Option Investor

Daily Newsletter, Wednesday, 08/07/2002

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The Option Investor Newsletter                Wednesday 08-07-2002
Copyright 2002, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Extreme Volatility
Index Trader Wrap: Whippy
Weekly Fund Family Profile: The Timothy Plan
Options 101: By Popular Request, A Greek Review
Index Trader Game Plans: THE SECTOR BEAT - 8/7

Updated on the Site Tonight:
Swing Trader Game Plan

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
        08-07-2002        High      Low     Volume Advance/Decline
DJIA     8456.15 + 182.02  8460.17  8214.62 1739 mln   1980/1128
NASDAQ   1280.90 +  21.35  1298.12  1243.49 1567 mln   1704/1530
S&P 100   441.46 +  10.29   442.39   429.15   totals   3684/2658
S&P 500   876.77 +  17.20   878.74   854.15
RUS 2000  383.47 +   2.68   385.21   376.56
DJ TRANS 2271.38 +  35.88  2277.96  2214.87
VIX        43.07 -   2.66    47.01    42.07
VIXN       68.84 +   4.66    69.26    63.91
Put/Call Ratio      0.76

Extreme Volatility
By Steve Price

This morning's market reaction to Cisco's earnings release didn't 
last long.  A 180-point gain in the Dow was erased and sent into 
negative territory.  This seemed to make sense, given the recent 
economic news indicating a shrinking economy, and the German fund 
equity buy program having been placed in the rear-view mirror.    
But the end of the day found buyers again, rallying the Dow 230 
points to finish up 182.06 on the day.   There are several 
factors hanging over the market that may be contributing to the 
recent volatility.  A look at the rally of the last couple of 
days can possibly be attributed to a simple retracement of the 
plunge of the previous three days.  The close of 8456.15 (and 
high of 8460.17) is awfully close to the 61.8% retracement level 
of 8467. This is based on Wednesday's high of 8736.72, just 
before the 700-point drop to Monday's low of 8030.82.

Chart of Dow Retracement


Although the market is looking strong after this retracement, it 
still has not made up the recent loss.  A look at the longer term 
shows two points that are more significant. Monday's low of 
8030.82 presented what could be evidence, in hindsight, of a 
bottoming process.  We won't know for some time if this is the 
case.  However, if we were to break below 8000 again, it would be 
significant in the longer-term picture.  A continued rally above 
the Wednesday high would also look bullish.  The hold at 8000, 
combined with a trade above Wednesday's high would look more 
bullish with a series of higher highs and higher lows.

Chart of Dow Trend


As of right now, however, the long-term trend is still down.  As 
we get closer to Tuesday's Fed meeting, we may see a continued 
rally in anticipation of a rate cut.  This is the first time in 
quite a while that the action the Fed will take has been greatly 
debated.  In the past, most changes have been widely anticipated, 
and although they have been either bearish or bullish for the 
market, the volatility has not been as high due to the fact that 
most investors felt that they knew what would happen.  A look 
back at the Market Volatility Index (VIX.X) shows that during the 
11 cuts the Fed made in 2001, the only time market volatility was 
over 35 was following the September 11 attacks.  Leading up to 
six of these changes, market volatility was in the 20s. The VIX 
has traded over 40 intraday in 17 out of last 20 trading 
sessions.  It closed today at 43.07.

Chart of the VIX


So the question on most readers' minds is undoubtedly "Where are 
we going next?"  If the Fed aggressively cuts rates again by the 
end of the year, the effect on the economy may eventually be 
great.  However, there is usually a time lag, and this will not 
necessarily help companies now.  In addition, with the current 
rate at 1.75%, the Fed must be careful about how it uses its 
remaining bullets. As we approach the anniversary of 9/11, there 
is concern over an anniversary attack.  For this reason, they may 
want to wait until the following meeting on September 24th before 
using up 25 basis points, or more. 

Although the bond market has a more direct effect on mortgages, 
lower rates do trickle down and recent activity suggests that 
current low rates are having an effect.  This morning, mortgage 
applications for both new homes and re-financing came in at 
record highs.  This week showed an increase from 1055.5 to 
1066.9.  This is one area that pumps money directly into the 
economy and may lead to a more immediate economic impact.  When 
homeowners have lower monthly payments, they have more disposable 
income to spend in all sectors.  In addition, home equity loans 
used for home improvement could give both retailers and 
contractors a boost.  The housing "bubble," therefore, may get a 
little more air pumped into it.   

These mortgage numbers are in contrast to the Cambridge Consumer 
Credit Index, which showed that Americans are less willing to 
take on debt, because of the falling stock market.  With less 
money in their portfolios, the prospect of paying off their 
credit cards seems more daunting.  The index dropped from a 
reading of 63 in July to 56 for August, as 33 percent of 
consumers in August said they are willing to take on more debt, 
compared to 36 percent in July.  This indication of reluctance to 
spend does not bode well for the economy. Total consumer credit, 
excluding mortgages, rose $8.4 billion in June to $1.173 
trillion.  This was slightly above expectations of $7.9 billion.

Vice President Dick Cheney took on the role of cheerleader today, 
in trumpeting the basic strength of the economy. Actually it 
sounded more like a veiled version of "it wasn't us." He said the 
economy was getting better, as a result of tax and interest-rate 
cuts that had taken place since Bush took office.  He placed 
blame for the country's economic problems squarely at the Bill 
Clinton's door, saying that the Bush administration had inherited 
a country that had slid into a full-blown recession.

In the department of investor trust, there were three new 
developments today. First, insurance brokerage AON Corp. (AOC) 
released worse than expected earnings, with CEO Patrick Ryan 
claiming "Second quarter bottom line results were the worst in 
Aon's history due to certain unusual items, compressed operating 
margins, and lower investment income."  That was only part of the 
story, however, as the company said it might have to restate 
earnings from both 1999 and 2000, after consulting with the SEC 
about its consulting practices.  The stock was subsequently 
downgraded by Salomon Smith Barney and UBS Warburg, and lost 
$6.43, or 30.33% of its value.  

Next in the mug shot line was Tyco, whose former chief Dennis 
Kozlowski apparently received $135 million in loans from the 
company, over a five-year period, which were either interest free 
or completely forgiven.  This included a $19 million gift to help 
him purchase a 15,000 square foot estate in Boca Raton, Florida.  
As a former Tyco stockholder, I'm still waiting for my 
housewarming invitation. Apparently, one of the items deemed 
necessary for the health of the company was a $6,000.00 shower 
curtain for Kozlowski's New York residence. 

Last in today's line was Sam Waksal, former CEO of ImClone 
Systems, who was indicted today on charges of securities fraud, 
bank fraud, and obstruction of justice. Waksal is accused of 
tipping off relatives that ImClone's application to market the 
anti-cancer drug Erbitux would not be approved by the FDA.  The 
rejection sent the stock plummeting, from a high of more than 
$70, to an eventual low under $7.  In related news, apparently 
there are more conflicting stories about Waksal acquaintance 
Martha Stewart's own dumping of the stock.  The House Energy and 
Commerce Committee is apparently widening its probe into 
Stewart's activities in an attempt to clear up conflicts between 
the stories of Stewart, her broker, and his assistant.  Of 
course, prison decorations and hot-plate recipes could be an 
untapped area of expansion for the home economics queen.

Citigroup has announced they will join the ranks of companies 
that will expense employee stock options.  While they have 
continuing exposure to the Enron probe, this should give 
investors something positive to look at.  While some companies, 
such as Cisco, have refused to do so, this practice may 
eventually become the norm, as more large companies are stepping 
forward to volunteer the new accounting practice. 

With only 7 days left until the August 14 deadline for CEOs to 
certify their companies' financial results, only 60 companies 
have done so.  This leaves 887 more, or 94%, which have not yet 
certified.  It is hard to imagine that all 887 of these companies 
will certify without any problems. This week should be 
interesting in this regard.  The Fed meeting coincides with the 
last day before certifications are due, so a cut in rates could 
play tug-of-war with any bad news that may come out in the final 
days before CEOs have to commit.

We will probably continue to see increased volatility heading 
into next Tuesday.  Keep an eye on key resistance levels in the 
big picture, and don't be surprised by any whipsaw in the market. 
There is much news to come in the next seven days, so don't be 
stubborn and respect your stops.


by Leigh Stevens

The floor brokers I've heard from recently say that they would 
like to take a vacation.  The market is, as they say, "whippy", 
as in whip-saw. You pick a direction and follow momentum or price 
direction for a while, then the index of choice reverses on you.

Fundamentally, Cisco's earnings gives some glimmer of hope that 
maybe earnings will start to pick up.  And, the market horses 
have the got the "rate-cut" bit in their teeth and are running 
for the barn.  Whether this happens is VERY uncertain from what I 
know of how Chairman Greenspan works.  He has never been one to 
try to help out the market certainly - and, he doesn't try to 
micro manage the economy. 

Tomorrow, we have retail sales which I think is important - PPI 
and productivity are not unimportant, but retail sales gives us a 
look into the mood of the consumer and the consumer is propping 
up the economy.  

I'm not going to try to wear out my brain - and, yours - by 
trying to gaze into the Fed crystal ball. The technical pattern 
is my focus as I think the MARKET knows where it wants to go next 
and the chart patterns are shaping up in a way that will tell us 
the next direction, so I'll get right into my particular crystal 
ball and eye on the index patterns that are shaping up - and, 
which got clearer today. 

This has been a difficult market to figure - myself, I started 
the week "sure" that the market is bottomed, then sure it was 
going to new lows and I feel pretty "whip sawed" myself.  

Sometimes resolution becomes very simple when there is a series 
of declining highs and rising highs - and a line connecting these 
points CONVERGE.  Then, in one of the few times this happens, you 
simply wait for the market to break out above one of the lines 
and go in that direction, with stop points above/below (as the 
case may be) the "breakout" point.   

I'll start with a look at the hourly chart of the Dow, or rather 
the Dow Index, DJX - this chart demonstrates the pattern for the 
NYSE-related indices. The Nasdaq has a similar pattern, in terms 
of a possible upside breakout, but its chart formation does not 
make a triangle, although QQQ has put in a double bottom (another 
well known chart pattern).  And, lastly, a tip of the hat to John 
Seckinger for getting me thinking about "triangles".  

DJ Industrial Index (1/100 - $DJX.X) - Hourly charts:


A "symmetrical" triangle outlined above is where prices trend 
down, forming lower highs and also trend up, forming higher lows.  
This signals a trend "change" - either a reversal up or another 
downswing - the dynamics of this pattern is "compression".  

Compression in an index or stock is where the distance between 
highs and lows NARROWS in. The market (that is the sum of traders 
and investors) is "making up its mind" so to speak.  There is a 
change in outlook or conviction coming.  

The "most likely" decline on a break of the up sloping trendline 
is for a further 10% move, but it can be up to 20%.  The "most 
likely" rise on a breakout to the upside is 20%, but can be up to 
40% from the breakout point.  The "breakout" points are noted 
above at each trendline, but keep in mind that over several more 
hours the downside breakout point will rise some and the upside 
breakout point will be at a somewhat lower point.  

Also, there is often a tendency for prices to come back to the 
trendline that is pierced.  So, for example, assume a breakout 
above 85.4 (Dow 8540), and watch that same trendline - the next 
reaction low will often come back it the line.  

Basically, the pattern here is suggesting to us to look a good-
sized advance if DJX achieves a decisive upside penetration of 
85.4.	Conversely, look to trade the other way and play the 
85.5.	downside if the break is below 81.5.  Simple, yes! 

In all seriousness, there are not many such technical patterns 
that give a fairly predictable resolution.  Also, the stop points 
are clear. If long for example, use a stop point 2-3% under the 
trendline; e.g., at 82.8.    

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


The OEX has broken out above the 440 level that I suggested would 
"signal" a next move higher IF the rally didn't immediately fall 
apart the next day and there was good upside follow through.  
Moreover, this move has put the S&P 100 index above the upper 
line of its possible triangle.  The higher (down-sloping) 
trendline is where the longer-term hourly channel line intersects 
at 455, so a move above this level would tend to "confirm" the 
bullish potential of the triangle breakout that happened at the 
close today.  

My suggestion is to establish a long call position on the opening 
if its not a huge jump - if it is, it would be worth waiting for 
a dip to buy.  Risk to 435 initially.  If there is a downswing 
that develops instead of upside follow through such that there's 
a move below 425, that would be a bearish break of the lower 
trendline and a signal to go into puts. 

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


As with the OEX, the S&P 500, SPX, has achieved an initial 
bullish breakout of a symmetrical triangle. Confirmation of 
further upside potential comes with a second breakout above the 
long-standing upper end of the hourly downtrend price channel, 
currently intersecting at 890 - eventual upside potential is to 
as high as 950 in that event. 

The strategy is the same in terms of establishing an initial long 
position, with a suggested stop/exit point at 853 initially. 
Conversely, a downside reversal is signaled on a move to below 
845, which would then also warrant a bearish put play on the SPX.     

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


The break out points on QQQ are 23.2, then 23.6, which is the 
area of both the hourly upper channel line AND the "pivotal" 21-
day moving average.  

The pattern with the Q's is different from the S&P in that a 
likely double bottom is in place here.  "Confirmation" of a 
double bottom occurs with a breakout above the prior rally high 
that PRECEDED the second low (forming the double bottom) - this 
means that confirmation of a bottom is suggested if and when 24.7 
is exceeded to the upside.  

So, there are two dynamics going on - one are the possibility of 
bullish trendline breakouts and the second is indicated on a move 
that exceeds the prior 24.7 peak.  This is true in general, as an 
uptrend emerges when there is a pattern of higher rally highs and 
higher reaction lows - something to look at with the S&P and DJX 
charts as well.   

Leigh Stevens
Chief Market Strategist 

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The Timothy Plan

Long-term investors concerned with the moral issues of today may 
be interested in this week's profile of The Timothy Plan, a fund 
family offering retail investors a biblical choice when it comes 
to investing.  The Timothy Plan's website states that their goal 
is to recapture traditional American values, avoiding investment 
in companies involved in practices contrary to "Judeo-Christian" 

Judeo-Christian principles have historical roots in both Judaism 
and Christianity (Old Testament and New Testament).  The Timothy 
Plan screens companies based on certain biblical criteria and if 
the company's involved in one or more of the following practices 
they're prohibited from investment in the mutual fund portfolios:

 * Abortion
 * Pornography
 * Anti-family entertainment
 * Non-married lifestyles
 * Alcohol
 * Tobacco
 * Gambling

Should you consider investing in one of The Timothy Plan mutual 
funds, you should read the prospectus carefully and ensure that 
you understand and agree with the various screens being used to 
weed out the bad apples.  If you don't believe these things are 
destroying children and families then you may not want to limit 
your investment universe to traditional values-based companies 
only.  That's a personal choice and one that only you can make.

The Timothy Plan, as such, represents America's first pro-life, 
pro-family, and biblically based mutual fund group.  They offer 
investors a variety of products and services, and help personal 
investors to locate Christian financial planners in their area.  

For more information regarding The Timothy Plan, you can either 
call the toll-free number at 800-846-7526 or logon to their web 
site at www.timothyplan.com.  The site lets you download a fund 
prospectus if you want, and contains detailed information about 
the firm's principals and objectives and fund products/services.

Per the website, The Timothy Plan currently offers eight separate 
and distinct investment portfolios, with each portfolio employing 
what they believe to be a highly respected money management firm 
that possesses specific expertise unique to that particular fund.  
These eight Timothy Plan open-end, mutual funds are listed below.
 * Timothy Plan Aggressive Growth Fund 
 * Timothy Plan Large/Mid-Cap Growth Fund 
 * Timothy Plan Small-Cap Value Fund (TPLNX and TIMBX)
 * Timothy Plan Large/Mid-Cap Value Fund 
 * Strategic Growth Fund 
 * Conservative Growth Fund 
 * Fixed Income Fund 
 * Money Market Fund 

Note that The Timothy Plan mutual funds are available in Class A 
and Class B shares.  A Shares have a front-end load of 5.50% and 
the B Shares have deferred fees.   The two class shares hold the 
same investment portfolio and vary only in their surrounding fee 
structure.  For our purposes, we will use the Class A shares for 
fund comparison purposes.  The minimum initial purchase required 
is only $1,000 for regular accounts ($0 for IRA accounts).  Fund 
brokerage availability is good, with the Timothy funds available 
at more than two-dozen fund networks (note, Schwab is not one of 

Because of their limited asset sizes, 7 of 8 Timothy Plan mutual 
funds do not currently have a ticker symbol.  Only the company's 
original fund product, Small-Cap Value Fund has more than just a 
Cusip number.  If you want the Cusip numbers, they are presented 
on the Welcome page of The Timothy Plan website.  Note the funds 
are in Morningstar's system.  If you type in the name Timothy in 
the Morningstar Quicktake Report field online, it'll list all of 
the Timothy Plan funds and assign its own unique ticker to those 
lacking an official ticker symbol.       

Additional Background

According to the Timothy website, the firm was founded in early 
1992 by Arthur Ally, who at the time was challenged to design a 
specialized retirement plan for pastors of independent churches 
and to offer it on a national scale.  This challenge, the story 
goes, forced Ally to search the entire investment industry for 
any professionally managed investment program that would screen 
out companies involved in practices offensive to an evangelical 
pastor's Christian world-view.  He found that one didn't exist.

Ally's research team reportedly identified only a small handful 
of ethical mutual funds, but on closer scrutiny discovered that 
nearly all these funds were really just "fronts" for promoting 
some "New Age" agenda, as they put it.  These social funds were 
attracting Christian investment dollars, due to their screening 
out of companies involved in alcohol and tobacco, but they felt 
that wasn't enough.  Their research found that these same funds 
were unknowingly channeling dollars into areas very contrary in 
their opinion to Christian values and principles.  

Mr. Ally and his research team decided to move forward in 1992, 
and "The Timothy Plan" was established, based on the scriptural 
principles contained in I Timothy 5:8,22; 6:10; and Ephesians 5.

In addition to serving as Timothy's president, Ally also serves 
as president of Covenant Financial Management Inc., a financial 
planning firm he founded in 1990 (prior to establishing Timothy 
Plan).  Covenant specializes in tax and investment planning for 
high net worth individuals and small business clients - with an 
emphasis on "planned giving."  Covenant has since spun off its 
financial planning practice, and now acts as national marketing 
agent for the Timothy Plan. 

Mr. Ally is a Certified Financial Planner (CFP) and former CPA 
who joined the investment industry more than 23 years ago, per 
the Timothy Plan website.

Investment Style/Strategy

The Timothy Plan funds are based on the "biblical stewardship" 
principles of I Timothy 5:8, 22 and screen out companies which 
are contributing to the moral decline in America.  They screen 
out firms involved either directly or indirectly in pornography 
or abortion as well as those companies directly involved in the 
production of alcohol, tobacco or gambling.  Their funds don't 
invest in either the common stock or fixed-income securities of 
those companies.

The Timothy website goes into more detail about the 8 practices 
that are contrary to "Judeo-Christian" principles and result in 
prohibition.  Each practice in their worldview hurts as well as 
destroys children and families.  For each practice contributing 
to moral decline, the website provides scriptural references to 
support the prohibition on investment.  For more information on 
their biblical screening guidelines, you can go online.  

As stated earlier, only one mutual fund, Timothy Plan Small-Cap 
Value Fund currently owns a ticker symbol and is tracked by the 
Morningstar's of the industry.  It is classified as a small-cap 
blend fund by Morningstar, and during its history has generally 
maintained its small-blend bias.  In 2000, it drifted over into 
the Morningstar small-cap growth style box.  

Timothy Plan Small-Cap Value Fund (TPLNX and TIMBX) seeks long-
term capital growth (income secondary) by investing principally 
in stock securities of companies with market capitalizations in 
excess of $200 million.  Its portfolio holdings consist chiefly 
of common stocks and American depositary receipts (ADRs) and it 
may invest up to 30% of assets in fixed income securities.  Per 
Morningstar, 95.3% of fund assets were invested in stocks as of 
April 30, 2002, with 4.7% of assets held in cash.  That's fully 
invested by mutual fund industry standards.

Since January 1, 1997 the fund's portfolio has been managed by a 
team of investment professionals including James Awad/Awad Asset 
Management, Carol Egan and Dan Veru. 

Morningstar's style box details as of July 31, 2002 indicate an 
average market capitalization of $611 million (small-cap) along 
with low average price valuations (P/E, P/B, P/C) compared with 
the S&P 500 large-cap index.  Relative to other small-cap funds, 
the Timothy Plan Small-Cap Value Fund's average prices are more 
down the middle, resulting in its "blend" style classification.

In the next section, we'll take a look at how well Timothy Plan 
Small-Cap Value Fund and other Timothy offerings have performed 
compared to their respective category peers using data provided 
by Morningstar.  

Fund Performance

Below is a quick synopsis of relative fund performance for the 
Timothy Plan mutual funds as best I can derive it from limited 
performance information available online (data through July 31, 
2002 unless otherwise stated, per Morningstar, Class A shares).
 Small-Cap Value Fund (3-Yr and 5-Yr as of 8-6-2002):
 3-Year Annualized (+5.2%); % Rank in Category (38th)
 5-Year Annualized (+1.2%); % Rank in Category (54th)
 YTD 2002 Return (-14.0%); % Rank in Category (66th)
 Morningstar Category: Small-Cap Blend 

 Aggressive Growth Fund:
 2001 Return (-20.8%); % Rank in Category (50th)
 YTD 2002 Return (-26.0%); % Rank in Category (58th)
 Morningstar Category: Mid-Cap Growth

 Large/Mid-Cap Growth Fund: 
 2001 Return (-22.7%); % Rank in Category (52nd)
 YTD 2002 Return (-28.4%); % Rank in Category (80th)
 Morningstar Category: Large-Cap Growth

 Large/Mid-Cap Value Fund:
 2000 Return (+13.0%); % Rank in Category (70th)
 2001 Return (-0.1%); % Rank in Category (74th)
 YTD 2002 Return (-12.6%); % Rank in Category (66th)
 Morningstar Category: Mid-Cap Value
 Strategic Growth Fund:
 2001 Return (-11.9%); % Rank in Category (7th)
 YTD 2002 Return (-21.8%); % Rank in Category (27th)
 Morningstar Category: Large-Cap Growth
 Conservative Growth Fund:
 2001 Return (-5.6%); % Rank in Category (63rd)
 YTD 2002 Return (-12.2%); % Rank in Category (71st)
 Morningstar Category: Domestic Hybrid

 Fixed Income Fund:
 2000 Return (+2.4%); % Rank in Category (43rd)
 2001 Return (+6.0%); % Rank in Category (30th)
 YTD 2002 Return (+1.7%); % Rank in Category (30th)
 Morningstar Category: Multi-Sector Bond 
The relative performance of the Timothy Plan Fixed Income Fund 
has been average/above average relative to its category peers.  
Its trailing 3-year annualized return of 4.6% through August 6, 
2002 ranks in the category's 27th percentile, near top quartile.  

Compared to other multi-sector funds, the Fixed Income Fund has 
below-average risk and average return, according to Morningstar, 
for a risk-adjusted, performance rating of 3 stars ("average").  
An upgrade to four stars isn't out of the question considering 
the fund's strong showing since December 31, 2001.  The fund's 
YTD return as of August 6, 2002 was 4.0%, ranking it in the top 
7% of the multi-sector bond fund category.

Timothy Plan Small-Cap Value Fund's 3-year returns and rankings 
are better than its trailing 5-year returns and rankings.  Over 
the last five years, the co-managed fund has returned just 1.1% 
per year on average, ranking in the category's 54th percentile.  
When compared to its small-cap blend peers, the fund has put up 
average returns with below average risk, for a 3-star rating by 

Sibling Large/Mid-Cap Value Fund sports a 3-year average annual 
total return of -3.2%, ranking it in the 80th percentile of the 
mid-cap value fund category, per Morningstar.  Year-to-date and 
1-year numbers are similarly ranked within the category.  Below 
average return and average risk get this portfolio only 2 stars 
by Morningstar, signifying below average, risk-adjusted returns 
relative to the category.

The other Timothy Plan mutual funds lack sufficient information 
and history to perform meaningful comparisons or to derive long-
term outlooks.


With all the moral and ethical issues of the day, we thought it 
might be appropriate to profile a mutual fund organization that 
has taken socially responsible investing to a new level.  Since 
none of the Timothy Plan funds may invest in so-called excluded 
securities, the pool of securities they each select from may be 
limited to a certain degree.  

The fund prospectus says that although the firm believes it can 
achieve the investment objective of its mutual funds within the 
parameters of ethical investing, screening out certain excluded 
investments could have a material adverse effect on performance.  

Again, the decision of whether to screen out companies that are 
morally or ethically challenged is a personal one.  For us, the 
jury is still out on this one.  For further information, log on 
to www.timothyplan.com.

Steve Wagner
Editor, Mutual Investor


By Popular Request, A Greek Review
By Mark Phillips

When trading options, there are a lot more factors to pay
attention to, when compared to just trading stocks.  Several
months ago, I wrote a series of articles on all these factors
that we need to pay attention to.  Lately, I've had a veritable
flood of email requesting detailed information on how to pick
the right option strike, gauge what to expect in terms of option
appreciation from a given move in the underlying stock, along
with a host of other questions that are best answered by a
detailed treatment of the myriad factors that determine option

Rather than just send curious readers digging through the
archives in search of the appropriate articles, I thought it
would make sense to re-issue this introductory article tonight.
This way, we can bring the new readers up to speed, starting at
the beginning.  

Due to the plethora of additional factors that influence option
pricing, most notably "the Greeks", it is possible to enter an
option trade that produces a loss, even when a corresponding
trade in the underlying equity or index would have produced a
profit.  Understanding these factors and their influence on
option pricing is essential to profitable option trading,
especially in the volatile market we currently have at our

So what are the Greeks?  In order to answer that question, we
need to say a few words about how option prices are calculated.
Option prices are determined by applying the standard
Black-Scholes pricing model, which uses 5 inputs to create the
theoretical price of the option.  They are as follows:
1. Time to expiration
2. Strike price
3. Value of the underlying equity or index
4. Implied volatility of the underlying equity or index
5. The risk-free interest rate

Discussion of the inner workings of the Black-Scholes model is
far beyond the scope of this article, and there have been
numerous books written on the subject for the inquisitive
student.  Rather than delving into theory, I thought it would
be far more productive to deal with the practical measures of
option pricing and strike selection that can aid us in our
pursuit of profits.  These measures are commonly referred to
as the Greeks and the four most important Greeks, in my opinion,
are Delta, Gamma, Theta and Vega.

Delta measures the amount that a given option will move with
respect to the underlying security and is stated in terms of
percentage from 0 to 100.  If a stock moves $1 and the option
in question increases in value by $0.40, we know that the option
had a Delta of 40.  At-the-money (ATM) options typically have a
delta of 50, while out-of-the-money (OTM) options have a Delta
less than 50 and in-the-money (ITM) have a Delta greater than
50.  As we move further out-of-the-money, Delta approaches zero,
while it approaches 100 as we move deeper in-the-money.  Neither
of these extremes are met in practical application, but the
basic relationship should give us a useful working understanding.

Gamma is used to describe the rate-of-change of an option's
Delta, and those that understand the relationship can use their
knowledge to give their trading profits an extra boost.  Putting
the relationship in physics terms, Delta is the equivalent of
velocity, while Gamma can be equated to acceleration.  If you
recall your high school physics, you'll remember that
acceleration can really boost velocity over time.  The same is
true of the Delta-Gamma relationship.  I'll leave you to ponder
that concept and we'll revisit it in exacting detail on our next

The one constant in the universe (aside from taxes) is the
passage of time, and Theta is the Greek that measures the impact
of Father Time on option prices.  Options are, by definition, a
wasting asset, meaning that the portion of the option premium
that is attributable to time, declines day after day.  Adding
insult to injury, the rate of decay of the time-related portion
of an option's value increases as expiration Friday draws near.
The majority of an option's time value disappears in the final
30 days of its life and most of that evaporates in the final 2
weeks.  During expiration week, an equity must move in your
favor substantially, just to offset the loss in value due to
Theta-decay in an OTM or ATM option.

Volatility is perhaps the most apparent determinant of option
pricing; at least it has seemed that way during recent months as
we have watched the VIX race from 35 to 57 and then back down to
the low 20's.  While normal trending markets don't have nearly
that kind of volatility movement, when it does occur, it can
yield outsized returns for appropriately positioned traders, and
exact staggering losses from those unaware of its potential
effects.  Last week, I highlighted the perils of trading in a
high-volatility environment.  Traders that sell options in such
an environment can reap substantial rewards, but need to be
cognizant of the inherent risks that come with the territory.

One interesting point about time-value in options is that on a
percentage basis, ATM options are the most expensive in terms of
time value.  So when we buy ATM options, we need to understand
that we are buying the most time-value possible for that
expiration month, and every last shred of that time-value will
melt away by expiration Friday.  By expiration, either all the
time value will have melted away leaving a worthless option
(great for option sellers, but unpleasant for option buyers), or
the stock will have appreciated so that the option is ITM, now
possessing intrinsic value equivalent to how far in the money
the option is.

As a simple example, let's take a $50 OCT Call on stock XYZ
which is trading for $3.00 one month before expiration.  If on
expiration Friday, the price of the stock is $48 (even if that
is above the price of the stock one month earlier), the option
will expire worthless, with no time value and no intrinsic
value.  On the other hand, if XYZ appreciates to $54 by
expiration Friday, the option will be worth $4.00 ($4 intrinsic
value, and no time value).  In both cases, the time value of the
option fades away to nothing by expiration, but if the stock
moves sufficiently so that our option is in the money, we have
real, as opposed to anticipated value.

Delta and Vega are fairly easy to quantify, and there are a
number of websites that provide this data for those interested
in learning the inter-relationships and how they influence the
potential success of option trading.  One of my favorite sites
is www.ivolatility.com, which provides detailed analysis of
option Greeks, as well as historical volatility charts.  While
this site also provides an option calculator to determine Theta
and Gamma for specific options, I think these two Greeks are
more important to understand from a qualitative sense, so I tend
to focus less on the actual numbers and more on their general
influence on option prices.

One interesting trend I have noticed in recent months is that
online brokers are doing a better job of catering to option
traders.  All 3 of the brokers that I currently use, have
recently added options analysis tools to their trading sites.
This provides me with the ability to research the various Greeks
on a prospective option trade without ever leaving the trading
screen.  In addition to basic option calculators that provide
the ability to check Delta, Gamma, Vega and Theta for any option,
these sites now provide charts of both historical and implied
volatility.  Using this latter tool, I can see where a stock's
volatility is in relation to its historical range, helping me to
make sure I am buying low volatility and selling high volatility.
We'll devote a future article to just talking about volatility
and how to use it to our advantage.

When properly understood, the inter-relationship of the Greeks
on option pricing can be very useful to option traders (both
buyers and sellers) who understand how to capitalize on the
opportunities provided.  Now that we've covered the basics,
we're ready to dig into all the details you can stand.
Fortunately, I don't have to write the whole series of articles
again, as they are archived in the Options 101 section on the
website.  If this article whetted your appetite for more details,
then feel free to peruse the list of articles below.

The Greeks, Part 1 - Delta and Gamma
Application of Gamma and Delta to Strike Selection
Back to the Olympians of Old
Oh, That Vexing Volatility
Volatility - Part Deux
The Greeks - Putting It All Together
A Greek Encore
Varying Views on Volatility
A Primer on Online Volatility Tools - Part I

Happy Reading!


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by Leigh Stevens

Another up and down session - another seesaw session - but one 
that wound up with most of the sectors higher on the day, 
although most of these were up only modestly on a percentage 
basis, as you can see below.   

Price action today was constructive in terms of further upside 
potential in Defense (DFI), Pharmaceuticals (DRG), the Russell 
2000 (RUT), Semiconductors (SOX), and the Brokers (XBD)

Helping DRG was Watson Pharmaceuticals (WPI) rallied over 9% 
after it reported its Q2 earnings above expectations. Support in 
biotech was seen when Gilead Sciences (GILD) ran up 3% after an 
FDA advisory panel recommended late yesterday that the company's 
experimental treatment for hepatitis be cleared for marketing. 

UP on Wednesday -


DOWN on Wednesday - 




Buy SMH at 23.75 
(Semiconductor HOLDR stock)
Stop at 22.75




Semiconductor Sector Index ($SOX.X)


The Semiconductor Index (SOX) is rebounding from the low end of 
its downtrend channel, suggesting that the SOX could possibly 
rebound to the area of significant overhead resistance at 350 

Enough for a trade, even if the chip sector does not make it 
though this key level again. The past pattern for the SOX has 
been for a good-sized rebound on the second bounce from its lower 
UPDATE: 8/7    

Leigh Stevens
Chief Market Strategist


Swing Trade Game Plan
Jim Brown

What? A Rally? After two days of gap openings following very 
negative closes the market pulled off a reversal on the strength 
of some huge futures related buy programs. The close over 
resistance at OEX 440 was positive but the margin at the close was 
very tenuous at only $.50 cents. The stage is set for a continued 
rally but also poised on the cliff for a possible drop.  The key 
appears to be the coming Fed meeting and the growing possibility 
of a rate cut.

To View the Swing Trader Game Plan Page Click Here:

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

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Contact Support
The Option Investor Newsletter                Wednesday 08-07-2002
Copyright 2002, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

In Section Two:

Stop Loss Updates: None
Dropped Calls: None
Dropped Puts: BBOX, CCMP, JPM
Play of the Day: Put - QCOM
Big Cap Covered Calls & Naked Puts: The Base-Building Process Begins!

Updated on the site tonight:
Market Watch
Market Posture

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BBOX $34.20 +0.24 (+1.00 for the week)  BBOX has had a nice roll 
down hill.  It has rebounded with the rally in the overall markets 
the last two days, and has violated our stop.  This stop was 
lowered to lock in a profit on this play and has done so, as we 
originally entered the play at $36.92.  Use a market pullback to 
take additional profits in exiting this play on Thursday.

CCMP $40.07 +0.83 (+1.85 for the week)  CCMP suffered a technical 
breakdown under $40 last Thursday.  It found support, however, 
down at $36.60.  This support coincided with the broader market 
rally, and although it has not rallied past its previous high, it 
has violated the trend we attempted to capture. CCMP violated our 
stop of $39.25 and we will to close this play on Thursday.

JPM $24.04 +0.39  (+0.19 for the week) JPM has continued to tow 
with it a black cloud of bad news.  Exposure to large derivatives 
positions, South American economies, and Enron have kept the stock 
below $25.  In a classic case of the rising tide lifting all 
boats, this sinking ship has benefited from the recent market 
rally.  We lowered our stop loss on this play from $25 to $24, and 
the stock has violated this level by $0.04.  Although sometimes 
hard, in a market with the current levels of volatility, we will 
respect our stop loss and close this play

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

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



QCOM – Qualcomm $25.18 +1.43 (-0.37 for the week)

Company Summary:
QUALCOMM Incorporated (www.qualcomm.com) is a leader in 
developing and delivering innovative digital wireless 
communications products and services based on the Company's CDMA 
digital technology. The Company's business areas include CDMA 
chipsets and system software; technology licensing; the Binary 
Runtime Environment for Wireless(TM) (BREW(TM)) applications 
platform; QChat(TM) push-to-talk technology; Eudora® e-mail 
software; digital cinema systems; and satellite-based systems 
including portions of the Globalstar(TM) system and wireless 
fleet management systems, OmniTRACS® and OmniExpress®. QUALCOMM 
owns patents that are essential to all of the CDMA wireless 
telecommunications standards that have been adopted or proposed 
for adoption by standards-setting bodies worldwide. QUALCOMM has 
licensed its essential CDMA patent portfolio to more than 100 
telecommunications equipment manufacturers worldwide. 
Headquartered in San Diego, Calif., QUALCOMM is included in the 
S&P 500 Index and traded on The Nasdaq Stock Market® under the 
ticker symbol QCOM. (source: company release)

Why We Like It:
Qualcomm has suffered along with the rest of the tech sector.  The 
stock had found support at $25 going back to the beginning of May.  
Although QCOM finished the day above $25, yesterday's drop through 
this level is a bearish sign for the stock.  This reinforces last 
Thursday's downgrade by Credit Suisse First Boston (CSFB).  The 
firm cut its rating on QCOM from a "buy" to a "hold."  There are 
very few sell ratings issued, and "hold" is generally considered 
to be one of the most bearish ratings a stock can receive. CSFB 
also lowered its price target on the stock a stunning 44%, from 
$45 to $25.  It said it expected slow growth for 2003 lowered its 
earnings per share estimate to $1, 10% below the current 

Qualcomm beat earnings forecasts on July 25, and expects revenue 
to be at the high end of previous forecasts.  Many analysts, 
however, have expressed doubts about QCOM's sales expectations for 
its mobile phone chips. The research note from CSFB stated, "We 
think it will be difficult for (Qualcomm) to show upside in the 
next few quarters without a rebound in the end market... Until 
there is better visibility into 3G or significant ramps in new 
markets like China or India, we think growth will be limited."

A look at Qualcomm's point and figure chart shows a triple-bottom 
breakdown, established with yesterday's trade of $24, before 
closing at $23.78.  QCOM is working on a bearish vertical count of 
$16, although this may be an aggressive target, as a reversal at 
some point would be needed to cement this number.  However, each 
trade of a round number below $24 extends this count downward by 
$2.  One note about this chart.  A single "O" on a triple bottom 
breakdown can lead to a "bear trap."  A bear trap forms when the 
last holder of stock finally gives in, and is followed by a quick 
reversal up afterward.  The triple bottom breakdown is still 
bearish, but shorts may want to put on half a position here and 
half after the stock forms another "O" at $23.

We like this position for short entries under $25, as this will 
avoid the continuation of today's rally in the Nasdaq and broader 
markets.  QCOM's current downward trendline, begun July 17, 
provides resistance just over $25, and this entry will avoid 
violation of this trendline, as well.  Our initial target will be 

Why this is our Play of the Day:

QCOM triggered our short entry below $25 this morning, and 
although it attempted a rally with the rest of the market, the 
stock was barely able to make it back over the $25 mark. The 
stock's intraday low of $23.36 showed continuing weakness, and it 
is our belief that if not for the end of day rally, this stock 
could have traded much lower. The triple bottom formation came 
close to adding another "O" which would be confirmation of this 
breakdown.  On a market pullback, a trade under $25 is 
anadditional short entry point on this play.  The market may 
continue its wild swings ahead of next Tuesday's interest rate 
announcement, and next Wednesday's accounting certification 
deadline.  Therefore, stops must be observed with added caution.  
These announcements, however, don't change the weak technicals on 

BUY PUT AUG-25 AAW-TE OI=12552 at $1.45 SL=0.75
BUY PUT SEP-25*AAW-UE OI= 3252 at $2.80 SL=1.30

Average Daily Volume = 16.5 mil


The Base-Building Process Begins!
By Ray Cummins

Stocks climbed higher Wednesday after a strong rally early in
the session gave investors new hope that the market may finally
be showing signs of a bottom.

Building on favorable earnings from Cisco Systems (NASDAQ:CSCO),
equities followed through on the morning's brisk upside activity
despite worries about the health of the U.S. economy.  A report
showing consumer credit expanded in June eased concerns, helping
the Dow Industrial Average finish the day 182 points higher at
8,456.  The strongest blue-chip shares were Honeywell (NYSE:HON),
Merck (NYSE-HON), Boeing (NYSE:BA) and General Electric (NYSE:GE).
The technology-laced NASDAQ Composite Index closed up 21 points
at 1,280 on strength in telecommunications and networking issues.
The broader Standard & Poor's 500 Index ended up 17 points at 876
with advances recorded by pharmaceutical, health care, chemical
and computer technology stocks.  Oil services and Internet issues
were the only losing groups.  Advancing stocks led decliners by a
ratio of 2 to 1 on the New York Stock Exchange while breadth was
barely positive on the NASDAQ.  Over 1.48 billion shares changed
hands on the Big Board and more than 1.56 billion on technology
exchange.  In the bond market, Treasuries remained on firm footing
even as stocks pushed higher.  The 10-year Treasury note rose 1/8
to reach 104 10/32, a yield of 4.31%, while the 30-year government
bond gained 3/32 to 102 7/32, yielding 5.22%.


Summary of Current Open Positions

(As of 08-06-02)

Naked Puts

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

EBAY     AUG    45   44.15  55.27   $0.85    5.54%
EBAY     AUG    50   48.95  55.27   $1.05    7.56%
FRX      AUG    60   59.20  69.14   $0.80    5.03%
IDPH     AUG    30   29.40  41.63   $0.60    6.83%
QLGC     AUG    30   29.20  38.00   $0.80    8.67%
CTSH     AUG    45   44.00  51.19   $1.00   10.61% ***
EBAY     AUG    45   44.20  55.27   $0.80    8.71%
ERTS     AUG    45   43.90  58.64   $1.10   11.60%
IDPH     AUG    30   29.35  41.63   $0.65    9.94%
QLGC     AUG    25   24.65  38.00   $0.35    5.38%
SLAB     AUG    23   21.80  22.95   $0.70   14.40%
UNH      AUG    75   74.15  84.30   $0.85    4.97%
WLP      AUG    65   63.95  68.87   $1.05    6.74%
CEPH     AUG    35   34.70  44.07   $0.30    5.76%
FRX      AUG    70   69.35  69.14  ($0.21)   0.00% ***
IDPH     AUG    35   34.70  41.63   $0.30    6.19%
IVGN     AUG    30   29.70  34.50   $0.30    6.07%
PLMD     AUG    25   24.80  25.08   $0.20    5.64% ***
TRMS     AUG    40   39.45  46.69   $0.55    8.36%
UNH      AUG    75   75.45  84.30   $0.55    4.56%
WLP      AUG    60   59.40  68.87   $0.60    6.44%

Cognizant (NASDAQ:CTSH), Forest Labs (NYSE:FRX); $70 strike,
and Polymedica (NASDAQ:PLMD) are currently on the "early exit"
watch-list.  Silicon Laboratories (NASDAQ:SLAB) closed below
a recent support area, thus traders should consider exiting
the play to limit future losses.  Positions previously closed
include Christopher & Banks (NYSE:CBK) and Lennar (NYSE:LEN).

Naked Calls

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

ABC      AUG    75    75.85  63.64   $0.85   4.99%
BRL      AUG    65    65.75  58.50   $0.75   5.51%
DGX      AUG    85    86.10  57.40   $1.10   5.35%
BZH      AUG    75    75.80  60.10   $0.80   6.20%
EXPE     AUG    70    71.00  44.36   $1.00   7.69%
SPW      AUG    115  116.45  97.90   $1.45   5.95%
GD       AUG    95    93.75  80.51   $1.25   6.34%
LMT      AUG    65    66.05  62.80   $1.05   8.05%
NOC      AUG    120  121.10  106.25  $1.10   5.02%

Put-Credit Spreads

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

TKTX    40.15  35.15  AUG   30  35  0.75   34.25  $0.75   Open?
TRMS    43.25  46.69  AUG   30  35  0.55   34.45  $0.55   Open
CTSH    58.52  51.19  AUG   45  50  0.55   49.45  $0.55   Open?

Transkaryotic Therapies (NASDAQ:TKTX) and Cognizant (NASDAQ:CTSH)
have moved below near-term technical support areas and traders
should consider closing those positions to limit potential losses.

Call-Credit Spreads

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

AGN    58.30  56.01   AUG   70  65  0.60   65.60  $0.60  Open
CI     89.83  79.65   AUG  105 100  0.55  100.55  $0.55  Open
COF    51.41  26.71   AUG   65  60  0.65   60.65  $0.65  Open
UN     60.97  57.25   AUG   70  65  0.80   65.80  $0.80  Open
ABC    64.50  63.64   AUG   80  75  0.50   75.50  $0.50  Open
BRL    56.45  58.50   AUG   70  65  0.65   65.65  $0.65  Open
SLM    86.05  89.45   AUG  100  95  0.60   95.60  $0.60  Open
BA     41.19  39.41   AUG   48  45  0.35   45.35  $0.35  Open
EASI   42.90  47.22   AUG   55  50  0.45   50.45  $0.45  Open
AET    43.68  41.98   AUG   55  50  0.50   50.50  $0.50  Open
JCI    81.02  76.75   AUG   90  85  0.50   85.50  $0.50  Open

Engineered Support Systems (NASDAQ:EASI) remains in a recent
trading range near $46-50 and any close above overhead supply
near $51 would signal a potential exit in the position.

Synthetic Positions:

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

AXP    35.26   32.00   SEP40C/30P   0.10   29.90   0.10   Open
CCR	 50.81   50.25   SEP55C/45P   0.20   44.80   0.20   Open

Credit Strangles:

Stock  Pick     Last    Position   Credit   G/L   Yield  Status

ERTS   63.00    58.64  AUG70C/50P   2.75    2.75   18%    Open

Questions & comments on spreads/combos to Contact Support

BULLISH PLAYS - More Naked Puts!

Yesterday, I received a request for "new" naked-put candidates
but the list of favorable stocks in this group has not changed
much over the past week (despite the market's volatility) and
some of today's candidates are already posted in our portfolio.
However, investors with a bullish outlook on the underlying
issues, who believe the market is establishing a bottom near the
current levels, may find the risk-reward outlook in these plays
attractive.  As always, current news and market sentiment will
have an effect on these positions so review each one thoroughly
and make your own decision about its future outcome.

AMGN - Amgen  $45.72  *** Medicare Likes Their Products! ***

Amgen (NASDAQ:AMGN) is a biotechnology company that discovers,
develops, manufactures and markets human therapeutics based on
advances in cellular and molecular biology.  Amgen manufactures
and sells human therapeutic products, including Epogen, Neupogen,
Aranesp, Neulasta and Kineret.  Amgen focuses its research and
development efforts on therapeutics delivered in the form of
proteins, monoclonal antibodies and small molecules in the areas
of nephrology, cancer, inflammation and neurology and metabolism.
The company has research facilities in the United States as well
as clinical development staff in the United States, the European
Union, Canada, Australia and Japan.  The company recently bought
Immunex, a biopharmaceutical company dedicated to developing new
immune system sciences to protect human health.  Immunex had
successfully developed two products, Enbrel and Leukine, and was
marketing four products treating multiple indications, Enbrel,
Leukine, Novantrone and Thioplex.

AMGN - Amgen  $45.72

PLAY (sell naked put):

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

SELL PUT  AUG 42.5 AMQ TV   4,205     0.45    42.05       9.8%
SELL PUT  SEP 35   AMQ UG   1,795     0.60    34.40       4.3% "TS"
SELL PUT  SEP 37.5 AMQ UU   1,287     0.95    36.55       6.0% ***
SELL PUT  SEP 40   AMQ UH   2,078     1.35    38.65       6.7%

ATK - Alliant Techsystems  $65.97  *** Rally Mode! ***

Alliant Techsystems (NYSE:ATK) is a supplier of aerospace and
defense products to the U.S. government, America's allies and
major prime contractors. ATK also is a supplier of ammunition to
federal and local law enforcement agencies and commercial markets.
ATK also designs, develops and produces solid rocket propulsion
systems for a variety of government and commercial applications.
The company is the sole supplier of the reusable solid rocket
motors used on NASA's Civil Manned Space Launch Vehicles.  ATK
designs, develops and builds small, medium and large caliber
conventional munitions for the U.S. and allied governments as
well as for commercial applications.  The company manufactures
and develops small-caliber ammunition for the U.S. military,
U.S. allies, federal and local law enforcement agencies, and
commercial markets.

ATK - Alliant Techsystems  $65.97

PLAY (sell naked put):

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

SELL PUT  AUG 60   ATK TL     444     0.40    59.60       6.5% ***
SELL PUT  SEP 55   ATK UK             0.70    54.30       3.0% "TS"
SELL PUT  SEP 60   ATK UL       1     1.70    58.30       5.3%

CCMP - Cabot Microelectronics  $40.07  *** Building A Base? ***

Cabot Microelectronics is a supplier of high performance polishing
slurries used in the manufacture of advanced integrated circuit
devices, within a process called chemical mechanical planarization.
CMP is a polishing process used by integrated circuit (IC) device
manufacturers to planarize or flatten many of the multiple layers
of material that are built upon silicon wafers and necessary in
the production of advanced ICs.  Planarization is the polishing
process that levels and smooths, and removes the excess material
from the surfaces of these layers.  CMP slurries are unique liquid
formulations that facilitate and enhance this polishing process
and usually contain engineered abrasives and proprietary chemicals.
CMP enables IC device manufacturers to produce smaller, faster and
more complex IC devices with fewer defects.

CCMP - Cabot Microelectronics  $40.07

PLAY (sell naked put):

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

SELL PUT  AUG 35   UKR TG   2,005     0.55    34.45      16.2%
SELL PUT  SEP 25   UKR UE   2,676     0.45    24.55       3.7% "TS"
SELL PUT  SEP 30   UKR UF     161     1.25    28.75       9.3% ***

CEPH - Cephalon  $44.63  *** Solid Earnings! ***

Cephalon (NASDAQ:CEPH) is a worldwide biopharmaceutical company
dedicated to the discovery, development and marketing of products
to treat sleep disorders, neurological disorders, cancer and pain.
In addition to conducting a very active research and development
program, the company markets three products in the United States
and a number of products in various countries throughout Europe.
Cephalon's United States products are comprised of Provigil, for
the treatment of excessive daytime sleepiness associated with
narcolepsy, Actiq for cancer pain management, and Gabitril, for
the treatment of partial seizures associated with epilepsy.  The
company's quarterly earnings are due August 5.

CEPH - Cephalon  $44.63

PLAY (sell naked put):

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

SELL PUT  AUG 35   CQE TG   1,233     0.20    34.80       7.4% ***
SELL PUT  AUG 40   CQE TH   2,499     0.75    39.25      18.1%
SELL PUT  SEP 35   CQE UG     467     1.60    33.40      10.5%

GDT - Guidant  $34.90  *** New FDA Approval! ***

Guidant Corporation (NYSE:GDT) pioneers lifesaving technology for
cardiac and vascular patients.  The company develops, makes, and
markets a broad array of products and services that enable less
invasive care for some of the most threatening medical conditions.
Guidant offers stent systems, implantable defibrillator systems,
implantable pacemakers, implantable cardiac resynchronization
therapy, products for use in less-invasive endovascular procedures,
including the treatment of abdominal aortic aneurysms, products to
perform unique cardiac surgery procedures such as Off-Pump Coronary
Revascularization with EndoScopic vessel harvesting, as well as
intravascular radiotherapy systems for artery disease.

GDT - Guidant  $34.90

PLAY (sell naked put):

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

SELL PUT  AUG 30   GDT TF   4,764     0.25    29.75       9.1% ***
SELL PUT  AUG 35   GDT TG   1,140     1.30    33.70      28.6%
SELL PUT  SEP 30   GDT UF   2,017     0.80    29.20       5.6%

IDPH - IDEC Pharmaceuticals  $42.61  *** Entry Point! ***

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

IDPH - IDEC Pharmaceuticals  $42.61

PLAY (sell naked put):

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

SELL PUT  AUG 35   IDK TG   1,565     0.25    34.75       8.7% ***
SELL PUT  AUG 40   IDK TH   2,197     0.85    39.15      18.8%
SELL PUT  SEP 30   IDK UF     119     0.75    29.25       5.6%
SELL PUT  SEP 35   IDK UG     289     1.50    33.50       9.5%

OSIP - OSI Pharmaceuticals  $29.35  *** Recovery Underway! ***

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 OSI's
new drug discovery research programs that represent 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.  OSI's most advanced drug
candidate is Tarceva, which has demonstrated various indications
of anti-cancer activity.  The company expects to focus its future
efforts primarily in the areas of diabetes.

OSIP - OSI Pharmaceuticals  $29.35

PLAY (sell naked put):

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

SELL PUT  AUG 25   GHU TE      78     0.35    24.65      15.3%
SELL PUT  SEP 22.5 GHU UX     276     0.85    21.65       8.7% ***
SELL PUT  SEP 25   GHU UE   2,854     1.40    23.60      11.0%

TRMS - Trimeris  $46.50  *** Aids Drug In Demand! ***

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

TRMS - Trimeris  $46.50

PLAY (sell naked put):

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

SELL PUT  AUG 40   RQM TH     174     0.30    39.70       8.2% ***
SELL PUT  SEP 35   RQM UG      50     0.85    34.15       5.8%
SELL PUT  SEP 40   RQM UH      69     1.45    38.55       7.4%


BULLISH PLAYS - Credit Spreads

PII - Polaris Industries  $67.90  *** Another Solid Quarter! ***

Polaris Industries (NYSE:SII) designs, engineers and manufactures
all-terrain vehicles, snowmobiles, personal watercraft and sells
them, together with related replacement parts, garments and other
accessories, through dealers and distributors principally located
in the United States, Canada and Europe.  All-terrain vehicles are
four-wheel vehicles with balloon style tires designed for off-road
use and traversing rough terrain, swamps and marshland.  In the
early 1950s, a predecessor to the company produced a gas-powered
sled that became the forerunner of the Polaris snowmobile and they
have been manufactured under the Polaris name since 1954.  Polaris
entered the worldwide motorcycle market in 1998, with an initial
entry product in the cruiser segment.  Personal watercraft are
sit-down versions of water scooter vehicles, and designed for use
on lakes, rivers, oceans and bays.

Despite the recent slump in the economy, people continue to buy
recreational vehicles and Polaris' quarterly results reflect that
trend.  The snowmobile and motorcycle maker said last month that
net income rose 16% in the second quarter, boosted by sales of
all-terrain vehicles as well as parts and clothing.  A redesign
at the company's main facility, new products, lower costs and an
increase in the number of engines the company built itself all
helped drive earnings growth, with gross margins rising to 20.5%
in the quarter from 17.9% in the 2001 second quarter.

Regardless of the outlook for stocks, recreational vehicles are
always in demand and investors who believe Polaris' will continue
to prosper can speculate conservatively on the company's share
value with this position.

PII - Polaris Industries  $67.90
PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-50  PII-UJ  OI=24   A=$0.50
SELL PUT  SEP-55  PII-UK  OI=128  B=$1.00


BULLISH PLAYS - Synthetic Positions

BLL - Ball Corporation  $45.60  *** On The Rebound! ***

Ball Corporation (NYSE:BLL) is a global manufacturer of metal and
plastic packaging for beverages and foods and the company is also
a supplier of aerospace and other technologies and services to
commercial and governmental customers.  Ball's principal business
is the manufacture and sale of rigid packaging products, primarily
for beverages and foods.  Polyethylene terephthalate packaging is
Ball's newest product line in this area.  The technologies segment
includes civil space systems, defense operations and commercial
space operations.  The defense operations business unit includes
defense systems, systems engineering services and advanced antenna
and video systems, as well as electro-optics and cryogenic systems
and components.  Civil space systems and defense operations include
hardware, software and services to both domestic and international
customers, with emphases on space science, environmental and Earth
sciences, defense and intelligence, manned space missions and also

Ball Corporation's quarterly earnings were very favorable, despite
the weak economy, and the company said profits in the second half
of 2002 would be similar to the year's healthy first half profits
with a record performance forecasted for its aerospace unit and
improvements predicted in its beverage can and plastic container
production unit.  The company's cost-cutting campaign produced
higher overall margins and an aggressive restructuring at its
Chinese packaging operations boosted earnings in that segment.
Ball also recently received an upgrade from Salomon Smith Barney
and today the company's share value closed near a 3-month high.
Based on the technical indications, BLL will likely test recent
highs near $50, and traders who agree with that outlook can use
this position to attempt to profit from future upside activity in
the issue.  With this type of speculative play, a closing order
should be in place (after the position is initiated) to profit
from any favorable "early-exit" opportunities.

BLL - Ball Corporation  $45.60

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  NOV-55  BLL-KK  OI=107  A=$1.20
SELL PUT   NOV-35  BLL-WG  OI=63   B=$1.00

Note:  Using options, the position is similar to being long the
stock.  The initial collateral requirement for the sold (short)
put is approximately $1,015 per contract.

INVN - InVision Technologies  $27.25  *** Bomb Detection ***

InVision Technologies (NASDAQ:INVN) is a provider of Federal
Aviation Administration certified explosives detection systems
used at airports for screening checked passenger baggage.  The
company's EDS products are based on complex computer tomography,
which is the only technology for explosives detection that has
met the FAA certification standards.  InVision was the first
manufacturer, and is one of only two manufacturers, whose EDS
products have been certified by the FAA for screening checked

In July, InVision Technologies reported that quarterly profits
rose as the company's revenues from governments increased on
concerns about national security.  The company also promised
continued growth with larger airports moving toward automated
bomb-detection baggage systems that can take a year to plan and
construct.  The company said it expects third-quarter revenues
of at least $110 million and earnings of at least $1 per share.
Investors apparently agree with the company's optimistic outlook
as the issue has climbed steadily since the 2002 low in mid-May.
Traders who think the bullish trend will continue can speculate
conservatively on the future share price of InVision with this

INVN - InVision Technologies  $27.25

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  SEP-35  FQQ-IG  OI=153  A=$0.75
SELL PUT   SEP-20  FQQ-UD  OI=148  B=$0.60

Note:  Using options, the position is similar to being long the
stock.  The initial collateral requirement for the sold (short)
put is approximately $615 per contract.


BEARISH PLAYS - Credit Spreads

These issues are excellent candidates in the "premium-selling"
category of options trading.  However, we have decided to limit
the potential upside risk by utilizing bearish spreads.  Based
on analysis of historical option pricing and the underlying
stock's technical background, these plays meet our fundamental
criteria for profitable "bear-call" credit spreads.  Each issue
has robust option premiums, a well defined resistance area and
a high probability of remaining below the short strike prices.
As with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.

AAP - Advance Auto Parts  $45.95  *** Earnings Play! ***

Advance Auto Parts (NYSE:AAP) is a retailer of automotive parts
and related accessories and maintenance items.  The company,
which caters to do-it-yourself customers, operates approximately
2,400 stores.  The original company was formed in 1929 and was
operated as a retailer of general merchandise until the 1980s.
In the 1980s, Advance sharpened its marketing focus to target
sales of automotive parts and accessories to "do-it-yourself"
customers.  In 1996, Advance began to aggressively expand its
sales to do-it-for-me customers.  Discount Auto Parts, which
operated in the Southeast, was a specialty retailer and supplier
of automotive replacement parts, maintenance items and general
accessories to both DIY consumers and DIFM consumers, as well as
professional mechanics and service technicians.  The new Advance
Auto Parts was formed in November 2001 via a reverse merger with
Discount Auto Parts.  The company's quarterly earnings are due
on August 14.

AAP - Advance Auto Parts  $45.95

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-60  AAP-IL  OI=470  A=$0.65
SELL CALL  SEP-55  AAP-IK  OI=66   B=$1.20

AIG - American International  $62.08  *** Downtrend Intact! ***

American International Group (NYSE:AIG) is a holding company that,
through its many subsidiaries, is engaged in a broad range of
insurance and insurance-related activities in the United States
and abroad.  AIG's primary activities include general and life
insurance operations.  Its other significant activities include
financial services, and retirement savings and asset management.
AIG's general insurance subsidiaries are multiple line companies
writing substantially all common lines of property and casualty
insurance.  One or more of these companies is licensed to write
substantially all of these lines in the United States and also
in approximately 70 foreign countries.

AIG - American International  $62.08

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-75  AIG-IO  OI=83    A=$0.25
SELL CALL  SEP-70  AIG-IN  OI=2544  B=$0.75

INTU - Intuit  $41.04  *** Pure Premium Selling! ***

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

INTU - Intuit  $41.04

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-55  IQU-IK  OI=159  A=$0.35
SELL CALL  SEP-50  IQU-IJ  OI=356  B=$0.80



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