Option Investor

Daily Newsletter, Sunday, 07/28/2002

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The Option Investor Newsletter                   Sunday 07-28-2002
Copyright 2002, All rights reserved.                        1 of 5
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MARKET WRAP  (view in courier font for table alignment)
        WE 7-26          WE 7-19          WE 7-12          WE 7-05
DOW     8264.39 +245.13  8019.26 -665.27  8684.53 -694.97  +136.24
Nasdaq  1262.12 - 57.03  1319.15 - 54.35  1373.50 - 74.86  - 16.58
S&P-100  426.93 +  3.83   423.10 - 35.81   458.91 - 33.75  +  2.54
S&P-500  852.84 +  5.09   847.75 - 73.64   921.39 - 67.64  -   .79
W5000   8091.63 +  8.63  8083.00 -628.50  8711.50 -601.90  - 70.63
RUT      382.26 -  3.94   386.20 - 27.08   413.28 - 27.64  - 21.74
TRAN    2254.79 - 77.39  2332.18 -147.96  2480.14 -172.50  - 77.68
VIX       40.44 -  3.01    43.45 +  5.12    38.33 +  8.12  +  1.08
VXN       69.02 +  7.85    61.17 -  4.83    66.00 +  9.72  -  1.67
TRIN       1.21             1.44             0.89             0.28
Put/Call   0.70             1.14             0.64              .77

Outstanding - Don't Pinch Me!  
by Jim Brown

If I am dreaming don't pinch me! I do not want to wake up from a
dream where the Dow closed up +245 points on the week and stands
a good chance of carrying that gain over into next week. The Dow
rebounded from its Wednesday lows of 7532 to close +732 points 
higher on Friday at 8264. Considering the -1191 point drop in 
since July-17th this is remarkable. Even more remarkable was the
fact that it did not give back any of those gains and finished 
near the highs of the day. Even the Nasdaq, which had a rough 
Thursday, finished positive +22 points. 

Dow chart

Nasdaq Chart


Friday started out with CEO checkers as Tyco announced they had
recruited Motorola President Edward Breen as their new CEO. Motorola
quickly said they named Mike Zafirovski as president and CEO saying
he had turned around their mobile phone business. TYC gained +3.78
or +45% on the news and MOT dropped -1.28 or -10%. Breen is well
thought of and is walking into a win-win deal. If he pulls Tyco
out of its problems he will be a hero. If he can't do it then 
everyone will say it was too far gone anyway but he made a heroic
effort. No mention of compensation was made.

Goldman, trying to be on the bleeding edge again, upgraded the 
chip stocks this morning after TSM warned of weaker conditions
ahead on Thursday. While Goldman grabbed the headlines with the
call you need to read this carefully. Goldman said it was increasing
its rating on chip equipment makers to market overweight from 
market weight saying that "investors have finally accepted that
orders have turned down and things are getting worse." "While
fundamentals are not likely to improve in the near-term AND the
stocks could go lower still, investment from funds and seasonality
may drive a meaningful move in the stocks." On CNBC the analyst
agreed fundamentals would get worse before they got better and 
this was for traders with a long time horizon. While I may poke
fun at them for their call I do think it is a good one. Most chip
makers have fallen -50% or more and should represent value soon. 
With AMAT at $14 how much more risk can there be? We are not likely
to quit using chips anytime soon. 

IBM was the big drag on the Dow on Friday with a -2.95 loss on
worries they have some hidden accounting problems. Barrons is
rumored to be doing a hatchet job on them in this weekends 
edition. At the close IBM issued a statement that their CEO 
would sign the accounting certifications in the normal course
of business when the time came. They said they were very 
comfortable with their accounting. Depending on the Barrons
article IBM could bounce off the 52-week low set on Friday.

The good new/bad news story. TrimTabs.com reported on Friday
that -$18.5 billion dollars flowed out of equity funds in the 
week ended on Wednesday. Very ugly! More than twice the average
rate for the prior four weeks. Investors are capitulating at
twice the prior rate. The good news? They also said there was
a net inflow of cash on Thursday after that huge rebound on
Wednesday. So, investors are not dead or ignorant of the market.
They are just not willing to sit and watch their accounts shrink
on a daily basis. I did not catch the inflow amount but you can
bet it was nowhere near the prior outflows. 

The Consumer Sentiment numbers were actually better than expected
which makes me wonder who they actually asked about their
feelings. The 88.1 final number was better than the 86.5 
preliminary number but still well below the 92.4 from last month. 
The main issues impacting the final numbers included the markets,
corporate accountability and employment. Nothing new here! The
problem remains that spending is rumored to be slowing and that
will be the kiss of death to the fragile recovery. 

The bounce this week was remarkable but not likely to continue
much longer. The problem is stock valuations. With the Nasdaq
PE at 44 and the S&P at 19 we could be approaching historical 
value levels if the economy was in strong growth mode. 
Unfortunately we continue to hear about reduced expectations, 
slower sales, shrinking margins and increased competition. Add
to that the move to trash the current multiple accounting 
standards and increased scrutiny and the earnings will fall. 
With this likely to be the last quarter of cookie jar accounting
the earnings we get next quarter may be significantly different
than the ones we have been seeing. There could be a lot more
downward revisions from more conservative accounting methods
as well as from the downturn in the economy. The stock market
is very good at factoring in problems and discounting future 
results but it needs a base to start from. We do not currently
have a clue what real earnings for the 3Q will look like and
that makes the markets very nervous. With the certifications
beginning August 14th, only 13 trading days away, the odds are
good that there are some surprises in our future. 

Next week there is a technology conference in Boston presented
by Soundview and that could give tech stocks some visibility.
Increased visibility did not help AOL this week. S&P cut their
outlook for AOL to negative saying the cash drain from AOL would
put a strain on other Time Warner divisions. AOL has clearly 
become the ugly duckling and will be kicked out of their flock
as soon as they can arrange it. 

Bullish markets, what a change. The action today may not have 
been outstanding compared to the triple digit finishes as of
late but at least it was positive. Bullish points during the 
day included the lack of a serious drop on the new Israeli 
killings and vow by Israel to get tough. There was no drop when
the news reported that four American servicemen had been captured
and seven killed in Afghanistan. The story was later denied 
by the U.S. There was no major sell off of the gains made on 
Wednesday. There was no major sell off when Citigroup was 
rumored to have said, "somebody said it was ok so we thought 
it was ok." Duh! The markets even rallied late in the afternoon 
in front of the weekend. Considering Mondays have not been kind
recently this is remarkable. 

The Dow stopped right at significant resistance where two 
different retracement brackets converge. If you draw a 
retracement bracket from the July-17th high to the Wednesday 
low you get a 61.8% fib level at 8268. If you draw one from
the July-8th high you get a 38.2% level at 8249. The Dow 
closed right between them at 8259. 

Dow 60 min retracement

Dow 90 min retracement


A strong open on Monday could propel the Dow over these 
levels and hopefully the next resistance at 8300 as well. 
Once clear of 8300 the Dow could easily run to near 8600 
before sellers appear in volume. I emphasize the word "could".
Personally I am surprised at the strength of the rally and 
probably agree with one trader in his analysis. "The shorts 
have been squeezed out so many times in the last two months 
only to have the markets roll over again, that there are 
quite a few trying to tough it out." They are likely going 
to sweat over the weekend and a big open on Monday could 
break their pain threshold and burst the dam. While everyone 
certainly hopes he is correct there is no guarantee.  

Next week the earnings will slow to a crawl but economic 
reports will flourish. We get the Consumer Confidence, different
from Consumer Sentiment but the same concept, on Tuesday. The
Wednesday reports include the Q2 GDP, PMI and the Beige Book.
Thursday is ISM, Construction Spending and Auto Sales. Friday
closes the week with the Nonfarm payrolls, Personal Income and
Spending and Factory Orders. As you can see the boat is loaded
to the roof and balanced to perfection. Any one of those reports
can tip the current bullish balance and swamp the boat and the
markets. As an investor why should you buy in front of these
economic time bombs unless you simply don't care where the 
economy is going. Stocks are cheap relatively speaking but they
can still get cheaper!

I took some heat for suggesting we could get a strong relief
rally soon in last Sunday's newsletter. I also pointed out 
that the VIX at 43 was definitely high but could easily hit
the 57-60 levels seen on prior crashes. The high for the week
for the VIX was 56.74 and the Dow rebounded over +700 points
off the lows when that level was hit. The bottom line for next 
week. Protect any long positions on Monday and prepare to take 
profits if the rally runs out of steam. The two worst months of
the year, August and October are still ahead of us. The question
remains, why buy? As traders we will play the moves but without
real buyers to power the market those coming moves may be to
lower lows. 

We need your help. We don't know where the Dow is going to
close next Friday. We decided to offer a reward to anyone 
that can tell us. We are giving away a very high-end video 
card that supports two monitors on one PC to anyone who comes
the closest to the correct closing number for the Dow next 
Friday. Go to this page and enter your guess! It is free and 
this is a great video card. 64MB DDR ram and two 350MHZ 
processors! It paints screens so fast you will not even see
them blink! (grin) Go here: http://www.OptionInvestor.com to 
enter your guess.

Enter Very Passively, Exit Very Aggressively!

Jim Brown

Was this commentary helpful to you?


by Leigh Stevens


After making new 52-week low, the S&P 500 (SPX) managed to eke 
out a 0.6% gain. The Dow Jones Industrials finished the week up 
3.1%. Both indexes have had losses for 8 of the past 10 weeks. 

The Nasdaq Composite closed the week off 4.3%, extending its 
losing streak to 4 straight weeks. However, key Nasdaq stocks 
look like they may have bottomed for now, along with the 
Composite and Nasdaq 100. The next few days should tell the 
story, as follow through buying is needed to get the key 
bellwether stocks like GE, for the NYSE and CSCO, for Nasdaq, up 
above their next levels of resistance. 

By the way, both GE and CSCO had classic "bear trap" reversals; 
i.e., a move to a clear new low, followed by a same-day rebound 
to above the prior close and, in the case of GE, a close above 
the prior daily high - also making it a "key" (1-day) reversal 

As far as an "ultimate" bottom, this is another story - it's long 
been my thought that the fall period, especially October, may see 
a retest of whatever index lows are made this summer. 

All the media now seems to be talking about the volatility this, 
the volatility that - "its here to stay", etc.  This facet of 
business journalism is why the "bear" on the cover of Time or 
Business Week is usually a sure sign of a bottom! - the media is 
most often "lagging" the market, reflecting the "public" 
viewpoint quite closely also I might add.  Actually, the public 
has stopped trading and investors are not opening their 401k and 
mutual fund statements, the classic "head in the sand" treatment 
for the worst and final stages of a bear market.  

Based on lagging perception of volatility, with VIX, our most 
objective measure of market volatility, falling rapidly, the 
business writers and talking heads are to some extent talking 
about "old" news. 

Only VXN, the CBOE Nasdaq 100 volatility index has continued to 
rise into the end of the week - it will be interesting to see now 
if VXN has made a "double top" relative to its recent high, not 
its high from September. 


Speaking of tops, the Eurodollar has made a classic top - the 
dollar, a bottom - at least for now.  The next chart's pattern 
below (I should remove the symbol!) may look familiar, as it 
resembles the look of many Nasdaq charts at their 2000 tops - the 
point at which the move becomes almost straight up is the warning 
of a top; i.e., the (parabolic) "arc" traced out by the rising 
trend gets to a point in its "curve" where it is going nearly 

I will say this just once and hope you remember - THEN you will 
know more than most of the talking heads on TV - DOLLAR 
IN STOCKS. Does anyone remember what the dollar was doing at the 
time of the 2000 top?  However, anything that market participants 
take as an important determinant for market direction should be 

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


OEX has broken out above the steeper (green) down trendline and 
looks poised to rally further, such as advancing up toward the 
old top of its broader downtrend channel (dashed lines).  

I'm a buyer in the 410 area, a seller at 445-446, at resistance - 
I should also note potential resistance at the downside chart 
"gap" around 340. A next major resistance zone above 445 is at 

Key technical support is at 405-406, then around 400. IF an 
intermediate-term low has been put in, this magnitude of a 
pullback is unlikely however. Such weakness would call into 
question the more bullish scenario or picture that I am 
"Bellwether" GE - 


GE has been typically the best "bellwether" or related predictor 
of the broader S&P indices. Its recent low, at the bottom of its 
down trendline on the daily chart, is a classic "V" bottom - and, 
on very heavy volume although this is not shown on the chart 
above. Looks like it was a climax type bottom - subsequent 
rebound paid handsomely in the nearby long calls. 

Of course, you had to turn off CNBC and just look at the 
technicals to have "believed" it!  

S&P 500 (SPX) Index - Hourly chart:


The first "leg" up in SPX may be equaled by a second "leg" up - 
this is what a "measured move" is basically; i.e., a second price 
swing in a trend often will at least equal the extent of the 

A measured move objective for the S&P 500 is to the 900 area, 
where there is resistance based on the sideways consolidation 
that developed in the 895-905 area on the hourly chart. 

Key support is at 835 - the way trading has and is unfolding, it 
is one (finally) where it may end up to "pay" to have just stayed 
long calls (versus trading in and out), assuming you bought on 
the dip under 800.  

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

More upside is apparent in the chart pattern - perhaps back up to 
the 86 area, although next resistance looks like 84-84.5 area at 
the low end of the hourly consolidation from mid-month (July). In 
the 86.5-87 area I would become a seller.  

Key support is at 79.5-80.    

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


While its not anything "dramatic" like the S&P chart reversal 
bottom, the Nasdaq 100 appears to be in a "bottomING" process. 
I have more conviction related to a QQQ bottom when I look at the 
key Nasdaq stocks, which is why I include some further on here. 

The 23.5 area is a next upside objective. Key "must hold" support 
is 22 currently. The stock has upside potential to the 24.5-25 
area before it runs in more major technical resistance. 
A close up look at the daily QQQ chart below shows some things 
not as apparent on the two charts above.  


That the recent low was AT the low end of a well-defined 
downtrend channel is most apparent on the daily chart as shown 

The other noteworthy technical feature relating to a probably 
bottom, was the bullish price/RSI divergence that developed as 
prices well to a new low "unconfirmed" by a new, or lower, low in 
the Relative Strength Indicator" (RSI).  

Use of the RSI oscillator often will "show" more of bullish or 
bearish type "divergences" than will the Stochastics oscillator 

The other noteworthy technical aspect is the apparent volume 
"climax" in the QQQ stock. Average daily volume went up 
substantially during the last sell off - and, there were 
significant daily volume "spikes" on a couple of recent lows, 
especially the one on the day having the lowest low to date.   

Nasdaq "bellwether" stocks - 

There is also, of course, Intel (INTC) and Qualcomm (QCOM), but 
only thing you need to note currently about these two is that 
both (so far) put in weekly lows last week that are ABOVE their 
prior bottoms.  


MSFT fell to bottom of its downtrend channel on HUGE volume, then 
rebounded from this low which looks like "selling climax", is an 
upside reversal pattern and suggests that the low for this 
current move is in place. 


A "Bear trap" reversal pattern in CSCO results from the fall to a 
new low, followed by a sharp upside move from there within the 
same day.  Also, this low was not just ANY low, but one in the 
area of the low end of its recent trading range. 

Key resistance areas are noted by the down arrows - Cisco's chart 
would look pretty bullish if the stock got above $15.  


One of my favorite stocks - careful of what I say about it, as I 
OWN it in my account and buy more on every price dip to its (up) 

Friday's rebound put ORCL above its minor down trendline and the 
stock looks like it may now head back up to test key resistance 
at 10, at the down trendline there and at 10.5 at its prior swing 
high.  I measure upside potential to the $12 area currently.  

Leigh Stevens
Chief Market Strategist 

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Editor's Plays

Extremely Confusing

I really stirred up a hornet's nest with my editor's play 
last week. I got tons of email from readers who were totally
confused. I had people asking me where to get the $23.50, 
23.25, 22.75 strikes. Didn't I know they only came in $1
increments? I got questions from people at the bottom of 
the dip asking if they should sell 10 contracts as each 
.25 price point was reached on the way back up. I had
readers ask me what good did it do to buy the puts at the 
bottom after they bought all the calls? I got dozens more
covering every possible variable. I was amazed!

First I want to start by reviewing the play from last week 
and then give you another one for the coming week. 

The concept from last week was to enter a large LONG CALL 
position with the Aug-$24 calls by purchasing a portion of 
the position each time the NDX/QQQ reached a TRIGGER point 
on the down leg of the expected dip. 

The suggested trigger points were:

10 @ $23.50 (NDX 940) 
10 @ $23.25 (NDX 930) 
10 @ $23.00 (NDX 920) 
10 @ $22.75 (NDX 910) 
10 @ $22.50 (NDX 900) 

All the trigger points were hit and the estimated entry prices
looked like this.

10 @ $23.50 (NDX 940) $1.25 total invested $1250 avg $1.25 
10 @ $23.25 (NDX 930) $1.10 total invested $2350 avg $1.175
10 @ $23.00 (NDX 920) $1.00 total invested $3350 avg $1.116
10 @ $22.75 (NDX 910) $0.90 total invested $4250 avg $1.062
10 @ $22.50 (NDX 900) $0.85 total invested $5100 avg $1.02
(This was -$35.00 less than the expected $5,135 last week)

The article suggested BUYING 20 contracts of a protective 
August $25 put which was ask at $2.05 at that Friday's close. 
At the open on Monday it traded between $1.70 and $1.85. Using
the high number our total expense in this trade is $3700+5100
or $8,800.

The concept was to hold the puts until the QQQ reached the same
price that you paid for it or the QQQ hit $24 again. This was
for insurance only and was not intended to be profitable.

The alternate suggestion was to sell the puts on any huge drop
and use the proceeds to offset the cost of the entire position 
and end up with a boatload of calls for very little invested.

The puts traded at $3.60 for 30 min on Wednesday and offered
traders a great chance to sell them for $7,200 and end up
owning the 50 contracts of calls for an investment of only

The calls were worth $.75 cents at the close on Friday. 
($3,750 for 50 contracts) Had you taken the option of selling
the put then you would have $2,150 in profits already in the 

If the QQQ returns to the $23.97 level it was when this trade
was first written then the calls should be worth $1.25 each
after allowing for reasonable premium decay. That is $6,250
total minus your remaining investment of $1600 which equals
a $4,650 profit. If the rally continues for another day with 
the QQQ moving over $24 the numbers go off the scale. 

But I did not sell the put! No problem that was only one 
option. If you are still holding the puts you are doing just
fine. They were only meant for catastrophe insurance to 
begin with. We wanted something to protect us in case the
QQQ went down and did not come back up. 

If the QQQ continues upward traders should sell the puts when
they reach the point that they bought them. If you paid $1.85
for them as the charts show you should have then you still own
them at $2.85 (Friday's value) and your total position is
worth $9,450 with a cost of $8,800.

This is not a roaring profit but the play still has three 
weeks to run. 

The two scenarios play out like this:

The QQQ continues to go up:

You sell your puts for $1.85 when the QQQ reaches the level 
where you purchased them. You put a stop loss on your profitable 
calls and let the play run. 

The QQQ continues to go down:

You maintain your put position until you can exit the puts
near the cost of the entire transaction and you remain long
the calls for next to nothing until expiration. Or, depending
on the speed of the drop you remain long the puts until 
profitable and close them for a win and either liquidate the
calls for a few cents or hold them until expiration and hope
they go back up.


This trade was predicated on an expected SHARP drop and SHARP
rebound last week. We got exactly what we expected and with any
follow through on Monday will have a very profitable play.


I had readers emailing me on Friday wanting to know if they
should enter it now. NO, it is over. It was based on a market
setup that was a one time thing. 

For a recap of the initial description check out the editors
plays for Sunday July 21st.

New Play

Okay, you have the concept!

I am going to diagram the same play on the DJX (Dow).
Because there is a possibility of a strong short covering
bounce on Monday followed by another deeper drop I am
going to do the same strategy with puts.

Because the DJX options are more expensive, (because the Dow
moves faster than the QQQ), I am changing the parameters
slightly. I am going to cut the number of contracts down
on each increment with a balloon on the last trigger. That
means when it is the most oversold we will double our last


I am going to use the August $82 puts. (DJX-TD) The closing
ask on Friday was $2.80 but they should be cheaper at the 
open on Monday due to premium decay. I am using $2.50 as
my opening estimate but we all know that real life will be
different once the Dow starts moving up.

I am using the August $84 call as the insurance strike. 
(DJX-HF) It closed Friday at $2.15 ask. This will also change
by Monday morning.

Here is the play:

At the open on Monday buy 20 contracts (or any number you 
are more comfortable with) of the August $84 call at market.
This is your insurance against a runaway market. 

Buy the Aug-$82 PUT contracts listed each time a trigger 
point is hit. 

Here are the trigger points to buy the puts:

qty 5 @ $83.00 (DOW 8300) $2.50 total invested $1250 avg $2.50 
qty 5 @ $83.50 (DOW 8350) $2.10 total invested $2300 avg $2.30 
qty 5 @ $84.00 (DOW 8400) $1.95 total invested $3275 avg $2.18
qty 5 @ $84.50 (DOW 8450) $1.80 total invested $4175 avg $2.09
qty 5 @ $85.00 (DOW 8500) $1.65 total invested $5000 avg $2.00
qty 5 @ $85.50 (DOW 8550) $1.45 total invested $5725 avg $1.91
qty 10@ $86.00 (DOW 8600) $1.25 total invested $6975 avg $1.74

Including the cost of the calls the total for the entire
position would be $6975 + $4300 for the calls or $11,275.

Remember, this is just a suggestion. You can buy any number
of contracts you are comfortable with as long as you use the
same ratios. 


If the Dow runs up to 8600 and triggers all your put contracts
your calls will be worth somewhere around $4.75 each. That
is $9500. Your puts would be worth somewhere in the $1.00
range (you just paid $1.25 for the $86 trigger) or $4,000+

You have paid in $11,275 and the position is worth $13,500.
(these are just estimates of course)

Now you are faced with two possibilities:

1. Sell the calls for the $9,500 and you have 40 contracts 
of the Dow puts with a basis of $1,775 ($.44 cents each)

2. Set a stop loss on the calls of $2.15 and wait for the Dow
to roll over and your puts to go back up in value to the $2.50
you paid for the first trigger at Dow 8300. Your calls will be
stopped out for no gain/loss at $2.15. Your puts will be worth
$10,000 (est) with a basis of $6,975. Set a stop loss and let
the play run. If the Dow does set a new low this would turn 
into a home run. For every 100 points the Dow drops the put 
price would increase about $.85 cents.

On Tuesday of last week those puts traded for $6.60 when the
Dow was below 7800. Do the math. 

Of course I am not claiming that this play or any other will
ever work out exactly as planned. This is just an example of
how to enter a potentially very profitable trade with a minimum
of risk. 

Two points: 

First, this is a trading play only and should not be held long
term. The overall market trend is still down but the Dow could
remain up for days or weeks. I would like to think that the
Dow will roll over well below 8600 but anything is possible.
If you plan on holding longer be sure to buy the calls and 
don't sell them until the play is profitable. 

Second, do not try to do this with limit buys based on option
prices. The prices quoted were the closing prices on Friday. 
There is no way to predict the actual price on Monday or 
Tuesday. Trying to make a limit buy in a fast moving market
more often than not leaves you standing on the sidelines 

Use a limit based on the DJX price or enter the orders manually, 
but enter the option order at market. For 50 contracts or less 
they will be filled automatically at bid/ask and nobody will 
have the chance to jack you around.


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

Good Luck

Jim Brown


So Far So Good
By Steven Price

This morning started on a positive note with a chip equipment 
sector upgrade from Goldman Sachs.  The sector had been beaten 
severely in recent months, with the Semiconductor Index (SOX.X) 
reaching a new 52-week low on Thursday.  Finally someone was 
showing a little faith, even after yesterday's announcement from 
Taiwan Semiconductor that they were cutting their capital 
spending budget by more than $500 million.   The recommendation 
was lukewarm, however, basically saying business cycles could 
help the sector, even though there was no immediate change in 
fundamentals ahead.  In spite of the upgrade the SOX ended on 
another 52-week low.

Senator Carl Levin sent letters to the CEOs of Citigroup and J.P. 
Morgan, requesting that they personally answer questions 
regarding their companies' dealings with Enron.  The Senate set a 
Monday deadline for them to provide the information.  In the past 
week, Citigroup CEO Sanford Weill sent a memo to Citigroup 
employees assuring them that the company's dealings with Enron 
were legal and met accounting standards.  What I find interesting 
about the memo is the wording: "And our people, relying on the 
advice of independent legal and accounting experts, believe they 
were doing the right thing."  It seems to leave the door open for 
blame to be placed for any wrongdoing on following the advice of 
independent experts, rather than simply stating that there was no 
wrongdoing.  J.P. Morgan CEO William Harrison also announced on 
Wednesday that the company acted "properly and with integrity" in 
its dealings with Enron.  It will be interesting to see how 
forthcoming these two men are with the Senate.  If they choose 
not to respond, we could see their companies' stocks give up 
their gains, and return to the levels they saw on Tuesday.   On a 
similar note, Merrill Lynch announced that it had suspended its 
managing director of energy banking, Schuyler Tilney, who refused 
to testify before the Senate Permanent Subcommittee on 
Investigations.  While this demonstrates Merrill's intent to 
cooperate with the investigation, it is also worrisome that 
Tilney apparently has something to hide. 

The gold index (XAU.X) has given up all of its gains for the 
year, as the dollar has rallied over the last week and a half - 
keep your fillings.  The sector index closed at 55.73.  Gold 
futures fell as low as 302, before bouncing off support at 300 
from April, and finishing at 305.2, giving up 6.5 on the day.

GE announced a reorganization of its financial services unit, GE 
Capital, into four separate divisions. Each division will report 
its financials separately.  This portion of GE generates 40% of 
the company's earnings.  The four new units will be GE Commercial 
Finance, GE Insurance, GE Consumer Finance and GE Equipment 
Management.  GE finished up $1.15 to $27.80

Microsoft made back almost half of its losses this week, after 
the company announced they were expanding the R&D budget, hiring 
5,000 additional employees, and still has $60 billion in cash.

The Dow continued its surge. After an up and down day that saw a 
low of 8114.59, it closed at 8264.39, just 3 points off the high 
of the day.   The index added 70 points overall to Wednesday's 
rally.  The S&P 500 finished up 14.16 to 852.84, adding 9.41 to 
Wednesday's close.  The Nasdaq finished up 22.04, to 1262.12, 
28.11 points below Wednesday's rally numbers. Although this 
number was down from Wednesday, the index regained some of 
Thursday's 50-point drop.  

On a day that could have seen bulls taking profits from the first 
large rally in months, it is encouraging that the week finished 
in rally mode.  Heading into next week, the rally could continue, 
unless we see bad news from Citigroup or J.P. Morgan.  Other 
concerns are the semi-conductor sector, which continued its fall 
despite the upgrade.  However, after a 500-point gain on 
Wednesday, and negligible down day (5-points) on Thursday, the 
rally today seems promising.  


Market Averages


52-week High: 10679
52-week Low :  7702
Current     :  8264

Moving Averages:

 10-dma: 8221
 50-dma: 9289
200-dma: 9788

S&P 500 ($SPX)

52-week High: 1226
52-week Low :  775
Current     :  852

Moving Averages:

 10-dma:  860
 50-dma:  987
200-dma: 1087

Nasdaq-100 ($NDX)

52-week High: 1782
52-week Low :  869
Current     :  910

Moving Averages:

 10-dma:  961
 50-dma: 1091
200-dma: 1377


The Semiconductor Index (SOX.X) started off the morning in 
positive territory after reaching a 52-week low on Thursday.  
Goldman Sachs upgraded the semiconductor equipment makers this 
morning, however its comments were very cautious, attributing the 
upgrade to cyclical factors, rather than improving fundamentals.  
This upgrade was not enough to overcome yesterday's announcement 
from Taiwan Semiconductor (TSM), the world's largest 
semiconductor foundry, stating that they were cutting their 
budget for 2002, possibly by as much as $500 million.  The index 
was unable to hold its gains and set a new 52-week low.

52-week High: 657
52-week Low : 315
Current     : 315

Moving Averages:

 10-dma: 357
 50-dma: 418
200-dma: 508


Market Volatility

It appears the Volatility index has lost some of its steam.  This 
is actually a result of the market's continued rally, easing the 
fears of traders afraid to sell puts too cheap.  This is also 
reflected in the CBOE put/call ratio falling from .87 to .70, 
reflecting fewer puts traded relative to the number of calls.  
Although a market drop could see this number soar back into the 
50s, historically the VIX has dropped steadily after surges to 
recent levels.  This is a result of the market subsequently 
rising and holding gains, so next weeks activity in the 
underlying markets will be the key.

CBOE Market Volatility Index (VIX) = 40.44 –4.21
Nasdaq-100 Volatility Index  (VXN) = 69.02 –0.46


          Put/Call Ratio  Call Volume   Put Volume
Total          0.70        564,059       396,501
Equity Only    0.59        454,318       265,918
OEX            0.79         22,186        17,474
QQQ            0.24         45,855        10,807


Bullish Percent Data

           Current   Change   Status
NYSE          25      + 0     Bull Correction
NASDAQ-100    26      - 2     Bull Correction
DOW ($INDU)    3      - 0     Bear Confirmed
S&P 500       14      + 1     Bear Confirmed
S&P 100       10      - 0     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  1.22
10-Day Arms Index  1.32
21-Day Arms Index  1.35
55-Day Arms Index  1.37

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       1926          1239
NASDAQ     1874          1424

        New Highs      New Lows
NYSE        22            199
NASDAQ      74            245

        Volume (in millions)
NYSE     2,136
NASDAQ   1,502


Commitments Of Traders Report: 07/23/02

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

Commercials increased both longs and shorts, however increased 
long contracts totals by an additional 10,000 contracts more than 
shorts. Small traders continued to get longer, while adding 2,800 
net longs to their position.

Commercials   Long      Short      Net     % Of OI 
07/09/02      396,321   456,164   (59,843)   (7.0%)
07/16/02      388,943   464,162   (75,219)   (8.8%)
07/23/02      405,969   471,704   (65,735)   (7.5%)

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
07/09/02      145,017    71,402    73,615     34.0%
07/16/02      157,370    67,247    90,123     40.1%
07/23/02      166,713    73,778    92,935     38.6%

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

Commercials added contracts both long and short to their 
positions, maintaining approximately the same ratio, however 
increasing their positions by approximately 8,000 total 
contracts.  Small Traders added to their short positions reducing 
their net by approximately 400 contracts.

Commercials   Long      Short      Net     % of OI 
07/09/02       31,227     39,592    (8,725) (12.3%)
07/16/02       33,152     39,866    (6,714) ( 9.2%)
07/23/02       37,204     43,601    (6,397) ( 8.0%)

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
07/09/02       12,520     8,348     4,175     20.0%
07/16/02       12,816    10,774     2,042      8.7%
07/23/02       12,756    11,152     1,604      6.7%

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


Commercials added 2,000 contracts to their long position, while 
adding only 671 to their shorts.  Small Traders increased both 
sides of their position, however added almost 2,000 more short 
contracts than long contracts. 

Commercials   Long      Short      Net     % of OI
07/09/02       20,761    14,122    6,639     19.0%
07/16/02       20,357    14,074    6,283     18.2%
07/23/02       22,369    14,745    7,624     20.5%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
07/09/02        6,831     6,623       208     1.50%
07/16/02        8,524    10,133    (1,609)   (8.62%)
07/23/02        9,101    12,604    (3,503)   (16.1%)

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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Market Watch for the week of July 29th

Major Earnings This Week

Symbol  Company               Date           Comment      EPS Est

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

ACE    ACE Limited            Mon, Jul 29  After the Bell    0.84
ARG    Airgas                 Mon, Jul 29  After the Bell    0.22
AFC    Allmerica Financial    Mon, Jul 29  -----N/A-----     0.76
AWK    American Water Works   Mon, Jul 29  Before the Bell   0.45
AHS    AMN Hlthcre Serv, Inc. Mon, Jul 29  After the Bell    0.25
BLDP   Ballard Power Systems  Mon, Jul 29  -----N/A-----    -0.41
STD    Bnc Santander Cntl His Mon, Jul 29  -----N/A-----      N/A
CB     Chubb                  Mon, Jul 29  Before the Bell   1.13
DPL    DPL                    Mon, Jul 29  After the Bell    0.33
EOP    Equity Office Prop     Mon, Jul 29  After the Bell    0.77
FIA    Fiat S.P.A.            Mon, Jul 29  Before the Bell    N/A
FHCC   First Health Group     Mon, Jul 29  Before the Bell   0.31
HIG    Hartford Finl Serv     Mon, Jul 29  After the Bell    1.15
HMC    Honda Motor            Mon, Jul 29  -----N/A-----      N/A
HUM    Humana                 Mon, Jul 29  Before the Bell   0.27
JP     Jefferson-Pilot        Mon, Jul 29  After the Bell    0.84
K      Kellogg                Mon, Jul 29  Before the Bell   0.42
KIM    Kimco Realty           Mon, Jul 29  After the Bell    0.75
KG     King Pharmaceuticals   Mon, Jul 29  Before the Bell   0.31
KB     Kookmin Bank           Mon, Jul 29  Before the Bell    N/A
MCY    Mercury General        Mon, Jul 29  Before the Bell   0.59
MIR    Mirant Corporation     Mon, Jul 29  -----N/A-----     0.34
NFS    Ntnwde Fncial Serv     Mon, Jul 29  After the Bell    0.82
OGE    OGE Energy             Mon, Jul 29  Before the Bell   0.25
PPE    Park Place Enter       Mon, Jul 29  Before the Bell   0.16
PSO    Pearson plc            Mon, Jul 29  Before the Bell    N/A
PCZ    Petro-Canada           Mon, Jul 29  -----N/A-----     0.45
RCII   Rent-A-Center          Mon, Jul 29  After the Bell    1.18
ROH    Rohm and Haas          Mon, Jul 29  Before the Bell   0.46
RSE    Rouse                  Mon, Jul 29  -----N/A-----     0.78
TU     TELUS Communications   Mon, Jul 29  Before the Bell   0.02
TEVA   Teva Pharmaceutical    Mon, Jul 29  Before the Bell   0.62
TOM    Tommy Hilfiger         Mon, Jul 29  -----N/A-----     0.00
TRI    Triad Hospitals        Mon, Jul 29  After the Bell    0.37
TSN    Tyson Foods            Mon, Jul 29  Before the Bell   0.26
WRI    Weingarten Realty      Mon, Jul 29  Before the Bell   0.80

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

ACS    Affiliated Cmptr Serv  Tue, Jul 30  Before the Bell   0.49
AGU    Agrium                 Tue, Jul 30  After the Bell    0.13
AYE    Allegheny Energy       Tue, Jul 30  After the Bell    0.45
AHM    Amersham               Tue, Jul 30  Before the Bell    N/A
AOT    Apogent                Tue, Jul 30  Before the Bell   0.34
ARW    Arrow Electronics      Tue, Jul 30  -----N/A-----     0.04
BSG    BISYS Group            Tue, Jul 30  After the Bell    0.30
BOW    Bowater                Tue, Jul 30  Before the Bell  -0.77
BP     BP plc                 Tue, Jul 30  Before the Bell   0.63
BTI    British Am Tobacco     Tue, Jul 30  Before the Bell    N/A
BPO    Brookfield Properties  Tue, Jul 30  During the Market 0.57
CAJ    Canon                  Tue, Jul 30  Before the Bell    N/A
CRL    Charles River Lab      Tue, Jul 30  After the Bell    0.32
CVX    ChevronTexaco Corp.    Tue, Jul 30  Before the Bell   1.37
COH    Coach                  Tue, Jul 30  Before the Bell   0.17
CEFT   Concord EFS            Tue, Jul 30  Before the Bell   0.18
CVH    Coventry Health Care   Tue, Jul 30  Before the Bell   0.48
CREE   Cree                   Tue, Jul 30  After the Bell    0.02
DTE    DTE Energy             Tue, Jul 30  After the Bell    0.44
EPN    El Paso Energy Prtnrs  Tue, Jul 30  Before the Bell   0.18
ETR    Entergy                Tue, Jul 30  -----N/A-----     1.14
FLR    Fluor                  Tue, Jul 30  After the Bell    0.50
FMS    Fresenius Medical Care Tue, Jul 30  -----N/A-----     0.25
FDP    Fresh Del Monte        Tue, Jul 30  Before the Bell   0.96
HLT    Hilton Hotels Cor      Tue, Jul 30  Before the Bell   0.20
ICST   Integrated Circuit Sys Tue, Jul 30  After the Bell    0.18
KLAC   KLA-Tencor             Tue, Jul 30  After the Bell    0.20
MXICY  Macronix International Tue, Jul 30  Before the Bell    N/A
MFC    Manulife Financial     Tue, Jul 30  During the Market 0.44
NI     NiSource               Tue, Jul 30  Before the Bell   0.10
OCAS   Ohio Casualty          Tue, Jul 30  -----N/A-----     0.18
OMG    OM Group Incorporated  Tue, Jul 30  Before the Bell   0.89
IX     Orix Corporation       Tue, Jul 30  -----N/A-----      N/A
PH     Parker Hannifin        Tue, Jul 30  Before the Bell   0.50
PFGC   Performance Food       Tue, Jul 30  Before the Bell   0.46
PER    Perot Systems          Tue, Jul 30  Before the Bell   0.18
IQW    Quebecor World         Tue, Jul 30  Before the Bell   0.36
RCI    Renal Care Group       Tue, Jul 30  After the Bell    0.43
REP    Repsol YPF, S.A.       Tue, Jul 30  -----N/A-----      N/A
RYG    Royal Group Tech       Tue, Jul 30  Before the Bell   0.46
IMI    SanPaolo IMI SpA       Tue, Jul 30  After the Bell     N/A
SVM    ServiceMaster          Tue, Jul 30  Before the Bell   0.21
SKE    Spinnaker Exploration  Tue, Jul 30  -----N/A-----     0.17
STTS   ST Assembly Test Serv  Tue, Jul 30  After the Bell   -0.27
TLM    Talisman Energy        Tue, Jul 30  After the Bell    0.71
RIG    Transocean Inc.        Tue, Jul 30  Before the Bell   0.22
UMC    Un Mcrelec Corporation Tue, Jul 30  Before the Bell   0.05
UPM    UPM-Kymmene Group      Tue, Jul 30  Before the Bell    N/A
VLO    Valero Energy          Tue, Jul 30  During the Market 0.11
WSH    Willis Group Hld Lmtd  Tue, Jul 30  Before the Bell   0.29
XL     XL Capital             Tue, Jul 30  After the Bell    0.55

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

ACL    Alcon Laboratories     Wed, Jul 31  -----N/A-----     0.43
AIB    Allied Irish Banks     Wed, Jul 31  Before the Bell    N/A
AW     Allied Waste Inds      Wed, Jul 31  After the Bell    0.24
AFG    American Financial Grp Wed, Jul 31  Before the Bell   0.57
APU    AmeriGas Partners      Wed, Jul 31  -----N/A-----    -0.39
ABC    AmerisourceBergen      Wed, Jul 31  Before the Bell   0.81
AU     Anglogold Limited      Wed, Jul 31  Before the Bell   0.43
APPB   Applebee`s Intl        Wed, Jul 31  After the Bell    0.36
AVE    Aventis                Wed, Jul 31  -----N/A-----      N/A
BSY    Brit Sky Brdcstng Grp  Wed, Jul 31  -----N/A-----      N/A
CSC    Computer Sciences Corp Wed, Jul 31  After the Bell    0.46
CEG    Constellation Enrg Grp Wed, Jul 31  Before the Bell   0.51
COX    Cox Communication      Wed, Jul 31  Before the Bell  -0.08
CVS    CVS                    Wed, Jul 31  Before the Bell   0.43
DDR    Dvlprs Dversfied Rlty  Wed, Jul 31  Before the Bell   0.60
RDY    Dr. Reddy`s Labs       Wed, Jul 31  Before the Bell    N/A
DRE    Duke Realty Corp       Wed, Jul 31  -----N/A-----     0.65
E      ENI SpA                Wed, Jul 31  Before the Bell    N/A
EPD    Enterprise Products    Wed, Jul 31  Before the Bell   0.17
EPC    Epcos                  Wed, Jul 31  Before the Bell    N/A
EQR    Eqty Res Prop Trust    Wed, Jul 31  Before the Bell   0.62
EXC    Exelon Corporation     Wed, Jul 31  Before the Bell   1.08
FSH    Fisher Scientific Intl Wed, Jul 31  After the Bell    0.42
GRMN   Garmin Ltd.            Wed, Jul 31  Before the Bell   0.29
GGP    General Growth Prop    Wed, Jul 31  After the Bell    1.17
HTV    Hearst-Argyle TV       Wed, Jul 31  Before the Bell   0.30
IM     Ingram Micro           Wed, Jul 31  -----N/A-----     0.06
IRM    Iron Mountain          Wed, Jul 31  Before the Bell   0.17
JBX    Jack in the Box        Wed, Jul 31  Before the Bell   0.60
JNY    Jones Apparel          Wed, Jul 31  -----N/A-----     0.43
MKL    Markel                 Wed, Jul 31  Before the Bell   2.01
MAS    Masco                  Wed, Jul 31  -----N/A-----     0.42
MC     Mats Elctrc Indl Co.   Wed, Jul 31  -----N/A-----      N/A
MX     Metso Corporation      Wed, Jul 31  Before the Bell    N/A
NBIX    Neurocrine Biosci     Wed, Jul 31  -----N/A-----    -0.68
PIO    Pioneer Corporation    Wed, Jul 31  -----N/A-----      N/A
STR    Questar                Wed, Jul 31  After the Bell    0.32
RDA    Reader`s Digest Ass    Wed, Jul 31  Before the Bell   0.19
RGC    Regal Enter Grp        Wed, Jul 31  Before the Bell   0.27
SPP    Sappi Limited          Wed, Jul 31  Before the Bell   0.26
SPG    Simon Property Group   Wed, Jul 31  -----N/A-----     0.85
SLC    Sn Lfe Fin Srvcs Cnda  Wed, Jul 31  -----N/A-----     0.37
SYY    Sysco                  Wed, Jul 31  Before the Bell   0.29
TKTX   Transkaryotic          Wed, Jul 31  After the Bell   -0.53
UN     Unilever N.V.          Wed, Jul 31  Before the Bell   0.89
VZ     Verizon Communications Wed, Jul 31  -----N/A-----     0.77
VSH    Vishay Intertechnology Wed, Jul 31  Before the Bell   0.11

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

APCC   American Power Con     Thu, Aug 01  After the Bell    0.13
RMK    ARAMARK Corporation    Thu, Aug 01  Before the Bell   0.29
BCS    Barclays Bank Plc      Thu, Aug 01  -----N/A-----      N/A
BAY    Bayer AG               Thu, Aug 01  Before the Bell    N/A
BNN    Brascan Corporation    Thu, Aug 01  After the Bell     N/A
CPN    Calpine                Thu, Aug 01  Before the Bell   0.17
CPT    Camden Property Trust  Thu, Aug 01  After the Bell    0.83
CCJ    Cameco                 Thu, Aug 01  After the Bell     N/A
CMCSK  Comcast                Thu, Aug 01  -----N/A-----     0.19
DVA    DaVita                 Thu, Aug 01  Before the Bell   0.38
DEG    Delhaize Group         Thu, Aug 01  -----N/A-----      N/A
DVN    Devon Energy           Thu, Aug 01  Before the Bell   0.85
XOM    Exxon Mobil Corp       Thu, Aug 01  During the Market 0.46
GRP    Grant Prideco          Thu, Aug 01  Before the Bell   0.03
HAN    Hanson PLC             Thu, Aug 01  Before the Bell    N/A
ICI    Impl Chem Ind Plc.     Thu, Aug 01  Before the Bell    N/A
JHF    John Hnck Finl Serv    Thu, Aug 01  After the Bell    0.71
KTC    Korea Telecom          Thu, Aug 01  -----N/A-----      N/A
LNC    Lincoln National       Thu, Aug 01  Before the Bell   0.85
MDP    Meredith Corporation   Thu, Aug 01  Before the Bell   0.46
NWL    Newell Rubbermaid      Thu, Aug 01  Before the Bell   0.37
OCR    Omnicare               Thu, Aug 01  -----N/A-----     0.35
OKE    Oneok                  Thu, Aug 01  After the Bell    0.22
OHP    Oxford Health Plans    Thu, Aug 01  Before the Bell   0.70
PNP    Pan Pacific Retail     Thu, Aug 01  -----N/A-----     0.72
PCG    PG&E                   Thu, Aug 01  -----N/A-----     0.55
PDS    Precision Drlng Corp   Thu, Aug 01  Before the Bell   0.06
RD     Royal Dutch Petroleum  Thu, Aug 01  -----N/A-----     0.72
SLE    Sara Lee               Thu, Aug 01  Before the Bell   0.42
SC     Shl Trnsprt Trdng Cmp  Thu, Aug 01  Before the Bell   0.62
SHPGY  Shire Pharm Group      Thu, Aug 01  Before the Bell   0.29
SNN    Smith & Nephew         Thu, Aug 01  -----N/A-----     1.00
SRCL   Stericycle             Thu, Aug 01  During the Market 0.25
TLD    TDC                    Thu, Aug 01  Before the Bell    N/A
TDK    TDK                    Thu, Aug 01  -----N/A-----      N/A
DIS    Walt Disney            Thu, Aug 01  After the Bell    0.17
WMI    Waste Management       Thu, Aug 01  Before the Bell   0.35
WGL    WGL Holdings Inc       Thu, Aug 01  After the Bell   -0.20

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

AAA    Altana AG              Fri, Aug 02  -----N/A-----      N/A
AVZ    AMVESCAP PLC           Fri, Aug 02  Before the Bell   0.26
CRE    CarrAmerica Realty     Fri, Aug 02  Before the Bell   0.85
CI     CIGNA                  Fri, Aug 02  Before the Bell   1.95
DTC    Domtar                 Fri, Aug 02  -----N/A-----     0.09
FS     Four Seasons Hotels    Fri, Aug 02  Before the Bell   0.31
LYG    Lloyds TSB Group       Fri, Aug 02  -----N/A-----      N/A
RSG    Republic Services      Fri, Aug 02  Before the Bell   0.35
TMIC   Trend Micro            Fri, Aug 02  -----N/A-----      N/A
UNEWY  United Business Media  Fri, Aug 02  Before the Bell    N/A

Upcoming Stock Splits In The Next Two Weeks...

Symbol  Company Name              Ratio    Payable     Executable

CHS     Chicos FAS                2:1      07/26       07/29
ACMR    A C Moore Arts & Crafts   2:1      07/31       08/01
FVB     First Virginia Banks      3:2      08/09       08/12
SSD     Simpson Manufacturing     2:1        N/A         N/A
         - awaiting shareholder approval at 7/29/02 meeting.

Economic Reports This Week

With the market surrounded in fog, use this market watch as a 
beacon of light to help guide you through the next week.  


Monday, 07/29/02

Tuesday, 07/30/02
Consumer Confidence(DM)Jul   Forecast:  102.0  Previous:    106.4

Wednesday, 07/31/02
GDP-Adv. (BB)            Q2  Forecast:   2.3%  Previous:     6.1%
Chain Deflator-Adv.(BB)  Q2  Forecast:   1.3%  Previous:     1.2%
Chicago PMI (DM)        Jul  Forecast:   56.5  Previous:     58.2
Fed’s Beige Book

Thursday, 08/01/02
Initial Claims (BB)   07/27  Forecast:    N/A  Previous:     362K
Auto Sales (NA)         Jul  Forecast:   6.4M  Previous:     5.8M
Truck Sales (NA)        Jul  Forecast:   8.4M  Previous:     7.3M
Construction Spening(DM)Jun  Forecast:   0.2%  Previous:    -0.7%
ISM Index (DM)          Jul  Forecast:   55.0  Previous:     56.2

Friday, 08/02/02
Nonfarm Payrolls (BB)   Jul  Forecast:    55K  Previous:      36K
Unemployment Rate (BB)  Jul  Forecast:   5.9%  Previous:     5.9%
Hourly Earnings (BB)    Jul  Forecast:   0.2%  Previous:     0.4%
Average Workweek (BB)   Jul  Forecast:   34.3  Previous:     34.3
Personal Income (BB)    Jun  Forecast:   0.5%  Previous:     0.3%
Personal Spending (BB)  Jun  Forecast:   0.6%  Previous:    -0.1%
Factory Orders (DM)     Jun  Forecast:  -2.2%  Previous:     0.5%

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

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The Option Investor Newsletter                   Sunday 07-28-2002
Sunday                                                      2 of 5

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by Leigh Stevens

Semiconductor equipment stocks were pounded last week on concerns 
of NO pick up in demand from major customers in the second half. 
This weakness and a move to new lows below the Sept. bottom at 
344 in the SOX index put serious selling pressure on the Nasdaq. 
There is nothing more "tech" than the chips that make tech run.

st week at the largest semiconductor equipment trade show, top 
executives seemed resigned to a flat second-half of the year as a 
technology spending malaise shows no signs of improvement.
Further, the stock market's brutal slide has some concerned about 
access to new sources of money for those further down the food 
chain. SOX fell 50 points from its opening level, which was down 
nearly 14% on the week!  This after a long slide already - it 
often seems to get worse before it gets better! 
UP on Friday - 


DOWN on Friday - 



Sectors showing recent bullish promise after having upside 

The Amex Composite (small cap), Bank Index (BTK), Biotech,
 Broker-Dealers (XBD), Cyclical sector (CYC), (NYSE) Financial 
Index (NF), Defense (DFI), Forest & Paper Products (FPP), 
Healthcare (HMO), Oils (OIX), Drugs (DRG), Retail (RLX), the 
Russell 2000 (small caps) (RUT), and the Dow Transports (TRAN).

The(PC) Boxmakers (BMX) and Software (GSO) sectors follow through 
was not as consistent with a tradable bottom. 



Buy BBH at 73.00 
(Biotech HOLDR's)
Stop at 69.35

I may be being too conservative in looking for a 3 point dip from 
Friday close or to back to the top end of the recent upside price 
"gap" in the HOLDR's as a place to buy - having been "stopped 
out" previously in trying to play a rebound in this sector, I'm 
being cautious in looking for an entry.  

It's possible that the upside price gap from Wed.-Thurs. is a 
"breakaway" gap and will not be "filled in" anytime soon. The gap 
is between 72.72 and 73.80. Friday's low was 74.11.  

My upside objective is to 89.00, so, relative to entry even 
around Friday's close at 77.30, risk of say 5 points, still gives 
a decent upside IF my trading objective is realized.  




Of the sectors highlighted, the Biotech HOLDR'S continue to look 
to have the most further upside potential. 

Biotechnology Index ($BTK.X)


The Biotech index (BTK) has a strong rebound from its last 
decline to the low end of the downtrend channel line.  

Friday's trading looks like a consolidation day, before the Index 
continues to move higher, perhaps back up to the high end of the 
downtrend channel, which intersects around 395 in the Index and 
at 90 in the Biotech HOLDR stock.

UPDATE: 7/28

Leigh Stevens
Chief Market Strategist


For Best Alignment view in Courier Ten Font

CALLS              Mon    Tue    Wed    Thu   Week    

JNJ      49.61    0.68   1.55   3.62   1.00   7.91  Drop, Profits
EFX      20.63   -1.67  -0.38   0.80   0.72  -1.22  Good Credit
BAX      36.58   -0.92   0.73   2.85   1.24   4.71  Healing
ADP      35.71    1.61   1.26   0.64  -0.33   4.21  New, Fill the Gap
LTR      45.08   -1.40  -0.47   1.98   0.13   1.33  New, Catch Up
MMM     120.85   -1.00   0.76   7.95   0.44  10.85  New, Dow Strength
LLY      53.70    0.78  -0.27   1.90   2.16   5.80  New, Firming Up
MSFT     45.35   -2.66  -3.31   4.48  -2.63  -3.60  New, Still Hiring
WMT      48.18   -1.65   0.10   6.44  -0.70   2.23  New, Bargain Buy


EBAY     54.97   -3.64  -2.89   2.59  -2.39  -3.77  Drop, Bids Back
GDW      60.00   -0.31  -1.93   1.45  -0.60  -1.00  Drop, Moving On
LOW      35.59   -1.11  -0.70   3.28  -2.42   0.34  Drop, Slow Going
MHK      44.61   -0.32  -1.48   2.20  -1.02   1.79  Still Weakening
EXPE     47.09   -1.12  -5.89   6.77  -3.21  -6.28  Flight Cancelled
BBOX     36.97   -0.57  -2.16   2.33  -1.25  -2.82  Blackballed
CBE      27.95   -0.38  -1.80   1.20  -1.20  -5.13  Pockets of Weakness
LLTC     25.16    0.15  -1.41   3.79  -2.55  -3.96  Breakdown

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Call Play of the Day:

WMT - Wal-Mart $48.18 +1.18 (+1.68 for the week)

See details in play list

Put Play of the Day:

BBOX – Black Box Corporation $36.92 (-2.30 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.


JNJ $49.61 +0.91 (+7.76 for the week) Johnson and Johnson has 
performed well this week.  This play was picked at $41.85 after 
the stock was severely oversold on news about a federal probe into 
one of its manufacturing facilities.  It has filled its gap from 
last week, and gone on to approach $50.  We are closing this play 
and taking our profits, as we see $50 as a resistance point.


GDW $60.00 (-0.08) Taking a break from their recent volatile
action, the broad markets traded in a fairly narrow range all
day on Friday before a final hour ramp to close at the high of
the day.  Shares of GDW barely moved at all after opening just
below our $60 stop, failing to respond to any bearish advances.
With the push higher into the close, GDW closed right on our
stop, underscoring the fact that it is time to move on.  GDW
treated us well, but the ride is over.  Close out any remaining
positions on Monday.

EBAY $54.97 +1.61 (-4.48 for the week) Originally picked at 
$59.45, EBay dropped after fund managers finished their buying 
spree last Friday.  OI feels that this stock had been artificially 
propped up as it was being added to the S&P 500.  The problems 
with continuing growth and a high P/E ratio screamed, 
"overvalued!"  Eventually, the market heard the screams. If the 
Nasdaq rebounds next week, playing catch-up with the Dow and S&P 
500, this stock could be swept along with it, overvalued or not. 
We are closing this play and taking profits.  

LOW $35.59 +0.51 (-0.44 for the week) Originally picked at $37.60 
on July 16th, Lowe's has made it down to $32.70, and then 
rebounded with the rest of the retail sector. Fellow retailers 
Wal-Mart, Home Depot and Target were all on the positive side, 
along with LOW today. This slow mover could take a while before it 
sees that level again.  While the stock has failed to hold its 
high from Wednesday's rally, positive consumer sentiment numbers 
on Tuesday could continue to lift the sector.  We are closing this 
play for a profit and moving on to our next winning trade.


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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The Option Investor Newsletter                  Sunday 07-28 2002
Sunday                                                      3 of 5

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ADP – Automatic Data Processing $35.71 (+2.60 last week)

Company Summary:
Through its many subsidiaries, ADP is a provider of computerized
transaction processing, data communication and information
services.  The company's operations are divided into Employer
Services, Brokerage Services, Dealer Services and Claims
Services.  Among the activities managed by the Employer
Services division are payroll, human resources, benefits
administration, tax filing and reporting and retirement plan

Why We Like It:
The widespread selling of good and bad stocks over the past
couple weeks has created a lot of attractive call candidates, so
long as the fledgling broad-market rally doesn't fall apart as
quickly as it began.  Keeping our attention focused on the
importance of relative strength, it is worth noting that our new
ADP call play bottomed over a week ago and didn't even dip as
the rest of the market sold off to new multi-year lows.  Perhaps
the relative strength seen last week is due to the fact that the
stock had already sold off to new all-time highs, or perhaps it
was the combined effect of several analysts making positive
comments about the stock.  Whatever the cause, ADP found support
near $31 and has been steadily climbing since then, coming to
rest just below $36 on Friday.  Overhead resistance is being
created at the $36 level, by the combined effect of Wednesday's
intraday highs and the declining 10-dma ($35.85).  A continued
rally through the $36 level is what we want to use for initiating
new positions.  Even though the near-term upside is likely
limited to the $39-41 area, (the site of significant price
congestion just prior to the sharp downward move on July 18th),
we don't want to buy dips until the stock can prove its
willingness to move through the $36 level.  Initial stops are
set at $33.25.

BUY CALL AUG-35*ADP-HG OI=2177 at $2.25 SL=1.25
BUY CALL AUG-37 ADP-HU OI= 593 at $1.25 SL=0.50
BUY CALL SEP-35 ADP-IG OI= 119 at $3.30 SL=1.75
BUY CALL SEP-37 ADP-IU OI=1015 at $2.05 SL=1.00
BUY CALL SEP-40 ADP-IH OI= 620 at $1.20 SL=0.50

Average Daily Volume = 2.61 mln


LTR – Loews Corp. $45.08 (+2.73 last week)

Company Summary:
Loews Corporation is a holding company with subsidiaries engaged
in property, casualty and life insurance (CNA Financial
Corporation); the production and sale of cigarettes (Lorillard,
Inc.); the operation of hotels (Loews Hotels Holding
Corporation); the operation of offshore oil and gas drilling
rigs (Diamond Offshore Drilling), and the distribution and sale
of watches and clocks (Bulova Corporation).

Why We Like It:
It didn't take a rocket scientist to notice that consumer-related
stocks were really catching a bid after the markets apparently
bottomed on Wednesday.  Tobacco stocks had been under a fair
amount of selling pressure in recent weeks due to renewed
litigation concerns, and the carnage in Insurance stocks was
truly amazing.  But those concerns were apparently waning
early last week ahead of the market lows reached on Wednesday.
That lack of selling pressure can be seen in shares of LTR, which
was refusing to drop below its intraday support near $42.  While
the climactic selling on Wednesday briefly violated that level,
the buyers recognized the attractive entry point and piled in when
the stock rebounded from the level of its September lows and
continued buying right through the close on Friday, handily
propelling the stock through the $44 resistance level on the way.
Even though the stock has had quite a move off its lows, it looks
like it still has room to run before running into formidable
resistance near the $48-49 level.  While momentum traders may
want to initiate new positions on a push through the $46 level,
we would prefer to wait for an intraday pullback to the $44 or
even $43 support levels.  We are placing our coverage stop at

BUY CALL AUG-45*LTR-HI OI=100 at $1.70 SL=0.75
BUY CALL AUG-50 LTR-HJ OI= 95 at $0.30 SL=0.00
BUY CALL SEP-45 LTR-II OI=  2 at $2.80 SL=1.50
BUY CALL SEP-50 LTR-IJ OI= 20 at $0.95 SL=0.50

Average Daily Volume = 556 K


MMM - 3M Company $120.85 +0.90 (+11.97 for the week)

Company Summary:
3M is a $16 billion diversified technology company with leading 
positions in health care, safety, electronics, telecommunications, 
industrial, consumer and office, and other markets. Headquartered 
in St. Paul, Minnesota, the company has operations in more than 60 
countries and serves customers in nearly 200 countries. 3M 
businesses share technologies, manufacturing operations, brands, 
marketing channels and other important resources. 3M, which marks 
its 100th anniversary this year, is one of the 30 stocks that make 
up the Dow Jones Industrial Average and also is a component of the 
Standard & Poor's 500 Index.

Why We Like It:
3M has had a very volatile month.  The stock traded as high as 
$129.95 on July 8, before dropping 16% to $108.88.  The stock has 
mirrored the plummeting Dow Jones since the beginning of July, as 
it is (currently) the Dow's most heavily weighted component.  This 
factor has weighed heavily on the stock.  3M released earnings on 
July 22, which surpassed analysts' expectations by $0.02 per 
share.  The company's net income more than doubled from the 
previous year, an impressive statistic in a very difficult year 
for the U.S. economy.  3M also raised its profit forecasts for the 
third quarter and full year.  The company said it expects to earn 
$5.15 to $5.30 per share, ahead of last year's earnings of $4.36 
per share. Prior to this announcement, expectations were for 
$5.14. 3M's success has come from strength in overseas markets 
and, most importantly, from controlling operating costs in a 
difficult environment.  

A continued rally in the Dow should lift this stock along with it 
(and vice-versa, since 3M carries the heaviest weighting, a rally 
for 3M will help push the index higher). 3M has already broken 
round number support at $120, closing today at $120.85.  OI sees 
this price level as an entry point to go long.  The chart also 
shows the stock breaking through its 200-dma of $118.09, which for 
many stocks can form a heavy ceiling. There may be some minor 
resistance around $123.50, however, beyond that level, $130 looks 
to be the next significant resistance. Our initial price target 
will be this stock's recent high of $129.00.  While near term 
considerations are most important for many OI readers, it is 
interesting to note that 3M has been in a rising channel on its 
monthly chart since 1992.  

While option volume does not always foreshadow movement, it is 
also worthy of noting that there was excessive selling of August 
115 puts on the CBOE throughout the trading day on Friday, a 
bullish sign.  We will place our stop loss on 3M at $117.50, which 
puts it below the 200-dma.

BUY CALL AUG-115 MMM-HB OI=1342 at $8.30 SL=5.00
BUY CALL AUG 120 MMM-HD OI=2208 at $4.80 SL=2.50
BUY CALL SEP-120 MMM-IC OI= 287 at $7.40 SL=4.00
BUY CALL SEP-125 MMM-IE OI= 712 at $4.80 SL=2.50

Average Daily Volume = 2.21 mln


LLY - Eli Lilly Company $53.70 +1.89 (+5.55 for the week)

Company Summary:
Lilly, an innovation-driven corporation, is developing a growing 
portfolio of best-in-class pharmaceutical products by applying the 
latest research from its own worldwide laboratories and from 
collaborations with eminent scientific organizations. 
Headquartered in Indianapolis, Ind., Lilly provides answers – 
through medicines and information -- for some of the world's most 
urgent medical needs. (source:  company release)

Why We Like It:
Lilly sank earlier this month, along with the rest of the drug 
sector.  Problems at Merck and Johnson and Johnson, along with 
Wyeth, combined to hammer the sector.  LLY released earnings July 
18.   The numbers were disappointing due to poor sales of Prozac, 
which lost market share to generic competitors. In addition, there 
were quality control problems at some of its manufacturing plants, 
which led to problems with the FDA. Subsequently, LLY sold off 
heavily, reaching a low of $43.75 on the 18th.  Fortunately for 
investors, all the sellers appear to be exhausted as the stock has 
been on the rise since then.

In spite of the FDA problems, two of the drugmaker's important 
products, Strattera, for attention deficit and hyperactivity 
disorder, and Cialis, for erectile dysfunction, should not be 
affected by the manufacturing problems, although their U.S. 
approval may be delayed. 

Lilly attempted a comeback over the $53 level, but was thwarted 
late last week, only to make another run this week. The stock 
surpassed this resistance Friday, to close at $53.70. OI sees this 
price level as an entry point.  Why the recent rally?  In spite of 
the aforementioned FDA problems, it appears that Cialis will be 
approved in Europe for use this year.  Lilly announced on Thursday 
that a European scientific committee recommended the drug for 
approval.  The drug will now move on to the European Commission, 
which has authority to grant marketing authorization for the 
European Union.  While the U.S. market release may be delayed, 
getting the drug approved for use in Europe would be important for 
both name recognition and profits.  Besides...the ENTIRE drug 
sector has been so beat up for so long, we suspect that smart 
money may be buying them for a rebound now that they are so cheap.  
All of this bad news that has almost cut the industry values in 
half (check the DRG.X) "should" pass as investors tend to have 
short memories. One note of caution for real technical 
traders...if you draw a trendline from the tops of LLY's chart 
starting at the March 2002 highs it would indicate that LLY might 
be close to encountering resistance near $54.00 to $54.50.  We 
believe this level won't be a real hurdle but it happens coincide 
closely with any potential round-number issues associated with the 
$55 mark.

We are setting our stop loss at $50.00.  This stock has had 
relatively wide daily trading ranges and we don't want to get 
stopped out on a minor pullback. 

BUY CALL AUG-50 LLY-HJ OI=3702 at $4.60 SL=2.25
BUY CALL AUG 55 LLY-HK OI=2422 at $1.45 SL=0.50
BUY CALL SEP-50 LLY-IJ OI= 467 at $5.80 SL=2.75
BUY CALL SEP-155LLY-IK OI=1370 at $2.95 SL=1.50

Average Daily Volume = 4.24 mln


MSFT - Microsoft $45.35 +2.52 (-4.21 for the week)

Company Summary:
Founded in 1975, Microsoft is the worldwide leader in software, 
services and Internet technologies for personal and business 
computing. The company offers a wide range of products and 
services designed to empower people through great software -- any 
time, any place and on any device.

Why We Like It:
Microsoft has been one of the biggest stories of the week.  
Leading up to Bill Gates' speech on Thursday, Microsoft was 
pounded to a new 52-week low of $41.41.  Investors were jittery 
about what the Chairman might say and rushed to unload the stock 
to avoid any surprises.  Lo and behold, Gates announced expansion.  
He said the company would be hiring 5,000 new employees and 
boosting payroll by 10%.  He also announced a 20% increase in R&D 
spending.  The new R&D budget will be $5.2 billion, about 16% of 
revenue.  Gates also said that Microsoft is maintaining strong 
product momentum, based on its SQL Server 2000, and Windows XP.

We believe this stock has been oversold, and will benefit greatly 
from upward momentum should the Dow and broader markets continue 
their rise next week.  A look at Microsoft's chart shows the stock 
closing near its highs both on Wednesday, as the Dow rallied 500 
points, and again on Friday as the Thursday's sellers got out of 
the way after Gates' news had time to settle in.  This company has 
plenty of cash reserves and is in a good position to weather short 
term market weakness.  They are increasing their SQL Servers sales 
force by 22% in the 2003 fiscal year, showing a commitment to 
growing their already massive product presence.  

The stock was up $2.52 today, and has shown resilience from the 
pounding it took earlier in the week.  This stock will be a prime 
target of investors trying to get on board with a rising market.  
The stock has fallen from consolidation between $51 and $55.  This 
range will be our upside target.  OI sees the current price level 
as an entry point.  We will place our stop loss at $42, just below 
Thursday's low.

BUY CALL AUG-42.50 MQF-HV OI= 3412 at $4.50 SL=2.25
BUY CALL AUG-45.00 MQF-HI OI=15954 at $2.90 SL=1.50
BUY CALL SEP-42.50 MQF-IV OI=  722 at $6.00 SL=3.00
BUY CALL SEP-45.00 MQF-II OI= 8313 at $4.50 SL=2.25

Average Daily Volume = 41.7 mln


WMT - Wal-Mart $48.18 +1.18 (+1.68 for the week)

Company Summary:
With annual sales of $218 billion, Wal-Mart Stores, Inc. operates 
more than 2,780 discount stores, Supercenters and Neighborhood 
Markets, and more than 510 SAM'S CLUBS in the United States. 
Internationally, the company operates more than 1,170 units. Wal-
Mart employs 1.3 million associates worldwide. The company's 
securities are listed on the New York and Pacific stock exchanges 
under the symbol WMT.

Why We Like It:
Wal-Mart has led the retail sector around by the nose the last few 
weeks.  As a Dow stock it has suffered from the recent beating the 
index has taken.  It has also been a contributor the Dow's 
problems.  Poor mid-July consumer sentiment numbers helped send 
this stock downhill, along with the rest of the retailers.  The 
Retail Index ($RLX.X) fell dramatically, shedding 23.5% from the 
end of June until it bottomed on July 24.  It fell through support 
levels as though they were glass floors.  Now the index seems to 
have found a bottom, led back up by Wal-Mart, which has rebounded 
from its low of $43.72 on July 24.  Wal-Mart blew through previous 
resistance levels of $45 and $47, which had served as support on 
its way up past $63. Consumer Confidence numbers released Friday 
morning were disappointing, but better than expected, and also 
helped to give this sector a boost.

Wal-Mart achieved its bearish vertical count on the point and 
figure chart of $46 on July 19, and continued downward with the 
rest of the market.  However a big day from the Dow was all it 
took to get the bears off Wal-Mart's shoulders and allow it to 
gain some momentum. Although the stock is up over $4.00 this week, 
there is till plenty of room to the upside.  OI sees current the 
level as an entry point to go long.  There may be some round 
number resistance at $50, however this did not serve as support 
for more than one day on the way down.  The latest price movement 
has created a three-box reversal up on the point and figure chart, 
and a trade of $49 will create a new buy signal.  However, the 
pattern on this chart has already begun showing a higher low with 
Wal-Mart's latest bounce off of $45. 

Wal-Mart has been resilient to rough economic times in the past, 
as many shoppers flock to their stores to save money on recession 
proof household items like toothpaste and toilet paper.  In 
addition, the back to school shopping season has begun, and Wal-
Mart's sales should be impressive.  If Tuesday's consumer 
sentiment numbers are positive, the entire retail sector should 
get a boost, led higher by Wal-Mart. We will place our stop loss 
at $45.00, just above Thursday's low.

BUY CALL AUG-47.50 WMT-HW OI= 2326 at $2.80 SL=1.35
BUY CALL AUG-50.00 WMT-HJ OI= 9800 at $1.50 SL=0.75
BUY CALL SEP-47.50 WMT-IW OI=  437 at $3.90 SL=1.85
BUY CALL SEP-50.00 WMT-IJ OI= 3263 at $2.50 SL=1.25

Average Daily Volume = 41.7 mln

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BAX – Baxter International $36.58 (+5.63 last week)

Company Summary:
Baxter engages in the worldwide development, manufacture and
distribution of a diversified line of products, systems and
services used primarily in the healthcare field.  BAX's products
are used by hospitals, clinical and medical research laboratories,
blood and blood dialysis centers, rehabilitation centers, nursing
homes, doctor's offices and by patients at home, under physician
supervision.  The company manufactures products in over 28
countries and sells them in over 100 countries.

Why We Like It:
It may not look like much on the daily chart (especially after
the strong gains over the prior 2 days) but BAX continued to
demonstrate its relative strength on Friday, tacking on nearly
2% to close just over the $36.50 level.  Traders that took
advantage of the midday consolidation on Friday to enter the
play near the $36 level (prior resistance that has now turned
to mild support) appear to be well positioned should the rally
continue next week.  Judging by the bullish slope on the daily
Stochastics, that is the likely outcome.  Those still looking
for an entry point will want to take advantage of an intraday
dip down to either the $36 or $35 support levels.  The markets
aren't out of the woods yet, and a drop to major support near
$34 can still be considered for new entries so long as the
rebound is accompanied by strong volume.  We are raising our
stop to $32.50, as last week's bullish action suggests that
the recent lows shouldn't be tested anytime soon.  Should BAX
continue to rally next week, a push through Friday's highs can
be used for momentum-based entries.

BUY CALL AUG-35*BAX-HG OI=4296 at $3.10 SL=1.50
BUY CALL AUG-40 BAX-HH OI=2819 at $1.00 SL=0.50
BUY CALL SEP-35 BAX-IG OI= 115 at $4.10 SL=2.50
BUY CALL SEP-40 BAX-IH OI= 129 at $1.85 SL=1.00

Average Daily Volume = 3.80 mln


EFX – Equifax, Inc. $20.63 (+0.45 last week)

Company Summary:
Equifax is a source of consumer and commercial credit information
throughout North America, Europe and Latin America.  The company
provides, to a wide range of customers, information management,
consumer credit information, marketing, business information and
identity verification services to enable credit and business
decisions.  Through its Consumer Direct business, EFX provides
credit reporting and identity theft monitoring services directly
to consumers, enabling them to proactively manage their credit
health and safeguard against identity theft.

Why We Like It:
Consolidation was definitely the name of the game on Friday,
with numerous stocks posting inside days, coiling up for the
next big move.  Shares of EFX joined in that pattern, easily
trading within Thursday's range and closing in the upper half
of that range.  That is constructive for our play, as it
presents us with a couple of attractive ways to enter the play,
without taking on undue risk.  The first possibility is that
the broad markets are going to follow through on Friday's late
rally, and if that gives a positive boost to EFX, then we can
consider new entries on a breakout over Thursday's intraday
high of $20.80.  Of course there is the distinct possibility
that Friday's bullish action at the close was simply shorts
covering ahead of the weekend and we could see more selling at
the open.  That would give the dip buyers an attractive entry
into the play, as EFX would likely find support near the $20
level.  We're raising our stop to the $19.40 level this weekend,
as a close below there would represent both a bearish
resolution of the inside day formation, as well as a drop
below the $19.50 support level.

BUY CALL AUG-20 EFX-HD OI=20 at $1.65 SL=0.75
BUY CALL AUG-22*EFX-HX OI= 1 at $0.55 SL=0.25
BUY CALL SEP-20 EFX-ID OI= 0 at $1.85 SL=1.00
BUY CALL SEP-22 EFX-IX OI=95 at $0.90 SL=0.50

Average Daily Volume = 443 K


BBOX – Black Box Corporation $36.92 (-2.30 last week)

Company Summary:
As a technical services company, Black Box Corp. designs, builds
and maintains network infrastructure systems.  The Black Box
team serves more than 150,000 clients in 132 countries,
providing technical services on the phone, on site and online.
Through its catalogs and Website, the company offers more than
90,000 infrastructure and networking products, and designs and
builds more than 650,000 custom products each year.

Why We Like It:
While the major market averages were looking pretty healthy at
the end of the day on Friday, there were some stocks that went
right back into reverse following Wednesday's snap-back rally.
Dragged lower by the carnage in the Semiconductor sector, the
Networking index (NWX.X) drilled down to new all-time lows on
Friday.  It should therefore come as no surprise that networking
company BBOX dropped to a new 3-year closing low on Friday on
fairly heavy volume.  Judging by the recent price action, BBOX
is headed substantially lower.  Note that the PnF chart is on
the edge of giving another triple-bottom sell signal, which
will come with a print of $36.  Not only that, but the current
bearish price target is down at $24.  With formidable resistance
now in place at $40 (prior support), we can limit our risk with
a stop at $40.  Use a failed rally below this level to initiate
new positions or else wait for a breakdown under $36 on
continued heavy volume.  Use the action in the NWX to confirm
weakness in BBOX before playing.

BUY PUT AUG-40 QBX-TH OI=161 at $4.40 SL=2.75
BUY PUT SEP-35*QBX-TG OI=395 at $1.80 SL=1.00

Average Daily Volume = 437 K


CBE – Cooper Industries, Ltd. $27.95 (-4.75 last week)

Company Summary:
Cooper Industries operates in two business segments: Electrical
Products and Tools & Hardware.  CBE is among the leading
manufacturers in the world of electrical distribution equipment,
wiring devices, support systems, hazardous duty electrical
equipment, emergency lighting, lighting fixtures, fuses,
non-power hand tools and industrial power tools.  Cooper
manufactures, markets, and sells its products and provides
services throughout the world, serving three major markets:
industrial, construction and electrical power distribution.

Why We Like It:
Despite the ability of the broad market to rebound off its lows
last week, there are still pockets of extreme weakness for hungry
bears to exploit.  Shares of CBE have had a rough time over the
past month along with the rest of the market, declining well over
30% and currently showing no signs of letting up.  In fact, the
2-day decline following Wednesday's short-covering rally left
the CBE resting at a new all-time low.  Part of the problem here
is the company's earnings report from Tuesday.  While profits
were up, the company guided down for the full year, citing a
weaker than expected business rebound.  With comments like that,
it should come as no surprise that the bears had another feast
on the stock as the week drew to a close.  The last line of
defense for the bulls had been the $30 level and now that CBE
is below there, we can expect that level to present some
formidable resistance.  While an oversold rebound to give us a
nice entry on the rollover would be nice, it appears the most
likely course of action will be to enter the play as it drops
under the $27 level (just below Wedensday's intraday lows).
Should we get a bounce, look to enter on the rollover, so long
as it happens below $30.  Set stops initially at $30, as well.

BUY PUT AUG-30*CBE-TF OI=229 at $3.20 SL=1.50
BUY PUT SEP-25 CBE-TE OI=  0 at $0.90 SL=0.50

Average Daily Volume = 695 K


LLTC – Linear Technology $36.50 -0.68 (-1.95 last week)

Company Summary:
Linear Technology Corporation was founded in 1981 as a 
manufacturer of high performance linear integrated circuits. 
Linear Technology products include operational, instrumentation 
and audio amplifiers; voltage regulators, power management 
devices, DC-DC converters and voltage references; comparators; 
monolithic filters; communications interface circuits; one-chip 
data acquisition sub-systems; pulse-width modulators and sample-
and-hold devices; and high frequency devices. Applications for 
Linear Technology's high performance circuits include wireless and 
broadband telecommunications infrastructure, cellular telephones, 
networking products and satellite systems, notebook and desk top 
computers, computer peripherals, video/multimedia, industrial and 
medical instrumentation, automotive electronics, factory 
automation, process control, military and space systems, and high-
end consumer products including digital cameras, MP3 players and 
other electronic products. (source: company release)

Why We Like It:
Linear Technology has been on a slow roll down hill since the 
beginning of March.  On July 23, the company reported earnings 
that accelerated the downhill process.  Net income fell 41%, as 
earnings fell from 26 cents a year ago, to 17 cents in this year's 
fiscal fourth quarter. The company's forecast going forward didn't 
sound much better.  It said that because business remains 
sluggish, the next quarter's revenue and profits would be similar.  
LLTC predicted growth in the December quarter, but investors do 
not appear to believe very strongly in that forecast.

A look at LLTC's chart shows that it toyed with support at $35.00 
and again at $32.50 between May and the middle of June.  After 
breaking that level of support, it formed a rectangle 
consolidation pattern, vacillating between $33 and $27.50 from the 
middle of June until the day after their earnings release.  On 
July 24th they dropped out of this consolidation, a bearish sign, 
breaking the previous $27.50 support line.  LLTC has not seen this 
price level since May 1999.  With only hopeful predictions of a 
return to former growth levels, the near term future of this stock 
does not seem promising.  

Credit Suisse First Boston recently lowered its 12-month price 
target on this stock from $50 to $40.  This is not a good sign, 
and even $40 does not appear to be in the picture anytime soon.  
OI sees the current break in price as an entry point to go short.  
The minimum downward price objective of the rectangular pattern 
from which this stock recently broke is in the $22 range.  This 
minimum objective, however, seems generous, as the company's 
forward growth prospects, according to their own statements, seem 
unsure. We will set an initial target of $20.  We are placing our 
stop loss at $27.25, just above the bottom of the previous 

Keep an eye on the $SOX.X.  If the chip sector continues to 
breakdown then LLTC's demise could be moved into fast-forward.  
Bulls are hoping the SOX will bounce from the bottom of its 
descending channel near the 300 mark.  We all know how well hoping 
a stock or index higher works in a bear market so we're playing 
the downside.  A breakdown below this significant psychological 
support level could be unnerving for those investors still holding 
chip stocks, which could precipitate yet another waterfall affect 

BUY PUT AUG-25 LLQ-TE OI=2519 at $2.60 SL=1.50
BUY PUT SEP-25*LLQ-UE OI= 325 at $3.70 SL=2.00

Average Daily Volume = 7 mil

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The Option Investor Newsletter                   Sunday 07-28-2002
Sunday                                                      4 of 5

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MHK - Mohawk Industries Inc. $44.61 -0.07 (-1.29 for the week)

Company Summary:
Mohawk is a leading supplier of flooring for both residential and 
commercial applications and a producer of woven and tufted 
broadloom carpet, rugs, ceramic tile, laminate, wood and an array 
of home product including pillows, throws, bedspreads and other 
textiles. The Company designs, manufactures and markets premier 
brand names, which include "Mohawk," "Mohawk ColorCenter," 
"Floorscapes," "Aladdin," "Bigelow," "Custom Weave," "Durkan," 
"Galaxy," "Helios," "Horizon," "Mohawk Commercial," "World," and 
"Wunda Weve," "Goodwin Weavers," "Karastan," "Mohawk Home," 
"Newmark" Dal-Tile, and American Olean

Why We Like It:
MHK experienced a rally on Wednesday, along with the rest of the 
market, however it did not make it beyond our stop loss of $46.50, 
and was unable to surpass its high from the previous day.  MHK has 
been unable to close its gap of July 16th, but was able to hold on 
to some Wednesday's gains.  We continue to see signs of weakness 
in the stock that is unable to hold its rally, despite good 
earnings from the homebuilders. Housing numbers came out Thursday 
morning, which showed a small increase of 0.5% in new home sales, 
however, sales of existing homes were down over 11%.  Considering 
the current fears of a looming housing bubble about to burst, the 
negative existing homes number might continue to deflate those 
stocks connected to home building and furnishings. MHK attempted a 
rally early Friday, reaching the $44.95 level, finding resistance 
at $45.00. The stock saw some additional weakness as the day wore 
on, dropping below $44 to $43.96, before firming up and rising 
within $0.07 of yesterday's close.  In short, it was a very narrow 
trading range for MHK. While the rest of the market seemed to be 
in rally mode, MHK was unable to sustain its own. Our new entry 
point of below $45 has been reached and this is considered an 
entry point to go short, however, considering the unexpected 
strength at $44 on Friday more conservative traders may want to 
see this level broken again before initiating new positions.  Our 
stop loss of $46.50 remains in effect, just below Monday's high. 

BUY PUT AUG-45*MHK-TI OI=253 at $3.30 SL=1.50
BUY PUT SEP-45 MHK-UI OI= 38 at $4.40 SL=2.00, wait for volume 

Average Daily Volume = 849K


EXPE – Expedia, Inc. $47.20 (-7.69 last week)

Company Summary:
Expedia is a provider of online travel services for leisure and
small business travelers, offering one-stop shopping and
reservation services with real-time access to schedules, pricing
and availability.  The company's global travel marketplace
includes direct-to-consumer Websites offering travel-planning
services at Expedia.com, Expedia.co.uk, Expedia.de, Expedia.nl
and Expedia.it.  In addition, the company provides
travel-planning services through its telephone call centers and
through private label travel Websites through its WWTE business.
WWTE is a division of Travelscape, Inc., one of EXPE's wholly
owned subsidiaries.

Why We Like It:
It was difficult to make much of the market action on Friday
except that the quiet trade was a relief after the incredibly
volatile swings seen during the first four days of the week.
We were hoping for a bit more upside in EXPE to hand us a
more attractive entry point, and that's exactly what we got.
The stock traded in a narrow range, and then finally lifted at
the close to end just below its low of the day.  Thursday's
inside day was followed by another one on Friday, as EXPE coiled
up tight for its next directional move.  Since we know that
whichever way the break occurs following an inside day is likely
to dictate the stock's direction, we have some readily
identifiable action points.  Consider new positions on a drop
under Thursday's low near $43.50.  Alternatively, a failed rally
below the $49 level (near Thursday's high) would make for an
acceptable bearish entry.  Due to the dual inside day setup and
the fact that the daily Stochastics have now turned bullish, we
want to keep the play on a short leash and are therefore lowering
our stop to $49.50, just above the top of Wednesday's gap lower.

BUY PUT AUG-50 UED-TJ OI=1029 at $5.90 SL=4.00
BUY PUT AUG-45*UED-TI OI= 587 at $3.50 SL=1.75
BUY PUT AUG-40 UED-TH OI= 680 at $1.80 SL=1.00

Average Daily Volume = 2.65 mln

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Due to technical difficulties, the Leaps section will be updated on 
Monday, 07/29/02


Reducing Your Exposure By Covering Your
By Mike Parnos, Trading With Attitude

One of our readers has a problem.  It seems he stayed too long
and too often at the Stock Market Hilton – where your money
checks in and never checks out.
Today’s article will be devoted to answering his email –
originally sent to friend and colleague Ray Cummins – our 
resident spread master.   

Dear Ray:
I am a new reader, but long time options trader. I have enjoyed
going back and reading many of your past articles.

I have read both your naked puts and combos articles. As I have
been stripped naked too many times, the limited downside combos
are more attractive to me.

The current market conditions seem ripe for naked option writing
(High IV on most everything), but because I have found that
strategy too risky for my appetite, the next best strategy that I
can think of is OTM credit spreads.

You have mentioned that this is a strategy that you regularly
use. You also hammer on the theme that it is very important to
have a well defined strategy with follow up action points/exit
points etc, however I have not found any articles that detail 

What I am interested in is not another article or information on
how credit spreads work, but a well thought out strategy as to 
entry, exit and or adjustment rules if things don't work out as 
expected. Info as to pros and cons on indexes vs. stocks, 
different adjustments or follow up actions would be helpful as 

Dear Alan,
So you were “stripped naked”?  There’s nothing wrong with being 
naked as long as you know when to put your clothes back on.  You 
were obviously unprepared to streak the market and got more than
a third-degree sunburn for your trouble.  

Been there. Done that. Ouch.  An expensive lesson. 

Are you ready for the cure?  Have you suffered enough?  It will 
require a complete change of philosophy.  Going from trading 
naked puts to out-of-the-money credit spreads is like going from 
bungee jumping to watching paint dry.

Welcome to the Couch Potato Trading Institute – where we learn to 
be patient, be conservative, plan our moves, act decisively, and 
to make our money in small chunks.

Let’s delve into the world of out-of-the-money (OTM) credit 
spreads.   First, what are you going to trade -- stocks or 

Think about it.  It ain’t brain surgery. Would you rather be 
safely diversified in an index?  Or put the family jewels into 
one precarious basket?

It’s not impossible, especially today, that the CEOs of all the 
companies in an index would get indicted in the same expiration 
month.  But it’s not likely. 

Since we are in a high volatility environment, the premiums are 
nice and juicy – ideal for the option seller.   It’s important to 
recognize this as an opportunity.  Eventually, the volatility, 
and option premiums, will revert back to the norm and this chance 
will have passed you by.  

Be aware! That means no napping during the commercials.  Pay
attention to the market.  When your boat comes in, don’t be 
waiting at the airport.  As Yogi Berra said so eloquently, “when
you come to a fork in the road, pick it up.”

For new readers, a credit spread consists of selling a short
option, then hedging yourself with the purchase of a long option 
with the same expiration.  Your potential profit is the money
taken in. If bullish, you would use puts to create a “bull-put” 
spread.  If bearish, you’d use calls to create a “bear call” 

(Refer to the OI archives for Ray Cummins’ many excellent in-
depth articles on spreads)

Entry Points
Check the underlying.  Is it bouncing off support?  Has it bumped 
up against resistance?  It’s usually wise to wait for a 
confirmation day or two before you enter a new position.  In 
today’s market, stocks (and indexes) blow through support and 
resistance levels like Dom DeLouise going through a pack of Ho 
Ho’s.  It’s better to take a little longer and be sure (as sure 
as one can be in this craziness) than to rush into a position and 
find yourself up at 3 a.m. watching Carleton Sheets infomercials 
because you can’t sleep.

Length Of Spread
As short a term as possible – from 3-5 weeks.  If you stand 
outside too long, admiring the sky, sooner or later a bird will . 
. .

Exit Strategies
In a perfect world, the underlying will stay comfortably away 
from the short strike and both options will expire worthless.
Occasionally, the underlying will move dramatically away from the 
short position with weeks remaining before expiration.  This 
movement reduces the value of the short option.  Astute traders 
will buy back the short option if they can retain 75% of their 
profit.  This accomplishes four things:  

1. It locks in a profit (which is never a bad thing); 
2. It completely eliminates exposure (risk); 
3. It frees up the maintenance being held in your trading account 
against the spread that can now be used for something else, and; 
4. It leaves you with a long option and weeks to go before 
expiration.  It’s not unheard for a stock to reverse direction 
and, before you know it, you may find your long option nicely in 
the money. This newly found cash will enable you to increase your 
Spandex wardrobe and even pay for next year’s Option Investor 

What Happens If . . .
Oh, oh.  The underlying begins to move against you.  Now what? 
Well, because you have a plan you won’t be caught like a deer in 
the headlights or the Amish at Circuit City.  There are a few 

1) When the stock hits the strike price of your short position, 
you buy the stock (or short the stock if you have a put spread) 
to cover the short option.  You monitor the underlying and 
continue to buy and sell it if it fluctuates above and below the 
short strike. You may incur a few commissions along the way, but 
it’s a small price to pay. If you’re trading an index, see choice 

2) As the underlying breaks support (or resistance), it’s time to 
“GTFO,” which is Czechoslovakian for “liquidate your position – 
NOW!” This enables you to preserve your trading capital.  You’ll 
swallow a small frog, but it’s a lot better than swallowing a 
huge frog, and you’ll live to trade another day.

In summation, establish your plan, do your charting, check the 
sectors, check the volatilities, use self-discipline and some 
common sense.  You should be fine and you’ll make money on the 
vast majority of your trades.  However, if one aspect of your 
research doesn’t line up, don’t do the trade.  

Always hedge your positions and define your risk before you put 
on the trade.  If you get into a bad position and don’t know how 
to handle it, painful things can happen.  How painful?  Did you 
see Deliverance? THAT painful!

Your questions and comments are welcome at:  

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

Contact Support
The Option Investor Newsletter                   Sunday 07-28-2002
Sunday                                                      5 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

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



Covered-Call Basics: Q&A On Position Management
By Mark Wnetrzak

This week, we continue a recent discussion concerning position
management strategies with covered-calls.

Attn: Mark - Covered-Calls Editor
Subject: Position Management Strategies

Hello Again,

Thanks for the info and the calculator.  I've sent off for the
book that you suggested, but I do have one more question.  The
thing that I've been the most confused on is how does the ROI
vary with the price of the stock.

Using the example you gave me:

ITM example:

XYZ @ $12.00, sold strike = $10.00, option premium = $2.50
net premium = 2.50 - (12 - 10) = 0.50
cost basis = 12.00 - 2.50 = 9.50
RC = 0.50/9.50 = 5.26% after multiplying by 100.
RNC = the same.

What I would like to get a handle on is what happens when the
stock moves (I didn't see a way to do this with the calculator).
I see that $9.50 is my BE, but what if the stock is at $9.75,
$10.75, or $12.75 when the option expires?

Lets say after 10 days the stock goes down to $11.00 (breaking
a support area I have pegged) and I decide to close the position.
I buy back the call (around $1.50 I guess) and sell all the stock.
Wouldn't that be a loss even though the stock stayed above the BE?

Thanks again,



First, it is very important to remember that our strategy uses a
conservative covered write that views the entire position as a
single entity.  We are not interested so much in stock ownership
or upside movement, but in obtaining a monthly return on our
investment.  Therefore, by using In-The-Money (ITM) covered-calls,
we expect the underlying equity to be "called" away at expiration
(because the stock price is above the sold strike).

As for stock prices in relation to assignment, usually as long as
the stock price is $0.25 above the sold strike at expiration, the
stock will be assigned (called away).  Using your example, XYZ
would be called away both at $10.75 and at $12.75.  We sold the
$10 strike, which gave the buyer of the option the right to buy
XYZ from us at $10.  Notice that the return on investment is the
same in both cases because with ITM covered-calls -- the maximum
potential profit only requires the stock price to stay above the
sold strike.  All upside movement in the share price of the stock
is meaningless, except that it increases the probability of a
successful outcome.

If the issue took a bearish turn and the stock price is $9.75 at
expiration, the sold call will expire worthless (your obligation
is removed) and you will retain the underlying stock.  The play
would finish with a $0.25 profit, as your cost basis (break-even
point) is $9.50 (not including the cost of commissions).  At this
point (on the Monday following expiration), you may sell the stock
and take the available (if any) profit or roll into a new position.
It just depends on your outlook.  If you are neutral to bullish on
the underlying stock, you may decide to roll-forward (and/or down)
and write new calls, to further lower your cost basis; or you may
simply decide to keep the stock as a core holding in your long-term
portfolio.  As stock ownership is always a possibility, even with
ITM covered-calls (especially in bearish market conditions), it is
wise to only enter a position on an issue you wouldn't mind owning.

If you decide to exit the position early, before expiration, you
would simply buy back the calls (at the "ask") and then sell the
stock (at the "bid").  A "net" order could be used in closing the
covered-write to ensure a proper exit.  You would place an order
with your broker to sell the stock and "buy to close" the call for
a net credit -- a price reasonably close to parity.  Using your
example:  If you bought back the calls at $1.50 and sold the stock
at $11.00, your net credit would be $9.50 (11.00 - 1.50).  With
an original cost basis (debit) of $9.50, the end result is a wash.
Of course, the cost of commissions would actually make the outcome
a small loss (the OIN calculator uses two stock commissions and one
option commission in calculating a cost basis, which assumes a post
expiration stock sale).

Remember, there are several factors that affect the overall level
of option prices: the underlying stock's value, the option's strike
price, time remaining until expiration, volatility, interest rates
and dividends.  Just because the underlying stock's share value
declines doesn't necessarily mean the price of the option will drop
accordingly.  An excellent resource for more information on option
pricing is on the CBOE website at: http://www.cboe.com/LearnCenter.

Hope this helps,

Mark W.

Note:  Margin not used in calculations.

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

LVLT    5.75   5.71   AUG   5.00  1.20  *$  0.45  10.7%
AMLN   10.00  10.10   AUG  10.00  0.90  *$  0.90   8.6%
CREE   13.98  14.22   AUG  12.50  2.30  *$  0.82   7.6%
WEBX   13.88  13.10   AUG  12.50  2.20  *$  0.82   7.6%
NPSP   17.11  20.89   AUG  12.50  5.60  *$  0.99   7.5%
SNDK   14.40  13.87   AUG  12.50  2.85  *$  0.95   7.1%
TRLY    6.31   5.13   AUG   5.00  1.60  *$  0.29   6.7%
SBL     8.58   8.34   AUG   7.50  1.50  *$  0.42   6.4%
EXTR   10.67   9.60   AUG  10.00  1.70   $  0.63   6.1%
BRCD   18.50  16.54   AUG  15.00  4.40  *$  0.90   5.5%
DRIV    9.19   8.46   AUG   7.50  2.25  *$  0.56   5.0%
BRCM   20.39  17.38   AUG  17.50  3.90   $  0.89   4.7%
IVGN   30.88  32.68   AUG  25.00  6.90  *$  1.02   4.6%
JNPR    8.90   6.96   AUG   7.50  1.75   $ -0.19   0.0%

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


The relief rally finally materialized though the potential for
further upside movement appears uncertain.  A lateral move (from
here) in the major indices would do wonders for creating a base
from which to climb higher.  The Covered-Call portfolio has held
up relatively well, despite the recent selling pressure, and the
early exit in Zixit (NASDAQ:ZIXI) may have been a bit premature.
Stocks on the early exit watch-list include:  Juniper Networks
(NASDAQ:JNPR) - at a key moment; Brocade Comm. (NASDAQ:BRCD) -
acting very weak again; Broadcom (NASDAQ:BRCM) - no strength; 
and Terra Networks (NASDAQ:TRLY) - "weak" earnings were no help.
Continue to monitor your positions closely and watch for any
violations of support that would suggest a negative change of

Positions Closed: 

Zixit (NASDAQ:ZIXI) and Sprint PCS (NYSE:PCS). 


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

FTI    17.40  AUG 15.00   FTI HC  3.00 10    14.40   21    6.0%
HGSI   14.98  AUG 12.50   HQI HV  2.90 419   12.08   21    5.0%
HYSL   17.85  AUG 17.50   WQE HW  1.05 32    16.80   21    6.0%
ICOS   19.01  AUG 17.50   IIQ HW  2.55 857   16.46   21    9.2%
IMDC   16.00  AUG 12.50   UZI HV  3.90 0     12.10   21    4.8%
IVGN   32.68  AUG 27.50   IUV HY  6.00 1     26.68   21    4.5%
NPSP   20.89  AUG 17.50   QKK HW  4.00 190   16.89   21    5.2%

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

ICOS   19.01  AUG 17.50   IIQ HW  2.55 857   16.46   21    9.2%
FTI    17.40  AUG 15.00   FTI HC  3.00 10    14.40   21    6.0%
HYSL   17.85  AUG 17.50   WQE HW  1.05 32    16.80   21    6.0%
NPSP   20.89  AUG 17.50   QKK HW  4.00 190   16.89   21    5.2%
HGSI   14.98  AUG 12.50   HQI HV  2.90 419   12.08   21    5.0%
IMDC   16.00  AUG 12.50   UZI HV  3.90 0     12.10   21    4.8%
IVGN   32.68  AUG 27.50   IUV HY  6.00 1     26.68   21    4.5%

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).

FTI - FMC Technologies  $17.40  *** Bottom-Fishing ***

FMC Technologies (NYSE:FTI) designs, manufactures and services
technologically sophisticated systems and products for customers
through its Energy Systems and Specialty Systems segments.  Energy
Systems is a supplier of systems and services used in the offshore,
particularly deepwater, exploration and production of crude oil and
natural gas.  Specialty Systems provides technologically advanced 
handling and processing systems to industrial customers.  FMC Tech
reported earnings this week, showing a 42% rise in profit on net
income of $17.8 million and revenues of $542.3 million.  With the
strength in its subsea business, FMC Tech reaffirmed it guidance 
for the year, expecting $0.95 per share.  The reversal this week
in share price has formed a “hammer” bottom on the long-term chart
which suggests further upside potential.  Traders can speculate on
the near-term performance of the issue with this position.      

AUG 15.00 FTI HC LB=3.00 OI=10 CB=14.40 DE=21 TY=6.0%

HGSI - Human Genome Sciences  $14.98 *** New Drug Speculation ***

Human Genome Sciences (NASDAQ:HGSI) is a genomics and biopharma-
ceutical company focused on therapeutic product development and 
functional analysis of genes using its proprietary technology 
platform.  HGSI discovers, develops and intends to commercialize
novel compounds for treating and diagnosing human disease based 
on the identification and study of genes.  HGSI reported earnings
this week which reflected the loss of expired relationships (for
exclusive access to its genetic database) with several drug 
companies.  The company is now free to pursue more lucrative 
deals as well as further develop its own product pipeline.  Human
Genome has recently received a milestone payment form GlaxoSmith-
Kline (NYSE:GSK) and this week granted Schering-Plough (NYSE:SGP)
exclusive rights to develop and commercialize two human antibodies.
We simply favor the recent technical trend and this position offers
a viable way to speculate on the future movement of the issue in a
conservative manner.

AUG 12.50 HQI HV LB=2.90 OI=419 CB=12.08 DE=21 TY=5.0%

HYSL - Hyperion Solutions  $17.85  *** Earnings Rally ***

Hyperion Solutions (NASDAQ:HYSL) delivers business performance
management solutions that enable companies to continually measure
performance, anticipate results and drive profitability across
key business activities.  The company's customers rely on HYSL's
products to help them collaborate across the enterprise, focus 
resources, improve operational efficiencies and leverage oppor-
tunities for growth.  Hyperion reported solid earnings this week
as license revenue grew 22% sequentially.  The company reported
net income of $6.9 million and revenues of $135.8 million for 
the quarter.  On Friday, Janney Montgomery Scott analyst Robert
Mattson upgraded the stock to "buy" from "hold," as he believes
the company has put its problems behind it.  The strong rally on
on Friday has formed a short-term double bottom and the heavy 
volume suggests further upside potential.  The stock appears 
poised to move higher in the coming sessions and traders who 
believe the issue is destined for a future rally can profit 
from upside movement with this position.

AUG 17.50 WQE HW LB=1.05 OI=32 CB=16.80 DE=21 TY=6.0%

ICOS - ICOS Corp.  $19.01  *** New Drug Approval Soon? ***

ICOS (NASDAQ:ICOS) develops pharmaceutical products with major
commercial potential by combining its capabilities in molecular,
cellular and structural biology, high-throughput drug screening, 
medicinal chemistry and gene expression profiling.  The company 
applies its integrated approach to erectile dysfunction and other
urologic disorders, sepsis, pulmonary arterial hypertension and
other cardiovascular diseases, as well as inflammatory diseases.
Though ICOS reported a wider loss this week, the stock rallied 
on Wednesday’s news of a delay in a rivals impotence drug.  On 
Thursday, a European scientific committee recommended approval
of Cialis, Eli Lilly’s (NYSE:LLY) and ICOS’ potential rival to 
Pfizer (NYSE:PFE) anti-impotence drug Viagra.  Investors appear
to be pleased with the news as the issue has shown new signs of
a bullish trend and this position offers a way to speculate con-
servatively on the company's future share value.

AUG 17.50 IIQ HW LB=2.55 OI=857 CB=16.46 DE=21 TY=9.2%

IMDC - INAMED  $16.00  *** On The Rebound ***

INAMED (NASDAQ:IMDC) is a global medical device company that 
develops, manufactures and markets a diverse line of products 
that enhance the quality of people's lives.  These products 
include breast implants for aesthetic augmentation and recon-
structive surgery following a mastectomy, a range of dermal 
products to correct facial wrinkles, and the LAP-BAND and BIB
systems used to treat severe and morbid obesity.  IMDC’s shares
crashed earlier this month after the company’s CFO resigned.  
Add a medical review by the FDA and U.S. lawmakers asking for
records documenting the safety of saline-filled breast implants.
The company said its 5-year follow-up data from 686 breast 
augmentation recipients and from 140 breast reconstruction 
patients showed follow-up compliance rates of 81% and 80%, 
respectively.  We simply feel the sell-off was a bit over-
zealous and that the stock will likely rally in the short-term.
Speculators who agree may profit on the rebound with this 
conservative position.

AUG 12.50 UZI HV LB=3.90 OI=0 CB=12.10 DE=21 TY=4.8%

IVGN - Invitrogen  $32.68  *** Positive Earnings! ***

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 said
on Wednesday it swung to a second-quarter profit from a loss as 
sales of its tool kits for genetic research rose and it ceased 
writing off costs of a merger.  Invitrogen posted a net profit of
$8.1 million, or $0.15 a share, while revenue increased to $164.3 
million.  A conservative entry point for those investors who have
a bullish, long-term outlook for the company.

AUG 27.50 IUV HY LB=6.00 OI=1 CB=26.68 DE=21 TY=4.5%

NPSP - $20.89 

NPSP - NPS Pharmaceuticals  $17.11  *** On The Move! ***

NPS Pharmaceuticals (NASDAQ:NPSP) is a biopharmaceutical company
engaged in discovering, developing and commercializing small 
molecule drugs and recombinant proteins.  The company's product 
candidates are primarily for the treatment of bone and mineral
disorders, gastrointestinal disorders and central nervous system
disorders.  NPS Pharmaceuticals has three product candidates in
active clinical development and several pre-clinical product
candidates.  Two of these product candidates, Preos and AMG 073,
are in Phase III clinical trials.  The company's third product
candidate, ALX-0600, is in a pilot Phase II clinical trial.
NPSP rallied in early July after a favorable Salomon Smith Barney
release said the company has been making solid progress in 
resolving the manufacturing issues with its lead drug candidate
Preos.  This week, NPS reported that it has successfully produced
additional supplies of the drug and that it now can supply patients
in all of its current clinical trials into the 1st-quarter of 2003.
Traders can speculate on the near-term performance of the issue
with this conservative position.

AUG 17.50 QKK HW LB=4.00 OI=190 CB=16.89 DE=21 TY=5.2%



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

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

FFIV   11.15  AUG 10.00   FLK HB  2.10 331    9.05   21   15.2%
AVCT   15.41  AUG 15.00   QVX HC  1.25 121   14.16   21    8.6%
DT     11.82  AUG 10.00    DT HB  2.30 4626   9.52   21    7.3%
CVTX   19.91  AUG 17.50   UXC HT  3.20 48    16.71   21    6.8%
CREE   14.22  AUG 12.50   CVO HV  2.25 3315  11.97   21    6.4%
CCRN   28.66  AUG 25.00   QCK HE  4.70 101   23.96   21    6.3%
JPM    22.25  AUG 17.50   JPM HW  5.40 101   16.85   21    5.6%
XRX     6.37  AUG  5.00   XRX HA  1.55 2323   4.82   21    5.4%
SY     10.61  AUG 10.00    SY HB  0.95 325    9.66   21    5.1%


Option Trading 101: Position Management Strategies
By Ray Cummins

One of our new readers submitted a great question on position
management techniques with naked puts.

Attn: Naked-Puts Editor
Subject: Rolling Positions


I have noticed in the naked-puts area that a policy of rolling
over a position has been advocated when the strike price is

Should this not be TWO decisions?  The decision to close the
original put is made presumably because the support area that
was identified as a good strike price has gone.  The decision
to write a new put should presumably be taken on sound principles
rather than just to reduce the debit on taking out the first
failed write?

Have I got that right or am I missing something?

Thanks in advance


Regarding position management with sold (short) puts:

Indeed, the decision to adjust, rather than exit, any position
should be based on the same components as an opening trade: the
technical and fundamental outlook for the underlying issue, the
position's risk-reward ratio, and the probability of profit.  We
do not advocate "rolling" each and every losing (naked-put) play
to a lower (and/or future) strike price, but the technique can
be a viable alternative to a losing trade.  For readers who are
unfamiliar with the technique, here is a brief explanation:

The strategy of selling out-of-the-money put options on bullish
issues is a relatively conservative technique but occasionally,
a trader will be faced with an option that is in-the-money as the
expiration date approaches.  One of the most common methods for
preventing a potential loss in this situation is the "roll-out"
and it is used when the underlying issue remains relatively near
the strike price of the sold option.  Remember, selling a put
obligates the writer to purchase the underlying issue at the
sold strike price.  If the stock remains above the sold strike,
the writer retains the premium for the sold option.  However,
if the stock price falls, the writer may choose to roll out and
forward in his position, to avoid potential assignment of the
stock.  He can repurchase the puts that were sold initially and
sell new, longer-term options.  Generally, the new options are
written at the next lower strike price, or in greater quantity
so as to generate a credit.  In this simple 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 stock should stop falling and
the last set of written options will expire worthless.  At that
time, the traders' overall profit will consist of the sum of
all the previous credits.

There are two requirements for success in this strategy.  The
first prerequisite is that the underlying stock must eventually
rebound and the second condition is that the trader have enough
portfolio collateral to stay with the strategy even if the issue
falls significantly.  A large stock portfolio is best for this
type of trading because the collateral required for naked option
writing may be in the form of cash or securities.  There are no
margin interest charges and the positions in the portfolio are
unaffected unless there is a need for additional funds to close
the play prematurely.  This simple exit strategy offers a high
degree of (eventual) success although in some cases, there may
be an accumulation of losses before a profit is achieved.

Another approach to (naked put) position management involves the
use of a protective stop order on the option to insure a profit
(or limit losses) if the primary trend of the underlying changes
character.  The basic guidelines for establishing an effective
trading stop suggests that the initial or opening "limit" should
be placed at a point where primary technical support is evident.
Most often, this will be a relatively small range reflecting the
bottom of a basing pattern or trend-line established prior to
entering the position.  An important objective of this initial
stop-loss order is to preserve capital if the trade goes badly
and yet provide every opportunity for the position to achieve its
maximum profit potential.  If the primary trend is less defined,
the placement of the stop will differ, depending on your overall
risk/reward tolerance.  One must also take into account the past
movement of the issue when setting the loss-limiting order and
with highly volatile instruments, this can be difficult as they
often fluctuate by large amounts.  Trend-lines, minor lows, and
near-term technical support areas are used to assist in the
correct placement of these stops.  After the position has been
initiated, and the outlook for the stock changes significantly,
the stop may be tightened (mover closer than usual) to guarantee
a small profit if "stopped out" while still allowing for a larger
gain and a possible resumption of the primary trend.  Regardless
of the manner in which you determine the placement of stop orders,
there is one fundamental rule of protective limits that remains
inviolate.  Once established, protective stop orders on bullish
positions (such as naked-puts) must never be lowered, no matter
how favorable the outlook for the underlying issue appears.

A person who understands the need for a mechanical approach to
trading but can not control his emotions is destined to fail in
the market.  One of the best ways to overcome a "reaction-based"
mentality is to establish a plan of attack, before you begin to
trade, that allows you take control of your feelings and remove
the possibility of an impulsive action.  Experienced traders use
pre-determined profit targets and stop orders, as well as proven
adjustment techniques for any strategies they employ and that is
the fundamental basis for consistent profits in the business of
trading options.

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

SNDK   15.08  13.87   AUG  12.50  0.55  *$  0.55  14.9%
MCDTA   9.70   9.95   AUG   7.50  0.25  *$  0.25  12.4%
DCTM   12.90  14.86   AUG  10.00  0.30  *$  0.30  11.3%
BCGI    8.90   9.90   AUG   7.50  0.25  *$  0.25  11.3%
BRCM   19.86  17.38   AUG  15.00  0.40  *$  0.40   9.9%
MU     23.39  19.63   AUG  17.50  0.45  *$  0.45   7.6%
PDLI   10.95  13.02   AUG   7.50  0.20  *$  0.20   7.3%
RIMM   13.82  11.51   AUG  10.00  0.25  *$  0.25   7.2%
DT     12.00  11.82   AUG  10.00  0.25  *$  0.25   7.1%
QCOM   28.11  25.99   AUG  20.00  0.40  *$  0.40   5.8%
QLGC   40.69  37.69   AUG  25.00  0.45  *$  0.45   5.7%
AMAT   18.48  14.32   AUG  15.00  0.55   $ -0.13   0.0%
CSCO   14.38  11.82   AUG  12.50  0.50   $ -0.18   0.0%
NXTL    6.64   4.53   AUG   5.00  0.25   $ -0.22   0.0%
MOT    14.86  10.90   AUG  12.50  0.25   $ -1.35   0.0%

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


This week's big surprise came when Motorola (NYSE:MOT) shares
fell to a nine-year low after the company learned of the exit
of its president, Edward Breen, who had been in the post only
since January.  Breen was named on Thursday to the top spot at
troubled conglomerate Tyco International (NYSE:TYC) and while
Tyco's shared soared, Motorola's shares swooned.  Traders who
exited the position during Thursday's sell-off endured much
smaller losses than our portfolio summary reflects, but they
were losses nonetheless.  Despite upbeat comments from Goldman
Sachs about the semiconductor industry, chip-equipment stocks
did not recover from recent heavy selling and the position in
Applied Materials (NASDAQ:AMAT) remained in negative territory
for a second straight session.  A move below the current price
range should be seen as an early exit signal.  The situation
is similar with Cisco Systems (NASDAQ:CSCO), as it has fallen
to multi-year lows and traders who believe the wireless sector
merger speculation has run its course should close the Nextel
(NASDAQ:NXTL) position to avoid large losses.  Other issues on
the watch-list include: Broadcom (NASDAQ:BRCM), Micron (NYSE:MU),
and Research In Motion (NASDAQ:RIMM).

Positions Previously Closed: Royal Gold (NASDAQ:RGLD) and Atmi


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

CHKP   15.69  AUG 12.50   KEQ TV  0.25 5111  12.25   21   10.7%
DCTM   14.86  AUG 12.50   QDC TV  0.40 23    12.10   21   14.5%
FCN    40.00  AUG 35.00   FCN TG  0.80 159   34.20   21    9.8%
ISSX   15.45  AUG 12.50   ISU TV  0.30 227   12.20   21   12.3%
OSIP   26.79  AUG 22.50   GHU TX  0.35 327   22.15   21    7.5%
PDLI   13.02  AUG 10.00   PQI TB  0.25 940    9.75   21   12.7%
SANG   23.35  AUG 20.00   QDY TD  0.35 9     19.65   21    8.0%

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

DCTM   14.86  AUG 12.50   QDC TV  0.40 23    12.10   21   14.5%
PDLI   13.02  AUG 10.00   PQI TB  0.25 940    9.75   21   12.7%
ISSX   15.45  AUG 12.50   ISU TV  0.30 227   12.20   21   12.3%
CHKP   15.69  AUG 12.50   KEQ TV  0.25 5111  12.25   21   10.7%
FCN    40.00  AUG 35.00   FCN TG  0.80 159   34.20   21    9.8%
SANG   23.35  AUG 20.00   QDY TD  0.35 9     19.65   21    8.0%
OSIP   26.79  AUG 22.50   GHU TX  0.35 327   22.15   21    7.5%

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).

CHKP - Check Point Software  $15.69  *** Low Risk Entry Point! ***

Check Point Software Technologies (NASDAQ:CHKP) develops, markets
and supports Internet security solutions for enterprise networks
and service providers, such as Telcos, Internet service providers,
application service providers as well as managed service providers
including virtual private networks (VPNs), firewalls, intranet and
extranet security.  Check Point has solutions that enable secure,
reliable and manageable business-to-business communications over
Internet protocol networks, including the Internet, intranets and
extranets.  Check Point product offerings also include traffic
control and quality of service and IP address management.  The
company's products are fully integrated as a part of its secure
virtual network architecture, and provide centralized management,
distributed deployment and comprehensive policy administration.
CHKP recently surpassed second-quarter earnings estimates as the
company said it gained market share and closed some long-delayed
deals.  The Israeli firewall-software maker also said it would
meet expectations for the second half of the year and analysts
have an optimistic outlook for the company's recovery.  Investors
can establish a low risk entry point in the issue with this

AUG 12.50 KEQ TV LB=0.25 OI=5111 CB=12.25 DE=21 TY=10.7%

DCTM - Documentum  $14.86  *** Improving Fundamentals! ***

Documentum (NASDAQ:DCTM) is the industry's leading provider of
enterprise content management, automating the production, exchange
and personalization of all types of content, making it easier for
its customers to gain a competitive edge by connecting employees,
business partners and customers, worldwide.  Built on an Internet
scale, XML-enabled and standards-compliant platform, Documentum
products manage Web content, power portals, enable collaborative
commerce, and solve regulatory content challenges.  Partners in all
major industries, including high tech, pharmaceutical, healthcare,
consulting services, government, manufacturing, financial services,
automotive, retail, and consumer goods, build and use specialized
applications using Documentum's content management infrastructure.
Documentum recently reported second quarter total revenue of $54
million, a 17% increase over the same period a year ago and a 7%
increase from the first quarter of fiscal 2002.  License revenue
for the second quarter totaled $27 million, an increase of 26%
over the same period a year ago and 8% over the previous quarter.
The company's bottom line appears to be improving and investors
who agree with a bullish technical outlook for the issue should
consider this position.

AUG 12.50 QDC TV LB=0.40 OI=23 CB=12.10 DE=21 TY=14.5%

FCN - FTI Consulting  $40.00  *** Rally Underway! ***

FTI Consulting (NYSE:FCN) is a multi-disciplined consulting firm
with practices in the areas of financial restructuring, litigation
consulting and engineering and scientific investigation.  FTI
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
major divisions.  The Financial Consulting division offers expert
testimony, cost benefit analysis, damage assessment, competition
analysis and business valuations.  The Applied Sciences division
offers forensic engineering and scientific investigation services.
The Litigation Consulting division advises clients in all phases
of litigation, including discovery, jury selection, preparation
for trial and the actual trial services.  FTI recently reported
its thirteenth straight quarter of record results.  In a separate
release, FTI also announced it has agreed to acquire the domestic
Business Recovery Division of PricewaterhouseCoopers.  Further,
FTI is also exploring the sale of its Applied Sciences Division
and is in negotiations with a potential investment group led by
its divisional president.  Traders can speculate on the recent
rise in FCN's share value with this conservative position.

AUG 35.00 FCN TG LB=0.80 OI=159 CB=34.20 DE=21 TY=9.8%

ISSX - Internet Security Systems  $15.45  *** Recovery Mode! ***

Internet Security Systems (NASDAQ:ISSX) is a security software
company engaged in information protection solutions dedicated to
protecting online assets.  The company's security management
solutions include software products, managed security services
and professional services that are made up of both consulting
and training services.  The company offers a comprehensive line
of products and services for enterprise, smaller enterprise,
consumer and service provider customers.  The company provides
its security management solutions in three primary geographic
areas: the Americas (United States, Canada and Latin America),
which accounted for 71% of total revenues in 2001, EMEA (Europe,
Middle East and Africa), which accounted for 15% of revenues in
2001 and Asia/Pacific Rim, which accounted of 14% of revenues in
2001.  A small but noticeable recovery is underway in ISSX and
investors who want to establish a conservative cost basis in a
leading Internet security company should consider this position.

AUG 12.50 ISU TV LB=0.30 OI=227 CB=12.20 DE=21 TY=12.3%

OSIP - OSI Pharmaceuticals  $26.79  *** Bottom Fishing! ***

OSI Pharmaceuticals (NASDAQ:OSIP) is a biopharmaceutical company
focused on the discovery, development and commercialization of
products for the treatment of cancer.  The company has built a
pipeline of programs and drug candidates addressing major, unmet
needs in cancer and selected opportunities arising from their
drug discovery research programs that represent unique commercial
opportunities outside of cancer.  The company has three primary
candidates in clinical trials and seven projects with candidates
in late stage pre-clinical development.  The company's advanced
drug candidate is Tarceva, which has demonstrated indications of
anti-cancer activity.  The company expects to focus primarily in
the areas of diabetes recently said it ended an alliance it had
with Anaderm and Pfizer for the treatment of skin conditions.
Banc Of America Securities initiated coverage on OSI after the
announcement and apparently, investors were also happy with the
decision.  Our position offers conservative speculation on a
well known oncology company with some unique products in their
development pipeline.

AUG 22.50 GHU TX LB=0.35 OI=327 CB=22.15 DE=21 TY=7.5%

PDLI - Protein Design Labs  $13.02  *** Biotech Binge! ***

Protein Design Labs (NYSE:PDLI) is engaged in the development of
humanized monoclonal antibodies for the prevention and treatment
of disease.  The company has licensed specific rights to its
humanized antibody product, Zenapax, to Hoffmann-La Roche and
its affiliates, which markets it for the prevention of kidney
transplant rejection.  Protein Design is also testing Zenapax for
the treatment of autoimmune disease.  In addition, the company
has several other humanized antibodies in clinical development
for autoimmune and inflammatory conditions, asthma and cancer.
Protein Design Labs has seen renewed buying interest in its stock
recently after some favorable product developments and this play
offers a great entry price for investors who want to speculate on
a popular biotech issue.

AUG 10.00 PQI TB LB=0.25 OI=940 CB=9.75 DE=21 TY=12.7%

SANG - SangStat Medical  $23.35  *** Solid Earnings! ***

SangStat Medical (NASDAQ:SANG) is a global biotechnology company
expanding on its transplantation foundation to discover, develop
and sell therapeutic products in immunology, hematology/oncology
and auto-immune disease.  The company is dedicated to improving
the outcome of organ and bone marrow transplantation through the
development and marketing of products to address all phases of
transplantation in the worldwide market.  Its primary products
include Thymoglobulin, Gengraf Cyclosporine, Lymphoglobuline and
Celsior.  SangStat recently said that its second quarter swung to
a profit from a year-earlier loss, helped in part by higher sales
of Thymoglobulin, which is used in kidney transplants.  SangStat
said it earned $1.81 million, or 7 cents a share, in the quarter,
compared with a loss of $2.6 million, in the same period a year
earlier as net product sales rose to $30 million from $21 million.
Investors cheered the news, boosting the issue from recent lows
to a three-month high near $23.  Traders who believe the rally
will continue can profit from that outcome with this position.

AUG 20.00 QDY TD LB=0.35 OI=9 CB=19.65 DE=21 TY=8.0%



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

NFLD    5.46  AUG  5.00   DHQ TA  0.30 23     4.70   21   21.5%
HGSI   14.98  AUG 12.50   HQI TV  0.45 493   12.05   21   16.5%
VRTX   17.48  AUG 15.00   VQR TC  0.50 236   14.50   21   14.4%
COCO   29.30  AUG 25.00   UCS TE  0.60 818   24.40   21   10.8%
GENZ   19.98  AUG 15.00   GZQ TC  0.30 2430  14.70   21   10.1%
SRCL   34.00  AUG 27.50   URL TY  0.50 495   27.00   21    9.5%
VMSI   22.19  AUG 20.00   QMP TD  0.45 10    19.55   21    9.1%
FAST   37.99  AUG 30.00   FQA TF  0.40 1421  29.60   21    7.2%
VAR    38.26  AUG 32.50   VAR TZ  0.50 770   32.00   21    7.2%
MRK    46.00  AUG 42.50   MRK TV  0.70 1438  41.80   21    6.5%



The Base-Building Process Begins!
By Ray Cummins

                         - MARKET RECAP -
July 26, 2002
The major equity averages ended the week with a bullish bias as
buyers moved back into stocks amid optimism over a surge in the
value of the dollar and favorable consumer sentiment data.

The Dow Jones Industrial Average climbed 78 points to 8,264 on
strength in McDonald's (NYSE:MCD), Alcoa (NYSE:AA), Microsoft
(NASDAQ:MSFT), Exxon Mobil (NYSE:XOM), and General Electric
(NYSE:GE).  The NASDAQ Composite rose 22 points to 1,262 with
Internet issues recovering from recent losses while networking,
and fiber-optic stocks slumped after disappointing results from
JDS Uniphase (NASDAQ:JDSU).  Semiconductor equipment stocks also
failed to respond to a sector upgrade by Goldman Sachs.  In the
broader market, pharmaceutical, finance and Internet companies
were the best performing groups while safe-haven sectors such as
gold, defense, chemical and utility issues all retreated.  The
Standard & Poor's 500-stock index added 14 points to end at 852.
Volume totaled 1.79 billion on the NYSE and 1.70 billion on the
NASDAQ.  Market breadth ended on positive note, with advancers
pacing decliners 3 to 2 on the NYSE and 4 to 3 on the technology
exchange.  Treasury prices finished mixed with the 10-year note
down 1/32 to yield 4.38% while the 30-year government bond fell
6/32 to yield 5.31%.  Yields on the 10-year treasury are at the
lowest levels since mid-November of last year.  On the fund flow
front, Trim Tabs estimated that all funds had outflows of $20.5
billion during the week ending July 24 compared with outflows of
$19.3 billion in the prior week.  Bond funds had a $3.6 billion
infusion versus $3.9 billion invested in the prior week.

Last week's new plays (positions/opening prices/strategy):
Aetna      (NYSE:AET)  AUG55C/50C  $0.55  credit  bear-call
Apache     (NYSE:APA)  AUG60C/55C  $0.50  credit  bear-call
Aventis    (NYSE:AVE)  AUG75C/70C  $0.25  credit  bear-call
3M Corp.   (NYSE:MMM)  A130C/125C  $0.75  credit  bear-call
Pulte      (NYSE:PHM)  AUG55C/50C  $0.55  credit  bear-call
Royal      (NYSE:RD)   AUG55C/50C  $0.25  credit  bear-call
Amphenol   (NYSE:APH)  AUG30P/35P  $0.80  credit  bull-put
eBay       (NSDQ:EBAY) AUG45P/50P  $0.60  credit  bull-put
Femsa      (NYSE:FMX)  AUG35P/40P  $0.55  credit  bull-put
Idec       (NSDQ:IDPH) AUG25P/30P  $0.50  credit  bull-put
Intl. Bus. (NYSE:IBM)  AUG60P/65P  $0.70  credit  bull-put
Un. Parcel (NYSE:UPS)  AUG55P/60P  $0.70  credit  bull-put

The extreme volatility in the equity markets provided favorable
entry opportunities for all but two of our new positions.  The
bearish spreads in Aventis (NYSE:AVE) and Royal Dutch Petroleum
(NYSE:RD) were not available at the suggested prices.  Many of
the bullish positions struggled under the weight of continued
selling pressure in equities and Fomento Economico (NYSE:FMX)
slumped right from the open on Monday, despite predicting a 10%
rise in quarterly operating profits on increased beer exports
and higher volume and prices in its soft-drinks subsidiary.  On
Thursday, the company reported a 13% increase in second-quarter
operating profit as solid soft-drink sales compensated for flat
beer revenues.  Investors focused instead on the loss of market
share to rival Modelo, maker of the popular Corona beer, and the
issue never recovered.  Another stock that succumbed to bearish
activity in technology shares was IBM and the technicals suggest
a "key" moment is at hand.  Traders will be looking for a break
below the current support level near $65 and that event would
certainly signal an early exit in our position.  One last issue
that requires daily monitoring is Amphenol (NYSE:APH).  A move
below near-term buying support at $35 would indicate a renewal
of the recent downward trend.

Portfolio Activity:

The July options expiration left our portfolio with relatively
few positions but there was some unexpected activity in one of
the remaining spreads.  The recent share-price volatility in
Nextel (NASDAQ:NXTL) came full circle this week as the stock
closed Friday's session at $4.65, only $0.13 above its original
price in our aggressive "time-selling" position.  The extreme
gyrations further increased the option premiums but because the
near-term position had so little time value, the spread credit
widened further, providing a small closing profit for traders
who chose to linger in the speculative play.   Among the other
portfolio issues, only Sei Investments Company (NASDAQ:SEIC)
warrants comment.  The stock price slumped to a multi-year low
Wednesday, boosting the already sizable gain in our conservative
debit straddle (SEP30C/30P).  The overall credit for the neutral
outlook position has traded as high as $7.50, on $4.60 initially

Questions & comments on spreads/combos to Contact Support
                           - NEW PLAYS -
DD - E. I. DuPont de Nemours  $41.88  *** Time Selling Play ***

E. I. DuPont de Nemours and Company (NYSE:DD) is engaged in the
science and technology business in a wide range of disciplines,
including high-performance materials, synthetic fibers, specialty
chemicals, electronics, agriculture and biotechnology.  Dupont
operates globally through 22 strategic business units.  Within
the strategic business units, a wide range of products are made
for distribution and sale to many different markets, including
the transportation, textile, construction, agricultural, motor
vehicle, home furnishings, medical, packaging, electronics and
the nutrition and health markets.  The company operates through
five market- and technology-focused growth platforms: DuPont
Electronic & Communication Technologies; DuPont Performance
Materials; DuPont Coatings & Color Technologies; DuPont Safety &
Protection; and DuPont Agriculture & Nutrition.

Traders have been commenting about the extreme volatility skews
in front-month options, so we decided to look for some calendar
spread candidates to take advantage of the current conditions.
Dupont is one of our old favorites in the time-selling category,
due to its range-bound history, and the issue's option premiums
and technical indications are once again favorable.  For those
who are unfamiliar with calendar spreads, the basic premise in
the position is simple; time erodes the value of the near-term
option at a faster rate than it will the far-term option.  In
this case, the spread is speculative with low initial cost and
large potential profits and two favorable outcomes can occur:
the stock rallies in the short-term and the position is closed
for a profit as time value erosion in the short option produces
a net gain or; the underlying stock consolidates, allowing the
sold option to expire and then eventually rallies above the long
option strike price.  In addition, as each month passes, new
options can be sold for future expiration dates (OCT, NOV, DEC)
to further reduce the cost basis in the long-term position.

PLAY (conservative - bullish/calendar spread):

BUY  CALL  JAN-45  DD-AI  OI=10517  A=$2.40
SELL CALL  AUG-45  DD-HI  OI=1335   B=$0.45

K - Kellogg Company  $33.34  *** Earnings Due! ***

Kellogg Company (NYSE:K) is a producer of ready-to-eat cereal
and other convenience foods such as cookies, crackers, toaster
pastries, cereal bars, frozen waffles, meat alternatives, pie
crusts and ice cream cones.  The company's products are made
in 19 countries around the globe and distributed in more than
160 countries.  The company's cereal products are generally
marketed under the Kellogg's name.  The company also markets
cookies, crackers and other convenience foods of its Keebler
Foods Company subsidiary under other brands such as Kellogg's,
Keebler, Cheez-It, Murray and Famous Amos, and manufactures
private label cookies, crackers and other products.  These
branded products are generally marketed to supermarkets in
the United States through a direct store door delivery system,
although other distribution methods are also used.  Kellogg
markets some of its other convenience foods products in the
United States through this DSD system.

Kellogg Company is due to report earnings Monday morning and
if the results are "as expected" or better, the company's
stock price should move higher, possibly climbing back into a
previous trading range near $35.  If bullish activity occurs
after the results are posted, investors should consider a
conservative calendar spread in the issue.  The technical
resistance near the sold strike will help limit K's upside
initially, allowing a period of time to pass before the share
value continues higher, thus offering traders the ability to
sell one or more future options against the long-term position.
That is the basic idea in this type of spread; selling time
value in the options when they are overpriced (high implied
volatility) and buying it back (if necessary) when the options
return to intrinsic value.  Ideally, you would like to have the
stock finish slightly below the sold strike when the near-term
option expires.  If the sold (short) option is "in-the-money"
at expiration, you will have to buy it back it to preserve the
long-term position.

PLAY (conservative - bullish/calendar spread):

BUY  CALL  JAN-35  K-AG  OI=470  A=$2.15
SELL CALL  AUG-35  K-HG  OI=149  B=$0.55

PHA - Pharmacia  $41.00  *** On The Rebound! ***

Pharmacia Corporation (NYSE:PHA) is primarily involved in the
development, manufacturing and sale of pharmaceutical products.
Prescription pharmaceuticals is the company's only business
segment and includes general therapeutics, ophthalmology and
hospital products, including oncology as well as diversified
therapeutics.  The company also operates several business units
that do not constitute reportable business segments.  These
include, among others, consumer healthcare, animal health,
diagnostics and contract manufacturing and bulk pharmaceutical
chemicals.  Due to the size of these operating units, they have
all been grouped into the Other Pharmaceuticals category.  The
company's products are sold throughout the world to a range of
customers, including pharmacies, hospitals, chain warehouses,
governments, physicians, wholesalers and other distributors.

Here's one more candidate for a speculative time-selling play,
based on the recent recovery in the share value and the solid
technical resistance near the sold strike price.  As with the
Dupont position, the spread has low initial cost with large
potential profits and two favorable outcomes can occur: the
stock rallies in the short-term and the position is closed for
a profit as time value erosion in the short option produces a
net gain or; the underlying stock consolidates, allowing the
sold option to expire and then eventually rallies above the
long option strike price.  Also, as each month passes, new
options can be sold for future expiration dates to reduce the
cost basis in the long-term position.
PLAY (conservative - bullish/calendar spread):

BUY  CALL  JAN-45  PHA-AI  OI=4251   A=$2.90
SELL CALL  AUG-45  PHA-HI  OI=1133   B=$0.40

SRCL - Stericycle  $34.00  *** Pure Premium Selling! ***

Stericycle (NASDAQ:SRCL) is a regulated medical waste management
company in North America, serving almost 300,000 customers in
the United States, Canada, Puerto Rico and Mexico.  Stericycle's
services and operations are comprised of collection, treatment,
transportation, disposal and recycling, together with related
training and education programs, consulting services and product
sales.  Stericycle has a fully integrated, nationwide medical
waste management network.  The network includes 36 treatment and
collection centers as well as 94 transfer and collection sites.
Stericycle uses this network to provide medical waste collection,
transportation and treatment and related consulting, training
and education services and products.  Stericycle's treatment
technologies include a proprietary electro-thermal-deactivation
system, as well as traditional methods, such as autoclaving and

The current high levels of implied volatility are very favorable
for traders who sell premium, as long as you can find positions
where the chance of extreme, unexpected movements are minimal.
Stericycle has been relatively stable, despite the recent selling
pressure among broad market issues, and due to the nature of the
industry, the company's upcoming earnings report is unlikely to
cause a significant change in its future fundamentals.  Traders
who employ premium-selling strategies can use the robust option
prices to initiate a neutral-outlook position with a favorable
risk/reward outlook.  The probability of the share value reaching
our sold (short) strikes is rather low, but there is always the
possibility of a break-out from the current trading range, so
monitor the position daily for changes in technical character.

PLAY (aggressive - neutral/credit strangle):

SELL CALL  AUG-40.00  URL-HH  OI=236  B=$0.50
SELL PUT   AUG-27.50  URL-TY  OI=495  B=$0.50
UPSIDE B/E=$41.00 DOWNSIDE B/E=$26.50

                        - CREDIT SPREADS -
CTSH - Cognizant Technology  $56.81  *** New High! ***

Cognizant Technology Solutions (NASDAQ:CTSH) delivers full life
cycle solutions to complex software development and maintenance
problems that companies face as they transition to e-business.
These information technology (IT) services are delivered through
the use of a seamless on-site and offshore consulting project
team.  The company's solutions include application development
and integration, application management and re-engineering
services.  The company's customers include ACNielsen Corporation,
ADP, Incorporated, Brinker International, Incorporated, Computer
Sciences Corporation, The Dun & Bradstreet Corporation, First
Data Corporation, IMS Health Incorporated, Metropolitan Life
Insurance Company, Nielsen Media Research, Incorporated, PNC Bank
and Royal & SunAlliance USA.

Shares of Cognizant Technology Solutions have been "on the move"
since the company announced in early July that strong demand for
its software services is expected to drive earnings and revenue
higher than forecast in the third quarter and for all of 2002.
Cognizant chairman and chief executive recently told investors
to expect revenue around $57 million, or about 7% higher than
forecasts for the current quarter of about $53.1 million.  The
executive also said the pipeline of contracts was prompting the
company to raise its full-year revenue guidance to $218 million
and its earnings outlook to $1.59 per share, considerably higher
than the previous existing consensus forecasts for $203 million
and $1.51 per share.  Analysts are optimistic about the future
outlook for Cognizant and based on the recent stock activity,
investors are as well.  Traders can speculate conservatively on
the near-term performance of CTSH with this position.

PLAY (conservative - bullish/credit spread):

BUY  PUT  AUG-45  UPU-TI  OI=121  A=$0.60
SELL PUT  AUG-50  UPU-TJ  OI=383  B=$1.20

DB - Deutsche Bank  $56.40  *** Technicals Only! ***

Deutsche Bank (NYSE:DB) is a multi-specialty group of financial
and banking institutions in Germany and Europe.  Its activities
cover a full range of corporate and investment banking, private
clients and asset management products and services.  Deutsche
Bank has 2,000 facilities in 70 countries worldwide, of which
60% are in Germany.  Deutsche Bank conducts its operations in
three divisions: Corporate and Investment Bank, Private Clients
and Asset Management and Corporate Investments.  In addition, DB
Services provides corporate services, information technology and
other services to the entire organization, and the Corporate
Center houses those functions that support the cross-divisional
management of the organization.  Deutsche Bank recently signed
agreements with Zurich Financial Services to acquire the greater
part of Zurich's asset management business and to sell Zurich
the greater part of its insurance business.

This position was discovered with one of our primary scan/sort
techniques; identifying fundamentally bearish trends on issues
with speculative options activity.  In this case, the premiums
for the out-of-the-money call options are slightly inflated and
the potential for a successful (technical) recovery is affected
by the resistance at the sold strike price; a perfect condition
for a bearish credit spread.

PLAY (conservative - bearish/credit spread):

BUY  CALL  AUG-70  DB-HN  OI=56   A=$0.20
SELL CALL  AUG-65  DB-HM  OI=187  B=$0.70

IGT - International Game Tech.  $53.14  *** Mediocre Outlook! ***

International Game Technology (NYSE:IGT) is a manufacturer of
computerized casino gaming products and operator of proprietary
gaming systems.  IGT serves the casino gaming industry in the
United States.  In addition to its production in the U.S., the
company manufactures gaming products in the United Kingdom and
through a third party manufacturer in Japan.  IGT also maintains
sales offices in selected legalized gaming jurisdictions globally,
including Australia, Argentina, New Zealand, Peru, South Africa
and The Netherlands.  IGT provides gaming products in every major
legalized gaming jurisdiction in the world.

The leading U.S. slot-machine maker recently reported favorable
third-quarter earnings, but concerns about slowing sales kept
its share value in a decline.  In the conference call, IGT's CEO
commented that ongoing sales of sequential progressive machines
didn't grow this quarter because the lucrative revenue-sharing
slots were meeting with opposition from some operators who said
they are too costly.  Adding to concerns about lack of growth
of revenue sharing machines, domestic units shipped for the
quarter were down 3%, while international shipments were down 5%.
IGT also said shipments were down in the important Nevada market,
and that the market from native American casinos in California
was also maturing.

Based on the recent tepid outlook, investors are not supporting
the issue at previous levels and traders who think the stock will
have difficulty returning to the $60 range in the next few weeks
can profit from that outcome with this position.

PLAY (conservative - bearish/credit spread):

BUY  CALL  AUG-65  IGT-HM  OI=494  A=$0.25
SELL CALL  AUG-60  IGT-HL  OI=740  B=$0.65


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