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Daily Newsletter, Sunday, 02/02/2003

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The Option Investor Newsletter                   Sunday 02-02-2003
Copyright 2003, 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: Window Dressing Wins
Futures Market: Pivotal Times
Index Trader Wrap: WHAT, ME WORRY!
Editor’s Plays: In-e or Out-e?
Market Sentiment: Alan in Wonderland
Ask the Analyst: How or when to get out of the market
Coming Events: Earnings, Splits, Economic Events

Updated on the site tonight:
Swing Trade Game Plan: Looking for Clues


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 01-31        WE 01-24        WE 01-17        WE 01-10
DOW     8053.81 - 77.20 8131.01 -455.73 8586.74 -198.21 +183.26
Nasdaq  1320.91 - 21.23 1342.14 - 34.06 1376.20 - 71.55 + 60.67
S&P-100  432.57 -  3.57  436.14 - 21.22  457.36 - 13.05 + 11.21
S&P-500  855.70 -  5.70  861.40 - 40.38  901.78 - 25.79 +165.21
W5000   8125.07 - 50.67 8175.74 -354.59 8530.33 -228.10 +165.21
RUT      372.17 -  2.89  375.06 - 13.04  388.10 -  8.34 +  6.13
TRAN    2173.35 + 10.02 2163.33 -181.20 2344.53 - 49.14 + 28.73
VIX       35.78 +  0.01   35.77 +  7.09   28.68 +  1.55 -  0.85
VXN       46.81 +  1.76   45.05 +  2.21   42.84 +  0.56 -  3.43
TRIN       0.89            1.69            1.60            0.80
Put/Call   0.84            0.83            0.83            0.75
******************************************************************




Window Dressing Wins
by Jim Brown

Mixed economic reports and warnings from the chip sector could
not hold back the markets at the open on Friday as buyers came
off the sidelines. After the initial bounce the war fears took
hold again but buyers were not to be denied. Even a concentrated
selling attempt at 3:PM which pushed the Dow back under 8000
was overrun by window dressing buyers at the close.

Dow Chart – Daily



Nasdaq Chart – Daily





The economic reports surprised traders on Friday and except for
Consumer Sentiment they surprised to the upside. Personal Income
rose +0.4% in December and twice the expected rate. Spending
rose +0.9% and more than twice the +0.4% November rate. It
appears that despite the lackluster holiday sales the consumer
was alive and well. This suddenly bullish explosion of consumer
data was definitely not expected by analysts.

The NAPM-NY report also surprised analysts at 51.9 and up strongly
from December's 42.4. The six-month outlook rose from 41.0 to
61.1! This rebound in the New York business conditions index
was also not expected and could indicate the worst is over in
the financial sector.

Even more good news came from the Chicago PMI, which exploded
to 56.0 and well over the 52.5 consensus. This is the highest
level since June and well above last months number which was
also revised upward to 51.7. Production and new orders continued
to expand but order backlogs fell by -3 points. Excess capacity
is still a problem and inventory levels are still dropping.
There is no real capital expenditure effort yet and very few
companies are committing to any purchases.

The only negative economic news was the Consumer Sentiment,
which fell to 82.4 from 86.7 in December. Consensus was for
83.2 but the whisper number was below 80. The markets
cheered that the number was not worse. The majority of the
drop was related to a -8 point drop in future expectations
due mostly to the war and market outlook. Only dropping to
82.4 was actually bullish in my opinion.

The only major factor still holding back the markets is the
"Iraq ate my earnings" excuse from companies guiding lower
for the year. Last year it was recession then corporate
governance followed by high energy prices as earnings
shortfall excuses. How they can blame current shortfalls
on Iraq is beyond me. "Customers have put capital expenditures
on hold pending the outcome of the war." Are we going to lose?
The current tally of announcers has 62% beating seriously
reduced estimates. Only around 20% have missed estimates.
Guidance going forward is where the Iraqnaphobia comes into
the picture. Companies that are still giving guidance are
using the Iraq excuse for lower expectations due to
uncertainty for the future. You could build a bullish case
for entering the market before the war if you were careful
about your purchases. If you knew for sure the market was
going to rally in four weeks would you buy now?

Chips would probably not be on the top of a cautious
investors list after the AMAT warning on Friday. They said
that orders for the first quarter were worse than expected
and -35% below the 4Q. AMAT had previously guided to a -20%
drop. They said customers were either delaying or canceling
orders for equipment due to lack of demand and budget cuts.
They also warned on Thursday that they were cutting -165
employees and rumor has it that they will close for two
weeks to cut even more costs. ZRAN, a maker of chips for
consumer electronics, warned it would miss estimates for
the quarter and full year due to weak sales of consumer
items. They estimated they would earn 1-3 cents in Q1 and
the analyst consensus was for 14 cents. The SOX gapped down
to a new low at 261 but rallied back to close flat after
trading positive late in the afternoon. Yes, positive.
I was as dumbfounded as anyone why chips would rally back
to positive territory after two major earnings warnings.
I am sure it was some brave bottom fishers who feel all
the bad news is priced into the sector and some of these
chips are so cheap there is not much risk left.

On Friday the Dow held the Nasdaq up or maybe the Nasdaq
held the Dow back depending on how you look at it. The
Dow is down -800 points over the last two weeks and the
last five trading days looks like an EKG on the 10 min
chart. It has traded in a 200-point range between 7950
and 8150 on almost a daily basis. The 8100-8150 level is
proving as tough to break as the 7950 level is on the
downside. It appears there are plenty of willing buyers
at the right price and plenty of happy sellers at 8150.

Despite the morning black hole in the chip sector the Nasdaq
managed to trade in positive territory most of the afternoon.
This amazing resilience ran head first into serious resistance
at 1330 and ended up closing right on critical support from
November at 1320. If it were not for the end of month window
dressing on the broader markets I think the outcome would
have been significantly different.

With the market dropping as expected over the last three
weeks to three month lows many mutual funds and hedge funds
were holding cash while waiting for the bottom. When the
Dow appeared to refuse to break/hold under 7950 on three
different days this week those funds decided to dress up
their month end statements with stocks instead of cash.
There were three separate buying spurts on Friday ending
with one at 3:30 when the Dow rebounded vertically from
the effects of a 3:PM sell off. The break under 8000
once again triggered another buy program and the Dow
gained +60 points into the close despite substantial
event risk over the weekend.

There is also a tendency for the last day of the month and
the first four trading days of the next month to be bullish
due to the influx of monthly retirement deposits. Jane Fox
wrote an excellent review of several of these different
trading cycles in this weekends newsletter.

While I am starting to lean less bearish due to improving
economic reports I am still not in the bullish camp. I
think the "fear" of impending war will continue to pressure
the markets until the shooting starts. We Americans tend to
tire of new events quickly and once the shooting starts and
there are no unforeseen responses from the Iraq defenders
it should not take more than a couple days before investors
will be back to business as usual. If it is over quick we
could see a very strong ramp due to the estimated $5 trillion
in cash on the sidelines.

Still the uncertainty remains. I do not see cash coming into
the market because the Russell-2000 usually outperforms the
big cap averages when funds are buying. It hit a new 3-month
low on Friday of 366.61 before recovering on window dressing.
Small caps are suffering identically with big caps. Techs are
at critical support levels at 1320 but the January bullishness
has evaporated. While I am less bearish due to economics I
still expect further weakness ahead.

Almost every talking head on TV today repeated the January
barometer history of only wrong four times in 52 years. They
were pointing to the markets being down this year as evidence
they would close lower in December. This may well be and the
track record is very strong BUT there were three times the
indicator was thrown off by world events, two were wars
and one was the World Trade Center attack. 1966 and 1968 were
influenced by events in the Vietnam war. Other than that the
indicator has been very successful.

In 1991 the start of the first Iraq war in February depressed
the markets but January still finished slightly positive. Once
the war started the markets forgot about it and the economic
troubles of 1989/90 and began the ramp into the last economic
boom with a +26% gain for the year. Ladies and gentlemen I
think we are getting ready for that same cycle to start again.
The parallels are too close. Start the war and let the buying
begin.

The major flaw I have yet to overcome is the driving force
behind the next bull market. I have discussed over and over
the lack of impact the next PC upgrade cycle may have.
Compared to the Y2K replacement cycle and the Internet bubble
the next one will be much smaller. With tens of thousands of
dot.coms and startups no longer in existence the demand will
just not be there. Sure we will see a surge but equipment
costs 25% of what it did five years ago and comparisons
will be tough. Computers are more of a commodity today
than ever and profits will be harder and harder to achieve.
In my opinion the circumstances are setup to duplicate the
1991 post war rebound but after the initial bounce what will
be the force driving demand? If we get a 2Q post war bounce
and earnings continue to drop then what will power investor
desires? Numerous analysts have suggested we could be range
bound for years. Perish that thought please! Unfortunately
they could be correct.

Cycles tend to come in near decade increments and that puts
the next peak well into the future. This brings up another
worry. Investors initiated to Internet investing with the
huge profits of the 1999-2000 boom are losing money and
interest in stocks in general with week after week of
negative news and negative markets. Some of these investors
will be back with a new bounce over 9000 but they might not
stay if that bounce fails or moves sideways. Without new
money constantly flowing into the ponzi scheme we call the
market it makes it very hard to maintain momentum. That
brings us full circle and back to markets that our fathers
would understand. That is a stock pickers market. It will
not be like 1999 where you could buy any stock with a four
character symbol and be a winner. I believe that after the
post war bounce we will return to the stock picker scenario.
In any market there are stocks that are moving up and good
research will be rewarded. This is what investors should be
expecting. A slightly trending market where superstars are
rewarded. Remember the historical trend for the market is
between +8% to +12% annual return.

There is another market trend that nobody is discussing.
Since 1919 there has only been three times that the 3rd
year of a presidential term has finished in the red. 18
of 21 times the markets rose. The last time it fell was
in 1939. That sounds like a bullish trend to me. That
trend may not assert itself until after the war but with
re-election politics in full swing by fall you can bet the
bulls will be excited. The Dow only has to gain +289 points
over the next eleven months to technically produce a
winning year. Heck, I bet we get that in one week when
the war is over. Let's just hope we don't need a lot more
points than that to breakeven when that time comes.

The next three trading days are typically bullish except
they end on Wednesday with Powell's speech at the UN. This
could be good for the market if he proves his case and
everyone joins the coalition or bad for the market if it
is seen as smoke and mirrors. Monday investors will look
for the ISM report to confirm Friday's bullish economic
numbers. Tuesday has Factory Orders and another ISM for
Services on Wednesday. The big report will be the Nonfarm
Payrolls on Friday. Plenty of potholes left in the road
and plenty of chances for negative news events. If the
bulls want to climb a wall of worry next week they will
need to bring ropes because it could easily turn into
that slippery slope of hope that makes bear markets.

Enter Very Passively, Exit Very Aggressively!

Jim Brown

"I measure what's going on and I try to adapt to it.
I try to get my ego out of the way. The market is smarter
than I am so I adapt to the market."
Martin Zweig


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

Pivotal Times
By John Seckinger
jseckinger@OptionInvestor.com

With all three futures contracts trading near the 50% retracement
of the move from October to December, risk/reward for both
bullish and bearish camps are enticing.  Which camp has the edge?

Friday, January 31st at 4:15 P.M.

Contract       Last    Net Change    High        Low       Volume

Dow Jones     8053.81   +106.68    8089.66     7917.16
YM03H         8047.00   +147.00    8074.00     7848.00     31,622
Nasdaq-100     983.05     -2.46     996.04      968.34
NQ03H          984.50     -2.50     997.50      965.00    279,987
S&P 500        855.70    +11.09     858.33      840.34
ES03H          854.75    +14.75     857.75      836.50    803,774

Contract         S2         S1       Pivot        R1         R2

Dow Jones      7847.71    7950.76   8020.21    8123.26    8192.71
YM03H          7764.00    7905.00   7990.00    8131.00    8216.00
Nasdaq-100      954.78     968.92    982.48     996.62    1010.18
NQ03H           949.75     967.00    994.50     999.75    1014.75
S&P 500         833.47     844.59    851.46     862.58     869.45
ES03H           828.50     841.50    849.75     862.75     871.00

Weekly Levels

Contract         S2         S1        Pivot        R1         R2

YM03H         7719.00    7883.00    8012.00    8176.00    8305.00
NQ03H          930.00     957.25     992.25    1019.25    1054.25
ES03H          821.00     838.00     852.75     869.75     884.50

Monthly Levels (January's High, Low, and Close)

Contract        S2         S1        Pivot       R1         R2

YM03H         7237.00    7642.00    8253.00    8658.00    9269.00
NQ03H          875.75     930.25    1019.25    1073.75    1162.75
ES03H          775.00     814.75     876.00     915.75     977.00

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.

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

For information on the Futures Monitor and Jim Brown's posts,
please go to the following link and download the current market
monitor.  If you already have the most recent version, simply go
to the Futures Monitor Post on the upper left hand portion of the
applet.

http://www.OptionInvestor.com/itrader/marketbuzz/download.asp

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

Let us first put things in perspective for traders with a more
intermediate-term horizon.  The ES contract closed at 854.75, and
is well underneath its Monthly pivot of 876; a bearish sign.
Moreover, the December 31st low is at 868 and can be used as the
barometer when gauging sentiment (below 881, bearish; above 881,
bullish).  How low could this contract go in the near term?.  A
projection of the low-end of this current range comes in at
782.50.  This number was derived from taking the range from
953.50 to the December 31st low, and then subtracting this
difference from the 868 level.  The Monthly S2 reading comes in
at 775; therefore, this logic appears to have some merit.

It is very rare that the ES contract will trade straight to this
level, and a trade back above 868 should nullify this objective;
therefore, we once again have to use long-term retracement areas
to define risk.  The 854.75 close is above the daily pivot, and
two-points above the weekly pivot as well.  Short-term least
resistance may in fact be higher, and it makes sense to begin to
establish "zones of support and resistance" that can be used to
see if either bullish or bearish traders are gaining or losing
strength.

When putting together these "zones," let us start with a daily
chart.  As a disclaimer:  I was unable to find any trades at or
near the October 10th low of 769 (using a five-minute chart);
however, market participants appear to be trading based off this
imaginary low.  Therefore, I will use the 769 low as well.  With
that said, we can see support at 839.50 and resistance at 861.25.
The daily R1 is 862.75, and weekly R1 is 869.75.  Weekly S1 is
838.

Looking at the chart below, the ES contract is in an interesting
situation.  Bears will like to see the 861 to 862.75 area hold,
while bulls will be looking for move above the December 31st low
and back to the Weekly pivot.  More aggressive traders can look
for a move back inside the regression channel, which would
definitely be the case once the pivot is taken out.  The
objective would be for a move back to 839.  If the 837-839 area
fails, bears should go for the jugular once more (down to 829).

Chart of ES03H, 120-minute




Turning to a chart of the S&P 500 Index, I constructed a few
retracement areas from short- and long-term timeframes; coming up
with some "small zones" that a trader can follow going forward.
Note that on Friday the SPX contract did not fall underneath the
839 area and give a clear sell signal.  Going forward, traders
can look for failure from within the 861 to 870 area, or back
underneath 839.  A move above 870 should significantly shift
sentiment, since this is the 50% zone.  Note:  An ES trader can
use price action in the SPX contract for confirmation purposes,
especially when trading near a key relative high or low.  For
more information of this chart, please see link:

http://www.OptionInvestor.com/futurescorner/fc_013003_1.asp

Chart of SPX (CBOE), Daily




Bullish Percent of SPX: 45.69% and down 1.80% percent on
Friday.  The column of O’s now resides at 10.  There is still a
solid chance the bullish percent will move to the 40% level.
Note:  In order to really look for a bottom, I would like to see
a move under 30%, followed by a row of "X's" that takes the
indicator back above this 30 area.  Looking at P&F analysis, the
SPX contract reversed back into a column of O's on Thursday, and
more weakness should be seen underneath the 840 area.  The low on
Friday was 840.34, and did not reach the 840.00 bearish level.
As noted before, I will use 839 for confirmation.

The March E-mini Nasdaq 100 Contract (NQ03H)

Before I get into the NQ contract, it is noteworthy that the NDX
Index gave a sell signal via P&F figure analysis when it traded
at 975.  The objective for the NDX is now at 825.  With that
backdrop, let us look at the NQ contract.  Friday's high was
unable to test the pivot at 1000, but still managed to close
above Monday's pivot as the session came to an end.  Fortunately
for traders, Monday's pivot is basically right on top of the 50%
retracement area of the move from October to December.  This
gives a great risk/reward trade for either style of trader.
However, since the NDX did give a sell signal, I would prefer a
move under 982 and then have this area become strong resistance.

Looking at a 120-minute chart of the NQ contract, if this 982-83
area does become resistance, look for a move to the Weekly S1
level at 957.25.  The daily S2 comes in at 949.75, so this level
could be hit in the near term.  If bullishness takes over, look
for a move to 1000 and then 1014 - the monthly pivot AND R2 for
Monday.

Chart of NQ03H, 120-minute




Bullish Percent for NDX:  This indicator fell 1% to 47% on
Friday, and continues to portend bears will be selling rallies
going forward.  There column of "O's" remains at nine.  Note:
The NDX gave a sell signal, according to P&F charts, as the 975
area was penetrated.  The bearish objective now stands at 825.

The March Mini-sized Dow Contract (YM03H)

Price action on Friday in the YM contract started out bearish,
but as soon as the contract's Weekly S1 of 7933 was cleared to
the upside, bulls took over and bears were forced to cover.  It
was a surprising rally, but that is why we have levels.  The
Monthly levels should hold the most significance, followed by the
weekly and then daily areas.  Looking at a weekly chart below,
resistance can be seen at the 8143 area.  Note that weakness
underneath the 'zone of support' from 7936 to 7946 was rejected.
Since we didn't get a weekly CLOSE above 8143, least resistance
should be lower still.

Chart of YM03H, Weekly




Dissecting a 90-minute chart of the YM contract, Friday's close
looks more neutral than anything else.  The YM did close ABOVE
Monday's pivot, but is in-between a solid range from 8143 to
7936.  I would wait until either one of these areas are cleared.
If 8143 is cleared, resistance before 8350 is felt at 8253.  On
the other hand, a move under 7936 will give us a bearish
objective of 7850.

Chart of YM03H, 90-minute




Bullish Percent of Dow Jones:  The bullish percent for the Dow
was fell 6.57% on Friday to the 'magical' 30.00% level, and the
column of O’s now stands at 15.  This is significant relative
weakness, and note that the bullish percent of the NYSE has just
turned into a column of "O's," and could be a sledgehammer of the
Dow.  Nevertheless, this is a very narrow indicator (only 20
stocks), but can be a good leading indicator for other sectors.
Remember, a close underneath 30% should start to shift risk into
the bears' camp.  Stay tuned.  Note:  The DJIA, on a P&F chart,
is currently in a row of "X's", and the bearish objective will
now stay at 7000.

Good Luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com


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

WHAT, ME WORRY!
By Leigh Stevens
lstevens@OptionInvestor.com

THE BOTTOM LINE:
There is plenty to go around – worry that is. The see-saw market
of last week appears likely to continue. January was mostly a
down month in stocks and the old market pundits will say that so
goes the rest of the year.  In the near term, the market is
oversold and appears to be finding some technical support after
retracing fully 62% (S&P 500)and 50% (Nasdaq) of the last
advance.  At a minimum the overall rate of downside momentum may
slow and the market “mark time” by moving sideways overall – or,
by only drifting slowly lower. Best characterization of traders:
jumpy.

For options traders who worry about how SOON a given move will
unfold, it could be a tough February (if you buy and hold rather
than trade short-term). Market participants lack much conviction
due to war worry and must wait and see as the aftermath of a Gulf
conflict can’t be known until after it develops.

FRIDAY'S TRADING ACTIVITY –
Economic data that was better than forecast gave a lift to
stocks, with the Dow rallying 108 points to 8053.  The Nasdaq was
not following the Dow’s lead however, as the Composite (COMPX)
was off a fraction but closed above support in the 1300 area – at
1320.  For the week the Industrials were down 1% and the COMPX by
1.6%.  For the full month, it was pretty dismal in the blue
chips, with the Dow off 3.5 percent, although the Nasdaq was
actually up slightly from December.

The DATA – the Chicago Purchasing Managers report showed a rise
in business activity for this key Midwest region as its January
index rose from 56, from around 52 in December. Expectations are
always the benchmark and expectations were for a more modest rise
to 53.  The Commerce Dept. reported December personal income was
up 4 tenths of a percent versus a pre-report estimate for a rise
of 0.2%.

Now, for those who have calculators handy, 0.4% X 12 = 4.8% for
the year.  If your income is rising by 5% a year, that’s not bad
– assumes you’re working of course.  For those with jobs, it
would be a better than average year.  This figure of course
reflects the overtime that employers are paying rather than
hiring NEW employees.  This kind of statistic does not mean that
the overall economy will experience the stronger growth that
would be suggested by putting some unemployed folks back to work
– there’s always significant catch up spending that comes from
that.

And speaking of spending, there was a reported increase in
December personal spending that outstripped the income growth –
0.9%.  Blessed credit, where we would be without it - Mr. Banker,
keep those special offers coming!

The University of Michigan of my home state, came out with its
final January reading on consumer sentiment and its showed a
decline from 82.4 from 86.7 at the end of December.

Consumers were reported to be mildly upbeat about their current
financial condition – they must continue to NOT open their 401k
statements where they have stock but do watch the vastly increase
value of their real estate holdings; i.e., their house. However
EXPECTATIONS are not so hot.  There is an actual index for this
and it fell to a 9 year – count em, 9-year low. The reports from
our fellow Americans are that they are mainly concerned about
their jobs and incomes – but war worries are building.  A quick
and decisive victory by the coalition would likely restore
consumer confidence almost immediately.

By the way, the coalition is the UK and the US period.  The
Italians, the Danes, and the Spanish are behind us lending moral
support but not much else.  The Czechs had a unit of 250 on hand
in the area, but when their President visited, some 30 or so said
they didn’t want to be there and some of them left on the plane
with him to go back home. A little different over here!

If economic conditions do NOT improve after even quick and
decisive victory, confidence would sink lower still, as it did
after the first Gulf War. There was little confidence reported
(in the U of M survey) in government policies to impact the
economy, as Consumers believe that tax cuts are not going to
boost hiring or incomes.  Guess you can’t even fool some of the
people even some of time anymore.  Well, the outcome is unknown
so we’ll see if President Bush’s optimism on this front proves
correct in the end.

The economic numbers have been good and the earnings reports have
also reflected this – but this has not ruled the market, as
nervousness abounds about war and the lack of faith in corporate
America stemming from the accounting scandals and its continued
fallout; e.g., last week’s charges against Xerox’s accounting
firm. Every week there is some more of this kind of news at least
in the business press.  However, with new heads of the Commerce
department and the SEC finally in place, renewed economic
stewardship may help. The feeling that someone is in charge will
be a plus here.

On the EARNINGS front – Disney (DIS) was a big part of the Dow
gain, rallying strongly (+7%) after the company indicated an
expectation of an earnings growth of 25-35% - in the current
environment, this is smoking!  Never mind that that it comes off
from a pretty depressed 2002.

Micky Mouse may make us happy in fantasyland, but techland can
still disappoint – Applied Materials (AMAT) fell over 7% after
stating that it expected a drop of in Q1 orders of some 35%,
rather than the 20% forecast earlier.  The further decline was
attributed to the continued weak economy and war and oil supply
uncertainties causing the chip maker’s customers to put off
capital expenditures – and so it goes and the word for the
economy is “spotty”.

No rest for the downtrodden – UAL posted a Q4 loss of nearly 1.5
billion dollars, compared with “only” losing about 300 mil a year
earlier.  This report sent the stock down another 5%.

Love the name – Boots & Coots International (WEL) said after the
close on Friday that one of its lenders declared the company on
default of a 1 million dollar credit agreement.  This company is
gearing up to possibly fight major oil well fires in Iraq, if
Saddam decides to have the wells blown up rather than surrender
them to the U.S.  Come on baby light my fire – try to set the
world on fire!  Not to make “light” of such a potential
environmental disaster, but it keeps the boys from Texas busy and
should be a big earnings windfall for the company. Such is the
way that analysts think on the Street of Dreams.

Tyco (TYC) said late Friday that it got a new 1-year $1.5 billion
credit line with Banc of America and Morgan Stanley.  Combined
with a new issue of $4.5 in corporate bonds, the company
indicated that it has closed a gap in needed liquidity for the
coming year.  Nothing speaks louder than being a big revenue
generating business, even if you went through the mud in the year
before because of executive level excesses.  Time to buy the
stock for a long-term play? Another dip under 15, say to 12 and
I’m there.  Way down from the 60 area, but recent highs at 18 are
one nice move from last summer’s $10.

OTHER MARKETS -
Bonds made no strong move in either direction on Friday with the
10-year T-Note up a sixteen on Friday.  Yields on the 10 year
ended the day at 3.9%.  Wish the bank would pay me that much on
my balances instead of the fraction of a percent I’m seeing
lately. Such is the nature of short versus long rates.

The dollar rebounded a bit against the Euro and the Yen. The Euro
fell to 1.076 from 1.081. Gold ended the week up slightly as
nearby New York Comex gold futures closed at $371 on Friday
versus 369.5 in the previous week.

COMING UP (NEXT WEEK) –
Big on the political front next week, and war politics largely
“rule” these days, is Wed. (5th) as Secretary of State Colin
Powell goes before the (UN) Security Council to present U.S.
evidence that Iraq is developing mass weapons of destruction. If
his arguments sway the member states, this may relieve the market
some as it suggests a quicker timetable to go in.  Sooner we go
in, the sooner we know the fallout related to the economy and get
it behind us.

There will be a couple of key reports relating to the state of
our economy – unemployment data and numbers from the Institute of
Supply Managers or ISM which gives some reading on the future
level of manufacturing.

Oh CISCO! – yep, it brings up the rear of reporting earnings for
the big bellwether type stocks, as the company reports its fiscal
year Q2 results on Monday after the close.  CSCO is expected to
see an earnings rise to 13 cents a share, from 9 cents.

And last but not least – the market takes in the shock of the
destruction of space shuttle Columbia, the oldest of the 4-
shuttle fleet, with some specific effects being felt by Boeing
(BA) and Lockheed Martin (LMT) – joint partners that together
serve as NASA’s prime contractor for shuttle operations.  The two
companies manage a third potion of the yearly space shuttle
budget accounting for slightly more than a billion dollars.  The
loss is a tragedy for these men, their families and our country.

MY INDEX OUTLOOKS –

S&P 500 Index (SPX) – Daily chart:
My downside objective on the S&P 500 (SPX) has been for 840-845
and I suggest taking some put profits in this area – if you are
one of the ones who was on the right side of a trade at higher
levels. On the upside, I would like to sell a rally back up to
the 900 area - wouldn’t we all?  I can’t see what would get us
back up there in the week ahead or even the month ahead.





I put some stock in “filling in” prior upside chart gaps as an
indication that an index (or stock) has gotten back to an area of
technical support and I noted with interest that this occurred
last week as noted on the SPX chart above.

Moreover, SPX completed a “fibonacci” 62% retracement, which I
also put some trust in as a possible turnaround point or
completion of decline – pullbacks tend to be either 50 to 62% OR
a full 100%, in a retracement back to a rally starting point.

More on chart retracements and why they can be useful in trading
can be found in my Trader’s Corner article at –
http://www.OptionInvestor.com/traderscorner/100302_2.asp


S&P 100 Index (OEX) – Daily and Hourly charts:

420 was my downside objective in the OEX and the Index got near
this level last week.  The 420 area is more or less the low end
of the downtrend channel that I am estimating for OEX currently.

We could drop further of course with all the bearish influences
out there, but my best guess is we’ll next see a sideways to
higher move first to at least “throw off” the oversold condition.
440 is the key overhead resistance and I suggest selling rallies
(buy puts) in this area but exiting if the Index goes much above
this level, especially on a closing basis – both hourly and
daily.

Tougher resistance or heavier selling pressure can be anticipated
in the 450-454 area, then around 460, at the top of the channel
and near to where the 50-day average is currently.





The index is now fully oversold on a short-term basis – that and
your subway fare will get you on the train.  Oversold is an
“OVER” rated idea, but does have meaning when combined with chart
analysis such as an approach to prior lows or completion of a 62%
retracement of the prior advance, etc.

Last week, I mistakenly labeled the recent peak of the 10-day
TRIN (Richard Arms’ TRading INdex) as the “overbought” level,
demonstrating that it’s hard to think of a HIGH number on an
indicator as suggesting an “oversold” condition.

The way the Arms Index or TRIN is constructed, a series of high
daily readings is showing heavy selling – in the world of
“contrary” theories about the markets, heavy selling usually
occurs sometime ahead of an actual bottom as everyone who was
going to sell finally gets all or most of their selling done.
Once selling dries up, it doesn’t take a huge amount of buying
for a rally.

S&P 100 (OEX) Daily Chart:

During many periods of trading, the use of moving average
“envelopes” a useful way to highlight the market being both
oversold AND the (price) AREA where that occurs.  420 is
approximately 6% under the OEX 21-day moving average and this
percentage under tends to be EITHER where the Index rebounds OR
where it just begins to gradually drift lower (lacking a further
quick, steep downswing).  If a rebound develops, I look for a
move back up TO and not beyond the 21-day moving average,
currently at 454.30 as noted on the chart.





It’s generally valuable to have some measure of estimating that
trend MOMENTUM may slow – one way is suggested by the use of
moving average envelopes. It is at this point that you need to
start calculating how fast the (time) premium erosion might be in
your further risk to reward calculation - at least on long
options.

Can we fall to 400 in the next couple of weeks? – sure, we could
get there in a couple of days – but, absent an invasion that goes
badly, uncertainties about the outcome of an Iraq conflict seem
mostly priced into the index. And we won’t likely get much
further resolution until March.

Nasdaq Composite (COMPX) Daily Chart:




The composite completed a 50% retracement on a closing basis
after rebounding from an approach to key technical support around
1300. Recently the Nasdaq TRIN got to near, but didn’t quite
reach, what is usually a definitive “oversold” or climax selling
level as measured on a 10-day basis. (High readings in the 10-day
TRIN is almost never a short-term timing indicator however, as
peak readings can occur days and even 2-3 weeks ahead of an
actual bottom.)

We could have bottomed with only a 50% price retracement as the
Nasdaq has been more oversold on a long-term basis.  Time will
tell.

QQQ Daily chart:
I suggested covering short positions (and long puts) on moves to
near 24, which was seen on Friday – this strategy is still my
suggestion, as this area has been the low end of the recent
trading range – not that the Q’s cannot also go lower of course,
but trading is a matter of playing the odds and the probability
of a rebound increases in my estimation. Especially also given
that the Nas 100 tracking stock is registering an oversold
reading on the various oscillators.





If there is a decisive downside break of 24 and a couple of
consecutive closes under this level, the next significant support
looks to be in the 22 area.

QQQ Hourly chart:




The top end of the trading range of the past few weeks has been
in the 26-27 area.  There is near resistance also apparent around
25.50, but I consider 26 more the beginning of where the
strongest selling will show up.

26 or higher (26-27 zone) is a definite area to re-short the
stock.  Especially so as long as the administration still appears
to be on a straight-line march to an invasion of Iraq.



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

In-e or Out-e?

I picked up a couple of interesting tidbits this week
that contributed to this column. I am going to profile
a call and a put with the emphasis on cheap. I get the
most email wanting cheap option plays from those investors
on a budget. Just remember you normally get what you
pay for.

Out-e, as in out of favor. You were thinking of something
else? Monster.com had a great Super Bowl ad but with
many more applicants than jobs it must be tough making
a living. The Chairman dumped 270,000 shares this month
and that does not say much for immediate future prospects.
Maybe he needed the money for tuition. He claims he holds
an executive MBA degree from Harvard, a degree the school
does not offer. Enquiring minds want to know if Jeff Taylor
has his application for another chairmanship posted online.
The company also said it was cutting a lot of high profile
job categories from its offerings and would take a $100
million restructuring charge. They announce earnings on
Feb-13th and the conference call should be fun.

TMPW closed at $11.05 on Friday. Really gutsy (crazy)
traders could consider the Feb-$10 put for $.60 cents
but it expires the day after the conference call. You
do not need a degree from Harvard to question the wisdom
of that strike. The March $10 put is $1.10 and if the
conference call torpedoes the support at $10 we could be
looking at something below $8 really easy. Very high risk
play because any positive news could stimulate the
gazillion shorts to cover.

The company has other businesses besides Monster.com
like MonsterMoving.com which is a portal for everything
connected with buying, selling and moving to a new home.





In-E, our in favor stock, is EMC. They reported earnings
last week inline with estimates and it expects to report
positive earnings growth for the next four quarters. EMC
is concentrating on new products like their long term
archive storage systems. Their Centera Content system
saw a revenue increase of +258% in the fourth quarter.
Not bad for a slow tech environment. Storage system
companies have been reporting sales growth when other
techs have not. EMC is the biggest and has marketing
agreements with other major companies. They are widely
expected to do great when the recovery comes and do well
if it doesn't.

The stock has been stuck below $8 since May of last year.
It has been on a steady uptrend since $4 in October. I
could see it breaking that $8 barrier in the next earnings
cycle. I think it would produce significant short covering
and we could see a quick run to next resistance at $12.
The rest is up to the recovery.

The July $7.50 call (stock at $7.70) is $1.45 and would
cover two earnings cycles. The Jan-2004 $10.00 call is
only $1.10 and would cover four earnings cycles and it
is only $2 out of the money. Personally I would go for
the January option. I know it is a long time but for
$110 it could be very profitable. It may never get back
to the $105 share price from Sept of 2000 but $20 is a
definite goal if the market returns. Also a high risk
play but for the price of a good dinner and a movie for
a couple you could be richly rewarded. No guarantees
of course.

EMC Daily



EMC Weekly





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

Play updates:

NEM Put from Jan-26th

ABX sold off just like we expected and traded back down to
$16.45 but also as expected there was not enough movement
to make a profit. NEM also sold off from $30.15 to $28.95
but has yet to break enough to be profitable either. Both
stocks did exactly as expected and that was fail to make
it over resistance in their already extended state.

I recommended March and June $27.50 puts on NEM and both
are up just fractionally over last weeks prices but primed
for a fall once the war starts. If Powell is successful in
adding to the coalition next week the fall could begin then.

March $27.50 Put NEM-OY $1.25
June $27.50 Put NEM-RY $2.40

AMZN Puts from Jan-19th

What can I say? Fundamentals still do not matter. AMZN
has traded in a tight range between 22.40 and 21.60
except for the gap down with the market on Tuesday. The
good news is we are not seeing any bullish movement. The
bad news is there is no movement in our direction.

With the potential for a further Nasdaq drop next week
I am still hopeful. We have a stop set at $22.75 and we
are looking for a break under $21.50 to get the ball
rolling. We just want it to be before Feb-21st.

DJX Puts from Jan-5th.

The Dow continued to drop this week and the Feb-85 put
traded as high as $6.20 from the $2.85 price when
recommended. The March-$85 put traded as high as $7.00,
up from $3.40. We are getting very close to the secondary
target of 7700 on the Dow and I would plan on exiting
if we hit that level. There is always the possibility
that something bullish will happen and hold the market
in the current range while premium decays. With strong
gains on either strike I would be very careful about
giving it back. Set a stop loss and exit with a profit
on a bounce.

Powerball - From 12/29/02

The Powerball Lottery play for December-2003 dropped another
-$100 to a loss of -$485 is closed today. This is a 12-month
play and we are only four weeks into it. Be patient. If you
are not in it I would consider it a buying opportunity. It
would cost you about $700 to buy one contract of each today.
Any one contract could repay that $700 by 12/31/04 leaving
the rest as profit. It is a high risk "LOTTERY" play but then
$700 is not much risk.

It would have taken $1,135 to buy one contract of each on
January-2nd. Any bets on what this will be worth on 12/31/03






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

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

Good Luck

Jim Brown


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

Alan in Wonderland
by Steven Price

Any trader watching the intraday moves in the major indices today
is most likely wearing a neck brace by now. While we still appear
to be in breakdown territory, the bulls are not giving in easily
and continue to buy dips.  Those dips, however, are getting
slightly lower each day, as are the rally highs.  Ever since
breaking down from support in the Dow 8200-8400/SPX 870-900
ranges, it seems like everyday has been an adventure, with each
one harder to predict than the day before.  Traders listening to
the television analysts know that each day brings a dramatically
different tone.  Most of the action has been pinned on
unpredictable war developments relating to Iraq.  However, we are
also in the heart of earnings season and there has been plenty of
additional information to digest.

Some of that information came by way of a warning from the
world's largest chip manufacturing equipment maker Applied
Materials (AMAT) this morning.  AMAT said it expects a 35% drop
in orders for its latest quarter, instead of the previously
expected 20% drop.  That announcement sent a pre-open bullish
market into the tank early on, with all major indices continuing
Thursday afternoon's slide to new relative lows.  That's when the
schizophrenia began.  The university of Michigan Consumer
Sentiment results came out at 82.4, versus expectations of 83.5.
That was worse than expected, but the market rallied strong, with
the Dow running almost 100 points following the data.  Then came
the good news.  The Chicago PMI report came out at 56% versus
53%, with any number over fifty indicating manufacturing
expansion in the region.  The good news sent the Dow lower by
almost the 100 points that it rallied on the worse than expected
Sentiment number.  Feel like you just fell down the rabbit hole?
The Wonderland scenario (I can just see Alice Greenspan
navigating the chessboard trying to figure out ways to prop up a
sinking market?) continued to play out as the markets rallied all
the way back into the green, including the techs, which had
received the brunt of the bad news from AMAT.

In fact, for those of you that have followed along with my head
and shoulders analysis, we finally got the breakdowns in the COMP
and NDX that I identified as the last straw holding us from truly
caving in.  I should say we got those breakdowns on an intraday
basis, which is important given the closing prints.  The
breakdown in the COMP occurred below 1319, which was the support
level of the November pullback after what so far looks like a
left shoulder up at 1419.  The corresponding NDX level was 972.
Both of those levels held over the last several days, even with
the Dow/SPX /OEX all giving up their November  "neckline" support
last week. However, in spite of the AMAT news that sent those
indices reeling, they bounced hard, turning green for much of the
afternoon.  By the end of the day, they had once again sunk, but
finished yet again just over those breakdown levels.  Actually
the COMP sat right on top, while the NDX had more than 10 points
of breathing room. The last four lows in the COMP had been 1320,
1321, 1320 and 1322.  While today's low dropped all the way to
1303, the end of the day saw a close at 1320.91.   I'd love to
say we got the breakdown, but with bulls defending that support
with so much tenacity, it is hard to call the intraday move a
defining one. After all, if the world's largest chip equipment
maker is going to see a 35% reduction in orders and we still
can't get a breakdown, I'm not sure what will finally cause one.
Tuesday brings Cisco's earnings release, so if we can get the
company to beat forecasts of 13 cents per share, maybe we'll
finally get a "Wonderland" breakdown (GRIN).  In reality, the
company is already predicted to see its number rise from 9 cents
to 13 cents, so the accompanying comments about what it sees for
2003 will likely control market reaction.  After all, IBM and
Microsoft both beat earnings, as well, but both stocks have
dropped precipitously on cautious 2003 guidance.

So far, the Dow, SPX and OEX are all bouncing around beneath
their head and shoulders breakdown levels.  They are setting
slightly lower lows and slightly lower highs, but mostly moving
sideways by the end of the week. Those averages closed slightly
lower for the week, but it looks more like consolidation after
dropping hard from January 15-27.

With the Iraq situation heating up and the markets swinging
wildly, we are likely to see more tough to predict movement, but
right now the overall trend remains down.  However, consolidation
can also mean we are setting a floor.  That seems unlikely, but
if Saddam Hussein heads into exile (which is becoming a
frequently discussed possibility) or the international community
(and Democratic Congressional leadership) puts up enough
opposition to an Iraqi invasion to stall the process, we could
see a big relief rally.  If Cisco gives cautious guidance on
Tuesday, similar to that from Microsoft and IBM, we could see
another big leg down.

The VIX still reflects plenty of downside fear from possible
developments.  The 35% level that had served as resistance over
the last several months, but was broken on the breakdown below
Dow 8200/OEX 440/SPX 870, has begun to act as support, even on
subsequent rallies. When downside concerns finally abate, expect
the VIX to breakdown below 35 and re-test 30.  If we finally put
the Iraq situation behind us, it is even possible that it will
breakdown below the support at 26 that was in place for about the
same time period as the 35 resistance. For now, however, the
support is telling us that there may be further downside in the
immediate future.

Traders can brace for another wild week, with those risk-averse
souls on the sidelines.  Even aggressive traders may want to
stick with risk capital only, as even the most accurate
forecasters' crystal balls are a little cloudy these days.


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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  8053

Moving Averages:
(Simple)

 10-dma: 8203
 50-dma: 8542
200-dma: 8802



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  855

Moving Averages:
(Simple)

 10-dma:  868
 50-dma:  901
200-dma:  933



Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     :  983

Moving Averages:
(Simple)

 10-dma: 1003
 50-dma: 1044
200-dma: 1037



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

The Semiconductor Index (SOX.X):  The SOX recovered impressively
from the morning drop to the minor support level at 260 I pointed
out in Thursday's Market Sentiment.  Following the warning from
AMAT that it would see a 35% drop in first quarter orders, the
recovery from this morning's 13-point drop was actually quite
amazing, but we remain below the previously strong support at the
280 level and have not broken the trend of lower highs since
topping out on January 13. The PnF bearish vertical count
(standard 4-point box over 200) is actually all the way down at
200.  While that may seem extreme, it actually coincides with
October support at 209 and is an eventual target.  The 412
bullish count on the way up also seemed out of reach when we were
below 300, but we came pretty close at 393.

52-week High: 657
52-week Low : 214
Current     : 271

Moving Averages:
(Simple)

 21-dma: 307
 50-dma: 319
200-dma: 352

-----------------------------------------------------------------
Market Volatility

As mentioned above, the VIX is holding its newfound support at
the former 35% resistance level, suggesting another move lower in
stocks. The last VIX spike on the way down in equities found
resistance at 40, however that is still well short of the recent
extreme highs in the upper 50s. The VIX did cluster around 40
throughout October and that level can be viewed as resistance,
but if we breakout above it, then look out below in the equities.


CBOE Market Volatility Index (VIX) = 35.78 –0.59
Nasdaq-100 Volatility Index  (VXN) = 46.81 +0.59

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.84        539,534       451,735
Equity Only    0.67        402,956       268,299
OEX            1.05         20,806        21,748
QQQ            1.36         44,727        60,829


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

Bullish Percent Data

           Current   Change   Status
NYSE          45.2    - 0     Bull Correction
NASDAQ-100    47.0    - 1     Bear Confirmed
Dow Indust.   30.0    - 7     Bear Confirmed
S&P 500       46.0    - 2     Bull Correction
S&P 100       43.0    - 2     Bear Confirmed

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

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

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

 5-Day Arms Index  1.36
10-Day Arms Index  1.49
21-Day Arms Index  1.23
55-Day Arms Index  1.26

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       2068           776
NASDAQ     1809          1321

        New Highs      New Lows
NYSE        76               53
NASDAQ      57               67

        Volume (in millions)
NYSE       1,760
NASDAQ     1,554


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

Commitments Of Traders Report: 01/28/02

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 long and short positions, ending up with a
net short increase of 4,500 contracts.  Small traders took the
opposite approach, reducing both positions, but ending up with a
net increase of 4,300 long contracts.

Commercials   Long      Short      Net     % Of OI
01/07/03      411,542   455,538   (43,996)   (5.1%)
01/14/03      411,052   453,164   (42,112)   (4.9%)
01/21/03      415,028   456,885   (41,857)   (4.8%)
01/28/03      422,232   468,586   (46,354)   (5.2%)

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
01/07/03      143,169    83,895    59,274     26.1%
01/14/03      144,182    92,358    51,824     21.9%
01/23/03      148,227    95,356    52,871     21.7%
01/28/03      142,734    85,567    57,167     25.0%

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 left positions virtually unchanged, with a net
reduction of 1,300 short contracts.  Small traders Small traders
 left the long side unchanged, while reducing shorts by 800
 contracts.


Commercials   Long      Short      Net     % of OI
01/07/03       37,966     48,156   (10,190) (11.8%)
01/14/03       38,057     45,060   ( 7,003) ( 8.4%)
01/23/03       37,174     49,789   (12,615) (14.5%)
01/28/03       37,955     49,321   (11,366) (13.0%)

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

Small Traders  Long     Short      Net     % of OI
01/07/03       19,708     8,453    11,255    40.1%
01/14/03       20,757     8,320    12,437    42.8%
01/23/03       25,852     6,764    19,088    58.5%
01/28/03       25,814     7,576    18,238    54.6%

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

Commercials reduced the overall long position by 1,400 contracts,
while small traders reduced the net short by 200 contracts.

Commercials   Long      Short      Net     % of OI
01/07/03       16,210    11,333    4,877      17.7%
01/14/03       17,804    12,427    5,377      17.8%
01/23/03       16,901    11,031    5,870      21.0%
01/28/03       16,013    11,574    4,439      16.1%

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
01/07/03        4,963     8,334    (3,371)   (25.4%)
01/14/03        4,552     7,697    (3,145)   (25.7%)
01/23/03        5,120     8,282    (3,162)   (23.6%)
01/28/03        4,838     7,836    (2,998)   (23.7%)

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

How or when to get out of the market

Have you ever written a piece on how/when to get out of the
market (especially medium term, two to three month trades).  Your
guidance is so superb re: managing risk and monitoring levels, I
would guess that you offer some pretty sound advise on the
subject of taking profits.  If you ever get time or interest, I,
for one, would gobble up every tidbit.

Answer:  From the perspective of an options trader/investor there
is only one time to be fully out of the market, and that is when
you are so uncomfortable with the risking of cash that being in
the market will adversely impact your thinking, or sleep habits.

However, it is my opinion, that an investor or trader should
never be fully out of the market.  As an equity trader/investor
that only trades underlying equities/securities, there are times
to be out of the market, or at least limiting your cash exposure,
but this is also one reason why derivatives like options were
"invented."  Options allow exposure to markets with MINIMAL
CAPITAL.

It is my guess that the above question posed by a subscriber
comes from the "uncertainty" that currently roils the equity,
bond and currency markets here in the U.S. as well as those
abroad.

I say "uncertainty" as I don't believe there is anyone, with
major influence over the equity, bond or currency markets that
has full knowledge of "war with Iraq," or the impact on potential
"tax relief," or just how the U.S. or global economy is going to
be doing in the next month, quarter or year, or the going into
exile of Iraq's president Saddam Hussein, or the capture of key
terrorism figures, or knowledge of future terrorism activities
here in the U.S. or other parts of the world.  This is a brief
list of potential "events" or "scenarios" that could influence
market price action (up or down).

In my initial answer, I do state a difference between options and
equities when addressing the issue of being in or out of the
markets.  I will address this later, but it is simply tied to
"capital at risk" as it relates to your trading/investing
account.

My thoughts on the "difference" between the two is risk, or
capital exposure.  Again, there does seem to be a general
perception among traders that options are "risky," but when
utilized properly, the perception of "risky" is so misunderstood
not only by traders and investor, but also compliance officers at
brokerage firms.  So misunderstood, that I find it alarming,
especially from the compliance level.

Lets talk quickly about the current market environment, where it
does seem to be generally thought that a U.S-lead war with Iraq
is growing more "certain."  This "war with Iraq" thought creates
uncertainty, and for the most part, MARKET participants "dislike
uncertainty," take all or the bulk their cards off the table and
sit things out.  This type of thought isn't only for BULLISH
traders, but for BEARISH traders as well.

The taking of "cards off the table," or sitting in cash does two
things.  By withdrawing from the markets (equity, bond, currency,
etc., etc.,) that action protects the investor's cash, but also
removes the opportunity to make money above a stated rate of
interest from some type of short-term money market fund.  These
are the facts are generally weighed as to "opportunity cost."

One could argue, as I would, that even during times of economic
bliss and world peace, there are those traders/investors that
should struggle with "should I be in the market?" as valuations
may be getting stretched (if you're a fundamental-based investor)
or individual stocks/indexes become extended and carry greater
price risk to a support level.

So why might I (Jeff Bailey) agree with limiting underlying
equity exposure (buying or shorting an underlying stock) during
times of "uncertainty?"

I would answer this as follows.  If I buy 100 shares of a $25.00
stock, then my maximum risk is $2,500.00.  If I short 100 shares
of a $25.00 stock, my potential maximum risk is unknown.  While I
generally feel that I can control both long and short risk in a
stock with a protective stop, I've traded long enough to see
stocks fall or jump significantly below or above stop loss levels
where my trading account can be severely damaged.  From the
bearish, or short side, I've seen stocks that closed at $12.00
per share, open for trading at $82.00. (EntreMed (ENMD) $0.98,
05/01/1998-05/04/1998).  While this is an extreme example (myself
and clients were "lucky" as I had shorted the stock near $15
based on "knowledge" that their cancer cure wasn't viable and
covered on some "bad news" on 04/27/98 at/near $13.00).  It was
the action on May 4, 1998 that despite my "knowledge" the stock
opened for trading at $82.00 that now has be cautious of NEVER
shorting a biotech stock, just in case the MARKET believes a cure
for cancer has been found (or any other life-threatening
disease).

Arguably, I can control my RISK in a trade by reducing trade
size.  However, for some traders, even if on the "right side of
the trade, a 10% price move on what might be deemed a "not
comfortable risk exposure" simply has the investor/trader
measuring the potential gain against "market uncertainty" and
deciding that the opportunity of gains, does not outweigh the
perceived risk due to various scenarios at play in the market
that are creating uncertainty.   The example above (100 shares of
$25.00 stock) is to show a value of $2,500, which I will now
compare to an option.

In times of "uncertainty," it becomes somewhat difficult for a
trader/investor in an underlying equity to "know for certain" or
have any type of true degree of confidence in risking their
capital.  It makes little sense to be short or long the same
security with equally weighted dollars amounts as any price
fluctuation of the underlying stock finds the trader/investor
seeing no net gain in the trade's value.

However, options are different.  A trader and play the bullish
and bearish side of the same security, limit capital exposure (by
not OVER LEVERAGING) and still be "in the market" and having
opportunity to capitalize on price actions.  In fact, options
traders "LOVE" uncertainty and the volatility that often comes
from the uncertainty.  While there's two option strategies
"straddle" and "strangle" that allow the investor/trader to take
a rather "neutral" position in a security and have predetermined
and FINITE knowledge of cash risk.

Let me pose some questions to you as it relates to the current
market environment and you tell me if you should be out of the
market.

The main question posed is "when do I get out of the market."
While I hate to throw the answer back on you the trader/investor,
it comes down to YOU, when you answer that question with "the
money invested (risk) becomes too great for the potential
opportunity of gain (reward)."  I may answer this question
different than you, and you might answer this question different
than your spouse, or the next-door neighbor.  EVERY investor has
a different degree of risk tolerance.

But here's an option strategy in the NASDAQ-100 Index Tracking
Stock (AMEX:QQQ) $24.44 that allows the trader/investor to be in
the market, have a "neutral" stance toward price direction due to
the greater degree of uncertainty that appears to be roiling the
markets, and based on one contract bullish (call) and one
contract bearish (put) for a cost of $505.00 (excluding
commissions) has the trader/investor keeping some exposure to the
market, even during a time of uncertainty, until June 20, 2003.
Straddle trades are "neutral" trades, where the trader/investor
looks to profit from volatility away from a price level.  Often
times, periods of uncertainty can create the volatility as
investors begin to speculate on price direction, or make buy/sell
decisions under higher degrees of emotional distress or greed.

The trader than implements a "neutral" type of trade in his/her
account REMOVES any type of direction bias, or emotions that
might come from distress or greed.

NASDAQ-100 Index Tracking Stock - Option Montage




In "blue" if highlighted a June $25 straddle, whereby a trader
buying 1 call option (QAVFY) for $2.30 and 1 put option (QAVRY)
for June expiration takes on a "market neutral" position and
would be risking a MAXIMUM of $505.00 (excluding commission).  If
I were to divide that $505.00 by the 100 shares each contract
($505 / 100 = $5.05) covers, I KNOW FOR FACT, that I would need a
MINIMUM $5.05 price gain or decline from $25.00 on or before
expiration to achieve a break-even or gain.  So, range becomes
$20.00-$30.00.

For some, depending on what degree of "uncertainty" the current
market environment holds for you, the $505.00 risk may be deemed
"not worth the opportunity" if you don't think the QQQ can trade
much outside of this range between now and June expiration.

But, don't forget about TIME and the potential impact that market
volatility can have on premiums when considering a straddle as
part of your trading strategy.

A "common mistake" made by options traders is that they don't
"buy enough time" in a trade, and will try to "pinpoint" a date
where everything comes together.  Few traders or investors are
able to predict such occurrences as so many variables are in
play.

A trader that "buys as much time as he/she can afford and is
comfortable with" is giving more time (yes more time means more
incremental cost), but TIME is a variable that is good to have on
your side.

A trader that implements a June $25 straddle may see his/her
straddle trade become quite profitable a week from now, should
the QQQ fall to $22.50 as premium in the call portion of the
trade still exists, compared to a month from now, when the trade
might still be at a $505.00 loss should the QQQ be trading $22.50
as some time premium begins to erode.  Again, market volatility
will also impact option pricing, but that's a variable I can't
predict.

Now... a June $25 straddle might not be for everyone, as $505.00
of risk is simply deemed inappropriate.  Perhaps it doesn't meet
your risk/reward profile even under a market environment that
appears to be uncertain.

I've also highlighted in "pink" a QQQ strangle trade in the June
$26 calls and June $24 puts.  This is still a "neutral" trade
toward the market, but now were not only looking for price action
away from current levels, but OUTSIDE a range of $24-$26.  Again,
I can add the two prices of this strangle ($1.85 + $2.25 = $4.10)
and understand my maximum risk for 1 contract each is $410.00
(excluding commissions).  I can add the $4.10 to $26 and
understand I need something above $30.10 to become profitable by
expiration, or something below $19.90 by expiration to become
profitable by expiration.  Again, the sooner I get price action
the better as I shouldn't expect much time premium erosion.

Do you see what's going on here?  The $25 straddle costs more
than the 26/24 strangle doesn't it?  Why do you think that is?
Because of the QQQ were to close either side of $25, there's
still something left.  A trader may want to think about this when
deciding on a straddle or strangle, whereas the 26/24 strangle
needs the QQQ to close above $26 or $24 or the trade to have
anything left of value at expiration.

Still.... depending on the TOTAL amount of $ risk a
trader/investor is comfortable with, a strangles does expose less
risk of capital to the market under times of uncertainty, but
still allows for potential to profit.

In "red" I've also highlighted another strangle at the $23/$27
June expiration.  Total cost here (excluding commission) for
equally weighted 1-contract exposure is $2.30, or $230.00.

Managing a straddle, or strangle trade is rather "easy," and
isn't necessarily a trade that needs to be watched like a hawk
eyeballing a mouse, especially under times of uncertainty.  It is
when there's either some type of resolution to the uncertainty or
level of profitability achieved when the trade is closed.

Using the $25 straddle as an example.  Let's suppose a trader's
goal is to achieve a 20% in 1 month (by Feb exp.), 40% gain in 2
months (March exp.), 60% gain in 3 months (April exp.), 80% gain
in 4 months (May Exp.), and 100% gain in 5 months (June
expiration).  These types of "goals" and "time line" become a
trader's measuring stick for the trade.  After all, using June
expiration and capital risk of $505, if looking for minimum
risk/reward profile of 1:2 from our trader's business plan an set
of rules, I don't want to be putting on any trade that doesn't
offer at least a $2 reward for every $1 of risk type of trade.

Let's say that I put on a June $25 straddle and one month from
initiating the trade, I look that my put and call options
combined.  Total value from this "neutral" trade is now $750
dollars, representing a 48% gain, with the calls being worth
$7.25 and puts seeing "sympathy" bid of $0.25.  What might you
do?  I'd probably close out the whole trade, or at least close
out the call portion and say "good trade" I'm glad I had some
money in the market.

Admittedly, I'd be "surprised" if a June $25 straddle were
profitable by 48% in one month.  After all, this is a "neutral"
type of trade, but with "uncertainty" in the markets, then this
may be the time for straddle trading.

Remember, a straddle/strangle traders looks for volatility away
from a price level.  The volatility away from a price level is
thought to be influenced by "fear" or "greed."  Don't necessarily
equate "fear" or "greed" with "bullish" or "bearish."  I've seen
just as many "greedy" bulls and I have "greedy" bears.  I've also
witnessed market environments where a "fearful" bull in a
declining market has the bear expressing equal emotions of "fear"
when his/her scenario never plays out as planned and a BIG bet on
the WRONG side begins to evaporate as losses build.


Now.... that you have a "neutral" type of trading strategy and
can assess risk of capital before you EVERY RUN THE TRADE in an
"uncertain" market environment, is there ever a time to be out of
the markets?

Questions related to "war with Iraq"

What if Saddam Hussein goes into exile, or is overthrown by the
people of Iraq?  What impact might that have on the QQQ?

What if the U.S. and Britain are the only two countries that
decide to form their own coalition and declare war on Iraq.
What if "World War III" were to come from a U.S.-Britain
initiative against Iraq were to find strong opposition from other
countries?  What impact might that have on the QQQ?

What if Saddam Hussein suddenly gives into U.N. weapons
inspection, fully discloses and accounts for destruction or
possession of weaponry? (This may be more far-fetched, but one
never knows).  What impact might that have on the QQQ?

What if Saddam Hussein has sabotaged oil wells in Iraq and upon
being attacked by a U.S.-lead initiative against his country
decides to blow up sabotaged oil wells?  Launch any chemical
weapons he may have (if he has any)?  What impact might that have
on the QQQ?

Jeff Bailey


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

=========================================
Market Watch for the week of February 3rd
=========================================

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

Symbol  Company               Date           Comment      EPS Est

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

ACDO   Accredo Health        Mon, Feb 3  Before the Bell      0.34
CPT    Camden Property Trust Mon, Feb 3  After the Bell       0.83
CRL    Charles River Lab.    Mon, Feb 3  After the Bell       0.36
EW     Edwards Lifesciences  Mon, Feb 3  After the Bell       0.34
EPD    Entrprise Prdcts Part Mon, Feb 3  Before the Bell      0.24
ERICY  Ericsson LM Telephone Mon, Feb 3  -----N/A-----       -0.16
FSH    Fisher Sci Intl       Mon, Feb 3  After the Bell       0.45
GGP    General Growth Prop   Mon, Feb 3  -----N/A-----        1.84
HPT    Hospitality Prop Trst Mon, Feb 3  -----N/A-----        1.00
HUM    Humana Inc.           Mon, Feb 3  -----N/A-----        0.33
JP     Jefferson-Pilot       Mon, Feb 3  After the Bell       0.83
MAT    Mattel                Mon, Feb 3  Before the Bell      0.38
NFS    Nationwide Finl Serv  Mon, Feb 3  After the Bell       0.74
NFS    Nationwide Finl Serv  Mon, Feb 3  After the Bell       0.74
RSG    Republic Serv         Mon, Feb 3  After the Bell       0.35
RMD    ResMed                Mon, Feb 3  After the Bell       0.30
SPP    Sappi Limited         Mon, Feb 3  Before the Bell      0.25
SRA    Serono S.A.           Mon, Feb 3  Before the Bell      0.14
TMX    Telefonos de Mexico   Mon, Feb 3  After the Bell       0.87
VMC    Vulcan Materials      Mon, Feb 3  After the Bell       0.36
WFT    Weatherford Intl      Mon, Feb 3  After the Bell       0.26


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

NDN    99 CENTS Only         Tue, Feb 4  Before the Bell      0.28
ALA    Alcatel               Tue, Feb 4  Before the Bell     -0.12
LNT    Alliant Energy        Tue, Feb 4  Before the Bell      0.49
APCC   Am Power Conversion   Tue, Feb 4  After the Bell       0.21
AVZ    AMVESCAP PLC          Tue, Feb 4  Before the Bell      0.19
AVP    Avon Products Inc.    Tue, Feb 4  -----N/A-----        0.79
BOX    BOC Group PLC         Tue, Feb 4  -----N/A-----         N/A
BWA    BorgWarner, Inc.      Tue, Feb 4  -----N/A-----        1.49
BSX    Boston Scientific CorpTue, Feb 4  After the Bell       0.31
CHRW   C.H. Rbnsn Worldwide  Tue, Feb 4  After the Bell       0.29
CBL    CBL & Associates Prop Tue, Feb 4  After the Bell       1.12
CB     Chubb Corporation     Tue, Feb 4  Before the Bell      1.08
CSB    CIBA SPECIALTY CHEM   Tue, Feb 4  -----N/A-----        0.50
CSCO   Cisco Systems         Tue, Feb 4  After the Bell       0.13
CL     Colgate-Palmolive     Tue, Feb 4  -----N/A-----        0.58
CSC    Computer Sci Corp     Tue, Feb 4  After the Bell       0.60
CVS    CVS Corporation       Tue, Feb 4  Before the Bell      0.47
EDMC   Education Manag Corp  Tue, Feb 4  Before the Bell      0.69
EMR    Emerson Electric      Tue, Feb 4  -----N/A-----        0.54
EC     Engelhard Corporation Tue, Feb 4  Before the Bell      0.44
ETR    Entergy               Tue, Feb 4  Before the Bell      0.26
EOG    EOG Resources         Tue, Feb 4  -----N/A-----        0.33
GYI    Getty Images          Tue, Feb 4  After the Bell       0.11
HCA    HCA - The Health Comp Tue, Feb 4  Before the Bell      0.60
HEW    Hewitt Associates     Tue, Feb 4  Before the Bell      0.28
N      Inco                  Tue, Feb 4  -----N/A-----        0.21
LAF    Lafarge North America Tue, Feb 4  -----N/A-----        1.12
LVLT   Level 3 Comm          Tue, Feb 4  -----N/A-----       -0.67
LZ     Lubrizol              Tue, Feb 4  -----N/A-----        0.48
MFC    Manulife Finl Corp    Tue, Feb 4  During the Market    0.46
MKL    MARKEL CORP           Tue, Feb 4  -----N/A-----        2.20
MBI    MBIA Inc.             Tue, Feb 4  Before the Bell      1.12
OOM    MMO2                  Tue, Feb 4  -----N/A-----         N/A
MCO    Moody's Corporation   Tue, Feb 4  After the Bell       0.42
OHP    Oxford Health Plans   Tue, Feb 4  Before the Bell      0.94
PCAR   Paccar                Tue, Feb 4  -----N/A-----        0.64
PTEN   Patterson-UTI Energy, Tue, Feb 4  Before the Bell      0.01
PFGC   PERFORMANCE FOOD GRP  Tue, Feb 4  Before the Bell      0.38
PNW    Pinnacle West Cptl Co Tue, Feb 4  Before the Bell      0.56
IQW    Quebecor World        Tue, Feb 4  -----N/A-----        0.66
RGC    Regal Enter Grp       Tue, Feb 4  Before the Bell      0.23
RNR    RenaissanceRe Holding Tue, Feb 4  After the Bell       1.31
ROH    Rohm and Haas Company Tue, Feb 4  Before the Bell      0.23
RYAAY  Ryanair Holdings      Tue, Feb 4  -----N/A-----        0.30
CAKE   The Cheesecake Factry Tue, Feb 4  After the Bell       0.26
PFG    The Principal Finl GrpTue, Feb 4  After the Bell       0.53
JOE    The St. Joe Company   Tue, Feb 4  Before the Bell      0.22
VRTX   Vertex Pharm Inc      Tue, Feb 4  After the Bell      -0.40
WPI    Watson Pharm, Inc.    Tue, Feb 4  -----N/A-----        0.44
WSTC   West Corporation      Tue, Feb 4  After the Bell       0.21


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

ATVI   Activision            Wed, Jan 22  -----N/A-----       0.61
ACE    ACE Limited           Wed, Feb 5  After the Bell      -0.06
ADO    Adecco SA             Wed, Feb 5  -----N/A-----         N/A
BUD    Anheuser-Busch Co Inc Wed, Feb 5  -----N/A-----        0.32
ARI    Arden Realty Inc      Wed, Feb 5  -----N/A-----        0.68
AVE    Aventis               Wed, Feb 5  Before the Bell       N/A
BPO    Brookfield Properties Wed, Feb 5  -----N/A-----        0.61
CLU    Canada Life Financial Wed, Feb 5  -----N/A-----        0.52
CSL    Carlisle Companies    Wed, Feb 5  After the Bell       0.45
CD     Cendant Corporation   Wed, Feb 5  After the Bell       0.29
EXBD   Corp Exec Board Co    Wed, Feb 5  After the Bell       0.21
CTMI   CTI Molecular Imaging Wed, Feb 5  After the Bell       0.05
DNB    D&B                   Wed, Feb 5  After the Bell       0.85
ELN    Elan Corporation, PLC Wed, Feb 5  Before the Bell     -0.17
EOP    Eq Office Prop Trst   Wed, Feb 5  Before the Bell      0.77
EQR    Equity Residential    Wed, Feb 5  Before the Bell      0.59
EXPE   Expedia, Inc          Wed, Feb 5  After the Bell       0.41
GXP    Great Plains Energy   Wed, Feb 5  After the Bell        N/A
HNI    HON INDUSTRIES, Inc.  Wed, Feb 5  Before the Bell      0.39
ROOM   Hotel Res Network     Wed, Feb 5  Before the Bell      0.38
JNY    Jones Apparel Group   Wed, Feb 5  Before the Bell      0.50
KB     Kookmin Bank          Wed, Feb 5  Before the Bell       N/A
LIN    Linens 'n Things Inc. Wed, Feb 5  Before the Bell      0.87
MGM    Metro-Goldwyn-Mayer   Wed, Feb 5  -----N/A-----        0.07
MX     Metso Corporation     Wed, Feb 5  -----N/A-----         N/A
MON    Monsanto Company      Wed, Feb 5  Before the Bell      0.29
IX     Orix Corporation      Wed, Feb 5  Before the Bell       N/A
PNP    Pan Pac Retail Props  Wed, Feb 5  Before the Bell      0.76
PSC    Philadelphia Suburban Wed, Feb 5  Before the Bell      0.22
PP     Prentiss Properties   Wed, Feb 5  After the Bell       0.82
QTRN   Quintiles Trans       Wed, Feb 5  -----N/A-----        0.18
REG    Regency Centers Corp  Wed, Feb 5  After the Bell       0.84
RHA    Rhodia S.A.           Wed, Feb 5  During the Market     N/A
SPI    Scottish Power        Wed, Feb 5  Before the Bell       N/A
PCS    Sprint Corp           Wed, Feb 5  Before the Bell     -0.22
FON    Sprint FON Group      Wed, Feb 5  Before the Bell      0.38
TDS    Telephone Data        Wed, Feb 5  Before the Bell      0.39
TDS    Telephone Data        Wed, Feb 5  Before the Bell      0.39
ALL    The Allstate Corp     Wed, Feb 5  After the Bell       0.77
TMO    Thermo Electron Corp  Wed, Feb 5  After the Bell       0.29
TM     Toyota Motor Corp     Wed, Feb 5  -----N/A-----         N/A
TXU    TXU Corp.             Wed, Feb 5  Before the Bell      0.27
UNM    UnumProvident Corp    Wed, Feb 5  After the Bell       0.64
WHR    Whirlpool Corporation Wed, Feb 5  Before the Bell      1.64


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

TW     21st Century Ins      Thu, Feb 6  -----N/A-----        0.14
RKY    Adolph Coors, Co.     Thu, Feb 6  -----N/A-----        0.75
AG     AGCO                  Thu, Feb 6  -----N/A-----        0.28
AMH    AmerUs Group Co.      Thu, Feb 6  After the Bell       0.91
RMK    Aramark Corporation   Thu, Feb 6  Before the Bell      0.30
ASN    Archstone-Smith Trst  Thu, Feb 6  Before the Bell      0.51
AN     AutoNation            Thu, Feb 6  Before the Bell      0.23
CINF   Cincinnati Finl Corp  Thu, Feb 6  Before the Bell      0.45
CFB    Commercial Federal .  Thu, Feb 6  Before the Bell      0.56
CTB    Cooper Tire & Rubber  Thu, Feb 6  Before the Bell      0.29
CVH    Coventry Health Care  Thu, Feb 6  Before the Bell      0.66
DASTY  Dassault Systemes SA  Thu, Feb 6  -----N/A-----        0.43
DVN    Devon Energy Corp     Thu, Feb 6  Before the Bell      1.13
DPL    DPL Inc.              Thu, Feb 6  After the Bell       0.23
EDS    Electronic Data Sys   Thu, Feb 6  After the Bell       0.48
GCI    Gannett               Thu, Feb 6  Before the Bell      1.28
GR     Goodrich Corporation  Thu, Feb 6  After the Bell       0.65
HB     Hillenbrand Inds      Thu, Feb 6  Before the Bell      0.75
ICI    Imperial Chemical Ind Thu, Feb 6  -----N/A-----         N/A
IDC    Interactive Data Corp Thu, Feb 6  Before the Bell      0.17
SFI    iStar Financial       Thu, Feb 6  Before the Bell       N/A
JHF    John Hanck Finl Serv  Thu, Feb 6  After the Bell       0.73
MTD    Mettler-Toledo Intl   Thu, Feb 6  After the Bell       0.68
MHK    Mohawk Industries     Thu, Feb 6  -----N/A-----        1.21
NVO    Novo-Nordisk          Thu, Feb 6  Before the Bell       N/A
NUS    Nu Skin               Thu, Feb 6  Before the Bell      0.22
NUE    Nucor                 Thu, Feb 6  -----N/A-----        0.45
OVER   Overture Services Inc Thu, Feb 6  After the Bell       0.22
POC    P & O Prncss Cruises  Thu, Feb 6  -----N/A-----        0.15
PPE    Park Place Enter      Thu, Feb 6  Before the Bell      0.03
PEP    Pepsico               Thu, Feb 6  Before the Bell      0.50
PIXR   Pixar Animation Stu   Thu, Feb 6  After the Bell       0.22
RL     Polo Ralph Lauren CorpThu, Feb 6  Before the Bell      0.47
POT    Potash Corp of Saskat Thu, Feb 6  Before the Bell      0.31
O      Realty Income Corp    Thu, Feb 6  -----N/A-----        0.72
RD     Royal Dutch Petroleum Thu, Feb 6  Before the Bell      0.84
R      Ryder System, Inc.    Thu, Feb 6  Before the Bell      0.54
SWY    Safeway, Inc.         Thu, Feb 6  Before the Bell      0.78
SC     Shell Trnsprt Trdng CoThu, Feb 6  During the Market    0.68
SHW    Sherwin-Williams      Thu, Feb 6  -----N/A-----        0.39
SHU    Shurgard Strge Cnters Thu, Feb 6  After the Bell       0.75
SPG    Simon Property Grp    Thu, Feb 6  After the Bell       1.15
SUP    Superior Industries   Thu, Feb 6  Before the Bell      0.80
MNY     The MONY Group Inc.  Thu, Feb 6  Before the Bell      0.03
TBL    The Timberland Co     Thu, Feb 6  Before the Bell      0.61
TMK    Torchmark             Thu, Feb 6  Before the Bell      0.91
USAI   USA Interactive       Thu, Feb 6  Before the Bell      0.11
WSH    Wlls Grp Hldngs Lmtd  Thu, Feb 6  Before the Bell      0.47


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

BLC    Belo                  Fri, Feb 7  During the Market    0.38
CRE    Carramerica Realty Co Fri, Feb 7  -----N/A-----        0.86
FUN    Cedar Fair LP         Fri, Feb 7  -----N/A-----       -0.32
CI     CIGNA                 Fri, Feb 7  Before the Bell      1.20
DB     Deutsche Bank         Fri, Feb 7  -----N/A-----         N/A
GRP    Grant Prideco Inc     Fri, Feb 7  Before the Bell      0.02
HTV    Hearst-Argyle TV, Inc Fri, Feb 7  Before the Bell      0.39
PL     Protective Life Corp  Fri, Feb 7  Before the Bell      0.50
SNN    Smith & Nephew        Fri, Feb 7  During the Market    1.13
TIN    Temple-Inland, Inc.   Fri, Feb 7  Before the Bell      0.32
VSH    Vishay Intertech, Inc Fri, Feb 7  Before the Bell      0.09
VOLVY  Volvo AB              Fri, Feb 7  Before the Bell       N/A


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

Symbol  Company Name              Ratio    Payable     Executable

CBI     ChicagoBridge             2:1      Feb. 13th   Feb. 14th
MSFT    Microsoft                 2:1      Feb. 14th   Feb. 18th


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

The earnings flood is slowly starting to ebb.  While Wall Street
will focus on the Bush-Saddam conflict, analysts will be watching
the vehicle sales numbers and ISM index on Monday and the ISM
Services number on Wednesday.  Friday also has a number of
economic reports.


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

Monday, 02/03/02
----------------
Auto Sales (NA)         Jan  Forecast:   5.8M  Previous:     6.1M
Truck Sales (NA)        Jan  Forecast:   7.5M  Previous:     8.7M
ISM Index (DM)          Jan  Forecast:   53.0  Previous:     54.7
Constructin Spending(DM)Dec  Forecast:   0.3%  Previous:     0.3%


Tuesday, 02/04/02
-----------------
Factory Orders (DM)     Dec  Forecast:   0.8%  Previous:    -0.8%


Wednesday, 02/05/02
-------------------
ISM Services (DM)       Jan  Forecast:   54.0  Previous:     54.7


Thursday, 02/06/02
------------------
Initial Claims (BB)   02/01  Forecast:    N/A  Previous:     397K
Productivity-Prel (BB)   Q4  Forecast:   0.5%  Previous:     5.1%


Friday, 02/07/02
----------------
Nonfarm Payrolls (BB)   Jan  Forecast:    50K  Previous:    -101K
Unemployment Rate (BB)  Jan  Forecast:   6.0%  Previous:     6.0%
Hourly Earnings (BB)    Jan  Forecast:   0.3%  Previous:     0.3%
Average Workweek (BB)   Jan  Forecast:   34.2  Previous:     34.1
Wholesale Invntories(DM)Dec  Forecast:   0.2%  Previous:     0.2%
Consumer Credit (DM)    Dec  Forecast:  $4.3B  Previous:   -$2.2B


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


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The Option Investor Newsletter                   Sunday 02-02-2003
Sunday                                                      2 of 5


In Section Two:

Daily Results
Call Play of the Day: EBAY
Put Play of the Day: CEPH
Dropped Calls: COF
Dropped Puts: KSS, TDS


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

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

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

CALLS              Mon    Tue    Wed   Thu  Week

COF      31.05   -0.78   1.24   0.38 -0.76 –0.15  Drop,
EBAY     75.16   -0.34  -0.56   1.69 –0.81  1.13  New,
FRX      51.75   -0.87   0.37   0.11 –0.47 –0.15  Still holding
SYMC     46.68    0.21   1.90   1.07 –0.40  2.69  Rel. strength


PUTS

AT       46.87   -0.21  -0.40   0.10 –1.40 –0.79  200-dma failure
CCMP     43.89   -1.24   1.53   0.57 –2.67 –2.41  Good start
CEPH     46.53   -0.66  -0.14  -0.90 –0.81 –3.25  New,no strength
KO       40.46   -0.56  -0.69  -0.55 –1.35 –1.89  Weak bounce
KSS      52.37   -1.00   0.39   0.03 –0.16 –1.13  Drop, profits
PNRA     29.51   -0.74   0.44   0.71 –2.70 –1.89  broken down
TDS      42.90   -0.75  -0.08   0.54 –0.99  0.15  Drop, bounce

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

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

eBay Inc. - EBAY - 75.16 (+0.95 last week)

See details in play list




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

CEPH - Cephalon, Inc. $46.53 (-3.55 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
^^^^^

COF $31.05 (-0.47) Everything seemed lined up for a snapback
rally in shares of COF.  All we needed was some participation
from the Financial sector, and COF would likely have rebounded
strongly from that gradually ascending trendline.  Sadly, the
Banking sector (BKX.X) just wasn't able to clear that pesky
resistance near $745, and COF just drifted along its trendline
for most of the week.  Fortunately, we placed a trigger on the
play at $32.25, and Wednesday's high of $32.15 failed to trigger
the play.  With Friday's intraday violation of that trendline
and both the stock and the sector still looking weak, we're
dropping the play this weekend to make way for stronger
candidates.


PUTS
^^^^

KSS $52.37 (-1.38) As the broad market has weakened over the
past couple weeks, the deterioration in the Retail sector (RLX.X)
has been a boon to our KSS play.  Originally listed at $56.60,
the stock did as we expected, falling to break the early January
lows.  But the past few days have been rather disconcerting as
sector weakness has been unable to drive the stock down towards
our $49-50 level.  We still think the stock is headed lower, but
with the descent slowing, we need to be mindful of time decay.
Rather than hang on and hope for another drop, it seems prudent
to harvest those gains and look to deploy cash elsewhere.
Traders willing to stay in the play, waiting for one more drop,
will want to keep stops tight, no higher than $53.65.  That
level is just above Thursday's intraday high and the 10-dma
(now at $53.62).

---

TDS $42.90 (+0.15) The third time was a charm, but not for us.
We've been looking for TDS to breakdown again, but today was the
third day in a row that the stock traded exactly $41.25 before
rebounding.  Fridays rebound was the strongest of all, coming on
volume 50% above the ADV.  At the close, TDS came to rest right
at Thursday's intraday high, after briefly testing the 10-dma,
which fortunately provided resistance.  Given the strength of
today's move and the fact that daily Stochastics are trying to
turn bullish, the smart move is to get out while the getting is
good.  We're dropping coverage of TDS this weekend and would
recommend using any intraday weakness on Monday to gain a more
favorable exit.


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

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

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

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

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

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

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


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The Option Investor Newsletter                   Sunday 02-02-2003
Sunday                                                      3 of 5


In Section Three:

New Calls: EBAY
Current Calls: FRX, SYMC
New Puts: CEPH


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

eBay Inc. - EBAY - close: 75.16 change: +0.95

Company Description:
eBay is the world's online marketplace(TM). Founded in 1995, eBay
created a powerful platform for the sale of goods and services by
a passionate community of individuals and businesses. On any
given day, there are millions of items across thousands of
categories for sale on eBay. eBay enables trade on a local,
national and international basis with customized sites in markets
around the world. (source: company press release)

Why We Like It:
On January 16th EBAY reported strong quarterly earnings of 28
cents/share (analysts were expecting only 24 cents) and then
proceeded to raise their full-year 2003 EPS forecast to $1.27.
The previous consensus estimate was $1.17.  Those were some
amazing numbers, especially considering the dismal earnings that
most of the other high-profile tech companies were reporting.
Wall Street must've seen it coming.  In the three months prior to
this announcement EBAY had already risen sharply from the $50.00
area.  By mid-January shares were trading at 52-week highs.  In
the aftermath of the earnings report shares quickly moved to a
multi-year high of $76.43.  The past eight trading days have seen
the stock slowly unwind from these levels as the broader market
trended lower.

Interestingly, EBAY has been firming up above its 21-dma.  This
moving average previously provided support when the stock was hit
with selling ahead of the earnings report.  The rising daily
stochastics (5,3,3) are signaling that shares could build on
their latest gains.  Bulls can also be encouraged by the recent
pattern of relative strength versus the NASDAQ.  For instance,
EBAY shrugged off a tepid NASDAQ performance on Friday and moved
to a 1.2% gain.  Another intriguing development can be seen on
the point-and-figure chart.  The stock has reversed into a column
of "O" but has not yet produced a sell signal.  Since October,
three-box reversals have offered bullish entry points.  If this
trend continues EBAY could soon move back into a column of "X"
and produce another buy signal at $77.00.  In addition to the
improving technical picture, investors might also be lured by the
prospect of a forthcoming 2-for-1 stock split.  The company split
its stock near $75 in 1999 and 2000.  With the fundamentals
looking strong and shares holding near multi-year highs, it looks
like another split announcement might not be far behind.  As for
upside potential, we'll be initially aiming for a move to the
$80.00 region.  Our exit strategy will be re-evaluated if/when
shares approach this level.  Further upside would not be out of
the question if the overall tech sector were trading strong.  Our
entry point for this play is at $75.51, one cent above today's
high.  If trigged, we'll use a stop at $72.50, just under the
relative low.  In breaking news after the bell today, EBAY
announced that in order to bolster its automotive auctions it had
acquired an online auction management service called CARad.com
and also entered into an agreement with Kelley Blue Book.  We
don't expect that this news will have any material impact on how
EBAY trades on Monday.

BUY CALL FEB-70 QXB-BN OI= 5719 at $6.20 SL=3.10
BUY CALL FEB-75 QXB-BO OI= 12410 at $2.65 SL=1.30
BUY CALL MAR-70 QXB-CN OI= 2130 at $7.90 SL=4.00
BUY CALL MAR-75 QXB-CO OI= 685 at $4.30 SL=2.15

Average Daily Volume = 5.75 mln



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

FRX - Forest Labs $52.87 +1.01 (+0.68 for the week)

Company Description:
Forest Laboratories develops, manufactures, and sells ethical
pharmaceutical products that are used for the treatment of a wide
range of illnesses. Forest Laboratories' growing line of products
includes: Lexapro(TM), indicated as initial as well as
maintenance treatment of major depressive disorder; Celexa(TM),
an antidepressant; Tiazac., a once-daily diltiazem, indicated for
the treatment of angina and hypertension; Benicar(TM)*, an
angiotensin receptor blocker indicated for the treatment of
hypertension; and Aerobid., an inhaled steroid indicated for the
treatment of asthma. (source: company press release)

Why We Like It:
Although FRX had been showing some signs of technical strength,
we had a pretty good hunch that continued broad market weakness
would send the stock back to support at $50.00.  That's exactly
what happened on Friday morning when shares dropped with the Dow
Jones and tagged an intraday low of $49.90.  Our stop at $49.74,
which was designed to give us a small cushion if support was
broken, was not violated.  It didn't take long for buyers to take
advantage of this decline.  FRX quickly regained the $50.00 level
before rallying into positive territory.  A slight uptrend
manifested itself as the session wore on, and shares closed only
5 cents off the best levels of the day.  FRX also closed above
its 50-dma at $51.45.  A similar reversal earlier this week did
not result in a sustainable multi-day bounce.  Will today's
rebound be any different?  We think odds are good as long as the
market continues to stabilize.  The rising daily stochastics and
MACD (which is leveling out above the baseline) are positive
signs for the bulls.  On Monday we'll be looking for shares to
rally towards short-term resistance at $53.00.  A move above this
level would open the door to a possible test of the all-time
highs.

BUY CALL FEB-50*FHA-BJ OI= 1044 at $3.30 SL=1.55
BUY CALL FEB-52.50 FHA-BX OI= 1526 at $1.70 SL=0.85
BUY CALL MAR-50 FHA-CJ OI= 378  at $4.10 SL=2.05
BUY CALL MAR-55 FHA-CK OI= 799  at $1.50 SL=0.75

Average Daily Volume = 3.51 MIL


---

SYMC – Symantec Corp. $46.68 (+2.77 last week)

Company Summary:
A world leader in Internet security technology, SYMC provides
a broad range of content and network security solutions to
individuals and enterprises.  The company is a leading provider
of virus protection, risk management, Internet content and
e-mail filtering, remote management and mobile code detection
technologies.  The desktop battleground is where SYMC derives
nearly 60% of its sales.  Duking it out with Network Associates
in this arena, the company is best known for its security
software (Norton AntiVirus), desktop efficiency (Norton
CleanSweep), and PC utility (Norton Ghost) products.

Why We Like It:
Still knocking on the door, SYMC actually had a pretty impressive
week, considering the carnage in the rest of the market.  It was
however, rather interesting that the $47 level (exactly) marked
the high for the stock on each of the past 3 days.  Looking at
an intraday chart, it appears that there has been a fair amount
of stock for sale at that level, as each time it is tested, the
price falls back.  Not by a large amount, but enough to keep the
buying surge in check.  What has been most impressive is the way
the stock has continued to find support near the $45 level, and
the 20-dma (currently $45.49) continues to come into play.  SYMC
is continuing its pattern of higher lows and if the logjam at $47
breaks next week, we ought to see a new high in fairly short
order.  Traders that took advantage of the dip below $44 early
in the week have really been rewarded over the past few days, and
those positions will look even better on a breakout over $47.
Traders still looking to enter the play have a couple of choices.
Entering on another intraday bounce from the vicinity of $45
looks attractive, especially on a risk/reward basis with our stop
now sitting at $44.  While we've avoided trading a breakout move
up to this point, after so much time spent bumping into the $47
resistance level, a breakout there can be used for momentum
entries, as that breakout ought to have some energy behind it.
If support at $45 fails though, we'll have one last line of
defense at the ascending trendline (currently $44.40).  A break
of that trendline (which began with the October lows) would be
a bad omen and likely lead to a violation of our $44 stop and
an end to the play.

BUY CALL FEB-45 SYQ-BI OI=6326 at $2.95 SL=1.50
BUY CALL FEB-50 SYQ-BJ OI=3767 at $0.70 SL=0.25
BUY CALL MAR-45*SYQ-CI OI= 237 at $4.20 SL=2.50
BUY CALL MAR-50 SYQ-CJ OI= 788 at $1.70 SL=0.75

Average Daily Volume = 3.30 mln



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

CEPH - Cephalon, Inc. $46.53 (-3.55 last week)

Company Summary:
Cephalon, Inc. is an international biopharmaceutical company
dedicated to the discovery, development and marketing of
products to treat sleep disorders, neurological disorders,
cancer and pain.  In addition to conducting an active research
and development program, the company markets three products in
the United States and a number of products in various countries
throughout Europe.  CEPH's United States products comprise
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.

Why We Like It:
Biotechnology stocks were not the place to be last week if you
were bullish, as the BTK index lost ground every day.  While
there were some intraday rally attempts, every one of them
failed.  The failed rallies on Thursday and Friday were
particularly disheartening to the bulls, as they were completely
reversed by the close, resulting in a couple of big "doji" candle
patterns.  There were several pockets of weakness in the sector,
and our new play, CEPH was one of the biggest.  Beginning the
week with a breakdown under the 200-dma (currently $49.03) was
just the beginning and the slide continued right up to the
closing bell on Friday, with the stock coming to rest at the low
of the day.  This level is significant because it is the 62%
retracement of the advance from the October lows to November
highs.  CEPH is under distribution, and the strong volume
underscores that fact.  The company's admission on Wednesday
that it would face generic competition on its Provigil product
by 2006 (rather than the prior statement of 2014) certainly
didn't help, and apparently investors are selling first and
asking questions later.  Perhaps there is the expectation that
the company will have more bad news when they release earnings
on February 19th.  Whatever the root cause, the PnF chart
confirmed the bearish picture on Friday, when the stock traded
the $46 level.  That trade generated a double-bottom Sell signal,
and will have the bears focusing on the prior vertical count of
$38 as an eventual target.  With some significant support near
$46, an oversold bounce early next week would seem to be in
order.  Looking at the strength of that bounce will tell us a
lot about the viability of the play.  As long as it fails below
the 200-dma, that rollover should provide a solid entry
opportunity.  Momentum traders can enter on a breakdown under
$46, but need to keep in mind the bullish support line, currently
$44, which will likely produce at least a temporary rebound.
Initial stops are in place at $49.10, just above both the 50%
retracement ($48.78) and the 200-dma.

BUY PUT FEB-50*CQE-NJ OI=4268 at $4.50 SL=2.75
BUY PUT FEB-45 CQE-NI OI=5374 at $1.80 SL=1.00

Average Daily Volume = 1.93 mln



------------------------------------------------------------
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The Option Investor Newsletter                   Sunday 02-02-2003
Sunday                                                      4 of 5


In Section Four:

Current Put Plays: CCMP, KO, AT, PNRA
Leaps: Volatility Reigns!
Traders Corner: Sitting Bull Ain’t Gettin’ Up Real Soon
Traders Corner: Seasonality
Brokers Corner: Hedge Your Bets


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


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

CCMP - Cabot Microelectronics - 44.83 -2.67 (-1.77 for the week)

Company Description:
Cabot Microelectronics, headquartered in Aurora, Illinois, USA,
is the world leader in the development and supply of high-
performance polishing slurries used for chemical mechanical
planarization (CMP), a process that enables the manufacture of
the most advanced integrated circuit (IC) devices and hard disk
drive components. (source: company press release)

Why We Like It:
The difficulties facing the chip equipment sector were
underscored on Friday morning when Applied Materials warned that
it expects to see a 35% reduction in first-quarter orders.
Previous guidance was for a decline of only 20%.  The company
cited "ongoing economic weakness and geopolitical uncertainties
(and) deferred capital expenditures" as the reasons for the
slippage in expectations.  Just about any business can blame poor
sales and orders on the poor economy and Iraq-related war
concerns.  The poor capex spending also comes as no surprise.  As
we said last night, Intel had already made it clear that
companies such as AMAT would be receiving less of their money for
equipment upgrades.  Investors were nonetheless disappointed with
this morning's news.  The SOX.X  gapped lower and quickly reached
a relative low of 261.  CCMP joined the sector in the downward
gap and opened below our entry trigger at $44.69.  This play was
activated at the initial trade of $43.70.  Short-covering then
took the stock into positive territory before the bears
reasserted themselves.  CCMP finished with a 2.0% loss, easily
underperforming the SOX.X.  That relative weakness is
understandable when you consider that the stock is trading well
above its next clear level of support on the daily chart.  Now
that the $45.00 support region has given way we think chances are
good that shares could soon test psychological support at $40.00.
However, because our entry point is lower than we'd anticipated,
we need to make an according adjustment to our stop-loss.  Our
stop is now set at $46.93, two cents above the rising 100-dma.
More conservative traders could use a stop slightly above the
200-dma at $45.75.  New entries can be targeted on a move under
today's low of $43.30 or on another failed rally at $45.00.

BUY PUT FEB-50*UKR-NJ OI=1400 at $6.70 SL=3.35
BUY PUT MAR-45 UKR-OI OI= 186 at $4.70 SL=2.35

Average Daily Volume = 1.04 mil


---

KO - Coca-Cola $42.82 -1.08 (-2.26 for the week)

Company Description:
The Coca-Cola Company is the world's largest beverage company and
is the leading producer and marketer of soft drinks. Along with
Coca-Cola, recognized as the world's best-known brand, The Coca-
Cola Company markets four of the world's top five soft drink
brands, including diet Coke, Fanta and Sprite. Through the
world's largest distribution system, consumers in nearly 200
countries enjoy The Coca-Cola Company's products at a rate of
more than 1 billion servings each day. (source: company release)

Why We Like It:
In our last write-up, we mentioned the possibility that KO was
due for a bounce after dropping 14% since January 16.  We got
that bounce today, as the Dow tacked on over 100 points, helping
this component to a gain of $1.26.  That gain fell well short of
what would amount to a point and figure reversal from the current
bearish column of "O" at $43.  While we would have loved to see
$40 act as round number resistance, the move back above that
level amounts to a correction of less than 20% of the recent
loss.  Still, the hold over that round number is something for
bears to watch and there is always a possibility of that level
acting as support. We lowered our stop loss to lock in a gain on
the play and the stock did not approach that new stop of $41.55.
The company announced this morning that it would be cutting 1,000
jobs to supposedly "simplify" its North American structure.  Nice
spin, but companies don't often trim employees unless they are
looking to cut costs. Of course, that can be seen as bullish, as
well. After the big drop and relatively slight bounce, we would
recommend momentum traders wait for a break below $39 for new
entries. Our stop will remain in place, just above Wednesday's
high.  Put holders also need to be aware that the Dow has been
seeing some wild swings and even a component that has
underperformed the average, such as KO, can catch fire if the
market continues Friday's bounce.

BUY PUT FEB-45 KO-NI OI= 7451 at $4.80 SL=2.40
BUY PUT MAR-45 KO-OI OI= 3775 at $5.30 SL=2.65

Average Daily Volume = 5.0 mil


---

AT - Alltel Corporation $46.87 (-0.79 this week)

Company Summary:
Alltel is a customer-focused technology company that provides
communications and information services.  The company's
communications operations consist of its wireless, wireline and
emerging business segments.  AT also sells telecommunications
products and publishes telephone directories.  The company owns
a majority interest in wireless operations in 69 Metropolitan
Statistical Areas, and a majority interest in 132 Regional
Service Areas.  Long-distance services are provided on both a
facilities-based and resale basis by the company's subsidiaries.

Why We Like It:
When we initiated bearish coverage of AT on Thursday, we did so
with the understanding that after such a long slide since early
January, an oversold bounce was sure to be lurking just around
the corner.  Thursday's breakdown under the 200-dma (currently
$47.39) provided the impetus to begin coverage, as once broken,
the 200-dma should provide resistance on an oversold bounce.
Sure enough, when the broad market got moving north on Friday,
that was enough to drag AT along for the ride and the 200-dma
did its job to perfection.  After trading a mere 2-cents over
the 200-dma, AT dropped sharply in the final hour before some
short-covering into the close.  Today's bounce made perfect
sense too, based on the bullish support line at $45, a
possibility we pointed out in the initial write-up.  Going into
next week, the market is still likely to be dominated by
knee-jerk reactions to the geopolitical situation, but with
the PnF chart solidly bearish, any relief rallies ought to be
short-lived.  Traders looking for new entries should find what
they're looking for in a failed rally either at the 200-dma
again, or perhaps a bit higher, near $47.50.  With that strong
support resting in the $44-45 area, entering on a breakdown is
only for those willing to assume greater risk in the play.  Our
stop remains at $48.60, as a rally through that level would
clearly indicate that the 200-dma violation was a bear-trap.

BUY PUT FEB-50*AT-NJ OI=1732 at $4.10 SL=2.50
BUY PUT FEB-45 AT-NI OI=  81 at $1.15 SL=0.50

Average Daily Volume = 1.25 mln


---

PNRA - Panera Bread Company $29.51 (-2.04 last week)

Company Summary:
Panera Brea Company, through its wholly owned subsidiary Panera
LLC, operates bakery-cafes under the names Panera Bread and Saint
Louis Bread Company.  As of the end of 2001, the company had a
total of 110 company-owned bakery-cafes and 259
franchise-operated units.  The company specializes in meeting
four consumer dining needs (breakfast, lunch, daytime and take
home bread) through the provision of high quality food, including
fresh baked goods, made-to-order sandwiches on fresh-baked bread,
soups, salads, and custom roasted coffees.

Why We Like It:
Much like the action in the broad markets, PNRA had a pretty wild
week.  Wednesday's rally to and halt at the 200-dma provided a
solid entry for those bold enough to take it.  They were certainly
well-rewarded on Thursday, when the stock gapped sharply lower on
news that the company's CFO would be leaving at the end of March.
Following an initial bounce in the morning, PNRA continued lower,
breaking the $29 level and closing near the low of the day.  As
mentioned in the Market Monitor on Thursday, harvesting some
gains made sense, as an oversold bounce could come at any time.
After probing just a bit lower this morning, the stock actually
saw some pretty good bullish action, moving up throughout the
afternoon to close at its high of the day on volume just about
double the ADV.  So where do we go from here?  The stock came to
rest right at the bottom of yesterday's gap and could be setting
up for a real rebound.  It will probably depend to a large degree
on the direction of the broad market early next week, but we'll
be looking for another rally failure to provide for another
entry.  If the bulls are unable to push through the $30.40 level
(Thursday's intraday resistance), a rollover from that area will
provide the best entry.  Given the fact that there is some decent
support near $28, trading a breakdown does not seem to be a
favorable entry strategy at this time, although more aggressive
traders might give it a shot with a volume-backed move under $28.
Our eventual target for the play remains at $26, which is strong
support, as well as the site of the PnF bullish support line.
Keep stops tight at $30.55.

BUY PUT FEB-30 UPA-NF OI=953 at $1.65 SL=0.75
BUY PUT MAR-30*UPA-OF OI=119 at $2.45 SL=1.25

Average Daily Volume = 621 K



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*****
LEAPS
*****

Volatility Reigns!
By Mark Phillips
mphillips@OptionInvestor.com

Was anyone else as befuddled as I was with all the whipsaws and
knee-jerk reactions to each news item last week?  Especially on
Friday, it seemed that good news was cause to sell and bad news
motivated the bulls to buy.  Such is the nature of a pre-war,
recession-bound economy (yes, I still think we're in a recession)
in the heart of earnings season.  I won't waste your time
restating any of the specific news items, as I'm sure Jim will
handle that quite well in his Wrap this weekend.

With all the daily news on the economy, various earnings reports,
and the rapidly escalating situation with respect to Iraq, it
makes the market really difficult to decipher.  But stepping back
to the major pieces of the puzzle certainly enhances the clarity.
We're going down, but not forever.  There will be another bottom
in our fairly near future, and my expectation is that it will
likely commence as soon as it becomes clear that we aren't
getting into a protracted morass in the Mid-East.  If it does
start to look like the U.S./U.N. has gotten attached to a tar
baby, then all bets are off.

But over the near-term, we're headed further south.  Friday's
oversold bounce may carry over a bit into early next week, but I
expect it to fail and take the DOW down into the 7500-7700 area,
with the SPX likely testing the 800 level before those bullish
percent readings start to really improve.  Bullish percents are
a big reason I think we're still headed substantially lower,
with the DOW, OEX and the NDX in bear confirmed status, with the
SPX still holding onto Bull Correction and the COMPX miraculously
still in Bull Confirmed.  Remember my commentary near the first
of the year where I stated that the NASDAQ should perform better
than the rest of the market in the year ahead?  I think we're
starting to see that played out by the resilience of the COMPX,
both in terms of price performance and the Bullish Percent.  Time
will tell whether I'm on target or off my rocker, but I think
2003 actually has the potential to provide some solid bullish
plays in the technology arena.  We just have to pick the right
targets.  I've added a couple of new plays this weekend that fit
in nicely with my longer-term market view, after this current
decline has run its course.  Check them out down below.

I've been rather brief in my commentary this weekend, and the
primary reason is that I don't have a lot to say, other than
what I wrote just above.  The primary trend is in control and
will likely remain so until we reach a level where risk shifts
to the upside.  The one other issue that I think is worthy of
noting right now is the VIX.  If you missed my article on it
last Wednesday, definitely take the time to check it out in the
Options 101 archives.  I think there are some important issues
to consider there.  Note how after challenging that descending
trendline just over 40, the VIX softened somewhat, but still
found strong support at 35 on the intraday rallies.  This tells
me that the options writers are not at all convinced that the
current market decline is close to running its course.  Keep an
eye out for higher VIX readings in the fairly near future.  I'll
try to comment on this indicator in the Market Monitor over the
next couple weeks, as I expect it to be increasingly important.

There's still time to jump aboard for the bearish express down
to DOW 7500, but don't expect it to last forever.  The bulls are
likely to come back with a vengeance when risks become easier
to manage, just like in July and October.  Check out the details
below.

Portfolio:

NEM - Considering some of the carnage that occurred in the broad
markets last week, I still like what I'm seeing in the price of
gold and in the price performance of our NEM play.  Does it still
look near-term extended? Yes.  Does it still look like it could
work substantially higher? Yes.  The big picture is that the PnF
chart currently has a bullish price target of $45.  On the other
hand, gold is looking very extended on its PnF chart.  The
current market behavior is actually very interesting because of
the competing schools of thought.  There are those that believe
the strength is due to geopolitical concerns, with pending war
with Iraq.  While that's a convenient excuse to explain the
near-term strength, it doesn't even begin to explain why gold
has already been in a secular bull market for close to 2 years
now.  The big picture for this area of the market is directly
tied to currency weakness (particularly the dollar) and the
ongoing debate over inflation/deflation.  If you want to get a
good understanding of the underlying forces at work, be sure to
check out the past few installments of Buzz Lynn's Thursday
column.  In fact, I have it on good authority that he's going
to tackle the topic of gold next Thursday.  Be sure to tune in,
if you're following this play.  Simply put, NEM is consolidating
near its recent highs, unable to decisively clear the $30 level,
but also not showing any significant weakness.  New entries
don't make sense at this point, as our next opportunity for a
solid long entry will likely come after the post-Iraq invasion
selloff.  Keep stops set at $27.

DELL - If only I could have that original entry back, I'd
certainly be a lot happier right now!  While that rebound from
the 200-dma looked good for a couple weeks, the major slide
over the past 3 weeks proves the fallacy of that entry.  After
breaking the $25 level, DELL is now at a very critical juncture,
as it moves ever closer to testing the $23 support level (PnF
bullish support).  Despite the poor price performance, I still
like the play, especially for new entries near current levels
provided the $23 level is not hit. We came perilously close to
it on Friday with an intraday low of $23.25, but I like the
rebound that followed, as it came on strong volume (40% above
the ADV).  While trades taken near this level are aggressive,
I like them due to the risk/reward ratio.  So long as DELL does
not print $23 or below, the PnF Buy signal remains intact, with
a price target well above the recent high of $30.  Keep stops
at $23.

Watch List:

DJX - Watching the continued slide in the DJX has been an
exercise in "what might have been", but for those of you that
are in the play, the picture continues to favor the bears.  An
ideal scenario would be for a drop all the way to the $75 level
(the target predicted by the H&S breakdown), but I would
recommend that more conservative traders begin to harvest gains
on a trade/rebound from the $77 area.  The market appears to be
consolidating the first leg of its downward move in preparation
for another leg down.  For positions opened before the neckline
break, I would recommend tightening stops to $82, which would be
a rally through last week's intraday highs, as well as a new PnF
Buy signal.  Another rally failure below $82 can be used for
opening new positions with the understanding that the resultant
drop will be limited to the $75-77 area.

BEAS - Little changed last week, BEAS is continuing to demonstrate
impressive resilience with respect to the rest of the Technology
sector.  That said, I'm starting to see signs of weakness with
Friday's close under $11.50, and importantly below the 50-dma.
That tells me that our chances of getting an entry near our target
are improving, especially with the continued deterioration in the
rest of the NASDAQ.  The weekly Stochastics are now plunging
towards oversold, so now is clearly not the time to look for new
entries.  Patience is the watchword for now.

GS - With a lack of bullish activity in Financial stocks again
last week, GS obediently rolled over at the $70 level and headed
down to test $67 support by week's end again.  There's little
for the bulls to hope for here, except for a potential double
bottom at this level, but reading the PnF chart tells me the
stock has the potential to trade substantially lower in the weeks
ahead.  But with the highly charged geopolitical environment,
things are likely to be rather volatile.  Traders already in the
play should now trail stops to $70, the site of last week's
intraday high (actually $70.01) and just above the 10-dma, which
has been providing resistance since the rollover in mid-January.
With a PnF bearish price target of $53, I still favor new entries
on another failed rally below $70, which is the new location of
our entry target.  Since we are already well into this downward
move, new entries carry greater risk at this point, as the most
logical place for a stop is still just above the 50 and 200-dmas
at $74.

IBM - Close, but no cigar.  We were looking for Big Blue to test
the bottom of the post-earnings gap, but there just wasn't enough
bullish interest to get the job done.  It was interesting to note
that the 50-dma, $82.10 wasn't even challenged, and looking at
the PnF chart tells us why.  It would take a trade of $82 to
generate a fresh Buy signal and in the current environment, that
seems unlikely.  We still don't have a PnF Sell signal, and that
will come with a trade at $77.  The ideal scenario would be for a
bounce from the 200-dma (just above $76) followed by another
rollover below the 50-dma, so long as we don't get a trade above
$82.  I'm lowering the entry target to $81.00-81.99 and we'll
enter on any failure in that area, setting initial stops at $84,
just above the bottom of that gap.

As Steve has pointed out on numerous occasions in the past week
or so, the current market environment is one filled with risk.
Traders that aren't comfortable with that risk should either be
sitting on the sidelines or playing with much smaller position
sizes.  The turmoil that currently has investors confused as to
which way is up will soon pass, and provide more stable trading
opportunities.  Remember, there are three possible positions:
Long, short, or flat -- flat IS an honorable position to take.

I was just starting with my commentary when I heard the news of
the Space Shuttle disaster and I must say I've had a hard time
keeping my mind on the market today.  I remember the Challenger
disaster as though it were yesterday.  While I wasn't really
involved with the space program during the decade I spent working
for NASA, I did come to regard the entire agency as one large
family.  What happens in one area of endeavor, affects all areas.
While this sort of tragedy is the risk accepted by those that
take it, my heart goes out to their families, as they may not
have come to terms with the potential for disaster.  I urge each
of you to take a moment this weekend to say a prayer for these
families.  Then take the time to show your gratitude and
appreciation that your family is safe and sound with you.

See you next week.


Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
None
NEM    10/30/02  '04 $ 30  LIE-AF  $ 3.90  $ 4.80  +23.08%  $27
                 '05 $ 30  ZIE-AF  $ 6.10  $ 7.70  +26.23%  $27
DELL   12/19/02  '04 $ 30  LDE-AF  $ 3.70  $ 1.85  -50.00%  $23
                 '05 $ 30  ZDE-AF  $ 6.10  $ 4.10  -32.79%  $23

Puts:
None



LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
BEAS   12/22/02  $9-10         JAN-2004 $ 12  LZP-AV
                            CC JAN-2004 $ 10  LZP-AB
                               JAN-2005 $ 12  ZWP-AV
                            CC JAN-2005 $ 10  ZWP-AB
NVDA   02/02/03  $8            JAN-2004 $ 10  KMF-AB
                            CC JAN-2004 $  7  KMF-AU
                               JAN-2005 $ 10  XMF-AB
                            CC JAN-2005 $  7  XMF-AU
QCOM   02/02/03  $33, $35      JAN-2004 $ 40  LLU-AH
                            CC JAN-2004 $ 35  LLU-AG
                               JAN-2005 $ 40  ZLU-AH
                            CC JAN-2005 $ 35  ZLU-AG



PUTS:
DJX    12/08/02  $81.50-81.99  DEC-2003 $ 80  DJX-XB
                               DEC-2004 $ 80  YDJ-XB
GS     12/22/02  $70           JAN-2004 $ 70  KGS-MN
                               JAN-2005 $ 70  ZSD-MN
IBM    01/19/03  $81-81.99     JAN-2004 $ 80  LIB-MP
                               JAN-2005 $ 80  ZIB-MP



New Portfolio Plays

None

New Watchlist Plays

NVDA - NVIDIA Corporation $10.32  **Call Play**

Bottom fishing anyone?  To be sure, this isn't the time to be
entering a bullish play in the Semiconductor space, with the SOX
leading the NASDAQ lower again on Friday.  And NVDA seems an
unlikely candidate, given the bearish news related to Xbox sales
late last week.  Apparently sales of the game unit have been
slower than anticipated, and since NVDA makes the graphics chips
for the game units, that's not a good sign.  So let's be clear:
The SOX is headed lower, NVDA is headed lower and I don't expect
that the company's earnings report on February 13th is going to
hold any great gifts for the bulls.  However, I don't think the
stock is headed a lot lower and I expect the lows from last
October will not be broken.  On a purely fundamental basis, the
stock actually is starting to look attractive with a P/E ratio
of about 17 (that's right, real earnings) and nearly $6 in cash
per share.  I think a drop into the $8-9 range is a gift for the
bulls, as it will likely come about the same time that the
bullish percent readings on the major indices are reaching deep
into oversold and risk begins to shift to the upside.  Not only
that, but weekly Stochastics are already into oversold territory
and should be rounding and turning up around the same time that
all of the bad news is factored into the stock, making it a
prime candidate for a rebound in the Semiconductor sector.  So
how did I pick my entry target?  How about from the PnF chart,
which is still in Sell mode, with a downside target of $7.50.
We all know those targets can be exceeded, but in this case I
don't think so.  Patience is the key for this play as we don't
want to jump the gun, as I did on the DELL play.  After entry,
we'll place stops at $7, just below the October lows.

BUY LEAP JAN-2004 $10 KMF-AB
BUY LEAP JAN-2004 $ 7 KMF-AU **Covered Call**
BUY LEAP JAN-2005 $10 XMF-AB
BUY LEAP JAN-2005 $ 7 XMF-AU **Covered Call**

QCOM - QUALCOMM Inc. $37.66  **Call Play**

While certainly not cheap just yet, QCOM is starting to look
pretty attractive from where I sit.  Sure the PE ratio is still
north of 60, but did anyone else notice the strength of the
company's earnings last quarter.  It was their best quarterly
revenue since Q1 of 2000 and their best EPS (albeit pro-forma)
since Q4 of 1999.  The company's CDMA technology is looking like
a winner, and especially in Asia, I expect it to be a huge
cash-cow in the years to come.  From a technical perspective, I
think the smart money has already figured this out, as the stock
has been trading very well with respect to the rest of the
Technology sector.  While still holding above the early January
lows, I really expect one more downdraft before the next recovery
begins.  Based on the vertical count from the PnF chart and
historical support, $33 looks like a firm base, especially with
the flattening 200-dma just above $32.  Those of you that like
to identify chart patterns will note that QCOM appears to be in
the latter stages of forming a cup-and-handle bottom, which began
almost a year ago.  The handle began to form in early December,
and has taken place on rather light volume.  The breakout will
come with a sustained push through the $44-45 area, but I'm
getting ahead of myself.  Although the stock is still above the
ascending trendline ($35) from the August lows, with the
bearishness in the rest of the market, I expect at least a
temporary violation of that level before firm support makes its
presence known near $33.  Aggressive traders can target entries
on a successful defense of the $35 level, those with more
patience will want to wait for a successful test of the  $33
support level.  Another approach would be to enter a half
position on a rebound from $35 and round out to a full position
on a rebound from $33.  After entry, stops will be placed at
$32, just below the 200-dma

BUY LEAP JAN-2004 $40 LLU-AH
BUY LEAP JAN-2004 $35 LLU-AG **Covered Call**
BUY LEAP JAN-2005 $40 ZLU-AH
BUY LEAP JAN-2005 $35 ZLU-AG **Covered Call**

Drops

MO - $37.00 Am I frustrated about getting stopped out this week
only to see MO trade up on Friday?  Not a bit.  This is a perfect
example of a play that just didn't work out.  Oh sure, it moved a
bit in our favor, but after being unable to break the $42
resistance level, MO sold off ahead of earnings, but interestingly
enough, MO's earnings were not the problem.  The stock got slammed
down below $36 early Wednesday morning in response to Kraft's
earnings (still majority owned by MO) coming in a penny below
estimates.  MO announced earnings later in the day, and the
positive tone was enough to lift MO back to exactly $37 at the
close.  Up until the most recent plunge, MO looked like it was
going to stage a bullish breakout from the neutral triangle on
the PnF chart, but any hope of that occurring is now long gone.
With trade at $37, the stock is back on a PnF Sell signal and we
don't want to waste any more time with it.  If still holding
open positions, take advantage of any continued rebound next
week to exit those positions.  A trade in the $39-40 area would
be a gift.

QLGC - $33.28 So long to this possible call candidate.  After
the poor price performance following the company's earnings
report earlier this month, I put it on hold in anticipation of
the $35 support level providing a solid base.  Bad news on Friday
sealed the stock's fate though, and it looks like the bears are
completely in control.  In retrospect, I should have just dropped
the play with the breakdown under $39, but fortunately we never
took an entry into the play.  Discipline pays off again.  In
looking once again at the long-term and PnF charts this weekend,
I can clearly see where the appropriate play would have been as
a Put, rather than a call, as the stock rolled over right at
major resistance near $44, also the site of the long-term
descending trendline.  I'm dropping the play this weekend, and
we'll look to revisit it again in the future when the technicals
look more favorable.


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

Sitting Bull Ain’t Gettin’ Up Real Soon
By Mike Parnos, Investing With Attitude

Once upon a time there were three bulls.  Momma bull, papa bull
and baby bull.  Now, if you ask me, that’s a lot of bull.  As we
all know, the only bull that remains is what is shoveled
regularly by wishful thinking talking heads on CNBC.  If you’re a
papa bull, and you think you’re going to wake up and find a
nubile young Goldilocks next to you, think again.  All that’s
next to you is undoubtedly a bulimic brokerage account that keeps
upchucking your money.  How’s that for a mental image?

There are still some CPTI students who have a bullish outlook on
the market – not now, but perhaps for a year from now.  (They’re
in therapy, but that also takes a while).  In the meantime, how
can we take advantage of that projected scenario and risk very
little?
_________________________________________________________________

The “Oldies But Goodies” Portfolio
The market leaders of years past have been beaten down.  It’s
been brutal.  Even at these “bargain basement” prices, they still
have huge market caps.  They’re still functioning and making
money.  Some analysts believe they are undervalued.  While a
small army of eternal optimists are waiting for the genie to pop
out of a bottle (usually of Jack Daniels) and grant three wishes,
here’s how you can participate in a market rebound in a few of
these companies.

A positive aspect of this strategy is that CPTI students, who
cannot do spreads in their brokerage accounts, will be able to
participate in this strategy – in both regular brokerage and many
IRA accounts.

Let’s start with an old favorite – SUNW (Sun Microsystems) –
currently trading at $3.10.
Buy 1,000 shares of SUNW @ $3.10
Buy 10 contracts of SUNW January 05 $5.00 put at $2.55
Your total out of pocket investment is $5.65.  For the next 22
months, your total risk is only $.65.

Let’s look at a few “what if” scenarios which will show you why
your risk for two years is only $.65 and how you can profit.

What if . . . in 10 months SUNW is 7.50?   The January 2005 $5
put would still have a value of about $.50 and the stock would be
worth $7.50 – for a total of $8.00.  Your cost was $5.65, so your
profit would be $2.35 with 12 more months until January 2005
expiration.

What if . . . in 10 months SUNW is $2.50?  The January 2005 $5
put would have a value of about $2.70 and the stock would be
worth $2.50 – for a total of $5.10.  With a cost of $5.65, you
would have a paper loss of $.55 with 12 more months until January
2005 expiration.

What if . . . at January 2005 expiration SUNW is $4.25?  The
January 2005 $5 put would have a value of $.75 and the stock
would be worth $4.25 – for a total of $5.00.  With a cost of
$5.65, you would have incurred the maximum loss of only $.65.

What if . . . at January 2005 expiration SUNW is $10?  The
January 2005 $5 put will expire worthless, but the stock would be
worth $10.  With a cost of $5.65, your profit is $4.35.

Take a look at the SUNW January 2005 $5 call options.  You could
buy it for just $.80.  Is that a better deal?  After all, you be
tying up only $800 for two years instead of $5,600 (for 10
contracts).

Well, if you’re right – and that’s a big “if” – owning the stock
enables you to participate penny for penny as SUNW moves up.  The
delta on the January 2005 $5 call is only 52%.  It’s your call.

Below is a list of a few other “Oldies But Goodies(?)” that could
rise from the ashes and put some bucks in your pocket.

NT (Nortel).  Trading at $2.37.  The January 2005 NT $2.50 put is
$.90.  Total cost is $3.27.  Risk is $.77.

LU (Lucent).  Trading at $1.86.  The January 2005 LU $2.50 put is
$1.30.  Total cost is $3.16.  Risk is $.66.

GTW (Gateway). Trading at $2.62.  The January 2005 GTW $5.00 put
is $3.00. Total cost is $5.62.  Risk is $.62.

AMR (American Airlines). Trading at $2.90.  The January 2005 AMR
$5.00 put is $3.40.  Total cost is $6.30.  Risk is $1.30.

MOT (Motorola).  Trading at $7.98.  The January 2005 MOT $10 put
is $3.70.  Total cost is $11.68.  Risk is $1.68.

COMS (3 Com).  Trading at $4.23.  The January 2005 COMS $5.00 put
is $1.90.  Total cost is $6.13.  Risk is $1.13.

A lot can happen in two years – good and bad.  These beaten down
companies were among those that led the markets higher during the
tech bubble of a few years ago.  There still may be some wind in
their sails, some bananas in their split, some pings with their
pongs, some stiff in their upper lips.  Then again, maybe not.

So, if you’re one of those glass is “one-quarter full” as opposed
to “three-quarters empty,” you can put your money where your milk
should be.  You may end up with a delicious milkshake or some
two-year-old cottage cheese.  Dairy products can be tricky.
They’re not for the meek, though the risk is small.

If you believe in mama bull, papa bull and baby bull, go for it!
If you believe that the only bull we’re going to see for a long
time is what is served between the buns at Burger King, this is
not for you.
______________________________________________________________

CPTI PORTFOLIO POSITION UPDATE
Position #1: BBB Iron Condor – Closed Friday at $88.70.
An Iron Condor is a credit position consisting of both a bull put
spread and a bear call spread. The collected premium will come
into your account the very next business day.  The objective is
for the underlying, at expiration, to finish anywhere within the
$85-$95 range.

Position #2: MMM Iron Condor – Closed Friday at $124.55.
The support at $120 once again seems strong, as does the
resistance at $130. Enough.  That should give MMM enough room (10
points) to bounce around for the next four weeks.

Position #3: SMH Straddle – Closed Friday at $21.50.
We bought the SMH May $22.50 puts and calls and spent $5,850 on
10 contracts. But, since we’re going to stay in this position
only for the February option cycle (5 weeks), we’ll only be
risking about $.85 ($850).   We’re looking for a big move for the
semiconductors and we don’t care which way.

Position #4: QQQ ITM Strangle – Closed Friday at $24.44.
This is a long-term position to generate a monthly cash flow.  We
own the January 2005 $21 LEAPS call and the January 2005 $29
LEAPS puts.  We’ve sold the February $29 calls and February $21
puts.

Position #5A: XAU Condor – Closed Friday at $77.00.
This is a longer term trade expiring in March.  There is a $20-
point range and we took in a credit of $1.40.  We want XAU to
finish anywhere between $70 and $90.

Position #6A:  MMM Condor – closed Friday at $124.55.
This is a longer term more conservative trade expiring in March.
There is a $20-point range and we took in a credit of $1.20.  We
want MMM to finish anywhere between $115 and $135.

Position #7A:  QQQ 2-Month Baby ITM Strangle – closed Friday at
$24.44.
Bought March QQQ $26 puts & Buy March QQQ $24 calls for total
debit of $4.20.  There is $2 of intrinsic value and only $2.20 of
risk.  We’re looking for a 3-4 point move in the QQQs.  After the
move, we want the successful long option to pay for both options.
Then we’re left with a “free” long option and waiting for the
market to reverse.
______________________________________________________________

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.
Mike Parnos
CPTI Instructor


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

Seasonality
By Jane Fox

You've all heard the axiom "Buy in October and sell in April."
But do you know if this saying has any validity to it? How
about the Santa Claus rally? Is there really such a thing?

Recently Jay Kaeppel, author of "The Option Trader's Guide
to Probability, Volatility and Timing", published an article
called the "The Stock Market, The Calendar and You." It
addressed seasonality in the market and set about to
statistically find if there indeed is a season or time of
the year that produces more bullish profits than at other
times.

Mr. Kaeppel used extensive data he complied from the NASDAQ
Composite for the years 1972 to 2002 and compared each seasonal
tendency to a buy and hold strategy. He also used the NASDAQ
as his benchmark instead of the S&P500 because of it's more
pronounced moves, which proved to give a greater profit in
this seasonal timing system.

Turns out there are four seasonal tendencies:

1.	Two days before an exchange holiday - this strategy would
	have you go long the NASDAQ at the close on the 3rd day before
	an exchange holiday and sell your position at the close two
	trading days later. The exchange holidays used in the study
	were: New Year's Day, President's Day, Easter, Memorial Day,
	July 4th, Labor Day, Thanksgiving, and Christmas. Here's an
	example; New Year's Day was an exchange holiday so you would
	have gone long on the close of December 27th and sold at the
	close of December 31st.
	
	This seasonal tendency produced an annualized return of 2.8%
	over the 28 years included in the study. Whereas a buy and
	hold strategy would have shown an annualized return of 9.93%,
	this strategy produced the 2.8% return with only a 9.9% draw
	down. The buy and hold strategy had a 71.8% drawdown. A large
	part of the reason for the small drawdown is that it is only
	in the market 6.3% of the time compared to the buy and hold
	strategy, which has you in the market 100%. This, of course,
	gives much less time to stumble.
	
2.	The last trading day of the month and the first four days
	of the next month – this strategy would have you go long the
	NASDAQ at the close of the next to last trading day of each
	month and sell at the close on the 4th trading day of the
	next month. An example would be you go long on January 30th
	and sell at the close on February 6th.
	
	This seasonal tendency produced an annualized return of 8.65%
	compared to the buy and hold return of 9.93% but did it with
	only a 23.5% drawdown compared to the buy and hold drawdown
	of 71.8%.  The strategy has you in the market only 24% of the
	time, once again giving less time to stumble.
	
3.	November 1 through the third trading day of May - this
	strategy would have you go long the NASDAQ at the close of
	the last trading day of October and sell at the close on the
	3rd trading day the next May. With this one would have had
	you go long October 31st 2002 and selling the position on
	May the 5th 2003.
	
	This seasonal tendency produced an annualized return of 10.14%
	but a higher drawdown of 64.3% because you are in the market
	50% of the time.
	
4.	The 14 months previous to an election year - this strategy
would have you go long the NASDAQ at the close of the first
trading day in October two years prior to an election and
sell December 31st the following year. We are currently in
this time frame, which began last October 1st and will extend
to December 31st of this year.

This seasonal tendency produced an annualized return of 9.35%
but with a drawdown of only 36.1% because it is in the market
only 32% of the time.

Now you could trade each of these strategies on its own merit
and do fine but what's so useful about this study is when you
combine all the tendencies into one Index. Jay Kaeppel called
it the seasonal index.

Here's how it works. Now this is hard so pay attention. Give
each tendency one point and when the calendar shows that you
have +2 or greater, trade it.

By combining the seasonal tendencies the annualized return
jumps to 13.1% and the drawdown stabilizes at 24.4%.

Here's a table of all the data:

Tendency    Annualized   Drawdown   Time in
Return                  the Market	

#1          2.8%        9.9%        6.3%
#2          8.65%       23.5%       24%
#3          10.14%      64.3%       50.6%
#4          9.35%       36.1%       32%
2 or more   13.1%       24.4%       n/a

Now compare this data with a buy and hold that gave you an
annualized return of 9.93% but with a 71.8% drawdown.

Remember the huge move we had at the beginning of the year?
The seasonal index was at +4. Every one of the tendencies
were in place. We had two days before an exchange holiday
(New Year's Eve), we had the end of the month, we are currently
in the "winter" months and we were in the 14 months before
an election year. As a matter of fact we will be in a 2 or
more mode until the 3rd trading day of May. Sounds pretty
promising! I must admit it is tempting to go long and just
hold on for the duration but ...

There is always a "but" isn't there? The data used in this
study was from 1972 to 2002 and 18 years of it (1982-2000)
was a raging bull so bullish strategies did quite well.
But we are no longer in a raging bull, actually quite the
opposite. With this in mind I took a look at only the last
three years of the combined seasonal data and here is what
I found.

Year       Index +/-  NASDAQ +/-  Difference
2000        7.8%        -39.3%      47.1%
2001        6.6%        -21.1%      27.7%
2002         -1%        -25%        24%

So although the seasonal index didn't do as well as previous
years it still outperformed a buy and hold strategy. (Mind
you everything out performs a buy and hold strategy but that
is another story).

So there you have it, the stats to back up some axioms that
we all knew had some validity but just never knew how much.

Until May 5th, each time we encounter an exchange holiday
or an end of month the index will jump to +3 since every
day from now until May 5th is a +2. Could be fun to watch
and see how this plays out.

Enjoy

Jane Fox


**************
BROKERS CORNER
**************

Hedge Your Bets
Robert Norman

Many people that I talk to throughout the course of the month
ask me what resources I use. How do you determine the trend of
the market, to know whether you are looking for short ideas or
long ideas? My immediate answer is always the same Option Investor!
In addition to this website I also use Investor's Business Daily
and Dorsey, Wright and Associates. Dorsey Wright has done a good
job with technical analysis especially with the indices!

In October and November the market looked good his traffic light
was GREEN! In December the light went to flashing YELLOW as his
short term indicators reversed down into O's. Then the Optionable
Bullish Percent reversed down into O's and then the OTC Bullish
Percent reversed down into O's changing the traffic light to
flashing red.

Well on Thursday January 30th the NYSE Bullish Percent reversed
down into O's which means the traffic light is RED and the
DEFENSE is on the field! This doesn't mean that the market can't
go up, as we all know the market will do whatever it wants to do!
It just means the risk in the market has greatly increased and
as a trader you should act accordingly! In my opinion that means
different things to different people. It might mean you go to
cash, maybe it means you sell calls on your stocks, or maybe it
means look for PUT ideas! It always depends on your investment
objectives, risk tolerance level, and time frames.

The thing I always tell people is you have insurance on the
things you own that you value, right? So if you value your
portfolio why not buy insurance on that too? Do you know how
to purchase insurance for your portfolio? If you own a group
of S&P 500 stocks and your portfolio is valued at $100,000 you
could buy 1 Jun 850 put for 58.70 or $5,870,and be hedged till
June, you could be wrong on the hedge but still make money once
you've recovered the cost of the option or cost of insurance!

When you feel the market is risky protect your assets! Your
portfolio in this example would be about 2/3rd's hedged.

Robert L. Norman
Wunderlich Securities, Inc.
RNorman@Wundernet.com


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The Option Investor Newsletter                   Sunday 02-02-2003
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Q&A With The Editor
Naked Puts: "Naked" Puts -- A Simple Approach!
Spreads/Straddles/Combos: A Terrible Month Indeed!

Updated In The Site Tonight:
Market Watch: Something For Everyone
Market Posture: Where We Began


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

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

This week's discussion concerns position selection and assessing
risk-reward with "out-of-the-money" covered-calls.

Attn: Covered-calls editor
Subject: Choosing the right option

Mark,

I [would] like to improve portfolio return (relative to the market)
with writing "out-of-money" covered-calls.

There is a trade-off between rolling short-term calls (1-2 month)
with high trading costs and writing longer-term calls with lower
option premium (annualized).

What are your opinions on this trade-off?

Thanks,

JS

Hello JS,

The covered-call writer is always striving to find positions that
offer a balance between acceptable returns and downside protection.
A conservative covered-call portfolio should contain a variety of
plays that provide yields of 1%-2% per month (based on the stock
price remaining unchanged) and a downside margin of at least 10%.
Using these criteria, a covered-call writer is usually going to be
limited to at-the-money (ATM) or in-the-money (ITM) positions.  In
addition, the uncertain outlook for equity values suggests a fairly
short-term approach to this strategy, where a trader is not really
interested in stock ownership, but rather in a consistent monthly
yield.  Remember, a covered-write strategy requires a neutral to
slightly bullish outlook on the underlying stock (as well as the
market in general) to increase the probability of a successful
outcome.  A conservative investor would transition to longer-term
positions only when rolling forward and/or down in an attempt to
rescue a "losing" position.

Of course, more aggressive traders may prefer out-of-the-money (OTM)
covered-writes in situations where the technical outlook or the
available cost basis warrants additional risk.  According to Larry
McMillan, noted option guru and author of "Options: As a Strategic
Investment," there is some mathematical basis to believe, in the
long run, that moderately OTM covered-writes will perform better
than ITM writes.  Though both ITM and OTM covered-call positions
will outperform outright stock ownership in a flat or down market,
the OTM writer has far more risk than an ITM writer.  Obviously, the
allure of an OTM position is that in a rising market, the OTM writer
doesn't limit his upside potential as much as an ITM writer, but his
his yield still depends on favorable stock movement.  Also, the OTM
covered-call will, by virtue of its dependence on stock movement, be
more volatile on a regular basis.

When comparing different time frames and strikes in a covered-write
position, it is important to calculate the yield based on the stock
remaining unchanged.  Using this method, there is no assumption on
stock movement and a more accurate month-to-month annualized return
can be calculated (and compared).  Some investors prefer to placate
the desire for higher yields by writing a combination of ITM and OTM
covered-calls.  However, this approach generates higher transaction
costs and very complex adjustments if the position does not perform
as expected.  In the end, determining the most appropriate strategy
for a covered-write is simply a matter of identifying your personal
risk-reward tolerance.  Regardless of which method is eventually
employed, success depends more on maintaining a disciplined approach
and using proven money-management techniques to keep the losses
(when they occur -- and they will) as small as possible.

Trade Wisely!



SUMMARY OF PREVIOUS CANDIDATES
*****

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

Note:  Margin not used in calculations.

Stock   Price   Last    Option    Price   Gain  Potential
Symbol  Picked  Price   Series    Sold   /Loss  Mon. Yield

ABMD     4.97    5.00  FEB  5.00  0.45    0.48   11.5%
ORB      5.02    5.45  FEB  5.00  0.35    0.33*   6.1%
MMR      7.92    7.38  FEB  7.50  1.00    0.46    5.8%
EMIS     5.44    5.90  FEB  5.00  0.75    0.31*   5.7%
ALKS     8.07    7.68  FEB  7.50  1.00    0.43*   5.3%
ALA      5.76    7.26  FEB  5.00  1.10    0.34*   5.3%
WEBM    10.89   11.19  FEB 10.00  1.55    0.66*   5.1%
ALO     16.00   16.53  FEB 15.00  1.95    0.95*   4.9%
LSS     15.01   14.85  FEB 15.00  0.80    0.64    4.9%
MEDC     9.26    8.60  FEB  7.50  2.15    0.39*   4.8%
FTS      8.39    8.53  FEB  7.50  1.20    0.31*   4.7%
ADLR    13.45   13.06  FEB 12.50  1.45    0.50*   4.5%
JDEC    13.86   12.53  FEB 12.50  2.05    0.69*   4.2%
EFII    17.46   17.40  FEB 17.50  0.70    0.64    4.1%
MEDC     9.31    8.60  FEB  7.50  2.20    0.39*   4.0%
LMNX     5.16    4.55  FEB  5.00  0.60   -0.01    0.0%
REGN    21.27   18.73  FEB 20.00  2.30   -0.24    0.0%
CBST     7.63    6.57  FEB  7.50  0.70   -0.36    0.0%
GFI     15.25   13.13  FEB 15.00  1.05   -1.07    0.0%

* = Stock price is above the sold striking price.

Comments:

Another week and really no change in the outlook:  sitting on
the sideline watching the game appears to be the best (least
harmful) strategy as the market bounces up and down.  There
is no resolution on the geopolitical front and the economic
front is stabilizing at best, except maybe in Tech land (it
keeps getting worse?).  Ok, can I wake up now?   Globespan-
Virata (NASDAQ:GSPN) offered an excellent opportunity to exit
or adjust the position this week.  Another issue to consider
adjusting or exiting is Regeneron Pharmaceuticals (NASDAQ:
REGN) -- horrid action over the last 2 days (earnings related)
on increasing volume doesn't bode well for the near-term.  A
bounce off the 150-dma may offer a favorable exit or adjustment,
depending on your long-term outlook.  Another issue, Cubist
Pharmaceuticals (NASDAQ:CBST) is testing a key support area
around $6.50 and should be monitored closely next week.
Earnings for Cubist are due February 19.  Gold Fields (NYSE:
GFI), a new candidate for this week (JAN-26), offered little
incentive for an entry on Monday when there was no follow
through to Friday's rally and it moved lower into Thursday's
earnings report.  A mine fire reported on Friday doesn't help
either.  The position will be removed from the summary.  All
that is Gold doesn't necessarily glitter!

Positions Closed:

Globespan-Virata (NASDAQ:GSPN)


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

ASKJ    5.36  FEB  5.00   AUK BA  0.65 7      4.71   21    8.9%
MSTR   20.78  FEB 20.00   EOU BD  1.85 35    18.93   21    8.2%
MVK    15.34  FEB 15.00   MVK BC  0.80 246   14.54   21    4.6%
NFLX   13.20  FEB 12.50   QNQ BV  1.15 393   12.05   21    5.4%
OSUR    7.85  FEB  7.50   QTP BU  0.65 55     7.20   21    6.0%
RCOM    5.71  FEB  5.00   RAU BA  0.90 1035   4.81   21    5.7%
SPN     7.95  FEB  7.50   SPN BU  0.75 46     7.20   21    6.0%

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

ASKJ    5.36  FEB  5.00   AUK BA  0.65 7      4.71   21    8.9%
MSTR   20.78  FEB 20.00   EOU BD  1.85 35    18.93   21    8.2%
OSUR    7.85  FEB  7.50   QTP BU  0.65 55     7.20   21    6.0%
SPN     7.95  FEB  7.50   SPN BU  0.75 46     7.20   21    6.0%
RCOM    5.71  FEB  5.00   RAU BA  0.90 1035   4.81   21    5.7%
NFLX   13.20  FEB 12.50   QNQ BV  1.15 393   12.05   21    5.4%
MVK    15.34  FEB 15.00   MVK BC  0.80 246   14.54   21    4.6%


Company Descriptions

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

*****
ASKJ - Ask Jeeves  $5.36  *** Earnings Rally! ***

Ask Jeeves (NASDAQ:ASKJ) is a provider of natural language
question answering technologies and services.  The company's
proprietary technology creates an interaction centered on
understanding users' specific needs and interests and
connecting them to the most relevant information, products
and services.  Specifically, its natural language technology
allows users to ask a question in plain English (or another
language) and receive a response pointing to relevant answers.
The company serves its customers through its two divisions,
Web Properties and Jeeves Solutions.  On January 23rd, ASKJ
posted higher 4th-quarter profits on revenues that jumped 48%
from the year-earlier, and boosted its outlook for 2003.  The
stock soared on the news to a new 2-year high.  This position
offers an excellent entry point for investors who are willing
to own ASKJ at a reasonable cost basis.  Try target-shooting a
lower net-debit to increase the potential yield and lower the
cost basis in the issue.

FEB 5.00 AUK BA LB=0.65 OI=7 CB=4.71 DE=21 TY=8.9%


*****
MSTR - MicroStrategy  $20.78  *** Earnings Rally: Part II ***

MicroStrategy (NASDAQ:MSTR) is a global leader in the increasingly
critical business intelligence software market.  Large and small
firms alike are harnessing MicroStrategy's business intelligence
software to gain vital insights from their data to help them
proactively enhance cost-efficiency, productivity and customer
relations and optimize revenue-generating strategies.  The firm's
business intelligence platform offers exceptional capabilities that
provide organizations, in virtually all facets of their operations,
with user-friendly solutions to their data query, reporting, and
advanced analytical needs, and distributes valuable insight on this
data to users via Web, wireless, and voice.  Shares of MSTR soared
Friday after the maker of business software reported better than
expected profit and rising software sales.  A number of analysts
also raised their 2003 outlooks for the company and bullish traders
can profit from continued upside activity in the issue with this
position.

FEB 20.00 EOU BD LB=1.85 OI=35 CB=18.93 DE=21 TY=8.2%


*****
MVK - Maverick Tube  $15.34  *** Oil Services Hedge ***

Maverick Tube (NYSE:MVK) is a producer of tubular steel products
used in energy and industrial applications.  Maverick manufactures
oil country tubular goods, which are steel tubular products used
in the completion and production of oil and natural gas wells, and
line pipe products for use in newly drilled oil and gas wells and
for transporting oil and gas.  The company also serves the energy
industry by manufacturing line pipe, which is used primarily in the
transportation of oil and natural gas.  For industrial applications,
Maverick manufactures structural tubing and standard pipe.  With
the sustained increase in crude oil prices, it is only a matter of
time before there is an improvement in drilling levels and Maverick
should also benefit from a drop in steel pricing.  Our outlook is
also bullish due to the recent technical strength and this position
offers a low risk cost basis in a recovering issue.

FEB 15.00 MVK BC LB=0.80 OI=246 CB=14.54 DE=21 TY=4.6%


*****
NFLX - Netflix  $13.20  *** "Screening Out" The Competition ***

Netflix (NASDAQ:NFLX) is an online entertainment subscription
service in the U.S. that provides more than 600,000 subscribers
access to a comprehensive library of more than 11,500 movie,
television and other filmed entertainment titles.  The company's
standard subscription plan allows subscribers to have 3 titles
out at the same time with no due dates, late fees or shipping
charges.  Subscribers can view as many titles as they want in
a month.  Subscribers select titles at the company's Website
(www.netflix.com) aided by its proprietary CineMatch technology,
receive them on DVD by first-class mail and return them to the
company at their convenience using its prepaid mailers.  Once a
title has been returned, the company mails the next available
title in a subscriber's queue.  Netflix appears to be beating
the competition as the company reported a narrower 4th-quarter
loss than expected on a surge in revenues for its online DVD
rentals.  We simply favor the bullish technical indications
and our conservative position offers a method to participate
in the future movement of the issue with relatively low risk.

FEB 12.50 QNQ BV LB=1.15 OI=393 CB=12.05 DE=21 TY=5.4%


*****
OSUR - OraSure  $7.85  *** OraQuick Waiver Approved! ***

OraSure Technologies (NASDAQ:OSUR) develops, manufactures and
markets oral fluid specimen collection devices using proprietary
oral fluid technologies and diagnostic products, including
immunoassays and other in-vitro diagnostic tests and other
medical devices.  These products are sold in the United States
and certain foreign countries to government agencies, clinical
laboratories, physicians' offices, hospitals, commercial and
industrial entities and various distributors.  The company's
products include an oral fluid collection device, the OraQuick
Rapid Test, the UPT and UPlink detection platforms, the
Histofreezer portable cryosurgical system and Auto-Lyte liquid
reagents.  OraSure rallied sharply on Friday after the company
announced that the U.S. FDA had approved a waiver for their
OraQuick. Rapid HIV-1 Antibody Test.  With this waiver, the
OraQuick. test can now be used by a larger number of sites in
the United States, including outreach clinics, community-based
organizations and physicians' offices.  Investors can use this
position to gain an entry point and speculate on OSUR's future.

FEB 7.50 QTP BU LB=0.65 OI=55 CB=7.20 DE=21 TY=6.0%


*****
RCOM - Register.com  $5.71  *** Buyout Candidate? ***

Register.com (NASDAQ:RCOM) is a provider of global domain name
registration and Internet services for businesses and consumers
that wish to have an address and branded identity on the Internet.
Domain names serve as part of the infrastructure for Internet
communications, including Websites, e-mail, audio, video and
telephony.  Register.com has over three million domains under
management.  The company registers domain names across generic
Top Level Domains (TLD) such as .com, .net, .biz and .info and
in over 250 country code TLDs, such as .ca (Canada), .de (Germany)
and .jp (Japan).  Register.com has now hired a financial and
legal advisor to help consider merger opportunities after
receiving "two" unsolicited takeover offers earlier this month.
An offer by IWB Acquisitions for $5.55 a share recently expired.
Traders can speculate on a potential buyout or merger with this
conservative position.

FEB 5.00 RAU BA LB=0.90 OI=1035 CB=4.81 DE=21 TY=5.7%


*****
SPN - Superior Energy Services  $7.95  *** Oil-Fire Fighters ***

Superior Energy Services (NYSE:SPN) is a provider of specialized
oilfield services and equipment focused on serving the production-
related needs of oil and gas companies in the Gulf of Mexico.  The
company is one of the few companies in the Gulf of Mexico capable
of providing most of the post-wellhead products and services
necessary to maintain offshore producing wells, as well as plug
and abandonment services, at the end of their life cycle.  Superior
provides a full range of products and services for its customers,
including well intervention services, marine services, rental tools,
field management services and environmental and other services.
Firefighting firms are gaining some attention as the U.S. and
Iraqi governments move closer to war and increase the potential
threat to oil-producing wells in Iraq.  We simply favor the strong
support near our cost basis and investors can use this position to
profit from future bullish movement in the issue.

FEB 7.50 SPN BU LB=0.75 OI=46 CB=7.20 DE=21 TY=6.0%


*****

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

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

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

DIGE   11.47  FEB 10.00   QDG BB  1.95 286    9.52   21    7.3%
FEIC   15.91  FEB 15.00   FQE BC  1.60 39    14.31   21    7.0%
BONZ    7.61  FEB  7.50   QBN BU  0.45 23     7.16   21    6.9%
ANF    27.84  FEB 27.50   ANF BY  1.55 4435  26.29   21    6.7%
PLCE   10.66  FEB 10.00   TUY BB  1.10 153    9.56   21    6.7%
TMPW   11.05  FEB 10.00   BSQ BB  1.45 74     9.60   21    6.0%
EP      8.44  FEB  7.50    EP BU  1.20 5153   7.24   21    5.2%
BCGI   12.73  FEB 12.50   QGB BV  0.65 136   12.08   21    5.0%
EMC     7.70  FEB  7.50   EMC BU  0.45 28672  7.25   21    5.0%
AYE     8.40  FEB  7.50   AYE BU  1.15 655    7.25   21    5.0%
PTEN   30.51  FEB 30.00   NZQ BF  1.50 2568  29.01   21    4.9%
RMBS   15.50  FEB 12.50   BNQ BV  3.40 6237  12.10   21    4.8%
VECO   14.00  FEB 12.50   QVC BV  1.85 121   12.15   21    4.2%


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

Option 101: Selling "Naked" Puts -- A Simple Approach!
By Ray Cummins

This week's narrative offers new readers a basic explanation of
writing puts, including the reasons we use "out-of-the-money"
options in our approach to this popular strategy.

Put writing (selling) is designed to complement a conservative
investing portfolio because it offers two different methods for
generating profits with relatively low risk: earning consistent
(small) returns with portfolio collateral by selling out-of-the-
money put options, or using in- and at-the-money puts to acquire
stocks at a reduced price, which are eventually sold for a gain.

The basic strategy involves selling a put against funds or other
collateral held in your brokerage account.  The sole purpose of
the collateral is to assure that money is available to purchase
the stock should the put be assigned to the account.  Generally,
the buyer of the put will exercise the option if the underlying
stock is more than $0.25 below the sold strike price at option
expiration.  If the share value is above the sold strike price at
expiration, the put will expire worthless and the option premium
retained by the seller constitute a profit.

One benefit of selling options, as opposed to buying them, is the
benefit of time decay; the time-value or "premium" of option falls
as it approaches expiration.  Unlike stocks, where an investor
can hold on to a stagnant issue indefinitely in the hope that it
will rebound, the value of an option eventually declines if the
underlying stock fails to move in the correct direction.  This
premium erosion allows a put writer to profit without having to
correctly predict the future movement of the underlying issue,
as long as it remains above the strike price of the sold option.
In contrast to option buying techniques, short-term option selling
strategies are even more favorable because the time-value (premium),
which decays at a predictable rate, declines rapidly in the final
month of an option's expiration period.

Writing put options for monthly income generally involves selling
"out-of-the-money" positions on a stock that the investor expects
to finish above the sold strike price.  With careful selection of
the underlying issue, most of the sold puts will expire worthless,
allowing the investor to keep the premium and receive a reasonable
profit without ever having to buy the underlying stock.  Of course,
there is still the mandatory margin requirement but this commitment
of collateral funds is almost always less costly than the outright
purchase of an equivalent number of shares.  For more information
on margin requirements, please refer to:

http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf

An investor who is interested in buying a stock may also consider
selling a cash-secured put as another means of acquiring the issue.
Generally, when a person wants to buy a stock at a specific price,
he will use some type of "limit" order.  The problem is, after the
initial order is placed, the stock will not be purchased until it
trades at or below the limit price.  Instead of waiting for that
movement to occur, he could simply write an "in-the-money" put.  A
premium (the bid price of the option) will be paid to his account
for the obligation to buy the stock.  If the stock price is below
the strike price of the sold option at expiration, the option will
be "assigned" and the investor will be obligated to purchase the
stock.  Keep in mind, the investor must believe that the cost basis
(the sold put strike price minus the option premium received) is an
acceptable price at which to own the underlying stock.  Since the
greatest amount of time-value (premium) exists in "at-the-money"
options, most investors who use this approach sell puts with strike
prices that are equal to or slightly below the current price of the
stock.  This technique balances the premium received for the sold
option with the probability of being assigned.  It is used by fund
managers, as well as large corporations, because it pays them for
assuming the obligation to buy a particular stock that they intend
to eventually add to their portfolios.

Our preferred approach involves the sale of deep-out-of-the-money
options, where the probability of a successful outcome is very
high.  Generally, we try to achieve a 4-8% monthly profit (based
on the minimum collateral/margin requirements) with at least 10-15%
downside protection.  That can be a difficult task when the market
is in a bearish trend but there are always a few candidates with
favorable technical indications, regardless of the current outlook.
Despite the fact that we publish 7-10 plays weekly, writing puts
for income is not a viable strategy unless the overall trend is
neutral or bullish.  At the same time, if we don't have confidence
in what we have to offer, it won't be listed, and that is the
overriding measure of any candidate we provide in this section.

Good Luck!


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    Option    Price   Gain    Max   Simple
Symbol  Picked  Price   Series    Sold   /Loss   Yield  Yield

MEDC     8.88    8.60  FEB  7.50  0.30    0.30*  13.2%   4.5%
SEPR    12.99   11.27  FEB 10.00  0.35    0.35*  10.3%   3.2%
REGN    20.63   18.73  FEB 17.50  0.50    0.50*   9.7%   3.2%
FTE     25.50   25.98  FEB 22.50  0.70    0.70*   9.6%   3.5%
TVX     15.08   15.45  FEB 12.50  0.40    0.40*   9.0%   2.9%
TVX     16.98   15.45  FEB 15.00  0.40    0.40*   8.3%   3.0%
IMPH    21.53   20.05  FEB 20.00  0.75    0.75*   8.3%   3.4%
CKFR    19.53   19.23  FEB 17.50  0.45    0.45*   7.8%   2.9%
FEIC    18.94   15.91  FEB 15.00  0.45    0.45*   7.7%   2.2%
VRTS    18.30   18.25  FEB 15.00  0.30    0.30*   7.5%   2.2%
SEPR    13.20   11.27  FEB 10.00  0.30    0.30*   7.4%   2.2%
CURE    17.49   19.20  FEB 15.00  0.40    0.40*   7.1%   2.4%
VECO    15.39   14.00  FEB 12.50  0.35    0.35*   7.0%   2.1%
APPX    24.18   25.51  FEB 22.50  0.55    0.55*   7.0%   2.7%
CVC     19.44   17.41  FEB 15.00  0.40    0.40*   6.8%   2.0%
FTE     24.40   25.98  FEB 20.00  0.45    0.45*   6.7%   2.0%
MATK    23.93   24.35  FEB 20.00  0.35    0.35*   6.3%   1.9%
GTRC    19.63   19.48  FEB 17.50  0.45    0.45*   6.3%   2.3%
COF     39.00   31.05  FEB 30.00  0.65    0.65*   5.6%   1.6%
RGLD    26.67   27.29  FEB 22.50  0.35    0.35*   5.6%   1.7%
CURE    17.06   19.20  FEB 15.00  0.25    0.25*   5.4%   1.8%
ANF     27.11   27.84  FEB 22.50  0.40    0.40*   5.2%   1.6%
XLNX    25.75   19.79  FEB 20.00  0.50    0.29    3.7%   1.1%

* = Stock price is above the sold striking price.

Comments:

The market's recent demise continued this week and the stair-step
pattern of lower highs and lower lows may be a common trend for
the foreseeable future.  Given the ongoing geopolitical concerns
and the lack of recovery in corporate earnings, there is little
catalyst for a significant change of character in equities.  With
that outlook in mind, traders are warned to be ever mindful of
the inherent risks in this strategy and the need to be diligent
in portfolio management.  Positions in Capital One (NYSE:COF),
Xylinx (NASDAQ:XLNX), and FEI Co. (NASDAQ:FEIC) should be closed
by conservative traders in the interest of capital preservation.
Impath (NASDAQ:IMPH), Sepracor (NASDAQ:SEPR), TVX Gold (NYSE:TVX)
and Regeneron (NASDAQ:REGN) have joined the early exit watch-list.

Previously Closed Positions:

Network Associates (NYSE:NET) and Quest Software (NASDAQ:QSFT),
both of which are currently positive.


WARNING: THE RISK IN SELLING NAKED PUTS IS SUBSTANTIAL!
*****

The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading STOPS on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" STOP at a price that is no more than twice the
original premium received from the sold option.


MARGIN REQUIREMENTS

The Initial Margin is the amount of collateral you must have in
your account to initiate the position.  In specific terms, margin
refers to cash or securities required of an option writer by his
brokerage firm as collateral for the writer's obligation to buy
or sell the underlying interest if assigned through an exercise.
The Maintenance Margin is the amount of cash (or securities)
required to offset the changing collateral requirements of the
written options in your portfolio.  As the price of the option
and the underlying stock changes, so does the maintenance margin.
With (short) put options, the margin requirements can increase
when the underlying stock price declines and also when it rises
significantly.  The reason is the manner in which the collateral
amount is determined (with the formula listed above) and traders
should always consider not only the initial margin requirement,
but also the maximum margin needed for the life of the position.
Option writers occasionally have to meet calls for additional
margin during adverse market movements and even when there is
enough equity in the account to avoid a margin call, the need
for increased collateral will make that equity unavailable for
other purposes.  Please consider these facts carefully before
you initiate any "naked" option positions.

For more information on margin requirements, please refer to:

http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf


MONTHLY YIELD: MAXIMUM & SIMPLE

The Maximum Monthly Yield (listed in the summary and with each
new candidate) 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 Monthly 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 position.


NEW CANDIDATES
*****

Sequenced by Company
*****
Stock  Last   Option   Option Last Open  Cost  Days  Max   Simple
Symbol Price  Series   Symbol Bid  Int   Basis Exp. Yield  Yield

ANF   27.84  FEB 25.00 ANF NE 0.50 713   24.50  21   8.2%   3.0%
AVCT  25.10  FEB 22.50 QVX NX 0.35 179   22.15  21   6.5%   2.3%
EASI  37.00  FEB 33.38 RUF NX 0.40 22    32.98  21   5.0%   1.8%
FTE   25.98  FEB 22.50 FTE NX 0.40 44    22.10  21   7.9%   2.6%
MRCY  32.11  FEB 30.00 QYR NF 0.45 35    29.55  21   5.8%   2.2%
MSTR  20.78  FEB 17.50 EOU NW 0.45 85    17.05  21  11.9%   3.8%
QCOM  37.66  FEB 35.00 AAW NG 0.75 17992 34.25  21   8.3%   3.2%
S     26.45  FEB 22.50   S NX 0.30 1666  22.20  21   6.3%   2.0%

Sequenced by Maximum Yield (monthly basis - margin)
******
Stock  Last   Option   Option Last Open  Cost  Days  Max   Simple
Symbol Price  Series   Symbol Bid  Int   Basis Exp. Yield  Yield

MSTR  20.78  FEB 17.50 EOU NW 0.45 85    17.05  21  11.9%   3.8%
QCOM  37.66  FEB 35.00 AAW NG 0.75 17992 34.25  21   8.3%   3.2%
ANF   27.84  FEB 25.00 ANF NE 0.50 713   24.50  21   8.2%   3.0%
FTE   25.98  FEB 22.50 FTE NX 0.40 44    22.10  21   7.9%   2.6%
AVCT  25.10  FEB 22.50 QVX NX 0.35 179   22.15  21   6.5%   2.3%
S     26.45  FEB 22.50   S NX 0.30 1666  22.20  21   6.3%   2.0%
MRCY  32.11  FEB 30.00 QYR NF 0.45 35    29.55  21   5.8%   2.2%
EASI  37.00  FEB 33.38 RUF NX 0.40 22    32.98  21   5.0%   1.8%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, MY-Maximum Yield (monthly basis - using
margin), SY-Simple Yield (monthly basis - without margin).

*****
ANF - Abercrombie & Fitch  $27.84  *** Bullish Retailer! ***

Abercrombie & Fitch Company (NYSE:ANF), through its subsidiaries
as specialty retailers, operates stores selling casual apparel,
personal care and other accessories for men, women and kids under
the Abercrombie & Fitch, abercrombie and Hollister Co. brands.  As
of February 2, 2002, the company operated 491 stores in the United
States.  A&F's stores and point-of-sale marketing are designed to
convey the principal elements and personality of each brand.  The
store design, furniture, fixtures and music are carefully planned
and coordinated to create a shopping experience that is consistent
with the A&F lifestyle.  This week, USB Piper Jaffray reiterated
their "strong buy" rating on shares of Abercrombie & Fitch and
investors responded by pushing the stock to a recent high.  The
announcement comes on the heels of an upgrade by Credit Suisse
First Boston, which said that, "sales at the core are stabilizing
with continued strong margins."  Traders who believe the rally
will continue can speculate on that outcome with this position.

FEB 25.00 ANF NE LB=0.50 OI=713 CB=24.50 DE=21 MY=8.2% SY=3.0%


*****
AVCT - Avocent  $25.10  *** Solid Earnings! ***

Avocent Corporation (NASDAQ:AVCT), together with its wholly owned
subsidiaries, designs, manufactures and sells analog and digital
KVM (keyboard, video and mouse) switching systems, as well as serial
connectivity devices, extension and remote access products and also
display products for the computer industry.  The firm's switching
and connectivity solutions provide information technology managers
with access and control of multiple servers and network data centers
from any location.  Last Thursday, Avocent reported higher sales,
operating income and net income for the fourth quarter and the
company achieved sequential and year over year sales growth in both
their domestic and international markets.  Avocent also has a sound
fundamental base with $216 million in cash and investments and no
long-term debt.  Investors who like the outlook for the company can
use this position to speculate on its future share value.

FEB 22.50 QVX NX LB=0.35 OI=179 CB=22.15 DE=21 MY=6.5% SY=2.3%


*****
EASI - Engineered Support  $37.00  *** New Contracts! ***

Engineered Support Systems (NASDAQ:EASI) along with its various
subsidiaries, designs and manufactures military support equipment
and electronics for the United States armed forces.  The company
also engineers and manufactures air handling and heat transfer
equipment, material handling equipment and custom molded plastic
products for commercial and industrial users. Engineered Support
Systems' six wholly owned subsidiaries are Systems & Electronics
(SEI), Engineered Air Systems (Engineered Air), Keco Industries,
(Keco), Engineered Coil Company (d/b/a Marlo Coil), Engineered
Electric Company (d/b/a Fermont) and Engineered Specialty Plastics.
EASI recently received orders valued at $19.7 million for the
production of its Field Deployable Environmental Control Units
(FDECU) and a five-year contract with a maximum value of $75
million from the U.S. Army for a variety of technical services.
Analysts say the company is poised to benefit from any military
conflict and traders who want to hedge against war-related slump
in the broader markets should consider this position.

FEB 33.38 RUF NX LB=0.40 OI=22 CB=32.98 DE=21 MY=5.0% SY=1.8%


*****
FTE - France Telecom  $25.98  *** European Telecom Leader! ***

France Telecom is a (NYSE:FTE) telecommunications operator with
100 million customers worldwide.  France Telecom provides retail
consumers, businesses and telecommunications carriers with a range
of telecommunications services, including local, long distance and
international telephony, as well as data, wireless communications,
multimedia, Internet, cable television, broadcast and value-added
services.  France Telecom is also a major participant in developing
satellite and undersea cable systems and it has its own Telecom 1
and Telecom 2 satellites.  A number of favorable news items have
contributed to the bullish activity in the French telecom market
and last week, France Telecom reported that its revenue rose 8% in
2002, and said it expects to surpass expectations for a key measure
of earnings for the year.  Traders who believe the upside bias in
the stock will continue in the near future can profit from that
outcome with this position.

FEB 22.50 FTE NX LB=0.40 OI=44 CB=22.10 DE=21 MY=7.9% SY=2.6%


*****
MRCY - Mercury Computer Systems  $32.11  *** DEFENSive Issue! ***

Mercury Computer Systems (NASDAQ:MRCY) manufactures and markets
real-time digital signal and image processing computer systems.
The company offers three classes of hardware systems to meet the
full range of requirements in various signal and image processing
applications: high-performance class, VME class and industrial
class.  Mercury has developed a comprehensive line of software
products that enable accelerated development and running of digital
signal and image processing applications on its hardware.  The
MC/OS Multicomputing run-time environment is bundled with each
system.  The company separately licenses software products and
licenses a development software package that includes a development
version of the MC/OS operating environment, scientific algorithm
libraries, debugging tools and compilers.  In mid-January, MRCY
reported a sharp rise in quarterly profit on Thursday, driven by
growth in its military and defense operation.  Traders who believe
a war with Iraq will boost the company's future earnings should
consider this position.

FEB 30.00 QYR NF LB=0.45 OI=35 CB=29.55 DE=21 MY=5.8% SY=2.2%


*****
MSTR - MicroStrategy  $20.78  *** Rally Mode! ***

MicroStrategy (NASDAQ:MSTR) is a global leader in the increasingly
critical business intelligence software market.  Large and small
firms alike are harnessing MicroStrategy's business intelligence
software to gain vital insights from their data to help them
proactively enhance cost-efficiency, productivity and customer
relations and optimize revenue-generating strategies.  The firm's
business intelligence platform offers exceptional capabilities that
provide organizations, in virtually all facets of their operations,
with user-friendly solutions to their data query, reporting, and
advanced analytical needs, and distributes valuable insight on this
data to users via Web, wireless, and voice.  Shares of MSTR soared
Friday after the maker of business software reported better than
expected profit and rising software sales.  A number of analysts
also raised their 2003 outlooks for the company and bullish traders
can profit from continued upside activity in the issue with this
position.

FEB 17.50 EOU NW LB=0.45 OI=85 CB=17.05 DE=21 MY=11.9% SY=3.8%


*****
QCOM - Qualcomm  $37.66  *** Entry Point! ***

Qualcomm (NASDAQ:QCOM) is a developer and supplier of code division
multiple access (CDMA)-based integrated circuits and system software
for wireless voice and data communications and global positioning
system (GPS) products.  Qualcomm offers complete system solutions,
including software and integrated circuits for wireless handsets and
infrastructure equipment.  This complete system solution approach
provides customers with advanced wireless technology and enhanced
component integration and interoperability, as well as reduced time
to market.  QCOM shares enjoyed new buying interest in mid-January
after the firm beat analysts' expectations for earnings and revenue
and raised its full year guidance.  Investors who want a long-term
portfolio position in QCOM can use this position to establish a low
risk cost basis in the issue.

FEB 35.00 AAW NG LB=0.75 OI=17992 CB=34.25 DE=21 MY=8.3% SY=3.2%


*****
S - Sears, Roebuck and Co.  $26.45  *** Bottom-Fishing! ***

Sears, Roebuck and Co. (NYSE:S) is a North American retailer.  The
company is organized into four principal business segments: Retail
and Related Services, Credit and Financial Products, Corporate and
Other, and Sears Canada.  The domestic business segments are Retail
and Related Services, Credit and Financial Products and Corporate
and Other.  The Sears Canada segment consists of similar retail,
credit and corporate operations conducted through a majority-owned
subsidiary in Canada.  Retail and Related Services consist of 867
full-line stores located primarily in malls nationwide.  The firm's
Credit and Financial Products segment manages a domestic portfolio
of credit card receivables.  Sears' Corporate and Other operations
include activities that are of an overall holding company nature.
The company conducts similar retail, credit and corporate operations
in Canada through Sears Canada, majority-owned subsidiary of Sears.
This issue emerged in a scan for blue-chip stocks with favorable
technical indications.  The fundamental condition of Sears is not
overwhelmingly positive but it appears the current outlook has been
priced into the value of the stock with the shares stabilizing at
$23-$25.  Investors who wouldn't mind owning the issue at a cost
basis near $22 should consider this position.

FEB 22.50 S NX LB=0.30 OI=1666 CB=22.20 DE=21 MY=6.3% SY=2.0%


*****

*****************
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 Maximum Yield (monthly basis - margin)
******
Stock  Last   Option   Option Last Open  Cost  Days  Max   Simple
Symbol Price  Series   Symbol Bid  Int   Basis Exp. Yield  Yield

POWI  21.61  FEB 20.00 QPW ND 0.55 25    19.45  21  10.5%   4.1%
WEBM  11.19  FEB 10.00 UUW NB 0.25 210    9.75  21  10.2%   3.7%
CGNX  21.27  FEB 20.00 QCG ND 0.45 30    19.55  21   8.5%   3.3%
BA    31.59  FEB 30.00  BA NF 0.55 5130  29.45  21   6.9%   2.7%
PRX   32.44  FEB 30.00 PRX NF 0.30 112   29.70  21   4.0%   1.5%
AFFX  27.14  FEB 25.00 FIQ NE 0.30 872   24.70  21   4.8%   1.8%


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


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

A Terrible Month Indeed!
By Ray Cummins

Investors held high hopes for the New Year after the first week
of trading but if the month of January is any indicator, stocks
are in for some rough times in 2003.

The Dow Jones Industrial Average rebounded 108 points to end at
8,053, only 78 points below the previous Friday's close as upbeat
reports from Honeywell International (NYSE:HON) and Walt Disney
(NYSE:DIS) helped restore investor confidence in the outlook for
blue-chip stocks.  The NASDAQ was far less positive, ending almost
unchanged at 1,320.  The technology index was hampered by a profit
warning from Applied Materials (NASDAQ:AMAT), which said it now
expects orders for the quarter to come in below previous targets.
The bellwether chip company also said demand would decline in the
near-term due to economic weakness, geopolitical uncertainties,
and customers deferring capital spending.  The S&P 500-stock index
added 11 points to close at 855 amid strength in water utilities,
broadcasting and chemical companies.  Advancing issues outnumbered
decliners 5 to 2 on the New York Stock Exchange and almost 3 to 2
on the NASDAQ.  Volume was 1.50 billion on the Big Board and 1.58
billion on the technology exchange.  In the treasury market, the
ten-year note was unchanged with its closing yield at 3.96%.  The
30-year U.S. Treasury bond rose 10/32 to yield 4.84%.  Trim Tabs
said $1.7 billion flowed into equities in the week ending January
29, while bond funds had inflows of $2 billion.


*****************
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  LP  SP Credit   CB    G/L   Status

MYL     24.50  26.72  FEB   20  23  0.40  22.60  $0.40   Open
XAU     79.51  77.00  FEB   65  70  0.75  69.25  $0.75   Open
BHE     35.30  32.50  FEB   25  30  0.45  29.55  $0.45   Open
CHIR    40.18  37.52  FEB   35  37  0.40  37.10  $0.40  Closed
INTU    50.40  44.10  FEB   40  45  0.60  44.40 ($0.30) Closed
AET     43.86  43.49  FEB   35  40  0.45  39.55  $0.45   Open
HCA     43.75  42.74  FEB   37  40  0.30  39.70  $0.30   Open
CERN    37.31  36.87  FEB   30  35  0.55  34.45  $0.55   Open
PRX     31.50  32.44  FEB   25  30  0.45  29.55  $0.45   Open

LP = Long Put  SP = Short Put  CB = Cost Basis  G/L = Gain/Loss

As noted last week, Intuit (NASDAQ:INTU) and Chiron (NASDAQ:CHIR)
are at the bottom of their respective (near-term) trading ranges
and conservative traders should consider closing both positions.
Benchmark Electronics (NYSE:BHE) and HCA Inc. (NYSE:HCA) remain
on the "early exit" watch-list.


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

Symbol  Pick   Last  Month  LC  SC Credit   CB     G/L   Status

ABK    57.56   53.57  FEB   70  65  0.55   65.55  $0.55   Open
KBH    44.01   44.71  FEB   55  50  0.55   50.55  $0.55   Open
BZH    61.98   57.55  FEB   75  70  0.50   70.50  $0.50   Open
ITW    65.70   60.82  FEB   75  70  0.60   70.60  $0.60   Open
BGEN   37.93   38.25  FEB   45  42  0.25   42.25  $0.25   Open
PIXR   53.76   54.99  FEB   65  60  0.55   60.55  $0.55   Open
RE     51.70   50.47  FEB   60  55  0.50   55.50  $0.50   Open
ROAD   36.43   34.44  FEB   45  40  0.30   40.30  $0.30   Open
ATK    54.75   54.36  FEB   65  60  0.40   60.40  $0.40   Open
CAT    43.92   43.98  FEB   50  48  0.20   47.70  $0.20   Open
IBM    78.94   78.20  FEB   90  85  0.60   85.60  $0.60   Open
MER    36.81   35.02  FEB   43  40  0.25   40.25  $0.25   Open

LC = Long Call  SC = Short Call  CB = Cost Basis  G/L = Gain/Loss


PUT DEBIT SPREADS
******************

Symbol  Pick   Last  Month  LP  SP   Debit   B/E   G/L   Status

SNPS    40.00  38.67  FEB   50  45   4.50   45.50  0.50   Open
VIA     38.72  38.55  FEB   45  42   2.25   42.75  0.25   Open

LP = Long Put  SP = Short Put  B/E = Break-Even  G/L = Gain/Loss


CALL DEBIT SPREADS
******************

Symbol  Pick   Last  Month  LC  SC   Debit   B/E   G/L   Status

SYMC    46.12  46.68  FEB   35  40   4.50   39.50  0.50   Open
PHSY    29.19  28.53  FEB   25  27   2.00   27.00  0.50   Open
OCR     25.03  25.83  FEB   25  27   1.00   26.00 (0.17)  Open
EBAY    73.36  75.16  FEB   60  65   4.45   64.45  0.55   Open

LC = Long Call  SC = Short Call  B/E = Break-Even  G/L = Gain/Loss

Although currently positive, the bullish position in University
of Phoenix Online (NASDAQ:UOPX) has been closed to limit losses.
Pacificare (NASDAQ:PHSY) and Omnicare (NYSE:OCR) remain on the
watch-list for additional bearish technical indications.


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

Stock   Pick   Last   Expir.  Long  Short  Initial  Max.    Play
Symbol  Price  Price  Month   Call   Put   Credit   Value  Status

VAR     50.38  52.26   FEB     55    45     0.10    0.20    Open?
WPI     29.22  30.28   MAY     35    22    (0.10)   0.50    Open
ANF     26.39  27.84   FEB     30    22     0.05    0.60    Open
UPL     10.11   9.50   MAR     10    10     0.10    0.00    Open

Abercrombie and Fitch (NYSE:ANF) has been an excellent performer
and the bullish synthetic position offered conservative traders a
favorable near-term profit.  Watson Pharmaceuticals (NYSE:WPI) has
also achieved acceptable gains and Varian Medical (NYSE:VAR) has
moved higher since we identified the bullish issue.  The position
in Pioneer Resources (NYSE:PXD) has previously been closed.


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

Stock   Pick   Last   Expir.  Long  Short  Initial   Max    Play
Symbol  Price  Price  Month   Put   Call    Credit  Value  Status

BGEN    35.52  38.25   FEB     30    40      0.10    0.40  Closed

The bearish position in Biogen (NASDAQ:BGEN) offered an excellent
short-term gain, achieving our target exit profit after only one
day in the play.  Positions previously closed include: Amazon.com
(NASDAQ:AMZN) and Imation (NYSE:IMN).


CALENDAR & DIAGONAL SPREADS
***************************

Stock   Pick   Last     Long     Short    Current   Max     Play
Symbol  Price  Price   Option    Option    Debit   Value   Status

AMAT    15.70  11.97   J04-17C   J03-17C   2.40    2.00    Closed
AXP     33.70  35.53   APR-30C   FEB-30C   0.75    0.65     Open

As noted last week, the LEAPS/covered-calls position in Applied
Materials (NASDAQ:AMAT) was closed when the issue dropped below
recent technical support near $13.  The move came after Applied
Materials announced that it expected orders in the first quarter
to fall well below previously expected levels.  Closed positions
include: Capital One (NYSE:COF), Global Imaging (NASDAQ:GISX),
Raytheon (NYSE:RTN), and Hershey (NYSE:HSY).


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

No Open Positions


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

No Open Positions


DEBIT STRADDLES
***************

No Open Positions

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.

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

*****
APA - Apache Oil  $62.41  *** Testing All-Time Highs! ***

Apache Corporation (NYSE:APA) is an energy company that explores
for, develops and produces natural gas, crude oil and natural gas
liquids.  The company has interests in seven countries including
the United States, Canada, Egypt, Australia, China, Poland and
Argentina.

Technical Outlook: Friday's rally put the issue at a multi-year
high and within $4 of its "all-time" high.  Robust volume in
recent sessions and heavy buying pressure suggests the bullish
trend will continue.

Potential Catalysts: Higher crude oil prices; solid earnings with
fundamental improvements in the company's balance sheet including
lower debt-to-capitalization ratio.

PLAY (less conservative - bullish/credit spread):

BUY  PUT  FEB-55.00  APA-NK  OI=1012  A=$0.20
SELL PUT  FEB-60.00  APA-NL  OI=1709  B=$0.80
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$59.40
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=75%


*****
FRX - Forest Labs  $51.75  *** Consolidation Complete? ***

Forest Laboratories (NYSE:FRX) develops, manufactures and sells
both branded and generic forms of ethical drug products that
require a physician's prescription, as well as non-prescription
pharmaceutical products sold over-the-counter.  The company's
most important U.S. products consist of branded ethical drug
specialties marketed directly, or "detailed," to physicians by
its Forest Pharmaceuticals, Therapeutics and Specialty sales
forces.

Technical Outlook: Post-split consolidation; near-term lateral
trend with support near $50; 150-day EMA near sold strike ($47).

Potential Catalysts: New Drug Application (NDA) for Memantine,
first of a new class of Alzheimer's agents, was accepted for
filing by the U.S. Food and Drug Administration on Friday.

PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-45.00  FRX-NI  OI=1459  A=$0.45
SELL PUT  FEB-47.50  FRX-NW  OI=6116  B=$0.70
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$47.25
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=87%


*****
NBR - Nabors Industries  $36.85  *** On The Rebound! ***

Nabors Industries (NYSE:NBR) is a land drilling contractor, with
over 550 land drilling rigs.  The company conducts oil, gas and
geothermal land drilling operations in the lower 48 states,
Alaska and Canada, and internationally, primarily in South and
Central America, the Middle East and Africa.  Nabors also is a
land well-servicing and workover contractor in the United States.

Technical Outlook: Short-term "bullish" with resistance near $38;
recent trading range from $35-$38 provides an old "comfort zone"
when the upside activity ends.

Potential Catalysts:  Fourth-quarter profit exceeded consensus
expectations; "much improved" outlook for first quarter and 2003;
Lehman Brothers upgrade.

PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-32.50  NBR-NZ  OI=2033  A=$0.40
SELL PUT  FEB-35.00  NBR-NG  OI=870   B=$0.65
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$34.75
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=70%


*****
LXK - Lexmark International  $60.54  *** Trading Range? ***

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.

Technical Outlook: Near-term lateral trend with resistance near
$64; slightly oversold conditions with 150-day EMA near current
price; historically a volatile issue.

Potential Catalysts: Favorable quarterly earnings with Merrill
upgrade.  Pending litigation concerning replacement cartridges
from competing manufactures such as Static Control.

PLAY (conservative - bearish/credit spread):

BUY  CALL  FEB-70.00  LXK-BN  OI=1929  A=$0.20
SELL CALL  FEB-65.00  LXK-BM  OI=1720  B=$0.60
INITIAL NET-CREDIT TARGET=$0.45-$0.60
POTENTIAL PROFIT(max)=9% B/E=$65.45
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=75%


*****
QLGC - QLogic  $33.28  *** Downside Break-Out? ***

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.

Technical Outlook: Friday's slump put the issue at a 3-month low
with little support above $30.  Heavy volume during the sell-off
suggests further downside activity in the near-term.

Potential Catalysts: Disappointing earnings in mid-January, poor
fundamental outlook for the data storage industry.

PLAY (conservative - bearish/credit spread):

BUY  CALL  FEB-40.00  QLC-BH  OI=5802  A=$0.30
SELL CALL  FEB-37.50  QLC-BU  OI=3506  B=$0.55
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$37.75
STATISTICAL PROBABILITY OF PROFIT (100-day HV)=73%


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

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

*****
AFFX - Affymetrix  $27.14  *** Record Revenue = Upgrade! ***

Affymetrix (NASDAQ:AFFX) develops and commercializes systems that
help scientists alleviate human suffering and improve the quality
of life by applying the principles of semiconductor technology to
the life sciences.  The company's integrated GeneChip platform
consists of disposable DNA probe arrays containing gene sequences
on a semiconductor chip, certain reagents for use with the probe
arrays, a scanner and instruments to process the probe arrays as
well as software to analyze and manage genetic information from
the probe arrays.  The company's related micro-array technology
includes instrumentation, software and licenses for fabricating,
scanning and collecting and analyzing results from low-density
microarrays.  AFFX sells its products directly to pharmaceutical,
biotechnology, agrochemical, diagnostics and consumer products
firms, as well as academic research centers, government research
laboratories, private foundations and various clinical reference
laboratories in the United States and Europe and Asia Pacific.

Technical Outlook:  Short-term "bullish" trend with robust volume;
resistance near $28; previous trading-range support near $24-$25.

Potential Catalysts: Record fourth quarter profits; an agreement
with Roche for AFFX's patented GeneChip technologies to develop
and commercialize diagnostic products in a broad range of human
disease areas.

PLAY (very speculative - bearish/synthetic position):

BUY  CALL  MAR-30.00  FIQ-CF  OI=628  A=$0.95
SELL PUT   MAR-25.00  FIQ-NE  OI=207  B=$1.00
INITIAL NET CREDIT TARGET=$0.15-$0.25
INITIAL TARGET PROFIT=$0.45-$0.75

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $975 per contract.  However, do not
open this position if you can not afford to purchase the stock
at the sold put strike price ($25).


*****
CTMI - CTI Molecular Imaging  $26.24  *** Technical Break-Out! ***

CTI Molecular Imaging (NASDAQ:CTMI) is a manufacturer of positron
emission tomography imaging equipment and related products used in
the detection and treatment of cancer, cardiac disease and various
neurological disorders.  CTI provides a complete and integrated
product line for positron emission tomography (PET), including
scanners, cyclotrons, radiopharmaceuticals, detector materials and
support services.  The firm's products and services can be broadly
classified into four principal categories: PET and PET/CT scanners;
detector material products; radiopharmaceuticals, and other PET
products and services.  The company manufactures and distributes a
broad line of sophisticated PET and PET/CT scanners through CTI PET
Systems, which the Company markets as ECAT scanners.  The company
also manufactures the detection materials utilized in PET scanners
including its proprietary LSO technology.

Technical Outlook: Volume-supported break-out to 3-month high, next
level of resistance at $28; nothing but "blue-sky" above that price.

Potential Catalysts:  Upcoming earnings report on 2/5/03; possible
deal with Toshiba (rumor only) for CTI's PET services or merger of
certain technologies with Toshiba.

PLAY (very speculative - bearish/synthetic position):

BUY  CALL  MAR-30.00  QPQ-CF  OI=778  A=$0.60
SELL PUT   MAR-22.50  QPQ-OX  OI=21   B=$0.55
INITIAL NET CREDIT TARGET=$0.05-$0.15
INITIAL TARGET PROFIT=$0.40-$0.65

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $675 per contract.  However, do not
open this position if you can not afford to purchase the stock
at the sold put strike price ($22.50).


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

*****
ROOM - Hotels.com  $40.14  *** Reader's Request! ***

Hotels.com (NASDAQ:ROOM) is a provider of discount hotel rooms and
other lodging accommodations, allowing customers to select and book
hotel rooms in major cities through the company's Websites and its
toll-free call centers.  The firm contracts with hotels in advance
for volume purchases and guaranteed availability of hotel rooms and
vacation rentals at wholesale prices and markets these rooms to
consumers, often at discounts to published rates.  In addition, its
hotel supply relationships allows Hotels.com to offer its customers
hotel accommodation alternatives for otherwise unavailable dates.
The company has room supply agreements with over 4,000 lodging
properties in 178 major markets in North America, the Caribbean,
Western Europe and Asia.

One of our readers suggested this issue for a speculative straddle
and a quick review confirms that the stock has relatively "cheap"
options, a history of adequate price movement and the potential for
volatility after the company's earnings report in early February.

Technical Outlook:  Intermediate-term "bearish" trend; support near
the current price based on Jun-Aug 2002 trading range.

Potential Catalysts:  Quarterly earnings report due 2/5/03.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  MAR-40.00  URD-CH  OI=206  A=$3.40
BUY  PUT   MAR-40.00  URD-OH  OI=287  A=$3.30
INITIAL NET-DEBIT TARGET=$6.50-$6.60
INITIAL PROFIT TARGET=$1.25-$1.75


*****


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

Something For Everyone


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/wl_020203.asp


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

Where We Began


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/MP_020203.asp


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

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