Option Investor

Daily Newsletter, Sunday, 07/07/2002

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The Option Investor Newsletter                   Sunday 07-07-2002
Copyright 2002, All rights reserved.                        1 of 5
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MARKET WRAP  (view in courier font for table alignment)
        WE 7-05          WE 6-28          WE 6-21          WE 6-14
DOW     9379.50 +136.24  9243.26 - 10.53  9253.79 -220.42  -115.46
Nasdaq  1448.36 - 16.58  1464.96 + 24.01  1440.95 - 63.79  - 30.74
S&P-100  492.66 +  2.54   490.12 +   .70   489.42 - 12.34  -  5.56
S&P-500  989.03 -   .79   989.82 +   .69   989.13 - 18.14  - 20.26
W5000   9313.40 - 70.63  9384.03 -  5.95  9389.98 -159.74  -202.97
RUT      440.92 - 21.74   462.66 +  1.59   461.07 +  2.00  - 11.44
TRAN    2652.64 - 77.68  2730.32 - 25.32  2755.64 + 82.50  - 13.52
VIX       30.21 +  1.08    29.13 -  2.15    31.28 +  1.35  +  3.28
VXN       56.28 -  1.67    57.95 -  1.35    59.30 +  3.63  +  3.43
TRIN       0.28             1.18             2.01             1.34
Put/Call    .77              .66             1.27             1.15

Let's Get Shorty!  
by Jim Brown

With MOPO and MOCO being discussed by Buzz and Mark maybe the
market setup for Monday morning should be called the MOSS. 
(mother of all short squeezes) Of course after Friday there 
may not be many shorts left to squeeze. The +324 Dow gain was 
the largest one day gain since last September and helped the
Dow break its six week losing streak. Unfortunately the Nasdaq
and the S&P-500 still posted losses for the week.

Chart of the Dow

Chart of the Nasdaq


There was no economic reason for the bounce Friday. The Jobs
Report should have struck fear into traders but their minds
were already made up. The Jobs Report showed that there were
only 36,000 new jobs created in June when 104,000 had been 
expected. Unemployment rose to 5.9% and the new jobs created
were mainly in health services not business services and 
therefore did not signal any upturn in business activity.
Manufacturing actually lost -23,000 jobs in June. While this
may not be exciting we will continue to take these small 
gains instead of losses as bullish. What was not bullish
was the revision downward of the prior three months numbers.
May dropped from +41K to only +24K. April fell from positive
to negative -21k and March dropped from positive to -5K. 
Suddenly the economic recovery is recovering much slower
than expected.

Bulls roared? Traders came back from the holiday, saw no 
negative terrorist headlines and rushed to buy stocks. Sorry,
that is not the way it happened. With the volume very light
it was not a new bullish sentiment taking control but simply
short covering in light of no attacks. This brings up several
interesting points. We all know the bears have been shorting
rallies for months very successfully. They are shorting based
on general market fundamentals, accounting concerns, falling 
profits, etc. Only one short covering rally in recent history 
has brought anything close to this rebound and that was the 
Cisco comments on May-7th. The following day the Dow gained 
+305 points to 10141 and that was on a Wednesday with three 
full days of trading before the weekend. The +324 point gain
on Friday in only a half day of trading would suggest that
many more traders were short than in May.

Were they short simply because the economic conditions were 
worse? I doubt it since they are actually improved from early
May. Were they short because the market was setting new lows
on Wednesday? I doubt that also. After seeing the market action
on Friday I now suspect that the flurry of terrorist warnings
leading up to the holiday had prompted a broader range of 
traders to short stocks. Remember the rise in the markets on
Wednesday afternoon? I said at the time that I thought it was
short covering by smart traders taking profits in advance of 
the holiday unknowns. I believe the action on Friday was simply 
the shorts expecting an event closing those positions. This
is really scary since it shows how many traders really expected
another attack. 

I also believe it points out another problem. The economic 
fundamentals did not change but the number of people wanting 
to go long on Friday was amazing. I received over a dozen 
emails from traders wanting to go long even after a +200
point gain in the Dow. This makes me believe that there is 
still not enough fear in the markets. It is surprising when
you consider the levels we hit last week. Some analysts have
suggested we are undergoing a capitulation by breadth instead
of depth. With the horrible internals the beginning of the 
week it appeared we were nearing a bottom. With the knee jerk
rebound on Friday I am now not so sure. 

Monday is shaping up to be volatile to say the least. The TRIN 
closed at .25, a level only seen four times earlier this year.
On May-8th and April-16th the following day posted a sharp drop.
On March-8th and 15th the markets trended sideways for a couple
days before dropping. The VIX closed below 30 again and back at
the same level it was just before the last drop. Obviously these
are both overbought/oversold indicators and they are pointing to
overbought. Extreme overbought in the case of the TRIN. 

The gains on Friday were extreme because of the oversold and
heavily shorted market conditions. The spring was completely 
compressed and when the rebound occurred in only a half day's
trading the results were dramatic. This brings up the problem
of what may happen on Monday. Have all the shorts covered? Did
the stop losses get triggered on the ones who were not at their
PC on Friday? Will institutions come back to work on Monday 
and decide that now is a good time to buy? I doubt it. Earnings
warnings are still with us and new accounting scandals are 
likely to continue to erupt. Fundamentals did not change despite
the positive comments about the chip sector. For instance, to
illustrate the absurdness of the buying on Friday, AMD gained 
nearly +7% to levels near its last warning. After two warnings
in the last two weeks for AMD did business suddenly explode?
I don't think so. This is simple short covering with a compressed
timeline. Investors are not flocking into the market. The 
TrimTabs.com weekly survey showed that another $10.8 billion
in cash flowed out of equity funds for the week ended Wednesday.
This was on top of -$9.2 billion the week before.

I looked at several hundred individual stock charts and almost
without exclusion the buying propelled them to just under recent
resistance or right at it. The bulls would make the case that 
an opening bounce on Monday could propel these stocks over that
resistance and trigger an entirely new round of short covering.
This is entirely possible and would simply mean we roll over 
at a higher level. The bears would hope that the buying was over
after Friday and sell into any weak bounce on Monday. You can bet
that the absence of hedge fund trading on Friday means they will
be back in force on Monday. Since they are normally contrarian 
in direction it means they will be shorting heavily on any 
weakness. Obviously you can see from my comments I am 
directionally biased. 

Since IBM and Intel have not warned (yet) the possibility of 
lowered guidance with their earnings is very strong. The economic
outlook since their last guidance has slowed considerably. IBM
announces on the 17th, Intel on the 16th. That is only seven
trading days away for Intel. With warnings still flying I expect
a flurry on Monday and Tuesday now that the holidays are over. 
Want more bad news? IBM warned before the bell on Monday April
8th with scheduled earnings on the 17th. Monday is July 8th with
earnings on the 17th. A surprising coincidence! Don't be surprised
if history repeats itself. 

Technically speaking the resistance for the Dow is 9412, only 
38 points away and then 9725. I would suspect the 9725 is the 
one that will hold. Resistance for the broader S&P is 1007, 19
points away and 1040, 52 points above Friday's close. The 
Nasdaq has strong resistance at 1475-1485 an as long as the 
opening bounce does not take it over those levels they should
hold on a gradually rising market. All this resistance bashing
means that if this IS ONLY a short covering rally it will fail
quickly and not much higher than our present position. There is
room for one more good day and then the market will have to go
back to trading on fundamentals in order to break out. Without
some positive earnings surprises and positive guidance this 
will not happen. Bottom line, if you are long calls keep those
stops tight after any opening bounce.

We have a new writer this Sunday that I really think you will 
like. Check out his Options 101 article entitled "The Trading
Wars" in this weekends newsletter. 

Enter Very Passively, Exit Very Aggressively!

Jim Brown

Editors note: 

If you feel you have a specific trading style, technique,
indicator, market view or anything that would benefit our 
readers, please email me and lets give everyone the benefit 
of your experience. Everybody has a different view of the 
same market and how to profit from it. We will review it 
and publish the best ones in the newsletter. They don't 
need to be pretty or professional, just well thought out 
with enough documentation to prove your case. If you are 
a successful trader in this market then others want to 
know your secrets! Email jim@OptionInvestor.com

 Seminar update: Confirmed speakers now include:

John Bollinger, Creator of the Bollinger bands
Jon Najarian, Dr "J" from the CBOE, President Mercury Trading
Robin Dayne, Profiled as "The Traders Coach" on 20/20 and CNBC 
Steven Price, Options Instructor, Market maker at CBOE
Jeffery Verdon, Trading and Tax law specialist
Leigh Stevens, Chief Market Strategist, Option Investor
Jeff Bailey, Mr Point and Figure himself!
Others will be posted as we get closer. 

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Editor's Plays

Target Shooting The Market

With the incredible gains on Friday there exists the strong 
possibility of a pull back when the short covering runs its 
course. You could buy puts on the OEX or individual stocks but
the OEX is expensive and individual stocks react differently.

To solve this problem we can target shoot the DJX, which
represents the Dow and the QQQ which represents the Nasdaq
100. I say target shoot because we do not know where these
stocks will top out. It makes more sense to pick a level 
where we are comfortable entering a put and let the markets
decide if we get executed.

Using the QQQ, which closed on Friday at $26.35 the target 
level I would suggest is $27.00. The last two recent highs
have been $26.79 and $26.75. The last intraday high before
that was $27.05. We will assume the resistance still exists
at $26.75 but with the possibility of a strong open on Monday 
we will opt for the $27 level instead. 

I would suggest buying the July-$26 put option (QAV-ZW) if
the QQQ touches $27.00. If you have a broker like Preferred
that takes contingent orders based on the underlying stock
price then enter it as "buy QAV-ZW at market when QQQ = $27.00. 
If your broker does not support this type of order then my best 
guess on the option price with the QQQ at $27 is $1.00. Enter 
a limit order for the desired number of contracts at $1.00.

Since it is also possible that the markets could explode 
through current resistance we need to set a stop loss for the
trade that will only be triggered on a solid break through 
$27. I suggest that stop loss to be $27.55. (The .55 gets us
away from the round number price magnet at $27.50) Should
we get stopped out I would reopen the play with an entry
point of $28.75 and a stop loss of $29.55. I would raise the
strike price to July-$28.

Note: Be sure to enter the orders in advance since any "touch"
of the desired levels could only be momentary.

Chart of the QQQ



The DJX is going to be a little wider than the QQQ since the
Dow tends to move in larger point jumps. Resistance at Dow 9412
is too close to pick as an entry point but there is strong
resistance at 9712. I suggest buying the DJX July-95 put 
(DJV-SQ) if the DJX hits 96.95. The estimated option price
is $1.50 if this happens. 

I picked $96.95 when resistance is 9712 because everybody tends 
to butt in line when anticipating entry points based on prior 
levels. Everybody wants to get in ahead of the crowd. We want 
to get in ahead of the 9700 century mark and the crowd. The stop 
loss for this trade will be 98.05, just slightly above the June 
5th high.

Chart of the DJX



Remember, these are high risk plays and should only be made
with risk capital.

Good Luck

Jim Brown    


Summer of the Bull?
By Eric Utley

Not quite yet.  But Friday’s rally did do some constructive things
towards further upside this summer.  Just about everything went
the right way for the bulls.  The dollar was higher against the
majors; Treasuries were lower despite a weak jobs report; gold
was down; stocks were higher.

Just what sparked Friday’s rally is open for debate.  Clearly
there was a large shift out of one asset class and into another,
stocks being the other.  Perhaps the holiday set the tone for
Friday’s rally.  We could say that the bulls enjoyed a day of
Independence from the bears, a day long in the coming.  We can
only wait to see if the good feelings spread around Friday
carry over the weekend and into next week’s trading.  In the
meantime, let us take a look at the numbers.

Fear was crushed Friday.  The CBOE Market Volatility Index
(INDEX:VIX.X) fell back to the 30 level, which some consider a
key psychological level.  The VIX shed more than 3 points on the
day, which was a big move indeed!  The Nasdaq-100 Volatility
Index (INDEX:VXN.X) dropped by nearly 4 points.  The theme with
these to indicators has been the same all year.  When stocks
rise, fear falls.  There’s no doubt in any rally, which means
that there’s no wall of worry to climb.  That’s not to say
stocks can’t or won’t go higher in the face of a falling VIX,
but traditionally, we’ve seen pessimism in the face of a rally
when at a meaningful turning point in the market.  There was
no pessimism Friday.  Options traders reflected as much in the
put/call numbers.  All four of the markets that we track the
numbers for finished below 1.0 last Friday, which means more
calls traded than puts.  The equity only put/call ratio fell
to 0.51, meaning that twice as many calls traded as puts.  The
basic thinking here is that if everyone already bought into
Friday’s rally who was going to, then who’s left to carry
stocks higher?  That’s why skepticism is so important over
the intermediate to longer term.

Elsewhere, the bullish percent numbers showed some
improvement Friday, but did not by any means confirm the
action in the broader market.  The Nasdaq-100 Bullish
Percent (BPNDX) was by far the most active and benefited
the most from Friday’s rally by adding five stocks to
finish at 13 percent.  The bigger picture in the Nasdaq is
that it’s still oversold, but not in a bullish position.
What Friday’s rally did do is set forth the groundwork for
confirmation in the bullish percent numbers going into next
week’s trading.  We’ll track these developments closely.

All four of the ARMS Index numbers that we track are now
below the extreme oversold reading of 1.50, though only
by small amounts in each case.  It will be interesting to
see if these numbers continue to creep higher.  Of special
interest to me is the longer term 55-day number, which
finished last Friday at the 1.38 level.

The market internals were nothing short of super strong last
Friday with advancers far out pacing decliners.  The new
high/new low list was not nearly as bullish, as new lows
still beat new highs on both the NYSE and NASDAQ.  Volume,
as expected, was awfully light, which takes away from the
credibility of Friday’s rally, in my mind anyway.

The sector scorecard was decidedly green Friday, quite the
difference from what has been the routine as of late, when
most sectors have finished lower.  The Gold and Silver Index
(XAU.X) was the only sector on my list that finished lower
on the day, and being that gold equities are a defensive
bunch, it should come as no surprise that the XAU was the
leader to the downside.  And on a day when the Dow gained
more than 300 points, you just know who the bulls are going
to go to.  That’s right, the semis, which earned the day’s
best performing sector spot.

I hate to put a damper on what we observed Friday, but from
what the numbers say, we’ve seen this same type of action
this year, and last year.  It smells an awful lot like a
short covering rally that lacks the necessary attributes to
morph into anything meaningful.  But like the other head
fakes in the recent past, this rally has set the groundwork
for something bigger.  All we can do is continue to observe.


Market Averages


52-week High: 11350
52-week Low :  8062
Current     :  9380

Moving Averages:

 10-dma: 9185
 50-dma: 9758
200-dma: 9814

S&P 500 ($SPX)

52-week High: 1316
52-week Low :  945
Current     :  989

Moving Averages:

 10-dma:  977
 50-dma: 1044
200-dma: 1099

Nasdaq-100 ($NDX)

52-week High: 2071
52-week Low : 1089
Current     : 1061

Moving Averages:

 10-dma: 1026
 50-dma: 1173
200-dma: 1395

Semiconductors ($SOX)

The semis led the charge in the technology sector Friday.
The SOX was the best performing sector for the day.  It
gained 8.27 percent for the day.

Leading SOX components included Novellus Systems
Applied Materials (NASDAQ:AMAT), and Broadcom (NASDAQ:BRCM).

52-week High: 657
52-week Low : 343
Current     : 393

Moving Averages:

 10-dma: 379
 50-dma: 463
200-dma: 510

Gold ($XAU)

As stocks shot higher Friday, investors fled gold
equities.  But that’s been the pattern over the last few
weeks, a pattern of inverse relationship.  The XAU was the
worst performing sector Friday with its 1.03 percent drop.

Only half of the XAU components finished lower Friday, but
they were enough to weigh down the index.  They were
Newmont Mining (NYSE:NEM), Meridian Gold (NYSE:MDG), Agnico
Eagle Mines (NYSE:AEM), Barrick (NYSE:ABX), and Anglogold

52-week High: 89
52-week Low : 49
Current     : 70

Moving Averages:

 10-dma: 74
 50-dma: 79
200-dma: 64


Market Volatility

Triple digits in the Dow.  No stick in the VIX.  Same pattern
again and again.  It’s not so much the absolute level of the
VIX that I’ve become concerned with, but rather its action
in relation to the rest of the market.  The VIX’s implosion
bodes poorly for stocks over the intermediate term, but it has
room to come down in the short term, which means stocks could
have room to run.

CBOE Market Volatility Index (VIX) - 30.21 -3.10
Nasdaq-100 Volatility Index  (VXN) - 56.28 –3.78


          Put/Call Ratio  Call Volume   Put Volume
Total          0.77        301,374       231,944
Equity Only    0.51        235,288       121,204
OEX            0.92         26,260        24,188
QQQ            0.66         20,876        13,890


Bullish Percent Data

           Current   Change   Status
NYSE          46      + 0     Bull Correction
NASDAQ-100    13      + 5     Bear Confirmed
DOW           30      + 3     Bull Alert
S&P 500       34      + 1     Bear Confirmed
S&P 100       31      + 1     Bear 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  1.41
10-Day Arms Index  1.45
21-Day Arms Index  1.43
55-Day Arms Index  1.38

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       2169           782
NASDAQ     2313           808

        New Highs      New Lows
NYSE        32             35
NASDAQ      22             55

        Volume (in millions)
NYSE     793
NASDAQ   1,119


Commitments Of Traders Report: 06/25/02

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

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

S&P 500

Commercial interests added back about 10,000 contracts to their
net bearish position.  Small traders dropped a number of longs
and a smaller number of shorts for a reduction in their net
bullish position by more than 20,000 contracts.

Commercials   Long      Short      Net     % Of OI 
06/11/02      388,751   457,018   (68,267)   (8.1%)
06/18/02      437,530   487,956   (50,426)   (5.4%)
06/25/02      378,214   438,775   (60,561)   (7.4%)

Most bearish reading of the year: (111,956) -   3/6/02
Most bullish reading of the year: ( 36,481) - 10/16/01

Small Traders Long      Short      Net     % of OI
06/11/02      174,357    69,464   104,893     43.0%
06/18/02      181,178    88,517    92,661     34.3%
06/25/02      134,380    62,792    71,588     36.3%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year: 114,510 - 3/26/02

The roles reversed.  Commercials went decidedly short, while
Small Traders went decidedly long.

Commercials   Long      Short      Net     % of OI 
06/11/02       45,946     36,878     9,068   10.9%
06/18/02       54,816     49,169     5,647    5.4%
06/25/02       27,238     35,926    (8,688) (13.8%)

Most bearish reading of the year: (15,521) -  3/13/02
Most bullish reading of the year:   9,068  - 06/11/02

Small Traders  Long     Short      Net     % of OI
06/11/02       14,561    25,330   (10,769)   (27.0%)
06/18/02       20,883    29,153    (8,270)   (16.5%)
06/25/02       14,749     7,570     7,179     32.2% 

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:   8,460  -  3/13/02


Dow commercials dropped about 2,000 of their net long
position.  Small traders eased into a bullish position.

Commercials   Long      Short      Net     % of OI
06/11/02       20,369    17,172    3,197      8.5%
06/18/02       25,995    19,115    6,880     15.1%
06/25/02       18,016    13,255    4,761     15.2% 

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
06/11/02        7,500     9,925    (2,425)   (13.9%)
06/18/02        5,379    11,813    (6,434)   (37.2%)
06/25/02        6,414     6,597       183     1.40% 

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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Summer Rally At Last?
By Eric Utley

I don’t think many expected what we saw take place in the market
last week.  Then again, the market has the propensity to do that
which is least expected by the majority of its participants.
Going into last week’s session, the talking heads were once
again calling for a washout event.  Corporate scandal and the
threat of further terrorist attacks kept the buyers at bay
in the earlier part of the week.  But the sellers just plain
ran out of selling in the last two sessions of the week.
When no one is left to sell, stocks can only go higher.  Or,
maybe there was something more at play.  We were, after all,
celebrating the birth of the greatest nation.  So maybe
there was something a little more sentimental at work.  No
matter the root cause, Friday’s ramp was welcome from where
I sit.

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 



What are you thoughts on ORCL.  I’ve been avoiding buying
tech stocks for the last two months, but have noticed the
chart in ORCL that looks like it could be breaking out.
Where do you see support and resistance? – Thanks, Ken

Thanks for the question, Ken.  And well done on avoiding
the mess that became technology over the last two months.

ORCL, however, has indeed shown some signs of improvement
over the last two months.  Option Investor added the stock
to the call list this weekend, so we would have to agree
with your observations.  But before we get to the
technicals of the stock, I’d like to make an interesting
observation that has nothing to do with objective

I find it very interesting that the buyers have supported
and lifted ORCL in the last few months give what I consider
was a great loss of credibility.  Don’t forget that it was
ORCL who on more than one occasion issued profit warnings
on quiet Friday afternoons earlier this year.  The company
has twice tried to slip a warning under the cover of the
market by issuing its releases late in the week, after
the market closes no less.  Moreover, it was Siebel who
said not too long ago that it had experienced its worst
quarter ever.  Siebel Systems, mind you, is one of ORCL’s
chief competitors.  Tom Siebel, the chief of the firm
that carries his name, was an Oracle executive once upon a
time.  Anyway, the market knows more than I do, and it
does not seem to mind that ORCL doesn’t have any
credibility.  Just something to think about, now back to
the objective.

ORCL is back on a buy signal, its first in over six months.
The stock did so last week by trading to the $10 level,
breaking out above its short term double top resistance at
the previous high of $9.50.  The buy signal has put ORCL
back into a bullish short term position, with resistance
now coming into play at the $10 level.  That resistance will
be broken if ORCL can trade above the $10.50 level during
this run higher.  As for support, the stock now has short
term help at the $8 level, which is about 20 percent away
from where the stock is currently trading.  A bit lower,
the stock has a strong double-bottom in place at the $7.50

While the short term technical position has taken a turn for
the better in ORCL over the last few months, the longer term
picture isn’t as bullish.  The stock is still trading well
below its bearish resistance line, which is now overhead at
the $12.50 level.  I’d grow much more bullish on ORCL if it
were to breakout above its bearish resistance trend line,
which itself would signal a longer term shift in the stock’s

I think that ORCL can certainly be traded from the bullish
side over the short term, but you have to define where you’re
going to take an exit, which I think comes at the bearish
resistance line.



Home Depot (NYSE:HD)

Home Depot has been in the dumps lately.  I’ve been holding
since $44 and haven ridden HD down all the way.  Do you see
the stock turning around, or at least done going down? – 

Thanks for the question, Jay.  

HD maybe has gotten too big for its own good.  The company’s
growth strategy over the years has been to add one new
location after another.  The company has entered nearly every
major suburban market where home building, restoration, and
remodeling has been booming.  At current count, the company
has a little over 1,300 stores.  But the company is facing a
couple of problems that may prevent it from staging the type
of growth that has driven the stock substantially higher over
the last decade.

For starters, the company is running out of markets to enter,
to build new stores.  Sure it can go overseas, but the U.S.
market is becoming harder and harder to expand within, which
is partly due to the tough competition that Home Depot is
facing from Lowes.  These, of course, are issues that are
specific to Home Depot.

There are macro issues at work as well, such as the strength
of the U.S. consumer.  The retail sector as a whole has been
hit pretty hard in the last few months over those concerns.
The selling hasn’t been contained to HD.  Other heavyweights
such as WMT have been hit hard as well.

In the case of HD, I think it’s been a culmination of events
and fears that have pressured the stock down by so much, so
quickly.  I can’t say whether now would be a good time to buy
the stock, but I can make some technical observations.

The stock’s steep fall from above $45 down to its recent
relative lows at $34 caused what I would consider some
longer term damage.  Prior to the slide in May and June, HD
had been consolidating its fall rally in a fairly tight range,
which was a positive.  But the steep breakdown from that
consolidation caused quite a bit of damage.  Over the very
short term, however, HD is trying to put in some basing work.
It has short term resistance at $38, which if broken would put
the stock back on a buy signal and in a short term bullish
position.  But like ORCL above, HD is trading well below its
bearish resistance.

The thing that I’d be looking for over the next several months
is some sideways trading in HD.  A stop below the recent
relative low at $34 could help to protect against further
downside.  If the stock does stage a good sized short term
rally, I’d be looking to exit from bullish positions some
where near the bearish resistance line if HD reaches that far.



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.


Market Watch for the week of July 8th

Major Earnings This Week

Symbol  Company               Date           Comment      EPS Est

------------------------- MONDAY -------------------------------

AA     ALCOA                  Mon, Jul 08  -----N/A-----     0.28
AMB    AMB Property           Mon, Jul 08  After the Close   0.62
FVB    First Virginia Banks   Mon, Jul 08  -----N/A-----     0.88
SWY    Safeway                Mon, Jul 08  -----N/A-----     0.72

------------------------- TUESDAY ------------------------------

CEFT   Concord EFS            Tue, Jul 09  -----N/A-----     0.18
PBG    Pepsi Bottling Group   Tue, Jul 09  Before the Bell   0.47

-----------------------  WEDNESDAY -----------------------------

BRO    Brown & Brown          Wed, Jul 10  After the Close   0.28
CBSH   Commerce Bancshares    Wed, Jul 10  Before the Bell   0.72
FAST   Fastenal               Wed, Jul 10  Before the Bell   0.27
DNA    Genentech              Wed, Jul 10  After the Close   0.22
ISCA   International Speedway Wed, Jul 10  -----N/A-----     0.27
MTG    MGIC Investment Corp.  Wed, Jul 10  Before the Bell   1.55
MCAF   McAfee.com             Wed, Jul 10  After the Close   0.07
RBAK   Redback Networks       Wed, Jul 10  After the Close  -0.17
BPOP   Popular, Inc.          Wed, Jul 10  -----N/A-----     0.62
SDX    Sodexho Alliance S.A.  Wed, Jul 10  Before the Bell    N/A
STI    SunTrust               Wed, Jul 10  Before the Bell   1.20
YHOO   Yahoo!                 Wed, Jul 10  After the Close   0.02

------------------------- THURSDAY -----------------------------

ABT    Abbott Laboratories    Thu, Jul 11  -----N/A-----     0.49
ADX    Adams Express          Thu, Jul 11  -----N/A-----      N/A
BBT    BB&T                   Thu, Jul 11  Before the Bell   0.68
CTAS   Cintas                 Thu, Jul 11  -----N/A-----     0.36
DCLK   DoubleClick            Thu, Jul 11  After the Close   0.00
SSP    E.W. Scripps           Thu, Jul 11  Before the Bell   0.75
DJ     Dow Jones              Thu, Jul 11  -----N/A-----     0.22
SSP    E.W. Scripps           Thu, Jul 11  Before the Bell   0.75
IFIN   Investors Fin. Srvcs   Thu, Jul 11  06:00 am ET       0.25
JNPR   Juniper Networks       Thu, Jul 11  After the Bell   -0.01
MAR    Marriott International Thu, Jul 11  -----N/A-----     0.42
NET    Network Associates     Thu, Jul 11  Before the Bell   0.12
NXY    Nexen                  Thu, Jul 11  -----N/A-----     0.60
PWAV   Powerwave Techn.       Thu, Jul 11  After the Close   0.05
SONS   Sonus Networks         Thu, Jul 11  After the Close  -0.07
THC    Tenet Healthcare       Thu, Jul 11  -----N/A-----     0.92
SGR    The Shaw Group         Thu, Jul 11  Before the Bell   0.59
EYE    VISX                   Thu, Jul 11  After the Close   0.12

------------------------- FRIDAY -------------------------------

ACN    Accenture              Fri, Jul 12  Before the Bell   0.26
B      Barnes Group           Fri, Jul 12  Before the Bell   0.37
BLK    BlackRock              Fri, Jul 12  Before the Bell   0.49
MI     Marshall & Ilsley      Fri, Jul 12  -----N/A-----     0.53
PSB    PS Business Parks      Fri, Jul 12  After the Close   0.87
SPOT   PanAmSat               Fri, Jul 12  Before the Bell   0.09

Upcoming Stock Splits In The Next Two Weeks...

Symbol  Company Name              Ratio    Payable     Executable

SII     Smith International        2:1      07/08       07/09
THO     Thor Industries, Inc.      2:1      07/08       07/09
PROV    Provident Financial Hldngs 3:2      07/12       07/13
KRB     MBNA Corporation           3:2      07/15       07/16
SBCF    Seacoast Banking Corp.     3:1      07/12       07/15
ERES    eResearchTechnology        3:2      07/16       07/17
MLAN    Midland Co                 2:1      07/16       07/17
ANFI    American National Fncl     5:4      07/18       07/19
REXL    Rexhall Industries         2:1      07/18       07/19
ANFI    American National Fin Inc. 5:4      07/18       07/21

Economic Reports This Week

Once again earnings season will dwarf any major economic reports
in the eyes and hearts of investors.  Earnings for the second
quarter begin to trickle in on Monday but start to pick up mid-
week.  There are a couple of reports this week that will still
have the attention of analysts and these will be the PPI on
Thursday and the Retail Sales and Sentiment numbers on Friday.

Monday, 07/08/02      -For-
Consumer Credit (AB)   May   Forecast:  $6.0B  Previous:    $8.8B

Tuesday, 07/09/02

Wednesday, 07/10/02
Export Prices ex-ag.(BB)Jun  Forecast:    N/A  Previous:     0.0%
Import Prices ex-oil(BB)Jun  Forecast:    N/A  Previous:    -0.1%
Wholesale Invntories(DM)May  Forecast:  -0.4%  Previous:    -0.7%

Thursday, 07/11/02
Initial Claims (BB)   07/06  Forecast:    N/A  Previous:      N/A
PPI (BB)                Jun  Forecast:   0.0%  Previous:    -0.4%
Core PPI (BB)           Jun  Forecast:   0.1%  Previous:     0.0%

Friday, 07/12/02
Retail Sales (BB)        Jun  Forecast:   0.6%  Previous:   -0.9%
Retail Sales ex-auto (BB)Jun  Forecast:   0.4%  Previous:   -0.4%
Mich Sentiment-Prel (DM) Jul  Forecast:   93.3  Previous:    92.4

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

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The Option Investor Newsletter                   Sunday 07-07-2002
Sunday                                                      2 of 5

If you trade options online, then you need an online broker that:
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 
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option executions

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Please view this in COURIER 10 font for alignment

CALLS              Mon    Tue    Wed    Fri   Week  

BA       45.00   -0.40  -0.06  -0.77   1.23   0.00  Ready to run
ESST     17.97   -0.93  -0.60   0.92   1.04   0.43  Now’s the time
SNPS     54.48   -1.76  -0.82   0.89   1.24  -0.33  Dropped  
MSFT     54.90   -2.02  -1.22   1.01   2.43  -0.20  Leading tech
MO       46.21    1.28   0.74  -0.43   0.94   2.53  New, rebound?
INTU     50.09   -2.09  -1.66   2.14   2.02   0.27  New, strength
NVDA     18.90   -1.12  -0.56   1.15   1.45   1.72  New, cover???
ORCL     10.05   -0.48  -0.31   0.87   0.50   0.58  New, based!


TDS      59.00   -0.65  -1.37   0.47   0.00  -1.55  Weakness Fri
EMMS     20.48   -1.61  -0.67   0.73   0.84  -0.81  Ready to roll
KMI      38.19    0.28  -0.70   0.32   0.27   0.17  Losing steam
EXPE     57.49   -1.88  -5.41   1.83   3.56  -1.80  Dropped
LXK      52.00   -3.50  -0.53   0.23   1.40  -2.40  Back to 10-dma
QLGC     39.80   -2.21  -1.46   3.09   2.28   1.70  Short covering
XL       82.00   -1.67  -1.42  -0.31   0.70  -2.70  Off from high
ACS      46.74   -1.83  -2.17   1.87   1.39   1.87  Dropped
LLY      50.62   -2.64  -1.64  -1.63   0.13  -5.78  No life at all
CAM      49.99    1.15  -1.87   1.45   0.84   1.57  Ready to enter
GS       71.50   -2.21  -0.44  -0.50   1.30  -1.85  New, rollover
LLL      50.70   -1.82  -0.78  -2.08   1.38  -3.30  New, trending
CAH      58.50   -4.11  -2.89   2.74   1.35  -2.91  New, trouble

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Call Play of the Day:

INTU – Intuit $50.09 +2.02 (+0.27 last week)

See details in play list

Put Play of the Day:

GS – Goldman Sachs Group $73.95 (+0.60 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.


SNPS $54.48 (-0.33) Throughout the long slide in the Semiconductor
sector, SNPS has held up remarkably well, and it was our
expectation that when the market rebounded, SNPS would benefit
substantially.  Well, the rally on Friday was pretty impressive,
with the Semiconductor sector (SOX.X) leading the charge with a
9% gain.  Needless to say, it was disappointing to see that SNPS
couldn't manage more than a 2.3% gain on the day, once again
turned back at the $55 resistance level.  Due to its lack of
follow-through on Friday, we're pulling the plug on the play
this weekend.


EXPE $57.49 (-1.80) The first test of the 200-dma for EXPE
proved to be painful for the bears as the stock has rebounded
from that level in the last two days of trading.  The bulls
might be regaining their confidence in EXPE and might try to
carry the stock higher next week.  Instead of waiting around
for that to happen, we’d rather salvage what gains we might
have left in this position.  Set a tight stop above the close
of Friday’s session, or look to exit plays into weakness
early next week.

ACS $49.35 (+1.87) The last two days have seen ACS rebound
from the pits.  The stock clawed its way back during
Wednesday’s session, and in the process created an inside
day from which it broke out during Friday’s session.  The
break could lead to a run higher over the near term, which
we want no part of.  Look to exit on a pullback from the
200-dma overhead at the $49.75 level in the coming sessions.


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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Contact Support

The Option Investor Newsletter                   Sunday 07-07-2002
Sunday                                                      3 of 5

If you trade options online, then you need an online broker that:
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

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more; call 1-888-889-9178 or click for more information.



MO – Phillip Morris $46.21 (+2.53 last week)

Philip Morris Companies Inc. is a holding company whose
principal wholly owned subsidiaries, Philip Morris
Incorporated, Philip Morris International Inc., Kraft
Foods Inc. and Miller Brewing Company, are engaged in the
manufacture and sale of various consumer products. A wholly
owned subsidiary of the Company, Philip Morris Capital
Corporation, engages in various leasing and investment
activities. The company's significant industry segments
are domestic tobacco, international tobacco, North American
food, international food, beer and financial services.

Tobacco stocks have been hit very hard in the last several
weeks.  The market grew nervous a few weeks back after a jury
award.  Phillip Morris and RJR suffered a major setback when
a jury in Miami gave more than $5 million in damages to a
flight attendant who claimed that she had acquired chronic
sinusitis through second hand smoke.  Separately, a federal
court ordered RJR to pay some $15 million in damages to a
smoker.  The market was frightened at the prospects of higher
than previously expected awards.  But much of the downside
appears to have been unwarranted as the fundamentals of the
broader industry remain very healthy.  Indeed, the tobacco
stocks of the market were among some of the stronger stocks
this year before the recent jury awards.  Rational action
seems to be returning to the tobacco stocks as the leaders
such as RJR and MO have since stabilized and begun to
rebound higher.  MO appears to have the most upside because
of its strength in financial position.  Its dividend yield
and earnings growth are once again coming back into focus
as the buyers remerge.  Traders looking to game the rebound
in MO can watch for a breakout above the 10-dma, which
closed Friday right at the $46.17 level, just a few ticks
below where the stock closed.  A breakout above the 10-dma
by about $0.50 could signal that the bounce has legs and
could eventually carry MO back up to its 200-dma all the
way up to the $50 level.  Make sure to confirm volume on a
breakout above the 10-dma.  If you’re more comfortable with
a pullback to support, watch for MO to retreat down to the
$45 level for another entry opportunity.  Our stop is
initially in place at $44.

BUY CALL JUL-45*MO-GI OI=3695 at $2.00 SL=1.00
BUY CALL JUL-47 MO-GW OI=4154 at $0.80 SL=0.25 
BUY CALL AUG-47 MO-HW OI=2657 at $1.90 SL=1.00
BUY CALL AUG-50 MO-HJ OI=9353 at $0.95 SL=0.25

Average Daily Volume = 7.67 mln

INTU – Intuit $50.09 +2.02 (+0.27 last week)

Intuit, Inc. is a provider of small business, tax preparation and
personal finance software products and Web-based services that
simplify complex financial tasks for consumers, small businesses
and accounting professionals. The Company's principal products
and services include Quicken, QuickBooks, Quicken TurboTax,
ProSeries, Lacerte and Quicken Loans. Intuit offers products and
services in five principal business divisions, which include
Small Business, Tax, Personal Finance, Quicken Loans and Global

Very few technology stocks are trading at yearly highs.  Let
alone a big cap technology stock.  Yet INTU is trading at a
fresh 52-week high after last Friday’s rebound back up above the
$50 level.  The company has been on an acquisition spree over the
last several weeks, the most recent of which was a small business
software outfit that went for $85 million.  The acquisitions have
added to INTU’s already strong sales outlook for this year and
into the next, which the market is rewarding with a premium and
new yearly highs.  Technically, INTU’s charts are things of
beauty, both its longer term and short term charts.  The weekly
view reveals that INTU has been forming a solid two year base
from which it is just beginning to emerge from.  On very high
levels of volume no less.  Given the breakout on the weekly
chart in the last two days, the stock doesn’t have a point of
reference for resistance until the $56 level.  The daily chart
shows a steady trend of accumulation since early May, which
has seen the stock rally from the $36 level to where it’s
currently trading around the $50 mark.  The stock has room to
run to the upside, if only the market remains stable to
positive going into next week’s trading.  Look for a break
above the $50 level on relatively high volume to use as a
possible entry point.  If you’d rather wait for a pullback,
watch for market related weakness to drag INTU back down to
short term support, which is between the $46 and $48 levels.
Our stop is initially set at the $43 mark.

BUY CALL JUL-45 IQU-GI OI=3777 at $4.40 SL=2.75
BUY CALL JUL-50*IQU-GJ OI=5571 at $1.35 SL=0.75 
BUY CALL AUG-50 IQU-HJ OI= 581 at $3.20 SL=1.50
BUY CALL AUG-55 IQU-HK OI= 266 at $1.45 SL=0.75

Average Daily Volume = 3.21 mln

NVDA – NVIDIA $18.90 (+1.72 last week)

NVIDIA Corporation designs, develops and markets graphics and
media communication processors and related software for
personal computers (PCs), workstations and digital
entertainment platforms. The Company provides an
architecturally compatible top-to-bottom family of
performance 3-D graphics processors and graphics processing
units (GPUs) that set the standard for performance, quality
and features for a broad range of desktop PCs. They range
from professional workstations to low-cost PCs and mobile
PCs, and from performance laptops to thin-and-light
notebooks. NVIDIA's 3-D graphics processors are used for a
wide variety of applications, including games, digital
image editing, business productivity, the Internet and
industrial design.

The semiconductor sector is one of the most beaten up
segments of the market.  That much could partially explain
the SOX’s 9 percent rally last Friday.  The bounce was
longer over due in the chip space, which means that this
rebound could have room to run to the upside.  For its
part, the SOX has short term resistance at the 400 level.
If cleared, the SOX could easily move back up to the 450
mark.  Of the chip stocks, NVDA is one of the most
beaten up this year considering that shares have fallen
from above the $70 level since the beginning of the year
to where they closed last Friday below the $20 level.  If
the SOX is going to run higher, NVDA should be one of the
stocks in the group to lead the charge higher.  The stock
finished last week just below its downward sloping 10-dma
which hasn’t been tested in over four weeks.  A breakout
above that level could confirm the rebound in the stock,
and eventually lead it back up into the mid $20s.  The
10-dma for NVDA finished last Friday at the $19.73 mark,
which will be an important level to watch going into next
week’s trading.  The stock does have a gap after last
Friday’s move higher, which is down to the $17.45 level.
It’s possible that that gap gets filled before the stock
runs higher.  If NVDA begins to pullback early next week,
watch for an entry if and when the gap gets filled.  Our
stop is initially set at the $16 level.

BUY CALL JUL-17*UVA-GW OI=2354 at $2.45 SL=1.25
BUY CALL JUL-20 UVA-GD OI=4145 at $1.15 SL=0.50 
BUY CALL AUG-17 UVA-HW OI= 925 at $3.50 SL=1.50
BUY CALL AUG-20 UVA-HD OI=1156 at $2.30 SL=1.75

Average Daily Volume = 11.2 mln

ORCL – Oracle $10.05 (+0.58 last week)

Oracle Corporation is a supplier of software for information
management. The Company develops, manufactures, markets and
distributes computer software that helps corporations manage
and grow their businesses. The Company's software products
can be categorized into two broad areas: systems software and
business applications software. Systems software is a complete
Internet platform for developing and deploying applications on
the Internet and on corporate intranets. Systems software
products include database management software, application
server software and development tools that allow users to
create, retrieve and modify the various types of data stored
in a computer system.

The former lead dogs of technology have been among the
hardest hit in this market environment.  The risks of
overvaluation and slowing earnings growth have caused for a
dramatic sell off so far this year.  But one of the former
leaders of the new economy is showing significant signs of
stabilization, and perhaps foreshadowing a strong rally into
the remainder of the summer.  The stock we speak of is ORCL,
which has completed more than two months of solid base work
while at the time the rest of technology continued to fall
through the floor.  Last Friday’s strong rally in the tech
sector put ORCL into a position of a possible breakout from
its base, which we will be watching for carefully going into
next week.  The stock has some minor resistance at the $10
level that was created during its last rally attempt in the
first half of May.  After some more consolidation following
that breakout attempt, the stock may now be ready to finally
emerge from its lengthy base with conviction.  Look for a
breakout rally above the $10.50 level on strong buying volume.
Ideally we’ll see a strong follow through in the Nasdaq that
would help ORCL to emerge from its base.  As well, we’d
like to see further signs of strength in the Software Sector
Index (GSO.X) to confirm ORCL’s strength.  If the breakout
above $10.50 comes, the stock could have room to run up to the
$12 area in short order given the lack of meaningful
resistance immediately above current levels.  But the 200-dma
above near the $13 level should present some short-term
congestion if ORCL reaches that high in short order.  If
you favor entries on pullbacks, wait a couple of days for the
stock to move back down into its base, and watch for a bounce
from the $9 level.  Our stop is initially set at the $8.50

BUY CALL JUL- 7 ORQ-GU OI=11067 at $2.45 SL=1.75
BUY CALL JUL-10*ORQ-GB OI=53059 at $0.50 SL=0.00 
BUY CALL AUG-10 ORQ-HB OI= 8197 at $0.95 SL=0.25
BUY CALL AUG-12 ORQ-HV OI= 1772 at $0.20 SL=0.00

Average Daily Volume = 49.2 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.



ESST - ESS Technology $17.97 (+0.43 last week)

ESS Technology, Inc. is a designer, developer and marketer of
highly integrated digital system processor chips. The Company
offers a broad array of DVD chips, video CD chips,
communication chips and personal computer (PC) audio chips.
These chips are the primary processors driving digital video
and audio players, including DVD, video CD and MP3 players.
The Company's chips use multiple processors and a programmable
architecture that enable it to offer a broad array of features
and functionality. The Company is also a supplier of chips for
use in modems and similar communication products, and a
supplier of PC audio chips. The Company sells its chips to
distributors and original equipment manufacturers of DVD,
video CD, MP3, modem and PC products.

We had been waiting for a turn in the market to carry ESST
higher, and that’s exactly what we got in last week’s holiday
shortened trading session.  What a holiday!  ESST has been
trading with a great deal of relative strength in the last
few weeks, and the stock should shine in a market environment
that is at least favorable to stocks in general.  And the last
two days have been most favorable.  Given the recent market
related pullback in the stock, ESST may now be ready to punch
higher as long as the market stays positive.  We hope that
you were able to target a good entry point on the weakness
in this stock early last week, because if you did, you should
be sitting very pretty right now.  Those who took entries
closer to $16 might consider booking partial profits upon
further follow through to the upside early next week.  In
terms of new entry points, we’d like to see ESST take out
some of its short-term resistance before getting
aggressively bullish.  The stock has near term congestion at
immediate overhead levels up to the $18.50 level, which it
needs to clear next week if it’s going to start trending
higher over the short term.  Traders looking for new entry
points can wait for a breakout above the $18.50 level in a
market that is rallying.  Confirm strength in the tech
sector before entering, though, and make sure that volume
comes into the stock to confirm that the rally has legs.

BUY CALL JUL-17*SEQ-GW OI=2679 at $1.40 SL=0.75
BUY CALL JUL-20 SEQ-GD OI=2349 at $0.50 SL=0.25 
BUY CALL AUG-17 SEQ-HW OI= 146 at $2.40 SL=1.50
BUY CALL AUG-20 SEQ-HD OI= 154 at $1.25 SL=0.75

Average Daily Volume = 2.85 mln

BA – Boeing $45.00 (+0.00 last week)

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

Being in the right place at the right time cure feels good.
When we stepped forward and began coverage on BA, it looked
like both the stock was ready to stage a bullish move, despite
the poor action of the DOW Transports ($TRAN).  Well, since then
the $TRAN has continued lower, but BA is looking better by the
day.  Just as we expected, the $42 support level provided a
springboard for the stock to run as high as $45.25 early last
week before the bulls ran out of steam.  Following its surge
above the $45 level last Monday, BA pulled back, rebounded from
the $43.00-43.50 support zone and ended the week right back at
the $45 level.  While ending the week unchanged may not seem
impressive on the surface, it is encouraging in light of the
volatile week in the broad markets that BA found support at a
higher low and looks ready to take a run at the $46 resistance
level.  Perhaps the approach of earnings on July 17th will be
enough to motivate the bulls.  Sure, we could see another
pullback before that happens and another bounce from the $43
area looks good for fresh entries.  Traders looking for
confirmation before playing will want to wait for the bulls to
push through the $46 resistance level before opening new
positions.  Keep stops set at $41.50.

BUY CALL JUL-42 BA-GV OI= 931 at $3.00 SL=1.50
BUY CALL JUL-45*BA-GI OI=4737 at $1.30 SL=0.75
BUY CALL JUL-47 BA-GW OI=2327 at $0.40 SL=0.00
BUY CALL AUG-45 BA-HI OI=3460 at $2.15 SL=1.00
BUY CALL AUG-47 BA-HW OI=2982 at $1.10 SL=0.50

Average Daily Volume = 3.37 mln

MSFT – Microsoft $54.90 (+0.20 last week) 

Although best known for its ubiquitous Windows PC operating
system, MSFT develops, manufactures, licenses and supports a
wide range of software products for a multitude of computing
devices.  The company's software products include scalable
operating systems for servers, PCs and intelligent devices,
server applications for client/server environments and software
development tools.  The MSFT's online efforts include the MSN
network of Internet products and services and alliances with
companies involved with broadband access and various forms of
digital interactivity.

Relative strength is an important aspect of every investment
decision, but that importance is made even more profound when
trying to game bullish trades in a clearly unhealthy market.  A
quick look at the NASDAQ shows an unhealthy downward trend, with
the Composite having clearly broken the September lows.  The
Software sector (GSO.X) looks even worse, as it has spent the
last 10 sessions below its September lows.  And even the
oversold rebound on Friday only lifted the GSO index to the level
of the September intraday lows.  So it is rather impressive to
see that MSFT has not only avoided testing its September lows,
but has been building a new pattern of higher lows since early
May, when MSFT trading a double bottom just above the $48 level.
The rebound this week from just above $50 came right at the
ascending trendline and Friday's rally brought the stock right
back to the $55 resistance level.  The real test of the bulls'
resolve will occur at the $56 level, which has acted as resistance
since late April.  So how do we play it?  Ideal entries will
materialize on a dip and rebound from the $52 support level,
although a bounce from the $53 level (the top of Friday's gap)
would be a bullish sign and provide good entries as well.  Those
looking for confirmation that this rally isn't going to disappear
as quickly as it arrived will want to wait for MSFT to clear the
$56 level on strong volume before playing.  Raise stops to $50.50,
as that level provided strong support on last week's dip.

BUY CALL JUL-50 MSQ-GJ OI=27183 at $5.80 SL=3.75
BUY CALL JUL-55*MSQ-GK OI=49773 at $2.25 SL=1.00
BUY CALL AUG-55 MSQ-HK OI=10818 at $3.40 SL=1.75
BUY CALL AUG-60 MSQ-HL OI= 8101 at $1.30 SL=0.75

Average Daily Volume = 36.2 mln


CAH – Cardinal Health $59.15 (-2.26 last week)

Cardinal Health is the second largest US wholesaler of
pharmaceuticals, surgical and hospital supplies.  The healthcare
service provider offers these products and services to
independent and chain drugstores, hospitals, alternate care
centers, and the pharmacy departments of supermarkets throughout
the United States.  The company also offers support services
including computerized order entry and confirmation systems.
Through its subsidiary, Pyxis Corporation, CAH develops,
manufactures, leases, sells and services systems that automate
the distribution, management, and control of medications and
supplies in healthcare facilities.

It is amazing how quickly the tides of fortune reverse in this
market.  It wasn't so long ago that the majority of the call
plays were picked from the Health Care sector of the market, but
judging from the carnage experienced in that arena in recent
weeks, those stocks look better for puts than for calls.  Just
witness what has happened in the Health Care Payor index (HMO.X).
After one last push to the north side of $650, the HMO index has
been crashing over the past 3 weeks, trading as low as $560 on
Wednesday in response to legislation changes and litigation
concerns.  Witness shares of CAH, which plunged from $63 to as
low as $46.80 (a 25% loss) before rebounding back to the $60
resistance level on Friday.  It is interesting to note, that
after gapping up on Friday morning, the stock was completely
unable to make any further progress, actually closing 50-cents
below its opening tick.  Responding to the precipitous plunge in
its stock price, the company stated on Tuesday that the weakness
was due to an erroneous rumor in the marketplace about its
relationship with Arthur Anderson over the past few years.
Company officials were quick to point out that there are no
accounting improprieties.  Whether there is any truth to the
rumors is a secondary issue at this point, as the technical
damage has been done and the stock is still buried under its
descending trendline.  A rollover near the $60-61 area would make
for an ideal entry, as would a drop back under the $57 level.
We are initiating coverage with our stop set at $63.25.

BUY PUT JUL-60*CAH-SL OI=1073 at $2.80 SL=1.50
BUY PUT JUL-55 CAH-SK OI=1860 at $1.00 SL=0.50

Average Daily Volume = 2.15 mln

GS – Goldman Sachs Group $73.95 (+0.60 last week)

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

Investors thinking that Friday's sharp rally will spell the end
of the persistent bearish decline in the Brokerage sector (XBD.X)
need only look at the price action in this index over the past
month to cool their heels.  After breaking below the $435 support
level (also the 50% retracement of the fall rally), the XBD has
been tracing a series of lower lows and lower highs for the past
month.  Breaking the 62% retracement at $408 on Tuesday, the XBD
continued down to an intraday low of $392 on Wednesday before the
oversold rebound began.  It is entirely possible that this bounce
could continue back to the $435 area, but short of economic
prosperity breaking out all over, a continuation above that level
seems unlikely.  GS is the brokerage stock we most like to beat up
on, primarily because of its consistent trading pattern over the
past few months; namely DOWN.  Connecting the intraday highs from
late March to present yields a descending trendline that currently
rests at $74, near the close of trading on Friday.  A rollover
near this level could be used for fresh entries, but we'd prefer
to see a rally up to heavy resistance near $76 before taking a
position.  Then GS should fall of its own weight, as the plight
of the market is revealed day by day with the commencement of July
earnings season.  Initial stops are set at $77.  Traders looking
to enter on a breakdown will need to wait for GS to fall through
its recent lows (near $69) on heavy volume before entering a new

BUY PUT JUL-75*GS-SO OI=5306 at $2.70 SL=1.25
BUY PUT JUL-70 GS-SN OI=8039 at $0.85 SL=0.25

Average Daily Volume = 3.43 mln

LLL - L-3 Communications Holdings $51.02 (-2.98 last week)

As a leading supplier of sophisticated secure communication
systems and specialized communication products, LLL provides
critical elements of virtually all major communication, command
and control, intelligence gathering and space systems.  The
company's high data rate communication, avionics, telemetry and
instrumentation systems and components are used to connect a
variety of airborne, space, ground-based and sea-based
communication systems.

Remember when Defense stocks could do nothing but head up, as
investors were sure that fat profits would follow the defense
buildup that went along with the war against terrorism?  Judging
by the recent action in the Defense index (DFI.X), that enthusiasm
has cooled somewhat, as it has been falling pretty consistently
since the middle of May.  Last week's action was particularly grim
with a nearly 10% slide between Monday's open and Wednesday's
intraday low.  So while there was a significant rebound on Friday,
the DFI index is still well below heavy resistance at the $625
level.  Shares of LLL went on a tear last fall, launching from a
pre-attack level near $31 to an all time high near $66.50 in May,
but it has all been downhill since then.  In the intervening 8
weeks, LLL has been posting a series of lower highs and lower
lows.  Especially since early June, LLL has built itself a
descending channel and the current lower boundary is near $48 and
the upper boundary is at $56, also the site of significant
overhead resistance.  Channels have been a fairly reliable trading
tool of late, so let's take advantage of the formation.  A
rollover near the $52 level (center of the channel) may be a
decent entry point, but patient traders will want to wait for the
bulls to push to either the $54 resistance level or ideally the
$55.50-56.00 area before entering on the eventual rollover.
Likewise, we'll want to harvest our gains as LLL reaches the
lower edge of the channel, preparing to re-enter the play on the
next rollover from resistance.  Set stops initially at $56.

BUY PUT JUL-52 LLL-SX OI=1187 at $3.20 SL=2.25
BUY PUT JUL-50*LLL-SJ OI=3647 at $2.00 SL=1.00
BUY PUT JUL-47 LLL-SW OI=1892 at $2.25 SL=1.00

Average Daily Volume = 1.50 mln

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The Option Investor Newsletter                   Sunday 07-07-2002
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LLY - Eli Lilly $52.25 (-4.15 last week)

LLY discovers, develops, manufactures and sells Pharmaceutical
products targeted at the diagnosis, prevention and treatment of
human diseases.  The company's best known commercial product is
the anti-depressant Prozac, although there are numerous other
lesser-known drugs that treat conditions such as Parkinson's
disease, diabetes, osteoporosis along with a broad range of
antibiotics.  The company also conducts research to find
products to treat diseases in animals and to increase the
efficiency of animal food production.

There's no question that Pharmaceutical stocks have lost their
enviable status as havens of safety in times of economic
uncertainty, now that the DRG index has fallen to levels not
seen since early 1998.  Sure there has been a bit of a rebound
over the past couple days, but that bounce is more of a
short-covering rally in response to relief that there was no
terrorist act over the holiday.  The long term picture is
decidedly down, with the $315-320 area now acting as formidable
resistance.  As bad as the picture is for the DRG index, LLY is
even weaker.  After breaking down yet again at the $46 level,
the stock tumbled all the way to $50 on Wednesday.  As testament
to the stock's weakness, it only managed a gain of about $1.60
on Friday, a day where the DRG index posted a 3.7% advance.  LLY
is likely still reeling from the Lehman downgrade amid concerns
of manufacturing and FDA nonapproval having a detrimental effect
on financial results throughout the remainder of this year and
into the next.  Coming to rest near the $52 resistance level, LLY
could very well roll over next week, especially since the DRG
index came to rest just below the $300 level.  But an even better
entry point will come with the stock rolling over near the $54
level at the same time that the DRG index runs out of steam near
the $305 level.  Alternatively, look to open new positions on
the downside as LLY breaks below the $50 level.  Lower stops to
$54.50, in case of a continuation of Friday's short-covering.

BUY PUT JUL-55 LLY-SK OI=3361 at $3.70 SL=2.25
BUY PUT AUG-55 LLY-TK OI= 329 at $4.50 SL=2.75
BUY PUT AUG-50*LLY-TJ OI= 453 at $1.90 SL=1.00

Average Daily Volume = 3.66 mln

LXK – Lexmark International $52.30 (-2.10 last week)

Wrapping its arms around the entire life-cycle of printers, LXK
develops and manufactures a broad range of laser, inkjet and dot
matrix printers for the office and home markets.  The company is
also the exclusive source for new print cartridges for the laser
and inkjet printers it manufactures.  Additionally, LXK provides
supplies for IBM printers and offers after-market laser
cartridges for the large installed base of a range of laser
printers sold by other manufacturers.

The decline continued throughout last week's action, with another
lower high and more importantly, a new lower low for this cycle.
On Wednesday, LXK fell below $49 before rebounding with the
remainder of the market into the close and then continuing
upwards on Friday.  Despite the all-day nature of Friday's rally,
we remain unconvinced that the action in LXK is anything other
than short-term short-covering.  The bulls haven't even been able
to challenge the month-long descending trendline (now at $54)
since the middle of June and with earnings season upon us, there
are unlikely to be any bullish revelations to break this trend
anytime soon.  LXK is set to announce its results on July 18th
and investors are likely to be nervous leading up to that event,
with concerns about a pending price war gaining a foothold in the
market.  Despite the strong upward move at the open on Friday, it
is interesting to note that LXK had a hard time building on the
early gains and came to rest below the $52.50-53.00 resistance
area.  Add in the formidable resistance at the $53.50-54.00 area,
and it looks like things are still stacked very much in favor of
the bears.  Use a failed rally below the 200-dma ($54.16) to
initiate new positions with a favorable risk-reward ratio.  Keep
stops in place at $54.50.

BUY PUT JUL-55 LXK-SK OI=1670 at $4.10 SL=2.50
BUY PUT JUL-50*LXK-SJ OI=1875 at $1.60 SL=0.75

Average Daily Volume = 1.36 mln

QLGC – QLogic Corporation $39.80 (+1.70 last week)

Somebody has to make the equipment that lets your computer talk
to all its peripheral equipment, and QLGC does it well.  A
leading designer and supplier of semiconductor and board-level
input/output (I/O) management products, QLGC has been providing
SCSI-based connectivity solutions to this market sector for over
12 years.  QLGC's I/O products provide a high performance
interface between computer systems and their attached data
storage peripherals, such as hard disk and tape drives,
removable disk drives and RAID (redundant array of independent
disks) subsystems.  The company is also the market share leader
in Fibre Channel host bus adapters, a market segment that is
receiving tremendous attention from investors.

Short-covering was the name of the game on Friday as those
investors that hadn't already left for the weekend went on a
buying spree in response to the fact that there was no terrorist
attack over the 4th of July.  The NASDAQ-100 shot higher by more
than 6.5% on the day, so any idea of this being the beginning of
a strong summer rally need to be tempered with the fact that it
came on rather light volume.  But that doesn't change the fact
that QLGC vaulted higher by 6% itself, bringing it within
20-cents of our $40 stop at the close.  We debated about dropping
the play this weekend, but after reflecting how quickly
short-covering rallies have failed lately, we decided to give it
one more day before pulling the plug.  If our stop is broken on
a closing basis, we'll take our lumps, but until a major
resistance level is broken, the charts are still telling us to
short all rallies.  The only valid entry strategy for the play
right now is to enter on a rollover from current levels.  That
entry would look even better if it occurred in the midst of a
renewed broad-based Technology retreat next week.  

BUY PUT JUL-40*QLC-SH OI=5993 at $2.90 SL=1.50
BUY PUT JUL-35 QLC-SG OI=5659 at $1.25 SL=0.50

Average Daily Volume = 10.8 mln

TDS - Telephone Data Systems $62.00 (-1.15 last week)

Telephone and Data Systems, Inc. (TDS) is a diversified
telecommunications service company with wireless telephone and
wireline telephone operations. TDS conducts substantially all
of its wireless operations through United States Cellular
Corporation (U.S. Cellular) and substantially all of its
wireline telephone operations through its wholly owned
subsidiary, TDS Telecommunications Corporation. TDS, U.S.
Cellular and TDS Telecom hold various investments in publicly
traded companies, the majority of which were the result of
sales or trades of non-strategic assets. Minority positions are
held in Deutsche Telekom AG, Vodafone plc, Rural Cellular
Corporation and VeriSign, Inc.

The broader telecom sector, as measured by the North
American Telecommunications Index (XTC.X), finished more
than 5 percent higher during Friday’s massive rally in the
broader market.  For its part, TDS finished unchanged.
That’s right, the stock didn’t go anywhere for the day,
other than rolling over from its 10-dma once again.  We
very much liked the way that the stock under performed both
its sector and the broader market during Friday’s session,
and we hope that it means that TDS is going to continue
lower over the coming weeks.  But we do need to be
careful about getting to aggressively bearish on this stock
with the way that the broader market acted last week.
While TDS is still in a favorable position for put plays,
the broader market may trump any weakness in this stock
over the near term.  With that said, watching the action
in the broader market as it relates to this play, along with
watching sector action, will become all the more important.
If the market starts to weaken again early next week, then
we will feel more comfortable with taking new put entries
into TDS.  After all, the stock looks like it may breakdown
once again from its short term consolidation.  Continue to
watch for rollovers from the 10-dma as that level has kept
any rally in TDS in check over the last several months.
Otherwise, watch for a breakdown below the $57 level on
heavy volume as a sign that the stock is going to resume
its trend lower.  But only take new entries on a break
below support in a negative market environment.

BUY PUT JUL-65 TDS-SM OI= 84 at $6.80 SL=4.25
BUY PUT JUL-60*TDS-SL OI=207 at $3.30 SL=1.50

Average Daily Volume = 244 K

EMMS - Emmis Communications $22.53 (-3.16 last week)

Emmis Communications Corp. is a diversified media company with
radio broadcasting, television broadcasting and magazine
publishing operations. The Company operates the sixth largest
publicly traded radio portfolio in the United States based on
total listeners. The 20 FM radio stations and three AM radio
stations the Company operates in the United States serve the
nation's three largest radio markets of New York City, Los
Angeles and Chicago, as well as Denver, Phoenix, St. Louis,
Indianapolis and Terre Haute, Indiana. The 15 television
stations the Company operates serve geographically diverse
mid-sized markets in the United States as well as the large
markets of Portland and Orlando and have a variety of television
network affiliations, including five with CBS, five with FOX,
three with NBC, one with ABC and one with WB.

EMMS showed signs of stabilization in the last two sessions
thanks to the rebound in the broader market.  But for as
beaten up as this stock has been in the last several weeks,
quite frankly we expected more short covering to come into
this stock and in the process carry it higher.  But that
just didn’t happen last week.  After all, the stock finished
the session higher by a little more than 4 percent, while the
comparative Nasdaq-100 finished closer to 7 percent higher.
The under performance on the part of EMMS is a testament to
the inherent weakness in the stock and the broadcasting
sector.  We expect the stock to rollover again on the first
signs of weakness in the broader market.  If, however, the
market does continue higher next week, then EMMS will most
likely be dragged along for the ride higher.  The best
defense against that scenario in which the market continues
to rally is setting a tight stop above a significant short
term resistance level to protect profits against further
upside erosion.  The stock is having trouble clearing the
$22 level, which may be a good site to think about setting
a protective upside stop for open positions.  Of course a
rollover from that level would offer a solid entry point
into new put positions.  If the stock does reverse early
next week and slip back into its declining trend, then we’ll
watch for a breakdown below short term support at the $18.50
mark for a momentum entry into weakness.

BUY PUT JUL-25*QMJ-SE OI=13 at $4.80 SL=2.75
BUY PUT JUL-22 QMJ-SX OI=34 at $2.60 SL=1.25

Average Daily Volume = 711 K

KMI - Kinder Morgan $40.20 (-0.56 last week)

Kinder Morgan, Inc. is an energy storage and transportation
company in the United States, operating, either for itself or
on behalf of Kinder Morgan Energy Partners, L.P., more than
30,000 miles of natural gas and products pipelines. The Company
owns and operates Natural Gas Pipeline Company of America, a
major interstate natural gas pipeline system with approximately
10,000 miles of pipelines and associated storage facilities. The
Company owns and operates a retail natural gas distribution
business serving approximately 233,000 customers in Colorado,
Nebraska and Wyoming. The Company constructs, operates and, in
some cases, owns natural gas-fired electric generation

The Natural Gas Index (XNG.X) finished higher last Friday by
2.11 percent, well below the final gains in the broader
market of 3.67 percent as measured by the rally in the S&P
500.  The natural gas index as a whole has been an under
performer since its yearly peak in late April up around the
200 level.  The index broke down from support last week,
which is a major longer term level of support.  Last Friday’s
rally may prove to be no more than a brief short covering
rally in the longer term downward trend at work in the XNG.X.
And as goes the XNG, so too goes KMI.  The stock itself
lagged the broader market as well, although it was slightly
better than the XNG.  KMI came within a very close distance
to its relative low that we were targeting since the
inception of this play during last week’s trading.  Last
Friday’s rally put the stock back at its descending 10-dma
which closed at the $38.89 level.  If the trend is going
to continue in the XNG, we expect KMI to rollover back down
below its 10-dma in next week’s trading.  Consider using
such a rollover as an entry point if the XNG confirms.  As
a precaution, traders with open positions might consider
sliding down a tight stop to protect profits.

BUY PUT JUL-40*KMI-SH OI=1421 at $2.80 SL=1.25
BUY PUT AUG-40 KMI-TH OI=2889 at $3.80 SL=1.75

Average Daily Volume = 743 K

XL - XL Capital $82.00 (-2.70 last week)

XL Capital Ltd., formerly EXEL Merger Company, is a provider of
insurance and reinsurance coverages and financial products and
services to industrial, commercial and professional service
firms, insurance companies and other enterprises on a worldwide
basis. The Company provides property and casualty insurance on
a global basis. XL Capital generally writes specialty coverages
for commercial customers. Specific lines of business written
include third-party general liability insurance, environmental
liability insurance, directors and officers liability insurance,
professional liability insurance, aviation and satellite
insurance, employment practices liability insurance, surety,
marine insurance, property insurance and other insurance covers,
including program business and political risk insurance. 

XL broke down to another new relative low in its declining trend
during last Wednesday’s session.  The stock traded down to as
low as the $80 level before rebounding along with the broader
market on short covering into the holiday.  Friday’s session saw
thee stock continue higher, reaching as high as the $83 level
during intraday trading, but from there it promptly rolled over
to finish well off of its earlier daily peak.  When it was all
said and done, the stock under performed the broader market by
a great deal, having only managed a fractional gain of the day.
That much combined with the rollover from the daily high gives
us reason to believe that XL is still heading lower, and that
the last two days of strength were primarily short covering
induced.  If the broader market does continue to drag XL higher
into the coming few sessions, then we would expect the 10-dma to
come into play as resistance.  The 10-dma finished last Friday
at the $84.34 level, and would be a good site to target shoot
a rollover entry point into new put plays early next week.  If
the stock reverses lower out of the gates early Monday morning,
then traders might look for the stock to breakdown below where
it closed last Wednesday, which was at the $81 level.

BUY PUT JUL-85*XL-SQ OI=215 at $4.50 SL=2.50
BUY PUT JUL-80 XL-SP OI=454 at $1.80 SL=1.00

Average Daily Volume = 871 K

CAM – Cooper Cameron $49.99 (+1.57 last week)

Cooper Cameron Corporation is an international manufacturer of oil
and gas pressure control equipment, including valves, wellheads,
controls, chokes, blowout preventers and assembled systems for oil
and gas drilling, production and transmission used in onshore,
offshore and subsea applications. Cooper Cameron is also a
manufacturer of centrifugal air compressors, integral and
separable gas compressors and turbochargers. The Company's
operations are organized into four separate business segments,
Cameron, Cooper Cameron Valves, Cooper Energy Services and Cooper
Turbocompressor, each of which conducts business as a division of
the Company.

The breakdown in the Oil Service Sector Index (OSX.X) that we
detected last week has been followed by two strong days to the
upside.  But that much may not be such a surprise considering the
oversold nature of the group over the very short term.  In fact,
we don’t dislike the last two days of strength in the group as
it has set up CAM for another rollover opportunity into new put
plays closer to resistance.  For its part, the stock closed
above its 10-dma last week, but below its short term resistance
just beneath the $52 level.  Rollovers anywhere from current
levels to the $52 mark can be used to take entries into new
put plays, provided that the oil service sector doesn’t power
higher in early next week’s trading.  The broader market might
also play into the future short term direction of the energy
sector as well as CAM, although the two haven’t tracked one
another real closely this year.  It’s been only recently that
the OSX.X has given up its strength versus the rest of the
market, so further strength in the broader market might not
impact this play very much.  If you’re looking for more
confirmation of a reversal back down into short term trend
and for weakness in CAM, then watch for the stock to take
out Friday’s intraday low at the $49.39 level, and use volume
as an indicator of how heavy the selling is.  High volume and
a break below Friday’s low should tell us that CAM is heading
back down.

BUY PUT JUL-50*CAM-SJ OI= 24 at $1.65 SL=0.75
BUY PUT AUG-50 CAM-TJ OI=199 at $2.90 SL=1.50

Average Daily Volume = 843 K

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Beginning of the Summer Rally?
By Mark Phillips

Perhaps, but I'm not holding my breath.  Let's look at the
competing arguments.  

Bulls - Markets are oversold and VIX spent close to a week above
the pivotal 30 level and is now relaxing.  Economy improving and
the September lows have now been successfully tested.  Bear
markets tend to last 18-24 months, so we are overdue for a return
of the bull.

Bears - Markets continue to be weak, as they are forecasting more
problems in the economy (double-dip recession).  No capitulation
yet.  We need to see a blowoff in the VIX (above 40 and preferably
50) along with heavy selling (90% of all volume on the downside
for at least one and preferably more days) so that we know that
stock is moving out of the weak hands and into stronger ones.
Fund outflows still running heavy and foreign investors deciding
that the US markets are not the place to be.  Stock valuations
still sky-high and likely to become even more ridiculous if the
SEC forces companies to expense stock options.

Those of you that have been with me for awhile know which side of
the argument I come down on, but $2 and my opinion will only get
you a cup of coffee.  I am a voracious reader and try to absorb as
much information from a wide variety of sources about what is
going on in our markets without forming an opinion.  But once I
assimilate enough information (like the Borg) and develop a strong
opinion, I tend not to waver from it until presented with enough
evidence to shake my convictions

My opinion is that the rally that brought last week's volatile
trade to an end was just a load of short-covering in the wake of
not having any sort of terrorist activities surface over the 4th
of July.  Whether it continues on Monday is anybody's guess.  But
that's a part of what I get paid for, so here's how I think it
shakes out.  All the markets just managed to come back from the
brink of disaster on Wednesday and the relief that they didn't
succumb looks like it could give us another multi-day rebound,
possibly as high as 9800 on the DOW.  We probably won't get
there, but if we do I'll be lining up to buy puts with both
hands, especially in light of the fact that the 50-dma crossed
back under the 200-dma last week.

I've written recently about my hopes for a MOCO trade, and twice
the market has tempted me with a VIX in the neighborhood of 36.
For those that are keeping score at home, I haven't even gotten
close to pulling the trigger on the action plan that I laid out
in those articles, as my initial trigger doesn't even get tripped
until the VIX tops 40.  This is another example of why a written
action plan is so critical to successful trading.  Haven written
out at what points (specifically documented) I will take action,
there is no guesswork or trying to second guess my feelings after
the market opens.  It takes a lot of patience, but if the
conditions I described come to pass, then the action plan will
practically execute itself.

In the meantime, let's deal with the current market as it
currently exists.  And the best way to do that is by examining
the progress of each of our current plays.


MSFT - Back from the brink...again.  Just when it looked like MSFT
might tip over, the stock rebounded from another higher low,
leading the rest of the market back from the edge of the abyss.
Friday's action was particularly encouraging, with the bulls
rallying MSFT right to the $55 level at the close.  Hopefully
some of you were able to take advantage of the dip back down to
the $50 level to initiate new positions ahead of the expected
breakout above the $56 resistance level.  We're keeping our stop
where it is until the bulls show us the conviction necessary to
scale that resistance level.

XOM - Things appear to be improving for XOM, as it held up rather
well in a very unpleasant market environment last week.  Note that
the stock found support in the $39.50 area before rebounding again
on Friday.  The lows are getting higher, as the bulls continue to
knock on the $41 resistance level.  Once this level is broken, we
can turn our gaze on the $42 level and consider raising our stop.

PG - Losing strength rapidly, PG is not looking nearly as healthy
as it was just a few short weeks ago.  After 2 tests of the
descending trendline with an intervening rally that only went to
the middle of the ascending channel, shares of PG finally broke
below the bottom of the channel on Tuesday.  This one is starting
to look a lot like WMT just before it finally broke down at the
end of March, so if you're in the play, keep those stops tight at
$86.  Even with the sharp rebound on Friday, the stock is right
at the level of the lower channel line, and unless the bulls can
get it back inside the channel on a closing basis, I would not be
interested in opening new positions here.  If this is going to be
the point from which the stock rebounds sharply, it won't hurt us
to wait for the proof before risking our investment capital.

QQQ - To say I was having buyer's remorse last week would be an
understatement, as the QQQ traded all the way down to $22.73 on
Wednesday.  I hope some of you took advantage of that dip to enter
the play at an extreme discount.  The rebound off of those lows
was truly impressive, but my concern is obviously that it is
nothing more than short-covering.  The next obstacle will be the
$27 resistance, with real formidable resistance showing itself in
the $28.50-29.00 area.  For now, we want to continue taking
advantage of dips into the $23-25 area to initiate new positions,
as the weekly Stochastics attempt to reverse out of oversold
territory.  A strong rally is going to be a tough accomplishment
with earnings season just getting underway.  There are likely a
lot of land mines out there, still to be uncovered.

Watch List:

WMT - I don't know about you, but when looking through the charts
this weekend, I once again had a hard time getting excited about
what I see on WMT.  Sure we got a rebound from the $53-54 area,
but the stock is still effectively trapped under the $58
resistance level.  Since breaking down a few months ago, WMT has
been posting a series of lower highs and I'm not convinced that
it isn't going to break down again.  For now, I'm going to keep
the play on HOLD.

BRCM - Is that an entry point?  Not with my money, it isn't!  As
I mentioned above, the action on Friday looked like nothing more
than short-covering and I think that particularly applies to
stocks in the Telecom and Networking arenas.  With earnings season
getting underway and nary a sign of a pickup in demand, my bet is
that we'll see both a lower price and an easier entry point to
take advantage of than a 10% short-covering rally.  Lower the
entry target to $15 this weekend, but only play on a volume-backed
rally (not a gap) from that level.

INTC - In a more positive market environment, I might have been
inclined to take an entry as INTC bounced from just above the $16
level on Wednesday.  Simply put, I wasn't sufficiently convinced
by the action in the broad market to press the entry.  With
earnings season approaching rapidly, I'm betting that we'll get
another opportunity to snatch some LEAPS on the cheap without
having to try to position in the vicinity of a gap.

BA - With the weakness in the first part of the week, I was sure
we were going to get a tasty entry into our BA play last week, but
the funny business surrounding the 4th of July holiday seemed to
muddle the picture somewhat.  Rather than force an entry on
Wednesday, I decided to wait for a clearer signal next week.
That clarity should emerge with the daily Stochastics once again
bottoming in oversold with BA confirming support at one of our
listed entry targets.

BBH - Short-covering appeared with a vengeance on Friday and gave
the beaten-down BBH more than a 5% shot in the arm.  Of course
that was only enough to raise the stock to the $76-77 area and we
don't even get near significant resistance until the $80-81 area.
Aggressive traders could try a position near there, but I'm
personally holding out for a more substantial rally before
entering new long-term positions.  If the broad market will
cooperate, I think it is entirely feasible to get the BBH up near
the $90 level before the bulls lose their conviction.

For such a volatile week, I must again say that I didn't much like
the action.  Just like last week, an ideal setup for washing out
the weak hands and giving us a solid tradable bottom was foiled by
another round of short-covering.  Eventually we'll reach a level
that prompts real buying, but I just don't think we're there yet.
Perhaps the pending earnings season will help to provide some
illumination into the future.  I'd settle for either solid
earnings and forward guidance (although I won't hold my breath on
that one), or more disappointments that finally cause enough
investors to throw in the towel so that we can have at least an
intermediate-term capitulation.

The VIX continues to be my guide as to when that actually
occurs, and you can bet I'm still waiting for MOCO.  If you
missed my recent articles on the subject, here are the links for
your convenience:

Getting Ready to Change Gears
Gearing Up For MOCO

From last week:
"Should the high-VIX scenario fail to pan out over the next few
weeks, then I fear we will muddle our way lower throughout the
summer, posting a series of lower highs and lower lows as we
continue to ride down the descending channels in each of the
major indices.  I don't think I have to tell you that scenario
is not one that I relish."

That continues to be my thinking relative to the markets and I
suspect now that we won't have the clarity that we so greatly
desire until we see how this earnings season (especially the
forward guidance) pans out.

Note that I didn't pull the trigger on any new Portfolio plays
this week, and a big part of my hesitation is my suspicion about
the rebound off the Wednesday lows.  I don't expect it to last.
I debated long and hard about new Watch List plays this weekend
too.  In the end, I felt it made more sense to watch the trading
action next week before placing additional plays on the list.
Better safe, than sorry.  Don't worry, we'll have a fresh batch
of possibles for your consideration next weekend.

Whatever trades you take, keep them on a short leash.  It's a
safe bet that there are plenty of surprises in store over the
next few weeks.

See you next week!


LEAPS Portfolio

Current Open Plays


MSFT   05/13/02  '03 $ 55  MSQ-AK  $ 5.90  $ 6.20  + 5.08%  $48
                 '04 $ 55  LMF-AK  $10.20  $11.20  + 9.80%  $48
XOM    05/22/02  '03 $ 40  XOM-AH  $ 3.00  $ 2.80  - 6.67%  $38.50
                 '04 $ 40  LXO-AH  $ 5.10  $ 5.00  - 2.00%  $38.50
PG     05/30/02  '03 $ 95  PG -AS  $ 3.70  $ 3.90  + 5.41%  $86
                 '04 $ 95  KBJ-AS  $ 9.00  $ 9.70  + 7.78%  $86
QQQ    06/26/02  '03 $ 28  OZC-AB  $ 2.45  $ 2.45  + 0.00%  $22.50
                 '04 $ 28  LRI-AJ  $ 4.50  $ 4.50  + 0.00%  $22.50


LEAPS Watchlist

Current Possibles


BRCM   10/28/01  $15           JAN-2003 $ 20  RCQ-AD
                            CC JAN-2003 $ 15  RCQ-AC
                               JAN-2004 $ 20  LGJ-AD
                            CC JAN-2004 $ 15  LGJ-AC
WMT    03/31/02    HOLD        JAN-2003 $ 55  VWT-AK
                            CC JAN-2003 $ 50  VWT-AJ
                               JAN-2004 $ 55  LWT-AK
                            CC JAN-2004 $ 50  LWT-AJ
INTC   06/16/02  $16-17        JAN-2003 $ 20  NQ -AD
                            CC JAN-2003 $ 15  NQ -AC
                               JAN-2004 $ 20  LNL-AD
                            CC JAN-2004 $ 15  LNL-AC
BA     06/30/02  $43, $42      JAN-2003 $ 45  BA -AI
                            CC JAN-2003 $ 40  BA -AH
                               JAN-2004 $ 45  LBO-AI
                            CC JAN-2004 $ 40  LBO-AH

BBH    06/09/02   $80-81       JAN-2003 $85  GBZ-MQ
                  $90          JAN-2004 $80  KOV-MP
                               JAN-2005 $85  XBB-MP

New Portfolio Plays


New Watchlist Plays





The Trading Wars –

By Mike Parnos – Trading With Attitude

Investing is a war.  It’s a war that is fought every day – 
and every day there are winners and losers.

If you’re like most investors over the past two years, you 
probably feel like Davy Crockett at the Alamo – fighting off two 
thousand Mexicans with only Old Betsy and a Bowie Knife?

Walt Disney brought Davy Crockett back to life and painted him 
a hero, but that didn’t make him any less dead.  Why did he die? 
Because he fought the odds – and lost.  All that’s left of Davy 
Crockett is a coonskin hat and a tall tale.

When it comes to the stock market, I’d rather be a live 
coward, than a financially dead hero.

History provides many valuable lessons. There are many 
military events that accurately portray the right and wrong ways 
to approach the combat zone we know as the stock market.

For example, how did a seemingly disorganized band of patriots 
defeat the legions of highly trained troops of England’s King 
George to ultimately win America’s independence?  

Appearances can be deceptive.  The patriots weren’t 
disorganized at all – just bad dressers.  Their generals used 
unconventional tactics.  They used the element of surprise.  They 
hid until they had an advantage – then attacked, causing as much 
damage as possible, then retreating until the situation was right 
to mount another attack.

They were passionate, nimble, focused and had a strategy – 
aggressive when the situation called for it, but also patient.  
Waiting as long as necessary.

Patience is the greatest asset in the investment wars.  If you 
don’t have an advantage, you shouldn’t be in the market.

The retail investor is the enemy.  You don’t have to destroy 
him – he’ll ultimately destroy himself.  He’s emotional.  He 
doesn’t use money management skills.  Never fear, there is a 
bottomless pit of retail investors who continue to take 
uncalculated risks or trust their money to King George type 
management firms with the belief that the sheer numbers of troops 
will ultimately win the war.

It doesn’t work that way.  Not anymore.  The bull market has 
left only a mass of cow chips. Now you have to be very careful 
where you step.

What happens when you pick a direction?  You can only make 
money ONE WAY -- if the stock goes in that specific direction.  

Why not position yourself to make a little if the stock goes 
up, goes down or goes nowhere?  

If the market is going nowhere, you can still make money by 
taking advantage of the traders who are betting on a particular 
market direction.  Remember, the retail investor is WRONG most of 
the time!

Professional traders sit back, take the bets, and are RIGHT 
most of the time?  There are trading tactics that allow you to 
benefit from this very scenario. Does your arsenal include these 

Keep in mind, you don’t have to bring home a whole scalp after 
every battle.  If you can be satisfied with taking a “little off 
the top,” you will be able to take fewer risks, keep your powder 
dry, and live to fight another day.

The war is ongoing – and so must be your focus.  You may win a 
series of battles, but you can’t afford to become overconfident.  

Great tacticians will define, and accept, their risk before 
any battle.  The same is true for the best money managers.  There 
will always be casualties.  You’ll lose some battles.  That’s a 
given.  A few sacrifices will have to be made.  They will often 
take the form of insurance – money you spend on options to hedge 
your positions.

How many troops will you send into battle?  How much money 
will you take to war?  Until you have a plan, the safest place 
for your money is in the bank or a money market fund.

You can have the most sophisticated equipment (or weapons), but 
if you don’t have a battle plan, you’re going to lose the war.

The British troops are home recruiting more soldiers 
(investors) for the next war.  They won’t admit they lost the 
last war – or that their tactics were wrong.  If they do, they 
won’t get new recruits to sacrifice.  Will they change their 
tactics?  Unlikely.  Will the results be different?  Not if 
they’re up against the same foe.

The investment battlefield is littered with millions of 
sacrificed investors who are lying there wounded, their financial 
lives slipping away, still hoping to be rescued by the British 
troops.  They shouldn’t hold their breath.

Have you won any battles lately?  Or have you been one of the 

It’s not too late.  You can still join the patriots and the 
fight to declare your financial independence.  Guerilla money 
managers are recruiting.  There’s no dress code.

Why did the U.S. lose the Viet Nam war?  Because guerilla 
tactics are almost impossible to defeat.   

Remember, it was the shrewd Sitting Bull that lured General 
Custer to the massacre at Little Big Horn.

They call them “history lessons” because you’re supposed to learn 
from them.

You can’t teach an old bull new tricks.  Unfortunately, there 
are a lot of bulls still out there – and ill prepared for battle.

You don’t have to fight your war standing in a field of cow 

Strategy Du Jour

From the Couch Potato Trading Institute, here is a variation 
of a popular option strategy that will allow you to watch all 35 
Law & Order  reruns every week and make very respectable money at 
the same time.

The bulk of your effort will be expended finding a volatile 
stock that is vacillating in a nice wide trading range.  That’s 
what commercials are for.

Let's take a favorite of mine, QLGC. It closed at $39.80.  
This stock has been all over the map and, let's be realistic, who 
the heck knows where it's going to go?  Not me.  However, I'd 
feel pretty sure that, come August option expiration, it will be 
somewhere between $30 and $50.

We're going to construct what is known as an "Iron Condor."  
It may sound like a rejected special effect from a Star Wars 
movie, but it can be quite useful.

An Iron Condor is really pretty simple.  It consists of 
establishing a bull put spread and a bear call spread on the same 
stock about a month out.  In this case, they will be well out of 
the money. For this example we'll use a 10 contract position.

In establishing the bull put spread we'll buy the August 
$25.00 put at $.85 and selling the August $30 put for $1.65.  We 
have just put $.80 ($800) in our pocket and have an exposure of 
$5.00 less the $.80 we took in.

Now we'll put on the bear call spread.  Based on some 
significant resistance, it seems highly unlikely that QLGC will 
finish over $50.  So we will buy the August $55 call for $.65 and 
sell the August $50 call for $1.20.  We've just put another $.55 
($550) in our pocket and we have an exposure of $5.00 less the 
$.55 we took in.

We've taken in a total of $1,350 ($800 + $550).  Our exposure 
is $3,650 ($5,000 less $1,350).  QLGC can bounce around to its 
heart's content in the established 20-point range between $30 and 
$50 while we watch TV and get a peaceful night's sleep.  The 
beauty of the Iron Condor is that, no matter how poor your stock 
selection may be, you can't be wrong in both directions.  

In our example, your broker will require you to keep in your 
account as maintenance the $5000 for the bull put spread and the 
$5,000 for the bear call spread.  Despite the fact that you can't 
be wrong in both directions, most brokerages don’t have software 
that will recognize the position as a whole.  Thus, in their 
eyes, each spread is dealt with independently.  Hopefully, some 
programmer will have a vision and come up with a solution. But 
until then . . .

The return on your risk is 36.98% ($1,350 divided by $3,650) 
for about six weeks, which should leave you more than 
satisfied -- and you don't have to pick a direction.  Ideally, 
all positions will expire worthless and the strategy will not 
require any closing commissions.

If the stock is acquired at some ridiculously high price or if 
the CEO gets caught with his hand in the till or his secretary, 
there is still a comfortable cushion.  If the stock violates one 
of the short strikes, you simply buy the stock to cover the short 
call or short the stock to cover the short put. That's probably 
an over simplification, but it is a viable solution to a worse 
case scenario.

The whole point of the Iron Condor is to make a healthy return 
while you munch on Doritos and watch Jerry Orbach and Sam 
Waterson put the bad guys in jail.

Now, what did I do with that damn remote control . . . . .?

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The Option Investor Newsletter                   Sunday 07-07-2002
Sunday                                                      5 of 5

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Options 101: Q&A On Institutional Trading Strategies
By Mark Wnetrzak

This week's question concerns the use of the covered-call
strategy by professional traders and fund managers.

Attn: Covered-Calls Editor
Subject: Mutual Funds Using Covered-Calls?


I just read an article about fund managers moving back into
stocks and it mentioned that some were using call options to
protect against further drops in share value.  I gather this
means they were selling covered-calls to hedge their stock
holdings.  I have heard of companies selling puts on their
own stocks but I did not know that mutual funds sold calls
on portfolio holdings.

Is this a common strategy or is it being used now because of
the current "bearish" market conditions?  Also, do they use
the same approach as you guys (front-month ITM options) or do
they have a different method for this strategy?



Regarding Institutional Investing Strategies:

Buying stock and writing covered-calls is a well-known hedge
strategy among institutional traders and mutual fund managers
because the risk/reward characteristics of that approach are
often better than owning the stock or speculating in options.
There are a number or reasons why professional investors use
the technique to achieve above-average returns in their stock
portfolios but the most common is the downside protection it
offers for long-term holdings.  Another motivation to write
"covered" calls against portfolio stocks comes from the fact
that in the past, options have historically been overpriced.
Whether due to supply and demand factors or simple speculation,
it has been common in recent years for traders to pay more for
call options than they are (theoretically) worth.  When options
are expensive, option writers benefit by receiving larger time
value premiums, and even a relatively small difference in an
option's premium can result in a significant increase in the
annual returns from this strategy.  A final reason that fund
managers favor covered-write positions is that the owner keeps
any stock dividends until the stock is assigned (via exercise).
Profits from regular dividends can increase the annual return
of the underlying stock position by as much as 5-8%.  For this
reason, hedge-fund managers try to sell options on stocks with
moderate to large cash dividends.  In some instances, the early
exercise of options (dividend-capturing strategy) will prevent
an investor from receiving this added premium, but the effect
can generally be offset by reinvesting the funds in another
profitable position.

The basic techniques that fund managers use when implementing
this strategy can be beneficial to retail investors as well.
One of the most common traits is selling short-term options to
obtain higher relative time values.  In most cases, longer-term
series have much less premium (proportionally) in the option's
price due to a smaller demand from traders.  Fund and pension
plan buyers usually select high quality "value" stocks and sell
in-the-money options for increased probability of assignment.
When compared to outright ownership, this method is similar to
"pre-selling" the issue at a profit.  Surprisingly, professional
investors also use the popular "buy-write" technique when placing
orders.  Designating the net cost of the combined position when
the order is placed eliminates price risk and affords the fund
manager with an opportunity to negotiate a favorable basis.  A
large (block) trader will often agree to these terms in order to
unload sizeable amounts of the stock with only a small premium
concession from the current market price.

We all know that institutional investors utilize only the most
successful long-term strategies to guarantee a consistent rate
of return.  Any method that produces less than favorable results
will inevitably lower their supply of funds, thus it is generally
avoided.  The covered-write strategy is commonly used because it
yields moderate (compounded) returns over a complete market cycle
while avoiding the potential of large portfolio losses.  Indeed,
it appears this technique may be the safest way to outperform all
but the most aggressive investing strategies, in the majority of
market conditions.

Trade Wisely!

Note:  Margin not used in calculations.

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

EXTR   10.09  10.01   JUL  10.00  1.00  *$  0.91  14.5%
REV     4.96   5.10   JUL   5.00  0.45  *$  0.49  11.8%
MCDT    8.90   9.24   JUL   7.50  1.75  *$  0.35   7.1%
HPLA   13.95  13.24   JUL  12.50  2.40  *$  0.95   6.0%
NCEN   31.85  31.93   JUL  30.00  3.40  *$  1.55   5.9%
COB     5.35   5.04   JUL   5.00  0.70  *$  0.35   5.5%
CANI   11.26  10.20   JUL  10.00  1.85  *$  0.59   4.5%
MCAF   14.26  15.16   JUL  12.50  2.25  *$  0.49   4.4%
QSFT   14.53  13.50   JUL  12.50  2.40  *$  0.37   4.4%
MCDT    8.99   9.24   JUL   7.50  1.90  *$  0.41   4.2%
MANH   32.16  29.04   JUL  30.00  3.20   $  0.08   0.4%
JBHT   31.05  28.76   JUL  30.00  2.15   $ -0.14   0.0%
IPXL    8.01   6.60   JUL   7.50  1.10   $ -0.31   0.0%
ABFS   25.48  23.58   JUL  25.00  1.45   $ -0.45   0.0%
FBR    12.73  11.00   JUL  12.50  0.75   $ -0.98   0.0%

ZIXI    5.48   5.01   AUG   5.00  1.20  *$  0.72  10.4%
DRIV    9.19   8.87   AUG   7.50  2.25  *$  0.56   5.0%

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


Ah, an over-sold, short-covering, terror-free July 4th, relief 
rally!  An excellent opportunity to re-evaluate the strength of
any positions you are holding.  As a defensive measure, we closed
a few positions this week and are still watching Revlon (NYSE:REV)
and J.B. Hunt Transport Services (NASDAQ:JBHT) as they both test
support areas.  We will also add these stocks to our early exit
watch-list: Carreker (NASDAQ:CANI) - testing support at $10;
Manhattan Associates (NASDAQ:MANH) - at a key moment; Impax
Laboratories (NASDAQ:IPXL) - no lower; Arkansas' Best (NASDAQ:
ABFS) - stay above those May and June lows; Friedman, Billings,
Ramsey (NYSE:FBR) - we got the expected pullback, will the rally
resume?  Investors with a long-term bullish outlook on these
issues may consider rolling-forward and/or down to lower the
overall cost basis in the underlying position.

Positions Closed: 



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

EMC     7.59  JUL  7.50   EMC GU  0.50 79081  7.09   14   12.6%
EXTR   10.01  JUL 10.00   EXJ GB  0.85 2663   9.16   14   19.9%
IVGN   31.30  JUL 27.50   IUV GY  4.60 39    26.70   14    6.5%
JDEC   12.65  JUL 12.50   QJD GV  0.85 429   11.80   14   12.9%
QSFT   13.50  JUL 12.50   QUD GV  1.50 343   12.00   14    9.1%
RIMM   13.35  JUL 10.00   RUL GB  3.80 172    9.55   14   10.2%
STAR   22.70  JUL 22.50   OUE GX  0.65 237   22.05   14    4.4%

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

EXTR   10.01  JUL 10.00   EXJ GB  0.85 2663   9.16   14   19.9%
JDEC   12.65  JUL 12.50   QJD GV  0.85 429   11.80   14   12.9%
EMC     7.59  JUL  7.50   EMC GU  0.50 79081  7.09   14   12.6%
RIMM   13.35  JUL 10.00   RUL GB  3.80 172    9.55   14   10.2%
QSFT   13.50  JUL 12.50   QUD GV  1.50 343   12.00   14    9.1%
IVGN   31.30  JUL 27.50   IUV GY  4.60 39    26.70   14    6.5%
STAR   22.70  JUL 22.50   OUE GX  0.65 237   22.05   14    4.4%

Company Descriptions

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

EMC - EMC Corporation  $7.59  *** Reader's Request ***

EMC (NYSE:EMC) designs, manufactures, markets and supports a wide
range of hardware and software products and provides services for
the storage, management, protection and sharing of electronic 
information.  These integrated solutions enable organizations to 
create an enterprise information infrastructure (E-Infostructure).
Information storage products consist of information storage systems
and information storage software sold to customers that use a 
variety of computing platforms for key applications, including
electronic commerce, data warehousing and transaction processing,
and information storage systems provides consulting, assessments,
implementations, integration, operations management, day-to-day 
support and maintenance to customers.  In September 2001, the 
company acquired Luminate Software Corporation, a privately held 
software company based in Redwood City, California.  In early June,
EMC reaffirmed its second quarter guidance and said it agrees with
analysts' expectations of a loss of 2 cents a share.  The company
also said it still expects single-digit revenue growth.  We simply
favor the recent move back above the 30-dma which increases the
probability of a favorable outcome in this short-term speculative
play.  Investors who like the fundamental outlook for EMC can use
this play to establish a reduced cost basis in the issue.

JUL 7.50 EMC GU LB=0.50 OI=79081 CB=7.09 DE=14 TY=12.6%

EXTR - Extreme Networks  $10.01  *** Change Of Character? ***

Extreme Networks (NASDAQ:EXTR) is a provider of network infra-
structure equipment for business applications and services.  The
company delivers high-performance application and services infra-
structure for enterprise, service provider and metropolitan area 
networks (MANs)-based on technology that combines high performance,
intelligence and a low cost of ownership.  The company's family of 
Summit stackable, BlackDiamond and Alpine chassis switches share
the same consistent hardware, software and management architecture,
enabling businesses to build a network infrastructure that is 
simple, easy to manage and scalable to meet the demands of growing 
businesses.  Investors appear to be relieved that Extreme will 
not issue a warning prior to the company's earnings report due on
July 17.  We favor the strong technical support area at $10 and
the move through the long-term downtrend line (two-year chart), 
which suggests a positive change of character.  

JUL 10.00 EXJ GB LB=0.85 OI=2663 CB=9.16 DE=14 TY=19.9%

IVGN - Invitrogen  $31.30  *** Positive Guidance ***

Invitrogen (NASDAQ:IVGN) develops, manufactures and markets more
than 10,000 products for the life sciences markets.  The company's
products are principally research tools in reagent and kit form,
biochemicals, sera, media, and other products and services, which
Invitrogen sells to corporate, academic and government entities. 
The company focuses its business on two principal segments, Cell
Culture Products and Molecular Biology Products.  Invitrogen 
rallied on Wednesday after the company reaffirmed its earnings 
outlook for the second quarter in line with analyst expectations.
The company said it expects to report second-quarter results at 
or above the upper end of its range, which was $160 million to 
$163 million in revenue and $0.44 to $0.46 per share, before the
cost related to the closing of a plant and other merger-related 
charges.  Reasonable short-term speculation for those who agree
with a bullish, long-term outlook on the company.

JUL 27.50 IUV GY LB=4.60 OI=39 CB=26.70 DE=14 TY=6.5%

JDEC - J.D. Edwards  $12.65  *** Bracing For A Rally? ***

J.D. Edwards (NASDAQ:JDEC) is a provider of agile, collaborative 
solutions for the connected economy.  The company delivers inte-
grated, collaborative software for supply chain management
(planning and execution) procurement and customer relationship
management, in addition to workforce management and other func-
tional support.  Customers can choose to operate its software on
a variety of computing environments, and the company supports 
several different databases.  J.D. Edwards distributes, implements
and supports its software worldwide through 55 offices and more 
than 350 third-party business partners.  J.D. Edwards has rallied
off the May low after a bullish earnings report.  With several 
new contracts and partnerships, as well as new products, investors
are anticipating the company's next earnings report due on July 24.
This position offers a conservative way to profit from the current
bullish momentum in the issue.

JUL 12.50 QJD GV LB=0.85 OI=429 CB=11.80 DE=14 TY=12.9%

QSFT - Quest Software  $13.50  *** Bottom-Fishing Again! ***

Quest Software (NASDAQ:QSFT) is a developer and vendor of applic-
ation and database management software products.  The company 
also provides support and maintenance services for its products,
as well as post-sale consulting services.  Quest's products improve
the quality of service provided by its customers' key software
applications.  The company's application management products 
support the packaged applications from many of vendors, including
SAP (NYSE:SAP), Siebel (NASDAQ:SEBL), PeopleSoft (NASDAQ:PSFT) and
Oracle (NASDAQ:ORCL).  Quest Software appears to have made a 
successful test of the September low as the company forges a Stage
I base.  This position offers reasonable short-term speculation on
a stock that is demonstrating increasing technical strength.

JUL 12.50 QUD GV LB=1.50 OI=343 CB=12.00 DE=14 TY=9.1%

RIMM - Research In Motion  $13.35 *** Earnings Rally! ***

Research In Motion (NASDAQ:RIMM) is a designer, manufacturer and
marketer of wireless solutions for the mobile communications market.
Through development and integration of hardware, software and 
services, RIM provides solutions for seamless access to time-
sensitive information including e-mail, messaging, Internet and 
intranet-based applications.  RIMM technology also enables a broad
array of third party developers and manufacturers in North America
and around the world to enhance their products and services with
wireless connectivity.  RIMM's portfolio of products includes the
RIM Wireless Handheld product line, the BlackBerry wireless e-mail
solution, embedded radio modems and software development tools.
RIMM rallied with heavy volume after the company reported smaller-
than-expected losses and higher-than-expected revenue.  The company
did cut its revenue targets for the year but still maintained their
earnings forecast ($0.30 to $0.45 loss).  Traders can speculate on
the near-term performance of RIMM with this conservative position.

JUL 10.00 RUL GB LB=3.80 OI=172 CB=9.55 DE=14 TY=10.2%

STAR - Lone Star  $22.70 * ** The Trend Is Your Friend! ***

Lone Star Steakhouse & Saloon (NASDAQ:STAR) owns and operates 249
mid-priced, full service, casual dining restaurants located in the
U.S., which operate under the trade name Lone Star Steakhouse & 
Saloon or Lone Star Cafe, and 20 upscale steakhouse restaurants, 
five operating as Del Frisco's Double Eagle Steak House restaurants
and 15 operating as Sullivan's Steakhouse restaurants.  In addition,
a licensee operates three Lone Star restaurants in California and a
licensee operates a Del Frisco's restaurant in Orlando, Florida. 
Internationally, the company operates 25 Lone Star Steakhouse & 
Saloon restaurants in Australia.  In addition, a licensee operates
a Lone Star Steakhouse & Saloon restaurant in Guam.  Lone Star 
beat estimates when it reported earnings in June and the company
recently said it plans to resume expanding its restaurant chains. 
Lone Star's price history reveals one of the better charts we've
seen in the broader-market groups and traders who want to diversify
their portfolio should consider this stock-option position.

JUL 22.50 OUE GX LB=0.65 OI=237 CB=22.05 DE=14 TY=4.4%



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

CREE   12.75  AUG 12.50   CVO HV  1.60 59    11.15   42    8.8%
MCAF   15.16  AUG 15.00   CFU HC  1.65 107   13.51   42    8.0%
AMLN   10.24  AUG 10.00   AQM HB  1.05 26     9.19   42    6.4%
NOK    14.90  AUG 15.00   NOK HC  1.20 2799  13.70   42    6.3%
QLGC   39.88  JUL 35.00   QLC GG  5.80 3424  34.08   14    5.9%
MERQ   25.72  JUL 22.50   RQB GX  3.70 1133  22.02   14    4.7%


Option Trading Basics: Exercise and Assignment - Part II
By Ray Cummins

Last week's narrative on option exercise and assignment produced
some very interesting E-mail replies and one of them is perfect
for today's discussion.

Attn: OIN Naked-Puts Editor
Re: Assignment Strategies

Hello Ray,

I am a little new to options so I read with interest your article
on assignment when selling puts.  I know that in most cases, there
is a small chance of early exercise when selling out-of-the-money
puts but I do become more concerned when the price of the stock
gets close to the option's strike price.  Another area I'm worried
about is what to do when an assignment occurs.  I know I can just
buy the stock with the money in my brokerage account but at that
point, I may not want to keep it.  What are some alternatives to
owning the stock after the sold option has been assigned?

Looking forward to your reply,


Hello GS,

The first thing you should understand is that the probability of
early assignment in positions where the share value is relatively
close to the sold options' strike price is almost nil.  In those
extreme cases where the stock falls substantially below the sold
option's strike price, early assignment occurs but only on rare
occasions.  In addition, the likelihood that it would be your
options (through random assignment) is very low and if there is
any time value (extrinsic premium) remaining in the position, the
probability is even lower because it is better (for the owner) to
sell the option rather than exercise it.  In those few instances
when you are assigned, it's very important to be notified by your
broker in a timely manner so that you can use the flexibility of
options to eliminate or offset the obligation without undue losses.
For most participants, early assignment is an acceptable risk in
derivatives trading.  Although it happens infrequently, there are
some potentially unpleasant outcomes -- just as with any trade that
does not go as planned.  The best solution to this problem is to
have a pre-determined exit strategy for every position in your
portfolio so when things do not progress as expected, the trades
involved in any adjustments will be much easier to execute.  Many
traders use spreads or combinations to offset specific risks (or
potential obligations) when a trade fails to perform as expected.
However, once an option has been assigned to an option writer (even
though he may not yet have been notified of the assignment), he can
no longer initiate a closing transaction in that option but must
instead buy or sell the underlying interest for the exercise price.

When your broker informs you of a Put option assignment, there are
a number of alternatives available.  The method you select will
depend on several factors including the current outlook for the
underlying issue and the amount of uncommitted funds you have
available to apply to future transactions.  The easiest course of
action is to buy the stock that has been assigned and retain it as
a portfolio holding.  The brokerage firm looks upon assignment in
the same manner as a pending stock purchase.  You have three days
before funds are required for the actual settlement, thus there is
ample time to study the situation and determine the appropriate
course of action.  If you choose to make an offsetting trade on the
day of assignment, there may be no need to allot additional funds
to purchase of the issue.  If you have to purchase the stock, you
may be able to sell it during a future rally or write covered-calls
on the issue until a break-even basis has been obtained.  There are
also recovery strategies such as using a covered write and a debit
spread, where the premium from the sold position is used to offset
the cost of the long call.  If you own the stock at a sizable loss
to the initial cost basis, another popular method is to "average"
down.  This technique involves adding new shares to your current
position at a lower price.  While averaging is an excellent way
to lower the break-even price in the issue, it also increases the
amount of money at risk in the position.

Another popular strategy is to simply sell the stock and write a
new option at the same strike price that you were originally short,
with a future expiration date.  This method is appropriate when a
trader believes the underlying stock will eventually rebound and
assuming there is additional extrinsic value in new position, the
transaction should produce a small profit.  If the value of the
underlying has dropped significantly below the strike price of the
assigned option, the writer may have to choose a position with a
distant expiration to recover the lost potential.  In this case,
the new options are often written at the next lower strike price,
and occasionally in greater quantity so as to generate a credit.
Using this recovery method, no debits are incurred but a realized
loss is taken in the short term.  If the stock price continues to
decline, the process is repeated.  Eventually, the issue should
stop falling and the last set of sold (short) options will expire
worthless.  At that time, the traders' overall profit will consist
of the sum of all the previous credits.  Obviously, the problem
with this technique is that the trader must have enough portfolio
collateral to stay with the strategy even if the issue continues
to decline.  A large portfolio is best for this type of recovery
because the collateral required for naked option writing may be in
the form of cash or securities and these holdings are not affected
unless there is a need for additional funds to close the position

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

CANI   11.50  10.20   JUL  10.00  0.35  *$  0.35  14.7%
CLHB   13.52  11.12   JUL  10.00  0.40  *$  0.40  14.0%
CANI   11.07  10.20   JUL  10.00  0.50  *$  0.50  11.3%
YHOO   15.49  13.62   JUL  12.50  0.30  *$  0.30   9.3%
ASYT   20.35  19.26   JUL  17.50  0.35  *$  0.35   9.0%
SIE    19.20  20.31   JUL  17.50  0.65  *$  0.65   8.5%
COCO   33.89  33.00   JUL  30.00  0.60  *$  0.60   8.5%
LNCR   30.71  31.86   JUL  27.50  0.70  *$  0.70   7.8%
FBR    10.65  11.00   JUL  10.00  0.35  *$  0.35   7.7%
CACI   36.51  38.01   JUL  32.50  0.80  *$  0.80   7.6%
SIE    22.35  20.31   JUL  20.00  0.35  *$  0.35   7.3%
APN    10.85  11.60   JUL  10.00  0.25  *$  0.25   7.3%
YELL   32.40  30.00   JUL  30.00  0.55   $  0.55   7.2%
MOVI   20.18  19.40   JUL  17.50  0.35  *$  0.35   6.6%
IBC    28.88  28.89   JUL  25.00  0.35  *$  0.35   6.3%
SWFT   21.50  21.95   JUL  20.00  0.55  *$  0.55   6.2%
SCIO   28.94  30.01   JUL  25.00  0.55  *$  0.55   5.8%
ATTC   31.25  31.65   JUL  30.00  0.80  *$  0.80   5.8%
SWFT   22.65  21.95   JUL  20.00  0.35  *$  0.35   5.6%
SKX    22.10  20.40   JUL  17.50  0.30  *$  0.30   5.5%
YCC    26.74  25.95   JUL  25.00  0.55  *$  0.55   5.0%
DG     18.50  19.39   JUL  17.50  0.30  *$  0.30   4.9%
JDAS   28.26  15.00   JUL  22.50  0.50   $ -3.00+  0.0%

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


Friday's bullish activity helped the majority of our positions
recover from the recent selling pressure and almost all of the
issues in the portfolio have returned to favorable valuations.
However, we experienced an unexpected surprise in JDA Software
(NASDAQ:JDAS); one that demonstrates the requirement to write
puts only on stocks you wouldn't mind owning.  JDA shares fell
44% to $15.10 Friday after the company said that second quarter
earnings would come in between $0.17 and $0.18 cents, versus a
forecast of $0.22.  The company cited "timing of several large
contracts" for the shortfall and expects second-quarter revenue
of $57 million, up 13%, but investors didn't like the news.  An
exit near the day's high ($19.40) would have limited the loss
to approximately $3, but that is no consolation to someone will
own the stock after the July expiration (or sooner).  The new
position in Talx (NASDAQ:TALX) was not opened as the company
said Monday morning that it is now under investigation by the
U.S. Securities and Exchange Commission.  Current issues on the
"early-exit" watch-list include Yankee Candle (NYSE:YCC), Yellow
Corporation (NASDAQ:YELL), Carreker (NASDAQ:CANI), Sierra Health
Services (NYSE:SIE), and Clean Harbors (NASDAQ:CLHB).


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

BCE    18.22  JUL 17.50   BCE SW  0.25 220   17.25   14    8.0%
CHBS   41.19  JUL 35.00   URH SG  0.35 32    34.65   14    7.1%
COCO   33.00  JUL 27.50   UCS SY  0.30 21    27.20   14    8.1%
CUM    31.86  JUL 30.00   CUM SF  0.45 2     29.55   14    8.6%
EXPD   32.17  JUL 30.00   URP SF  0.35 418   29.65   14    6.9%
FCN    33.30  JUL 30.00   FCN SF  0.35 222   29.65   14    7.3%
LNCR   31.86  JUL 30.00   LQN SF  0.55 853   29.45   14   10.5%
SLAB   26.80  JUL 22.50   QFJ SX  0.60 247   21.90   14   18.6%

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

SLAB   26.80  JUL 22.50   QFJ SX  0.60 247   21.90   14   18.6%
LNCR   31.86  JUL 30.00   LQN SF  0.55 853   29.45   14   10.5%
CUM    31.86  JUL 30.00   CUM SF  0.45 2     29.55   14    8.6%
COCO   33.00  JUL 27.50   UCS SY  0.30 21    27.20   14    8.1%
BCE    18.22  JUL 17.50   BCE SW  0.25 220   17.25   14    8.0%
FCN    33.30  JUL 30.00   FCN SF  0.35 222   29.65   14    7.3%
CHBS   41.19  JUL 35.00   URH SG  0.35 32    34.65   14    7.1%
EXPD   32.17  JUL 30.00   URP SF  0.35 418   29.65   14    6.9%

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).

BCE - BCE Inc.  $18.22  *** Bell Canada Deal! ***

BCE Incorporated (NYSE:BCE) is a Canadian communications company,
with more than 22 million customer connections through wireline,
wireless, data/Internet and satellite services it provides under
the Bell brand.  The company's activities are conducted through
Bell Canada (Canadian connectivity), Bell Globemedia (content),
Teleglobe (global connectivity), BCE Emergis (commerce) and BCE
Ventures (other BCE investments).  BCE has decided to exercise
its call options to boost its stake in a Bell Canada subsidiary
to 100% by buying SBC Communications' (NYSE:SBC) 20% stake.  The
move alleviates an overhang on the stock that investors wanted
removed and places BCE in a position to access to all of Bell
Canada's cash flow and earnings.  Apparently, most people are
happy with the news as the stock is a new upward trend and the
momentum should carry the issue back to a recent trading range
near $22-$23.

JUL 17.50 BCE SW LB=0.25 OI=220 CB=17.25 DE=14 TY=8.0%

CHBS - Christopher & Banks  $41.19  *** Retail Sector ***

Christopher & Banks Corporation (NASDAQ:CHBS), formerly Braun's
Fashions Corporation, is a retailer of women's specialty apparel,
which operates through its wholly owned subsidiary, Christopher
& Banks, Inc.  The company operates 310 stores in 29 states under
the names Christopher & Banks, Brauns and C.J. Banks, primarily
in the northern half of the United States.  The company's stores
offer coordinated assortments of exclusively designed sportswear,
sweaters and dresses.  Christopher & Banks said early last week
that sales at its stores open at least a year rose 13% in June,
helped by strong sales of pants and skirts.  Total sales for the
four weeks ended on June 29 rose 36% to $23.5 million from $17.3
million a year earlier and sales were robust in all categories.
The specialty retail sector generally performs well during the
summer months and a cost basis near $35 is not a bad price for
this issue.

JUL 35.00 URH SG LB=0.35 OI=32 CB=34.65 DE=14 TY=7.1%

COCO - Corinthian Colleges  $33.00  *** New High Coming? ***

Corinthian Colleges (NASDAQ:COCO) is a private, for-profit, post-
secondary education company, with thousands of students enrolled
in its programs.  The company currently operates 56 colleges in 20
states, including 17 in California and nine in Florida, and serves
the segment of the population seeking to acquire career-oriented
education.  The company offers a variety of master's, bachelor's
and associate's degrees and diploma programs through two operating
divisions.  The company's Corinthian Schools division operates 35
diploma-granting schools with programs primarily in the healthcare,
electronics and information technology fields, and seeks to provide
its students a solid base of training for a variety of entry-level
positions.  The company's Rhodes Colleges subsidiary operates 21
degree-granting colleges, and offers curricula principally in the
business, healthcare, information technology and criminal justice
areas.  COCO shares recently traded at an all-time high and despite
the slump in equity values, the bullish trend in the issue appears
likely to continue in the near term.

JUL 27.50 UCS SY LB=0.30 OI=21 CB=27.20 DE=14 TY=8.1%

CUM - Cummins  $31.86  *** Bottom-Fishing For Blue-Chips! ***

Cummins (NYSE:CUM) manufactures, distributes and services electric
power generation systems, engines and related products, including
fuel systems, controls, air handling, filtration, and emissions
solutions.  Cummins sells its many products to original equipment
manufacturers distributors and other customers worldwide.  Cummins
has manufacturing facilities worldwide, including major operations
in Europe, India, Mexico, China and Brazil.  The company has parts
distribution centers in Brazil, Mexico, Australia, Singapore, China,
India and Belgium are strategically located to supply service parts
to Cummins extensive customer base.  Cummins supports its customer
base with a significant global distribution system of more than 500
independent distributors and nearly 5,000 dealers in 131 countries.
The historical support level for this stock is at $30 and investors
who wouldn't mind owning shares of a blue-chip industrial company
should consider this "bottom-fishing" position.

JUL 30.00 CUM SF LB=0.45 OI=2 CB=29.55 DE=14 TY=8.6%

EXPD - Expeditors International  $32.17  *** Transport Sector ***

Expeditors International of Washington (NASDAQ:EXPD) is engaged
in the business of providing global logistics services.  The
company offers its customers a seamless international network
supporting the movement and strategic positioning of goods.  The
company's services include the consolidation or forwarding of air
and ocean freight.  In each U.S. office, and in many overseas
offices, the company acts as a customs broker.  The company also
provides additional services including distribution management,
vendor consolidation, cargo insurance, purchase order management
and customized logistics information.  The outlook for EXPID is
favorable due to expectations that its net revenue growth rate
will accelerate in the second quarter and for the year based on
stronger international freight flows.  Investors who agree that
the freight segment is one of the stronger groups in the market
can establish a conservative cost basis in the issue with this

JUL 30.00 URP SF LB=0.35 OI=418 CB=29.65 DE=14 TY=6.9%

FCN - FTI Consulting  $33.30  *** Information Provider! ***

FTI Consulting (NYSE:FCN) Inc. is a multi-disciplined consulting
firm with legal practices in the areas of financial restructuring,
litigation consulting and engineering and scientific investigation.
The company serves businesses, lenders, investors, insurers and
their legal counsel in adverse circumstances, such as class action
lawsuits, financial restructurings and bankruptcy proceedings and
accident investigations.  The company has organized its business
into three divisions.  The Financial Consulting division provides
expert testimony, cost benefit analysis, damage assessment, market
competition analysis and business valuations.  The Applied Sciences
division offers forensic engineering and scientific investigation
services.  The Litigation Consulting division advises clients in
all the phases of litigation, including discovery, jury selection,
trial preparation and the actual trial.  FTI Consulting is in a
unique "niche" industry and their services are a very necessary
requirement for big business in today's economy.  The long-term
bullish trend in its share value reflects that demand and traders
can speculate on its future performance in a conservative manner
with this position.

JUL 30.00 FCN SF LB=0.35 OI=222 CB=29.65 DE=14 TY=7.3%

LNCR - Lincare Holdings  $31.86  *** Healthcare Sector ***

Lincare Holdings (NASDAQ:LNCR), together with its subsidiaries, is
a provider of oxygen and various respiratory therapy services to
patients in the home.  The company's customers typically suffer
from chronic obstructive pulmonary disease, such as emphysema,
chronic bronchitis or asthma, and require supplemental oxygen or
other respiratory therapy services in order to alleviate the many
symptoms and discomfort of respiratory dysfunctions.  Besides being
a provider of oxygen and respiratory therapy services to patients
in the home, Lincare also provides a variety of infusion therapies
in certain geographic markets.  Lincare also supplies home medical
equipment, such as hospital beds, wheelchairs and other supplies
that may be required by patients.  CFSB and Legg Mason recently
upgraded Lincare and we think this company offers one of the best
opportunities in the healthcare sector.  The buying pressure near
$30 also suggests a relatively strong support area at our cost

JUL 30.00 LQN SF LB=0.55 OI=853 CB=29.45 DE=14 TY=10.5%

SLAB - Silicon Laboratories  $26.80  *** More Bottom-Fishing! ***

Silicon Laboratories (NASDAQ:SLAB) designs, manufactures and sells
proprietary high-performance mixed-signal integrated circuits (ICs)
for the wireless, wireline and optical communications industries.
Mixed-signal ICs are electronic components that convert real-world
analog signals, such as sound and radio waves, into digital signals
that electronic products can process.  The company's mixed-signal
design engineers use normal complementary metal oxide semiconductor
(CMOS) technology to create ICs that can reduce the cost, size and
system power requirements of devices that the company's customers
sell to their end user customers.  SLAB's expertise in analog CMOS
and mixed-signal IC design allows the company to develop products
rapidly, which enables the company's customers to improve their
time-to-market with end products that respond to consumer demand
in the communications industry.  We favor the recent trading range
bottom, which is slightly above our cost basis in this speculative

JUL 22.50 QFJ SX LB=0.60 OI=247 CB=21.90 DE=14 TY=18.6%



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

CHL    15.04  JUL 15.00   CHL SC  0.60 20    14.40   14   19.8%
CREE   12.75  AUG 10.00   CVO TB  0.70 281    9.30   42   15.6%
MCAF   15.16  AUG 12.50   CFU TV  0.65 10    11.85   42   11.6%
JPM    31.25  JUL 27.50   JPM SY  0.45 4966  27.05   14   10.6%
INTU   50.09  JUL 45.00   IQU SI  0.70 2707  44.30   14    9.7%
BBBY   37.70  JUL 35.00   BHQ SG  0.55 1724  34.45   14    9.2%
ENTG   15.05  AUG 12.50   UFN TV  0.50 2     12.00   42    9.1%
DG     18.90  AUG 17.50    DG TW  0.45 2207  17.05   42    4.9%


July 5, 2002

Stocks soared Friday in an abbreviated, post-holiday session as
investors shopped for bargains in the downtrodden technology

The Dow Jones Industrial Average enjoyed its largest point gain
of the year, rocketing 324 points to 9,379 on strength in its
hi-tech heavyweights.  The NASDAQ Composite jumped 68 points to
1,448 on gains in bellwethers like Sun Microsystems (NASDAQ:SUNW)
Oracle (NASDAQ:ORCL) and Intel (NASDAQ:INTC).  In the broader
markets, almost every major sector moved higher with only gold,
utilities and some safe-haven groups enduring a downward bias.
The S&P 500-stock index closed up 35 points at 989.  Advancers
outpaced gainers on the NYSE by 4 to 1 on modest volume of 701
million shares.  The technology exchange enjoyed similar bullish
breadth as winners outpaced losers 3 to 1 on trading volume of
1.1 billion shares.  The bond market was week in the wake of the
recovery in equities.  The benchmark 10-year note dropped 10/32
to 100 18/32, with its yield at 4.80%, up 4 basis points from a
seven-month low.

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

Aventis   (NYSE:AVE)   JUL60P/JUL65P  $0.65  credit  bull-put
eBay      (NSDQ:EBAY)  JUL50P/JUL55P  $0.70  credit  bull-put
J.Jill    (NSDQ:JILL)  JUL20P/JUL23P  $0.30  credit  bull-put
Temple    (NYSE:TIN)   JUL50P/JUL55P  $0.45  credit  bull-put
XL Cptl.  (NYSE:XL)    JUL95C/JUL90C  $0.40  credit  bear-call
Caci Int. (NSDQ:CACI)  AUG42C/JUL42C  $0.75  debit   calendar
Alliant   (NYSE:ATK)   AUG50P/AUG75C  $0.10  debit   synthetic
Cognizant (NSDQ:CTSH)  JUL60C/JUL47P  $0.10  debit   synthetic

The bearish market movement early in the week made it easy to
achieve the target entry prices in most of the new combination
plays.  However, the continued decline in equity values placed
those same positions in jeopardy near Wednesday's closing bell
and there was some concern as to whether we would ever get the
recovery rally that analysts had been predicting over the past
few sessions.  Luckily, Friday's surprise buying spree provided
the much-anticipated upward momentum and it appears that most
of our bullish plays are "out of the woods" for the moment.  Of
course, that also means the synthetic short position in Alliant
Tech Systems (NYSE:ATK) has likely achieved its maximum profit
($0.40) in the near term and should be monitored for early exit.

Portfolio Activity

The beautiful arctic wilderness combined with some unusually warm
weather to produce an excellent Fourth of July holiday in my home
state of Alaska.  With the wonderful conditions outdoors it was
difficult to focus on the financial markets and I must admit, I
did very little stock-watching this week.  Fortunately, Friday's
rally brought the majority of bullish positions in our portfolio
back into positive territory and much of the evidence suggests
the bullish trend will continue in the near-term.  Among the most
productive positions in the portfolio were the synthetic plays in
Qlogic (NASDAQ:QLGC) and KLA-Tencor (NASDAQ:KLAC), both of which
provided outstanding short-term profits for speculative traders.
Another laudable position in that category was the covered-put
combination on Oracle (NASDAQ:ORCL) as the "bottom-fishing" play
has already yielded a favorable early-exit gain.  In the straddle
section, Sei Investments Company (NASDAQ:SEIC) easily reached the
downside break-even point (the value of the SEP-$30 Put paid for
the entire play) and also provided a small profit in the overall
position.  Among the bearish spreads, two issues warranted early
exits (or adjustments): United Technologies (NYSE:UTX) and 3M
Company (NYSE:MMM).  In both cases, we chose to roll forward and
up to August options.  With UTX, we were able to maintain a $0.55
credit in the new spread (AUG80C/75C) but the sharp rally in MMM
forced us to transition to the AUG145C/140C spread, where only a
break-even adjustment ($0.00 credit in the new position) could be
achieved.  Of the remaining (July expiration) spreads, Autozone
(NYSE:AZO), Ambac Financial (NYSE:ABK), HCA Inc. (NYSE:HCA), and
Oxford Health Plans (NYSE:OHP) appear to be recovering but all of
these stocks should be thoroughly evaluated and their respective
positions adjusted (or closed), based on your near-term outlook
for the underlying issue.

Questions & comments on spreads/combos to Contact Support
                           - NEW PLAYS -
CTX - Centex  $56.88  *** Reader's Request! ***

Centex Corporation (NYSE:CTX) is a multi-industry company with
operations in six primary business segments.  Conventional Homes
operations involve the construction and sale of single-family
homes, town homes and low-rise condominiums, and the purchase
and development of land.  Investment Real Estate operations
involve the acquisition, development and sale of land, and the
development of industrial, office, retail and mixed-use projects.
Financial Services operations involve the financing of homes,
home equity and sub-prime lending, and the sale of insurance
coverages.  Construction Products involves cement production and
distribution, and the production, distribution and sale of gypsum
wallboard, ready-mix concrete, aggregates and recycled paperboard.
Contracting and Construction Services involves the construction
of buildings.  Centex HomeTeam Services is involved in pest and
termite control, lawn and landscape care, electronic security,
alarm monitoring and home wiring services.

One of our readers noted that we have offered very few "premium
selling" positions in our portfolio during the past month, so
we decided to scan the market for issues that favor the credit
strangle.  Centex emerged on a list of relatively stable stocks
with robust option premiums and based on the current technical
outlook, the issue qualifies as a potential candidate for that
technique.  The company's quarterly earnings are due on July 17
and the profit results are expected to be in-line with current 
estimates.  However, news and market sentiment will certainly
have an effect on the company's share value so review the issue
thoroughly and make your own decision about the future outcome
of the position.

PLAY (speculative - neutral/credit strangle):

SELL CALL  AUG-65  CTX-HM  OI=164  B=$0.70
SELL PUT   AUG-45  CTX-TI  OI=50   B=$0.60
UPSIDE B/E=$66.35 DOWNSIDE B/E=$43.65

SYMC - Symantec  $34.48  *** Premium Selling! ***

Symantec (NASDAQ:SYMC) 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, vulnerability management, intrusion detection,
remote management technologies and security services to various
consumer groups and enterprises around the world.  The company
currently views its business in five primary operating segments:
Consumer Products, Enterprise Security, Administration, Services
and Other.  Symantec's quarterly earnings are due on July 17.

Symantec is another issue that surfaced on the list of potential
short-strangle candidates and traders who employ premium-selling
strategies can use the recent volatility and the robust option
premiums to initiate a neutral-outlook position with a favorable
credit.  The probability of the share value reaching our sold
strikes is rather low, but there is always the possibility of a
break-out from the recent trading range, so monitor the issue
daily for changes in technical or fundamental character.

PLAY (speculative - neutral/credit strangle):

SELL CALL  AUG-45  SYQ-HI  OI=12   B=$0.75
SELL PUT   AUG-25  SYQ-TE  OI=361  B=$0.40
UPSIDE B/E=$46.20 DOWNSIDE B/E=$23.80

                      - SYNTHETIC POSITIONS -
HOV - Hovnanian Enterprises  $35.00  *** Strong Sector! ***

Hovnanian Enterprises (NYSE:HOV) designs, constructs and markets
single-family detached homes and attached condominium apartments
and townhouses in residential developments in the Northeast U.S.,
North Carolina, Metropolitan Washington D.C., southern California,
Texas and the Mid South.  The company markets its unique homes to
first-time buyers, first-time and second-time move-up buyers,
luxury buyers, active adult buyers and empty nesters.  Hovnanian
Enterprises offers a variety of homestyles in the United States
at prices ranging from $43,000 to $950,000 with an average sales
price of $255,000, based on fiscal 2001 prices.  The company has
homes for sale in over 170 communities and since the opening of
its predecessor company in 1959, the company has delivered over
100,000 homes.  The company also provides a number of financial
services such as mortgages and title insurance to its customers.

The residential construction sector has performed very well in
recent months and the share value of Hovnanian Enterprises is a
testimony to that trend.  The price of the issue has more than
tripled since December of 2001 and there are no signs of an end
to the upside activity in the near-term.  Traders who agree with
a bullish outlook for the stock and its industry group can attempt
to profit from further upward movement in HOV's share value with
this speculative position.
PLAY (speculative - bullish/synthetic position):

BUY  CALL  AUG-40  HOV-HH  OI=93   A=$0.80
SELL PUT   AUG-30  HOV-TF  OI=232  B=$0.85

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $985 per contract.

TOT - TOTAL Fina Elf  $81.50  *** New All-Time High! ***

TOTAL Fina Elf (NYSE:TOT) is engaged in all aspects of petroleum
industry, including upstream operations (oil and gas exploration,
development and production); downstream operations (refining and
marketing); and the trading and shipping of crude and petroleum
products.  TOTAL also produces Petrochemicals and plastics, as
well as intermediates and performances polymers and specialties
for industrial and consumer use.  In addition, the company has
interests in coal mining and in the nuclear power, cogeneration
and electricity sectors.

Shares of TOTAL Fina Elf soared Friday on news of the Norwegian
government's approval for the company develop the Skirne and
Byggve natural gas and condensate fields in the southern central
region of the North Sea.  TFE plans to start production in that
area by the end of 2003, yielding 34,000 barrels of oil a day in
2004.  The news comes on the heels of a favorable announcement
concerning a large natural gas field in Russia 's Barents Sea,
which is in the early stages or development by a new consortium
involving TFE.  Studies suggest the Shtokmanov field could hold
up to 100 trillion cubic feet of natural gas and TOTAL Fina Elf
hopes to have a 25% interest in the group formed to develop the

Investors are optimistic about the company's future and on Friday,
they helped TOT's share value rally to an all-time high near $82.
With any luck, there will be a brief consolidation in the issue
allowing traders to initiate a speculative (bullish) position at
an acceptable price.  Target a small debit (or even a credit) in
the play initially, to allow for a pullback in the price of the
underlying stock.

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  AUG-85  TOT-HQ  OI=0     A=$1.40
SELL PUT   AUG-75  TOT-TO  OI=1081  B=$0.90

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $2,700 per contract.

                        - CREDIT SPREADS -
BBBY - Bed Bath & Beyond  $37.70  *** Positive Outlook! ***

Bed Bath & Beyond (NASDAQ:BBBY) is a nationwide operator of retail
"superstores" selling primarily high quality domestics merchandise
and home furnishings.  The company offers a large assortment of
merchandise at everyday low prices that are substantially below
regular department store prices and generally comparable to or
below department store sale prices.  The company's merchandise in
the domestics category includes items such as bed linens, bath
accessories and kitchen textiles, and its home furnishings line
includes items such as cookware, dinnerware, glassware and basic
house-wares.  The company currently operates over 300 stores in 43

Last week, Standard & Poor's said it had revised its outlook on
Bed Bath & Beyond to "positive" from "stable" due to the company's
consistent operating performance, continuing profitability, and
moderate debt leverage.  The rating company also affirmed its
triple-'B'-minus corporate credit rating on BBBY, reflecting its
leadership position in the highly competitive home furnishings
industry, successful merchandising strategy, and strong financial
profile.  Despite a backdrop of slowing consumer spending, BBBY
continued to report strong sales and earnings growth throughout
2001 and the first quarter of 2002.  The company has historically
achieved high sales and earnings increases through the organic
growth of its store base and consistently outperformed its retail
sector competition.  Its successful merchandising strategy and
decentralized management structure have enabled BBBY to generate
above-average operating margins of close to 20% and strong return
on capital measures of above 20% during the last three years.

Bed Bath & Beyond's fundamental outlook is solid and the recent
technical indications suggest the issue is poised for future
gains.  Traders can profit from that outcome with this position.

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JUL-32.50  BHQ-SZ  OI=1135  A=$0.20
SELL PUT  JUL-35.00  BHQ-SG  OI=1724  B=$0.55

INTU - Intuit  $50.09  *** The Rally Continues! ***

Intuit (NASDAQ:INTU) is a leading provider of small business,
tax preparation and personal finance software products and
Web-based services that simplify complex financial tasks for
consumers, small businesses and accounting professionals.  The
company's principal products and services include Quicken,
QuickBooks, Quicken TurboTax, ProSeries, Lacerte and Quicken
Loans.  Intuit offers products and services in five principal
business divisions, which include Small Business, Tax, Personal
Finance, Quicken Loans and Global Business.

Shares on Intuit have been on a roller-coaster ride in recent
sessions after Morgan Stanley analysts lowered the company's
earnings estimates while Jeffries & Co. upgraded the issue on
strong potential growth.  To make the outlook clearer, Intuit
raised future earnings guidance on its own after announcing
the acquisition of Eclipse, a provider of business management
software for wholesale durable goods distributors.  Intuit says
Eclipse will contribute between $40 million and $50 million in
revenue in fiscal year 2003 and as a result of the acquisition,
Intuit raised the upper end of its revenue guidance for fiscal
year 2003 to $1.75 billion.  Intuit also noted that pro forma
operating income could reach as high as $410 million, compared
to prior guidance of $405 million.  Apparently, investors were
happy with the new deal because on Friday, they drove the stock
to an 18-month high on heavy-volume.

Traders who believe the up-trend will continue can profit from
that outcome with this conservative combination position.

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-40  IQU-SH  OI=3428  A=$0.25
SELL PUT  JUL-45  IQU-SI  OI=2707  B=$0.70

WFT - Weatherford  $43.87  *** Technicals Only! ***

Weatherford International (NYSE:WFT) is a provider of equipment
and services used for the drilling, completion and production of
oil and natural gas wells.  The company conducts operations in
approximately 100 countries and has approximately 485 service and
sales locations, which are located in nearly all of the oil and
natural gas producing regions in the world.  The company's oil
equipment business is divided into three principal operating
divisions.  The Drilling and Intervention Services Division
provides drilling systems, well installation services, cementing
products and under-balanced drilling.  The Completion Systems
Division provides a full range of completion products and oil
transport services.  The Artificial Lift Systems Division is the
only organization in the world that is able to provide all forms
of artificial lift used primarily for the production of oil.  It
also provides production optimization services and automation and
monitoring of well head production.  The company's quarterly
earnings are due July 22.

From a technical viewpoint, Weatherford has once again made a
futile attempt to move above $52 and the recent slump below its
long-term moving average (150-dma) suggests further downside
movement in the near-term.  From a historic perspective, moving
below September-May trend-line was a negative indication and
the decline below the April and June lows creates a formidable
resistance area near $45.  A nearly complete "head-n-shoulder"
formation is also looming in the distance.

PLAY (very conservative - bearish/credit spread):

BUY  CALL  AUG-55  WFT-HK  OI=447   A=$0.20
SELL CALL  AUG-50  WFT-HJ  OI=1781  B=$0.70

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The shorts are still working with two more triggered Friday.  
We’re trying it again with this Nasdaq favorite.

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


More movement to report from Friday’s session.  Unfortunately, 
most of it was to the downside.

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


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