Option Investor

Daily Newsletter, Wednesday, 01/15/2003

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The Option Investor Newsletter                Wednesday 01-15-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Buzz Kill!
Futures Wrap: Back to Support
Index Trader Wrap: Technical, fundamental or both?
Weekly Fund Family Profile: Ariel Mutual Funds
Options 101: The Other Side of The Strategy

Updated on the site tonight:
Swing Trader Game Plan: Out of Focus

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
01-15-2003                  High    Low     Volume Advance/Decl
DJIA     8723.18 - 119.44  8854.61 8702.14   1669 mln  447/438
NASDAQ   1438.80 -  22.19  1463.99 1435.29   1692 mln  1184/1236
S&P 100   466.88 -   7.43   475.09  466.44   totals    1631/1674
S&P 500   918.22 -  13.44   932.59  916.70
RUS 2000  395.53 -  2.92   398.45  393.89
DJ TRANS 2360.51  - 22.21  2388.38 2353.90
VIX        27.86  +  1.31    28.44   27.31
VIXN       43.45  +  1.53    44.87   42.85
Put/Call Ratio .89

Buzz Kill!

The warm and fuzzy vibes from Intel's earnings and revenue 
surprise last night didn't last long, as traders focused instead 
on the company's capital spending projections and drove the 
market lower.  Intel said its cap-ex budget would be between $3.5 
billion and $3.9 billion and that it would remain flexible.   
That number was already below expectations of $4.0 billion and 
considering that Intel lowered its budget twice during 2002, 
flexibility could lead to further reductions. The company also 
made cautious statements about a recovery in the coming year. 
"This year will be driven by the pace of the recovery in the 
industry and the economy," said Chief Financial Officer Andy 
Bryant.  Those comments don't exactly resonate with confidence 
for a recovery. 

As both a Dow and NASDAQ stock Intel led both indices lower.  The 
news came just as the Dow and SPX had achieved new breakthrough 
levels on a closing basis on Tuesday's closing rally.  The Dow 
had been flirting with the 8800 level for six out of the last 
seven trading sessions, but unable to hold a close above that 
mark.  Similar action in the SPX was found at the 930 level. 
Tuesday's close took both indices above those resistance levels 
and pointed to a continued rally that had finally broken the 
barrier.   Then suddenly the slow, methodical series of higher 
intraday highs and higher lows that had formed during the 
consolidation of the last few sessions did a U-turn and we rolled 
over hard, giving bulls a scare. 

The Intel fallout hit the chip equipment makers the hardest, 
driving the Semiconductor Index (SOX) down 3.5%.  The SOX has 
been climbing for the better part of the year, adding 20% from 
its December 31 close to the high of 348.45 on 1/13.   There was 
a pullback with the broader markets last Wednesday, but the index 
bounced strong off its 50-dma.  We got another test of that 
support line today, with the 50-dma now sitting at 323.67, as the 
SOX traded as low as 322.22, before finishing the day at 324.94.  
A breakdown of that 50-dma could signal further selling in the 
sector.  The SOX has been a reliable market indicator for the 
last year, reflecting changing patterns in technology spending.  
With earnings results due out from Microsoft and IBM on Thursday, 
we will likely see additional swings in the chip stocks as demand 
for PCs and business technology becomes even clearer.   However, 
if Intel is cutting capital expenditures by as much as 25% from 
the $4.7 billion it spent in 2002, it is hard to imagine the chip 
equipment stocks getting much better news from IBM. 

Chart of the SOX


The rollovers on the Intel news in the major indices happen to 
coincide with the 200-dmas, either simple or exponential, in the 
Dow, OEX, NDX and Nasdaq Composite.  Because we got a bearish 
news release at the same time we tested these averages, traders 
are left wondering if a rollover was already in the cards, or if 
we would have continued upward through those 200-dmas if not for 
the Intel news.  We had shown a gain of 6% in the Dow, 6% in the 
SPX, 6.7% in the OEX, 11% in the NDX and 9% in the COMP for the 
first two weeks of the year.  Multiply those gains by 26 and the 
pace is clearly unsustainable.  At some point we were likely to 
experience a pullback after the number of investors making their 
2003 fund contributions eventually tailed off. The 200-dmas, 
which have held as strong resistance in the past, seem a logical 
point for that pullback. Today's afternoon bounce in the Dow did 
fail to hold the support level of the last couple of days at 
8746, eventually closing at 8723.  The question now will be 
whether this failure is the first step down in a reversal, or 
simply a pullback at a logical level, before heading higher. 

Chart of the Dow


Chart of the COMP


Chart of the OEX


Another factor weighing on the markets this morning was a warning 
from the number one U.S. chemical company Dupont that its fourth 
quarter earnings would come in below estimates.  It blamed to 
shortfall on weak demand and higher energy costs. . According to 
Standard & Poor's credit analyst Kyle Loughlin, "Rising raw 
materials will present pretty stiff headwinds for chemicals 
companies until they can try to pass those additional costs to 
customers."  However, with the current poor economic situation 
for industrial customers, right now that really isn't possible 
The rising natural gas and oil prices as a result of the Iraqi 
situation, Venezuelan general strike and previous weather 
disruptions are apparently making their way through the economy 
and seem to justify the inverse correlation between the price of 
oil and the movement in equity markets. I highlighted the 
correlation between the two a few weeks ago and have updated 
those charts to reflect to continuing relationship.

Chart of the Dow and Oil Futures


This morning we got a report from the National Association of 
Business Economists, which is made up mostly of in house 
economists from corporations and banks.  That report said that 
businesses will remain very cautious with their spending and 
hiring in 2003.  "Weak profit momentum, continued absence of 
price pressures and a cloudy macroeconomic outlook are the main 
culprits," said NABE president Tim O'Neill. The report also 
showed capital spending dropping for the seventh consecutive 
quarter at the end of 2002.  That is the longest stretch of 
declines since the survey was begun 21 years ago. However, there 
were also some positives in the report, including the expectation 
that finance and service firms should see increased spending and 
more than 50% of the respondents said they planned to update or 
replace equipment. The biggest factor identified in possibly 
affecting financial results this year was a prolonged war in 

The Beige Book report also came out this afternoon and most of 
the comments were not pretty.  The report said reports from the 
twelve Federal Reserve Districts showed subdued growth in 
economic activity from November to January, with little change in 
overall conditions from the last report. Reports on consumer 
spending were consistently weak and holiday sales came in at or 
below last year's levels. Considering we were still recovering 
from 9/11 last year, the lack of improvement seems particularly 
gloomy. I mentioned on Monday that I thought the discounting 
would have a pronounced effect this year, due to a later 
Thanksgiving (thus moving a higher percentage of sales closer to 
Christmas) and high unemployment.  That appears to be the case, 
as the report highlighted substantial discounting on holiday 
retail sales in all districts. Also disturbing, in light of 
yesterday's retail data that showed auto sales as one of the few 
bright spots, were comments in the report that auto sale showed 
signs of weakening. The Beige Book also said most districts 
reported little or no increase in capital spending by 
manufacturers.  Residential construction and home sales were 
still strong, but showed signs of cooling.  The recent surge in 
the markets will have a tough time finding support in the 
economic data, but that isn't exactly new information.  In fact, 
we got rallies following last week's poor jobs data and a bounce 
after selling off on poor retail data. If we are back in the "buy 
the bad news" swing, then maybe today's pullback was only 
that - a pullback before the next higher leg.. 

However, after the bell, we saw the Intel phenomenon repeat 
itself with Yahoo.  The company reported after the bell that it 
beat profit estimates by $0.02 per share ($0.08 v. $0.06) and 
beat revenue estimates by $7 million.  This was a vast 
improvement over last year in the same quarter, when the company 
lost $0.02 per share.  The news was apparently not enough to keep 
traders happy and the stock dropped over a dollar following the 
results.  It did bounce some, but not enough to get back above 
the $19 mark, after finishing the regular trading session at 

Apple also released results after the bell.  The company met 
expectations for a loss of $0.02 per share, but predicted its 
2003 second-quarter revenue to be "relatively flat" with the 
$1.47 billion it saw in the last quarter, which ended December 
28.  It also said it expects a small profit in the next quarter.  
After an initial drop, AAPL rebounded close to unchanged.

Traders can look for a move back below Dow 8689, along with a 
breakdown of the 50-dma in the SOX, as evidence that a pull back 
may continue for some time.  That Dow level was our bounce point 
Friday following the poor payrolls report and the 50-dma provided 
support in the SOX on the last significant downside test. 
However, with the IBM and Microsoft earnings due out after the 
bell on Thursday, it is hard to predict how the markets will 
react. Traders may be better off waiting for a clearer picture to 
develop after those releases.  If we do snap back from today's 
losses and cross over the 200-dmas, then a significant barrier 
will be removed in case of a positive market reaction and The 
December 2 highs in the broader indices should be the next step. 


Back to Support
By John Seckinger

All three contracts came close to significant technical damage 
during Wednesday's sell-off; however, the closing levels 
certainly told a different story.  It is now all about risk 
versus reward.  

Wednesday, January 15th at 4:15 P.M. 

Contract      Last    Net Change    High        Low       Volume    

Dow Jones    8723.18  -119.44     8854.61     8702.14
YM03H        8729.00   -81.00     8855.00     8682.00     21,432
Nasdaq-100   1073.60   -21.27     1099.89     1069.96     
NQ03H        1077.00   -15.00     1103.00     1071.00    226,329
S&P 500       918.22   -13.44      932.59      916.70
ES03H         921.00    -8.25      932.75      915.50    593,182

Contract         S2         S1       Pivot       R1         R2    

Dow Jones      8607.51    8665.35   8759.98    8817.82    8912.45
YM03H          8582.25    8655.50   8755.25    8828.75    8928.25
Nasdaq-100     1062.41    1051.22   1081.15    1092.34    1111.08
NQ03H          1051.75    1064.25   1083.75    1096.25    1115.75
S&P 500         906.61     912.41    922.50     928.30     938.39
ES03H           905.75     913.50    923.00     930.75     940.25

YM03H = E-mini Dow $5 futures   
NQ03H = E-mini NDX 100 futures  
ES03H = E-mini SP500 futures    


Note:  The 03H suffix stands for 2003, March, 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.  


The March E-mini S&P 500 Contract (ES03H)

Yesterday I profiled a weekly chart of the ES contract, showing a 
range of 920 to 937 within a more significant range from 910 to 
953.50.  Well, the CLOSE on Wednesday was just barely above this 
920 area, as well as an important daily retracement area of 
918.28 (shown below in a 120-minute chart).  Sure, the areas were 
broken, but the close higher cannot be discarded.  With that 
said, I think that bulls have to defend this area if 953 is going 
to be reached anytime soon.  A break tomorrow, coupled with the 
918 and 920 area becoming resistance, should have the contract 
testing either the 913 or 906 area (S1 and S2).

A move back under 927 on Wednesday definitely did get traders, 
including myself, immediately concerned about a post-Intel trap.  
However, looking at the 120-minute chart, I am not a believer 
that the recent uptrend has been significantly broken.  I AM 
concerned that the SPX Bullish Percent didn't reverse back in a 
column of X's over the last week or so, so I can't state the case 
strongly that it makes sense to buy dips.  Nevertheless, the 
risk/reward here is solid.  Moreover, a gap lower would null the 
idea of buying dips.  Also note how the 50 PMA (green) has been 
solid support and resistance since mid-December.  

Chart of ES03H, 120-minute


Looking at a 30-minute chart of the ES contract, we did have a 
close on Wednesday underneath Thursday's pivot; therefore, 
conservative traders can wait until a move back above 923 before 
thinking about a rally.  However, the mid-part of the 120-minute 
Bollinger Band comes in at 924.61.  I am concerned about 
this level as well.  If the ES contract either gaps or moves 
aggressively higher on Thursday, I think the shorter-term moving 
averages will be cleared as the pivot is eclipsed.  This should 
give bulls some hope, as they can use these averages as support.  
MACD, on a 30-minute chart, is also showing a potential double 
bottom and should be watched in the near-term.  Unfortunately for 
bulls, the MACD has not yet crossed higher.  

Chart of ES Contract, 30-minute


Bullish Percent of SPX: 61.70% and in column of O’s (Recent High 
at 66%, Low of current column at 58%).  There is still risk in 
buying the contract, and note that the number has not risen and 
gone into a column of X’s after Thursday’s, Monday’s, or 
Thursday’s rally.  The Bullish Percent Index would have to 
reverse back to 64 to cancel out the recent column of O’s.  

The March E-mini Nasdaq 100 Contract (NQ03H)

The NQ contract did close underneath the profiled 1083 area, 
while Wednesday's S2 level of 972.75 was almost the actual low 
(971).  Interestingly, the 19.1% retracement of the range of R2 
to S2 was 971.  Under 1083 does take me to more neutral (not 
bearish) readings going forward, especially since the 1059 area 
was not touched.  

Looking at a 60-minute chart below, the NQ is still on a bullish 
path (blue line), but a move underneath the range of 1064 to 1068 
should start to have bears thinking about selling rallies.  If 
the pivot at 1083.75 is cleared, I think there is a chance 1091 
will be cleared as well.  This should take some energy, but would 
be a nice victory for bulls.  In the past, once 1083 was cleared, 
it became a good support or resistance area based on a close of 
the hourly bar.  Conservative traders can certainly wait for such 
a 60-period close above before looking to go long.  Bulls really 
can't afford to lose the battle on Thursday.  If they do, we will 
have our levels that should become resistance was fallen 

Chart of NQ03H, 60-Minute


Bullish Percent for NDX:  Down two percent to 64% but in a column 
of X's now (Recent High at 82%, last Significant Low at 14%) 
64% is still relatively high, but the BP is saying that longs can 
buy a quarter position on dips going forward.  The risk is that 
the BPNDX reading rolls to 58%.  

The March Mini-sized Dow Contract (YM03H)

The YM contract did fall underneath the 8714 area; however, we 
did have a CLOSE back above this pivotal area.  Therefore, I am 
not quick to think about a move to 8620 just yet.  The upward 
trend is still intact, but bulls did do some damage.  Stochastics 
are still relatively overbought, and the YM contract did close 
underneath Thursday's pivot - both slightly bearish.  Is the 
right shoulder still a possibility?  Sure, but I do think that 
the more the YM consolidates between 8866 and 8714, the better 
likelihood of a bid is going forward.  

Chart of YM03H, Daily


A five-minute chart of the YM contact shows how the range from R1 
to S2 was almost exactly the high and low on Wednesday.  Also 
notice how the R2 to S2 range for Thursday is much wider.  The 
pivot is at 8755, and I will look for bids once this level is 
taken out.  When I say 'taken out,' I mean that a five-minute bar 
closes above this level.  Any more weakness to the downside might 
have bulls giving up for some time, and a gap lower should have 
traders aggressively using the red levels as resistance.  Note:  
A close back above 8800 should mean prices will most likely rise 
on Friday as well.  

Chart of YM03H, 5-minute


Bullish Percent of Dow Jones: 56.67% and in column of X’s.  A 
move to 50% would cancel out the recent bullishness.  The last 
significant high comes in at 72%.  There was no change on 
Wednesday.  I would interpret this to mean that traders will be 
looking to buy dips, but only risking about a quarter position 
since 56.67 is still relatively high.  

Good Luck.

Questions are welcomed,

John Seckinger


Technical, fundamental or both?

Wow!  What a 24-hours that was.  There were some "fascinating" 
observations that can be made after today's action and it can 
leave the investor and trader wondering if today's 119-point 
decline in the Dow Industrials (INDU) 8,723 -1.35% and 21-point 
decline in the NASDAQ-100 Index (NDX.X) 1,073 -1.94% was related 
to technical selling, or based on some fundamental revelations 
from Intel's earnings last night.

A trader's "first fascination" may have come from the 
"technicals" or at least the market action in the first five-
minutes, especially as it relates to how the QQQ traded and one 
of last night's Index Trader Wrap trading plans for how a Jan. 
$27 QQQ straddle trader approached the session.

The trading plan could have been traded as DICTATED by the market 
was to have sold the QQQ Jan. $27 call (held long) after the 
first 5-minutes of trading, when the QQQ couldn't trade $27.36 or 
higher (today's QQQ high was $27.35).  Then as levels of support 
were broken, the straddle trader then holding the QQQ Jan. $27 
would have closed out the put side of the trade at stated support 
levels of $26.86 or $26.70, which was "comfortably" above today's 
pivot analysis S2 level of $26.62.  

It was "amazing" for some to see the QQQ fall to $26.60, trade 
sideways for the better part of an hour and find a late afternoon 
bid back to the daily S1 level of $26.68, which as technicians 
note, a broken support level can become resistance, and then fade 
back to the $26.70 level into its close.

In today's 01:00 PM EST Update, we discussed some things 
regarding the major indexes that I think index traders will want 
to review, regarding the use of pivot analysis.  Not only from 
the daily data, but using the same mathematical algorithms in the 
weekly and monthly time periods.

After I finished last night's wrap, I went to work on that 
"matrix" and made note to myself of correlative resistance 
showing up at R1 levels in the daily, weekly, and monthly pivot 
analysis levels.  As I discussed in today's 01:00 Update and 
market monitor entries.  This is a new "observation" that I made 
late last night, and did not feel comfortable discussing it this 
morning.  I wanted to make the observation and then test it to 
see how things panned out.  After today's action, I would at 
least make note that it may indeed have had technical 
significance, and will look to see if any of the weekly or 
monthly levels tie in with the charts that we look at each night.

Even tonight I see some technical "correlation" show up in the 
matrix, with correlative points of resistance in the SPX/spy, but 
correlative support in the SPX/spy and support in the NDX and 
OEX.  Again, we are at the "testing stage," will make an 
observation, and be alert at the levels noted from the matrix.

Here is an updated "matrix" for tomorrow's trading.  This is the 
same spreadsheet I showed in the 01:00 intra-day update, with the 
only difference being that I have updated the DAILY S2, S1, 
Pivot, R1 and R1 levels as it relates to today's high, low and 
close for the major indexes.  I will not make any changes to the 
weekly until this Friday's close, nor will I make any changes to 
the monthly until January 31 close.

Pivot Analysis Matrix


In today's 01:00 Update, we noted the correlative resistance at 
the R1 level in the Weekly/Monthly and I want to leave those in 
red for now.  In my mind these are current levels that I deem 
resistance that may have merit with today's lower market.

Since we're on the top of resistance, with the SPX and S&P SPDRS 
"spy" closing below their pivot levels, I'm making note of the 
correlative PIVOT levels between tomorrow's DAILY and the WEEKLY 
pivots.  Since we close below both of these PIVOTS, I view them 
as near-term resistance levels to monitor.  For those that have 
access to intra-day charts, not that the SPX "rebounded" to 
922.00 at approximately 03:00 PM EST, found resistance there and 
closed at 918.22.

The above observations have me leaning toward a lower trade 
tomorrow morning and here is where we may begin looking for 
correlative support in the SPX/spy at both of their S1 levels 
from the DAILY and WEEKLY.  I would currently view this 
"correlation" as a potential "key" level of support that we would 
look for some type of "gravitational pull" toward.  

As it relates to the OEX and NDX levels of correlative support, 
this I'm perhaps a little "sketchy" on, or lack too much 
conviction toward its significance, but will make note here.  
I've used a "dashed green line" to tie together the daily S2s for 
the OEX and NDX, with similarly matching S1s in the weekly.  
Right now, while still in an observation mode, I feel that our 
correlation levels should be observed at equal S1 or S2 levels 
and not "crossing over" correlation.

Still, such observations may be important.  If the SPX/spy were 
to simply fall BELOW their S1 correlation levels that we see in 
the daily/weekly, then a trader/investor could begin turning 
attention to the OEX and NDX correlations.  Even if you're 
trading the SPX, spy, INDU, dia, a trader should understand that 
the indexes tend to move in unison and should correlative levels 
be tested at a support level, then the trader is alert to some 
type of firming, if not technical rebound at that level.

Before you think I've turned "bear" then understand perhaps how a 
reversal back higher and above tomorrow's SPX/spy pivot levels 
have all of the R1s and R2s back in play.

How can I even mention a bullish thought?  

Today's volume is interesting and some of the following 
information may be a bit surprising to traders.  

NYSE volume of 1.37 billion was just about even with what we've 
seen in the past several sessions, however NASDAQ volume of 1.73 
billion was heavier than recent 1.54 and 1.59 billion levels.

The advance decline line was negative at both the NYSE and 
NASDAQ, with decliners getting the upper hand by a 20:12 margin 
on the big board, while NASDAQ was negative at 18:13.

My "surprise" is what we see from the new highs versus new lows.  
Yesterday, the major indexes CLOSED at levels not seen since 
early December.  Yesterday, the NYSE showed 52-week highs/52-week 
lows as 92:19 and today's 93:15 was actually a little more 
"bullish."  Yesterday's finishing tally in this category of 
breadth for the NASDAQ was 69:15 and today's 83:23 is what most 
surprises me.  It may be that the more bullish open this morning 
saw the bulk of the new highs reversed lower, but I'm a bit 
surprised that this category of breadth was stronger than 

Bears will make the case that these 52-week high/Low breadth 
numbers are nowhere as close to the 01/09/03 levels for the NYSE 
(134:11) and NASDAQ (104:27) and this would be an important note.  
Again, these are all "daily" type numbers and can be volatile.

Since we're on the topic of breadth, today's action saw little 
change in the bullish % data.  The notable move was that the 
NASDAQ-100 Bullish % ($BPNDX) fell 2% to 64%.  Status remains 
"bull confirmed" and a reversal to 60% is needed for this group 
to turn "bull correction" status, and any continuation lower at 
58% would then become "bear confirmed" status.  Should the NDX 
turn "bear confirmed" at the 58% level, that's when bears would 
begin getting aggressive with their shorting/put buying.

When I said little change for the bullish %, I mean it!  The OEX, 
SPX, INDU, and even the very broad NYSE Composite Bullish % 
($BPNY) were all UNCHANGED.  The very broad NASDAQ Composite 
Bullish % ($BPCOMPQ) actually rose .01% to 47.22%.

S&P 500 Index Chart - Daily Interval Chart 


One way I do think a trader can use the daily/weekly/monthly 
pivot analysis is to look for levels in the matrix that may have 
technical significance.  From today's 01:00 PM intra-day update, 
one could place horizontal resistance at 936 as if to note how 
the correlative S1s did serve as some type of technical 
resistance.  I've taken tonight's comments regarding the 912 S1 
daily and weekly levels and we can see how this level has served 
as levels of resistance in mid-November, and when broken to the 
upside served as support in late November, just before the SPX 
reached a relative high on December 2nd.  Then we see how the 912 
level, when broken to the downside in early December, served as 
resistance (along with the rounding lower 21-day SMA).  Note how 
when the SPX recently broke above this 912 level on January 6, a 
rather impressive rally took place that day.  Tomorrow, I would 
certainly keep an eye on this level.

I just got off the phone with John Seckinger and he too was 
discussing the 912 level in the SPX.  His note here is that a 
retracement taken from the December high to December low had 50% 
retracement in the SPX at 911.86.

Don't forget!  Dow component United Technologies (NYSE:UTX) 
$64.40 +0.13% will report earnings tomorrow morning before the 
opening bell.  Analysts are looking for the company to earn $1.05 
per share.

Then, after tomorrow's close, Microsoft (NASDAQ:MSFT) $56.27 
-1.22% reports earnings.  Analyst's are looking for the company 
to earn $0.46 per share.

Also reporting after the bell is International Business Machines 
(NYSE:IBM) $87.59 -1.11%.  Analysts are looking for the company 
to earn $1.30 per share.

I can't believe how fast time passes and how late I am with my 
editor's deadline.  

I covered the QQQ in great detail during today's session, and the 
QQQ are trading the daily pivots to a "t."

Tomorrow morning in the 09:00 Update, I will show charts of the 
Dow Industrials, S&P 100 Index and NDX.

Right now, my near-term levels of focus for the indexes would be 
based off the 912 support in the SPX and the converging 21-day 
and 50-day SMAs in the major indexes as important support levels.

For now, resistance would be based on the recent weekly highs.

With the Dow, OEX, NDX, NYSE and NASDAQ Composite Bullish % 
charts still in columns of X on their bullish % charts, with only 
the SPX bullish % ($BPSPX) in a column of O, by nature I lean 
toward the bullish side of things right now.

A bearish trader that felt a little too short/put in recent 
session may look to par back some positions on an SPX back near 
912, or at least move down a stop in partial positions should a 
rebound take hold.

Jeff Bailey

Annual Renewal Special

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Click here for the full details:  



Ariel Mutual Funds 

This week, our Fund Family Profile looks at the largest African 
American-owned fund management company firm in the nation, Ariel 
Capital Management of Chicago, Illinois, which serves as adviser 
to the Ariel Mutual Funds.  John W. Rogers, Jr. founded the firm 
in 1983 on the principle of "disciplined, patient investing" and 
since 1986 has managed the flagship Ariel Fund (ARGFX) utilizing 
a small-cap value investing style.  

Through the years, the firm has done much to improve the comfort 
zone of black investors, and is a recognized leader in corporate 
diversity.  In September 2002, Ariel was awarded the First Annual 
Corporate Diversity Award by the Chicago Council on Urban Affairs 
for their efforts to promote diversity within the company and the 
community at large.

Since 1983, Ariel Capital Management has grown from 2 employees 
to 55 and over $10 billion in assets under management, according 
to the company website (www.arielmutualfunds.com).  Ariel offers 
five "no-load" mutual funds designed to meet a range of investor 
needs: Ariel Fund, Ariel Appreciation Fund, Ariel Premier Growth 
Fund and Ariel Premier Bond Fund.  In addition to its funds, the 
firm manages assets for U.S. corporate and public institutions.

Investment Style/Strategy

Unlike most Americans, John Rogers was introduced to investing at 
an early age, receiving stocks from his father at every Christmas 
and birthday.  As his nest egg grew, Rogers learned the lesson of 
slow and steady accumulation of assets - a philosophy that speaks 
well to the African-American community.  A recent study by Schwab 
and Ariel Capital Management confirmed that African-Americans are 
less aggressive, less confident and less invested than other fund 
investors (white investors).  For that reason, the firm is rooted 
in the philosophy of patient investing.  Slow and steady wins the 
race is the firm's credo.

In the management of its equity funds, Ariel Capital Management 
seeks long-term capital appreciation by investing in the common 
stock of small and mid-sized companies that offer strong growth 
potential, which are undervalued in the market and misunderstood 
or ignored by Wall Street analysts, institutional investors and 
the media.  In stock selection, Ariel favors companies that have 
strong franchises or niches that attract repeat customers.

The firm currently offers five mutual funds.  The flagship Ariel 
Fund (ARGFX) has $1.2 billion in assets and invests primarily in 
small-cap value stocks.  John Rogers has run the fund since 1986.  
Ariel Appreciation Fund (CAAPX) has $1.4 billion in assets today, 
and has a mid-cap blend style.  Rogers has managed the fund since 
September 2002 when long-time manager, Eric McKissack, left Ariel 
for personal reasons.  McKissack is primarily responsible for its 
fine long-term record having managed Ariel Appreciation Fund from 
its late-1989 inception through September 2002.

Ariel Premier Bond Fund (APBRX) was launched in February 1997 and 
seeks to provide total return through a combination of income and 
capital appreciation by investing primarily in high-quality bonds 
with intermediate-term maturities.  The Ariel Premier Growth Fund 
(APGFX) started operations in February 2002 and pursues long-term 
capital growth by investing primarily in large-cap growth stocks.  
Both Ariel Premier fund portfolios are advised by Lincoln Capital 
Management, a leading money manager.

The firm also offers the SSgA Money Market Fund for investors who 
seek income consistent with preservation of principal.

Investment Performance

Both Ariel Fund and Ariel Appreciation Fund have strong long-term 
performance records relative to similar funds as evidenced by the 
4-star overall ratings they have received from Morningstar.  Both 
funds have generated above-average returns relative to peers with 
below average relative risk, per Morningstar.  Note Ariel Fund is 
rated 5 stars for trailing 5-year performance; Ariel Appreciation 
Fund is rated 5 stars for trailing 3-year performance.  Both have 
trailing 3-year and 5-year average annual returns that rank it in 
the top quintile of their respective Morningstar categories.

The institutional class shares of the Ariel Premier Bond Fund are 
rated 4 stars by Morningstar, but the retail class shares (APBRX) 
are rated 3 stars.  While returns have been average in comparison 
to all intermediate-term bond funds, the fund has exhibited below 
average risk compared to its peers, generating a good risk/reward 
tradeoff for investors.  Instead of using the term average, Ariel 
might prefer to say that the fund has generated competitive total 
returns with less-than-average risk versus comparable bond funds.

Ariel Premier Growth Fund (APGFX) is less than one year old, and 
isn't yet rated.  In its brief life, the fund has produced total 
returns that rank in the middle of the large-cap growth category, 
per Morningstar.

Below is a performance summary for the Ariel Mutual Funds, using 
Morningstar data through Friday, January 10, 2003 (10-year as of 
December 31, 2002).

 3-Year Average Annual Returns and Category Rankings:
 +13.9% Ariel Fund (ARGFX) 14th percentile
 + 9.5% Ariel Appreciation Fund (CAAPX) 4th percentile
 + 8.4% Ariel Premier Bond Fund (APBRX) 53rd percentile

 5-Year Average Annual Returns and Category Rankings:
 + 8.8% Ariel Fund (ARGFX) 7th percentile
 + 8.8% Ariel Appreciation Fund (CAAPX) 16th percentile
 + 5.9% Ariel Premier Bond Fund (APBRX) 51st percentile

 10-Year Average Annual Returns and Category Rankings:
 +11.6% Ariel Fund (ARGFX) 30th percentile
 +11.6% Ariel Appreciation Fund (CAAPX) 19th percentile
For comparison purposes, the Wilshire 5000 index, the broadest 
measure of U.S. stocks, declined by an average rate of 12.7% a 
year over the past three years, and sports a 5-year annualized 
return of just 1.1 percent.  For the 10-year period, it gained 
just 8.6 percent a year on average, versus the numbers you see 
above.  So, whether you call them 4-star or 5-star rated funds, 
Ariel Fund and Ariel Appreciation Fund have outpaced the total 
stock market and their category peers by wide margins over the 
long run.  Although Eric McKissack has left Ariel Appreciation 
Fund, John Rogers' long-term track record is equally as strong, 
so the fund should not suffer because of McKissack's departure.

Ariel Premier Bond Fund's 3-year and 5-year returns aren't the 
best, but they have certainly been in line with other funds of 
its kind (intermediate-term, investment-grade funds), while at 
the same time limiting risk relative to its peers.  On a risk-
adjusted performance basis, there is little to complain about.   
According to Lipper, Ariel Bond Fund is above average on three 
measures (preservation, tax-efficiency, and expense) adding to 
its appeal.

Speaking of Lipper, both Ariel Fund and Ariel Appreciation are 
Lipper Leaders in three areas: total return, consistent return, 
and preservation.  So relative to all equity funds, both funds 
have excelled at delivering strong, consistent returns in good 
times and both have excelled at preserving capital in declines.


Ariel Capital Management's success comes in the form of strong 
returns and strong asset growth.  In the last two decades, the 
firm has transformed from a small shop to a leading manager of 
equities and fixed income securities for institutional clients 
and mutual funds with over $10 billion in managed assets today.

Slow and steady wins the race is the firm's credo and the firm 
has demonstrated the ability to win or place among the leading 
mutual fund performers over the long term.  The firm's patient 
investing style is well suited to long-term investors who seek 
accumulation of assets over time.  A low minimum investment of 
$1,000 and below-average expenses makes it a little easier for 
the average person to invest in the Ariel Mutual Funds.   

The additions of a fixed income fund in 1997 and a money-market 
fund gives income-oriented investors a couple options to choose 
from, but the firm's bread-n-butter is its two "billion-dollar" 
equity funds, Ariel Fund and Ariel Appreciation Fund.

For more information, log on to the Ariel Funds website located 
at www.arielfunds.com.

Steve Wagner
Editor, Mutual Investor


The Other Side of The Strategy
by Mark Phillips

In the past, I've written several articles on the strategy of
writing 'covered calls' against LEAPS, as a way to lower the cost
basis of the long LEAP Call.  In essence, this strategy consists
of buying a LEAP call on a stock and then writing front-month
calls against that LEAP (which takes the place of the long stock
in the 'covered call' strategy.  While the term covered call
is functionally correct in terms of what we are doing, the real
term for this strategy is a Calendar spread, where our intent
is to write a front-month call, have it expire worthless, write
the next month's call, have it expire worthless, continuing the
process as long as our bullish long-term outlook for the
underlying stock remains intact.

The primary difference between this strategy and a standard
covered call (using the underlying shares as the long side of
the position) is that we never want to allow ourselves to be
called out of the LEAP.  The primary reason is that we have
paid a significant amount for our LEAP in terms of time value,
and if forced to exercise the LEAP to cover our short call being
exercised, we lose all of that excess time value.  The better
approach if the short call is going to expire in the money (and
hence likely be exercised) is to simultaneously buy back the
short call and sell the LEAP, completely closing the position.
The reason this is preferable is due to the fact that the LEAP
(which should always have a lower strike than the short call)
will have a higher delta and thus appreciate faster than
short-term call.

There's no need for me to cover the details of this strategy here
today, as I've done it in a series of Options 101 articles back
in June of 2001.  While the examples may be a bit dated, the
underlying concept and its description is still very much valid.
All you need is a security that is in a solid bullish trend.
Seen one of those lately?  Outside of the Gold sector, about the
closest thing I've seen is our current LEAPS Watch List Call play
BEAS.  For those of you that are unfamiliar with the nuances of
the Covered Call strategy using LEAPS (or for anyone that needs
a refresher), take a look at the links below.

Covered Calls on the Cheap
Questions on LEAPS Covered Calls - Part 1
Questions on LEAPS Covered Calls - Part 2

As I alluded to above, finding candidates for the LEAPS covered
calls strategy is rather tough right now, as there just aren't a
lot of upward bound stocks that have an established trend that
we can play.  With the persistent nature of this bear market,
which I believe has more time to run to its eventual conclusion,
I've had some astute readers write, asking if the Covered Calls
strategy can be turned around and used from the bearish side.
Great question!

The short answer is YES.  Remember, the practice of buying LEAPS
seeks to benefit by riding a long-term trend.  Taking a look at
the broad market, there's no way to make a rational argument that
the long term of the market is anything but down.  There are any
number of stocks whose charts look very similar (rangebound over
the past several months, but still deeply mired in a long-term
descending trend.  Current LEAPS Watch List put play, GS is a
perfect example.  Take a look at the weekly chart of the stock
and you can see a continuous series of lower highs since
September of 2000.  With legal problems continuing to rear their
ugly head and no sign that the Brokerage industry is going to
see a renewed surge in business anytime soon, I expect to see
GS break down over the next several months to post new all-time

But the 2005 $70 Put currently costs $1400 per contract, and
it's all time value.  It would seem to make perfect sense to
sell short-term puts against the long-term LEAP to reduce our
cost basis.  If you have a hard time visualizing the entry and
exit points, try turning the chart upside down and then thinking
about the LEAPS Covered Call strategy.  Then you're dealing
with effectively the same approach.

Let's assume that we bought the 2005 $70 LEAP Put (ZSD-MN) as
of today's close for $1400.  While it may be premature with the
weekly Stochastics still recovering towards overbought, it at
least gives us a starting point for the discussion.  Now that
we have our long-term bearish position established, the next
task that we're going to want to accomplish is to sell a
short-term put against that LEAP, the next time the stock
becomes near-term oversold.  That could be when GS reaches
strong support near $60-62, or when daily Stochastics bottom
in oversold, or even when weekly Stochastics bottom in oversold.
My preference would be to have all three occur at the same time,
as that would make for the best possible scenario.  Our $70 LEAP
Put would be deep in the money, and we could sell the March-2003
$55 or $60 Put for $150-200 (depending on how aggressive we want
to be), with the expectation that it would expire worthless in
the third week of March.  I'm assuming March contracts, because
I expect March will be the front month contract before we see a
good opportunity to sell the first covered put.

Assuming that the March expiration cycle goes as planned, then
by the end of March or early April, we'll be looking to repeat
the process on the next significant bottom in the stock, perhaps
with April, but more likely May contracts.  Typically this
process can be repeated from 4-6 times per year, depending on
market conditions.  If we can conservatively take in $150 in
premium throughout the year, by early 2004, we should have
reduced our cost basis in the LEAP Put from $1400 to the
vicinity of $650 (assuming 5 round trips during the year).  And
we still have another year's worth of time value left in the
LEAP, giving us plenty more time to repeat the strategy.

Just as with the LEAPS Covered Call strategy, there are a
couple of rules that need to be observed when employing the
LEAPS Covered Put strategy.  First off, never allow the
short-term put you have sold to expire in the money.  If it is
going to expire in the money, close the entire position by
buying back the short-term put and selling the LEAP Put.  The
gains on the LEAP will be greater than the loss on the
short-term put, due to the fact that the LEAP will have a
higher delta (so long as the strike of LEAP Put is equal to
or greater than the strike of the short-term put).

Secondly, we only want to keep the LEAP put open so long as
the long-term bearish trend remains in place.  If GS were to
start posting higher highs and higher lows, it would indicate
a change of trend, and employing this strategy would no longer
be in our favor.  Think again about the Covered Call strategy.
It is only beneficial if the stock is in an upward trend.  If
the stock moves into a descending trend, the premium received
from writing short-term calls will only slow the rate at which
the overall position loses money.  But it WILL lose money!
Similarly, the LEAPS covered put WILL lose money if the stock
on which it is employed is in a longer-term uptrend, as the
underlying LEAP will be consistently losing money.  The best
way I know of to keep on the right side of the overall trend
is to place a rigid stop (it will probably have to be a mental
one) which specifies the level at which you will consider the
trend of the stock to have changed from bearish to bullish.
At that point, we would want to completely exit the position,
and look for a different candidate for the strategy that still
is in an established downtrend.  Coming back to our GS example,
if the stock closed above $82, that would be a strong signal
to exit the play, as it would have the stock exceeding its
highs from both August and December, raising the possibility
that the downtrend was over.

It isn't a complicated strategy, buy some traders have a hard
time seeing it without standing on their head.  Run through
some examples on paper, and I think you'll see how easy it
can be.  Remember, questions are always welcome.


Annual Renewal Special

The annual special this year is far too large to put into an
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to which we have added the FOMC meeting dates this year. There
are also two videos with Jim, Jeff and Buzz and seven books 
by leading market professionals like John Murphy and and Jim 
Rodgers. We even brought back the Trading Strategies CD from 
last year for all the new subscribers who have been asking 
for it. 

Click here for the full details:  



Out of Focus

Is the party over? It certainly felt that way as the market 
shifted back into "sell the news" mode. Intel beat estimates and 
projected higher revenues and all traders focused on was the 
reduction in capital expenditures for 2003.

To read the rest of the Swing Trader Game Plan Click here:

Annual Renewal Special

The annual special this year is far too large to put into an
email. The highlights include two option expiration mousepads
to which we have added the FOMC meeting dates this year. There
are also two videos with Jim, Jeff and Buzz and seven books 
by leading market professionals like John Murphy and and Jim 
Rodgers. We even brought back the Trading Strategies CD from 
last year for all the new subscribers who have been asking 
for it. 

Click here for the full details:  



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The Option Investor Newsletter                Wednesday 01-15-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

In Section Two:

Stop Loss Updates: ASD
Dropped Calls: None
Dropped Puts: None
Play of the Day: PUT - ASD
Big Cap Covered Calls & Naked Puts: Downcast Intel Outlook Spurs 

Updated on the site tonight:
Market Watch: Just a Pullback?
Market Posture: Taking a Breather

Annual Renewal Special

The annual special this year is far too large to put into an
email. The highlights include two option expiration mousepads
to which we have added the FOMC meeting dates this year. There
are also two videos with Jim, Jeff and Buzz and seven books 
by leading market professionals like John Murphy and and Jim 
Rodgers. We even brought back the Trading Strategies CD from 
last year for all the new subscribers who have been asking 
for it. 

Click here for the full details:  



ASD - put
Adjust from $72 down to $71





Annual Renewal Special

The annual special this year is far too large to put into an
email. The highlights include two option expiration mousepads
to which we have added the FOMC meeting dates this year. There
are also two videos with Jim, Jeff and Buzz and seven books 
by leading market professionals like John Murphy and and Jim 
Rodgers. We even brought back the Trading Strategies CD from 
last year for all the new subscribers who have been asking 
for it. 

Click here for the full details:  



ASD - American Standard Companies $67.50 -0.93 (-1.04 for the 

Company Summary:
American Standard Companies is a global, diversified manufacturer
of high-quality, brand name products in three major product
groups: air conditioning systems and services, bathroom and
kitchen fixtures and fittings and vehicle control systems for
heavy and medium-sized trucks, buses, trailers, luxury cars and
sport utility vehicles.  The company's brand names include
Trane and American Standard for air conditioning systems,
American Standard, Ideal Standard, Porcher, Jado, Armitage,
Shanks, Dolomite, Meloh, Venlo and Borma for plumbing products
and Wabco for vehicle control systems.

Most Recent Write-Up:
On a day that saw both bulls and bears stymied, our ASD play
treated us rather well on Friday.  The stock dropped at the
open following the dismal employment report and never recovered,
heading lower throughout the day and ending very near the lows
of the day.  While the stock didn't set a new intraday low, it
did close at its lowest level since early November on volume
nearly double the ADV.  Traders that took advantage of the failed
rally near $70 are smiling tonight and now have some cushion in
the play.  Despite the fact that the midweek weakness produced
another Sell signal on the PnF chart, that bullish support line
at $68 is clearly providing support.  We need to see that level
decisively broken before considering new momentum-based positions.

In reality, we need a trade at $67 to actually break that support
line, and with our bearish price target of $64, you can see why
entries on a rollover from resistance near $70 is a better
proposition on a risk/reward basis.  The 10-dma has now fallen
to just above $70 and should reinforce that resistance level on
any intraday rebound, and then we have the 20-dma rolling lower
to $70.96, as backup.  Recall that resistance at $72 looks very
strong and that's where we've placed our stop.  The 50-dma is
starting to roll over just above the $71 level, adding one more
level of protection for our play.  With all that overhead
resistance, you can see that a failed rally up near $71 would be
a gift of an entry point.

Why This is Our Play of the Day:
We mentioned the bullish support line at $68 had been acting as 
support in ASD, and with lows of $68.00 on Monday and Tuesday, 
the PnF and daily charts were aligning perfectly.  The battle was 
finally won by the bears, with a breakdown of that support level 
this morning.  Once the stock fell below $68, several intraday 
rebound attempts were stopped just below $67.80, indicating we 
are now getting resistance in place of support. A breakdown of 
bullish support is not technically complete until the stock 
trades $67.00 and conservative traders can wait for that 
breakdown.  The alternative entry would be another failed rebound 
attempt beneath $68.00. If the market does snap back and the 
stock manages to bounce, new entries would be best advised to 
wait for a failure at $70. 

*** January contracts expire Friday ***

BUY PUT JAN-70 ASD-MN OI=635 at $2.75 SL=1.00
BUY PUT FEB-70*ASD-NN OI= 71 at $4.30 SL=2.25
BUY PUT FEB-65 ASD-NM OI= 28 at $2.15 SL=1.00

Average Daily Volume = 448 K

Annual Renewal Special

The annual special this year is far too large to put into an
email. The highlights include two option expiration mousepads
to which we have added the FOMC meeting dates this year. There
are also two videos with Jim, Jeff and Buzz and seven books 
by leading market professionals like John Murphy and and Jim 
Rodgers. We even brought back the Trading Strategies CD from 
last year for all the new subscribers who have been asking 
for it. 

Click here for the full details:  



Downcast Intel Outlook Spurs Profit-Taking!
By Ray Cummins

The major U.S. equity averages retreated today after the CEO of
hi-tech bellwether Intel (NASDAQ:INTC) issued a cautious outlook
and said the company would cut spending on chip equipment in the
coming months.

Technology stocks did not react well to Intel's cautious report
and the NASDAQ Composite tumbled 22 points to 1,438.  Chip stocks
were the biggest losers but the technology sell-off also spread
to the telecom and networking sectors.  The Dow Jones Industrial
Average slipped 119 points to 8,723 on weakness in Alcoa (NYSE:AA)
and Dupont (NYSE:DD), among others.  The S&P 500 Index slipped 13
points to 918 with cyclical, biotech, defense, and retail shares
trading lower.  Airline, precious metal, and oil and gas drilling
issues saw limited buying pressure.  Volume reached 1.4 billion
shares on the NYSE and 1.6 billion on the NASDAQ.  Decliners beat
advancers by a ratio of roughly 2 to 1 on both the Big Board and
the technology exchange.  Treasury notes and bonds posted gains
thanks to favorable inflation news and the exodus from equities.
The benchmark 10-year Treasury note rose 5/32 at 99 17/32 with
its yield at 4.06% while the 30-year bond added 11/32 at 106 to
yield 4.98%.




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.


The Maximum Yield (listed in the summary and with new option
selling plays) is the greatest possible profit available in the
position.  This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations.  Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The "Simple Yield" is based on the cost of the underlying issue
(in the event of assignment), including the premium from the sold
option, thus it reflects the maximum potential loss in the trade.
Naked Puts

Stock  Strike Strike  Cost Current   Gain    Max   Simple
Symbol  Month  Price Basis  Price   (Loss)  Yield  Yield

AMGN     JAN    40   39.20  51.10   $0.80   5.29%  2.04%
MERQ     JAN    22   22.05  37.99   $0.45   5.53%  2.04%
NBIX     JAN    40   38.75  47.74   $1.25   7.51%  3.23%
OMC      JAN    60   58.65  67.72   $1.35   5.44%  2.30%
PPD      JAN    22   21.55  20.01  ($1.54)  0.00%  4.41%
QCOM     JAN    32   31.85  39.32   $0.65   5.67%  2.04%
SYMC     JAN    35   34.30  47.34   $0.70   5.66%  2.04%
AMGN     JAN    47   46.60  51.10   $0.90   5.27%  1.93%
BSX      JAN    40   39.10  43.40   $0.90   6.10%  2.30%
IGEN     JAN    35   33.90  44.40   $1.05  10.01%  3.10%
OVER     JAN    22   22.20  28.14   $0.30   4.83%  1.35%
PLMD     JAN    25   24.50  26.65   $0.50   7.09%  2.04%
COF      JAN    27   27.25  38.70   $0.25  12.97%  0.92%
ASA      FEB    35   34.45  39.50   $0.55   4.44%  1.60%
COF      FEB    25   24.35  38.70   $0.65   7.31%  2.67%
IGEN     FEB    35   34.05  44.40   $0.95   8.27%  2.79%
INVN     FEB    22   22.05  28.85   $0.45   6.32%  2.04%
PHM      FEB    45   44.05  51.56   $0.95   5.39%  2.16%

Naked Calls

Stock  Strike Strike  Cost   Current  Gain    Max   Simple
Symbol Month  Price   Basis  Price   (Loss)  Yield  Yield

CCMP     JAN    60    61.35  55.38   $1.35   8.36%  2.20%
EXPE     JAN    80    81.35  67.56   $1.35   5.48%  1.66%
LLTC     JAN    32    32.90  30.82   $0.40   7.00%  1.22%
NVLS     JAN    35    35.30  33.45   $0.30   5.12%  0.85%
CTSH     JAN    70    70.30  61.45   $0.30   1.26%  0.43%
EXPE     FEB    75    76.25  67.56   $1.25   6.84%  1.64%
MBG      FEB    30    30.65  27.92   $0.65   6.68%  2.12%
QCOM     FEB    42    43.05  39.32   $0.55   5.07%  1.28%

Put-Credit Spreads

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

RYL    113.00 112.20  JUN   90  95  0.55  94.45  $0.55   Open
EK      38.22  39.98  JAN   30  35  0.55  34.45  $0.55   Open
MRX     48.86  52.59  JAN   40  45  0.40  44.60  $0.40   Open
BSTE    35.01  37.65  JAN   25  30  0.60  29.40  $0.60   Open
SYK     65.88  67.52  JAN   55  60  0.40  59.60  $0.40   Open
FRX     58.03  54.95  FEB   45  48  0.00  47.50  $0.00   Open
PFCB    37.96  38.53  FEB   30  35  0.50  34.50  $0.50   Open
SLM    106.71 107.46  FEB   90  95  0.50  94.50  $0.50   Open

Call-Credit Spreads

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

ERTS    60.68  50.08  JAN   75  70  0.50  70.50  $0.50   Open
ITMN    29.29  21.15  JAN   40  35  0.50  35.50  $0.50   Open
CCMP    48.75  55.38  JAN   65  60  0.40  60.40  $0.40   Open
LOW     38.20  37.73  JAN   45  43  0.25  42.75  $0.25   Open
MXIM    34.18  38.09  JAN   45  40  0.50  40.50  $0.50   Open
HET     37.47  37.98  FEB   43  40  0.40  40.40  $0.40   Open
PHA     42.00  42.56  FEB   50  45  0.60  45.60  $0.60   Open
ZBRA    57.32  57.58  FEB   70  65  0.50  65.50  $0.50   Open

Credit Strangles

No Open Positions

Synthetic Positions:

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

EASI   37.25   37.24   JAN40C/35P   0.10   34.90   0.40  Closed

Engineered Support Systems (NASDAQ:EASI) provided a small profit
just after the play was opened but the position should have been
closed when the issue fell below the sold strike at $35.

Questions & comments on spreads/combos to Contact Support


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.  The positions with "*" will be included
in the weekly summary.  Those with "TS" (Target-Shoot) are below
our minimum monthly return but may offer a favorable entry price
with a limit order, due to the daily volatility of the underlying


BULLISH PLAYS - Premium Selling

All of these issues have robust option premiums and relatively
favorable technical indications.  However, current news and market
sentiment will have an effect on these stocks, so review each play
thoroughly and make your own decision about its future outcome.

ACDO - Accredo Health  $37.31  *** Healthcare Sector! ***

Accredo Health (NASDAQ:ACDO) provides specialized contract
pharmacy services on behalf of biopharmaceutical manufacturers
to patients with chronic diseases.  The company's services help
simplify the difficult and often challenging medication process
for patients with a chronic disease and help ensure that patients
receive and take their medication as prescribed.  The company's
services benefit biopharmaceutical manufacturers by accelerating
patient acceptance of new drugs, facilitating patient compliance
with the prescribed treatment and capturing valuable clinical
information about a new drug's effectiveness.  The company's
services include contract pharmacy services, clinical services,
reimbursement services and delivery services.

ACDO - Accredo Health  $37.31

PLAY (sell naked put):

Action    Month &  Option    Open    Last  Cost    Max.  Simple
Req'd     Strike   Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  FEB 30   AEZ NF     63     0.35  29.65   3.6%   1.2% TS
SELL PUT  FEB 32.5 AEZ NW    182     1.05  31.45   7.7%   3.3% *
SELL PUT  FEB 35   DZU NG     56     1.60  33.40   9.3%   4.8%

AMGN - Amgen  $50.72  *** Trading Range? ***

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

AMGN - Amgen  $50.72

PLAY (sell naked put):

Action    Month &  Option    Open    Last  Cost    Max.  Simple
Req'd     Strike   Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  FEB 45   AMQ NI   4,015    0.70  44.30   3.8%   1.6% TS
SELL PUT  FEB 47.5 AMQ NW   2,372    1.20  46.30   5.4%   2.6% *
SELL PUT  FEB 50   AMQ NJ   2,742    2.00  48.00   7.6%   4.2%

BSTE - Biosite  $39.26  *** Upgrade = Rally! ***

A leader in the drive to advance diagnosis, Biosite (NASDAQ:BSTE)
is a unique research-based company dedicated to the discovery and
development of novel protein-based diagnostic tests that improve
a doctor's ability to diagnose debilitating and life-threatening
diseases.  The firm combines integrated discovery and diagnostics
businesses to access proteomics research, identify proteins with
high diagnostic utility, develop and commercialize products and
educate the medical community on new diagnostic approaches that
improve health care outcomes.  Biosite's "Triage" rapid diagnostic
tests are used in approximately 50 percent of U.S. hospitals and
in approximately 40 international markets.

BSTE - Biosite  $39.26

PLAY (sell naked put):

Action    Month &  Option    Open    Last  Cost    Max.  Simple
Req'd     Strike   Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  FEB 30   BQS NF     114    0.35  29.65   3.5%   1.2% TS
SELL PUT  FEB 35   BQS NG     214    1.15  33.85   7.5%   3.4% *

CEPH - Cephalon  $51.31  *** NDA For Provogil! ***

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

CEPH - Cephalon  $51.31

PLAY (sell naked put):

Action    Month &  Option    Open    Last  Cost    Max.  Simple
Req'd     Strike   Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  FEB 40   CQE NH   1,667   0.40  39.60   3.0%    1.0% TS
SELL PUT  FEB 45   CQE NI   4,757   0.85  44.15   5.0%    1.9% *
SELL PUT  FEB 50   CQE NJ   3,800   1.85  48.15   7.7%    3.8%

GENZ - Genzyme General  $35.11  *** Favorable FDA Decision! ***

Genzyme General Division (NASDAQ:GENZ) is a division of Genzyme
Corporation, a biotechnology and human healthcare company that
develops products and provides services for unmet medical needs.
Genzyme General develops and markets therapeutic products and
diagnostic products and services with an emphasis on genetic
disorders and other chronic debilitating diseases with defined
patient populations.  The company is organized into two segments,
Therapeutics, which focuses on developing and marketing products
for genetic diseases and other chronic debilitating diseases,
including a family of diseases known as lysosomal storage
disorders, and specialty therapeutics, and Diagnostic Products,
which develops, markets and distributes in vitro diagnostic
products.  The company also operates a wholly owned subsidiary,
GelTex Pharmaceuticals.

GENZ - Genzyme General  $35.11

PLAY (sell naked put):

Action    Month &  Option    Open    Last  Cost    Max.  Simple
Req'd     Strike   Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  FEB 27.5 GZQ NQ   1,201    0.30  27.20   3.4%   1.1% TS
SELL PUT  FEB 30   GZQ NF   1,471    0.60  29.40   5.2%   2.0% *
SELL PUT  FEB 32.5 GZQ NP     241    1.15  31.35   7.5%   3.7%


BULLISH PLAYS - Credit Spreads

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may also be higher than other plays in the same strategy, due to
small disparities in option pricing however, each play should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.

AGN - Allergan  $60.51  *** On The Move! ***

Allergan (NYSE:AGN) is a technology-driven, global healthcare firm
that develops and commercializes specialty pharmaceutical products
for ophthalmic, neurological, dermatological and other specialty
markets, as well as ophthalmic surgical devices and contact lens
care solutions.  Its worldwide consolidated revenues are primarily
generated by prescription and non-prescription pharmaceutical
products in the areas of ophthalmology and skin care, neurotoxins,
intraocular lenses and other ophthalmic surgical products, and also
contact lens care products.  The company's products are sold to drug
wholesalers, independent and chain drug stores, pharmacies, optical
store chains, opticians, mass merchandisers, food stores, hospitals,
ambulatory surgery centers and medical practitioners, including
neurologists, dermatologists and plastic surgeons.

AGN - Allergan  $60.51

PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-50.00  AGN-NJ  OI=35   A=$0.30
SELL PUT  FEB-55.00  AGN-NK  OI=286  B=$0.85
POTENTIAL PROFIT(max)=14% B/E=$54.40

BRL - Barr Laboratories  $77.63  *** Rally Mode! ***

Barr Laboratories (NYSE:BRL) is a specialty pharmaceutical company
primarily engaged in the development, manufacture and marketing of
generic and proprietary prescription pharmaceuticals.  The company
manufactures and distributes more than 100 different dosage forms
and strengths of pharmaceutical products in core therapeutic
categories, including oncology, female healthcare (including
hormone replacement and oral contraceptives), cardiovascular, anti
infective and psychotherapeutics.  In addition, the company has a
proprietary, novel vaginal ring drug delivery system it is using
to develop products intended to address a variety of female health
issues and unmet medical needs.

Note: Target a higher premium in the position initially, to allow
for some consolidation (from the recent sharp) rally in the
underlying issue.

BRL - Barr Laboratories  $77.63
PLAY (very conservative - bullish/credit spread):

BUY  PUT  FEB-65.00  BRL-NM  OI=102  A=$0.35
SELL PUT  FEB-70.00  BRL-NN  OI=90   B=$0.65
POTENTIAL PROFIT(max)=9% B/E=$69.55

FIC - Fair, Isaac and Company  $44.63  *** Uptrend Intact! ***

Fair, Isaac and Company (NYSE:FIC) is a provider of creative
analytics that unlock value for people, businesses and industries.
The company's predictive modeling, decision analysis, intelligence
management and decision engine systems power more than 14 billion
decisions a year.  The company helps thousands of firms in over 60
countries acquire customers more efficiently, increase customer
value, reduce risk and credit losses, lower operating expenses
and enter new markets more profitably.  Major banks and credit
card issuers rely on the Company's analytic solutions, as do many
insurers, retailers, telecommunications providers and various
customer-oriented companies.  Fair, Isaac helps companies solve
business problems related to customer acquisition, customer
management and business process management.  In August 2002, the
firm merged with HNC Software, a provider of high-end analytic
and decision management software applications and tools.

FIC - Fair, Isaac and Company  $44.63

PLAY (very conservative - bullish/credit spread):

BUY  PUT  FEB-35.00  FIC-NG  OI=10  A=$0.35
SELL PUT  FEB-40.00  FIC-NH  OI=0   B=$0.75
POTENTIAL PROFIT(max)=9% B/E=$39.55



Based on analysis of option pricing and the underlying stock's
technical background, these positions meet our fundamental
criteria for bearish "premium-selling" strategies.  Each issue
has robust option premiums, a well-defined resistance area and
a high probability of remaining below the target strike prices.
As with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.

CCMP - Cabot Microelectronics  $53.10  *** Premium Selling! ***

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

CCMP - Cabot Microelectronics  $53.10

PLAY (sell naked call):

Action    Month &  Option    Open    Last  Cost    Max.  Simple
Req'd     Strike   Symbol    Int.    Price Basis  Yield  Yield

SELL CALL FEB 65   UKR BM     801    0.55  65.55   4.0%   0.8% TS
SELL CALL FEB 60   UKR BL     566    1.45  61.45   7.5%   2.4% *
SELL CALL FEB 55   UKR BK     266    3.20  58.20  11.7%   5.5%

KLAC - KLA Tencor  $38.45  *** Sector Slump! ***

KLA-Tencor (NASDAQ:KLAC) is a supplier of process control and
yield management solutions for the semiconductor and related
microelectronics industries.  The company's large portfolio
of products, software, analysis, services and expertise is
designed to help integrated circuit manufacturers manage yield
throughout the entire wafer fabrication process, from research
and development to final mass production yield analysis.  The
company offers a broad spectrum of products and services that
are used by every major semiconductor manufacturer in the world.
These customers turn to the company for in-line wafer defect
monitoring; reticle and photomask defect inspection; CD SEM
metrology; wafer overlay; film and surface measurement; and
overall yield and fab-wide data analysis.  

KLAC - KLA Tencor  $38.45

PLAY (sell naked call):

Action    Month &  Option    Open    Last  Cost    Max.  Simple
Req'd     Strike   Symbol    Int.    Price Basis  Yield  Yield

SELL CALL FEB 45   KCQ BI   10,070   0.80  45.80   6.8%   1.7% *
SELL CALL FEB 40   KCQ BH    7,044   2.35  42.35  11.9%   5.5%

LLTC - Linear Technology  $29.37  *** A Dip In The Chips! ***

Linear Technology (NASDAQ:LLTC) designs, manufactures and sells
a broad line of standard high-performance linear integrated
circuits (ICs).  Applications for the company's products include
telecommunications, cellular telephones, networking products,
optical switches, notebook and desktop computers, computer
peripherals, video/multimedia, industrial instrumentation,
security monitoring devices, high-end consumer products, digital
cameras and MP3 players, complex medical devices, automotive
electronics, factory automation, process control and military and
space systems.

LLTC - Linear Technology  $29.37

PLAY (sell naked call):

Action    Month &  Option    Open    Last  Cost    Max.  Simple
Req'd     Strike   Symbol    Int.    Price Basis  Yield  Yield

SELL CALL FEB 35   LLQ BG    4,766   0.35  35.35   4.5%   1.0% *
SELL CALL FEB 32.5 LLQ BZ    2,106   0.95  33.45   8.3%   2.8%
SELL CALL FEB 30   LLQ BF    7,748   1.90  31.90  12.1%   6.0%

QLGC - QLogic  $41.83  *** Pure Premium Selling! ***

QLogic Corporation (NASDAQ:QLGC) designs and supplies storage
network infrastructure components and software for server and
storage subsystem manufacturers.  The company's products are
based on SCSI, iSCSI, Fibre Channel and Infiniband standards.
The company is the only end-to-end supplier of Fibre Channel
network infrastructure components that aid in the transfer and
acquisition of data within the SAN.  Their products include its
SANblade HBAs, SANbox Fibre Channel Switches and SANsurfer Tool
Kit management software.  QLogic is the only HBA vendor that
supports SCSI, Internet Protocol, Virtual Interface and FICON
protocols with the same Fibre Channel HBA.  In addition, the
company designs and supplies controller chips used in a variety
of hard drives and tape drives as well as enclosure management
and baseboard management chip solutions that monitor the health
of the physical environment within a server or storage enclosure.

QLGC - QLogic  $41.83

PLAY (sell naked call):

Action    Month &  Option    Open    Last  Cost    Max.  Simple
Req'd     Strike   Symbol    Int.    Price Basis  Yield  Yield

SELL CALL FEB 50   QLC BJ      880   0.65  50.65   5.8%   1.3% *
SELL CALL FEB 47.5 QLC BW    3,527   1.20  48.70   8.0%   2.5%
SELL CALL FEB 45   QLC BI    3,456   2.00  47.00  10.6%   4.3%


BEARISH PLAYS - Credit Spreads

All of these positions are favorable candidates for "bear-call"
credit spreads, based on the current price or trading range of
the underlying issue and its recent technical history or trend.
The probability of profit from these positions may be higher
than other plays in the same strategy, due to disparities in
option pricing.  However, current news and market sentiment will
have an effect on these issues, so review each play individually
and make your own decision about its future outcome.

ATK - Alliant TechSystems  $59.65  *** Sell-Off In Progress! ***

Alliant Techsystems (NYSE:ATK) is a supplier of aerospace and
defense products to the U.S. government, America's allies and
major prime contractors.  ATK also is a supplier of ammunition
to federal and local law enforcement agencies and commercial
markets.  ATK designs, develops and produces rocket propulsion
systems for a range of government and commercial applications.
The company is also the sole supplier of the reusable solid
rocket motors used on NASA's Civil Manned Space Launch Vehicles.
ATK designs, develops and manufactures conventional munitions
for the U.S. and allied governments as well as for commercial
applications.  The firm manufactures and develops small-caliber
ammunition for the U.S. military, U.S. allies, federal and local
law enforcement agencies, and commercial markets.  The company's
quarterly earnings are due on 10/31/02.

ATK - Alliant TechSystems  $59.65

PLAY (conservative - bearish/credit spread):

BUY  CALL  FEB-70.00  ATK-BN  OI=673  A=$0.40
SELL CALL  FEB-65.00  ATK-BM  OI=478  B=$0.90
POTENTIAL PROFIT(max)=11% B/E=$65.55

GS - Goldman Sachs  $73.51  *** Trading Range? ***

The Goldman Sachs Group (NYSE:GS) is a global investment banking
and securities firm that provides a range of services worldwide
to a substantial and diversified client base.  The firm operates
offices in over 20 countries with activities are divided into two
primary segments: Global Capital Markets, and Asset Management
and Securities Services.  The Global Capital Markets segment,
which represented 64% of the firm's 2001 net revenues, consists
of Investment Banking, and Trading and Principal Investments.
Goldman's Asset Management segment offers investment strategies
and advice across all major asset classes: global equity; fixed
income, including money market instruments; currency, as well as
alternative investment products.  The firm's Securities Services
activities include brokerage, financing services and securities

GS - Goldman Sachs  $73.51

PLAY (very conservative - bearish/credit spread):

BUY  CALL  FEB-85.00  GS-BQ  OI=27    A=$0.25
SELL CALL  FEB-80.00  GS-BP  OI=4618  B=$0.65
POTENTIAL PROFIT(max)=9% B/E=$80.45

PDX - Pediatrix  $34.40  *** Big Down Day! ***

Pediatrix (NYSE:PDX) was founded in 1979.  Its neonatal physicians
provide services at more than 190 neonatal intensive care units and
through Obstetrix its perinatal physicians provide services in many
markets where Pediatrix's neonatal physicians practice.  Combined,
Pediatrix and its affiliated professional corporations employ more
than 600 physicians in 29 states and Puerto Rico.

PDX - Pediatrix  $34.40

PLAY (conservative - bearish/credit spread):

BUY  CALL  FEB-45.00  PDX-BI  OI=171  A=$0.25
SELL CALL  FEB-40.00  PDX-BH  OI=191  B=$0.85
POTENTIAL PROFIT(max)=14% B/E=$40.60




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