Option Investor

Daily Newsletter, Sunday, 03/17/2002

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The Option Investor Newsletter                   Sunday 03-17-2002
Copyright 2001, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

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Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
        WE 3-15          WE 3-08          WE 3-01          WE 2-22
DOW    10607.23 + 34.74 10572.49 +203.63 10368.86 +400.71  + 65.11
Nasdaq  1868.30 - 61.37  1929.67 +126.93  1802.74 + 78.20  - 80.66
S&P-100  591.13 +  1.29   589.84 + 13.68   576.16 + 22.12  -  5.61
S&P-500 1166.16 +  1.85  1164.31 + 32.53  1131.78 + 41.94  - 14.34
W5000  10904.69 + 14.02 10890.67 +330.66 10560.01 +380.72  -136.19
RUT      499.12 -   .73   499.85 + 21.51   478.34 + 13.27  -  4.18
TRAN    2951.54 - 58.70  3010.24 +113.11  2897.13 +171.48  + 41.42
VIX       20.77 -  0.84    21.61 -  0.52    22.13 -  2.76  +   .80
VXN       40.26 -  1.36    41.62 -  0.32    41.94 -  6.63  +  3.58
TRIN       0.56             0.73             0.74             1.33
TICK       +855             +927            +1029            +1044  
Put/Call    .64              .62              .94              .90 

Slowly It Crept, Step By Step!  
by Jim Brown

Like a scene out of an old Abbott & Costello movie with the monster
creeping slowly up on the unsuspecting victim, usually Costello,
the Dow and S&P edged ever so closer to recent resistance. The Dow
might have soared above the 10635 level from last week had it not
been for Merck. The drug maker killed the opening rally on positive
economic news by announcing it was pulling its new arthritis drug
request from the FDA. The stock closed down -$3.69 on the news, 
which equates to something in the area of -25 Dow points. This was
the major drag since there were only five other Dow stocks in
negative territory for a total loss of only $1.59. 

- chart - S&P 500 (daily)


- chart - S&P 500 (60 minute)


- chart - Nasdaq Composite(60 minute)


- chart - DJIA (60 minute)


The economic news just keeps pointing the way to better times and
the markets are showing every tendency to want to believe it. The
Industrial Production numbers soared in February to +0.4%, about
twice the consensus estimates, and with the upward revision to the
January number it has now been positive for two months in a row. It 
is clear that the economy is coming out of the depths reached in
September. The chart below, courtesy of Economy.com, shows the 
progress of the new trend. 

- chart - Industrial Production


Capacity utilization also rose but there is plenty of room for the
manufacturing process to grow before bottlenecks or price pressures
could impact inflation. The Fed has no worries here! The low interest
rates have encouraged expansion and that expansion is growing. Fourteen
of the twenty industries contributing to the report showed growth in
production in February. Without a pickup in the business environment
continued growth will be slow due to lack of demand but it is rising.

The Producer Price Index (PPI) also showed a slight increase in the
price of finished goods but the gain was negligible. The lack of 
strong demand is keeping prices flat. The only major gains were due
to a rise in energy prices but those are likely to be cyclical and
are not expected to increase.

The Weekly Leading Index of the ECRI showed another slight gain
which was fueled by a drop in jobless claims and a rise in financial
stocks. The index is seen as a leading indicator of economic activity
and it is now at its highest level since early-2000. It is suggesting
the chances for an overall recovery in 2002 are very good.

Consumers must feel good about the future because the Michigan 
Sentiment for March (preliminary) showed a gain of nearly five points
to 95 from 90.7 in February. The expectations component showed the
largest gain from 87.2 to 92.3 while the current conditions component
gained only 3.1 for the period. This is also the highest reading
for the survey since December 2000. Whether the recession is really
over or not it appears the consumer has already forgotten it happened.
Consumer spending remains high despite weaker then expected Retail
Sales this week. Much of this spending has been fueled by the low
interest rates and the flood of refinancings. What will happen as 
the interest rates begin to rise is a source of concern.

Speaking of interest rates rising, the next FOMC meeting is Tuesday.
Nobody expects a rate hike so soon but almost everyone expects a
change in the bias to neutral. After nearly sending the economy 
into shock by raising rates to the choking point two years ago it
is inconceivable that Greenspan will act rashly this time. He is
approaching retirement and would like to go out with the economy
on a high. Most analysts do not expect any actual rate hikes until 
fall although the Fed funds futures are factoring in a 50 point hike
by July. According to anybody willing to go on record that is 
unrealistic based on the tenuous nature of the economic recovery.
We are showing gains in almost every area but it takes a microscope
to see many of them. Most feel this meeting will see a change to 
a neutral bias and a change to tightening will not happen until
the June-25th meeting. Why the futures are factoring in a 50 point
hike before then is unknown. Still, the uncertainty surrounding
the FOMC meeting on Tuesday is likely to impact any rally hopes
until after the closing statement is read.

If consumers could vote with their cash for an economic recovery
it would have looked like last week. For the week ended Wednesday
there was a whopping inflow of cash to the tune of $7 billion into
equity funds according to Trimtabs.com. Considering that there was
also a record number of debt offerings, $11 billion from GE, $8
billion from AXP, to name a couple, it was amazing to see that much
cash move into the stock market. The large number of debt offerings
has undoubtedly impacted the stock and bond markets over the last 
two weeks. You can't take $30 billion, by some estimates, out of 
the markets without a ripple. Much of that ripple was absorbed by
cash flowing out of the bond markets attracted to higher yields
from these high grade corporate borrowers. Still, we can attribute
some of the weakness in stocks to this as well.

Despite the mixed results for the week, Dow +35, Nasdaq -61, S&P
flat, it was a very good week. Not as good as the prior week which
saw strong rallies across the board, but very good in my opinion.
There was a very good chance for profit taking and a change in
direction. Instead only minor consolidation occurred and the major
averages are ready to test the high ground again. The Nasdaq bounced
off 1850 support and while it continues to lag the blue chips it
did behave well. Chalk up the weakness to multiple chip downgrades,
computer maker downgrades, Oracle earnings weakness and continuing 
telecom problems. Still, if you look at AMAT, KLAC and NVLS, the
leaders in the .09 micron manufacturing process to be used in the
next generation of processors, they held support and were up strongly
on Friday. Intelligent investors know where the leaders will be 
WHEN the recovery finally catches fire. 

The triple witching options expiration week ended with a whimper
and most highly visible stocks ended pinned to critical strikes.
There was simply not enough conviction to break free from overhead
option resistance. Our turn will come, be patient.

Impacting the oil markets was the OPEC meeting this week. Oil
prices have risen to over $24 on fears they would cut production
or we would attack Iraq. Neither has happened and the short squeeze
from futures traders has now passed. OPEC said they would not cut
production and that clears the air until the next meeting in June.
The administration is getting no support for attacking Iraq so
oil should continue to flow from there. I bring all this up because
I think the stage is set for a drop in oil prices and a corresponding
drop in oil stocks as money moves out of this hot sector. Most
stocks like the ones we have been playing, SII, TDW, etc, have huge
gains and traders will likely rotate out of oil now that the pressure
is off and into something else. The hot sectors on Friday were
biotech, health care and banking to name a few. The transports 
should firm again as oil cheapens and support the next leg up for 
the Dow. 

That leg could come as early as Monday. All of my indicators were
bearish prior to the close on Thursday but turning up. After the
economic reports on Friday they firmed even more. Had it not been
for MRK losing -3.69 and being an huge morning drag on the Dow the 
close on Friday could have been significantly stronger. Make no 
mistake, we are not out of the woods yet. Close but not yet. The Dow 
did close over 10600 again and the S&P eased back to within nine points
of resistance at 1175. These are critical levels. Once over 10635
and 1175 there should be another round of short covering. 

Also, we are entering the end of the quarter. Fund managers sitting
on cash and seeing the Dow and S&P breaking out of resistance 
could start chasing stocks in order to dress up their portfolios
for quarter end. They are paid to produce results not sit on cash.
They will want their statements to be chock full of premium names
to encourage investors that they are on the job.

If it were not for the FOMC meeting on Tuesday I would be much
more bullish on the coming week. Once over that hurdle the CPI and 
FOMC minutes will loom in our path on Thursday but neither are 
expected to be earth shaking. Greenspan has repeatedly said bullish
things about the recovery so minutes of the Jan-30th meeting will 
not be relative. My exit levels for last week were 10450/1865/1145
respectively. The only one breeched was the Nasdaq, which traded 
down to 1850 on Thursday, and 1845 on Friday. It rallied to close
back above 1865 but only barely. I still believe bullish investors
should be in the markets until the current trend changes. When it
does we should exit gracefully and wait patiently for a new entry
point. I am revising my exit points for this week to Dow 10475, 
Nasdaq 1850 and S&P 1150. Should any of those levels be broken
I would consider closing any long plays in danger. 

That last comment will bring a flood of email so let me explain. 
If you are invested in a Dow stock and the Dow fails then you should
probably close the play. Same with a tech stock during a Nasdaq 
failure. However, in many circumstances you could be in a stock 
that is gaining $1 a day, regardless of market direction, like UNH 
last week. There is no reason to close those plays unless they show
weakness. You must use your judgment. The exit levels I give you 
are general guidelines. We all know that 85% of a stocks movement 
is related to the market/sector movement. If the sector is hot due 
to rotation out of the general market then by all means enjoy it. 
Just be aware that a prolonged market dip will eventually impact 
all sectors and all long plays. In times of market weakness snug
up those stops on the winners before they become losers.

One last note. While I am leaning to the bullish side in the
comments above, I am still expecting another sell off in the
next several weeks. This may seem like a contradiction but we
need to always be conscious of historical trends. I mentioned
that my indicators were turning bullish on Friday but one is
definitely going bearish. The VIX closed at a low on Friday of
20.77 and a level not seen since last July. The challenge here
is a combination of events. The bullish sentiment is swelling
for reasons stated above but that same sentiment can change in
a heartbeat as we all know. I have written about this several
times in the last month but we need to always remember that the
period between April-15th and May-15th usually brings a drop in
the markets. This is the start of the summer doldrums and is 
usually prompted by weak earnings in the coming cycle. As 
evidenced by the Oracle earnings this week the economy has yet
to recover to the point where earnings will exceed expectations
for the 1Q. We have not had many warnings this cycle but the
season is still young. Expect positive events but be prepared
for negative surprises. Eric is going to go more in-depth on
the VIX correlation in the Market Sentiment this weekend. Be
sure to check it out. 

Sell Too Soon!

Jim Brown

We have had many rewarding plays in the "Watch List" section of 
the newsletter recently. For those not familiar with this section
Eric chooses several stocks, which appear ready to make a move
and suggests entering a play only when the action point is met.
For those new to this section you can visit it here:




Just like that luscious, sugar-laden bubble gum that used to rot 
our teeth when we were young, investors and traders are addicted 
to the sugar rush of "economic recovery" euphoria right now while 
ignoring what could be painful cavities ahead. But we are traders 
here and couldn't care less about fundamentals and far-future 
predictions. We live for the here & now, or at least until our 
distant-month options run out of time!

(Weekly/Daily Charts: SOX)


Hottest of the hot money cannot play in most tech arenas any 
longer because the majority have imploded and failed to inflate. 
Not so the SOX, and we look to cast our lots at the crapshoot with 
everyone else. "Semi-conductor Investment" is a huge oxymoron if 
you ask me, but I'll grab those calls here or in the SMH in a 
heartbeat when 60/30 minute chart signals turn bullish again. 
Don't be surprised if this sector leads a charge to test recent 
highs soon and rest assured I'll be on board with my money if it 
does! With W/D chart signals aligned for bullish upside reversals, 
let the intraday chart signal entry begin.

(60 min Charts: SOX / SMH)


With the SOX and SMH hourly charts respectively, we see bearish 
descending triangles and overbought stochastic values suggesting a 
pullback to support straight ahead. If these chart signals bottom 
in oversold extreme and reverse upward while price action rests on 
or above blue lines of support at recent lows... buy calls with 
both hands!

(Weekly Chart: BIX)


Breaking the banks... financial stocks are reveling in what seems 
to be the perfect environment right now with economic expansion 
and no inflation. The reverse wouldn't be nice to this ramp at all 
and some intelligent minds suggest that's our future, but again we 
play entries on the here & now. I would not be buying banks myself 
but certainly see no reason to sell them tonight, either.

(Daily Chart: RTH)


Retail hugs a four-month channel higher. I plan on shorting 
resistance on top or a breakdown below lower support, but going 
long on each successive bounce within this channel is high-odds 
until it breaks. Makes for real easy stoploss management on the 
other side of these lines we enter on when touched, too!

Next week should be an active one following the last few sessions 
of consolidation behind us. Indexes & sectors show charts that are 
mixed and non-committal, so we'll do our best on a frequent basis 
to catch those poised to move where risk/reward favors us best.

Wait For Precise Entries,
Austin P

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Editor's Plays

Will They or Won't They?

The final vote on Tuesday will end the speculation on the
Compaq/HWP merger. A no vote will propel HWP stock upward
as investors breath a sigh of relief that they will not
take on an albatross. A yes vote will sink them as investors
who did not like the deal flee the stock in droves. 

There is a mounting tide of resistance and a very good chance
the deal will not occur. The chances of a strong move by HWP
in some direction is good.

Since we know the time frame but not the result we can best
play this with a straddle. Since HWP was $24 as recently as
January we can speculate that a "no" vote could send the
stock back up to that range quickly. 

- chart - HWP (weekly)


The April $20 call is only $.95 cents and with more votes
lining up on the no side daily it has a very good chance of
being a winner.

Conversely, the April $17.50 put is only $.65 cents which
makes good insurance against the possibility of a yes vote.
HWP could easily trade under $17.50 if the deal is approved.

The bottom line is uncertainty and time. If you feel the long
term benefits of a Compaq/HWP merger outweigh the bad then
use the Jan-04 $20 leap calls at $4.30. You could also offset
the cost of the calls by selling the Jan-04 $20 leap puts on
any post "yes" vote dip. A dip to $17.50 would add another 
$2 to the already high $4.50 premium giving the seller $6.50
in pocket change per share. That means your risk in Jan-04
is an merged HWP/CPQ at below $13.50 ($20 strike -$6.50 premium).
If you feel the company will eventually rise then use a portion
of that premium to buy the Jan-04 $20 leap calls on any post
vote dip. It would raise your breakeven to something around
$17.00 but baring a disaster the risk/reward is very favorable.

- chart - HWP (weekly)



As always, do your own research and be comfortable with the
downside risk before entering any play.

Good Luck



By Eric Utley

I often write about the importance of not relying too much on
one metric.  Fortunately that rule is subject to change.  WHOA!

The CBOE Market Volatility Index (VIX.X), also known as the
fear gauge, is growing increasingly important.  It's credence as
a stand alone indicator increased last week with the breakdown
in Friday's session.  The closer the VIX trades to 20, the
more important it becomes.  My astute friend, Austin Passamonte,
is fond of suggesting loading up on back month puts when the
VIX trades below 20.  He's made a ton of money doing just that.
Need some history to back-up that claim?

chart comparision image - VIX versus OEX


The VIX is typically early in predicting a sell-off in stocks
and can remain below the 20 level for an extended period of
time before the lack of fear in stocks turns into just that:

Combine the low level of fear with the increasingly overbought
way of bullish percent data and the growing bearishness in the
S&P commercials and I think the writing is on the wall.  The
only question that remains is one of timing.  The VIX can stay
below 20 for quite a while as we saw in late 1999.  Without fail,
however, a VIX below 20 has led to a sell-off in stocks.


Market Averages


52-week High: 11350
52-week Low :  8062
Current     : 10607

Moving Averages:

 10-dma: 10556
 50-dma: 10043
200-dma: 10007

DJIA chart =

S&P 500 ($SPX)

52-week High: 1383
52-week Low :  945
Current     : 1166

Moving Averages:

 10-dma: 1159
 50-dma: 1129
200-dma: 1147

S&P 500 chart =

Nasdaq-100 ($NDX)

52-week High: 2771
52-week Low : 1089
Current     : 1495

Moving Averages:

 10-dma: 1511
 50-dma: 1512
200-dma: 1555

Nasdaq-100 chart =

Oil Service ($OSX)

The OSX.X was the best performing sector in last Friday's
session.  The group gained 3.32 percent for the day, far
out pacing the fractional gains in other segments of the
broader energy group.

Sector leaders included Nabors (NYSE:NBR), Varco (NYSE:VRC),
Rowan Companies (NYSE:RDC), BJ Services (NYSE:BJS), Haliburton
(NYSE:HAL), and Noble (NYSE:NE).

52-week High: 100
52-week Low :  97
Current     : 100 

Moving Averages:

 10-dma: 98
 50-dma: 87
200-dma: 87

Internet ($INX)

For the second consecutive session, the INX.X was the worst
performing sector in last Friday's session.  The INX.X shed
1.23 percent during the day.

Leading to the downside included shares of Overture
Services (NASDAQ:OVER), Inktomi (NASDAQ:INKT), Check Point
Software (NASDAQ:CHKP), Amazon (NASDAQ:AMZN), and Real
Networks (NASDAQ:RNWK).

52-week High: 243
52-week Low :  76
Current     : 120

Moving Averages:

 10-dma: 124
 50-dma: 124
200-dma: 136


Market Volatility

WHOA!  The VIX dropped below the 21 level in last Friday's
session.  Fear is now on its way to the 20 level.  In other
words, complacency is rallying along with stocks.

WHOA!  The VXN dropped to an all-time low in last Friday's
session, closing near the 40 level.  Similar story as the one
in the VIX.

CBOE Market Volatility Index (VIX) - 20.77 -1.25
Nasdaq-100 Volatility Index  (VXN) - 40.26 -2.07


          Put/Call Ratio  Call Volume   Put Volume
Total          0.64        854,766       548,973
Equity Only    0.53        773,575       410,938
OEX            1.45         28,498        42,336
QQQ            0.98         44,567        43,472

Bullish Percent Data

           Current   Change   Status
NYSE          63      + 1     Bull Confirmed
NASDAQ-100    70      + 2     Bull Confirmed
DOW           77      + 0     Bull Confirmed
S&P 500       77      + 1     Bull Confirmed
S&P 100       78      + 0     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  1.12
10-Day Arms Index  1.00
21-Day Arms Index  1.14
55-Day Arms Index  1.23

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


Market Internals

        Advancers     Decliners
NYSE      1826           1277
NASDAQ    1933           1543

        New Highs      New Lows
NYSE      195             24
NASDAQ    155             32

        Volume (in millions)
NYSE     1,481
NASDAQ   1,683


Commitments Of Traders Report: 03/12/02

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the 
Chicago Mercantile Exchange and Chicago Board of Trade. COT data 
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being 
financial institutions. Commercials are historically on the 
correct side of future trend changes while small specs tend 
to be wrong.  

S&P 500

Attention!!  Commercial traders continued to build their net
bearish position while small traders reached an extreme
bullish position.

Commercials   Long      Short      Net     % Of OI 
02/26/02      366,258   432,258   (66,000)   (8.3%)
03/05/02      361,254   445,989   (84,735)  (10.5%)
03/12/02      396,050   483,606   (87,556)   (9.9%)

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
02/26/02      139,183     62,087   77,096     38.3%
03/05/02      161,711     60,941  100,770     45.3%
03/12/02      179,825     75,025  104,800     42.6%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year: 104,800 - 3/05/02

Nasdaq commercial traders added a number of short positions for
a big increase in the group's net bearish position.  Meanwhile,
small traders grew slightly more bullish.

Commercials   Long      Short      Net     % of OI 
02/26/02       33,589     34,091      (502)  (0.7%)
03/05/02       33,549     35,419    (1,870)  (2.7%)
03/12/02       37,415     42,942    (5,527)  (6.9%)

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
02/26/02        9,517    11,416    (1,899)    (9.1%)
03/05/02       11,961    11,214       747      3.2% 
03/12/02       14,571    13,045     1,526      5.5%

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


Dow Jones commercial traders dropped both long and short
positions, while maintaining their net bullish position.
Small traders dropped a number of longs and added a small number
of shorts of an increase in their net bearish position.

Commercials   Long      Short      Net     % of OI
02/26/02       33,322    21,110   12,212     22.4%
03/05/02       37,036    25,554   11,482     18.3% 
03/12/02       35,080    23,204   11,876     20.4%

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
02/26/02        6,333    12,547    (6,214)   (32.9%)
03/05/02        6,589    13,057    (6,468)   (32.9%) 
03/12/02        6,400    13,070    (6,670)   (34.3%)

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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Real Estate Bubble or Boom?
By Eric Utley

The housing market is a battleground between the bulls and
bears.  Bulls argue that the economy will carry the housing
market higher.  While bears argue that there exists a bubble
in that portion of the economy and that the housing stocks
trade at peak valuations.

I don't know which way the housing market is heading, but I
did notice a divergence in the sector late last week.  My
buddy Rocketman, a.k.a. Mark Phillips, gave me the symbol for
the Dow Jones U.S. Home Construction Index ($DJUSHB) last
week.  While I couldn't find the components of the index, I
did compile a few of the leading home builders for my own
little basket to monitor.  I think it's worth watching the
index as it relates to the health of the economy and the
prospects of the recovery.  These stocks might be worth a
look too:

Clayton Homes (NYSE:CMH)
Centex        (NYSE:CTX)
Beazer Homes  (NYSE:BZH)
KB Home       (NYSE:KBH)
Pulte Homes   (NYSE:PHM)
MDC Holdings  (NYSE:MDC)
Lennar        (NYSE:LEN)
Meritage      (NYSE:MTH)
Ryland        (NYSE:RYL)
D.R. Horton   (NYSE:DHI)
Toll Brothers (NYSE:TOL)

This group is tied to the bond market, which also brings into
the picture Freddie Mac (NYSE:FRE).  Just something to watch...

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

Please send your questions and suggestions to:

Contact Support 


Providian Financial (NYSE:PVN)

I became interested in P&F charting after seeing some examples
in Option Investor since becoming a member some four months
ago.  I'm just a rookie so I decided to choose a stock that was
previewed in one of OI's write ups.  The stock is Providian
Financial Corp (PVN).  I've charted what looks like a bullish
triangle breakout but I am not quite sure where to go from
here.  How can I get a good gauge on where the stock could go
from here?  Some words of wisdom from you would be helpful and
any suggestions on some good reading material on the subject. - 
Thanks, Jeff

Thanks for writing in, Jeff.


Providian was the worst performing component of the S&P 500
during 2001.  The stock lost 94 percent last year.  It was once
a high-flying favorite during the go-go years.  The company
pursued aggressive lending practices that carried its return on
equity -- an important metric for financial firms -- as high as
40 percent.  The company's trailing twelve month return on
equity, in comparison, is a measly 5 percent.  Compare that
number to Citigroup (NYSE:C), for example, who sports about a 20
percent return.  Although, Citigroup and Providian are
diametrically opposed financial firms.

Through its aggressive consumer lending, Providian accrued
large amounts of debt; it over leveraged its balance sheet to
the point of excess.  Once the inflection was reached, the
stock sold-off at an alarming rate.  Last year's economic
slowdown increased the number of defaults among the high-risk
consumers that Providian lent to; high-ranking management
departed; layoffs followed.  So here we are today.


The primary reason for the recent rebound in the stock is the
improvement in economic conditions as revealed by the macro
data.  Of course the recent cheerleading has helped fuel the
momentum in shares.  Following its most recent quarterly
report, Merrill Lynch upgraded shares based on the relatively
better condition of the company's financial position and the
prospects of profitability this year.  Merrill was quick to
note, however, that it will take several more quarters to
definitively know if Providian will make it out of the
current restructuring successfully.

The company reported that it ended its fiscal year with
about $2 billion in capital and about $2.4 billion in
reserves.  In other words, Providian is funded over the next
six to nine months.  The company has also completed recent
asset sales and reneged its aggressive modis operandi.  Part
of the company's ongoing restructuring calls for an end to
lending to high-risk consumers and instead focusing on what
is known as the "middle-market segment" of the lending
business.  While efforts have been made to turnaround this
ship, there's still much to prove.


When investigating Providian for a bullish position, either
for investing or trading purposes, you're betting on a
turnaround.  No matter the time frame, you've got to believe
that things will get better for this beaten down company.
While some of the recent analyst reports suggest an
improvement, it's interesting to note how much of a discount
the stock still trades versus its peers.  I ran some numbers
on a few other consumer finance stocks to compare relative
valuations.  What I found is that Providian still trades at
a discount to book value.  Others in the group are trading at
two, three, even four times book.  Providian, in comparison,
trades at about a 30 percent discount.  But, does the recent
completion of the bullish triangle indicate a turnaround?

Technical Round

From a pure risk level perspective, Providian has a lot of
upside work and repair in store before one could conclude
that the business has turned around.  I've anchored a
simple retracement bracket from last May's high up around the
$61 mark to the low last fall around the $2 level.  The next
and first progression of upside risk isn't even present until
the $13 area, or about $7 away from current levels.  The way
I see, there's about $6 of downside risk from current levels.

Providian Daily


Before we get to the bullish triangle pattern, I'd like to
point out an ever more significant development in the last
few months.  Since January, Providian has gained a significant
and very meaningful amount of relative strength versus the
S&P 500 (SPX.X).  Because it's such a low priced stock, a
relatively small point move can translate into a larger
percentage move relative to the S&P 500.  Nevertheless, you
can't rationalize away what the market's been saying
recently about the stock and its gaining of relative strength.

Providian versus The Market


The bullish triangle that was written about by the reader was
completed when the stock broke out above the $4.75 level.
That was the best level to place bullish bets.  (Use this
move as an example in future operations.)  Since the stock
is well above its breakout point, we missed a lot of the
move already.  Yes, it's only $1.25, but in percentage terms,
that was a big jump in the stock.  From here, as long as
relative strength stays positive, the bullish triangle
pattern should hold and the stock could work higher.  If you
want to try a position here, I think you have to be willing
to give up downside risk to the $3.50 level -- that's where
the bullish triangle would be negated.  I don't know what
kind of probability this trade carries in light of the
business prospects of the company.  The best a trader can do
is continue monitoring advancement in relative strength.  If
that metric flips, then it would beg caution on the part of
bulls.  Otherwise, trying a turnaround play here might make
sense.  The current vertical count is $9.50.

Providian Bullish Triangle



This column is an information service only.  The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind.  The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options.  It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security.  The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.


Major Earnings This Week...

Symbol  Company               Date           Comment      EPS Est

CGA    Corus Group plc        Mon, Mar 18  -----N/A-----      N/A
DG     Dollar General         Mon, Mar 18  After the Bell    0.23
ESIO   Electro Scientific Ind Mon, Mar 18  After the Bell   -0.01
KPN    Koninklijke KPN        Mon, Mar 18  -----N/A-----      N/A
PETC   Petco Animals          Mon, Mar 18  After the Bell     N/A
PFP    Premier Farnell        Mon, Mar 18  -----N/A-----      N/A

FDO    Family Dollar Stores   Tue, Mar 19  Before the Bell   0.36
GPN    Global Payments        Tue, Mar 19  After the Bell    0.26
GS     Goldman Sachs          Tue, Mar 19  Before the Bell   0.89
IPR    International Power    Tue, Mar 19  -----N/A-----      N/A
JBL    Jabil Circuit          Tue, Mar 19  After the Bell    0.07
MKC    McCormick & Co         Tue, Mar 19  -----N/A-----     0.45
PAYX   Paychex                Tue, Mar 19  -----N/A-----     0.18
RHAT   Red Hat                Tue, Mar 19  After the Bell    0.01
PKS    Six Flags, Inc.        Tue, Mar 19  After the Bell   -1.02

ATYT   Technologies           Wed, Mar 20  -----N/A-----     0.06
SID    Companhia Siderur Nac  Wed, Mar 20  -----N/A-----     0.71
FDX    FedEx Corp             Wed, Mar 20  Before the Bell   0.36
LEN    Lennar                 Wed, Mar 20  Before the Bell   0.99
NDC    NDCHealth              Wed, Mar 20  After the Bell    0.34
WGO    Winnebago              Wed, Mar 20  Before the Bell   0.41
WOR    Worthington Industries Wed, Mar 20  -----N/A-----     0.12

COMS   3Com                   Thu, Mar 21  After the Bell   -0.16
BKS    Barnes&Noble           Thu, Mar 21  Before the Bell   1.33
CCL    Carnival               Thu, Mar 21  Before the Bell   0.14
DRI    Darden Restaurants     Thu, Mar 21  -----N/A-----     0.49
EON    E.ON AG                Thu, Mar 21  -----N/A-----      N/A
FTE    France Telecom         Thu, Mar 21  Before the Bell    N/A
GUC    Gucci Group NV         Thu, Mar 21  -----N/A-----     0.62
KBH    KB Home                Thu, Mar 21  -----N/A-----     0.79
LWSN   Lawson Software, Inc.  Thu, Mar 21  After the Bell    0.04
NKE    Nike                   Thu, Mar 21  -----N/A-----     0.45
PALM   Palm                   Thu, Mar 21  After the Bell   -0.04
SLR    Solectron              Thu, Mar 21  After the Bell    0.03
TECD   Tech Data              Thu, Mar 21  Before the Bell   0.61

BMET   Biomet                 Fri, Mar 22  Before the Bell   0.24
TKA    TELEKOM AUSTRIA AG     Fri, Mar 22  -----N/A-----      N/A

Upcoming Stock Splits This Week & Next...

Symbol  Company Name              Ratio    Payable     Executable

SMD     Singing Machine           3:2      03/15       03/18
ICUI    ICU Medical               3:2      03/15       03/18
ELMS    Elmers Restaurants       21:20     03/21       03/22
FELE    Franklin Electric CO      2:1      03/22       03/25
YDNT    Young Innovations         3:2      03/28       04/01
ESCA    Escalade                  3:1      03/28       03/29
DWL     DeWolfe                   3:2      03/28       03/29
TOL     Toll Brothers             2:1      03/28       04/01

Economic Reports

As the markets march into the last two weeks of the month and
the end of the first quarter a lot of eyeballs on Wall Street will 
be watching the CPI numbers on Friday.  However, the beginning
of the week will hold investor attention with the Tuesday FOMC


Monday, 03/18/02

Tuesday, 03/19/02
Trade Balance (BB)       Jan  Forecast:-$26.9B  Previous: -$25.3B
FOMC Meeting (DM)

Wednesday, 03/20/02
Housing Starts (BB)      Feb  Forecast: 1.630M  Previous:  1.678M
Building Permits (DM)    Feb  Forecast: 1.650M  Previous:  1.706M
Treasury Budget (DM)     Feb  Forecast:-$61.0B  Previous: -$48.2B

Thursday, 03/21/02
Initial Claims (BB)    03/16  Forecast:    N/A  Previous:    377K
CPI (BB)                 Feb  Forecast:   0.2%  Previous:    0.2%
Core CPI (BB)            Feb  Forecast:   0.2%  Previous:    0.2%
Leading Indicators (DM)  Feb  Forecast:   0.3%  Previous:    0.6%
Philadelphia Fed (DM)    Mar  Forecast:   17.8  Previous:    16.0
FOMC Minutes (DM)      01/30

Friday, 03/22/02

DM=  During the Market
BB=  Before the Bell
AB=  After the Bell
NA=  Not Available

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The Option Investor Newsletter                   Sunday 03-17-2002
Sunday                                                      2 of 5

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Index Trader Swing-Trade Game Plan: Saturday 3/16/2002 
Poised & Waiting For Action

News & Notes: 
Indexes pushed higher off the open on Friday and drifted sideways 
from there. That didn't offer much in the way of breath-taking 
trades then, but we have points of reference to work with for 
Monday ahead:

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


S&P and Dow indexes are wedged up in little bullish triangles 
ready to pop from here. We saw bearish triangles fail to confirm 
and pop higher in bullish fashion Friday... can the reverse be 
what happens Monday? After several small-range sessions this week 
a big one should be next, so stay long above these patterns and 
short below to attempt catching the next big move. With April 
option contracts in their first days of front-month cycle, theta 
values are high right now but vega is low. This means solid gains 
can accrue on decent moves right from Monday's bell should that 
begin to occur.

[60/30-Min Chart: SPX]  


Ditto the SPX (and DJX) with playing either side of the pattern. 
Chart signals favor the downside soon but markets keep grinding 
higher regardless. Play either way and watch for failure near 
resistance on the upside or a bounce near support on the downside.

[60-Min Chart: QQQ]  


The Qs will move above 37.50 or below 37.00 with emphasis in the 
next few sessions. Staying on the proper side of each pivot should 
allow us to catch a significant move ahead.

Friday's artificial action makes Monday tough to read. Be prepared 
to play either direction and drop one quickly for the other. I 
would not chase any large gap-open moves off the bell without 
reassessing the situation after 9:30am myself. These are the 
guidelines I intend to follow subject to change when Monday a.m. 
rolls around.

Index Trader Sector-Trade Game Plan: Saturday 03/16/2002 
Expiration Cleared

News & Notes: 
Friday was a relative non-event and Monday next will resume what we hope 
to be the next directional action. We'll wait for that session to clear 
and see what entries shape up from there. Charts remain mixed and 
somewhat non-descript tonight.

Featured Plays: 

No new entries listed for tonight.

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

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

** Asterisk means symbol has listed options as well 

New Play Targets (Short):

Open Long Plays:

Open Short Plays
XLB **          XLP **          
Short: 23.75    Short: 26.00    
Stop:  25.00    Stop:  28.00    

XLV **          XLY **          
Short: 29.00    Short: 29.90    
Stop:  31.00    Stop:  32.00    

IYD             IYK             
Short: 45.25    Short: 45.90    
Stop:  48.00    Stop:  48.00    

IYR             UTH **          
Short: 84.75    Short: 93.25    
Stop:  88.00    Stop:  98.00    

RTH **          PPH **          
Short: 98.00    Short: 98.75    
Stop: 102.00    Stop: 102.25    

DIA **[DJX]     IYM
Short: 105.90   Short: 42.00 
Stop:  110.00   Stop:  44.50

Short:  49.70
Stop:   52.00

Short:  97.00
Stop:  101.00

Long: 26.75     
Stop: 28.50     


Please view this in COURIER 10 font for alignment

CALLS              Mon    Tue    Wed    Thu   Week

HON      40.00    0.26   0.06   0.06   0.53   0.15  Dropped
ETN      83.20    1.00  -1.14  -0.21   0.80  -0.27  Dropped
ACS      53.04    0.46  -0.52   0.39   0.01   0.80  Trending
BAC      69.18   -0.08   0.25  -0.45  -0.55   1.35  Breakout!
CHIR     47.48    0.01  -0.64   0.15  -0.02  -0.01  Dropped
DCN      21.75    0.51   0.47  -1.07   1.05   1.23  New high
SYMC     41.46   -0.15  -0.07   0.51  -1.29  -0.49  Holding
IDPH     69.93   -1.33   0.22   2.93  -1.09   2.34  Watch $70
CEPH     67.37    1.68  -1.01   0.29   1.41   3.43  Leading
GENZ     50.01    0.00   0.35   0.91   1.22   3.65  New, bio-run
COF      62.05    2.41   0.17  -1.44   0.17   3.59  New, break
KSS      71.35    0.51   0.85  -0.25   1.03   3.42  New, highs


CTX      57.89    0.86   0.99  -1.24  -1.68  -1.58  Rolling
EMLX     27.88   -2.80  -0.36  -0.47  -1.83  -6.93  Breaking
NVDA     52.77   -0.68  -3.02  -0.99  -2.97  -5.52  Bounced
RYL      88.70    1.42  -0.37  -2.12  -1.82  -4.75  Breakdown
CCMP     63.30   -0.25  -8.37  -0.77  -1.66  -9.72  Bounced
ISSX     28.20    1.31  -0.65  -0.77   0.58  -0.51  New, failed
XAU.X    61.92    1.65   1.46  -1.80   0.25   1.02  New, deflate

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Call Play of the Day:

COF - Capital One Financial $62.05 (+3.59 this week)

See details in play list

Put Play of the Day:

ISSX – Internet Security Systems $28.20 (-0.51 last week)

See details in play list


Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


HON $40.00 (+0.15) Was it any coincidence that HON closed last
Friday - expiration Friday - at $40?  The level proved more of
a magnet in last Friday's session, which is why we're dropping
coverage this weekend.  The stock traded around the $40 level
all of last week and may now be in danger of pulling back in
a post-expiration type trade.  Traders with open positions
should look to exit plays early next week on any signs of
strength in the Dow Jones Industrial Average ($INDU).

ETN $83.20 (-0.27) ETN pulled back on relatively lighter
volume in last Friday's session despite the new slate of
positive economic data and the rise in the Dow Jones
Industrial Average ($INDU).  The stock's inability to rise
under those conditions last week may reveal that it's
tired in the short term and may be due for a period of
consolidation.  Because of that potential risk, we're
dropping coverage this weekend.  Look to close positions
early next week.

CHIR $47.48 (-0.01) The AMEX Biotechnology Sector Index
(BTK.X) broke out in last Friday's session, finishing 2.38%
higher for the day.  Despite the BTK.X's strength last
Friday, CHIR was unable to get its act together and stage a
breakout of its own.  In fact the stock failed to trade up
to the $49 level, falling just short at the $48.73, the
intraday high.  The subsequent pullback has us worried and
instead of waiting around, we're electing to drop coverage
on this play this weekend in favor of a stronger biotech.




SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.

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offers true direct access to each option exchange
offers stop and stop loss online option orders
offers contingent option orders based on the price of the 
option or stock
offers online spread order entry for net debit or credit
offers fast option executions

PreferredTrade offers these online option trading features and 
more; call 1-888-889-9178 or click for more information.



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The Option Investor Newsletter                   Sunday 03-17-2002
Sunday                                                      3 of 5

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COF - Capital One Financial $62.05 (+3.59 this week)

Capital One Financial Corporation is a holding company whose
subsidiaries provide a variety of products and services to
consumers using its proprietary information-based strategy. The
Company's principal subsidiary, Capital One Bank, a limited
purpose credit card bank, offers credit card products. Capital
One, F.S.B., a federally chartered savings bank, offers consumer
lending and deposit products.  

The credit concerns that have plagued many financial concerns
appear to be subsiding.  The KBW Bank Sector Index (BKX.X) was
higher by 2.42% in last Friday's session, reflecting the
renewed optimism surrounding financial shares.  The recent
action in the bond market lends to the market's warming up to
financial stocks.  We've seen a dramatic sell-off in Treasuries
over the last several weeks as money leaves the safety of the
bond market as perceived risks associated with stocks have
diminished.  That action has helped several consumer financial
stocks higher, which had previously been a favorite target of
the bears.  COF was a stock that was heavily shorted during the
first part of this year on expectations of increasing defaults.
Those expectations were wrong as a recent round of short
covering has broken COF out above its resistance.  The stock
continued higher in last Friday's session and is poised to test
its relative highs on further buying.  Traders looking for
momentum based entries can turn to the sentiment in the banks
early next week.  Further strength in the BKX.X would offer
trend traders entry points into COF plays at current levels.
Traders who prefer the pullback game can look for market
related weakness down back to the $60 level.  Further weakness
should be met by buying demand at the rising 10-dma at
$58.85.  Our stop is initially set below that level at $58.

BUY CALL APR-60*COF-DL OI=2395 at $4.70 SL=2.50 
BUY CALL APR-65 COF-DN OI= 791 at $2.10 SL=1.00 
BUY CALL JUN-65 COF-FM OI= 996 at $4.10 SL=2.00 
BUY CALL JUN-70 COF-FN OI= 846 at $2.60 SL=1.75 

Average Daily Volume = 3.03 mln

KSS - Kohl's $71.35 (+3.42 last week)

Kohl's Corporation currently operates 354 family oriented,
specialty department stores that feature quality, national
brand merchandise priced to provide value to customers. The
Company's stores sell moderately priced apparel, shoes,
accessories and home products targeted to middle-income
customers shopping for their families and homes.  

Friday's consumer data spurred another rally in consumer
tied stocks.  The S&P Retail Sector Index (RLX.X) broke to
a new yearly high.  It was a continuation of the trend in
the RLX.X that has been in place for several months.  The
retail group of stocks remains one of the strongest in the
broader market.  Leading retailers are breaking out to new
52-week highs with ease.  Kohl's represents one of the
leading names in the group and also hit a new high in last
Friday's session.  Over the longer term, KSS has been in a
consolidation since early 2001, during which time it has
traded in a wide range marked by a top around the $70 to
$71 levels.  It appears that the top has been broken and
the stock could enter into a new ascending trend over the
near term.  Volume spiked up in last week's advance as it
looked like big buyers were stepping up to the plate.  The
stock needs only to advance past the $72 mark to reveal a
full fledged breakout.  Traders can look for that move
early next week on continued strength in the RLX.X.  A
positive RLX.X and broader market as well as KSS above
$72 would be the recipe for an entry point into strength.
A pullback down into the $70 range would offer entries on
weakness in the retail group.  Our stop is initially in
place at $68.50.

BUY CALL APR-70*KSS-DN OI=2830 at $4.00 SL=2.25 
BUY CALL APR-75 KSS-DO OI=3553 at $1.40 SL=0.75 
BUY CALL JUL-75 KSS-GO OI= 906 at $4.20 SL=2.50 
BUY CALL JUL-80 KSS-GP OI=1137 at $2.40 SL=1.25 

Average Daily Volume = 1.69 mln

GENZ – Genzyme General $50.01 (+3.63 last week)

Genzyme General, a division of Genzyme Corporation, is focused
on developing innovative products and services to solve major
unmet medical needs.  GENZ has nearly 600 products and services
on the  market and a strong pipeline of therapeutic products for
the treatment of rare genetic diseases.  The Diagnostics
business unit develops, markets and distributes in vitro
diagnostic products and genetic testing services. With a solid,
profitable revenue base, this research is intended to maintain
the company’s high rate of earnings growth.

After culminating a major decline in early February, the Biotech
index (BTK.X) has been in the process of repair for the past
several weeks.  From the looks of things, the bulls are going to
win this one, at least if the action of the BTK is any
indication.  Friday's action was very encouraging with the index
moving to close at its highest level in nearly 2 months.  This
bullish action was underpinned by the likes of GENZ, which moved
out of the February consolidation zone to close just above the
$50 level.  The movement in the stock and the sector looks solid,
especially when taken together with the new double-top breakout
on the PnF chart that is now forecasting a rise to the $65 level
over the long term.  But that level is a ways off, and with the
daily Stochastics topped out in overbought, we need to be careful
in picking our entries.  Ideally, we'll see a bit of profit
taking early next week that will give us an entry on a rebound
from the $47.50-48.00 area (the top of the recent consolidation).
Barring that, we would settle for either a dip and bounce from
intraday support at $49 or a volume-backed rally that pushes
through the $50.25 level.  We're likely to see some mild
resistance near $51.25 and then heavier resistance at
$52.50-53.00.  Those resistance levels could provide the catalyst
for some profit taking to allow us to enter on a dip for the
next leg higher.  We're initiating the play with our stop set
at $47.

BUY CALL APR-50*GZQ-DJ OI=2905 at $3.20 SL=1.50
BUY CALL APR-55 GZQ-DK OI=1889 at $1.35 SL=0.75
BUY CALL JUL-50 GZQ-GJ OI= 376 at $6.10 SL=4.00
BUY CALL JUL-55 GZQ-GK OI=1580 at $3.70 SL=2.25

Average Daily Volume = 4.80 mln

”If you haven’t traded options online – you haven’t really 
traded options,” claims author Larry Spears in his new compact 
guide book:  

“7 Steps to Success – Trading Options Online”.  

Order today and save 25% (only $15) by clicking on PreferredTrade 
and clicking on the link to the book on its home page.



IDPH - IDEC Pharmaceuticals $69.93 (+2.34 last week)

IDEC Pharmaceuticals Corporation is a biopharmaceutical company
engaged primarily 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 product
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). 

We finally saw the breakouts in the AMEX Biotechnology Sector
Index (BTK.X) and IDPH last Friday that we've been waiting for.
IDPH, after its brief pullback in last Thursday's session,
traded higher in Friday's session up to the $70 level in the
final hour of trading.  The stock's price action tracked its
sector very closely as the BTK.X rose into the close last
Friday.  The move up to $70 could have had traders entering new
call plays in IDPH.  For those who took the entries, you can
use a very short term target up between the $72 and $73 levels
early next week.  With momentum building in the BTK.X, it's
reasonable to expect IDPH to retest its relative highs in
short order.  Very short term traders can look to exit for
quick profits on a pop higher early next week.  Those who
have a longer time horizon can watch for IDPH to stage a big
breakout above its relative highs, which would come on an
advance past the $74 level.  Such a breakout should have the
stock poised to retest its all time high up around the $77
mark.  From there, it's blue skies beyond.  In terms of new
entry points, traders can use an advance past $70 early next
week to enter new plays.  Those still waiting for a pullback
down in the $67 to $68 range can look for a trade down to
and subsequent rebound from the 10-dma next week.  The 10-dma
currently sits at the $67.73 mark.

BUY CALL APR-60 IHD-DL OI=1507 at $12.20 SL=9.50 
BUY CALL APR-65*IHD-DM OI=3508 at $ 8.00 SL=6.00 
BUY CALL APR-70 IHD-DN OI=5408 at $ 4.70 SL=3.00 
BUY CALL JUL-65 IHD-GM OI=2654 at $12.00 SL=9.25 
BUY CALL JUL-70 IHD-GN OI=3039 at $ 8.90 SL=6.00 

Average Daily Volume = 3.65 mln

DCN - Dana Corp. $21.90 (+1.11 last week)

Dana Corporation is an independent supplier of components and
systems to vehicular manufacturers and related aftermarkets.
The Company's operations are comprised of its Automotive
Systems Group, Automotive Aftermarket Group, Heavy Truck Group,
Engine Systems Group, Fluid Systems Group, and Off-Highway
Systems Group. The Company also is a provider of lease financing
services in selected markets through its wholly owned subsidiary,
Dana Credit Corporation. 

The news flow from Dana has been relatively quiet in the last
week.  The stock has instead continued to trade off of the
strength in the broader automotive sector as well as the
positive economic news.  General Motors (NYSE:GM) and
Daimlerchrysler (NYSE:DCX) continue to trade incredibly well
relative to the broader market.  Those two stocks can be used
as sector gauges for the broader automotive sector, which DCN
is linked to.  DCX broke out of its trading range in a big
way in last Friday's session and on big volume too.  That move
in DCX could portend further upside for our play in DCN.  For
its part, our play traded up to a new relative high in last
Friday's session before pulling back on normal profit taking
later in the day.  The stock's advance up to a new relative
high in last Friday's market revealed the relative strength
that is working in its favor.  But traders still need to be
careful with finding new entry points into this play.  As we
saw last Friday when the stock broke out above its short
term resistance, it then pulled back.  With that lesson
behind, waiting for a pullback to support may be the better
entry approach currently.  Traders can look for a pullback
starting next week down to the 10-dma, which is currently
pegged at the $20.90 level.  Though DCN hasn't traded down
to its 10-dma since early February, it could bounce on its
first test of that support line next week.  If the stock
fails to rebound from its 10-dma on any market related
weakness, then traders can look for a trade down to the
$20 level where the buyers should emerge.

BUY CALL APR-17 DCN-DW OI=1153 at $4.90 SL=3.75 
BUY CALL APR-20*DCN-DD OI= 503 at $2.85 SL=1.50 
BUY CALL APR-22 DCN-DX OI= 329 at $1.30 SL=0.50 
BUY CALL JUL-20 DCN-GD OI= 465 at $3.70 SL=2.00 

Average Daily Volume = 891 K

SYMC - Symantec $41.46 (-0.49 last week)

Symantec Corp. provides a broad range of content and network
security solutions to individuals and enterprises. The Company
is a provider of virus protection, firewall, virtual private
network (VPN), vulnerability management, intrusion detection,
remote management technologies and security services to
consumers and enterprises around the world. The Company
currently views its business in five operating segments: Consumer
Products, Enterprise Security, Enterprise Administration,
Services and Other.

A report issued by Sun Trust Robinson Humphrey last Friday
suggested that demand for security software was improving,
although there were still signs of isolated weakness in certain
segments and that competition was increasing.  The vast majority
of replies to the survey implied that demand had stabilized.
While the report didn't inspire a breakout in SYMC last Friday,
it helped to reinforce the relative strength with which the
stock continues to trade.  The negative news from the broader
software sector late last week may have contributed to SYMC's
inability to breakout from its recent trading range.  On the
positive side, the buyers stepped up to the plate at the $40
level last Friday to prop up SYMC.  We were certainly pleased
to see the stock rebound from the $40 level and not breakdown
below its support.  Hopefully traders used that dip as an
opportunity to enter new call plays on weakness.  If you did
buy the dip, make sure to use a tight stop to protect against
downside.  Our coverage stop remains in place at the $40
level, with a close below resulting in a drop of coverage.  If
the broader tech sector gets moving higher in next week's
trading, then we should see the Software Sector Index (GSO.X)
participate.  That should trickle into SYMC, when we'll be
looking again for the breakout above the $43 level.  An
advance above $43 should inspire another round of short covering
and free SYMC to trade higher in the short term.  Momentum
and breakout traders can simply look for a positive Nasdaq
and GSO.X and look for a high volume breakout in SYMC above
the $43 level.

BUY CALL APR-40 SYQ-DH OI=11031 at $3.80 SL=2.75 
BUY CALL APR-42*SYQ-DV OI= 1478 at $2.50 SL=1.50 
BUY CALL APR-45 SYQ-DI OI= 1693 at $1.50 SL=1.00 
BUY CALL JUL-45 SYQ-GI OI=  610 at $3.80 SL=2.25 

Average Daily Volume = 1.90 mln

CEPH - Cephalon $67.37 (+3.43 last week)

Cephalon, Inc. is an international biopharmaceutical company
focused on the discovery, development and marketing of products
to treat sleep disorders, neurological disorders, cancer and
pain. In the United States, the Company markets three products,
Provigil (modafinil) Tablets [C-IV] for treating excessive
daytime sleepiness associated with narcolepsy, Actiq (oral
transmucosal fentanyl citrate) [C-II] for the management of
cancer pain in opioid tolerant patients, and Gabitril
(tiagabine hydrochloride) for the treatment of partial
seizures associated with epilepsy.

Last Friday, Ricera announced that it would take on the
production of one of Cephalon's drugs under development.
The news didn't have much impact on Cephalon as the stock
continued higher along with the AMEX Biotechnology Sector
Index (BTK.X).  The BTK.X broke out from its two month trading
range in last Friday's session by advancing past the 525 level
and through 530.  The BTK.X could face resistance at its
200-dma, which currently rests overhead at the 538 level.  A
breakout above the 200-dma could have the BTK.X poised to
trade up to the 550 level.  Pay close attention to how the
BTK.X trades early next week as CEPH usually tracks its sector
very close.  An advance in the BTK.X above current levels and
through the 200-dma would allow momentum traders to take
entries in CEPH at current levels.  Traders wanting confirmation
before entering into strength can look for a trade past the
$68 level.  Did you notice that last Friday's high was set
at $67.99?  An advance past $68 would confirm the stock's
recent momentum.  If CEPH can clear the $68 level and the
BTK.X continues building momentum, then we should see the
stock work its way up to the low $70s in the short term.  We
will target the $73 level specifically in the short term on
a move past the current hurdle at $68.  If however the BTK.X
pulls back on profit taking early next week, we'd look to
enter new CEPH positions on a pullback to support.  A good
spot to target an entry point on weakness would be at the
$65 level.

BUY CALL APR-65 CQE-DM OI=2993 at $6.60 SL=4.75 
BUY CALL APR-70*CQE-DN OI=2589 at $3.80 SL=1.75 
BUY CALL MAY-65 CQE-EM OI= 672 at $8.30 SL=6.50 
BUY CALL MAY-70 CQE-EN OI=2225 at $5.40 SL=3.75 

Average Daily Volume = 2.43 mln

ACS – Affiliated Computer Services, Inc. $53.04 (+0.80 last week)

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 both commercial and federal government clients.  

After rocketing higher in late February, shares of ACS have been
stubbornly wedging their way higher for the past 2 weeks and
look tantalizingly close to breaking out again.  Thursday's move
to the $54.50 had bulls slobbering all over themselves, thinking
that the breakout was already here.  But the sharp drop back from
that level is giving us another opportunity to get on board
before the train leaves the station.  That is, assuming that the
broad markets cooperate and the bulls actually can manage the
breakout.  The PnF chart is ready to give us that bullish signal,
but it isn't there yet.  Sure we had the triple-top breakout at
$49 in February, but what we're really focused on here is the
double top at $54.  If ACS prints $55, it will be a new all time
high and a fresh PnF buy signal.  While we wait, establishing new
positions on renewed bounces near the $52 support level looks
like the best entry strategy.  We're keeping our stop at $51.50,
as that level has been consistently providing support of late.

BUY CALL APR-52 ACS-DT OI= 958 at $3.30 SL=1.75
BUY CALL APR-55 ACS-DK OI=1961 at $1.80 SL=1.00
BUY CALL JUL-55 ACS-GK OI= 317 at $4.10 SL=2.50
BUY CALL JUL-57 ACS-GA OI= 525 at $3.20 SL=1.50

Average Daily Volume = 911 K

BAC – Bank of America Corp. $69.18 (+1.35 last week)

Providing a diversified range of banking and certain
non-banking financial products and services, BAC's operations
consist of Consumer Banking, Commercial Banking, Global
Corporate and Investment Banking, and Principal Investing and
Asset Management.  Consumer Banking targets individuals and
small businesses, while Commercial Banking targets businesses
with annual revenues up to $500 million.  Global Corporate
and Investment Banking provides investment banking, trade
finance, treasury management, leasing and financial advisory
services.  Principal Investing includes direct equity
investments in businesses and general partnership funds, while
the Asset Management businesses are split into three branches;
Private Bank, Banc of America Capital Management and Banc of
America Investment Services.

One of the best performing sectors on Friday, the S&P Banks index
(BIX.X) managed to give new life to the current broad market
rally with a 2.7% advance.  This pushed the BIX through more than
2 years of resistance to its highest close since early July of
1999.  As one of the better performing bank stocks over the past
month, BAC took advantage of this sector strength and blasted
through the $68 resistance level to set its own multi-year high,
closing above the $69 level for the first time since July of 1999.
That looks an awful lot like the Financial stocks are attempting
to confirm that this rally in the broad market is for real.
Critics that are asking how much longer this can continue need
only look at BAC's PnF chart, which is currently in a long column
of X's, that is forecasting that the stock could eventually test
the $90 level.  Well, that isn't likely to happen over the near
term, but it certainly is a nice target to shoot for.  Over the
near term, there is some mild resistance at $70, and then solid
resistance up at the $75-76 area from the early part of 1999.
Should profit taking occur, use the dip to initiate new positions
on a bounce from nearby support in the $67-68 area.  We are
moving our stop up to the $66.75 level.

BUY CALL APR-65 BAC-DM OI= 9009 at $5.30 SL=3.25
BUY CALL APR-70*BAC-DN OI=13019 at $1.90 SL=1.00
BUY CALL MAY-70 BAC-EN OI=27226 at $2.70 SL=1.25
BUY CALL MAY-75 BAC-EO OI=11665 at $0.80 SL=0.25

Average Daily Volume = 5.69 mln


ISSX – Internet Security Systems $28.20 (-0.51 last week)

Internet Security Systems is a global provider of security
management solutions for protecting e-business.  The company's
Adaptive Security Management approach to information security
protects distributed computing environments from attacks, misuse
and security policy violations, while ensuring the
confidentiality, privacy, integrity and availability of
proprietary information.  ISSX delivers an end-to-end security
management solution through its SAFEsuite security management
platform coupled with around-the-clock remote security
monitoring through the company's managed security services

Internet Security stocks are not the momentum stocks they once
were, and all of the residents of this group are trading at mere
shadows of their former selves, having posted a long series of
lower highs and lower lows over the past 2 years.  Despite the
attempted rally in this group in early March, it looks like the
bears are back to their old tricks, working to put the top in on
another failed rally.  Shares of ISSX actually managed to move up
to the $32 resistance level last Monday afternoon before falling
back for the remainder of the week, culminating with a sharp
selloff on Friday.  Volume ran well above average as the stock
shed 6.5% of its value to end the week right on the $28 support
level.  Despite the existence of this support level, ISSX looks
like an attractive short right here due to the heavy resistance
in the $30-31 area and daily Stochastics that are now in full
bearish decline.  While we would love to get a bounce back up to
the $30 level to allow for solid entries, we may have to settle
for a rollover near $29.  On the downside, a drop below $27 could
make for a decent entry, but look out for support at $26 and then
$25, both of which are areas where the bulls might try to take a
stand.  Look for bearish confirmation in the trading of other
Internet Security stocks like VRSN and RSAS.  Stops are currently
in place at $32.

BUY PUT APR-30 ISU-PF OI=778 at $4.80 SL=3.00
BUY PUT APR-25 ISU-PE OI=277 at $2.50 SL=1.25

Average Daily Volume = 2.62 mln

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The Option Investor Newsletter                   Sunday 03-17-2002
Sunday                                                      4 of 5

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XAU.X - Gold and Silver Index 61.92 (+1.02 last week)

The PHLX Gold & Silver Sector (XAU.X)(SM) is a capitalization
weighted index composed of the common stocks of 9 companies
involved in the gold and silver mining industry. XAU.X (SM) was
set to an initial value of 100 in January 1979; options
commenced trading on December 19, 1983. 

Gold stocks have been among the better performing equities in
the market this year.  But that trend may reverse over the
short term.  The recent pullback in the gold equities has
tracked the move in the commodity.  The price of gold (GC02M)
closed last Friday at $291.20 per ounce, well off of its
recent highs above the magical $300 per ounce level.  The
metal appears to have more downside ahead in the short term
as do the equities.  There are two reasons for the recent
pullback in gold, which are just the opposite factors
involved during the group's recent rally.  First, inflation
appears under wraps, especially after last Friday's
wholesale data revealed.  Second, the recovery underway in
the economy is taking money away from some of the defensive
sectors of the market such as metals.  The growing momentum
in stocks could continue to pressure gold shares over the
next three to four weeks, making the short term downside
potential in the gold sector attractive from a trading
perspective.  In trading the downside, we're choosing the
XAU.X.  For an index, the options on the XAU.X are very
liquid.  The spreads are manageable and the open interest
in the at the money contracts is more than adequate to
accommodate a short term trade.  Traders looking to get
short the XAU.X can look for rollovers from current levels
early next week.  Confirmation of weakness would come on
a decline below the 60 level.  We're targeting 57 to the
downside, where we'd look to book gains.  Our stop is in
place at $65.

BUY PUT APR-65*XAU-PM OI=1088 at $4.90 SL=3.00
BUY PUT APR-60 XAU-PL OI= 423 at $2.15 SL=1.00

Average Daily Volume = N/A

CCMP - Cabot Microelectronics $64.63 (-9.72 last week)

Cabot Microelectronics is a supplier of high performance
polishing slurries used in the manufacture of advanced
integrated circuit (IC) devices, within a process called
chemical mechanical planarization (CMP).  CMP is a polishing
process used by IC device manufacturers to flatten many of the
multiple layers of material that are built upon silicon wafers
and necessary in the production of advanced ICs.  CMP enables
IC device manufacturers to produce smaller, faster and more
complex IC devices with fewer defects.

After retracing exactly 50% of their rally from the prior week,
Semiconductor stocks (as measured by the SOX index) were due for
a bounce and they got exactly that on Friday, with the SOX
advancing to the tune of 2.65%.  That, more than anything else
was the likely culprit behind CCMP's ability to find support near
the $63 level.  But there certainly wasn't much conviction behind
the move, as the $65 resistance level kept the rally in check and
we saw a slight weakening going into the closing bell.  The tight
range in the stock over the past few days gives us some workable
entry points going forward.  A failed rally below the $67 level
is one entry possibility, and the other is a volume backed drop
below the $63 level.  Hopes for a sharp rebound in the
Semiconductor business are starting to wane, and that unwinding
of enthusiasm should drive the stock back towards the $58 support
level over the near term.  Our stop remains at $67.50, just above
recent resistance.

BUY PUT APR-65 UKR-PM OI=580 at $5.40 SL=3.25
BUY PUT APR-60*UKR-PL OI=826 at $3.50 SL=1.75
BUY PUT APR-55 UKR-PK OI=662 at $2.05 SL=1.00

Average Daily Volume = 1.21 mln

CTX - Centex Corporation $57.89 (-1.58 last week)

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

The incredible boom in housing stocks over the past several
months seems to be waning, at least if the action of the DJ US
Home Construction index (DJUSHB) is any indication.  After
topping out near the $380 level earlier this month, supply
appears to be taking control.  Since then the index has waffled
sideways and in the past few days has moved significantly lower,
breaking the $358 support level on Friday.  Shares of CTX have
followed a similar pattern, topping out near $63 earlier this
month and then breaking support just above $58 on Friday.  While
bulls may point to the afternoon rebound off the lows, they were
unable to overcome the gap down open and ended the session
fractionally lower and below the 20-dma ($58.04) for the first
time in almost a month.  Look for failed rallies to provide the
best entry points, ideally in the $59-60 area.  Of course
continued weakness can also be used for initiating new positions
as the stock falls below the $56.50 level on its way to testing
stronger support near $53.  Our stop is currently set at $61.50.

BUY PUT APR-60 CTX-PL OI= 171 at $4.50 SL=2.75
BUY PUT APR-55*CTX-PK OI=1514 at $2.15 SL=1.00

Average Daily Volume = 962 K

EMLX - Emulex Corporation $27.88 (-6.93 last week)

A leading networking company, EMLX designs, builds and
distributes three types of connectivity products: network
access servers, printer servers, and high-speed fibre channel
products.  It's fibre channel products, which are based on
internally developed ASIC technology, are deployable across
a variety of network configurations and operating systems to
support increasing volumes of stored data.  EMLX sells its
products directly throughout the world to OEMs and end users,
as well as through system integrators and industrial

"Help!  I've fallen and I can't get up!"  So goes the cry of
EMLX, which is badly underperforming just about any measure of
the market that you can come up with.  The stock's most recent
rally attempt failed at the $38 level a couple weeks ago, and it
has been a rather swift descent since then.  We've been riding
this sled lower this week and we're pretty happy with the results
this far.  The big question is how much more pain the bears are
determined to inflict on the stock.  Friday's action was
predictably quiet after the opening plunge due to expiration
Friday and the fact that EMLX had reached the 50% retracement of
its fall rally near $28.  This looks like a temporary resting
point, and we could be due for a bit of an oversold bounce.  But
that will likely set us up for a solid entry on the next failed
rally, likely in the vicinity of $30-31.  If the stock doesn't
bounce here, then we can initiate fresh positions as the decline
continues, with entries triggered on a break of Friday's intraday
lows near $27.50.  Watch for support to materialize near $26 (an
area of support back in November), but once that level is broken
EMLX bears will be setting their sights on the $19-20 level.  We
have moved our stop down to $31.50.

BUY PUT APR-30 UMQ-PF OI=1649 at $4.90 SL=3.00
BUY PUT APR-27*UMQ-PY OI= 448 at $3.70 SL=2.25
BUY PUT APR-25 UMQ-PE OI=1967 at $2.60 SL=1.25

Average Daily Volume = 9.49 mln

NVDA - NVIDIA Corporation $52.77 (-5.52 last week)

NVIDIA Corporation designs, develops and markets 3D graphics
processors, graphics processing units and related software that
set the standard for performance, quality and features for
every type of desktop personal computer user.  Used in a wide
variety of application including games, the Internet and
industrial design, the company's products were the first to
incorporate a 128-bit multi-texturing graphics architecture.
This design approach delivers to users a highly immersive,
interactive 3D experience with compelling visual quality and
stunning effects at real-time frame rates.  NVDA sells its
products to major PC manufacturers such as Compaq, Dell,
Gateway, Hewlett-Packard and IBM.

Who says there isn't any merit to technical analysis?  Just like
we expected, shares of NVDA rebounded on Friday right where we
said they would, at the $50 support level (actually $50.02, but
that's splitting hairs).  We have been focusing on NVDA a lot
recently, as the stock has fallen out of favor since being the
darling Chip stock of 2001.  Since the first of the year, the
stock has posted a series of lower highs and lower lows, and
judging by the PnF chart, the bears aren't done yet.  The PnF
price target is currently $42 and that could be achieved rather
quickly once the $49 level is pierced.  It has acted as support
recently and momentum traders will want to wait for a drop below
this level before initiating new positions.  The fly in the
ointment is the Semiconductor index (SOX.X) which began to
rebound rather sharply on Friday.  If that rebound continues,
then we'll need to be looking for entries when NVDA rolls over.
Ideally that would occur in the $53-54 area as the bulls run out
of steam.  We've tightened our stop to the $54.50 area, so a
rally and close above that level will clearly be cause for
closing down the play.

BUY PUT APR-55*RVU-PK OI=5204 at $5.80 SL=3.75
BUY PUT APR-50 RVU-PJ OI=3773 at $3.50 SL=1.75

Average Daily Volume = 9.53 mln

RYL - The Ryland Group $88.70 (-4.75 last week)

The Ryland Group is a homebuilder and mortgage-finance company
that has built more than 175,000 homes.  Additionally, the
Ryland Mortgage Company (RMC) has provided mortgage financing
and related services for more than 155,000 homebuyers.
Currently, Ryland homes are available in more than 260
communities in 21 markets across the United States.

It has been quite the bullish run for housing stocks over the
past several months, but now talk is resurfacing that this group
might be the site of the last great bubble.  Real estate prices
have escalated significantly this past year even with the
economy in recession and housing numbers have been setting
records for months.  Investors seem to be thinking that maybe
this tree can not grow to the sky and you can see their
trepidation in the chart of the DJ US Home Construction index
(DJUSHB) which appears to be rolling over from its all-time
highs.  We're seeing the same sort of action in shares of RYL,
as the stock is rolling over from its own all-time highs near
$97.  Since hitting that peak a bit more than a week ago, the
stock has given up more than 9% and the selling volume is on the
rise.  Friday's action saw RYL fall to $88 before finding some
mild support and hold just above the 20-dma ($88.94) at the
closing bell.  But that doesn't change the overall picture, and
that picture is pointing to more downside action ahead.  We've
seen two double-bottom breakdowns on the PnF chart in the past
week, and the current column of O's portends a visit to the $79
level.  That corresponds very nicely with historical support in
the $79-80 level.  A drop to that level will obviously make for
a great opportunity to lock in our gains.  In the meantime, use
intraday bounces to initiate new positions as the stock rolls
over (now likely at $90 and then a bit higher at $91.50-92.00).
Traders looking for a fresh breakdown to trade will want to wait
for RYL to drop below the $88 level before opening new positions.
Move stops down to $92.50.

BUY PUT APR-90 RYL-PR OI=103 at $5.50 SL=3.50
BUY PUT APR-85*RYL-PQ OI=175 at $3.60 SL=1.75

Average Daily Volume = 454 K

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Expiration Week Ends On A Positive Note
By Mark Phillips
Contact Support

As expiration weeks go, this one was pretty sedate, with the major
indices failing to move very far off of their starting point on
Monday.  Sure there was some chop up and down throughout the week,
but by the time Friday's closing bell rang, neither the bulls nor
the bears had much to show for their efforts. The DJIA has been
leading the bullish charge in recent weeks, but even the "old
economy" (can you believe I'm still using that moniker?) index
only managed a paltry 35-point gain for the week.  The NASDAQ
Composite, which has been acting like the tail of the snake in
responding to prospects that the economy actually is in recovery
mode, actually went the other way, losing 61 points to keep the
S&Ps pinned under resistance for another week.

And what of the pesky VIX?  It spent another week inching its way
lower, as it is prone to do from time to time.  Dipping to close
at 20.77 on Friday, it marked the lowest level for the VIX since
last July when it hit 20.26.  Much has been said about the VIX and
there are numerous opinions out there as to what constitutes a
low reading and just what to make of such a low reading.  Here's
my interpretation, along with why I pay such close attention to
it when in the pursuit of LEAPS trades.

Historically, the VIX meanders between roughly 20-30.  It can
exceed the 30 level as we have seen several times in recent
years.  When it does spike it can very quickly run into the 40-60
range before the unbridled pessimism runs its course.  On the
other side, there is nothing magic about the 20 level.  It is
just that it is near the lower end of the historical range.  It
is not without precedent for the VIX to drift along in the 18-20
range for weeks or even months at a time.  But like all things,
the VIX eventually wants to return to the mean.

There are 2 things that I have never seen as it relates to the
VIX.  I have never seen a low VIX be followed by a powerful and
sustained rally.  The market seems to need that "wall of worry"
or uncertainty to climb in order to put in a powerful rally.  The
other thing that I have yet to see is the VIX top out in the
55-60 area and then not see the markets rally from that point.
Both of these observations are based on the historical patterns
on the VIX and S&P price charts.  Just because those two
observations have always held true up to this point doesn't mean
they always will -- but for now, I'll continue to play the
historical odds.

That means that when the VIX is low, we want to be buying
long-term puts and when the VIX is high, we want to be buying
long-term calls.  Simple as that.  If only we could remove
emotion from the equation, then this whole process would be far
easier, right?  For now, I would be very careful about initiating
new long-term bullish positions.  Make sure everything else
(technicals and fundamentals) are lined up in your favor before
taking the plunge.  One last comment on the VIX.  It is NOT a
primary indicator for initiating trades.  It is a filter to help
keep us from doing something exceedingly unwise.  Alright, enough
said on that topic.

Unfortunately, it is a tough venture to find attractive long-term
put candidates in this market, as many of the weaker stocks have
already been taken out behind the wood shed and beaten severely;
and repeatedly.

That's why EK is the lone candidate on our Put list, and I'm
starting to like it more and more by the day.  My expectation is
that we'll get a great entry into the play after one more cycle
up to overbought on the daily chart.  Combine that with
historical resistance near $34-35 and a weekly Stochastic that is
just now starting to tip over and I think we could have an
enjoyable ride to the downside here.

Overall, it was a very quiet week for both our Watch List and
Portfolio, with little actual movement taking place this week.
Can you say "rangebound"?  The one notable exception was our BBH
play on the Biotechs.  It finally got moving again on Friday,
blasting through the 200-dma and to a fresh 2-month high.  This
series of higher lows and higher highs is looking very good

I commented in the Market Monitor on Thursday on the tendency of
stocks to gravitate towards strikes with heavy open interest in
quiet expiration weeks, and that was certainly the case this week
with several of the plays on our radar screen.  I don't think it
is any coincidence that GE was pinned to the $40 level, LUV to
$20, and JNJ near $65 as the closing bell rang on Friday.
Clearly we'll need to wait for next week's action to unfold
before we can see whether these pesky rangebound markets want to
rally or fall.

Last week I mentioned that I was looking at energy-producer
Dynegy (NYSE:DYN) as an addition to our Watch List.  And true to
my word, DYN appears as a new Watch List play this weekend,
following the CBOE issuance of LEAPS on the stock this past week.
But don't get in a hurry on this one, as we've got a bit of time
to wait for it to come back to us at our entry point.

In summation, we are faced with markets that have rallied to
heavy resistance on positive economic news.  That had driven the
VIX to fresh 9-month lows and we have directly in front of us
earnings warnings and then earnings.  This is where the rubber
meets the road, and companies will have to put up or investors
are likely to get that all-too-familiar queasy feeling and pull
the plug.  Take advantage of the entry points that do come your
way, but don't try to force it.  Patience is a virtue that pays
dividends over the long term.

Have a great week!

Mark Phillips

LEAPS Portfolio

Current Open Plays


BBH    03/03/02  '03 $120  OEE-AD  $16.60  $20.00  +20.48%  $115
                 '04 $120  KBB-AD  $26.20  $29.90  +14.12%  $115
IBM    03/03/02  '03 $110  VIB-AB  $ 9.80  $11.40  +16.33%  $95
                 '04 $110  LIB-AB  $17.00  $19.00  +11.76%  $95
JNJ    03/05/02  '03 $ 60  VJN-AL  $ 5.90  $ 8.30  +40.68%  $61
                 '04 $ 60  LJN-AL  $ 9.20  $12.10  +31.52%  $61


LEAPS Watchlist

Current Possibles


GE     08/12/01  $36           JAN-2003 $ 40  VGE-AH
                            CC JAN-2003 $ 30  VGE-AF
                               JAN-2004 $ 40  LGR-AH
                            CC JAN-2004 $ 30  LGR-AF
BRCM   10/28/01  $36-37        JAN-2003 $ 40  OGJ-AH
                            CC JAN-2003 $ 35  OGJ-AG
                               JAN-2004 $ 40  LGJ-AH
                            CC JAN-2004 $ 35  LGJ-AG
LUV    12/09/01  $19-20        JAN-2003 $ 20  VUV-AD
                            CC JAN-2003 $ 15  VUV-AC
                               JAN-2004 $ 20  LOV-AD
                            CC JAN-2004 $ 15  LOV-AC
MDT    03/10/02  $40-42        JAN-2003 $ 45  VKD-AI
                            CC JAN-2003 $ 40  VKD-AH
                               JAN-2004 $ 45  LKD-AI
                            CC JAN-2004 $ 40  LKD-AH
DYN    03/17/02  $27           JAN-2003 $ 30  ONO-AF
                            CC JAN-2003 $ 25  ONO-AE
                               JAN-2004 $ 30  KYK-AF
                            CC JAN-2004 $ 25  KYK-AE


EK     01/27/02  $34-35, $32   JAN-2003 $ 30  VEK-MF
                               JAN-2004 $ 30  LEK-MF

New Portfolio Plays


New Watchlist Plays

DYN - Dynegy, Inc. $28.98  **Call Play**

As I mentioned last week, I've had my eye on the Utility sector
(UTY.X) since the Enron news has started to die down.  This has
allowed solid stocks to start moving again, even those that were
thrown out with the bath water as all of Enron's dirty laundry
was brought forward.  The solid ramp that we saw in late February
and early March in the Utility sector was downright encouraging,
but I think this is just the first wave of the recovery.  DYN is
one of my favorite names in the sector, as they have a strong set
of energy producing and transportation assets.  They even operate
in the touchy energy and bandwidth trading industries that were
part of Enron's downfall.  But unlike Enron, what we have here is
a solid business model without the poor business ethics.  With
that as a backdrop, we need to focus on DYN's price chart and
along with the UTY sector, it has recently seen quite a rally,
right up to the $31 resistance level.  Some air is being let out
of the balloon and rightly so, as both the daily and weekly
Stochastics had gotten into overbought territory rather quickly.
I am encouraged by the fact that the profit taking has been
rather mild so far, but I'm not quite ready to plunge in with
both hands.  Rather, I'd like to see a pullback to the $26-27
area before venturing into new positions.  Even though the
weekly Stochastics is in overbought right now, I'm willing to
consider new positions based primarily on the daily chart if we
can get a brief dip back to support.  Pushing me into this
thinking is the picture I see on the really long-term chart,
with the monthly Stochastics just now starting to turn up our
of oversold territory.  Add to that the solid double bottom
near $20 and I think we've got a solid rebound candidate on
our hands.  Anxious traders might consider half positions on a
rebound from the $28.50 area as the daily Stochastics turns up,
but here in the Portfolio, we'll wait for a move back down to
firmer support before taking a position.  Because I think this
is a longer-term recovery story, I'm willing to play with a
rather wide stop, set at $22.50.

BUY LEAP JAN-2003 $25 ONO-AE  For Covered Call
BUY LEAP JAN-2004 $25 KYK-AE  For Covered Call





By Leigh Stevens  
Saturday, March 16, 2002

Now I am a sentimental guy, known to shed some tears at sad movies 
and during other emotional moments.  Besides my prediction for 
hearts and flowers, I was always a student of psychology, 
especially as it relates to the madness of crowds and all 
extraordinary popular delusions.  Yes, you have perhaps seen a 
book with a similar title, by Charles Mackay, put out by Wiley.  
Soon (April), you will even be able to buy my book from Wiley, but 
that's another story for another time. 


One of the important factors to pay attention to in the market, 
especially at what you think may be a bottom or a possible top, is 
to measure how bullish or bearish traders are.  A conventional and 
standard way to do this in terms of what traders (those with a 
short-term penchant for madness) is to look at the daily CBOE 
volume numbers of total puts traded to calls.  

Total daily put volume is simply divided by total daily call 
volume.  You can see this ratio daily on the CBOE web site 
(www.cboe.com) or, if you have a charting program like QCharts, 
their symbol to graph this daily number is "QC:PUTCALL".  

Now why would you want to study this fluctuating number? 
Principally as a key to how bullish or bearish option traders are 
getting in terms of where they are actually putting their money.
Whether they are leaning to the call (bullish) or put (bearish) 
side. Option traders are the best and brightest of traders, also 
likely the most mad. So, as the option traders go, so goes the 
traders and as the traders go so go the investors. This raises the 
question then as to why you would want to want to know the degree 
of bullishness or bearishness at all?

There is nothing much new under the (market) sun, since crusty old 
Charles H. Dow described how the market tends to go from extremes 
of bullishness to bearishness.  Dow observed, and he was not one 
to lose his head by getting emotional about the market, that at 
significant market tops most everyone is bullish and caught up in 
a sort of mania that the manna will flow from the market forever.

Conversely, at bottoms, he noticed that the mass of people, those 
who knew what a stock was, were quite pessimistic and didn't want 
to even HEAR about the prospects for stocks.  Like the bear in the 
woods, they had gone to sleep as far as an interest in the market.

Dow therefore began to expect that the contrary was about to
happen whenever popular opinion or "sentiment" was heavily leaning 
one way or the other.  Hence the concept of "contrary opinion" was 
born. Too much bullishness was bearish and too much bearishness 
was bullish -- well, try to get your head around this concept.  

This concept of contrary opinion is not that different from the 
concept of "overbought" or "oversold". When most or all, potential 
buyers have bought already, there are few NEW buyers who will come 
in to support the market upon any appreciable amount of concerted 
selling.  The same is true when everyone is bearish.  Most market 
participants are already short or on the sidelines (not 
interested) and a small amount of concerted buying will take the 
market back up, sometimes sharply.

PUT/CALL RATIO - the conventional way

When put/call ratios have gotten down to the .40 to .45 area, this 
is seen to mark a bullish extreme and caution is indicated as to 
the FURTHER prospects for much more of a rise.  When put/call 
ratios have gone to or above about .88, this is considered to be a 
sign that there is too much put buying and bearishness and there 
may be potential for an upside reversal.

Now this sounds very simple and easy, right?  WRONG! The trickiest 
thing is that this indicator tends to be early in pegging an 
actual reversal.  In fact, buy or sell "signal" are regularly 1 to 
5-6 trading days ahead of an actual market reversal.  This 
suggests, at a minimum, that you need to be carefully watching 
other things in the market that also weigh in the side of 
suggesting a significant top or bottom.  

The other thing that can make the put/call standard way of measuring 
market extremes less than useful, is the effect of index 
calls and index puts in the total option volume figures.  There is 
a lot of hedging of portfolios that goes on and related more to 
portfolio "insurance" that simply how hot, or not, the buyer or 
seller is for the market. 

Bullish sentiment extremes have tended to occur when CBOE daily 
equities call volume equals or approaches at least 2.4 times that 
of total daily equities put volume. Readings at this level or 
above suggests that traders are overly optimistic but may be 
unrealistic concerning the likelihood of a continued strong 
advance, as most market participants that are interested in buying 
in the near to intermediate-term, have already done so.

I myself, over the years, have found it useful to EXCLUDE the 
Index option volume numbers, to take out some of the influence of 
hedging activities and to get a more “pure” reading on how 
enthusiastic, or not, traders are for stocks.  And by dividing 
only equities call volume by puts, I get a whole number and more 
importantly, a LOW number is bullish and a HIGH number is bearish 
this then is the same kind of scaling as an overbought/oversold 
indicator, like RSI or stochastics.  Just as I have a hard time 
standing on my head, I have a hard time translating a high ratio 
(PUT/CALL) as bullish and a low ratio as bearish.  

So, watch what word is FIRST.  If put/call, this is the standard 
way you see this indicator.  If call/put, this is Leigh Stevens of 
OptionsInvestor.com talking and you can see my way of looking at 
this figure frequently by tuning in to my writings.  You heard it 
here first folks. 

By the way, bearish sentiment extremes have been reached when my 
call/put indicator gets down toward a 1 to 1 ratio, and bullish 
sentiment extremes have been reached when my call/put ratio gets 
to around 2.4 or above -- in major bull markets this figure can 
get up to around 3. 

Now that all these words and this concept has perhaps gotten you
crazy, pictures will make sense of it all.  Study these charts and 
then I will have a closing word at the bottom.

CALL/PUT chart -- "standard" way to look at option volumes

CALL/PUT ratio -- EXCLUDES Index call & put volumes -- Calls are 
divided by puts.  I keep this a custom indicator; e.g., as done in 
Excel, or in this case in TradeStation


A buy or sell "signal" was defined by eyeballing the extremes and 
assuming that move into these areas was a "signal".  Somewhat 
subjective, but such is the nature of technical analysis.  A 
signal was considered to be "good" or valid, when a market turning 
point occurred within 1-5 trading days AFTER the extreme reading.

The put/call standard was premature in its buy "signals" on 
several occasions on the decline into the Sept. low, probably due 
to the "distortion" of Index activity related to hedging. Sell 
signals were pretty good on the way down. "Sells" in BOLD, were 
ones where my CALL/put ratio was confirming.  Buy signals in both 
charts for the two differing calculations at the Sept. bottom. 
Secondary buys were good in both methods.  

Neither method was good at identifying the peak in early-
January. But both were good in identifying a secondary sell point 
later that month.  Both methods were good in identifying the 
upside reversal in late-Feb. (2/21).  The put/call standard has 
generated what may be an early sell signal of 3/11/02, not 
"confirmed" by the Stevens CALL/put indicator.  Time will tell on 
when a next top comes.  

The usefulness of following option volume activity is greatest 
when it is looked at in CONJUNCTION with other indicators.  What 
those indicators are will be the subject of future columns in this 
corner and further madness on how to look at the market in some 
unconventional ways. Hey, we need all the help we can get.

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The Option Investor Newsletter                   Sunday 03-17-2002
Sunday                                                      5 of 5

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Trading Basics: Q&A With The Covered-Calls Editor
By Mark Wnetrzak

This week's questions concern the effects of Open Interest on
option prices, calculating profit potential and management of
"in-the-money" positions.


I make extensive use of covered calls, including many OIN picks,
in my IRA account as a means of generating cash.  I try to shoot
for and be content with a 5% per month return on my covered-call
plays.  My question concerns what to do with the stock that rises
dramatically above the strike price I've sold.  If I do nothing
and wait a month or two for the stock to be called away, I feel
like a chump for sitting on "dead money".  If I buy-to-close the
position and roll out to a higher strike further out, I feel like
a chump for giving back option income and raising my cost basis.
Are there some common-sense, non-emotional guidelines to help me
get past this (I can't win) feeling of "chumpness?"



Regarding adjustment strategies with "in-the-money" positions:

Many times I feel like a chump too and as Patton once said to a
Russian general, "All right, I'll drink to that, one chump to
another!"  (Well, it was something like that...)  Bob, you are
describing what every trader/investor battles day in and day
out -- themselves.  That is why it is so important to identify
your risk-reward targets before entering a trade so as to avoid
emotional trading.  You must decide what your goal is and it is
something only you can do.  Are you more interested in higher
potential returns or positions that make acceptable returns while
still receiving an above-average amount of downside protection?
Some investors split the difference, writing a combination of
strikes both ITM and OTM as well as different time frames, where
the overall position offers a higher potential yield but retains
reasonable downside protection.  However, it all comes down to
the same thing: if a position provides the "expected" profit,
then it was a success...end of story!  Time for the clichés?
"Nobody ever went broke by taking a profit"; "Bulls and bears
make money, hogs get slaughtered"; and Jim's favorite, "Sell too

Bob, almost every time I deviate from my plan under fire, I end
up really feeling like a chump, a poorer chump...

Best of luck,

Mark W.

Hello Mark,

  I have found that on more than a few occasions I will find an
attractive setup at night (I.E. NXTP stock @ $8.18/Apr 7.50 call
@ $1.60) then the next day the call is trading extremely lower
(.75)  Is this because of the low open interest?  When open
interest is listed is this the true number of open positions or
is it X1000 (like a volume number)?  I have been using the
calculator you sent me to figure profit potential.  I have
noticed that other sources use different methods to figure
profit.  What is your reasoning behind yours?  Should you use
the price of the position minus the option premium received
from the sold calls divided by the option premium?  You do
receive that money in your account that could be used for other

  Another thing I have noticed is the covered-call position will
sometimes reach a point of strike price plus option price equals
current stock price, would you close out the position depending
on time left to expiration or just ride it out?

Thank you in advance for your answers and I love my renewal
special!  Keep up the good work...


Regarding Open Interest and position management techniques:

Open interest represents the number of outstanding option contracts
in the exchange market or in a particular class or series (both
short and long positions) and does not use a multiplier.  Thinly
traded issues can be difficult to enter as the spread can be fairly
large and price discrepancies may vanish quickly when buying (or
selling) pressure eases.  A useful method to establish the overall
profit/loss position in a thinly traded covered-write is with a
"Buy-Write" order: buy the stock and sell the call at a specified
"net debit."  A buy-write order specifies a target cost basis that
a broker may achieve throughout the trading day as the stock and
option prices fluctuate.  In this manner, you will only enter the
position at your desired cost basis and if you don't get a fill,
"Oh well, there will be other trading days and plenty of fish in
the ocean."

As far as profit/loss calculations, I am simply using the formulas
that Larry McMillan details in his book, "Options: As a Strategic
Investment."  Essentially, for a cash position, you take the net
premium received and divide it by the cost basis.  The cost basis
would be the price paid for the stock minus the premium received,
as this is the maximum amount of equity required for the duration
of the play.  Using margin effectively doubles the potential yield
as the equity requirement is much lower.  Remember, our candidates
are all "in-the-money" (ITM), and the maximum return possible is
achieved when the stock is called away, even if the stock price
remains unchanged.

If you aren't worried about keeping the stock, having it called
away early is not a problem and will actually increase your target
yield by providing the maximum return in a shorter time frame.  As
long as there is time premium left in the call, there is little
risk of early assignment (and you are earning time premium by
staying with the original position).  Once the option trades at
parity or a discount (or nears expiration), there is a significant
probability of exercise by arbitrageurs (floor traders who don't
pay commissions).  An option writer has several choices at this
point: do nothing, get called out and accept the original profit
established; if appropriate, close the position early (evaluate
extra commissions vs. an increased annualized return); or roll the
call up/down and/or forward.


Mark W.

Note:  Margin not used in calculations.

Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

CRGN   17.44  18.00   MAR  17.50  1.15  *$  1.21  10.8%
BSML    5.22   5.00   MAR   5.00  0.65   $  0.43  10.6%
IMCL   27.28  26.14   MAR  25.00  3.30  *$  1.02   9.2%
MACR   15.61  19.55   MAR  15.00  1.50  *$  0.89   9.1%
AVII   10.50  11.00   MAR  10.00  1.45  *$  0.95   9.1%
LTXX   23.72  25.47   MAR  22.50  1.90  *$  0.68   6.8%
CANI    5.93   8.19   MAR   5.00  1.20  *$  0.27   6.4%
MACR   18.85  19.55   MAR  17.50  1.85  *$  0.50   6.4%
IMCL   18.44  26.14   MAR  12.50  6.60  *$  0.66   6.3%
ATVI   26.71  29.29   MAR  25.00  2.70  *$  0.99   6.0%
UTHR   11.20  12.09   MAR  10.00  1.70  *$  0.50   5.9%
OSIS   22.82  25.09   MAR  20.00  3.80  *$  0.98   5.8%
XMSR   13.98  15.04   MAR  12.50  2.25  *$  0.77   5.7%
AVII   11.22  11.00   MAR  10.00  1.70  *$  0.48   5.7%
DCTM   20.39  21.67   MAR  17.50  3.90  *$  1.01   5.3%
WNC    10.86  10.49   MAR  10.00  1.20  *$  0.34   5.1%
GT     25.14  27.51   MAR  25.00  0.95  *$  0.81   4.8%
FFIV   22.66  25.30   MAR  20.00  3.30  *$  0.64   4.8%
FDP    17.61  18.14   MAR  17.50  0.65  *$  0.54   4.6%
HAL    16.27  16.67   MAR  15.00  1.85  *$  0.58   4.5%
OI     15.10  14.90   MAR  15.00  0.50   $  0.30   4.5%
IBI    20.17  19.69   MAR  20.00  0.75   $  0.27   3.0%

MANU   19.42  18.75   APR  17.50  3.40  *$  1.48   6.7%
NXTP    6.05   7.33   APR   5.00  1.50  *$  0.45   6.1%
GMST   22.59  20.69   APR  20.00  4.10  *$  1.51   5.9%
SIPX   11.15  11.78   APR  10.00  1.90  *$  0.75   5.9%
PVN     5.71   6.00   APR   5.00  1.05  *$  0.34   5.3%
SYXI   11.26  12.05   APR  10.00  1.85  *$  0.59   4.5%
ICST   23.78  21.78   APR  22.50  3.00   $  1.00   3.5%
ATVI   32.30  29.29   APR  30.00  4.00   $  0.99   2.5%

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


The last few weeks have actually been fairly generous to our 
covered-call portfolio.  Time to re-evaluate your short- and
long-term outlook on any issues you may own after the March
expiration.  As for the April positions, the technicals on
Manugistics (NASDAQ:MANU) are looking a tad worrisome as the
stock failed to rally above the DEC high.  With the current
wave of weakness washing through the Tech sector, we will 
keep a close watch on the issue as it tests support.  We will
also be watching Gemstar-TV Guide (NASDAQ:GMST), Integrated 
Circuit System (NASDAQ:ICST), and Activision (NASDAQ:ATVI) as
they test near-term support areas.  Do you still retain a 
near-term neutral to bullish outlook on the overall market? 
Let your answer be your guide!

Positions Closed: Packeteer (NASDAQ:PKTR), Inrange Technologies
(NASDAQ:INRG), ViroPharma (NASDAQ:VPHM), Pec Solutions (NASDAQ:
PECS) - which finished positive!


Sequenced by Company
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

AEIS   32.59  APR 30.00   OEQ DF  4.00 178   28.59   35    4.3%
ENDO   18.40  APR 17.50   PFU DW  1.75 176   16.65   35    4.4%
GSPN   14.09  APR 12.50   GLQ DV  2.20 735   11.89   35    4.5%
PRCS    5.43  APR  5.00   FGU DA  0.85 225    4.58   35    8.0%
REV     5.70  APR  5.00   REV DA  1.00 10     4.70   35    5.5%
RSTO   12.69  APR 10.00   URF DB  3.30 305    9.39   35    5.6%
ZOMX    7.93  APR  7.50   ZMQ DR  0.85 614    7.08   35    5.2%

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

PRCS    5.43  APR  5.00   FGU DA  0.85 225    4.58   35    8.0%
RSTO   12.69  APR 10.00   URF DB  3.30 305    9.39   35    5.6%
REV     5.70  APR  5.00   REV DA  1.00 10     4.70   35    5.5%
ZOMX    7.93  APR  7.50   ZMQ DR  0.85 614    7.08   35    5.2%
GSPN   14.09  APR 12.50   GLQ DV  2.20 735   11.89   35    4.5%
ENDO   18.40  APR 17.50   PFU DW  1.75 176   16.65   35    4.4%
AEIS   32.59  APR 30.00   OEQ DF  4.00 178   28.59   35    4.3%

Company Descriptions

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

AEIS - Advanced Energy  $32.59  *** Looking For An Entry Point ***

Advanced Energy Industries (NASDAQ:AEIS) designs, manufactures
and supports products and systems critical to plasma-based manu-
facturing processes.  These systems are important components in 
industrial manufacturing equipment that modifies surfaces or 
deposits or etches thin film layers on computer chips, CDs, flat
panel displays such as computer screens, DVDs, windows, eye-
glasses, solar panels and other products.  The company's systems 
define, modify and control the raw electrical power from a utility
and convert it into power that is uniform and predictable.  This
allows manufacturing equipment to produce and deposit very thin 
films at an even thickness on a mass scale.  The company's product
line includes direct current products, high power products, low 
and mid-frequency products, radio frequency products, ion beam 
sources and other products.  Morgan Stanley Dean Witter analyst
Steven Pelayo recently cut his investment rating on a handful of
chip equipment stocks because of their "lofty" valuations."  The
related pullback in AEIS could offer a favorable entry point as
analysts believe that as business for the chip equipment industry
improves, subsystem suppliers like AEIS could see sharp rise in
revenue, one quarter earlier than the major OEMs.  We simply
favor the relative strength in the issue and the support area
near our cost basis. 

APR 30.00 OEQ DF LB=4.00 OI=178 CB=28.59 DE=35 TY=4.3%

ENDO - Endocare  $18.40  *** VA Contract! ***

Endocare (NASDAQ:ENDO) is a vertically integrated medical device
company that develops, manufactures and markets cryosurgical and
stent technologies for applications in oncology and urology.  The
company has concentrated on developing devices for the treatment
of two common diseases of the prostate: prostate cancer and benign
prostate hyperplasia (BPH).  Endocare is also developing cryo-
surgical technologies for treating tumors in other organs, such as
the kidney, breast and liver.  Endocare has developed products 
that include the Cryocare-4 Probe system, Cryocare-8 Probe System,
FastTrac, CryoGuide and Horizon Prostatic Stent.  The company has 
developed the Cryocare System, a next-generation cryosurgery system,
to allow the urologist to treat prostate cancer in a minimally 
invasive manner.  The stock rallied strongly on Thursday after
Endocare announced that it has secured a 3-year system-wide Bulk 
Purchase Agreement from the United States Department of Veterans
Affairs (VA) for the Company's FDA-cleared ErecAid® therapy system,
which is used to treat the large population of men suffering from 
erectile dysfunction (ED) who do not respond adequately to drug
therapy.  The multi-million dollar contract is expected to nearly
double the current annual volume of units sold to the VA.  We like
the heavy volume rally above resistance at $18, which suggests
further upside potential.

APR 17.50 PFU DW LB=1.75 OI=176 CB=16.65 DE=35 TY=4.4%

GSPN - GlobespanVirata  $14.09  *** Bottom Fishing For Chips ***

GlobespanVirata (NASDAQ:GSPN) is a provider of advanced integr-
ated circuits that enable broadband digital communications to 
homes and business enterprises.  The company offers chip-set 
solutions for DSL, voice and video processing, as well as net-
work protocol processing.  The company's product offerings 
include various combinations of digital signal processor and an
analog front-end chip sets, a reference design guide and software.
Globespan products target the rapidly growing market for high-
speed data transmission applications, such as Internet access,
telecommuting and networking among branch offices.  Globespan 
sells integrated circuits to equipment manufacturers for products
that are sold to telecommunications service providers and end 
users worldwide.  In February, the recently merged Globespan and
Virata Corp. reported a 4th-quarter pro forma loss of $0.01 a 
share, down from its year-ago equivalent profit but 4 cents 
narrower than expected.  The stock has been forming a Stage I
base for almost a year and this position offers a way to profit
from the current lateral trend.  

APR 12.50 GLQ DV LB=2.20 OI=735 CB=11.89 DE=35 TY=4.5%

PRCS - Praecis Pharmaceuticals $5.43 *** New Drug Speculation ***

Praecis Pharmaceuticals (NASDAQ:PRCS) is a drug discovery and 
development company with a lead product, abarelix depot, for
the treatment of prostate cancer.  In December 2000, Praecis
submitted to the FDA a new drug application for abarelix depot.
The Company is also developing abarelix depot for the treatment
of women with diseases that respond to a reduction of the female
hormone estrogen, such as endometriosis.  Praecis is developing
Apan, a new drug for the treatment of Alzheimer's disease.  The 
company licensed Latranal, a proprietary topical composition 
that it is developing for the relief of localized muscle, tendon
or neuropathic related pain and, in particular, chronic back pain.
In January, the company said that its initial Phase I study of 
Apan will be completed during the second half of 2002.  They also
plan to file an Investigational New Drug application for their
Rheumatoid Arthritis drug candidate during the summer of 2002 and 
initiate a Phase I study prior to year-end.  A reasonable cost 
basis from which to speculate on the company's drug pipeline.  

APR 5.00 FGU DA LB=0.85 OI=225 CB=4.58 DE=35 TY=8.0%

REV - Revlon  $5.70  *** Will A New CEO Rejuvenate Revlon? ***

Revlon (NYSE:REV) manufactures, markets and sells an extensive
array of cosmetics and skin care, fragrances and personal care 
products exclusively through its direct subsidiary, Revlon 
Consumer Products Corporation and its subsidiaries. Revlon's
products are marketed under brand names such as Revlon, Color-
stay, Revlon Age Defying, Almay and Ultima in cosmetics; Moon 
Drops, Eterna 27, Ultima and Jeanne Gatineau in skin care; 
Charlie and Fire & Ice in fragrances, and Flex, Outrageous, 
Mitchum, Colorstay, Colorsilk, Jean Nate, Bozzano and Colorama 
in personal care products.  The company markets each core brand 
with a distinct and uniform global image, including packaging 
and advertising, while retaining the flexibility to tailor 
products to local and regional preferences.  In July 2001, the
company sold its Colorama brand to the L'Oreal Group.  In Feb.,
Revlon posted a narrower 4th-quarter loss as it cut costs, but 
was disappointed in the demand for its products.  But the recent
rally started a few days earlier when Revlon said it had named 
former Coca-Cola Co. President and COO Jack Stahl, to become the
company's third chief executive in five years.  A conservative
entry point from which to speculate on Revlon's future.  Try
target-shooting a lower cost basis to improve the potential
profit in the position.

APR 5.00 REV DA LB=1.00 OI=10 CB=4.70 DE=35 TY=5.5%

RSTO - Restoration Hardware $12.69 *** The Trend Is Your Friend ***

Restoration Hardware (NASDAQ:RSTO) together with its subsidiaries,
is a specialty retailer of home furnishings, functional and decor-
ative hardware and related merchandise that reflects its classic 
and authentic American point of view.  The company markets its
merchandise through retail locations, mail order catalogs and on 
the Web at www.restorationhardware.com.  The company operated 106 
stores in 31 states, the District of Columbia and in Canada as of
February 3, 2001.  The company displays its broad assortment of
merchandise in an architecturally inviting setting, which it 
believes appeals to both men and women.  The company recently
announced that it has paid off the $5 million balance of a Sept-
ember 2000 33-month term loan from Back Bay Capital, and has 
ended the fiscal year with no debt and approximately $22 million
of cash and equivalents.  The stock has gained strength as it
rallied off the September low and hasn't violated its 30-dma
since November.  This position offers a conservative entry point
in a Stage II stock.  Earnings are due this week.

APR 10.00 URF DB LB=3.30 OI=305 CB=9.39 DE=35 TY=5.6%

ZOMX - Zomax  $7.93  *** Bracing For A Rally ***

Zomax (NASDAQ:ZOMX) is an international outsource provider of
process management services.  The company's fully integrated 
services include front-end e-commerce support, call center and
customer support solutions, DVD authoring services, CD and DVD 
mastering, CD and DVD replication, supply chain and inventory 
management, graphic design, print management, assembly, packaging,
warehousing, distribution and fulfillment, and RMA processing. 
Zomax services a broad customer base, including Microsoft (NASDAQ:
MSFT), Novell (NASDAQ:NOVL), Hewlett Packard (NYSE:HWP) and 
Gateway (NYSE:GTW).  Zomax has rallied off its February low after
announcing that it agreed to buy the business, and substantially
all the assets of bankrupt Software Logistics Corp., dba iLogistix.
Zomax estimated the acquired businesses would produce $225 million
in revenue in 2002, more than doubling Zomax's sales and adding to
Zomax' profits in the second half of the year.  The technicals
remain bullish as the stock has repeatedly tested resistance of
a year-long base.  A reasonable entry point for those wishing
to speculate on the recent acquisition.

APR 7.50 ZMQ DR LB=0.85 OI=614 CB=7.08 DE=35 TY=5.2%



The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

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

XMSR   15.04  APR 15.00   QSY DC  1.30 1902  13.74   35    8.0%
UCOMA   5.19  APR  5.00   QUW DA  0.55 462    4.64   35    6.7%
PSUN   25.89  APR 25.00   PVQ DE  2.30 199   23.59   35    5.2%
RIMM   27.08  APR 25.00   RUL DE  3.40 2051  23.68   35    4.8%
MACR   19.55  APR 17.50   MRQ DW  2.95 47    16.60   35    4.7%
CBST   20.10  APR 17.50   UTU DW  3.50 2     16.60   35    4.7%
IDTI   30.89  APR 27.50   ITQ DY  4.80 83    26.09   35    4.7%


Options 101: Margin And ROI Calculations Revisited
By Ray Cummins

With the recent influx of new readers, we have received a number
of questions about how the collateral requirement and "Target
Yield" and are calculated for a cash-secured put.


A simple question to understand your format on naked-puts:  I
don't understand how you get the "cost basis" and "target yield."

All other columns are easily understood.

Here's an example:

Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

ACN    29.89  APR 25.00   ACN PE  0.85 2347  24.15   42    7.8%

Where's the 24.15 come from?  Also, target yield of 7.8%...that's
7.8% of what?



Regarding your question about cost basis and target yield:

Cost basis is the price at which you will own the stock if the
sold (short) put is assigned.  Target yield is just a fancy
(SEC approved) way of saying "expected profit" or "potential
gain"...it is the amount of money we expect to earn in the
position, but adjusted to a monthly basis for comparison to
other plays.

Here is an explanation of the margin and collateral requirements
for common equity-option strategies including "naked" puts.


The margin requirement for writing options is vastly different
than that which is used with stocks.  The margin requirement is
simply a deposit that an investor must provide to guarantee that
he or she will cover any written options in the event they are
exercised.  This collateral is a legal requirement and it is a
very important component in your strategy selection because it
determines the overall "return on investment" or ROI.  There are
two different categories of margin requirements with options:
Initial Margin and Maintenance Margin.


The Initial Margin is the amount of collateral you must have in
your account to initiate the position.  Recall that with options,
margin means the cash or securities required to be deposited by
an option writer with his brokerage firm as collateral for the
writer's obligation to buy or sell the underlying interest, or in
the case of cash-settled options, to pay the cash settlement
amount, if assigned an exercise.  The minimum margin requirements
are imposed by the Board of Governors of the Federal Reserve, the
U.S. options markets and other self-regulatory organizations, and
increased margin requirements may be imposed either generally or
in individual cases by various brokerage firms.  The most widely
used margin requirements are based on the regulations at the
Chicago Board Options Exchange:

Writers of uncovered puts or calls must deposit and maintain 100%
of the option proceeds* plus 20% of the aggregate contract value
(current equity price x $100) minus the amount by which the option
is out-of-the-money, if any, subject to a minimum for calls of
option proceeds* plus 10% of the aggregate contract value and a
minimum for puts of option proceeds* plus 10% of the aggregate
exercise price amount. (*For calculating maintenance margin, use
the option's market value instead of the option's proceeds.)


The Maintenance Margin is the amount of cash (or securities)
required to offset the changing collateral requirements of the
written options in your portfolio.  As the price of the option
(and the underlying stock) changes, so does the maintenance
margin.  With (short) put options, the margin requirements can
increase when the underlying stock price falls and also when it
rises significantly.  The reason is the manner in which the
collateral amount is determined (with the exchange formula) and
traders should always consider not only the initial margin
requirement, but also the maximum margin needed through the life
of the position.  Option writers occasionally have to meet calls
for additional margin during adverse market movements and even
when there is enough equity in the account to avoid a margin call,
the need for increased collateral will make that equity unavailable
for other purposes.  Consider these facts carefully before you
initiate any "naked" option positions.


As far as the calculations we use to determine collateral and net
return for our Naked-Put positions, the following example will
explain the Margin/ROI formula and demonstrate the mathematical
advantage of this technique when compared to covered-call writing.

Return On Investment (ROI) = Profit / Collateral Requirement.  In
this strategy, profit is the initial premium received for the sold
option.  The collateral requirement is simply the amount of cash or
equity that must be in your account to open the position.  Most
discount/online brokers use the following formula to determine the
collateral  requirement for "naked" puts.  The margin maintenance
per contract is the greater of:

The premium received plus 40% of the underlying issue price, minus
the out-of-the-money amount;

(0.40 * Stock Price + Premium - (Price Picked - Strike)) 

- or - 

The premium received plus 20% of the underlying issue price; 

(0.20 * Stock Price + Premium) 

The second formula generally applies when the strike price sold is 
significantly below the underlying stock price. 

An example: 

Stock Price = $29.25
Strike Price Sold = $25
Premium Received = $0.50
Cost Basis = $24.50
The 20% formula requirement = $6.35
The 40% formula requirement = $7.95
Using the greater value of the two formulas, the collateral for
this play is $7.95 per contract.
The Return On Investment (ROI) = $0.50 / $7.95 = 6.29% 

To correlate the ROI to a monthly basis, annualize the ROI and
divide by 12.  Using the above example of a 6.29% ROI with an 
expiration of 3 weeks (21 days),  calculate the Target Yield as
follows:  6.29 / 21 * 365 / 12 = 9.11%.  The original collateral
requirement is always utilized in the monthly summary, regardless
of the eventual change in stock price.  The final price of the
stock determines the actual profit when that price is below the
sold strike but above the cost-basis.  In any case, the total
profit can never be greater than the initial premium for the sold

As you can see, there is a slight mathematical edge with this
strategy when compared to covered-calls because of the lower
margin maintenance or collateral requirement.  However, the risk
is the same in both techniques; the underlying stock can always
fall to $0.

Good Luck! 

                      *** WARNING!!! ***
Occasionally a company will experience catastrophic news causing
a severe drop in the stock price. This may cause a devastatingly
large loss which may wipe out all of your smaller gains. There is
one very important rule; Don't sell naked puts on stocks that you
don't want to own! It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops. Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a buy-to-close STOP at a price that is no more than twice
the original premium from the sold option.


Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

INVN   40.10  45.50   MAR  35.00  0.85  *$  0.85  15.7%
AMZN   12.52  14.03   MAR  10.00  0.50  *$  0.50  14.5%
HAL    16.49  16.67   MAR  15.00  0.50  *$  0.50  12.9%
HAL    13.95  16.67   MAR  12.50  0.70  *$  0.70  12.6%
ASW    10.81   8.35   MAR   5.00  0.35  *$  0.35  12.1%
OSIS   22.06  25.09   MAR  17.50  0.70  *$  0.70  11.9%
PPD    26.30  29.65   MAR  20.00  0.45  *$  0.45  11.4%
PLMD   20.76  25.95   MAR  17.50  0.40  *$  0.40  10.7%
DDS    18.70  24.38   MAR  15.00  0.30  *$  0.30  10.7%
MU     36.29  33.39   MAR  32.50  0.55  *$  0.55  10.6%
FFIV   23.15  25.30   MAR  17.50  0.45  *$  0.45  10.0%
SLAB   30.90  35.00   MAR  25.00  0.30  *$  0.30   9.6%
PPD    26.11  29.65   MAR  17.50  0.45  *$  0.45   8.9%
OCLR   27.25  27.50   MAR  25.00  0.55  *$  0.55   8.7%
ACN    27.45  28.99   MAR  22.50  0.50  *$  0.50   8.6%
MANH   29.80  35.00   MAR  22.50  0.65  *$  0.65   8.5%
PSUN   25.21  25.89   MAR  22.50  0.30  *$  0.30   8.5%
MDR    14.14  14.51   MAR  12.50  0.25  *$  0.25   8.5%
TER    32.70  37.00   MAR  27.50  0.60  *$  0.60   8.0%
TXN    30.29  34.09   MAR  27.50  0.85  *$  0.85   7.3%
FTI    17.64  19.48   MAR  15.00  0.30  *$  0.30   7.2%
OII    23.79  27.39   MAR  22.50  0.55  *$  0.55   7.1%
DDS    17.40  24.38   MAR  15.00  0.30  *$  0.30   7.0%
MU     34.90  33.39   MAR  27.50  0.60  *$  0.60   6.9%
PLMD   20.75  25.95   MAR  15.00  0.25  *$  0.25   6.4%
LUX    18.13  19.82   MAR  17.50  0.30  *$  0.30   6.3%
SANG   19.75  23.50   MAR  17.50  0.25  *$  0.25   6.1%
FST    26.24  27.95   MAR  25.00  0.25  *$  0.25   5.7%
AMAT   47.98  50.72   MAR  40.00  0.30  *$  0.30   5.7%
AMAT   47.20  50.72   MAR  40.00  0.60  *$  0.60   5.5%
TER    37.55  37.00   MAR  32.50  0.25  *$  0.25   5.3%

DCN    19.10  21.90   APR  15.00  0.55  *$  0.55   7.8%
ACN    29.89  28.99   APR  25.00  0.85  *$  0.85   7.8%
PLMD   22.83  25.95   APR  17.50  0.50  *$  0.50   7.1%
TER    39.20  37.00   APR  32.50  0.95  *$  0.95   6.9%
MU     38.16  33.39   APR  30.00  0.75  *$  0.75   6.5%
IDTI   35.99  30.89   APR  27.50  0.65  *$  0.65   6.0%
LRCX   28.88  27.43   APR  25.00  0.65  *$  0.65   5.7%
MLNM   23.66  25.12   APR  17.50  0.40  *$  0.40   5.6%
MRVL   41.38  38.60   APR  30.00  0.70  *$  0.70   5.6%

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


The past month has provided some great opportunities for
option traders and our list of candidates was certainly
enhanced by the recent volatile activity.  Despite the
sell-off earlier in the week, all of the positions in the
portfolio expired profitably.  However, a number of April
plays are under scrutiny due to the mediocre performance
of the technology group.  Issues which should be monitored
for early exit or adjustment include: Micron Technology
(NYSE:MU), Lam Research (NASDAQ:LRCX), and Integrated
Device Technology (NASDAQ:IDTI).

Positions Closed:

PMC Sierra (NASDAQ:PMCS) - positive (Murphy's Law again!)


Sequenced by Company
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

GMST   20.69  APR 15.00   QLF PC  0.60 1441  14.40   35   11.0%
MLNM   25.12  APR 20.00   QMN PD  0.40 642   19.60   35    6.4%
MRVL   38.60  APR 27.50   UVM PY  0.50 10    27.00   35    5.3%
MSO    19.97  APR 17.50   MSO PW  0.60 24    16.90   35    8.5%
NOVN   22.39  APR 20.00   NPQ PD  0.70 60    19.30   35    8.4%
PLMD   25.95  APR 20.00    PM PD  0.35 54    19.65   35    5.5%
SYXI   12.05  APR 10.00   USX PB  0.25 7      9.75   35    7.2%
TXN    34.09  APR 30.00   TXN PF  0.75 21121 29.25   35    6.3%
VARI   35.40  APR 30.00   IUA PF  0.55 170   29.45   35    5.1%

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

GMST   20.69  APR 15.00   QLF PC  0.60 1441  14.40   35   11.0%
MSO    19.97  APR 17.50   MSO PW  0.60 24    16.90   35    8.5%
NOVN   22.39  APR 20.00   NPQ PD  0.70 60    19.30   35    8.4%
SYXI   12.05  APR 10.00   USX PB  0.25 7      9.75   35    7.2%
MLNM   25.12  APR 20.00   QMN PD  0.40 642   19.60   35    6.4%
TXN    34.09  APR 30.00   TXN PF  0.75 21121 29.25   35    6.3%
PLMD   25.95  APR 20.00    PM PD  0.35 54    19.65   35    5.5%
MRVL   38.60  APR 27.50   UVM PY  0.50 10    27.00   35    5.3%
VARI   35.40  APR 30.00   IUA PF  0.55 170   29.45   35    5.1%

Company Descriptions

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

GMST - Gemstar  $20.69  *** Patent Lawsuit Speculation! ***

Gemstar-TV Guide (NASDAQ:GMST) is a global media and technology
company focused on developing, licensing and providing products
and services that simplify and enhance consumer entertainment. 
The company was formed on July 12, 2000 through the merger of 
Gemstar International, a technology company focused on consumer 
entertainment, and TV Guide, a provider of television information
and guidance in the United States.  Many of the company's products
have a special emphasis on television-oriented technologies and 
services, in particular, program guidance products including those
marketed under the TV Guide name.  Gemstar rallied in February 
after an administrative judge decided to drop closing arguments in
a key patent battle over the company's interactive TV guides (a 
decision is expected by March 21).  The stock was further boosted
by a report from Goldman Sachs, which said the stock was oversold.
Even in a worst-case scenario, Goldman doesn't believe a setback
in the case would undermine Gemstar's overall patent position, 
nor would it likely materially affect its existing licensing
agreements.  Traders can speculate on the outcome of the patent
litigation with this conservative position.

APR 15.00 QLF PC LB=0.60 OI=1441 CB=14.40 DE=35 TY=11.0%

MLNM - Millineum Pharma  $25.12  *** Recovery Underway! ***

Millennium Pharmaceuticals (NASDAQ:MLNM) incorporates large-scale
genetics, genomics, high-throughput screening and informatics in
an integrated science and technology platform.  Millennium applies
this technology platform primarily in discovering and developing
proprietary therapeutic and diagnostic human healthcare products
and services. Since inception, substantially all of the company's
revenues have been derived from its strategic alliances.  Their
business is built around three primary areas of focus: technology,
therapeutics and predictive medicine.  Millennium is one of the
ancient giants in the "Genomics" business but the fading craze
for gene-mappers has left many stocks in the group struggling to
stay above single-digit share values.  The selling pressure in a
few of these issues appears to be coming to an end and MLNM is
among that group.  The buying support near the cost basis of this
position makes it a relatively low risk speculation play.

APR 20.00 QMN PD LB=0.40 OI=642 CB=19.60 DE=35 TY=6.4%

MRVL - Marvel Technology  $38.60  *** Entry Point! ***

Marvell Technology Group (NASDAQ:MRVL) designs, develops and
markets integrated circuits using proprietary communications
mixed-signal and digital signal processing technology for
communications-related markets.  The company's products provide
the critical interface between analog signals and the digital
information used in computing and communications systems and
enables its customers to store and transmit digital information
reliably and at high speeds.  The company also develops a range
of high performance communications internetworking and switching
products for the broadband communications market.  Marvel has
recently been inundated with upgrades, based on its "marvelous"
outlook, which includes a new growth cycle.  Investors who are
bullish on the company's future can establish a low risk basis
in the issue with this position.

APR 27.50 UVM PY LB=0.50 OI=10 CB=27.00 DE=35 TY=5.3%

MSO - Martha Stewart Living  $19.97  *** K-Mart Recovery! ***

Martha Stewart Living Omnimedia (NYSE:MSO) is an integrated
content and commerce company that creates how-to content and
related merchandise for homemakers and other consumers.  The
company's products bear the well-known Martha Stewart brand
name, which the company leverages across a range of media and
retail outlets.  The company primarily focuses on the domestic
arts, providing consumers with the how-to ideas, information,
merchandise and other resources they need to raise the quality
of living in and around their homes.  The company has four
primary business segments, including Publishing, Television,
Merchandising and Internet/Direct Commerce, through which
content and merchandise relating to its eight core content
areas are created and distributed to consumers.  K-Mart has
decided not close as many stores as originally expected (in
the wake of their bankruptcy announcement) and the news has
boosted share values of the retail chain's suppliers.  MSO
has an exclusive contract with K-Mart to market its Martha
Stewart Everyday linens, cookware and household products,
so any future recovery in KM will benefit MSO's stock price.
Traders can speculate on that outcome with this position.

APR 17.50 MSO PW LB=0.60 OI=24 CB=16.90 DE=35 TY=8.5%

NOVN - Noven Pharmaceuticals  $22.39  *** Rally Mode! ***

Noven Pharmaceuticals (NASDAQ:NOVN) is engaged primarily in
the development and manufacture of advanced transdermal and
transmucosal drug delivery products and technologies.  Their
primary commercialized products are transdermal drug delivery
systems for use in hormone replacement therapy.  Noven's first
product was an estrogen patch for the treatment of menopausal
symptoms marketed under the brand name Vivelle in the United
States and Canada.  Noven's second-generation estrogen patch
is marketed under the brand name Vivelle-Dot and Noven also
developed a combination estrogen/progestin transdermal patch
for the treatment of menopausal symptoms, which is marketed
under the brand name CombiPatch.  Noven has some new products
in the pipeline and based on the recent activity in its stock,
investors are bullish on the company's outlook.  Traders who
agree with that assessment can profit from continued upside
movement with this position.  (Due Diligence Required!)

APR 20.00 NPQ PD LB=0.70 OI=60 CB=19.30 DE=35 TY=8.4%

PLMD - PolyMedica  $25.95  *** "Short-Covering" In Progress! ***

PolyMedica (NASDAQ:PLMD) is a provider of direct-to-consumer
specialty medical products and services, conducting business in
the Chronic Care, Professional Products and Consumer Healthcare
markets.  PolyMedica sells diabetes supplies and related products
through its Chronic Care segment and provides direct-to-consumer
prescription respiratory supplies to Medicare-eligible seniors
suffering from chronic obstructive pulmonary disease (COPD) and
also markets, manufactures and distributes a line of prescription
urological and suppository products with its Professional Products
segment.  PolyMedica's products for urinary health are distributed
mainly to food and drug retailers as well as mass merchandisers
nationwide through its Consumer Healthcare segment.  Shares of
PLMD were hammered late last year after the company announced it
was under investigation by the Securities and Exchange Commission
in connection with accounting matters, financial reports, other
public disclosures and sales of the company's securities.  Now it
appears the company's stock is recovering and traders who shorted
the issue are scrambling to cover their shares.  With near-term
buying support at $20, this play offers favorable speculation for
investors who wouldn't mind owning the issue.

APR 20.00 PM PD LB=0.35 OI=54 CB=19.65 DE=35 TY=5.5%

SYXI - IXYS Corp.  $12.05  *** Cheap Speculation! ***

IXYS Corp. (NASDAQ:SYXI) is engaged in the design, development, 
manufacture and marketing of high power, high performance power
semiconductors.  The company's power semiconductor products have 
historically been divided into two primary categories, power 
metal oxide semiconductor (MOS) transistors and bipolar products.
IXYS sells gallium arsenide products, which has become a primary 
product category.  IXYS also sells ICs that have applications 
associated with power management, and high speed, high density 
SRAM products.  There's little news to explain the recent bullish
activity in SYXI but the stock continued to rally this week in the
wake of speculative buying among technology investors.  From a
technical viewpoint, SYXI has broken its year-long downtrend and
those who favor the recent strength in the semiconductor sector
can use this position to speculate conservatively on the upside
momentum in the group.  Target a higher premium initially to
allow for a pullback in the issue and increase the ROI in the

APR 10.00 USX PB LB=0.25 OI=7 CB=9.75 DE=35 TY=7.2%

TXN - Texas Instruments  $34.09  *** Portfolio Position! ***

Texas Instruments (NYSE:TXN) is a global semiconductor company
and a designer and supplier of digital signal processors and
analog integrated circuits, the engines driving the digitization
of electronics.  These two types of semiconductor products work
together in digital electronic devices such as digital cellular
phones.  TI also designs and manufactures other semiconductor
products. These products include various standard logic devices,
application-specific integrated circuits, reduced instruction-set
computing microprocessors, micro-controllers and digital imaging
devices.  In addition to semiconductors, TI has two other primary
segments.  Sensors & Controls sells electrical and electronic
controls, sensors and radio-frequency identification systems to
commercial and industrial markets. Educational & Productivity
Solutions is a supplier of graphing and educational calculators.
TXN is one of our favorites among blue-chip technology issues and
investors who want to establish a long-term portfolio position in
the issue should consider this play.

APR 30.00 TXN PF LB=0.75 OI=21121 CB=29.25 DE=35 TY=6.3%

VARI - Varian  $35.40  *** Trading Range? ***

Varian (NASDAQ:VARI) is a technology company engaged in the design,
development, manufacture, and marketing of scientific instruments
and vacuum technologies, and in contract electronics manufacturing.
Varian's operations are grouped into three segments: Scientific
Instruments, Vacuum Technologies and Electronics Manufacturing.
Scientific Instruments designs, develops, manufactures, sells and
services chromatography, optical spectroscopy, mass spectroscopy,
dissolution testing, and nuclear magnetic resonance equipment and
consumable laboratory supplies.  Vacuum Technologies supplies high
vacuum pumps, leak detection equipment, and related products and
services, all of which are used to create, control, measure, and/or
test a vacuum environment in industrial and scientific applications
requiring ultra-clean or high-vacuum environments.  Electronics
Manufacturing is a contract manufacturer of advanced electronic
assemblies and subsystems for original equipment manufacturers.
Varian has established a trading range near $34 and the technical
indications suggest the rectangular pattern will continue in the
near-term.  Traders can profit from that outcome with this position.

APR 30.00 IUA PF LB=0.55 OI=170 CB=29.45 DE=35 TY=5.1%



The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

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

ACF    37.10  APR 30.00   ACF PF  1.30 1243  28.70   35   12.5%
XMSR   15.04  APR 12.50   QSY PV  0.45 884   12.05   35   10.0%
INVN   45.50  APR 35.00   FQQ PG  1.10 510   33.90   35    9.4%
SNDK   20.69  APR 17.50   SWQ PW  0.55 305   16.95   35    8.5%
KEI    22.60  APR 20.00   KEI PD  0.65 20    19.35   35    8.0%
AMKR   20.20  APR 17.50   QEL PW  0.45 30    17.05   35    6.7%
ADBE   39.18  APR 35.00   AEQ PG  0.95 3094  34.05   35    6.6%
PSUN   25.89  APR 22.50   PVQ PX  0.55 50    21.95   35    6.4%
TIF    37.71  APR 35.00   TIF PG  0.90 831   34.10   35    5.9%


Bullish Reports Spur Investor Optimism!
By Ray Cummins

                         - MARKET RECAP -
Friday, March 15

The major equity averages moved higher today as positive economic
data boosted hopes that a recovery is underway.
The Dow Jones Industrial Average finished the session 90 points
higher at 10,607 on strength in Procter & Gamble (NYSE:PG), Walt
Disney (NYSE:DIS), J.P. Morgan Chase (NYSE:JPM), American Express
(NYSE:AXP), Wal-Mart (NYSE:WMT), and McDonald's (NYSE:MCD).  The
NASDAQ Composite index rose 14 points to 1,868 amid a rebound in
semiconductor shares but a mediocre profit outlook from software
giant Oracle (NASDAQ:ORCLE) stifled hopes of a technology rally.
The broader-market S&P 500 index climbed 13 points to 1,166 due
to a resurgence of buying pressure in bank, oil services, retail,
biotechnology and consumer stocks.  Market breadth was favorable
with 1,864 winners versus 1,276 losers on the Big Board, where
1.48 billion shares were traded.  On the NASDAQ exchange, 1.66
billion shares changed hands, with winners pacing losers 19 to 15.
U.S. Treasury prices, which typically fall amid signs of economic
strength, managed to push their way higher in what some analysts
said was a counter-reaction to the sell-off in recent sessions.
The 10-year note added more than 1/2 point, or $5 for each $1,000
invested while its yield, which moves inversely to price, fell to
5.33%.  The 30-year bond was up 1 1/16 point to yield 5.75%.  On
the fund flow front, Trim Tabs reported that all equity funds had
inflows of $7.6 billion in the week ending March 13 compared with
inflows of $3.2 billion in the prior week.  And equity funds that
invest primarily in stocks had inflows of $7.1 billion, compared
with inflows of $3.7 billion during the prior week.

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

Although we did not track the issues individually, speculative
straddles in American Express (NYSE:AXP), Veritas (NASDAQ:VRTS),
WMS Industries (NYSE:WMS), Interwoven (NASDAQ:IWOV) and the CBOE
Mini NDX Index (CBOE:MNX) offered profitable opportunities.  In
addition, credit spreads were initiated in Advent Software and
Medicis Pharmaceutical.

Advent   (NSDQ:ADVS)  APR50P/APR55P  $0.70  credit  bull-put
Medicis  (NYSE:MRX)   APR65C/APR60C  $0.60  credit  bear-call

Portfolio Activity:

Friday's upside activity was a welcome event for most investors
and the bullish bias was simply "icing on the cake" for many of
the positions in the Spreads-Combos portfolio.  The majority of
plays in the Straddles group were already profitable but today's
rally helped the position in Agilent (NYSE:A) extend its gains
and boosted the Storage Technology (NYSE:STK) straddle into the
plus column.  Overall, there were 14 successful plays offered in
the delta-neutral category for the March expiration.  Among the
conservative credit-spreads, positions in Cephalon (NASDAQ:CEPH),
Express Scripts (NASDAQ:ESRX), Flir Systems (NASDAQ:FLIR), Gilead
Sciences (NASDAQ:GILD), and L3 Communications (NYSE:LLL) ended at
maximum profit and there were no adjustments.  In the calendar
spreads category, ImClone (NASDAQ:IMCL) was the big winner with
a potential gain of over 100% in less than two weeks.  The LEAPS
and Covered-Calls play in United Airlines (NYSE:UAL) was also a
surprise as the issue recovered from a major sell-off to provide
a great short-term profit for conservative investors.  Synthetic
positions in Tidewater (NYSE:TDW) and Goodyear (NYSE:GT) offered
profitable early-exit opportunities and the bullish stock-option
"collar" in Sandisk (NASDAQ:SNDK) also rebounded, finishing the
month above the sold call at $20.  Looking forward, time-selling
plays in Dupont (NYSE:DD) and Pactiv (NYSE:PTV) are performing
well with both stocks trading very near the sold strike prices
and the speculative debit spread in Providian (NYSE:PVN) is back
in the black with the issue at $6.  Today's activity in St. Jude
Medical (NYSE:STJ) is also worth noting as the stock tested its
all-time highs near $81 and appears poised for further upside
movement.  Our bullish synthetic position (APR85C/APR75P) in the
issue may yet achieve a profit.

Questions & comments on spreads/combos to Contact Support
                        - CREDIT SPREADS -

One of our readers asked if we would search for some conservative
credit-spread candidates, since the March expiration period has
come to an end and many traders are looking for new positions in
which to invest their capital.  With that idea in mind, we have
decided to supplement Wednesday's list with these plays, which
are based primarily on recent trends and technical indications.

CAH - Cardinal Health  $69.06  *** Prudential Upgrade! ***

Cardinal Health (NSE:CAH) is a provider of products and services
to healthcare providers and manufacturers, helping them improve
the efficiency and quality of their healthcare services and
products.  Cardinal Health has four primary reporting segments:
Pharmaceutical Distribution/Provider Services, Medical-Surgical
Products and Services, Pharmaceutical Technologies and Services,
and Automation and Information Services.

Shares of Cardinal Health rallied Friday after analysts at
Prudential Securities started coverage of the company with a
"buy" rating, based on a positive outlook for stocks in the
drug-distribution sector.  Prudential put a price target of $83
on Cardinal Health, which is the largest U.S. drug wholesaler,
saying the company has an "untarnished record of delivering 20%
annual earnings per share growth for over 16 years."  The news
drove the stock price up and out of a recent trading and the
renewed buying interest should help the issue test last year's
highs near $74.  Our conservative position allows traders to
speculate on that outcome with relatively low risk.

PLAY (conservative - bullish/credit spread):

BUY  PUT  APR-60  CAH-PL  OI=1136  A=$0.45
SELL PUT  APR-65  CAH-PM  OI=2197  B=$1.05

BBY - Best Buy Company  $78.91  *** Earnings Speculation! ***

Best Buy Company (NYSE:BBY) is a specialty retailer of consumer
electronics, home office equipment, entertainment software and
appliances.  The company operates retail stores and commercial
Websites under the brand names Best Buy (BestBuy.com), Media Play
(MediaPlay.com), On Cue (OnCue.com), Sam Goody (SamGoody.com),
Suncoast (Suncoast.com) and Magnolia Hi-Fi (MagnoliaHiFi.com).
Best Buy stores account for 68% of the company's total retail
square footage.  Best Buy stores offer customers a selection of
name-brand models consisting of approximately 6,000 products.
The company's quarterly earnings are due 4/2/02.

Best Buy shares climbed to an 18-month high Friday as investors
flocked to the retail giant amid hopes that an economic recovery
will boost the company's earnings and stock price.  Indeed, the
recent bullish data suggests the recession may be over and many
consumer stocks are starting to benefit from a more optimistic
outlook among analysts.  One industry expert who favors BBY is
US Bancorp Piper Jaffray analyst Brent Rystrom and he is urging
clients to pick up shares of the electronics retailer.  Last week,
Rystrom issued a "strong buy" rating on Best Buy Company due to
its dominant position in the consumer electronics-retailing area.
He noted that the company should be able to deliver "significant
sales and earnings growth over the next several years" and that
"recent results have been highly encouraging."

Based on the positive technical indications, investors agree with
that outlook and traders can profit from future upside activity
in the issue with this position.

PLAY (conservative - bullish/credit spread):

BUY  PUT  APR-65  BBY-PM  OI=1131  A=$0.55
SELL PUT  APR-70  BBY-PN  OI=1554  B=$1.10

IDPH - Idec Pharmaceuticals  $69.96  *** Premium Selling! ***

IDEC Pharmaceuticals (NASDAQ:IPH) 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 primary commercial
product, Rituxan, and its most advanced product 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.

Idec is one of our favorite issues in the biotechnology segment
and the stock moved higher this week after U.S. regulators told
competitor Corixa (NASDAQ:CRXA) that it must provide additional
information regarding the safety and efficacy of its experimental
non-Hodgkin's lymphoma treatment Bexxar.  Idec Pharmaceuticals
has a competing drug, Zevalin and any setback for Corixa is seen
as a boost to the potential revenues for Idec.  However, the
long-term chart pattern for IDPH suggests there is heavy overhead
supply just above the current price and that presents a favorable
"premium-selling" opportunity for conservative traders.  Plan to
exit or adjust the position if IDPH closes above the current
resistance area near $75.

PLAY (conservative - bearish/credit spread):

BUY  CALL  APR-85  IHD-DQ  OI=166  A=$0.40
SELL CALL  APR-80  IHD-DP  OI=556  B=$0.90

                      - Speculation Plays -
XMSR - XM Satellite Radio  $15.04  *** The Future Of Radio? ***

XM Satellite Radio Holdings (NASDAQ:XMSR) is a development stage
company that seeks to become a premier nationwide provider of
audio entertainment and information programming.  XMSR owns one
of two FCC licenses to provide a satellite digital radio service
in the United States and it transmits its XM Radio service by
satellites to vehicle, home and portable radios .  The company
offers a wide variety of music, news, talk, sports and other
specialty programming on up to 100 distinct channels.

XM Satellite Radio says they are transforming radio, an industry
that has seen little technological change since the origination
of FM almost 40 years ago.  XM's programming lineup features 100
coast-to-coast digital channels in all genres and categories and
the diverse selection is available for both new and existing car
radios.  General Motors is one of the biggest proponents of the
technology, having rolled out factory-installed Delphi-Delco XM
radios in its new Cadillac DeVilles and Sevilles, and they plan
to offer the product in 21 new GM models this year.  The system
is certainly unique, having recently been named "Product of the
Year" by Fortune, and "Invention of the Year" by Time and it was
also Popular Science's "Best of What's New" Grand Award winner
in the electronics category for 2001.  In addition, XM received
several awards at the 2001 CES, including "Best of CES" in the
automotive category, and its popularity among auto-audiophiles
is increasing by leaps and bounds.

Traders who think the company's stock price has the ability to
match their product's growth potential can speculate on that
outcome in a conservative manner with this position.  Target a
credit in the position initially, to allow for a consolidation
in the underlying issue.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  APR-17.50  QSY-DW  OI=1146  A=$0.70
SELL PUT   APR-12.50  QSY-PV  OI=884   B=$0.45

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $400 per contract.

                    - STRADDLES AND STRANGLES -
ANF - Abercrombie & Fitch  $29.77  *** Probability Play! ***

Abercrombie & Fitch (NYSE:ANF), through its many subsidiaries, is
primarily engaged in the purchase, distribution and sale of men's,
women's and kids' casual apparel.  The company's retail activities
are conducted under the Abercrombie & Fitch and Abercrombie trade
names through retail stores, a catalogue, a magazine/catalogue and
a web-site, all bearing some form of the Abercrombie name.  Retail
activities are also conducted under the Hollister Co. trade name
through retail stores and a lifestyle web-site.  Merchandise is
targeted to appeal to customers in specialty markets who have
distinctive consumer characteristics.  The company is a specialty
retailer of casual, classic American sportswear, targeted to men
and women approximately 15 to 50 years of age and kids up to 14
years of age.  The company's quarterly earnings are due May 14.

This issue meets our criteria for a favorable straddle; cheap
option premiums, a history of adequate price movement and the
potential for volatility in the stock or its industry.  This
selection process provides the foremost combination of low
risk and potentially high reward, but current news and market
sentiment will have an effect on the issue, so review the play
thoroughly and make your own decision about its outcome.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  MAY-30  ANF-EF  OI=1093  A=$2.30
BUY  PUT   MAY-30  ANF-QF  OI=86    A=$2.35

VECO - Veeco Instruments  $29.85  *** Reader's Request! ***

Veeco Instruments (NASDAQ:VECO) designs, manufactures, sells and
services a broad line of equipment used by manufacturers in the
optical telecommunications, data storage, semiconductor and
research industries.  These various industries produce computer
integrated circuits, personal computers, hard drives, network
servers, fiber optic networks, digital cameras, TV set-top boxes
and personal digital assistants.  The company's Process Equipment
products precisely deposit or remove (etch) various materials in
the manufacturing of advanced thin film magnetic heads for the
data storage industry and optical telecommunications components.
Veeco's Metrology equipment is used to provide critical surface
measurements on semiconductor devices, thin film magnetic heads
and disks used in hard drives and in optical telecommunications
and research applications.

One of our new readers submitted this issue for a speculative
straddle and indeed, the position is viable based on analysis
of historical price activity and the stock's recent technical
pattern.  Also, the probability of profit from this position
is higher than other plays in the same strategy based on the
discounted option premiums.  As with any recommendation, the
position should be evaluated for portfolio suitability and
reviewed with regard to your strategic approach and trading

PLAY (speculative - neutral/debit straddle):

BUY  CALL  APR-30  QVC-DF  OI=238  A=$2.15
BUY  PUT   APR-30  QVC-PF  OI=152  A=$2.45

MNX - CBOE Mini NDX Index  $149.71  *** Instant Replay! ***

The CBOE Mini-NDX Index (CBOE:MNX) is based on 1/10th the value of
the Nasdaq-100 Index (NDX).  The Nasdaq-100 Index is a modified,
capitalization-weighted index composed of 100 of the largest non 
financial securities listed on the NASDAQ Stock Market.  The index
was created in 1985 with a base value set to 250 on February 1 of
that year. After reaching a level of nearly 800 on December 31,
1993, the index level was halved on January 3, 1994.  For more
information on the MNX, visit the CBOE online at www.cboe.com.

We received some favorable comments from one of our readers for
introducing them to this popular index and as mentioned in last
Sunday's section, the MNX is a common issue among professional
traders.  The (ATM) option prices and liquidity are perfect for
traders who speculate on the movement of the technology segment
and fortunately, the premiums for MNX options are theoretically
favorable with regard to historic levels.  Although the straddle
is a bit too aggressive for our portfolio, experienced traders
can attempt to profit from the activity on the NASDAQ with this

PLAY (speculative - neutral/debit straddle):

BUY  CALL  APR-150  MQX-DJ  OI=3715   A=$6.60
BUY  PUT   APR-150  MQX-PJ  OI=12128  A=$6.50

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traded options,” claims author Larry Spears in his new compact 
guide book:  

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We're sticking with what's been working.  A strong health care and 
weak financial stock make their way onto the list

To Read The Rest of The OptionInvestor.com Market Watch Click Here


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