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Daily Newsletter, Sunday, 10/13/2002

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The Option Investor Newsletter                   Sunday 10-13-2002
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: Is October Synonymous with Bottom?
Futures Market: Octoberfest! on 1st Green Weekly Close in 7 Weeks
Index Trader Wrap: Not only "present," but found!
Editor’s Plays: (See Note)
Market Sentiment: Behind the Curtain
Ask the Analyst: A Lesson In the Basics
Coming Events: Earnings, Splits, Economic Events

Updated on the site tonight:
Swing Trade Game Plan: Expecting a pullback, after bears take profits


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
         WE 10-11       WE 10-4         WE 9-27          WE 9-20      
DOW     7850.29+321.89 7528.40 –63.58  7701.45 -284.57  7986.02 -326.67
Nasdaq  1210.47+774.16  436.31 – 9.13  1199.08 - 22.00  1221.08 - 70.28
S&P-100  422.68+ 19.46  403.22 – 4.03   413.22 - 10.68   423.90 - 20.34
S&P-500  835.32+ 35.04  800.28 –14.70   827.36 - 18.03   845.39 - 44.41
W5000   7873.03+274.41 7598.62-175.00  7872.54 -150.63  8023.17 -417.71
RUT      344.93-  3.05  347.98 –14.29   361.77 -  5.51   367.28 - 22.70
TRAN    2154.67+ 16.99 2137.68 –13.39  2185.17 +  1.15  2184.02 - 62.85
VIX       43.44-  2.84   46.28 + 3.14    43.14 -  1.41    44.55 +  5.24
VXN       58.87-  1.41   60.28 + 2.42    57.86 -  1.22    59.08 +  3.23
TRIN       0.41           1.98            2.09             0.86        
Put/Call   0.93           0.97            0.90             1.16        
******************************************************************

Is October Synonymous with Bottom? 
By John Seckinger
jseckinger@OptionInvestor.com  

The Dow set a multi-year low on Thursday, only to rally 700 
points from Thursday's low to Friday’s high and post its first 
weekly gain since mid-August.  Additionally, volume on the NYSE 
on Friday was an impressive 1.8 billion shares.  More impressive 
was the fact that advancing issues represented almost 90 percent 
of volume.  

Gains in the Nasdaq was equally impressive, as the tech-laden 
index rose 10% from its low on Thursday and, like the Dow, closed 
above its 22 DMA (1199).  Volume on the Nasdaq was 1.7 billion, 
while up volume swamped down volume by a ratio of over 4:1.  
Unlike the Dow, the Nasdaq engulfed the "real body" (candlestick 
term meaning range from open to close) of the prior two weeks.  

The headline catalysts on Friday included in line earnings from 
GE and an upgrade of IBM from Lehman Brothers.  GE's 3Q earnings 
reportedly rose 25% as NBC television and the sale of their 
Internet commerce unit managed to offset weak demand in aerospace 
and power markets. Shares of GE rose $1.61 to $24.21, but failed 
to test its 22 DMA (25.32).  

Shareholders of IBM were rewarded following a Lehman Brothers 
upgrade to "overweight" from "equal weight".  The investment 
house noted that third-quarter earnings for IBM should be in line 
with estimates, adding that information technology spending by 
corporations should improve in 2003.  Shares of IBM on Friday 
rose $6.34 to $63.92 and above its 22 DMA (62.52).  

Another company making headlines was Intel (INTC), ordered to 
play at least $150 million in damages after a Texas-based Judge 
ruled the company infringed on patents held by Intergraph (INGR).  
Intel can appeal the ruling, and has already asked the Judge to 
reconsider his ruling.  Shares of INTC rose 1.04, or 7.33%, to 
15.22 and broke above its 22 DMA (14.72) for the first time since 
late-August. 

These developments seemed to be the catalyst for the Dow rising 
almost 170-points during the first 10 minutes of trading.  Other 
developments include weakness in the bond market and a strong 
rally seen in Semiconductor, Airline, and Retail Stocks.  Just 
before 2 p.m. (EST), the Dow was at 7900 and fueling speculation 
that this rally was more than just traders covering shorts.  

Speaking of the bond market, a rumor on Wednesday began to 
circulate regarding George Soros buying a significant amount of 
U.S. Treasuries.  Reasons for sizable purchases included the fact 
that the European Central Bank (ECB) would lower interest rates 
during their meeting on October 10th.  When the ECB kept rates 
unchanged, Treasury Bonds began selling off from a high of 114-18 
on Thursday to 112-03 during trading on Friday.  The December 30-
year settled on Friday down 1-14 to 112-10.  The question is: If 
Soros was selling Treasuries (and most likely buying stocks) on 
Friday, are there more bond contracts to be sold during trading 
next week? 

As the bond market came under selling pressure, some securities 
fell into the red as well.  One of those was Lucent Technologies 
(LU), losing 17% to 0.58 following news that the company will 
report a wider-than-expected loss in the fourth quarter, cut 
10,000 more jobs, and take billions in charges for severance and 
a decline in its pension assets.  The company also said it 
canceled a $1.5 billion credit line to avoid a likely technical 
default.  

Largely ignored on Friday were economic reports covering 
inflation on the wholesale level, retail sales, and a preliminary 
October Michigan sentiment report.  U.S. wholesale prices rose 
0.1 percent last month after an unchanged reading in August, 
according to the Labor Department.  The "core" PPI, which strips 
out volatile food and energy costs, also rose 0.1 percent in 
September following a 0.1 percent drop.  This reading seems to 
fall into the category of “not deflationary or inflationary”; so 
traders apparently looked elsewhere.  

Overall retail sales, according to The Commerce Department, 
reportedly fell 1.2 percent in September, mainly hindered by poor 
automobile sales.  Excluding autos, September sales actually rose 
0.1 percent.  Then, at 9:45 a.m., the University of Michigan 
preliminary sentiment reportedly fell to 80.4 in October and a 
new 9-year low.  September’s reading came in at 86.1.  The equity 
markets momentarily sold off following the Michigan report (10-
minutes and 53 points); however, bulls were relentless and kept 
the buying enthusiasm in tact.  

Speaking of reports, next week will feature a significant number 
of bellwether companies reporting earnings.  Below is a list of 
only a few of the notable names.  On Monday FNM reports before 
the open, while MYG is scheduled to release earnings after the 
close.  Tuesday features companies such as BAC, ONE, BBOX, C, 
FITB, FRX, FCX, GM, JNJ, LLL, and WFC; all before the open.  
After-the-close on Tuesday includes AMCC, DCLK, HDI, INTC, ISSX, 
MOT, NVLS, RFMD, and TER, all after the close.  

Earnings on Wednesday will highlight companies including BK, BA, 
CAT, KO, FBF, F, GD, GENZ, HON, HI, JPM, MER, PFE, RETK, USM, 
WHR, and WB, all before the open; while AMD, AKAM, AAPL, CDWC, CLS, 
IBM, IWOV, MACR, QLGC, RSAS, SEBL, SYMC, and VIGN are set to 
report after the close on Wednesday.  Thursday is busy as well, 
with BOL, BAX, CEN, CAL, CY, EMC, FO, GP, KEY, MAT, NYT, NOK, MO, 
PNC, PPG, S, LUV, and UNH all before the open.  After-the-close 
involves ATML, ELY, CPWR, EBAY, GTW, HAND, MERQ, MSFT, NT, PBI, 
PMCS, DGX, RATL, SFA, FON, SUNW, SY, and XLNX.  On Friday, BGEN, 
ERICY, MRK, and TLAB are scheduled to report earnings before the 
open.  Busy, to say the least.  

Economic reports scheduled next week includes September housing 
starts on Thursday, with economists' forecasting a 1.636 million 
number versus 1.609 million in August.  Also on Thursday the 
Federal Reserve releases industrial production and capacity 
utilization figures for September.  Forecasts are for industrial 
production to rise by 0.1 percent, after dropping 0.3 percent in 
August.  The capacity utilization is expected to come in at a 
relatively low 76 percent. 

The Philadelphia Fed report, scheduled for Thursday, should be a 
solid leading indicator since it covers the month of October.  
Economists expect it came in at 2 against last month's 2.3.  Zero 
is the break-even mark for growth at the region's manufacturers. 

On Friday, the trade balance for August is scheduled. Economists 
predict a larger trade deficit to 35.2 billion from 34.6 billion 
the month before.  Also on Friday the consumer price index (CPI) 
will be released.  Economists think it grew by 0.2 percent, lower 
than August's rise of 0.3 percent. 

Note:  The US fixed income market is closed on Monday, while 
Canadian and Japanese markets will be closed as well.  

Time for some illustrations.  We begin with the Dow, which closed 
higher on Friday by 316 points, or 4.20%, to 7850.  Following the 
rally seen on Thursday and Friday, is it time to talk about a 
bottom?  As the chart shows, the Dow appears to be overextended 
by being above both its 22 DMA and daily regression channel; 
however, shorts might be patient and wait for prices to fall back 
below the 22 DMA and into the channel before becoming aggressive 
again.  

The objective to the upside is three-fold.  As the chart 
explains, the Dow managed to get back inside a monthly regression 
level (profiled last Sunday) and technicians will now have a 
long-range projection of near 8900.  For shorter-term traders, 
psychological resistance is at 8000.  For those following moving 
averages, traders will most likely look for a test of the 50 DMA 
(8187). When do all of these bullish projections get nullified?  
Most likely when the Dow trades back underneath 7532.  

Chart of the Dow Jones Industrial Average, Daily 




With yields rising on Friday more than any other day of the year, 
traders will once again watch the bond market for confirmation of 
a move in equities.  A chart of the cash bond shows yields now 
above both its 22 DMA and top of regression channel.  I believe 
the key will be (1) earning developments, and (2) possibility 
Soros is not done selling Treasuries and rolling cash into stocks 
(note:  unconfirmed rumor).  Nevertheless, clearly there appears 
to be a shock to the bond market that cannot be ignored.  The 
objective should be for yields to test the 50 DMA, while a move 
back under the 22 DMA will most likely bring back all investors 
who exited during the last few days. 

Chart of the 30-year Treasury Bond, Daily




How are technology stocks looking from a technical perspective?  
After Friday’s rally of 47-points, or 2%, to 1210, this tech-
laden index now sits above its 22 DMA (1199) and two prior 
relative lows set a couple months back.  Note:  Since March, 
every time the Nasdaq rose above its 22 DMA, a test of its 50 DMA 
occurred soon thereafter.  The one exception was on September 
11th. MACD has crossed higher, indicting a change in momentum; 
however, resistance above is numerous.  A descending trend line, 
the top of its regression channel, and its 50 DMA; all located 
within the next 50 points higher (1260).  If the Nasdaq falls 
back below 1200, shorts will most likely become more aggressive.  

Chart of the Nasdaq, Daily 




How about the highly-watched volatility index?  Following 
Friday’s 6% loss to 43.55, it would first appear optimism is 
gaining in strength.  However, a further look only places the VIX 
at the bottom of a well-defined upward channel.  Therefore, I 
would wait until the index trades underneath 41 before expecting 
a significant decrease in the amount of market pessimism.  

Chart of the Market Volatility Index, Daily 




One other highly-watched index that also appears to be at the 
bottom of its upward channel is the US Dollar.  With the 
Greenback underneath its 22 and 50 DMA’s, the possibility of a 
breakdown under 106 continues to enter traders’ minds.  If this 
index can manage to rise above 108, shorts should start covering 
and the likelihood of solid dollar-denominated buying will begin 
to take root.  Note:  Higher dollar should mean higher equity 
prices.  




The last chart is "food for thought," since the month of October 
is far from over and the monthly "hammer" (significant reversal 
indicator) formation cannot be considered successfully achieved.  
Nevertheless, if October ended today, technicians would clearly 
look at this pattern as an attempt by bears to "gauge possible 
depth" of the bottom before covering shorts and allowing bullish 
sentiment to take over.  Note:  The last time a "hammer" 
formation was seen in the Nasdaq, the market went on to rally 
thousands of points higher.  Ok, I don’t expect the same 
magnitude this time; nevertheless, this "hammer" formation should 
increase a trader’s odds when placing a trade to the long side.  

Chart of the Nasdaq, Monthly 



Good luck.  


**************
FUTURES MARKET
**************

Octoberfest! on 1st Green Weekly Close in 7 Weeks
by Alan Hewko
futures@OptionInvestor.com

----------------------------------------------------------------
      Friday's           Friday's       Fri.   Thur.
      Cash Index Close   Futures Close  Highs  Lows
----------------------------------------------------------------
Dow       7850 + 316      7865          7900    7200
SP500      835 +  31       838 + 36      844     767
NDX 100    890 +  41       890 + 45      903     802
Compx     1210 +  47
----------------------------------------------------------------

As previously done, I shall use these abbreviations for this 
article:

ES = E-mini SP500 December futures
YM = E-mini Dow $5 December futures
NQ = E-mini NDX 100 December futures

In round numbers, the difference from Thursday's Day Lows to 
Friday's Day Highs were:

  YM (Dow Jones) : 700 points, closing 650 pts above Thur Low
  ES (SPX)       :  77 points, closing 71 pts above Thur Low
  NQ (NDX)       : 101 points, closing 88 pts above Thur Low

This was Day Two of "Buy the Bad News" as Thursday had some 
simply terrible news from the retailers; and Friday pre-open had 
the following Negative News:

Intel (INTC): Judge rules that Intel's Itanium process may 
infringe on patents owned by Intergraph (INGR).

Intel (INTC): Earnings estimates cut by UBS and Salomon.
Taiwan Semi (TSM) and United Micro (UMC) face Bleak 4th Qtrs.
Wall Street Journal reports a study showing S&P 500 companies' 
face some possible extreme Pension shortfalls. 360 of the S&P500
companies face a $ 243 Billion pension shortfall, the worst
levels since 1993.

Lucent (LU) announces more bad news.

Friday pre-open had the following Good News:
Japan and European markets rallied very hard all day closing at 
day highs with every chart dip being bought.

IBM received an upgrade, causing IBM to gap up 5 points.
General Electric (GE - a Dow stock) reported In-Line earnings.
8:30 AM Economic Data mostly in line with no surprises.

Check Futures Each morning:
For those of you without real-time futures quotes, may I suggest 
each morning you do this as it will provide a sense for the open.
Go to www.livecharts.com (they are FREE delayed quotes, but when 
checking to see what happened in the overnight futures markets it 
doesn't matter they are delayed).

Be sure to click Charts / ALL sessions (24 hrs) to show after 
hours. Set it to 10 or 15 minute chart.

The three Futures Tickers to check: ES02Z which is the E-mini 
SP500 future, NQ02Z (E-mini NDX),and YM02Z (Dow $5 futures). 
That's the number 02 in the ticker for the year 2002, and not the 
letter O as in ocean.

Take a look at Thursday's Overnight Futures Market Chart below:

Chart: ES02Z   E-mini SP500 Futures December contract.
This chart shows from Thursday at 5 PM, sideways the rest of the 
evening, sideways at Friday (Oct 11) 1 AM, and then exploding 
upward when the European markets opened at 3 AM. As you can see, 
they were already UP a great deal (off of Europe) long before GE 
earnings came out, or before news of the IBM upgrade hit.

Please note that ES 815 level at around 6 AM, I will refer to it 
again shortly. You can also see how ES held 809-810 at 8 AM as 
that same number was this past Tuesday's HIGH, and now became 
support.

Chart: ES02Z (S&P500 E-Mini) 5-minute After Hours
 (Overnight Futures Market)


 


Thursday 4:15 PM Futures Close:  ES 803.75, YM 7501, NQ 850

FRIDAY: 
9:30 AM Cash Market Open: ES 817, YM (Dow) 7650, NQ 868
As you can see, the Gap UP was very large. Such large gap days, 
either up or down, can be challenging, as one doesn't know if it 
will be a "Gap and Trap" or "Gap and continue the trend" - Friday 
proved to be the later example.

9:43 AM      ES 823, Dow Cash 7700, NQ 873.
First 13 minutes has the market Gapping UP and running UP.
Not surprisingly, there is some Long profit taking ahead of the 
9:45 AM economic report

9:43 AM to 9:52 AM     ES 815, Dow Cash 7650, NQ 865 * DAY LOWS *
A very bearish Michigan Consumer Sentiment Report (preliminary 
data for October) came out at 9:45 with a number of 80.4 carrying 
expectations of 85.2 and this data sent the ES down a blistering 
fast 8 points to a pivot number of 815. Scroll up a few lines to 
the above chart, remember me asking you to note the ES 815 number 
from 6AM ? After ES sold off from the consumer numbers, guess 
where it paused at? Yup, 815.

Chart: ES (E-mini SP500 Futures). This chart does NOT include the 
Overnight session. It shows where ES closed at Thur 4:15pm (803) 
on the lower left, and from Friday 9:30 AM to Friday 4:15 PM.

Chart: ES02Z (S&P500 E-Mini) Intraday for Friday 10/11/02


 


Chart: NQ (E-mini NDX futures). Thur Close & Friday 9:30AM-4:15PM


 


Scroll back up and read all the pre-market bearish news, factor 
in this very bearish Consumer Sentiment number, factor in the Dow 
index which at 9:52 was still 450 points above yesterday's lows.

A few days ago, Last week, 2 weeks ago - such a scenario would 
have quite simply been the perfect "excuse" to take some Long 
Profits from yesterday. In other words, that very bearish 
consumer number would have been market top for the day, followed 
by 4-5 hours of steady selling to perhaps retrace 1/2 of that Dow 
+500 24 hour gain from Thursday at 10 AM to Friday at 10 AM.

"BUY THE BAD NEWS" however was what happened instead.

I cannot tell you why that became the market tone, merely that it 
was.

As an aside, there was some technical trouble this morning with 
the Market Monitor near 9:50 AM when ES amazingly held 815-816. I 
had tried for 5-10 minutes to send out a "Open a Long" signal but 
by the time the technical glitch cleared up it was simply too 
late to suggest opening a Long at Dow Cash 7750. To be very 
honest, until the 3:45 PM post in Market Monitor today, that was 
the only other Long signal I saw today.

11 AM     ES 833, Dow Cash 7800, NQ 888.
As all three of those numbers were now at or near known 
resistance levels, the only safe trade seemed to be Opening a 
Short at Dow Cash 7800.

It was not obvious once that trade was opened whether it would 
become the type trade that only offered a gain of 35-50 Dow 
points, or might that level, 600 points higher than yesterday's 
low indeed be a trade top before taking the Dow down to the 7650-
7700 level.

The most a trader can do is follow their signals when given, pick 
a minimum profit target, along with an intelligent stop when 
wrong.

While I had wished this trade was as successful as Monday's Long 
ES trade which saw a gain of 10-15 ES points, or this Tuesday's 
ES Short from 809.75 which caught the day high to within one tick 
and seeing a possible gain of between 20-35 points; the market 
only had a small retracement down to ES 826-27 and Dow Cash 7555.

At best, this trade provided a Dow Futures Short gain of 35-40 
points, or $175-$200 per contract; roughly a 20% return on 
investment depending upon broker margin requirements. At worst, 
this trade may have stopped out at/near break-even with no loss.

No News: Once the 9:45 AM consumer numbers were out, there was no 
market moving "News" the rest of the day.

11:30 AM - 1:30 PM     Markets continued to "leak higher" on the 
combination of 1) New Buying, 2) Old shorts from weeks/months ago 
taking more Short Covering Profits, and 3) New shorts testing the 
water, and quickly covering or getting squeezed. 

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

Something to keep in mind about "smart money" Shorts:

Dow was at 10,600 in Jan 2002, Dow was 9000 just 6 short weeks 
ago. SPX was at 1150 in March 2002, SPX was at 1000 in July 2002.
Compx was at 2100 in Jan 2002 and 1600 during the summer.
If "smart money" earlier this spring or summer expected a large 
decline into the historically terrible period of early October; 
they certainly were rewarded very well. No one "knows" how long 
some big money shorts have been holding, but the last two days 
certainly has seen some very happy shorts taking profits as just 
yesterday the Dow made a five-year closing low.

Also for consideration: Given the historical weakness of October, 
perhaps some Funds who were long Stock this spring/summer, 
decided to write some October 2002 calls on their Long Stock 
positions, or buy some deep out-of-the-money October Protective 
Puts.

Both those type October Options must come off in same fashion by 
next Friday and we all know big-money cannot wait (the way retail 
size option traders can) by waiting until Option Expiry Friday to 
take those very large positions off. 

As an example, say a Fund had 1 million shares of Long MSFT 
stock. This spring it was $65-70. Umm, that fund might say, MSFT 
at 70 bucks was an area of resistance before, Q1 2002 earnings 
sure were pretty bad, maybe Sep 2001 really wasn't the bottom. 
Let's write some covered calls. Historically, Early to Middle of 
October every year seems to be the year lows, so lets sell 5,000 
option contracts of Oct MSFT 45 calls and sell 5,000 option 
contracts of Oct MSFT 50 Calls to hedge those 1,000,000 shares of 
MSFT we own. And just in case something very bad happens, lets 
buy 5,000 option contracts of super-cheap MSFT Oct 40 puts as 
some downside protection. (Note: this occurring in spring when 
MSFT was $65-70).

Well now, it's Oct 9th 2002, MSFT is $43, and the Dow is 7200. 
Oct options expire in just 6 more trading days. Ummm, we've had 
lots of companies warn, but we are probably at the end of the 
warnings period; so yea - let's start bringing-in (Take Profits 
on) those 15,000 option contracts (10,000 covered call contracts, 
and 5,000 protective put contracts) we opened this spring when 
MSFT was $25 bucks higher. 15,000 option contracts equals 
1,500,000 shares of stock. Might this create an uptick in MSFT as 
the option market makers receive orders of "Buy" (to Close) 
10,000 contracts along with orders of "Sell to Close" 5,000 put 
contracts"? You bet! Multiply this by XYZ number of firms and 
funds on different stocks and this certainly could be one of the 
reasons for the last two days. Along with some genuine "real" 
buying at some very very over-sold levels (CSCO at $8, IBM at 
$53, GM $31, GE $21s, AIG at $52, etc). Always remember, funds 
buy stock for where they are months if not years from "today" vs. 
the much shorter term approach us common folk must have.

Now that I got that off my chest, back to Friday's action:

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

1:30 PM ES 838-840, Dow Cash 7852 +300, NQ 897 (current day highs)
Once again, similar to the first trade, all 3 of these indices 
are at/near trade strong resistance levels, and the technical 
trade model indicating to Open a YM (Dow Futures) Short with a 
tight 25 point stop.

1:50 PM  Today's 2nd Trade today gets stopped out for a 25-point 
loss.

2:00 PM	ES 844, Dow Cash 7900, NQ 904 * DAY HIGHS * 
Realizing the original idea was correct, simply 40-50 Dow points 
"too early", the 3rd Trade of the day is taken with a YM (Dow $5) 
Short at Dow Cash at 7900.

2:00 PM to 3:30PM     Logical Long Profit taking takes place for 
90 minutes on a slow steady "leak lower" fashion sending Indices 
all the way back to their 11-11:30 AM levels by 3:30 PM.

3:30 PM     ES 826, Dow cash 7765, NQ 877
Dow Cash stops just short of a 150 point profit taking inches 
above the prior support of 7750. If you recall, Dow 7750-7770 had 
been strong support in the prior weeks.

Scroll back to today's charts - notice how at 3:30 PM, while 
coming down quite a bit from the 2 PM Highs, they filled the gap 
from 11-11:30 AM? And once that Gap Filled, they rebounded from 
the 11 AM levels.

Trade 3 generates profit of between 50 to 75 Dow points on 1/2 
the position, and 100 Dow points on the 2nd half of the position. 
Maximum potential profit on the trade was about 130 Dow points. 

3:45 PM The below was the Market Monitor post from 3:45 PM and 
makes the attempt to answer some reader emails regarding Futures 
Margin requirements.

  "3:54:38 PM Futures Index Trade 3 EXIT:
  From the YM (Dow Futures) short from Dow 7900 Cash, the 
  previously suggested target of +100 (or more) point gain was  
  reached as Dow Cash touched 7765. 

  Shall use this trade to answer some reader emails on Futures 
  Margin and % of returns: Depending upon your entry from Dow 
  Cash 7890-7900 area, the trade generated a gain of +100 points 
  - at $5 per Dow point this is a $500 gain per contract, and as 
  Dow margin requirements per contract average $800 for daytrades 
  this would represent a Net gain of 62%.
 
  The Futures Index will not generate any more Trade signals 
  today going into the weekend Flat. If forced to make a guess on 
  the last 20 minutes, I wouldn't be surprised to see one final 
  attempt on Dow Cash 7800/ES (Sp 500 futures) 830."

3:45 PM to 4:15 PM Futures Close:

Once the market did a Gap fill from its 2 PM Highs down to the 
levels it was at from 11-11:30 AM - my view is that Futures 
Shorts tried to press ES (826-827 at the time of 3:30 PM) under 
the support of 823-825, and tried to press the Dow under the 
7700-7750 levels; both of which COULD have resulted in continued 
selling from 330PM straight into the close.

Shorts could only take it to the 826-827 level, and once it 
became obvious it wasn't going to go any lower, "last minute" 
shorts covered the rest of the day right into the Close. 

I wasn't surprised to see at attempt to run ES back to 830-832 
level, or to attempt to ramp up the Dow from 7765 to try and get 
it back over 7800. That didn't surprise me.

However, I was surprised to see the strength of that closing 
rally, as ES ran 8 points in 30 minutes, and the Dow about 80, NQ 
about 12 during the final 30 minutes of the Cash Market (3:30 PM 
to 4 PM).

Futures were still going up into their 4:15 PM close, with the ES 
tacking on an additional 3 pts to close 838, YM (Dow futures) 
adding on 40.
4:00 PM Cash Close     ES 835, YM 7820, NQ 892
4:15 PM Futures Close  ES 838, YM 7865, NQ 894
5:46 PM News : GE files $50 billion shelf registration

Recap of Friday's Futures Trades from OI's Market Monitor:
Chart: Dow Jones Industrials - Intraday Friday 10/11/02


 
Futures Trade model came into Friday FLAT.

Technical posting problem never allowed the 9:50 AM Long trade to 
originate. (In all candor, I only "saw" 2 safe-longs all day, the 
one at 9:50 AM that I wasn't able to post, and the 3:30 PM Long 
at ES (sp500) 827). By the time the morning posting problems were 
resolved, the first trade was at 11 AM.

Trade 1: 11 AM : Short YM (Dow Futures) at Dow Cash 7800.
Suggested target of either 35 to 50 points, or perhaps hold for 
much more. After-trade reflection: At Dow 7800 (up 600 from 
yesterday on no real news), this short entry made sense. The 
market "could" have sold off to Dow 7650 very easily and still 
maintained it's new "up" trend. However, that was not the case as 
the Dow never even challenged the support at 7750 as the low was 
7760. This Trade either made anywhere from 35 YM points or $175 
(at lower level of suggested target) for a Dollar gain of 22% 
based on $800 margin per contract. At worst, it was a Break-even 
trade. The entry made sense, market simply didn't co-operate, and 
the good rule of "its better to take a 22% gain, than holding on 
and possibly losing money" came to mind.

Trade 1 Result: Gain of 35 YM points, $175 (22% gain) at best, 
Breakeven at worst, $ 0 (0% gain)

Trade 2: 1 PM Area: Short YM (Dow $5 futures) at Dow Cash 7850-
60.

Suggested a Tight 25-point stop from the Entry price. Dow 7850-60 
had been a large support area, and usually would now become an 
area of resistance. Profit target was 50 to 100 points. Within 
15-20 minutes of entry, this trade was stopped out for a loss of 
25 YM points.

Trade 2 Result: Loss of 25 YM points, $ -125 (15% loss).

Trade 3: 2 PM: Short YM (Dow $5 futures) at Dow Cash 7900.
Same tight stop of 25 points, with a target of at first 50 to 75 
points. The 1 PM trade was correct, simply 40-50 Dow points too 
early. This Dow level also matched known resistance levels on ES 
(SP500 futures) of 843, and NQ (NDX 100 futures) of 902-905. This 
trade entry was correct, opening the short at the exact day high.

2 exits were suggested, 1/2 size of your position for a gain of 
between 50 to 75 points at 2:42 PM; and the remaining 1/2 size to 
be covered for a gain of 100 points which hit at approx. 3:30 PM 
when Dow Cash go to it's afternoon low of 7760.

Trade 3 Result: 
1/2 Position Size: Gain of 50-75 YM (Dow $5) points, average of 
62.50 points x $5 per point = $312.50 per contract, or a 39% gain 
based on $800 of margin per each YM Dow $5 futures contract.
1/2 Position Size: Gain of 100 YM (Dow $5) points x $5 per point 
= $500 per contract, or a 62% gain.

Friday gains/losses summary: + 22% or 0%, - 15%, +39%, +62%
The possible Long signal given at 3:43 PM (ES 827, YM 7765)for 
the final 30 minutes of the Future session was not actually taken 
given the lateness of the day, but did work as ES (SP500 futures) 
closed at 838, and YM (Dow$5 futures) at 7865. Merely as a 
continued effort to explain % rate-of-return regarding futures 
margin, if that Long signal at 3:43 PM had been taken, it would 
have given an ES gain of 10 points, or $500 (10pts x $50), or a 
50% return based on margin. A similar YM Long would have gotten 
about 90 YM (Dow $5) points, or $450 gain equal to a 56% return. 

Futures Trade model is Flat going into the weekend.

-----------------------------------------------------------------
 
Thoughts for Monday:

Monday is Columbus Day, Bond market is Closed; Stocks, Options 
and Futures markets are Open. Volume may be impacted to downside.

So what happens next week?

Dow over 8000 - or - revisiting Dow 7500-7600 - or both? [grins]
Are Shorts who shorted (and are still holding) Thur & Fri 
worried?

Are Mutual Funds worried about missing the Dow 7200 "market 
bottom"?

Are Shorts who covered to flat on Thursday morning at Dow 7200-
7400 for huge profits licking their chops to re-short at higher 
levels?

Do we creep higher during next week's large amount of earnings as 
companies meet vastly lowered Q3 earnings expectations?

Contrary to the fact that the three trades on Friday were Shorts 
(with one small gainer, one small stoploss, and one Nice Winner); 
by nature, I'm often reminded of a quote:

I'm not Bullish - I'm not Bearish - I'm a Trader.

Jeff Bailey in his comments the last few days has done a great 
job explaining what the Bond market has been doing which may also 
be adding to the reasons the Equities and Futures markets are 
upticking so strongly.

I have little doubt in my mind that the last 30 minutes of 
Friday's action was last-minute shorts covering. That doesn't 
change the fact that Dow closed at 7850 and Compx over 1200.

The next large resistance for ES is 850-853, 872; and this would 
match up with Dow 7950-8000, 8150-8300.

I would consider Dow support now at 7600-7650; and ES support at 
818-823, and NQ at 850-870.

Next week is Option Expiry Week. We've seen this before: the 
market goes strongly in one direction for an entire month, and 
then the Wed or Thur before Option Expiry, the market does a 
complete 180 turn. Also, during spring and summer months, big-
money tends to like October contracts, so there may be a lot of 
Oct option contracts being unwound.

Market has gone from terribly oversold to terribly overbought in 
two trading days.

First, don't look backward this weekend: Don't become upset with 
yourself for not backing up the truck with Longs Thursday morning 
at Dow 7200-7300. I'm lucky - I was away Thursday until later in 
the morning, and since I wasn't here for Dow 7200 - I'm not now 
beating myself up on 'missing the bottom' [grins]. We've seen 
many "one-day wonders" give back 1/2 their gains the next day. 
But not Friday. However that doesn't mean it won't happen next 
week.

Here is a 30-Day Dow Chart for some perspective:


 



You say you want some Earnings?
 
Next week has a slew of them...

Some of the more important ones: 

Monday:   
Fannie Mae (FNM), Maytag (MYG)

Tuesday:  
Bank Stocks of C, BAC, ONE, STT, Wells Fargo (WFC); General 
Motors GM), Delta (DAL), Forest Labs (FRX) [is FRX a sell-the-
earnings-news stock or does it see 100 first], JNJ, LLL (defense 
stock), MLNM, MOT, Key Semi stocks of Intel (INTC) and Novellus 
(NVLS), Washington Mutual (WM)

Wednesday:  
Alcan (AL), Boeing (BA), Caterpillar (CAT), Coke (KO), Ford, 
Honeywell (HON), JPM (perhaps with some insight to their many 
problems), MER, Pfizer (PFE), Dow stock UTX, Whirlpool (WHR), 
AMD, CLS, IBM, Kraft KFT, QLogic (QLGC), Siebel (SEBL), Symantec 
(SYMC)

Thursday:  
Baxter (BAX), Colgate (CL), Cummins (CUM), Cypress Semi (CY), 
EMC, IR, Mattel (MAT), New York Times (NYT), Nokia (NOK), 
Northrup Grumman (NOC), Phillip Morris (MO), SAP (large European 
software stock), Sears (S), United Healthcare (UNH), Broadcom 
(BRCM), CHKP, EBAY, Fairchild Semi (FCS), Gateway (GTW), MERQ 
software, MSFT, Nortel (NT), Peoplesoft (PSFT), RATL, SUNW, 
Sprint (FON),
 
Friday: 
Avon (AVP), Biogen (BGEN), ERICY, Merck (MRK), TLAB

And folks - this huge list is just what I consider to be 
"important" earnings as there are many more other companies 
reporting who are not listed above.

I count * 14 * of the 30 Dow Stocks reporting earnings next week.
In my view, the obvious extra-important earnings are : C, GM, 
INTC, NVLS, BA, JPM, IBM, MSFT, SAP, MRK

Many stocks who report this coming week have already warned, or 
have had analysts downgrade / reduce their expected earnings to 
greatly lowered numbers.

The obvious question is how much of the non-impressive Q3 
earnings this week is already Priced Into the stock or the 
market.

For Monday morning : 
Guess would be some Long profit taking occurs Monday; as even a 
Bull would agree that some retracement is healthy. I also realize 
the Short Squeeze could send em higher.

I would use the Dow's 7800-7850 level to get a sense of market 
direction. In the larger view, one target might be a possible 
exhaustion top near Dow 8000-8100; and the other target towards 
the 7550-7650 level.

It's almost impossible to "know" what the market will do the next 
day, the best one can do is form thoughts of "If A happens, then 
maybe B might happen". 

October History:
This market has seen many Bear Market rallies coming from deeply 
oversold conditions fizzle away after just 1 or 2 days.

However, go back and look at the charts from October 2001 and 
July 2002 for an example of a complete trend reversal as the 
markets simply continued higher and higher.

Earlier this week I had written that on prior years, the Oct 8th 
to Oct 15th time period historically has been a Key Market 
Bottom, with that bottom lasting for many months.

This is not to say October 10 2002 will be the "bottom" for the 
next several months, but it's always a good idea to have 
Historicals in mind. History has the period from November to 
April as the months giving the best bullish returns. Do yourself 
a favor and take a look at how the market has traded from Mid-Oct 
/ early November going into April on prior years. If October 10th 
2002 does indeed become the Yearly Low, this would make the 5th 
year in a row that the "bottom" came between in early to middle 
October (2001's market bottom was a bit early, due to 9-11, in 
the period of the last week of Sept going into early October).

Is it possible that October 10th actually is not "Year Bottom" 
and once all the October earnings are done, that the market rolls 
over yet-again going into the year-end and sends the Dow down to 
the 6900 level many have spoken about, or Compx 1000. Anything is 
possible... Unlike a mutual fund, I would rather focus on what 
may or may not happen this week vs. what may happen in December 
2002.

Over the last few months, a Trader who was too bullish on the Buy 
side may have gotten chewed up pretty bad. 

Over the last few months, a Trader was rewarded if they mostly 
traded from the Short Side - but it also becomes possible to get 
so used to Shorting you get chewed up now on the Short side if 
the market does continue to reverse itself to a bullish tone.

I am not suggesting buying with reckless abandon and holding till 
April, nor am I suggesting blindly shorting.

Don't be a Bull, don't be a Bear - simply trade the tape 
observing Key support and resistance numbers, pivots from prior 
occurrences, retracement levels, and always keep your Stops tight 
and also important is to form a Profit target and take it when 
hit.

A reader wrote re the trade I suggested on Friday at 2 PM in 
Market Monitor "Great job getting a Dow short off at Dow 7900, 
but why did you only take 100 points on it? Why didn't you hold 
it? Looks to me Dow is going back to 7500 pretty soon"

The answer relates to Profit Targets: A gain of 100 Dow points 
was my objective for the trade, a Buy order (to cover) was 
suggested to be placed to give anyone following the trade a 100 
point gain. In other words, the buy to cover order was placed 
BEFORE it traded there. A YM (Dow $ 5 Futures) gain of 100 points 
is a rather respectable 62% gain. At 3 PM Friday, I had no view 
where the market MIGHT go next week, but instead created a profit 
target (100 points) and it was achieved. It never hurts taking 
Profits (long or short) in this whip-saw market. Also, placing 
that Buy (to cover) order BEFORE it hit, prevents one from 
perhaps trying to become too greedy. (only to find those gains 
wiped away, perhaps even becoming a loss)

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


This marks my 2nd Sunday Futures Wrap article; and early next 
week, I would like to do another Futures Article in a Q&A format. 
Many emails have come in asking a range of questions on : Pivots, 
explaining Margin, rate of return percent-wise on a trade, 
hedging options with futures, where to get real-time Futures 
quotes, futures brokers, the different type of online futures 
trading platforms, how much each index point move is worth, etc. 
Some of these questions were answered in the 2 Futures articles I 
wrote, and they can be viewed at:

10/8/02 Using Futures to Hedge a Stock or Options position: 
http://www.OptionInvestor.com/traderscorner/100802_1.asp

10/7/02 Futures Primer article on Futures Basic Information:
http://www.OptionInvestor.com/traderscorner/100702_1.asp

One Futures Q&A (questions and answer) article cannot answer all 
the different subjects you have asked me to answer; so I would 
appreciate getting a poll from you the readers as to what 
questions you yourself have on anything Futures related and that 
you would like to see covered in a Future's Q&A article for later 
next week.

Please email them to futures@OptionInvestor.com 

And if you could, put the words "Futures Q&A topic" in the email 
subject line.


Thank you for all your kind emails, I've done my best to read 
them all.


Alan Hewko


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

Not only "present," but found!

In last weekends Index Wrap, we were still bearish, but thought 
signs of a rebound were present.  No, it wasn't the economic 
data, nor earnings reports, but the bond market that may have 
been signaling a turn higher for stocks.  

After a rough start earlier in the week, stocks staged impressive 
rallies the last two sessions and managed to finish the week on a 
positive note.  

For the second straight week, the benchmark 10-year YIELD 
($TNX.X) rose as bond bulls relinquished their grip on perceived 
safety and put some money to work in stocks.  That DIVERGENCE we 
noted in last week's weekly index summary seemed to be the "heads 
up" as stocks posted their first weekly gain after a 7-week 
losing streak.

Before we look at some charts, lets quickly review our weekly 
major market index and sector numbers to see where the money was 
flowing.  Not all of the money coming from the bond market was 
responsible for this weeks rise in stocks.  Nor, sir/mam.  Bears 
were also hard at work locking in their gains and buying back 
borrowed shares.  Aside from the Russell 2000 (RUT.X) 344.93, the 
major indexes all showed gains.

Weekly Index / Sector Changes


 

The Dow Industrials are perhaps the bullish index traders "best" 
risk/reward trade in the coming months.  If the bottom is to be 
found, this group of stocks that are more deeply rooted in the 
U.S. economy should attract more institutional capital in a 
concentrated index.  This week's 4.3% gain was nothing to sneeze 
at.

The NASDAQ-100 Index (NDX.X) jumped 9.2% on the week, as this 
index's most heavily weighted software and biotech sectors posted 
strong gains.  Biotech's have held up the best on a relative 
basis this year (-44%) when compared to other technology sectors, 
while the third-quarters -8% decline also held top relative 
strength category.  When looking at the year-to-date relative 
strength and Q3 relative strength, this weeks more modest 5.9% 
gain compared to Software, Semiconductor, Internet and Fiber 
Optic hint that the latter mentioned sectors benefited most from 
short covering.  It's always been my thinking that "smart money" 
tends to stick with what's been working and performed best on a 
relative basis before the catalysts actually present themselves.

Concerning to a bull's thoughts of a market turnaround are the 
lagging of the financials (Banks and Brokerage).  Insurance 
carriers are looking strong, but that group is better able to 
raise premiums to fuel the bottom line, where the MARKET appears 
to be cautious of the banks and bad credit exposure.  A bull 
wants the banks to rebound further as a MARKET signal that all is 
well.  Brokers will benefit only from higher stocks prices, which 
would lead to greater trading volumes and new investment banking 
deals like secondary offerings and initial public offerings 
(IPOs) that come with a rejuvenated equity market environment.
Currently, its the "lagging" banks sectors that will have a bull 
cautious.

Also concerning is the "lagging" in the deeper cyclicals as 
depicted by the Cyclical Index (CYC.X) 408.78 +5.42% and Forest 
Paper Products Index (FPP.X) 246.29 +4.87%.  Both sectors caught 
fire on Friday after setting 52-week lows intra-day on Thursday.  
Look for these two sectors to "outperform" to the upside if a 
market bottom is to be found.

While little "economic" significance is found in the healthcare 
arena, Drugs, HMO's and broader healthcare perform well on a 
relative basis.  Despite extreme broader market negativity and 
price performance, these groups haven't seen the mass redemption 
of cash.  Look for any "rising tide" in the broader market 
averages to only help underlying bullishness that has been washed 
out by broader market negativity.

A broader market equity bull most likely views the negative 
Gold/Silver Index (XAU.X) 62.52 +2.98% action as a positive.  
This sector has been the DIVERGING sector on a year-to-date 
basis, and lower price action in this group in recent weeks hints 
that market psychology may be losing its "fear factor."  

And finally, and perhaps MOST IMPORTANT, is that Treasuries found 
selling for the second week, and indeed may have been last week's 
"best hint" that equities were poised for a rebound.  Over the 
next two weeks, an equity bull would want to see Treasuries find 
selling (higher YIELD) in at least one of the two weeks.

Last week, I felt that the higher YIELD as depicted by the 
benchmark 10-year YIELD ($TNX.X) might signal a turn higher for 
equities, and that looks to have been a good observation.  This 
weeks higher YIELD also portends good things for equities in the 
coming weeks.

While I think this weeks "rebound" may have been a little 
"overdone" to the upside, I do think that a pullback in the 
indexes offers good entry points for bulls.

For any investor/trader that feels he/she has "missed the bottom, 
then simply go back to the spreadsheet shown above, and reassess 
those thoughts.  For any bull that thinks the markets have 
rallied too much and that there's little "rally potential" left, 
then they too should review the above spreadsheet and the bullish 
% charts.

Speaking of bullish %

This week's action did find the NASDAQ-100 Bullish % ($BPNDX) 
from www.stockcharts.com reversing up into "bull alert" status.  
Last Friday, this indicators was reading 17%, it fell to a low of 
13% on Wednesday, and reversed the needed 3-boxes to 22% after 
Friday's action.  This now has NASDAQ-100 Index Trader's taking 
1/4 or 1/2 bullish positions on a longer-term basis 
(November/December expiration), while index bears should have 
reduced exposure to MAXIMUM 1/4 or 1/2 in recent sessions.  
Again, the bullish percent do NOT tell us anything about price 
direction, but DO tell us EVERYTHING about RISK.  Bears have had 
ample opportunity in the "oversold" area below 30% to limit 
exposure and take profits and there are no excuses for an account 
that gets sideways should a short-covering rally continue.

As noted before, the NASDAQ-100 Bullish % ($BPNDX) is the more 
volatile and quicker changing bullish %.  We usually look for it 
to show INTERNAL WEAKNESS first and INTERNAL STRENGTH before the 
other bullish % indicators due to the volatility of the 
technology stock components.

Usually the LAST bullish % to reverse course up or down is the 
more institutionally owned/traded NYSE Bullish % ($BPNYA).  I 
didn't see/understand/observe this chart until Friday night.  
While I keep track of all the bullish % on a daily basis to get a 
feel for the market's internals, this chart shows some very 
interesting and potentially bullish characteristics from the both 
the "risk level" and what took place the last mid-term election 
year.

For listed stock traders in the NYSE, here's a chart of the NYSE 
Bullish % ($BPNYA) that deserves some attention.  Again... I 
can't explain the "whys," but this market/index tends to show 
reversals higher from this level of bullishness and risk.

I also want to "look back" to the last mid-term election year and 
the month of October, which historically has been a bullish 
seasonal period.  For the 4th quarter, the months October (A), 
November (B) and December (C) are noted on the charts.  The last 
mid-term election year was 1998.

NYSE Bullish % ($BPNYA) Chart - 2% box


 

The chart of the NYSE Bullish % ($BPNYA) gives index traders and 
investors alike a snapshot view at how the third-quarter (October 
(A)-early January (1)) seeing the NYSE internals improve and 
become more bullish.  1998 was the last mid-term election year 
and the NYSE Bullish % improved markedly from an oversold level 
in September (9) and October (A).  

Here's a quick look at the bar chart of the NYSE Composite in 
late October 1998.  The markets were going to heck in a hand 
basket....

NYSE Composite ($NYA.X) - Fourth-quarter 1998


 

Key points.  The NYSE Composite looked terribly weak on October 
8, 1998 and broke to an intra-day low, but was QUICKLY REVERSED 
higher.  Obvious NOW that the breakdown TRAPPED some BEARS.  A 
trader DID NOT have to take a FULL POSITION to make some money by 
late December.  A simple 1/4 position would have been nice in 
some at the money calls.

Just for "fun" lets do something with the NYSE Composite, but 
this time, in PRESENT day and see if there's anything suspicious 
taking place.  Again... the NYSE Bullish % ($BPNYA) is also at a 
SUSPICIOUSLY low level where it has found reversals in the past.  
I know, I know.... this time its different.  But what if it 
isn't?

NYSE Composite ($NYA.X) Chart - Daily Interval


 

Oh my!  That 52-week low on Thursday, which was quickly reversed 
becomes very suspicious in my mind.  The NYSE Composite has 
rallied right back to 19.1% retracement, very similar to that 
found in 1998.  Also similar is the testing of the 21-day (pink) 
simple moving average.  Something's "up" with a two-week higher 
Treasury bond YIELD, some rather "quick" reversals in the indexes 
and some historical bullishness starting to show through.

Option expiration is this week and I'm expecting some volatility.  
I'm now about 60% bullish and 40% bearish in my posture.  If I 
could get a pullback into the NYSE 435 level, that would be a 
level to look for some pullback call entries in other indexes.

Now... that's my BIG picture view.  Let's be a little more 
"reasonable" perhaps and look at some of the other indexes with a 
tighter range of retracement.  Here I'll be anchoring to the 
recent lows as if to "call a bottom" and anchor to the recent 
highs of late August.

Dow Industrials Chart - Daily Interval


 

A good test of technical strength as it relates to retracement 
would be to note that since the decline in August, anytime the 
Dow Industrials traded a lower level of retracement, it hasn't 
broken above the previous higher level of retracement on a 
closing basis.  Until Friday at least.  This is DIVERGENCE from 
the past and should now have bears more eager to cover on any 
pullback near 7,621.  That also becomes a pullback entry point 
for bulls.  Should the Dow break above 7,959 or psychological 
8,000, a move bullish move can take place as it further applies 
pressure for bears to cover.  When considering the Dow 
Industrials Bullish % ($BPINDU) was as low as 6.66% just recently 
and currently reads 13.33%, bears certainly understand the HIGH 
RISK for bears condition that they've been in, and are still in.

Again... there's a lot of work to be done before a bull should be 
OVERLY AGGRESSIVE in his/her call buying. On October 1st, I 
profiled a partial position in the DIA Nov. $80 calls (DAVKB) at 
$3.80 and they're currently offered $2.90.  For those that don't 
OVERLEVERAGE in their option trading and don't trade stops, there 
is still plenty of time until November expiration and 87-90 is 
still a reasonable bullish target.  Currently looking for the Dow 
Industrials Bullish % ($BPINDU) to reverse higher and need a 
reading of 14% to get it.

S&P 500 Index Chart - Daily Interval


 

Thursday night, I was looking for some type of "confirmation" and 
a break of downward trend in the indexes.  Boy did we get some on 
Friday.  I personally didn't "chase" the move from the bullish 
side and now look for a pullback call entry point, which this 
weeks option expiration volatility might just create.  Thursday's 
"dip" lower and QUICK reversal followed by break of trend sets up 
the "trap" that bears may have found themselves in and should 
find the 800 level firming up as support.  Can establish 1/4 to 
1/2 bullish positions here, then look to round out on a move 
above 856 or the 50-day SMA of 875.  

Still cautious here as a trader (bullish and bearish), as I'm 
following the S&P Banks Index (BIX.X) 261.78 +4.41%.  If you've 
never been a "believer" in retracement, then recent weeks action 
might just convert a trader.  An S&P Index Trader doesn't need to 
trade the banks, but understanding how this group impacts S&P 
index performance is important.

S&P Banks Index Chart - Daily Interval


 

Is there a banking crisis about to unfold in the U.S.?  "Smart 
money" knows the answer.  All a market technician needs to do is 
monitor the technicals and make strategic disciplined bets.  I 
for one try and AVOID uncertainty and don't look to trade the 
BIX.X at this point.  Support at 236 held firm and the break 
above 253 helped spur the S&P's higher Friday.  Note the 
"suspicious" resistance found at 38.2% retracement.  Until proven 
WRONG, bears will continue to short and eventually "smart money" 
will win out.  S&P bulls can't be OVERLEVERAGED long, but look 
for a gradual pullback into 253 support and a rebound from there 
back above 268 to get a more prolonged rally in the broader 
market indexes going.

S&P 100 Index Chart - Daily Interval


 

Technically, the OEX has been "stronger" than the SPX as it 
hasn't hit its lows.  The OEX Bullish % is still "bear confirmed" 
with Friday's closing reading of 20%, up from Monday's low 
reading of 17%.  It would currently take a reading of 24% to get 
this index reversing higher to "bull alert" status.  Recent 
reading of bullish % have been bouncing around between 17% and at 
20%. 

In this weekends Swing Trader Wrap, I talked about "market maker" 
support and resistance as it relates to the NASDAQ-100 Index.  It 
now appears that market makers were indeed turning into "buyers" 
near the $20.20 level and depending on order flow would be 
expected to be near-term sellers at current levels. 

The "gap higher" on Friday hints that market makers may have been 
too bearish in their inventory, and when good buy side order flow 
showed up, market makers "gapped" the Q's higher to help remove 
some risk, as their risk levels quickly became the $22.21 level 
in the Q's.  Remember, the retracement we've been using on the 
Q's has been based on what we believed to be what a market maker 
in the NASDAQ would be using.

NASDAQ-100 Index Tracking Stock (QQQ) - Daily Interval


 

An "ideal" bullish entry point for the QQQ would be some type of 
dip back into the $21-$21.21 range, but I'm starting to expect 
some support to come in at the $21.44 level near-term.  A close 
much above $22.21 on volume greater than 150 million would hint 
further near-term upside to $22.97.

If I had $1,000 to invest in November/December call options and 
could put it in any of the indexes, then 10% would go in the 
NASDAQ-100 and the rest would be spread among the Dow, SPX and 
OEX indexes.

Technology stocks are still at the bottom end of the food chain 
as it relates to seeing any type of capital expenditure increases 
from the "big boys" in the Dow and S&P 500 Index.  

While not a NASDAQ-100 component, despite broader market 
bullishness in the last few days, telecom equipment maker Lucent 
(NYSE:LU) $0.58 -17% traded a new 52-week low on Friday.  

Hmmmm... wasn't it in the 09/15/02 weekend Index Wrap when we 
talked about some analyst at Bernstein saying that Lucent's loss 
carry forwards were worth $0.44 per share?  Another 14-cents and 
we'll find out.  

Jeff Bailey


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

Jim is still out of the office this weekend but the Sunday 
editor's plays will be back next week. 

Jim has included an update to his index option swing trade game 
plan strategy in this weekend's newsletter. 

View it online here: 
http://members.OptionInvestor.com/itrader/swing/swtgp_10130268.asp


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

Behind the Curtain
by Steven Price

I think back to Yakov Smirnov's line in Coming to America, "What 
a country!"  Then I look at the Dow and think the same thing - 
you're down and out one day, riding the low point, looking into 
the abyss; and two days later, euphoria reigns supreme after a 
massive rally.  "What a market!"    Well what is interesting 
about the booming 653 point rally off of Thursday morning's low 
is where it stopped.   I'm not going to tell you that it's not 
significant, or that the down trend line has not been broken - 
both of these are true.  However, a look at the 1879.52 point 
loss from the August 22 high of 9077, to Thursday morning's low 
of 7197, shows that today's rally stopped dead the 38.2% 
fibonacci retracement level of 7915. The daily high was actually 
7901, which lends credence to 7900 as resistance, as well. The 
other bearish fact is that until we get a higher high ( a break 
of 8012), the trend of lower highs and lower lows is still in 
tact.  Maybe I sound bitter because I neglected to close all of 
my short positions two days ago. However, if you drop a dead cat 
from a high enough level, its bounce will last a little longer.  
I am struggling with my inner bear, because when I look at the 
chart in front of me, I see a pretty impressive rebound.  
However, if the Dow had settled just above the 38.2% level, 
rather than falling from it, I would be more comfortable 
strapping on my horns.  If 8000 weren't also looming above, I 
wouldn't feel like the bull running into the matador's red flag.  
Of course, this red flag may have a brick wall behind it if we 
ever get there.  

This morning's news was mediocre, at best.  Retail sales fell 
1.2% (+0.1% ex. auto) and preliminary Consumer Sentiment number 
reached a 9-year low of 80.4, down from 86.2 in September and far 
below expectations of 85.7.   The current conditions index hit a 
10 year low, falling from 95.8 to 92.9, as well.  Consumers think 
that unemployment will rise, the economy will worsen, and the 
Federal Reserve will not lower rates. Yet still we rallied in 
impressive fashion.  

Can you say "short covering?"

The market actually bounced on Thursday just after breaking the 
July intraday low in the SPX, and after the Market Volatility 
Index (VIX.X) crossed the 50 level.  My impression is that market 
bears that had been short for the last couple of months saw these 
signals as a sign to cash out their winnings.  In addition to 
these levels, bullish percentages had fallen into far oversold 
territory, with the Dow getting down to 8%, the NDX to 14% and 
the SPX to 20%.  What is even more interesting is the bullish 
percentage in the NYSE, which bottomed at 26% for the third 
straight time and then rebounded.  If we break below that level, 
watch out below; but if not, then the rally has some room to run.  
The last two rebounds took the percent up to 52 and 44. The 
current rally still has not registered a 3-box reversal up to 
32%.

IBM led the rally after a Lehman Brothers upgrade this morning, 
just ahead of next week's earnings release.  The stock came back 
from the dead, and the EDS warning, tacking on $6.34 to close at 
$63.92.  In spite of one I.T. spending warning after another, 
Lehman apparently believes IBM will be able to meet already mild 
expectations.  Next week will bring plenty of earnings reports, 
and although warning season is in full swing, there may still be 
a few surprises on release day.  Along with IBM on the 16th, we 
will also get AMD, Apple, J.P. Morgan, QLogic and Coke. That is 
just a sample of one day's schedule, so given recent market 
volatility, next week should be a wild ride. 

Today brought forecasts of another steep decline in on-line 
advertising revenue, which only underscores the needs of internet 
portals to find other streams of fee-based revenue, much like 
Yahoo has done.   

Lucent announced that it would take a $4 billion charge and cut 
an additional 10,000 jobs, as it struggles with lower sales. $1 
billion of the charge will be due to restructuring costs, while 
$3 billion is related to the decline in value of stock in its 
pension fund. The company said it expects sales to fall as much 
as 25% in the third quarter and it will post its 10th straight 
quarterly loss.  The telecom equipment industry does not look 
like it will be turning around any time soon, as many telephone 
companies have filed for bankruptcy, and the ones that are still 
solvent have slashed spending to offset lower sales. 

If the Dow breaks above 8012 and the Nasdaq crosses 1240, I may 
be changing my tune and my positions, as well.  Until then I 
can't seem to put my faith in a rally that has materialized on no 
good news.  Right now it seems like a technical bounce, but I 
will remember to trade what I see and leave my ego in the 
passenger seat.  Just be careful of the red flag, you won't know 
what's behind it until you get there. 


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

Market Averages

DJIA ($INDU)

52-week High: 10679
52-week Low :  7286
Current     :  7850

Moving Averages:
(Simple)

 10-dma: 7612
 50-dma: 8286
200-dma: 9421



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  775
Current     :  835

Moving Averages:
(Simple)

 10-dma:  811
 50-dma:  876
200-dma: 1022



Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     :  890

Moving Averages:
(Simple)

 10-dma:  836
 50-dma:  912
200-dma: 1213



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

The Semiconductor Index (SOX.X): I am revisiting the semis (I 
haven't forgotten about them) as they attempted a rebound of 
major proportions.  If the index had been able to hold above 250, 
I would have been torn as to whether the trend of lower highs and 
lower lows had been broken.  The high of 256 on 9/25 is the 
alternative, but thank goodness, I didn't have to make that 
decision.  Thank goodness for the shorts, anyway.  Today's rally 
touched 250.41, only to be turned back to a close of 246.22. the 
fact that it was turned back at a significant resistance level 
tells me there are shorts in the sector sitting on the 250 mark 
and it will take another major push to move them out of the way.  
The other level to watch is the intraday high of 263 from 10/02.  
If these levels are both broken, then apparently the lack of IT 
spending will be forgiven, and all will be well.  I will have a 
big problem believing in this sector until we see an increase in 
technology spending or in PC demand, but that doesn't mean I 
won't go along for the ride if we do break through.  After all, 
profits and losses aren't picky about where they happen. 

52-week High: 657
52-week Low : 282
Current     : 316

Moving Averages:
(Simple)

 10-dma: 232
 50-dma: 284
200-dma: 449


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

Market Volatility

The VIX continued to drop on the massive Dow rally.  However, the 
index remains above 40, reflecting still inflated premiums.  
Although we have seen a rally of over 600 points from Thursday 
morning's low, we have retraced barely 1/3 of the losses since the 
index topped out at 9077 on August 22.  This could  simply be a 
bear market rally, and with the VIX still at high levels, that 
sentiment is apparently shared by OEX traders. There are a slew of 
earnings reports due next week, and until we see the Dow close 
above 8000, or we get some positive earnings surprises, I expect 
the VIX to remain above 40. 


CBOE Market Volatility Index (VIX) = 43.44 –2.85
Nasdaq-100 Volatility Index  (VXN) = 58.87 –3.95

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.93        777,778       723,811
Equity Only    0.70        562,047       393,808
OEX            1.15         62,469        71,939
QQQ            1.01         57,318        57,925

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

Bullish Percent Data

           Current   Change   Status
NYSE          26      + 1     Bull Correction
NASDAQ-100    22      + 7     Bull Alert
Dow Indust.   13      + 3     Bull Correction
S&P 500       22      + 4     Bear Confirmed
S&P 100       20      + 3     Bear Confirmed

Bullish percent measures the number of stocks in an index 
currently trading on a buy signal on their point and figure 
chart.  Readings above 70 are considered overbought, and readings 
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend

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

5-Day Arms Index   0.77
10-Day Arms Index  1.15
21-Day Arms Index  1.37
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 
points.

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

Market Internals

        Advancers     Decliners
NYSE       2267           496
NASDAQ     2241          1017

        New Highs      New Lows
NYSE         21             209
NASDAQ       17             263

        Volume (in millions)
NYSE     2,124
NASDAQ   1,906


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

Commitments Of Traders Report: 10/08/02

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 got shorter, as they increased both positions, by 
increased shorts by an additional 1600 contracts.  Small Traders 
also added significantly to both sides, but added an additional 
1800 contracts to the long side. 


Commercials   Long      Short      Net     % Of OI 
09/17/02      476,224   503,268   (27,044)   (2.7%)
09/24/02      425,276   442,661   (17,385)   (2.0%)
10/01/02      423,661   440,133   (16,472)   (1.9%)
10/08/02      427,070   445,135   (18,065)   (2.1%)

Most bearish reading of the year: (111,956) -   3/6/02
Most bullish reading of the year: ( 16,472) - 10/01/02

Small Traders Long      Short      Net     % of OI
09/17/02      182,243   116,377    64,866     21.7%
09/24/02      124,232    73,506    50,726     25.7%
10/01/02      123,371    74,704    48,667     24.5%
10/08/02      131,486    81,010    50,476     23.7%

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

Commercials increased short positions by 2,500 contracts, while 
reducing longs by 700.  Small traders reduced longs by 1,000, but 
reduced shorts by 4,000, getting decidedly longer.  


Commercials   Long      Short      Net     % of OI 
09/17/02       72,522     75,815    (3,293) ( 2.2%)
09/24/02       46,637     54,613    (7,976) ( 7.9%)
10/01/02       46,000     52,976    (6,976) ( 7.0%)
10/08/02       45,384     55,504   (10,120) (10.0%)

Most bearish reading of the year: (15,521) -  3/13/02
Most bullish reading of the year:   9,068  - 06/11/02

Small Traders  Long     Short      Net     % of OI
09/17/02       15,288    14,142     1,146     3.9%
09/24/02       11,163     9,421     1,742     8.5%
10/01/02       11,896     9,575     2,321    10.8%
10/08/02       10,735     5,721     5,014    30.4%

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

DOW JONES INDUSTRIAL

Commercials increased long positions slightly, and added 3,000 
short contracts, reducing the net long position significantly.  
Small traders increased long positions by 1,000 contracts and 
lowered shorts by the same amount, reducing the net short position 
by 50%. 


Commercials   Long      Short      Net     % of OI
09/17/02       26,863    21,187    5,676      11.8%
09/24/02       18,951    10,074    8,877      30.6%
10/01/02       18,969     8,903   10,066      36.1%
10/08/02       19,550    11,823    7,727      24.6%

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
09/17/02       13,393    11,637     1,756      7.0%
09/24/02        7,939     9,453    (1,514)   ( 8.7%)
10/01/02        6,809    10,503    (3,694)   (21.3%)
10/08/02        7,890     9,645    (1,755)   (10.0%)

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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***************
ASK THE ANALYST
***************

A Lesson In the Basics
by Steven Price

Steve,

Interesting to see the price on JPM(Jan 2005) leaps:

Stock is hovering over $16 but the ITM 15 calls are cheaper than 
the OTM 15 puts.I would have expected the premiums to be skewed 
the other way.

I received this email earlier in the week, with the stock lower, 
so the chart below shows the calls priced higher than the puts, 
but the principle described below is the same. 



 

I thought this would be a good opportunity to explain some basics 
about options pricing and why certain relationships sometimes 
seem out of whack.  There are very finite relationships between 
calls and puts that prevent an arbitrageur from taking advantage 
of option traders in the pits.  Arbitrage basically refers to 
buying and selling the same security in different markets for a 
profit.  In an equity option scenario, it works because you can 
combine options to synthetically represent the purchase or sale 
of stock, and then do the opposite with the stock for a profit.   

This is how it works.  The entire basis of option pricing is the 
conversion/reversal.  Let's use stock XYZ, trading at $50.

Reversal:  The purchase of a call and sale of a put at the same 
strike represents the purchase of stock at that price.  For 
example, if I purchase one XYZ 50 call and I sell you one XYZ 50 
put, then it doesn't matter which way the stock goes, I will end 
up paying $50 for 100 shares of XYZ at expiration.  (Unless it 
ends right at $50.00, but that is called "pin risk" and it is for 
another discussion).  If the stock goes up, whether it goes to 
$51 or $151, I will exercise my call and buy it at $50.  If the 
stock goes down, whether it goes to $49, or $1, you will exercise 
your put and sell it to me at $50.  So either way I will own the 
stock at $50.  In order to hedge this position, so that I don't 
have to worry about which way the stock goes, I will go to the 
market and sell 100 shares of stock.  If I can sell it higher 
than $50, I will make a profit.  If I sell it lower, I will lose 
money.  Therefore, when option market makers post their bids and 
offers on calls and puts, they always do so in a manner that 
allows them to make a profit if they can buy the call on their 
bid and sell the put on their offer. If the stock is trading for 
$50, I will make my market $2.00-$2.40 on the call and $2.00-
$2.40 on the put.  I buy the call at $2.00 and sell the put at 
$2.40, for a 0.40 credit to my account, and then sell the stock 
at $50.00.  The transaction is complete.  I will buy the stock at 
$50 on expiration and I have already sold it at $50.00, as well.  
But I get to keep the extra $0.40, essentially making my stock 
purchase price $49.60.  The bids and offers move with the stock 
price in order to assure this relationship.

If the stock is trading $51, then I am selling the stock $1 
higher and I can either pay $1 more for the call and sell the put 
at the same price, or I can pay $0.50 more for the call and sell 
the put $0.50 cheaper, or any combination that makes up for the 
extra dollar I sold the stock for.  But in any case the extrinsic 
value must behave according to the above example.  If I could not 
make any money off of the markets I am posting, then there is no 
point in being a market maker.  

Conversion:  This is just the opposite of the reversal.  Instead 
of being long call/short put, I have the opposite position: short 
call/long put.  I will buy the XYZ 50 put for $2.00 and sell you 
the 50 call for $2.40.  If the stock is below $50 (whether it is 
$49 or $1) on expiration, I will exercise the put and sell the 
stock at $50.  If it is higher than $50 (whether $1 or $151), 
then you will exercise the call I sold you and buy the stock from 
me at $50.  Either way, I sell the stock at $50 on expiration.  
Therefore, in order to stay directionally neutral, I go out to 
the market and buy the stock at $50.00.  So I've bought the stock 
at $50 in the market and I will sell it at $50 on expiration, but 
get to keep the extra $0.40 from selling the call for $0.40 more 
than I paid for the put. So I have effectively sold the stock for 
$50.40, while buying it for $50.

There are two more considerations, which will explain why the JPM 
calls in the above question were cheaper than the puts, even 
though the calls were in the money.  

Let's go back to the reversal, where I have bought 1 call, sold 1 
put and sold 100 shares of stock.   If I am trading JPM and I 
conduct the trade with the purchase of one 2005 Jan 15 call, the 
sale of a 2005 Jan 15 put and I sell 100 shares at $16, then from 
the stock purchase alone I have placed $1600 in my account.  I 
get to keep that money until expiration, when I will buy the 
stock at $15.  I also get to earn interest on that money.  
Because I get to earn interest on the money from the short stock, 
I can now pay even more for the call.  So normally a call costs 
more than a put, even if they are right at the strike, because 
the reversal earns the call owner money from short stock 
interest.   However, there is one more part of the equation.  If 
the stock I have sold also pays a dividend, then I am obligated 
to pay that dividend to the person that bought the stock from me.  
Therefore, I then subtract that amount from the price I am 
willing to pay for the call.  So that in the end, the extra 
premium amount that I will pay for a call, versus a put at the 
same strike, is the amount of interest I can earn from the sale 
of short stock, minus the dividend I must pay out on that stock.  

Example: 

JPM = $16

JPM December15 call is worth $1 of intrinsic value, plus $1.00 
time premium = $2
JPM December 15 Put is worth $0 of intrinsic value, since it is 
out of the money, plus $1 of time premium=$1

However I am going to earn 0.15 for selling the stock and between 
now and December and I do not have to pay a dividend between now 
and then.  Therefore I can pay $2.15 for the call, rather than 
just $2.00.  

However, JPM pays a dividend of $1.36 per year.  If I buy the 15 
call in Jan 2005 and sell the same put, and sell the stock, I 
will earn about $1.00 per share in interest on my short stock 
over the next two years, until expiration.  Therefore I will 
raise the price I am willing to pay for the call by $1.00.  
However, since the stock pays $1.36 per year and I am going to 
hold the position with short stock for 2 years, I will have to 
pay $2.72 in dividends, so I now lower the price I am willing to 
pay for the call by $2.72.   (after raising it only $1.00 for the 
interest). Now the calls are actually worth $1.72 less than the 
puts.  

This example was simplified and does not match the numbers above 
exactly, but hat is why the calls are trading less than the puts, 
even though the call is in the money. 


Please send your questions and suggestions to: 
Contact Support

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

=========================================
Market Watch for the week of October 14th
=========================================

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

Symbol  Company               Date           Comment      EPS Est

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

BRE    BRE Properties        Mon, Oct 14  After the Bell      0.67
CSL    Carlisle Companies    Mon, Oct 14  After the Bell      0.62
ETN    Eaton                 Mon, Oct 14  -----N/A-----       1.21
GMH    Hughes Electronics    Mon, Oct 14  -----N/A-----      -0.08
KRI    Knight-Ridder         Mon, Oct 14  Before the Bell     0.81
MYG    Maytag                Mon, Oct 14  -----N/A-----       0.66
MHK    Mohawk Industries     Mon, Oct 14  -----N/A-----       1.20
PKG    Pack Corp of America  Mon, Oct 14  Before the Bell     0.13
SONC   Sonic Corporation     Mon, Oct 14  After the Bell      0.38
SOV    Sovereign Bancorp     Mon, Oct 14  -----N/A-----       0.33
TIN    Temple Inland         Mon, Oct 14  -----N/A-----       0.25
UIS    Unisys                Mon, Oct 14  After the Bell      0.17

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

ACF    AmeriCredit           Tue, Oct 15  After the Bell      0.62
ASO    AmSouth Bancorp       Tue, Oct 15  Before the Bell     0.43
BAC    Bank of America       Tue, Oct 15  Before the Bell     1.41
ONE    Bank One              Tue, Oct 15  Before the Bell     0.70
CDN    Cadence Design Sys    Tue, Oct 15  After the Bell      0.15
COF    Capital One Financial Tue, Oct 15  -----N/A-----       0.99
CNB    Colonial BancGroup    Tue, Oct 15  -----N/A-----       0.30
CBSS   Compass Bancshares    Tue, Oct 15  -----N/A-----       0.61
FBAN   F.N.B. Corporation    Tue, Oct 15  After the Bell      0.54
FNM    Fannie Mae            Tue, Oct 15  Before the Bell     1.57
FITB   Fifth Third Bancorp   Tue, Oct 15  Before the Bell     0.70
FRX    Forest Laboratories   Tue, Oct 15  Before the Bell     0.73
FCX    Freprt-McMRn Cop Gld  Tue, Oct 15  -----N/A-----       0.36
FULT   Fulton Financial      Tue, Oct 15  -----N/A-----       0.33
GCI    Gannett               Tue, Oct 15  Before the Bell     0.99
GM     General Motors        Tue, Oct 15  Before the Bell     0.99
GNTX   Gentex                Tue, Oct 15  -----N/A-----       0.27
HDI    Harley-Davidson       Tue, Oct 15  After the Bell      0.46
HCN    Health Care REIT      Tue, Oct 15  During the Market   0.68
HCBK   Hudson City Bancorp   Tue, Oct 15  After the Bell      0.25
HU     Hudson United Bancorp Tue, Oct 15  -----N/A-----       0.57
INTC   Intel                 Tue, Oct 15  After the Bell      0.13
JNC    John Nuveen           Tue, Oct 15  Before the Bell     0.31
JNJ    Johnson & Johnson     Tue, Oct 15  Before the Bell     0.59
LLL    L-3 Comm Hldng        Tue, Oct 15  -----N/A-----       0.61
LLTC   Linear Technology     Tue, Oct 15  After the Bell      0.17
MEL    Mellon Finl Corp      Tue, Oct 15  -----N/A-----       0.42
MLNM   Mill Pharmaceuticals  Tue, Oct 15  After the Bell     -0.27
MOT    Motorola              Tue, Oct 15  After the Bell      0.05
NVLS   Novellus Systems      Tue, Oct 15  After the Bell      0.09
PH     Parker Hannifin       Tue, Oct 15  Before the Bell     0.41
PNR    Pentair               Tue, Oct 15  Before the Bell     0.75
PPDI   Pharm Prd Development Tue, Oct 15  After the Bell      0.33
PPP    Pogo Producing        Tue, Oct 15  During the Market   0.46
PII    Polaris Industries    Tue, Oct 15  Before the Bell     1.56
RFMD   RF Micro Devices      Tue, Oct 15  After the Bell      0.03
PHG    Royal Philips         Tue, Oct 15  -----N/A-----        N/A
SKFR   SKF AB                Tue, Oct 15  -----N/A-----        N/A
STT    State Street          Tue, Oct 15  Before the Bell     0.55
TER    Teradyne              Tue, Oct 15  After the Bell     -0.29
TRMK   Trustmark Corporation Tue, Oct 15  After the Bell      0.51
TSS    TSYS                  Tue, Oct 15  After the Bell      0.16
USB    US Bancorp            Tue, Oct 15  During the Market   0.46
WM     Washington Mutual     Tue, Oct 15  After the Bell      1.01
WBST   Webster Financial     Tue, Oct 15  Before the Bell     0.83
WFC    Wells Fargo           Tue, Oct 15  Before the Bell     0.84
WABC   Westamerica Bancorp   Tue, Oct 15  Before the Bell     0.66


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

ABT    Abbott Laboratories   Wed, Oct 09  -----N/A-----       0.48
AMD    Adv Micro Devices     Wed, Oct 16  After the Bell     -0.67
AL     Alcan Inc.            Wed, Oct 16  Before the Bell     0.46
ADS    All Data Systems Corp Wed, Oct 16  -----N/A-----       0.16
ALL    Allstate              Wed, Oct 16  Before the Bell     0.68
ABK    Ambac Financial       Wed, Oct 16  Before the Bell     1.16
ASD    American Standard     Wed, Oct 16  -----N/A-----       1.54
APH    Amphenol              Wed, Oct 16  Before the Bell     0.49
AAPL   Apple Computer        Wed, Oct 16  After the Bell      0.02
BXS    BancorpSouth          Wed, Oct 16  After the Bell      0.38
BK     Bank of New York      Wed, Oct 16  Before the Bell     0.11
BA     Boeing                Wed, Oct 16  -----N/A-----       0.59
BCR    C.R. Bard             Wed, Oct 16  After the Bell      0.83
CAT    Caterpillar           Wed, Oct 16  Before the Bell     0.55
CDWC   CDW Computer Centers  Wed, Oct 16  After the Bell      0.59
CLS    Celestica             Wed, Oct 16  After the Bell      0.19
CNT    CenterPoint Prop Trst Wed, Oct 16  After the Bell      1.02
CERN   Cerner                Wed, Oct 16  After the Bell      0.36
CYN    City National         Wed, Oct 16  Before the Bell     0.89
CCE    Coca-Cola Enterprises Wed, Oct 16  Before the Bell     0.33
CMA    Comerica              Wed, Oct 16  Before the Bell     0.14
CTB    Cooper Tire & Rubber  Wed, Oct 16  Before the Bell     0.32
COT    Cott Corp             Wed, Oct 16  Before the Bell     0.23
DPH    Delphi                Wed, Oct 16  Before the Bell     0.08
DSL    Downey Financial      Wed, Oct 16  Before the Bell     0.83
ET     E*TRADE               Wed, Oct 16  After the Bell      0.12
ETH    Ethan Allen Interiors Wed, Oct 16  Before the Bell     0.53
FTN    First Tennessee Natl  Wed, Oct 16  Before the Bell     0.69
FBF    FleetBoston Financial Wed, Oct 16  Before the Bell     0.57
F      Ford Motor Company    Wed, Oct 16  Before the Bell     0.03
GD    General Dynamics       Wed, Oct 16  Before the Bell     1.32
GENZ   Genzyme               Wed, Oct 16  Before the Bell     0.28
GSF    GlobalSantaFe Corp.   Wed, Oct 16  Before the Bell     0.30
GPT    GreenPoint Financial  Wed, Oct 16  Before the Bell     1.39
HRS    Harris                Wed, Oct 16  -----N/A-----       0.29
HIB    Hibernia Corporation  Wed, Oct 16  -----N/A-----       0.41
HON    Honeywell             Wed, Oct 16  Before the Bell     0.50
HMT    Host Marriott REIT    Wed, Oct 16  Before the Bell     0.11
HI     Household Intl        Wed, Oct 16  Before the Bell     1.17
IDPH   IDEC Pharmaceuticals  Wed, Oct 16  After the Bell      0.21
ITW    Illinois Tool Works   Wed, Oct 16  Before the Bell     0.78
IBM    Intl Bus Machines     Wed, Oct 16  After the Bell      0.96
JPM    J.P. Morgan Chase Co  Wed, Oct 16  Before the Bell     0.07
KMI    Kinder Morgan         Wed, Oct 16  -----N/A-----       0.64
KMP    Kndr Mrgn nrgy Prtnrs Wed, Oct 16  -----N/A-----       0.44
KFT    Kraft Foods Inc.      Wed, Oct 16  After the Bell      0.50
LEG    Leggett & Platt       Wed, Oct 16  After the Bell      0.27
MER    Merrill Lynch         Wed, Oct 16  Before the Bell     0.58
MIL    Millipore             Wed, Oct 16  After the Bell      0.43
NCC    National City         Wed, Oct 16  Before the Bell     0.61
NYCB   New York Com Banc     Wed, Oct 16  Before the Bell     0.55
NFB    North Fork Bancorp    Wed, Oct 16  Before the Bell     0.66
NTRS   Northern Trust        Wed, Oct 16  Before the Bell     0.43
ODP    Office Depot          Wed, Oct 16  Before the Bell     0.27
BTU    Peabody Energy Corp.  Wed, Oct 16  Before the Bell     0.36
PFE    Pfizer                Wed, Oct 16  -----N/A-----       0.38
PGR    Progressive           Wed, Oct 16  After the Bell      0.82
PFGI   Provident Finl Group  Wed, Oct 16  Before the Bell     0.61
PSD    Puget Sound Energy    Wed, Oct 16  After the Bell      0.04
QLGC   QLogic                Wed, Oct 16  After the Bell      0.26
RTRSY  Reuters Group         Wed, Oct 16  -----N/A-----        N/A
RHI    Robert Half Intl      Wed, Oct 16  After the Bell     -0.01
RSLN   Roslyn Bancorp        Wed, Oct 16  Before the Bell     0.46
RDC    Rowan Companies       Wed, Oct 16  Before the Bell     0.09
SON    Sonoco Products       Wed, Oct 16  -----N/A-----       0.33
SOTR   SouthTrust            Wed, Oct 16  Before the Bell     0.46
STJ    St. Jude Medical      Wed, Oct 16  Before the Bell     0.36
SWK    Stanley Works         Wed, Oct 16  Before the Bell     0.66
SYK    Stryker               Wed, Oct 16  After the Bell      0.37
SYMC   Symantec              Wed, Oct 16  After the Bell      0.31
SNV    Synovus Financial     Wed, Oct 16  -----N/A-----       0.31
TCB    TCF Financial         Wed, Oct 16  Before the Bell     0.80
TFX    Teleflex              Wed, Oct 16  After the Bell      0.70
TDS    Telephone Data        Wed, Oct 16  During the Market   0.84
TPP    Teppco                Wed, Oct 16  -----N/A-----       0.44
KO     The Coca-Cola Company Wed, Oct 16  Before the Bell     0.48
TRW    TRW                   Wed, Oct 16  Before the Bell     0.83
UB     UnionBanCal           Wed, Oct 16  After the Bell      0.85
VLY    Valley National Banc  Wed, Oct 16  -----N/A-----       0.40
GWW    W.W. Grainger         Wed, Oct 16  Before the Bell     0.63
WB     Wachovia              Wed, Oct 16  Before the Bell     0.70
WHR    Whirlpool             Wed, Oct 16  Before the Bell     1.58


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

AFCI   Advanced Fibre Comm   Thu, Oct 17  After the Bell      0.04
ASBC   Associated Banc-Corp  Thu, Oct 17  After the Bell      0.69
AF     Astoria Financial     Thu, Oct 17  After the Bell      0.72
ALV    Autoliv               Thu, Oct 17  -----N/A-----        N/A
ADP    Automatic Data Proces Thu, Oct 17  -----N/A-----       0.34
BOL    Bausch & Lomb         Thu, Oct 17  Before the Bell     0.44
BAX    Baxter International  Thu, Oct 17  -----N/A-----       0.51
BCC    Boise Cascade         Thu, Oct 17  Before the Bell     0.06
BRCM   Broadcom              Thu, Oct 17  -----N/A-----      -0.03
BR     Burlington Resources  Thu, Oct 17  Before the Bell     0.13
CEN    Ceridian              Thu, Oct 17  Before the Bell     0.19
CHKP   Check . Software Tech Thu, Oct 17  After the Bell      0.25
CAKE   Cheesecake Factory    Thu, Oct 17  After the Bell      0.26
CPS    ChoicePoint           Thu, Oct 17  Before the Bell     0.35
CL     Colgate-Palmolive     Thu, Oct 17  -----N/A-----       0.57
CFBX   Community 1st Banksh  Thu, Oct 17  Before the Bell     0.51
CPWR   Compuware             Thu, Oct 17  After the Bell      0.06
ED     Consolidated Edison   Thu, Oct 17  -----N/A-----       1.32
CR     Crane                 Thu, Oct 17  After the Bell      0.34
DHR    Danaher               Thu, Oct 17  Before the Bell     0.73
DLX    Deluxe                Thu, Oct 17  Before the Bell     0.75
DV     DeVry                 Thu, Oct 17  After the Bell      0.14
DL     Dial                  Thu, Oct 17  Before the Bell     0.30
DO     Diamond Offshore Dril Thu, Oct 17  Before the Bell     0.06
D      Dominion Resources    Thu, Oct 17  -----N/A-----       1.50
EBAY   eBay                  Thu, Oct 17  After the Bell      0.20
EMC    EMC                   Thu, Oct 17  Before the Bell    -0.02
ESV    ENSCO International   Thu, Oct 17  Before the Bell     0.20
EFX    Equifax               Thu, Oct 17  Before the Bell     0.36
FVB    First Virginia Banks  Thu, Oct 17  Before the Bell     0.65
FMER   FirstMerit            Thu, Oct 17  Before the Bell     0.37
FO     Fortune Brands        Thu, Oct 17  Before the Bell     0.79
FPL    FPL Group             Thu, Oct 17  Before the Bell     1.76
GPC    Genuine Parts         Thu, Oct 17  -----N/A-----       0.55
GP     Georgia-Pacific       Thu, Oct 17  Before the Bell     0.41
GDW    Golden West Financial Thu, Oct 17  -----N/A-----       1.45
GGG    Graco                 Thu, Oct 17  Before the Bell     0.41
DA     Groupe Danone         Thu, Oct 17  -----N/A-----        N/A
GDT    Guidant               Thu, Oct 17  -----N/A-----       0.53
HSY    Hershey Foods         Thu, Oct 17  Before the Bell     0.99
HBAN   Huntington Bancshares Thu, Oct 17  Before the Bell     0.34
RX     IMS Health            Thu, Oct 17  After the Bell      0.27
IR     Ingersoll-Rand Co.    Thu, Oct 17  Before the Bell     0.57
IVC    Invacare              Thu, Oct 17  -----N/A-----       0.63
ITG    Investment Tech Group Thu, Oct 17  Before the Bell     0.39
KEY    KeyCorp               Thu, Oct 17  Before the Bell     0.57
LRCX   Lam Research          Thu, Oct 17  After the Bell      0.00
LIZ    Liz Claiborne         Thu, Oct 17  Before the Bell     0.78
MAN    Manpower              Thu, Oct 17  Before the Bell     0.44
MAT    Mattel                Thu, Oct 17  Before the Bell     0.56
KRB    MBNA                  Thu, Oct 17  -----N/A-----       0.42
MRBK   Mercantile Banksh     Thu, Oct 17  Before the Bell     0.69
MERQ   Mercury Interactive   Thu, Oct 17  After the Bell      0.16
MSFT   Microsoft             Thu, Oct 17  After the Bell      0.43
MOLX   Molex                 Thu, Oct 17  After the Bell      0.14
NCF    Natl Cmmerce Finl Crp Thu, Oct 17  -----N/A-----       0.40
NATI   National Instruments  Thu, Oct 17  After the Bell      0.13
NXY    Nexen                 Thu, Oct 17  During the Market   0.61
NOK    Nokia Corporation     Thu, Oct 17  Before the Bell     0.17
NT     Nortel Networks       Thu, Oct 17  After the Bell     -0.10
NOC    Northrop Grumman      Thu, Oct 17  Before the Bell     1.57
NVS    Novartis AG           Thu, Oct 17  -----N/A-----       0.44
NUE    Nucor                 Thu, Oct 17  -----N/A-----       0.48
PBCT   People`s Bank         Thu, Oct 17  After the Bell      0.24
PSFT   PeopleSoft            Thu, Oct 17  After the Bell      0.13
MO     Philip Morris         Thu, Oct 17  Before the Bell     1.26
PBI    Pitney Bowes          Thu, Oct 17  After the Bell      0.61
PCL    Plum Creek Timber     Thu, Oct 17  After the Bell      0.34
PNC    PNC Finl Services Grp Thu, Oct 17  -----N/A-----       1.04
PP     Prentiss Properties   Thu, Oct 17  After the Bell      0.85
PHCC   Priority Healthcare   Thu, Oct 17  Before the Bell     0.26
DGX    Quest Diagnostics     Thu, Oct 17  After the Bell      0.82
RATL   Rational Software     Thu, Oct 17  After the Bell      0.03
TSG    Sabre Holdings Corp   Thu, Oct 17  Before the Bell     0.44
SAP    SAP AG.               Thu, Oct 17  -----N/A-----       0.11
SFA    Scientific-Atlanta    Thu, Oct 17  After the Bell      0.21
S      Sears Roebuck         Thu, Oct 17  -----N/A-----       0.82
SEIC   SEI Investments       Thu, Oct 17  Before the Bell     0.31
SJR    Shaw Communications   Thu, Oct 17  After the Bell       N/A
SEBL   Siebel Systems        Thu, Oct 17  After the Bell      0.05
SKYF   Sky Financial Group   Thu, Oct 17  Before the Bell     0.41
SII    Smith International   Thu, Oct 17  After the Bell      0.21
LUV    Southwest Airlines    Thu, Oct 17  -----N/A-----       0.05
FON    Sprint (FON Group)    Thu, Oct 17  After the Bell      0.37
PCS    Sprint (PCS Group)    Thu, Oct 17  After the Bell     -0.19
STU    Student Loan          Thu, Oct 17  After the Bell       N/A
SUNW   Sun Microsystems      Thu, Oct 17  After the Bell     -0.04
SUP    Superior Industries   Thu, Oct 17  -----N/A-----       0.60
SY     Sybase                Thu, Oct 17  After the Bell      0.26
SBL    Symbol Technologies   Thu, Oct 17  After the Bell      0.06
TE     TECO Energy           Thu, Oct 17  -----N/A-----       0.72
TXT    Textron               Thu, Oct 17  Before the Bell     0.68
NYT    The N Y Times Company Thu, Oct 17  Before the Bell     0.38
TBL    Timberland            Thu, Oct 17  Before the Bell     1.29
TAC    TRANSALTA CORP        Thu, Oct 17  -----N/A-----        N/A
TRB    Tribune               Thu, Oct 17  Before the Bell     0.38
UPC    Union Planters        Thu, Oct 17  After the Bell      0.63
UTX    United Technologies   Thu, Oct 17  Before the Bell     1.19
UNH    UnitedHealth Group    Thu, Oct 17  Before the Bell     1.04
UHS    Universal Health Serv Thu, Oct 17  After the Bell      0.59
SLM    USA Education         Thu, Oct 17  -----N/A-----       1.19
UTSI   UTStarcom             Thu, Oct 17  After the Bell      0.28
VFC    VF                    Thu, Oct 17  Before the Bell     1.09
WTNY   Whitney Holding       Thu, Oct 17  -----N/A-----       0.58
WL     Wilmington Trust      Thu, Oct 17  -----N/A-----       0.52
WIT    Wipro Limited         Thu, Oct 17  After the Bell      0.20
XLNX   Xilinx                Thu, Oct 17  After the Bell      0.10
ZION   Zions Bancorp         Thu, Oct 17  After the Bell      0.93


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

BBT    BB&T                  Fri, Oct 11  Before the Bell     0.70
ALE    Allete                Fri, Oct 18  Before the Bell     0.50
AEE    Ameren                Fri, Oct 18  Before the Bell     1.64
AVP    Avon Products         Fri, Oct 18  Before the Bell     0.47
BGEN   Biogen                Fri, Oct 18  Before the Bell     0.35
POS    Catalina Marketing    Fri, Oct 18  -----N/A-----       0.22
CBCF   Citizens Banking      Fri, Oct 18  -----N/A-----       0.47
EQT    Equitable Resources   Fri, Oct 18  Before the Bell     0.43
ERICY  Ericsson LM Telephone Fri, Oct 18  -----N/A-----      -0.02
HDB    Hdfc Bank Limited     Fri, Oct 18  Before the Bell      N/A
LAB    LaBranche & Co Inc.   Fri, Oct 18  Before the Bell     0.24
LEA    Lear                  Fri, Oct 18  Before the Bell     0.88
MEG    Media General         Fri, Oct 18  Before the Bell     0.37
MRK    Merck                 Fri, Oct 18  Before the Bell     0.82
PGN    Progress Energy       Fri, Oct 18  Before the Bell     1.64
TLAB   Tellabs               Fri, Oct 18  Before the Bell    -0.06
X      Un St Steel Corp.     Fri, Oct 18  -----N/A-----       0.64
UST    UST Inc               Fri, Oct 18  Before the Bell     0.77
VC     Visteon               Fri, Oct 18  Before the Bell    -0.26
WPO    Washington Post       Fri, Oct 18  -----N/A-----       4.94
ZBRA   Zebra Technologies    Fri, Oct 18  Before the Bell     0.58


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

Symbol  Company Name              Ratio    Payable     Executable

RMCI    Right Management          3:2      10/14       10/15
RLI     RLI Corp.                 2:1      10/15       10/16
SPW     SPW Corp.                 2:1      10/24       10/25
CPBI    CPB Inc.                  2:1      10/25       10/28


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

Third quarter earnings are now in full swing.  Headliners will 
probably be Intel on Tuesday and Microsoft on Thursday.  The
week's economic reports are weighted to come out on Thursday
and Friday with Friday reporting the CPI numbers.

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

Monday, 10/14/02
----------------
None


Tuesday, 10/15/02
-----------------
None


Wednesday, 10/16/02
-------------------
Business Invntories(BB) Aug  Forecast:   0.2%  Previous:     0.4%


Thursday, 10/17/02
------------------
Initial Claims (BB)   10/12  Forecast:    N/A  Previous:     384K
Housing Starts (BB)     Sep  Forecast: 1.636M  Previous:   1.609M
Building Permits (BB)   Sep  Forecast: 1.670M  Previous:   1.666M
Industrial Prduction(DM)Sep  Forecast:   0.1%  Previous:    -0.3%
Capacity Utilization(DM)Sep  Forecast:  76.0%  Previous:    76.0%
Philadelphia Fed (DM)   Oct  Forecast:    2.0  Previous:      2.3


Friday, 10/18/02
----------------
Trade Balance (BB)      Aug  Forecast:-$35.2B  Previous:  -$34.6B
CPI (BB)                Sep  Forecast:   0.2%  Previous:     0.3%
Core CPI (BB)           Sep  Forecast:   0.2%  Previous:     0.3%


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


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

Expecting a pullback, after bears take profits

Don't let the headline fool you.  This week looks quite bullish 
and combined with weekly observations, bears look jittery after 
the major indexes posted their first weekly gain after 7 
consecutive weekly losses.

---

Swing Trader Strategy Update
By Jim Brown

While I was bedridden last week I kept analyzing the reasons we 
get stopped out of so many swing trades. It all boils down to 
entry points. If you had the perfect entry point you could have a 
two point stop loss and never be hit. Sounds simple in theory but 
difficult in practice.

---

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

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

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The Option Investor Newsletter                   Sunday 10-13-2002
Sunday                                                      2 of 5


In Section Two:

Daily Results
Call Play of the Day: MME
Put Play of the Day: GS
Dropped Calls: MDT
Dropped Puts: WHR, PHM

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

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

CALLS              Mon    Tue    Wed   Thu   Week

AZO      81.51    0.10  -0.88  -1.52  1.90   0.54  Pullback effective
ITMN     32.36   -0.74   1.29  -0.25  1.00   1.42  Steady climber
LLY      62.00    0.62   0.60   0.79  0.50   5.80  New, breakthrough
LMT      62.45    0.34  -3.36   0.16  2.87   1.35  History repeats
MBG      30.19   -1.85   0.25   0.76 –0.06  –3.46  New, On Black
MDT      28.88   -1.55   1.01   0.16  1.54   0.88  Drop, no foul
WLP      80.84   -0.17  -0.86   1.64  0.82   3.44  Got our trigger


PUTS               

GIS      41.50   -0.53   0.11   0.78 –0.60  -3.00  New, added pressure
GS       64.20   -2.02   1.15  -1.02  1.81   2.65  New, failed bounce
HAR      49.22   -1.27  -1.49  -1.10  1.11  -2.14  failed 200-dma
MME      40.25   -0.06  -0.23   1.29 –0.73   3.47  New, new high
PHM      40.60   -1.61   1.51  -1.67  1.94   1.88  Drop, stopped out
WHR      43.79   -1.94   1.55  -2.53  0.08   0.07  Drop, engulfed


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

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

MME – Mid Atlantic Medical Services $40.25 (+3.07 last week)

See details in play list




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

GS – Goldman Sachs Group $64.20 (+2.15 last week)

See details in play list





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

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


CALLS
^^^^^

MDT $44.02 (+0.82) Following yesterday's breakout over the
200-dma, shares of MDT pushed through the $45 level this morning,
despite news of competitor GDT's FDA approval of its new Contak
defibrillator.  While this development could be viewed as
increased competition for MDT, the stock continued to hold near
the $45 level until around 2:30pm ET.  Then a rush of selling
came into the stock, with more than 2 million shares (vs. the ADV
of 4.4 mln) trading hands in the final 90 minutes of the day,
driving MDT down to the $44 support level.  While there was no
real technical violation, the heavy selling volume was
disconcerting, and perhaps portends some bad news waiting in the
wings.  Rather than risk a selloff next week when that 'news'
becomes public, we're going to err on the side of caution this
week and drop the play.  For those that opt to stay in the play,
we'd recommend snugging stops up to the $43 level, just in case.


PUTS
^^^^

WHR $43.79 +3.11 (+0.07 for the week) Whirlpool looked extremely 
weak after adding only +0.08 as the Dow rallied over 200 points 
on Thursday.  The 316-point rally on Friday finally brought the 
bulls back.  Whether it was shorts covering positions, or simply 
the rising tide lifting all boats, the trend we were attempting 
to capture in WHR was broken. We originally entered the play at 
$44.81 on 10/03, and after failing to take our profits when it 
traded down under $40, we will walk away approximately where we 
entered. The recent sales numbers from Sears and additional 
layoffs at Maytag would indicate a drop in demand for WHR's 
products, but we're not here to prove we're right, just to take 
profits where we can.  The fact that WHR was able to make up 4 
days of losses in one fell swoop suggests a reversal and we are 
exiting the play.

---

PHM $40.60 (+1.46) If you thought (as we initially did)
that Thursday's short-covering rally was another one-day wonder,
you were surprised to see the moon-shot rally that commenced at
the open this morning.  Propelled by the buying in the overall
Housing sector, PHM pushed through our $39.50 stop shortly after
the open and never looked back.  The solid buying action
indicates the bears are getting a lot more nervous, and rather
than fight the trend, we're dropping the play this weekend.  If
still holding open positions, use any early weakness on Monday
to facilitate your exit.


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

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

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

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

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

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

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


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


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DISCLAIMER
**********

Please read our disclaimer at:
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Contact Support
The Option Investor Newsletter                   Sunday 10-13-2002
Sunday                                                      3 of 5


In Section Three:

New Calls: LLY, MBG, MME
Current Calls: ITMN, LMT, WLP, AZO
New Puts: GIS, GS


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more; call 1-888-889-9178 or click for more information.

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

LLY - Eli Lilly - $62.00 +1.10 (+4.58 for the week)

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

Why We Like It:
Just as Lilly looked like it was about to break down last month, 
appearing on the verge of a triple bottom breakdown, the stock 
made a comeback, breaking out to the upside from its almost two 
month consolidation rectangle.  With the exception of a brief 
one-day upside breakout toward the end of August, the stock had 
been stuck between $55 and $60 since August 7. the general rule 
is that the longer a pattern takes to form, the more significant 
is its breakout.  We got that breakout on Thursday, as the stock 
finally found enough legs to get through resistance at $60.  It 
then tacked on another $1.10 during Friday's rally.  The 
difference between LLY and other stocks that saw big gains on 
Friday, is that the stock hadn't been beaten up over the last two 
months.  In fact it showed great relative strength, staying in 
consolidation while the Dow lost almost 2000 points in a month 
and a half.  While the broader markets slid quickly downhill at 
the beginning of the week, reaching multi-year lows, LLY was 
actually climbing. While the Dow broke support levels from Monday 
through Wednesday, LLY was banging up against upside resistance. 

Lilly was upgraded by Fulcrum on Thursday, as previous delays in 
new drug launches were believed to already be priced into the 
stock.  In addition, the 12 month erosion of sales from Prozac 
seeing generic competition is now behind it and the company could 
be launching 5 new products in the U.S. in 2003, including   
Cymbalta, Cialis, Forteo, Strattera and duloxetine, which should 
have positive earnings effects for 2004 and beyond. 

A look at the point and figure chart shows the stock establishing 
a buy signal at $60 on a double top breakout.  The current 
bullish vertical count is $77, but we'll set our initial target 
at the next PnF resistance level of $67. The last time the stock 
traded $62, it registered a break in the bearish resistance line, 
and so the current level has more than one implication.  The 
consolidation rectangle brings with it a minimum measuring 
objective of $65, but we expect it to be just that - a minimum. 
Conservative traders can look for a trade of $63, above previous 
PnF highs, as a trigger to go long, or wait for a re-test of $60 
to the downside, as evidence of support. A pullback to $60 would 
be our ideal entry point, but if we don't get that opportunity, 
then we will enter at the current level. Place stops at $58.00, 
below Tuesday and Wednesday's lows.

*** October contracts expire next week ***

BUY CALL NOV-60 LLY-KL*OI=  1691 at $4.40 SL=2.20
BUY CALL NOV-65 LLY-KM OI=  4516 at $1.70 SL=1.00
BUY CALL JAN-60 LLY-AL OI= 10604 at $6.50 SL=3.25
BUY CALL JAN-65 LLY-AM OI=  7667 at $3.90 SL=2.00

Average Daily Volume = 4.38 MIL


---

MBG - Mandalay Resort Group - $30.19 +0.75 (-3.69 for the week)

Company Summary:
Mandalay Resort Group owns and operates 11 properties in Nevada: 
Mandalay Bay, Luxor, Excalibur, Circus Circus, and Slots-A-Fun in 
Las Vegas; Circus Circus-Reno; Colorado Belle and Edgewater in 
Laughlin; Gold Strike and Nevada Landing in Jean and Railroad 
Pass in Henderson. The company also owns and operates Gold 
Strike, a hotel/casino in Tunica County, Mississippi. The company 
owns a 50% interest in Silver Legacy in Reno, and owns a 50% 
interest in and operates Monte Carlo in Las Vegas. In addition, 
the company owns a 50% interest in and operates Grand Victoria, a 
riverboat in Elgin, Illinois, and owns a 53.5% interest in and 
operates MotorCity in Detroit, Michigan. (source: company 
release)

Why We Like It:
MBG had been on a steady climb since the end of July, in spite of 
the broad market sell-off around it.  The series of higher highs 
and higher lows was consistent, topping out at just over $30 
during the beginning of October.  That climb ended this week, as 
several analysts released poor expectations for some of the 
casinos. Salomon Smith Barney downgraded the sector, based on 
issues such as consumer spending, valuation, and high investor 
expectations.  Year to date, the group had been up 17%, compared 
to a 28% drop for the S&P at the time of the downgrade.  However, 
Prudential Securities analyst William Lerner, who also issued 
downgrades of Argosy (AGY) and Harrah's (HET), actually raised 
estimates for Mandalay.  The sector downgrades have come on 
speculation, rather than poor results, and just a few weeks ago 
Mandalay CFO Glenn Schaeffer said, "the market underestimates the 
earnings power of this company, particularly our free cash 
flow... That represents a 16% to 20% cash dividend yield."

The sell-off in MBG found its bottom right at the 200-dma, and 
appears to be a blow-off hammer formation. Today's bounce was 
actually turned back above the 50-dma of $30.78, but given the 
recent strength of the company, a continued rebound to $35 looks 
possible.  In spite of predictions of doom and gloom for the from 
the analysts, Nevada gambling revenue rose 1.8% in August from 
2001, driven by a 9% increase on the Las Vegas strip. The Nevada 
"win," or the amount casinos keep after paying off bets, was up 
to $839.5 million, compared to $824.5 million a year ago.  The 
strip, where several Mandalay properties are located, accounted 
for more than half the state's total. The statewide improvement 
was the first since April.

We see the rebound at the 200-dma and the current price level of 
$30.19 as giving us a good risk/reward ratio, with a stop loss of 
$28.00 and an initial price target of $35.00.  if the broad 
market experiences a pullback on Monday, after the furious rally 
of the last two days, look for support at the 200-dma of $29.62 
before initiating long positions. 

*** October contracts expire next week ***

BUY CALL NOV-27.50 MBG-KY OI= n/a at $4.00 SL=2.00
BUY CALL NOV-30.00 MBG-KF OI= n/a at $2.40 SL=1.20
BUY CALL DEC-27.50*MBG-LY OI= 212 at $4.60 SL=2.30
BUY CALL DEC-30.00 MBG-LY OI= 594 at $3.00 SL=1.50

Average Daily Volume = 844 K


---

MME – Mid Atlantic Medical Services $40.25 (+3.07 last week)

Company Summary:
Mid Atlantic Medical Services is a holding company for
subsidiaries active in managed healthcare and other life and
health insurance related activities.  MME and its subsidiaries
offer a broad range of managed healthcare coverage and related
ancillary insurance and other products and deliver these
services through health maintenance organizations, a preferred
provider organization, and a life and health insurance company.
MME owns a home healthcare company, a pharmaceutical services
company and a hospice company.  The company also owns a
collections company and maintains a partnership interest in an
outpatient surgery center.

Why We Like It:
Despite the 2-day wonder rally we have just experienced, the fact
remains that the fundamental picture for the economy is
questionable at best.  About the only area where investors can
point to true signs of expansion is Health Care, so it should come
as no surprise that we're going fishing in that well again.  From
the Health Care Payor index (HMO.X) to the Pharmaceutical index
(DRG.X), the Health Care sector has exhibited some impressive
relative strength over the past month, refusing to follow the
broad market's lead in dropping to test the July lows.  With its
hand in many areas of the industry, from insurance to
pharmaceuticals and from home health to outpatient surgery, MME
is continuing to benefit from the cycle of growth within the
sector.  In fact, Friday's bullish session saw the stock blasting
through the $40 level to post a new all-time high, supported by
volume that more than doubled the daily average.  How's that for
relative strength?  The PnF chart recently generated a fresh Buy
signal, and the vertical count is pointing to an upside target of
$46.  While that may seem rather close, it is still more than 14%
above current the current price.  So long as the bullish trend
remains in place, MME should continue to march higher, especially
if the tentative broad market rebound lengthens its stride next
week.  We want to be careful about chasing MME higher, but a
rally through $41.25 (just above Friday's intraday high) can be
used to initiate new positions, so long as volume remains robust.
A bit of a pullback early next week could help to provide a more
conservative entry on a rebound near the $39 level, and a dip to
stronger support at $38 would be even better.  Of course, we need
to be on the lookout for something more ominous than profit
taking, so we're setting our stop at 37.

*** October contracts expire next week ***

BUY CALL OCT-40 MME-JH OI=618 at $1.30 SL=0.50
BUY CALL NOV-40*MME-KH OI= 27 at $2.50 SL=1.25
BUY CALL NOV-45 MME-KI OI=  0 at $0.65 SL=0.25
BUY CALL DEC-40*MME-LH OI= 25 at $3.00 SL=1.50
BUY CALL DEC-45 MME-LI OI=  0 at $1.05 SL=0.50

Average Daily Volume = 514 K



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

ITMN - InterMune - $33.99 +1.17 (+2.26 for the week)

Company Summary:

InterMune is a commercially driven biopharmaceutical company 
focused on the marketing, development and applied research of 
life-saving therapies for pulmonary disease, infectious disease 
and cancer.

Why We Like It:
ITMN has continued its steady up trend of the last seven weeks.  
While the Dow tacked on 316 points, ITMN continued its upward 
creep with a modest $0.17 gain to close at $32.36.  While bears 
may see this as a sign of relative weakness, we see it as 
evidence that it did not experience a short covering bounce like 
many other stocks that had been in severe downtrends recently. 
It's Actimmune drug, which continues to show positive results in 
both the next generation version with less dosing, and for new 
diseases, is a positive for the company, which has kept it moving 
forward.  The series of higher highs and higher lows continues 
and the fact that the last pullback was stopped dead at the 200-
dma shows a solid level of support.  The company recently 
announced a pact with Inhale Therapeutic Systems Inc. (INHL) to 
develop an extended release treatment for hepatitis C.   The 
companies plan on combining ITMN's Infergen, already in the 
market, and INHL's PEGylation technology, which prolongs the 
effectiveness of a drug, into a new medicine called PEG-Infergen.  
if approved, the new drug would compete with Schering-Plough's 
big-seller, Peg-Intron and a new drug from Roche, which is 
expected to receive approval by the end of the year. ITMN 
President Scott Harkonen said, "We believe PEG-Infergen will 
build on the success we are having with Infergen in this market. 
We expect this market will grow to $3 to $4 billion over the next 
five years."    He also said the company plans to initiate 
clinical trials in the first quarter of 2003.  The company's 
strong pipeline should help it continue the upward momentum in 
the stock price and OI sees the current level as a long entry 
point.  Additional entries for conservative traders might be the 
PnF 3-box reversal number of $34, or the buy signal of $35. We 
would favor November contracts for new entries. 

*****   October contracts expire in 1 week  *******

BUY CALL OCT-30 IQY-JF OI= 4134 at $3.10 SL=1.60
BUY CALL OCT-35 IQY-JG OI= 1598 at $0.50 SL=0.00
BUY CALL NOV-30 IQY-KF OI=   30 at $4.60 SL=2.30
BUY CALL NOV-35 IQY-KG OI=   70 at $1.90 SL=1.00

Average Daily Volume = 1.58 mil


---

LMT - Lockheed Martin - $60.88 +2.87 (-0.12 for the week)

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

Why We Like It:
LMT's rebound followed the rising tide today, as it tacked on 
$1.57.  However, unlike other stocks that seemed to rally mostly 
due to short covering after the SPX reached its July low, LMT had 
some substance behind it. Last, night the President got approval 
from both the House (296-133) and Senate (77-230) to use military 
force to confront Saddam Hussein.  The overwhelming percentage by 
which the resolution was passed serves to empower the President, 
who has little patience for a shell game of weapons inspections.  
While it is not certain that we will be going to war, the 
resolution does not require President Bush to seek U.N. 
cooperation, and an invasion appears likely at some point. 

The stock continues to mirror its activity from the end of July 
when it dipped below the 200-dma, only to rally quickly above its 
breakdown level. The stock is now on a 5-box PnF reversal up.  
Each time it has experienced a PnF reversal in the current 
formation, it has achieved one box higher than the previous high, 
which in this case was $67.  We will base our initial target of 
$68 on that consistency, and the fact that war rhetoric should be 
heating up again with Congressional approval and elections around 
the corner. LMT was turned back this morning at its 50-dma of 
$63.56 and conservative traders may want to use a trade above 
that level to initiate long positions.  After the massive rally 
of the last two days, we may experience a pullback on Monday. In 
that case, look for support at the 200-dma of $59.90 as a sign to 
enter the position.

*** October contracts expire next week ***

BUY CALL NOV-60 LMT-KL OI= 443 at $5.00 SL=2.50
BUY CALL NOV-65 LMT-KM OI= 454 at $2.40 SL=1.20
BUY CALL DEC-60*LMT-LL OI=2133 at $6.00 SL=3.00
BUY CALL DEC-65 LMT-LM OI=1773 at $3.40 SL=1.70

Average Daily Volume = 3.15 mil


---

WLP - Wellpoint Health Network - $78.40 +0.82 (+0.78 for the 
week)

Company Summary: 
WellPoint Health Networks Inc. serves the health care needs of 
more than 13 million medical members and approximately 45 million 
specialty members nationwide through Blue Cross of California, 
Blue Cross and Blue Shield of Georgia, Blue Cross and Blue Shield 
of Missouri, HealthLink and UNICARE. WellPoint offers a broad 
spectrum of quality network-based health products including open 
access PPO, POS and hybrid products, HMO and specialty products. 
Specialty products include pharmacy benefit management, dental, 
utilization management, vision, mental health, life and 
disability insurance, long term care insurance, flexible spending 
accounts, COBRA administration, and Medicare supplements. Blue 
Cross of California, Blue Cross and Blue Shield of Georgia, and 
Blue Cross and Blue Shield of Missouri are independent licensees 
of the Blue Cross Blue Shield Association.

Why We Like It:
We finally got the breakout we've been looking for in WLP, as it 
traded through resistance at $80.  The stock had been turned back 
at that level on numerous occasions since its breakdown below $80 
back in June.  We waited for a break back above that level to 
initiate the play and initiated it this afternoon. That $80 price 
level did several things on a technical basis.  It provided 
another higher high in the rising pattern begun at the start of 
August, when its previous short-term downtrend reversed.  It also 
created a new point and figure buy signal on a double top 
breakout.  Additionally, it may have placed the stock into a new 
consolidation range.  Historically, the stock has moved within 
$10 consolidation rectangles, breaking out to a new $10 level 
each time.  An exception occurred last June, when the break above 
$80 only reached $86.  Of course a $6 gain is fine with us, but 
our target is $90, after the recent consolidation between $70 and 
$80. WLP was added today to Goldman Sachs recommended list, which 
is quite an achievement in the current market.  Traders looking 
to initiate new long positions can watch for a re-test of $80 to 
the downside, as evidence of support at the previous level of 
resistance. We see the current level, above $80, as ideal for new 
entries. The current vertical count for the stock is $100, but 

*** October contracts expire next week ***

BUY CALL NOV-75 WLP-KO OI= 68  at $7.80 SL=3.90
BUY CALL NOV-80*WLP-KP OI= 339 at $4.50 SL=2.25
BUY CALL JAN-80 WLP-AP OI= 312 at $7.40 SL=3.70
BUY CALL JAN-85 WLP-AQ OI= 457 at $5.00 SL=2.50

Average Daily Volume = 1.58 mil


---

AZO – AutoZone, Inc. $81.51 (+0.24 last week)

Company Summary:
AutoZone is a retailer of automotive parts and accessories,
primarily focusing on do-it-yourself customers.  Each of its
more than 2900 stores in 42 states and Mexico carries an
extensive product line for cars, vans and light trucks,
including new and re-manufactured automotive hard parts,
maintenance items and accessories.  Approximately half of its
domestic stores also have a commercial sales program, which
provides commercial credit and prompt delivery of parts and
other products to local repair garages, dealers and service
stations.

Why We Like It:
It's always amazing how quickly bad news is forgotten, when an
oversold rally gets underway.  Remember the stream of negative
news out of the Retail sector (RLX.X) all last week from the
likes of FD, WMT and KSS?  Well, apparently neither do the bulk
of the bears who spent the past 2 days covering and propelling
the RLX to more than a 5% gain on Friday.  That's fine with us,
as the likelihood of this sort of rebound was part of our logic
in adding AZO to the call list.  If it held up as well as it did
while the bulk of the Retailers were committing hari-kari,
imagine how well the stock would perform if the market turned
around.  Well that's exactly what happened the past couple days,
with AZO posting better than a $2 gain on Friday.  If that sounds
pretty meager, remember that AZO is likely rising from actual
buying, not just shorts buying to cover their assets.  While the
stock has some significant resistance near the $82-83 area, once
clear of that zone, it will be time to focus on a run at the
all-time highs, just south of $85.  Friday's gap is a bit of a
concern, and ideally we'd like to see a bit of weakness early
next week that has AZO filling that gap (down near $79.50) before
continuing its skyward trek.  That sort of bounce would make for
a high-odds bullish entry, as momentum traders will need to be
very careful.  Once clear of the $83 resistance from earlier this
month, AZO is right up to the $83-85 resistance from May-June.
But with the daily Stochastics just starting to reverse upwards,
momentum entries might be just the way to go.  Raise stops to $77
this weekend.

*** October contracts expire next week ***

BUY CALL OCT-80 AZO-JP OI=1563 at $2.95 SL=1.50
BUY CALL NOV-80 AZO-KP OI= 776 at $6.10 SL=4.00
BUY CALL NOV-85*AZO-KQ OI= 692 at $3.20 SL=1.50
BUY CALL DEC-85 AZO-LQ OI=1509 at $5.60 SL=3.50

Average Daily Volume = 1.32 mln



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

GIS - General Mills, Inc. $41.50 (-3.10 last week)

Company Summary:
General Mills is a producer of packaged consumer foods and
operates exclusively in the consumer foods industry.  The
company operates three business segments: U.S. Retail, Bakeries
and Foodservice and International.  U.S. Retail consists of
cereals, meals, refrigerated and frozen dough products, baking
products, snacks, yogurt and health venture activities.  The
Bakeries and Foodservice segment consists of products marketed
to retail and wholesale bakeries and offered to the commercial
and noncommercial foodservice sectors throughout the United
States and Canada, such as restaurants and school cafeterias.
The International segment is made up of retail business outside
the U.S. and foodservice business outside of the U.S. and Canada.

Why We Like It:
Huge short-covering rallies like we saw over the past 2 days are
great for identifying the really weak stocks.  Let's face it, if
a 700+ point DOW rally and a nearly 100 point NASDAQ rally can't
drag a stock (any stock) into positive territory, there must
really be some serious problems.  That's our thinking with GIS,
which has been falling precipitously for the past week after
being firmly rejected at the 200-dma up at $45.50.  That was a
former area of resistance and apparently it is still firmly in
place.  On Monday, the company announced that is was considering
further plant closings (not a good sign) in the wake of its
acquisition of Pillsbury, got hit with a CSFB downgrade on
Wednesday and then had its debt rating cut by Moody's on
Thursday.  Investors obviously didn't like the taste of what was
being served and promptly spit out the stock at a brisk rate.
Friday's selling volume came in at double the ADV, as GIS fell to
close just off the $41 support level.  If it loses that level of
support, the next help will be found at $40, before a full retest
of the July lows down at $38.  To be fair, we're likely still
early in the stock's decline, if our bearish thesis is correct.
The PnF chart is still on Buy signal, although that could change
quickly if GIS breaks $39, generating a fresh Sell signal and a
tentative price target of $32.  Lately, the market hasn't been
kind to company's being awarded with debt downgrades, and we
expect that to remain the case.  Note that the ascending
trendline connecting the lows since July is right at $41.25, just
below Friday's low.  Conservative traders will want to wait for
an oversold rebound to provide a better entry, ideally on a
rollover near the $42.50-43.00 level.  Traders that want to see
the breakdown before playing will want to see GIS pushed under
the $41 level on continued strong volume before playing.  We are
initiating coverage with our stop set at $43.50, the site of the
mid-August highs.

BUY PUT NOV-45 GIS-WI OI=175 at $4.10 SL=2.50
BUY PUT NOV-40*GIS-WH OI= 67 at $1.25 SL=0.75

Average Daily Volume = 1.26 mln


---

GS – Goldman Sachs Group $64.20 (+2.15 last week)

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

Why We Like It:
It seems like Wall Street is finally starting to acknowledge that
this is one nasty bear market and the heady days of the late 1990s
are gone for good.  That much is evident by the absolute dearth
of investment banking deals and the declining levels of trading
volume.  This trend is finally starting to hit the big Brokerage
firms where it counts and layoffs are still being announced.  As
if that wasn't bad enough, the Congressional hearings are still
rolling along, peppered with news of shareholder lawsuits on the
basis of conflict of interest.  That cycle of bad news hammered
the Brokerage sector (XBD.X) down to the $320 level last week,
completing a successful test of the September 2001 lows when the
rebound got underway over the past 2 days.  But the fundamentals
in the sector are still dismal and likely to get worse.  This was
highlighted by a JP Morgan report on Wednesday citing that Wall
Street firms are still overstaffed by 17 percent, despite the
thousands of industry job cuts that have already taken place.
GS, the brokerage firm that everyone loves to hate, because of
the shamelessly bullish AJ Cohen, drilled to a new all-time low
below $59 on Thursday before reversing higher with the rest of
the market.  Since then the bulls have been in charge, pushing
the stock up to the $65 level on Friday before relaxing a bit
into the close.  This is where the rubber meets the road, as the
stock has some very heavy resistance, starting at $5.50, also the
site of the 20-dma.  Even if the bulls are able to scale that
level, there is even stronger resistance laying in wait near $68.
We don't want to rush into the play, but want to wait for the
bulls to exhaust themselves banging their heads into resistance.
Then we can look to initiate new positions as the rally fails.
Aggressive entries can be attempted near the $65.50 level if the
rally stalls out early in the week, although the $68 level will
provide for easier risk management.  Alternatively, if GS
reverses course from current levels and moves into Friday's gap,
that drop under $62.50 can be used for new momentum-based
entries.  We want to give GS some room to move, so we are
setting a rather wide stop at $68.50.

*** October contracts expire next week ***

BUY PUT OCT-65 GS-VM OI=10208 at $2.05 SL=1.00
BUY PUT NOV-65*GS-WM OI= 2459 at $4.20 SL=2.50
BUY PUT NOV-60 GS-WL OI= 1685 at $2.30 SL=1.25

Average Daily Volume = 6.66 mln



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The Option Investor Newsletter                   Sunday 10-13-2002
Sunday                                                      4 of 5


In Section Four:

Current Put Plays: HAR
Leaps: Double Bottom?
Traders Corner: Put Down The Remote and Test Your Option IQ?
Traders Corner: Overbought and Oversold: Concepts and Use
Traders Corner: SINGLE STOCK FUTURES (SSF)


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

HAR - Harman International - $48.60 -1.49 (-2.76 for the week)  

Company Summary:
Harman International Industries, Incorporated is a leading 
manufacturer of high-quality, high fidelity audio products and 
electronic systems for the consumer and professional markets. The 
Company's stock is traded on the New York Stock Exchange under 
the symbol: HAR.  (source: company release)

Why We Like It:
HAR was carried along with the rising tide the last couple of 
days. However, today's rally actually was rejected at the 200-dma 
of $49.44, which also serves as a secondary neckline on the head 
and shoulders breakdown the stock experienced on Tuesday.  While 
the stock traded as high as $50.76 intraday, the drop-off during 
the afternoon shows that $50, which should have provided support 
on a legitimate rally, could not hold up.  The other indicator 
that the sentiment for the bounce did not have as much conviction 
as the previous breakdown is volume.  The average volume on the 
bounce of the last two days was less than half of what it was on 
the breakdown.  While we don't want to stand in front of a 
speeding train if the rally continues on Monday, this stock seems 
better suited for the "short" stack.  With retail sales poor over 
the last month, even as compared to September 2001, and the trend 
of sales declines continuing as we head toward the holiday 
shopping season, HAR should see fewer shoppers attracted to its 
pricey audio components.  A look at the point and figure chart 
shows several attempted rebounds in the stock since September, 
with each rejected at a lower high than the last, eventually 
landing at a lower low, as well.  The rally of the last two days 
continued that trend and should have the stock headed to another 
lower low if the market turns over. New entries should wait for 
signs of market weakness and a trade below previous recent highs 
around $48. 

*** October contracts expire next week ***

BUY PUT NOV-50*HAR-WJ OI= 50 at $4.70 SL=2.35
BUY PUT NOV-45 HAR-WI OI= 10 at $2.90 SL=1.45

Average Daily Volume = 297 K



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*****
LEAPS
*****

Double Bottom?
By Mark Phillips
mphillips@OptionInvestor.com

That was the question on every bulls' mind after the S&P 500
(SPX.X) rebounded from just below the site of the July lows.
Positively-received earnings from GE and an upgrade of IBM on
Friday morning sealed the deal and the markets put in their
second strong performance in as many days, with the SPX briefly
trading north of 840 and the DOW actually kissing the 7900 level.
Unfortunately for the anxious bulls out there, they're going to
have to wait awhile before they know if this is a successful
double bottom.  In order to fit the description, the SPX will
need to then clear the level of its August highs, which is clear
up at 965.  There's 130 points between Friday's close and that
level, so there will be plenty of time for the pundits to argue
about whether this is The Bottom or not.

As you know, I think the overall bear has a lot more room to go,
and we got another important point of confirmation last week just
before the short-covering rally got started.  The DOW Transports
($TRAN) violated their September 2001 low and those of you that
happen to follow DOW Theory will recognize that development as an
important confirmation of the strength of this bear.  But the
market moves in strange ways and it appears that it is once again
time for a brief bear-market rally.  As traders, we really don't
care about the eventual destination of this market, just what is
the near-term trend that we can benefit from.

In recent months, the bear has been completely in control, as a
view of the monthly chart reveals.  The rebound off the July lows
almost completely disappears, with the only monthly gain since
March being the paltry 5-point advance in August.  To put it into
perspective, that gains was sandwiched between July's 78-point
loss and September's 101-point loss.  The SPX is still caught
firmly in the clutches of the downward trend that has been in
force since late 2000, but that isn't to say that we aren't due
for a solid rally.  Historical trends are in favor of this rally
finding its legs, as October is famous for ushering in important
bottoms.

The Bullish Percent charts are in favor of the bulls as well, as
they have recently all reached down to extreme levels of
bearishness.  Sure they can go further, but right now it appears
the path of least resistance is up.  After reaching as low as 7%,
the DOW's Bullish percent has now reversed up to 13%.  No 3-box
reversal yet (that won't happen until 14%), but it's a start.
The NASDAQ has led the market in recent important reversals both
to the upside and to the downside.  After reaching as low as 14%,
the NASDAQ-100 Bullish Percent chart has reversed into a column
of X's and is now Bull Alert with a reading of 22%.  Still in
oversold, but this one could be a leading indicator for the rest
of the market over the near term.

Stepping away from the technicals for a few minutes, the
fundamentals of this market are still abysmal.  There is no
pickup in demand for Information Technology, the economy is still
on very wobbly legs, there is no pickup in employment, the West
Coast dock lockout has dealt another body blow to the Retail
sector that will likely be felt through the holiday season, and
War with Iraq is seeming more likely by the day.  There are
numerous other problems to contend with as well, but it is
possible that the markets have already discounted this picture
and it is once again time for bad news to be interpreted in a
positive light.

I'm not yet convinced that the bulls are in charge, but the level
of fear has certainly diminished in the past 2 days.  In contrast
to the recent pattern of holding near the 50 level, Friday's free
fall brought the VIX back to the 43 level.  Still an extreme level
to be sure, but a definite improvement.  The bottom line is that
we are possibly getting started on the next oversold rally that
lasts for more than a day or two, but it will require more than a
2-day wonder rally before we know for sure.

Fortunately for us, we're traders and we can benefit from the
reversal of trend before we know whether that reversal is going
to stick.  It's all about picking the right entry and exit points
and sticking to our defined trading plan.  Speaking of trades,
let's see how our list of trades and trade candidates is faring.

Portfolio:

LEN - Along with the rest of the market, the Housing sector took
a tumble early last week, before the shorts decided it was time
to cover.  That activity propelled the markets higher all the way
until the closing bell on Friday, helping LEN to recapture a fair
chunk of its losses from earlier in the week.  The drop below $53
put the PnF chart on a Sell signal, and the vertical count now
shows us there is potential downside to the $41 level.  But first,
the bears will have to successfully defend resistance near $58-59.
The bounce off the $50 level was to be expected, as it was the
site of the bullish support line on the PnF chart, as well as a
prior area of support.  So long as the September highs hold as
resistance, late-comers can use the rollover at the end of this
rally to initiate new positions.  Until the bullish support line
is broken, we're keeping our stop rather wide at $60.

Watch List:

MO - After the negative news of late, investors in MO have been
just waiting for a pause in the selling so that they could collect
their wits.  Recall our comments about support at $35?  Well, that
level seemed to have provided some support again last week,
allowing the stock to close in the green for the first time in
the past 6 weeks.  While some may view this as the buying
opportunity we want, I'm a patient man.  That long column of O's
on the PnF chart looks rather ominous and reminds me of what it
looked like back in early 1999 before plunging as low as $18.50.
I don't expect to see a repeat of that bargain, but I am concerned
that this is only the first leg down.  So before initiating a
Portfolio play (or even taking MO off of HOLD), I want to at least
see a 3-box reversal, and even better would be a fresh Buy signal.
Stay tuned.

BA - Has the bottoming process begun?  That's how it looks to me.
First the $32 price target from the PnF chart was achieved, and
then BA found support near $30, just above the SEP-01 low.
Finally, the DOW Transports ($TRAN) took out their SEP-01 low,
while BA did not.  That looks to me like a measure of relative
strength.  I know we're fishing in a weak area of the market here,
with airlines struggling as they are.  But BA also has a strong
defense component to its business and risk has now become very
easy to manage.  A renewed dip and bounce from the vicinity of $30
can be used for new entries, as can a rally (and close) above $32.
In either case, we'll set our stop at $27.50 (just below the
SEP-01 low) for starters.

MSFT - Denied!  It looks like I got a little stingy on the entry
point, and MSFT left the station without us.  Blasting out of its
3-week consolidation pattern on Friday.  Actually the move got
started on Thursday when Mr. Softee once again confirmed the $43
level as support and rocketed higher throughout the remainder of
the day.  I am not yet convinced that this rally is for real, but
even if it is, we don't want to chase the stock higher.  There is
significant resistance in the $49-50 area, which will likely
produce the next pullback.  Let's look for a dip into the $45-46
area to trigger new entries.

NEM - So much for support!  Actually, the support that market
participants were watching was apparently different than the one
I had in mind.  The $23 level seemed to come into play on
Thursday, but the rebound on Friday was less than convincing.
That long-term ascending trendline is looking like a realistic
target, now at $22.25.  With the broad markets still trying to
put in a snapback rally, we could see some more near-term
weakness in the gold shares.  Take advantage of that weakness by
targeting entries near that trendline.  Should the stock just
rebound from current levels, wait for a push back above $25
before taking a position.

The end of week was a refreshing change from the past few months,
but I don't believe it is time to blindly put those horns back
on.  There are some important resistance levels that need to be
taken out before it will be safe to go back into the pasture, and
each day of this earnings season will present a fresh minefield
to navigate.  The scales are starting to tip back towards the
bullish camp, but we still need to probe the market with small
positions and a "Show Me" attitude.

Have a great week!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
None
JNJ    10/10/02  '04 $ 60  LJN-AL  $ 6.50  $ 6.50  + 0.00%  $51
                 '05 $ 60  ZJN-AL  $ 9.10  $ 9.10  + 0.00%  $51


Puts:
LEN    10/02/02  '04 $ 50  KJM-MJ  $ 8.60  $10.20  +18.60%  $60
                 '05 $ 50  XFF-MJ  $11.20  $13.30  +18.75%  $60



LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
BA     06/30/02  $30, 32       JAN-2004 $ 35  LBO-AG
                            CC JAN-2004 $ 30  LBO-AF
                               JAN-2005 $ 40  ZBO-AH
                            CC JAN-2005 $ 30  ZBO-AF
MO     08/25/02  HOLD          JAN-2004 $ 45  LMO-AI
                            CC JAN-2004 $ 40  LMO-AH
                               JAN-2005 $ 50  ZMO-AJ
                            CC JAN-2005 $ 40  ZMO-AH
MSFT   09/29/02  $45-46        JAN-2004 $ 50  LMF-AJ
                            CC JAN-2004 $ 45  LMF-AI
                               JAN-2005 $ 50  ZMF-AJ
                            CC JAN-2005 $ 40  ZMF-AH
NEM    09/29/02  $22.50, 25    JAN-2004 $ 30  LIE-AF
                            CC JAN-2004 $ 25  LIE-AE
                               JAN-2005 $ 30  ZIE-AF
                            CC JAN-2005 $ 25  ZIE-AE


PUTS:



New Portfolio Plays

JNJ - Johnson & Johnson $56.70  **Call Play**

That didn't take long!  Just when it looked like the broad
markets were going to plunge off the edge of the cliff, the
shorts started covering and helped the major indices to post
their first winning week in quite some time.  JNJ plunged
mid-week following a downgrade from USB Piper Jaffray, giving
us an entry when the stock rebounded from just above $54.  While
the standard price chart is still looking rather noisy, the PnF
chart still shows demand in control, with a bullish price target
of $74.  The weekly Stochastics have posted a bullish reversal
well above the oversold region, pointing to the likelihood of
more bullish action ahead.  The company is scheduled to report
earnings on Tuesday morning, and cautious investors may want to
wait for that report before entering the play, as the broad
markets are still rather early in any recovery move.  To give JNJ
room to move before pushing higher, we're setting our stop rather
loose at $51, as it would take a trade at or below this level to
turn the PnF chart bearish.  So long as this level isn't
violated, a renewed dip down near $54 still looks attractive for
new positions.

BUY LEAP JAN-2004 $60 LJN-AL
BUY LEAP JAN-2005 $60 ZJN-AL


New Watchlist Plays

QQQ - NASDAQ-100 Trust $22.22  **Call Play**

One more time!  We've had rather mixed results playing the QQQ
lately, but I think the third time is going to be the charm.  The
NASDAQ has been extremely resistance to break lower and lately
has been the first to respond when those shorts start covering.
With Friday's strong rally, the NASDAQ-100 Bullish Percent
reading finally reversed into Bull Alert at a level of 22%.  It
isn't the all-clear signal, but an early warning that the tide
may be turning.  The QQQ has been working its way lower in a
bullish falling wedge for over a year now, and Friday's gains
pushed the price right up to the upper boundary of that wedge.
Just above that trendline, there is the 50-dma ($22.73), and
then the upper Bollinger band at $23.06, along with significant
resistance near $23.  So clearly, I don't expect the QQQ to just
run away to the upside from here.  No, it is likely that we'll
get one more drop into the $20-21 area to provide new entry
opportunities.  That's where we want to strike, as risk will be
easy to control with a tight stop at $19.50.  If this rally
attempt is for real, the first real test of resistance will come
near the $26.25 level, near the site of the August highs.

BUY LEAP JAN-2004 $23 KLF-AW
BUY LEAP JAN-2004 $20 KLF-AS **Covered Call**
BUY LEAP JAN-2005 $23 ZWQ-AW
BUY LEAP JAN-2005 $20 ZWQ-AS **Covered Call**


Drops

SMH - $20.36 Well, we knew the spring was getting coiled awfully
tight and the past 2 days have seen some remarkable
short-covering.  After dropping as low as $211, the SOX exploded
higher for a 16% gain in less than 2 days.  As it turned out, our
$19 stop was placed just about right, as the bulls probed that
level several times on Thursday afternoon before allowing the
SMH to settle back a bit at the close.  The strongly positive
open on Friday shot the SMH through our stop in the opening
minutes, and those with stops in place were likely taken out near
the $19.50 level.  Since we record our results using closing
prices, our results don't look as good as they otherwise might.
But there is no denying this was a nice solid winner.


**************
TRADERS CORNER
**************

Put Down The Remote and Test Your Option IQ?
By Mike Parnos, Investing With Attitude

It’s been almost three months since the inception of the Couch 
Potaro Trading Institute.  It’s time to see what kind of progress 
we’re making.  This will be relatively painless – it’s like Who 
Wants To Be A Millionaire, on options – without (thankfully) 
Regis Philbin.

Have fun and don’t be embarrassed if you don’t know all the 
answers.  That’s one of the reasons I’m here – to help you make 
you better traders – and to make you smile.

1.	With American style options, you can be exercised:  a) on 
	expiration date; b) before the expiration date; c) on your 
	birthday; d) ouch, sounds painful.
2.	European style differs from American style options in that: 
	a) they don’t like premature exercise; b) they can only 
	exercised with a Green Card; c) they can be exercised only on 
	expiration Friday.
3.	Gamma is defined as: a) the old lady who shows up with fruit 
	cake on holidays; b) the rate of change of an option’s delta; 
	c) the rate of change of an options sigma; d) none of the 
	above.  
4. 	Delta is an expected change in _____ compared with movement 
	in the underlying price.  a) temperature; b) attitude; c) 
	price of the option; d) your bank account.
5.	A bull put spread is a:  a) bearish strategy; b) bullish 
	strategy; c) neutral strategy; d) something you step in.
6.  	A bear call spread is a:  a) bearish strategy; b) bullish 
	strategy; c) neutral strategy; d) a new kind of lunchmeat, 
	featuring a bear.
7.	A bear put spread is a: a) bearish; b) bullish; c) nebbish; 
	d) neutral strategy.
8.	A bull call spread is a: a) bearish; b) bullish; c) Sweedish; 
	d) neutral strategy.
9.	Option buyers have:  a) limited risk; b) limited reward; c) 
	unlimited risk; d) unlimited reward; f) regular psychiatric 
	appointments.
10.	Option sellers have: a) limited risk; b) limited reward; c) 
	to collect premium; d) unlimited risk; e) unlimited reward; 
	f) garage sales to get rid of worthless options they acquired 
	when they were option buyers.
11.	The passage of time works: a) for option buyers; b) for 
	option sellers; c) for government employees; d) for union 
	workers.
12.	A call buyer has the right, but not the obligation, to buy 
	the underlying at a specified price on or before an 
	expiration date.  a) true; b) false; c) none of the above; d) 
	some of the above.
13.	A call seller has the responsibility to deliver the 
	underlying at a specified price: a) on the expiration date; 
	b) before the expiration date; c) during the next eclipse; d) 
	on Mother's Day.
14.	A put buyer has the right, but not the obligation, to: a) 
	sell/short the underlying at a specific price on or before an 
	expiration date; b) sell the put; c) retain counsel or one 
	will be appointed for him; d) some of the above.
16.	A put option has value on expiration only if the stock is 
	trading ______ the strike price.  a) above; b) below; c) 
	near.
17.	A call option has value on expiration only if:  a) you're in 
	your first trimester; b) the stock is trading above the 
	strike price; b) you're up to date on your life insurance.
18.	If market volatility increases while other market parameters 
	remain the same, both put and call prices can be expected to: 
	a) decrease; b) increase; c) decease.
19.	An option that is in-the-money has no intrinsic value.  a) 
	true; b) false.
20.	An option’s exercise price may: a) depend on its metabolism; 
	b) is as unstable as its buyer; c) fluctuate over time; d) 
	none of the above. 
21.	An option’s delta may or may not change over time.  a) true; 
	b) false; 
22.	A put option is in-the-money when: a) the price of the stock 
	is above the strike price; b) at the strike price; c) below 
	the strike price d) I don’t care.
23.	A call option is in-the-money when; a) the price of the stock 
	is below the strike price; b) the price of the stock is below 
	the strike price; c) higher than your electric bill.
24.	If a stock is at 50 and a call has a strike price of 45 with 
	a premium of $8, what portion of the premium is considered 
	intrinsic value?  a) $8; b) $5; c) $14.95; d) $14.95.
25.	As expiration approaches, intrinsic premium will:  a) 
	fluctuate with the changes in implied volatility; b) erode, 
	eventually to zero; c) wait until you're good and ready to 
	sell it.
26.	The excess value of an option over and above the difference 
	between the underlying stock price and the strike price for 
	an option is known as:  a) extrinsic premium; b) rebate; c) 
	intrinsic value; d) pizza money.
27.	With XYZ stock at 120, an in-the-money Oct 110 call with a 
	price of 13 1/8 has extrinsic premium of:  a) 13 1/8; b) 10; 
	c) 3 1/8; d) sell the option, stupid, and take your profit.
28.	OTM option premium can be made up of: a) intrinsic and 
	extrinsic value; b) extrinsic value only;  c) intrinsic value 
	only; d) enchiladas. 
29.  ATM options have: a) the highest time value; b) the lowest
time value; c) cash if you run out and the banks are closed.
30.  A trader who has a short straddle wants: a) the market to
	sit still; b) longer legs, c) a dramatic movement from the 
	straddlee.  
31.	A bull call spread has a) limited loss potential, but 
	unlimited profit potential;  b) limited profit potential and 
	unlimited loss potential; c) I need a Tylenol.
32.	An option with a delta of 33 means that the option should 
	theoretically move about:  a) three times a week; b) $.33; c) 
	33 percent of the time; d) 1/3 of the amount of the movement 
	of the underlying. 
33.	The seller of a put retains the premium collected: a) until 
	Christmas, b) until his wife spends it; c) whether the option 
	is exercised or left to expire.
34.	Buyers of options can have margin calls when: a) the Chicago 
	Cubs win the World Series; b) Hell freezes over; c) their 
	position goes against them; d) none of the above.
35.	Theoretically, premium will erode at a more rapid pace:  a) 
	90 days before expiration; b) 30 days before expiration; c) 
	10 days before expiration; d) two weeks after expiration.
36.	The greatest amount of extrinsic premium will be in which 
	strike price? a) $15; b) $20; c) $25; d) how the Hell am I 
	supposed to figure this out?
37.	Buying a straddle is often done: a) if you're lonely; b) if 
	anticipating that the stock is going to be choppy; b) in 
	anticipation of an increase in implied volatility; c) if it's 
	been too long since your last one.
38.	ITM options can be expected to move dollar-for-dollar with 
	the underlying when: a) somebody moves the underlying; b) 
	Lucy has some splainin' to do; c) all the time premium goes 
	bye-bye; d) none of the below.
39. 	If life deals you lemons, make lemonade; if it deals you 
	tomatoes, you: a) make Bloody Marys; b) make ketchup; c) 
	damn! I’m on the wrong website again.

In order to trade options profitably, it’s important to know the 
terms, the strategies and the risk -- before you trade! 

Print out this quiz along with your answers.  In Thursday’s 
column we’ll go over the answers to the questions and evaluate 
the results.  Are you ready to trade real money?  We’ll find out 
-- unless you’re already trading real money.  Then, you probably 
already know the answer to that question.
_________________________________________________________________

Iron Condor Update:
BBH finished this week at $82.73.  We got bounced around plenty 
this week on the BBH roller-coaster.  Maybe this time the silly 
index will stay above $80.  It would have been more profitable if 
it ended up well below $75, but, at this point, most of our 
profits are intact and we’ll just be happy to have this trade 
over with. “And the beat goes on . . .” 
_________________________________________________________________

Happy trading!  Remember 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.  
mparnos@OptionInvestor.com  




**************
TRADERS CORNER
**************

Overbought and Oversold: Concepts and Use
By Leigh Stevens
lstevens@OptionInvestor.com

“OVERBOUGHT” AND “OVERSOLD” -     
The first thing to point out with the concepts of “overbought” 
and “oversold” is that both terms are ALWAYS RELATIVE. Overbought 
or oversold means that a stock or index is thought to be at an 
extreme (on the downside or upside).  But a stock or an index is 
only “over”-bought or “over”-sold in terms of both TIME and 
CONDITION.  

TIME – 
By time is meant, are you talking about intraday, on a 2-3 day, 
2-3 week or 2-3 month time frame? A stock or index is thought to 
be at an extreme only relative to, or in terms of, a certain 
period of time. For example, the OEX might be thought to be quite 
oversold because it went down sharply down for 5 straight days.  
However, this might be in the context that the index went up 
strongly for 5 straight weeks or, 5 consecutive months. 

In this example, on a longer-term basis the index is not oversold 
at all and may in fact be considered to be still “overextended” 
(overbought) on the upside after 5-down days.  So, when you hear 
someone say the market is overbought or oversold, you have to 
think about what time frame are they talking about. 

CONDITION – 
By “condition” it is meant that the relative terms overbought and 
oversold mean different things in different market conditions or 
different types of markets.  By this is meant that overbought and 
oversold are best defined in a market that is in a fairly defined 
trading range; e.g., for the last two years, stock XYZ has traded 
between 50 and 100 several times.  When the stock is at 50 it is 
“oversold” – when it’s at 100, it’s “overbought” RELATIVE to this 
trading range.  

In a strong bull or bear market on the other hand, the 
overbought/oversold concepts are less meaningful as a stock 
stocks (an index) will tend to go up and keep going up and stay 
“overbought”, according to the conventional technical indicators 
for these things (e.g., MACD, Stochastics or RSI), for lengthily 
periods of time.  The same is true in a bear market and we don’t 
have to search far for examples in this last year! The 
conventional indicators that attempt to define the relative 
concepts overbought and oversold are going to say that the market 
is oversold, and oversold and again, oversold! 
    
BASICS – Overbought & Oversold: 
A market, or an individual financial instrument, is commonly 
thought to be overbought or oversold when prices have an advance 
or decline of a degree that is greater than what is normal or 
usual relative to its past price behavior for a certain time 
frame and condition. 

Take, for example, the case of a stock that for five years has 
never traded at a price that was greater than 10% of its closing 
average for the prior 200 days.  Then comes a period when there 
is such a steep advance that the stock reaches a price that puts 
it 20% above this same average – this stock may be considered to 
be “overbought”.  Overbought here implies simply that any surge 
in buying well in excess of what is usual on an historical basis, 
also creates a likelihood that the stock price will correct.  

Another example of an overbought condition might make an 
assumption about a stock that has closed higher for 10 days 
straight – if this price behavior is “over” or beyond what is 
usual for this item, the assumption is that prices are vulnerable 
to snapping back – a rubber band analogy is a good one, as market 
valuations get stretched, so to speak, but then tend to also come 
back to a mean or an average.  

The concept of overbought and oversold refer to rallies or 
declines that are steeper than usual, but the degree of this can 
vary a good deal in terms – there is no precise, objective or 
agreed upon measurement.  The first example mentioned of 
overbought is a more objective measure in that it examined the 
close in relation to an average close of the prior 5-years.  The 
second example given of overbought was based on more subjective 
criteria -- 10 days of consecutive up closes resulted in an 
extreme reading on an oscillator or type of technical indicator 
that “oscillates” between 0 and 100 like the Relative Strength 
Index (RSI) or between certain levels in the context of its past 
range in values like the MACD indicator.  

A central important aspect of overbought or oversold is that the 
concepts relate to a situation where there is a preponderance of 
hours, days or weeks, over some specified period of time, where 
prices are moving strongly up or down.  The concept of a specific 
price area that represents a level that is overbought or oversold 
does not normally come into play -- only that price momentum or 
the rate (speed) at which prices change, is stronger than usual 
and predominately in one direction and experience suggests that 
at some point, after a market gets into the overbought or 
oversold ranges, there is an increased likelihood that there will 
be a price correction or counter-trend move.

USE IN TRADING – 
The “best” or most effective use for oscillator type indicators 
is in a trading range market - for more on these types of 
technical indicators see: 

Indicators-Oscillator type: Stochastics (7/25/02) -
http://www.OptionInvestor.com/traderscorner/072502_1.asp 

Indicators-Oscillator type: RSI (8/1/02) -
http://www.OptionInvestor.com/traderscorner/080102_1.asp 

Indicators-Oscillator type: MACD (8/8/02) - 
http://www.OptionInvestor.com/traderscorner/080802_1.asp ]

There are however, two important things that an overbought or 
oversold extreme can highlight: 
1.) A potential for a sharp countertrend move (such as Thursday & 
Friday of this week with a 500 point plus rally in the Dow) and 
2.) Where there is a price/oscillator bullish or bearish 
DIVERGENCE 



 

The are two settings for the indicators above RELATIVE to how we 
will define overbought or oversold and have to do with LENGTH and 
LEVEL; i.e., what number of hours, days, weeks or months we want 
the indicator formula to use (length) and what will “define” what 
is an overbought or oversold level (the reading that starts what 
is an overbought or oversold “area”). 

In the OEX chart above, I am using a length setting of 14 for 
both RSI and Stochastics – that is, the formula measures the most 
recent close relative to the highest high and lowest low for the 
past 14-days.  If this was an hourly chart, it would measure 14 
hours, etc. 

I define oversold/overbought levels as 30 and 70 for the RSI 
above, which is a typical “default” or common setting or 
definition for the start of those extremes; and, 20 and 80 for 
the 14-day stochastic, also a most common “setting”.  

We see two things in the chart above - the recent low was 
oversold according to the stochastic model and nearly so 
according to RSI, however not as oversold as at the prior low.  
Leaving aside the related and obvious potential for a technical 
“double bottom” in the OEX, there is another bullish technical 
factor shown above – and in the weekly NDX chart below – that of 
a bullish PRICE/OSCILLATOR DIVERGENCE. 

The recent relative low in for the current move (the recent 
downswing) was not “confirmed” by a similar lower low in the RSI 
and Stochastics oscillator type indicators.  In fact, they were 
registering a HIGHER low before the strong rebound, making the 
pattern a bullish (price/oscillator) DIVERGENCE.  

A bearish divergence would be just the opposite of course – 
prices make higher highs, but the RSI for example, does not ALSO 
make a higher high along with prices.  I tend to use to the RSI 
most in spotting potential divergences as it tends to highlight 
them most often.  This has to do with it being a ratio of down 
closes to up closes and to being a single reading and single 
point or plot.  However, you see from the example chart above 
that Stochastics highlighted this bullish divergence quite well 
also.  



     

For the weekly chart above of the Nasdaq 100 (NDX), not only does 
the RSI tell us (on a 13-week – 1/4 of a year – basis) that this 
segment of the market was registering an oversold extreme common 
in a bear market, but that the recent lower swing low was not 
confirmed by the RSI.  

This bullish divergence was almost more important to helping spot 
the recent bottom than the fact of this index or group of stocks 
being oversold – because as we know, an oversold extreme in and 
of itself does not tell us necessarily of an impending trend 
reversal. The index can just STAY oversold.  And, unlike the 
example of the S&P 100 (OEX) we did not have a potential double 
bottom setting up. So, we had little to go on except the bullish 
divergence with the RSI highlighting the POTENTIAL for an upside 
reversal.  

And, that’s all it is, is a “potential” – actual proof of the 
technical pudding so to speak is a breakout above its down 
trendline and a move above a prior swing high.  But the 
divergence can get us ready to exit puts and shorts and take 
advantage of nice trade.  Whether what we’re seeing in recent 
market action is the beginning of the end of the tough bear 
market we’ve been in, is another story and needs more confirming 
technical action.  

Just as is the case of the MORE technical signs that point to a 
possible trend reversal the better (e.g., the potential OEX 
double bottom low AND the bullish oscillator divergence) – the 
more time frames that a divergence shows up on, the more strong 
is the case for a trend reversal based on the technical indicator 
alone such as the RSI. 

In the recent example provided by the strong move of late last 
week – the bullish divergence on BOTH the daily AND weekly 
oscillators made a stronger technical case for a significant 
reversal that was DUE.  

A next question would become - how about the monthly chart 
picture?     



 

In the example of the Dow monthly chart here, we have to settle – 
as an indicator of a possible bottom – for the fact that (on an 
8-month basis at least), this segment of the market got to a 
fully oversold reading for the first time in years.  And, even 
with this reading, I marked the boundary of my oversold area at 
25, rather than 20 – a somewhat subjective decision.  I set the 
oscillator “oversold” boundary here based on the length I chose – 
8 months – and did not necessarily expect an RSI reading on a 
monthly basis to dip UNDER 20 to mark a long-term oversold 
condition. Actually, it got to 20.6 at last month’s (Sept.) 
close.  

So, on a MONTHLY chart basis we did not see a bullish price/RSI 
divergence in the Dow 30 (Industrials), but did see an oversold 
extreme beyond what has been seen in years.  What did this tell 
us – if you were asleep at the switch with heavy put positions 
and thought that it was likely that there would be a whole 
further down “leg” below the low-7000 area – WRONG!, on a risk to 
reward basis.  

The further “reward” potential on the downside in a market that 
shows (finally) a long-term oversold condition is likely quite 
limited RELATIVE to the risk of a strong upside rebound, whether 
we chose to call it an “oversold rally” or ”technical” bounce or 
whatever.  

And here comes another thing – while we don’t have a potential 
double bottom low as a “confirming” OTHER technical consideration 
to the oversold extreme in the long-term monthly Dow chart, we do 
have long-term trendlines - whether on a “best fit” internal 
trendline or marking 3 absolute lows exactly - coming in around 
this past week’s Dow low point, per the chart below: 



  

How’s that for a confirming technical?  For more on the possible 
ways you can construct a trendline see my prior Trader’s Corner 
article at –

Charting: Trendlines; Effective Uses in Trading (9/19/02)–
http://www.OptionInvestor.com/traderscorner/091902_2.asp


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SINGLE STOCK FUTURES (SSF)
by Alan Hewko
futures@OptionInvestor.com


Ready or not, here they come...

Single Stock Futures (here-after called SSF) have been in works 
for some time, and now are finally appearing in just a few short 
weeks with a launch date of October 25, 2002. SSFs have been 
traded in Europe for some time on the LIFFE exchange.

As a Trader of the U.S. markets, one must stay a-tuned to change.

An an Option Trader, one must understand how SSFs may impact 
option trading.

As a Futures Trader, one must understand how SSFs can benefit 
your index Futures trading.

OK - so what are Single Stock Futures?

Frankly, they look to be an extremely interesting trading tool.

Details will follow below, basically:

SSFs shall trade on a new exchange called OneChicago.

1 SSF contract equals 100 shares of stock.

Daytrade margin is 20% (or 5 to 1 leverage).

SSFs will have market makers.

No sense on what the bid/ask spread will be.

I could not find out what hours of the day they will trade at.
You do NOT need an uptick to open a Short (similar to index 
futures).

SSFs will have twelve different expirations, one for each month 
of the year, similar to Options.

I could not find the day when each month a SSF contract would 
expire, it may expire on the 3rd Friday of each month, as options 
do, but was not able to find information on when the SSF 
expiration date is.

SSFs have no time decay, unlike options.


SSF Real world example:

MSFT is $45.

Buy 1 MSFT Single Stock Future (SSF) contract.

This controls 100 shares of MSFT.

$45 x 100 shares = $4500, 20% margin is $900.

So with $900 on the table, you are controlling $4500.

MSFT upticks to $47.

Sell your 1 MSFT SSF contract at $47.

Profit is $2, or $200.

Rate of return: 22%

Someone with an Equities account over $25,000 currently has 4:1 
daytrade margin, SSF provide 5:1 daytrade margin.

Currently an active small trader, with an account under $25,000 
is vastly restricted, usually with no margin at all, with all 
trades having to be 100% cash, and restrictive rules on only 
being able to do three daytrades within a five day period. SSFs 
would allow a small trade 5:1 margin (which of course can be 
either very good or very bad).

It would appear, BUT please do NOT consider this an official 
opinion, that SSFs would allow a trader with under $25,000 to 
daytrade all they wished to without any limit to the number of 
daytrades done per week.

Of these 80 stocks they have selected to start SSFs with, the 
only stock I found surprising was the inclusion of KKD - Kripsy 
Kreme Doughnuts. But since they also have Starbucks (SBUX), I 
guess it's a good match [grins].

Website to read more:
OneChicago is the primary website.

http://www.onechicago.com


Brokers:
I know that most (if not all) Futures Brokers shall be offering 
SSFs. You would have to contact your existing stock or options 
online broker to determine if they shall be offering them or not.

_______________________________________________________________


Below is more detailed information direct from www.onechicago.com
Single stock futures (SSF) are futures contracts on individual 
stocks. 

They will trade on a new exchange called OneChicago. 
OneChicago is an electronic exchange committed to becoming the 
global leader in futures on individual stocks and narrow-based 
indices. OneChicago is a joint venture of the world's premier 
options and futures exchanges: Chicago Board Options Exchange 
(CBOE), Chicago Mercantile Exchange (CME) and Chicago Board of 
Trade (CBOT). CME exchange is where SP500 and NDX 100 futures 
trade, the Dow $5 Futures contract trades on the CBOT exchange.

A OneChicago single stock futures contract is an agreement for 
delivery of shares of a specific stock at a designated date in 
the future, called the expiration date. 

The size of a OneChicago single stock futures contract is 100 
shares of the underlying stock.

Narrow-based indices are futures contracts on small groups of 
stocks that allow an investor to take a position in a 
concentrated area of the equities market. Each narrow-based index 
will typically include three to nine companies in a specific 
sector. OneChicago will initially list at least 15 narrow-based 
indices on key economic sectors such as Airlines, Computers, 
Investment Banking, and Semiconductors.

Liquid markets from day one: OneChicago employs a market maker 
system using a number of Lead Market Makers (LMMs). These LMMs 
have been selected based on their ability and commitment to make 
continuous two-sided markets. The benefits that LMMs provide to 
investors include tighter spreads and the ability to promptly 
execute orders placed with their brokers. 

OneChicago LMMs include globally recognized investment firms and 
market-making professionals who have demonstrated the experience 
and financial capacity to meet their contractual obligations to 
OneChicago. In addition, other market makers will be actively 
trading along with LMMs to ensure the liquidity that investors 
value.

Lower transaction costs and better fills: As a fully electronic 
exchange, OneChicago has the potential to provide market 
participants with lower transaction costs and greater visibility 
behind the current market. All traders will have the option to 
view depth of book information including at least the top five 
bids and offers. Trades are routed, matched and reported 
electronically, creating fast and accurate trade execution and 
confirmation.

Easy Access through CBOEdirect(tm) or GLOBEX(r): Most investors 
will be able to route their orders to OneChicago using their 
existing account and trading software because OneChicago's 
products can be traded from either a securities or a futures 
account. And, because most brokers are already connected to 
OneChicago either through CBOEdirect or GLOBEX, it is likely that 
you will be able to begin trading at OneChicago immediately.

A List of the approximate 80 stocks that OneChicago will have 
SSFs on can be found at :
http://www.onechicago.com/030000_products/oc_030101.html 

Stocks with Single Stock Futures:

(Last Updated on October 11, 2002)
Underlying                     Ticker    OneChicago 
Security                       Symbol    Base Symbol
----------                     ------    -----------
American Express               AXP       AXP1C
American International Group   AIG       AIG1C     
Amgen Inc                      AMGN      AMGN1C     
* AMR Corp/Del                 AMR       AMR1C     
AOL Time Warner, Inc.          AOL       AOL1C     
Applied Materials              AMAT      AMAT1C     
AT&T Corporation               T         T1C     
Bank Of America Corp           BAC       BAC1C     
Bank One                       ONE       ONE1C     
Best Buy Company Inc           BBY       BBY1C     
Biogen Inc                     BGEN      BGEN1C     
Bristol-Myers Squibb Co        BMY       BMY1C     
Broadcom Corp-Cl A             BRCM      BRCM1C     
Brocade Communications Sys     BRCD      BRCD1C     
Cephalon Inc                   CEPH      CEPH1C     
Check Point Software Tech      CHKP      CHKP1C     
ChevronTexaco Corp             CVX       CVX1C     
Cisco Systems, Inc.            CSCO      CSCO1C     
Citigroup, Inc.                C         C1C     
Coca-Cola Company              KO        KO1C     
Dell Computer Corporation      DELL      DELL1C     
eBay, Inc.                     EBAY      EBAY1C     
* EMC Corporation              EMC       EMC1C     
Emulex Corp                    ELX       ELX1C     
Exxon Mobil Corporation        XOM       XOM1C     
Ford Motor Company             F         F1C     
General Electric Company       GE        GE1C     
General Motors Corp            GM        GM1C     
Genzyme Corp - Genl Division   GENZ      GENZ1C     
Goldman Sachs Group, Inc.      GS        GS1C     
Halliburton Co                 HAL       HAL1C     
Home Depot Inc                 HD        HD1C     
Idec Pharmaceuticals Corp      IDPH      IDPH1C     
Intel Corporation              INTC      INTC1C     
Intl Business Machines         IBM       IBM1C     
* InVision Technologies Inc    INVN      INVN1C     
J.P. Morgan Chase & Co.        JPM       JPM1C     
Johnson & Johnson              JNJ       JNJ1C     
KLA-Tencor Corporation         KLAC      KLAC1C     
Krispy Kreme Doughnuts Inc     KKD       KKD1C     
Merck & Co., Inc.              MRK       MRK1C     
Merrill Lynch & Co., Inc.      MER       MER1C     
Micron Technology Inc          MU        MU1C     
Microsoft Corporation          MSFT      MSFT1C     
Morgan Stanley Dean Witter     MWD       MWD1C     
Motorola, Inc.                 MOT       MOT1C     
Newmont Mining Corp Hldg Co    NEM       NEM1C     
Nokia Corporation ADR          NOK       NOK1C     
Northrop Grumman Corp          NOC       NOC1C     
Novellus Systems Inc           NVLS      NVLS1C     
Oracle Corporation             ORCL      ORCL1C     
PepsiCo Inc                    PEP       PEP1C     
Pfizer                         PFE       PFE1C     
Philip Morris                  MO        MO1C     
Procter & Gamble Co)           PG        PG1C     
QLogic Corp                    QLGC      QLGC1C     
QUALCOMM, Inc.                 QCOM      QCOM1C     
SBC Communications Inc         SBC       SBC1C     
Schlumberger Ltd               SLB       SLB1C     
* Siebel Systems, Inc.         SEBL      SEBL1C     
* Sprint Corp-PCS Group        PCS       PCS1C     
Starbucks Corp                 SBUX      SBUX1C     
* Sun Microsytems              SUNW      SUNW1C     
Symantec Corp                  SYMC      SYMC1C     
Texas Instruments Inc          TXN       TXN1C     
Tyco International Ltd         TYC       TYC1C     
* UAL Corp                     UAL       UAL1C     
VERITAS Software Corp          VRTS      VRTS1C     
Verizon Communications Inc     VZ        VZ1C     
Wal-Mart Stores Inc            WMT       WMT1C     
Xilinx Inc                     XLNX      XLNX1C     

* Trading on these stocks has been postponed because under current 
market conditions they do not meet OneChicago's listing standards. 

Market Data Subscriber Fees (Quotes)

OneChicago intends to waive end-user subscription fees for real-time 
streaming market data until April 1, 2003. At that time, real-time 
streaming data will be available for a monthly per user fee (TBD).
A 15-minute delayed streaming data feed is also available at no charge 
to subscribers.


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

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


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The Option Investor Newsletter                   Sunday 10-13-2002
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Trading Basics: The Psychology Of Volatility
Naked Puts: Options 101: Strategy Selection
Spreads/Straddles/Combos: A Light At The End Of The Tunnel?

Updated In The Site Tonight:
Market Watch
Market Posture


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

Trading Basics: The Psychology Of Volatility
By Mark Wnetrzak

Volatility in the stock market is a familiar phenomenon to all
traders but one has to wonder what causes the extreme changes
in the "market value" of stocks on a daily basis.

In recent months, there has been a surge in volatility in share
values and even to the investing novice, it's apparent that there
are extremely wide day-to-day changes in the prices quoted on the
major stock exchanges.  Experts have tried to explain and justify
the abrupt transformation in the market's character but the exact
reasons for the pronounced increase in volatility remains unknown.
Surprisingly, analysts cannot agree on whether it is economic or
psychological components that are the primary catalysts for price
fluctuations in the stock market.  This is an important question
in the financial world because the entire basis for fundamental and
technical analysis, concepts on which millions of dollars are spent
each year, hinges on the answer.  If investors were to learn that
there are no underlying economic reasons for changes in share value,
the two most common forms of analysis would be relatively useless.

One of the leading authorities in the study of market volatility
is Yale Professor Robert J. Shiller.  Shiller is an advocate of the
Popular Model explanation of market volatility, which proposes that
the public's reactions, due to psychological or sociological beliefs,
exert a greater influence on stocks than economic issues.  Based on
this principle, he suggests that traditional standards of measuring
value in common equities no longer apply.  That is not to say that
Shiller totally disregards the opinions of economists who base their
theories on the Efficient Market Hypothesis.  On the contrary, he
admits that the EMH can be supported by statistical data but he also
believes that investor attitudes are crucial in determining share
prices.  For those of you who are new to the concept of Efficient
Market Hypothesis, it basically states that all information, both
publicly and privately known, is incorporated into a stock's current
price.  The problem is, recent data suggests that excess volatility
exists in the stock market; volatility that cannot be explained by
the EMH.  Some experts say the excess volatility can be attributed
to psychological attitudes such as the public's collective thoughts
and beliefs concerning recent and future events.  Other authorities
note that not all investors are equally informed and even when that
is the case in a specific situation, many investors simply react
improperly to the data they receive.  These observations seem to
suggest that all freely available information is not necessarily
factored into a stock's current price, thus there is certainly more
to share value than the fundamentals of a company and its economic
environment.

Most studies on this subject are based on the idea that the public
normally acts rationally on the known information.  In contrast,
Shiller suggests that irrational "herd" behavior has a greater
effect on stock prices and that investors are often subject to
"attention cascades" triggered by small events.  Although there is
certainly some truth to this opinion, investing does not have to be
rational to produce favorable results.  A great example of this
concept occurred in the late 1990s during the era of "irrational
exuberance."  That period produced a deluge of capital investments
that led to technology advances which would have been impossible in
a less enthusiastic environment.  Despite the incredible economic
expansion of that timeframe, some analysts believe that unfounded
growth in stock value is never good for a company because of the
resultant "inflated" capitalization and the potential downfall of
future shareholders.  In reviewing the conflicting attitudes, one
expert noted correctly that, "Irrational exuberance can be bad for
the exuberant but good for the economy."

That brings us to a much more important question: Do the recent
excessive reactions by investors, which have generated extreme
volatility in stocks, mark the bottom of a bear market?  Many
analysts believe they do and they cite reasons such as the spike
to a peak in the CBOE's volatility index (VIX), representing a
panic by the public during the recent market declines, and the
fact that equity put-call ratios, another indicator of investor
sentiment, have reached levels from which previous market bottoms
occurred.  Unfortunately, the study of historical data, while often
a good indicator of future trends, does not guarantee a specific
outcome so it remains to be seen whether the recent sharp sell-off
in stocks will mark the final chapter of the current bear market.

I, for one, am not irrationally exuberant but rather "cautiously
optimistic."

Trade Wisely!


SUMMARY OF PREVIOUS CANDIDATES
*****

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of actual traders, due to the variety of ways
in which each play can be opened, closed and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The play commentary (when provided) is simply a service to help
new traders understand when positions might be opened and closed.
In most cases, actions taken based on the commentary would be far
too late to be effective, thus it is not intended as a substitute
for personal trade management nor does it replace your duty to
diligently monitor and manage the positions in your portfolio.

Note:  Margin not used in calculations.

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

CRY     2.94   2.71   OCT   2.50  0.75  *$  0.31  10.3%
PRX    28.20  25.61   OCT  25.00  4.30  *$  1.10  10.0%
FLE     6.02   5.85   OCT   5.00  1.30  *$  0.28   8.6%
CVC     9.48   7.56   OCT   7.50  2.50  *$  0.52   8.1%
NWRE   15.97  12.90   OCT  12.50  4.10  *$  0.63   7.7%
CMLS   16.85  17.03   OCT  15.00  2.55  *$  0.70   7.1%
NOK    13.95  14.44   OCT  12.50  2.20  *$  0.75   6.9%
PPD    21.80  18.65   OCT  17.50  5.00  *$  0.70   6.0%
BSTE   29.40  27.66   OCT  25.00  5.70  *$  1.30   6.0%
UDI    22.58  22.55   OCT  20.00  3.30  *$  0.72   5.4%
QCOM   28.08  31.37   OCT  25.00  4.20  *$  1.12   5.1%
NWRE   13.75  12.90   OCT  12.50  1.90  *$  0.65   4.8%
GNSS    8.73   7.94   OCT   7.50  1.60  *$  0.37   4.5%
SYMC   34.30  34.40   OCT  30.00  5.20  *$  0.90   4.5%
KDE    23.39  27.27   OCT  22.50  1.55  *$  0.66   4.4%
PLMD   26.25  26.60   OCT  25.00  2.35  *$  1.10   4.0%
RTIX    8.00   8.30   OCT   7.50  0.75  *$  0.25   3.7%
ISIS    9.15   8.69   OCT   7.50  1.95  *$  0.30   3.6%
ISSX   13.65  15.85   OCT  12.50  1.70  *$  0.55   3.3%
UTSI   16.25  18.01   OCT  15.00  1.80  *$  0.55   3.3%
MENT    6.17   7.50   OCT   5.00  1.35  *$  0.18   2.7%
AMZN   16.55  18.46   OCT  15.00  1.90  *$  0.35   2.6%
IMCL    7.77   7.05   OCT   7.50  0.75   $  0.03   0.9%
MACR    8.49   6.71   OCT   7.50  1.45   $ -0.33   0.0%
AES     2.92   1.44   OCT   2.50  0.75   $ -0.73   0.0%

FDRY    6.02   5.09   NOV   5.00  1.35  *$  0.33   5.1%
BCGI   10.30   9.78   NOV  10.00  1.10   $  0.58   4.6%
WWCA    2.71   2.25   NOV   2.50  0.50   $  0.04   1.3%

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

Comments:

Whoosh!  A 2-day "rocket" rally and a positive week for the major
averages.  Even the closed positions below were able to benefit
from the extreme bullishness.  This must be the bottom, right?
Maybe, but without a base (Stage I phase), I think the bulls 
still have a rather weak case.  But hey, it sure beats going 
down!  With only one week until expiration, most of the October
positions have benefited from the bullish explosion and now offer
some downside protection.  AES Corp. (NYSE:AES), could be exited
or better yet, rolled forward as the risk is defined at roughly
$2.00 (of course, they could go bankrupt).  The JAN-$2.50 call is
$0.20 X $0.40 and the JAN04-$2.50 call is $0.60 X $0.80, which
would reduce the risk further.  Overall, the current rally should
offer ample opportunity to re-evaluate your positions and exit or
adjust those that are acting weaker than expected.

Positions Closed:  Osteotech (NASDAQ:OSTE), Luminex (NASDAQ:LMNX)
and Restoration Hardware (NASDAQ:RSTO).

Disclosure:  I am currently short puts in Cryolife (NYSE:CRY) and
long calls in AES Corporation (NYSE:AES).  Both positions were
initiated after they were offered in this section.


NEW CANDIDATES
*********

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

CPB    22.59  NOV 22.50   CPB KX  1.05 308   21.54   35    3.9% 
MCHP   23.18  NOV 20.00   QMT KD  4.20 744   18.98   35    4.7% 
MEDI   24.95  NOV 22.50   MEQ KX  3.70 578   21.25   35    5.1% 
MENT    7.50  NOV  5.00   MGQ KA  2.70 61     4.80   35    3.6% 
SNDK   14.30  NOV 12.50   SWQ KV  2.75 175   11.55   35    7.1% 
TMCS   18.14  NOV 17.50   QMF KW  1.80 4     16.34   35    6.2% 
VOXX    7.40  NOV  7.50   UXX KU  0.45 144    6.95   35    5.6%

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

SNDK   14.30  NOV 12.50   SWQ KV  2.75 175   11.55   35    7.1% 
TMCS   18.14  NOV 17.50   QMF KW  1.80 4     16.34   35    6.2% 
VOXX    7.40  NOV  7.50   UXX KU  0.45 144    6.95   35    5.6%
MEDI   24.95  NOV 22.50   MEQ KX  3.70 578   21.25   35    5.1% 
MCHP   23.18  NOV 20.00   QMT KD  4.20 744   18.98   35    4.7% 
CPB    22.59  NOV 22.50   CPB KX  1.05 308   21.54   35    3.9% 
MENT    7.50  NOV  5.00   MGQ KA  2.70 61     4.80   35    3.6% 


Company Descriptions

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

*****
CPB - Campbell Soup  $22.59  *** Mmmm...Good, Say Insiders ***

Campbell Soup (NYSE:CPB) and its consolidated subsidiaries, is a 
global manufacturer and marketer of branded convenience food 
products.  The company operates in three business segments: Soup
and Sauces, Biscuits and Confectionery, and Away From Home.  The
Soup and Sauces segment includes the Company's worldwide soup
businesses.  The Biscuits and Confectionery segment includes 
the Pepperidge Farm cookies and crackers business, the Godiva 
Chocolatier (yummy) business and Arnotts biscuit business.  The
Away From Home segment represents products, including Campbell's
soups, Pace picante sauce and Campbell's Specialty Kitchens 
entrees.  Campbell Soup is one of the companies where insiders
are buying stocks according to a recent Reuters story.  We favor
the 3-month base that offers a clear loss-cut exit point and
the chart has been showing steady accumulation with positive
divergences in several indicators.  This position offers a low
risk entry point for investors who wouldn't mind having Campbell
Soup in their long-term stock portfolio.

NOV 22.50 CPB KX LB=1.05 OI=308 CB=21.54 DE=35 TY=3.9% 


*****
MCHP - Microchip Tech. $23.18  *** Near Long-Term Support *** 

Microchip Technology (NASDAQ:MCHP) develops and manufactures 
specialized semiconductor products used by its customers for
a wide variety of embedded control applications.  The company's
product portfolio comprises field-programmable RISC-based
microcontrollers that serve 8- and 16-bit embedded control 
applications, and a broad spectrum of high-performance linear
and mixed-signal, power management and thermal management devices.
The company also offers complementary microperipheral products,
including interface devices, serial EEPROMS, and its patented 
KEELOQ security devices.  The company markets its products to the
automotive, communications, computing, consumer and industrial 
control markets.  At a conference in late September, Microchip’s
CEO reaffirmed its guidance, about a week after raising estimates.
Investors will find out for sure on October 23, when the company
reports earnings.  We simply favor the long-term (two-year chart)
technical support near the cost basis, which offers a relatively
low-risk entry point in the issue.

NOV 20.00 QMT KD LB=4.20 OI=744 CB=18.98 DE=35 TY=4.7% 


*****
MEDI - MedImmune  $24.95  *** Take-Over Speculation ***

MedImmune (NASDAQ:MEDI) is a biotechnology company with 5 products
on the market and a diverse product pipeline.  MedImmune is focused
on using advances in immunology and other biological sciences to
develop new products that address significantly unmet medical needs
in areas of infectious disease and immune regulation.  The company
also focuses on oncology through its wholly owned subsidiary, 
MedImmune Oncology, Inc.  In addition, the company owns Aviron, a
biotech company.  In January 2002, MedImmune acquired Aviron, a
company focused on the prevention of disease through vaccine 
technology.  Not much news on MedImmune but there is speculation
that the company could be a take-over candidate, especially if
its lead drug, Actimmune, becomes the first and only effective
treatment for patients with idiopathic pulmonary fibrosis, a fatal
disorder marked by scarring of the lungs.  The "double-bottom"
formation and increasing volume during the recent rally make this
reasonable speculation for those interested in the Biotech sector.
Earnings are due 10/24.

NOV 22.50 MEQ KX LB=3.70 OI=578 CB=21.25 DE=35 TY=5.1% 


*****
MENT - Mentor Graphics  $7.50  *** Another Chance? ***

Mentor Graphics (NASDAQ:MENT) is engaged in electronic design
automation (EDA), providing software and hardware design tools
that enable companies to send better electronic products to
market faster and more cost-effectively.  Mentor manufactures,
markets and supports EDA products and provides related services.
Customers use the company's products in the design of automotive
electronics, video game consoles, telephone-switching systems,
cellular handsets, etc.  Mentor exploded last week after the 
company said it expected 3rd-quarter revenue and earnings to
exceed Wall Street expectations, helped by strong bookings in
North America and the Pacific Rim.  Mentor said bookings were
up more than 25% and they plan to announce earnings on 11/29.
Our outlook is also bullish, due to the technical break-out and
this position offers a low risk cost basis in the issue.  Try
target-shooting a lower net debit on any pullback to lower the
cost basis and raise the potential yield in the position.  Those
investors with an extremely bullish outlook may consider the 
November $7.50 calls, or a combination of the two options for
lower risk but higher potential profit.  Earnings are due 10/29.

NOV 5.00 MGQ KA LB=2.70 OI=61 CB=4.80 DE=35 TY=3.6% 


*****
SNDK - SanDisk  $14.30  *** Stage I Base ***

SanDisk (NASDAQ:SNDK) designs, manufactures, and markets flash
memory storage products that are used in a wide variety of 
electronic systems.  The company has designed its flash memory
storage solutions for applications in the consumer electronics
and industrial/communications markets.  The company's products
are used in a number of rapidly growing consumer electronics
applications, such as digital cameras, PDAs, portable digital
music players, digital video recorders and smart phones, as well
as in industrial and communications applications.  The company's
products include removable CompactFlash cards, MultiMediaCards,
FlashDisk cards and Secure Digital Cards and embedded FlashDrives
and Flash ChipSets with storage capacities ranging from eight 
megabytes to 1.2 gigabytes.  SanDisk has been forming a Stage I
base for about a year with technical support around $12.00.  This
position offers a reasonable risk-reward entry point for those
investors who believe the Data Storage Sector may be recovering.
Earnings are due 10/16.

NOV 12.50 SWQ KV LB=2.75 OI=175 CB=11.55 DE=35 TY=7.1% 


*****
TMCS - Ticketmaster  $18.14  *** The "Buy-Out" Rally ***

Ticketmaster (NASDAQ:TMCS) is a provider of automated ticketing
services, as well as a local portal and electronic commerce 
company that provides in-depth local content and services.  The
company's ticketing service has over 7,000 domestic and foreign
clients, including many entertainment facilities, promoters and
professional sports franchises.  The company's principal online
businesses are ticketing, personals, city guide and camping 
reservations.  Ticketmaster's family of Websites includes 
ticketmaster.com, Match.com, citysearch.com, reserveamerica.com,
museumtix.com, ticketweb.com, evite.com and livedaily.com, among
others.  Its businesses are operated in three segments: ticketing,
personals and city guide.  USA Interactive (NASDAQ:USAI) said on 
Thursday it will buy the shares of Ticketmaster it does not already
own where shareholders of Ticketmaster would receive 0.935 of a
share of USA common stock.  As of Thursday, the deal valued each
outstanding Ticketmaster share at $15.17 and reflects a premium 
of 20%.  Keep an eye on USAI’s chart as Ticketmaster share price
will be reflective of USA Interactive’s (see supplemental plays
below) movement.  USAI rallied strongly on the news as the company
also said it was ending moves to acquire all of online travel firms
Expedia (NASDAQ:EXPE) and Hotels.com (NASDAQ:ROOM).  This position
takes advantage of the bullish “buy-out” momentum and offers a
method to speculate on the near-term performance of both issues.  

NOV 17.50 QMF KW LB=1.80 OI=4 CB=16.34 DE=35 TY=6.2% 


*****
VOXX - Audiovox  $7.40  *** Barely OTM Speculation ***

Audiovox (NASDAQ:VOXX) designs and markets a diverse line of
products and provides related services worldwide, including:
handsets and accessories for wireless communications; fulfillment
services for wireless carriers; automotive entertainment and 
security products; automotive electronic accessories; and consumer
electronics.  The company has two primary markets: wireless
communications, and mobile and consumer electronics.  Audiovox 
on Friday morning reported a bigger quarterly profit, helped by
improved margins, though revenue fell as a decline in its wireless
business offset gains in its electronics subsidiary.  Apparently
investors were happy with the news (or lack of bad news?) as the
stock rallied strongly on heavy volume.  The stock has been in a
fairly stable trading range for almost a year with strong support
around the cost basis.  The current technicals are bullish and
suggest further upside movement.  In addition, this position
offers a low-risk entry point in the issue.

NOV 7.50 UXX KU LB=0.45 OI=144 CB=6.95 DE=35 TY=5.6%


*****

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

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

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

VRSN    5.35  NOV  5.00   QVR KA  0.90 1327   4.45   35   10.7% 
JDEC   10.89  NOV 10.00   QJD KB  1.90 183    8.99   35    9.8% 
SLAB   22.50  NOV 20.00   QFJ KD  4.00 59    18.50   35    7.0% 
PLMD   26.60  NOV 25.00    PM KE  3.30 17    23.30   35    6.3% 
RATL    5.79  NOV  5.00   RAQ KA  1.10 508    4.69   35    5.7% 
CMCSK  20.02  NOV 17.50   CQK KW  3.60 226   16.42   35    5.7% 
USAI   19.60  NOV 17.50   QTH KW  3.10 142   16.50   35    5.3% 
YHOO   13.36  NOV 12.50   YHZ KV  1.55 8924  11.81   35    5.1% 
ADTN   21.01  NOV 20.00   RQA KD  2.05 168   18.96   35    4.8% 
KDE    27.27  NOV 25.00   KDE KE  3.50 1526  23.77   35    4.5% 
RFMD    6.92  NOV  5.00   RFZ KA  2.10 751    4.82   35    3.2%


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

Options 101: Strategy Selection
By Ray Cummins

One of our readers wants to know if selling naked puts is the
right strategy for a conservative portfolio.

Attn: Contact Support
Subject: Strategy Selection

Ray,

Do you write the covered call section?  Which strategy do you
think gives you a better return covered calls, spreads or naked
puts?  I am interested in one that has the least amount of risk.

Thanks for your assistance.

BJN


Hello BJN,

I work with another OIN researcher to produce the (week-end
edition) Covered-Calls and Naked-Puts sections.  The "Premium
Selling" plays and the "Spreads/Combos" are a product of my
individual research.

As far as risk-reward outlook, covered calls and naked puts
are theoretically the same strategy, however naked puts have
a higher reward potential (and a higher annualized return)
because brokers require less collateral to sell a (equivalent
strike) put than they do to buy a stock (on margin) and sell
a call.

As far as the best strategy, that's a tough decision with lots
of different factors to consider.  No strategy is immune to
losses and even the most conservative approaches to option
trading will not guarantee consistent profits without diligent
position management.  In addition, there are different types
of investors and no single approach to the market can work for
all of them.  Suitability; matching an investors' risk-reward
attitude and financial condition with the appropriate trading
technique, is the key to determining which strategy may be best
for any one individual.

There are aggressive trading methods such as outright Put or Call
buying and high potential spreads or combinations.  There are also
conservative techniques such as selling covered-calls on stocks
and LEAPS.  Another category involves the delta-neutral approach:
straddles, ratio spreads and butterflies.  Regardless of the way
you choose to participate in the market, every strategy has risk
and it is impossible to classify any specific technique as the
absolute "best" one.  However, it is important to understand the
mechanics of any strategy you are using and try to construct a
portfolio based on the correct balance of risk and reward, and
also with regard to your experience level and trading style.

The average investor will normally do well with a position that
has limited risk and the potential for large profits because one
successful trade can easily overcome a series of limited losses.
However, a relatively new trader would not profit consistently as
an outright buyer of options.  For him, other strategies such as
time-selling plays (calendar spreads) and debit straddles would be
far more appropriate.  Conservative stock-option combinations such
covered-writes and bullish collars with moderate profit potential
and reduced risk would also be appealing.  An aggressive investor
who is willing to take larger risks for the opportunity of making
greater profits might buy and sell equity-index options.  Some
traders simply want low maintenance plays with the chance to make
reasonable profits without risking excessive amounts of capital.
Low-risk  "in-the-money" debit spreads would probably appeal to
this group.  The wealthy investor may be attracted to methods that
offer the opportunity to make money against portfolio collateral.
Writing naked options and "out-of-the money" credit spreads may
solve his needs.

The most important thing to remember is the investment objectives
are more crucial than the merits of the technique itself.  If the
strategy is not suitable for the investor, then it should not be
used, no matter how attractive it appears.


Some additional thoughts...

As far as favored techniques, I prefer premium-selling positions
with high probability and limited risk such as OTM credit spreads
on broad indexes (OEX/SPX) and occasionally, individual issues.
I will also sometimes speculate with a synthetic position (bullish
or bearish) if the risk/reward outlook is very attractive.  It is
important to not limit your portfolio to directional trading only
and in that respect, debit straddles can be very attractive when
the implied volatility in options is near historical lows.  Also,
the strategy is easily managed without continually monitoring the
underlying issue and its option prices, thus is may be appropriate
for your situation.  When the equity markets resume their bullish
trends, I will transition to long-term diagonal/calendar spreads
(and covered-calls on LEAPS) as well as selling cash-secured puts
on portfolio-quality issues.

Regarding money management, the old adage "never put all your eggs
in one basket" holds true in the financial markets and professional
players generally limit their portfolio exposure to 10-15% on any
one position.  That ratio is appropriate for most combination and
spread techniques and diversity is a very important component of
success for any type of trading.  As far as the candidates in the
OIN, I strongly recommend that you do NOT "implement all of the
recommendations" that are offered.  As stated in the disclaimer:

This following group of plays is simply a list of 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
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.

I hope that helps you narrow the search for favorable trading
strategies and when you find something that works, let me know
so I can share your success with other traders who read the OIN!

Ray 

                        *** WARNING!!! ***

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


SUMMARY OF PREVIOUS CANDIDATES 
*****

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of actual traders, due to the variety of ways
in which each play can be opened, closed and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The play commentary (when provided) is simply a service to help
new traders understand when positions might be opened and closed.
In most cases, actions taken based on the commentary would be far
too late to be effective, thus it is not intended as a substitute
for personal trade management nor does it replace your duty to
diligently monitor and manage the positions in your portfolio.

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

CVC     9.94   7.56   OCT   7.50  0.25  *$  0.25  16.2%
RGLD   18.70  17.05   OCT  15.00  0.45  *$  0.45  11.6%
PPD    21.41  18.65   OCT  15.00  0.60  *$  0.60  10.7%
ABFS   27.53  29.67   OCT  25.00  0.90  *$  0.90  10.4%
ULAB   18.83  21.19   OCT  15.00  0.40  *$  0.40  10.4%
OVER   23.40  27.51   OCT  20.00  0.30  *$  0.30  10.4%
AG     22.63  23.87   OCT  20.00  0.45  *$  0.45   9.5%
RGLD   18.05  17.05   OCT  15.00  0.50  *$  0.50   9.3%
QCOM   29.26  31.37   OCT  25.00  0.30  *$  0.30   8.4%
RMCI   25.80  22.49   OCT  22.50  0.60   $  0.59   8.4%
GILD   33.56  33.56   OCT  25.00  0.55  *$  0.55   8.2%
UDI    22.75  22.55   OCT  20.00  0.25  *$  0.25   8.2%
MMSI   20.14  21.25   OCT  18.00  0.35  *$  0.35   8.1%
UDI    24.25  22.55   OCT  20.00  0.30  *$  0.30   7.6%
BSX    30.18  36.29   OCT  27.50  0.85  *$  0.85   7.2%
AMZN   16.61  18.46   OCT  12.50  0.30  *$  0.30   7.2%
TTWO   29.45  28.80   OCT  25.00  0.35  *$  0.35   6.6%
COF    38.92  30.66   OCT  27.50  0.60  *$  0.60   6.2%
PRX    28.20  25.61   OCT  22.50  0.25  *$  0.25   6.1%
SYMC   34.30  34.40   OCT  25.00  0.30  *$  0.30   6.1%
CYH    27.10  26.00   OCT  25.00  0.25  *$  0.25   6.0%
TTWO   26.20  28.80   OCT  20.00  0.30  *$  0.30   5.9%
FDS    25.95  25.42   OCT  22.50  0.35  *$  0.35   5.2%
INVN   35.76  30.45   OCT  25.00  0.45  *$  0.45   5.1%
STN    14.15  16.10   OCT  12.50  0.25  *$  0.25   5.1%
UTHR   16.50  14.20   OCT  15.00  0.55   $ -0.25   0.0%
UTHR   17.01  14.20   OCT  15.00  0.30   $ -0.50   0.0%

HOLX   11.74  11.15   NOV  10.00  0.50  *$  0.50  10.5%
HLYW   17.20  19.48   NOV  15.00  0.60  *$  0.60   8.2%
AMLN   15.80  16.95   NOV  12.50  0.40  *$  0.40   8.1%
KDE    23.77  27.27   NOV  20.00  0.70  *$  0.70   7.9%

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

Comments:

With the recent broad-based rally, a number of analysts have
turned bullish in their outlook for equities.  Some point to
the successful test of the July lows in the S&P 500 index while
other experts note the positive divergences in momentum-based
indicators and the apparent capitulation earlier in the week.
Regardless of the outcome, volatility is here to stay thus
traders should remain vigilant in position management and exit
(or adjust) any plays on issues with less than outstanding
technical indications.  United Therapeutics (NASDAQ:UTHR) is
now a candidate for early exit and positions on the watch-list
include: Right Management Consultants (NASDAQ:RMCI), Capital
One (NYSE:COF), and Cablevision (NYSE:CVC).

Positions Closed: Integrated Defense Technology (NYSE:IDE),
Meridian Gold (NYSE:MDG), and Boyd Gaming (NYSE:BYD).


NEW CANDIDATES
*********

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

AMLN   16.95  NOV 15.00   AQM WC  0.75 108   14.25   35   11.7% 
AMZN   18.46  NOV 15.00   ZQN WC  0.55 7495  14.45   35   10.7% 
COCO   37.75  NOV 30.00   UCS WF  0.75 313   29.25   35    7.9% 
GENZ   23.57  NOV 17.50   GZQ WW  0.35 47    17.15   35    6.0% 
NOK    14.44  NOV 12.50   NOK WV  0.40 1174  12.10   35    8.2% 
OVER   27.51  NOV 20.00   GUO WD  0.40 981   19.60   35    5.9% 
QCOM   31.37  NOV 25.00   AAW WE  0.65 2053  24.35   35    8.2% 
VZ     35.19  NOV 30.00    VZ WF  0.70 8453  29.30   35    6.3%

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

AMLN   16.95  NOV 15.00   AQM WC  0.75 108   14.25   35   11.7% 
AMZN   18.46  NOV 15.00   ZQN WC  0.55 7495  14.45   35   10.7% 
NOK    14.44  NOV 12.50   NOK WV  0.40 1174  12.10   35    8.2% 
QCOM   31.37  NOV 25.00   AAW WE  0.65 2053  24.35   35    8.2% 
COCO   37.75  NOV 30.00   UCS WF  0.75 313   29.25   35    7.9% 
VZ     35.19  NOV 30.00    VZ WF  0.70 8453  29.30   35    6.3%
GENZ   23.57  NOV 17.50   GZQ WW  0.35 47    17.15   35    6.0% 
OVER   27.51  NOV 20.00   GUO WD  0.40 981   19.60   35    5.9% 


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).

*****
AMLN - Amylin Pharmaceuticals  $16.95  *** Lehman Upgrade! ***

Amylin Pharmaceuticals (NASDAQ:AMLN) is a biopharmaceutical firm
engaged in the discovery, development and commercialization of
drug candidates for the treatment of diabetes and other metabolic
disorders.  The firm has exclusive rights to two drug candidates
that are in late-stage development for the treatment of diabetes,
SYMLIN (pramlintide acetate) and AC2993 (synthetic exendin-4).
The company has a third drug candidate, AC3056, in early stage
clinical trials, and maintains a focused research and development
program to discover and in-license additional drug candidates for
metabolic diseases.  Amylin recently announced a deal with drug
giant Eli Lilly that analysts say is rare in this market.  In
exchange for a big piece of future profit of its experimental
diabetes drug, AC2993, the biotech firm will receive $110 million
upfront from Lilly.  That amount could triple if Amylin reaches
all the deal's milestones.  Not only is Amylin getting a big cash
infusion, but it also will keep 50% of all U.S. profit and 20% of
foreign profit.  Lehman recently upgraded the stocks and investors
who like the outlook for Amylin can establish a low risk basis in
the issue with this position.

NOV 15.00 AQM WC LB=0.75 OI=108 CB=14.25 DE=35 TY=11.7% 


*****
AMZN - Amazon.com  $18.46  *** Internet Retail Giant ***

Amazon.com (NASDAQ:AMZN) is a website where customers can find
and discover anything they may want to buy online.  The company
lists millions of items in categories such as books, music, DVDs,
videos, consumer electronics, toys, camera and photo items, PC
software, computer and video games, tools and hardware, outdoor
living items, kitchen and house-wares products, toys, baby and
baby registry, travel services and magazine subscriptions.  At
its Amazon Marketplace, Auctions and zShops services, businesses
and individuals can sell virtually any product to millions of
customers, and with Amazon.com Payments, sellers are able to
accept credit card transactions in addition to other methods of
payment.  The company operates a U.S.-based Website: amazon.com,
and four internationally focused Websites: www.amazon.co.uk,
www.amazon.de, www.amazon.fr and www.amazon.co.jp.  Amazon.com
in July posted a second quarter net loss of $94 million, or $0.25
per share, but boosted its full-year sales outlook.  Last month,
Moody's Investors Service raised one of AMZN's ratings, saying
the Internet retailer has improved its ability to generate cash.
Investors who wouldn't mind owning the Internet's retail leader
near a cost basis of $14.50 should consider this position.

NOV 15.00 ZQN WC LB=0.55 OI=7495 CB=14.45 DE=35 TY=10.7% 


*****
COCO - Corinthian Colleges  $37.75  *** Knowledge Is Power! ***

Corinthian Colleges (NASDAQ:COCO) is one of the largest private,
for-profit post-secondary education companies in the U.S.  The
company operated approximately 60 colleges in 21 states including
16 in California and 12 in Florida.  Corinthian serves the large
and growing segment of the population seeking to acquire career
education to become more qualified and marketable in today's
increasingly demanding workplace environment.  On Tuesday, one
of COCO's industry rivals, Apollo Group, reported a larger than
expected rise in quarterly earnings and increased enrollment,
sending share values in the group to recent highs.  The issue
appears to be comfortable in a range near $32-$36 and traders
who believe the long-term bullish trend will continue can profit
from that outcome with this position.

NOV 30.00 UCS WF LB=0.75 OI=313 CB=29.25 DE=35 TY=7.9% 


*****
GENZ - Genzyme General  $23.57  *** Biotechnology Speculation ***

Genzyme General Division (NASDAQ:GENZ) is a division of Genzyme
Corporation, a biotechnology and human healthcare company that
develops products and provides services for unmet medical needs.
Genzyme General develops and markets therapeutic products and
diagnostic products and services with an emphasis on genetic
disorders and other chronic debilitating diseases with defined
patient populations.  The company is organized into two segments,
Therapeutics, which focuses on developing and marketing products
for genetic diseases and other chronic debilitating diseases,
including a family of diseases known as lysosomal storage
disorders, and specialty therapeutics, and Diagnostic Products,
which develops, markets and distributes in vitro diagnostic
products.  The company also operates a wholly owned subsidiary,
GelTex Pharmaceuticals.  Genzyme General has been in the news
recently after experiencing inventory problems with Renagel,
its kidney dialysis drug, and seeing one of its competitors,
Transkarayotic Therapies, go up in smoke after the FDA said it
was concerned about safety issues with the company's new drug.
Traders who want a speculative position in the biotech group
should consider this position.

NOV 17.50 GZQ WW LB=0.35 OI=47 CB=17.15 DE=35 TY=6.0% 


*****
NOK - Nokia  $14.44  *** Entry Point! ***

Nokia Corporation (NYSE:NOK) is active in mobile communications
as a supplier of mobile telephones and a provider of mobile,
fixed broadband and Internet protocol (IP) networks.  Nokia is
comprised of Nokia Networks, Nokia Mobile Phones and Nokia
Ventures Organization, as well as the common group functions,
which include Nokia's corporate research unit, Nokia Research
Center.  Nokia Networks is a provider of mobile, fixed broadband
and IP network infrastructure and related services.  Nokia Mobile
Phones is a mobile telephone maker.  Nokia Ventures Organization
exists to create new business ideas outside Nokia's current focus,
as well as contribute to the growth of Nokia's existing core
businesses.  Nokia is due to report quarterly earnings next week
and investors who believe the issue has reached "the bottom" can
establish a low risk cost basis in the stock with this position.

NOV 12.50 NOK WV LB=0.40 OI=1174 CB=12.10 DE=35 TY=8.2% 


*****
OVER - Overture Services  $27.51  *** New Trading Range! ***

Overture Services (NASDAQ:OVER) is engaged in the provision of
pay-for-performance search services on the Internet.  Overture
operates an online marketplace that introduces consumers and
businesses that search the Internet to advertisers that provide
products, services and information.  Advertisers participating
in the company's marketplace include retail merchants, wholesale
and service businesses and manufacturers.  Overture facilitates
these introductions through its search service, which enables
advertisers to bid in an ongoing auction for priority placement
in the company's search results after editorial approval.  The
company's marketplace offers consumers and businesses quick,
easy and relevant search results for products, services and
information, while providing advertisers with a cost-effective
way to target them.  On Friday, Overture moved up and out of a
6-month trading range and traders who think the firm's upcoming
earnings report will be favorable can speculate on that outcome
in a conservative manner with this position.

NOV 20.00 GUO WD LB=0.40 OI=981 CB=19.60 DE=35 TY=5.9% 


*****
QCOM - Qualcomm  $31.37  *** Entry Point! ***

Qualcomm (NASDAQ:QCOM) is a developer and supplier of code 
division multiple access (CDMA)-based integrated circuits 
and system software for wireless voice and data communications
and global positioning system (GPS) products.  The company 
offers complete system solutions, including software and 
integrated circuits for wireless handsets and infrastructure 
equipment.  This complete system solution approach provides 
customers with advanced wireless technology, enhanced component
integration and interoperability, as well as reduced time to 
market.  Qualcomm recently announced that strong demand for
next-generation chips for wireless phones prompted it to raise
its shipment guidance for the fiscal fourth quarter.  The news
helped the issue move back to the top of an intermediate-term
trading range and Friday the stock rallied to a 3-month high.
This position offers investors reasonable reward potential at
the risk of owning the company at a cost basis near $25.

NOV 25.00 AAW WE LB=0.65 OI=2053 CB=24.35 DE=35 TY=8.2% 


*****
VZ - Verizon  $35.19  *** Baby Bell Rally! ***

Verizon Communications (NYSE:VZ) is one of the world's leading
providers of communications services.  Verizon companies are the
largest providers of wireline and wireless communications in the
United States, with 135.1 million access line equivalents and 30.3
million Verizon Wireless customers.  Verizon is also the largest
directory publisher in the world.  With more than $67 billion in
annual revenues and approximately 241,000 employees, Verizon's
global presence extends to more than 40 countries in the Americas,
Europe, Asia and the Pacific.  Verizon shares have been in "rally
mode" since the global telecommunications team at Goldman Sachs
said the industry is starting to heal itself as corporate managers
and investors turn their focus toward free cash flows.  Investors
saw the optimistic comments as a reason to buy into downtrodden
telecom stocks and now the group is in a broad recovery.

NOV 30.00 VZ WF LB=0.70 OI=8453 CB=29.30 DE=35 TY=6.3%


*****

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

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

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

ISSX   15.85  NOV 12.50   ISU WV  0.50 194   12.00   35   11.8% 
CHKP   14.92  NOV 12.50   KEQ WV  0.55 665   11.95   35   11.7% 
DCTM   13.49  NOV 10.00   QDC WB  0.40 12     9.60   35   11.2% 
PSFT   15.96  NOV 12.50   PQO WV  0.45 593   12.05   35   10.7% 
HYSL   21.04  NOV 17.50   WQE WW  0.60 46    16.90   35    9.5% 
HLYW   19.48  NOV 17.50   HWQ WW  0.60 29    16.90   35    8.1% 
PPDI   22.97  NOV 20.00   PJQ WD  0.60 15    19.40   35    7.6% 
CLE    22.90  NOV 20.00   CLE WD  0.45 160   19.55   35    5.8%


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


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

A Light At The End Of The Tunnel?
By Ray Cummins

Bargain-hunting investors returned to the market Friday, propelling
the major equity averages to a second consecutive session of large
gains.

The Dow Jones Industrial Average soared 316 points to 7,850 with
all 30 components blue-chip components supporting the advance.  A
favorable profit report from General Electric (NYSE:GE) and bullish
analyst's comments on International Business Machines (NYSE:IBM)
were among the catalysts for the sharp ascent.  Semiconductor and
software shares led the NASDAQ 47 points higher to 1,210.  In the
broader industry groups, buyers were apparent in every sector with
the most pronounced advances taking place in retail, financial,
airline and cyclical shares.  The S&P 500 Index jumped 31 points to
835.  Trading volume was robust at 1.81 billion on the NYSE and at
1.90 billion on the NASDAQ.  Market breadth was sharply positive,
with advancers pacing decliners more than 3 to 1 on the Big Board
and more than 2 to 1 on the technology exchange.  On the fund flow
front, Trim Tabs estimated that all equity funds had outflows of
$4.2 billion in the week ending 9/9/02, compared with inflows of
$2.0 billion in the prior week.  Equity funds that invest primarily
in U.S. stocks saw outflows of $2.7 billion versus outflows of $500
million in the prior week.  Bond funds saw inflows of $2.3 billion
compared with inflows of $1.7 billion the previous week.  Treasury
issues slumped amid the bullish activity in equities.  The 10-year
Treasury note fell 1 7/32 to yield 3.80% while the 30-year bond
lost 1 20/32 to yield 4.81%.

*****************
PORTFOLIO SUMMARY
*****************

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of actual traders, due to the variety of ways
in which each play can be opened, closed and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The play commentary (when provided) is simply a service to help
new traders understand when positions might be opened and closed.
In most cases, actions taken based on the commentary would be far
too late to be effective, thus it is not intended as a substitute
for personal trade management nor does it replace your duty to
diligently monitor and manage the positions in your portfolio.


PUT CREDIT SPREADS
******************

Symbol  Pick   Last  Month L/P S/P Credit   C/B   (G/L)  Status

OHP     42.62  41.21  OCT   33  35  0.30   34.70  $0.30   Open
NOC    124.54 117.50  OCT  105 110  0.35  109.65  $0.35   Open
UOPX    32.11  31.52  OCT   25  30  0.55   29.45  $0.55   Open?
AZO     81.27  81.48  OCT   70  75  0.50   74.50  $0.50   Open
VZ      33.60  35.19  OCT   28  30  0.30   29.70  $0.30   Open

Previously Closed: Ball Corporation (NYSE:BLL) and S&P 100 Index
(CBOE:OEX), both of which are positive.  University of Phoenix
Online (NASDAQ:UOPX) has rebounded in the wake of a favorable
earnings report from the company's parent group, however traders
should monitor the issue for future signs of a bearish reversal.


CALL CREDIT SPREADS
*******************

Symbol  Pick   Last  Month L/C S/C Credit   C/B   (G/L)  Status

PHA     40.86  40.75  OCT   50  45  0.60   45.60  $0.60   Open
OEX    446.00 422.68  OCT  500 495  0.45  495.45  $0.45   Open
SLAB    19.66  22.50  OCT   30  25  0.40   25.40  $0.40   Open
BRL     63.65  59.50  OCT   75  70  0.50   70.50  $0.50   Open
LXK     43.49  51.44  OCT   55  50  0.50   50.50 ($0.94)  Open?
MMM    119.46 120.60  OCT  135 130  0.40  130.40  $0.40   Open
WFC     46.89  46.85  OCT   55  50  0.55   50.55  $0.55   Open
ASD     64.56  64.68  OCT   75  70  0.65   70.65  $0.65   Open
S       40.62  32.72  OCT   50  45  0.30   45.30  $0.30   Open
FITB    57.47  61.49  NOV   70  65  0.65   65.65  $0.65   Open
LEN     53.67  54.35  NOV   65  60  0.80   60.80  $0.80   Open

The recent recovery rally may continue in the near-term, thus
conservative traders should consider closing any positions in
which the underlying issue moves above the sold strike.


SYNTHETIC (BULLISH)
*******************

Symbol  Pick   Last  Month L/C S/P Credit  M/V   (G/L)  Status

DIAN   46.10  37.17   NOV  60  35  (0.10)  0.10   0.00  Closed
ERTS   67.73  67.60   NOV  75  60   0.40   0.00   0.40   Open

Previously closed positions in Boyd Gaming Group (NYSE:BYD) and
Cablevision (NYSE:CVC) yielded favorable short-term profits and
the speculative play in Taro (NASDAQ:TARO) offered a small gain.
The position in Dianon Systems (NASAQ:DIAN) has been closed to
limit losses.


SYNTHETIC (BEARISH)
*******************

Symbol  Pick   Last  Month L/P S/C Credit  M/V   (G/L)  Status

MET    25.25  22.64   JAN  20  30   0.05   1.45   1.50  Closed
PFE    30.75  30.15   JAN  25  35   0.15   0.80   0.95  Closed
BRCD   12.33   6.58   JAN  10  15  (0.05)  8.90   8.85  Closed
MRK    45.74  47.30   OCT  40  50   0.10   0.45   0.55  Closed
PGR    50.96  53.60   NOV  45  56  (0.10)  0.65   0.55  Closed
CTSH   51.76  58.45   OCT  40  60  (0.40)  0.40   0.00  Closed
C      27.98  30.40   NOV  22  32  (0.20)  0.45   0.25  Closed

Brocade Communications (NASDAQ:BRCD) was the "big winner" this
month with a closing credit of up to $8.90 as the issue traded
at a new 2002 low.  Cognizant Technologies (NASDAQ:CTSH) gapped
down Monday, offering little opportunity to enter the play at a
favorable price.  The issue finished Monday's session almost $4
lower but has since rebounded to a previous trading range near
$60.  Citigroup (NYSE:C) moved in a similar fashion and although
there was a small gain available in the position, the stock has
now rebounded to the top of a recent pattern, decreasing the
probability of a near-term profit.


BULL CALL SPREADS
*****************

Symbol  Pick   Last  Month  L/C S/C  Debit  M/V   B/E   Status

LUME    5.80   3.90   JAN    5   7   1.00   0.90  6.00   Open?


CALENDAR SPREADS
****************

Symbol  Pick   Last   Long-Opt  Short-Opt  Debit  M/V   Status

LEH    49.69  47.89   JAN-40P   OCT-40P    1.90   3.00  Closed
BAC    58.00  59.40   JAN-50P   OCT-50P    2.00   2.70   Open?
LPNT   33.04  35.10   FEB-35C   OCT-35C    2.50   2.70   Open

The Lehman Brothers (NYSE:LEH) position provided an excellent
short-term gain during the recent bearish activity and the Bank
Of America (NYSE:BAC) play also enjoyed a small profit during
Wednesday's sharp sell-off.  Lifepoint (NASDAQ:LPNT) has rallied
to the sold strike at $35 on heavy volume and traders should be
prepared to make a bullish adjustment in the position.

Previously Closed: Schering Plough (NASDAQ:SGP)


SHORT-PUT COMBOS
****************

Symbol  Pick   Last  Short-Opt  Long-Opt  Credit  M/V   Status

AES     2.92   1.44   J04-7.5   J03-2.5    4.50   4.25   Open
IMCL    7.77   7.05   J04-15    JO3-5      8.00   7.75   Open


CREDIT STRANGLES
****************

Symbol  Pick   Last  Month S/C S/P Credit  C/V   (G/L)  Status

ADRX   24.65  19.99   OCT  40  15   1.10   0.95   0.15   Open?
ISIS   8.97    8.69   OCT  15   7   1.50   0.30   1.20   Open
QCOM   28.58  31.37   OCT  32  22   1.50   0.60   0.90   Open
PPD    21.80  18.65   OCT  25  17   1.95   0.80   1.15   Open?
STJ    36.29  36.70   OCT  40  30   1.00   0.25   0.75   Open
OMC    55.86  56.07   OCT  65  40   0.95   0.25   0.75   Open

QualComm (NASDAQ:QCOM) is one to watch as the issue has moved up
and out of a recent trading range.  Traders should exit, adjust,
or cover the position in the event of further upside activity.

Previously Closed: Transkaryotic Therapies (NASDAQ:TKTX)

Questions & comments on spreads/combos to Contact Support
*************
NEW POSITIONS
*************

This following group of plays is simply a list of 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
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.

****************
READER'S REQUEST
****************

In response to a recent E-mail concerning strategy selection, one
of our readers asked for an example of a conservative debit spread.
A bullish debit spread involves the purchase of one call and the
sale of a higher strike-price call.  The "bull-call" spread is
less aggressive than the outright purchase of a call and in some
cases, will actually outperform a call purchase if the underlying
stock advances gradually until expiration.

*****
CHTT - Chattem  $42.99  *** Multi-year High! ***

Chattem (NASDAQ:CHTT) is a marketer and manufacturer of a variety
of branded consumer products, principally over-the-counter health
care products, including Gold Bond medicated powders, Herpecin-L,
Dexatrim, Icy Hot Patch and the Sunsource nutritional supplements.
The company's OTC products are sold primarily through food, drug
and mass merchandiser accounts.  Internationally, the products are
sold by national brokers in Canada and the United Kingdom and by
distributors in Western Europe, Central and South America and the
Caribbean.  Wal-Mart Stores accounted for more than 10% of the
company's consolidated net sales in 2001.

PLAY (conservative - bullish/debit spread):

BUY  CALL  NOV-35  HQT-KG  OI=11  A=$8.80
SELL CALL  NOV-40  HQT-KH  OI=12  B=$4.50
INITIAL NET-DEBIT TARGET=$4.20-$4.25
POTENTIAL PROFIT(max)=17% B/E=$39.25


****************
CALENDAR SPREADS
****************

A calendar spread (or time spread) consists of the sale of one
option and the simultaneous purchase of an option of the same
type and strike price, but with a future expiration date.  The
premise in a calendar spread is simple: time erodes the value of
the near-term option at a faster rate than the far-term option.

*****
WAT - Waters  $26.61  *** Conservative Time-Selling! ***

Waters Corporation (NYSE:WAT) is the holding company for Waters
Technologies, which operates its businesses in the analytical
instrument industry.  The company manufactures and distributes
three complementary technologies: high-performance liquid
chromatography instruments, chromatography columns and other
consumables, and related service; mass spectrometry instruments
that can be integrated and used along with other analytical
instruments, especially HPLC, and thermal analysis and rheology
instruments.  HPLC, the largest product group of the analytical
instrument market, is utilized in a broad range of industries
to detect, identify, monitor and measure the chemical, physical
and biological composition of materials, and to purify a full
range of compounds.

PLAY (conservative - bullish/calendar spread):

BUY  CALL  MAY-30  WAT-EF  OI=61    A=$2.90
SELL CALL  NOV-30  WAT-KF  OI=2334  B=$0.60
INITIAL NET DEBIT TARGET=$2.20-$2.25  TARGET PROFIT=$0.90-$1.25


**************
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.

*****
SLM - SLM Corporation  $96.58  *** Sally Mae Lives! ***
 
SLM Corporation (NYSE:SLM), formerly USA Education, is a private
source of funding, delivery and servicing support for higher
education loans for students and their parents in the United
States.  SLM provides a range of financial services, processing
capabilities and information technology to meet the needs of
educational institutions, lenders, students and guarantee
agencies.  The company's managed portfolio of student loans,
including loans owned and loans securitized, totals over $70
billion, of which the majority is federally insured.  The firm
also has commitments to buy billions of dollars of additional
student loans.  Primarily a provider of education credit, the
company serves a diverse range of clients, including over 6,000
educational and financial institutions and guarantee agencies.
The company serves in excess of seven million borrowers through
its ownership or management of student loans.

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-80.00  SLM-WP  OI=56  A=$1.00
SELL PUT  NOV-85.00  SLM-WQ  OI=56  B=$1.40
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$84.50


*****
UNH - UnitedHealth Group  $93.49  *** Bullish Sector! ***

UnitedHealth Group (NYSE:UNH) forms and operates markets for the
exchange of health and well being services.  Through its family
of businesses, the company helps people achieve optimal health
and well being through all stages of life.  The firm's revenues
are derived from premium revenues on insured (risk-based) products,
fees from management, administrative and consulting services and
investment and other income.  It conducts its business primarily
through operating divisions in the following business segments:
Uniprise; Healthcare Services, which includes the UnitedHealthcare
and Ovations businesses; Specialized Care Services, and Ingenix.

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-80.00  UHB-WP  OI=223  A=$0.75
SELL PUT  NOV-85.00  UHB-WQ  OI=197  B=$1.30
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$84.40


*****
WTW - Weight Watcher's Intl.  $45.40  *** Get Fit, Not Fat! ***

Weight Watcher's International (NYSE:WTW) is a global branded
consumer company and a provider of weight-loss services,
operating in 30 countries around the world.  The company's
programs help people lose weight and maintain their weight
loss, and, as a result, improve their health, enhance their
lifestyles and build self-confidence.  At the core of the
company's business are weekly meetings, which promote weight
loss through education and group support in conjunction with
a flexible, healthy diet.  Each week, more than one million
members attend approximately 39,000 Weight Watchers meetings,
which are run by over 14,000 classroom leaders.  The firm
conducts its business through a combination of company-owned
and franchise operations.  Company-owned operations accounted
for approximately 65% of total worldwide attendance in 2001.

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-35  WTW-WG  OI=23   A=$0.35
SELL PUT  NOV-40  WTW-WH  OI=212  B=$0.80
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$39.50


*****
LMT - Lockheed Martin  $62.45  *** Premium Selling ***

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

PLAY (conservative - bearish/credit spread):

BUY  CALL  NOV-75.00  LMT-KO  OI=132  A=$0.25
SELL CALL  NOV-70.00  LMT-KN  OI=526  B=$0.75
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$70.55


*****
MMM - 3M Corporation  $120.60  *** Premium Selling ***

3M Company (NYSE:MMM), formerly known as Minnesota Mining and
Manufacturing Company, is an integrated enterprise characterized
by intercompany cooperation in research, manufacturing and sale
of products.  3M's business has developed from its research and
technology in coating and bonding for coated abrasives, the
company's original product.  Coating and bonding is the process
of applying one material to another, such as abrasive granules
to paper or cloth (coated abrasives), adhesives to a backing
(pressure-sensitive tapes), ceramic coating to granular mineral
(roofing granules), glass beads to plastic backing (reflective
sheeting) and low-tack adhesives to paper (repositionable notes).
The company conducts business through six operating segments:
Industrial Markets; Transportation, Graphics and Safety Markets;
Health Care Markets; Consumer and Office Markets; Electro and
Communications Markets, and Specialty Material Markets.

PLAY (conservative - bearish/credit spread):

BUY  CALL  NOV-140  MMM-KH  OI=317  A=$0.40
SELL CALL  NOV-135  MMM-KG  OI=567  B=$0.80
INITIAL NET CREDIT TARGET=$0.45-$0.55
POTENTIAL PROFIT(max)=9% B/E=$135.45


*******************
SYNTHETIC POSITIONS
*******************

These stocks have established trends and favorable option premiums.
Traders with a directional outlook on the underlying issues may
find the risk-reward outlook in these momentum plays attractive.

*****
SCHL - Scholastic Corporation  $47.43  *** On The Rebound! ***

Scholastic Corporation (NASDAQ:SCHL) is a global children's
publishing and media company.  It is a publisher and distributor
of children's books.  The firm creates educational, entertaining
materials and products for use in school and at home, including
children's books, textbooks, magazines, technology-based products,
teacher materials, television programming, videos and toys.  The
company distributes its products and services through a variety
of channels, including school-based book clubs, school-based book
fairs, school-based and direct-to-home continuity programs, retail
stores, schools, libraries, television networks and the Internet.
The company's Website, Scholastic.com, is a site for teachers,
classrooms and parents and a destination for children.

PLAY (conservative - bullish/synthetic position):

BUY  CALL  DEC-55.00  USC-LK  OI=38  A=$0.95
SELL PUT   DEC-40.00  USC-XH  OI=14  B=$0.95
INITIAL NET CREDIT TARGET=$0.10-$0.25  TARGET PROFIT=$0.75-$0.95

Note:  Using options, the position is similar to being long the
stock.  The initial collateral requirement for the sold (short)
put is approximately $1,250 per contract.


***********************
STRADDLES AND STRANGLES
***********************

Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable volatility-based plays.

*****
EBAY - eBay Inc.  $56.20  *** Still In A Trading Range! ***

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

PLAY (moderately aggressive - neutral/credit strangle):

SELL CALL  NOV-65.00  QXB-KM  OI=2324  B=$0.80
SELL PUT   NOV-45.00  QXB-WI  OI=3238  B=$0.95
INITIAL NET-CREDIT TARGET=$1.75-$1.85 PROFIT(max)=13%
PROBABILITY OF PROFIT (100-day HV)=86%
UPSIDE B/E=$66.75 DOWNSIDE B/E=$43.25


*****


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


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

Let's Ride the Current  Volatility


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/wl_101302.asp


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

Mild Change of Heart


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/mp_101102.asp


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

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