Option Investor

Daily Newsletter, Sunday, 09/01/2002

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The Option Investor Newsletter                   Sunday 09-01-2002
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: No Joy In Mudville Today  
Index Trader Wrap: Fifth Month Slump!
Editor’s Plays: Not Quite What I Had In Mind
Market Sentiment: History 101
Ask the Analyst: The Squeeze Is On
Coming Events: Earnings, Splits, Economic Events

Updated on the site tonight:
Swing Trade Game Plan: Buckle Your Seat belt

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
        WE 8-30          WE 8-23          WE 8-16          WE 8-09
DOW     8663.50 -209.46  8872.96 + 94.90  8778.06 + 32.61  +432.32
Nasdaq  1315.06 - 65.51  1380.57 + 19.56  1361.01 + 54.89  + 58.20
S&P-100  460.80 - 13.70   474.50 +  6.06   468.44 +  9.62  + 24.77
S&P-500  916.08 - 24.78   940.86 + 12.09   928.77 + 20.13  + 44.40
W5000   8654.04 -222.85  8876.89 +106.61  8770.28 +198.41  +385.31
RUT      390.96 -  9.17   400.13 +  4.16   395.97 +  7.52  + 12.00
TRAN    2265.63 -128.69  2394.32 + 54.92  2339.40 +  7.52  +149.62
VIX       35.80 +  2.99    32.81 -  0.01    32.82 -  6.54  -  6.03
VXN       54.98 +  7.36    47.62 -  3.03    50.65 -  8.05  -  6.74
TRIN       1.20             2.87             1.52             0.90
Put/Call   0.84             0.80             0.51             0.69

No Joy In Mudville Today  
by Jim Brown

Casey may not be at bat but Bonds and Sosa will be, but while there 
may be joy in the ball parks there was no joy in the markets on Friday. 
For the last 21 years the Friday before Labor Day closed positive
77% of the time. After a valiant effort by the Dow the tech problems
on the Nasdaq became too heavy an anchor to drag. The Dow posted
its fifth losing month in a row for the first time in 21 years. 



The fifth losing month in a row was not the only negative record
set in this bear market. ICI, the official record keeper for the
mutual fund industry announced that -$52.63 billion in cash flowed
out of funds in July. This was the largest outflow on record since
they began keeping records in 1949. This correlates to the reasons
behind the July-24th low of 7532 for the Dow. If investors withdraw
more money than funds are holding they have to sell stock. Funds
had been very quiet about the withdrawals in hopes of preventing 
a bank type run that would feed on itself. Third parties like
AMG Data and TrimTabs had already estimated it was in the $50 billion 
range. Money is still not flowing back in yet. According to TrimTabs
only $1 billion flowed into equity funds last week. This does not
inspire confidence in any future rally. This is also one of the
reasons we did not see a big markup rally on Friday. Funds simply
did not have the money to buy stocks. 

Friday started off positive despite an initial drop on the SUNW
news. The markets recovered quickly, ignored a slightly negative 
Consumer Confidence number and then rallied on a much stronger
than expected PMI. The Consumer Confidence number came in at 87.6
compared to a reading of 87.9 earlier this month. The current 
conditions component fell to 98.5 while the expectations component
fell to 80.6. This falling confidence is likely to pick up speed
going forward as worsening business spending weighs on jobs and 
salaries. Mortgage applications fell slightly showing that maybe
the house buying/refinancing boom may have run out of candidates. 
Still traders focused instead on the gains in the PMI. It posted
the first gain in three months to 54.9 from 51.5 last month. This
was positive and could be a leading indicator for the ISM report
next week. This report is also expected to show improvement but
not enough to prevent more layoffs and more slashed earnings
ahead. This was also represented in the drop in gains in Personal
Income to zero. This was the first month since November that 
income did not rise. Consumers still spent money with spending 
rising +1.0%. Since we all know how to add and subtract we know 
this cannot continue without an increase in income. Spending will
eventually shrink. 

The markets did dip on the SUNW and NVLS at the open but the 
rebounding Dow dragged the Nasdaq back into positive territory
despite more chip downgrades. In the late to the party category,
Merrill lowered estimates on NVLS, KLAC, AMAT and LRCX based on 
weak demand in the chip sector. Duh! Way to avoid the bleeding 
edge of investment research! Despite the downgrades and warnings 
NVLS actually closed up for the day and SUNW only lost -19 cents. 
The SOX did lose ground to close at 300 after JPM set a target 
of 230 for the index. Ouch! Intel also lost ground and is trading 
near a 52-week low on worries that it will also guide lower on 
its 9/5 mid-quarter update call. There are two tech conferences 
next week to help spread the message but that message may not 
be one traders want to hear.

Arthur Anderson quietly closed its doors on Friday as the last of
its 1200 public company clients left to a competitor. Anderson 
is down to 3,000 employees from 28,000 when the Enron problem 
began. The remaining employees will handle shutting down the 
remaining facilities, handling litigation and inventorying assets
for the eventual billions in investor damage payments. 

Friday did not go as planned. I carefully scripted a dip at the
open on the SUNW news followed by a rally on bargain hunting and
short covering going into the close. I just could not get the 
market to follow my script. I have to admit the 77% positive 
record for the last 21 years of Labor Day Fridays had tainted 
my vision. I expected the bullish undertones for the week
to increase near the close as bargain hunters expecting September
to open strong for the seventh year in a row established positions.
This string is widely reported in the stock traders almanac. The
exact opposite occurred. The Dow has been having trouble with strong
resistance at 8750 all week and Friday proved no different. Several
times the Dow tried to penetrate that level and hold only to be 
knocked back again. This is the 50 DMA and the 38% retracement level
and is proving to be a solid top. 

With oversold conditions easing and lack of volume there was just
not enough power to punch through with conviction. The only conviction
for the day was the slam dunk which began at 2:30. The Dow dropped
-134 points to close near the lows of the day on the strongest 
volume of the day. According to many analysts I read this presents
a bearish scenario for the normally positive post holiday Tuesday.
As I mentioned above, the lack of a mark up rally by funds, very
dreary earnings warnings, worry over Iraq and the 9/11 anniversary 
is impacting investor sentiment and clearly investors used the 
intraday bounce to close positions not open them. Since post holiday
trading is normally volatile I think we just increased that volatility
quotient substantially. There are only six trading days left before
9/11 and while I don't expect any terrorist attacks there are quite
a few investors who were burned last year and have vivid recollections
of their portfolio losses. With the Dow still up over +1100 points
from the July lows there is plenty of profit at risk. 

Despite everything I wrote above I am neutral about Tuesday. I think
there may be enough bullish sentiment left that when traders return
from vacation there could be a flurry of buying activity. There were
a lot of big block orders going at ask on the QQQ at the close. This
could have been speculation on that bullishness. The problem as I 
see it is the distance to resistance. Had we closed right at 8750 I
think we could have had a chance of a stronger rally if a strong 
spike over that level triggered a bunch of short covering. However,
from 8658 we will be already +100 points before we reach that level
and a lot of the buying pressure will have been expended. I could
easily see another run to near Friday's highs of 8783 and another
failure. Only this time a failure will attract strong volume with all
the players back at their post. I am currently short in the Market
Monitor from OEX 465, which was only two points off the high of the 
day. With strong resistance in that area I am very comfortable with
the outlook for Tuesday. 

Last Sunday my target for this week was a dip to Dow 8400. 8558 was 
as close as we got. My target for pre-9/11 September was 8100. The 
Dow bounce Thursday afternoon and Friday has tempered my thought
process somewhat. 8100 is only -558 points away but those would 
have to be garnered in more or less a straight line, a couple days 
of -200 drops. I don't see it happening that way based on the
underlying bid last week. Every dip was met with large block orders 
in just enough quantity to stop the drop. Granted it will take more
buyers to counter any investor flight next week because of the
expected higher volume. Whatever happens we are approaching a week 
of possibly extreme volatility where you are either quick or busted. 
Once 9/11 passes there are many people expecting a strong rally. 
This expectation will also put a floor under the market on the 9th
and 10th as risk averse bargain hunters take positions in advance. 
Whatever your market view the next ten trading days are definitely
going to be exciting. 

Enter Very Passively, Exit Very Aggressively!

Jim Brown


By Leigh Stevens

Somewhat overlooked after the strong rebound of the past month 
off an extreme low, might be that August ended lower in the Dow 
(INDU) and the Nasdaq Composite (COMPX) relative to July, making 
it the FIFTH consecutive monthly decline. 

The S&P 500 (SPX) and S&P 100 (OEX) did eke out monthly gain - 
not so, with the Nas 100 (NDX). The INDU and SPX weekly loss 
ended a 5-week winning streak; COMPX broke 3 weeks of gains. 

Friday saw a consumer spending report that was up for July, 
relieving some fears of sagging consumer spending. I'm in the 
camp expecting a lot of back and forth price swings in coming 
weeks as inconsistent signals come in on the economy and 
business/consumer spending, earnings and the political and 
military risks of possible or actual military action against 
Iraq. On balance we could be sideways into October when we start 
to see earnings.  

Technically, as I wrote in my last Trader's column about the 
wedge patterns - see "Reversal patterns: Wedges" at 
there is measuring tendency in the pattern - once there is a 
break below the top end of the narrowing pie-shaped wedge, an 
implied objective becomes for a move back down to the "base" of 
the pattern. In this case this would be back to a retest of the 
prior lows or near to them.  

I'm not sure that this will happen but we often see retests of 
lows and when buying support again comes in, the next rally phase 
is often then the more sustained and steady advance.  

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


Friday's rally did not get away to the upside and was basically 
turned back by the trendline resistance which I anticipated would 
contain rallies - this is fairly typical for Head & Shoulder's 
(H&S) top patterns when they are valid - that is, a "return" to 
the neckline is fairly common. More in Trader's Corner:
Reversal patterns: the Head & Shoulder's - 

Unless there is a close above 468, in which case the top pattern 
may be "nullified" - the next downside technical objective, as 
noted on the chart above, continues to be the 450 area. Friday's 
rally looked like the shorting/bearish (put buy) opportunity I 
thought it would be. Eventually, a future downswing could carry 
to the 440 area.  

The most significant resistance in terms of the intermediate 
trend is in the 480 area. A weekly close over 480 sets up 
objectives to 490-495 or 500. 

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

Technical resistance in terms of the weekly chart - the prior 
September low - in the 945 area is basically acting as the 
bearish stopper so far. I think this continues as SPX drifts back 
down lower in its broad downtrend channel.   

Major resistance is in the 1000 area - major support, at the low 
end of the channel, is 700-775. 

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


My near term objective to the 900 area is activated with the 
failure of the return rally to penetrate 930. A move below 900 
activates a possible next objective to 875 on a future downswing. 

A move above pivotal resistance at 930 would set up possible 
upside to the 955 area, which is looks to the least likely 
course, with the break below the minor flag per the chart 

DJ Industrial Index (INDU) Weekly chart:


Major support looks like 8000, then 7500.  9000 has been the 
pivotal resistance and is deflecting rallies.  Expect this to 

DJ Industrial Index (1/100 of INDU) - $DJX - Daily/Hourly charts:


The rally at the end of the week, carried to the area of the 
trendline resistance in the 87.6 area, but not above it - which 
is why I emphasize what it can do on an hourly closing basis - 
preferably wait for 2 consecutive hourly closes above trendline 
resistance to "confirm" that the rally really has buying behind 
it or is just a head fake rally with technical buying pushing 
stocks up on a low volume day - not buying that is in "strong 
hands" due to investment accumulation - rather, traders play. 

DJX's next downside technical objective is to 85 per my prior 
notes on this objective based on the Head & Shoulder's (H&S) top 
and this measurement does not imply that the trend will not carry 
still lower.

On the upside, a close above 87.6 would suggest covering short 
stock and long DJX put positions - if so, then resistance at the 
trendline comes in at 90-90.5, for a bearish re-entry play.  

Nasdaq Composite (COMPX) Weekly chart:

The bigger perspective is all in the long-term chart and I've 
noted the likely outlook for September - some trading plays will 
develop no doubt - they always do.  But investment time - not 

Support looks like 1200-1190.  Resistance is 1400 - plays are 
within this range I think. Best guess is a sideways trading range 
sets up. 

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


My projected "minimum" downside objective of 23.00 based on the 
Head & Shoulder's top was met on the decline within a couple of 
ticks but I think will be seen again and possibly to 22.5 - a 
retest of the prior swing low seems increasingly likely in the 

24.5, at the H&S neckline, is the pivotal resistance - that is, a 
move above it sets up higher level objectives, specifically to 
25.5 and a retest the other way - at the swing high. 

"Leigh Stevens is on a personal leave from OIN for Sept. and Oct. 
as he travels back to New York for the various memorial services 
for Cantor Fitzgerald employees along with some well deserved 
vacation. He will continue to write for the Trader's Corner 
during this time as his schedule permits. In November he will 
resume contributing to OIN on a regular basis including his Index 
Trader commentary each week."

Good trading success!
Leigh Stevens

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Note: Options involve risk. Risk disclosure: 

Editor's Plays

Not Quite What I Had In Mind

The DJX laddered entry put play from last week did not play out 
exactly as scripted. The down/up/down/up/down was not a scenario
I diagramed. If you were following the concept then you should 
have been filled with an average price of around $1.40 a contract.

I arrived at this based on these executions:

20 @ 8900 for $1.35
10 @ 8800 for $1.65
10 @ 9000 for $0.95
10 @ 8700 for $1.70

Average cost = $1.40

The option traded as high as $2.40 on Thursday and closed at 
$1.80 on Friday.

I covered the possible scenarios for Friday in my Thursday night
market wrap and suggested cautious traders might want to lock in
some profit on the morning dip, it traded as high as $2.00, and 
then reenter on any bounce on Tuesday. 

If you took that path then you should be profitable and flat.
Look for a bounce on Tuesday to somewhere around 8750 and go 
long again. Target your exit for somewhere in the 8300-8400 range.

If you are still long these puts then set your stop loss for 
just over 8800, say 88.25. Target your exit for somewhere in
the 8300-8400 range.

My downside targets are higher than they were last week based
on the underlying bid this week.


I was really torn about a new play this week. I think the 
possibility of a homerun in a laddered DJX call play over
the next two weeks is very strong. I repeat VERY strong. 
However, if we did get another terrorist event traders 
could lose 100% of their investment. 

I tried every way I could to come up with something on the
SMH (semiconductor holders) but gave up based on the JPM 
230 target and the failure to drop this week. It looked 
like a prime opportunity but I was not happy with any result.

I thought about going to directional plays on stocks again
like puts on KKD but this too will be influenced by 9/11.

While looking at a directional play on the QQQ I decided there
was an opportunity I could not pass up. This will be another
laddered entry play WITH insurance against a catastrophe. 
The premiums are so cheap on the QQQ that this play looks great.

QQQ Laddered entry with insurance:

The concept is to accumulate a large call position in the 
QQQs before 9/11. We will buy the October $24 calls and buy 
the September $24 put for insurance. If the unthinkable 
happens then the insurance will cover the cost of the calls.
If nothing happens then we close the put side on 9/12 and 
ride the calls back up. 

Sept $24 Put QAV-UX Closing price on Friday $1.35
Oct $24 Call QAV-JX Closing price on Friday $1.50

I am anticipating the Put premium to decay to $1.25 over the
holiday weekend and the Call premium to decay to $1.35-$1.40.
Because we are going to buy the calls on a dip the price will
be even less.

The scenario looks like this. I am going to try and accumulate
150 October $24 calls for an average cost of $.15 cents each.
No I am not on drugs. 

I am going to do this with an average down approach and with
the puts as insurance. 

I am using 50 and 150 as the numbers of contracts for the
example. Use any number of contracts you like for your account
size but keep the ratios the same.

Tuesday morning: Buy 50 contracts of the September $24 put at
market. Try and wait to see if there will be any bounce and
try to buy these as the bounce fades. The higher you can buy 
them the better the reward. The scenario assumes no bounce 
and a price of $1.25. This is your insurance position.

Once your insurance is in place buy the following quantities
of the October $24 calls at market as each trigger point is
touched. This works very easy if you have a broker like
PreferredTrade.com which allows option execution based on
the underlying stock price. If you don't have this feature
then you will have to enter them manually. Please use market
orders for 50 contracts of less. You will be automatically 
executed at the ask and no broker will ever see the order.
If you try to squeeze a limit order in you may not get filled
and your profits will suffer.

Using the October $24 call - QAV-JX

Buy 10 calls at market if QQQ touches 23.00 (est price $1.25)
Buy 10 calls at market if QQQ touches 22.75 (est price $1.15)
Buy 15 calls at market if QQQ touches 22.50 (est price $1.00)
Buy 20 calls at market if QQQ touches 22.25 (est price $0.75)
Buy 25 calls at market if QQQ touches 22.00 (est price $0.60)
Buy 30 calls at market if QQQ touches 21.75 (est price $0.50)
Buy 40 calls at market if QQQ touches 21.50 (est price $0.35)

The option prices are very rough estimates!

Using the numbers above the total invested for all the calls
should be somewhere in the $9,800 range. (very rough estimate)

If the QQQ actually touches $21.50 again as it did back on
August 5th then you will be filled on all your calls and the
September $24 puts should be worth around $2.75 each. 

Personally I would enter a limit order in advance to sell 
the puts at market if the QQQ hit $21.50. Assuming we get 
no bounce on Tuesday and you have to pay $1.25 for the puts 
then your cost is $6,250. If the QQQ hit $21.50 and you sold 
at $2.75 then your profit would be $7,500 on the puts. 

Assuming your cost on the calls was $9,800 as I estimated
then subtract your $7,500 profit on the puts and you have
a total cost for 150 calls of $2,300 or $.15 cents each. If 
nothing happens on 9/11 and the QQQs return to last weeks
level of $26.00 then your $24 calls should be worth $2.50
or $37,500.


There is no way in heck that the scenario described above
will EVER play out exactly as scripted. I am making no 
specific claims that anyone will make any specific amount
of money and it is possible to lose much of your investment
if the market does not cooperate.


Potential Problems: 

The market does not go down. You will be stopped out of
the puts for a loss. I would suggest Dow 9100 as a stop loss.
It failed to reach that level last week and I doubt it will
reach it this week. Close the puts, end of play.

The market does not go down as much as expected. If the QQQ
dips to trigger several of your calls and then rebounds set
a stop loss on the puts at the QQQ level where you bought them.
If you bought them at QQQ $24.50 then once you have been triggered
on some calls set a stop loss on the puts at QQQ $24.50. The
calls will be profitable and the puts will be closed at a minor

The QQQs go down below 21.50 and don't come back. You will lose
the difference between what you sold the puts for and the cost 
of the calls. In the example it would be around $2,300. However, 
you do have an extra month on the calls and plenty of upside 
potential. They only have to come back a little to break even.

The QQQs go down half way and 9/11 passes uneventfully. Close
the puts at the open on 9/12 or the close of 9/11. Don't
wait for the puts to be stopped out. Ride the calls back up.


This is a really simple play. Follow the instructions to the 
letter and it should be very profitable. Obviously the maximum
profitability only occurs if the QQQ drops to $21.50 and rebounds.

As with any trade there are risks. Do not attempt this trade
with money you cannot afford to lose. Despite the insurance
puts there is always a possibility of loss due to improper
execution and unforeseen market events. 


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

Good Luck

Jim Brown  


History 101
by Steven Price

This morning started out with mixed economic data.  The 
University of Michigan Consumer Sentiment Index came in under 
expectations, adding to the evidence that consumers are still 
worrying about the economy, as reflected similarly in Tuesday's 
Consumer Confidence report. On the positive side, personal 
spending increased more than expected, at 1%, as durable goods 
orders carried the day. This was the biggest jump in 9 months. 
The downside to that report is that personal income showed no 
increase, versus an expectation of an increase of 0.2%. We all know 
what happens when spending goes up, but income does not.

Alan Greenspan spoke this morning at the Kansas City Fed's annual 
economic conference in Jackson Hole, Wyoming.  He basically said that 
the demand for high tech products, while great, was overcome by even 
greater increases in supply.  His assessment of the bursting of the 
high-tech bubble was, "In light of the burgeoning supply, the pace of 
increased demand for the newer technologies, though rapid, fell short 
of that needed to sustain the elevated real rate of return for the 
whole of the high-tech capital stock. Returns on the securities of 
high-tech firms ultimately collapsed, as did capital investment. 
Similar, though less severe, adjustments were occurring in many 
industries across our economy."  Or, put more simply, we got ahead of 

Greenspan gave no real indication of what the FOMC would do with 
interest rates on September 24, but also did nothing to contradict 
statements made by several Fed governors that the next interest rate 
move was more likely to be tightening than easing, and that current 
rates were sufficient to spur economic growth.

The Nasdaq gave back most of yesterday's gains, after warnings from 
Novellus and Sun Microsystems underscored what we already knew - that 
IT spending is still in decline.  The Dow actually made an effort, at 
one point trading up in triple digits, before giving up 7.49 to finish 
at 8663.50.  This started out looking like the beginning of the annual 
Labor Day equity shopping spree, and ended up looking like a Labor Day 
1/2 off sale.  The opening Tuesday after labor Day has seen the Dow up 
for the last six years.  This does not mean that it stays up during the 
month of September, which has traditionally been its worst time of the 

The Semiconductor Index (SOX.X) managed to hold itself above the 300 
level, in spite of the tech warnings.  While I can't explain exactly 
why this is, it may have something to do with one of the lightest 
volume days of the year, with the NYSE trading only 1.07 billion shares 
and the Nasdaq only 1.08.

The Dow finished its fifth straight monthly decline for the first time 
since 1981 and with September traditionally poor, we will most likely 
see 6 months in a row.  The only thing that may save it is a rally 
following September 11th, if there are no incidents.  The feeling is 
that many investors are still on the sidelines, waiting for the 
anniversary to pass.  If it passes without incident, then they will 
jump back in.  I'm not sure how sound this theory is, since there are 
many other reasons for the stock market swoon.  Unemployment and a VERY 
slow growing economy are two that come to mind.

If history is going to repeat itself once again, look for a rally on 
Monday, followed by a pullback into September.  Because this year is 
different than any other, based on what happened a year ago, I will not 
be surprised if things do not go exactly as expected.  Six straight 
years of history, however, are hard to argue with.  If you must go 
long, keep a few puts for protection, you will most likely need them in 
the near future.


Market Averages


52-week High: 10679
52-week Low :  7702
Current     :  8663

Moving Averages:

 10-dma: 8851
 50-dma: 8718
200-dma: 9701

S&P 500 ($SPX)

52-week High: 1226
52-week Low :  797
Current     :  916

Moving Averages:

 10-dma:  937
 50-dma:  917
200-dma: 1065

Nasdaq-100 ($NDX)

52-week High: 1782
52-week Low :  892
Current     :  942

Moving Averages:

 10-dma:  996
 50-dma:  977
200-dma: 1319


Dow Jones Home Construction Index (DJUSHB): This group has been flying 
in the with mortgage rates low and mortgage applications at record 
highs.  The party seems to have taken a break, however.  Purchasing 
applications were down 7% this week and a report surfaced that industry 
insiders had dumped over $250 million worth of stock more than they had 
purchased during the second quarter.  Combine these facts with the 
summer season coming to a close, and we may be seeing a slowdown 
overall.  Talk of rates increasing in the future, rather than 
decreasing, has also sent the speculative buyers to the sidelines.   
The Index dropped below its 200-dma, 50-dma and 10-dma, which had been 
converging, in the last two days. 

52-week High: 397
52-week Low : 183
Current     : 322

Moving Averages:

 10-dma: 333
 50-dma: 333
200-dma: 334


Market Volatility

It's interesting to see the VIX stay fairly high heading into a long 
weekend.  While this isn't unexpected, it does mean there are an awful 
lot of traders willing to trade time decay losses for the chance at a 
big move next week. The Dow falling back into negative territory by the 
end of the day seems to have reminded everyone of just how negative a 
month September can be.

CBOE Market Volatility Index (VIX) = 35.80 -0.52
Nasdaq-100 Volatility Index  (VXN) = 54.98 –0.07


          Put/Call Ratio  Call Volume   Put Volume

Total          0.82        325,617       266,126
Equity Only    0.63        265,220       166,099
OEX            0.65         16,033        10,352
QQQ            1.01         30,274        30,489


Bullish Percent Data

           Current   Change   Status
NYSE          44      - 5     Bull Confirmed
NASDAQ-100    52      + 0     Bull Correction
DOW           57      - 3     Bull Confirmed
S&P 500       58      + 0     Bull Alert
S&P 100       56      - 1     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  1.46
10-Day Arms Index  1.31
21-Day Arms Index  1.25
55-Day Arms Index  1.32

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 


Market Internals

        Advancers     Decliners
NYSE       1481          1219
NASDAQ     1457          1691

        New Highs      New Lows
NYSE         25              22
NASDAQ       26              65

        Volume (in millions)
NYSE     1,076
NASDAQ   1,079


Commitments Of Traders Report: 08/27/02

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 added 3,000 contracts to their long positions, while 
small traders reduced longs by almost 4,000.  Small traders also 
added a similar amount to the short side.

Commercials   Long      Short      Net     % Of OI 
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%)
08/27/02      425,982   469,087   (43,105)   (4.8%)

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
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%
08/27/02      153,152    72,408    80,744     35.8%

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

Commercials increased their long contracts by 3,500 contracts, 
and added only 1,200 to the short side.  Small traders, on the 
other hand, reduced long contracts by 1,200, while leaving shorts 
relatively unchanged.

Commercials   Long      Short      Net     % of OI 
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%)
08/27/02       45,354     50,634    (5,280) ( 5.5%)

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
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%
08/27/02       10,156     8,040     2,116    11.6%

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


Commercials reduced their shorts by 1,000 contracts, while 
leaving long positions approximately the same.  Small traders 
increased both positions slightly. 

Commercials   Long      Short      Net     % of OI
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%
08/27/02       21,023    14,328    6,695      18.9%

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
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%)
08/27/02        6,825     8,438    (1,613)   (10.6%)

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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The Squeeze Is On
by Steven Price

Semiconductor Sector Index (SOX.X) 

I've been getting so many emails about different semiconductor 
stocks, I thought we could take a look at some recent levels for 
the index.  The news in the sector has been dominated by warnings 
from chipmakers to equipment makers.  In addition, PC makers are 
seeing low demand and the large server market is shrinking. 

What we are actually seeing here is a battle that is getting 
squeezed to the point of a breakout.  While the news is almost 
always bad for this sector, the technicals are actually telling a 
different story.  After the warnings from Sun Microsystems and 
Novellus, it looked like we'd be seeing a break in the SOX below 
300, taking most of the stocks in the sector with it. That did 
not happen.

Going back to August 19, the Dow, NDX, Nasdaq and S&P 500 all 
broke above their 50 day moving averages.  The SOX followed the 
broader indices up to this point, but instead of breaking 
through, was turned away.  It did, however, break out of its 
descending channel, going back to the beginning of June, on 
August 16.  The rejection at the 50-dma looked troublesome, and 
in spite of fighting it for a few days, the index quickly fell 
back, giving up 75% of its gains.  As it fell, and the warnings 
about lack of IT spending kept coming, the group appeared headed 
below the previous low of 282.75.  But a funny thing happened as 
we approached 300.  The darn thing stopped dead in its tracks.

While it approached 300, so did the old descending channel.  Now 
we have not only an even number level of support, but also the 
top trend line of the channel that also appears to be giving some 
serious support here.  On the other hand, we have a descending 
50-dma, which is putting on the squeeze from above.


Right now, there is pressure from all sides.  The top trendline seems 
to be keeping the group from crossing back into the channel and 
resuming its free fall.  However, as the 50-dma gets closer, we are 
bound to get a break in one direction.  Once that break occurs, these 
prior levels of resistance and support will be gone and we should see a 
large move.  When will this happen?  While there is no way to be sure, 
I have drawn an extended trend line, approximately over the 50-dma. If 
we were to continue trading at this level, the lines would intersect 
around the end of September. While I think we will see a break before 
then, it won't be long until time takes care of the barriers for us.  
Once these are removed, some of those semis that won't seem to go in 
our direction should pick up steam.



Market Watch for the week of September 2nd

Major Earnings This Week

Symbol  Company               Date           Comment      EPS Est

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


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

CRHCY CRH Plc                Tue, Sep 3   -----N/A-----        N/A
ROP   Roper Industries       Tue, Sep 3   After Market Close  0.55

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

GLH   Gallaher Group PLC     Wed, Sep 4  Before the Bell      N/A
IPR   International Power    Wed, Sep 4  -----N/A-----        N/A
NSM   National Semiconductor Wed, Sep 4  During the Market   0.01
SIGY  Signet Group           Wed, Sep 4  Before the Bell     0.37
TKP   Technip-Coflexip       Wed, Sep 4  -----N/A-----        N/A
TI    Telecom Italia         Wed, Sep 4  -----N/A-----        N/A

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

ABS    Albertson`s            Thu, Sep 5  Before the Bell    0.54
CPB    Campbell Soup          Thu, Sep 5  Before the Bell    0.14
CHU    China Unicom Limited   Thu, Sep 5  Before the Bell     N/A
DEO    Diageo PLC             Thu, Sep 5  02:00 am ET         N/A
SZE    Suez SA                Thu, Sep 5  -----N/A-----       N/A
TTWO   Take-Two Int Software  Thu, Sep 5  Before the Bell    0.07

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


Upcoming Stock Splits In The Next Two Weeks...

Symbol  Company Name              Ratio    Payable     Executable

NBY     NBC Capital               4:3      09/09       09/10
BLUD    Immucor Inc.              3:2      09/13       09/16

Economic Reports This Week

On the heels of Labor Day, this Market Watch could serve as sonar 
for investors fishing in the sea of money.   


Monday, 09/02/02

Tuesday, 09/03/02
Auto Sales (NA)         Aug  Forecast:   6.2%  Previous:     6.5%
Truck Sales (NA)        Aug  Forecast:   8.9M  Previous:     8.1M
ISM Index (DM)          Aug  Forecast:   51.8  Previous:     50.5

Wednesday, 09/04/02
Construction Spnding(DM)Jul  Forecast:  -0.4%  Previous:    -2.2%

Thursday, 09/05/02
Initial Claims (BB)   08/31  Forecast:   395K  Previous:     403K
Productivity-Rev. (BB)   Q2  Forecast:   1.1%  Previous:     1.1%
ISM Services (DM)       Aug  Forecast:   54.0  Previous:     53.1
Factory Orders (DM)     Jul  Forecast:   4.7%  Previous:    -2.4%

Friday, 09/06/02
Nonfarm Payrolls (BB)   Aug  Forecast:    47K  Previous:       6K
Unemployment Rate (BB)  Aug  Forecast:   5.9%  Previous:     5.9%
Hourly Earnings (BB)    Aug  Forecast:   0.3%  Previous:     0.3%
Average Workweek (BB)   Aug  Forecast:   34.2  Previous:     34.0

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

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Buckle Your Seat belt

Traders are split about the possibilities over the next ten days but one
thing we can count on is extreme volatility. The professionals will be 
back at work on Monday and volume should return. Hopefully a solid 
direction will return with them.

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The Option Investor Newsletter                   Sunday 09-01-2002
Sunday                                                      2 of 5

In Section Two:

Index Trader Game Plans: THE SECTOR BEAT - 9/1
Daily Results
Call Play of the Day: BRL
Put Play of the Day: SYMC
Dropped Calls: PNRA
Dropped Puts: ADI, GS

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by Leigh Stevens

On Friday, technology in general showed the most weakness, with 
the networking (NWX), software (GSO), and Internet (INX) sectors 
leading the declining groups. Biotech (BTK) continued to correct. 
Banks (BIX), Oil (OIX), oil services (OSX), Retail (RLX), and 
Forest & Paper product (FPP) sectors were all a bit higher - the 
forest & paper product stock group was up the most and it was 
only a percent and a half higher.  

Sun Micro (SUNW) fell nearly 4% after indicating late Thursday in 
its mid-quarter update that its Q1 revenue would likely come in 
at the low end of its projected range. Sun also stated there were 
signs the market for IT spending could be worsening - oh, this 
was good news!  

But Sun didn't not guide lower in its earnings estimates and 
reiterated its expectations for a slight loss for the quarter. 

In the Internet group, Amazon (AMZN) announced that Thomas 
Szkutak would become its chief financial officer, who had 
previously served as CFO for a division of General Electric, GE 
Lighting.  Maybe Amazon is getting even more like the rest of 
corporate America. And, CFO's who used to toil in relatively 
obscurity, are now in the spotlight - or in handcuffs in some 

Yahoo rose slightly but at least added to its Thursday's strong 
gains on an Analyst upgrade. Internet rocks!

In Biotech news, Genelabs (GNLB) doubled its share price after 
receiving FDA go ahead for its lupus medication, Prestara - who 
thinks of these names and how do they do it?  I'll wager that 
they're well paid to think up these names!  

Sectors HIGHER on Friday -


Sectors LOWER on Friday -








Biotechnology Index ($BTK.X)


Short positions in the Biotech HOLDR's (BBH) have been profitable 
since the Index pierced its up trendline.  My downside target in 
BBH is to the 75-76 area.  Resistance overhead is at 90, and I 
would maintain a stop just above this level.  

Gold & Silver Sector Index ($XAU.X)


The upside XAU technical breakout was above resistance implied by 
its 50 and 200-day moving averages as well as its down trendline 
- all converging.  

I continue to anticipate the Gold & Silver stock sector, having 
further upside potential. While it may be the "kiss of death" if 
I am BULLISH on gold stocks, this view appears warranted by the 
technical picture here. 

Buy weakness, especially dips back toward the 68 area in XAU.  

At a minimum XAU looks like it could get back up the 78-80 area.  
Given the uncertainties provided by a possible showdown with 
Saddam - a shoot out at the OK corral - call purchases in this 
sector is a possible "disaster" hedge. 

War scares and the actual event, if it occurs, has in the past 
driven down stock prices, except for things like gold and oil, 
especially when the fight has been in or near the mideast oil 

"Leigh Stevens is on a personal leave from OIN for Sept. and Oct. 
as he travels back to New York for the various memorial services 
for Cantor Fitzgerald employees along with some well deserved 
vacation. He will continue to write for the Trader's Corner 
during this time as his schedule permits. In November he will 
resume contributing to OIN on a regular basis including his Index 
Trader commentary each week."

Good trading success!
Leigh Stevens


For Best Alignment view in Courier Ten Font

CALLS              Mon    Tue    Wed   Thu   Week

BRL      70.71    1.25  -0.47   1.75  1.30  -0.79 Great start  
DRI      25.63    0.21   0.39   0.57  0.50   0.83 Inside day
PII      73.35    0.71   0.39  -1.90  0.90   0.10 Higher base
PNRA     28.31   -0.51  -0.66  -0.55  1.84  -0.83  Drop, cut loss


A        13.43    0.01  -0.90  -0.33 –0.15  -2.76  New, Cheap but weak
ADI      24.10    0.53  -0.52  -0.95  0.26  -1.73  Drop, profits
BJ       24.55   -0.18  -0.25  -0.36  0.17  -1.83  New lows
EXC      46.82    0.06  -0.28  -0.56 –0.69  -4.54  New, Piling On
GS       77.30    0.90  -0.65  -1.22  0.30  -1.55  Drop, stagnant
IBM      75.38   -0.98  -1.46   0.06  0.56  -5.02  Contrarian
KBH      47.95    0.78  -1.36  -0.31 –0.44  -2.45  New, Run Over
MXIM     31.60   -0.01  -2.04  -1.41  0.56  -4.33  Still weak
SYMC     28.55   -0.24  -1.09  -0.44  0.72  -3.40  New, breakdown
QLGC     33.55    0.18  -1.31  -0.56  0.62  -3.49  Diving
UNH      88.35   -0.73  -2.12  -1.35  0.76  -2.75  50-dma a problem
UTX      59.39   -0.60   0.70  -0.91 –0.53  -1.24  Under $60

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Call Play of the Day:

BRL – Barr Laboratories $70.71 (-0.71 last week)

See details in play list

Put Play of the Day:

SYMC - Symantec - $28.55 -2.00 (-3.02 for the week)

See details in play list


Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


PNRA   $28.31 -0.99  (-0.99 for the week) In spite of an 
expanding business plan and good profit out look, this stock was 
turned back decisively today.  With the 200-dma looming above at 
$30.27, and the stock closing near its lows, it is looking weaker 
than we like in a call play.  The best traders let their winners 
run, and cut their losses.  That is what we will do with this 
one.  We are closing PNRA, and will look for better 


ADI  $24.10 -0.46 (-1.86 for the week) ADI has gone our way, 
albeit very slowly.  With all the bad news on the semiconductors, 
it is surprising that the sector did not drop further today.  The 
fact that it was one of the slowest days of the year may have had 
something to do with that, however we are going to steer our "put 
money" toward stocks in the sector with more movement.  We will 
close this play for a profit and continue our short sentiment 
with other tech plays.


GS $77.30 (-1.00) With Friday's attempted rally, we had GS trading
above $79 before the late-day slide, which dropped the stock back
near unchanged at the close.  But we're going to take this
opportunity to exit the play.  It has been interesting in the past
couple days to witness the stock's refusal to go lower, despite
continued bad news in the sector.  The play worked nicely for us,
with GS retracing much of its recent rally by yesterday's open
near the $75.50 level.  Let's step aside on this one and focus on
plays with a better risk reward ratio.


SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.

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Contact Support
The Option Investor Newsletter                   Sunday 09-01-2002
Sunday                                                      3 of 5

In Section Three:

New Calls: None
Current Calls: PII, BRL, DRI
New Puts: KBH, SYMC, A, EXC

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 • Real-Time Buying Power, Account Balances or Cancels
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 • Trailing stops based on the option price or the stock price
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 • $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees!
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PII – Polaris Industries - $72.80 +0.85 (+1.62 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:
Polaris has been moving sideways for the last few days.  However, 
given the recent volatility and several down days for the Dow, PII 
seems to be consolidating at a higher level, rather than 
experiencing swings with the rest of the market.  The trade of 
$72.00 earlier in the week created a 3-box reversal down on the 
point and figure chart, however the support and reversal up in 
price the last couple of days looks like it is on the verge of 
forming a bull flag formation.  This formation is similar to its 
last consolidation, which turned out to be a bull wedge.

For the past six years, the first day after Labor Day weekend has 
been up, before the September swoon takes over. If we see a rally 
on Monday, PII should break out of its current consolidation to 
the upside.  This breakout could lead to higher ground for a stock 
that has been resilient to market pullbacks.  This is most likely 
due to the fact that recessions have had little impact on this 
maker of big-ticket toys for adults.  The stock has posted over 4 
straight years of earnings growth and it doesn't appear the trend 
will end anytime soon, as snowmobile season is just getting 

BUY CALL SEP-70*PII-IN OI= 100 at $4.60 SL=2.50
BUY CALL SEP-75 PII-IO OI= 409 at $2.00 SL=1.20
BUY CALL OCT-70 PII-JN OI=  13 at $6.70 SL=3.20
BUY CALL OCT-75 PII-JO OI=  18 at $3.80 SL=2.00

Average Daily Volume = 244.8 K


BRL – Barr Laboratories $70.71 (-0.71 last week)

Company Summary:
Barr Laboratories is a pharmaceutical company engaged in the
development, manufacture and marketing of generic and
proprietary prescription pharmaceuticals.  Barr markets
approximately 85 pharmaceutical products, representing various
dosage strengths and product forms of approximately 35 chemical
entities.  BRL's product line focuses principally on oncology
and female healthcare categories, including hormone replacement
and oral contraceptives.  The company's Duramed subsidiary
develops, manufactures and markets a line of prescription drug
products in tablet, capsule and liquid forms.

Why We Like It:
Did you catch a piece of that entry point?  We added BRL to the
call list on Thursday due in part to the stock's positive price
action at the 200-dma.  But what seems to be driving the stock's
strength is investor's anticipation that the generic drug makers
will be successful in taking business from the large Biotech
firms, just like they have with the traditional pharmaceutical
companies.  After Thursday's rebound from the 200-dma ($67.76),
shares of BRL really outperformed the broad market on Friday,
launching through the 10-dma ($69.74) and the $70 resistance
level enroute to a 3.5% advance.  What is so impressive about
this is that the broad markets ended with a small loss, along
with both the Biotechnology sector (-4.2%) and the Pharmaceutical
sector (DRG.X), which did well to end near unchanged.  Even
volume was impressive, with BRL trading nearly its daily average
number of shares on the lightest volume day of the year.  This
exhibition of relative strength bodes well for our play going
into next week, whether the broad markets rally or not.  Daily
Stochastics are just starting a bullish reversal, indicating BRL
could be setting up for a strong breakout through the $71-72
resistance level.  Use a dip back near the 10-dma to initiate
new positions, or else wait for a decisive breakout over the $72
level to enter the play.  Keep stops in place at $66 (just under
last week's relative lows) until BRL successfully pushes through
overhead resistance.

BUY CALL SEP-70*BRL-IN OI=231 at $3.00 SL=1.50
BUY CALL SEP-75 BRL-IO OI=329 at $0.90 SL=0.50
BUY CALL OCT-70 BRL-JN OI=164 at $4.50 SL=2.75
BUY CALL OCT-75 BRL-JO OI= 29 at $2.05 SL=1.00

Average Daily Volume = 603 K


DRI – Darden Restaurants, Inc. $25.63 (+0.83 last week)

Company Summary:
Darden Restaurants, Inc. is the largest publicly held Casual
Dining restaurant company in the United States.  The company
operates over 1100 restaurants in 49 states, including 629 Red
Lobster and 472 Olive Garden restaurants.  In addition, DRI
operates 37 restaurants in Canada.  The company operates all
of its North American restaurants, while Red Lobster Japan
Partners, a Japanese retailer unaffiliated with Darden, operates
34 Red Lobster restaurants pursuant to an Area Development and
Franchise Agreement.  DRI is the parent company of GMRI Inc.,
which along with other Darden subsidiaries, own the operating
assets of the restaurants.

Why We Like It:
We mentioned on Thursday that DRI was due for a bit of profit
taking after 7 straight days of gains and that's exactly what
happened on Friday.  DRI caught our attention due to its positive
price action over the past few weeks, which appears to be
motivated by the belief that people are still spending money on
eating out, even if they are cutting back on other forms of
consumption.  We'll get the real answer to that question on
September 19th, when DRI releases earnings.  Without strong
volume to keep pushing the stock higher on Friday, gravity took
over, pulling the stock right back to the $25.50 support level.
For those still looking to enter the play, the setup is looking
pretty good here, following Friday's inside day.  That inside day
gains additional credence due to the light volume (half the ADV)
and gives us some actionable levels for initiating new positions.
A rebound from the $25.50 level or a breakout above $26.25 (just
above Thursday's high) can both be used for new entry points,
depending on what the market delivers.  Recall that DRI has been
working its way higher in an ascending channel (best seen on the
hourly chart) over the past 3 weeks, and should continue to do so
over the near-term.  The bottom of that channel is now at $25, so
be careful about entering the play if the stock falls below that
level.  We are keeping our stop in place at $24.50 this weekend.

BUY CALL SEP-25 DRI-IE OI=486 at $1.50 SL=0.75
BUY CALL SEP-27 DRI-IY OI= 31 at $0.35 SL=0.00
BUY CALL OCT-25*DRI-JE OI=473 at $2.00 SL=1.00
BUY CALL OCT-27 DRI-JY OI= 90 at $0.85 SL=0.40

Average Daily Volume = 1.46 mln


KBH - KB Home - $47.95 -0.11 (-2.34 for the week)

Company Summary:
KB Home is one of America's largest homebuilders with domestic 
operating divisions in some of the fastest-growing areas of the 
country including: West Coast -- California; Southwest -- 
Arizona, Nevada and New Mexico; and Central -- Colorado, Florida 
and Texas. Kaufman & Broad S.A., the Company's majority-owned 
subsidiary, is one of the largest homebuilders in France. In 
fiscal 2001, the Company delivered homes to 24,868 families in 
the United States and France. It also operates a full-service 
mortgage company for the convenience of its buyers. Founded in 
1957, KB Home is a Fortune 500 company listed on the New York 
Stock Exchange under the ticker symbol "KBH."

Why We Like It:
KBH has enjoyed a terrific run as mortgages have sunk to 
historically low levels and home buying has occurred at a record 
pace.  Much of the valuation of this and other homebuilders was 
based on continuation of this trend.  The problem with these 
valuations is that while rates are still low, talk of rate 
changes have shifted from cuts to increases.  Four Fed Governors 
in the past month have indicated that rates are currently low 
enough to spur economic recovery and that the next move will most 
likely be a raise back to more normal levels.  Add to this factor 
the seasonal ingredient, as summer is ending and the hottest home 
buying time of the year is fading. 

The first indication that the party may be over, or at least 
fading into night is the MBA Mortgage Applications Survey, which 
showed a decline from last week.  Purchasing applications sunk by 
7%, as it appears that many of those who would be taking 
advantage of low rates for home purchasing have already done so.  
Another factor weighing on this sector is the surge in prices, 
which has priced many would-be buyers out of the market.   In 
addition the coastal markets have become overpriced and saturated 
and can expect to see a slowdown as well.  Apparently industry 
executives are seeing the same signs, as a report on Thursday 
showed they had been unloading shares in their companies, at a 
clip of $258 million more than they had purchased, in the second 
quarter alone.

Consumer Confidence and Consumer Sentiment both came in lower 
than expected this week, which shows consumers are worried about 
the economy.  This should affect the housing market as well, as 
people who are worried about jobs generally put off new home 

From a technical standpoint KBH has begun to rollover after 
consolidation between $49 and $52. The stock dropped to its 50-
dma on Thursday and closed just a penny underneath it.  On 
Friday, it once again closed underneath the 50-dma and broke 
$48.00.  The next real level of support looks like the 200-dma of 
$44.50.  A break below that level could land the stock around 
$40.  KBH has experienced a three-box reversal down on the PnF 
chart, with support there at $44 and $41.  We will use an initial 
target of $41 on the play. We may see a Dow rally on Tuesday, as 
has been tradition after Labor Day.  However, this rally is 
usually short lived and met with a September swoon.  Look for a 
rollover from a Dow rally as a point to initiate short positions.  
Place stops at $51.25, above Tuesday's high, when the stock broke 
down from its consolidation.

BUY PUT SEP-50*KBH-UJ OI= 1849 at $3.50 SL=2.00
BUY PUT OCT-50*KBH-VJ OI=  611 at $4.80 SL=2.50

Average Daily Volume = 1.11 mil


SYMC - Symantec - $28.55 -2.00 (-3.02 for the week)

Company Summary:
Symantec, the world leader in Internet security technology, 
provides a broad range of content and network security software 
and appliance solutions to individuals, enterprises and service 
providers. The company is a leading provider of client, gateway 
and server security solutions for virus protection, firewall and 
virtual private network, vulnerability management, intrusion 
detection, Internet content and e-mail filtering, remote 
management technologies and security services to enterprises and 
service providers around the world. Symantec's Norton brand of 
consumer security products is a leader in worldwide retail sales 
and industry awards. Headquartered in Cupertino, Calif., Symantec 
has worldwide operations in 38 countries.

Why We Like It:
Symantec had been in consolidation since its gap down in the 
beginning of June, forming a rectangle pattern between $30 and 
$35.  The general rule is that the longer a pattern takes to 
form, the more significant is its breakout.  SYMC got that 
breakout today to the downside.  This maker of network security 
software for a variety of computing functions is, unfortunately 
for them, reliant on a healthy computer business environment for 
continuing growth of its business.  With demand for PCs and 
servers shrinking, SYMC could be looking at a significant drop-
off in business.  Server demand dropped 13% for the four largest 
companies, and warning after warning has hit the street about a 
decline in IT spending.  The recent revelations that the holiday 
sales season for PCs may also not be what was expected will not 
help SYMC, either.  The latest warning was from Sun Microsystems, 
which said spending by corporate clients has decreased enough for 
them to lower earnings forecasts.  This came at the same time 
Novellus lowered the current quarter's revenue guidance.

SYMC's technical breakdown looks significant and very bearish.  A 
breakdown from a $5 deep rectangle, which had formed over 3 
months, carries with it a minimum measuring downside objective to 
$25.00.  However, the next level of significant support below 
that objective is $16, which also happens to be just above the 
52-week low.  A look at the point and figure chart shows a spread 
triple bottom breakdown, with a bearish vertical count of $23.  
This formation, according to Professor Earl Davis of Purdue 
University, carries with it an 86.5% chance of profitability, for 
an average gain of 24.9% within 4.6 months. A gain of 24.9% from 
the breakdown point of $30 would place the stock around $22.50.  
The combination of bearish vertical count and bearish probability 
will help place our initial target around $23.  If the Nasdaq 
continues to give up its gains, this target may be conservative 
and we can always lower our stop.  Look for a possible rally on 
Tuesday coming out of Labor Day, as has been the pattern in the 
recent past.  This rally is usually met with resistance and leads 
us into the September swoon. Use a rollover from a Monday rally 
to initiate new short positions.  Place stops at $31.00, as a 
rally to this point would place SYMC back into its consolidation 

BUY PUT SEP-30*SYQ-UF OI=  1426 at $2.85 SL=1.50
BUY PUT OCT-30*SYQ-VF OI= 11381 at $3.70 SL=2.00

Average Daily Volume = 4.12 mil


A – Agilent Technologies $13.43 (-2.59 last week)

Company Summary:
Agilent Technologies is a global diversified technology company
that provides enabling solutions to high growth markets within
the communications, electronics, healthcare and life sciences
industries.  The company provides test instruments, standard
and customized test, measurement and monitoring instruments and
systems for the design, manufacture and support of electronics
and communications devices.  Additionally, A provides fiber
optic communications devices and assemblies, integrated circuits
for wireless applications, application-specific integrated
circuits, optoelectronics and image sensors.

Why We Like It:
Help!  I've fallen and I can't get up.  There sure hasn't been
much good news in the Networking sector (NWX.X) lately, and
Wednesday's warning from Nortel activated the bears again last
week.  Spending on Telecom equipment has been sliding down a
slippery slope and SUNW's CFO didn't help matters with his
comments about a still-deteriorating IT spending environment.
Shares of A have been generating one sell signal after another
on the PnF charts since last May.  Each time it looks like the
stock might find some support, it turns out that "real support"
likely exists at a lower level.  The negative news from NT caused
the stock to gap down on Wednesday, then again on Thursday, and
still again on Friday.  Each of those gaps was met with plenty of
eager sellers, which has driven the stock to 3 consecutive
52-week lows.  Even with very light volume in the broad market
on Friday, A saw volume of 50% above the ADV.  Clearly there is a
strong motivation to get out of the stock before it falls any
further.  The triple-bottom breakdown on the PnF chart provides
some clarity, as it is now generating a bearish price target of
$9.  While the argument could be made that an oversold bounce is
due, waiting for that event would have kept you out of the drops
over the past 3 days.  Take advantage of an oversold bounce by
entering on the rollover, ideally at $14 or $14.50.  A rebound to
the $15 level would make for a choice entry, but at this point
that seems very unlikely.  Should A continue downwards without
pause, look to enter the play on a breakdown below $13.25 (just
below Friday's low).  We want to give the trade room to work, so
initial stops are set at $15.50.  Take note of the fact that we
have listed October strikes for this play, rather than September.
This is to insulate us from the effect of time decay, if A takes
a bit of time before its next breakdown.

BUY PUT OCT-15*A-VC OI=422 at $2.50 SL=1.25
BUY PUT OCT-12 A-VV OI=798 at $1.20 SL=0.50

Average Daily Volume = 2.61 mln


EXC – Exelon Corporation $46.82 (-4.29 last week)

Company Summary:
Exelon Corp. is the parent corporation for each of Commonwealth
Edison Company (ComEd) and PECO Energy Company (PECO), which are
electric utilities.  Exelon, through its subsidiaries, operates
in three business segments: Energy Delivery, Generation and
Enterprises.  The Energy Delivery segment consists of the retail
electricity distribution and transmission businesses of ComEd in
northern Illinois and PECO in southeastern Pennsylvania and the
natural gas distribution of PECO in the Pennsylvania counties
surrounding the city of Philadelphia.  Generation is made up of
the electric generating facilities, energy marketing operations
and equity interests in Sithe Energies, Inc. and AmerGen Energy
Company, LLC.  Enterprises consists of competitive retail energy
sales, energy and infrastructure services, communications and
other investments weighted towards the communications, energy
services and retail services industries.

Why We Like It:
If you thought the accounting nightmare had gone away, it is time
to think again!  There are still a number of companies whose
recent accounting practices are being called into question by
Federal regulators.  EXC took a big hit on Friday, and believe it
or not, it was due to an accounting issue.  The Federal Energy
Regulatory Commission (FERC) issued an order earlier in the week
requesting a change in the way EXC handled $4.8 billion in
goodwill relating to the company's acquisition of ComEd's assets
and liabilities.  On Friday, EXC announced that they would ask
FERC to take another look at this issue and that seemed to get
the bears growling, as they knocked the stock back for more than
a 6% loss by the end of the day on more than double the daily
average volume.  The Utility sector (UTY.X) has been recovering
from its deep oversold condition at the end of July, but it looks
like that rebound has run its course, with the index rolling over
just below the $300 level.  Note that this level had provided
support several times over the past year, so it is now likely to
be strong resistance.  Turning to EXC, if the accounting issue
continues to grow (as we have seen several times in the past year)
we could see support levels melting away like ice in the desert
in July.  An oversold rebound from Friday's selloff could provide
for the best entries into the play, so long as EXC remains below
the high of Friday's session.  We are setting our stop at $49.25,
just above Friday's high of $49.05.  Look to enter on a rollover
below that level.  Note that the PnF chart won't generate a sell
signal until EXC drops under $45, so wait for that level to be
broken on strong volume before opening momentum-based positions.

BUY PUT SEP-50 EXC-UJ OI=30 at $3.80 SL=2.25
BUY PUT SEP-45*EXC-UI OI=22 at $1.20 SL=0.50

Average Daily Volume = 1.20 mln

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The Option Investor Newsletter                   Sunday 09-01-2002
Sunday                                                      4 of 5

In Section Four:
Current Put Plays: BJ, IBM, MXIM, QLGC, UNH, UTX
Leaps: Return To The Primary Trend
Traders Corner: Questions on Strangling the QQQs – Part II

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BJ - BJ's Wholesale Club - $24.55 -0.24 (-1.70 for the week)

Company Summary:
BJ's Wholesale Club, Inc. introduced the wholesale club format to 
New England in 1984 and has since expanded to become a leading 
warehouse club in the eastern United States. BJ's currently 
operates 138 clubs in sixteen states.

Why We Like It: 
BJ finished the day down 0.24 today, but a look at the intraday 
activity showed more significance than a small drop. The stock 
traded as low as $23.30, which was its lowest level since March 
1999.  This drop surpassed recent lows of $24.50 by a long shot.  
This morning's Consumer Sentiment number came in lower than 
expected.  When combined with the disappointing Consumer 
Confidence number earlier in the week, consumer spending does not 
look promising.  Personal spending was up 1% in July, but 
personal income was flat, indicating a trend that will most 
likely not continue.  Most of the increase came in durable goods, 
high-ticket items like automobiles not found at BJ's.  The recent 
downgrade of BJ and other retailers by Merrill Lynch was based on 
lack of consumer spending, and with retail chain store sales 
still looking weak, the 1% spending increase appears to be simply 
window dressing for the retailers

Today's break in support also added another box to the PnF chart, 
and is approaching the low end of the PnF range at $22.  The fact 
that the company showed an earnings decline on a sales increase 
does not bode well for the near future.  The stock did close 
above the recent $24.50 low, and this could be an indication of 
support.  The fact that here were enough sellers, however, to 
break 3 year lows indicates there is probably more downside.  A 
rebound on a day when volume was very light is not very 
convincing, and we will retain our short position in BJ with an 
initial target around $20.

BUY PUT SEP-25*BJ-UE OI= 93 at $1.55 SL=0.75
BUY PUT OCT-25 BJ-VE OI=259 at $2.05 SL=1.00

Average Daily Volume = 1.01 mil


IBM - International Business Machines $77.96 -1.46 (-2.44 for the 

Company Summary:
IBM is the world's largest information technology company, with 
80 years of leadership in helping businesses to innovate. IBM is 
a leading provider of e-business solutions and is dedicated to 
helping customers, IBM Business Partners, and developers leverage 
the potential of the Internet and network computing across a wide 
range of businesses and industries. The company offers a host of 
cross-industry and industry specific solutions designed to meet 
the needs of growing companies. (source: company press release)

Why We Like It:
IBM has continued its rollover since consolidating over $80 after 
the recent breakout.  Since its drop, it looks headed back to the 
breakout point of $74 - at the least.  On a day when the Dow was 
up, IBM continued to give back gains.  The stock is the third 
most heavily weighted stock in the Dow and a rising tide in this 
case will usually lift all boats.  Not with IBM.  The stock's 
recent gains look mostly due to short covering after a breakout 
from a long period of consolidation. The short interest of 28% is 
considered high, and although the stock is not considered hard to 
borrow, 28% still constitutes a lot of short holders. Those 
traders that sold the top of the consolidation range for almost 
two months were forced to cover when it broke out to the upside.  
With those buyers out of the way, and continued tech warnings, 
IBM has little to hold it up.  

The server business is shrinking and after warnings from Novellus 
on consumer spending and Sun Microsystems regarding a lack of 
spending on big-ticket tech equipment, IBM's business looks like 
it is in fore more stormy weather.  One thing to keep in mind 
heading into Tuesday, is that the first day after Labor Day 
weekend is usually up, before falling back to Earth.  As IBM is a 
Dow stock, the possibility remains that it could rally to start 
the day.  New entries on this play should wait for a break in any 
rally to achieve a more profitable entry point.

BUY PUT SEP-80*IBM-UP OI= 12187 at $5.80 SL=2.90
BUY PUT OCT-80 IBM-VP OI= 32299 at $7.00 SL=3.50

Average Daily Volume = 9.16 mil


MXIM – Maxim Integrated Products $31.60 (-3.93 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:
The bears have been beating up on the Chip stocks for the past
2 weeks, and that much is evident from a quick glance at the
Semiconductor index (SOX.X).  The rally off the July lows has
been almost completely wiped out and the month of August came to
an end with the SOX posting its 5th consecutive monthly decline.
To put it into perspective, in the past 5 months, the SOX has
lost almost exactly half its value.  And judging by the
never-ending stream of warnings and downgrades in the sector,
things aren't about to get better anytime soon.  We've been
riding this trend with our MXIM play, as we began coverage
shortly after the stock rolled over from its 4-month descending
trendline near $37.50.  The past couple days have seen the
stock attempting to rebound (possibly on hopes of a seasonal
rally following Labor Day), but there just hasn't been enough
volume to get the job done.  In fact, the intraday rallies up
near the $33 level have just been providing us with decent,
albeit tardy, entries into the play.  Rather than looking like
a potential bottom is forming, MXIM is presenting us with a
chart that looks ready to break down.  Take advantage of any
failed rallies below our $34 stop next week to initiate new
positions.  Just in case the bulls come back from the Holiday
weekend rejuvenated, keep those stops in place.

BUY PUT SEP-35*XIQ-UG OI=2379 at $4.30 SL=2.75
BUY PUT SEP-30 XIQ-UF OI=3352 at $1.60 SL=0.75

Average Daily Volume = 8.89 mln


QLGC – QLogic Corporation $33.55 (-3.05 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:
If price action is any indication, the continuous stream of
negative news announcements in the land of Technology are starting
to wear down any bullish enthusiasm that might have entered the
marketplace over the past month.  It seems that there are multiple
warnings and/or downgrades in the Semiconductor sector (SOX.X)
every day, and the abysmal comments from SUNW's CFO about the poor
IT spending environment certainly didn't help.  All we have to
look at for confirmation of the weakness in the Technology arena
is the price action in the SOX.  Over the past 2 weeks, the SOX
has given back nearly its entire rally off the July lows, ending
the month of August in the red - again - and coming to rest right
on pivotal $300 support.  Despite that persistent weakness, shares
of QLGC have been making a concerted effort to maintain altitude.
That effort was futile on Friday, with the stock shedding another
5% to close near $33.50.  Look for any weakness next week to drive
QLGC down to the $32.50 level, which will likely prompt the next
oversold rebound.  $32.50 is the site of the 62% retracement of
the stock's rally off the lows last September and produced a solid
rebound 3 weeks ago.  With the deteriorating environment for IT
spending, we don't expect that bounce to carry very far.  Use a
drop into the $32 area as an opportunity to book partial gains on
open positions and then look to re-enter at a higher level, when
the expected bounce runs out of gas.  A likely level to enter new
positions will be near Thursday's resistance ($35.50) or
developing resistance near $34.50.  Keep stops set at $36.

BUY PUT SEP-35*QLC-UG OI=4870 at $2.85 SL=1.50
BUY PUT SEP-32 QLC-UZ OI=1482 at $1.70 SL=0.75
BUY PUT SEP-30 QLC-UF OI=3329 at $0.95 SL=0.50

Average Daily Volume = 13.2 mln


UNH – UnitedHealth Group $88.35 (-1.89 last week)

Company Summary:
Providing a broad range of resources to help people improve
their health through all stages of life, UNH forms and operates
markets for the exchange of health and well being services.
The company's Health Care Services segment consists of the
UnitedHealthcare and Ovations businesses.  UnitedHealthcare
coordinates network-based health services on behalf of local
employers and consumers in six broad regional U.S. markets.
Ovations is a business dedicated to advancing the health and
well-being goals of Americans over the age of 50.  Additionally,
the company's Ingenix business operates in the field of health
care data and information, analysis and application.

Why We Like It:
We wanted a great entry into our bearish UNH play, and Friday's
low-volume session appears to have provided it.  Recall that the
catalyst for the play comes on the heels of the negative market
reception of Healthsouth's (HRC) announcement on Tuesday of a
separation of its business units so as to better deal with the
new rules related to outpatient surgery reimbursements.  The
selloff in shares of HRC infected shares of many other stocks in
the Health Care Payor index (HMO.X), and UNH dropped below its
50-dma on stronger relative volume.  Technically, the recent
rollover in UNH made perfect sense, as it came right at the
2-month descending trendline, currently $90.75.  After the stock
dropped down to the $86 level on Thursday morning, we saw a bit
of a lift, and Friday's rally attempt in the middle of the day
pushed it right up to the $90 level, where it promptly rolled
over.  That made for a nice entry, but we just might get another
shot at an entry near the $90 level next week, if the historical
pattern of positive markets in the first couple days after Labor
Day repeats.  While the HMO index managed a meager gain on
Friday, it is looking top-heavy as well, and any rally next week
ought to be short-lived.  Look for another failed rally near the
$90 level (or anywhere below the descending trendline) to produce
an attractive entry point into the play.  Those looking for
momentum entries will need to wait for UNH to fall under the
$85.50 level (just below Thursday's low) before entering.  Keep
stops in place at $91.50.

BUY PUT SEP-90 UHB-UR OI=3759 at $3.60 SL=2.00
BUY PUT SEP-85*UHB-UQ OI=3844 at $1.60 SL=0.75

Average Daily Volume = 2.65 mln


UTX – United Technologies Corp. $59.39 (-1.09 last week)

Company Summary:
As a diversified manufacturing company, UTX has four principal
operating segments: Otis (elevators and escalators), Carrier
(heating, ventilation and air conditioning systems), Pratt &
Whitney (aircraft engines and space propulsion), Flight Systems
(helicopter electrical systems).  Between the Pratt & Whitney
and Flight Systems divisions, UTX participates in virtually all
aspects of the design and manufacture of aircraft propulsion
systems, from engines and their associated flight controls to
auxiliary power units, compressors and instrumentation.

Why We Like It:
The jury is still out on whether or not the Boeing machinists
will strike, and news that a new vote will take place after next
week's meeting in Washington, along with the attempted rally
seemed to give the UTX bulls new hope on Friday.  The stock
managed to rally back to above $60 in the middle of the day, but
when the air was let out of the market-wide market rally, the
stock fell back, as it should.  UTX's orders from Boeing could
take a substantial hit if the strike materializes.  The
technicals are not in the bulls' favor either, as Thursday's
intraday dip below the $58 level created a fresh Sell signal on
the PnF chart, paving the way for a decline down towards the
current bearish price target of $48.  Despite the failure of
today's rally, the possibility still exists for another rally
attempt early next week.  With the deterioration in market
sentiment likely to follow the DOW's 5th straight month of
declines, any rally is likely to be short-lived and will provide
us with the attractive entry point we're looking for.  Use a
failed rally near the $60 level to initiate new positions, or
else wait for UTX to fall under last Thursday's low.  Keep stops
set at $61.

BUY PUT SEP-60*UTX-UL OI=2797 at $3.10 SL=1.50
BUY PUT SEP-55 UTX-UK OI=2074 at $1.40 SL=0.75

Average Daily Volume = 2.94 mln

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Return To The Primary Trend
By Mark Phillips

The bulls had their brief moment in the sun, but I fear that now
it is done.  I pointed out last week that the bulls managed to
close out the week with their 5th consecutive gain, a feat they
hadn't managed in the S&P 500 (SPX) since the fall of 1999.  Well,
while they did manage to close the SPX barely positive for the
month, the DOW ended with its 5th consecutive monthly loss, an
event that hasn't occurred in over 20 years, since 1981!  This is
the perfect backdrop for understanding the difference between the
primary and secondary trend.

The primary trend of this market is down and is likely to remain
so for some time to come.  That trend will be broken by brief
(and likely explosive) moves to the upside, as the secondary
trend makes its appearance, correcting the periodic oversold
conditions.  That is essentially what we have seen over the past
5 weeks, is the market working off a significant oversold
condition.  During that time, most of the bullish percent
readings have moved near the top of their normal ranges -- sure
there is further to go, but I believe to continue driving higher,
the markets need some solid positive news.  Have you seen any of
that around here lately?

GDP growth is anemic, Consumer Confidence is waning, Employment
is showing no real signs of improvement and the Fed has made it
clear that they have no intention of dropping interest rates in
the near term.  Housing, the one bright spot in the economy over
the past 2 years is looking like it has run its course.  And if
we are to believe that insider sales are a leading indicator,
then news from last week that executives at the major
home-construction firms have been selling their shares in large
numbers over the past year is an ominous sign.

Hardly a day goes by when we don't hear warnings and downgrades
coming out of the Semiconductor and IT markets.  The Biotechs are
under pressure due to increasing competition likely to come from
the Generic Drug companies.  The spectre of litigation in the
Brokerage sector hasn't gone away by any stretch of the
imagination, and Brazil is still a ticking time bomb, no matter
what we hear on CNBC.  The situation with respect to Iraq is murky
at best, but it certainly appears to me that it is a question of
when, not if the U.S. will makes its move to oust Saddam.

I don't mean to sound like Chicken Little here, but my job isn't
to tell you what you want to hear.  It is to tell you what I
believe.  And based on both the fundamental information (news)
and technical information (charts and indicators), I think this
rally has just about run its course.  We may waffle around
current levels in the broad market before the primary trend
reasserts itself, but right now bullish positions carry far more
risk than bearish positions.

I was already becoming more cautious as of last weekend, and that
should have been apparent from my aggressive tightening of stops
on all of our open Portfolio plays.  That concern appears to have
been well-founded, as 4 out of our 6 plays were stopped out last
week.  Fortunately, all except for INTC were closed out with a
gain.  The DJX play is looking like it will be come to an end
next week and WMT is amazing me with its resilience.  For those
of you nervous about those open positions, I would recommend
closing them on any failed rally next week.  See below for my
detailed comments on the rest of the plays.


DJX - After breaking below the bottom of that bearish ascending
wedge last week, the bears took a couple of runs at our $86 stop,
but couldn't quite manage it, possibly due to the anemic
market-wide volume.  It looks to me like the bulls have just
about breathed their last, but I'm going to give this play one
more week in hopes that the historical pattern of a rally
following Labor Day pans out one more time.  One way or the
other, I expect this play to be closed out by next weekend.
While I'm leaving our stop in place at $86, I want to take
advantage of any rally early next week to exit at a higher
level.  Should the bulls manage to propel the DJX above $88,
then I would look to close the play on the first sign of

WMT - That's 2 weeks in a row that the bears couldn't take out
our $52.50 stop and contrary to my expectations, it looks like
WMT might actually take another run at the $55 resistance level.
Even the stream of poor results out of the Retail sector (WMT
included) couldn't break this one down, so we're still hanging
in there.  As long as our stop remains intact, then WMT still
looks good.  But take note of the fact that weekly Stochastics
are now entering overbought.  Perhaps we've seen just about all
there is to this rally.  Look for WMT to test the $55 level again
next week if we get a post Labor Day rally.  A successful breakout
will have us raising our stop to $54 to prevent giving back our
substantial gains.  Nervous traders may want to just close open
positions if WMT can get back near its relative highs of the past
couple weeks.

Watch List:

MO - Drat!  Foiled again!  Just when it looked like selling
pressure was going to drive MO down near our entry target, the
company comes out and raises its dividend by 10%.  That was all
the motivation the bulls needed to start accumulating the stock
again and we missed out on the move.  The stock is still pinned
under its bearish resistance line on the PnF chart ($52) and the
2-month descending trendline on the candle chart ($51), so I'm
hopeful we'll get one more decent pullback to provide entry into
the play.  Note that a trade at $46 or below on the PnF chart
would put the stock back into sell mode now, so avoid the play if
it drops that low.  I'm raising the entry target this weekend to
the $47-48 level.  Target entries on a rebound from that area,
and then follow it up with a stop at $46.

BA - The Transports got hammered again last week, partially due
to a rash of downgrades in the Airline sector and partially due
to some negative comments from the Trucking sector.  BA really
didn't move much, and I think this is primarily due to concerns
about the pending machinist strike.  We're going to stick to our
guns here, focusing on the bearish price target of $32 from the
PnF chart.  A drop down to that level (possibly on news of an
actual strike) should give us the attractive entry we're looking
for, and the ability to manage risk with a tight stop at $30
after entry.

BBH - Now that's frustrating!  Just when it looked like we were
going to get an ideal entry into our bearish BBH play, the
generic drug makers torpedoed the sector with their plea to
Congress to allow them to horn in on the Biotech drug market,
much like they have taken market share from the traditional
Pharmaceutical companies.  The BBH reversed sharply downwards
on the news, and with the weekly Stochastics now in full bearish
roll, I think we have seen the high for this cycle.  I think it
is time to get more aggressive with new bearish entries into
this sector, so I'm lowering our entry target to the $86-88 area.
Any failed rally in that neighborhood next week could be the last
gasp before the bottom falls out.  After entry, we'll place a
rather liberal stop at $93, the site of the most recent high.

If you take a look at the meager gains we ended up accruing in
the GE, MSFT and QQQ plays, I think you can gain an appreciation
for how difficult it can be to harvest profits from explosive
bullish moves in a primary bear market.  We got what I think are
very good entry points into each of those plays, and exited last
week on violations of tight stops.  These plays were well managed,
yet the gains only ranged from 0-20%.  Volatile action like we
have seen for the past 2 months is not for the faint of heart,
and makes for very challenging trading if it lasts for more than
a few days.

And look at that pesky VIX!  Since the July lows, the VIX has
yet to drop below 30, even on an intraday basis.  That tells me
that there is still a goodly amount of fear in the market, and
rightly so.  I wouldn't rule out the possibility of another big
selloff in the September-October timeframe, which would be
accompanied by the VIX moving north of 50 again.  My hope is that
in that situation, the broad market would be able to successfully
test the July lows, giving us the potential of a lasting bottom
from which we could rally at least into the end of the year.  My
biggest concern is that we just waffle sideways to down, as that
would fail to give the bulls cause to buy or the bears cause to
short.  As traders, we want strong moves that we can profit from,
and hopefully the return of the professionals from vacation will
give us some directional conviction in the weeks ahead.

Until the market makes its intentions known, I continue to
advocate small positions and tight stops.  I can promise you that
is how I'll be playing it.

Have a safe and enjoyable holiday weekend!


LEAPS Portfolio

Current Open Plays


DJX.X  08/06/02  '02 $ 86  DJX-LH  $ 4.80  $ 5.80  +20.83%  $86
                 '03 $ 88  ZDJ-LJ  $ 7.50  $ 9.40  +25.33%  $86
WMT    08/06/02  '03 $ 50  WMT-AJ  $ 3.80  $ 6.80  +78.95%  $52.50
                 '04 $ 50  LWT-AI  $ 7.30  $10.60  +45.21%  $52.50


LEAPS Watchlist

Current Possibles


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
MO     08/25/02  $47-48        JAN-2004 $ 50  LMO-AJ
                            CC JAN-2004 $ 45  LMO-AI
                               JAN-2005 $ 50  ZMO-AJ
                            CC JAN-2005 $ 40  ZMO-AH

BBH    08/30/02  $86-88        JAN-2004 $ 80  EVK-MP
                               JAN-2005 $ 80  EIL-MP
SMH    09/01/02  $25.50-26.00  JAN-2004 $ 20  KBS-MD
                               JAN-2005 $ 20  ZTO-MD

New Portfolio Plays


New Watchlist Plays

SMH - Semiconductor HOLDR $24.10  **Put Play**

When you're on the wrong side of a trade, the first step is to
cease being wrong.  Based on the very poor price action and the
endless stream of bearish news coming out of the Semiconductor
sector (SOX.X) over the past 2 weeks, it is clear that I was very
premature in trying to call a tradable bottom in the SMH.  It
looks to me like the rally off the early-August lows has run its
course, and new lows will be seen in the very near future.  It
all started with a Goldman Sachs report that Taiwan Semiconductor
(TSM) intended to cancel significant orders with equipment
suppliers.  Then Intel's CEO gave a negative pronouncement about
the future last Tuesday that sounded an awful lot like a warning.
Finally, NVLS added some confirmation with its mid-quarter update
last Thursday, indicating that they are experiencing significant
order cancellations.  Inquiring minds can put 2 and 2 together
and figure out that some of those cancellations are likely coming
from TSM.  Sprinkled throughout this rash of bad news were the
multiple, daily brokerage downgrades of numerous individual
stocks within the sector.  Turning to the technicals, we can see
that SMH's PnF chart is still on a Buy signal, but given the bad
news, I expect that to be nullified shortly with a bit more
negative price action.  A print of $22 will create a new sell
signal and have the bears eyeing a new target of $14.  I have a
hard time conceiving of the SOX moving that low, but who knows.
The PnF chart of the SOX is currently pointing to a bearish
target of $224, so clearly there is significant downside in
store.  As another measure of the dismal price action, look at
the weekly Stochastics, which are starting to rollover after only
making it half-way to overbought.  With the daily Stochastics
already buried in overbought, I'm really hoping we get some sort
of rally attempt next week to give us a favorable entry into the
play.  I consider a lift to the $25.50-26.00 area to be a gift of
an entry, although we may not get that lucky.  Judging by the
poor price action over the past few days, the bulls may not have
enough strength to get this group off the mat before the bears
start their next assault.  One way or the other, I fully expect
to take an entry into this play in the next week, and I'll let
the action of the daily Stochastics be my guide.  It is trying to
rise right here, but when it rolls over again, I want to be in
this play.  I don't expect anything to inject new life into the
sector over the next few months, so I'm going to start out with
a wide stop at $29, just above the recent closing highs.



GE $31.30 My nervousness about the price action in GE appears
to have been justified.  With the broad market rolling over early
in the week, GE had little choice but to go with the flow. 
Remember how the stock has been unable to trade $33?  That lack
of strength was the real clue that this rally has run its course.
Wednesday's drop through $31.50 took us out of the play, and
just in time, too!  Lehmann trimmed estimates for the
conglomerate Thursday morning and with weekly Stochastics rolling
over from overbought, it looks like we got a fortuitous exit from
the play.

INTC $17.19 It looks like we had good reason for shortening the
leash on our INTC play, as the Semiconductor sector really got
abused again last week.  After failing to push through the $20
level, INTC was looking a bit top-heavy, and the CEO sealed the
stock's fate with his cautionary comments that sounded an awful
lot like a warning.  INTC dropped under our tight $17.75 stop on
Tuesday and we are out.  Don't look for this one to reappear on
our play list until there is some indication that the fundamental
picture in both the PC and Semiconductor industries is showing
signs of improvement.

MSFT $49.38 Even mighty MSFT couldn't stay out of the way of the
bears last week, falling below $50 on Wednesday.  I think you can
now see the wisdom in tightening that stop to the $50 level.
While we could see a continuation of the rally next week, we're
out with a gain ahead of the historically bearish month of
September.  I expect MSFT will be one of the stocks that will
lead the NASDAQ out of its funk, but judging by the lack of
strength on Friday, we may have to wait a while longer before
that happens.

QQQ $23.48 The NASDAQ indices led the DOW and S&Ps back below the
important 50-dmas last week.  In retrospect, I probably should
have made the stop tighter than the $24 level, to preserve more
of our gains, but I really thought that ascending trendline would
hold.  Bottom line is that we're out with a gain.  Note how the
weekly Stochastics is threatening to roll over without getting
anywhere near overbought territory.  We need to let this one
stabilize at a lower level before we consider playing it again.

SMH $24.10 Reversal of fortune!  Based on the relentless stream
of bad news from the Semiconductor sector over the past week, I
no longer even want to consider a bullish trade in the SMH.
Friday's weakness kept the SOX pinned right at the critical $300
support level, but I expect that to be converted to resistance in
short order.  The picture for the Chip stocks is so grim, that
I'm going to switch sides this weekend, and that's why we're
listing the SMH as a new Put play on the Watch List.


Questions on Strangling the QQQs – Part II
By Mike Parnos, Trading With Attitude

Good strategies are hard to find.  So when we find one, even if 
it takes a little thought, it’s worth learning.  At the Couch 
Potato Trading Institute, the only dumb question is the one that 
is not asked.  If CPTI students can memorize a TV Guide, they 
won’t give up until they’ve learned a strategy.

The following questions are based on a strategy originally 
described in my column in OI’s Sunday, August 25th newsletter.  
It’s under the “Option 101” category in the OI archives. If you 
haven’t read it, you might want to review it to bring yourself up 
to speed.  Also, review my Thursday, August 29th column for more 
questions and answers.

I was going over your strategy last night. This should basically 
work on anything if you factor the ATR (Average True Range). I 
don’t know your background so I won't go into a bunch of TA 
babble. Plus, not to split hairs, but it looks like the QQQs’ 8-
week ATR is $2.60.  One would think there's likely a better and 
worse time to enter this trade.  Do you think we can pick any day 
anywhere in the expiration cycle to implement this and make it 

The problem with this strategy is that, with most underlyings, 
there is too much time premium.  Thus, the risk is too high.  It 
would require an excessive move to make it work each time instead 
of a relatively predictable move (3 points on the QQQs).

I originally heard about this strategy from a commodities broker.  
He's doing it on oil options and, because of a lower volatility, 
he's able to put on a strangle out three months and still make it 
work.  There are times that the third month would certainly come 
in handy in waiting for the big move.  Plus, it allows for 
potentially two or three remaining long inexpensive options to be 
working simultaneously as opposed to one or two if we can only go 
two months out.  I’ve tried to adapt it to the QQQs.  

You make a good point.  I never really thought about Average True 
Range, but perhaps I should.  There are some exceptionally bright 
OI columnists who sleep with charts under their pillow, dream of 
ascending wedges and exponential moving averages, then absorb all 
the information through osmosis.  Unfortunately, I’m not one of 
them.  I'm more T&A friendly than TA friendly. I usually look at 
a chart and use my thumbnail and imaginary lines to measure and 
calculate support, resistance, trendlines, etc.  I suspect there 
are more optimum times to enter these trades -- particularly when 
the QQQs are at short-term support or resistance.  Either it's 
going to reverse trend or break out -- thereby increasing the 
probability of success.

Hi Mike,
Just finished reading your strategy write-up. It is a very
interesting. I put some thought into it. Instead of buy ITM 
strangle, you can just buy OTM strangle with less capital outlay:
Trade A:  QQQ = $26.  Buy $25C & Buy $27P
Trade B – OTM: QQQ = $26.  Buy $25P & Buy $27C
If you can get A for $4.50, you can get B for less than $2.50, 
say $2.40. The risk graphs for both are nearly identical, same up 
and down side break-evens.

If the QQQ goes up to $29 within 30 days, the $25 call is worth 
$4.35 based on your calculation. You have a $27 put left for a 
net debit of $0.15. In the meantime, the $27 call will be worth 
more than $2.40. Sell it and you have a free trade on the $25 
put.  Please share your thoughts on this analysis.

You make a good point.  The out-of-the-money puts and calls time 
value is about the same as the time value in the in-the-money 
puts and calls.

The only difference is that once the QQQs start to go in a 
direction, the ITM options will have more delta working for them.  
Plus, for example, if the QQQs are at 23 after a reversal move, 
using the OTM puts, you would have a 25 put.  Using the ITM 
method, you would have the 27 puts – about 20% more delta.

I like the way you think.  Keep the ideas coming.  I need all the 
help I can get.
(DELTA -- the amount the value of an option increases when the 
underlying stock increases by $1.00.  For instance, the QQQs are 
trading at $24 and the $24 strike option is trading at $1.80.  
The delta would be about .50.  That means that if the QQQs trade 
up to $25, the value of the $24 option would increase by about 
$.50 to $2.30.

Now that the $24 option is $1 in the money, the delta will 
increase by about 10%.  So, for every dollar the QQQs go up, the 
$24 option will increase by $.60.  The further in the money the 
option becomes, the higher the delta and the more the option 
participates in the movement of the stock.)

Interesting trade profiled for the couch potato.  I looked back 
at some recent history and confirmed your premise that the QQQ's 
regularly move over $3 in a 30-45 day period.  In fact, in the 
last six months, they have moved over $3 on ten occasions.  Only 
three of those were to the upside.  If I understand your 
strategy, when the QQQ's move up $3 you sell the call.  What if 
it goes up $3 more?

You wouldn't necessarily sell if the QQQs are continuing down.  
Once they've gone down the three points, you might want to place 
an alert ¼-point above.  If you sell too soon, you might miss the 
"huge" move we were hoping for.  It can happen at any time.
If the QQQs get down to support at 21.30, they may reverse and 
bounce up, or they may break through and go directly into the 
toilet.  Whatever they do, support and resistance levels seem to 
have violent moves -- either continuing through the level in 
question or reversing.  They're great places to put on the 

Trading ranges, like rules, are made to be broken.  Ranges don't 
last forever. This might be the time and it would sure be nice to 
own an in the money option going in the right direction.

I was paper trading after I read your article last Sunday: 
“bought”10 Calls and 10 Puts on the QQQ (Oct. $27 puts, and Oct. 
$25 Calls). Today (Thursday) the QQQs reached $23.02, and the Oct 
27 puts) opened at 10:10 at 3.90. Would it have been wise to sell 
the Oct. $27 puts at that price?

Good observation!  It all depends on how aggressive you are as a 
trader.  I was watching on Thursday morning when the QQQs hit 
$23.02.  At that point, for a few minutes, there was the 
opportunity to sell the October $27 puts for $4.15.  At that 
time, the October $25 calls still had a value of .90.  The QQQs 
subsequently bounced up as high as $24.20 with the October $25 
calls selling for about $1.35.  If you add the $4.15 and $1.35, 
you get $5.50.  That's a $1.15 profit on a risk of only about 
$2.35 in a week – almost 50%.  Not too shabby!

If you can pay attention to the market, can recognize 
opportunities when they present themselves, and are ready to act, 
to hell with the strategy.  If you can snatch a hefty percentage 
profit in a short time, go for it!  I’ve quoted Yogi Berra 
before, “If you come to a fork in the road, pick it up!!”


Iron Condor Update:  BBH is at $82.65 – Although it’s drifting 
lower, it’s still in our 30-point range of $80-$110.  We put on 
the hypothetical Iron Condor trade on last week with BBH.  We put 
on a Sept. $80/$75 bull put spread and a Sept. $110/$115 bear 
call spread for a credit of $1.10.  The objective is for BBH to 
close inside the 30-point range.  So far, so good.  We’ll keep a 
close eye on it.

Happy trading!  The CPTI credo:  May our remote batteries and 
self-discipline last forever, but mierde happens.  Be prepared!  
In trading, as in life, it’s not the cards we’re dealt.  It’s how 
we play them. 

Your questions and comments are always welcome.  

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The Option Investor Newsletter                   Sunday 09-01-2002
Sunday                                                      5 of 5

In Section Five:

Covered Calls: Market Terms & Definitions: Understanding Stock Stages
Naked Puts: Investing 101: Understanding Risk and Reward - Part I
Spreads/Straddles/Combos: A Key Test Approaches!

Updated In The Site Tonight:
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Market Terms & Definitions: Understanding Stock Stages
By Mark Wnetrzak

One of our new readers asked for an explanation of the different
stages of a stock's movement and the way we use these cycles to
identify favorable issues for covered-call positions.

Attn: Covered-Calls Editor
Subject: Stock Stages


I have question regarding about the technical comments use in the
descriptions of the covered-call candidates.  I noticed that the
term Stage-I and Stage-II are used in many of the play write-ups.
I assume this refers to the chart and the technical condition of
stock.  Could you please explain these terms and the way they are
used to select bullish stocks for covered-call plays.

Thank You,



Technical analysis is a method of stock market research using
indicators, charts, and computer programs to track price trends
of stocks, bonds, commodities, and market indexes.  A technician
understands the fundamental values of securities but focuses on
the historical behavior of the market, industry groups or sectors
and individual stocks.  The goal is to use their price movements,
trends and chart patterns to predict future direction and changes
in character.  Most of this analysis is based on the fact that
the values of stocks reflect what people think they are worth,
not what they are really worth.  Technical indicators are also
used to generate buy or sell signals when specific parameters are
met and stage analysis can be helpful in initiating new positions.

The four basic stages of a stock-movement cycle are described at
length in "Secrets for Profiting in Bull and Bear Markets," by
Stan Weinstein.  Here is a brief description of the first two
categories and a simple explanation of how they can help identify
favorable issues, as well as some hints for timing the entry

Stage I is the basing stage that can last for months or sometimes
years.  The condition is usually defined by little or no vertical
activity with a long-term moving average that is basically flat.
A common axiom suggests that, "the longer the base, the stronger
the case" on a break-out.  Issues with this type of pattern can
offer reasonable covered-call positions with relatively low
capital risk as long as the neutral-trend or lateral trading
range continues.


Stage II is when the issue begins to exhibit signs of a new upward
trend.  The stock price closes above its long-term moving average
(150-200 dma) and Stage I resistance on heavy volume.  This is the
ideal time to enter a bullish position.  Investors should look for
the next resistance level above the base to identify any potential 
"failed rally" points and should try to focus on stocks that have
"room to run."  Bullish traders should enter issues that are 
starting Stage II climbs, or in Stage II climbs and buying on 
pullbacks to technical support.  


Some hints...

1. Stage II is the "ideal" time to enter for a bullish play.  For
   trend trading, pick stocks that are in stage II rallies and buy
   on the pullbacks to technical support or major trend-lines.

2. Look for volume -- this is vital!  Most big movers climb on
   substantially larger volume than that which occurs at any time
   during the basing stage.

3. Look for strong Relative Strength.  When a stock breaks out of
   a base, the relative strength should cross up above the zero
   line into positive territory.  The higher the climb to cross
   above the zero line, the more upside potential in the movement.

4. Look for the "Runners Crouch" pattern before the stock breaks
   out of a long-term base.  In many cases, stocks will go through
   a short period of "building steam."  It's usually a small dip
   to gather strength for the upward push above the moving average.
   Once the stock crosses above the top of the base (resistance)
   it should also continue through the moving average.

5. As the rally begins in earnest, the long-term moving average
   should start to turn upward and after the stock corrects back
   to a technical support area, the next run-up, which must be
   supported by heavier-than-average volume, should continue
   until a new (near-term) high is achieved.

It is important for new traders to become familiar with the common
methods used to determine the overall movement of the market and
apply this knowledge as a practical element of a proven trading
strategy.  After you are comfortable with the popular indicators,
combine them with proven timing strategies and practice using the
various systems until your "paper" portfolio is profitable on a
regular basis.

Trade Wisely!

Note:  Margin not used in calculations.

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

ALKS    7.70   8.21   SEP   7.50  1.25  *$  1.05  11.8%
NXTL    5.49   7.61   SEP   5.00  1.10  *$  0.61  10.1%
WEBX   15.02  14.73   SEP  15.00  1.40   $  1.11   8.9%
MDR     6.00   7.05   SEP   5.00  1.50  *$  0.50   8.0%
FFIV   14.04  12.50   SEP  12.50  2.55   $  1.01   7.6%
ISIS   11.25  10.12   SEP  10.00  2.05  *$  0.80   7.6%
MNS    11.20  10.50   SEP  10.00  1.75  *$  0.55   6.3%
AMR    11.14  10.19   SEP  10.00  1.65  *$  0.51   5.8%
NWRE   16.94  17.82   SEP  15.00  2.65  *$  0.71   5.4%
XOMA    5.66   5.42   SEP   5.00  0.95  *$  0.29   5.4%
ICST   20.74  17.83   SEP  17.50  4.20  *$  0.96   5.0%
AFFX   18.51  18.01   SEP  15.00  4.40  *$  0.89   4.6%
MRCY   24.79  24.93   SEP  22.50  3.60  *$  1.31   4.5%
NET    14.56  13.00   SEP  12.50  2.55  *$  0.49   4.4%
IDTI   15.20  13.23   SEP  12.50  3.30  *$  0.60   4.4%
MLNM   14.16  12.26   SEP  12.50  2.45   $  0.55   3.4%
ORCL   10.79   9.59   SEP  10.00  1.15   $ -0.05   0.0%
TIBX    5.21   4.21   SEP   5.00  0.70   $ -0.30   0.0%

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


A rather interesting week as the major averages consolidated 
the end-of-summer rally.  Now the question is: Will support
hold?  Most of the positions in the covered-call portfolio 
are also consolidating and testing support areas.  This
corrective action offers a chance to evaluate the strength
of individual stocks: do they stop near the top of support
or move towards the bottom?  The probability of violating
a "low" increases the deeper a stock penetrates its support
area.  For example, Millennium Pharmaceutical (NASDAQ:MLNM)
would indicate underlying strength if the stock were to 
remain near $12 (as opposed to moving towards $10) as it
consolidates.  As for unpleasant surprises this week, early
exit candidate Semtech (NASDAQ:SMTC) warned it would fall 
short of analysts' estimates and disclosed that a dispute 
with one of its customers could result in it being forced to 
pay damages totaling $115 million.  Obviously, exiting on 
Monday's pause or on Tuesday as the stock resumed moving
down (prior to Wednesday's drop) would've been wise indeed.  
Next week, we will show Tibco Software (NASDAQ:TIBX) closed
as the stock reversed last week's rally and moved to a new
low.  Protecting capital appears to be the name of the 
current game.   

Positions Closed: Semtech (NASDAQ:SMTC)


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

IMCL    8.30  SEP  7.50   QCI IU  1.30 1265   7.00   20   10.9%
JDEC   13.05  SEP 12.50   QJD IV  1.30 941   11.75   20    9.7%
NWRE   17.82  SEP 15.00   QQA IC  3.30 266   14.52   20    5.0%
OSTE    9.34  SEP  7.50   OQQ IU  2.20 225    7.14   20    7.7%
TDY    17.80  SEP 17.50   TDY IW  1.05 6     16.75   20    6.8%
V      12.96  SEP 10.00     V IB  3.30 1149   9.66   20    5.4%
VMSI   22.30  SEP 20.00   QMP ID  2.80 0     19.50   20    3.9%

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

IMCL    8.30  SEP  7.50   QCI IU  1.30 1265   7.00   20   10.9%
JDEC   13.05  SEP 12.50   QJD IV  1.30 941   11.75   20    9.7%
OSTE    9.34  SEP  7.50   OQQ IU  2.20 225    7.14   20    7.7%
TDY    17.80  SEP 17.50   TDY IW  1.05 6     16.75   20    6.8%
V      12.96  SEP 10.00     V IB  3.30 1149   9.66   20    5.4%
NWRE   17.82  SEP 15.00   QQA IC  3.30 266   14.52   20    5.0%
VMSI   22.30  SEP 20.00   QMP ID  2.80 0     19.50   20    3.9%

Company Descriptions

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

IMCL - ImClone  $8.30  *** Martha's Bane In A Trading Range ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company 
whose mission is to advance oncology care by developing a 
portfolio of targeted biologic treatments designed to address
the medical needs of patients with a variety of cancers.  The 
company's lead product candidate, Erbitux (cetuximab), is a 
therapeutic monoclonal antibody that inhibits stimulation of 
epidermal growth factor receptor upon which certain solid 
tumors depend in order to grow. ImClone's next most advanced
product candidate, BEC2, is a cancer vaccine.  In addition to 
the development of its lead product candidates, the company 
conducts research, both independently and in collaboration 
with academic and corporate partners, in a number of areas 
related to its core focus of growth factor blockers, cancer 
vaccines and angiogenesis inhibitors.  IMCL has also developed
diagnostic products and vaccines for certain infectious diseases.
With all the "bad" news surrounding ImClone, traders have been
speculating on a near-term recovery in the stock.  This position
takes advantage of the over-priced options and the short-term
trading range of a stock that shows support at our cost basis.

SEP 7.50 QCI IU LB=1.30 OI=1265 CB=7.00 DE=20 TY=10.9%

JDEC - J.D. Edwards  $13.05  *** Entry Point ***

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 rallied sharply
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 is one of the few
software makers to report sequential and year-over-year revenue
increases.  Analysts attributed that strength to J.D. Edwards'
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.  Investors looking for a long-term portfolio
candidate should consider this conservative entry in an issue with
a bullish technical outlook.

SEP 12.50 QJD IV LB=1.30 OI=941 CB=11.75 DE=20 TY=9.7%

NWRE - Neoware Systems  $17.82  *** 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.  This week,
Neoware reported sharply higher revenue and earnings for its 4th-
quarter and fiscal year ended June 30, 2002.  The company said
revenues increased 165% to $14.1 million and net income increased
278% to $1.7 million, or $0.13 per fully diluted share, excluding
an income tax benefit recorded during the quarter.  Neoware is 
gaining market share with growing profitability, a strong balance 
sheet and no debt.  NWRE is also one of the nicer looking charts
(jinx?!?) we have seen in some time and investors can use this
position to speculate on the future movement of its share value.

SEP 15.00 QQA IC LB=3.30 OI=266 CB=14.52 DE=20 TY=5.0%

OSTE - Osteotech  $9.34  *** Pullback = Entry Point? ***

Osteotech (NASDAQ:OSTE) provides services and products primarily
focused in the repair and healing of the musculoskeletal system. 
These products and services are marketed primarily to the 
orthopaedic, spinal, neurological, oral/maxillofacial, dental 
and general surgery markets in the United States and Europe. 
The allograft bone tissue Osteotech processes is procured by 
independent tissue banks or other Tissue Recovery Organizations,
primarily through the donation of tissue from deceased human 
donors and is used for transplantation.  The company has two
primary operating segments: the Grafton Demineralized Bone Matrix
Segment, and the Base Allograft Bone Tissue Segment.  Osteotech
rallied sharply almost doubling its share value after the company
reported a quarterly profit and raised its full-year outlook on
more tissue supply and legal settlements.  The stock has been
consolidating for the last week or so and this pullback could
be offering long-term investors a second chance at owning an
industry-leading issue at a favorable cost basis.

SEP 7.50 OQQ IU LB=2.20 OI=225 CB=7.14 DE=20 TY=7.7%

TDY - Teledyne  $17.80  *** New 5-Year Contract ***

Teledyne Technologies (NYSE:TDY) is a provider of sophisticated
electronic components, instruments and communications products,
including data acquisition and communications equipment for 
airlines and business aircraft, monitoring and control instruments
for industrial and environmental applications and components, and
subsystems for wireless and satellite communications.  The company
also provides systems engineering solutions and IT services for 
space, defense and industrial applications, and manufactures 
general aviation and missile engines and components, as well as 
onsite gas and power generation systems.  Teledyne operates four 
business segments: Electronics and Communications, Systems 
Engineering Solutions, Aerospace Engines and Components and 
Energy Systems.  Teledyne rallied at the end of July after the
company reported earnings and announced a five-year, $22 million
contract from the U.S. Army's Space and Missile Defense Command 
to continue the development of Teledyne's Missile Defense Systems
Exerciser.  Technically, the issue appears to have successfully
completed a consolidation phase and investors can use this play
to speculate on the company's future at the risk of owning the
stock at a favorable cost basis.

SEP 17.50 TDY IW LB=1.05 OI=6 CB=16.75 DE=20 TY=6.8%

V - Vivendi  $12.96  *** Bottom-Fishing In The Media Sector ***

Vivendi Universal (NYSE:V) is a global media and communications
company engaged in businesses that focus primarily on two core 
areas: Media and Communications; and Environmental Services. The 
Media and Communications business operates a number of integrated
businesses in the music, multimedia and publishing, film and pay 
television, telecommunications and Internet industries.  The 
Environmental Services business includes world-class water, waste
management, transportation and energy services operations.  
Media stocks have started to show some life as traders move
into the sector, speculating on future consolidations.  Vivendi
may be considering an initial public offering with Liberty
Media as the company struggles to restructure and reduce debt.
On Friday, Vivendi announced that it is selling its money-losing 
Internet venture and several French magazines.  The technicals 
suggest a bullish change of character in V and this play offers
traders a great way to speculate on the future movement of the
issue in a conservative manner.

SEP 10.00 V IB LB=3.30 OI=1149 CB=9.66 DE=20 TY=5.4%

VMSI - Ventana Medical  $22.30  *** Bracing For A Rally? ***

Ventana Medical Systems (NASDAQ:VMSI) develops, manufactures and
markets instruments and consumables that are used to automate
diagnostic and drug discovery procedures in clinical histology
laboratories and drug discovery laboratories worldwide.  Ventana's
product offerings comprise Tissue Processors and Staining Systems
and Associated Reagents.  Its products are used in many centers
for cancer research and treatment including Johns Hopkins Hospital,
the Mayo Clinic and Memorial Sloan-Kettering Cancer Center.  The
company reported in mid July that profits and sales rose during
the second quarter and Ventana also raised its earnings forecast
for 2003, saying that sales of products used to automate tissue
preparation improved.  The company expects to see sales growth of
about 20% from 2001 and net income of 5% to 7% of sales.  Traders
who like the outlook for the company can use the solid technical
support near $19 to justify this speculative position.

SEP 20.00 QMP ID LB=2.80 OI=0 CB=19.50 DE=20 TY=3.9%



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

CAL    10.17  SEP 10.00   CAL IB  1.10 1461   9.07   20   15.6%
CRGN    5.81  SEP  5.00   CQX IA  1.15 226    4.66   20   11.1%
ADRX   24.63  SEP 20.00   QAX ID  5.70 5829  18.93   20    8.6%
NUS    12.50  SEP 12.50   NUS IV  0.60 62    11.90   20    7.7%
CCK     5.82  SEP  5.00   CCK IA  1.05 2844   4.77   20    7.3%
MATK   18.00  SEP 17.50   KQT IW  1.25 210   16.75   20    6.8%
PPD    20.67  SEP 17.50   PPD IW  3.90 734   16.77   20    6.6%
SNDK   16.21  SEP 15.00   SWQ IC  1.80 2133  14.41   20    6.2%
SLAB   22.59  SEP 20.00   QFJ ID  3.30 442   19.29   20    5.6%
CCMP   42.45  SEP 35.00   UKR IG  8.40 204   34.05   20    4.2%


Investing 101: Understanding Risk and Reward - Part I
By Ray Cummins

A noted author once said, "Risk is a condition in which there is
a possibility of an adverse deviation from a desired outcome that
is expected or hoped for."

When it comes to trading, people have different viewpoints about
risk.  The dictionary defines risk as the possibility of loss or
injury but, as with most abstract concepts, risk is relative.  As
children, we learned about potentially hazardous activities such
as crossing the street.  As young adults, we discovered the risks
inherent in driving a car, and that the insurance to offset that
risk can be very costly.  As homeowners, we became aware of the
dangers of fire, floods and earthquakes.  In fact, throughout the
entire aging process, we gain a better understanding of the types
of risk and the various ways to manage our activities in order to
safely claim the innumerable rewards that are available in today's
vigorous and dynamic society.  With all of this experience, even
the average person is quite adept in the area of risk management
and if only they could learn to apply these acquired skills in
their trading endeavors, success would be virtually assured.

From an investing standpoint, risk is the possibility of losing
money, either in a specific position or with a large portfolio of
financial instruments.  There are, however, other forms of risk
and one of the most obvious is lost potential.  A trader stands to
lose prospective profits if he takes no action on a specific set
of favorable circumstances and the failure to act or react, in a
timely manner, can be a very costly decision.  A similar type of
risk can emerge when a person has unrealistic objectives or goals.
A correctly defined target, based on historical performance and
practical volatility estimates, is often the difference between a
a profitable outcome and a losing play.  For long-term investors,
a risk that is often forgotten is inflation risk; the possibility
that higher overall prices will reduce the relative gains of a
successful portfolio.  Despite these would-be perils, the stock
market offers the most conservative and practical means of capital
appreciation for the average investor.

Regardless of the approach or strategy one uses to participate in
the financial markets, there is risk.  Fortunately, there are some
basic guidelines that will substantially reduce investing losses.
The first step is to identify any attitudes or behaviors that can
lead to unfavorable results.  This step is very important because
it is hard to control or manage risk when emotion and instinct are
primary players in the trading process.  The next phase requires a
thorough understanding of the methods used to control risks.  The
most popular technique for limiting financial exposure, regardless
of the commodity or instrument, is diversification.  The rule here
is simple: "Do not put all your eggs in one basket!"  Spread your
portfolio holdings over a broad range of issues so they don't all
decrease in value because of a single event.  While even the most
catastrophic events can generally be managed to reduce the effects
of the shortfall, there are occasions when issues plunge without
warning leaving no opportunity for exit or adjustment.  Unforeseen
events simply occur; negative earnings, shareholder lawsuits,
detrimental news in the industry or sector and changes in public
sentiment.  All of these activities can affect the success of an
individual position but with a diversified portfolio, the overall
effects are minimal.  Diversification also allows you to take
advantage of the large variety of investment vehicles available in
the financial markets, and an assortment of positions in different
categories will ensure that at least part of your portfolio is
outperforming the major indices.

Another way to limit the effects of unexpected market volatility
is to invest systematically, using the ongoing price fluctuations
to lower the average price (or basis) in a position by purchasing
identical amounts of the issue on a fixed schedule.  The strategy
offers an excellent way to smooth abrupt changes in the price of
long-term portfolio holdings and it is also a popular method for
recovering share value losses after an extended decline.  This
approach works well for those participants who understand that
the stock market historically moves in cycles, and that focusing
on the ultimate outcome is a proven risk-control strategy.  In
most cases, the strategy of averaging down is a practical and
viable technique for conservative investors however, the purchase
of additional shares should never considered if the added exposure
is not justified by the current technical or fundamental outlook
for the issue.

In the next segment, we will learn how to assess specific risk
exposures, evaluate the risk-reward tradeoff and develop a plan
for managing risk in a conservative investment portfolio.

Good Luck! 

                        *** WARNING!!! ***

Occasionally a company will experience catastrophic news causing
a severe drop in the stock price.  This may cause a devastatingly
large loss which may wipe out all of your smaller gains.  There is
one very important rule: Don't sell naked puts on stocks that you
don't want to own!  It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops.  Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a "buy-to-close" STOP at a price that is no more than twice
the original premium from the sold option.


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

JDEC   13.05  13.05   SEP  10.00  0.45  *$  0.45  12.8%
MRVL   22.21  19.06   SEP  17.50  0.50  *$  0.50  11.0%
NWRE   14.00  17.82   SEP  10.00  0.40  *$  0.40  10.9%
FDRY    8.99   8.75   SEP   7.50  0.35  *$  0.35  10.3%
MGAM   24.24  21.25   SEP  20.00  0.55  *$  0.55   9.9%
AMLN   13.00  12.06   SEP  10.00  0.40  *$  0.40   9.7%
INVN   28.36  34.13   SEP  22.50  0.85  *$  0.85   9.4%
JDEC   13.40  13.05   SEP  10.00  0.25  *$  0.25   9.3%
ICOS   27.49  24.28   SEP  20.00  0.75  *$  0.75   8.7%
WMGI   20.49  20.22   SEP  17.50  0.45  *$  0.45   8.6%
CVTX   26.01  21.73   SEP  20.00  0.70  *$  0.70   8.6%
VRTX   22.41  19.90   SEP  20.00  0.65   $  0.55   8.3%
PPD    21.95  20.67   SEP  15.00  0.35  *$  0.35   8.0%
ENZN   24.13  22.00   SEP  17.50  0.60  *$  0.60   8.0%
SIE    22.88  19.32   SEP  17.50  0.40  *$  0.40   7.0%
TTWO   23.40  25.10   SEP  17.50  0.40  *$  0.40   6.8%
LNCR   33.38  32.05   SEP  30.00  0.80  *$  0.80   6.5%
NPSP   23.06  20.27   SEP  15.00  0.45  *$  0.45   6.4%
PPD    22.23  20.67   SEP  12.50  0.35  *$  0.35   6.3%
HGSI   17.59  15.06   SEP  12.50  0.25  *$  0.25   5.8%
HGSI   17.87  15.06   SEP  12.50  0.30  *$  0.30   5.6%
IMN    33.05  33.25   SEP  30.00  0.55  *$  0.55   5.6%
CLS    23.80  22.97   SEP  17.50  0.30  *$  0.30   5.2%
GISX   21.32  19.61   SEP  20.00  0.75   $  0.36   4.9%

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


With the major indices testing recent support areas, the market
is truly at a "key" moment.  Any further declines after Labor Day
will change the overall bias to "negative" and if that occurs,
position management will become crucial to maintaining portfolio
profits.  From a technical point of view, the rally in Marvell
Technology Group (NASDAQ:MRVL) has come to an abrupt end and a
close below $18 would be a bearish indication.  Multimedia Games
(NASDAQ:MGAM) has retreated to a near-term support area and any
further decline should be seen as a potential "early-exit" signal.
Global Imaging Systems (NASDAQ:GISX) has moved back to a previous
trading range and with the issue currently below the sold strike,
it may be prudent to close the play on any future rally.  Sierra
Health (NYSE:SIE) is testing 3-month lows and the buying support
at $17 is the last line of defense.  CV Therapeutics (NASDAQ:CVTX)
and Vertex Pharmaceuticals (NASDAQ:VRTX) have very similar chart
patterns, neither of which inspires confidence in their near-term

Positions Closed: 

OSI Pharmaceuticals (NASDAQ:OSIP)


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

ADRX   24.63  SEP 15.00   QAX UC  0.25 760   14.75   20    7.3%
HD     32.93  SEP 30.00    HD UF  0.40 5067  29.60   20    5.7%
IMDC   23.45  SEP 20.00   UZI UD  0.40 31    19.60   20    9.6%
ITMN   24.87  SEP 20.00   IQY UD  0.30 5005  19.70   20    8.5%
IVGN   35.60  SEP 30.00   IUV UF  0.35 90    29.65   20    5.9%
PPD    20.67  SEP 15.00   PPD UC  0.35 1130  14.65   20   11.9%
RGLD   14.86  SEP 12.50   MJQ UV  0.25 97    12.25   20    9.9%
TYC    15.69  SEP 12.50   TYC UQ  0.30 18223 12.20   20   13.3%
UOPX   28.78  SEP 25.00   UBY UE  0.45 124   24.55   20    8.4%

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

TYC    15.69  SEP 12.50   TYC UQ  0.30 18223 12.20   20   13.3%
PPD    20.67  SEP 15.00   PPD UC  0.35 1130  14.65   20   11.9%
RGLD   14.86  SEP 12.50   MJQ UV  0.25 97    12.25   20    9.9%
IMDC   23.45  SEP 20.00   UZI UD  0.40 31    19.60   20    9.6%
ITMN   24.87  SEP 20.00   IQY UD  0.30 5005  19.70   20    8.5%
UOPX   28.78  SEP 25.00   UBY UE  0.45 124   24.55   20    8.4%
ADRX   24.63  SEP 15.00   QAX UC  0.25 760   14.75   20    7.3%
IVGN   35.60  SEP 30.00   IUV UF  0.35 90    29.65   20    5.9%
HD     32.93  SEP 30.00    HD UF  0.40 5067  29.60   20    5.7%

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).

ADRX - Andrx Corporation  $24.63  *** Generic Drug Speculation ***

Andrx Corporation (NASDAQ:ADRX) is a specialty pharmaceutical
company engaged in the formulation and commercialization of oral
controlled-release generic and brand pharmaceuticals utilizing
its proprietary drug delivery technologies.  Andrx also markets
and distributes pharmaceutical products manufactured by third
parties.  Andrx recently announced that the United States Food
and Drug Administration has approved the marketing of its 500-mg
strength generic version of Naprelan.  Naprelan is used for the
treatment of pain caused by arthritis, osteoporosis and other
inflammatory conditions.  Andrx plans to begin marketing its
generic version of Naprelan next month and the revenues should
bolster the company's bottom line.  From a technical viewpoint,
the issue appears to be forming a support area near $20 and this
position allows traders to speculate on the company's future in
a conservative manner.

SEP 15.00 QAX UC LB=0.25 OI=760 CB=14.75 DE=20 TY=7.3%

HD - The Home Depot  $32.93  *** Blue Chip Play! ***

Home Depot (NYSE:HD) is a home improvement retailer.  Home Depot
has 1,400 Home Depot stores throughout the United States, Canada,
Argentina and Mexico, and 41 EXPO Design Center stores in the
United States.  Home Depot stores sell a wide variety of building
materials, home improvement, lawn and garden products and provide
a number of services.  EXPO Design Center stores sell products
and services primarily for design and renovation projects.  EXPO
Design Centers offer interior design products, such as kitchen
and bathroom cabinetry, tiles, flooring and lighting fixtures and
installation services.  In addition, as of fiscal year-end 2001,
the company was operating four Villager's Hardware test stores in
New Jersey.  These offer products for home enhancement and small
projects.  The company also has one test store in Texas, The Home
Depot Floor Store, which sells flooring products.  For investors
with a long-term outlook, The Home Depot is great holding in the
retail group and this position offers a low risk cost basis in the

SEP 30.00 HD UF LB=0.40 OI=5067 CB=29.60 DE=20 TY=5.7%

IMDC - Inamed  $23.45  *** Bullish Sector! ***

Inamed (NASDAQ:IMDC) is a global medical device company engaged in
the development, manufacturing and marketing of products for breast
and facial aesthetics and obesity intervention.  These products
include breast implants for aesthetic augmentation and for surgery
(reconstructive) following a mastectomy; a range of dermal products
to correct facial wrinkles; and minimally invasive devices for
obesity intervention, including the LAP-BAND® System indicated for
severe and morbid obesity.  Inamed shares were boosted earlier in
August after favorable second-quarter results.  The medical device
firm announced cash earnings of $11.8 million, or $0.54 a share, a
penny above the average estimate of analysts.  Sales reached $71.7
million in the latest three months, up almost 15% from the year-ago
period and looking ahead, the company forecast earnings of $1.90 to
$2.00 per share for fiscal 2002.  Investors were apparently pleased
with the news and a cost basis below $20 (near the 30-dma) is a
favorable price for this issue.

SEP 20.00 UZI UD LB=0.40 OI=31 CB=19.60 DE=20 TY=9.6%

ITMN - InterMune  $24.87  *** New Drug Developments! ***

InterMune (NASDAQ:ITMN), formerly InterMune Pharmaceuticals, makes
and commercializes products for the treatment of serious pulmonary
and infectious diseases and cancer.  In the United States, the firm
markets its lead product, ACTIMMUNE, for the treatment of chronic
granulomatous disease, a life-threatening congenital disorder of
the immune system, and severe, malignant osteopetrosis, also a
life-threatening congenital disorder causing an overgrowth of bony
structures.  Globally, InterMune markets Amphotec for the treatment
of invasive aspergillosis, a life-threatening fungal infection.
The firm has mid- or advanced-stage trials underway for ACTIMMUNE
and Amphotec in a range of new disease indications; idiopathic
pulmonary fibrosis, infections caused by various fungi that attack
patients with weakened immune systems, ovarian cancer, other types
of cancer and cystic fibrosis.  Shares of InterMune have been "on
the move" since the biotech firm said its Actimmune drug improved
survival rates among patients with a lung disease.  At the same
time, the firm also acknowledged that the results from late-stage
patient testing showed the drug failed to meet its primary goal,
which was slowing the progression of the disease.  But, InterMune's
stock rose even though the drug fell short of its main goal because
the survival benefit results convinced investors that Actimmune
would continue to post strong sales results.  Traders who agree
with that outlook can speculate conservatively on the future share
value of ITMN with this position.

SEP 20.00 IQY UD LB=0.30 OI=5005 CB=19.70 DE=20 TY=8.5%

IVGN - Invitrogen  $35.60  *** A Profitable Quarter! ***

Invitrogen (NASDAQ:IVGN) develops, manufactures and markets more
than 10,000 products for the life sciences markets.  Invitrogen's
products are principally research tools in reagent and kit form,
biochemicals, sera, media, and other products and services, which
the company sells to corporate, academic and government entities.
The company focuses its core business on two principal segments,
Molecular Biology Products and Cell Culture Products.  Invitrogen
said in July that it achieved a second-quarter profit as sales of
its tool kits for genetic research rose and it ceased writing off
costs of a merger.  Invitrogen posted a net profit of $8.1 million,
or $0.15 a share, compared with a loss of $35.1 million, or $0.67,
a year ago.  The company also recently announced that its board
authorized the repurchase of up to $300 million of the company's
common stock over the next three years.  IVGN has an established
trading range near $30-$35 and this position allows investors to
speculate on the company's near-term share value with relatively
low risk.

SEP 30.00 IUV UF LB=0.35 OI=90 CB=29.65 DE=20 TY=5.9%

PPD - Pre-Paid Legal Services  $20.67  *** More Speculation! ***

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=1130 CB=14.65 DE=20 TY=11.9%

RGLD - Royal Gold  $14.86  *** Market Hedge ***

Royal Gold (NASDAQ:RGLD) is the largest U.S.-based royalty firm
engaging in the acquisition and management of precious metal
royalty interests.  Royal Gold seeks to acquire existing royalties
or to finance projects that are in production or near production
in exchange for royalty interests.  The firm, to a reduced extent,
also explores and develops properties thought to contain precious
metals and seeks to obtain royalty and other carried ownership
interests in these properties through the subsequent transfer of
operating interests to other mining companies.  Substantially all
of the firm's revenues are and can be expected to be derived from
royalty interests, rather than from mining operations conducted by
the company.  During 2001, the company focused on the acquisition
of royalty interests, rather than the creation of such interests
through exploration, followed by further development and property
transfers to larger mining companies.  RGLD is our broad-market
hedge for the coming month and traders who believe that equity
values will continue to slump can profit from the likely rise in
gold stocks with this position.

SEP 12.50 MJQ UV LB=0.25 OI=97 CB=12.25 DE=20 TY=9.9%

TYCO - Tyco International  $15.69  *** Bottom Fishing ***

Tyco International (NYSE:TYC) is a diversified manufacturing and
service company.  Tyco is the world's largest manufacturer and
servicer of electrical and electronic components; the largest
designer, manufacturer, installer and servicer of undersea
telecommunications systems; the largest manufacturer, installer
and provider of fire protection systems and electronic security
services and the largest manufacturer of specialty valves.  Tyco
also holds strong leadership positions in medical device products,
and plastics and adhesives.  The firm operates in more than 100
countries and had fiscal 2001 revenues from continuing operations
of approximately $34 billion.  The effects of corporate scandals
have apparently started to fade as Tyco shares are establishing a
base near $12-$13.  Investors who want a speculative position in
a former market bellwether should consider this play.

SEP 12.50 TYC UQ LB=0.30 OI=18223 CB=12.20 DE=20 TY=13.3%

UOPX - University of Phoenix Online  $28.78  *** Rally Mode ***

University of Phoenix Online (NASDAQ:UOPX) is a provider of unique,
accessible, and accredited educational programs for working adults.
The firm began operations in 1989 by modifying courses developed by
University of Phoenix's physical campuses for delivery via modem to
students worldwide.  University of Phoenix Online now offers 11
accredited degree programs in business, education, information
technology and nursing.  Students can participate in their online
classes anytime via the Internet by using basic technology such as
a Pentium-class personal computer, a 28.8K modem and an Internet
service provider, thereby enhancing the accessibility of and the
potential market for its programs.  Shares of UOPX soared Thursday
after the company's parent, Apollo Group, provided a bullish outlook
for the first quarter and fiscal 2003.  Phoenix Online also posted
solid results and forecast revenue of $100 million to $101 million
for the first quarter, and $490 million to $495 million for the year.
Investors who wouldn't mind owning this unique company at a cost
basis near $25 can profit from future upside activity in the issue
with this position.

SEP 25.00 UBY UE LB=0.45 OI=124 CB=24.55 DE=20 TY=8.4%



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

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

CCK     5.82  SEP  5.00   CCK UA 0.20  6170   4.80   20   17.8%
LMNX    8.00  SEP  7.50   UEN UU 0.25  405    7.25   20   12.9%
HGMCY  14.25  SEP 12.50   QHG UV 0.30  2599  12.20   20   10.7%
COCO   37.25  SEP 35.00   UCS UG 0.85  89    34.15   20    9.6%
CIMA   23.01  SEP 20.00   UVK UD 0.40  563   19.60   20    9.2%
COX    25.85  SEP 22.50   COX UX 0.45  1342  22.05   20    9.2%
PLMD   24.42  SEP 17.50    PM UW 0.30  515   17.20   20    8.8%
ZQK    22.41  SEP 20.00   ZQK UD 0.35  30    19.65   20    7.7%
CCMP   42.45  SEP 30.00   UKR UF 0.30  358   29.70   20    5.2%



A Key Test Approaches!
By Ray Cummins

                         - MARKET RECAP -
August 30, 2002

Stocks drifted lower Friday on light volume, pushing the major
equity averages to a pivotal area of technical support ahead of
the Labor Day holiday.

Technology issues were the primary catalyst for selling pressure
as lackluster forecasts from Sun Microsystems (NASDAQ:SUNW) and
BellSouth (NYSE:BLS) weighed heavily on the group.  Sun Micro's
CFO lowered the computer maker's revenue outlook for the coming
quarter and said corporate spending may actually be weakening.
BellSouth added fuel to the fire, saying 2002 earnings will fall
below expectations due to a restructuring and weak sales in its
wireless business as well as the turbulent economy.  The NASDAQ
Composite index ended near the low of the day, down 20 points at
1,314.  The blue-chip average fared better in early trading but
eventually yielded to the bearish trend as its computer hardware
components slumped.  The Dow Jones industrial average ended with
a loss of 7 points at 8,663.  The broad market finished the week
with a downward bias as investors were plagued by another round
of gloomy forecasts from corporate America.  The S&P 500-stock
index sagged 2 points to 916, and few experts have confidence in
its ability to hold that level in the coming weeks.  Trading was
lean with exchange volumes among the lowest of the year ahead of
the long holiday week-end.  Breadth was mixed with advancing
issues outnumbering decliners 5 to 4 on the NYSE while decliners
edged past advancers by an 8 to 7 ratio on the NASDAQ.  Bonds
ended with solid gains heady gains after trading in a large range
during the morning session.  The 10-year Treasury was up 3/32 to
yield 4.13% while the 30-year bond advanced 17/32 to yield 4.93%.
                       - PORTFOLIO SUMMARY -

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

Amer. Intl.  (NYSE:AIG)   SEP70C/65C  $0.60  credit  bear-call
Apache Oil   (NYSE:APA)   SEP65C/60C  $0.60  credit  bear-call
Lockheed     (NYSE:LMT)   SEP70C/65C  $0.55  credit  bear-call
Barr Labs    (NYSE:BRL)   SEP60P/65P  $0.50  credit  bull-put
Cephalon     (NSDQ:CEPH)  SEP35P/40P  $0.60  credit  bull-put
JDS Uniph.   (NSDQ:JDSU)  MAR2.5C/5C  $0.85  debit   bull-call
Dupont Phot. (NSDQ:DPMI)  SEP30C/20P  $0.10  credit  synthetic
Verity       (NSDQ:VRTY)  DEC15C/10P  $0.10  credit  synthetic
Emulex       (NYSE:ELX)   SEP17C/17P  $2.60  debit   straddle
eBay Inc.    (NSDQ:EBAY)  SEP65C/55P  $1.90  credit  strangle
Forest Labs  (NYSE:FRX)   SEP80C/65P  $1.30  credit  strangle

Most of our new positions fared well this week, despite the large
fluctuations in share values.  All of the credit spreads were
available at acceptable prices and the bearish activity worked in
favor of American International Group and Apache Oil.  The only
position of concern in that category is Lockheed Martin, as the
issue rallied in conjunction with defense-related stocks and may
move higher if there is more news of a potential war with Iraq.
Among the bullish issues, Verity and Jds Uniphase tumbled with
the technology group as cautious statements from tech-industry
leaders halted the NASDAQ recovery.  The delta-neutral group was
active with traders participating in the "premium-selling" plays
and the sole debit straddle.  Forest Laboratories appears stable
but eBay is testing the lower portion of a recent trading range
and may require an adjustment before the September expiration.
Emulex enjoyed a brief, but unrewarding, bout with the downside
break-even point as the issue hit $16 during Wednesday's session.
The bearish portion of the straddle traded as high as $2.15, only
$0.45 short of the total cost of the play.

Portfolio Activity:

The recent decline in equity values has boosted the probability
of profit in almost all of our bearish positions but there is one
issue that has moved in opposition of the primary trend.  Express
Scripts (NASDAQ:ESRX) closed Thursday's session within $0.70 of
our sold (call) strike price and a widespread sell-off on Friday
was our only hope to remain in the position.  Fortunately, the
stock retreated to a more comfortable range near $48, but it is
above a short-term moving average and may again test resistance
near $50 in the coming weeks.  On the flip side, International
Business Machines (NYSE:IBM) is sliding back down to a previous
trading-range top near $73-$74 and if the sell-off in technology
shares continues, there is little chance it will remain above the
break-even point in our bullish position.  Another issue on the
watch-list is Lexmark (NYSE:LXK), and FTI Consulting (NYSE:FTN)
could be considered a potential "early-exit" candidate as well.
The calendar spreads group is holding up well, considering the
recent downward bias and Dupont (NYSE:DD), Pharmacia (NYSE:PHA),
Amlyn Pharmaceuticals (NASDAQ:AMLN) and Kellogg (NYSE:K) are all
trading within a profitable range.  The speculative, time-selling
position in Nextel (NASDAQ:NXTL) remains comfortably above the
break-even point and with the long position expiring in January,
there is plenty of time to lock-in a reasonable profit.  In the
category of synthetic positions, Mylan Laboratories (NYSE:MYL)
has stalled near $34 and the previous credit (near $0.70) will
likely be the maximum gain achieved in the bullish play.  A very
similar situation exists in the more recent positions in Oracle
(NASDAQ:ORCL), Peoplesoft (NASDAQ:PSFT) and Check Point Software
(NASDAQ:CHKP), all of which have slumped in conjunction with the
renewed selling pressure in the technology group.

Questions & comments on spreads/combos to Contact Support
                       - SPECULATION PLAYS -

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

XMSR - XM Satellite Radio Holdings  $5.43  *** Tune-in To XM! ***

XM Satellite Radio Holdings (NASDAQ:XMSR), America's leading
satellite radio service, is transforming an industry that has
seen little technological change since FM, almost 40 years ago.
XM's programming lineup features 100 coast-to-coast digital
channels: 71 music channels, many of them commercial-free, from
hip hop to opera, classical to country, bluegrass to blues; and
29 channels of sports, talk, children's and entertainment.  XM
was named 2001 "Product of the Year" by Fortune, an "Invention
of the Year" by Time and won Popular Science's 2001 "Best of
What's New" Grand Award in the electronics category.  XM also
won several awards at the 2001 CES, including "Best of CES" in
the automotive category, and received a coveted "A" rating from
Entertainment Weekly.  XM's strategic investors include America's
leading car, radio and satellite TV companies -- General Motors,
American Honda Motor, Clear Channel Communications and DIRECTV.

Here is another "buy and forget" speculation play, an approach
that a reader recently requested, with low cost and large upside
potential.  Technically, the stock has recovered from a lengthy
downtrend and the volume-supported buying pressure suggests the
share value may eventually return to a previous range near $12.
The first test of resistance will occur near $6.50 and another
level of supply exists at $8, but the probability of an extended
rally offers a reasonable speculation opportunity in this long-
term position.
PLAY (speculative - bullish/debit spread):

BUY  CALL  JAN-5.00  QSY-AA  OI=2872  A=$1.90
SELL CALL  JAN-7.50  QSY-AU  OI=508   B=$0.95
POTENTIAL PROFIT(max)=180% B/E=$5.90

HET - Harrah's Entertainment  $47.54  *** Gaming Sector ***

Founded 65 years ago, Harrah's Entertainment (NYSE:HET) operates
26 casinos in the United States, primarily under the Harrah's
brand name.  Harrah's Entertainment is focused on building brand
loyalty and value with its target customers through a unique
combination of great service, excellent products, unsurpassed
distribution, operational excellence and technology leadership.
Harrah's also owns and operates the Bluegrass Downs, a harness
racetrack located in Paducah, Kentucky, and owns a 1/3 interest
in Turfway Park LLC, which is the primary owner of Turfway Park
thoroughbred racetrack located in Boone County, Kentucky.

The gaming sector has been relatively bullish, despite the broad
market declines in 2002 and Harrah's Entertainment is one of the
leaders in that industry.  The firm is expanding its presence on
a continuing basis and company officials announced Thursday that
Harrah's would buy a 95% stake in Louisiana Downs racetrack with
plans to initiate extensive renovations, including installation
of slot machines and other gaming devices.  The stock reacted
favorably to the announcement and traders who believe issue will
climb higher in the coming weeks can attempt to profit from that
outcome with this speculative position.

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  SEP-50.00  HET-IJ  OI=814  A=$0.50
SELL PUT   SEP-42.50  HET-UV  OI=512  B=$0.40

Note:  Using options, the position is similar to being long the
stock.  The initial collateral requirement for the sold (short)
put is approximately $1,450 per contract.

TTWO - Take-Two Interactive Software  $25.10 *** Earnings Play ***

Headquartered in New York City, Take-Two Interactive Software
(NASDAQ:TTWO), is an integrated global developer, marketer,
distributor and publisher of interactive entertainment software,
games and accessories for the PC, PlayStation, PlayStation2,
Xbox, Nintendo GameCube, and Nintendo Game Boy Advance.  The
company publishes and develops products through its wholly owned
subsidiary labels: Rockstar Games, Gotham Games, Gathering of
Developers, Joytech and Global Star.  The firm maintains sales
and marketing offices in Cincinnati, New York, Toronto, London,
Paris, Munich, Vienna, Copenhagen, Milan, Sydney and Auckland.

Shares in video game publisher Take-Two Interactive Software
rallied to a recent high Thursday after an industry analyst said
he expected the company's third-quarter results to top estimates.
Take-Two is scheduled to report earnings next week, but unless
the numbers are stellar, the issue could retreat to the bottom
of the current range near $20, just as it did after the quarterly
announcement in June.  Traders who believe the stock has little
chance to move above $30, regardless of the posted results, can
attempt to profit from future downside activity with this play.

PLAY (speculative - bearish/synthetic position):

BUY  PUT   SEP-20  TUO-UD  OI=1143  A=$0.40
SELL CALL  SEP-30  TUO-IF  OI=1395  B=$0.30

Note:  Using options, the position is similar to being short the
stock.  The initial collateral requirement for the sold call is
approximately $550 per contract.

HSY - Hershey Foods  $75.75  *** Distressed Sale? ***

Hershey Foods (NYSE:HSY) and its subsidiaries are engaged in the
manufacture, distribution and sale of consumer food products.
The company produces and distributes a broad line of chocolate
and non-chocolate confectionery and grocery products.  Hershey's
principal product groups include chocolate and non-chocolate
confectionery products sold in the form of bar goods, bagged
items and boxed items; and various grocery products in the form
of baking ingredients, chocolate drink mixes, peanut butter,
dessert toppings, and beverages.

The planned sale of Hershey Foods is in jeopardy, due not only to
legal issues but also to the lack of potential suitors at the
asking price ($12 billion), and analysts are saying the odds are
low that an acquisition will occur in the coming weeks.  Problems
with antitrust regulations have weighed heavily on negotiations
with Nestle and now the Swiss company's executives have decided
to pursue a deal only if Hershey's price tag falls closer to $11
billion, slightly below $80 a share for the popular candy-maker.
If that's the best offer on the table and there is a chance the
deal might not go through in the near-term, then this position
offers reasonable speculation for aggressive traders.

PLAY (conservative - bearish/synthetic position):

BUY  PUT   SEP-65  HSY-UM  OI=1012  A=$0.70
SELL CALL  SEP-80  HSY-IP  OI=9077  B=$0.75

Note:  Using options, the position is similar to being short the
stock.  The initial collateral requirement for the sold call is
approximately $2,650 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.

COCO - Corinthian Colleges  $37.25  *** Hot Sector! ***

Corinthian Colleges (NASDAQ:COCO) is a private, for-profit,
post-secondary education company, with over 25,000 students
enrolled in its programs.  The company currently operates 56
colleges in 20 states, including 17 in California and nine in
Florida, and serves the segment of the population seeking to
acquire career-oriented education.  The firm offers a variety
of master's, bachelor's and associate's degrees and diploma
programs through two primary operating divisions.  The firm's
Corinthian Schools subsidiary operates 35 diploma-granting
schools with curricula primarily in the healthcare, electronics
and information technology fields, and seeks to provide its
students a solid base of training for a variety of entry-level
positions.  The company's Rhodes Colleges subsidiary operates
21 degree-granting colleges, and offers curricula principally
in business, healthcare, information technology and criminal

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-30  UCS-UF  OI=96  A=$0.25
SELL PUT  SEP-35  UCS-UG  OI=89  B=$0.85
PROFIT POTENTIAL(max)=15%  B/E=$34.35

NKE - Nike  $43.18  *** The Sell-Off Continues ***

Nike (NYSE:NKE) principally is engaged in the design, development
and worldwide marketing of footwear, apparel, equipment and other
clothing accessory products.  Nike sells its products to over
17,000 retail accounts in the United States and through a mix of
independent distributors, licensees and subsidiaries in over 140
countries around the world.  Virtually all of Nike's products are
manufactured by independent contractors.  Most of the company's
footwear products are produced outside the United States, while
apparel products are produced in the United States and abroad.

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-50.00  NKE-IJ  OI=849  A=$0.20
SELL CALL  SEP-47.50  NKE-IW  OI=532  B=$0.45
POTENTIAL PROFIT(max)=14% B/E=$47.80

UTX - United Technologies  $59.39  *** Trading Range? ***

United Technologies Corporation (NYSE:UTX) provides a range of
high technology products and support services to the building 
systems and aerospace industries.  The firm conducts its many
businesses through four segments: Otis (elevators, escalators,
automated people movers and service); Carrier (commercial and
residential heating, ventilating and air conditioning (HVAC)
systems and equipment, commercial and transport refrigeration
equipment, and aftermarket service and components); Pratt &
Whitney (commercial, general aviation and military aircraft
engines, parts, service, industrial gas Whitney turbines and
space propulsion); and Flight Systems (commercial and military
helicopters, parts and service, and aerospace products and
aftermarket services).

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-70  UTX-IN  OI=1745  A=$0.10
SELL CALL  SEP-65  UTX-IM  OI=3248  B=$0.55
PROFIT POTENTIAL(max)=11%  B/E=$65.50

XL - XL Capital  $73.61  *** Insurance Sector Slump! ***

XL Capital (NYSE:XL), formerly EXEL Merger Company, is a provider
of insurance and reinsurance coverages and financial products and
services to industrial, commercial and professional service firms,
insurance companies and other enterprises on a worldwide basis.
The company provides property and casualty insurance on a global
basis and generally writes specialty coverages for commercial
customers.  Specific lines of business written are third-party
general liability insurance, environmental liability insurance,
directors/officers liability insurance, professional liability
insurance, aviation and satellite insurance, employment practices
liability insurance, surety, marine insurance, property insurance
and other insurance covers, including program business as well as
political risk insurance.  Premiums written vary by jurisdiction
principally due to local market conditions and legal requirements.

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-85  XL-IQ  OI=58    A=$0.30
SELL CALL  SEP-80  XL-IP  OI=1416  B=$0.85
PROFIT POTENTIAL(max)=14%  B/E=$80.60

                   - STRADDLES AND STRANGLES -

Despite the recent decline in implied volatility, there are very
few issues that meet our criteria for favorable debit straddles.
However, these stocks have relatively inexpensive option premiums,
a history of adequate price movement and the potential for some
volatility in their sectors and/or industry groups.  As with any
positions, they should be evaluated for portfolio suitability and
reviewed with regard to your strategic approach and trading style.

SRNA - Serena Software  $15.21  *** Technology Volatility ***

Serena Software (NASDAQ:SRNA) is the Enterprise Change Management
(ECM) industry leader.  For over twenty years Serena has focused
exclusively on providing application change management solutions
to the world's leading enterprises, and today its products are in
use at over 2,750 customer sites, including 42 of the Fortune 50.
Serena leads the way in ECM by offering a single point of control
to manage software code and Web content changes throughout the
enterprise, from the mainframe to the Internet.  This ensures the
application's availability and speeds time to market, while also
reducing development costs.  With headquarters in California, the
firm serves customers worldwide through local offices and an
international network of distributors.

PLAY (very speculative - neutral/debit straddle):

BUY  CALL  SEP-15.00  NHU-IC  OI=112  A=$1.20
BUY  PUT   SEP-15.00  NHU-UC  OI=132  A=$0.95

DQE - DQE Incorporated  $15.01  *** Probability Play ***

Headquartered in Pittsburgh, DQE (NYSE:DQE) delivers essential
energy products and related services.  Its principal subsidiary,
Duquesne Light Company, is a leader in the transmission and
distribution of electric energy, offering unique technological
innovation and superior customer service and reliability to more
than a half million direct customers throughout southwestern
Pennsylvania.  AquaSource, a subsidiary, is a water resource
management company that acquires, develops and manages water and
wastewater systems and complementary businesses.

PLAY (very conservative - neutral/debit straddle):

BUY  CALL  NOV-15.00  DQE-KC  OI=340  A=$0.85
BUY  PUT   NOV-15.00  DQE-WC  OI=205  A=$1.00


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