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Daily Newsletter, Sunday, 11/17/2002

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The Option Investor Newsletter                   Sunday 11-17-2002
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: Bad News Rally
Futures Market: Bases Covered
Index Trader Wrap: And NOW for something completely different!
Editor’s Plays: Eternal Optimist
Market Sentiment: This Bears Watching
Ask the Analyst: Your account is your business
Coming Events: Earnings, Splits, Economic Events

Updated on the site tonight:
Swing Trade Game Plan: I Hate It When This Happens


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 11-15        WE 11-08        WE 11-01        WE 10-25 
DOW     8579.09 + 41.96 8537.13 + 19.49 8517.64 + 73.65 +121.59 
Nasdaq  1411.14 + 51.86 1359.29 -  1.41 1360.70 + 29.57 + 43.27 
S&P-100  463.72 +  6.33  457.39 -  0.77  458.16 +  2.51 +  6.63 
S&P-500  909.83 + 15.09  894.74 -  6.22  900.96 +  3.31 + 13.26 
W5000   8584.05 +145.25 8438.80 - 63.40 8502.20 + 51.56 +126.86 
RUT      385.92 +  6.93  378.99 -  4.46  383.45 + 10.81 +  9.27 
TRAN    2333.20 - 13.68 2346.88 + 31.20 2315.68 +  2.37 + 34.22 
VIX       30.83 -  2.73   33.56 -  0.42   33.98 -  2.29 -  3.55 
VXN       49.68 -  2.33   52.01 +  2.15   49.86 -  0.53 -  4.94 
TRIN       0.67            1.80            0.95            0.89 
Put/Call   0.57            1.05            0.71            0.77
******************************************************************


 
Bad News Rally
by Jim Brown

It was a great Friday. Bad news was breaking out all over and
investors were celebrating by going long. A seven-month low in
Capacity Utilization, two year high in PPI, Industrial Production
down -0.8%, warnings of spectacular terrorist attacks in the
pipeline and the markets closed near the highs of the day. All 
we need now is a rogue comet on collision course with earth and
Dow 10,000 should be a sure thing. 

Dow Chart – Daily


 

Dow Chart - 30 min


 

Nasdaq Chart – Daily


 

Economically it was not a good Friday. Business inventories 
increased faster than expected at +0.5% but analysts were not
sure if it was due to slower sales or a buildup for the holidays. 
The period covered was prior to the dock strike and the buildup
could have been an attempt to beat the anticipated strike. 

Things got worse with the Industrial Production which fell -0.8%
and much worse than the -0.3% expected. This was the third month
in a row that all components of the index declined. This was
also the biggest drop since September of last year. Durable
goods production dropped by -1.2% and autos fell -5.2%. This is
clearly a major problem and is a strong argument for a new
recessionary double dip. Many think this was the smoking gun
that prompted the Fed to cut rates so drastically. Capacity
Utilization fell to 75.2%, a seven-month low, and not far from
20 year lows. This means companies have no pricing power and
excess inventory is being produced just to keep plants from 
being shuttered. This depresses prices even further as price
cut incentives are used to beat the competition and turn the
excess inventory. 

On the other side of the coin the PPI jumped +1.1% and well 
over 0.3% expectations. Energy prices and an increased cost
of core materials are finally being felt in prices. This
inflation, while far from critical, will give the Fed something
to fear if the trend continues. With the excess liquidity in
the system and the recent 50 point rate cut the Fed will not
be happy to see inflation spiking so rapidly. The number 
actually spiked the Fed funds futures for December to an 8%
chance of a 25 point tightening. While 8% is not a strong 
chance it is proof that new inflation worries may need to 
be acted upon quickly. Given that the majority of the increases
were due to energy I think the Fed has a long time to wait
before needing to act again. 

The best news of the day was a spike in Consumer Sentiment 
in the preliminary number for November. The number jumped to
85.0 from 80.6 in October. Sentiment had declined for five
consecutive months and the gain today nearly offset the 
October decline. Consumers do not seem to be concerned about 
Iraq and the stock market appears to have bottomed in October. 
The bounce could have just been an over reaction from the
election, the rate cut and the capture of the sniper. The
real problem for consumers remains unemployment. As seen by
the +89,000 rise in continuing claims this week that problem
has not gone away. Consumer sentiment should continue to rise
slightly as typical holiday cheer begins to impact the numbers.
Desperation sales by retailers will help stretch limited budgets
and that will improve spirits. The fed rate cut will allow for
one more round of mortgage refinancing and consumers will 
likely jump on that as a way to fund holiday buying. 

It appears they will not be buying computers. The Gartner Group
lowered their estimates for growth in PC demand to only +1.1%
for the fourth quarter. This barely breakeven number is even
worse when you add in the current price wars underway. There 
are new desktop computers being advertised now for under $200
which shows the lack of demand and the lack of profits in the
retail sector. My unofficial price check on components showed
512MB 333 MHZ DDR ram down to $133 a stick. This was over $200
three months ago. This is what we use in our high-end processors.
I bought four 120GB IBM Deskstar 7200 RPM disk drives on Friday
for $146 each. I paid $229 for the same drives 60-90 days ago. 
If we wait long enough Gateway will be throwing in a $1000 flat
screen HDTV with every $995 desktop computer sold. The fact
remains prices only drop this fast due to over capacity and
very low demand. Think about it. In order for chip and computer
manufacturers to break even on revenue each quarter they have 
to sell 35% more product to offset the 25% drop in price.   

The wild card for consumer sentiment this month is the new 
warnings from the FBI. They warned of a new and spectacular
terrorist attack possible in the immediate future. They said
Al Quaeda was likely to be planning a very high profile attack
on high profile targets. The target could be of high symbolic
importance and after the success in impacting the stock market
on 9/11 they think they could target the financial system as
well. Malls, sporting events, power plants, railroads and
hospitals have been mentioned as possible targets. Many think
Osama risked going public with his survival this week in order
to trigger sleeper cells to act on plans already in place as
the holidays approach. Since everyone thought he was dead the
heat to find him had diminished. By going public he took the
spotlight again and restarted that search. Analysts think he
took that risk only because he had to do it to launch the next
set of attacks. If an attack occurs at a mall or sporting event
the bouncing consumer sentiment will be history. The good news? 
The market ignored the warning and business continued as usual. 

It appears the markets have shaken off all the bad news possible
and are determined to forge ahead. High profile downgrades on
Friday of GE, DE, INTC, DELL, ADI, AMCC, CNXT, PMCS, MERQ, BEAS, 
FDX, GILD, CEPH, NBIX, ACS, XMSR and FBF to name a few, failed
to tank the market even with the negative economic news. Investors
have been hearing how bad it is for so long it appears they may
just be ready to bite the bullet and buy stocks. With money 
market funds not paying enough interest to justify letting them
hold the money, investors may be shifting funds back to stocks
on the hopes that the worst is behind them. Mutual funds have
seen inflows of cash for two consecutive weeks and now they have
to spend it. Fund managers are faced with competitive pressures. 
If other funds are buying stocks then they must follow suit
regardless of their bias. They can't afford to let the 
competition get ahead of them in the race for investor results.

The markets actually broke out to new highs for the week at the 
close. The Dow broke two resistance levels of 8500 and 8550 on
its rebound and the Nasdaq is very close to the quadruple top
of 1425 that dates back to the first breakout attempt on August
17th. A break of Nasdaq 1425 could energize the other indexes 
and power them past resistance as well. With the Nasdaq being 
the strongest index this week and no material profit taking
Friday on lots of negative news it appears poised to test
that 1425 level on Monday. Next week is slow economically and
has few earnings events. Investors will be gearing up to be
consumers as Thanksgiving kicks off the holiday shopping season. 

Negative economic news, bad earnings and downgrades have all
failed to knock the markets back to October. Assuming there
are no spectacular attacks to test our resolve there is little
on the "surface" to prevent the markets from moving higher. 
However, we all know from experience that when things look 
the brightest disasters tend to happen. The biggest fear for 
investors this week should be of a roll over by the Dow at 
8600-8650 to complete the right shoulder of the current 
pattern which could stop this rally cold.  

The week before Thanksgiving has produced gains for the 
S&P-500 nine years in a row. Nobody can guarantee that that 
streak will stretch to ten but most of the bad news has 
already been factored into the markets or at least that is
what analysts appear to be telling us. According to them the 
biggest risk facing most investors is not a terrorist attack 
but not being in the market if an explosive rally occurs.
While I would applaud a breakout over current resistance 
levels I would caution you that we need to see those levels
broken (Dow 8650, Nasdaq 1425) before betting the holiday 
shopping budget by going long.

Enter Very Passively, Exit Very Aggressively!

Jim Brown

"No profession requires more hard work, intelligence, patience
and mental discipline than successful investing.  - Robert Rhea


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

Bases Covered 
By John Seckinger
jseckinger@OptionInvestor.com

With the S&P 500 closing just below 910 and the Dow finishing 
above 8560, there seems to be the potential for the market(s) to 
move significantly from current levels in either direction.  By 
definition, a pivot.  

Friday, November 15th at 4:15 P.M. 

Contract          Net Change     High        Low        Volume    

ES02Z     909.00     +6.50      910.50      894.50      557,855
YM02Z    8560.00    +40.00     8579.00     8446.00       16,711
NQ02Z    1065.50    +14.00     1066.50     1036.50      217,983

ES02Z  =  E-mini SP500 futures    
YM02Z  =  E-mini Dow $5 futures    
NQ02Z  =  E-mini NDX 100 futures     

Note:  The 02Z suffix stands for 2002, December, and will change 
as the exchanges shift the contract month.  The contract months 
are March, June, September, and December.  The volume stats are 
from Q-charts.  

Making Headlines:  The markets opened lower on Friday due 
slightly in part to a FBI warning that a new "spectacular" 
terrorist attack was being designed to cause mass casualties, 
severe damage to the U.S. economy and maximum psychological 
trauma.  In the economic arena, the October PPI report showed an 
increase of 1.1% (consensus for 0.2% increase), sparking spark 
word of stagflation more than anything else.  The core-PPI rose 
by 0.5%, versus 0.1% estimates.

The equity futures markets did come under pressure after it was 
reported that Industrial Production fell by 0.8% versus –0.3% 
estimates and accompanied by falling capacity utilization.  
Losses in the futures market were cut after a better-than-
expected Michigan Sentiment report (85.0 versus 82.0 consensus), 
getting traders wondering about a strong holiday season.  Profit 
taking took over, the daily lows were tested, and then the 
selling dried up and buyers took over.  As the session ended, the 
Dow posted its sixth consecutive gain, despite downgrades of a 
few semiconductor names by Merrill Lynch.  Also weighing on the 
Dow was GE being downgraded to Underweight from Neutral from JP 
Morgan.  

Monday’s Potential Catalyst(s): There are no economic reports 
scheduled for Monday.  Earnings on Monday include Lowe’s (LOW) 
and TOY before the open, while A, GME, ISLE, and MDT are 
scheduled to report after the bell.  The key really could involve 
the weapons inspectors and Iraq, since Hans Blix (head of a U.N. 
commission) is expected to arrive in Baghdad on Monday. Another 
catalyst could center on reaction to the capture of a senior al 
Qaeda leader.  

Notes:  It was interesting that equities rose and the 30-year 
yield stayed flat or moved slightly lower.  If equities do 
continue to rally and take out prior resistance levels, 
confirmation really is needed via higher yields.  Additionally, 
the Utility Index (UTY) closed at 240.96 and above its 22 DMA of 
240.  Bids will have to continue in the UTY in order to help 
stocks as well.  

=================================================================

Intermediate Term Outlook, Dow 

The possibility of a right shoulder (H&S formation) is certainly 
on traders’ minds; however, a rise above 8600 and the mid-
Regression line (8591) could spark a strong short covering rally 
and take the Dow to 8691 and then 8800.  If the right shoulder 
does become self-fulfilling, a wave of selling should take place 
under 8547 towards the 22 Weekly Moving Average (8411).  The main 
areas of support below are at 8200 and 8000.  I believe that the 
best course of action is become bullish above 8600 (preferable 
based on closing level), or bearish under the bottom of the 
regression channel (currently trending higher from 8330).  Note:  
For Intermediate and long-term analysis, using closing levels 
will filter out traps more effectively (example of a trap:  The 
Dow on an intra-day basis goes above 8600, hits stops, and then 
closes under 8547).  

Chart of Dow Jones, Daily 


 

A 30-minute chart of the YM02Z contract shows the contract 
contained within an aggressive wedge pattern.  The apex of this 
wedge hits just underneath the 8691 level mentioned above.  As 
long as the contract stays above the 8491-8500 area, traders can 
look to buy dips with a short term objective of 8600 and then 
8675.  Once 8600 is hit, make sure to move trailing stop up 
towards 8550.  On the other hand, look to Go SHORT the YM02Z 
contract at market with a trade of 8485.  Target is first 8437, 
move trailing stop down, and then look for a move to 8405. Stop 
8540.  

Chart of YM02Z, 30-minute 


 

A daily chart of the NDX shows prices currently at the upper end 
of its daily Bollinger Bands and approaching resistance at 1079.  
Even though MACD is relatively high, there is still a chance this 
oscillator will make another run upwards towards the last 
relative high of 39.45.  In fact, back in 2001, the MACD 
performed a similar pattern and the NDX moved from 1577 to 1734.  
However, it should be noted that the MACD back in 2001 failed to 
take out its initial high (58 versus 68) and indicated a bearish 
divergence pattern (prices new high, oscillator unable to set new 
high).  If the NDX does fall from current levels, strong support 
is felt at 996.  

Chart of NDX, Daily 


 

Taking things to a micro level, a 60-minute chart of the Nasdaq 
100 shows a possible bullish wedge in place and upside objective 
(once above 1073) of 1172.  As the chart notes, a move above 1073 
will then turn this level into strong support and a powerful 
pivot going forward.  If prices fail to either move or stay above 
1073, look to sell the contract as the index comes back towards 
the rising blue support line, currently at 1009.  The objective 
once under the blue line would be for a move to 996.  Note:  
There will most likely be stops under the psychologically 
important 1000 level.  

Ideally for shorts, some time will pass and shorts will be able 
to enter at higher levels (read: Additional 60-minute lines will 
‘push’ the chart out to the right and raise the short entry due 
to a higher trending blue line).  Additionally, the NQ02Z 
contract settled at the same level as the Dec NDX contract; 
therefore, a potential trade would be to Go LONG the NQ02Z 
contract at market with a trade of 1076.  Target 1170, Stop at 
1064.  A short-term objective can be at 1000 and then 1142, with 
trailing stops should be moved to 1085 once 1100 is taken out.  

Chart of Nasdaq 100, 60-minute 


 

The ES02Z contract has traded relatively weak during the prior 
week; nevertheless, a move above 910 should attract buyers and 
send the index to 917.  Stops can be placed at 905.  If, on the 
other hand, sellers step in and pressure the S&P, a potential 
trade would be to Go SHORT ES02Z contract at market with a trade 
of 904.50.  Target 891.  Stop at 909.  Note:  If the ES02Z 
contract settles above 910 on a 120-minute chart, prices should 
go back into the drawn range (908.75 to 870.25).  This would only 
trap longs.  

Chart of ES02Z, 120-minute 


 

A 10-minute chart of the ES02Z contract shows prices still within 
an aggressive bullish regression channel, and this should portend 
another test of the diagonal red line near the 914-917 level.  If 
the channel is broken and sellers maintain momentum, look for 
support at 905 and 900, with a pivot below at 896.25.  It was 
this relative low at 896.25 that seemed to trap longs on Friday 
and really spark the rally into the close.  

Chart of ES02Z, 10-minute


 

Recap of Potential Trades

NQ02Z:  Go LONG the NQ02Z contract at market with a trade of 1076.  
Targets of 1100, 1142, and 1170, Stop at 1064.  Once 1100 is hit, 
raise trailing stop to 1085.  

ES02Z:  Go SHORT ES02Z contract at market with a trade of 904.50.  
Target 891, Stop at 909.  (Slight support at 900)

Go LONG ES02Z contract at market with a trade of 911.75.  Target 
917, Stop at 906.75.  

YM02Z: Go SHORT the YM02Z contract at market with a trade of 8485.  
Target 8437 and then 8405, Stop 8540.  

Go LONG the YM02Z contract at market with a trade of 8550.  Target 
8600 and then 8690, Stop 8520.  

Good Luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com 


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

And NOW for something completely different!
By Leigh Stevens

That something different would be the 6th week in a row that the 
market has been higher in terms of the S&P, Dow and the Nasdaq
100 Indices! (The other would be me writing the weekly Index
Trader wrap.) 

The last time we had a several week run to the upside also began 
in the seasonally favorable (for a bottom) late-Sept. to early
-Oct. timeframe.  The 2001 rebound was about an 11 week run up to
a peak, followed by a few weeks of price churning and a decline
of a few weeks, before there was another move up that failed to
take out the prior peak.  We know what happened after this – the
market took a more savage beating in a subsequent steep down leg
 into its lows in late-July and early-Oct.

From a technical perspective, there’s a significant difference 
between these two lows – the most recent rebound was after a 
double bottom, at least so far and an exact one in terms of the 
S&P 500 (SPX). A double bottom is a potent technical pattern or 
one that has a fair predictive value for market reversals.  

There are some other differences too between the more recent lows 
and the low of last year, which I’ll get into in a bit. 
Fortunately, traders don’t have to know whether the bear market 
has turned or not to make money, as we only need to see how the 
shorter-term price swings are shaping up and jump on board – hey, 
this ain’t easy either!

TRADING ACTIVITY AND OUTLOOK –
Not a lot of good economic news last week – Industrial Production fell 
sharply in October, pressured by a 5% decline in car production.  U.S. 
Business inventories increased by a half percentage point in Sept., the 
biggest increase in nearly 2 years, due to a drop in retail sales. 

Just to add to the gloomy picture, wholesale prices, as measured by the 
PPI, rose mort than expected – PPI was up a substantial 1.1% due to 
(guess what!?) higher gasoline prices.  However, Consumer sentiment 
improved in November according to U of M’s survey – they reported a 
rise in the sentiment number to 85%, from 80.6% in October.  

What’s it all mean and why is the market going UP!?  It should be going 
down with this much worry – right?I saw a headline in the Friday 
Markets section of the local paper about rates falling to a new 30-year 
low. Well, herein lies another difference between now and back when.
The Fed is being REALLY accommodative. And, with all the home
refinancings going on – well, if you can go from 8-9% on your mortgage
to 5.5-6%, this puts more bucks in your pocket.  And, the consumer, as
we all know, is what is keeping the economy afloat and this spending 
doesn’t look like it’s going to slow down anytime soon.

And, businesses may be starting to spend some again – witness some 
improving trends in such bellwether stocks as Cisco (CSCO), IBM and 
Microsoft (MSFT).  

With earnings reporting season having come to an end, what do we trade 
off from next?  Further economic data no doubt, periodic war and 
terrorism scares with the danger of big price spikes in oil, more 
possible corporate scandals (with no SEC leadership yet!), and maybe a 
United Airlines forced into bankruptcy – it has $375 million coming due 
Dec 2nd. Lots of bearish influences and worries out there! 

There’s an old Wall Street saying that the market climbs a “wall of 
worry” – this is sometimes or often the case in the transition out of a 
bear market.  Investors seem to be starting to feel some feeling of 
optimism.  

However, as is generally the case after an extreme and prolonged move
in the market, there are super-bears predicting Dow 3000 ahead. 
Remember the call for Dow 36,000 at the fever pitch of a couple of 
years ago?  All part of the “natural” market cycle in terms of 
Investor/trader psychology – nothing much new under the sun from over 
100 years ago when Charles Dow wrote about the tendency of 
Investor/trader extremes in “sentiment”. More on this topic if you want 
to read more in our Trader’s Corner on Dow Theory – see: 
http://www.OptionInvestor.com/traderscorner/103102_2.asp 
and - 
http://www.OptionInvestor.com/traderscorner/110302_2.asp

And, by the way, if you read up on Dow, he noted the tendency for 
economic data to continue to WORSEN in the final phase of bear market 
cycles, after the “capitulation” phase.  However, some savvy money 
(Buffet style) is starting to buy selected stocks again. 

MY INDEX OUTLOOKS - 
The key S&P 500 (SPX) levels are 925, then 960.  Since a trend is 
defined as either a series of higher relative highs and higher 
reaction lows (OR, conversely, a series of lower relative highs 
and lower lows), there is no uptrend in the S&P unless the 925 
level is exceeded initially, with the key level being 960, at the 
August rally high.  As always, to be a good technical “signal” 
for a continuation of a trend, the high should not only be 
exceeded but should hold on subsequent reactions or pullbacks – 
resistance should “become” support. 

S&P 500 Index (SPX) – Daily and Hourly charts: 


 

Pivotal support implied by the 50-day moving average in SPX and 
recent lows is 872-867 currently. I favor buying in the 870 area. 
I suggest selling on signs of a faltering rally at 925, 
especially given the near-term overbought reading on the hourly 
stochastic models (see below).  However, it should also be noted 
that the current reading on the daily overbought/oversold 
indicators is not at an extreme as can be seen above. A move 
through 925 in the near-term does not put the S&P at a technical 
vulnerable point in terms of the broader oscillators. 

My favored put play on SPX and OEX is if SPX hits the 960 level 
as some reaction and setback should develop. At least it’s a 
likely point to exit and take profits on all or some S&P index 
calls. If SPX 960 is seen and you buy puts, tight stop protection 
takes you out if much short-covering develops – if so, get back 
into puts on a (down) turn when that type buying runs its course. 
If currently long calls and your horizons are longer than 1-2 
days, I suggest hanging in for the possible ride between 925 and 
960, basis SPX. However, stop out no lower than below 885.      

The key resistance levels in the S&P 100 (OEX), at the prior (up) 
swing highs, are at 470, then 485. 485, if reached, is my favored 
reversal point with a move from calls to puts. Key near OEX 
technical support looks like 440.      

HOURLY – 


 

The hourly charts should typically “support” what we see on the 
daily chart.  An uptrend channel has developed with the last 
reaction low in SPX at 872.  885 is technical support implied by 
the low end of that channel currently.  The hourly trend channel 
pattern makes it look to me like upside potential is to 960 and 
possibly to 980 at some point.  Of course the prior minor double 
top in the 925 area has to be taken out first – this level is 
“pivotal” near resistance. 

If the bears take control again, they will push SPX back below 
885 – pivotal support then is the prior low at 872.  A break of 
872-870, especially on a closing basis, could then lead to a 
further 20-25 point drop.  The chart gap gets filled in on a move 
back to 845. 

The REALLY LONG-TERM chart picture – 
If you want to know why a market technician might assess recent 
lows as potentially quite significant, it’s perhaps by study of 
the very long-term monthly charts. As is appropriate for very 
major moves, the semi-logarithmic price scale is used on the OEX 
monthly chart below – equal PERCENTAGE moves have the same length 
on this scale; e.g., the distance between 400 and 800 is the SAME 
distance as between 200 and 400 as each constitutes a 100% price 
change.   

S&P 100 Index (OEX) – Monthly chart:


 
 
Many of the index charts look similar in terms of the pullback to 
very long-term trendlines.  Basically, the market has come back 
to its long-term “rate of change”. It (the market) is back to its 
historical norm in terms of longer-term appreciation since the 
mid-80s. (The early 80’s is when I date the beginning of the 
long-term secular bull market.) The other noteworthy feature is 
how oversold the market got at recent lows. And how far it could 
rebound and not even be back to a neutral 50 reading on the 
Relative Strength Index as can be seen above - food for thought. 

DJ Industrial Index (1/100 of Dow Avg.)- $DJX – Daily chart:


 

In terms of the Dow, the market looks like it has support coming 
in at 8300-8280.  No doubt the big resistance overhang is at 9000 
and is pivotal resistance.  

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

DJ Industrial Index (1/100 of Dow Avg.)- $DJX – Hourly chart: 


  

On an hourly chart basis and given the short-term overbought, the 
Dow is certainly vulnerable to a pullback to near support at 84 
in the DJX.  Near resistance, basis the same hourly chart, comes 
in around 88.  I would play this range for short-term trades, 
buying calls if 84 holds as support and DJX puts on a move to the 
88 area near-term. 

A CHART REMEMBERED – 
Nasdaq Composite (COMPX) Weekly chart:


 
 
The chart above is from my last Index Trader Wrap prior to this 
one (in mid-November) and is as of Sept. 1st. 

UPDATED: Week ending 11/15, the COMPX charts looks like this –


 

NASDAQ - 
The Q’s look like they have to stay above 26 to make a move to 
28, at the upper end of its hourly uptrend channel.  This is also 
the area of the prior hourly high.  If 26 is penetrated, 
especially on a closing basis, 25-24.80 is a next target and 
near-support as implied by previous hourly closes and the lower 
end of the fairly steep uptrend channel.  QQQ has had a very 
strong run – the gain from 20 to 26 being 30%. Assuming a call or 
long stock position anywhere near the lows – well, you don’t need 
many trades like this in a year!  

QQQ Daily/Hourly charts:


 

Well OK Mr. Smart guy – what was a tip off to buying this puppy 
down near the lows?  As it happened, it was one of my favorite 
reversal “signals”, where prices fell to a new low “unconfirmed” 
by the same lower low in either the Stochastics indicator or the 
RSI – sometimes the RSI is a bit more clear in seeing this.  

The other bullish indicator for QQQ was seen in the On-Balance 
Volume indicator or OBV.  Now, daily trading volume was mostly 
“flat” or sideways during the run up in the stock.  However, this 
would not fool Joe Granville, who invented the OBV indicator, as 
there was in fact “accumulation” going on, but masked by daily 
volume numbers that never really spiked up - at least not in a 
dramatic or noticeable fashion.  

On Balance Volume keeps a cumulative running volume figure that 
adds ALL the volume on an up date and subtracts ALL the trading 
volume on down day.  If there is more trading volume on up days 
then there is on down days, OBV rises as can be seen in the lower 
portion of the daily chart (left side) on the QQQ charts above.  

OBV provided in fact an early indication that the buying interest 
in the Nasdaq 100, as reflected in QQQ, was stronger than the 
selling activity. If you got long the stock in the low 20 area 
and rode it up, CONGRATULATIONS on an excellent trade, especially 
given how much bearish sentiment was around.

At this point, the further upside in the Nasdaq looks limited. 
QQQ upside potential is maybe 2, and downside also 2. Sell the 
stock in the 27-28 area, looking for a pullback to at least 25.  


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

Eternal Optimist

Just call me an eternal optimist because every chart I look at
seems to be potential breakouts instead of potential breakdowns. 

The first suggestion today is a momentum play on American Eagle.
With retail supposedly in the tank AEOS has posted an amazing
recovery from the October lows. 

Banc of America upgraded them on Friday to a buy following better
than expected earnings. They said they believe the consensus
earnings estimates are conservative and the stock still has
potential upside. They set a near term price target of $23.00.

This is simply a momentum play and an attempt to capitalize
on short covering if it breaks the previous resistance high
of 19.25. You can see from the chart that it closed exactly on
the last high of 18.83 and only .42 cents away from $19.25. 

Buy the Dec-$20 call, currently $1.10, if the stock trades at
$19.30. Do not buy the option until $19.30 is touched. If the 
short covering appears the stock could spurt to next resistance
at 21.50 which is where I would place my sell stop. 



 

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

Microsoft Breakout?

Remember those Microsoft earnings and the favorable antitrust
verdict? MSFT surged to $57.25 and held near that level for
about four days before falling back to below $54 on profit
taking. 

MSFT has recovered and has traded back within a few cents 
of that $57.25 level for two consecutive days. Once that 
resistance fails there could be serious short covering and
a possible sprint to the next resistance level of $65.00.

Buy the Jan-$60 call, currently $2.10, if MSFT trades at $57.30.
WAIT for the $57.30 trade before going long. 

Set your profit target at $65.00. By using the Jan option you 
can get very close to their next earnings release and profit from
any possible year end rally. If we were to see the breakout next
week and the market cooperates I might even use a trailing stop
once it hits $65 and look for next resistance at $70. That would 
require a major Nasdaq rally over the next eight weeks but it
is possible.  



 


Play Recaps 
*****************   

The MLNM call play from last Sunday was a total failure 
because it opened down on Monday and never recovered. I
doubt anyone took the trade on the opening drop. 

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

The DJX put suggestion played out as expected. The DJX
fell through 84.90 just after the open on Monday and traded
as low as 83.00 target on Wednesday. 

The options quoted on Sunday could have been entered at
the open on Monday when the 84.90 level was hit. This
is the price when the entry trigger was hit and the 
highest price they traded at by Wednesday.

Nov-83 DJX-WE 0.80 entry $1.25 high
Nov-87 DJX-WI 2.80 entry $4.10 high
Nov-88 DJX-WJ 3.25 entry $5.10 high

I know it is highly improbable that anyone sold at the 
exact high but everyone should have been able to get in
at the entry numbers above. 
 
********************  

SMH Ladder Recap

The Nov-22.50 put traded in the .55-.60 range for several 
hours on Monday as the SMH dropped to $23 but the lack of 
a drop in the SOX prevented the 22.50 target from being 
hit. The .55 price would have returned $2,750 with your
cost basis somewhere in the $500 range based on prior
trades. 


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

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

Good Luck

Jim Brown  


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

This Bears Watching
by Steve Price

Ok, bears, it appears that it is time to step aside.  You've 
tried your best, and even gotten help from company projections 
and a slew of fourth quarter warnings.  But the bulls appear to 
be simply too strong.  At least for the moment.  

The morning started off with downgrades to GE and Intel.  The Dow 
broke back underneath 8500, reaching a low of 8460.  The head and 
shoulders formation that looked to be forming in the major 
indices appeared as though it would finish off the right shoulder 
and head lower. The chip stocks started giving back gains after 
Dell made cautious comments about the IT spending environment 
Thursday night, and the Intel downgrade to "sell" by Merrill 
Lynch (along with the same rating on other chip stocks ADI, AMCC, 
PMCS and VTSS).  The FBI then warned that Al Qaeda was planning a 
severe attack that would cause severe damage to the U.S. economy.  
The makings of an expiration sell-off seemed to be taking shape.   
Then around 1:00, the buying started. A 119-point Dow rally 
ensued, taking us through resistance at 8550, to a close of 
8579.93. Combined with the recent move out of the bond market, 
which could be freeing up dollars for equities, the bulls appear 
to be sharpening their horns. 

The morning brought mixed data, as the PPI showed wholesale 
prices rose more than expected in October.  Economists expected a 
gain of 0.2% and instead got a surge of 1.1%.  While that 
increase may not suggest inflation rearing its head, it certainly 
is more inflationary than what was expected.  We also saw 
industrial production fall 0.8%, the biggest decline since 
September 2001, when the nation paused following the 9/11 
attacks. 

On the positive side, the University of Michigan Consumer 
Sentiment report rose from its 9-year low of 80.6 in October, to 
a preliminary reading of 85.0 for November. It seems a 
contradiction to the recent Consumer Confidence report, which 
showed a decline in its last release.  The Sentiment report beat 
expectations by 3 points and gave the market a temporary boost. 
It seems a contradiction to the recent Consumer Confidence 
report, which showed a decline in its last release. However, the 
sell-off continued beyond the time the report was released.  

The Nasdaq's  -0.38 loss looks bullish, after the Intel downgrade 
and rebound from an intraday drop of 25 points. The chip stocks, 
as measured by the Semiconductor Sector Index (SOX), actually 
finished up on the day, after dropping 10 points and bouncing off 
previous resistance at 310. A move above 329 in the SOX would 
indicate a higher high after a higher low on the pullback, 
underscoring the bullish sentiment in the sector. While it may 
not make much sense that a sector predicting a drop in revenue, 
and no visible turnaround, would be on a bull run, it is 
nevertheless happening before our eyes. The August high of 1426 
in the Nasdaq still looms above and should be used as 
confirmation for long tech plays by conservative traders looking 
to get in on a rally.  If we get over that level, then the next 
significant resistance point looks like the 200-dma of 1512.20.  
That average will be declining as we move forward in time, so 
1500 is probably a better target on a move over 1426. 

The Market Volatility Index (VIX) is a pretty good measure of 
fear in the marketplace and it is sinking quickly. It broke down 
below its 200-dma and closed at the lowest level since June. The 
drop of almost 6 points since Wednesday could not have been 
accomplished without some institutional option selling, which 
generally occurs when the big firms are predicting an up trend. 
One phenomena that can drop the VIX on expiration is when firms 
that have sold November out of the money options, when premium 
levels were higher earlier in the month, come in and buy them 
back for pennies and sell the next month's options, in this case 
December. While that will drop volatility in the December 
options, which are now used in the VIX calculation, the selling 
clearly began Thursday and continued throughout both days.  While 
this is not an exact indication, it is just one piece in a puzzle 
that is beginning to look bullish. 

Now that I've painted the bullish side, let me issue a warning.  
We could still get a bearish head and shoulders formation in the 
Dow, allowing for a rally all the way up to 8800.  We have not 
yet broken the August Nasdaq high and the last time we tested 
that level was November 6, after which we fell 63 points in three 
days. Bullish plays seem in favor at the moment, but until we get 
above Dow 8800 or Nasdaq 1426, keep the stops tight, and assume 
only a risk level conducive with a failed rally. If we do cross 
Dow 8800, I'll still be issuing cautious statements about the 
9077 resistance level above that, but the H&S formation will be 
behind us.


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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  8579

Moving Averages:
(Simple)

 10-dma: 8540
 50-dma: 8176
200-dma: 9230



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  909

Moving Averages:
(Simple)

 10-dma:  900
 50-dma:  867
200-dma:  991



Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     : 1061

Moving Averages:
(Simple)

 10-dma: 1030
 50-dma:  931
200-dma: 1137



The Semiconductor Index (SOX.X):  It looked like we'd finally get 
a chip sell-off after the cumulative effects of an AMAT warning, 
cautious comments from Dell and an Intel downgrade to "SELL" from 
Merrill Lynch.  Merrill also issued a sell recommendation on ADI, 
AMCC, PMCS and VTSS. The SOX sank 10 points, bounced off previous 
resistance at 310, and finished up slightly on the day.  If these 
issues haven't knocked it back where it came from, then I'm not 
sure what will.  Shorts beware that until further notice, or a 
break under 280, the trend here is up. 

52-week High: 657
52-week Low : 214
Current     : 319

Moving Averages:
(Simple)

 10-dma: 308
 50-dma: 271
200-dma: 416
------------------------------------------------------------------

Market Volatility

The VIX has broken below its 200-dma and is at its lowest point 
since late June.  It has lost 6 points in two days, and it 
appears the downside fear in the market is waning with most 
earnings reports behind us.  Those traders holding long premium 
positions will most likely be anxious to dump them if the VIX 
breaks 30, since it is easy to lose money quickly in a declining 
volatility environment, when stocks either creep upward, or stand 
still. If we break thirty, look for the pace of the decline to 
increase, and be selective when choosing out of the money option 
plays.  


CBOE Market Volatility Index (VIX) = 30.83 –1.77
Nasdaq-100 Volatility Index  (VXN) = 49.68 –2.72

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.57        944,604       536,174
Equity Only    0.44        818,740       362,772
OEX            1.03         48,925        50,510
QQQ            0.61         89,385        54,811


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

Bullish Percent Data

           Current   Change   Status
NYSE          41      + 1     Bull Confirmed
NASDAQ-100    68      + 2     Bull Confirmed
Dow Indust.   67      + 0     Bull Confirmed
S&P 500       56      + 1     Bull Alert
S&P 100       65      + 1     Bull Confirmed

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

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

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

5-Day Arms Index   1.06
10-Day Arms Index  1.18
21-Day Arms Index  1.09
55-Day Arms Index  1.25


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       1670          1070
NASDAQ     1490          1677

        New Highs      New Lows
NYSE         33              27
NASDAQ       61              51

        Volume (in millions)
NYSE     1,643
NASDAQ   1,688


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

Commitments Of Traders Report: 11/12/02

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the 
Chicago Mercantile Exchange and Chicago Board of Trade. COT data 
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being 
financial institutions. Commercials are historically on the 
correct side of future trend changes while small specs tend 
to be wrong.  

S&P 500

Commercials increased short positions by 4,000 contracts, while 
slightly reducing the long side.  Small traders increased long 
positions by 3,000 contracts, while reducing the short side by 
6,000.

Commercials   Long      Short      Net     % Of OI 
10/22/02      432,775   463,827   (31,052)   (3.5%)
10/29/02      437,565   468,557   (30,992)   (3.4%)
11/05/02      438,546   472,384   (33,838)   (3.7%)
11/12/02      437,683   476,540   (38,857)   (4.3%)

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
10/22/02      134,641    72,681    61,960     29.8%
10/29/02      137,740    75,587    62,153     29.1%
11/05/02      138,604    76,032    65,572     30.5%
11/12/02      141,389    70,624    70,765     33.4%

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

Commercials reduced the long side by 3,500 contracts while 
leaving the short side virtually unchanged.  Small traders, on 
the other hand, reduced short positions by 4,000 contracts and 
longs by just 700. 


Commercials   Long      Short      Net     % of OI 
10/22/02       48,954     54,088    (5,134) ( 4.9%)
10/29/02       47,837     55,261    (7,324) ( 7.1%)
11/05/02       49,128     56,121    (6,993) ( 6.6%)
11/12/02       45,647     55,892   (10,245) (10.1%)

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
10/22/02       10,202     8,892     1,310     6.6%
10/29/02       10,584     9,419     1,165     5.8%
11/05/02       13,355    12,903       452     1.7%
11/12/02       12,698     8,801     3,897    18.1%

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 left positions relatively unchanged, with a slight 
reduction in both longs and shorts.  Small traders increased the 
long side slightly and left shorts around the same level.  

Commercials   Long      Short      Net     % of OI
10/22/02       22,189    13,448    8,741      24.5%
10/29/02       21,800    13,337    8,463      24.1%
11/05/02       22,533    15,687    6,846      17.9%
11/12/02       22,283    14,953    7,330      19.6%

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
10/22/02        4,445     9,270    (4,825)   (35.1%)
10/29/02        5,602    11,090    (5,488)   (32.9%)
11/05/02        5,089     8,735    (3,646)   (26.4%)
11/12/02        5,736     8,513    (2,777)   (19.5)

Most bearish reading of the year:  (8,777) - 10/12/01
Most bullish reading of the year:   1,909  -  1/16/01

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


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

Your account is your business

Question:

You often talk about full, partial, 1/4 and 1/2 positions.  
You've also talked about not trading stops with options, which 
gives the trade time to work, and how all of this comes together 
with account management.  Can you point me to an article on this 
or explain it in more detail?

Answer:

Sometime ago, I wrote some intraday commentary regarding how a 
stock and options trader needed to have a business plan in place 
BEFORE they ever left-clicked a mouse button on a trade.  
Unfortunately, I can't remember that date and time, but I'll 
address that here, but will also have our IT people file it away 
in the Bailey's Basics section as others have asked this same 
question from time to time.

It's a wonderful feeling to finally get the trading account 
opened, cash deposited and immediately initiate a trade that will 
find the trader rich beyond their wildest dreams in just the next 
couple of days.  Especially considering the leverage an options 
trader enjoys.

However, similar to the "dot-com" bubble that burst over the last 
two years, many stock and options traders/investors have had 
their bubble burst.

Is the reason an option trader fails only due to them being a bad 
stock picker?  I'd argue that the answer is no.  I can back that 
argument up with the fact that Merrill Lynch, Lehman Brothers, 
Goldman Sachs, Bank of America and other broker/dealers have 
shown us that they too, despite all their research and various 
industry contacts, have made some horrific recommendations over 
time and it hasn't just been the past two years.

I hold my right hand up, and swear to you that I too have made 
some very poor predictions and with the right hand in the air, 
there is no finger pointing at broker/dealers.  I will raise that 
same right hand and swear that I've also made some good 
predictions.

So where does this leave us?  You pay good money for your 
subscription and it's a tool you use to generate trading ideas 
for your account.  The commission you pay for a trade.  That's 
good money too.  You expect efficient execution and record 
keeping of trade transactions for that fee.

Perhaps unbeknown to you, both of the above should be considered 
expenses and as such, fit into some type of business plan.

Unfortunately, most options traders put more time into 
researching online trading brokers and investment newsletters and 
even stocks than they do in developing the most important plan 
that the success of their trading account will depend on.  Their 
BUSINESS PLAN.

The reason most company's fail, is lack of a good sound business 
plan.  This business plan is a written document.  Its not a 
thought that can be easily forgotten or strayed from when an 
opportunity presents itself that could have the trader skewing 
from their original purpose.  No.  The business plan is a written 
document that clearly outlines assets, liabilities and goals.

I'm not talking anything too complex that requires an accounting 
or business degree.  

Assets:  What's an asset as it relates to your trading account 
business plan?  Cash.  There, that's it for the asset category.  
Write that down right now.  This is your starting point for the 
business plan.

Goal:  What's you goal for this account?  So that I (Jeff Bailey) 
can keep things simple and be of use to several thousand 
subscribers, I'll talk percentage terms.  That way, a trader 
starting out with $5,000.00 or $500,000.00 can follow along.  
Let's say our goal is to generate a 20% return for this account 
on an annual basis. (You plug in your own number, but it MUST be 
a reasonable goal).  Write down that goal.

Goal #2:  Think of a "hard asset" or a vacation, or a second home 
for family vacation getaways, or a college education for the 
kids.  Now, write down on a piece of paper what that goal 
actually is.  No matter what it is, find a picture that resembles 
this goal, or something you view in your mind's eye as that goal 
and tape it to your trading terminal.  This is the proverbial 
light at the end of the tunnel that your business plan looks to 
achieve.  Seeing it each day will keep you on course.  

Time:  Based on a 20% annual rate of return, a default for time 
period would be one year.  However, a trader that sets up a 
trading account that has a $5,000.00 asset base may have a goal 
of 20% annual, but 5-year time goal.

Time #2:  Take the annual rate of return you look to achieve and 
divide by 2.  Write it down.  This will need to be the benchmark 
included in your semiannual report to shareholders to show them 
you're on track to meet the stated objective of the business 
plan. 

Time #3:  Take the annual rate of return you look to achieve, 
divide by 4.  Write it down, as you will have to report results 
against this benchmark to shareholders.

Time #4:  Take the annual rate of return you look to achieve, 
divide by 12.  Write it down, as you will have to review this 
benchmark, to make sure that you're on track to meet "time #3", 
"time #2" and eventually "time" itself.

Time #5:  Take the annual rate of return you look to achieve, 
divide by 52.  Write it down, as you may want to review this 
benchmark with you senior management on a weekly basis to see if 
there are any short-term trends that need to be more closely 
monitored.

OK.  So far you've listed your available company asset, the 
stated weekly, monthly, quarterly, semiannual and yearly return 
objectives that if achieved as to the stated business plan will 
get you what you want when you want it.

All of the above must be written as it will need to be reviewed 
when the trading account, your business, is reviewed on a weekly, 
monthly, quarterly, semiannual and yearly basis.  This becomes 
the FOUNDATION of your business.

Statement of Risk 

At some point, many companies call it quits and agree to merge 
with another company.  Some must simply cease operation as their 
product or technology becomes obsolete due to market trends, new 
technologies, or consumer preference.  Some must fold because of 
a flawed business plan that simply didn't take into account risk 
factors.

Risk comes in many forms.  For a stock and option trader, the 
business plan must clearly assess risk and the CEO running the 
account/business must understand the following and plan for it in 
the business plan.  We want to focus on an option trading account 
when discussing risk, but to properly establish risk limits, we 
need to tie the risk management back to stock itself.  After all, 
it is the price movement of the stock which has the GREATEST 
influence on an options price movement.  

The KNOWN risk factor in ANY option contract is that within a 
blink of an eye, the portion of cash asset that is exposed to a 
specific investment can be worthless overnight.  

Therefore, you the CEO must understand the importance of 
spreading risk and not exposing too much capital in any one 
investment or GROUPS/SECTORS, so that if that one investment or 
industry were to go to $0.00 overnight, the company could still 
execute its stated business plan goals and meet those goals by 
the current quarterly report to shareholders.

Risk #1:  What is the MAXIMUM amount of INITIAL capital exposure 
that will be allowed in any one investment.  A standard 
investment rule for a stock trader is that NO MORE than 10% of 
account capital should be risked in 1 stock, which means when 
fully invested, no more than 10 holdings can be present in a 
portfolio.  It's not only a general rule of thumb, but backed by 
Professor Earl Davis' studies of point and figure chart pattern 
probabilities that many of the bullish and bearish point and 
figure chart pattern probabilities will be found NOT PROFITABLE 
15.2% of the time, for an average loss of 9.0%, over a 3-month 
time frame.

While a 9% or 10% loss in the underlying stock investment itself 
can be partially controlled with a stop loss, it is still not 
uncommon for a stock to decline 7% in a single session, but have 
a 50% impact on a stock option contract.  While option leverage 
is viewed as "wonderful" it's the proper devised business plan 
that deals with the risk side of things.

Therefore, lets apply a 10% stop loss on every stock asset held 
in the account, and translate that to an option itself.  First we 
must return back to the asset base we are dealing with and build 
from there.  Lets assume we are working with a $10,000 account as 
this is a round number and easily divided or multiplied for a 
subscriber's account.

Assets = $10,000.00
MAXIMUM Risk Allowed per stock: 10% of asset, or $1,000.00
Risk 10% to stop loss: $1,000 * 0.10 = $100

Check Against Business Plan:  Can my business continue if I lose 
$100 in stock trade?

Now, the above calculation shows that before a stock purchase or 
short is initiated, the risk associated with the trade is 
immediately known and by having this risk assessed in the 
business plan leaves no room for surprise.  While a company can 
certainly continue to do business despite a 1% loss of account 
capital ($100 is 1% of $10,000), a company could still be 
expected to survive short-term on a 10% loss of capital ($1K is 
10% of $10K).

But can an options account, where $10,000, evenly spread in $1K 
portions among 10 different investments stand as good a chance of 
surviving, even short-term if market moves 10%, takes the option 
out of the money, prior to option expiration?  The answer is.... 
probably not.

However, using the above "asset," "MAXIMUM Risk Allowed per 
stock" equation, the options trader than understand "risk to 
zero" can better understand risk and plan for it in his/her 
business plan.

Once a trader comes to grips with individual stock risk as 
described above, the trader then carries those same risk 
assessments forward to the option market.  Every trader will have 
their own stated asset and goal amounts that they can plug into 
the equation.  For the most part, the business plans stated goals 
do not change.  They may be fine tuned from time to time, but 
successful businesses try NOT to deviate from their business 
plan.

You may not know this, but in the mid-1980's, Mobil Oil 
Corporation radically redefined its business plan venture outside 
of its expertise and bought the department store giant Montgomery 
Wards.  Several years later, Mobil Oil sold that asset for a 
large loss, and went back to its original business plan of 
exploring, developing and producing fossil fuels.  I worked for 
Mobil at the time, on the petroleum side and we always referred 
to Montgomery Ward as "Monkey Ward" as it constantly accounted 
for losses on the quarterly income statement, weighed on our 
401Ks and had our exploration/production budgets always under 
pressure.

Risk #2:  If a stock trader's business plan with $10,000 in 
assets can ONLY expose 10% of capital ($1,000) to an investment, 
with the understanding that it too can go to $0.00 overnight, 
even with a 10% stop loss in place (no guarantee a stock won't 
even gap 15% below or above a stop loss order) then the option's 
trader can determine exposed risk and trade size similarly.

Full Cash Position = $1,000 stock value.
Stock Price/Value = $20.00
Full Stock Position = 50 shares
Equivalent Option = 1 contract (1 contract = 100 shares)

If an option trader fully understands the RISK of trading STOCK 
and applies that RISK to the OPTION itself, then an OPTION trader 
with a $10,000 account with the a business plan outlined 
previously would purchase just 1 option contract as just 
calculated, will have fully addressed RISK, and will actually 
have greater profit potential than if trading the stock itself.

For instance.  Intel (NASDAQ:INTC) $18.68 -2.75% would have a 
bullish or bearish trader looking at 53 shares ($1K / $18.68 = 
53.5).  The options trader following his/her business plan might 
then look at 1 contract of the in the money Jan. 17.50 calls 
(NQAW) at $2.45 ($245.00) or the in the money Jan. 20 puts (NQMD) 
$2.35 ($235.00).  Either trade would be approximately 2.4% of the 
total $10,000.00 asset.  No stop on the option is needed as 
MAXIMUM risk has already been accounted for.

Argument:  But I can't make any money with just one contract!

Reply:  Options were developed as a risk management tool.  Not a 
tool for speculation.  If Intel were to rise 15% in the next two 
months (is a 15% rise in two months reasonable?), a stock trader 
risking $1,000 capital would see a $150 gain if closed at the 15% 
gain level.  Only by risking MORE than his stated business plan 
(now deviating from plan and over leveraging) could he expect 
more, but then be disregarding risk and potentially jeopardizing 
his business.

However, a 15% rise, on or before January expiration, from 
current levels would have the stock trading $21.48.  As such, a 
$17.50 call would be worth $3.98 and represent a 62% gain from 
$2.45 call entry.

Statement of needed risk/reward

Traders now have a full understanding of risk.  But does the 
options trade you're looking at make sense?  In the above Intel 
$17.50 call example, the options trader that believes there is 
only 15% price appreciation in the underlying stock finds he/she 
is risking $2.45 to make $1.53, which excludes any type of 
premium value the option may hold prior to expiration.

Does risking $2.45 to potentially make $1.53 make sense?  Let's 
check your business plan and see if it does.

Oh... we haven't addressed reward.  While we have a stated GOAL 
for the account, we don't have any way to test our trades to see 
if they make sense.

Now... I just through out the 15% price appreciation in Intel to 
show the impact of option pricing based on stock price movement.  
There's nothing that says a stock you look to trade doesn't have 
greater % price appreciation or less volatility premium in the 
option your trading.

However, once again, we really need to revert back to the STOCK 
itself, and not the option.  This is particularly IMPORTANT to a 
trader that relies on technical analysis.  

I know of no trader that draws trends, regression channels, or 
moving averages on stock option charts to see if the option is 
worth buying.  Every option trader I know of starts with the 
stock itself, measure risk/reward in the stock, establishes a 
target and then determines what option makes sense.

In general, and we all have our own level of risk tolerance and 
reward goals that have been outline in our own trading plan, but 
a rule of thumb this that a trade must have a MINIMUM $2 reward 
for every $1 risk.  Many prefer a $3 reward for every $1 risk in 
an underlying EQUITY trade.

A trader must then write down in their business plan EXACTLY what 
the minimum risk/reward for ANY trade must hold.  This creates 
DISCIPLINE and won't allow the trader to skew from his/her stated 
business plan.

How many times have we found ourselves risking 100% in an option, 
to potentially get a 2% rise in the stock, which would actually 
end up equating to a 10% gain in the option?  More times than 
not, the trade results in a loss.  The options trader that 
initiates this type of trade often times over leverages in the 
trade, after all he's only looking for a little stock price move, 
but when the stock fall 1% in an hour, the option is stopped out 
for a heft loss of 10% and in an over leveraged it takes just 
about 10 of those to wipe out the account.

A WRITTEN statement of risk/reward is needed.

Think about it.  When Intel establishes a $200 million project 
budget for a new product, that $200 million is risk and as soon 
as the check is written, the money is kissed off for a loss until 
the product eventually makes it to market.  The project most 
likely has some type of potential reward established that was 
based on market research or customer interest for the project to 
pay out.  Intel has made bad investments where product never came 
to market, but it has also made investments that have paid 10-
fold of capital invested.  The only projects that gets budget 
capital are those that meet some type of stated risk/reward.

For a stock or options trader, the same is true.  The trade being 
considered has to meet some type of risk/reward model that over 
time if implemented with discipline has the business reaching its 
end-goal as stated in the business plan.

So now what?

You now have a written business plan that puts you on the path of 
a more successful options trading account.

Traders will ask me.... "Jeff, what do you think of going long 10 
January $17.50 calls in XXX with the stock breaking out here at 
$18?"

In the future, I'll answer be better able to answer... that 
depends on your business plan and what it says about your assets, 
goals, time, and risk/reward criteria.

One important thing that I left you hanging with is how to really 
be able to assess risk/reward in a stock.  That's a topic for 
another "ask the analyst" column.  

If you do ask for an article on this, then get ready for some 
point and figure charts, bullish % charts and bar charts with 
retracement.  Then, those with some written business plans will 
see a lot of things come together.  You'll also be much better 
suited to be able to use the OI play list and see if a trade 
makes sense as it relates to YOUR business plan.

If you're a serious stock or option trader, and you haven't 
considered the importance of really sitting down and putting 
together a business plan, then please consider what we've talked 
about.

If you've got some questions about this article, then send me an 
e-mail and in the subject line of that e-mail, use the " Your 
account is your business" title.

When I got my first job as a professional trader, I had to write 
a business plan like that above and turn it into not only my 
supervisor, but also the owner of the trading firm as it was his 
capital that I was trading.

There were no questions as to "what I was doing" holding a trade 
that didn't fit the business plan.  

Some days I'd have a great trading day going and I'd bump into 
the owner of the firm at the coffee pot.  On the days I was 
taking money from the market and the bottom line of HIS account 
was growing, he would be all smiles and very talkative.  The next 
day, if I was giving some of HIS money back to the market, there 
wasn't much said at the coffee pot.

But, each month, I'd get my salary and % of trading profits from 
the account as I made darned sure I was on track to not only meet 
the stated annual goal of my business plan, but the monthly goal 
as well.  Sure, there would be times when I was "so above goal" 
that I'd take a little more risk, but when I was trading at or 
below goal, man was I a focused and very selective trader.

Sometimes the trading desk supervisor would say... "Jeff, what 
are you trading that for?"  If I couldn't convince him that the 
risk I was taking, and loss currently being found, wasn't worth 
the potential reward, I wouldn't even attempt to come up with an 
answer.

A business plan that doesn't assess risk


 

I'm not picking on CMGI and their business plan, but perhaps this 
chart speaks not only to a business plan that was good, but one 
that also went bad.  What went bad?  The company was 
OVERLEVERAGED in one industry; trying to monitor and hatch too 
many chicks from the incubator.  Just like a call or put option, 
there are market factors that can have an option becoming 
worthless overnight.  An option trader without a good business 
plan that does NOT account for "risk" and attempts to try and 
monitor too many trades/chicks with stops is subject to failure.  

Like I said, I'm not picking on CMGI.  Hey, their stock is still 
trading, while there's a heck of a lot of other Internets that 
have close up shop.

Some stock and option traders think their account is 
"diversified" when they've got call options on 5 different stocks 
in the very same sector.  Or that their account is diversified 
when they are completely short/put the market, albeit in 10 
different stocks in different sectors.

Think about what YOU can add to your business plan that will help 
you better achieve your goal, but also protect your business from 
blowing up.  Things like, I will not trade stocks under $10, I 
will not trade bullish in stocks that trade below their 200-day, 
50-day and 21-day SMA's.  I will only trade 1/4 positions from 
the call side in stocks that trade ABOVE their 21-day SMA, but 
still trade below both their 50 and 200-day SMAs.  I will not 
trade out the money options in order to falsely attempt to 
mitigate risk.  I will only trade bearish 1/4 positions when the 
bullish % are bull confirmed and rising.  I will not initiate new 
positions in current month options as little time is given for 
the trade to work.  I will not trade "story stocks" unless the 
technicals appear to confirm the story and risk/reward criteria 
are still met.  I will not trade every OI "play of the day" as 
not all meet my stated business plan.  I will not trade every 
trade Jeff Bailey profiles in his intra-day commentary or market 
monitor, as he actually raised is right hand once and told me 
that not every trade he trades becomes profitable. 

Heck, I'd have had a larger retirement account when I left Mobil 
Oil if only their business plan had stated... "we will only 
explore, produce, and refine fossil fuels, as that's what Mobil 
Oil understands."

Jeff Bailey


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

==========================================
Market Watch for the week of November 18th
==========================================

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

Symbol  Company               Date           Comment      EPS Est

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

AAP    Advance Auto Parts    Mon, Nov 18  After the Bell      0.86
A      Agilent Tech Inc.     Mon, Nov 18  After the Bell     -0.12
GME    Gamestop Corp.        Mon, Nov 18  After the Bell      0.14
LOW    Lowe`s Companies      Mon, Nov 18  Before the Bell     0.40
MDT    Medtronic Inc.        Mon, Nov 18  -----N/A-----       0.34
NTT    Nippon Teleg and Tele Mon, Nov 18  Before the Bell      N/A
TOY    Toys R Us             Mon, Nov 18  Before the Bell    -0.15
VAL    Valspar               Mon, Nov 18  Before the Bell     0.66


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

ADI    Analog Devices Inc.   Tue, Nov 19  After the Bell      0.16
BJ     BJ's Wholesale Club   Tue, Nov 19  Before the Bell     0.37
CTMI   CTI, Inc.             Tue, Nov 19  After the Bell      0.14
DE     Deere & Company       Tue, Nov 19  Before the Bell     0.15
ERF    Enerplus Res Fund     Tue, Nov 19  -----N/A-----        N/A
HD     Home Depot Inc        Tue, Nov 19  Before the Bell     0.40
IPR    International Power   Tue, Nov 19  -----N/A-----        N/A
OOM    MMO2                  Tue, Nov 19  -----N/A-----        N/A
JWN    Nordstrom             Tue, Nov 19  After the Bell      0.15
ROST   Ross Stores, Inc.     Tue, Nov 19  Before the Bell     0.57
RY     Royal Bank of Canada  Tue, Nov 19  -----N/A-----       1.27
SKS    Saks Incorporated     Tue, Nov 19  4:00 pm ET         -0.03
SPLS   Staples, Inc.         Tue, Nov 19  Before the Bell     0.24
WFMI   Whole Foods Market    Tue, Nov 19  -----N/A-----       0.34
WSM    Williams-Sonoma       Tue, Nov 19  Before the Bell     0.10


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

APU    AmeriGas Partners     Wed, Nov 20  -----N/A-----      -0.59
BLI    Big Lots, Inc.        Wed, Nov 20  -----N/A-----      -0.05
CPRT   Copart                Wed, Nov 20  After the Bell      0.16
DCI    Donaldson             Wed, Nov 20  After the Bell      0.50
HPQ    Hewlett-Packard       Wed, Nov 20  After the Bell      0.22
TLB    Talbots               Wed, Nov 20  Before the Bell     0.62
TKA    TELEKOM AUSTRIA AG    Wed, Nov 20  Before the Bell      N/A


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

ADSK   Autodesk, Inc.        Thu, Nov 21  After the Bell      0.04
BKS    Barnes&Noble          Thu, Nov 21  Before the Bell     0.03
BGP    Borders Group Inc.    Thu, Nov 21  After the Bell     -0.02
BRCD   Brocade Comm Systems  Thu, Nov 21  After the Bell      0.07
CBRL   CBRL Group            Thu, Nov 21  Before the Bell     0.41
CHRS   Charming Shoppes      Thu, Nov 21  Before the Bell    -0.01
CLE    Claire's Stores       Thu, Nov 21  -----N/A-----       0.21
Z      Foot Locker, Inc.     Thu, Nov 21  Before the Bell     0.29
HB     Hillenbrand Ind       Thu, Nov 21  -----N/A-----       0.85
ING    ING Groupe NV         Thu, Nov 21  -----N/A-----        N/A
LTD    Limited Brands        Thu, Nov 21  Before the Bell     0.02
MRVL   Marvell Tech Grp LTD  Thu, Nov 21  After the Bell      0.13
PDCO   Patterson Dental      Thu, Nov 21  Before the Bell     0.41
PETC   PETCO Animal Supplies Thu, Nov 21  After the Bell      0.20
SCM    Swisscom AG           Thu, Nov 21  -----N/A-----        N/A
TKP    Technip-Coflexip      Thu, Nov 21  Before the Bell     0.23
VIP    Vimpel Communications Thu, Nov 21  Before the Bell      N/A


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

BFb    Brown-Forman Corp     Fri, Nov 23  Before the Bell     1.30
KKD    Krispy Kreme Doughnut Fri, Nov 23  -----N/A-----       0.16


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

Symbol  Company Name              Ratio    Payable     Executable

SBGA    Summit Bank Corporation   2:1      Nov. 18th   Nov. 19th
CHTT    Chattem Inc.              2:1      Nov. 29th   Dec.  2nd
BYFC    Broadway Financial        2:1      Nov. 30th   Dec.  2nd


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

It's a semi-quiet week on Wall Street.  We still have a several 
third-quarter earnings announcements trickling in.  The CPI report
comes out on Tuesday and the Leading Indicators report will be
out on Thursday.  

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

Monday, 11/18/02
----------------
None


Tuesday, 11/19/02
-----------------

CPI (BB)                Oct  Forecast:   0.3%  Previous:     0.2%
Core CPI (BB)           Oct  Forecast:   0.2%  Previous:     0.1%
Trade Balance (BB)      Sep  Forecast:-$37.3B  Previous:  -$38.5B


Wednesday, 11/20/02
-------------------
Housing Permits (BB)    Oct  Forecast:  1.710  Previous:   1.843M
Building Permits (BB)   Oct  Forecast:  1.698  Previous:   1.733M


Thursday, 11/21/02
------------------
Initial Claims (BB)   11/16  Forecast:   394K  Previous:     388K
Leading Indicators (DM) Oct  Forecast:  -0.1%  Previous:    -0.2%
Philadelphia Fed (DM)   Nov  Forecast:   -0.3  Previous:    -13.1
Treasury Budget (DM)    Oct  Forecast:-$51.3B  Previous:   -$7.7B


Friday, 11/22/02
----------------
None


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


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

I Hate It When This Happens
 
I worked myself into a state of bullish arousal watching the 
markets shake off bad new and close at the high of the day. They 
did this after warnings of a spectacular terrorist attack in our 
future, bad economic data and multiple tech downgrades. After 
looking at charts for several hours I am far from convinced it 
will stick. 


To read the rest of the Swing Trader Game Plan click here:
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Contact Support
The Option Investor Newsletter                   Sunday 11-17-2002
Sunday                                                      2 of 5

In Section Two:

Stock Pick: Storing Up a Big Bounce
Daily Results
Call Play of the Day: GNSS
Put Play of the Day: IDPH
Dropped Calls: NONE
Dropped Puts: MBI, ABK

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**********
Stock Pick
**********

Storing Up a Big Bounce

EMC - $6.33
Strategy: Long stock with put insurance

EMC is one of the many tech stocks that have dropped from 
exorbitant highs in the triple digit range, to single digits in 
less than two years.  While it was obviously overvalued at one 
time, it appears somewhat undervalued now.  The company is 
trading at just over $6 now, after bottoming at $4 in early 
October. While it has taken a hit, it is still the world's leader 
in network storage.  The company has $5 billion in annual sales 
and shows no signs of going away in the near future.  

The company's alliance with Dell continues to look bullish for 
the future.  EMC and Dell unveiled a new networked storage system 
called the Clarion CX 200. The new device can store 2.2 trillion 
bits of information and is the third product that has come from 
the EMC-Dell partnership.  It is aimed at mid-size companies, 
which is a revenue source EMC has been hoping to tap further 
into. It targets a $5 billion market, and establishes greater 
competition with Hewlett Packard.

EMC had been in a long down trend and a look at its point and 
figure chart shows that many of its past rebounds have been met 
with extended sell-offs, and none have been strong enough to 
establish a buy signal. However, for the first time in over a 
year, the recent uptrend has established a buy signal. The double 
top breakout came at $5.50 and the stock has tacked on a couple 
of boxes since. The current bullish vertical count is $14.75, 
which would make for an eventual target of more than twice its 
current value.  With so much bounce room after the sell-off of 
the last 18 months and the bullish action in the stock, the 
chances of EMC achieving this count in the next 12-18 months 
seems entirely reasonable, given its position at the top of the 
industry. 

A look at the daily chart shows the stock in a tightly defined 
upward channel.  It has pulled back to successively higher levels 
of support on three occasions in the recent rally and established 
its fourth higher top. The 200-dma of $8.14 looms just above and 
could give the stock some resistance.  Beyond that is a failed 
rally to $9.50 from the middle of July, which is the next likely 
hurdle. 

Because the Nasdaq has had such a big run and could experience a 
pullback, we would recommend the purchase of a protective put at 
the $5 strike, in case EMC fails the current rebound, which is a 
possibility if IT spending continues to decline. The April 5 put 
(EMC-PA), currently offered at 0.60, is a relatively inexpensive 
insurance policy for the stock and can be used for downside 
protection.

Option 1: Purchase EMC stock at the current level and purchase 1 
April 5 put for each 100 shares of stock.  If the stock is under 
$5 by April expiration, then exercise the put and sell the stock 
at $5, closing the position.

Option 2: Purchase EMC stock at the current level and wait for 
the stock to approach the 200-dma of $8.14.  At that time 
purchase an April 7.50 put as downside protection in case of a 
rollover from that level.  This option provides less downside 
protection, but is more bullish initially, while locking in 
profit at a higher level and also letting the stock run on a 
breakthrough of the 200-dma. 

Option 3: Purchase stock without protection and sell the 
underlying if it falls below $5, breaking the trend of higher 
lows.



 


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

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

CALLS              Mon    Tue    Wed   Thu  Week

AIG      67.89   -0.34  -0.36  –0.38  1.50  3.74  New, breakout
BBOX     46.82   -2.62   0.98   0.56  1.73  1.31  New, earnings
CEPH     55.71    1.65  -0.70  -1.71  1.31  1.26  support at $55
FFIV     13.18    0.06   0.49   0.94  0.08  2.08  New, $12 bounce
FRX     105.75    0.05   0.92  –0.50  4.05  5.75  New highs
GNSS     17.17   -0.62   0.41   0.43  1.40  3.02  New, 200-dma
HOV      34.00   -0.66  -0.85   0.48  2.06  1.29  PnF reversal


PUTS               

ABC     65.01    -1.38   0.03  –0.16 –2.63 –2.14  oversold bounce
ABK     57.80     0.09  -0.11  –1.03 –0.64  0.38  Drop, rebound
GE      23.86    -0.54  -0.45   0.19 –0.10 –0.89  Downgrade
IDPH    40.36    -1.07   0.29  -0.06 –0.10 –2.83  New,PnF support
MBI     40.68    -0.33  -0.88  –2.75  1.21 –1.77  Drop, bounce 
PG      87.28    -0.35  -1.07  -0.08  0.43  0.68  down trend line


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

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

GNSS - Genesis Microchip - $17.17 +0.87 (+2.97 for the week)

See details in play list




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

IDPH – IDEC Pharmaceuticals $40.36 (-1.83 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
^^^^^

None


PUTS
^^^^

MBI $40.68 +0.97 (-2.02 for the week) MBI has recovered from its 
big drop with two straight days of strong upside action. 
Thursday's bounce took the stock as high as $40.94, before it 
pulled back, eventually failing under $40.  While we would have 
recommended entry if it found resistance under $40, it never 
seemed to quite hold under that level.  Today, it rallied into 
the close and established a series of intraday higher highs and 
higher lows.  The stock closed on its highs, indicating there 
were more purchasers looking for more stock over $40.  The 
breakdown we were attempting to capture appears to be over for 
the moment, and we are closing the play and looking for a better 
opportunity.   Thursday's high of $40.94 and today's high of 
$40.68 may indicate some resistance at $41 and traders who wish 
to hang on to the play can look to that level to indicate further 
bullishness, or a possible rollover. 

---

ABK $57.80 (+0.27) After breaking down below its 50-dma last
week, our ABK play was looking like a winner.  But when the
bears couldn't sustain a breakdown under the $56 support level,
the stock saw some serious buying interest on Friday.  After a
brief dip under support, the stock moved strongly higher, coming
to rest right at the 50-dma again.  While this could be just an
oversold rebound, we don't want to take the chance following
such a sharp, volume-backed advance.  If still holding open
positions, use a decline back near support next week as an
opportunity to exit the play at a better price, or else exit on
a rally back over the $58 level.  


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

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

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

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

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

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

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


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


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

Please read our disclaimer at:
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The Option Investor Newsletter                   Sunday 11-17-2002
Sunday                                                      3 of 5

In Section Three:

New Calls: AIG, FFIC, GNSS, BBOX
Current Calls: CEPH, FRX, HOV
New Puts: IDPH


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option executions

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

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

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

AIG – American International Grp. $67.89 (+3.42 last week)

Company Summary:
Engaged in a broad range of insurance and insurance-related
activities through its subsidiaries, AIG's primary focus is on
its general and life insurance businesses.  Additionally, the
company is growing its presence in financial services and asset
management.  Other operations include auto insurance, mortgage
guaranty, annuities, and aircraft leasing.  With operations in
130 countries, AIG generates more than half of its revenues
outside the United States.

Why We Like It:
The longer a trend is in effect, the stronger it becomes.  Not
only that, but when a trend has been in place for a long time,
the breakout from that trend tends to be all the more powerful.
With all the concerns surrounding the Insurance sector in recent
months, there hasn't been much for the bulls to hang their horns
on as the Insurance index (IUX.X) has languished in a pattern of
lower highs.  But with the political changes in Washington,
terrorism insurance legislation should remove a big chunk of the
risk that has been priced into the sector of late.  That
certainly seems to be the message being sent by investors in AIG,
as they have achieved some impressive goals in the past few
weeks.  The past month has essentially seen the stock trading
sideways, as it has been oscillating on both sides of the
descending trendline that has been pressuring the stock for the
past year.  Then the dip earlier this week actually found support
at that trendline and AIG launched higher over the past 2 days,
taking out the $66 resistance level and 200-dma as resistance
levels in one swift move.  Not only was the price move on Friday
impressive, but it came on volume well above the ADV.  AIG came
to rest just below $68, which is the site of the August highs.
A continued breakout above this level can be used for momentum
entries, if that fits your risk profile.  Better entries would
come from a brief pullback to confirm the $66 level as newfound
support.  The $64.50 level is now even stronger support and a
rebound from that level can be used for aggressive entries on a
more substantial pullback.  Aside from brief intraday dips, the
$63.50 level has been serving as strong support for the past 2
weeks, so that is the initial site of our stop.

BUY CALL DEC-65*AIG-LM OI= 8164 at $4.90 SL=3.00
BUY CALL DEC-70 AIG-LN OI= 5067 at $1.95 SL=1.00
BUY CALL JAN-65 AIG-AM OI= 7954 at $6.00 SL=4.00
BUY CALL JAN-70 AIG-AN OI=23062 at $3.10 SL=1.50

Average Daily Volume = 6.43 mln


---

FFIV - F5 Networks $13.18 (+1.88 last week)

Company Summary:
F5 Networks is a provider of integrated Internet traffic and
content management solutions designed to improve the
availability and performance of mission-critical Internet-based
servers and applications.  The company's products monitor and
manage local and geographically dispersed servers and
intelligently direct traffic to the server best able to handle
a user's request.  FFIV's content management products enable
network managers to increase access to content by capturing and
storing it at points between production servers and end users,
while ensuring that newly published or updated files and
applications are replicated uniformly across all target servers.

Why We Like It:
The rally off the October lows has clearly led by the Technology
sector, with leadership roles being filled first by the
Networking index (NWX.X) and then by the Semiconductor index
(SOX.X).  The NWX is up an astounding 67% from its October lows
and after a brief profit-taking pullback, looks like it is ready
to charge even higher.  The performance of FFIV though, makes the
NWX's gains look pale by comparison.  After bottoming near the
$6.50 level in early October, the stock has clawed its way
through numerous resistance levels, moved above all of its
shorter-term moving averages and is closing in on the venerable
200-dma at $13.68.  With last week's advance through the $13
level, the stock is now up more than 100% in the past 6 weeks.
If the PnF chart has anything to say about it, the party is just
getting started.  The stock is on a strong PnF Buy signal, with
a price target up at $22.50.  But first the bulls are going to
have to conquer the bearish resistance line at $13.50.  Expect
a pullback from this level before the stock is able to break out.
That pullback will allow us to enter the play at a more favorable
level.  Looking at the daily chart, support looks to be pretty
firm in the $11.00-11.50 area, as that is the area from which
last week's rally was launched.  Should FFIV defy the odds and
breakout without a pullback, momentum entries can be considered
on a volume-backed move above the 200-dma.  Place stops at $10.50,
just below the 20-dma, which should provide last-ditch support on
a severe pullback.

BUY CALL DEC-12*FLK-LV OI=287 at $2.00 SL=1.00
BUY CALL DEC-15 FLK-LC OI= 95 at $0.90 SL=0.50
BUY CALL JAN-12 FLK-AV OI=455 at $2.55 SL=1.25
BUY CALL JAN-15 FLK-AC OI=394 at $1.40 SL=0.75

Average Daily Volume = 496 K


---

GNSS - Genesis Microchip - $17.17 +0.87 (+2.97 for the week)

Company summary:
Genesis Microchip Inc. is a leading provider of image processing 
systems enabling superior picture quality for a variety of 
consumer and PC-display products. Featuring Genesis Display 
Perfection(TM) technologies and Emmy-award winning Faroudja video 
technology, Genesis system-on-a-chip solutions are used worldwide 
by display manufacturers to produce visibly better images across 
a broad set of devices including flat-panel displays, digital 
TVs, digital CRTs, projectors and DVD players. Genesis boasts a 
technology portfolio that features 135 patents, including analog 
and mixed signal System-on-a-chip design, DCDi(TM) deinterlacing, 
TrueLife(TM) video enhancement and IntelliComb(TM) video 
decoding. Founded in 1987, Genesis supports its leading-brand 
name customers with offices in the U.S., Canada, India, Taiwan, 
Korea, China and Japan. (source: company release)

Why We Like It:
While the semiconductor stocks have been on a tear lately, most 
have done so in areas of declining revenue and profits.   The 
flat panel monitor market is not one that is slowing down, like 
the others. The flat panel monitor business is expected to ship 
6.3 million units in 2002, but as many as 97 million in 2005.  
The projector market, used by consumers and businesses, is 
projected to grow from just under 700,000 in 2001 to at least 12 
million by 2005.  Clearly, if an investor wants to ride the chip 
wave, a company in a fast growing market is the type of chip 
stock to bet on. 

Genesis has been breaking out on both the daily and point and 
figure charts, since bottoming at $5.64 in August.  The stock has 
set a series of higher highs and higher lows since then, with a 
pullback at the beginning of October appearing as a possible 
double bottom.  The stock formed a bullish catapult on the PnF 
chart, which was a double top formation, following a triple top 
back at $14.  The recent breakout added another double top, as 
the stock continues its bullish signals. The current bullish 
vertical count on the stock is $26, which was established on its 
triple top breakout.  The fact that it has pulled back and found 
support repeatedly since then underscores the bullish sentiment.  
The most recent run has taken it just below the 200-dma of 
$17.38.  We would use a trade over that level to initiate the 
long play.   An alternative entry would be a pullback to support 
just above the recent high of $15.80.  There will likely be some 
resistance at $20, a gap down level in May, and above at $23.  
We'll place our stop at $13, which would constitute a lower low 
and signal a break in the current pattern. 

BUY CALL DEC-15.00* QFE-LC OI= 3754 at $3.20 SL=1.60
BUY CALL DEC-17.50  QFE-LW OI= 1109 at $1.90 SL=1.00
BUY CALL MAR-15.00  QFE-CC OI= 3754 at $4.90 SL=2.50
BUY CALL MAR-17.50  QFE-LW OI=  209 at $3.70 SL=1.90

Average Daily Volume = 1.96 mil


---

BBOX - Black Box - $46.82 +0.14 (+1.43 for the week)

Company Summary:
Black Box is the world's largest technical services company 
dedicated to designing, building, and maintaining today's 
complicated network infrastructure systems. Black Box services 
clients of all sizes in 132 countries throughout the world. 
(source: company release) 

Why We Like It:
BBOX  has followed the tech rally higher, since bottoming on 
October 9 at $28.30.  While many of the techs have posted 
disappointing results, yet still been swept along with the rising 
tide, BBOX actually surprised analysts by surpassing earnings 
expectations by 0.04 per share. The company was recently included 
in Business 2.0's ranking of the fastest growing tech companies.  
While there are a number of organizations that put out similar 
lists, this one required the stock to rank in the top 5% of over 
2000 tech companies with $50 million in annual sales and positive 
cash flow.   It was ranked based on stock market return and 
growth in earnings, revenue and operating cash flow, cash flow 
being the heaviest weighted criteria. . In another victory for 
the company, today it was selected to provide the cabling 
infrastructure for Xbox Live. 

The stock broke out on the point and figure chart back at $35, 
and extended itself, breaking through the bearish resistance line 
at $41 and achieving a high of $44.  It has experienced two 
pullbacks since then, each time rebounding to a higher high, and 
bouncing off of a higher low.   The current bullish vertical 
count is an astonishing $75, based on the breakout column of "X."  
While that target is an eventual one and we don't have such grand 
plans for the current move, we like the fact that it still has 
plenty of room to the upside before reaching its PnF target.  The 
stock has put together two consecutive double top breakouts and a 
trade of $48 would be a third.  While we will enter the play at 
the current level, conservative traders can look for two 
alternative entries as well.  The first would be a trade of $48, 
establishing a new buy signal on the breakout.  The second 
alternative would be a pullback to support at $45.   We are going 
to use a wide stop because of the recent pullbacks, and an entry 
just over $45 would be ideal for the risk reward ratio.   There 
is some resistance at $50, but our target will be the next level 
of $55.  Traders looking for confirmation before jumping back 
into the tech sector can also wait for a break above the August 
high of 1426 in the Nasdaq Composite (COMPX).  The index is once 
again approaching that high and the last time it was unable to 
penetrate, taking the sector a step back. In the current 
environment of extreme volatility, traders should not be afraid 
to look for confirmation from a stock's sector before opening a 
position.  Place stops at $43, to allow a pullback to establish 
another higher low. 

BUY CALL DEC-40 QBX-LH OI= 1539 at $7.90 SL=4.00
BUY CALL DEC-45*QBX-LI OI=  679 at $4.10 SL=2.05
BUY CALL MAR-45*QBX-CI OI=  109 at $6.90 SL=3.50
BUY CALL MAR-50*QBX-CJ OI=  151 at $4.40 SL=2.20

Average Daily Volume = 395 K



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

CEPH - Cephalon - $55.71 -2.70 (+1.28 for the week) 

Company Summary:
Founded in 1987, Cephalon, Inc. is an international 
biopharmaceutical company dedicated to the discovery, development 
and marketing of innovative products to treat sleep and 
neurological disorders, cancer and pain. Cephalon currently 
employs approximately 1,200 people in the United States and 
Europe. U.S. sites include the company's headquarters in West 
Chester, Pennsylvania, and offices and manufacturing facilities 
in Salt Lake City, Utah. Cephalon's major European offices are 
located in Guildford, England, and at Laboratoire L. Lafon in 
Maisons-Alfort, France. The company currently markets three 
proprietary products in the United States: PROVIGIL® (modafinil) 
Tablets [C-IV], GABITRIL® (tiagabine hydrochloride) and ACTIQ® 
(oral transmucosal fentanyl citrate) [C-II] and more than 20 
products internationally.

Why We Like It:
Cephalon pulled back today, erasing its gains of the last three 
days. Banc of America Securities advised clients to take profits 
in the biotech sector, as it saw little on the horizon to propel 
the group higher for the rest of the year, following a recent 
surge.  In one of the stranger downgrades, analyst Michael King 
said he was still optimistic about the outlook for 2003, however 
that it would be prudent for investors to cash in some chips.  He 
also cut his rating on Cephalon to market performer, citing the 
possibility that generic drug makers would seek to break CEPH's 
hold on its anti-fatigue drug Provigil.  In another head 
scratching statement, he said the generic challenge would likely 
not be successful, but could hurt the stock nonetheless. If we 
saw some weakness in the fundamentals here, we might close the 
play.  However, the company's increased sales and raised guidance 
has not changed.  It still posted product sales increases of 65% 
for last quarter and has seen strong demand for all of its 
products, leading to the 2002 increased guidance.  While Banc of 
America cut the stock's rating, Adams, Harkness & Hill called it, 
"an excellent quarter. The second in row they were very, very 
strong on total product sales." We certainly don't want to be 
blinded by dueling analysts and we will trade what we see.  For 
the moment, however, the downgrade seems based on flimsy 
reasoning and the stock held up over $55 on the pullback. $55 
would have been a PnF reversal into a column of "O" and until we 
get that decisive turnaround, we'll stick to our guns. Entry from 
this level provides for decent risk/reward, with a stop at $54, 
however traders that are leery of the downgrade should wait for a 
decisive move back above the recent high of $58.67.  

BUY CALL DEC-50 CQE-LJ OI=  213 at $7.50 SL=3.70
BUY CALL DEC-55*CQE-LK OI= 1894 at $4.10 SL=2.10
BUY CALL JAN-50 CQE-AJ OI= 2002 at $8.70 SL=4.30
BUY CALL JAN-55*CQE-AK OI= 3763 at $5.20 SL=1.90

Average Daily Volume = 2.11  mil


---

FRX – Forest Laboratories $105.75 (+5.60 last week)

Company Summary:
One of many specialty pharmaceutical companies, Forest
Laboratories develops, manufactures and sells both branded
and generic forms of ethical prescription and non-prescription
drug products.  . Some of the company's more notable products
are Celexa (for depression), Tiazac (for hypertension and
angina), and respiratory products Aerobid, Aerochamber and
Tessalon.  Additionally, the company produces Infasurf, a
lung surfacant for the treatment and prevention of respiratory
distress syndrome in premature infants.  FRX markets its
products directly to physicians using the company's own
specialized sales force.

Why We Like It:
While it started out as a mild day of consolidation, expiration
week wasn't enough to keep the bulls on the sidelines on Friday
and they pushed all the major averages to close in the green.  To
be sure, the gains were rather mild, but our FRX play managed to
creep to another all-time high.  Volume was on the light side, as
expected on an expiration Friday, but there certainly wasn't any
weakness to be seen in the stock.  Quite possibly, FRX will need
a bit of consolidation before venturing substantially higher, but
based on the recent price action as well as the fundamental
developments, FRX looks bullish here.  Recall our comments from
Thursday, that the company's Lexapro drug is seeing better
acceptance than initially expected.  Not only is this good for
the near term, it is also a bullish long-term development, as it
extends the life of the company's patent on its Celexa
anti-depressant drug line.  Apparently Merrill Lynch sees it that
way, as they reaised their earnings estimates for the company
Friday morning and raised their price target to $115.  Be
cautious about chasing FRX higher here following Thursday's
breakout above resistance.  The better approach will be to look
for a pullback and rebound in the $103.00-103.50 area.  This
level held as resistance for a couple weeks, and should now serve
as support, which we can use for initiating new positions on a
successful bounce.  Keep stops set at $102.

BUY CALL DEC-105*FHA-LA OI=1077 at $5.00 SL=3.00
BUY CALL DEC-110 FHA-LB OI= 637 at $2.50 SL=1.25
BUY CALL JAN-105 FHA-AA OI= 311 at $6.80 SL=4.75
BUY CALL JAN-110 FHA-AB OI= 378 at $4.30 SL=2.75

Average Daily Volume = 1.89 mln


---

HOV - Hovanian Enterprises - $34.00 +0.14 (+1.30 for the week)

Company Summary:
Hovnanian Enterprises, Inc. founded in 1959, is headquartered in 
Red Bank, New Jersey. The Company is one of the nation's largest 
homebuilders with operations in California, Maryland, New Jersey, 
New York, North Carolina, Pennsylvania, Texas and Virginia. The 
Company's homes are marketed and sold under the trade names K. 
Hovnanian, Washington Homes, Goodman Homes, Matzel & Mumford, 
Diamond Homes, Westminster Homes, Fortis Homes and Forecast 
Homes. As the developer of K. Hovnanian's Four Seasons 
communities, the Company is also one of the nation's largest 
builders of active adult homes. (source: company release)

Why We Like It:
Hovanian crept higher today, and the creep was just high enough 
to hit our entry point with a bullish point and figure reversal 
into a column of "X." We were looking for entry at $34 and the 
stock traded as high as $34.36. The PnF chart shows the formation 
of a double bottom, as well, with the recent rebound from $31 
just above the previous bounce at $30. The 200-dma has served as 
a rising trend line with amazing consistency, as the last four 
rebounds have come from that level, stretching all the way back 
to July.  The homebuilding sector, as measured by the Dow Jones 
Home Construction Index (DJUSHB) has established a similar 
pattern, although its 200-dma has served as resistance, rather 
than support. That index also reversed into a column of "X" with 
its rebound to 296 and tagged on another box as it crossed 
resistance at 300. The sector confirmation underscores the 
bullish sentiment in HOV. After recent monthly increases of 94% 
in September orders and 60% in October orders, the seasonal 
downturn as we head into winter should be trumped by the recent 
drop in interest rates. Congress passed a bill today which 
permanently simplifies requirements for FHA-insured mortgages for 
single-family homebuyers, repealed the 50 percent increase in the 
Ginnie Mae guarantee fee that was scheduled to go into effect in 
2004 and requires HUD to index the multifamily mortgage limits 
each year to the consumer price index, which, according to the 
Mortgage  Bankers Association of America, "enables builders and 
lenders to build more affordable rental housing in areas of the 
country where such housing construction has been stalled due to 
high costs."  All signs are pointing to continued strength in the 
housing sector, including the rise in median home price last 
quarter. We like entry on the play at the current level, however 
more conservative traders may want to target a pullback above 
$31, for better risk/reward on our $30 stop.  This may leave 
those traders on the sidelines, however, if the stock continues 
the current rebound.

BUY CALL DEC-30 HOV-LF OI=   90 at $5.40 SL=2.70
BUY CALL DEC-35 HOV-LG OI=  328 at $2.40 SL=1.10
BUY CALL FEB-30 HOV-BF OI=  148 at $7.00 SL=3.40
BUY CALL FEB-35 HOV-BG OI=  919 at $4.00 SL=1.90

Average Daily Volume = 754 K



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

CEPH - Cephalon - $55.71 -2.70 (+1.28 for the week) 

Company Summary:
Founded in 1987, Cephalon, Inc. is an international 
biopharmaceutical company dedicated to the discovery, development 
and marketing of innovative products to treat sleep and 
neurological disorders, cancer and pain. Cephalon currently 
employs approximately 1,200 people in the United States and 
Europe. U.S. sites include the company's headquarters in West 
Chester, Pennsylvania, and offices and manufacturing facilities 
in Salt Lake City, Utah. Cephalon's major European offices are 
located in Guildford, England, and at Laboratoire L. Lafon in 
Maisons-Alfort, France. The company currently markets three 
proprietary products in the United States: PROVIGIL® (modafinil) 
Tablets [C-IV], GABITRIL® (tiagabine hydrochloride) and ACTIQ® 
(oral transmucosal fentanyl citrate) [C-II] and more than 20 
products internationally.

Why We Like It:
Cephalon pulled back today, erasing its gains of the last three 
days. Banc of America Securities advised clients to take profits 
in the biotech sector, as it saw little on the horizon to propel 
the group higher for the rest of the year, following a recent 
surge.  In one of the stranger downgrades, analyst Michael King 
said he was still optimistic about the outlook for 2003, however 
that it would be prudent for investors to cash in some chips.  He 
also cut his rating on Cephalon to market performer, citing the 
possibility that generic drug makers would seek to break CEPH's 
hold on its anti-fatigue drug Provigil.  In another head 
scratching statement, he said the generic challenge would likely 
not be successful, but could hurt the stock nonetheless. If we 
saw some weakness in the fundamentals here, we might close the 
play.  However, the company's increased sales and raised guidance 
has not changed.  It still posted product sales increases of 65% 
for last quarter and has seen strong demand for all of its 
products, leading to the 2002 increased guidance.  While Banc of 
America cut the stock's rating, Adams, Harkness & Hill called it, 
"an excellent quarter. The second in row they were very, very 
strong on total product sales." We certainly don't want to be 
blinded by dueling analysts and we will trade what we see.  For 
the moment, however, the downgrade seems based on flimsy 
reasoning and the stock held up over $55 on the pullback. $55 
would have been a PnF reversal into a column of "O" and until we 
get that decisive turnaround, we'll stick to our guns. Entry from 
this level provides for decent risk/reward, with a stop at $54, 
however traders that are leery of the downgrade should wait for a 
decisive move back above the recent high of $58.67.  

BUY CALL DEC-50 CQE-LJ OI=  213 at $7.50 SL=3.70
BUY CALL DEC-55*CQE-LK OI= 1894 at $4.10 SL=2.10
BUY CALL JAN-50 CQE-AJ OI= 2002 at $8.70 SL=4.30
BUY CALL JAN-55*CQE-AK OI= 3763 at $5.20 SL=1.90

Average Daily Volume = 2.11  mil


---

FRX – Forest Laboratories $105.75 (+5.60 last week)

Company Summary:
One of many specialty pharmaceutical companies, Forest
Laboratories develops, manufactures and sells both branded
and generic forms of ethical prescription and non-prescription
drug products.  . Some of the company's more notable products
are Celexa (for depression), Tiazac (for hypertension and
angina), and respiratory products Aerobid, Aerochamber and
Tessalon.  Additionally, the company produces Infasurf, a
lung surfacant for the treatment and prevention of respiratory
distress syndrome in premature infants.  FRX markets its
products directly to physicians using the company's own
specialized sales force.

Why We Like It:
While it started out as a mild day of consolidation, expiration
week wasn't enough to keep the bulls on the sidelines on Friday
and they pushed all the major averages to close in the green.  To
be sure, the gains were rather mild, but our FRX play managed to
creep to another all-time high.  Volume was on the light side, as
expected on an expiration Friday, but there certainly wasn't any
weakness to be seen in the stock.  Quite possibly, FRX will need
a bit of consolidation before venturing substantially higher, but
based on the recent price action as well as the fundamental
developments, FRX looks bullish here.  Recall our comments from
Thursday, that the company's Lexapro drug is seeing better
acceptance than initially expected.  Not only is this good for
the near term, it is also a bullish long-term development, as it
extends the life of the company's patent on its Celexa
anti-depressant drug line.  Apparently Merrill Lynch sees it that
way, as they reaised their earnings estimates for the company
Friday morning and raised their price target to $115.  Be
cautious about chasing FRX higher here following Thursday's
breakout above resistance.  The better approach will be to look
for a pullback and rebound in the $103.00-103.50 area.  This
level held as resistance for a couple weeks, and should now serve
as support, which we can use for initiating new positions on a
successful bounce.  Keep stops set at $102.

BUY CALL DEC-105*FHA-LA OI=1077 at $5.00 SL=3.00
BUY CALL DEC-110 FHA-LB OI= 637 at $2.50 SL=1.25
BUY CALL JAN-105 FHA-AA OI= 311 at $6.80 SL=4.75
BUY CALL JAN-110 FHA-AB OI= 378 at $4.30 SL=2.75

Average Daily Volume = 1.89 mln


---

HOV - Hovanian Enterprises - $34.00 +0.14 (+1.30 for the week)

Company Summary:
Hovnanian Enterprises, Inc. founded in 1959, is headquartered in 
Red Bank, New Jersey. The Company is one of the nation's largest 
homebuilders with operations in California, Maryland, New Jersey, 
New York, North Carolina, Pennsylvania, Texas and Virginia. The 
Company's homes are marketed and sold under the trade names K. 
Hovnanian, Washington Homes, Goodman Homes, Matzel & Mumford, 
Diamond Homes, Westminster Homes, Fortis Homes and Forecast 
Homes. As the developer of K. Hovnanian's Four Seasons 
communities, the Company is also one of the nation's largest 
builders of active adult homes. (source: company release)

Why We Like It:
Hovanian crept higher today, and the creep was just high enough 
to hit our entry point with a bullish point and figure reversal 
into a column of "X." We were looking for entry at $34 and the 
stock traded as high as $34.36. The PnF chart shows the formation 
of a double bottom, as well, with the recent rebound from $31 
just above the previous bounce at $30. The 200-dma has served as 
a rising trend line with amazing consistency, as the last four 
rebounds have come from that level, stretching all the way back 
to July.  The homebuilding sector, as measured by the Dow Jones 
Home Construction Index (DJUSHB) has established a similar 
pattern, although its 200-dma has served as resistance, rather 
than support. That index also reversed into a column of "X" with 
its rebound to 296 and tagged on another box as it crossed 
resistance at 300. The sector confirmation underscores the 
bullish sentiment in HOV. After recent monthly increases of 94% 
in September orders and 60% in October orders, the seasonal 
downturn as we head into winter should be trumped by the recent 
drop in interest rates. Congress passed a bill today which 
permanently simplifies requirements for FHA-insured mortgages for 
single-family homebuyers, repealed the 50 percent increase in the 
Ginnie Mae guarantee fee that was scheduled to go into effect in 
2004 and requires HUD to index the multifamily mortgage limits 
each year to the consumer price index, which, according to the 
Mortgage  Bankers Association of America, "enables builders and 
lenders to build more affordable rental housing in areas of the 
country where such housing construction has been stalled due to 
high costs."  All signs are pointing to continued strength in the 
housing sector, including the rise in median home price last 
quarter. We like entry on the play at the current level, however 
more conservative traders may want to target a pullback above 
$31, for better risk/reward on our $30 stop.  This may leave 
those traders on the sidelines, however, if the stock continues 
the current rebound.

BUY CALL DEC-30 HOV-LF OI=   90 at $5.40 SL=2.70
BUY CALL DEC-35 HOV-LG OI=  328 at $2.40 SL=1.10
BUY CALL FEB-30 HOV-BF OI=  148 at $7.00 SL=3.40
BUY CALL FEB-35 HOV-BG OI=  919 at $4.00 SL=1.90

Average Daily Volume = 754 K



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The Option Investor Newsletter                   Sunday 11-17-2002
Sunday                                                      4 of 5

In Section Four:

Current Put Plays: ABC, GE, PG
Leaps: Back To Normal?
Traders Corner: The Couch Potato Portfolio – The Battle of the 
Bulge!


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

ABC – AmerisourceBergen Corporation $65.01 (-1.99 last week)

Company Summary:
AmerisourceBergen is a pharmaceutical services company dedicated
solely to the pharmaceutical supply chain.  The company markets
its products and services to hospital systems (hospitals and
acute care facilities), alternate care customers (mail order
facilities, physicians' offices, long-term care institutions and
clinics), independent community pharmacies, and regional
drugstore and food merchandising chains.  ABC also provides
outsourced pharmacies to long-term care and workers' compensation
programs.  ABC perates in two segments: Pharmaceutical
Distribution and PharMerica.  The Pharmaceutical Distribution
division is primarily the company's wholesale and specialty drug
distribution business, and PharMerica is the company's
institutional pharmacy business.

Why We Like It:
Just like clockwork, ABC bounced from the $63 support level on
Friday.  Recall from our initial writeup, that an immediate break
below that level was very unlikely due to the fact that it was the
site of the bullish support line on the PnF chart.  Friday's
rebound was just about what we expected, as it stalled out near
the $65.50 level and came on rather tepid volume compared to the
past couple weeks.  If this is in fact just a weak oversold
bounce, then it ought to run out of steam early next week either
in the $66-67 area, or possibly as high as $68 if the broad market
really gets moving.  Breaking above the $68 level would break the
recent string of lower highs, making it the ideal location for our
stop.  There's no need to hurry into new positions in ABC, as we
want to wait for this rebound to run its course.  Look for a
rollover from resistance before initiating new positions.  Traders
that want to enter on a breakdown will need to wait for a decisive
break of the $62.50 level before playing.  Regardless of entry
strategy chosen, look to harvest gains on a decline into the
$57-58 area, which is the site of the July lows.

BUY PUT DEC-65*ABC-XM OI=522 at $3.70 SL=2.25
BUY PUT DEC-60 ABC-XL OI=145 at $1.95 SL=1.00

Average Daily Volume = 1.23 mln


GE - General Electric $23.86 (-1.24 this week)

Company Summary:
As one of the largest and most diversified industrial companies
in the world, GE's products include major appliances, lighting
products, industrial automation equipment, medical diagnostic
equipment, electrical distribution and control equipment and
power generation and delivery products.  Additionally, GE
provides commercial and military aircraft jet engines,
locomotives and nuclear power support services.  Through the
National Broadcasting Company (NBC), GE delivers network
television services, operates television stations and provides
cable, Internet and multimedia programming and distribution
services.

Why We Like It:
Fortuitous timing makes all of us look like geniuses from time to
time, and our GE play certainly did that on Friday.  While price
action wasn't anything to get excited about, the news was.  JP
Morgan downgraded the stock to Underweight, saying they expect a
'very messy' Q4 result amid investor questions on earnings
growth, the credibility of forecasts and the mounting problems
with shoring up the balance sheet at the GE Capital unit.  The
analyst also lowered 2003 earnings estimates from $1.70 to $1.60.
That wiped out the big gains from yesterday, gapping the stock
down to the site of its recent lows near $23.50.  The bid in the
broad market helped to lift the stock higher throughout the
session, but GE still ended the day down more than 2.6%.  In
retrospect, yesterday's bounce was a solid entry into the play,
especially as it faded in the afternoon.  Now we're looking for
either another failed rally below the $25 level or a breakdown
under $23.40 as potential entry points.  Should the broad market
continue the Friday rally next week, then we're likely to get
that rollover at a higher level.  Despite Friday's downgrade, the
lift off the lows demonstrated that the rising tide (broad market)
will lift even those boats with lots of holes in the hull (GE).
So look for weakness in the broad market to confirm a rollover in
GE before initiating new positions.  Based on the downgrade and
the recent price action, it seems safe to lower our stop to $26
this weekend.

BUY PUT DEC-25*GE-XE OI=22729 at $1.90 SL=1.00
BUY PUT DEC-22 GE-XX OI=20291 at $0.80 SL=0.40

Average Daily Volume = 28.7 mln


---

PG – Procter & Gamble $87.28 (-0.41 this week)

Company Summary:
Providing a broad range of consumable products, PG manufactures
cleaning, paper goods, beauty care, food and health care items
that we have likely all been using our entire lives.  From
toothpaste to facial tissue, laundry detergent to water filters,
and cosmetics to coffee, it is difficult to make a trip to the
grocery store without buying a handful of PG products.  The
company has been reorganized around global business units rather
than geographic regions and about half of sales come from
outside the US.

Why We Like It:
What do you know, a rising tide really can lift all boats.  After
languishing in the $85-87 range all week, the broad market
strength on Friday helped PG to break out of its doldrums in the
afternoon, clawing its way back over the $87 level.  The big
question is how much more fuel this lagging Consumer stock has
left in the tanks.  Based on the comments from Salomon Smith
Barney, not much.  The firm removed PG from their Recommended
list Friday morning, and lowered their view on consumer staples
from Market Weight to Underweight.  One item that does cause us
some concern is that the buying volume on Friday was the heaviest
seen in the past 2 weeks.  This could have just been the result
of expiration action, but we need to be aware of it nonetheless.
The descending trendline of the past four weeks is still very
much intact, looming in wait for the bulls just overhead at
$87.50.  This is the first likely point where the bears may put
a halt to this rise in price, although we may have to wait until
encountering firmer resistance in the $88-89 area.  A rollover
from resistance will make for the best entry opportunities, but
we need to see renewed weakness from the broad market before
getting our feet wet.  Momentum traders will need to remain on
the sidelines until PG violates its recent lows ($84.75) with
conviction (read: volume).  That breakdown will likely coincide
with pronounced weakness in the DOW, quite possibly a breakdown
back under the 8300 support level.  For now, keep stops set at
$89.  A close above that level would break the recent pattern of
lower highs and give us good reason to exit the play.

BUY PUT DEC-90 PG-XR OI=4261 at $4.40 SL=2.75
BUY PUT DEC-85*PG-XQ OI=3816 at $2.20 SL=1.00

Average Daily Volume = 4.13 mln



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*****
LEAPS
*****

Back To Normal?
By Mark Phillips
mphillips@OptionInvestor.com

If you're like me, that's the question you want answered with
respect to the VIX.  After spending more than four months in the
ozone, the fear index looks like its going to take another run
at dropping back into its historically normal 20-30 range.  I
certainly would welcome such a change, as these volatile swings
in the market are enough to drive me batty!  Look at the weekly
charts of the DOW, S&P 500 and S&P 100.  For all the large range
days we've had, the broad market has gone nowhere for the past 3
weeks.  The longer this range lasts, the more energy is stored up
for whatever move eventually follows.

The direction of that move is the $64,000 question.  In favor of
the bulls is the historical pattern of the November-April
timeframe being the best time of the year to be long stocks.
Additionally, we are now in the market-friendly portion of the
presidential cycle.  With the psychological benefit of another
interest rate cut and economic reports that are hinting at the
possibility of the economy not falling into the abyss, investors
have been ignoring waves of dismal company-specific bad news.  Add
in the fact that the VIX is threatening to break into its
traditional range once again (closing on Friday at 30.83 and below
the 200-dma for the first time in 5 months), and the bulls are
salivating at the prospects of the end of the bear market.

Don't worry, I'm not growing horns just yet.  There are going to
be bullish plays and bearish plays that we can take advantage of
in the months ahead.  But I see no signs that would lead me to
conclude that this bear market has come to an end or will do so
any time soon.  As we can all see from the daily news flow, the
fundamentals throughout corporate America are still abysmal, the
consumer is still mightily trying to hold up the entire weight of
the economy like Atlas, and valuations of most stocks are
ridiculously high.  But that doesn't mean this rally couldn't
extend for a bit.

I must admit, I'm in a bit of a quandary here.  I see a confluence
of bullish factors, as cited above.  But these factors are about
to run smack into the primary trend of this market and the cold
hard fact that there is no rational reason for it to go up other
than investors desperately want it to do so for a change.  I still
have my fur coat on, but in looking through a bunch of charts this
weekend, I see a lot of very healthy price breakouts.  The
breakouts are either following protracted downtrends or long
periods of consolidation.  Look at these daily charts, and I think
you'll see what I mean.  QCOM, AIG, FFIV, SNDK, GNSS, CAT and MSFT.
While not all of these stocks have broken out yet, those that
haven't are very close and an actual breakout looks like it could
have some solid follow through.

My point is that despite the fact that all of the Bullish Percent
charts are nearing overbought territory, there really isn't
anything (other than the weak fundamentals) to hint of any
sustained downside action in the near term.  Economic reports are
being ignored, analyst downgrades are being ignored and earnings
warnings are being ignored.  This market wants to go up, and all
it needs is enough buyers to get on board to provide the fuel for
the ride.  Of course, the bearish long-term trend hasn't been
broken and that is the primary near-term obstacle that the bulls
must overcome before any hopes of a Santa Claus rally can be
given serious consideration.  

Look at the SPX chart that I posted in this space last week.  The
SPX still has bearish Stochastics divergence working against it
and price is still below the 8-month descending trendline (now at
915).  Even if the bulls can clear this level, they have to
contend with resistance at 925 (November highs), 965 (August highs
and the September 2001 lows), the 200-dma (998) and than the top
of the 2-year descending channel at 1017.  Once above that final
level I'll be willing to concede that maybe the bear is losing
its grip on the market.  Until then, this remains another
bear-market rally.

That isn't to say that there isn't money to be made on the upside
between now and the end of the year.  We just have to be careful,
with the bulk of the risks now weighted to the down side.
Bullish percent readings are near overbought and weekly
Stochastics are just starting to tip over from overbought
territory. Aside from certain pockets of Technology
(Semiconductors, Wireless Telecom and Networking) that have
already soared beyond reasonable levels in my opinion, there
really hasn't been any leadership in the current market as the
same tired $$ rotate from sector to sector, or back and forth
between stocks and bonds.

Now that we've dissected many of the cross-currents in the broad
market, let's now turn our attention to our list of plays and
see what's shaping up there.


Portfolio:

LEN - Things were shaping up nicely in this bearish Home Builder
play, right up through Wednesday.  LEN fell to and rebounded
right from the $50 support level (actually dipping intraday to
$49.25) and has now spent the past 2 days rebounding with the
remainder of the market.  The strength of this rebound will
determine the longevity of the play.  We're lowering our stop
to $55, just above both the 20-dma and 200-dma.  It is
interesting that last week's rebound came to rest right at the
intersection of the 10-dma and the ascending trendline that had
provided support on the way down and should now be resistance.

JNJ - Zzzzzzz!  Wake up!!  If our JNJ play has put you to sleep
over the past couple weeks, you aren't alone.  I continue to be
amazed at the length of time the stock has been trading in a VERY
narrow range.  While the intraday swings have been a little
wider, the range of closing prices for the past 2 weeks is
$59.89-60.46.  That's what I call tight.  Either JNJ is storing
up its energy for a breakout, or a break down.  Quite honestly,
I don't know which, but I want to be ready for either.  A move
above $61.50 will open up the next range above.  But a drop
under the ascending trendline would be a clear signal to get
out.  For that reason, I'm getting aggressive with our stop
this weekend, raising it to $58.

NEM - If that big earnings-related drop early in the week got
you worried, then Friday's more than 4% advance had to have
lifted your spirits just a little.  I have to admit I was a
bit surprised to see it, but perhaps it was the by-product of
the hint of inflation in Friday's PPI report.  Whatever the
cause, Gold bounced strongly on Friday and the Gold stocks went
along for the ride.  Recall that the December Gold Futures
(GC02Z) contract continues to trade in a neutral wedge pattern
and we will need to see a bullish breakout and then a climb
over $330 and more importantly $335 (multi-year high), before
our NEM play is likely to gain any significant traction.  A
breakout in the GC02Z contract to new highs should have NEM
above $30 and challenging its own multi-year highs at $32.

SMH - Nobody ever said this play wouldn't be exciting.  In
fact, just last week I think I said I expected we still had
plenty of volatility in store.  The SMH play certainly provided
that in spades last week.  First a big selloff that took it
below $23, and then a late-week rebound that has the SMH
testing $26 resistance again.  We started out with a wide stop
to allow for some movement in the near-term and it appears that
was a wise choice.  Keep stops in place up at the $29.25 level.
Traders still looking for an entry will want to look for signs
of another rally failure up near the $27.00-27.50 level.

MO - This isn't the way I intended to get into the MO play, but
an entry strategy is an entry strategy.  The knee-jerk rebound
off the big selloff last week got us into the play.  See below
for further details.

Watch List:

GM - Finally, GM looks like it is going along with the rest of
the market to the upside.  Friday saw the stock getting back
over the $35 level, and it shouldn't take too much effort to get
it back into an acceptable range for new entries.  Let's hope
for a rally failure in the $37-38 area that corresponds to a
broad market rollover.

BBH - Biotechs are continuing to trade in a tight range, and this
can be clearly seen in the BBH chart, which wedged itself up near
the $89 level on Friday.  I would have been tempted to take an
entry if we had seen more weakness near the close.  As it is, the
market looks near-term bullish, and I expect we'll get an
opportunity to take an entry a bit higher up the chart.  My
preference would be for a rollover near $90, although even a
brief push up near $92-93 (the site of the August highs and just
below the 200-dma).  Either way, we want to stand aside from
taking new entries if the bulls are able to push through the $94
level on a closing basis.

Needless to say the next couple weeks are likely to give us some
better indication of the market's direction into the end of the
year.  Keep a sharp eye on the VIX and the behavior of the broad
market indices.  A rally that takes out recent resistance (8800
on the DOW and 925 on the SPX) without the VIX falling under 30
would be very suspicious in my opinion.  On the other hand, a
rally with the VIX falling back into its historically normal
range would tell me that the markets intend to give us our
Santa Claus rally.

If the above commentary sounds non-committal and confused, then
it is an accurate reflection of my current state of mind.  I
expect the market should roll over fairly soon, but I see enough
indications of strength (in the face of bad news) that I remain
unsure.  I want to trade the downside, but I will remain unbiased
and trade what I see, not what I believe.  Allow me to suggest
you do the same.

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  $ 7.60  +16.92%  $58
                 '05 $ 60  ZJN-AL  $ 9.10  $10.90  +19.78%  $58
NEM    10/30/02  '04 $ 30  LIE-AF  $ 3.90  $ 3.60  - 7.69%  $22
                 '05 $ 30  ZIE-AF  $ 6.10  $ 5.80  - 4.92%  $22
MO     11/13/02  '04 $ 40  LMO-AH  $ 3.90  $ 4.20  + 7.69%  $35
                 '05 $ 40  ZMO-AH  $ 4.80  $ 4.80  + 0.00%  $35


Puts:
LEN    10/02/02  '04 $ 50  KJM-MJ  $ 8.60  $10.60  +23.26%  $55
                 '05 $ 50  XFF-MJ  $11.20  $14.20  +36.79%  $55
SMH    11/04/02  '04 $ 25  KBS-ME  $ 5.00  $ 5.50  +10.00%  $29.25
                 '05 $ 25  ZTO-ME  $ 6.20  $ 6.80  + 9.68%  $29.25



LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
None


PUTS:
GM     10/27/02  $40-41        JAN-2004 $ 35  LGM-MG
                 $37-38        JAN-2005 $ 30  ZGM-MF
BBH    11/10/02  $88-90        JAN-2004 $ 85  KBB-MQ
                               JAN-2005 $ 80  XBB-MP


New Portfolio Plays

MO - Philip Morris $38.25  **Call Play**

First off, let me say that this is NOT how I envisioned entering
this play.  My expectations were for MO to gradually drift lower
for several weeks, eventually finding support near the $38 level
and then beginning to recover as the weekly Stochastics turned
up out of oversold territory.  Needless to say, that isn't what
happened.  MO spooked the market early last week, when management
stated that achieving previously announced growth targets would
be difficult to achieve given the more competitive marketplace
which will keep them from increasing prices this year.  Whoops!
That was good for a nearly $6 haircut on Tuesday as investors
fled the stock in droves.  But by the next day, MO had crawled
back above our $38 entry target, and on decent volume too.  I
think the current weakness will be relatively short-lived and MO
will get back on track.  But the problem is the fact that the
sharp drop last week put the weekly chart into the early stage
of Stochastics rollover.  We don't know if this will lead to a
significant price decline, but right now the chart does not look
encouraging.  If the picture makes you nervous, then I would pass
on the play for now, or else only commit 1/4 size positions.  I
think it's a safe bet that there will be a better entry available
over the near term, but hopefully it will occur above our stop at
$35, which is the site of some strong support.  Let me reiterate
that I do not see this as a great entry right now.  The primary
reason that we took an entry is because the stock delivered our
predefined entry criteria.  If you decide to follow along with
real money, understand the risks.

BUY LEAP JAN-2004 $40 LMO-AH $4.20
BUY LEAP JAN-2005 $40 ZMO-AH $5.70


New Watchlist Plays

None


Drops

None


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

The Couch Potato Portfolio – The Battle of the Bulge!
By Mike Parnos, Investing With Attitude

“What’s that bulge in my pocket?” you ask.  Yes, of course I’m 
happy to see you, but that bulge is made up of a lot of dead 
presidents rubbing against each other – 4,500 of them.

Three weeks ago we initiated the first CPTI portfolio with four 
positions.  Three of the positions were scheduled to expire at 
November expiration while the fourth is a December play.   
November expiration has come and gone.  However, the money has 
come and stayed! How sweet it is -- when you have a plan and it 
works!

The Breakdown
All three November positions expired worthless.  
1.  BBH Iron Condor – Closed at $85.75.  We wanted it to finish 
between $80 and $95 at November expiration.  Our risk was $3,750.  
We took in a credit of $1,250 on a ten-contract position.  That 
was so much fun we might just do it again.

2. TTWO Short Strangle – Closed at $28.82.  We wanted it to 
finish between $22.50 and $30 at November expiration.  Our risk 
was technically unlimited because the positions were uncovered, 
but about $5,000 was held as maintenance for the positions.  We 
took in a credit of $1,500 on a ten-contract position.

3. MMM Iron Condor – Closed at $129.50.  We wanted it to finish 
between $120 and $130 at November expiration.  It finished very 
close to the top of the range, but still below the $130 strike.  
The risk was $2,800.  We made a few adjustments earlier this 
week, twice buying shares and then reselling them when MMM 
violated $130 resistance and came back down.  On Thursday, we had 
to buy and sell shares again.  We took in a credit of $2,200 when 
we established the position.  It cost us about $.45 in slippage 
for our three round trip buys and sells.  Therefore, our credit 
is adjusted to a still impressive $1,750.
_________________________________________________________________

The total amount of premium we collected, and kept, from the 
three positions was $4,500 (less commissions) – and we never 
missed an episode of All My Children or Jerry Springer.  Our 
total amount at risk for the three positions was about $11,500.   
That makes the return on our risk about 39% -- for three weeks!  
Our fourth position, an ITM (in-the-money) QQQ strangle, will go 
through to December expiration.

Will that happen every month?  It’s unlikely.  Will it happen 
often?  Why not?  If we put on reasonable trades with defined 
risks and we know how to make the necessary adjustments, only 
truly bizarre market activity will get in our way.

You can see the specifics of the original trades by reading my 
October 27th column in the Traders Corner archive at:  
www.OptionInvestor.com/traderscorner/102702_1.asp
____________________________________________________________

So What Have You Done For Me Lately?
CPTI students, who followed the plan, made $4,500 in November, 
are never satisfied – and they shouldn’t be.   Hide that $4,500 
under the mattress for a rainy day (the rain will come – count on 
it).  

Like last month, we’ll start with a $50,000 trading account.  We 
will go on the assumption that you have other marginable 
securities in your account that will enable you to make necessary
adjustments on our established positions.  If your account is 
smaller or larger, you should adjust your position size 
accordingly. Now, let’s see what we can do to generate some 
Christmas spending money.

There will be a few familiar faces in these new December 
positions.  The stories are still good.  The integrity of the 
ranges is still valid.  There’s a school of thought that suggests 
that the longer a stock trades within a range, the more likely it 
is that it will break out of the range.  Maybe so, but I’m one of 
those “show me” guys – in trading too!  So, I figure “if it ain’t 
broke, don’t fix it.”    
_____________________________________________________________

Position #1: Iron Condor - Back By Popular Demand!
An Iron Condor is a credit position consisting of both a bull put 
spread and a bear call spread. The objective is that the 
underlying, at expiration, finish anywhere within the spread. 

Since it worked so well last month, let's use BBH (Biotech Index) 
again. It's currently trading at $88.27.  The support at $80 once 
again seems strong enough and resistance at $95 should give BBH 
enough room (15 points) to bounce around for the next five weeks. 
So we will: 
Sell 10 contracts of the BBH Nov. $80 puts @ $1.55
Buy 10 contracts of the BBH Nov. $75 puts @ $ .95
Sell 10 contracts of the BBH Nov. $95 calls @ $ 1.80
Buy 10 contracts of the BBH Nov. $100 calls @ $.80
 
The credit for our bull put spread is $.60 and for the bear call 
spread is $1.00. Total credit (and potential profit) for the 
position is $1.60. Risk is $3.40 ($5.00 - $1.60). Total margin 
requirement is $10,000 ($5,000 for each credit spread). The 
potential return on risk is 47%. 
______________________________________________________________

Position #2: Short Strangle - Taking A Chance
A Short Strangle is an unhedged position consisting of a short 
put and a short call with the same expiration month at different 
strike prices. TTWO is trading at $27.94 and has been in a 
trading range between about $22.50 and $30. We're going to see if 
it will stay in that range for the next five weeks. It has 12½ 
points to bounce around in for us to make maximum profits. 
So we will: 
Sell 10 contracts of the TTWO Nov. $35 calls @ $.55
Sell 10 contracts of the TTWO Nov. $22.50 puts @ $.50
 
The credit for our short strangle is a total of $1.05. The $1.05 
will be in our account on Monday and is the maximum amount of 
profit we can make. The risk is (are you ready?) unlimited. We're 
going to keep a close eye on the position and will be prepared 
adjust in case of any dramatic movement in either direction. Last 
month we used $30 as the upper band of our range, but this month 
we’ll expand it to $35 because we’ll be exposed for five weeks as 
opposed to three weeks last month. 
 
Our profit range is from $21.45 to $36.05. The margin requirement 
will be about $5,000.  The return on risk is about 21%.   More 
aggressive traders can sell the $30 call and take in $1.95 
instead of the $.55 for the $35 calls.
_____________________________________________________________

Position #3:  ITM Covered Call
This is not a typical CPTI trade, but it will give us a little 
variety and offer a decent return.  We may live to regret buying 
a stock without a protective put, but the cushion makes this look 
relatively safe.  Imclone (IMCL) is trading at $11.76.  It 
recently exploded out from a long consolidation.  It looks like 
it has decent support just below the $10 level.  
We will:
Buy 1,500 shares of IMCL @ $11.76
Sell 15 contracts of IMCL Dec. 10 call @ $2.60

If all goes well, and IMCL finishes over $10 at December 
expiration, our 1,500 shares will be called away at $10/share.  
We will receive the $10/share plus the premium we received of 
$2.60/share = $12.60.  Our cost was $11.76.  We will realize 
$.84/share x 15 contracts = $1,260.  It’s a return of 8.4% on 
our risk.
_____________________________________________________________

God gave men two ends - one to sit on and one to think with. Ever 
since then man's success or failure has been dependent on the one 
he used most. -- George R. Kirkpatrick

The secret of being a successful CPTI student is in knowing when 
to use which end.  Unfortunately, when God created the two ends, 
he forgot to include instructions in the kit.  That’s why the 
CPTI is here -- to help you learn which end is up.  

Let’s focus on our plan and be prepared for adjustments as they 
become necessary.  If we do, our ends will justify their means 
and we’ll be able to put a bulge in our other pocket too.  Then, 
when walking down the street, we’ll attract some attention.  
We’ll get some strange looks.  That’s fine.  They’ll just be 
jealous . . . and if they ever found out it was money, well . . . 
______________________________________________________________

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 


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The Option Investor Newsletter                   Sunday 11-17-2002
Sunday                                                      5 of 5

In Section Five:

Covered Calls: Trading Basics: More Q&A With The Editor
Naked Puts: Options 101: Trading Plan Q&A
Spreads/Straddles/Combos: A Positive End To A Volatile Week!

Updated In The Site Tonight:
Market Watch
Market Posture


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

Trading Basics: More Q&A With The Editor
By Mark Wnetrzak

This week we received some excellent questions about the strategy
of writing covered-calls.


Attn: Covered-Calls Editor
Subject: Covered-Call Exit/Adjustment Strategies

Hello Mark,

I have a bunch of covered-calls in my IRA's -- some from your
recommendations -- and they are doing great.  My objective was
to take the premiums and let them take the stocks on expiration.

Do you recommend rolling them out and up (some underlying issues
have done amazingly well) or should I stick to my original plan?

What do you do?

It's nice collecting premiums in IRA's since we can't sell naked
puts (or calls for that matter).

Thanks In Advance,

AS


Hello,

It appears you are doing well using the "total return" concept
that Larry McMillan adeptly describes in his original book,
"Options: As a Strategic Investment."  Therefore, my first
response is to ask: Why change?

When you roll-up (buy back your current call and sell a new call
at a higher strike), you increase your potential profit but give
up downside protection.  Your break-even point (cost basis) will
be raised by the amount of debit required to roll-up and this is
generally considered negative (putting more money on the table)
by many traders.  To reduce the debit in rolling-up, traders will
also roll forward (to a more distant expiration date), which ties
up capital for a longer period of time.

It is generally not advisable to roll up if a 10% correction in
the stock price cannot be withstood (though this percentage may
not be applicable to the more volatile stocks).

Investors who desire a higher potential return could also be more
aggressive by writing "out-of-the-money" calls or a combination
of OTM and ITM calls.  Remember, the approach you take depends on
"your" personal preference and your risk-reward tolerance, not
mine.

Good luck,

Mark W.


Attn: Covered-Calls Editor
Subject: Position selection - Fundamental vs. technical analysis


Mark,

I have been following your advice now for the last few months with
mixed success.  My approach has been to check the fundamentals on
the recommendations and I have tended to follow those that are
positive.  I am using Schwab's rating system, S & P's system, and
the First Call ratings.

It is my observation that a lot of your (CC) recommendations have
relatively average or poor fundamentals.  This week, for example
of the 7 recommendations, the best Schwab rating was D and there
were 3 that were rated F.  The prior week there were 4 C's, 3 D's
and 1 F.

I recognize that Schwab's ratings are not sacred and probably have
a somewhat longer time frame.

Since your track record has been very good, what am I missing?  Am
I putting too much emphasis on fundamentals?  Am I using the wrong
rating systems?  Coventry Health Care (NYSE:CVH), for example, was
very highly rated, but recently went into the toilet.  Does this
invalidate my system or was I just unlucky and this is just part
of the normal results that a certain percentage of the plays will
not work out?

Thanks in advance for you comments.

PH


Hello PH,

First and foremost, I am not a fundamentals-based analyst.  One of
the most common questions we receive from readers is, "Why do you
focus primarily on technical analysis, as opposed to a fundamental
evaluation of the candidates in the Covered-Call section?"

Most professional traders believe that the "tape" or chart will
reflect all of the known information and public opinion that
surrounds a particular stock or security.  In short-term option
trading strategies, the most important factor in selecting
profitable positions tends to be the technical health of the
underlying issue.

With the ITM covered-call strategy, we are not really interested
in the upside potential of a stock, but in the probability of the
stock to remain in a trend and stay above the break-even point.
This concept is supported by the fact that a trend will continue
until a change in character occurs.  In other words, a stock that
has remained above a 50-dma, or is trading in a lateral range, or
has solid support at a certain price, etc., "should" continue to
do so in the near future.

Lastly, there is risk of loss in all trading, which means that
a certain percentage of our picks will not work as expected.
Sadly, trends do change and usually at the most inopportune
moment.  Nobody can accurately foretell a stock's direction,
we can only hope to raise the odds in our favor.  If you are
interested in learning about technical analysis, the OIN bookstore
has an excellent list of authors.  One of my favorites is Stan
Weinstein's "Secrets for Profiting in Bull and Bear Markets."

Best Regards,

Mark W.


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

UAL     2.59   2.95   NOV   2.50  0.35  *$  0.26  16.8%
IMCL    8.16  11.77   NOV   7.50  1.25  *$  0.59  12.4%
MANU    3.17   3.65   NOV   2.50  0.85  *$  0.18  11.2%
REGN   15.21  16.05   NOV  15.00  1.25  *$  1.04  10.8%
WWCA    2.71   6.09   NOV   2.50  0.50  *$  0.29   9.5%
PCS     2.82   4.36   NOV   2.50  0.50  *$  0.18   8.4%
CKFR   16.39  17.35   NOV  15.00  1.95  *$  0.56   8.4%
SNDK   14.30  21.26   NOV  12.50  2.75  *$  0.95   7.1%
VOXX    7.40   8.29   NOV   7.50  0.45  *$  0.55   6.9%
SEPR    8.72   9.22   NOV   7.50  1.55  *$  0.33   6.7%
VSAT    8.47   9.50   NOV   7.50  1.40  *$  0.43   6.6%
BCGI   10.30  12.82   NOV  10.00  1.10  *$  0.80   6.3%
TMCS   18.14  24.50   NOV  17.50  1.80  *$  1.16   6.2%
MACR    9.15  11.13   NOV   7.50  2.00  *$  0.35   5.3%
GNSS   12.29  17.17   NOV  10.00  2.75  *$  0.46   5.2%
HAL    17.10  17.85   NOV  15.00  2.45  *$  0.35   5.2%
FDRY    6.02   8.65   NOV   5.00  1.35  *$  0.33   5.1%
MEDI   24.95  24.02   NOV  22.50  3.70  *$  1.25   5.1%
MCHP   23.18  26.10   NOV  20.00  4.20  *$  1.02   4.7%
HPQ    16.31  16.90   NOV  15.00  1.60  *$  0.29   4.3%
VRST   16.63  19.03   NOV  15.00  1.90  *$  0.27   4.0%
ISSX   19.19  22.19   NOV  17.50  2.00  *$  0.31   3.9%
MDCO   14.63  12.70   NOV  12.50  2.35  *$  0.22   3.9%
BCGI   11.26  12.82   NOV  10.00  1.60  *$  0.34   3.8%
CREE   14.98  21.15   NOV  12.50  2.90  *$  0.42   3.8%
MENT    7.50  11.21   NOV   5.00  2.70  *$  0.20   3.6%
IVX    12.95  12.40   NOV  12.50  0.80   $  0.25   3.0%
MU     17.30  13.87   NOV  15.00  2.85   $ -0.58   0.0%
TTN    13.02  10.45   NOV  12.50  0.85   $ -1.72   0.0%

SIMG    5.44   7.42   DEC   5.00  1.10  *$  0.66  11.0%
IMCL    8.97  11.77   DEC   7.50  2.15  *$  0.68   7.2%
USG     6.25   6.12   DEC   5.00  1.60  *$  0.35   5.5%
MDCO   14.33  12.70   DEC  10.00  4.90  *$  0.57   4.4%
IDCC   14.74  15.20   DEC  12.50  2.90  *$  0.66   4.0%
V      13.96  12.00   DEC  12.50  2.35   $  0.39   2.4%
OSUR    7.97   6.73   DEC   7.50  1.45   $  0.21   2.3%


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

Comments:

Expiration week offered another example of Murphy's Law as bad
news was ignored and downtrodden stocks rebounded with glee.
Both NVIDIA (NASDAQ:NVDA) and Campbell Soup (NYSE:CPB), which
were closed last week, bounced-back strongly, (sigh) the price
of discipline!  Not to mention expiration-day downgrades of
Micron Technology (NYSE:MU) (was Monday's violation of the 30-
dma telling us something?) and Titan (NYSE:TTN) - ouch!  But
what now?  The weekly "candles" in the DOW suggest a trend 
reversal.  Even the SP-500 looks suspect while the NASDAQ is
testing its 30-week MA (a key moment).  Can the Bulls continue
this rally off the October low or are we now headed lower?  As
always, next week should offer some more clues.  The key is to
be prepared and be ready to take action accordingly.  As for
December positions:  Vivendi Universal (NYSE:V) is testing the
late October low and should be monitored closely and OraSure 
Technologies (NASDAQ:OSUR) pulled-back as expected, but the
question is - will support hold?

Positions Closed: Coventry Health Care (NYSE:CVH), Campbell
Soup (NYSE:CPB), and NVIDIA (NASDAQ:NVDA). 



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

BRCM   15.45  DEC 12.50   RCQ LV  3.50 1170  11.95   35    4.0%
CTIC    8.60  DEC  7.50   CUC LU  1.50 971    7.10   35    4.9%
DCTM   18.13  DEC 15.00   QDC LC  3.80 33    14.33   35    4.1%
IDCC   15.20  DEC 12.50   DAQ LV  3.30 2151  11.90   35    4.4%
INHL    7.96  DEC  7.50   QNX LU  1.05 298    6.91   35    7.4%
RSTO    5.48  DEC  5.00   URF LA  1.05 355    4.43   35   11.2%
SEE    18.26  DEC 15.00   SEE LC  3.90 292   14.36   35    3.9%

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

RSTO    5.48  DEC  5.00   URF LA  1.05 355    4.43   35   11.2%
INHL    7.96  DEC  7.50   QNX LU  1.05 298    6.91   35    7.4%
CTIC    8.60  DEC  7.50   CUC LU  1.50 971    7.10   35    4.9%
IDCC   15.20  DEC 12.50   DAQ LV  3.30 2151  11.90   35    4.4%
DCTM   18.13  DEC 15.00   QDC LC  3.80 33    14.33   35    4.1%
BRCM   15.45  DEC 12.50   RCQ LV  3.50 1170  11.95   35    4.0%
SEE    18.26  DEC 15.00   SEE LC  3.90 292   14.36   35    3.9%


Company Descriptions

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

*****
BRCM - Broadcom   $15.45  *** A Change Of Character? ***

Broadcom (NASDAQ:BRCM) is a provider of highly integrated silicon
solutions that enable broadband communications and networking of
voice, video and data services.  Broadcom designs, develops and 
supplies complete system-on-a-chip solutions and related hardware
and software applications for every major broadband communications
market.  Broadcom's diverse product portfolio includes solutions
for digital cable set-top boxes and cable modems, various optical
networks, home networking, and etc.  On Friday, Broadcom announced
that it had reached a settlement with 3Com (NASDAQ:COMS) over a 
disputed promissory note.  Was that the reason for the rally on
heavy volume that started mid-week?  Who knows, but the move
above the October and early November highs suggests a change of
character in Broadcom.  Favorable speculation for those investors
who like bottom-fishing in the semiconductor sector.

DEC 12.50 RCQ LV LB=3.50 OI=1170 CB=11.95 DE=35 TY=4.0%


*****
CTIC - Cell Therapeutics  $8.60   *** Rally Mode! ***

Cell Therapeutics (NASDAQ:CTIC) is a biopharmaceutical company
committed to developing an integrated portfolio of oncology 
products aimed at making cancer more treatable.  One of their
lead products Trisenox, is in clinical trials to treat more
than 10 types and stages of cancer, including multiple myeloma,
myelodysplasia and chronic myeloid leukemia.  In addition to its 
marketed drug Trisenox, the company is also investigating cancer 
therapies using its PG-technology platform, which is a new way to
deliver existing chemotherapy drugs more selectively in an attempt
to improve the efficacy and delivery, and to reduce side effects.
Favorable results from several drug trials, a milestone payment
from Japan's Chugai Pharmaceutical Co. Ltd., and a recent upgrade
have Cell Therapeutics on the move.  We simply favor the bullish 
technical indications and our conservative position offers a way
to participate in the future movement of the issue with relatively
low risk.

DEC 7.50 CUC LU LB=1.50 OI=971 CB=7.10 DE=35 TY=4.9%


*****
DCTM - Documentum  $18.13 *** Stage I Base ***

Documentum (NASDAQ:DCTM) provides enterprise content management
software solutions that bring intelligence and automation to the
creation, management, personalization and distribution of vast
quantities and types of content, including documents, Web pages,
XML files and rich media, in one common content platform and 
repository.  DCTM's platform makes it possible for companies to
distribute content globally across all internal and external 
systems, applications and user communities.  Documentum's products
include site delivery services, content personalization services
and document control managers, among others.  Documentum has been
trading in a lateral base now for almost 2 years and recently
completed a short-term "double-bottom" formation.  With improving
technicals and a cost basis at support, this position offers a
reasonable way to speculate on the near-term performance of the
issue.

DEC 15.00 QDC LC LB=3.80 OI=33 CB=14.33 DE=35 TY=4.1%


*****
IDCC - InterDigital  $15.20  *** On The Move! ***

InterDigital Communications (NASDAQ:IDCC) specializes in the 
architecture, design and delivery of wireless technology and 
product platforms.  Over the course of its corporate history,
the company has amassed a substantial and significant library
of digital wireless systems experience and know-how, and holds
an extensive worldwide portfolio of patents in the wireless 
systems field.  IDCC markets its technologies and solutions 
primarily to wireless communications equipment producers and
related suppliers.  In addition, the company licenses its Time
Division Multiple Access and Code Division Multiple Access 
patents to equipment manufacturers worldwide.  This stock has
rallied sharply over the last 2 months and is threatening to
break-out of a 2-year Stage I base.  Our outlook is bullish
due to the technical strength in the issue and with earnings
out of the way, this position offers a relatively low risk 
cost basis in the issue.

DEC 12.50 DAQ LV LB=3.30 OI=2151 CB=11.90 DE=35 TY=4.4%


*****
INHL - Inhale  $7.96  *** On The Mend? ***

Inhale Therapeutic Sys. (NASDAQ:INHL) is a drug delivery company
that provides a portfolio of technologies that will enable its 
pharmaceutical partners to improve drug performance throughout 
the drug development process.  Inhale's latest stage technology,
advanced PEGylation, is designed to enhance the efficacy and
performance of most major drug classes, including macromolecules,
such as peptides and proteins, smaller-sized molecular compounds 
and other drugs.  The company's latest-stage inhaleables product,
Exubera inhaled insulin, is partnered with Pfizer Inc. and has 
completed initial Phase III trials.  Inhale's third platform, the
SEDS technology, uses a proprietary particle engineering method to
develop drug formulations for multiple types of drug delivery and
improvement.  Inhale continues to rally and this week's move up
through strong resistance at $7.00 suggests there may be further
upside potential for the issue.  The stock should now have support
at the old resistance level above our cost basis and the favorable
option premiums will allow traders to speculate, in a conservative
manner, on the future movement of the company's share value.

DEC 7.50 QNX LU LB=1.05 OI=298 CB=6.91 DE=35 TY=7.4%


*****
RSTO - Restoration Hardware  $5.48  *** Buy-Out Rumors ***

Restoration Hardware (NASDAQ:RSTO) with its subsidiaries, is a
specialty retailer of home furnishings, functional and decorative
hardware and related merchandise.  RSTO markets its merchandise
through retail locations, mail order catalogs and on the worldwide
Web (www.restorationhardware.com).  The company operated 104 stores
in 31 states, the District of Columbia and in Canada as of Feb. 2,
2002.  Restoration Hardware operates a "direct-to-customer" sales
channel, in addition to its retail stores, which includes both
catalog and Internet, and a wholly owned furniture manufacturer.
Restoration spiked this week on some rumors of a possible take-over.
The company also announced on Friday the debut of the company's 
first television special "Restoration Home For The Holidays."
In any case, we simple favor the heavy volume over the last two
days as the tape "tells all."  Favorable speculation with a cost
basis near technical support.

DEC 5.00 URF LA LB=1.05 OI=355 CB=4.43 DE=35 TY=11.2%


*****
SEE - Sealed Air  $18.26  *** Republican Rally ***

Sealed Air (NYSE:SEE) through its subsidiaries, is engaged in
the manufacture and sale of a wide range of food, protective 
and specialty packaging products.  The company operates in two
business segments: Food Packaging, which provides a variety of
flexible films, bags and associated packaging and absorbent 
pads, and Protective and Specialty Packaging, which include
its cushioning and surface protection products and certain 
other products.  Sealed Air conducts substantially all of its
business through two direct wholly owned subsidiaries, Cryovac,
Inc. and Sealed Air Corporation (US).  These two subsidiaries
directly and indirectly own substantially all of the assets of
the business and conduct operations themselves and through
subsidiaries around the globe.  Shares in companies facing 
asbestos-related liabilities have rallied after Republicans won
control of the U.S. Congress, raising hopes that new legislation 
will reduce asbestos lawsuits against corporations.  We simply
favor the recent bullish technicals and wonder if the "bad" news
is already priced in?  Speculators only, please!

DEC 15.00 SEE LC LB=3.90 OI=292 CB=14.36 DE=35 TY=3.9%


*****

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

UAL     2.95  DEC  2.50   UAL LZ  0.95 1093   2.00   35   21.7%
PAX     2.61  DEC  2.50   PAX LZ  0.40 137    2.21   35   11.4%
WWCA    6.09  DEC  5.00   WRQ LA  1.60 400    4.49   35    9.9%
DOX    10.55  DEC 10.00   DOX LZ  1.40 1206   9.15   35    8.1%
ARXX    8.03  DEC  7.50   ARX LS  1.10 470    6.93   35    7.1%
FSII    3.51  DEC  2.50   FQH LZ  1.20 60     2.31   35    7.1%
MRVL   21.39  DEC 17.50   UVM LW  4.80 455   16.59   35    4.8%
PLCE   13.67  DEC 12.50   TUY LV  1.80 31    11.87   35    4.6%
NSM    16.40  DEC 15.00   NSM LC  2.15 1721  14.25   35    4.6%
SWKS    9.04  DEC  7.50   GAK LU  1.90 758    7.14   35    4.4%


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

Options 101: Trading Plan Q&A
By Ray Cummins

Last week's guidelines for developing a trading plan were the
subject of some interesting E-mail replies and one reader asked
for more information on the subject.


Attn: Naked-Puts Editor
Subject: Trading Plan - Choosing Strategies

Hi Ray,

As a new option trader (and OIN subscriber) I was thankful for
the suggestions you made on developing a trading plan.  Most of
the rules were logical and fairly easy to understand, even for
a relative novice.  The area that seems most difficult, for me
anyway, is deciding which strategy to use.  I consider myself
a conservative investor but with options I have done a little
speculating such as buying short-term calls and selling puts.
Although I see the benefits of low risk stuff like spreads, I
still plan to make an aggressive trade once in a while.  How do
I know which strategies will work best for my situation?  Should
I focus more on risk-reward or the specific type of strategy?
Also, how much does my portfolio balance and experience level
affect the final decision on which strategies to use?

Thanks for your help!

TY


Hello TY,

Your questions are not uncommon among new readers and thankfully,
there are a number of articles on the OIN website that will help
you with developing a successful trading plan.  They are located
in the archives of Options 101, Trader's Corner, and Broker's
Corner.  In the interim, here is a narrative that will give you
some additional guidance in strategy selection.


Success Basics - Developing A Trading Plan

When it comes to constructing a profitable arsenal of trading
techniques, no single method or procedure will work for every
market participant.  Each trader has his (or her) own needs and
requirements.  Issues and concerns that may be important to one
person can be of very little significance for another.  The only
principle that applies to everyone is that traders must identify
their strengths and limitations and structure their approach to
the market accordingly.

One of the initial stages in creating a successful trading plan
is assessing your financial situation.  The easiest way to begin
this process is to define your objectives and constraints.  That
means establishing a target portfolio return and risk tolerance
level.  Time is an important factor in this regard as it can be
both an ally and an enemy.  With short-term positions, it is more
difficult to recover from substantial losses but the returns are
generally higher.  Strategies with a longer-term outlook have a
greater chance for success, however they usually produce lower
relative profits.  In addition, the longer the time horizon, the
more risk the entire portfolio can tolerate as there is ample
opportunity to recover from unexpected losses.  Regardless of the
methods you choose, an acceptable risk-reward profile should be
established before any strategy is initiated.  The overall level
of downside potential must be proportionate to the size of the
portfolio and its primary purpose.  The fundamental question is,
"How much do you expect to earn on a monthly (percentage) basis
and is your trading capital sufficient to absorb the occasional
draw-downs necessary to yield that amount?"  By combining your
profit objective with the appropriate risk tolerance, a set of
primary guidelines can be established for your trading system.

In order to determine the appropriate trading strategy, you must
identify the potential for profit with each individual technique.
In most cases, it is relatively easy to estimate the returns you
can expect from a particular approach through the use of trading
models and historical results.  You can also examine the returns
from similar techniques and calculate the maximum profit and the
break-even points for a specific position with scenario analysis.
A number of inexpensive software products are available for this
type of research and there are also some (free) web-based models
that provide basic option pricing and volatility analysis.  These
tools can help you determine an expected overall return for your
portfolio, based on how much capital you devote to each position.
Of course, the amount of risk exposure you are willing to endure
should play an important role when you select specific strategies
for your option trading arsenal.  There is a definite trade-off
between risk and reward and most people do best with techniques
that are low cost and offer a reasonable probability of a high
(potential) reward.  That reason is, one winning play can offset
a number of losing positions.  In contrast, low risk strategies
are often limited profit as well, and although the probability
of loss is remote, the amount of downside potential is too great
to warrant the risk.

The process of developing a profitable approach to trading in the
market is dynamic and constantly changing.  For that reason, the
the final step in the procedure can also be the most difficult.
This phase involves measuring and comparing the success of your
trading tactics to other popular systems and current benchmarks.
If the results are favorable, only small alterations are needed
to maintain the integrity of the system and adapt it to current
conditions.  However, if your current strategies are not yielding
the returns necessary to achieve portfolio targets, you may need
to conduct additional analysis and make some adjustments to bring
the system up to a minimal level of performance.  If a thorough
overhaul of the process fails to yield noticeable improvements, it
may be time to consider another approach altogether.

Good Luck! 

                        *** WARNING!!! ***

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


SUMMARY OF PREVIOUS CANDIDATES 
*****

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

VXGN   10.40  19.05   NOV   7.50  0.35  *$  0.35  15.6%
AMZN   19.04  22.21   NOV  15.00  0.50  *$  0.50  12.6%
AFCO   13.19  16.34   NOV  10.00  0.25  *$  0.25  12.5%
KOSP   15.25  23.81   NOV  12.50  0.30  *$  0.30  11.9%
AMLN   16.95  17.16   NOV  15.00  0.75  *$  0.75  11.7%
WPI    28.34  29.60   NOV  25.00  0.45  *$  0.45  11.6%
NVLS   33.06  32.96   NOV  27.50  0.40  *$  0.40  10.8%
AMZN   18.46  22.21   NOV  15.00  0.55  *$  0.55  10.7%
CIMA   27.17  26.95   NOV  25.00  0.45  *$  0.45  10.7%
HOLX   11.74  13.25   NOV  10.00  0.50  *$  0.50  10.5%
TMCS   20.33  24.50   NOV  17.50  0.55  *$  0.55  10.2%
JWN    20.98  20.11   NOV  17.50  0.35  *$  0.35   9.6%
BSTE   30.74  30.70   NOV  25.00  0.30  *$  0.30   9.5%
KLAC   37.39  38.02   NOV  30.00  0.30  *$  0.30   8.3%
HLYW   17.20  18.02   NOV  15.00  0.60  *$  0.60   8.2%
GETY   26.41  29.06   NOV  22.50  0.40  *$  0.40   8.2%
NOK    14.44  18.21   NOV  12.50  0.40  *$  0.40   8.2%
QCOM   31.37  39.44   NOV  25.00  0.65  *$  0.65   8.2%
AMLN   15.80  17.16   NOV  12.50  0.40  *$  0.40   8.1%
QCOM   36.20  39.44   NOV  30.00  0.65  *$  0.65   7.9%
KDE    23.77  27.05   NOV  20.00  0.70  *$  0.70   7.9%
COCO   37.75  39.25   NOV  30.00  0.75  *$  0.75   7.9%
TARO   35.39  36.82   NOV  32.50  0.40  *$  0.40   7.4%
DRD    19.70  18.38   NOV  17.50  0.30  *$  0.30   7.3%
PPDI   26.99  30.23   NOV  22.50  0.45  *$  0.45   7.2%
QCOM   36.52  39.44   NOV  30.00  0.40  *$  0.40   6.8%
CAI    41.29  38.53   NOV  37.50  0.40  *$  0.40   6.6%
AFFX   23.99  26.87   NOV  17.50  0.30  *$  0.30   6.4%
VZ     35.19  39.31   NOV  30.00  0.70  *$  0.70   6.3%
BSX    38.40  39.75   NOV  35.00  0.35  *$  0.35   6.2%
GENZ   23.57  29.87   NOV  17.50  0.35  *$  0.35   6.0%
SYMC   39.00  43.40   NOV  30.00  0.45  *$  0.45   5.9%
INVN   35.05  31.20   NOV  25.00  0.40  *$  0.40   5.9%
QLGC   33.15  40.56   NOV  22.50  0.25  *$  0.25   5.3%

NWRE   17.68  16.20   DEC  12.50  0.55  *$  0.55   9.7%
BSTE   31.02  30.70   DEC  22.50  0.75  *$  0.75   7.8%
PLMD   30.31  30.39   DEC  22.50  0.60  *$  0.60   6.5%
KOSP   19.13  23.81   DEC  15.00  0.35  *$  0.35   6.1%
RIMM   16.58  14.97   DEC  12.50  0.30  *$  0.30   6.0%
NPSP   28.24  28.27   DEC  20.00  0.50  *$  0.50   5.9%
POSS   14.20  14.40   DEC  12.50  0.35  *$  0.35   5.9%
ESIO   21.15  22.99   DEC  15.00  0.35  *$  0.35   5.5%

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

Comments:

Investors took heart in the rise in consumer sentiment Friday,
boosting the Dow industrials to a record sixth week of gains.
Analysts said the rise in consumer sentiment likely reflected
a number of factors including stabilization in the job market
and the half-point interest rate cut delivered by the Federal
Reserve.  The near-term outlook for stocks is now "cautiously
optimistic" but traders are forewarned to maintain a diligent
watch over the plays in their portfolio and exit any issues
that exhibit unfavorable technical indications.  Positions on
the watch-list include Research In Motion (NASDAQ:RIMM) and
Neoware (NASDAQ:NWRE).

Positions Previously Closed: Overture (NASDAQ:OVER), which
finished positive Friday, and TMP Worldwide (NASDAQ:TMPW).


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

AMZN   22.21  DEC 17.50   ZQN XO  0.30 3179  17.20   35    5.5%
CYMI   33.43  DEC 25.00   CQG XE  0.60 435   24.40   35    7.2%
ESIO   22.99  DEC 17.50   EQO XW  0.55 615   16.95   35    9.3%
GNSS   17.17  DEC 12.50   QFE XV  0.30 741   12.20   35    7.0%
HAL    17.85  DEC 12.50   HAL XT  0.35 5279  12.15   35    7.8%
IGEN   38.65  DEC 30.00    GQ XF  0.55 1226  29.45   35    5.8%
IMCL   11.77  DEC  7.50   QCI XU  0.25 701    7.25   35    8.3%
ISSX   22.19  DEC 17.50   ISU XW  0.45 103   17.05   35    8.0%
PHTN   28.50  DEC 22.50   PDU XX  0.50 0     22.00   35    7.0%
PPD    27.08  DEC 20.00   PPD XD  0.35 807   19.65   35    5.3%

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

ESIO   22.99  DEC 17.50   EQO XW  0.55 615   16.95   35    9.3%
IMCL   11.77  DEC  7.50   QCI XU  0.25 701    7.25   35    8.3%
ISSX   22.19  DEC 17.50   ISU XW  0.45 103   17.05   35    8.0%
HAL    17.85  DEC 12.50   HAL XT  0.35 5279  12.15   35    7.8%
CYMI   33.43  DEC 25.00   CQG XE  0.60 435   24.40   35    7.2%
GNSS   17.17  DEC 12.50   QFE XV  0.30 741   12.20   35    7.0%
PHTN   28.50  DEC 22.50   PDU XX  0.50 0     22.00   35    7.0%
IGEN   38.65  DEC 30.00    GQ XF  0.55 1226  29.45   35    5.8%
AMZN   22.21  DEC 17.50   ZQN XO  0.30 3179  17.20   35    5.5%
PPD    27.08  DEC 20.00   PPD XD  0.35 807   19.65   35    5.3%


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).

*****
AMZN - Amazon.com  $22.21  *** New Two-Year High! ***

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
shares rallied last week, in part due to short-covering as the
short interest in Amazon's stock reached its highest level since
January 2002.  Investors are also enthusiastic about Amazon's
new apparel store, featuring 400-plus brands from major retail
companies.  Investors who wouldn't mind owning the Internet's
retail leader near a cost basis of $17 should consider this
position.

DEC 17.50 ZQN XO LB=0.30 OI=3179 CB=17.20 DE=35 TY=5.5%


*****
CYMI - Cymer  $33.43  *** On The Rebound! ***

Cymer (NASDAQ:CYMI is a supplier of excimer laser illumination
sources, the essential light source for deep ultraviolet (DUV)
photolithography systems used in the building of semiconductors.
DUV lithography is a key enabling technology, which has allowed
the semiconductor industry to meet the exacting specifications
and manufacturing requirements for volume production of today's
most advanced semiconductor chips.  Cymer's lasers are used in
step-and-repeat and step-and-scan photolithography systems for
the manufacture of semiconductors with critical feature sizes
below 0.35 microns.  Cymer believes its excimer lasers constitute
a substantial majority of all excimer lasers incorporated in DUV
photolithography tools.  Cymer's various products consist of
photolithography light sources, replacement parts and service.
In early November, Morgan Stanley analyst Steven Pelayo raised
his profit outlook on Cymer, saying his firm is "confident that
(Cymer's) margins will snap back" in the first quarter of 2003.
Cymer shares hit a 4-month high after the announcement and the
stock appears poised for additional gains in the near-term.

DEC 25.00 CQG XE LB=0.60 OI=435 CB=24.40 DE=35 TY=7.2%


*****
ESIO - Electro Scientific Industries  $22.99  *** New Orders! ***

Electro Scientific Industries (NASDAQ:ESIO) makes high-technology
manufacturing equipment for the global electronics market.  The
company is a supplier of advanced laser systems used to improve
the production yield of semiconductor devices; high-speed test
and termination equipment used in the high-volume production of
multi-layer ceramic capacitors as well as other passive electronic
components, and advanced laser systems used to fine tune various
components and circuitry.  In addition, Electro produces a family
of drilling systems for production of high-density interconnect
circuit boards and advanced electronic packaging, as well as
inspection systems and original equipment manufacturer machine
vision products.  Its customers are primarily manufacturers of
semiconductors, passive electronic components and electronic
interconnect devices.  On 10/28, Electro Scientific Industries
received an order for seven Model 2300 Chip Resistor trimming
systems to be shipped to Beihai Yinhe Hi-Tech Industrial during
ESI's second fiscal quarter.  This announcement followed a $1.25
million order in October for Electronic Component Systems from
Amotech, a manufacturer of varistors used in home appliances,
computers, automobiles, telecommunications and other industrial
equipment.  Traders who like the outlook for the company can
establish a low risk cost basis in the issue with this position.

DEC 17.50 EQO XW LB=0.55 OI=615 CB=16.95 DE=35 TY=9.3%


*****
GNSS - Genesis Microchip  $17.17  *** Rally Mode! ***

Genesis Microchip (NASDAQ:GNSS) designs, develops and markets
integrated circuits that receive and process digital video and
graphic images.  The company's ICs are typically located inside
a display device and process incoming images for viewing on that
display.  Genesis is targeting the flat-panel computer monitor,
flat-panel television and progressive scan cathode ray tube TV
markets and other potential mass markets.  The firm's products
solve input, resolution, format and frame refresh rate conversion
problems, while maintaining critical image information and also
improving perceived image quality.  Its products utilize patented
algorithms and IC architectures, as well as advanced IC design
and system design expertise.  Genesis operates through various
subsidiaries and offices in the United States, Canada, China,
India, Japan, South Korea and Taiwan.  Shares of GNSS have been
in "rally mode" since mid-October and traders who believe the
bullish trend will continue can profit from that outcome with
this position.

DEC 12.50 QFE XV LB=0.30 OI=741 CB=12.20 DE=35 TY=7.0%


*****
HAL - Halliburton   $17.85  *** Asbestos Settlement? ***

Halliburton (NYSE:HAL) provides a variety of services, products,
maintenance, engineering and construction to energy, industrial
and governmental customers.  The company operates in 2 business
segments: the Energy Services Group, consisting of Halliburton
Energy Services and Landmark Graphics, and the operations of 
product service lines; and the Engineering and Construction Group,
which provides a wide range of services to energy and industrial
customers and government entities worldwide.  Halliburton rallied
last week after a Morgan Stanley analyst said he thinks a final
settlement to asbestos lawsuits plaguing the oil field services
and construction company may be reached within a month.  Analyst
Ole Slorer said in a recent note that an outline of a settlement
would be presented next month to the U.S. bankruptcy court in
Pennsylvania.  Traders can speculate on the near-term performance
of the issue with this conservative position.

DEC 12.50 HAL XT LB=0.35 OI=5279 CB=12.15 DE=35 TY=7.8%


*****
IGEN - IGEN International  $38.65  *** Good News Coming? ***

IGEN International (NASDAQ:IGEN) develops and markets products
that utilize its proprietary electrochemiluminescence (ORIGEN)
technology, which permits the detection and measurement of
biological substances.  ORIGEN provides a combination of speed,
sensitivity, flexibility and throughput in a single technology
platform.  ORIGEN is incorporated into instrument systems and
related consumable reagents, and the company also offers assay
development as well as other services used to perform analytical
testing.  Products based on IGEN's ORIGEN technology address the
Life Sciences, Clinical Testing and Industrial Testing worldwide
markets.  Lots of speculation on this issue recently due in part
to ongoing litigation and also a potential deal (merger/buyout?)
with Roche Diagnostics, which markets products based on IGEN's
ORIGEN technology.  Aggressive traders can profit from upside
activity in the stock with this speculative position.

DEC 30.00 GQ XF LB=0.55 OI=1226 CB=29.45 DE=35 TY=5.8%


*****
IMCL - ImClone  $11.77  *** Finally...A Break-Out! ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company
whose mission is to advance oncology care by developing a
portfolio of targeted biologic treatments designed to address
the medical needs of patients with a variety of cancers.  The
company's lead product candidate, Erbitux (cetuximab), is a
therapeutic monoclonal antibody that inhibits stimulation of
epidermal growth factor receptor upon which certain solid
tumors depend in order to grow.  ImClone's next most advanced
product candidate, BEC2, is a cancer vaccine.  In addition to
the development of its lead product candidates, the company
conducts research, both independently and in collaboration
with academic and corporate partners, in a number of areas
related to its core focus of growth factor blockers, cancer
vaccines and angiogenesis inhibitors.  IMCL has also developed
diagnostic products and vaccines for certain infectious diseases.
Shares of IMCL soared last week amid a rumor that Bristol-Myers
will buy the company.  There were other reasons for the stock's
strength, such as short-covering and some positive fundamental
news on the company's drug products, and this position benefits
from over-priced options and recent technical support near the
(sold) strike price.

DEC 7.50 QCI XU LB=0.25 OI=701 CB=7.25 DE=35 TY=8.3%


*****
ISSX - Internet Security Systems  $22.19  *** Hot Sector! ***

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

DEC 17.50 ISU XW LB=0.45 OI=103 CB=17.05 DE=35 TY=8.0%


*****
PHTN - Photon  $28.50  *** Semiconductor-Equipment Rally! ***

Photon Dynamics (NASDAQ:PHTN) is a provider of yield management
solutions to the flat panel display (FPD) industry.  The company
also offers yield management solutions for the printed circuit
board assembly and advanced semiconductor packaging industries
and the cathode ray tube display and CRT glass and auto glass
industries.  The firm's test, repair and inspection systems are
used by manufacturers to collect data, analyze product quality
and identify and repair product defects at critical steps in the
manufacturing.  Stocks in the Semiconductor-Equipment group have
been performing well and Photon Dynamics is one of the leading
issues in the industry.  Traders who believe the upside activity
will continue can profit from that outcome with this position.

DEC 22.50 PDU XX LB=0.50 OI=0 CB=22.00 DE=35 TY=7.0%


*****
PPD - Pre-Paid Legal  $27.08  *** Premium Selling! ***

Pre-Paid Legal Services (NYSE:PPD) was one of the first companies
in the United States organized solely to design, underwrite and
market legal expense plans.  The company's legal expense plans
(referred to as Memberships) currently provide for a variety of
legal services in a manner similar to medical reimbursement plans.
Plan benefits are provided through a network of independent law
firms, typically one firm per state or province.  Members have
direct, toll-free access to their Provider law firm rather than
having to call for a referral.  Legal services include unlimited
attorney consultation, traffic violation defense, auto-related
criminal charges defense, letter writing/document preparation,
will preparation and review and a general trial defense benefit.
Pre-Paid shares rallied last week after SM Berger & Company, a
full-service investor relations organization, featured Pre-Paid
in its November stock market and economic commentary.  Pre-Paid
also recently announced that its Board of Directors authorized
an additional repurchase of 500,000 shares, as it is nearing the
completion of all previously announced stock repurchase plans.
The activity in the stock is unusual, but that has always been
the case with PPD and traders who want to speculate on the future
movement of the issue, in a conservative manner, should consider
this position.

DEC 20.00 PPD XD LB=0.35 OI=807 CB=19.65 DE=35 TY=5.3%


*****

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

VXGN   19.05  DEC 15.00   UWG XC  0.65 137   14.35   35   12.7%
WBSN   24.77  DEC 20.00   DQH XD  0.65 200   19.35   35    9.8%
CREE   21.15  DEC 17.50   CVO XW  0.60 1207  16.90   35    9.6%
MRVL   21.39  DEC 15.00   UVM XC  0.40 3047  14.60   35    7.4%
ICST   23.14  DEC 17.50   IUY XW  0.40 27    17.10   35    6.9%
WSM    24.53  DEC 17.50   WSM XW  0.40 280   17.10   35    6.6%
CVC    16.26  DEC 12.50   CVC XV  0.25 4418  12.25   35    6.2%
NSM    16.40  DEC 12.50   NSM XV  0.25 252   12.25   35    6.2%
SRNA   17.27  DEC 12.50   NHU XV  0.25 10    12.25   35    5.9%
GPS    14.82  DEC 12.50   GPS XV  0.25 3909  12.25   35    5.6%


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


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

A Positive End To A Volatile Week!
By Ray Cummins

A report of rising consumer sentiment led to a late-session
recovery, boosting blue-chip stocks to a fourth consecutive
day of gains.

The Dow Jones industrial average rose 36 points to 8,579 amid a
rebound in Citigroup (NYSE:C), which was one of the most active
issues on the Big Board.  The company's share value moved higher
on speculation that Citigroup will agree to pay fines of almost
$200 million, ending a federal probe into stock market research
and "conflict of interest" issues among major brokerage houses.
The NASDAQ ended its 3-day rally following an analyst downgrade
of Intel (NASDAQ:INTC) and some cautious comments from computer
bellwether Dell Computer (NASDAQ:DELL).  The broader Standard &
Poor's 500 Index added 5 points to 909 on strength in hospital,
media, retail apparel and precious metals stocks.  For the week,
all three indexes closed higher, with technology shares leading
the way.  Despite the expiration of equity options for November,
trading activity was light with only 1.4 billion shares changing
hands on the New York Stock Exchange and 1.7 billion trading on
the NASDAQ.  Winners outpaced losers 3 to 2 on the Big Board but
declining issues edged past advancers 6 to 5 on the technology
exchange.  In the bond market, the benchmark 10-year Treasury
note shed 3/32 to yield 4.07% while the 30-year bond was up 4/32
to yield 4.95%.

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

SLM     96.58 105.00  NOV   80  85  0.50   84.50  $0.50  Closed
UNH     93.49  92.90  NOV   80  85  0.60   84.40  $0.60  Closed
WTW     45.40  46.75  NOV   35  40  0.50   39.50  $0.50  Closed
ABK     63.21  57.80  NOV   50  55  0.60   54.40  $0.60  Closed
CHIR    42.51  40.30  NOV   35  37  0.30   37.20  $0.30  Closed
CDWC    50.61  53.77  NOV   40  45  0.60   44.40  $0.60  Closed
CEPH    50.58  55.74  NOV   40  45  0.50   44.50  $0.50  Closed
CTSH    69.54  68.33  NOV   55  60  0.55   59.45  $0.55  Closed
BR      42.01  39.76  DEC   35  37  0.30   37.20  $0.30   Open
EBAY    64.79  65.97  DEC   50  55  0.55   54.45  $0.55   Open
IGEN    36.49  38.65  DEC   25  30  0.65   29.35  $0.65   Open
SLM    102.94 105.00  DEC   85  90  0.65   89.35  $0.65   Open
DE      49.00  47.93  DEC   40  45  0.65   44.35  $0.65   Open
INTU    52.91  49.89  DEC   40  45  0.50   44.50  $0.50   Open
LLY     62.24  61.30  DEC   50  55  0.55   54.45  $0.55   Open


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

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

FITB    57.47  57.42  NOV   70  65  0.65   65.65  $0.65  Closed
LEN     53.67  52.61  NOV   65  60  0.80   60.80  $0.80  Closed
LMT     62.45  50.35  NOV   75  70  0.55   70.55  $0.55  Closed
MMM    120.60 129.50  NOV  140 135  0.50  135.50  $0.50  Closed
AIG     63.71  67.89  NOV   75  70  0.60   70.60  $0.60  Closed
GD      76.58  78.80  NOV   90  85  0.55   85.55  $0.55  Closed
AGN     55.57  56.48  NOV   65  60  0.50   60.50  $0.50  Closed
NE      31.45  32.38  NOV   38  35  0.30   35.30  $0.30  Closed
OEX    458.16 463.72  NOV  495 490  0.40  490.40  $0.40  Closed
ABC     72.45  65.01  DEC   85  80  0.65   80.65  $0.65   Open
SBGI    10.60  11.68  DEC   15  12  0.70   13.20  $0.70   Open
MCO     45.12  43.47  DEC   55  50  0.40   50.40  $0.40   Open
WLP     74.04  76.53  DEC   90  85  0.60   85.60  $0.60   Open
UNH     86.83  92.90  DEC  105 100  0.55  100.55  $0.55   Open


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

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

ERTS   67.73  64.13   NOV  75  60   0.40   0.50   0.90  Closed
SCHL   47.43  43.90   NOV  55  40   0.25   0.60   0.85  Closed
DLTR   25.12  27.35   NOV  30  20   0.00   0.55   0.55  Closed
CAI    39.21  40.66   DEC  45  35   0.10   0.80   0.90  Closed
ABT    45.89  44.95   DEC  50  40   0.10   0.00   0.10   Open
NXTL    9.69  13.38   JAN  12   7   0.10   2.20   2.30   Open
FCS    13.30  13.40   FEB  17  10   0.10   0.30   0.40   Open
LTXX    6.83   7.56   FEB  10   5   0.00   0.00   0.15   Open
MENT    10.35 11.21   JAN  12   7   0.10   0.30   0.40   Open
XMSR    3.43   1.99   APR   5   2   0.00   0.20  (0.60) Closed
 
Nextel (NASDAQ:NXTL) has been one of the best plays this month,
offering up to $2.30 profit in the speculative position.  Caci
International (NYSE:CAI) has also provided excellent gains and
the bullish play in Dollar Tree Stores (NASDAQ:DLTR) achieved a
small profit.  Among the new "speculative" positions, Mentor
Graphics (NASDAQ:MENT) finally offered an entry near the target
price and a small profit as well.  However, XM Satellite Radio
(NASDAQ:XMSR) did not experience favorable activity and traders
should have closed the position on the move below recent support
at $2.80.


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

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

BZH     60.60  62.48  DEC  50  70   0.00   0.90   0.90  Closed?

Beezer Homes traded at the suggested entry price on Monday and
offered the target credit just two days later when the issue
dropped to a low near $58.
      

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

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

CHTT   42.99  43.80   NOV   35  40   4.20   5.00  39.20 Closed
       
The bullish position in Lumenis (NASDAQ:LUME) has been closed
to limit losses.


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

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

LPNT   33.04  32.97   FEB-35C   NOV-35C    1.25   2.30  Closed
CREE   14.98  21.15   JAN-17C   NOV-17C    1.00   1.60  Closed
HNT    25.75  25.50   JAN-30C   NOV-30C    0.75   0.60   Open
SHRP   22.90  23.43   FEB-25C   DEC-25C    1.00   1.00   Open

Despite all the recent volatility, Lifepoint (NASDAQ:LPNT) has
offered a number of favorable exit opportunities and remains
profitable.  Cree (NASDAQ:CREE) has also remained volatile over
the past two weeks and traders who did not close the play when
it exceeded the target profit ($0.50) were forced to make an
adjustment in the speculative position.  The speculative spread
in Human Genome Sciences (NASDAQ:HGSI) did not move as expected
and the position was closed early to limit losses.  The bullish
portion of the Waters (NYSE:WAT) calendar spread was closed to
preserve capital.


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

Symbol  Pick   Last  Short-Opt  Long-Opt  Credit  G/L   Status

AES     2.92   1.99   J04-7.5P  J03-2.5P   4.50   0.25   Open
IMCL    7.77  11.77   J04-15P   JO3-5P     8.00   1.50   Open?
NVDA   11.10  13.47   J04-20P   J03-7P    10.00   2.00  Closed

Nvidia (NASDAQ:NVDA) was another big winner this month, offering
up to a $2.00 profit after only two weeks in play.  The position
achieved a favorable "early-exit" gain with a closing debit near
$8.00 that nearly yielded our target profit for the play.  After
slightly more than a month in the position, ImClone (NASDAQ:IMCL)
also paid off when the stock spiked above $14 generating a gain
of up to $1.50 in the speculative play.


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

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

PPD    21.58  27.08   NOV  25  17   1.25   2.10  (0.85)  Closed
ERTS   64.13  66.79   DEC  70  55   2.40   2.30   0.10    Open

Although the summary reflects a small loss, the neutral-outlook
position in Prepaid Legal (NYSE:PPD) was easily closed for a
favorable profit on Thursday afternoon or Friday morning.

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.

****************
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.
The positions in this section are speculative (out-of-the-money)
spreads with low initial costs and large potential profits.

*****
WSM - Williams Sonoma  $24.53  *** Earnings Speculation! ***

Williams-Sonoma (NYSE:WSM) and its subsidiaries are specialty
retailers of products for the home.  The retail segment sells
its products through its four retail concepts: Williams-Sonoma,
Pottery Barn, Pottery Barn Kids and Hold Everything.  The firm's
direct-to-customer segment sells similar products through its six
direct-mail catalogs: Williams-Sonoma, Pottery Barn, Pottery Barn
Kids, Pottery Barn Bed + Bath, Hold Everything and Chambers, as
well as four Internet sites: wsweddings.com, williams-sonoma.com,
potterybarn.com and potterybarnkids.com).  The company is testing
a new catalog; West Elm, which targets young, design-conscious
consumers looking to furnish and accessorize their apartments,
lofts or first homes.  The company's quarterly earnings are due
11/19/02.

PLAY (speculative - bullish/calendar spread):

BUY  CALL  FEB-30  WSM-BF  OI=823  A=$1.40
SELL CALL  DEC-30  WSM-LF  OI=42   B=$0.50
INITIAL NET DEBIT TARGET=$0.80-$0.90  TARGET PROFIT=0.50-$0.75


**************
GISX - Global Imaging Systems  $20.21  *** Trading Range? ***

Global Imaging Systems (NASDAQ:GISX) is a provider of a number
of office technology solutions.  The company sells and services
a variety of automated office equipment: copiers, fax machines
and printers.  Its unique network integration solutions offerings
include the design, installation, service and support of computer
networks and related equipment.  The firm also sells and services
electronic presentation systems such as data and video projectors
and video conferencing equipment.  In addition, the firm offers a
variety of ongoing contract services, including service, supply,
network management, technical support and training.

PLAY (speculative - bullish/calendar spread):

BUY  CALL  FEB-22.50  QHJ-BX  OI=156  A=$1.60
SELL CALL  DEC-22.50  QHJ-LX  OI=82   B=$0.55
INITIAL NET DEBIT TARGET=$0.90-$1.00 TARGET PROFIT=0.55-$0.80


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

*****
IGT - International Game Tech.  $77.06  *** Solid Earnings! ***

International Game Technology (NYSE:IGT) is a world leader in the
design, development and manufacture of microprocessor-based gaming
and lottery products and software systems in all jurisdictions
where gaming and lotteries are legal.  IGT makes casino gaming
products and proprietary gaming systems for the casino gaming
industry in the United States. In addition to its production in
the United States, the company manufactures gaming products in the
United Kingdom and through a third party manufacturer in Japan.
IGT also maintains sales offices in selected legalized gaming
jurisdictions globally, including Australia, Argentina, Peru, New
Zealand, South Africa and The Netherlands.

PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-65  IGT-XM  OI=354  A=$0.60
SELL PUT  DEC-70  IGT-XN  OI=231  B=$1.10
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$69.45
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=80%


*****
KSS - Kohl's  $66.90  *** On The Rebound! ***

Kohl's (NYSE:KSS) operates family-oriented, specialty department
stores.  The firm's stores sell moderately priced apparel, shoes,
accessories and home products targeted to middle-income customers
shopping for their families and homes.  Kohl's stores have fewer
departments than traditional, full-line department stores, but
offer customers assortments of merchandise displayed in complete
selections of styles, colors and sizes.  Since 1992, the company
has increased square footage an average of 22% per year, expanding
from 79 stores located in the Midwest to a total of 420 stores with
a presence in six regions.  Of the 420 stores it operates, 116 are
take-over locations, which facilitated the entry into several new
markets, including Chicago, Illinois; Detroit, Michigan; Boston,
Massachusetts; Philadelphia, Pennsylvania; St. Louis, Missouri,
Ohio and the New York region.

PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-55  KSS-XK  OI=750  A=$0.65
SELL PUT  DEC-60  KSS-XL  OI=734  B=$1.10
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$59.50
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=78%


*****
PIXR - Pixar  $55.67  *** Making Movies Magical! ***

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

PLAY (conservative - bullish/credit spread):

BUY  PUT  DEC-45  PQJ-XI  OI=20   A=$0.35
SELL PUT  DEC-50  PQJ-XJ  OI=119  B=$0.85
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$49.45
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=85%


*****
DNA - Genentech  $35.46  *** Trading Range? ***

Genentech (NYSE:DNA) is a biotechnology firm using human genetic
information to discover, develop, manufacture and market human
pharmaceuticals that address significant unmet medical needs.
The company's 15 approved biotechnology products stem from or are
based on its science.  Genetech manufactures and sell 10 protein-
based pharmaceuticals and licenses several additional products to
other companies.  These products include the Herceptin antibody,
the Rituxan antibody, the TNKase single-bolus thrombolytic agent,
the Activase tissue plasminogen activator, the Cathflo Activase
tissue plasminogen activator, and the Nutropin Depot long-acting
growth hormone, as well as the Nutropin liquid formulation growth
hormone, the Nutropin human growth hormone, the Protropin growth
hormone and the Pulmozyme inhalation solution.

PLAY (conservative - bearish/credit spread):

BUY  CALL  DEC-45  DNA-LI  OI=1548  A=$0.20
SELL CALL  DEC-40  DNA-LH  OI=4954  B=$0.75
INITIAL NET CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$40.60
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=78%


*****
DP - Diagnostic Products  $40.40  *** Short-Term Slump! ***

Diagnostic Products (NYSE:DP) develops, manufactures and markets
immunodiagnostic systems and immunochemistry kits, which are used
around the world in hospital, reference and physicians' office
laboratories, as well as in veterinary, forensic and research
facilities.  The test kits use technology derived from immunology
and molecular biology to obtain precise, rapid identification and
measurement of medically significant chemical substances, which
often are present at infinitesimal concentrations.  These include
hormones, cytokines, vitamins, drugs, transport proteins, as well
as antibodies and biochemical markers of viruses and various other
microorganisms.

PLAY (conservative - bearish/credit spread):

BUY  CALL  DEC-50  DP-LJ  OI=246  A=$0.20
SELL CALL  DEC-45  DP-LI  OI=141  B=$0.75
INITIAL NET CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$45.60
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=87%


*****
LXK - Lexmark International  $63.75  *** Pure Premium-Selling! ***

Lexmark International (NYSE:LXK) is a developer, manufacturer and
supplier of common printing solutions, including laser and inkjet
printers, multifunction products and various associated supplies
and services for offices and homes.  The company also sells dot
matrix printers for printing single and multi-part forms for
business users and the company develops, manufactures and markets
a broad line of office imaging products.  Lexmark International
is the surviving entity of a merger between itself and its former
parent holding company, Lexmark International Group.

PLAY (conservative - bearish/credit spread):

BUY  CALL  DEC-75  LXK-LO  OI=29    A=$0.30
SELL CALL  DEC-70  LXK-LN  OI=1232  B=$0.85
INITIAL NET CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$70.60
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=72%


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

*****
COX - Cox Communications  $30.25  *** Hot Sector! ***

Cox Communications (NYSE:COX) is a multi-service advanced
communications company with United States broadband network
operations and investments focused on cable programming,
telecommunications and technology.  Cox operates in one major
segment, broadband communications.  The firm's cable operations
represent the fundamental element of its integrated broadband
communications strategy.  Cox's cable systems offer customers
packages of basic and expanded programming services that consist
of broadcast signals available off-air; a limited number of
broadcast signals from "superstations;" numerous other satellite
delivered non-broadcast channels (such as CNN, MTV, USA, ESPN,
A&E, TNT, The Discovery Channel, The Learning Channel and also
Nickelodeon); displays of information featuring news, weather,
stock and financial market reports, and public, governmental
and educational access channels.  Cox's cable systems also offer
"premium" cable services for an additional monthly charge.

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  DEC-35  COX-LG  OI=2043  A=$0.35
SELL PUT   DEC-25  COX-XE  OI=3780  B=$0.35
INITIAL NET CREDIT TARGET=$0.05-$0.15  TARGET PROFIT=$0.40-$0.75

Note:  Using options, the position is similar to being long the
stock.  The initial collateral requirement for the sold (short)
put is approximately $725 per contract.


*****
OMC - Omnicom Group  $66.32  *** Buffett is Bullish on OMC! ***

Omnicom Group (NYSE:OMC) is a unique marketing and corporate
communications company.  Omnicom has grown its holdings to over
1,500 subsidiary agencies operating in more than 100 countries.
The company's wholly and partially owned businesses provide
communications services to clients on a global, pan-regional and
national basis.  The company's agencies provide a wide range of
marketing and corporate communications services, advertising,
brand consultancy, crisis communications, custom publishing,
database management, digital and interactive marketing, direct
marketing, directory and business-to-business advertising,
employee communications and environmental design.  Omnicom also
provides field marketing, healthcare communications, marketing
research, media planning and buying, multi-cultural marketing,
non-profit marketing, promotional marketing, public affairs and
relations, recruitment communications, specialty communications
and sports and event marketing.

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  DEC-75  OMC-LO  OI=1078  A=$0.70
SELL PUT   DEC-55  OMC-XK  OI=908   B=$0.80
INITIAL NET CREDIT TARGET=$0.15-$0.35  TARGET PROFIT=$0.60-$1.10

Note:  Using options, the position is similar to being long the
stock.  The initial collateral requirement for the sold (short)
put is approximately $1,600 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.

*****
MDCO - The Medicines Company  $12.70  *** Speculation Only! ***

The Medicines Company (NASDAQ:MDCO) operates as a pharmaceutical
company selling and developing products for the treatment of 
hospital patients.  MDCO acquires, develops and commercializes
biopharmaceutical products that are in late stages of development
or have been approved for marketing.  The company began selling
Angiomax, its lead product, in U.S. hospitals in January 2001 as
an anticoagulant replacement for heparin.  MDCO is developing
Angiomax for additional potential hospital applications as a 
procedural anticoagulant and for use in the treatment of ischemic
heart disease.
  
PLAY (very aggressive - neutral/credit strangle):

SELL CALL  DEC-17.50  MQL-LW  OI=104  B=$0.75
SELL PUT   DEC-7.50   MQL-LU  OI=24   B=$0.55
INITIAL NET-CREDIT TARGET=$1.25-$1.35 PROFIT(max)=32%
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=96%
UPSIDE B/E=$18.75 DOWNSIDE B/E=$6.25


*****


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

Bulls are Back In Town


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/wl_111702.asp


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

Sharpening the Horns


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/MP_111502.asp


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

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