? With everybody
preaching doom and gloom last week, including me, the Dow surprised
everyone with a near miraculous performance. By closing over 10100
two days in a row many institutional investors are scratching their
heads at the prospects. Is this the real thing? Far be it from me to
throw more cold water on this index because the truth will soon be
known. 10300 is the next serious resistance level and a failure there
would be a clear double top formation. We are still a month away from
the normal April sell off and anything is possible. The S&P failed
again at 1115 but is showing surprising strength. It is still in a
longer term downtrend until we get above 1125 so keep your fingers
crossed. The Nasdaq could not make it two green days in a row despite
the recent positive guidance from QCOM and XLNX. This could be just
normal profit taking after Monday's bounce but I would still be cautious.
I have not changed my spots but I am still on the sidelines until 
the trend changes. Advancers beat decliners on the NYSE and the Nasdaq
yet both indexes finished down. Volume was very light on the Nasdaq
at 1.6 billion. Nobody is betting the farm just yet which means there
is no conviction. When in doubt follow the volume. 

Enter very passively, exit aggressively!

Jim Brown
Editor


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

Another "Doji" Day
Austin Passamonte

Markets opened flat, went higher, plunged down from there, bounced 
quickly, spent most of the day trudging to new session highs and 
then sold back off into the close to finish at par. Pretty much 
sums up futility of attempts for holding directional plays using 
stops, now doesn't it?

Our email Flame-O-Meter is spinning out of control with in-pouring 
words (naughty ones, too!) from various part-time traders burdened 
jobs who are frustrated, getting kicked around and look for the 
easiest targets to lash out at for solace. How do we know they all 
work jobs? Negative emails come in at night... long after the 
closing bell and right after the hapless wretches reviewed their 
sliding account balances. 

This "proprietary" sentiment indicator tells me we've been trapped 
in a sideways, choppy range just about so long as many humans can 
emotionally stand it. We all know this persistent range will break 
eventually, but when? I'd guess the indexes will just move from 
one sideways range to another for months, maybe years from now to 
come. Meanwhile, those of us who are serious need to play the 
occasional moves when markets present them to us.

(Weekly/Daily Charts: SOX)


 

The SOX is setting up once again in bullish fashion and wants to 
go higher. Where to get in? Try a move above those 50 and 200-day 
moving averages depicted in the daily chart (right). 

(Weekly/Daily Charts: DTX)


 

Lots of questions on the Dow Transports from readers... do we have 
a budding group of Dow Theorists in here? If so, it appears all 
three Dow Jones indexes are poised to move higher. The transports 
just broke resistance above this bullish triangle, but stochastic 
values are getting toppy. I certainly wouldn't try to short this 
index right now, but it's sister might offer better risk / reward.

(Weekly/Daily Charts: DUX)


 

Dow Utilities have been in a wicked downward channel since last 
spring. Perhaps that's about to change! Stochastic values are just 
now turning bullish AND a double-bottom, bullish triangle is 
witnessed here as well. Given the choice between either, I'd look 
for longs in the utility index with charts looking just like this.

Summation
Indexes want desperately to go higher and work off oversold 
extreme pressure for now. Coupled with the customary month-end 
portfolio propping of the big, stupid mutual funds and we have the 
fixin's for higher markets these next few days. How long & far can 
it go? Just keep an eye on the chart signals yourself and don't 
fall in love with either direction. Today was a good lesson in 
that!

Best Trading Wishes,
austinp@OptionInvestor.com


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

Growing Horns
By Eric Utley

In the face of a moderate reading in the fear gauges and the
breakdown in yields last week, we're growing some horns on stocks.
That's because of the recent shift in bullish percent data.
Specifically in the S&P 100 (OEX.X) and 500 (SPX.X).  The OEX
reversed into bull confirmed Monday and the SPX reversed into
the same condition Tuesday.  After Tuesday, only the Nasdaq-100
(NDX.X) remained in a bearish status using the bullish percent
as a guide.

Both the S&P measures are at relatively high bullish percent
readings.  Because of that, we're not as aggressively bullish
as we would be with readings below 50 percent.  Nevertheless,
we are warming up to stocks at current levels, specifically
away from technology because, well, the NDX is still bear
confirmed.

The sectors of the market that continue to do well are those
most levered to the business cycle and the consumer.  In
Tuesday's session, we saw the consumer sensitive Retail Sector
(RLX.X) move to another new yearly high.  Housing stocks
continue to light up the new high list.  While cyclical issues,
such as the Transports ($TRAN) and Papers (FPP.X), traded very
well.  Appropriately enough, the Morgan Stanley Cyclical
Index (CYC.X) broke to a six-month high.  These are the types
of sectors leading this market higher, not technology.

Sentiment feels that the aforementioned types of stocks, the
one-, two-, and three-letter types, will continue higher over
the intermediate-term, or until the bullish percent dictates
otherwise.  In the meantime, the ball is in the bulls' hands.

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

Market Averages


DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     : 10115

Moving Averages:
(Simple)

 10-dma:  9951
 50-dma:  9921
200-dma: 10044



S&P 500 ($SPX)

52-week High: 1383
52-week Low :  945
Current     : 1109

Moving Averages:
(Simple)

 10-dma: 1102
 50-dma: 1127
200-dma: 1155



Nasdaq-100 ($NDX)

52-week High: 2771
52-week Low : 1089
Current     : 1401

Moving Averages:
(Simple)

 10-dma: 1417
 50-dma: 1543
200-dma: 1582



Gold and Silver ($XAU)

The XAU was the day's best performing sector with its 4.78
percent advance.  The rally in the commodity helped carry
equities higher.  The April contract (GC02J) finished the
session at $298.20 an ounce, higher by $5.30.

In equities, Harmony Gold (NASDAQ:HGMCY), Gold Fields
(NASDAQ:GOLD), Anglogold (NYSE:AU), and Placer Dome (NYSE:PDG)
led the rally.

52-week High: 70
52-week Low : 46
Current     : 67

Moving Averages:
(Simple)

 10-dma: 65
 50-dma: 60
200-dma: 57


Semiconductors ($SOX)

The SOX was the poorest performing sector in Tuesday's session
with its 0.75 percent drop.  The weakness in the overall Nasdaq
market added pressure as valuation concerns lingered.

Rambus' (NASDAQ:RMBS) nearly 24 percent rally was overshadowed
by weakness in shares of Altera (NASDAQ:ALTR), Analog Devices
(NYSE:ADI), Intel (NASDAQ:INTC), and Linear Tech (NASDAQ:LLTC).

52-week High: 711
52-week Low : 344
Current     : 535 

Moving Averages:
(Simple)

 10-dma: 540
 50-dma: 544
200-dma: 547

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

Market Volatility

The VIX, as expected, fell lower in Monday's session in light
of the strength in equities.  The VIX closed below most of its
major moving averages.

The VXN followed a similar path lower in Monday's session, but
like the VIX, did manage to rebound slightly in Tuesday's
trading.

CBOE Market Volatility Index (VIX) - 23.57 +0.29
Nasdaq-100 Volatility Index  (VXN) - 44.82 +0.75

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.82        492,901       404,201
Equity Only    0.68        429,050       291,785
OEX            1.55          9,257        14,367
QQQ            1.35         21,594        29,163
 
-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          53      + 1     Bull Alert
NASDAQ-100    31      + 0     Bear Confirmed
DOW           57      + 0     Bull Confirmed
S&P 500       60      + 1     Bull Confirmed
S&P 100       64      + 3     Bull Confirmed

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  1.05
10-Day Arms Index  1.31
21-Day Arms Index  1.33
55-Day Arms Index  1.25

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      1798           1320
NASDAQ    1827           1642

        New Highs      New Lows
NYSE      164             31
NASDAQ     85             70

        Volume (in millions)
NYSE     1,404
NASDAQ   1,816

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

Commitments Of Traders Report: 02/19/02

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 kept their long position essentially
unchanged, while they added about 4,000 short positions for
a net increase in the group's bearish position.  Small traders
added a small number of longs to their net bullish position.

Commercials   Long      Short      Net     % Of OI 
02/05/02      347,583   401,569   (53,986)   (7.2%)
02/12/02      355,276   412,868   (57,592)   (7.5%)
02/19/02      355,905   416,664   (60,759)   (7.9%)

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
02/05/02      128,235     64,404   63,831     33.1%
02/12/02      126,730     59,902   66,828     35.8%
02/19/02      130,856     63,311   67,545     34.8%

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 added more longs than shorts for a net
decrease in the group's bearish position.  Small traders
added to both sides, resulting in a small increase in the
group's net bullish position.

Commercials   Long      Short      Net     % of OI 
02/05/02       32,357     35,405    (3,048)  (4.5%)
02/12/02       32,712     34,841    (2,129)  (3.2%)
02/19/02       33,871     35,690    (1,819)  (2.6%)

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
02/05/02       10,416     8,173     2,243     12.1%
02/12/02        9,009     7,415     1,594      9.7% 
02/19/02        9,966     8,073     1,893     10.5%

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

DOW JONES INDUSTRIAL

Commercial traders grew more bullish last week by adding about
1,300 contracts to their net bullish position.  Small traders
grew slightly more bearish with the addition of 300 contracts
to their net bearish position.

Commercials   Long      Short      Net     % of OI
02/05/02       21,868    12,068    9,800     28.9%
02/12/02       26,811    16,488   10,323     23.8% 
02/19/02       29,606    17,953   11,653     24.5%

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
02/05/02        5,764    10,528    (4,764)   (29.2%)
02/12/02        4,562    10,038    (5,476)   (37.5%) 
02/19/02        4,654    10,431    (5,777)   (38.3%)

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

IS Swing Trade Model: Tuesday 2/26/2002
Consolidating Near Resistance

News & Notes:
------------
Indexes popped, dropped and rallied higher before settling back 
near par this session. Those who shorted the early move and bought 
every 10/5-minute chart signal dip on progressively higher lows 
did fine for very modest scalps, but it was a tough day to trade.


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


 

We now have all indexes looking the same: consolidation flags 
right below resistance from rising price action. This is bullish 
by nature and suggests price action has rested, gained energy and 
will break to the upside next. Supporting this theory are rising 
stochastic values across longer time frames.

[60/30-Min Chart: SPX]


 

I'd like to see stochastic values still in oversold extreme and 
just rising up from there, but weekly/daily chart signals in early 
bullish fashion suggest playing a breakout should win. I'd be even 
happier to enter on a bounce off the lower pink line of these 
flags and play the upside from there, but we'll take what happens 
first in this predetermined section.

[60/30-Min Chart: QQQ]


 

The QQQ looks similar but somewhat weak. Instead of threatening to 
break its month's-long channel at the top, we have price action 
resting in the middle. Still has upside room to 36 area, however.

Summation:
---------
We'll test call plays on any further upside attempts and should 
see a retest of recent index highs from three weeks ago if the 
month-end effect carries higher as mutual funds prop up their 
balance sheets. All weekly/daily chart signals pointing higher, so 
that's the way we'll play!


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: 102 (DJV-CX)  
Long: BREAK ABOVE 35.00           Long: BREAK ABOVE 101.25
Stop: Break Below 34.00           Stop: Break Below 100.00
                                

Mar Puts: 34 (QQQ-OH)             Mar Puts: 100 (DJV-OV) 
Long: BREAK BELOW none            Long: BREAK BELOW none
Stop: Break Above                 Stop: Break above 


=====


         OEX                         SPX
Mar Calls: 570 (OEB-CN)           Mar Calls: 1125 (SPT-CE)
Long: BREAK ABOVE 563.00          Long: BREAK ABOVE 1110.00
Stop: Break Below 560.00          Stop: Break Below 1104.00


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



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


IS Position Trade Model: Tuesday 2/26/2002
Greenspan Next

News & Notes:
------------
Indexes posted a "doji" day where they opened, rose, dove, rose 
and settled back to near breakeven at the close. Day trader's 
session once more, but no defined trend or impending directional 
move is visible right now.


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


Summation:
---------
The trend is decidedly down while indexes appear poised to rally. 
We cannot in good faith suggest call option plays that will hold 
for several days or weeks for high-odds success against this 
trend. However, shorter-term call plays look like potential 
winners to us. 

Our suggestion is to follow Swing Trade entries as they emerge 
later this week or Sector Share listings of optionable symbols and 
use those parameters for buy & hold calls. Using 100% risk capital 
instead of stops and March or (at the furthest away) April call 
option contracts for any option play attempts.


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


Sector Share Trade Model: Tuesday 2/26/2002
Pulled back

News & Notes:
------------
Indexes ran the gamut today but in the end, settled pretty close 
to par. We opened a slew of new long plays to track that mostly 
closed near their entry points as well. Management mode from here.


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


Summation:
---------
Sideways action persists right now as the indexes ache to go 
higher but sell off on a moment's notice. We'll keep trailed stops 
tight on current plays tracked and see what happens from here.


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:
---------------
IIH             BHH
Long: 4.75      Long: 3.50
Stop: 4.00      Stop: 3.00

HHH             XLE             IYV
Long: 28.00     Long: 26.75     Long: 11.40
Stop: 26.00     Stop: 25.00     Stop: 10.75


QQQ             BDH             SWH
Long: 35.30     Long: 12.75     Long: 40.00
Stop: 33.50     Stop: 11.00     Stop: 37.50

WMH             IAH             MKH
Long: 45.60     Long: 32.75     Long: 57.60
Stop: 43.00     Stop: 31.00     Stop: 55.00

OEF             SPY             FFF
Long: 56.65     Long: 111.60    Long: 80.15
Stop: 54.00     Stop: 108.00    Stop: 77.00

IYZ             IYW             IYC
Long: 26.60     Long: 48.10     Long: 55.60
Stop: 25.00     Stop: 46.00     Stop: 53.00

IYG             IVE             IVW
Long: 87.00     Long: 53.10     Long: 48.10
Stop: 84.00     Stop: 51.00     Stop: 46.00

MDY             XLF             XLK
Long: 92.70     Long: 25.25     Long: 21.40
Stop: 89.00     Stop: 24.00     Stop: 20.00


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The Option Investor Newsletter                  Tuesday 02-26-2002
Copyright 2001, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.

****************
PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

APA $52.65 -0.53 (+1.08) We're dropping APA based on the prospects
for a pullback in the broader energy sector.  We're maintaining
our other two plays in the group (SII and TDW) because they're
trading relatively stronger.  We observed as much simply through
Tuesday's finishes.  APA finished modestly lower, the other two
did not.  Traders with open positions can turn to any intraday
bounce early tomorrow for an exit point.  We're sticking with
the stronger stocks in the group in SII and TDW.


PUTS:
*****

TLAB $11.30 -0.12 (+0.43) TLAB traded near its 10-dma then
rolled over in Tuesday's trading.  Traders who took that rollover
can look for a breakdown below the $10.50 level in the coming
sessions on continued weakness in the Networking (NWX.X) and
Wireless (YLS.X) sectors.  Otherwise, we're dropping coverage on
this play as new entries from here don't hold the necessary
downside potential to justify the upside risk.  Those who took
the entry near the 10-dma should use a very tight stop to
manage risk.  A revisit of the $9 low from September can serve
as an exit point.

CHKP $30.85 +0.95 (+2.42) CHKP was looking bullish at the close
on Monday and after one last attempt to drive the stock lower
following the Consumer Confidence numbers this morning, the
bears threw in the towel and allowed the stock to push higher
throughout the day, ending the day well above our $30 stop.
Volume increased in the afternoon session, underscoring the
fact that the bears have given up on this one for the time
being.  We'll follow suit, dropping the play tonight.

VRTS $37.76 +1.58 (+3.44) Proving that it doesn't pay to chase
stocks lower once their daily Stochastics reach oversold (at
least in a rangebound market), VRTS reversed sharply in the
first two days of the week, adding to the rebound that began
Friday morning.  There was never even a hint of an entry point
after we added it last Thursday, so we'll take our opportunity
to drop the play tonight in light of the stock's continued
strength, despite the broad market weakness.  Of course, there
is also the issue of our violated stop down at $36.50, making
it an easy decision to drop VRTS tonight.


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

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

CALLS              Mon    Tue

ESRX     54.51   -0.08   0.81  Still very strong, breakout at $55?
SII      63.95    2.01   0.19  Eight-month high, pullback needed??
APA      52.65    1.61  -0.53  Dropped, under performer in energy
TDW      38.94    1.32   0.22  Still trending higher, book gains??
UTX      71.80    0.35   1.75  Breakout above $70, watch the Dow
HON      36.11    1.54  -0.34  Pullback to 200-dma welcome
BA       45.15    0.18   0.21  New, strong Dow stock, breakout Tue
MMM     119.30    1.45  -1.15  New, strong Dow stock, two plays


PUTS

TLAB     11.30    0.55  -0.12  Dropped, rolled at 200-dma
KSS      68.22    1.18   1.21  Trading higher with Retail Sector
CHKP     30.85    1.47   0.95  Dropped, two days of short covering
GNSS     40.09    4.45  -3.36  Gave back most of Monday's gains
GS       81.40    2.96  -0.56  Rolled over at 10-dma yet again
VRTS     37.76    1.86   1.58  Dropped, broke above resistance
QLGC     42.79    1.86   0.08  Converged 10-dma and 200-dma at $44
CCMP     56.70    3.59  -0.14  Rolled over from 10-dma at $57.51
ADVS     47.97    2.33   0.74  Near resistance and stop at $48.50
MXIM     49.26    1.71  -1.42  New, weak chipped rolled Tuesday


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********************
PLAY UPDATES - CALLS
********************

SII $63.65 +0.19 (+2.20) SII finished higher for the fourth
consecutive session in today's trading.  That followed the
stock's sharp rally during Monday's session on the heels of an
upgrade from Merrill Lynch.  Merrill upgraded shares to a buy
from a neutral rating, citing the company's earnings
visibility.  The analysts also noted the "discipline"
surrounding recent acquisitions.  The upgrade fueled the
momentum that had built in the Oil Service (OSX.X) space.
The OSX finished fractionally lower in Tuesday's trading,
which may have hinted towards profit taking in the broader
sector.  Traders who got into this play early might take a cue
from the OSX in the coming days as it might be a good idea to
lock in gains after the recent run.  We still like this group
very much, but would rather see it consolidate some of its
recent run before aggressively pursuing new positions.  A
good place to look for a pullback might be around the 10-dma,
now at $59.43.  

TDW $38.94 +0.22 (+1.54) TDW continued higher into Tuesday's
session as it strength continued to build.  The stock finished
today's session higher in spite of the fractional weakness in
its sector, the Oil Service (OSX.X) sector.  Rumors of an
invasion into Iraq surfaced Tuesday morning, but did not impact
the price action of the OSX or TDW.  We've been writing about
these rumors since picking up coverage on our OSX plays and
were probably already discounted.  Barring formal military
action, we would expect TDW to pullback on profit taking this
week, which means it might be a good time to look to lock in
gains.  If an announcement of an attack on Iraq is release,
it will be difficult to find a favorable entry into new plays.
Those with open positions might use any significant gap higher
as a favorable exit point.  Back to TDW's technicals, the
stock looks a little top heavy and could back into its support
range.  We'd be looking for a bounce from the $36.50 area for
new entries.


UTX $71.80 +1.75 (+2.10) UTX played catch-up with the Dow in
today's session.  The stock didn't respond to the rally in the
Dow in yesterday's session, but really got moving to the upside
in today's session, breaking above its short-term resistance.
We'd look for future pullbacks to the $70 level as entry
opportunities into this strong Dow play.  As for potential
upside, this stock could trade up to the $73 area if the Dow
continues along its path of higher highs.  Those who took
entries on the breakout above $70 can look for an exit point
to materialize around the $73 area.  Those who are still on the
sidelines, waiting for an entry, can look for that light
volume pullback to the $70 area and a subsequent bounce.  Take
your cue from the price action in the Dow.

HON $36.11 -0.34 (+1.02) HON broke out in a big way during
Monday's rally in the Dow.  The stock powered past its 200-dma
on the gap higher and never looked back in the session.
Hopefully traders were quick to pull the trigger on new
entries because the gap higher made it difficult for target
shooters.  The stock pulled back from the $37 area in today's
trading, which should serve as resistance in the short-term.
After Monday's large move higher, HON may be due for a brief
pullback before continuing higher.  In fact we hope that the
stock pulls back so that we might find a favorable entry into
new plays.  We'd like to see a light volume retreat back down to
the 200-dma, now below at the $35.35 level, for a site to target
new entries.  Pay close attention to how the Dow trades, as
HON is currently one of the stronger components.  The Dow's
trading should dictate HON in the short-term.

ESRX $54.51 +0.81 (+0.73) As the broad markets moved back into
rally mode on Monday, shares of ESRX pulled back to give us
one more entry point on a bounce from the $53 level before
launching to a new closing high on Tuesday.  The stock is now
well into the consolidation zone from last summer, so we want
to continue to target intraday pullbacks for initiating new
positions, as a breakout move is going to be tough for the
bulls to sustain without some back and filling.  The $53 level
is now shaping up as solid support, so that is the new level of
our coverage stop.  Look for a pullback to $54 or even $53.50
to provide for new entries, but wait for the bounce to get
started before entering.


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

MMM - 3M $119.30 -1.15 (+0.30 this week)

Minnesota Mining & Manufacturing (3M), an integrated enterprise,
is engaged in the research, manufacturing and marketing of
products related to its technology in coating and bonding for
coated abrasives. Characterized by substantial inter-company
cooperation, 3M's business has developed upon the research and
technology of its original product, coating and bonding. 

After Monday's rally, the Dow Jones Industrial Average ($INDU)
is poised to advance past its relative high near 10,300.  That
would allow some of the stronger components of the Dow to
breakout.  MMM is one such component of the Dow.  It continues
to gain relative strength versus the broader market, based on
the belief that the economy is on the rebound.  That belief
has carried the stock up to its relative highs near the $122
mark.  Its pattern of relatively higher lows and highs could
lead to the breakout above $122, especially if the Dow continues
to power higher.  There are two ways to play MMM.  The first is
to look for weakness in the Dow to pressure MMM back down to its
ascending support line, which currently resides below at the
$117 level.  A low volume pullback and bounce from the $117
level would offer dip buyers a way to trade this play.  The
momentum/breakout traders can wait for the Dow to breakout above
the 10,300 level and watch for MMM to breakout above the $122
level.  From there, the stock could be in for a quick trip to
$127, its all-time high.  The fact that MMM is so close to its
all-time high reveals just how strong this stock actually is.
Stops are set at $114, liberal in the event of an extended
pullback in the market.

BUY CALL MAR-115 MMM-CC OI=2795 at $5.90 SL=3.75 
BUY CALL MAR-120*MMM-CD OI=3045 at $2.60 SL=1.25 
BUY CALL MAR-125 MMM-CE OI=1442 at $0.85 SL=0.25 
BUY CALL APR-120 MMM-DD OI=2961 at $4.70 SL=2.25 

Average Daily Volume = 1.97 mln
 

BA – Boeing $45.15 +0.21 (+0.39 this week)

One of the world's major aerospace firms, BA operates in three
principal segments: commercial airplanes, military aircraft and
missiles, and space and communications.  Commercial airplanes
operations involves the development, production and marketing
of commercial jet aircraft, principally to the commercial
airline industry.  The Military Aircraft and Missiles division
is involved in the research, development, production,
modification and support of military aircraft, including
transport and attack aircraft.  The Space and Communications
segment is involved in the research, development, production,
modification and support of space systems, rocket engines and
battle management systems.

Ever since posting their lows in September, Transportation
stocks have been on a steady path to recovery, and one of the
key components to that recovery has been the Airline sector
(XAL.X).  Another bullish sector due to the defense buildup in
progress since the war on terrorism began is the newly created
Defense index (DFI.X).  Why not combine the two bullish sectors
into one high odds bullish play?  That was our thinking a couple
weeks ago when we featured BA in our Watch List, looking for a
breakout over the $42 level.  Well, we got that and more, as the
stock vaulted through that level and ran as high as $45 before
pulling back for a bit of much-needed consolidation.  Judging by
the recent price action (closing above $45 on Tuesday on healthy
volume), BA looks like it is ready to break out again.  Of
course, it doesn't hurt that the Dow Jones Transportation index
($TRAN) is right on the cusp of a breakout over the $2840
resistance level (the highs from early January) and the DFI
index is trying to push through the $491 level (resistance for
the past 2 weeks that is starting to weaken).  BA operates in
both of these sectors and is also highly levered to the XAL
sector, which is showing continued signs of improvement, once
again nearing the $99 resistance level from early January.  All
together, that's a lot of bullish factors in BA's favor.  While
we would love to get an entry on a pullback near the $44 or even
$43.50 levels (recent intraday resistance that should now act as
support), with all the sectors listed above on the cusp of a
fresh breakout, we may not get that lucky.  If we don't get the
desired pullback, look to initiate new positions on a
volume-backed move above the $45.50 area, the site of Tuesday's
intraday highs.  We are initiating the play with our stop set at
$42.50, just below last week's intraday lows.

BUY CALL MAR-42 BA-CV OI=1563 at $3.20 SL=1.50
BUY CALL MAR-45*BA-CI OI=5157 at $1.35 SL=0.75
BUY CALL APR-45 BA-DI OI=1068 at $2.30 SL=1.25
BUY CALL APR-47 BA-DW OI= 612 at $1.15 SL=0.50

Average Daily Volume = 3.54 mln



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*******************
PLAY UPDATES - PUTS
*******************

KSS $68.22 +1.21 (+2.39) KSS traded higher in the last two
sessions on the strength in the Retail Sector Index (RLX.X).
We'd like to point out that the RLX traced a new 52-week
high in today's session and KSS did not.  In fact KSS closed
more than $3 away from its yearly high.  That much reveals
slight under performance on the part of KSS, which is a good
thing for those leaning bearish currently.  The stock's
rebound this week has helped to work off the oversold
condition that was reached late last week.  Traders who like
entering puts near resistance can start thinking about
entry points in KSS.  Watch for a failure early tomorrow to
advance past Tuesday's high at $68.49.  Such a move would
allow tight entries and stops.  If the stock continues
higher, wait for another rollover from the $70 area.  Just
make sure to watch the trend in the RLX.  Even if KSS
continues to under perform, it could be dragged higher by
the RLX.  Ideally we'll see the RLX weaken in the next few
days and pressure KSS back below the $66 level.  Those in
search of confirmation can look for a breakdown below the
$66 level.

ADVS $47.97 +0.74 (+3.07) The battle between the bulls and
bears seemed to grind to a standstill on Tuesday, as the broad
indices gave back a little ground, but held onto the lion's
share of their gains since the Friday lows.  ADVS has seen
some concerted buying interest in the past 2 days, and on
Tuesday, the stock pulled back a bit at the closing bell, right
at our $48.50 stop.  This is either a great entry point to the
downside, or the last gasp of a failed put play.  Given the
bullish turn in the daily Stochastics and the strong volume
today, we're leaning towards a failed play, but we'll give it
one more day to prove us either right or wrong.  If the stock
continues higher and takes out our stop, we'll be dropping it
tomorrow night.  On the other hand, a rollover from current
levels would make for a great entry as the bears reassert their
influence and drive ADVS back towards its lows from last week
near $45.  Keep an eye on the Software sector (GSO.X) too, as
it is attempting a bullish reversal of its own.  If the GSO
continues positive tomorrow, ADVS bears will have a hard time
holding the stock back.

CCMP $56.70 -0.14 (+3.45) Despite the fact that CCMP flirted
with its stop near $58.50 on Tuesday, we're still leaning into
the bearish camp on the play, due in large part to the fact
that the Semiconductor sector (SOX.X) was the worst performing
sector in Tuesday's market action.  After pushing up to the
level of our stop, CCMP dropped sharply at the close, and it
looks like the push above $58 may have presented a great entry
point.  With that being said, the bulls could come out swinging
tomorrow morning and if CCMP moves through our stop, we'll be
moving the play to the drop list tomorrow.  Perhaps the details
of the company's presentation this evening at the Robbie
Stephens Technology Conference will provide the swing vote, but
we won't know that until the opening bell rings tomorrow.  If
you're in the play, honor your stop.  For those looking to
enter the play, wait for more weakness to push CCMP below the
$56 level or another rally failure near the $58 level before
playing.

GNSS $40.09 -3.36 (+1.09) GNSS went along for the ride on
Monday as the Semiconductor sector (SOX.X) launched itself
higher by nearly 6%.  GNS ended the day significantly higher as
well, but then showed its relative weakness on Tuesday.  While
the SOX was the worst performing sector on Tuesday, it kept its
loss to less than 1%.  On the other hand, shares of GNSS gave
back most of their gains from Monday enroute to a 7.7% loss on
the day.  Traders that sold the rollover from the $44 resistance
level this morning managed to capture a nice gain by the closing
bell.  So where do we go from here?  Action points remain
unchanged, with rollovers below the $44 level looking attractive
for new positions.  For those looking to trade a breakdown,
you'll want to see the stock break below the $38 level before
taking a position.  Given the stock's recent trading pattern,
the best approach appears to be selling resistance whenever it
is tested.

GS $81.40 -0.56 (+2.40) Bearish resolve is being tested again,
and this can be seen in the recent trading action of the
Broker/Dealer index (XBD.X), which is trying mightily to put in
a bottom at the $450 support level.  While Monday's action was
encouraging for the bulls, it was clear from Tuesday's trading
that there isn't a lot of bullish conviction out there right
now.  The XBD failed to push through resistance and the
resulting downward pressure could be clearly seen in our GS play
as the stock pulled back from its opening highs (right at the
descending 20-dma).  Following a tepid rally attempt through most
of the remainder of the day, GS pulled back right at the $82
level near the closing bell, setting us up another possible entry
point.  That being said, we may be on the cusp of a failed play,
and the action in the XBD tomorrow will likely hold the deciding
vote.  Use a rollover in the XBD from current levels and more
weakness in GS in the vicinity of $82 as a fresh entry point.
More conservative traders will want to wait for GS to break below
the $80 level on increasing volume again before attempting new
positions.  Keep in mind that the $78 level has provided support
twice in the past week, and we'll want to tighten up stops on
open plays as GS approaches that level again.

QLGC $42.79 +0.08 (+1.94) Bullish sentiment has been driving the
markets over the past few days, particularly in the Technology
arena, and QLGC has had a nice little rebound off its Friday
lows near $38.50.  The big question is whether there is going to
be any follow through now that the oversold condition has been
relieved a bit and the stock is bumping up against resistance
near $43.  Given the rather tepid volume on Tuesday's advance,
we're leaning towards the current price action being a prelude
to an attractive entry point.  Consider taking new positions if
QLGC rolls over from current price levels, but stand aside if the
stock pushes through the $43.50 resistance level.  A continuation
of the current rebound that takes the stock through that level
would be a strong indication that there is some life to the
current rally, and we would want to be moving to the sidelines.
Our stop remains at $43.50, and if QLGC moves through that level
on Wednesday, look for the play to move to the drop list.  More
conservative traders would want to see QLGC break back below the
$41.40 intraday support level on increasing volume before taking
a position.


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

MXIM – Maxim Integrated Products $49.26 -1.42 (+0.23 this week)

MXIM designs, develops, manufactures and markets a broad range
of linear and mixed-signal integrated circuits, commonly
referred to as analog circuits.  The company also provides a
range of high-frequency design processes and capabilities that
can be used in custom design.  MXIM's objective is to develop
and market both proprietary and industry-standard analog
integrated circuits that meet the increasingly stringent
quality standards demanded by customers.

Ever since topping out near the $600 level in early January,
the Semiconductor sector (SOX.X) has continued to languish,
working its way back towards a breakdown below the $500 level.
While certain chip stocks have bucked this bearish trend, there
are plenty of stocks that are going with the flow.  Enter our
next bearish candidate, MXIM, which has been posting a series of
lower highs and lower lows since early December and appears
poised to break down again.  Last week's weakness led the stock
back under the 200-dma ($49.11) for the first time since late
October, and it is entirely possible that the rebound last Friday
and yesterday was due to the Buy rating issued by Pacific Crest
Securities last Thursday.  Whether there is any direct
correlation is not important, as we can see the bullish tint to
the stock faded significantly on Tuesday, as the stock gave back
most of Monday's gains, owing in part to the weakness in the
SOX.  Daily Stochastics are attempting to make good on a bullish
reversal, but the heavy selling seen today is a strong indication
that the rally attempt is in the process of failing.  It is no
great surprise that MXIM ran into selling at the $51 level, as
that is a level of prior resistance (failed support).  We can
target new positions on another failed rally attempt near this
level, although the stock could have one more push higher before
rolling over for real.  Truly attractive entries would
materialize near the $52 level, the site of the descending
trendline (since the January highs), the descending 20-dma
($52.20) and even stronger historical resistance.  Those looking
to play the stock on a breakdown below support will need to wait
for MXIM to break below the $48.50 intraday lows from Tuesday
and preferably the $47 level, the lows of last Thursday.  We are
initiating the play with our stop set at $52.50.  The current
bearish price target from the PnF chart is $42.

BUY PUT MAR-50*XIQ-OJ OI=3959 at $3.20 SL=1.50
BUY PUT MAR-45 XIQ-OI OI=1007 at $1.30 SL=0.75

Average Daily Volume = 5.45 mln



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

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


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

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

Contact Support
The Option Investor Newsletter                  Tuesday 02-26-2002
Copyright 2001, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


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

KSS - Kohl's $68.22 +1.21 (+2.39 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

KSS traded higher in the last two sessions on the strength in the
Retail Sector Index (RLX.X).  We'd like to point out that the
RLX traced a new 52-week high in today's session and KSS did not.
In fact KSS closed more than $3 away from its yearly high.  That
much reveals slight under performance on the part of KSS, which
is a good thing for those leaning bearish currently.  The stock's
rebound this week has helped to work off the oversold
condition that was reached late last week.  Traders who like
entering puts near resistance can start thinking about
entry points in KSS.  Watch for a failure early tomorrow to
advance past Tuesday's high at $68.49.  Such a move would
allow tight entries and stops.  If the stock continues
higher, wait for another rollover from the $70 area.  Just
make sure to watch the trend in the RLX.  Even if KSS
continues to under perform, it could be dragged higher by
the RLX.  Ideally we'll see the RLX weaken in the next few
days and pressure KSS back below the $66 level.  Those in
search of confirmation can look for a breakdown below the
$66 level.

Comments

KSS has rebounded so far this week on strength in the broader
retail group.  Its rally could be setting up another solid
entry point into put plays.  If the RLX continues higher in
tomorrow's session, watch for KSS to work up to the $69 area.
The first signs of weakness in the RLX should then pressure
KSS lower.  Tight stops can accompany any entries from the
$69 level, giving this play a favorable potential reward to
risk ratio.

BUY PUT MAR-70*KSS-ON OI= 700 at $3.20 SL=1.50
BUY PUT MAR-65 KSS-OM OI=1707 at $1.00 SL=0.50

Average Daily Volume = 1.78 mln



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

Milking Q-Charts, Part VII, An Owner's Manual
Buzz Lynn
Contact Support

Technology is an amazing thing.  It enables us to have a detailed 
daily newsletter in the comfort of our own homes that would never 
have been possible as little as seven years ago.  Unfortunately, 
when things go wrong, it can also render our little techno-marvels 
useless.  Such was the case with "the machine" last Thursday, as 
it contracted two nasty viruses all neatly tucked into one little 
DOS e-mail attachment.  Magister and JS Seeker Trojan for those 
who care.  

Nearly six hours of fixing with five of those in McAfee tech 
support.  While nothing is fool proof, this incident makes a good 
case for updating virus programs on a regular basis.  Thankfully, 
McAfee realized their virus scan software wasn't doing what it was 
supposed to (otherwise I'd have never got this damaging duo to 
begin with), so they upgraded me free of charge to the latest and 
greatest version.  Very helpful folks making the best of a bad 
situation.

So just where is this little story leading?  To an explanation, of 
course, as to why there was no Q-Charts article on Thursday!  For 
that I humbly apologize and have made improved security upgrades 
to see that is doesn't happen again.  Better late than never.  
Ready?

Wow!  Episode VII and counting.  I thought our faithful readers 
would have had enough by now.  However, flooded with requests to 
cover certain areas, I will press on.  Just in case you missed the 
previous articles, you can catch up on the following links:

http://www.OptionInvestor.com/traderscorner/011002_1.asp

http://www.OptionInvestor.com/traderscorner/011702_1.asp

http://www.OptionInvestor.com/traderscorner/012402_1.asp

http://www.OptionInvestor.com/itrader/archive/traderscorner/031801_1.asp

http://www.OptionInvestor.com/traderscorner/013102_1.asp

http://www.OptionInvestor.com/traderscorner/020702_1.asp

http://www.OptionInvestor.com/traderscorner/021402_1.asp

Today's helpful hints are born of many readers asking a similar 
question.  Namely, how do we set up Time and Sales information in 
order to follow option block trading on the SPX?

Caveat, Caution, Words of Warning!  Do not just set up the montage 
and go off half-cocked.  When you see block trades taking place, 
you have to know what the trades mean.  Was big money covering, 
gambling, hedging, speculating, or entering a spread?  We don't 
always know the answer, which is why we use block trades to 
EVALUATE RISK, not necessarily to abandon logic and preparation in 
hopes that we are riding the coattails of a pro.  Many times it 
isn't a pro at work even though it may look like one on the 
surface.  So how do we know?  The answer is a topic unto itself 
and outside the scope of setting up the charts.  Fortunately, none 
other than Pro Play expert, Austin Passamonte, already penned the 
answer last year.  If you are not familiar with the Pro Play and 
its uses, it's a must read before you begin to utilize block trade 
information.  You can check it out here:

http://www.OptionInvestor.com/itrader/archive/trading101/031901_1.asp

Assuming (possibly dangerous) that if you've read this far, you 
already have the knowledge and are ready to set up the charts, 
wait no more!

First, get the workspace up that you want to use.  If you have the 
bandwidth, you can create the montage in an existing workspace.  
Otherwise, you are probably better off creating a new workspace 
and beginning there.  

Remember this?  From the file menu, click, then point at New, then 
click on Workspace.  Your screen will look like this during the 
process:



 


Once you click on Workspace, you may get a prompt asking you if 
you want to save the current workspace.  Click yes or no, your 
choice.  However, if you have just opened up the Q-Charts program 
and creating a new workspace is your first function (meaning you 
haven't messed around with whatever was first opened), you will 
not be asked to save - yes or no - and Q-Charts will immediately 
move on from there to open a new workspace which will appear as an 
empty gray screen with all the icons around the border as usual.  
It will look like this with icon button location being the only 
variable at this point:



 


Once we have the new workspace open, we can see most of the icons 
are grayed-out.  They will only be lit when there are charts or 
quote sheets open and active within the workspace.

So far, so good.  Next step. . .create our first time and sales 
sheet for our first SPX strike.  As with most functions within Q-
Charts, there are two ways to do this, either the icon or select 
it from the top menu.

We'll use the menu first.  Go to the upper left-hand part of the 
workspace, select File, point to New, point to Time and Sales, and 
then click it.  The process will look like the following:



 


Alternatively, we click on the Time and Sales icon, which is 
identified by the T+S and looks like the following:



 


Either way, the result is the same with a workspace that now looks 
something like this:



 


It's a bit tough to read in the above picture, but note that the 
Time & Sales button has now appeared in top line menu.  We'll come 
back to that in a minute.

For now, we have a decision to make.  Are we going to do a block 
trade montage with SPX puts and calls with one ITM, ATM and OTM 
strike each?  Or are we going to add more Time & Sales windows to 
the same workspace along with other information?  The reason we 
need to determine this is that our decision affects our next 
series of steps.  

Answer:  for the purposes of simplicity and strictly setting up a 
block trade montage, we'll stick with six.  With only six T&S 
tables, we can use the auto-arrange function to set up the icons 
with minimal drag-and-drop work on the desktop, thus eliminating 
the need for a steady hand to perfectly position each of more than 
six tables.  Of course, you could auto-arrange more than six, but 
it eliminates the symmetry of charts from which we seek to 
otherwise benefit, and can also chop off our data where we need to 
watch it most.  Six tables are well-suited for the real estate 
allotted on the desktop.

That said, thus taking the easy way out and creating a usable 
workspace, let's just add five more T&S tables to our workspace.  
Follow the steps above five more times or simply click the T&S 
icon five more times.  When you have finished, it should look like 
this (or some variation with six T&S tables):



 


Not very usable yet, so let's go the Window button in the top menu 
bar . . .



 


Click it to see the drop-down menu where you will a bunch of 
choices as follows:



 


Now, it's personal preference time and you may want to experiment 
for a few seconds before moving on.

Selecting Tile Horizontally makes the screen look like this:



 


Tiling this way would conceivably make it easy to see puts on one 
side and calls on the other.

Selecting Tile Vertically takes on the following look:



 


Vertical tiling makes it easier to see calls on top and puts on 
the bottom or vice versa.  I personally prefer the Tile Horizontal 
look that allows calls on one side and puts on the other, and I 
find that most other fellow traders do too.

So now to load the SPX option symbols.  If we are going to watch 
an ITM, ATM, and OTM option each for puts and calls, then we start 
with those closest to (and on either side of) ATM.  For the 
current conditions with the SPX at 1089, I'd be inclined to watch 
the March 1100 calls ATM, the 1125 OTM, and the 1075 ITM.  For 
puts, I'd also watch the March 1100 as ATM, 1125 as ITM, and 1075 
as OTM.  Grab the symbols from Preferred, CBOE, or your favorite 
option quote sheet.  Why not from Q-Charts itself?  It's more 
accurate from the horse's mouth or your broker who hopefully has a 
vested interest in providing you speedy and accurate quotes.

So for each T&S table, make sure you have selected the space-
appropriate active chart and type in the appropriate symbol.  
These are from the CBOE tables:




We'll ignore the 1180, 1190, 1110, and 1120 because they are not 
the nice round $25 numbers the pros generally like to play.  
However, if you want to set up the montage to watch more than six 
symbols or to watch the odd strikes in between, feel free.  But be 
prepared to size them all by hand.  Now we have our raw tables 
filled in the correct symbols to watch.  I'll change these every 
day or even in the middle of the day if conditions dictate.  But 
they only change to consistently accommodate ITM,AT<, and OTM 
strikes, wherever they may fall.




 


We now show the SPX March 1075 on top, the 1100 in the middle, and 
the 1125 on the bottom.  Now comes the most important part, 
filtering for useful information.  This is also where your mouse 
and fingers get a workout.  Remember that Time & Sales button in 
the top menu?  Go there.  It looks like this:



 


Once you select Filter, another box pops up that looks like this:



 


Only when it first pops up, the Filter by Type, Trades, and Filter 
by Volume boxes will NOT be checked.  We must do this ourselves.  
As soon as we check Filter by Types, the Trades box become live 
and we check that too.  Next we check the Filter by Volume box.  
Then the numerical value (default at 10,000) can be changed.  In 
this case, we put in 25 to filter for those volume trades of 25 
contracts or more.  Then click OK.  You may choose to put in 50 if 
you like to eliminate some of the noise, which I do as expiration 
date moves inside of two weeks away.  I find that 10 is too noisy 
and 100 eliminates too many trades with more than two weeks of 
time remaining before expiration.

After the first table, move on to the second through sixth (or 
more if you have so set them up that way).  Yes, this gets 
tedious, but we must set the filter in each of our tables in order 
to use the information.  Upon completion of each table, the final 
result will look something like this:



 


We're almost finished!  The only thing left to be done is to save 
the workspace so we can come back to it again.  You can give it a 
clever name, like "Block Trades" by clicking on File from the top 
menu bar, click Save As and fill in the name in the space 
provided.  There, all done!

When all are complete and the noise has been eliminated, just sit 
back and wait for the big trades to come through!

Questions and topic suggestions always welcome!  See you in the 
next episode where we'll learn to set up the Breadthalizer noted 
in Mark Phillip's Monday night Trader's Corner!


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Conservative Cap trading Strategy
By J. Matthew Ford and Robert L. Norman

We wanted to point out a strategy that can be used for those of us
who consider ourselves “conservative traders”.  I know this is a
great oxymoron but our clients really like the strategy so we
thought we’d share it with the OIN subscribers.

The strategy is called a Conservative Cap.  Essentially what you
do is buy a stock that you’ve chosen as a good long candidate.
At the same time, buy an equal number of puts for the number of
100 share lots you purchase.

When we recommend stocks for our clients we like to use the IBD to
filter our stock selection.  The criteria we use when picking a
stock is this:  We look for at least a 90% rating on Relative
Strength and EPS Strength.  Now, this isn’t a “written in stone”
rule, we allow those numbers to be in the upper 80% range, we just
want it to be close to 90%.  We also would like the stock to have
a very strong Industry Group Relative Strength Rating (at least a
B), Sales, Profit Margins, and Return on Equity of at least a B
rating, and lastly, we’d like the Accumulation/Distribution rating
(of institutional money managers) to be at least a B.  IBD screens
companies everyday that meet these criteria, and it’s really
simple to find once you get in the habit of looking for them. 
If all these FUNDAMENTAL criteria are met, we then go and find out
if the stock is optionable.  We want the stock to be in a positive
up trend, regardless of what the market is doing.

After all this is met, we buy the stock.  In this case let’s take a
look at NDN, which is Ninety-Nine Cents Only Stores.  It’s a
retail/discount and variety store. The stock has a nice up trend on
a weekly chart, yet has some decent volatility on a daily chart,
which will give reasonable premiums in options.  Hypothetically, we
would by 500 shares NDN at $36.39 per share (11:15am cdt, 2/15/02).
We would then buy 5 MAR 35 puts for $1.30 (Pacific exchange).

What you have done here is insure your investment against a move to
the downside.  You have $1.39 potential in loss, (36.39-35.00 Put
strike price) plus the 1.30 you paid for the put.  Should the stock
move against you and go down due to any number of reasons, your put
option will insure that your loss remains small.  The stock could
theoretically go to zero and the put option would be worth $35.00.
You can then sleep at night knowing that no matter what happens,
you’re protected.

Now comes the Conservative Cap side of the trade.  After completing
the previous transactions, if you want to limit your cash outlay
and “Cap” your upside, you could be a little more “Conservative”
and sell 5 covered calls on NDN.  Currently, the March 40 calls are
worth about .60 per contract. If you wanted to sell calls for that
premium, your gross profit after getting exercised at $40.00 after
expiration in March and with the puts expiring worthless would be
$2.91 per share or $1455.00 on a total cash outlay of $18,545.00 or
7.84% in one month. ($36.39+1.30- .60= $37.09 - $40.00=$2.91).

It may make more sense to wait for the stock to move closer to
$40.00 per share before you sell the covered call, you might get
more premium and increase your rate of return.  Take a look at your
past trades and see how this may have helped limit some or most of
your loss you had.  We can all do a better job of controlling our
losses, and this is a strategy to consider.


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

A bullish biotech debut on the watch list. Plus a bread stock that 
isn't rising.


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/022602.asp


**************
MARKET POSTURE
**************

Breakouts in two major averages. Plus bullish movement in banks, 
industrials, retail, and more.


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/022602_1.asp


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

Please read our disclaimer at:
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