Option Investor

Daily Newsletter, Wednesday, 07/17/2002

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The Option Investor Newsletter                Wednesday 07-17-2002
Copyright 2002, All rights reserved.                        1 of 2
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MARKET WRAP  (view in courier font for table alignment)
07-17-2002        High      Low             Volume Advance/Decl
DJIA     8542.48 + 69.37  8723.37  8452.76 2243 mln   1760/1364
NASDAQ   1397.25 + 21.99  1426.28  1370.21 1942 mln   1873/1467
S&P 100   453.68 +  4.87   463.50   447.46   totals   3633/2831
S&P 500   906.04 +  0.00   926.53   895.03
RUS 2000  406.69 +  2.42   415.26   402.06
DJ TRANS 5411.76 – 22.34  2491.33  2377.93
VIX        39.80 +  0.28    42.14    38.94
VIXN       63.23 -  2.01    66.04    63.16
Put/Call Ratio      0.82 

Pick A Number

All eyes were on the IBM earnings announcement after the close 
today and Big Blue did not disappoint -- if you were looking to 
play a shell game of hide the real earnings number.  While the 
official spin from IBM was that Q2 numbers beat by a penny, with 
84 cents over estimates of 83 cents, GAAP numbers were only 3 
cents a share.  Wall Street had already been expecting a ton of 
"one time" charges from IBM but the range was from 2.0 to 3.0 
billion.  The current number they are quoting is a $2.1 billion 
in one time pre-tax charges due to job cuts, restructuring and the 
sale of its hard-disk business, which it hasn't sold yet.  
Company management tried to spin the numbers with earnings of 
$1.45B and said the real number investors should be looking at is 
89 cents a share excluding "all" charges.

Analysts had been looking for revenues to come in around $19.4B 
and IBM turned in almost $20B, but this is down 6% from the year 
before.  It was interesting to note that IBM's CFO said, "We 
continue to improve our position in the industry for when demand 
picks up."  Ah... for when demand picks up, so there isn't any 
pick up yet but when it happens they'll be ready.  They didn't 
specify which industry they'd be ready for but sales in Big 
Blue's hardware division were down 16% from last year.  Even 
their massive services division was down 1% from Q2 2001.  
Initial investor reaction was actually positive as IBM traded up 
over $2 in after hours.  However, in today's OptionInvestor.com 
Market Monitor, Jim had some excellent insights into the usual 
IBM shenanigans that will likely come to light as analysts 
dissect the earnings report.  

Traditionally, IBM has been able to manage earnings with massive 
stock buyback programs.  Simply put, if revenues aren't going to 
meet the earnings per share estimates, then reduce the number of 
shares outstanding to make them look better.  According to notes 
in the earnings release, IBM bought back $1.8B in stock last 
quarter, which is about 25 million shares.  This was enough that 
it could have given the company a 2 to 4 cent edge on the EPS 
outcome.  In addition to the buybacks the write offs dropped the 
company into the next lower tax bracket from 28.9% to 25.3%.  
This alone was worth an extra $52 million in "profits", which 
comes awfully close to the $56 million IBM said their total 
operations churned out in net profits for the quarter (after 
charges).  Whether Wall Street believes the 84 cents, 89 cents or 
3 cents results, it looks like you can pick a number because 
they're all going to be judged with a callous eye.     

While the markets waited to hear from International Business 
Machinations, I mean Machines, it was another volatile session 
for traders.  The futures were positive ahead of the opening bell 
due to stronger than expected earnings numbers from a few DJIA 
components.  Unfortunately the rally failed just as it begun.  
The Dow popped up to 8723 or +250 points before immediately 
succumbing to a slow and steady drift downward.  By 1:00PM, the 
index had reached its lows for the day at 8452 and merely bounced 
around the afternoon but ended positive by the close.  This broke 
a seven-day losing streak for the Industrials but it wasn't a 
very convincing performance for anyone still wishing to invest 
new money.  The Nasdaq Composite offered similar action for 
traders with a big gap up at the open to 1426 or +50 points 
before sliding into lunchtime.  Traders must have been cautious 
with Greenspan speaking for a second day on Capital Hill.  Alan 
came across as optimistic and voiced his opinion that the long-
term outlook for the economy is the best he's ever seen it.  Too 
bad investors we're willing to commit any cash on Alan's 

What seems like the first time in a long time, the market 
internals were positive.  Advancing issues out paced decliners on 
both the NYSE (17 to 13) and the Nasdaq (18 to 14).  52-week 
highs versus 52-week lows were 26 to 109 on the NYSE and 52 to 
111 on the Nasdaq.  Volume was strong with 2.2B for the NYSE and 
1.9B on the Naz.

Chart of the Dow Jones Industrials


Chart of the Nasdaq


Yesterday evening, no one knew how Wall Street would eventually 
interpret Intel's earnings report.  Considering the open this 
morning, it looks like everyone just turned their head and 
pretended not to notice.  A similar reaction to IBM's numbers 
would help but if brokerage houses start coming out with negative 
remarks it could have the major indices aiming for Monday's low 
again.  The 8900 to 9000 level, which currently coincides with 
the top of the Dow's descending channel, could be a tough hurdle 
to overcome.  On the other hand, the Nasdaq is trying really hard 
to break through short-term resistance at 1400 (to 1450).  As we 
mentioned last night and again this morning in the intraday 
updates, the Nasdaq 100 bullish percent has actually moved into 
bull confirmed status.  This internal reading on the index is 
projecting a bullish posture and bears should become more 
conservative and act quicker to cover shorts if they move against 
them.  Of course that is a "should" and not a "will" and they 
still have the S&P 500 in a bear confirmed status to give them 
moral support.  

Plus, there are still a lot of earnings reports yet to be seen 
and heard and odds are skyrocketing that Wall Street will have to 
revise their estimates for the second half of 2002 lower again.  
Looking again at the Nasdaq composite traders will notice that 
the top of the longer-term descending channel from January is 
currently near 1550.  That would be a 16% rally from the bottom 
on Monday (7/15/02) and you can bet bears will be lining up to 
short anything with four-letter symbols should this occur.

News of Note

Contributing to the positive open this morning for the DJIA were 
a couple of Dow components announcing Q2 numbers.  Boeing (BA) 
flew past estimates of 80 cents with earnings of 92 cents(a) but 
lower than the 95 cents from the prior year.  The number one 
soft-drink manufacturer, Coca-Cola (KO), popped over the prior 
year numbers of 47 cents and met estimates of 52 cents a share.  
Financial behemoth, Citigroup Inc (C), cashed in with 78 cents a 
share versus estimates of 77 cents.  Also beating estimates was 
conglomerate United Technologies (UTX).  Earnings were $1.23, 
which beat estimates by three cents.

Not contributing to the rally were JPM and HON.  J.P. Morgan 
Chase missed Q2 estimates of 65 cents with results of $0.58 a 
share.  Honeywell met estimates due to cost cutting but then 
revised their guidance lower and announced additional job cuts.

Of note in the hardware sector was Apple Computer (AAPL).  Shares 
gapped down this morning and ended the day -12.4% after 
announcing that quarterly profits had fallen by almost 50%.  The 
company also lowered guidance going forward despite revealing new 
products at the Macworld trade show.

Beating Lowered Estimates

If you happened to catch Jim Jubak's spot on CNBC tonight, I 
thought he made an interesting point.  It's no secret that 
analysts have lowered the earnings bar so low that even the slow 
down in the economy's comeback will not stop many companies from 
meeting or beating the consensus estimates.  Jim pointed out that 
as of July 2001 analysts were projecting a 113% increase in 
earnings gains in Q2 2002 for technology stocks.  As of April of 
this year, that estimate had dropped to a more modest 38% gain in 
earnings.  According to his numbers that estimate had fallen to 
just +4% heading into this week.  More importantly, Jubak felt 
that analysts' estimates for the third and fourth quarters of 
2002 were still too high and he believes we'll see a rash of 
revisions after the Street digests the Q2 numbers.  

He might be right.  The economy is expanding but it's not 
expanding as fast as projected last fall and Q1 of this year.  In 
the last few months we have all but shot down a second half 
recovery for I.T. spending and we're seeing a slowdown in the 
growth across the rest of the economy as well.  It's still growth 
and that's the good news but the current expansion is not going 
to fuel current earnings estimates.  While Jubak didn't mention 
it in his report the mid-August deadline for the top 1000 
companies to turn in revised or "CEO-approved" financials could 
prompt an even quicker move by Wall Street to realign their 
expectations with reality.  


It would be a strange twist indeed if Intel and IBM, two 
companies we expected to tank the markets with foul earnings 
news, fail to exact a response from investors and kick-start 
another shot at the much talked about capitulation event.  But 
instead of Intel and IBM it turns out to be MSFT that does the 
dirty deed?  The software giant announces earnings after the 
close on Thursday and the current expectation is that MSFT meets 
or beats estimates, especially with the possibility of increased 
sales as corporations rush to purchase software before MSFT moves 
to its leased-application revenue model.  The challenge then 
becomes what does MSFT say in their conference call.  It is 
tradition that MSFT downplays their numbers for the next quarter 
so we have to expect the same sort of rhetoric tomorrow.  
However, it may come down to just how badly do they down play the 
current quarter's and end of year projections? 

Short-term the markets are poised for a rebound and a bullish 
report by MSFT could be just the trick.  However, traders need to 
be careful.  If you're long, tighten stops as we approach 
resistance and if you're not, then start picking out what you'd 
like to short when we get there. 

While we wait for MSFT's earnings it looks like tomorrow could be 
another down day.  IBM's after hours gains have fallen from +2.00 
to just 30 cents and the futures are down.  Maybe a nice double 
bottom at 8235 will be just the entry point bulls' need for a 
quick trade.  



by Leigh Stevens

The something new was that the substantial rally off the recent 
low in the tech laden Nasdaq, did not fall apart. And Nasdaq is 
even leading the S&P/NYSE market higher - wonder of wonders! The 
something blue is tonight's focus on "Big Blue" IBM.  Trying to 
analyze their complex report with the restructuring charges and 
all the wrinkles - well, the nuts and bolts accounting types had 
a lot to figure out! It seemed that the company met or beat (ever 
so slightly) revenue and earnings projections.  In after hours 
trading the stock was up substantially at one point - to around 
$73, after closing at 70.69. Stay tuned.  

Technically, IBM is looking like it might yet have another shot 
down toward the $60 area, to a "final" bottom - it will take a 
weekly close above 73.50 to "confirm" an upside reversal.  After 
this flurry, the stock may just start drifting sideways to lower 
again. We'll see! It takes more than short-covering to KEEP them 

The media pundits are going to note that the Dow - always this 
"funny" little average - broke a 7-day losing streak with help 
from Intel, Boeing, United Tech, and Phillip Morris - Dow stocks 
that were all up 4% or more today. 

Since the Dow average came so close to its September intraday low 
and rebounded so strongly, we're seeing some decent follow 
through and a continued firm market tone. If you look at the 
market sectors, as I've been saying for some time in my Sector 
Trader commentary, its obvious that fund managers are selling off 
the former favorites that ran up in the first half and putting 
the money to work in the oversold sectors - what was most 
oversold? - the former tech fallen angels.  

The Dow could also but in a weekly "key reversal" - a substantial 
new low, followed by a close above the prior week - however this 
is speculation cause it ain't happened YET - the Dow has to 
manage to close this week above 8542 and we have options 
expiration, Microsoft (earnings) and two days to go!

The Dow average, which was leading the market down on heavy 
volume - in a switch, Nasdaq held up the best! - rebounded on a 
positive pre-announcement by Kodak (EK - +11%). A climb in tech 
bellwether Intel (INTC) also helped considerably (+8.5%). There 
were rumors that the company would make a positive announcement, 
such as one raising their guidance on earnings - like many, if 
not most, of these floor rumors, it was unfounded at least as of 
this writing.  

My suggested stop at 449.50 was a good guess for the approximate 
low as it turned out. Those with long call positions, at 455 or 
under or at whatever price you are in at - a suggested exit point 
is at 455, just below some near-support. The Omarket should keep 
going or the rally gets a bit suspect.  

There is plenty of "room" on the upside in terms of the broad 
hourly channel as seen above. The move to a new low, followed by 
an upside reversal on good volume is suggesting that the rally 
will carry further.  However, if the OEX gets up to resistance 
that starts around 480 up to 483, AND whenever the longer hourly 
stochastic gets up to an overbought reading again - take any call 
profits and RUN!   

S&P 100 (OEX) Index - Daily/Hourly charts:

 S&P 500 (SPX) Index - Hourly chart:
There is a lot of technical resistance overhead in the 465-466 
area in the OEX as suggested by the prior rally highs and implied 
by the top of the first downtrend channel.  Next resistance is 
well above this area, at the pivotal 21-day moving average (484). 

Call purchases look attractive if the prior low is successfully 
retested and the hourly stochastics again both get oversold.  Put 
plays look very attractive if OEX rallies 10-12 points from 
closing levels. A close above 470 is an exit point in case the 
market ever has a "buying panic" and changes its spots 
completely. 480-483 is my next area of active selling interest. 

S&P 5100 (SPXOEX) Index - Hourly chart:


931-934 looks like the area to sell SPX and 876-880, if reached 
again, an area to buy.  In between, I don't envision doing 
anything as far as new trades - I don't like the risk to reward 

I had my ONE lower hourly channel line, which is a line parallel to 
the upper trendline, drawn though the most number of lows rather than 
the absolute lowest low - WRONG! - sometimes this technique is what 
"works" EXCEPT when the market gets real extreme in a move. If so, you 
want the lower boundary line touching the LOWEST most extreme low, which 
offered the best outcome here. "Pulling" the lower parallel trendline 
down to the prior "extreme" low at 982 - the one that "stuck out" as a 
kind of "panic" low - then intersected the area of the lows today. 

Sometimes, for comparison, I will draw two trendlines 
(forming a buy/sell "zone") on one end or the other of my channels, 
which is again the case in the way I have the SPX chart above. 

I suggested the 916 area - stop at 912 - as the potential buy area for 
SPX in last night's commentary. However, it is often the case that an 
index gets somehow "pulled" to the even 100/1000 levels as if by a 
magnet - this concept worked well today as SPX got within a hair's 
breadth of 900!

Dow Index (1/100: $DJX.X) - Daily/Hourly charts:


I will be looking to sell DJX in the 87.2 to 88.9 area. It has 
immediate overhead resistance implied by the minor downtrend in 
the 86.7 area.  A move above there and rally failure at today's 
87.2 high would suggest a bearish play - or, above this high at 
the next one up.  Stay tuned!

84 looks like possible near-term support, however, do not favor 
new positions on the long/call side unless DJX gets to an extreme 
again, such as by re-testing its low in the 82.5 area and again 
was registering an oversold extreme on both hourly stochastics.  

My strategy has been and continues to be to wait for the periodic 
extremes that occur when prices get to the top or bottom of the 
trend channels and the like. These points offer the high 
potential trades, especially given the high premiums stemming 
from high current volatility.    


What has kept me bullish or at least tempered my bearishness lately 
is by taking a "bottoms up" approach of always staying focused on 
"key" Nasdaq stocks, at least on a technical basis.  

MSFT (Microsoft) - got back to its 50-day moving average today at 
52.92 - now MSFT needs a close above this level and then above 55.5 
to get something going to the upside.  Thing the stock is forming a 
bottom, so my best guess on upcoming earnings is that they will be 
perceived as at least "OK", if not bullishly. 

INTC (Intel) - Minor upside reversal today - needs follow through 
to above resistance in the 18.8 to 19.5 price zone. 

CSCO (Cisco systems) - Also had minor upside reversal today - key 
overhead resistance now looks like 14.3, then 14.9. 

QCOM (Qualcomm) - Marking time. Could be bottoming, but stock looks 
like to will "follow" the others, rather than lead.

ORCL (Oracle) - Most bullish looking of the Nas 100 that I 
follow - move above $10 suggests a move to around 12.

Nasdaq 100 Trust Stock (QQQ) Daily/Hourly charts:


To suggest that QQQ was going to have a further near-term run up, 
I would have liked to see the stock clear its 21-day moving 
average by more than a hair's breadth. A decisive upside 
penetration above the 21-day moving average has often been the 
"signal" for another spurt higher. The Q's are right AT "pivotal" 
resistance in my estimation. 

Tomorrow could be a key day - if there is a feel-good spill over 
to the IBM earnings we could get a 1 to 1.5 point move higher. 
Or, not and Nasdaq drifts lower again, especially with 
Microsoft's report ahead of us Thursday after the close.    

It’s a guess as to which comes next - the Q's may pull back first 
to the low end of its emerging uptrend price channel, at 24.3-
24.5, then again launch a rally that makes a run to the 
substantial overhead stock "supply" or selling interest implied 
by all those prior swing highs clustering around 26.5-26.8. 

OR, QQQ may extend its rally first, then pull back into the end 
of the week or early next. The sideways trend is causing the 
hourly stochastic to fall - this is the way a strong market will 
tend to correct - by going sideways rather than down a whole lot.  

Trading the likely range is suggested.  Given the resistance 
overhead, especially at the prior highs you can see on the hourly 
chart above and with the prior low from September (27.0) in QQQ 
possible "becoming" resistance, look to sell in the 26.5-27.00 
area. A daily close above 27.00 or an intraday high above 28.00 
would cause me to exit from the short side of QQQ.     

To play the low end of an anticipated near-term price range, buy 
in the 24.30-24.50 area with an stop/exit point at 23.50. 


Let the stock break out above this resistance without me. I would 
rather short the rally at some point or buy the next dip than 
surrender a profit, at least in this market climate. Or, if I want 
to stay long I'll buy ORCL or MSFT on a further breakout if I want 
to play the tech darlings. 

Support is anticipated in the 23.5-24.0 area; then down around 22 
if there is another sharp break.  Above 25.5, resistance levels 
are at the prior highs at 26.5-26.8. 

Leigh Stevens
Chief Market Strategist 

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The End of The Bear?
by Mark Phillips

That seems to be the question that is on everyone's mind after
the mind-numbing decline and rebound on Monday.  For that matter,
the volatility on Tuesday and Wednesday seems to indicate that a
lot of people are trying to call a bottom here, but the bears are
not going to give up easily.  It seems that everyone that can fog
a mirror is being asked whether this is the bottom, and whether
we now have capitulation.  Well I'm here to tell you that
virtually everyone is either asking or answering the wrong

The underlying question that seems to be bandied about is whether
this is the end of the Bear market.  Depending on your definition
of "The End of the Bear", my answer would range from maybe
getting close, to not for a long time.  Before you click away to
read a happier treatise on the rebirth of the bull market, let me
tease you with this -- understanding what I have to say just may
make the difference between early retirement and well, the

For the most part, the talking heads on Stock TV seem to be
focused on the 'fact' that bear markets last 18-24 months and by
that definition, this bear has outstayed his welcome.  I think
this is an extremely myopic view, predominantly because it takes
a dangerously narrow slice of history as its sample period.  The
real question that needs to be answered is "What TYPE of Bear
Market Is This?".  Most of the commentary I have seen seems to be
based on the premise that we are in a normal cyclical bear market
within the overall secular trend.  In my less-than-humble opinion,
the experts are wrong.

Before proceeding, let's cover some basic definitions.  A secular
market refers to the primary trend in any given market.  For
instance the U.S. equity markets were in a secular bull market
from 1982 until early 2000.  At the same time, the Gold market
was in a secular bear market from the early 1980s until late
2001.  During these secular markets there have been several
counter-trend markets or cyclical markets.  Dealing with the
equity markets, in that 18 year secular bull market, there were
several periods that can be termed cyclical bear markets; Fall
1987, Summer 1990, Fall 1997, Fall 1998.  But the point remains
that the primary trend was bullish.

Well now, the 'experts' are looking at this 20-year period and
drawing conclusions as though we are still in a secular bull
market.  And that's where the huge error is taking place.  Not
only are we still in a bear market (as we have been for the
past 2 years), but it appears to me like the bear market we are
in is a secular one, not another cyclical one.  I don't expect
you to take my word for this, although I regret that I can't
share any historical charts tonight to support my case.  My
charting service only goes back to the late 1980's and that
isn't nearly far enough to show us the data that we need.  But
for those of you that are interested in validating the data,
let me direct you to the following site:

Dow Jones Indexes

While it isn't one long 100-year chart of the DOW, the links
on the left hand side give us 10-year snapshots of the DOW since
1895, annotated with important events throughout each decade.
Students of history will find this information incredibly
informative and interesting.  By the way, if any of you can
direct me to a single 100year chart of the DOW, I would be
most grateful.

Coming back on track, I was explaining why I believe we are now
in a secular bear market.  Looking at the past 100 years of DOW
data, the market tends to run in 17-20 year secular trends,
punctuated by secondary counter-trends.  I already detailed the
last 20 years, but that is what most of the so-called experts
are using to make their predictions that the bear is on its last
legs.  Let's go back to the immediate post-WWII period for our
first comparison.  In 1949, the market entered a new era of
prosperity by taking out the prior year's high and the succeeding
17 years saw a gradual bull market emerge through the early
1950s.  Then in 1954 a strong rally commenced on the heels of the
first mass-produced computer.  Topping out in the middle of 1956,
the bull market didn't re-commence until the latter part of 1958
on the heels of the creation of the first silicon chip.  

Are you noticing the theme here?  The strong surges in the bull
market 50 years ago were driven by technological innovation
maybe there really isn't anything new?  

Late 1959 saw another near-term top, although it was bested in
1961, before the Cuban Missile Crisis sent the markets tumbling.
But it was a short-lived tumble and the bulls came on with a
vengeance in late 1962, propelling the market steadily higher
right up to the beginning of 1966.  The DOW just fell short of
reaching the formidable 1000 level on this climax of this
secular bull market.  That little progression took 17 years and
saw the DOW rise from about 170 in 1949 to just below 1000 in
early 1966 for a rise of approximately 480%.

That very frisky bull was followed by 18 years of a secular bear
market.  Sure there was a brief poke above the 1000 level in
late 1972, but that was quickly snuffed out after the dual slam
of Watergate and the Arab Oil Embargo.  Between 1966 and early
1982, the DOW meandered between 1050 and 550.  That's right, buy
and hold investors that bought at the top in 1966 had to wait
until early 1983 before they could realize a significant profit
on their investment.  Apparently, the trend really is our friend!
We all know that the run to new highs in 1983 ushered in a bull
market of historic proportions that resulted in new all-time
highs just over 2 years ago for all the major indices.

That brings us back to our current market.  We had a 17-year
secular bull market, followed by a 17-year secular bear and
then another 17 year secular bull.  Does it seem reasonable to
expect that either the 1983-2000 bull market is getting ready to
resume or that the 2000-2002 bear market is near an end?  No!  I
fully expect the bear market we have been mired in for the past 2
years to obey the pattern of history, meaning that we are not
likely to enter a new secular bull market until somewhere around
2017.  While I hope that isn't the case, experience has taught
me not to argue with the pattern of history.  Instead, I'm
assuming the historical pattern will repeat and preparing
accordingly.  If I'm wrong, there will be plenty of time to
acknowledge the error of my ways and get back on the Bull
Express.  I don't think I need to be in any hurry though.  The
DOW is the strongest of the major indices and would have to
break its all-time high of 11,722 before we would consider it
the birth of a new primary bull market.  I think I have time
for nap while I wait.  [GRIN]

Now before you do something rash like label me a "Chicken Little"
or worse yet, a perma-bear, hold on a minute.  Here's the part
that we all want to hear as individual traders.  Each of these
secular markets were punctuated by dramatic counter-trend rallies
and selloffs, but the primary trends in each of those time
periods remained dominant.  One of the incontrovertible truths is
that markets oscillate.  As traders, we look to profit each time
the market reverses from an extreme and reverts to the mean.  In
fact, with all of my recent commentary on MOCO lately, you should
be able to divine that I am looking for the current market
decline to come to a temporary end very soon.

The reason I wrote this article is that I don't want any of you
to be confused as to the big picture.  The rally off the
September lows was a bear market rally and amounted to a 31%
DOW gain from trough to peak.  When the current decline ends,
we will get another bear market rally that will likely fall far
short of vaulting the DOW higher by 31%.  Bear market rallies
tend to post a series of lower highs until the nasty bear just
plain gets bored and goes away.  That doesn't happen until
stocks represent true values with historically low P/E ratios,
and we aren't even close yet.

Trade the next rally for all it is worth, but please don't fall
for the illusion that it is the end of the bear and the birth of
a new long-term bull.  It will be a cyclical bull market and
needs to be traded as such.  This is not the time for blind
buy-and-hold long-term investments.  This is an environment in
which traders will excel and investors will languish.  My
admonition to you is to put in the necessary effort to learn to
trade well.  That doesn't mean that you need to become a
day-trader.  But you need to learn how to read the mood and
cycle of the market and time your entries and exits accordingly.

Get a good book on Technical Analysis, or better yet 2 or 3.
Learn how to read Point & Figure Charts, and especially the
Bullish Percent charts.  Jeff Bailey does a tremendous job of
showing us how to use these charts on a daily basis.  Learn the
lessons he shares and you'll find that profitable longer-term
swing trading becomes far less mysterious.  And with that
knowledge, navigating the markets won't be nearly so treacherous,
even if the cranky bear does stick around for another 15 years.

Best Wishes for a Profitable Future!



Call = Put
By Steven Price

I often heard other traders use the phrase "Calls are puts, puts 
are calls," when I began trading.  This made no sense to me.  
Calls make money when the stock goes up; puts make money when the 
stock goes down. Right?  Well, not exactly.  One of the most 
profitable option trading strategies involves buying calls and 
hoping the stock tanks.  What am I talking about?  Anyone who has 
used the strategy of covered calls in a declining market 
understands that while selling a call that winds up at zero on 
expiration can help soften the blow of losses on your stock, the 
stockholder still loses money as the stock goes down.  The 
strategy I'm talking about is basically the opposite of the 
covered call.  And this strategy can be very profitable in a 
declining market, while still protecting an investor if the market 
goes up.  

The first step, however, is the ability to short stock.  Let's 
assume instead of buying stock and selling calls, you buy a call 
and short the stock.  In our imaginary scenario, let's say stock 
PRI is trading at $50, and you purchase an August 50 call for 
$3.00.  Now you sell 100 shares of the underlying stock PRI at 
$50.  The position is now:

Long (1) $50 Call $3.00 debit $ 300.00
-100 shares PRI $50.00 credit $5000.00

Now where do we want the stock to go?  DOWN!  If the stock goes 
up, we retain the right to purchase it for $50 by exercising our 
call, thus breaking even on our stock trade and in the meantime we 
earn a little bit of interest on our $4700.00 credit between the 
time of the trade and the time the option expires and we exercise 
it.  In the end though, the interest we collect between now and 
the time the call expires probably will not add up to $300.00 and 
we'll wind up losing money on the transaction.  But what if the 
stock goes down?  

Let's assume the stock drops to $46.  Now let's look at our cash 

Long (1) $50 Call $0  ($300.00 loss)
-100 shares of PRI ($400.00 gain because we can buy 100 shares 
back $4.00 lower than where we sold it)

At expiration we are ahead $100.00.  But let's assume the stock 
drops and there is still time left before the call expires.  We 
can buy back our shares for a $400 gain, but there will still be 
some value left in the calls that have not expired yet, maybe 
$1.00.  Now, we can either sell the call for $1.00 and pocket the 
$200.00 total gain, or we can hold it, and hope the stock goes up.  

If the stock goes up we can do one of three things: 1) sell the 
call which may now be worth more with the stock higher; 2) do 
nothing, simply hold the call and hope the stock keeps going; or 
3) sell the stock again.

If we sell (or short) the stock again, we know that if it keeps 
going up we get to buy it at 50 when we exercise our call, but if 
it goes back down, we get to buy it again (cover) at a lower 
price.  Because stocks tend to move up and down within a trend, we 
may have the opportunity to sell the stock and buy it back again 
several times, while saving the call as protection in case the 
stock keeps going up after we short it.

If we simply hang on to the call we may be able to sell it higher 
as long as it doesn't expire before gaining in value.  We've 
already pocketed the $400 from the original drop to $46, which has 
covered our cost of the call, so in essence we've gotten a free 
call (plus a $100 profit), which we may be lucky enough to make 
some money on.

Now, I started this article with the comment that, "a call is a 
put, a put is a call."  How does this relate to what I've just 
explained?  Well let's say that instead of buying the call for 
$3.00 and shorting the stock, that instead you bought a 50 PRI put 
for $3.00 with the stock trading $50.  Now your position is simply 
a long put for $3.00, or a debit of $300.00.  

The stock drops to $46.00, and your put is now worth $4.00.  You 
can sell it for a $1.00 profit, or you can buy 100 shares of 
stock. If the stock goes down, you are protected by the put 
because you get to sell the stock at $50 for a $4.00 dollar winner 
on the stock, minus the $3.00 you paid for the put, and a profit 
of $100.00.  If you hang on to the put rather than selling it, you 
now own both the put and the stock.  If the stock goes up you can 
sell it for a profit. While the put will lose value as the stock 
goes up, the stock will make money, and you still get to keep your 
$100 winner, with the chance to sell the stock higher. And then 
wait for it to go back down and repeat the process all over again.  

At $46, it doesn't matter whether you had bought a put for $3.00, 
or a call for $3.00 and sold the stock short.  The profit is the 
same.  By trading the stock back and forth, buying it lower and 
selling it higher, and holding onto the option as protection if it 
keeps going in the opposite direction you'd like it to, you give 
yourself more than one opportunity for the option trade to make 
you money.  You don't have to make enough to pay for the option on 
the first move.  In fact the stock can keep moving back and forth 
$1.00 at a time, and as long as you buy the dip and sell it above, 
you will make money on every movement.  In a volatile stock, this 
can be very profitable.  Of course options are more expensive on 
volatile stocks because market makers are aware of this 
opportunity and are willing to pay more for the options.  In my 
next installment I'll discuss trading less than 100 shares per 
option and how this can be profitable no matter which way the 
stock goes after the trade. 

Steven Price

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by Leigh Stevens

Best sector gain today was in the oversold Biotech group.  Well, 
I tried playing the biotech HOLDR's and got throw out early in 
the upheavals before the final recent bottom - right idea - WRONG 
timing and you know what they say about timing. 

At least I got participation in the second best performing sector 
today, being long the Internet HOLDR's stock.  I also am long the 
Semiconductor HOLDR's - with the sector index in the red column 
today - but with the Semi HOLDR's UP on the day - someone smells 
maybe a little more upside potential.  

UP on Wednesday -


DOWN on Wednesday -






Long HHH at 21.50  
(Internet HOLDR's)
STOP: 21.2

Long SMH at 28.30   
(Semiconductor HOLDR's) 
STOP: 28.70 



Biotechnology Index ($BTK.X)


The BTK index has exceeded or broken out above resistance implied 
by a cluster of prior lows and the first down trendline, with a 
couple of more resistance levels looming - at 366 at the 50-day 
moving average and at 376, another key former low that could now 
act as resistance.  Stay tuned.  

Judging just by the Biotech HOLDR's (BBH) there the potential to 
rebound toward the high end of the daily chart downtrend channel, 
before the stock would encounter more major technical resistance 
in the 90-93 area.  However, this would first involve BBH 
piercing 89, which was the May low and that later "became" the 
June rally peak.  Stay tuned!  
UPDATE: 7/17

Leigh Stevens
Chief Market Strategist

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

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Contact Support
The Option Investor Newsletter                Wednesday 07-17-2002
Copyright 2002, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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BJ - put
Adjust from $36.05 down to $35.60

CI - put
Adjust from $91.50 down to $88.50

XL - put
Adjust from $82 down to $78




AMGN $37.10 +4.23 (+2.80) The broad rally in the biotech
sector continued to carry AMGN higher during today’s
session.  The stock broke above its short term descending
trend and reached past the $37 level, closing near its
high for the day.  Our stop was triggered and, as such,
we’re dropping coverage this evening.  Look for a pullback
in tomorrow’s session to exit plays.

PHCC $21.37 +1.10 (+1.87) The short covering in PHCC
continued into today’s session as the broader strength in
health care issues pressured the stock higher.  The stock
broke out above its declining 10-dma and shot higher from
there, reaching as high as $21.91 on an intraday basis.
The stock triggered our stop along the way.  Look for a
pullback early tomorrow for an exit if the stop didn’t get
you out.

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

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and clicking on the link to the book on its home page.



MRK – Merck $44.50 +0.49 (-1.05 this week)

Merck & Co., Inc. is a global, research-driven pharmaceutical
company that discovers, develops, manufactures and markets a
broad range of human and animal health products, directly and
through its joint ventures, and provides pharmaceutical benefit
services through Merck-Medco Managed Care, L.L.C. (Merck-Medco).
The Company's operations are managed principally on a products
and services basis and are comprised of two business segments:
Merck Pharmaceutical, which includes products marketed either
directly or through joint ventures; and Merck-Medco. Merck
Pharmaceutical products consist of therapeutic and preventive
agents, sold by prescription, for the treatment of human

Most Recent Update

MRK’s trip up through its 10-dma during yesterday’s recovery
in the broader market proved to be a short lived move on what
was most likely short covering in the drug sector as others in
the group moved higher as well.  But MRK was unable to hold
onto its gains for the day and gave back more during today’s
session when it followed the Dow measurably lower.  From here
we’re looking for a retest of the recent lows down around the
$42 level which could come in the next session or two if the
selling continues in the drug space.  Look for a breakdown
below today’s intraday low at the $43.75 level for a possible
entry point into further weakness.  Additionally, future
rollovers from the 10-dma should produce solid entry points
into new put plays.  The 10-dma finished the day’s session
at the $46 level.


MRK is coiling tighter and tighter.  The stock is ready to
break in one direction or another, which could come
tomorrow.  The rollover from the 10-dma today proved that
the sellers are still very much alive in this stock.  Look
for a breakdown below today’s low confirmed by a decline
below the $42.87 level in tomorrow’s session.

BUY PUT AUG-45 MRK-TI OI=2464 at $2.85 SL=1.50
BUY PUT AUG-40 MRK-TH OI=2354 at $1.05 SL=0.50

Average Daily Volume = 6.92 mln


Dow Downdraft Comes To An End!
By Ray Cummins

Stocks found some solid footing today as positive earnings news
from a pair of blue-chip companies helped the Dow end a streak
of seven straight losing sessions.

Positive profit announcements from Citigroup (NYSE:C) and Boeing
(NYSE:BA) sustained the recovery in the Dow industrials, helping
the average climb 69 points to 8,542.  The NASDAQ Composite ended
up 21 points at 1,397 after upbeat revenue reports and forecasts
from wireless phone maker Motorola (NYSE:MOT) and semiconductor
giant Intel (NASDAQ:INTC) boosted optimism among the technology
segment.  The broader Standard & Poor's 500-stock Index climbed 5
points to 906 on strength in biotech issues.  Chemical, drug, oil
and paper shares also boosted the major market averages.  Trading
volume came in at 1.92 billion on the NYSE and at 2.32 billion on
the technology exchange.  Market breadth ended narrowly positive,
with advancers pacing decliners 18 to 14 on the NYSE and 19 to 15
on the NASDAQ.  Government bonds enjoyed modest gains in volatile
action that opposed the activity in stocks.  The 10-year Treasury
note was up 3/32 to yield 4.68% while the 30-year government bond
climbed 3/32 to yield 5.44%.


Summary of Current Open Positions

(As of 07-16-02)

Naked Puts

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

CCMP     JUL    35   34.25  39.58   $0.75    5.04%
QLGC     JUL    35   33.90  42.85   $1.10    7.38%
EBAY     JUL    50   49.20  60.74   $0.80    5.92%
RYL      JUL    47.5 46.70  42.50  ($1.70)   0.00% ***
EBAY     JUL    50   49.20  60.74   $0.80    7.34%
ERTS     JUL    55   54.40  63.54   $0.60    4.57%
SNPS     JUL    45   44.40  45.51   $0.60    5.85%
CHBS     AUG    35   34.30  34.51   $0.21    1.69% ***
EBAY     JUL    50   49.60  60.74   $0.40    8.95%
EBAY     AUG    45   44.15  60.74   $0.85    5.54%
LEN      AUG    50   49.05  54.16   $0.95    5.20% ***

The bullish position in Ryland (NYSE:RYL) was closed Friday
when the stock price fell below near-term technical support
at $48.  Christopher & Banks (NASDAQ:CHBS) has retreated in
conjunction with the retail apparel segment and traders who
do not want to own the stock should cover the sold (short)
put or exit/adjust the position.  Lennar (NYSE:LEN) is also
in a new downtrend, along with other housing stocks, and a
move below support at $51-$52 would be sufficient cause for
an early exit of the position.

Naked Calls

Stock  Strike Strike Break Current  Gain  Potential
Symbol  Month  Price  Even  Price  (Loss) Mo. Yield

EXPE     JUL    70   70.85  57.15   $0.85   7.65%
LLL      JUL    60   60.40  46.69   $0.40   4.30%
ABC      JUL    70   70.25  62.82   $0.25   4.59%
ABC      AUG    75   75.85  62.82   $0.85   4.99%
BRL      JUL    60   60.30  55.50   $0.30   6.89%
BRL      AUG    65   65.75  55.50   $0.75   5.51%
DGX      JUL    80   80.30  68.50   $0.30   4.78%
DGX      AUG    85   86.10  68.50   $1.10   5.35%

Put-Credit Spreads

Stock                                              Gain
Symbol  Pick   Last  Month L/P S/P Credit   C/B   (Loss)  Status

ERTS    64.10  63.54  JUL   50  55  0.50   54.50   $0.50   Open
NOC    121.80 108.50  JUL  105 110  0.40  109.60  ($0.85) Closed
CTX     56.56  48.72  JUL   45  50  0.40   49.60  ($0.65) Closed
ERTS    64.86  63.54  JUL   50  55  0.40   54.60   $0.40   Open
KSWS    24.08  20.33  JUL   20  23  0.37   22.13  ($0.95) Closed
LEN     59.18  54.16  JUL   50  55  0.80   54.20  ($0.04)  Open?
GD     103.06  97.77  JUL   90  95  0.60   94.40   $0.60   Open?
INTU    47.15  46.59  JUL   35  40  0.35   39.65   $0.35   Open
LEN     60.38  54.16  JUL   50  55  0.65   54.35  ($0.19)  Open?
SII     35.86  31.50  JUL   30  33  0.55   31.95  ($0.35) Closed

The bullish spreads in Fidelity National (NYSE:FNF) and Expeditors
(NASDAQ:EXPD) were closed last week (as previously suggested) for
small losses.  Thursday's drop below technical support forced an
early exit in Northrop Grumman (NYSE:NOC) while the positions in
K-Swiss (NASDAQ:KSWS), Smith International, and Centex (NYSE:CTX)
were closed during Monday's broad market slump.  Lennar (NYSE:LEN)
and General Dynamics (NYSE:GD) are also candidates for early exit
on any further downside movement.

Call-Credit Spreads

Stock                                             Gain
Symbol  Pick   Last  Month L/C S/C Credit   C/B  (Loss) Status

BGEN    42.44  33.83  JUL   60  55  0.25   55.25  $0.25  Open
CYMI    40.59  31.43  JUL   55  50  0.60   50.60  $0.60  Open
C       42.34  36.20  JUL   50  48  0.30   47.80  $0.30  Open
EDS     49.28  33.87  JUL   60  55  0.45   55.45  $0.45  Open
VIA     46.59  37.17  JUL   55  50  0.70   50.70  $0.70  Open
BWA     60.15  52.26  JUL   70  65  0.60   65.60  $0.60  Open
CDWC    43.87  46.92  JUL   55  50  0.55   50.55  $0.55  Open
COF     58.73  50.60  JUL   70  65  0.65   65.65  $0.65  Open
KSS     69.82  65.24  JUL   80  75  0.65   75.65  $0.65  Open
LEH     59.66  56.95  JUL   70  65  0.55   65.55  $0.55  Open
MMM    122.42 115.90  JUL  135 130  0.60  130.60  $0.60  Open
AGN     58.30  60.00  AUG   70  65  0.60   65.60  $0.60  Open
CI      89.83  86.33  AUG  105 100  0.55  100.55  $0.55  Open
COF     51.41  50.60  AUG   65  60  0.65   60.65  $0.65  Open
UN      60.97  55.53  AUG   70  65  0.80   65.80  $0.80  Open

Synthetic Positions:

Stock  Pick     Last    Position   Credit   C/B    M/V   Status

CNF    36.55   36.22   SEP40C/32P   0.10   32.40   0.70  Closed
FAST   40.37   38.84   AUG42C/37P   0.10   37.40   0.10   Open

Synthetic positions in United Health (NYSE:UNH), General Dynamics
(NYSE:GD) and Lockheed Martin (NYSE:LMT), all provided favorable
profits prior to the recent broad-market slump.  The position in
Dollar Tree (NASDAQ:DLTR) also achieved profitability before the
widespread decline in stock prices.


BULLISH PLAYS - Covered Calls, Naked Puts, & Combinations

EBAY - eBay Inc.  $61.62  *** Internet Auction Giant! ***

eBay (NASDAQ:EBAY) is a Web-based community in which buyers and
sellers are brought together to browse, buy and sell items such
as collectibles, automobiles, high-end or premium art items,
jewelry, consumer electronics and a host of practical and other
miscellaneous items.  The eBay trading platform is an automated,
topically arranged service that supports an auction format in
which sellers list items for sale and buyers bid on items of
interest, and a fixed-price format in which sellers and buyers
trade items at a fixed price established by sellers.  Through
its wholly owned and partially owned subsidiaries and affiliates,
the Company operated online trading platforms directed towards
the United States, Australia, Austria, Belgium, Canada, France,
Germany, Ireland, Italy, Japan, the Netherlands, New Zealand,
Singapore, South Korea, Spain, Sweden, Switzerland and also the
United Kingdom.

The amazing resilience of eBay has been a popular topic among
leading stock market analysts and the good news for the company
continued this week when the online auction giant confirmed its
second-quarter results would be better than previously forecast
because of strong growth in both the U.S. and its international
operations.  The company also recently announced a deal to buy
PayPal, the leading vendor of online payment services, for $1.5
billion in a move hailed by most analysts and eBay's addition to
the S&P 500 is expected to attract both public and institutional
investors to the issue in the coming weeks.  

Traders who agree with a favorable outlook for Ebay shares can
speculate on its future activity with these positions.

EBAY - eBay Inc.  $61.62

PLAY (sell naked put):

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

SELL PUT  AUG 45   QXB TI    1462     0.55    44.45       4.3% "TS"
SELL PUT  AUG 50   QXB TJ    4283     1.05    48.95       7.6% ***
SELL PUT  AUG 55   QXB TK    5474     1.95    53.05       9.9%
SELL PUT  AUG 60   QXB TL    4604     3.40    56.60      13.0%

FRX - Forest Laboratories  $74.49  *** Solid Earnings! ***

Forest Laboratories (NYSE:FRX) develops, manufactures and sells
both branded and generic forms of ethical drug products that
require a physician's prescription, as well as non-prescription
pharmaceutical products sold over-the-counter.  The company's
most important U.S. products consist of branded ethical drug
specialties marketed directly, or "detailed," to physicians by
its Forest Pharmaceuticals, Therapeutics and Specialty sales
forces.  The company's many products include those developed by
Forest and those acquired from other pharmaceutical companies
and integrated into Forest's marketing and distribution systems.
Principal products include Celexa, an SSRI for the treatment of
depression; the respiratory products Aerobid and Aerochamber;
Tiazac, a once-daily diltiazem for the treatment of hypertension
and angina; and Infasurf, a lung surfactant for the treatment and
prevention of respiratory distress syndrome in premature infants.

Forest Laboratories was a popular issue today after the company
said its quarterly profit rose 67%, much more than expected, on
strong sales of its flagship antidepressant drug, Celexa.  The
drug-maker said net income in its fiscal first quarter jumped to
$123 million, or $0.67 per share, from $74 million, or $0.40 per
share, a year earlier.  Forest also announced that it received a
six-month extension for its U.S. monopoly over Celexa through a
law designed to encourage testing of drugs in children that are
already used in adults.  The patent protection now lasts until
early 2004 and the extension should provide ample time to get
final marketing approval for its new antidepressant, Lexapro,
which it claims is more effective than Celexa and has fewer side
effects.  The drug has already received conditional approval from
the U.S. Food and Drug Administration and analysts expect final
approval in the coming months.

Analysts say the outlook for Forest Laboratories is excellent as
it has an established market presence in Celexa and a healthy
pipeline of experimental drugs.  Traders who think that optimism
will translate to higher share prices in the near-term can profit
from that outcome with these positions.

FRX - Forest Laboratories  $74.49

PLAY (sell naked put):

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

SELL PUT  AUG 60   FRX TL     627     0.80    59.20       5.0% ***
SELL PUT  AUG 65   FRX TM     850     1.40    63.60       6.5%
SELL PUT  AUG 70   FRX TN    3098     2.20    67.80       8.1%

IDPH - IDEC Pharmaceuticals  $41.56  *** On The Rebound! ***

IDEC Pharmaceuticals (NASDAQ:IDPH) is a biopharmaceutical company
engaged primarily in the research, development, manufacture and
commercialization of targeted therapies for the treatment of many
cancer and autoimmune and inflammatory diseases.  The company's
two primary commercial products, Rituxan and Zevalin (ibritumomab
tiuxetan), are for use in the treatment of B-cell non-Hodgkin's
lymphomas.  The company is also developing new products for the
treatment of cancer and various other autoimmune diseases such
as rheumatoid arthritis, psoriasis, allergic asthma and allergic
rhinitis.  Rituxan, the company's first product, and Zevalin, its
second product approved for marketing in the United States, as
well as its other primary products under development, address
immune system disorders such as lymphomas, autoimmune and many
inflammatory diseases.  In addition, the company has discovered
other product candidates through the application of its unique
technology platform.

Shares of IDEC Pharmaceuticals have rebounded in recent sessions
on speculation the company's quarterly earnings reports would be
favorable.  Indeed, Wednesday's announcement was positive as the
biotechnology company said that second-quarter net profit jumped
40% as sales of its non-Hodgkin's lymphoma drug Rituxan surged.
IDEC's net income increased to $35 million, or $0.20 per diluted
share, compared to $25 million, or $0.15 per share, for the same
period in 2001.  Revenue rose to $97 million from $64 million as
as sales of Rituxan, which is co-promoted by Genentech, soared to
$257 million with IDEC's share totaling $92 million in the latest
quarter.  The company's quarterly results also received a boost
from sales of Zevalin, a drug that treats lymphoma by delivering
radiation directly to cancer tumors.

Analysts say the outlook for both drug products is excellent and
investors must agree as they have pushed the price of the issue
up over 25% in the last week.  Traders who believe the bullish
trend will continue in the near-term can profit from that outcome
with these positions.

IDPH - IDEC Pharmaceuticals  $41.56
PLAY (sell naked put):

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

SELL PUT  AUG 30   IDK TF    2459     0.60    29.40       6.8% ***
SELL PUT  AUG 35   IDK TG     746     1.30    33.70      11.6%
SELL PUT  AUG 40   IDK TH     281     2.80    37.20      15.9%

QLGC - QLogic Corporation  $42.80  *** Reader's Request! ***

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

One of our readers commented on the recent recovery in QLogic's
share value and asked if this would be a good candidate for a
bullish "premium selling" position.  The company has a favorable
fundamental outlook with a solid balance sheet and excellent cash
flow.  Also, analysts at Soundview have a positive outlook for
the Storage Area Networking segment and their recent meeting with
Hewlett Packard (NYSE:HPQ) suggests the pickup in SAN deployments
will continue going forward.  Based on the robust option prices,
there is a relatively high probability play which will establish
a cost basis below $30 while conservative traders can target an
acceptable credit at the $25 strike.

QLGC - QLogic Corporation  $42.80

PLAY (sell naked put):

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

SELL PUT  AUG 25   QLC TE    1091     0.40    24.60       4.5% "TS"
SELL PUT  AUG 30   QLC TF    1368     0.80    29.20       8.7% ***
SELL PUT  AUG 35   QLC TG    4161     1.70    33.30      15.6%


BULLISH PLAYS - Credit Spreads

TKTX - Transkaryotic Therapies  $40.15  *** FDA Drug Review ***

Transkaryotic Therapies (NASDAQ:TXTK) is a biopharmaceutical
company that develops protein- and cell-based therapeutics for
the treatment of a range of human diseases.  TKT is building a
broad and renewable product pipeline based on three proprietary
development platforms: Niche Protein products, Gene-Activated
proteins and Transkaryotic Therapy gene therapy.  Replagal is
the company's enzyme replacement therapy for the treatment of
patients with Fabry disease, and it has been granted marketing
authorization in the European Union.  The company also has the
approval to market Replagal in The Czech Republic, Israel, New
Zealand, Iceland, Norway and Switzerland.  Transkaryotic's
quarterly earnings are due July 31.

Shares of drug-maker Transkaryotic Therapies soared earlier this
week after the U.S. FDA set a September review date for Replagal,
the company's experimental drug for Fabry disease.  An advisory
committee will meet September 27 to discuss the new drug, and the
date is important as Transkaryotic Therapies is competing against
Genzyme General to bring to the U.S. market a treatment for the
rare Fabry disease, a disorder in which fats build up in tissue
surrounding the body's major organs causing pain and frequently
death.  Genzyme's drug, Fabryzyme, will be reviewed by the FDA
committee on September 26 but the scheduled order of the panel
meetings does not reflect the position of either product with
respect to the race for Orphan Drug status in the United States.

The news of a September FDA panel meeting to review Replagel has
produced a favorable change of character in the issue and the
options in this position expire long before the meeting takes
place.  Traders who believe the stock will remain in a trading
range (near $40) until after the FDA review can profit from that
outcome with this position.

TKTX - Transkaryotic Therapies  $40.15

PLAY (moderately aggressive - bullish/credit spread):

BUY  PUT  AUG-30  UFT-TF  OI=51  A=$0.65
SELL PUT  AUG-35  UFT-TG  OI=36  B=$1.40

TRMS - Trimeris  $43.25  *** Aids Drug Has Potential! ***

Trimeris (NASDAQ:TRMS) is engaged in the discovery and development
of fusion inhibitors, a new class of antiviral drug treatments.
Fusion inhibitors impair viral fusion, a complex process by which
viruses attach to and penetrate host cells.  If a virus cannot
enter a host cell, the virus cannot replicate.  By inhibiting the
fusion process of particular types of viruses, the company's drug
candidates under development offer a novel mechanism of action
with the potential to treat a variety of medically important viral
diseases.  Trimeris is a company in the development stages and has
invested a significant portion of its time and financial resources
in researching T-20, its lead drug candidate, thus is dependent on
that product for its overall success.

Shares of Trimeris rebounded this week after the company reported
that its T-20 now has fast track designation from the U.S. FDA for
for the treatment of HIV-infected individuals.  Data released by
drug-maker Roche Holding AG of Switzerland and Trimeris suggests
that T-20 greatly reduces the amount of virus in the blood of many
patients running out of treatment options.  An article in The Wall
Street Journal also noted that T-20, a new class of HIV treatment
called a fusion inhibitor, will likely be approved in the U.S. and
Europe early next year and may reach the U.S. market in the first
quarter of 2003.

Investors are obviously betting on a successful outcome for the
company's extensive research program in T-20 and traders who share
that optimism can speculate on the near-term share value of TRMS
with this position.

TRMS - Trimeris  $43.25

PLAY (conservative - bullish/credit spread):

BUY  PUT  AUG-30  RQM-TF  OI=10   A=$0.50
SELL PUT  AUG-35  RQM-TG  OI=199  B=$1.00


Neutral Plays - Straddles & Strangles

ERTS - Electronic Arts  $63.00  *** Premium Selling! ***

Electronic Arts (NYSE:ERTS) operates in two principal business
segments globally: EA's Core business segment comprises the
creation, marketing and distribution of entertainment software,
while the EA.com business segment is composed of the creation,
marketing and distribution of entertainment software which can
be played or sold online, ongoing management of subscriptions
of online games and Website advertising.

Electronic Arts is a great candidate for premium-selling, based
on the underlying issue's technical background.  ERTS exists in
a relatively stable trading range near $60-65 and the short-term
indications suggest the current trend will continue.  Traders
who enjoy neutral "premium-selling" strategies should consider
this position and those who agree with a bullish bias for the
issue should plan to cover or adjust the sold (call) options on
any heavy-volume rally beyond $67.

ERTS - Electronic Arts  $63.00

PLAY (aggressive - neutral/credit strangle):

SELL CALL  AUG-70  EZQ-HN  OI=3814  B=$1.60
SELL PUT   AUG-50  EZQ-TJ  OI=3355  B=$1.10
UPSIDE B/E=$72.75  DOWNSIDE B/E=$47.25


BEARISH PLAYS - Naked Calls & Combinations

With the July expiration period coming to an end, traders will be
looking for new portfolio positions for the month of August.  Here
are some favorable candidates for bearish positions, based on the
current price or trading range of the underlying issue and its
recent technical history or trend.  The probability of profit from
these positions may also be higher than other plays in the same
strategy based on disparities in option pricing.  However, current
news and market sentiment will have an effect on these issues, so
review each play individually and make your own decision about the
future outcome of the position.

BZH - Beazer Homes  $61.40  *** Misallocation News! ***

Beazer Homes (NYSE:BZH) designs, builds and sells single family
homes in various locations within the United States: Florida,
Georgia, North Carolina, South Carolina, Tennessee, Arizona,
California, Colorado, Nevada, Texas, Maryland, Pennsylvania,
New Jersey and Virginia.  The company designs its homes to appeal
primarily to entry-level and first time move-up homebuyers.  The
company's objective is to provide its customers with homes that
incorporate quality and value while seeking to maximize its gain
on invested capital.  The company's homebuilding and marketing
activities are conducted under the name of Beazer Homes in each
of its markets except in Colorado (Sanford Homes) and Tennessee
(Phillips Builders).

BZH - Beazer Homes  $61.40

PLAY (aggressive - sell naked call):

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

SELL CALL AUG 65   BZH HM     64    3.10    68.10      13.1%
SELL CALL AUG 70   BZH HN    152    1.60    71.60       9.2%
SELL CALL AUG 75   BZH HO    150    0.80    75.80       6.2% ***

EXPE - Expedia  $58.70  *** Looking For A Bottom! ***

Expedia (NASDAQ:EXPE) is a provider of travel-planning services.
Expedia's global travel marketplace includes direct-to-consumer
websites offering travel-planning services located at Expedia.com,
Expedia.co.uk, Expedia.de, Expedia.ca, Expedia.nl and Expedia.it.
Expedia also provides various travel-planning services through
Voyages-sncf.com, as part of a joint venture with the state-owned
railway group in France.  In addition, the company offers travel
planning services through its telephone call centers and through
private label travel Websites through its WWTE business.  WWTE is
a division of Travelscape, one of the company's many wholly owned
subsidiaries.  In February 2002, a controlling stake in Expedia
was acquired by USA Networks.

EXPE - Expedia  $58.70

PLAY (aggressive - sell naked call):

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

SELL CALL AUG 65   UED HM   492     2.10    67.10      11.0%
SELL CALL AUG 70   UED HN   398     1.00    71.00       7.7% ***
SELL CALL AUG 75   UED HO   209     0.40    75.40       3.3% "TS"

SPW - SPX Corporation  $98.75  *** Auto Industry Slump! ***

SPX Corporation (NYSE:SPW) is a worldwide provider of technical
products and systems, industrial products and services, flow
technology and service solutions.  SPX offers networking and
switching products, fire detection and building life-safety
products, television and radio broadcast antennas and towers,
life science products and services, transformers, compaction
equipment, high-integrity castings, dock products and systems,
cooling towers, air filtration products, valves, back-flow
protection and fluid handling devices, and metering and mixing
solutions.  The company's products and services also include
specialty service tools, diagnostic systems, service equipment
and technical information services.  The company's products are
used by a broad array of customers in many industries including
chemical processing, pharmaceuticals, infrastructure, mineral
processing, petrochemical, telecom, transportation, financial
services and power generation.

SPW - SPX Corporation  $98.75

PLAY (aggressive - sell naked call):

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

SELL CALL AUG 110  SPW HB   140     2.70    112.70      8.8%
SELL CALL AUG 115  SPW HC    54     1.45    116.45      6.0% ***
SELL CALL AUG 120  SPW HD     7     0.80    120.80      3.9% "TS"

ABC - AmerisourceBergen  $64.50  *** Premium-Selling Play! ***

AmerisourceBergen (NYSE:ABC) is a pharmaceutical services company
dedicated solely to the pharmaceutical supply chain.  The company
markets its pharmaceutical products and services to hospital
systems (hospitals and acute care facilities), alternate care
customers (mail order facilities, physicians' offices, long-term
care institutions and clinics), independent community pharmacies,
and regional drugstore and food merchandising chains.  The firm
also provides outsourced pharmacies to long-term care and worker
compensation programs.  AmerisourceBergen operates in two primary
market segments: Pharmaceutical Distribution and PharMerica.  The
Pharmaceutical Distribution is primarily the company's wholesale
and specialty drug distribution business, and PharMerica is the
company's institutional pharmacy business.  The company's second
quarter earnings are due July 31.

ABC - AmerisourceBergen  $64.50

PLAY (conservative - bearish/credit spread):

BUY  CALL  AUG-80  ABC-HP  OI=564  A=$0.50
SELL CALL  AUG-75  ABC-HO  OI=523  B=$0.95

BRL - Barr Laboratories  $56.45  *** Generic Drug Slump! ***

Barr Laboratories (NYSE:BRL) is a pharmaceutical company engaged
in the development, manufacture and marketing of generic and
proprietary prescription pharmaceuticals.  The firm was formed
in October 2001 as the result of a merger between a subsidiary
of Barr Laboratories and Duramed, in which Duramed became a
wholly owned subsidiary of Barr.  Barr sells approximately 85
pharmaceutical products, representing various dosage strengths
and product forms of approximately 35 chemical entities.  Barr's
product line focuses principally on the development and marketing
of generic and proprietary products in the oncology and female
healthcare categories, including hormone replacement and oral
contraceptives.  Duramed develops, manufactures and markets a
line of prescription drug products in tablet, capsule and liquid
forms.  Duramed's products include those of its own manufacture
and those it markets under arrangements with other manufacturers.

BRL - Barr Laboratories  $56.45

PLAY (conservative - bearish/credit spread):

BUY  CALL  AUG-70  BRL-HN  OI=331  A=$0.25
SELL CALL  AUG-65  BRL-HM  OI=120  B=$0.85

SLM - SLM Corporation  $86.05  *** Sell-Off In Progress! ***

SLM Corporation (NYSE:SLM), formerly USA Education, is a private
source of funding, delivery and servicing support for higher
education loans for students and their parents in the United
States.  SLM provides a range of financial services, processing
capabilities and information technology to meet the needs of
educational institutions, lenders, students and other guarantee
agencies.  The company's managed portfolio of student loans,
including loans owned and loans securitized, is approximately
$70 billion, of which over 90% is federally insured.  SLM also
has commitments to purchase over $20 billion of additional
student loans.  Primarily a provider of education credit, the
company serves a diverse range of clients, including over 6,000
educational and financial institutions and guarantee agencies.
The company serves in excess of seven million borrowers through
its ownership or management of student loans.

SLM - SLM Corporation  $86.05

PLAY (conservative - bearish/credit spread):

BUY  CALL  AUG-100  SLM-HT  OI=12  A=$0.35
SELL CALL  AUG-95   SLM-HS  OI=50  B=$0.90



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