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Daily Newsletter, Sunday, 08/25/2002

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The Option Investor Newsletter                   Sunday 08-25-2002
Copyright 2002, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: History Repeats Itself?
Index Trader Wrap: WRAP UP
Editor’s Plays: Ready to Rumble?
Market Sentiment: No Faith
Coming Events: Earnings, Splits, And Economic Events

Updated on the site this weekend:
Swing Trade Game Plan: Finally!


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 8-23          WE 8-16          WE 8-09          WE 8-02 
DOW     8872.96 + 94.90  8778.06 + 32.61  8745.45 +432.32  + 48.74
Nasdaq  1380.57 + 19.56  1361.01 + 54.89  1306.12 + 58.20  - 14.20
S&P-100  474.50 +  6.06   468.44 +  9.62   458.82 + 24.77  +  7.12
S&P-500  940.86 + 12.09   928.77 + 20.13   908.64 + 44.40  + 11.40
W5000   8876.89 +106.61  8770.28 +198.41  8571.87 +385.31  + 94.93
RUT      400.13 +  4.16   395.97 +  7.52   388.45 + 12.00  -  5.81
TRAN    2394.32 + 54.92  2339.40 +  7.52  2351.65 +149.62  - 52.76
VIX       32.81 -  0.01    32.82 -  6.54    39.36 -  6.03  +  4.95
VXN       47.62 -  3.03    50.65 -  8.05    58.70 -  6.74  -  3.58
TRIN       2.87             1.52             0.90             1.47
Put/Call   0.80             0.51             0.69             0.93
******************************************************************

 
History Repeats Itself?  
by Jim Brown

The "new bull market" as hyped by some media commentators on
Thursday night, took a step back on Friday with a -180 point 
loss by the Dow. The major indexes still finished up for the 
week but not nearly as bullish as Thursday's close. The Nasdaq
put together its first three week winning streak this year. Is
Friday's drop just a prelude for history to repeat itself?

Dow Chart


 

Nasdaq Chart


 

The market was hit with a round of punches at the open on 
Friday and contrary to other days this week traders decided
that enough was enough and headed to the sidelines. Leading
the punch list was news that the NY atty general was expanding
its probe of Citigroup and extending it to CEO Sandy Weill.
The regulators are probing a suspicious upgrade of AT&T by
Jack Grubman just a month before Salomon Smith Barney, the
Citigroup investment banking arm, was awarded the AT&T Wireless
IPO deal. SSB made nearly $50 million on the deal. Rumors
are persisting that Weill leaned on Grubman to change his
bearish position on AT&T in order to get the deal. Citigroup
stock has fallen -30% while investigators follow leads into
their dealings with Enron, WCOM and others.

Another high profile company, AOL, dropped another -10% after
news that regulators would widen their probe yet again. The
new probe concerns insider stock sales while those same insiders
were making rosy earnings forecasts. The stock has dropped more
than -60% after taking a -$54 billion charge for the Time Warner
acquisition in January. Now they may be on the verge of taking
another large charge due to the drop in their stock price, 
lack of end user growth and write off of unused high speed
capacity. Covenants with their banks require them to maintain
a market cap of at least $50 billion. With the shares down 
sharply and possibility of another $20-$30 billion charge they
may be in deeper trouble than expected. 

For the fifth time this week semi stocks were downgraded before
the open. Bear Stearns downgraded estimates for Intel saying
channel checks showed they were below previous estimates in
sales for the quarter. INTC dropped -$1.19 on the news and it
will increase the expectations for lowered mid quarter guidance
when they host the conference call on September 5th. Intel is
rumored to be ready to announce steep cuts in capital 
expenditures based on weak demand. Any bets?

Goldman Sachs said they were cutting chip equipment makers
again after there were strong indications that Taiwan Semi
would also announce significant cuts in capex spending soon.
This was bearish for NVLS, AMAT, ASYT, VARI and others who
depend on the big fabricators for cash flow. With plants and
chip equipment becoming exponentially more expensive with
each new breakthrough in technology and speed, the number of
companies that can afford the equipment shrinks.

Banc America also cut estimates on chip equipment makers after
their analyst Mark FitzGerald said he expected Intel to cut
capex by another -20% for this year. He also used the first
drop in sales in five months by TSM as an indication of the
demand drop accelerating. Merrill Lynch said chip companies
expecting a recovery in the 2H of this year ordered too many
chips and they have either cancelled orders or are sitting
on a depreciating inventory of chips they cannot sell. The
prices of computer components continue to drop. I checked on
the price of two Pentium4 2.2GHZ mother boards on Friday and 
one had dropped from $159 to $59 since I bought one two months
ago. Another was $127 down from $259 for the best you can buy.
Dell may be able to profit from this hardware component glut
but all the manufacturers are dying a slow death with no 
demand and no pricing power. 

The Wall Street Journal said Lucent was about to announce 
another 10,000 job cuts due to slowing demand and lack of
a recovery. Lucent had 155,000 employees at the high and has
cut -105,000 so far. An additional -10,000 would put them
at only 40,000 and around 25% of their original strength. 
Riverstone Networks issued an earnings warning and said they
were going to cut -30% of their workforce and predicted
sales would be flat. They estimated their operating loss
would be twice as large as previously expected. Things are
tough all over and getting tougher.

The Nasdaq put together three weeks of gains. Great! The Dow
and S&P stretched their gains to five weeks. Awesome! All of
them are running full speed towards the August crash. The 
drop today was just a hint. Historically the last week of 
August is a nightmare that turns into a double feature after
Labor Day. This historical trend has turned the NYSE trading
floor into a ghost town. Next week is the biggest vacation
week of the summer as traders stretch vacations into the 
Labor Day weekend. Historically the last week of August and 
first two weeks of September are very negative. Traders know 
this, institutions know this and they plan accordingly. 

If you wanted to add some IBM stock to your portfolio (now $80)
but you were hoping to buy it on a pull back you could put in
a good till cancelled order at $75 or $72 or even $65. That GTC
order goes into the market makers order book. If the stock drops
to your entry point you get filled and everybody is happy. Most
market makers have several million shares of orders in their 
book everywhere from just under the current price to ridiculous
prices $10 to $20 lower. This is how they determine the "depth"
of the market. They can tell at a glance how many shares they
can buy or sell at a given price. The problem today is the books
are blank. Not just lighter than usual but nearly empty. There 
are always a few orders lingering around but the breadth (amount 
of stock to buy at a given price like $70) and the depth (amount
of stock to buy at any price) has gone to near zero on the buy 
side.

Whether it is fear of the August dip, the post Labor Day drop
or the anniversary of the attack, volume buyers have pulled
their bids. Retail buyers who are not aware of historical 
trends provided a slight cushion late in the afternoon on 
Friday but volume was only 1.4 billion on the Nasdaq and 1.3
billion on the NYSE. The more amazing numbers which really 
tell the tale were the ratios. Down volume on the NYSE was 
1.09 billion compared to up volume of only 195 million. Better
than 4:1 in favor of the decliners. The Nasdaq was the same. 
Commentators chalked it up to profit taking, which it was, 
but even more so it was getting out of the way. With no orders
to act as a brake any serious volume, like we could see from
hedge funds next week, the market makers will stand aside and
let them drop until buyers appear. I think the wild card here
is the 9/11 fear. Institutional traders who would normally
have buy orders placed at ridiculous fire sale prices don't
know what might happen with the convergence of the August dip,
September slide, 9/11 anniversary, weakening economy and
earnings warnings. Are we going to Dow 8500 or 7500? Is IBM
going to be $75 or $55 by October. How bad is Intel going to
lower guidance on the 5th? The problem is a huge number of
unknown factors all coming to pass over the next three weeks. 
Did I mention a 20% gain from the July lows that needs to be
taken off the table?

The good news is that there may be a bounce on Monday. The VIX
at 32.81 is not near as high as it will be soon but still in
that high volatility range. The TRIN closed at 2.87 which is
showing as fairly oversold. The put/call ratio closed at .80
which indicates rising fear on the part of traders and a mildly
bullish signal. Bulls were probably not really interested in
buying the dip before the weekend but they may buy the Monday 
open depending on the weekend news. Based on the conditions I
described above I would not try to buy a ticket on that bus.  
Based on historical trends and converging news events this
would be the week to plan on staying flat or going short but
not going long. If you want to buy stocks for long term capital
appreciation then I would bet on lower prices over the next
three weeks. There is no need to buy bargains on Monday. 

I posted this chart in my Swing Trade wrap on Thursday night.
It is the comparison of the Aug/Sept results for the last four
years. While history may not repeat itself, you be the judge
if you want to bet against it. 
     


 

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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********************
INDEX TRADER SUMMARY
********************

WRAP UP
By Leigh Stevens

TRADING ACTIVITY AND OUTLOOK - 
Last week felt like the market remembered that there was still some 
bearish factors out there and there was a wrap up to the first major 
2002 rally. 
 
In a reminder to investors that the corporate scandals still have 
new revelations to play out on the media stage - with the 
reminder of the potential for surprises that this attention 
implies - a mood of caution prevailed on Friday, especially in 
the absence of any economic reports at week's end. 

This coming week will have plenty for investors to digest in 
terms of further economic data, with few potential participants 
in a normally slow period ahead of the long Labor Day weekend: 
July existing home sales and new home sales; July durable goods 
orders, August consumer confidence, the revision to Q2 GDP; final 
reading on the U of M consumer sentiment index and July personal 
income and spending. 

Cautious remarks from Wall Street analysts on Intel and on the 
chip equipment sector on Friday weighed on the semiconductor 
sector. 

The Financial sector fell as Citigroup declined amid questions 
surrounding its handling of the AT&T Wireless IPO - this relates 
to a NY Attorney General probe of whether Jack Grubman, a long 
standing bear on AT&T and its cable acquisition binge, had a true 
change of heart when he finally upgraded the stock or whether it 
might have been related to the 50 million bucks his firm won in 
AT&T underwriting fees a while later - must have been a change 
after he cooked, I mean, took another LOOK at the books.

Dredging up more potential dirt, AOL Time Warner and the 
Networking sector fell on the news of a widening investigations 
into the company. 

All in all, profit taking was the thing that was on traders minds 
after a nearly 23% market move from the July low to last week's 
close, in terms of the S&P 100 Index (OEX). From trough to peak 
it was 26%!  Hey, anytime I come close to a 25% gain within a 5 
week period, I am going to take the money and run - and, that's 
20-25% on an unleveraged basis without buying on margin or using 
calls to amplify a index profit.

On a fundamental and technical basis, there are arguments on both 
sides as to the meaning of this rally.  July was "the" bottom and 
we're starting a sustained advance - OR, the current rebound is a 
just a bear market rally that has gone as far as its going to.  
Take your pick.  I go back and forth, mostly I am seeing a number 
of key stocks with these bearish wedge type patterns that have 
been going up on declining volume with the 14-day stochastic 
momentum indicators "rolling over" to the downside - this is not 
a good technical underpinning. Examples are not hard to find, 
starting with the S&P 500 Index (SPX).      

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

I've been commenting on the possible bearish rising wedge on the 
S&P 500 (SPX) DAILY chart - Thursday's rally and close appeared 
to have broken out above this bearish rising wedge. Now, I'm not 
so sure that this was the case - variations in the way of drawing 
the upper trendline could have Thursday's high just AT the 
trendline or slightly above it. 

With Friday's break, the ascending wedge pattern may still be 
signaling an impending downside reversal in SPX, which would be 
"confirmed" by a break of the lower trendline of the wedge. 



 

By Monday, key SPX support comes in at the lower up trendline of 
the daily chart "wedge" at 923.  By Tuesday, that support 
trendline is up to 928 - the same level as the pivotal 50-day 
moving average. 

A bearish rising wedge, while not seen all that often, tends to 
have fair predictive value for bearish reversals and this chart 
pattern is being reflected in the S&P 500, in the forefront of 
this market rally. 

If the lower trendline of the rising wedge is broken the typical 
move is for the decline to retrace an average of 50% of the 
previous rally - the retracement can be less than this, or more 
than this amount, even back to the prior lows. A pattern 
"failure" is a downside breakout and a slight decline only, 
followed by a fairly rapid resumption of the prior rally.     

Another example of the wedge type patterns can be seen in various 
key Nasdaq stocks - in the case of Microsoft (MSFT), an important 
Dow component also, the stock has traced out a wedge pattern on 
its daily chart with no downside reversal yet, but it could be 
headed that way.

Look to the left - then look to the right below for an example of 
an initial bearish resolution to the same type rising wedge 
pattern. 



 

Cisco Systems (CSCO) Friday broke down below the lower trendline 
of its daily rising wedge pattern - after making a double top in 
the $15 area. 

DELL also broke last Wednesday to the downside, falling out of 
its bearish rising wedge pattern, suggesting that this stock is 
headed still lower.  However, I don't have to just pick on tech 
stocks for pre and post-breaks out of such bearish rising wedge 
patterns as you can see from the charts of GE and MO below. 



 
 

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


 
 
930 is the key technical support at the low end of the hourly 
uptrend channel.  As long as this level is not broken, I would 
have to say that SPX remains in an uptrend.  920-915 is next 
support, then in the 900 area.  I suggest selling rallies, but 
not on weakness as 930 should provide some support and there will 
likely be a short-term rebound soon. 

Resistance is 940-942; then, 948-950.  


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


 

Key near resistance is 478-480. Absent a close over 480, I 
anticipate selling pressure coming in again on rallies. 

Pivotal near support is 470-472; then, if the trendline is 
pierced, a next target is to 460-462.  Major support is in the 
440 area. 

The same trading strategy as SPX is suggested, which is to sell 
rallies looking for a further decline - I don't think it will be 
a free fall type move lower however. But an absence of willing 
buyers should cause a sideways to lower drift.  
  

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


 
 
The volume trend in QQQ and in many of the key stocks Nasdaq 
stocks, continues to make the recent rally suspect. Note also the 
move to a new high at 26.2 was not accompanied by a lower low on 
the stochastic, a price/oscillator divergence.  Now, the question 
becomes, how deep is a correction likely to be?  

24.5 is key level to watch, at the hourly up trendline.  If this 
level gives way, there is support around 23.75. 

A rally back up to the gap area around 25.75 would be a good 
place to short the stock/buy puts, looking for a move to the 
23.75 area, risking to just over the prior price peak. 

I think that, absent bad news of an extreme sort, I don't think 
the market is going to fall apart - it seems more likely that 
we'll see a gradual drift lower. It's more the lack of buying 
that that may be the dynamic between now and 9/11, rather than 
heavy selling. 

Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com    


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**************
Editor's Plays
**************

Ready to Rumble?

With the possibility of a major market move over the next 
three weeks I am going to profile another laddered entry 
index play. 

The concept here is that we want to end up owning 50 
contracts (or whatever number works for you) of the 
September $85 DJX puts.

Since I expect the market may rebound slightly before the
bottom falls out I want to take advantage of any bounce
to enter the position cheaper. 

The Dow closed at 8873 (88.73 in DJX terms) on Friday. 
With the possibility of a bounce to 8900 very good I want
to buy 20 contracts at 89.00. If the bounce continues to 
test 9000 again I want to buy 10 more contracts at 90.00.

I think the 90.00 number is not really a possibility but 
we want to take advantage of it should it happen. 

When the Dow rolls over from this bounce buy 10 more contracts
at each century mark until you have a total of 50 contracts.

Assuming the Dow just went up you would have 40 contracts
at an estimated average price of $1.15 each. I would set a
stop loss at 9200 and exit the play. 

If the Dow does not bounce at the open on Monday then start
the play with 20 contracts at the 88.00 level. Add an 
additional 20 contracts at 87.00 and 10 contracts at 86.00. 

The concept of buying more as the Dow rises equates to an 
average down of the entry price in anticipation of a drop.

The concept of buying more if it falls is to add to an already
winning position without risking any additional money.


The 89.00 mark is crucial to the play. I recommend buying 20
contracts at that level. This is the most likely bounce 
point and it will get you started in the play with the 
biggest possibility of profit. 

There are several scenarios and I will play out each here.

A)	The Dow goes up over 92.00 and does not crash:
	
	Buy 20 contracts at 89.00
	Buy 10 contracts at 90.00
	Buy 10 contracts at 91.00
	Set stop loss at 92.00 
	Exit play when hit, probable loss -2,500
	
B)	The Dow goes to 91.00 and rolls over:
	
	Buy 20 contracts at 89.00
	Buy 10 contracts at 90.00
	Buy 10 contracts at 91.00
	Set stop loss at 92.00
	Dow rolls over
	Buy 10 contracts at 90.00 on the way back down
	You now have 50 contracts. 
	Change stop loss at 92.00 to reflect 50 contracts.
	Dow trades below 88.00, set stop loss at 90.00 
	Trail the stop loss down 300 (3.00) points behind the Dow. 
	Set a profit stop at 81.00, exit all 50 contracts.
	
C)	The Dow goes to 90.00 and rolls over:
	
	Buy 20 contracts at 89.00
	Buy 10 contracts at 90.00
	Dow rolls over
	Buy 20 contracts at 89.00
	You now have 50 contracts.
	Set stop loss at 92.00
	Dow trades below 88.00, set stop loss at 90.00
	Trail the stop loss down 300 (3.00) points behind the Dow
	Set a profit stop at 81.00, exit all 50 contracts.
	
D)	The Dow goes to 89.00 and rolls over:
	
	Buy 20 contracts at 89.00
	Buy 10 contracts at 88.00
	Set stop loss at 90.00
	Buy 10 contracts at 87.00
	Buy 10 contracts at 86.00
	You now have 50 contracts
	Change stop loss to 88.00 for all 50 contracts.
	Trail the stop loss down 300 (3.00) points behind the Dow
	Set a profit stop at 81.00, exit all 50 contracts.
	
E)	The Dow opens down and drops:

Buy 20 contracts at 88.00
Buy 20 contracts at 87.00
Buy 10 contracts at 86.00
Set stop loss at 88.00 for all 50 contracts.
Trail the stop loss down 300 (3.00) points behind the Dow.
Set a profit stop at 81.00, exit all 50 contracts.



 


Obviously there is no way I can diagram the entire play
on one chart. Just remember the concept is to accumulate
50 contracts (or 10 or 100 depending on your account). 

We want to average down on an up move and add to a winning
play on a down move. 

If the Dow moves up to at least 8900 the total cost of
50 contracts should be around $6,000. If it goes to 9000
or above that cost drops to around $5,000. If it does not
go up at all the worst case cost is about $7,500. 

The option price at my $81.00 target should be around $4.25
to $4.50 or a total of $21,250 using the low number. 

Depending on where you got into the play that is a possible
300% or better trade. Obviously I can't guarantee that but 
it is the way the numbers work using the example above.
Real life will be different of course.

Your maximum risk should be about $4,000 but probably less
as long as you use the stops.

Now, all we have to do is get the Dow to open up on Monday
and then let the bottom fall out.

**************************      

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

Good Luck

Jim Brown  


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****************
MARKET SENTIMENT
****************

No Faith
by Steven Price

Now, hold on just a second.  Yes, the bulls were busy chasing red 
flags while the bears came out of hibernation.  Yes, the Dow gave 
up over 200 points at one time today.  Yes, the Dow finished the 
day down 180.68 on the day.  Yes, there has been a rush to take 
profits.  But no, we have not seen a turnaround!  

I have been harping all week about the 50-dma mark providing 
support.  And as any technical analyst worth the ink on his 
charts will tell you, the trend is assumed to be in force, until 
evidence shows otherwise. Guess what?  The 50-dma is still in 
tact.  The bears huffed and puffed and blew the major market 
indices down today, but not far enough to break through the 50-
dmas that were crossed on Monday.  The Dow's low of the day came 
within 29 points of the 50-dma of 8800, before rallying back.  
The Nasdaq Composite came within 10 points of the 50-dma of 1367, 
before finding buyers.  The NDX came within 13 points of the 50-
dma of 992, before catching a second wind.  And the S&P 500 came 
within 11 points of the 50-dma before crawling back a few points 
into the close.

After a week that saw significant barriers crossed - 1000 in the 
NDX, 950 in the S&P 500, 9000 in the Dow and 1400 in the Nasdaq 
Composite, there was bound to be some profit taking.  But before 
the sky starts to fall, we need to see the 50-dma support lines 
broken.  The inability of the Dow to hold over 9000 is at least 
as significant as its ability to move that barrier out of the way 
in the first place.  

Of course, the thorn in the side of my theory has been the 
semiconductors.  The Semiconductor Sector Index (SOX.X) has been 
turned away from the 50-dma for most of the week.  It managed to 
close above this level on one occasion, and then by only a point.  
It will be hard to maintain a broad market rally without the 
participation of the NDX and Nasdaq Composite.  And it will be 
hard to maintain a rally in the NDX and Nasdaq Composite without 
a little help from the semis.  These stocks have experienced a 
heck of a run in the last few weeks, but appear to have run out 
of steam.  A recovery for the sector was initially pegged for the 
beginning of 2002.  It was then moved back to the second half of 
2002. Salomon Smith Barney came out and reduced growth estimates 
in the sector from 4% to 0.5% for 2002 and from 21% to 12% for 
2003.  This was followed by similar comments from Bear Stearns 
about Intel.  BSC's analyst cut estimates for Intel's third 
quarter 2002 and for all of 2003, due to signs of weakness in the 
chip behemoth's business. This isn't going to help maintain these 
averages one bit. Most of the reduced estimates from individual 
companies were ignored in the recent run.  It appears these hard 
numbers are now sinking in. 

Evidence of funds flowing out of stocks was evident in the bond 
market, which saw some buying in the 5-year and 10-year notes 
today, as evidenced by small drops in the short-term yields. 

In corporate malfeasance news, it was revealed that N.Y. Attorney 
Eliot Spitzer has widened his probe of Salomon Smith Barney 
analyst Jack Grubman to include Citigroup CEO Sandy Weill.  
Citigroup gave up $1.18 to close at $34.00, but found a 
surprising amount of buyers just below this level, around $33.80.

AOL is now facing additional SEC scrutiny for upbeat forecasts 
that were made last year by executives, including chairman Steve 
Case.  These officers sold their stock while the price may have 
been artificially inflated due to those forecasts.  Directors 
that sold shares immediately after exercising company granted 
stock options made most of the profits. Case made about $100 
million, while Chief Executive Dick Parsons collected about $21 
million.

As we head into next week, I have no faith.  What I mean by this 
is that we are at a critical juncture, with the techs pulling 
back hard on old-school stocks that are doing their best to 
advance. I am not predicting who will win, simply that one of 
these groups will.  I have used the 50-dma as my gauge not only 
because it is significant historically, but also because the 
convergence of all of the averages breaking that barrier on the 
same day allows for a measure of comparison.  There is a tug of 
war going on right now, and as I have said before, when it is 
over, there is usually one team that winds up in the mud.  If the 
Dow and S&P can lift the techs along with them, maybe they can 
all stay clean.


----------------------------------------------------------------

Market Averages

DJIA ($INDU)

52-week High: 10679
52-week Low :  7702
Current     :  8872

Moving Averages:
(Simple)

 10-dma: 8825
 50-dma: 8800
200-dma: 9723



S&P 500 ($SPX)

52-week High: 1226
52-week Low :  797
Current     :  940

Moving Averages:
(Simple)

 10-dma:  930
 50-dma:  926
200-dma: 1069



Nasdaq-100 ($NDX)

52-week High: 1782
52-week Low :  892
Current     : 1010

Moving Averages:
(Simple)

 10-dma:  992
 50-dma:  992
200-dma: 1334



-----------------------------------------------------------------


The Semiconductor Index (SOX.X): Talk about leading someone 
around by the nose.  This group has quite a hold on the broader 
markets.  Reduced growth estimates from Salomon Smith Barney for 
the sector, combined with reduced Intel estimates from Bear 
Stearns, sent the dominos falling today.  The SOX continued its 
fall after being turned away from its 50-dma, and sped up the 
profit taking process after a week of significant gains in the 
Dow, S&P 500, Nasdaq Composite and NDX.  The series of higher 
highs and higher lows remains in tact, but maybe not for long.  
Without some good news, this index may be heading back to 300, 
after a 28% gain since August 5th.

52-week High: 657
52-week Low : 282
Current     : 336

Moving Averages:
(Simple)

 10-dma: 337
 50-dma: 357
200-dma: 495

-----------------------------------------------------------------

Market Volatility

The VIX has found what appears to be a floor.  After flirting 
with 30 on Thursday, it popped back up to almost 33 today, as the 
Dow gave back almost 200 points and reminded investors that there 
is still a downside.  Reduced estimates for Intel led the chip 
sector lower, which in turn took the broader markets with it.  
The increase in volatility means an increase in premium, which 
means an increase in time decay over the weekend.  This cost was 
something bears were willing to endure, as they are expecting a 
continued pullback on Monday.

CBOE Market Volatility Index (VIX) = 32.81 +1.85
Nasdaq-100 Volatility Index  (VXN) = 47.62 +2.62

-----------------------------------------------------------------

          Put/Call Ratio  Call Volume   Put Volume

Total          0.80        384,696       309,477
Equity Only    0.67        322,242       214,734
OEX            1.08         16,062        17,397
QQQ            0.70         39,549        27,556

-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          44      + 0     Bull Confirmed
NASDAQ-100    60      + 1     Bull Confirmed
DOW           60      + 0     Bull Confirmed
S&P 500       59      + 1     Bull Alert
S&P 100       58      + 0     Bull Alert

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  1.16
10-Day Arms Index  1.22
21-Day Arms Index  1.18
55-Day Arms Index  1.30

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 they do, they can signal significant market turning 
points.

-----------------------------------------------------------------

Market Internals

        Advancers     Decliners
NYSE        883          1894
NASDAQ     1067          2172

        New Highs      New Lows
NYSE         24              41
NASDAQ       16              47

        Volume (in millions)
NYSE     1,286
NASDAQ   1,476

-----------------------------------------------------------------

Commitments Of Traders Report: 08/20/02

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 reduced both long and short positions by about 6000 
contracts, as can be expected during the end of summer, a 
notoriously slow time for the markets.  The got slightly longer, 
but by only 500 contracts.  Small traders added to positions 
slightly, with a net short increase of 500 contracts.


Commercials   Long      Short      Net     % Of OI 
07/30/02      430,833   482,957   (52,124)   (5.7%)
08/06/02      431,590   478,879   (47,289)   (5.2%)
08/13/02      427,618   475,536   (47,918)   (5.3%)
08/20/02      422,100   469,556   (47,456)   (5.3%)

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
07/30/02      153,858    67,451    86,407     39.0%
08/06/02      159,561    67,434    92,127     40.5%
08/13/02      155,040    66,546    88,494     39.9%
08/20/02      156,974    69,071    87,903     38.9%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year: 114,510 - 3/26/02
 
NASDAQ-100

Commercials reduced both long and short positions slightly, with 
500 more reductions on the short side.  Small Traders also 
reduced slightly on both sides, with a net long reduction of 500 
contracts.


Commercials   Long      Short      Net     % of OI 
07/30/02       38,163     47,343    (9,180) (10.7%)
08/06/02       41,014     50,025    (9,011) ( 9.9%)
08/13/02       42,303     50,354    (8,051) ( 8.7%)
08/20/02       41,876     49,461    (7,585) ( 8.3%)

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
07/30/02       13,159     9,237     3,922    17.5%
08/06/02       11,547     8,782     2,765    13.6%
08/13/02       12,797     8,933     3,864    17.8%
08/20/02       11,321     7,980     3,341    17.3%

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

DOW JONES INDUSTRIAL

Commercials reduced long positions by about 1700 contracts, while 
adding 1500 to the short side.  This led to a reduction of over 
3000 contracts from their long positions.  Small traders added 
1200 to the long side, while reducing shorts by only 200 
contracts.  This led to a net reduction of 1300 short contracts.


Commercials   Long      Short      Net     % of OI
07/30/02       22,429    12,811    9,618      27.3%
08/06/02       23,491    14,290    9,201      24.4%
08/13/02       22,837    13,833    9,004      24.6%
08/20/02       21,160    15,349    5,811      15.9%

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
07/30/02        6,778     8,999    (2,221)   (14.1%)
08/06/02        7,981     9,258    (1,277)   ( 7.4%)
08/13/02        5,050     8,349    (3,299)   (24.6%)
08/20/02        6,216     8,163    (1,947)   (13.5%)

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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*************
COMING EVENTS
*************

==================================================
Market Watch for the week of August 26th
==================================================

------------------------
Major Earnings This Week
------------------------

Symbol  Company               Date           Comment      EPS Est

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

ACDO   Accredo Health         Mon, Aug 26  -----N/A-----     0.29
DCI    Donaldson              Mon, Aug 26  After the Bell    0.54

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

BMO    Bank Of Montreal       Tue, Aug 27  -----N/A-----      N/A
BNL    BUNZL PLC              Tue, Aug 27  -----N/A-----      N/A
HRB    H & R Block            Tue, Aug 27  After the Bell   -0.10
HPQ    Hewlett-Packard        Tue, Aug 27  After the Bell    0.14
MBG    Mandalay Resort Group  Tue, Aug 27  After the Bell    0.52
MRX    Medicis Pharmaceutical Tue, Aug 27  After the Bell    0.53
RGIS   Regis Corporation      Tue, Aug 27  -----N/A-----     0.43
SMTC   Semtech                Tue, Aug 27  After the Bell    0.14
TKA    TELEKOM AUSTRIA AG     Tue, Aug 27  -----N/A-----      N/A
TOL    Toll Brothers          Tue, Aug 27  Before the Bell   0.64
VIP    Vimpel Communications  Tue, Aug 27  During the Market  N/A

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

BTH    Blyth Inc.             Wed, Aug 28  Before the Bell   0.40
COCO   Corinthian Colleges    Wed, Aug 28  Before the Bell   0.23
IIT    Indonesian Satellite   Wed, Aug 28  Before the Bell    N/A
MIK    Michaels Stores        Wed, Aug 28  -----N/A-----     0.18

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

CHS    Chico`s FAS            Thu, Aug 29  Before the Bell   0.19
DG     Dollar General         Thu, Aug 29  -----N/A-----     0.12
OTE    Hellenic Telecomm      Thu, Aug 29  -----N/A-----      N/A
KKD    Krispy Kreme Doughnut  Thu, Aug 29  Before the Bell   0.14
PTR    PetroChina Co Limited  Thu, Aug 29  Before the Bell    N/A
PETM   PETsMART               Thu, Aug 29  Before the Bell   0.14
AHO    Royal Ahold N.V.       Thu, Aug 29  -----N/A-----      N/A
ZLC    Zale Corporation       Thu, Aug 29  Before the Bell   0.14

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

None


----------------------------------------------
Upcoming Stock Splits In The Next Two Weeks...
----------------------------------------------

Symbol  Company Name              Ratio    Payable     Executable

MYE     Myers Industries          5:4      08/29       08/30


--------------------------
Economic Reports This Week
--------------------------

In the Rodeo of bulls and bears, this Market Watch could help 
investors to rope all of the livestock in the week ahead.   

==============================================================
                       -For-           

Monday, 08/26/02
----------------
New Home Sales (DM)     Jul  Forecast:   985K  Previous:    1001K
Existing Home Sales (DM)Jul  Forecast:  5.30M  Previous:    5.07M


Tuesday, 08/27/02
-----------------
Durable Orders (BB)     Jul  Forecast:   1.4%  Previous:    -4.1%
Consumer Confidence (DM)Aug  Forecast:   97.0  Previous:     97.1


Wednesday, 08/28/02
-------------------
None


Thursday, 08/29/02
------------------
Initial Claims (BB)   08/24  Forecast:   385K  Previous:     389K
GDP-Prel. (BB)           Q2  Forecast:   1.1%  Previous:     1.1%
Chain Deflator-Prel.(BB) Q2  Forecast:   1.2%  Previous:     1.2%
Help-Wanted Index (DM)  Jul  Forecast:    N/A  Previous:       47


Friday, 08/30/02
----------------
Personal Income (BB)    Jul  Forecast:   0.3%  Previous:     0.6%
Personal Spending (BB)  Jul  Forecast:   0.8%  Previous:     0.5%
Mich Sentiment-Rev. (DM)Aug  Forecast:   88.0  Previous:     87.9
Chicago PMI (DM)        Aug  Forecast:   52.0  Previous:     51.5


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


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*********************
SWING TRADE GAME PLAN
*********************

Finally!

All it took was the threat of capitulation on my part and some 
help from a couple readers and the Dow was knocked for a -180 
point loss. I should have done that long ago!. Seriously, we are 
approaching very treacherous ground and if history repeats itself 
we could see much more than -200 points next week.


To read the rest of the Swing Trader Game Plan click here:
http://www.OptionInvestor.com/itrader/indexes/swing.asp


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******************

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**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

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or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                   Sunday 08-25-2002
Sunday                                                      2 of 5

In Section Two:

Index Trader GamePlans: THE SECTOR BEAT - 8/25
Daily Results
Call Play of the Day: ERTS
Put Play of the Day: ADI
Dropped Calls: ADBE, IBM
Dropped Puts: POT, BCC

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**********************
INDEX TRADER GAMEPLANS
**********************

THE SECTOR BEAT - 8/25
by Leigh Stevens
 
Sectors that were in the news at week's end included the Bank 
stocks, particularly Citigroup, and the Semiconductor Index (SOX) 
- this group was down on active trade based on the gnomes of Wall 
Street (Analysts) downgrades. 
 
UP (or unchanged) on Friday -



 
 
DOWN (or unchanged) on Friday - 



 
NOTE: "FOP.X" is the Fiber Optic index. 
 
SECTOR NEWS - 
 
Next week has many economic type reports coming out, some of 
which will not only impact the economy but may be viewed as 
relevant to one sector or another - an example, being the 
Cyclical stocks index (CYC), which was correcting lower by week's 
end after forming a possible double top.
 
The reports: July existing home sales and new home sales, July 
durable goods orders, August consumer confidence, revision to Q2 
GDP, weekly initial jobless claims, final reading on the U of M 
consumer sentiment index, July personal income & spending figures 
and the Chicago PMI Index.
 
The Bank Index (BKX), which has been a leader on the recent 
market rally was under pressure as Citigroup (C) was off over 3% 
on news that N.Y. Attorney General Eliot Spitzer was increasing a 
probe into former Salomon Smith Barney telecom analyst Jack 
Grubman to include CEO Sandy Weill. 
 
The Wall Street Journal claimed that Weill urged Grubman to 
reconsider his rating on Dow component AT&T (T) to win investment 
banking business related to the A&T Wireless IPO. T confirmed it 
had received a subpoena from Spitzer's office for documents 
related to its IPO for its AT&T Wireless spinoff.       
 
ITS (ALWAYS) ABOUT THE SEMICONDUCTORS (SOX) stupid! - 
Bear Stearns cut its Q3, 2002 and 2003 earnings-per-share 
estimates on Intel (INTC) on the expectation that INTC Q3 
earnings will be on the lower end of its guidance and will show 
weaker than normal seasonal weakness. 
 
The report stated that "PC demand has remained sluggish. Intel is 
well positioned to capitalize on a recovery in the PC market 
[but] that appears unlikely until sometime in 2003. We think 
Intel is a good investment for investors with a 12- to 18-month 
horizon," That may be, but what about the next 6 months! - others 
must have been asking this question as Intel fell over 6% while  
Advanced Micro dropped some 7%.
 
Banc of America Securities lowered its estimates on 5 chip- 
equipment companies to reflect its more conservative capital 
expenditure outlook.  Affected were AMAT, TWAV, ACLS, ASYT, and 
VSEA. 
 
B of A said it expects global capital expenditure spending to 
stall for the next 12 months and indicated that AMAT (Applied 
Materials) would be especially impacted on its bottom line. 
 
SECTOR TRADE RECOMMENDATIONS -
 
NEW/OPEN TRADE RECOMMENDATIONS -
 
NONE
 
 
 
TRADE LIQUIDATIONS -
 
Long SMH from 27.90 - Exited at 26.90 on suggested sell stop 
(Semiconductor HOLDR)
 
The Chip sector and market weakness Friday took me out on my 
stop. SMH is now back into its downtrend channel, so I no longer 
wish to play this sector on the long side.
 
 
SECTOR HIGHLIGHTS - 
 
Biotechnology Index ($BTK.X)
STOCKS: ABGX; ADRX; AFFX; AMGN; BGEN; CELG; CEPH; CHIR; CRA; DNA; 
ENZN; GENZ; GILD; HGSI; ICOS; IDPH; IMCL; IMNX; INCY; MEDI; MLNM; 
MYGN; PDLI; TARO; TEVA; VRTX; XOMA



 
Biotech is at a key level technically as the advance has seen the 
lows walking up a well-defined trendline.  Further weakness here 
that pierced that the levels noted on both the sector index and 
the HOLDR's (under their respective trendlines) at 383 and 90, 
respectively, would suggest that a correction to the strong 
uptrend was underway. 
 
If such a correction develops and I think that the odds favor it, 
possible next downside objectives are for a retreat back to the 
previously broken down trendlines as also noted on the chart 
above. 
UPDATE: 8/25/02
 
 
Semiconductor Sector Index ($SOX.X)
STOCKS: AMAT; AMD; CMOS; CREE; IDTI; INTC; KLAC; LLTC; LSCC; LSI; 
MOT; MU; NSM; NVDA; NVLS; PMCS; RMBS; TER; TXN; XLNX



 
The Semiconductor Index (SOX) has taken out a "line" of key 
support at 344 where it has a number of prior lows, as well as 
being its Sept low. 
 
SOX is also now back into its downtrend channel. I would rather 
be short on a rally now than look to buy this sector again 
anytime soon. 
UPDATE: 8/25/02
 
Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com


***********************************************************
DAILY RESULTS
***********************************************************

For Best Alignment view in Courier Ten Font
*******************************************

CALLS              Mon    Tue    Wed   Thu   Week

ADBE     20.48    0.79  -0.72   0.18  0.43   0.39  Drop, profit 
CHIR     40.80   -0.04   0.90   1.30  0.92   2.10  200-dma support
EDS      41.45    1.80  -0.96   2.06  1.90   2.50  $40 support
ERTS     66.63    3.18  -0.68   0.99  1.78   4.07  inside day
IBM      80.40    3.14  -1.22  -0.27  0.99   1.05  Drop, profits
PII      73.01    1.00   0.85  -0.08  1.59   2.06  $73 support


PUTS               

ADI      25.96    1.19  -1.30   1.15  0.32  -0.54  New, catch-up
BCC      27.75    1.05  -0.28   0.32  0.23   1.26  Drop, stalled
GS       78.30    0.97  -0.99  -0.63  0.03  -1.23  Downgraded
LMT      59.71   -0.96  -0.45  -0.34 –1.44  -5.29  New, patience
MXIM     35.53    0.90  -1.91   1.71  0.57  -1.47  breakdown
POT      61.24    1.06  -1.95   1.02 –0.30   0.32  Drop, misbehaving
PIXR     49.30    1.99   1.26  -0.09 –0.81   1.24  falling to Earth
QLGC     36.60    0.72  -0.03   1.43 –0.48  -0.05  New, Now it's time


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********************
THE PLAYS OF THE DAY
********************

Call Play of the Day:
*********************

ERTS - Electronic Arts - $66.63 -0.89 (+3.93 for the week)  

See details in play list




Put Play of the Day:
********************

ADI - Analog Devices, Inc. - $25.96 -1.66 (-0.54 for the week)

See details in play list





**************************
PICKS WE DROPPED THIS WEEK
**************************

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.


CALLS
^^^^^

ADBE $20.48 (+0.34) While ADBE had a nice run after its breakout
a couple weeks ago, the vacillating markets have sapped the
Software bulls' energy lately.  This is clear when we look at
the chart of the Software index (GSO.X), which pulled back again
on Friday, negating all its gains from the prior 3 days..  ADBE
as well, is suffering from a lack of positive momentum, having
essentially traded flat now for the past week.  There have been
some minor ups and downs, but in the end, the stock seems to
have lost its way.  Rather than risk a sharp drop next week,
we'll pull in our horns on ADBE this weekend and head out in
search of stronger candidates.  Consider closing any open
positions if there is an opening bounce on Monday.

---

IBM $80.40 -1.59 (+1.05 for the week)  IBM broke its 
consolidation rectangle, between $66 and $74. In textbook 
fashion, it achieved its measuring objective of $82, and just a 
little more.  We raised our stop loss to $80 on the play, which 
was originally entered at $76.50, in order to lock in profits.  
Although the stock closed above this level, we are closing the 
play for a profit. As a Dow stock, a continued pullback in the 
broader markets next week could take IBM with it, and we're not 
in a "giving back" kind of mood. Big Blue's sideways movement is 
not the stuff of OI plays, and we'll take our profits and move 
on.  


PUTS
^^^^

POT $61.24 -0.38 (+0.33 for the week) POT has not been able to 
get past its 200-dma and appeared to be rolling over after its 
extended run. Although the rebound the last two days has still 
not been able to get over this barrier, it has not experienced 
the downward movement we require of our "official OI plays." The 
stock ventured briefly below $60, and made its way back, showing 
just enough strength to convince us to put our "put money" 
elsewhere.  We are closing the play and will look for our next 
opportunity.

---

BCC $27.75 -0.05 (+1.28 for the week) Boise Cascade has refused 
to participate in the market's recent rally.  Its poor relative 
strength, when compared to the rest of the Forest Product and 
Paper sector, made this a strong candidate for a collapse  on a 
broad market pullback.  We got that pullback, and the stock has 
refused to participate in this direction, as well. This sign of 
consolidation does not make for a good short play.  Rather than 
"wish and hope" for the stock to drop, we will close this play 
and keep the rest of our option premium, rather than watch it 
decay while we wait.


***********
DEFINITIONS
***********

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.

RISKS of SELLING PUTS:
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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**************************************************************


**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

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or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                   Sunday 08-25-2002
Sunday                                                      3 of 5

In Section Three:

New Calls: None
Current Calls: ERTS, PII, CHIR, EDS
New Puts: LMT, ADI, QLGC


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**************************************************************

**************
NEW CALL PLAYS
**************

None


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

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**************************************************************


******************
CURRENT CALL PLAYS
******************

ERTS - Electronic Arts - $66.63 -0.89 (+3.93 for the week)  

Company Summary:
Electronic Arts, headquartered in Redwood City, Calif., is the 
world's leading interactive entertainment software company. 
Founded in 1982, Electronic Arts posted revenues of more than 
$1.7 billion for fiscal 2002. The company develops, publishes and 
distributes software worldwide for video game systems, personal 
computers and the Internet. Electronic Arts markets its products 
under four brand names: EA SPORTS(TM), EA GAMES(TM), EA SPORTS 
BIG(TM) and EA.COM(SM).

Why We Like It:
In our new play write up we discussed possible entry for 
conservative traders on  a pullback and re-test of support of 
$65.  The stock reached an all-time high on Thursday and 
experienced a mild pullback on Friday.  OI sees this 
consolidation, and support above $65 as a bullish sign.  After 
the explosive pop from consolidation at $65.00, bears were likely 
to step in and attempt to pick a top.  The stock traded as low as 
$65.43 on Friday, but the bulls came back in and showed their 
strength in a successful test of $65 as support.  We continue to 
like ERTS as a long play and see today's pullback as a point for 
additional long entries.  With strong video game sales this year, 
and the holiday season around the corner, we may see this sector 
top current estimates.  While this prediction has already hit the 
newswire, ERTS is one of the few stocks hitting all-time highs, 
as the broader markets have made up less than 50% of their drop 
since the highs of January through March of 2000.

The current bullish vertical count of $86 may be an aggressive 
target for this stock, but with no visible resistance above it, 
we won't argue against the possibility.  The fact that $65 served 
as resistance from April through August, with only a short 
venture above this mark in June, shows the strength of this 
level, and the exhaustion of sellers that are no longer able to 
keep the stock down.  The highest foray above $65 was $66.90, and 
this level was taken out Thursday.  Following that trade the 
stock dropped back below $65 within 2 days. A point and figure 
reversal would not come until a trade of $64, which would be our 
current stop.   With a PnF reversal not coming until $64, we will 
give the stock a little more wiggle room, but will respect our 
stop in the event of a trend break.

BUY CALL SEP-65*EZQ-IM OI=4555 at $3.80 SL=2.20
BUY CALL SEP-70 EZQ-IN OI=3285 at $1.30 SL=0.75
BUY CALL OCT-65*EZQ-JM OI= 149 at $5.60 SL=3.20
BUY CALL OCT-70 EZQ-JN OI= 244 at $3.00 SL=2.00

Average Daily Volume = 4.36 mln


---

PII – Polaris Industries - $73.01 -1.30 (+1.83 for the week)

Company Summary:
Polaris designs, engineers, manufactures and markets snowmobiles, 
all-terrain vehicles, personal watercraft, Victory motorcycles, 
and the Polaris RANGER for recreational and utility use with 
annual 2001 sales of $1.5 billion. Polaris is the largest 
snowmobile manufacturer in the world, and one of the largest U.S. 
manufacturers of ATVs and personal watercraft. Polaris markets a 
complete line of Pure Polaris(TM) apparel, accessories, and parts 
available at Polaris dealerships. Consumers can also purchase 
apparel and accessories around the clock online at 
www.purepolaris.com. The Polaris Professional Series, a line of 
heavy duty Workmobiles(TM) targeted at lawn and landscape 
companies, equipment rental companies and construction 
operations, marks Polaris' expansion into the commercial 
equipment marketplace. Polaris Industries Inc. trades on the New 
York Stock Exchange and Pacific Stock Exchange under the symbol 
"PII," and the company is included in the S&P SmallCap 600 stock 
price index. (source: company release)

Why We Like It:
PII  Polaris experienced a mild pullback with the rest of the 
broader markets on Friday.  This pullback, however, amounted to 
an "inside day" and after the recent series of green candles in 
this stock, we view this as evidence of consolidation on the trip 
up, rather than a significant reversal.  With seventeen straight 
quarters of earnings improvement, and great resiliency to the 
market's recent swings, this stock still appears to be a good 
long candidate. The hold above $73, which had served as minor 
resistance before Wednesday, looks like it may be building a new 
level of support after the recent gains. This looks very 
promising with the Dow down over 200 points intraday on Friday. 
If this is the case, then PII may be gearing up for another big 
run.  We see this test of support as evidence for initiating new 
entries at this level.  PII may experience some consolidation on 
a market pullback next week after a nice run.  Watch the broader 
markets before initiating a new entry here.  The stock continued 
to make money during last year's recession and a market stall 
should not affect the bottom line.  The Dow, however, has had 
quite a week, and may continue its pullback on Monday.  This will 
test a number of stocks that have rallied this week, however, 
seventeen straight quarters of growth are hard to argue with.

BUY CALL SEP-70*PII-IN OI=  85 at $5.20 SL=2.60
BUY CALL SEP-75 PII-IO OI= 182 at $2.15 SL=1.20
BUY CALL OCT-70 PII-JN OI= N/A at $6.30 SL=3.20
BUY CALL OCT-75 PII-JO OI= N/A at $3.40 SL=1.70

Average Daily Volume = 244.8 K

 
---

CHIR – Chiron Corporation $40.80 (+2.15 last week)

Company Summary:
Chiron Corporation is a global pharmaceutical company that is
focus on developing products for cancer and infectious disease.
The company continues to build upon its cancer franchise, which
has three dimensions; immune system modulators, monoclonal
antibodies and novel anti-cancer agents.  In the infectious
disease area, the CHIR has a broad range of products.  The
company commercializes its products through three business units,
which include biopharmaceuticals, vaccines and blood testing.
The Vaccines unit offers more than 30 vaccines for adults and
children.

Why We Like It:
Just when we thought it was safe to go back into the water with
Biotechs, the bears came back to life, sending the Biotechnology
index (BTK.X) plunging 4% lower on Friday.  Not only did this
drag the BTK back below the center channel line, but it also
dropped it right back to that support/resistance zone in the
$3380-385 area.  So we could be looking at a normal bout of
Friday profit taking, or the beginning of something more ominous.
We won't know until we see how things unfold next week.  But
looking at our CHIR play, we can't help but be encouraged.  Even
after its strong rally last week, the stock only pulled back 2.8%,
coming to rest just above the month-long ascending trendline at
$40.75, and just below the 200-dma ($40.83).  This looks like
pretty good support, which is reinforced by the rising 10-dma
($39.51), which has acted as support throughout the past month.
A rebound from current levels can be used to initiate new
positions, as can a rebound from the vicinity of the 10-dma,
which should be near $39.80 by Monday.  Remember, if looking to
buy the dip in CHIR, we want to see positive movement in the BTK
index to confirm we aren't trying to catch a falling knife.

BUY CALL SEP-40 CIQ-IH OI=496 at $2.80 SL=1.50
BUY CALL SEP-42*CIQ-IV OI=107 at $1.50 SL=0.75
BUY CALL OCT-42 CIQ-JV OI=593 at $2.30 SL=1.25
BUY CALL OCT-45 CIQ-JI OI=635 at $1.35 SL=0.75

Average Daily Volume = 2.74 mln


---

EDS – Electronic Data Systems Corp. $41.45 (+2.53 last week)

Company Summary:
Electronic Data Systems is a professional services firm, which
provides services within the categories of systems and
technology services, business process management, management
consulting and electronic business.  The company's end-to-end
portfolio of services integrates its five lines of business;
Information Solutions, Business Process Management, E Solutions,
A.T. Kearney and Product Lifecycle Management Solutions.  EDS'
eight Global Industry Groups; Communications, Energy, Financial,
Government, Healthcare, Manufacturing, Retail and Transportation,
work with each of the company's lines of business and client
executive teams.

Why We Like It:
Our EDS play had a pretty impressive week, vaulting from below
the $39 level to as high as $44 at the close on Thursday.  After
such a strong showing, it should have come as no surprise that
profit taking took center stage on Friday.  With the DOW sliding
for a hefty triple-digit loss, EDS was pulled lower by the force
of gravity, giving up 5.25% to end the day just above near-term
support at $40.60.  If this is just a mild bout of profit taking,
then we can look to initiate new positions on a rebound from that
level on Monday.  If the broad market continues to slide back
towards support next week, then the real line in the sand for our
EDS play will be stronger support near $40, also the site of our
stop.  While a rebound from that level would make for a more
attractive entry point, we only want to take it if the broad
market finds support near its ascending trendline off of the July
lows.  For the DOW, that critical level also happens to be the
site of the 50-dma (currently 8800).  EDS has had a pretty
impressive move off its lows last month and looks like it could
continue substantially higher.  But that doesn't mean that it
will continue there in a straight line.  If a more substantial
pullback is in store, then we'll want to exit on a decline under
our $40 stop rather than give back our gains.

BUY CALL SEP-40*EDS-IH OI=1887 at $3.20 SL=1.50
BUY CALL SEP-42 EDS-IV OI=1930 at $1.75 SL=1.00
BUY CALL OCT-40 EDS-JH OI= 193 at $4.10 SL=2.50
BUY CALL OCT-42 EDS-JV OI= 106 at $2.70 SL=1.25
BUY CALL OCT-45 EDS-JI OI= 331 at $1.60 SL=0.75

Average Daily Volume = 4.97 mln



*************
NEW PUT PLAYS
*************

LMT - Lockheed Martin - $59.71 -2.45 (-5.68 for the week)

Company Summary:
Lockheed Martin Corp., headquartered in Bethesda, Md., is a 
global enterprise principally engaged in the research, design, 
development, manufacture and integration of advanced technology 
systems, products and services. Employing about 125,000 people 
worldwide, Lockheed Martin had 2001 sales of $24 billion.

Why We Like It: 
Lockheed rode the Iraqi express for a while, as investors bought 
up defense stocks in anticipation of a U.S. Invasion. The talk of 
an immediate attack has worn off and the defense stocks have 
given back some of these anticipatory gains.  President Bush 
commented on Wednesday that he was open to non-military ways of 
replacing Saddam Hussein, which may have reduced the level of 
anxiety throughout the world, however did not do much for the 
nerves of long LMT holders. Bush stressed that he is a patient 
man, and we will reward that patience with a put play.  

In addition to Bush backing off, LMT is sweating comments from 
Peruvian President Alejandro Toledo.  Toledo made a visit to 
Chilean President Ricardo Lagos, as part of his Latin American 
initiative to cut back defense spending, and then addressed the 
Chilean Congress with his message.  Toledo is attempting to get 
Latin American governments to spend some of their defense dollars 
on social programs in the economically troubled region.  His 
focus on Chile is bad news for LMT, as the country just decided 
to purchase 10 F-16 warplanes from Lockheed for $660 million.  
This was the first major U.S. arms sale to Latin America since 
Jimmy Carter instituted a ban on such activity in the 1970s.  The 
ban was lifted in 1997.  Chile agreed with Toledo to develop a 
method to account for and compare defense spending.  This could 
lead to a reduction in competitive spending between the 
countries, which have been involved in border disputes for over 
100 years.  Once again, as tensions fall, so do LMT shares.

A look at LMT's chart shows a more dramatic drop off the last two 
days, since Bush's comments.  The break of the $60 support level 
looks bearish, as this level held previously over a period of 
approximately a month between April and May.  The only signs of 
support on the daily chart, between current levels and $53, is 
the August 5 low of $59.08 and the 200-dma of $56.92.  LMT 
rebounded from this level, but so did the rest of the broader 
markets.  The point and figure chart shows LMT having been turned 
back from resistance with a 6-box reversal.  The sell signal came 
at $62.00 on a double bottom breakdown. This signal, which has 
been confirmed by 2 additional "O"s, looks even stronger with the 
break below $60.  There is some PnF support at $56, and then 
again at $53.  Our initial target on this play will be $53, in 
keeping with coinciding levels of support from the daily and PnF 
charts.  Place stops at $64, just above Thursday's high.

BUY PUT SEP-60 LMT-UL OI= 894 at $2.85 SL=1.50
BUY PUT OCT-60*LMT-VL OI=  52 at $3.90 SL=2.00

Average Daily Volume = 3.14 K


---

ADI - Analog Devices, Inc. - $25.96 -1.66 (-0.54 for the week)

Company Summary:
Analog Devices is a leading manufacturer of precision high-
performance integrated circuits used in analog and digital signal 
processing applications. The company is headquartered in Norwood, 
Massachusetts and employs approximately 8,800 people worldwide. 
It has manufacturing facilities in Massachusetts, California, 
North Carolina, Ireland, the Philippines, Taiwan and the United 
Kingdom. Analog Devices' stock is listed on the New York Stock 
Exchange and the company is included in the S&P 500 Index. 

Why We Like It:
ADI made a run following its earnings release on August 15.  This 
was actually more due to Dell's initially positive spin on its 
own profit outlook the same day. ADI's forecast was actually 
quite bearish.  They experienced a fiscal third quarter drop in 
both revenue and profits.  Although the third quarter numbers met 
expectations, ADI warned, saying its profits for the current 
quarter were likely to fall short of expectations. In a classic 
case of the rising tide lifting all boats, ADI followed the 
recent surge of the Semiconductor Index (SOX.X) on its 28%, 79-
point surge from August 5 to August 19. The semiconductor surge 
was not accompanied by any change in basic fundamentals, or 
increased sales projections.
 
Salomon Smith Barney downgraded the sector on Thursday, reducing 
growth expectations from 4% for 2002, to only 0.5%.  They also 
reduced forecasts for 2003 growth from 21% to 12% and projected 
2004 at 17%.  The truth is, there is no way to tell just how long 
the lack of IT spending will continue.  We were originally told 
to look for the beginning of 2002 for a recovery; then the second 
half; then the first half of 2003. Now projections are for 2004.  
We see a pattern developing here, and it is not a bullish one.

As ADI was the beneficiary of a sector run, it looks like one of 
the first to fall.  As some of the sector wide enthusiasm wore 
off, ADI's forecast has begun to catch up with the stock. It 
managed to peek over its 50-dma for a few days, but could not 
complete a daily trading range over this level.  Now it has 
dropped back below and we can expect to see this level as 
resistance to the upside. As the stock attempted to break out 
above $28, it also saw bearish PnF resistance at $30.  The 
stochastics have recently turned and given a sell signal, to 
confirm what we are seeing on the daily chart.  We will target 
$20 on the play, which is its recent low, just before the market 
rally following August 5th. Place stops at $28.50, above the 
recent highs from which the stock was turned away, as this would 
signal renewed strength.


BUY PUT SEP-30 ADI-UF OI=1058 at $4.60 SL=2.30
BUY PUT SEP-25*ADI-UE OI=1643 at $1.40 SL=0.80

Average Daily Volume = 3.30 mil


---

QLGC – QLogic Corporation $36.60 (+0.14 last week)

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

Why We Like It:
While the past 3 weeks have seen a notable improvement in the
broad markets, there are a few cracks beginning to appear in the
bullish picture, particularly in the Technology arena.
Semiconductor stocks took a bit longer to get moving than the
rest of the market, due in large part to the still dismal
prospects for IT spending.  The early clue that this group would
lag the rest of the market was the trouble the Semiconductor
index (SOX.X) had in breaking through its 50-dma ($357).
Although the SOX managed to push through this level on several
occasions last week, in the end there was no staying power and
the force of gravity took effect on Friday, sending the SOX
plunging by nearly 6%.  Numerous reports came out in the past
few days, pointing to a further push out of the IT spending
recovery and this continued bearish news is finally starting to
penetrate the consciousness of the newly minted bulls.  With that
as our backdrop, let's focus our attention on our new play, QLGC.
In textbook fashion, the stock rocketed off support near the $32
level, rising right to its 3-month descending trendline and
50-dma near $39 before the bulls had the rug yanked out from
under them.  While we haven't hear the all-clear for the bears,
there are a lot of factors giving us confidence that QLGC is
headed lower from here.  First up is the PnF chart, which (in
contrast to many other technology stocks) has yet to generate a
buy signal.  The immovable object that turned back the bulls
was the bearish resistance line at the $40 level, and now we
have the daily Stochastics are in full bearish decline.  Ideal
entries will come on a failed rally below the bottom of Friday's
gap (near $38), although we could see a rise as high as the
50-dma (currently $39) before the bulls are once again turned
back.  Traders looking to enter on further weakness will need to
be very careful due to the multiple levels of intraday support
layered beneath current levels at $36, $35.50, $35 and $34.25.
Momentum entries can still be taken, but make sure the SOX is
still being pressured lower by the bears and watch out for a
bullish rebound attempt on the way down.  We are initiating
coverage of the play with our stop at $39.

BUY PUT SEP-37 QLC-UU OI= 884 at $3.40 SL=1.75
BUY PUT SEP-35*QLC-UG OI=4057 at $2.25 SL=1.00
BUY PUT SEP-32 QLC-UZ OI=1083 at $1.45 SL=0.75

Average Daily Volume = 13.3 mln



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The Option Investor Newsletter                   Sunday 08-25-2002
Sunday                                                      4 of 5


In Section Four:

Current Put Plays: GS, MXIM, PIXR
Leaps: Bulls Make It 5 In A Row!
Options 101: Waiting For A Large Movement


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*****************
CURRENT PUT PLAYS
*****************

GS – Goldman Sachs Group $78.30 (-1.23 last week)

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

Why We Like It:-
The bullish fašade around the Brokerage sector (XBD.X) is
finally starting to crack, following a series of downgrades last
week and the growing realization that there is a dearth of
investment banking business to prop up the balance sheets of
companies in the sector.  The latest blow to hit the sector was
news out before the open on Friday that Eliot Spitzer, the NY
Attorney General, is going after Citigroup, looking into how
the company's Salomon Smith Barney unit won a $45 mln financing
assignment from AT&T.  The renewed scrutiny cast a pall over
the Brokerage sector on Friday, with the XBD index sliding back
by nearly 2.5%.  While the index is still above important support
near $408, we can see that the daily Stochastics are starting to
roll over from overbought territory, and our GS play is leading
the charge.  After surging to almost $82 on Tuesday, the stock
has been gradually giving back its recent gains, and gave up the
$78.50 support level.  That opens the door for a move back down
to the next major level of support near $75.50-76.00.  We now
have overhead resistance at $79,which becomes much stronger at
$80.  Use a failed rally at either of these levels to initiate
new positions, and lower stops to $80 this weekend.

BUY PUT SEP-80 GS-UP OI=4160 at $4.10 SL=2.50
BUY PUT SEP-75*GS-UO OI=7471 at $2.10 SL=1.00

Average Daily Volume = 5.89 mln


---

MXIM – Maxim Integrated Products $35.53 (-1.66 last week)

Company Summary:
MXIM designs, develops, manufactures and markets a broad range
of linear and mixed-signal integrated circuits, commonly
referred to as analog circuits.  The company also provides a
range of high-frequency design processes and capabilities that
can be used in custom design.  MXIM's objective is to develop
and market both proprietary and industry-standard analog
integrated circuits that meet the increasingly stringent
quality standards demanded by customers.

Why We Like It:
To say that Semiconductor stocks have been volatile lately would
be a gross understatement, and in light of all the negative news,
it was really impressive that the group, as measured by the
Semiconductor index (SOX.X) could rise as far as it did over the
past 2 weeks.  But with downgrades appearing on a seemingly daily
basis, the SOX finally succumbed to the selling pressure on Friday
and declined back under the important $343-345 support level.  The
key to Friday's weakness appears to have been the pre-opening note
from Goldman Sachs that its channel checks were pointing to the
possibility that TSM would be canceling significant equipment
orders.  That was followed by BofA slashing its estimates for
AMAT, BRKS, ASYT and VSEA on expectations that global capex
spending will stall for the next 12 months.  In light of that
rash of bad news, it is amazing the SOX didn't lose more than the
5.87% that it did.  Needless to say, in this environment, our
MXIM play suffered a non-stop bout of selling, driving the stock
below the recent $36.50 support level to end with a 5% loss on
the day.  Recall our focus on the bearish resistance line ($39)
on the PnF chart, which clearly seems to have turned back the
bulls in the past few days.  We're looking for the decline to
continue, especially with the negative sector developments.
While we would prefer to get another failed rally up near the
$36.75 level (the bottom of Friday's gap and now the site of
the 50-dma), we can't ignore the possibility that MXIM could
continue to fall from current levels.  If the slide continues
unabated, we'll want to add new positions on a drop through the
$35 level, but will want to be watchful for a possible rebound
from intraday support in the $34.00-34.40 area.  Until the $35
support gives way, we'll keep our stop set at $39.

BUY PUT SEP-40 XIQ-UH OI= 573 at $5.50 SL=3.50
BUY PUT SEP-35*XIQ-UG OI=2560 at $2.40 SL=1.25
BUY PUT SEP-30 XIQ-UF OI=3332 at $0.95 SL=0.50

Average Daily Volume = 8.91 mln


---

PIXR – Pixar $49.30 (+0.89 last week)

Company Summary:
Pixar is a digital animation studio with the creative, technical
and productions capabilities to create a new generation of
animated feature films and related products.  The company's
objective is to create, develop and produce computer-animated
feature films with a 3-dimensional appearance.  Since its
inception, the company has created and produced four full-length
animated feature films; Toy Story, A Bug's Life, Toy Story 2 and
Monsters Inc., all of which were marketed and distributed by The
Walt Disney Company.

Why We Like It:
There were a lot of stocks that went nearly vertical in recent
weeks and now it looks like gravity is starting to be felt again.
PIXR caught our attention for its nearly $10 vertical move on the
heels of a solid earnings report and updated guidance.  The key
that got us interested is that the stock began to roll over near
the important $51 resistance level (dating back to 1999) while
the rest of the market was still in ascent mode.  Sure enough,
PIXR continued to slide on Friday, falling almost to the $48
level before a few bulls began buying, helping the stock to
recover more than half its intraday losses by the closing bell.
But it appears the worm may have turned for the stock, with
daily Stochastics now firmly in decline, and appearing to be
headed back for oversold territory.  This has all the earmarks
of a blowoff top, with heavy volume on the way up, and nearly as
heavy volume on the way back down.  While there was some mild
support near the $48.30 level on Friday, our first downside
target is the $47.40 level, the site of the 38% retracement of
the recent rally, as well as intraday support.  We want to use
failed intraday rallies near $49.50 or even as high as $50.25
to initiate new positions.  We don't want to consider new
momentum-based entries until PIXR falls below the $47 support
level.  Keep stops in place at $52.

BUY PUT SEP-50*PQJ-UJ OI=315 at $2.95 SL=1.50
BUY PUT SEP-45 PQJ-UI OI=183 at $1.00 SL=0.50

Average Daily Volume = 368 K



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*****
LEAPS
*****

Bulls Make It 5 In A Row!
By Mark Phillips
mphillips@OptionInvestor.com

In case you hadn't noticed, the bulls managed to close out their
5th week in a row with a gain.  If due to the gradual nature of
those gains over the past couple weeks, you think this is
insignificant, I'll point you to the last time the S&P 500 gained
ground for 5 consecutive weeks.  Here's a hint -- It wasn't in
this century.  That's right, the last time we saw this kind of
consistent bullish action was in the fall of 1999.  While still a
little less than 3 years ago, it seems much further in the past,
as the bears have been relentlessly in charge since early 2000.

So, could this mean that the bull is coming back to life?  Oh
don't I wish!  Don't get me wrong, I think this rebound still has
some legs, but please don't confuse it with another rampaging
multi-year bull market.  The underlying economic strength just
isn't there.  About the only thing we have going for us is low
interest rates and low inflation.  Everything else points to an
economy that is still contracting, and based on the early reports
from the back-to-school season, consumers (that last bastion of
economic strength in America) appear to be pulling in their horns
as well.

Let's not forget the great housing market, which is allowing Joe
and Jane average to continue to behave like they're wealthy.
I'm starting to see signs of cracking in that facade as well.
Granted it is just one area, but in my town, I'm noticing a sharp
increase in the number of houses on the market (lots of sellers)
and they seem to be staying that way longer than usual (not
enough buyers).  I think it's too early to draw any conclusions,
but if I had to hazard a guess, I'd say the Housing bubble is
starting to deflate.  On a national basis I'm hoping that we only
see a deflation of the bubble, not a popping.  The consequences
of a rapid and abrupt deflation of the housing market (bubble
popping) would be exceedingly unpleasant, as anyone who owned
real estate in Texas in the early 1970s can tell you.

But I digress.  The bulls have staged an impressive rally over
the past month and have earned the right to crow, at least a
little.  I must say I'm rather gratified, as we have managed to
capture a nice chunk of that move with our Portfolio plays.
The question that must be addressed though is whether there is
more room to run or if the bulls are running out of steam.  The
rally of the past month has been the result of investors
breathing a huge sigh of relief, as they have come to the
conclusion that the worst news was factored into the market
and it turned out to not be as bad as originally feared.  That's
why the continuous stream of bad economic news (particularly in
the Technology arena) has been largely ignored over the past
couple weeks.  This is the power of Bull Confirmed on the PnF
Bullish Percent charts.  Have you noticed the continuing
improvement in the Market Sentiment section of the newsletter,
with all of the major averages now clearly in bull confirmed
mode?  

I could either make a case for more bullish action ahead or for
the markets to take another tumble.  The Bull Confirmed status
of the market tells us that there is still more room to the
upside, and while a bit more profit taking wouldn't surprise me
next week, I can easily see the DOW working its way up to at
least the 9400 level and the S&P 500 pushing back above the
venerable 1000 level in the next few weeks.  The problem with
reading too much into the bullish action of the past 2 weeks
(and the one to come) is the historically light volume at the
end of August as professional traders take advantage of the last
couple of weeks of summer to take their vacations.  Jim pointed
out in his Thursday Market Wrap the historical perils that lie
just before us.  Bullish action in August frequently comes on
light volume, and just as investors think the institutional bulls
are ready to throw their hat in the ring, the bottom falls out
of the market.  It happened in 2000, and it happened in 2001
(even before the 9/11 attacks).  Will 2002 make it a three-peat
or break the pattern.  Clearly, I don't know the answer.  But
count me among the cautiously bullish skeptics.  Maybe the
collective skepticism will give the markets the proverbial wall
of worry they need to climb in order to continue in rally mode.
We'll just have to see how it plays out, while aggressively
protecting the gains we've accrued in the past few weeks.
Speaking of which, let's take a look at our Portfolio and see
how it's doing.

Portfolio:

DJX - Friday's session further muddied the waters for our DJX
play.  While it was a much-needed and healthy round of profit
taking, it served to keep the bearish ascending wedge very much
in play.  Even though Thursday's push through the $90 level
achieved a technical breakout of the pattern, the fact that we
dropped back into the pattern on Friday indicates that we still
have not achieved a decisive breakout.  I expect to see a drop
back down to the lower ascending trendline (currently $86, but
$88 by next Friday) before another serious attempt at a breakout
from the pattern.  While I'm still eyeing a breakout to the
upside, prudence demands that we protect ourselves by tightening
our stop to $86, right at the current bottom of the pattern.

GE - Try as it might, GE just couldn't print $33 last week and
I think this is an important issue.  The stock needs to hit $33
to generate that next 'X' on the PnF chart to put it on its
first Buy signal since March.  Unless the DOW breaks out to the
upside, I expect the bulls won't be able to get the job done and
GE will fall out of its own ascending wedge that has been
building since early August.  Note that after several attempts
to move higher last week, the stock came to rest on Friday right
on the lower edge of this wedge near $32.  Due to my leaning
towards a breakdown, I want to get super aggressive with our
stop, raising it to $31.50.  A drop below that level would give
us a bearish breakdown from the wedge as well as a violation of
a couple levels of important support that have been building
over the past couple weeks.

INTC - What can I say -- the Semiconductors are in trouble.
After several attempts to move higher, the Semiconductor index
(SOX.X) was firmly turned back from its 50-dma on Friday and
appears headed lower over the near term.  A flurry of downgrades,
a very negative Book-to-Bill number (as pointed out by Jim), and
concerns about order cancellations are all pointing to no
recovery for this sector in the near future.  Friday's nearly 6%
slide in the sector underscored the tenuous nature of the recent
rebound, and INTC led the slide with a 6%+ drop of its own.  This
play is hanging on by the skin of its teeth, but still above the
ascending trendline connecting the lows over the past 2 weeks.
A violation of this trendline ($17.83) will tell me the party's
over, so we're raising the stop to $17.75 this weekend.  The only
reason I didn't drop INTC this weekend was that the intraday
action last week did manage to crest the $19 level before falling
back.  So all hope is not lost yet, but we've got this one on a
VERY short leash.

MSFT - Not only did MSFT push through the top of its ascending
wedge AND STAY THERE, it also cleared the descending trendline
from the January highs and blasted through its bearish resistance
line ($51) on the PnF chart.  Wow!  Fueling the rally on Thursday
was the upgrade to Outperform from Solly, complete with an
upwardly revised price target of $59.  The firm pointed out
several points in favor of MSFT, among them their channel checks
point to increased spending on MSFT products over the next 6
months and more customers signing Enterprise Licensing
Agreements.  Also important, the firm pointed out that the shift
to Linux appears to be more of a threat to Unix than MSFT.  But
Solly needs to learn how to read the PnF charts, as the current
vertical count is pointing to $72.  We clearly won't get there
in a straight shot, but I like both the improving technicals and
MSFT's continued solid execution of its business growth model.
That's why I'm willing to be a bit more generous with the stop on
this play.  After the strong rally of late, a bit of profit
taking is to be expected.  But MSFT shouldn't fall back below
$50, the new site of our stop.

QQQ - Even the Techs managed to participate in the rally again
last week, although Friday's profit-taking took the gleam out of
the bulls' eyes.  Leading the way lower was the lagging SOX with
a nearly 6% decline, but the Biotechs weren't far behind, with
the BTK index shedding more than 4%.  As we've talked about
before, the NASDAQ is going to be the laggard in the world of
indexes until there is some sort of definite uptick in demand
generated by increased IT spending.  But that doesn't mean that
we can't take a piece of the rallies and declines.  It was
encouraging to see the QQQ hold onto the $25 level, but I
wouldn't be surprised to see it give way next week.  We need to
watch the $24 level, which is the site of the ascending trendline
over the past 2 weeks.  As long as the QQQ remains above that
level on a closing basis next week, then the fledgling bullish
trend remains intact.  A close below there will take us out of
the play, as we are raising our stop to $24 this weekend.

WMT - Well, what do you know?  I got aggressive with our stop
last week, raising it to $52.50 and the bears didn't go gunning
for it.  To be sure, the bulls couldn't make any more headway,
but the intraday lows continued to hit above our stop.  The
10-dma has now risen to $52.82 and that could help to provide
a springboard for the next move higher.  Of course, some
positive reports about back-to-school spending wouldn't hurt
either.  We're keeping our stop tight, as we don't want to give
back our gains accrued thus far if WMT decides to take a tumble.
A violation of the $52.50 level would put the stock on a
short-term sell signal that could take it all the way back down
to the $49 area before any real support presents itself.

Watch List:

BA - There were some interesting developments here, with the
DOW Transports ($TRAN) finally breaking above the late-July
highs on Thursday.  That victory was rather short-lived though,
as we got an abrupt reversal at the 50-dma on Friday.
Nevertheless, I look at the action of the TRAN as a confirmation
that this bull has some legs.  Interestingly, BA has been unable
to really participate in the improvement in the sector, and it
looks like it is headed for another rollover in the near-term.
Remember, we don't want to get aggressive with this one until
the stock reaches its bearish price target of $32.

SMH - That was a nice little confirmation of our bullish stance
on the SMH last week.  Did you notice that it pushed up briefly
above the $29 level on Thursday before pulling back sharply on
Thursday.  Printing $29 was just what we needed to put the PnF
chart on a buy signal with a double-top breakout.  Now we just
have to wait for it to come back to support in the $24-25 area
and we'll be ready to go with a fresh entry.  Look for the daily
Stochastics to pull back into oversold territory and turn higher
with price action trading near our entry target.  Initial stop
after entry should be placed just below the recent low at $22.50.

BBH - Thursday and Friday presented some rather interesting
action, with the BBH surging as high as $93 and then giving it
all back.  We've still got a ways to go before the entry setup
I'm looking for is satisfied.  Let's hope the bulls have some
staying power over the near term and can propel the BBH up near
the $100 level (currently the top of the ascending channel)
before gravity takes over.

The VIX is still drifting lower on a weekly basis, but the fact
that it remains over 30 indicates we still have a wall of worry
to climb.  All things being equal, I would say we are well on our
way to a significant recovery in the markets.  But all things are
not equal, and with the 9/11 anniversary and the historical
pattern of a selloff in the fall, I believe we are headed into
some perilous territory over the next several weeks.  And don't
forget that we've still got the rumblings in the Middle East that
are unlikely to go away any time soon.  We could be setting up
for a continuation of the rally as the bulls scale the wall of
worry, or we could be setting up for a fall in typical historical
fashion.  My advice is to frolic with the bulls as long as the
sun is out, but don't chase those entry points.

Have a great week!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
INTC   07/26/02  '03 $ 20  NQ -AD  $ 2.00  $ 1.85  - 7.50%  $17.75
                 '04 $ 20  LNL-AD  $ 4.10  $ 3.80  - 7.31%  $17.75
DJX.X  08/06/02  '02 $ 86  DJX-LH  $ 4.80  $ 6.90  +43.75%  $86
                 '03 $ 88  ZDJ-LJ  $ 7.50  $10.30  +37.33%  $86
GE     08/06/02  '03 $ 30  GE -AF  $ 3.50  $ 4.30  +22.86%  $31.50
                 '04 $ 30  LGR-AF  $ 4.80  $ 6.60  +37.50%  $31.50
MSFT   08/06/02  '03 $ 45  MQF-AI  $ 7.60  $10.40  +36.84%  $50
                 '04 $ 50  LMF-AJ  $10.10  $12.30  +21.78%  $50
                 '05 $ 50  ZMF-AJ  $13.70  $16.20  +18.25%  $50
QQQ    08/06/02  '03 $ 25  OZC-AY  $ 1.70  $ 3.20  +88.24%  $24
                 '04 $ 25  KLF-AY  $ 3.40  $ 5.00  +47.06%  $24
WMT    08/06/02  '03 $ 50  WMT-AJ  $ 3.80  $ 6.30  +65.79%  $52.50
                 '04 $ 50  LWT-AI  $ 7.30  $10.20  +39.73%  $52.50


Puts:
None


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
BA     06/30/02  $32           JAN-2004 $ 45  LBO-AI
                            CC JAN-2004 $ 40  LBO-AH
                               JAN-2005 $ 50  ZBO-AJ
                            CC JAN-2005 $ 40  ZBO-AH
SMH    08/18/02  $24-25        JAN-2004 $ 30  KBS-AF
                            CC JAN-2004 $ 25  KBS-AE
                               JAN-2005 $ 30  ZTO-AF
                            CC JAN-2005 $ 25  ZTO-AE
MO     08/25/02  $24-25        JAN-2004 $ 50  LMO-AJ
                            CC JAN-2004 $ 45  LMO-AI
                               JAN-2005 $ 50  ZMO-AJ
                            CC JAN-2005 $ 40  ZMO-AH


PUTS:
BBH    08/30/02  $100-102      JAN-2004 $ 95  EVK-MS
                               JAN-2005 $ 90  EIL-MR
                 $88-90        JAN-2004 $ 80  EVK-MP
                               JAN-2005 $ 80  EIL-MP


New Portfolio Plays

None


New Watchlist Plays

MO - Philip Morris $47.55  **Call Play**

After the beating that Tobacco stocks took on Friday, you
probably think I've taken leave of my senses, but follow along
and I think you'll see the light.  The litigation monster raised
its ugly head again on Friday with another CA lawsuit from a sick
smoker failing to accept personal responsibility, the bears were
back in charge, slicing more than 5% off the share price and
getting things headed south again.  There was also talk from
Goldman Sachs that they expect the US cigarette market to be
fundamentally weak.  I think this is based on expectations that
the sharp price rise in cigarettes (due to Draconian tax measures)
will cause a decline in demand for these products.  Don't take my
word for it.  Look at people you know who smoke.  Has the sharp
rise in price curtailed their use of tobacco, or have they just
made a point of buying at a discount, perhaps over the Internet?
While most of the news surrounding the company centers on its
Tobacco business, we must remain cognizant of the strong presence
the company has in all its food and beverage business lines,
which generate significant revenue that filters to the bottom
line.  With the sharp decline in Tobacco stocks back in June, it
finally looked like MO was going to come back and give us an
attractive entry.  The problem was that after that waterfall
decline, we needed to wait for a base to build, and more
importantly for a new Buy signal to be generated on the PnF chart.
The rally up to the $47 level in late July didn't get the job
done, as we needed to wait for a print at $48 to generate the
Buy signal.  Well the rally in the first 2 weeks of August got
that job done, and then some, with the latest column of X's
generating a strong Buy signal, with a price target of $75.
Remember that we don't want to buy those PnF breakouts, but
instead want to let the stock drop back to a defined level of
support before entry, allowing us to better control risk vs.
potential reward.    Look for MO's decline to run its course
around the $44-45 area, which is where we want to take our entry
into the play.  Ideally, this will correspond to the daily
Stochastics turning up out of oversold territory again.  I'm
less inclined to pay attention to the weekly Stochastics on
this particular stock (note that they are currently topped out
in overbought territory), as MO has a habit of continuing upward,
despite bearish signals on the weekly Stochastics.  Due to its
normally sedate price movement, MO would likely make an
attractive play for those that choose to employ the covered call
on LEAPS strategy.

BUY LEAP JAN-2004 $50 LMO-AJ
BUY LEAP JAN-2004 $45 LMO-AI **Covered Call**
BUY LEAP JAN-2005 $50 ZMO-AJ
BUY LEAP JAN-2005 $40 ZMO-AH **Covered Call**


Drops

None


***********
OPTIONS 101
***********

Waiting For A Large Movement
By Mike Parnos, Investing With Attitude

Sorry to disrupt your Sunday, but I was recently introduced to a 
strategy that you’ll find very interesting – and profitable.  
It’s a course requirement for Couch Potato Trading Institute 
students and there may be a quiz at the end of the article.

I know it’s preseason and you were probably looking forward to a 
peaceful Sunday -- tuning in to a variety of meaningless 
exhibition football games.  Why?  Because they’re there. But this 
strategy is going to take focus.  It’s not something that most 
students will be able to grasp at halftime.   At least hit the 
“mute” button. 

Time to prepare.  You’ll need access to option chains, your 
charting program, a calculator, a little imagination, and a 
medium pizza with at least two items.

OK.  Gentlemen (and women), start your engines and follow the 
bouncing strangle.
Strategy Overview:  To use short-term in-the-money strangles to 
establish long put and/or call positions at little or no cost 
preparing for an inevitable big move.

Let’s use the QQQs – one of my favorite trading vehicles because 
of the $1.00 strike price increments and high liquidity.  Those 
factors offer greater flexibility in putting on new and  smaller 
spreads that, in turn, result in larger profits (or smaller 
losses).  CPTI students learn to be penny pinchers.  Remember, J. 
Paul Getty died with a payphone in his house for his guests to 
use.
 
The QQQs have, along with the rest of the market, been working 
their way up over the last month.  Some believe it will continue 
to the sky.  Those same people are still holding Nortel at $1.20 
and have memorized the “Mary Poppins” soundtrack.

Other people believe the QQQs will return to $21.30 to retest the 
lows.  In either case, it’s not unreasonable to anticipate a 
substantial move.  We’re basing this strategy on the fact that 
there has seldom been a two month period when the QQQs have not 
moved at least three points in one direction or the other. Our 
risk will be about $250-300 per month for a year – or a total of 
about $3,000 (based on a 10 contract position).  Don’t worry.  
It’s likely we’ll make it back 10 times over.

Step 1 – It’s August 22nd and the QQQs are trading at $26.02
1.  Buy Oct. $25 calls @ $2.30
2.  Buy Oct. $27 puts @ $2.20
Total invested: $4.50
There is $2.00 of intrinsic value in this position.  The actual 
risk is only $2.50.
We’re waiting for the QQQs to move three points.  It normally 
takes less than a month.  Let’s say that Julie Andrews’ hills are 
still alive with the sound of music and, in three weeks, the QQQs 
hit $29.  The $25 calls will be worth approximately $4.35 ($4.00 
intrinsic value + .35 time value).  Time to liquidate the calls 
and put the $4.35 back in your pocket – for the moment.

Now, where do we stand?  
a)  We have the Oct. $27 put at a cost of $.15.  
If the QQQs tank back to $22 in the next 30 days, you just made 
$4.85 -- $5.00 for liquidating the put less your $.15 cost.  Nice 
return.

Let’s do it again.  It’s October and the QQQs are now trading at 
$29
3.  Buy Dec. 28 calls @ $2.35
4.  Buy Dec. 30 puts @ $2.25
Total invested: $4.60
Again, we have the $2.00 of intrinsic value in the position.  As 
you can see, the numbers will be basically the same.  Increases 
or decreases in volatility may result in minor fluctuations in 
the time premium.  If it varies by a nickel or a dime, it’s no 
big deal.

The risk is $2.60 and we’re awaiting the next move.  In another 
three weeks, the QQQs reversed and went from $29 to $25.  The $30 
puts are worth $5.25 ($5.00 intrinsic value + $.25 in time 
value).  We sell the puts.  This time we actually profited by 
$.65.
Now, where do we stand?  
a)  There are still two weeks left before October expiration. 
b)  We are still long the Oct. $27 puts (from the original 
strangle), and; 
c)  We are also now long the December $28 calls.  

The Oct. $27 puts from the original strangle puts cost us $.15 
and we actually made $.65 as we established the long Dec. $28 
calls.  So, in addition to our long positions, we took in $.50.

Now, with the QQQs at $25, we establish another position using 
the Jan. $24 calls and Jan. $26 puts, and so on.  Every time a 
move is made and a long position liquidated, another similar 
position is established around the QQQs.  You can continue this 
indefinitely.  Eventually, the QQQs will go down quicker than a 
CEO can take the Fifth.  Or, it will run up faster than your 
wife’s credit card bill.  That’s when all your patience will pay 
off and you’ll ring up the serious profits – so you can pay that 
credit card bill.

On the other hand, when the QQQs reversed and came back down to 
$25 in our first example, we could have sold the Oct. 27 puts for 
about $2.50.  Our cost was $.15.  Still a nice return and it 
didn’t require a massive move to generate a healthy profit – just 
a typical four point fluctuation.

See the pattern?  What we’re trying to accomplish is to have long 
puts (or calls) at little or no cost.  Whenever we liquidate a 
long position on one side, we are left with a long position on 
the opposite with virtually no cost.  As some of the long 
positions expire, there will be at least one or two still live 
awaiting the major reversal or the continued move.

What is the maximum risk?  The original $2.50 ($4.50 less the 
$2.00 intrinsic value).

This is complicated stuff, but requires only minimal monitoring – 
maybe once a day.  You can put in GTC orders and go to the beach, 
the bar or watch a Twilight Zone marathon – including the 
commercials.

Now that you’ve been enlightened, you can get back to the 
football games and what’s left of the pizza.  Re-read the 
strategy again and look at the possibilities.  You know that what 
goes up must come down.  If you don’t believe me, ask Isaac 
Newton, Lenny Fibonacci, and all the buy and hold investors.  
They’ll tell you.

Add it all up and it spells “profits” – and that’s the magic 
word.  It has a nice ring to it, don’t you think?


P.S.  Last month I wrote about the Iron Condor strategy.  Readers 
have asked that I give a real time example.  I found an 
interesting possibility for study.

An Iron Condor consists of simultaneously placing a bull put 
spread at a support level and a bear call spread at a resistance 
level.  The credits are pocketed and kept when the underlying 
closes below the short call and above the short put.  For a more 
complete description, see the “Trading Wars” July 7th column 
archived in Option Investor’s “Option 101” category.

We’ll use BBH – the Biotech Holders Trust.  At Friday’s close, 
BBH was trading at $89.35.  There is support at $80 and 
resistance at $110.
  
If we sell the October $110 call and buy the October $115 call, 
we take in $.30.  Then we sell the Oct. $80 put and buy the Oct. 
$75 put and take in an additional $.80.  Together we’ve taken in 
$1.10.  Our exposure is $3.90 -- the difference between the 
strike prices of one of the spreads ($5.00) less what we’ve taken 
in ($1.10).  That’s a potential 28.2% return on the risk – great 
for a typical conservative CPTI trade.

That gives BBH a 30-point range to roam around in for the next 
eight weeks.  That should be plenty of room, but we’ll monitor 
this trade and give weekly updates here, in case adjustments are 
necessary.

Happy trading.  May your remote batteries last forever, but mierda 
happens.  Be prepared!  In trading, as in life, it’s not 
the cards you’re dealt.  It’s how you play them. 

Your questions and comments are always welcome.  
mparnos@OptionInvestor.com


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The Option Investor Newsletter                   Sunday 08-25-2002
Sunday                                                      5 of 5

In Section Five:

Covered Calls: Investing 101: Technical Versus Fundamental Analysis
Naked Puts: Technical Analysis 101:  The Right Time To Buy And Sell
Spreads/Straddles/Combos: Consolidation Underway!

Updated In The Site Tonight:
Market Watch: Reversing Gear
Market Posture: Hanging in There


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*************
COVERED CALLS
*************

Investing 101: Technical Versus Fundamental Analysis
By Mark Wnetrzak

With the resurgence of fundamentals-based or "valuation" analysis
of publicly traded companies, it is an excellent time to review
the basic approaches to stock selection.

The two most common methods investors use to determine the future
prices of stocks are fundamental and technical analysis.  By and
large, the older segment of investors is more comfortable with
fundamental analysis.  That is the process where one attempts to
predict the potential earnings of a company by evaluating their
market share, product revenues, pricing structure, and operating
margins, as well as various other financial components of the
company's business.  In contrast, the study of historical share
values, directional trends and chart patterns has nothing at all
to do with the profitability of the company.  Rather, technical
analysis is a technique used to forecast the future direction and
magnitude of a stock's movement based on its past price activity.
Although each style is often viewed as less than adequate by the
opposing group, there is value in both methods and in many cases,
each approach can produce favorable results.

Technical analysis is more suitable to short-term trading, since
it offers the most accurate method for timing entry and exit
points.  Fundamental analysis can often provide a more accurate
picture of the long-range outlook, but it is miserably inefficient
for predicting the near-term movement of stock prices.  However,
analyzing the value of a company can help to forecast potential
profits (or losses) and since earnings significantly affect share
values, it is important to have complete and accurate knowledge of
of a company's financial condition.  We have all witnessed how a
quarterly reports can affect the short-term trading activity of a
stock and the catastrophic losses that can occur when a company
announces earnings that are different from the current consensus
estimates.  A worse-than-expected profit outlook will also cause
stock prices to fall and when the news becomes public, analysts
are quick to change their opinions on the company, downgrading the
issue and causing further damage to its share value.  This is one
of the few times when fundamental analysis might be helpful in a
short-term trading scenario.

Although some extreme fundamentalists dismiss technical analysis
as investment voodoo, simple charting techniques are proven tools
that stand up to the test of time.  A stock chart does nothing
more than reveal buying and selling patterns that would be almost
impossible to discern by reading daily quotes in the newspaper.
Charting clearly reflects the repeated accumulation that occurs
at periodic lows and the climax selling (or distribution) that
develops whenever a stock reaches a historic top.  Various systems
have been developed to help investors form an opinion based on the
past price activity and predict future direction (and potential
turning points) in the underlying issue.  Most analysis begins by
determining the strength and direction of the primary trend and
the foundation for future predictions is predicated on the premise
that once a trend is in motion, it will continue in that direction
until a change in character occurs.

Using the covered-write strategy as an example of the differences
between the two types of analysis: a conservative investor that
utilizes trend and/or sentiment indicators might sell short-term,
in-the-money options on technically favorable companies to achieve
small gains.  In contrast, an investor that focuses on fundamental
or valuation analysis to make portfolio decisions would likely buy
historically profitable issues and write monthly out-of-the-money
options to reduce the overall cost basis of the position.  Since
most of the positions we offer in the Covered-Calls Portfolio are
of a short-term nature, we favor technical analysis as the primary
means for stock selection.  Our research bases its forecasts for
the future on past prices, directional trends or moving averages,
and volume considerations.  All of these components are valuable
tools in stock selection and we will review some of them in detail
in future narratives.

Trade Wisely!


SUMMARY OF PREVIOUS CANDIDATES
*****
Note:  Margin not used in calculations.

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

ALKS    7.70  10.07   SEP   7.50  1.25  *$  1.05  11.8%
NXTL    5.49   7.65   SEP   5.00  1.10  *$  0.61  10.1%
MDR     6.00   6.45   SEP   5.00  1.50  *$  0.50   8.0%
FFIV   14.04  13.70   SEP  12.50  2.55  *$  1.01   7.6%
ISIS   11.25  10.58   SEP  10.00  2.05  *$  0.80   7.6%
XOMA    5.66   6.35   SEP   5.00  0.95  *$  0.29   5.4%
ICST   20.74  19.38   SEP  17.50  4.20  *$  0.96   5.0%
MLNM   14.16  13.76   SEP  12.50  2.45  *$  0.79   4.9%
AFFX   18.51  19.45   SEP  15.00  4.40  *$  0.89   4.6%
SMTC   22.14  19.33   SEP  17.50  5.50  *$  0.86   4.5%
MRCY   24.79  26.12   SEP  22.50  3.60  *$  1.31   4.5%
IDTI   15.20  14.15   SEP  12.50  3.30  *$  0.60   4.4%
CREE   16.20  14.53   SEP  15.00  2.25   $  0.58   3.6%
MYGN   24.96  20.85   SEP  22.50  4.10   $ -0.01   0.0%

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

Comments:

The major averages continued their bullish move this week though
the mood Friday was somewhat somber.  I'd call it "flirting" with
the 50-dma!  I still feel that a base must form in these iconic 
averages before we can yell "bull market" with any conviction.  
As for our covered-call portfolio, two issues have broken down
rather horridly and are prime candidates for culling:  Myriad 
Genetics (NASDAQ:MYGN) and Cree (NASDAQ:CREE).  Some other stocks
that are acting worrisome and may move toward support are:  ISIS
Pharmaceuticals (NASDAQ:ISIS), Millennium Pharmaceuticals (NASDAQ:
MLNM), Semtech (NASDAQ:SMTC), and Integrated Device Technology 
(NASDAQ:IDTI).  If the current profit-taking turns into a rout,
protecting capital will be the name of the game.



NEW CANDIDATES
*********

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

AMR    11.14  SEP 10.00   AMR IB  1.65 2241   9.49   28    5.8%
MNS    11.20  SEP 10.00   MNS IB  1.75 10     9.45   28    6.3%
NET    14.56  SEP 12.50   NET IV  2.55 2128  12.01   28    4.4%
NWRE   16.94  SEP 15.00   QQA IC  2.65 272   14.29   28    5.4%
ORCL   10.79  SEP 10.00   ORQ IB  1.15 71004  9.64   28    4.1%
TIBX    5.21  SEP  5.00   PAV IA  0.70 291    4.51   28   11.8%
WEBX   15.02  SEP 15.00   UWB IC  1.40 1239  13.62   28   11.0%

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

TIBX    5.21  SEP  5.00   PAV IA  0.70 291    4.51   28   11.8%
WEBX   15.02  SEP 15.00   UWB IC  1.40 1239  13.62   28   11.0%
MNS    11.20  SEP 10.00   MNS IB  1.75 10     9.45   28    6.3%
AMR    11.14  SEP 10.00   AMR IB  1.65 2241   9.49   28    5.8%
NWRE   16.94  SEP 15.00   QQA IC  2.65 272   14.29   28    5.4%
NET    14.56  SEP 12.50   NET IV  2.55 2128  12.01   28    4.4%
ORCL   10.79  SEP 10.00   ORQ IB  1.15 71004  9.64   28    4.1%


Company Descriptions

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

*****
AMR - AMR Corp.  $11.14  *** Ready For Level Flight? ***

AMR's (NYSE:AMR) operations fall almost entirely in the airline
industry. American Airlines is AMR's principal subsidiary.  In 
April 2001, American Airlines purchased substantially all of the
assets and assumed certain liabilities of Trans World Airlines. 
At the end of 2001, American provided scheduled jet service to 
more than 161 destinations throughout North America, Latin 
America, the Caribbean, Europe and the Pacific.  American is 
also a scheduled air freight carrier, providing a full range of
freight and mail services to shippers throughout its system.
Airline stocks gained altitude this week as investors cheered
the industry's restructuring efforts.  AMR recently announced 
further restructuring that should help the company's bottom
line.  We simply favor the bullish "bounce" on heavy volume
which suggests that "smart" money is beginning its accumulation
in the industry.  Investors who agree can obtain a reasonable
cost basis with this position from which to speculate on AMR's
future.

SEP 10.00 AMR IB LB=1.65 OI=2241 CB=9.49 DE=28 TY=5.8%


*****
MNS - MSC.Software  $11.20  *** Forging A Base ***

MSC.Software (NYSE:MNS) is engaged in the development, marketing
and support of simulation software, services and systems to 
optimize product design and quality and reduce product costs 
and time to market.  The company also provides a broad range 
of strategic consulting services to its customers to improve
the integration and performance of their product development 
process.  The company serves customers in several industries,
including aerospace, automotive, machinery, electronics, consumer
products, biomedical, shipbuilding and railroad.  In July, MNS
reported a 95% growth in revenue fueled by strategic acquisitions
and growth in the company's core business.  More recently, the
FTC said it settled antitrust charges against MSC Software that
stemmed from the company's acquisition of two competitors in 1999.
The stock has strong historic support near $10 and the short-term
view depicts a "rounded" bottom formation.  Traders can speculate
on the near-term performance of the issue with this conservative 
position.

SEP 10.00 MNS IB LB=1.75 OI=10 CB=9.45 DE=28 TY=6.3%


*****
NET - Network Associates  $14.56 *** Bottom-Fishing ***

Network Associates (NYSE:NET) is a supplier of security and
availability solutions for e-business.  The company's products
focus on two important areas of e-business, network security 
and network management.  The majority of the company's revenue
has historically been derived from its McAfee anti-virus product
group and its Sniffer network availability and performance 
management product group.  These two flagship product groups
form the customer base and product base from which the balance
of the company's product line has developed.  NET received 
favorable news after McAfee.com (NASDAQ:MCAF) said its special
board committee recommended shareholders accept NET's sweetened
offer to buy the remaining 25% of McAfee.com it does not own. 
The combined company will enable Network Associates to move
aggressively with a more coherent strategy and product line 
against rival Symantec (NASDAQ:SYMC), maker of Norton anti-
virus software.  Investors who retain a bullish outlook on
the "new" company can use this position to participate in
the future movement of the issue with relatively low risk.

SEP 12.50 NET IV LB=2.55 OI=2128 CB=12.01 DE=28 TY=4.4%


*****
NWRE - Neoware Systems  $16.94  *** Earnings Rally ***

Neoware Systems (NASDAQ:NWRE) provides software and solutions to
enable appliance computing, a web-based computing architecture
targeted at business customers that is designed to be simpler
and easier than traditional personal computer-based computing.
The company's software and management tools power and manage a
new generation of smart computing appliances that utilize the
benefits of open, industry-standard technologies to create new
alternatives to PCs used in business and a variety of proprietary
business devices.  Neoware Systems provides its software on top
of a number of embedded operating systems, including Microsoft's
Windows CE and NT Embedded, as well as an embedded version of the
Linux operating system.   Neoware has been in "rally mode" since
last November with the issue moving from $2 to $14 in only 10
months and the stock appears to be gaining strength.  The company
is due to report earnings on August 28 and investors who believe
the news will be good can obtain a favorable cost basis in the
issue with this position.

SEP 15.00 QQA IC LB=2.65 OI=272 CB=14.29 DE=28 TY=5.4%


*****
ORCL - Oracle  $10.79  *** Base-Building: Part II ***

Oracle (NASDAQ:ORCL) is a supplier of software for information
management.  The company develops, manufactures, markets and
distributes computer software that helps corporations manage 
and grow their businesses.  The company's software products 
can be categorized into two broad areas: systems software and
business applications software.  Systems software is a complete
Internet platform for developing and deploying applications on
the Internet and on corporate intranets.  Systems software
products include database management software, application 
server software and development tools that allow users to 
create, retrieve and modify the various types of data stored 
in a computer system.  Business applications software, which
can be accessed with a standard Web browser on any client 
computer, automates the performance of business processes for
customer relationship management, supply chain management, 
financial management, project management and human resource
management.  Oracle continues to forge a Stage I base and
has recently moved above its 50-dma.  Investors who have
a long-term neutral to bullish outlook on the company can
obtain a favorable entry point with this position.  

SEP 10.00 ORQ IB LB=1.15 OI=71004 CB=9.64 DE=28 TY=4.1%


*****
TIBX - Tibco Software  $5.21  *** Cheap Speculation ***

Tibco Software (NASDAQ:TIBX) is a provider of business integration
software solutions.  The company develops and delivers software 
products that give large enterprises the ability to more easily 
enable and manage interactions between their internal systems, 
employees, partners and customers.  Tibco's products do this by
enabling incompatible computer systems to interact with each other
in real-time, automating processes that span those systems, and 
giving people the ability to monitor and interact with information
and processes.  The company's products are broken into 3 product
lines: Tibco ActiveEnterprise, Tibco ActivePortal and Tibco 
ActiveExchange.  There's not much news on Tibco to explain the
end-of-week rally but the technical indications suggest the issue
may successfully complete its recent consolidation and is poised
for future gains.  This position offers a great way to speculate
on the future movement of the issue in a conservative manner.

SEP 5.00 PAV IA LB=0.70 OI=291 CB=4.51 DE=28 TY=11.8%


*****
WEBX - WebEx  $15.02 *** Base-Building: Breaking Out? ***

WebEx Communications (NASDAQ:WEBX) develops and markets services
that allow end-users to conduct meetings and share software 
applications, documents, presentations and other content on 
the Internet using a standard Web browser.  Integrated telephony
and Web-based audio and video services are also available using 
standard devices, such as telephones, computer Web-cameras and 
microphones.  WebEx has designed and developed its technology 
architecture to satisfy the interactive communications needs of
a broad range of customers.  The company's architecture consists
of three tiers: WebEx Interactive Services, WebEx Interactive 
Platform and WebEx Interactive Network.  Not much news since
WebEx reported a stellar quarter in July as revenues surged 85%.
The stock has been stuck in a 7-month base and recent technical
signals suggest the stock may be bracing to move higher.  This
week's rally on increasing volume moved the stock above its 50-dma
and the July high.  The current technical outlook is recovering
and our position offers an excellent reward potential at the risk
of owning this industry-leading issue at a favorable cost basis.

SEP 15.00 UWB IC LB=1.40 OI=1239 CB=13.62 DE=28 TY=11.0%


*****

*****************
SUPPLEMENTAL COVERED CALL CANDIDATES
*****************

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

MDR     6.45  SEP  5.00   MDR IA  1.75 140    4.70   28    6.9%
LMNX    7.52  SEP  7.50   UEN IU  0.45 85     7.07   28    6.6%
ADRX   24.88  SEP 20.00   QAX ID  5.90 6275  18.98   28    5.8%
ACF    16.32  SEP 12.50   ACF IV  4.40 1400  11.92   28    5.3%
ANSI   35.64  SEP 35.00   UAI IG  2.20 86    33.44   28    5.1%
CYBX   18.65  SEP 17.50   QAJ IW  1.85 169   16.80   28    4.5%
HGSI   17.29  SEP 15.00   HQI IC  2.85 238   14.44   28    4.2%
ICOS   27.37  SEP 22.50   IIQ IX  5.70 115   21.67   28    4.2%


*****************
NAKED PUT SECTION
*****************

Technical Analysis 101:  The Right Time To Buy And Sell
By Ray Cummins

The stock market is constantly undergoing complex and dynamic
gyrations, but it is clear that share values fluctuate between
various levels of support and resistance.

The concept of support and resistance is easy to understand and
widely discussed, yet many investors pay little attention to the
real reasons that stock prices are in constant flux.  Economists
believe it occurs because of the inverse ratio between supply
and demand.  In Technical Analysis: A-Z, Steven Achelis says we
should "think of security prices as the result of a head-to-head
battle between a bull (the buyer) and a bear (the seller).  The
bulls push prices higher and the bears push prices lower.  The
direction prices actually move reveals who is winning the battle."
From a psychological viewpoint, support is the price level that
exhibits a temporary fair value for the market.  Above that level,
investors sell a stock because they view it as being "overpriced."
The issue is forced to lower valuations until buyers step in to
support it at a new fair value.  When the stock price begins to
move sideways in a trading range, both buyers and sellers have
come to the same conclusion about the value of the issue, based
upon their individual methods of analysis.  When buyers perceive
the new level to be a favorable price for the stock, they will
accumulate the shares in greater volume, eventually forcing its
value to increase.  Investors continue to purchase the stock at
higher prices because of the bullish momentum in its share value.
Once the issue reaches excessive valuations (trading at a premium)
sellers re-enter the picture to take advantage of the opportunity
to distribute at inflated prices, thus creating resistance.

For technical analysts, the appearance of support and resistance
areas is one of the most common and obvious events on price charts.
Many different methods are used to identify support and resistance
levels in stocks and stock indexes.  The various systems include,
but are not limited to, analysis that utilizes Fibonnacci numbers
and ratios, trend-lines, moving averages, Gann concepts and wave
pattern components.  These approaches assume that the market will
repeat past behaviors in either direction or character and that
previous movements can help traders forecast future activity with
reasonable accuracy.  The basis for studying historical patterns
is the price action of a stock over a period of time will create
strength at certain levels.  These areas, known as resistance at
the top end of a trading range, and support at the lower end, may
develop and solidify over different time frames.  When the stock
price moves up through a resistance area, that level of resistance
becomes new support and the share value continues higher until
another level of resistance is formed.  In contrast, when a stock
falls below an area of technical support, that level then becomes
resistance for any future rallies.

The concepts of trend-lines and moving averages are important to
understanding support and resistance.  During a bullish market,
resistance levels are formed when the issue consolidates for an
extended period of time.  These pauses in accumulation generally
result from brief profit-taking or doubt about the outlook for a
particular stock or industry group.  The pattern is similar to a
plateau and may even result in a short-term pullback in the stock
price, creating an area of resistance.  The opposite occurs as an
issue rebounds from a primary downtrend, creating new levels of
technical support as buyers attempt to "call the bottom" ahead of
a trend reversal.  Trading volume and time frame are also crucial
factors in the development of both support and resistance.  The
most substantial areas of support and resistance are those that
have developed over an extended period of time and heavier volume
during a specific phase of activity creates a much stronger level
of support or resistance.

A historical view of share values suggests that prices fluctuate
from a level of support to a level of resistance.  Understanding
these support and resistance levels can help traders enter, exit
and manage positions more effectively.  In addition, identifying
key support and resistance levels is one of the most important
skills that short-term traders must master for long-term success.

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.


SUMMARY OF PREVIOUS CANDIDATES 
*****

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

JDEC   13.05  13.40   SEP  10.00  0.45  *$  0.45  12.8%
NWRE   14.00  16.94   SEP  10.00  0.40  *$  0.40  10.9%
FDRY    8.99   8.99   SEP   7.50  0.35  *$  0.35  10.3%
AMLN   13.00  12.32   SEP  10.00  0.40  *$  0.40   9.7%
INVN   28.36  32.54   SEP  22.50  0.85  *$  0.85   9.4%
ICOS   27.49  27.37   SEP  20.00  0.75  *$  0.75   8.7%
CVTX   26.01  26.90   SEP  20.00  0.70  *$  0.70   8.6%
ENZN   24.13  23.45   SEP  17.50  0.60  *$  0.60   8.0%
SIE    22.88  22.12   SEP  17.50  0.40  *$  0.40   7.0%
TTWO   23.40  25.48   SEP  17.50  0.40  *$  0.40   6.8%
LNCR   33.38  34.02   SEP  30.00  0.80  *$  0.80   6.5%
NPSP   23.06  24.00   SEP  15.00  0.45  *$  0.45   6.4%
PPD    22.23  21.95   SEP  12.50  0.35  *$  0.35   6.3%
HGSI   17.59  17.29   SEP  12.50  0.25  *$  0.25   5.8%
HGSI   17.87  17.29   SEP  12.50  0.30  *$  0.30   5.6%
CLS    23.80  24.18   SEP  17.50  0.30  *$  0.30   5.2%
OSIP   32.58  16.32   SEP  22.50  0.70   $ -3.00+  0.0%


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

Comments:

This week provided a great example of why you should "never
sell puts on stocks that you don't want to own" after OSI
Pharmaceuticals (NASDAQ:OSIP) lost more than half its value
when a rival's setback raised concerns about the company's
anti-cancer drug.  The stock declined because a U.K.-based
pharmaceutical company, AstraZeneca (NYSE:AZN), announced
disappointing testing results for its new anti-cancer drug,
Iressa.  Iressa and OSI's key experimental compound, Tarceva,
both belong to the same class of drugs known as epidermal
growth factor inhibitors.  These unique drugs are supposed
to interfere with the uncontrolled growth of cancerous cells.
Analyst Meirav Chovav at UBS Warburg argued that the Iressa
disappointment wasn't necessarily bad news for OSI because
the company could gain a competitive advantage if Tarceva
turns out to be a success in clinical trials.  Investors did
not agree with that optimistic outlook however, and after
Monday's pre-market announcement, they sold the issue down
to levels not seen for two years.  The high for that day was
$23 and traders who exited the position in the morning paid
upwards of $3 to close the play, despite the fact that the
option was still "out-of-the-money."  We will record a loss
in the portfolio but this is one position that may be worth
a recovery attempt as the company's product has yet to have
its day in court.


NEW CANDIDATES
*********

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

GISX   21.32  SEP 20.00   QHJ UD  0.75 4     19.25   28   10.2%
IMN    33.05  SEP 30.00   IMN UF  0.55 0     29.45   28    5.6%
JDEC   13.40  SEP 10.00   QJD UB  0.25 184    9.75   28    9.3%
MGAM   24.24  SEP 20.00   QMG UD  0.55 304   19.45   28    9.9%
MRVL   22.21  SEP 17.50   UVM UW  0.50 3776  17.00   28   11.0%
PPD    21.95  SEP 15.00   PPD UC  0.35 921   14.65   28    8.0%
VRTX   22.41  SEP 20.00   VQR UD  0.65 18    19.35   28    9.8%
WMGI   20.49  SEP 17.50   QWM UW  0.45 3     17.05   28    8.6%

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

MRVL   22.21  SEP 17.50   UVM UW  0.50 3776  17.00   28   11.0%
GISX   21.32  SEP 20.00   QHJ UD  0.75 4     19.25   28   10.2%
MGAM   24.24  SEP 20.00   QMG UD  0.55 304   19.45   28    9.9%
VRTX   22.41  SEP 20.00   VQR UD  0.65 18    19.35   28    9.8%
JDEC   13.40  SEP 10.00   QJD UB  0.25 184    9.75   28    9.3%
WMGI   20.49  SEP 17.50   QWM UW  0.45 3     17.05   28    8.6%
PPD    21.95  SEP 15.00   PPD UC  0.35 921   14.65   28    8.0%
IMN    33.05  SEP 30.00   IMN UF  0.55 0     29.45   28    5.6%


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).

*****
GISX - Global Imaging Systems  $21.32  *** All-Time High! ***

Global Imaging Systems (NASDAQ:GISX) offers thousands of middle
market customers a one- stop shop for office technology solutions
from 137 locations in 27 states plus the District of Columbia.
The company provides a broad line of office technology solutions
including the sale and service of automated office equipment,
network integration services and electronic presentation systems.
The company is also a disciplined, profitable consolidator in the
highly fragmented office technology solutions industry.  In July,
Global Imaging Systems reported record first quarter income with
net revenues up 32% and EPS of $0.37, which exceeded consensus
estimates.  The issue rallied to a near-term high after the news
and more recently, the bullish activity has continued with the
company's share value achieving historic levels.  Investors who
favor the outlook for GISX can establish a low risk cost basis
in the stock with this position.

SEP 20.00 QHJ UD LB=0.75 OI=4 CB=19.25 DE=28 TY=10.2%


*****
IMN - Imation  $33.05  *** Multi-Year High! ***

Imation (NYSE:IMN) is a global company widely recognized as a
leader in development, manufacture and sale of removable magnetic
and optical data storage recording media.  Their product line is
one of the broadest in the industry with removable media products
for the enterprise data center, the network environment, and the
consumer.  Imation's data storage roots extend back 50 years to
the introduction of the first magnetic data storage tape and the
company continues to meet customer needs for reliable, efficient
removable media to store, back up, and move digital information.
Imation's technology expertise spans several critical areas, from
competitive high-quality tape coating to advanced capability in
servo-writing, media packaging, cartridge design and fabrication,
optical thin film coating and material science.  Imation recently
announced it will sell its North America Digital Solutions and
Services business in order to better focus on its core products.
The company also said it has started to close down or dispose of
its DSS operations outside of North America, and now expects to
complete the transactions in the third quarter.  Investors are
apparently happy with the decision as the issue rallied to a
multi-year on Friday.  The bullish trend should help the issue
remain above the sold strike in this position for the next few
weeks.

SEP 30.00 IMN UF LB=0.55 OI=0 CB=29.45 DE=28 TY=5.6%


*****
JDEC - J.D. Edwards  $13.40  *** Post-Earnings Rally! ***

J.D. Edwards (NASDAQ:JDEC) is a provider of agile, collaborative 
solutions for the connected economy.  The firm delivers a range
of integrated, collaborative software for supply chain management
(planning and execution) procurement and customer relationship
management, in addition to workforce management and functional
support.  Customers can choose to operate its software on a wide
variety of computing environments, and the firm supports several
different databases.  J.D. Edwards distributes, implements and
supports its software worldwide through 55 offices and more than
350 third-party business partners.  Shares of JDEC jumped last
week after the company reported third-quarter earnings that beat
Wall Street estimates and offered an earnings outlook in line
with analyst expectations.  In addition, the company was one of
the few software makers to report sequential and year-over-year
revenue increases.  Analysts attributed that strength to JDEC's
increased focus on selling new customer-relationship management
and supply-chain management products to its installed base of
6,400 customers.  The company has also released a new version of
its software that enables customers to buy smaller pieces rather
than an entire suite.  This position offers a conservative way
to profit from the renewed bullish momentum in the issue.

SEP 10.00 QJD UB LB=0.25 OI=184 CB=9.75 DE=28 TY=9.3%


*****
MGAM - Multimedia Games  $24.24  *** Growing Gaming Industry! ***

Multimedia Games (NASDAQ:MGAM) is the leading U.S. supplier of
interactive electronic games and player stations to the rapidly
growing Native American gaming market.  The company's games are
delivered through a telecommunications network that links its
player stations with one another both within and among gaming
facilities.  Multimedia Games designs and develops networks,
software and content that provide its customers with unique and
comprehensive gaming systems.  The company's development and
marketing efforts focus on Class II gaming systems and Class III
video lottery systems for use by Native American tribes across
the United States.  Multimedia Games recently announced that
diluted earnings per share for the quarter ended June 30, 2002,
were $0.47, a 194% increase over the comparable quarter in fiscal
2001.  Net revenue for the quarter was $25.9 million, an increase
of 119% over the same quarter in 2001.  Earnings before interest,
taxes, depreciation and amortization for the quarter totaled $15
million, an increase of 139% over the comparable period in fiscal
2001.  MGAM has returned to a bullish trend after coming off a
short-term base near $20 and investors who believe a substantial
recovery is underway can establish a conservative cost basis in
the issue with this position.

SEP 20.00 QMG UD LB=0.55 OI=304 CB=19.45 DE=28 TY=9.9%


*****
MRVL - Marvell Technology Group  $22.21  *** Awesome Earnings! ***

Marvell (NASDAQ:MRVL) is the leading global semiconductor provider
of broadband communications solutions for the data communications
and storage markets.  The company's complete and diverse product
line includes switching, transceiver, communications controller,
wireless, and storage solutions that command the communications
infrastructure, including enterprise, metro, home, and storage
networking.  Shares of Marvell Technology Group soared Friday, a
day after the circuit maker posted a narrower net loss on revenue
that grew 74% from the year earlier.  The company posted record
revenue of $119.7 million, compared with revenue of $68.7 million
a year earlier; and 21% higher than the previous first quarter.
Following the strong results, both Lehman Brothers and Merrill
Lynch raised their third quarter revenue and earnings per share
estimates.  Lehman analysts also noted that Marvel "remains a
favorite given the flawless execution and reasonable valuation."

SEP 17.50 UVM UW LB=0.50 OI=3776 CB=17.00 DE=28 TY=11.0%


*****
PPD - Pre-Paid Legal Services  $21.95  *** Speculation Play! ***

Pre-Paid Legal Services (NYSE:PPD) was one of the first companies
in the United States organized solely to design, underwrite and
market legal expense plans.  The company's legal expense plans
(referred to as Memberships) currently provide for a variety of
legal services in a manner similar to medical reimbursement plans.
Plan benefits are provided through a network of independent law
firms, typically one firm per state or province.  Members have
direct, toll-free access to their Provider law firm rather than
having to call for a referral.  Legal services include unlimited
attorney consultation, traffic violation defense, auto-related
criminal charges defense, letter writing/document preparation,
will preparation and review and a general trial defense benefit.
Lots of speculation on Pre-Paid since the company announced that,
for corporate governance purposes, four directors were leaving
the board.  There is also news concerning the lead institutional
plaintiff in the federal securities class action lawsuit filed
against Pre-Paid, who is withdrawing from any further involvement
with the litigation.  Traders can speculate on the outcome of the
recent events with this position.

SEP 15.00 PPD UC LB=0.35 OI=921 CB=14.65 DE=28 TY=8.0%


*****
VRTX - Vertex Pharmaceuticals  $22.41  *** Drug Sector ***

Vertex Pharmaceuticals (NASDAQ:VRTX) is a global biotechnology
company.  Vertex seeks to discover, develop, and commercialize
major pharmaceutical products independently and with partners.
Chemogenomics, Vertex's proprietary, systematic, genomics-based
platform, is designed to accelerate the discovery of new drugs
and to expand intellectual property coverage of drug candidate
compounds and classes of related compounds.  This approach, which
targets gene families, has formed the basis for several commercial
collaborations under which Vertex retains rights to downstream
revenue.  The company's first approved product is Agenerase, a
HIV protease inhibitor that is co-promoted with GlaxoSmithKline.
Vertex has more than 12 drug candidates in development to treat
viral diseases, inflammation, cancer, autoimmune diseases, and
neurological disorders as well as genetic disorders.  UBS Warburg
recently initiated coverage on Vertex with a "buy" rating and the
short-term technical indications support the outlook.  Investors
who wouldn't mind owing a speculative issue in the pharmaceutical
manufacturing group should consider this position.

SEP 20.00 VQR UD LB=0.65 OI=18 CB=19.35 DE=28 TY=9.8%


*****
WMGI - Wright Medical Technology  $20.49  *** Medical Devices ***

Wright Medical Technology (NASDAQ:WMGI) has been a (ISO 9001)
certified designer, manufacturer and worldwide distributor of
orthopedic implants and instrumentation for over 50 years.  The
company's product offerings include large joint implants for the
hip and knee; extremity implants for the shoulder, elbow, hand,
wrist and foot; and biologic products, including a range of bone
graft substitutes.  Since its inception, Wright has introduced a
number of products that represent new standards in orthopedic
technology.  From new material technologies to advanced products
and instrumentation, Wright is committed to finding solutions to
the challenges that face today's orthopedic professionals.  The
company recently reported higher second quarter net income as new
products helped boost sales by 20%.  Wright said its net income
increased to $5.2 million, or $0.15 per share, from a net loss of
$1.2 million, or $0.06 per share in the same quarter of 2001.  A
recovery in the company's share value has occurred in the wake of
the optimistic report and traders who think the bullish activity
will continue can speculate in that outcome with this position.

SEP 17.50 QWM UW LB=0.45 OI=3 CB=17.05 DE=28 TY=8.6%


*****

*****************
SUPPLEMENTAL NAKED PUT CANDIDATES
*****************

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

LUME    5.80  SEP  5.00   QFC UA  0.30 15     4.70   28   17.9%
WGRD    5.45  SEP  5.00   RUH UA  0.25 0      4.75   28   13.7%
MERX    9.00  SEP  7.50   KXQ UU  0.30 0      7.20   28   13.6%
VMSI   21.78  SEP 20.00   QMP UD  0.85 25    19.15   28   11.9%
IMDC   23.01  SEP 20.00   UZI UD  0.70 31    19.30   28   11.0%
CCMP   45.24  SEP 35.00   UKR UG  0.85 1041  34.15   28    9.3%
PSFT   20.07  SEP 17.50   PQO UW  0.50 1340  17.00   28    9.1%
NEWP   17.57  SEP 15.00   NZZ UC  0.40 151   14.60   28    8.9%
TDY    17.64  SEP 15.00   TDY UC  0.25 0     14.75   28    5.8%


SEE DISCLAIMER IN SECTION ONE
*****************************


************************
SPREADS/STRADDLES/COMBOS
************************

Consolidation Underway!
By Ray Cummins

******************************************************************
                         - MARKET RECAP -
******************************************************************
August 23, 2002
The major equity averages retreated today as traders took profits
after three consecutive weeks of bullish stock market activity.

The Dow Jones Industrial Average slid 212 points to 8,841, driven
lower by losses in Hewlett-Packard (NYSE:HWP), J.P. Morgan Chase
(NYSE:JPM), Boeing (NYSE:BA), SBC Communications (NYSE:SBC) and
Philip Morris (NYSE:MO).  Among NASDAQ issues, cautious remarks
from Wall Street analysts on Intel (NASDAQ:INTC) and on the chip
equipment segment weighed heavily on semiconductor and computer
hardware shares.  AOL Time Warner (NYSE:AOL) led Internet stocks
lower as reports of a widening investigation into the company's
operations sent investors fleeing from the issue.  The NASDAQ
Composite slumped 42 points to 1,380.  Among the broader market
sectors, financial stocks slumped as Citigroup (NYSE:C) plunged
amid questions surrounding its handling of the AT&T Wireless IPO.
Tobacco stocks drifted lower after Goldman Sachs issued downbeat
remarks on the sector.  The brokerage believes there is limited
potential for significant upside for cigarette stocks over the
next few months as the latest industry data suggest the premium
market continues to decline.  Standard & Poor's 500-stock index
slumped 21 points to 940, only 25 points above a key technical
support area.  Trading volume came in at 921 million on the NYSE
and at 1.31 billion on the technology exchange.  Market breadth
was decidedly negative with losing issues doubling winners 2 to 1
on both the NYSE and the NASDAQ.  In the bond market, the 10-year
Treasury climbed 21/32 to yield 4.24% while the 30-year bond rose
1 1/32 to yield 5.03%.  On the fund flow front, Trim Tabs said
that all equity funds had inflows of $3.4 billion over the week
ending 8/21 compared with outflows of $5.4 billion in the prior
week.  Equity funds that invest mainly in U.S. stocks had inflows
of $2.6 billion versus outflows of $4.2 billion in the prior week.

******************************************************************
                      - PORTFOLIO SUMMARY -
******************************************************************

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

Check Point  (NSDQ:CHKP)  OCT22C/OCT15P  $0.15  credit  synthetic
Oracle       (NSDQ:ORCL)  JAN15C/JA7.5P  $0.00  credit  synthetic
Peoplesoft   (NSDQ:PSFT)  J0420P/JAN15P  $5.00  credit  put-combo
Cardinal     (NYSE:CAH)   SEP55P/SEP60P  $0.45  credit  bull-put
FTI Cons.    (NYSE:FCN)   SEP30P/SEP35P  $0.55  credit  bull-put
Big Blue     (NYSE:IBM)   SEP70P/SEP75P  $0.70  credit  bull-put
Lexmark      (NYSE:LXK)   SEP40P/SEP45P  $0.50  credit  bull-put
Exp. Scripts (NSDQ:ESRX)  SEP55C/SEP50C  $0.65  credit  bear-call
EW Scripps   (NYSE:SSP)   SEP85C/SEP80C  $0.50  credit  bear-call

Our new speculative positions were available at acceptable prices
and the bullish activity in technology stocks propelled all three
issues to recent highs.  Peoplesoft was the best performer of the
group and Thursday's rally helped the long-term position achieve
profitability after only one week in play.  Among the new credit
spreads, Cardinal Health and International Business Machines did
not offer the target entry prices on a simultaneous order basis,
but both plays were initiated at slight lower premiums.  Lexmark
endured some unexpected bearish activity Friday after an analyst
said the company's optimistic outlook is questionable, given the
current challenging conditions in the personal computer industry.
The heavy-volume retreat pushed the stock back to recent lows and
a move below buying support at $45 should be seen as a potential
"early-exit" signal.


Portfolio Activity & Adjustments:

Despite Friday's steep sell-off, the market achieved solid gains
this week with all major groups participating in the rally.  The
upside activity bolstered a few positions in the Spreads/Combos
portfolio, but there was little activity of significance in the
current group of plays.
 
Questions & comments on spreads/combos to Contact Support
******************************************************************
                     - MORE SPECULATION PLAYS -

These positions are based on recent increased activity in the
stock and/or its underlying options.  While both plays offer
favorable risk-reward potential, they should also be evaluated
for portfolio suitability and reviewed with regard to your
strategic approach and trading style.

******************************************************************
JDSU - JDS Uniphase  $3.04  *** Reader's Request! ***

JDS Uniphase (NASDAQ:JDSU) is a worldwide leader in optical
technology.  The company designs and manufactures products for
a range of fiber-optic communications, as well as for markets
where its core optics competency provides innovative solutions
for industrial, commercial and consumer applications.  JDS
Uniphase's fiber-optic components and modules are deployed by
system manufacturers for the telecom, data communications, and
cable television industries.  JDS Uniphase also produces and
markets products for display, security, medical/environmental
instrumentation, decorative, aerospace and defense applications.

One of our readers mentioned that he was looking for some "buy
and forget" speculation plays with low cost and large upside
potential.  Here is a position that fits that description well
and based on Friday's bullish activity, the issue may be in the
initial stages of a long-term recovery.  Traders who agree with
an optimistic outlook for JDSU's share value can profit from
future upside activity in the issue with this position.
  
PLAY (speculative - bullish/debit spread):

BUY  CALL  MAR-2.50  UQD-CZ  OI=274  A=$1.15
SELL CALL  MAR-5.00  UQD-CA  OI=613  B=$0.30
INITIAL NET DEBIT TARGET=$0.75-$0.80  PROFIT(max)=230% B/E=$3.30


******************************************************************
VRTY - Verity  $12.27  *** Rally In Progress! ***

Headquartered in Sunnyvale, California, Verity (NASDAQ:VRTY) is
a leading provider of business portal infrastructure software.
Verity software gives businesses a multitude of ways to improve
access to vital information and perform a range of e-business
operations, while enhancing the end-user experience.  Business
portals using Verity's solutions include corporate intranets for
sharing information within an enterprise; e-commerce sites for
online selling; and market exchange portals for B2B activities,
all of which provide personalized information to employees,
partners, customers and suppliers.  Verity products are used by
80% of the Fortune 50 and by more than 1,500 corporations in
various markets.  Customers include Adobe Systems, AT&T, Cisco,
CNET, Compaq, Dow Jones, EDGAR Online, Cap Gemini Ernst & Young,
FairMarket, Financial Times, Globe and Mail, Home Depot, Lotus,
NewsEdge Corporation, SAP, Siemens, Sybase, Time New Media and
Timex.

Verity is a unique company whose software lets computers with
different formats and in different locations talk to each other
through intranets.  Their products are in demand and the firm
has substantial market share along with favorable fundamentals
and a positive earnings outlook.  Traders who believe there is
upside potential in VRTY's stock price can speculate on its
near-term activity with this position.
  
PLAY (speculative - bullish/synthetic position):

BUY  CALL  DEC-15.00  YVQ-LC  OI=121  A=$1.25
SELL PUT   DEC-10.00  YVQ-XZ  OI=436  B=$0.90
INITIAL NET-DEBIT TARGET=$0.10-$0.20  TARGET PROFIT=$0.75-$0.90

Note:  Using options, the position is similar to being long the
stock.  The initial collateral requirement for the sold (short)
put is approximately $375 per contract.


******************************************************************
DPMI - DuPont Photomasks  $24.78  *** Sector Slump! ***

DuPont Photomasks (NASDAQ:DPMI) is a leading global provider of
microimaging solutions.  The firm develops and produces advanced
photomasks, a key enabling technology used in the manufacture of
semiconductor and other microelectronic devices; pellicles, the
protective covers for photomasks; as well as electronic design
automation (EDA) software.  Headquartered in Round Rock, Texas,
DuPont Photomasks operates a global network of manufacturing
facilities serving semiconductor makers and other electronics
producers around the world.  DuPont Photomasks posted worldwide
sales of over $340 million in fiscal 2002.

Semiconductor equipment issues retreated last week amid concerns
that budget reductions by Taiwan chip manufactures could delay
a long-awaited recovery in the sales of tools used to construct
micro-chips.  Banc of America analyst Mark FitzGerald said recent
cuts by factories that build chips designed by other companies
would hurt the future earnings of chip equipment makers.  The
analyst slashed his 2002 earnings estimates on a range of chip
equipment makers and DPMI was one of the issue in that group.
The sector-wide slump had a significant effect on the company's
share value and traders who believe the downward trend in the
stock will resume can attempt to profit from that outcome with
this speculative position.
PLAY (speculative - bearish/synthetic position):

BUY  PUT   SEP-20.00  DUD-UD  OI=132  A=$0.70
SELL CALL  SEP-30.00  DUD-IF  OI=34   B=$0.60
INITIAL NET-CREDIT TARGET=$0.10-$0.20  TARGET PROFIT=$0.50-$0.75

Note:  Using options, the position is similar to being short the
stock.  The initial collateral requirement for the sold (short)
call is approximately $575 per contract.


******************************************************************
                        - CREDIT SPREADS -

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may be higher than other plays in the same strategy, due to
small disparities in option pricing.  Current news and market
sentiment will have an effect on these issues, so review each
play individually and make your own decision about its outcome.

******************************************************************
BRL - Barr Laboratories  $71.42  *** Generic Drug Rally! ***

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

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-60  BRL-UL  OI=42   A=$0.55
SELL PUT  SEP-65  BRL-UM  OI=460  B=$0.95
INITIAL NET-CREDIT TARGET=$0.45-$0.50
POTENTIAL PROFIT(max)=9-11% B/E=$64.55


******************************************************************
CEPH - Cephalon  $46.90  *** Up-trend Intact! ***

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.

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-35  CQE-UG  OI=1742  A=$0.55
SELL PUT  SEP-40  CQE-UH  OI=4117  B=$1.10
INITIAL NET-CREDIT TARGET=$0.60-$0.65
PROFIT POTENTIAL(max)=12-14%  B/E=$39.40


******************************************************************
APA - Apache Oil  $56.38  *** Trading Range? ***

Apache Corporation (NYSE:APA) is an energy company that explores
for, develops and produces natural gas, crude oil and natural gas
liquids.  The company has interests in seven countries including
the United States, Canada, Egypt, Australia, China, Poland and
Argentina.  As of January 1, 2002, Apache had estimated reserves
of 599 million barrels of crude oil, condensate and NGLs (natural
gas liquids) and four Tcf (trillion cubic feet) of natural gas.
Combined, these total estimated proved reserves are equivalent to
1.3 billion barrels of oil or 7.6 Tcf of gas.  Worldwide, in 2001,
the company participated in drilling 939 new wells, with 828 (88%)
completed as producers.  Canada was Apache's most active region,
with 447 gross new wells at a success rate of 93%.  Apache also
performed over 1,350 major work-overs and re-completions in North
America during the year.

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-65  APA-IM  OI=488   A=$0.20
SELL CALL  SEP-60  APA-IL  OI=1283  B=$0.70
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=11-14% B/E=$60.55


******************************************************************
AIG - American International  $65.55  *** Testing Resistance! ***

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.

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-75  AIG-IO  OI=360   A=$0.15
SELL CALL  SEP-70  AIG-IN  OI=5708  B=$0.65
INITIAL NET CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=11-14% B/E=$70.55


******************************************************************
LMT - Lockheed Martin  $59.71  *** The Downtrend Resumes! ***

Lockheed Martin (NYSE:LMT) is a customer-focused, worldwide
enterprise principally engaged in the research, development,
manufacture and integration of advanced technology systems,
products and services for government and commercial customers.
The corporation's core business areas are systems integration,
aeronautics, space and technology services.  Lockheed's Systems
Integration segment engages in the development, integration and
production of electronic systems for undersea, shipboard, land
and airborne applications.  Space Systems is engaged in the
design, development, engineering and production of commercial
and military space systems.  Aeronautics designs, researches
and develops, produces, and supports combat and air mobility
aircraft, surveillance and command, reconnaissance, platform
systems integration and advanced development programs.  The
Technology Services division provides information management,
engineering, scientific and logistic services.

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-70  LMT-IN  OI=5551  A=$0.15
SELL CALL  SEP-65  LMT-IM  OI=3856  B=$0.60
INITIAL NET-CREDIT TARGET=$0.50-$0.55
PROFIT POTENTIAL(max)=11-12%  B/E=$64.45


******************************************************************
                   - STRADDLES AND STRANGLES -
******************************************************************
ELX - Emulex  $17.19  *** Volatility Speculation! ***

Emulex (NYSE:ELX) is a leading supplier and developer of storage
networking host bus adapters based on both Fibre Channel and IP
networking technologies.  The Emulex product families are based
on internally developed ASIC, firmware and software technologies,
and offer customers high performance, scalability, flexibility
and reduced total cost of ownership. The company's products have
been selected by the world's leading server and storage providers,
including Dell, EMC, Fujitsu Siemens, Groupe Bull, Hewlett-Packard,
Hitachi Data Systems, IBM, NEC, Network Appliance and Unisys.  In
addition, Emulex includes industry leaders Brocade, INRANGE, Intel,
Legato, McDATA, Microsoft and VERITAS among its strategic partners. 
Emulex markets to OEMs and end-users through its worldwide selling
organization, as well as its many two-tier distribution partners,
including ACAL, Avnet, Bell Microproducts, Info-X, Netmarks, Tech
Data, TidalWire and Tokyo Electron.

There are very few issues that meet our criteria for a favorable
straddle.  However, here is a stock with relatively cheap option
premiums, a history of adequate price movement and the potential
for volatility in its sector and/or industry group.  As with any
position, it should be evaluated for portfolio suitability and
reviewed with regard to your strategic approach and trading style.

PLAY (very speculative - neutral/debit straddle):

BUY  CALL  SEP-17.50  ELX-IW  OI=2132  A=$1.20
BUY  PUT   SEP-17.50  ELX-UW  OI=935   A=$1.60
INITIAL NET-DEBIT TARGET=$2.50-$2.60  TARGET PROFIT=15-25%


******************************************************************
EBAY - eBay Inc.  $60.15  *** Premium Selling! ***

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

We like EBAY for a long-term bullish position however, there are
very few favorable ways to approach the inflated option premiums.
In the interim, we have decided to sell "premium" for credit and
use the earned income to offset any downside losses, in the event
we accept assignment of the issue.  If the price of the stock
closes above the resistance area near $63 on a heavy-volume rally,
we will simply buy the issue to cover our sold options.
 
PLAY (less conservative - neutral/credit strangle):

SELL CALL  SEP-65  QXB-IM  OI=7369  B=$0.80
SELL PUT   SEP-55  QXB-UK  OI=5455  B=$1.05
INITIAL NET-CREDIT TARGET=$1.90-$2.00
PROFIT POTENTIAL(max)=13-14%
UPSIDE B/E=$66.90 DOWNSIDE B/E=$53.10


******************************************************************
FRX - Forest Laboratories  $73.82  *** Trading Range? ***

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

Forest Labs is certainly a volatile issue, having cycled through
a 10% range five times over the past month.  However, the activity
seems to be contained in a relatively small area and traders that
employ "premium-selling" strategies can use the recent volatility
and the inflated options prices to initiate a delta-neutral play
with a favorable risk-reward outlook.  The probability of the
share value reaching our sold strikes is rather low, but there
is always the possibility of a break-out from the recent trading
range, so monitor the position daily for changes in technical
character.

PLAY (conservative - neutral/credit strangle):

SELL CALL  SEP-80  FHA-IQ  OI=3003  B=$0.50
SELL PUT   SEP-65  FRX-UM  OI=2515  B=$0.80
INITIAL NET-CREDIT TARGET=$1.35-$1.50
PROFIT POTENTIAL(max)=8-10%
UPSIDE B/E=$81.35 DOWNSIDE B/E=$63.65


******************************************************************


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**************************************************************


************
MARKET WATCH
************

Reversing Gear


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**************
MARKET POSTURE
**************

Hanging in There


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