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Daily Newsletter, Sunday, 02/09/2003

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The Option Investor Newsletter                   Sunday 02-09-2003
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: Orange? I See Red
Futures Market: Free-falling
Index Trader Wrap: COLOR ME ORANGE
Editor’s Plays: Boom or Bust?
Market Sentiment: Confirmation
Ask the Analyst: I wouldn't change a thing
Coming Events: Earnings, Splits, Economic Events

Updated on the site tonight:
Swing Trade Game Plan: All Fall Down


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 02-07        WE 01-31        WE 01-24        WE 01-17
DOW     7864.23 -189.58 8053.81 - 77.20 8131.01 -455.73 -198.21
Nasdaq  1282.47 - 38.44 1320.91 - 21.23 1342.14 - 34.06 - 71.55
S&P-100  418.79 - 13.78  432.57 -  3.57  436.14 - 21.22 - 13.05
S&P-500  829.69 - 26.01  855.70 -  5.70  861.40 - 40.38 - 25.79
W5000   7873.42 -251.65 8125.07 - 50.67 8175.74 -354.59 -228.10
RUT      358.78 - 13.39  372.17 -  2.89  375.06 - 13.04 -  8.34
TRAN    2139.97 - 33.38 2173.35 + 10.02 2163.33 -181.20 - 49.14
VIX       38.80 +  3.02   35.78 +  0.01   35.77 +  7.09 +  1.55
VXN       48.26 +  1.45   46.81 +  1.76   45.05 +  2.21 +  0.56
TRIN       1.57            0.89            1.69            1.60
Put/Call   0.94            0.84            0.83            0.83
******************************************************************


Orange? I See Red
by Jim Brown

The Homeland Defense Dept raised the terrorist threat level to
orange on Friday but all I see is red ink across the board. The
Jobs numbers blew out estimates but traders recoiled in terror.
Is there any end to this nightmare on Wall Street?

Dow Chart – Daily



Dow Chart - 60 min



Nasdaq Chart – Daily




It was a blowout! Over 143,000 jobs were created in January
according to the nonfarm payroll report but wary traders were
quick to discount the numbers. The jump in numbers was primarily
in the retail sector and was predicated on a lack of hiring in
December. Let me see if I can explain it. The jobs number is the
net of the new jobs created and existing jobs eliminated. Say
in any given month 500,000 jobs were created and 450,000 jobs
were eliminated. The net result would be a jobs number showing
a +50,000 new jobs. These numbers are adjusted for seasonality
as well. If there are typically an additional 250,000 retail
jobs created in November/December for holiday overload then
those 250,000 jobs are eliminated in January. Instead of having
the jobs number for November show an increase of +250,000 jobs
when everybody knows they are just 60 day temps, they adjust
the Nov/Dec/Jan numbers by 250,000 to remove this bump from
the reporting process.

Now assume in 2002 there were only 100,000 jobs created for
the holidays. After deducting the 250,000 expected jobs
you get a -150,000 negative job number for December. Fewer
jobs created minus the average number of jobs that should
have been created based on historical norms. We saw this in
the December number when it came in at -101,000 instead of
the +37,000 expected. A net difference of -148,000. Now that
the holidays are over there are normally 250,000 jobs
eliminated so the bean counters adjust the actual numbers
by +250,000 again to keep things level. The problem is the
reverse of Decembers. Since only 100,000 were actually
created only the same 100,000 were eliminated. That is
150,000 under the normal adjustment so the jobs number
shows a gain of +150,000 when there was actually no jobs
created. It was a historical adjustment by the bean counters
only. No jobs! Since they were never hired the job loss
number in December was wrong and since they were no jobs
to be eliminated the January number is wrong. They also
revised the December Jobs lost down to -156,000 from
-101,000. When netting the two "adjustments" together
-156,000 and +143,000, the phantom gain for January, you
get an actual loss of -13,000 or -6,500 for each month.
This realization of reality is what took the bloom off the
markets at the open on Friday. Smoke and mirrors, although
well intentioned, bit them in the end.

A big talking point from the report was the drop in the
unemployment rate to 5.7% from 6% and how it was such a
large improvement. Wrong again. You cannot lower the real
unemployment rate without creating jobs. Jobs were not
created as we saw above. The UNP numbers changed from
8,711,000 to 8,302,000 due to workers unable to find
jobs, tiring of the process and dropping out of the system.
It was not due to 409,000 or nearly 5% of the total suddenly
finding jobs in January. Remember the Challenger layoffs
for January soared +42% to -132,222? Five percent of the
workforce did not suddenly find work when mass layoffs
alone grew to 132K and this does not count normal business
reductions. The Challenger report only tracks mass layoffs
where a company cuts say 10% of its total workforce.

Speaking of layoffs Goldman Sachs announced it was cutting
20% of its traders in its derivatives group due to lack of
volume and the declining markets. GS also cut -908 jobs in
the 4Q or 4% of its staff.

Wholesale Trade numbers came back to earth on Friday with
a -0.8% drop in December. Analysts claim sales are improving
with inventory levels up slightly but with a headline number
three times lower than the expected +0.4% increase it would
be tough to convince me.

The warning news on Friday was thick and I am talking about
earnings and not terrorists. After the bell on Thursday Dell
and EDS made cautious comments and those were followed on
Friday by TECD who warned profits for the current year would
be off as much as -25% due to slipping demand an falling
prices. PIXR warned that earnings would be half of analyst's
estimates. PCTY warned that economic and political uncertainty
was hurting business and they said earnings could come in -30
cents under analyst's estimates of $1.09. PCTY is the largest
party goods chain. Clothing and shoe retailer Genesco warned
that weak sales in its Johnston and Murphy shoe business and
slowing apparel sales overall would push earnings -10 cents
under estimates. Mohawk warned that earnings would slip on
waning demand for carpet and earnings would be well below
estimates. Lack of demand for carpet? Have you looked at
the home builders stocks lately? I could go on but you get
the picture.

Slow sales, lack of demand, sound familiar? Want real proof?
Consumer credit for December dropped by -$4 billion when
analysts expected a gain of +$4.3 billion. This was the
second consecutive decline. Think about it. A -$4 billion
decline in the biggest spending month of the year. There
are multiple reasons from high unemployment and fear of
being unemployed causing consumers to spend less especially
on credit. Secondly the mortgage-refinancing boom has provided
cash to pay off these debts and reduce monthly payments for
cash strapped consumers. Low sales? You bet and according to
who you listen to the future is likely to get worse.

95,000 retired workers and dependents for Bethlehem Steel
found out after the bell on Friday that their health and
life insurance benefits were going to be terminated. The
steel company says it cannot pay the obligations now or
in the future. Considering the cost in health insurance
and the risk of not having it, this is going to be a major
blow to this group. The sad thing is we are going to see
more of this type of scenario if the economy continues to
struggle. About one year ago LTV began the cycle by
ending benefits to 85,000 retired workers.

The markets attempted to rally off the Jobs numbers but
right at the open the government raised the threat level
for terrorist attack to orange or high. According to John
Ashcroft the government has received "specific and credible"
information regarding the possibility of multiple large
attacks next week involving chemical, biological or
radiological agents. They said there were indications the
terrorists were going to attack unprotected targets like
high rise apartments, office buildings, hotels and/or
places were regular people congregate in large numbers.
This warning about attacks next week was repeated over
and over in the press and the markets appeared to drown
in the negativity. I am actually surprised we did not
close lower as traders went flat for the weekend to avoid
the event risk.

The events were supposed to be staged to match the close
of the Muslim holy days which end on Feb-14th. The Feds
said the amount of communication traffic referring to a
large attack in America had mushroomed to the same levels
seen just before the 9/11 attack.

The markets never had a chance. With the mixed to bad
economic numbers, a continued parade of lowered earnings
guidance, more Iraq worries and now the heightened
terrorist alert. The Dow only dropped -65 points but
closed under several levels of critical support. The
most critical was the close below the 61% retracement
level at 7902. This sets up the Dow for a fall to 7600
or below. It has clearly fallen out of its consolidation
range between 7950-8150. The Nasdaq also broke convincingly
under the 1300 support level and now has a high risk of
retracing to 1200. It was an ugly day all around. The
SOX sank to a four month low of 260, the banking index
$BIX.X fell to a low not seen since October. Hardest hit
was the Russell-2000 which fell -3.6% for the week. This
should send up red flags for everyone. If small caps are
getting smaller then funds and retail investors are
moving to the sidelines in volume. Funds stash cash in
large caps for liquidity in times of stress and they
invest in small caps when expecting better times ahead.
This reversal of fortunes is a serious red flag.

The oversold conditions are increasing but not at an
alarming rate and that alone points to an additional drop.
The Put/Call ratio closed Thursday at 1.53 and Friday at
98. These are high numbers but not off the scale. The
TRIN is chalking up some high numbers as well but far
short of climax bottoms. The VIX edged even closer to
40 on Friday but is well off the 50-56 ranges reached
last July and October. The bottom line is more potholes
ahead.

Next week starts out with a quiet period in regards to
economic reports with nothing material for the first three
days. Thursday and Friday will regain this week's intensity.
Greenspan will take center stage on Tuesday at 10:AM when
he delivers the first of his semiannual reports to congress
on monetary policy. With the recent negative economic news
this is going to be a heavily watched event. He will be
hard pressed to convince the panel the economy is
recovering nicely. He has always warned lawmakers about
budget deficits and the need for fiscal discipline and that
is not what is happening in the current environment. The
general consensus of opinion is that the economy can
withstand a quick 4-6 week war but a longer engagement of
2-3 months would plunge the country into a deep recession.
Panel members will likely quiz him on his impressions.

Mondays have been positive lately as traders who went flat
for safety on Friday reenter on Monday. Assuming nothing
happens over the weekend this trend should continue but
after 10:AM all bets are off. The terrorist warnings are
likely to increase the closer we get to next weekend. The
inspectors will report to the UN again on Friday but while
we don't know the answers already we know the conclusion.
The US is set to push for a resolution calling for military
force to disarm Saddam the following week and that would
actually be bullish. It would mean a coalition to share
expenses and blame and a final global sanction to the war.
That resolution is two weeks away or more and plenty of
time for some major swings in the market. Find your
airsick pills and fasten your seatbelts.

Enter Very Passively, Exit Very Aggressively!

Jim Brown

"The worst trades are generally when people freeze and
turn to prayer and hope rather than take action."
Robert Mnuchin


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

Free-falling
By John Seckinger
jseckinger@OptionInvestor.com

All three futures contracts fell under significant support levels
during Friday's sell-off; however, what is the risk/reward for
being short at current levels?  Could a bear trap still
materialize?

Friday, February 7th at 4:15 P.M.

Contract       Last    Net Change    High        Low       Volume

Dow Jones     7864.23    -65.07    8001.08     7830.02
YM03H         7853.00    -87.00    8021.00     7809.00     29,581
Nasdaq-100     957.05    -13.50     983.36      951.67
NQ03H          959.50    -15.50     987.50      951.50    240,296
S&P 500        829.69     -8.46     845.73      826.70
ES03H          830.50    -10.00     849.50      825.25    685,741

Contract         S2         S1       Pivot        R1         R2

Dow Jones      7727.38    7795.80   7898.44    7966.86    8069.50
YM03H          7682.00    7768.00   7894.00    7980.00    8106.00
Nasdaq-100      932.34     944.70    964.03     976.39     995.72
NQ03H           930.25     944.75    966.25     980.75    1002.25
S&P 500         815.01     822.35    834.04     841.38     853.07
ES03H           810.75     820.50    835.00     845.00     859.25

Weekly Levels

Contract         S2         S1        Pivot        R1         R2

YM03H         7608.00    7730.00    7932.00    8054.00    8256.00
NQ03H          921.50     940.50     970.50     989.50    1019.50
ES03H          801.25     815.75     840.00     854.50     878.75

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.

Before we begin, let us take a look at Jim Brown's day in the
Futures Monitor. Recapping his signals:

Short 842.25, exit 844.50, change -2.25
Short 842.00, exit 833.00, change +9.00
Short 834.50, exit 833.50, change +1.00
Short 833.50, exit 835.75, change -1.75
Short 830.75/830.25, exit 830.25, change +0.25
Short 830.00, exit 830.25, change -0.25
Long  830.25, exit 828.75, change -1.50
Short 829.00, exit 827.00, change +2.00, no warning-
not in total

Total for the session: +4.50
Total for the week: +14.25
Total for four weeks: +41.25

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)

The ES contract rose Thursday night and just missed testing the
'resistance zone' from 850 to 852.75.  Moreover,the high from 9:30
on was fractionally above the profiled 843-845 before the "orange"
alert hit the markets and strong selling pressure took over.  The
836 area was cleared, and both 829 and the daily S2 at 835.75 came
into play (low 835.25).  Friday's settlement of 830.50 is well
underneath Monday's pivot of 835, so least resistance should remain
lower until this level is tested.  Looking at the chart below, I
have compiled retracements on a weekly and monthly timeframe.
For the NQ and YM contracts, I have cleared these charts up and
just put in trading bands.  I do want readers to undertand my
thinking behind these 'strong areas,' so excuse all the retracement
lines.  The levels below should have more weight than the daily
areas, but of course it would be preferable if all the timeframes
lined up.

As the chart signifies, the next area of strong support is seen
from 814.50 to 816.25.  Below 815.50, and the next level isn't
reached until 805.  If buying does materialize, resistance is seen
at 839, and then above from 849 to 852.25.  I label these areas
as "strong areas" because if 852.25 is cleared, there is a good
chance this area will become support (at least until the lower
end of the range is taken out at 849).  Note:  If the ES contract
closes above 839, bears should be slightly less aggressive until
weakness picks up again and prices fall back under 839.

Chart of ES03H, 120-minute


A 60-minute chart of the ES contract shows the recent long
liquidation pattern (lowercase "b" formation), and subsequent
breakdown under the daily retracement levels of 839.  Until longs
can get the ES back above 839 and the most recent channel, least
resistance appears lower.  The apex of this liquidation pattern
comes in at 850, and a rise above this area (would use 852.75)
should spark a short-covering rally.  Aggressive traders look
for slight support near 820 area, which is 4-points above the
'strong area' listed above, but is the daily S1 level.
Monday's S2 is at 810.75.

Chart of ES03H, 60-minute


Bullish Percent of SPX: 41.80% and down 1.20% on Friday. The
column of O's is now at 11. I still expect a move in the bullish
percent to the 30% level.  Note: In order to really look
for a bottom, I would like to see a move under 30%, followed by a
column of "X's".  This would put the indicator in "Bull Alert"
status.  This indicator is currently in "Bull Correction" status.
Looking at P&F analysis, the SPX contract is underneath its
quadruple bottom at 845 and continues to have a bearish price
objective at 750.  Support is seen from 805 to 810.

The March E-mini Nasdaq 100 Contract (NQ03H)

The NQ contract barely rose above the 983 area before selling
pressure began to materialize.  With that said, I didn't look
for more weakness until the 978.50 area was broken (since zone
was from 978.50 to 983).  Traders then got the move under the
daily pivot and down to 960.  The objective still stands at the
941 area ("support zone" from 940 to 941.50).  Instead of showing
all the retracement areas below, I have cleaned up the chart and
did bands instead.

Looking at the chart below, the NQ is below the daily pivot of
966.25, and there isn't much support until the 940-941.50 area.
The daily S1 area comes in at 944.75.  If the daily AND weekly
pivot area is cleared to the upside, then look for a move back to
the range of 982 to 986.50.  If the weekly pivot of 970.50 IS
cleared, I will not look for weakness until the daily pivot of
966.25 is taken out.  The risk/reward at Friday's settlement
isn't great; therefore, I would wait until the NQ either breaks
through one of the bands or fails from a significant area.  Least
resistance is still lower, and if the NDX hits 950, we should get
another wave down.

Chart of NQ03H, 60-minute


Bullish Percent for NDX:  This indicator fell 4% to 39% on
Friday, and continues to portend bears will be selling rallies
going forward. The column of "O's" grew to 13.  Therefore,
in the NDX, least resistance is still lower.  This indicator
is in "Bear Confirmed Status".   Note: The NDX, according
to P&F charts, has a bearish price objective of 825 and
just missed adding another "O" on Friday by 1.67-points.
The low was 951.67.  If 950 is reached before a column of
X's is seen, the bearish price objective will fall to 775.

The March Mini-sized Dow Contract (YM03H)

The YM contract continued to trade weak on Friday, and is now
below the bottom a bear flag formation (see chart below).  I
have looked at retracements on a monthly, weekly, and daily
basis, and have outlined some critical zones below.  The contract
is below its daily pivot, and the next objective lower is at its
daily S1 at 7768.  Slight support is also seen at 7735.  Much
stronger support is below from 7608 to 7634.  Aggressive traders
can use a move underneath Friday's low of 7809 as a reason to get
short once more.  A roll at the daily pivot would be a better
entry, though; however, a very tight stop should be used.  If
the YM closes above 8015, look for shorts to start covering en
masse.  This is the apex in the recent bear flag formation, and
really should not be tested going forward.  As with the NQ
contract, we are more in 'no-man's land' than anywhere else.
I would be nervous short above 7900, and bearish traders should
monitor trailing stops very closely on Monday.  If short and
a noted area is cleared, look to place a stop roughly 10-points
above the significant level.

Chart of YM03H, 60-minute


Bullish Percent of Dow Jones: A P&F chart now shows a bearish
price objective of 7500.  The column of O's is now at six.
Support is seen at 7800.  As far as the bullish percent is
concerned, it fell 6.67% to 20 percent.  The  column of O's
is now at 20.  Note: The last column of O's ended at 10%.  Least
resistance is still lower, albeit with trepidation.  The next
column of X's will put this indicator in "Bull Alert" status.
It is the bullish percent of the NYSE that gives the impression
of more weakness, and is a much broader indicator.  This indicator
is still only in a column of O's four-deep, ending at 44.  Risk
is for a fall to 30% (its October reading).

Good Luck.

Questions are welcomed,

John Seckinger


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

COLOR ME ORANGE
By Leigh Stevens
lstevens@OptionInvestor.com

THE BOTTOM LINE:
War and terrorism jitters (Friday’s condition “orange”) continue
to undermine any positive fundamentals relating to the economy
and earnings. General uncertainty can’t be “priced” into the
Market as it is not a definable risk. Momentum is again
accelerating to the downside - the weekly MACD indicator is very
close to a sell signal and suggests that any seasonal tendency
for strength may be over.

The oversold condition and the recent extremes in sentiment
(bearishness) may not result in more than temporary rallies,
which can be used as put buying opportunities on rebounds to the
identified resistance areas.

FRIDAY'S TRADING ACTIVITY –
The country’s terrorism alert status from our new Department of
Homeland Security rose to “orange” on Friday coloring the market
blue. Orange alert being a possible imminent threat or “high
risk”, just under the red alert which is the highest possible
color code.  Color me orange seems to be an increase in
“chatter”, movement and intention - that kind of activity - and
red I suppose is that they’re on the other side of the hill.

A positive January employment report generated some early buying
and gains in stocks.  But another report, on U.S. inventories,
which showed a substantial increase – stuff piling up in
warehouses – plus the aforementioned terror alert status, put a
real damper on the market and the indices ended the week on a
weak note.

The Dow fell to 7864, which was its lowest close since October.
Nasdaq fell some 19 points to 1282, which was also its lowest
close since mid-October.

EMPLOYMENT – it’s the jobs stupid.
January non-farm payrolls were reported by the Labor Department
to have increased by 143,000 – this compared to a drop of 156,000
jobs in December.  The January increase was the largest 1-month
gain in over 2 years.  Normally this would be very good news to
the market which is fearful about the tepid recovery being
stopped in its tracks.  Mitigating the good number on the face of
it was the fact that about 2/3 of the increase (101,000 jobs) was
in the retail sector, which largely offset a 99,000 decline in
December as seasonal help went away.

A fear has been that a rebound in the economy could be a so-
called jobless recovery. This is where the economy improves but
industry makes due with existing employees – working more hours –
rather than hiring NEW workers.  Newly hired or re-hired workers
make for an increase in spending, which the unemployed have put
off; i.e., “pent-up” demand.  Since consumer spending is also the
hope for a pick up in corporate revenues and earnings – it ain’t
coming from business spending – you can see that job growth is a
key event.

Since all bets are off if a war goes badly, there is more
terrorism, oil prices continue to rise and so on, the uncertainty
effect is keeping a real lid on the market and leading to still
more selling.  It does not take a LOT of selling to drive the
market lower if there is such little buying interest.  And
investors are more attuned to their local real estate pages than
they are to the stock section.

In addition to the nonfarm payroll growth, which is the most
important number, unemployment fell for January to 5.7% versus
the forecast that the rate would hold steady at 6%.  We can
assume that laid off workers were a significant number of the
recipients of the payroll increase and not new hamburger flippers
at MacDonald’s.

We have also seen a drop in consumer sentiment and that there is
a pick up in paying down debt.  The jobs data took some focus off
the Iraq situation and provided some hope that consumers might
not cut back their spending if they were not so worried about
their jobs.  The rise in wholesale inventories tended to dampen
that hope.

There is also an anemic trend in wage growth overall although
some recent figures did provide a ray of hope.  The bears have
plenty of reason for their winter hibernation and lack of buying
interest.  There are now plenty of super-bears out there that are
being heard from more and more – actually, its perhaps more that
the media goes to them to hype this side of the story.  The bulls
are mostly waiting for an Iraqi invasion to play out before
committing.

There was ONE kind of buying this past week – PUT buyers last
week finally showed the kind of enthusiasm that had been missing
in what usually sets up before there is a market bottom; i.e., a
high level of bearishness.  However good this might be as a
technical indicator, the charts have a lean and hungry look
(bearish!) and politics or “fundamental” factors rule.

There is fear of the oil “weapon” being used but times appear to
have changed quite a bit in the last decade.  With oil producers
more dependant on maintaining a high level of production and
income as they run deficit spending of their own and with Russian
and North Sea oil more of a factor in the global oil market, this
may be a fake phantom.  Moreover Kuwait last week announced that
they will increase production as needed – OPEC appears to be of
the same mind basically.  Also, not to be forgotten, President
Chavez of Venezuela has apparently weathered the oil strike there
and oil production is slowly coming back on line.

EDS (Electronic Data Systems) spooked tech watchers by announcing
a more dismal outlook than they had previously stated.  The
company reported a 5% drop in revenue and weaker profits and
warned that weak tech spending will hold down their earnings this
year.  The stock rose however – the latest company outlook seemed
to be not quite as dismal as was already priced into the stock.

OTHER MARKETS -
Bonds were flat and the dollar up a bit.  The Euro fell against
the greenback to 1.0823 from 1.0833.  No big deal but the fact
that the dollar has stabilized is the key thing.

Gold ended the week up virtually unchanged in terms of the nearby
gold futures contract on the New York Commodities Exchange
(Comex) at $370 but down substantially (-$17) from the week’s
high.  The Philly gold & silver index futures closed at 75.19, -
15 on the week – the key XAU gold stock index has marked time
with highs under 80 for some weeks now.  The gold bulls attribute
this to analyst downgrades as gold prices have risen closer to
$400 and by the tendency for gold producers to forward sell or
hedge substantial portions of their production in the futures
markets, thereby putting a cap on their potential upside in a
rising market like this.  Could it be that the gold producers
know that gold trades in a certain range and doesn’t make big
moves above that range unless driven by unusual trends like
strong inflation?  But they have other reasons to be bullish - I
am not that convinced, but stay tuned.

The heaviest trading action was in the oil patch commodities,
where natural gas and heating oil hit two-year highs on cold
weather and tightening supplies. Heating oil rose to just a few
pennies shy of its 1981 all-time high of $1.11. Nearby crude oil
futures advanced to a 3-week high, near $35, perhaps putting the
lie to my more bullish supply assessment that I laid out.

COMING UP THIS WEEK –
It seems a shame to possibly spoil Saint Valentine’s Day, but
unless Iraq evidences a serious change of HEART, the UN report at
the end of the week (on Feb. 14th) is a likely milestone on the
road to a U.S. war on Iraq.

MY INDEX OUTLOOKS –

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

Well my downside for the S&P 500 (SPX) for 840 was MORE than
realized.  Had I made more of a focus on the weekly chart last
week, I might have been more bearish than I was even.
Technically, we could say that the key chart event was the
decline to below the 865 level 2 weeks ago, putting this key
index below the low end of the prior 13-week (1/4 of a year)
trading range.

Sure enough last week, what was a line of support had “become”
key resistance as you can see by the green, then red, arrows.
Major momentum now has shifted down as suggested by the weekly
MACD, about which I also have something to say (about this
indicator) in my current Trader’s Corner article.





It appears that there is another down leg that is underway here
based on the weekly chart.  The daily chart is looking bearish as
well as we’ll see next.

The most bullish that can be said about SPX daily chart action
right now is that the rate of downside momentum has slowed
somewhat from the freefall prior to the several days of sideways
price action prior to Thursday. That sideways move now shows
itself for what a “consolidation” most often is – a pause before
another move in the direction of the dominant trend.

Given that recent lows are following the downtrend channel line
lower plus the oversold RSI levels, holders of S&P index puts
ought to be aware that there could be either just a slow downward
creep (that keeps lows hugging the low end of the downtrend
channel) or to be alert to the potential for a short-covering
rebound -





Over time an ultimate chart objective is to the area of the prior
lows and below psychological support around 800 – in the 775-780
area.  The longer that SPX trades under its 62% retracement, the
more likely is its retracement to be back to the prior (down)
swing lows – this is the “ultimate” retracement so to speak –
back to the starting point or a 100% retracement.

Regarding oversold levels in terms of the RSI – note that SPX got
much more oversold in the July period when it registered an
intraday low at 776 and established a low end of a broad trading
range. Markets that are oversold can get more oversold still.

Bearish sentiment now is as extreme as it tends to get - or,
almost so, according to my CBOE equities options Call/Put ratio
(takes out the index option daily volume).  This has been the
missing “ingredient” in terms of what we normally see on final
down legs.

I don’t usually apply moving averages to my daily CBOE equities
C/P option figure but here employ a 5-day average for comparing
prior extremes – in September the equities call to put figure was
more extreme than currently. In a very bearish environment longer
extremes of put buying can be seen or “needed” before it suggests
that the market is in a condition for a rebound.  If a technical
bounce does occur, key resistance is at 860-862 and is another
put buying opportunity in my opinion, at the area of the highs of
last week.

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

420 been my downside objective in the OEX and the Index dipped
under this level last week of course.  Potential minor support
now looks to next show up at 415 at the low end of the hourly
downtrend channel. However, having come down this far and given
the bearish influences, we have to anticipate the possible retest
of the prior low at 390.

Resistance or areas of expected selling interest begins at 433
and extends to 437 and 440.  440 looks to me to be key technical
resistance, at the prior low – support “becomes” resistance as
you’ve heard from me frequently. I would be a renewed OEX put
buyer in the 440 area.





This sounds like a repeat of last week – it IS! – the OEX is now
fully oversold on a short-term basis. And I’ll say again,
oversold does not necessarily mean that a bottom is at hand,
especially in an extreme situation where very bearish influences
are driving the market.  On the other hand you have to take
account of it (being oversold) as this condition also signals the
potential for sharp rallies based on some combination of better
news and/or short-covering that comes in all at once.

Last week, I had a 21-day moving average showing on the same Arms
Index or TRIN chart above (for the NYSE), my “default” moving
average length - instead of the 10-day average which is shown
above and this is why the 10-day TRIN is showing at a prior
recent “oversold” extreme. The TRIN chart is different in that
it’s an INVERSE image of the LOW readings that usually suggest an
oversold reading on indicators like stochastics or RSI.

At the risk of again repeating myself about the TRIN, a series of
high daily readings is showing heavy selling – in the world of
“contrary” views about the market, heavy selling often of course
occurs ahead or WELL ahead of an actual bottom.  Based on the
idea that 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. Right now it doesn’t take much
SELLING to drive the indices lower as there are so few buyers
willing to step up to plate – I don’t blame them!


Nasdaq Composite (COMPX) Daily Chart -

The price area where the Nasdaq Composite tends to be an
“extreme”, or overextended on either the downside or upside is
when the close is (or exceeds) 8% above or below its 21-day
moving average.  This would suggest the 1250 area as a next
downside objective.





And, if the lower envelope line is reached, this is not
necessarily a sign that a tradable bottom is at hand – only that,
very often, the rate of downside MOMENTUM will slow. Its then
often the second, or third, “touch” to this envelope line that
marks the spot to reverse positions.

QQQ Daily chart -

I am revising my downside target slightly to 23.50 for QQQ.
QQQ has nearly completed a 62% retracement of its last advance –
if 23.5 gives way, it provides a target to 22; then back to the
19.5-20 area.  A trendline comes in around the 23.5 area also,
which may be meaningful, maybe not – but, an area to watch.





The Q’s are oversold now but can get still more extreme – however
I would like to protect put profits from options bought at higher
levels in case there is a short-covering rebound.

I don’t expect much “good” news but if there was just the absence
of bad news for a few days might be enough – although, ahead of
the UN report at the end of the week I don’t expect much. Saddam
may agree to some things this week (over-flights, etc.) that he
didn’t last week, in order to continue to bide for time. However,
time seems to be running out.

QQQ Hourly chart -




As you can see, the Q’s are nearing the low end of its broad
hourly downtrend channel which comes in around 23.50 as does a
prior closing low (not shown) from some time back.  I think the
shorts are also too nervous to do a lot more selling this week so
QQQ may not slip much further.  Much of a rally is another story
– if one (a rally) does develop, then selling is suggested in the
24.5-25.50 zone, with stop protection on a close above 25.75.


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

Boom or Bust?

This is a simple plan. Buy high, sell low. Everyone keeps
talking about the housing bubble and how home sales are
so strong. The record low mortgage are supposed to be
attracting buyers by the millions. This HAS been true in
the past but I have gotten a record number of unsolicited
mortgage applications in the last three weeks.

Something stinks. When every other email is mortgage spam
and every fifth letter in my mailbox is a mortgage ad it
seems to me the buyers have dried up. On local cable TV
the mortgage ads have replaced the 1-800-WE-ARE-18 type
phone sex ads. You know how many of those there were.
When mortgage ads replace sex ads there is a change in
the wind. Profits for mortgage brokers are no longer
falling from the sky like rain.

Add to this thought process the warning from Mohawk, Warren
Buffet's favorite carpet manufacturer and you might be
seeing the leading edges of a bursting bubble. Every house
requires carpet and appliances. Maytag said 2003 was going
to be a challenging environment. Whirlpool said 1Q earnings
were going to be flat to up modestly although economic
uncertainties in almost every market would make comparisons
difficult. While the appliance makers are not going broke
they are not setting the world on fire either.

I may be building a house of cards here but as we all know
reality is immaterial. It is the perception of future
reality that drives stocks. Remember last summer when
homebuilding stocks out performed everything else over
and over? Guess what? The bloom is off the rose. Perception
has changed. A quick glance over the leaders and most of
them are trending down. HOV, which continually blows away
earnings by strong double digits is very close to a breakdown
at $28. BZH, the second highest priced homebuilder stock at
$54.93 is very close to breaking a triple bottom formed over
the last seven months.

BZH just beat earnings with $2.75 vs estimates of $2.67
but CSFB downgraded it to neutral. They said they were
not impressed compared to others in the group. They had
a declining return on capital at 13.3% and a large
percentage of goodwill included as equity. They said the
company was entering a period of decelerating pricing
power and a more competitive environment.

I have beat this puppy to death but I think long term the
housing killer will be rising interest rates. We are already
running out of buyers and the first hint of a rate hike will
pull the plug on the sector.

I am going with the May-$50 put for $3.30 only because the
August series does not have a $50 strike. If we are going
to have another recessionary dip we should know by May
and that will not be favorable to housing. We will have
a much clearer picture of the unemployment by then as well.

This is a high-risk play based on speculation but the trend
is definitely in our favor.






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

Play updates:

EMC Call from Feb-2nd

We did not get any movement from EMC this week and it
slipped from $7.70 to $7.43. Considering what the market
did I would consider that a win. This is a long term
play and it is still a strong recommendation. I am
considering adding it to the powerball play in place
of one of the entries that did not have a January strike.

TMPW Put from Feb-2nd

The TMPW earnings conference call is still scheduled for
February 13th and the stock has dropped from the $11.05
price last week to $10.08 and still one week to go. The
March $10 put rose slightly to $1.35 from $1.10. I
mistakenly said that the February options expired the
day after the conference call. They expire a WEEK after
the conference call. Thanks to the alert readers who
pointed out my error. It is heck when you get old. First
the eyes, then the mind or something like that. (grin)

NEM Put from Jan-26th

Isn't that amazing. Gold soared to a six year high at
$390 this week and NEM dropped to a new relative low
and closed the week at $28.42. This is down from $30.15
when this play started. It was all about expectations
and the fact the war was already priced into the stock.
Things are going our way and no reason to think different.
The March-$27.50 put is now $1.55 and the June-$27.50 is
$2.85. Both are up from the recommendation price and
plenty of time to go.

AMZN Puts from Jan-19th

I would like to think we finally got our break on AMZN
but the stock still has support at $21.25 that must break
to get out alive. The Feb-$22.50 put is currently $1.45
and down from the $2.25 when recommended. The $20.00 put
is $.35 cents and well under the $1.10 staring price. At
this point I would hope for a break of that support and
with two weeks until expiration I would still hold the
options. Next support is $20.75 and then it is a big drop
to $18.00. Keep your fingers crossed that investors will
decide to buy a stock with potential and drop this bubble
holdover.

DJX Puts from Jan-5th.

It just keeps going and going and going just like the
energizer bunny. With the Dow's close at 7864 the DJX
puts continued to increase in value. The Feb-85 put is
now $6.70 from the $2.85 price when suggested. The March
$85 put is $7.50, up from $3.40. With these puts almost
totally intrinsic value I would be looking to exit this
position soon. The target of 7700 from Jan-5th is likely
to be hit this week. Take the money and run. Keep those
stop losses active and don't let these slip away.

Powerball - From 12/29/02

The Powerball Lottery play for December-2003 dropped
another -$100 to a loss of -$595 at the close today. This
is a 12-month "lottery" play and we are only five weeks
into it. Be patient. If you are not in it I would consider
it a buying opportunity. It would cost you about $540 to
buy one contract of each today. Any one contract could
repay that $540 by 12/31/03 leaving the rest as profit.
It is a high risk "LOTTERY" play but then $540 is not
much risk.

I am planning on replacing IDTI with EMC next week.
I am planning on replacing VTSS with GLW next week.
Both of the stocks replaced did not have January options.
This will standardize the portfolio with all January
strikes.

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

Confirmation
by Steven Price

It's beginning to look like the technical breakdowns we saw on
Thursday were for real.  Thursday's trading took us briefly out
of the range that we've traded in for the last week and a half,
giving us some sell signals, but by the end of the day, we were
back in the range.  Not anymore.

This morning started out positive following better than expected
jobs data, giving the impression that we'd see more of the same
range bound activity that has been staple of recent sessions.
For the second day in a row however, Dow 8000 put a lid on the
market and left us squarely in the 7000s by the end of the day.
Over the past several days I've discussed the point and figure
chart patterns that first signaled indecision with almost daily
reversals from bearish columns of "O" to bullish columns of "X"
each time giving contrarian indications as to which way a trader
should enter.  In Thursday's column I identified the triple
bottom sell signals we got intraday in the Dow, SPX and OEX.
However, the SPX was the only index to give us yet another move
below that triple bottom sell signal, reducing the possibility of
a bear trap.  Today, we got not only additional confirmation with
the Dow and OEX also adding another box to the downside, but also
closing levels beneath the bottom of last week's support levels.
After forming a rectangular consolidation pattern over the
previous eight to nine sessions, the bottom of that pattern
should theoretically now act as resistance, keeping a lid on
further rallies and providing short entry points at rally
failures.

The other important level that finally gave way today was the
1300 support level in the Nasdaq Composite (COMP).  The COMP has
been ratcheting down over the past couple of weeks, first holding
support at the 1319 level, which was the pullback level in early
November, following what appears to be the left shoulder of a
head and shoulders pattern.  After breaking down below that
level, it then held steady at 1300, with recent closes of 1306,
1306, 1301 and 1301 on four of the last five sessions.  It did
dip below that level intraday, but always found enough dip buyers
to maintain closing support.  That was not the case today, as it
dropped almost 20 points to close at 1282, below even the
intraday dips of recent sessions.  If the major indices are going
to get rolling downhill, a breakdown in the COMP was a necessary
component of any slide. Now that the 1300 level has been cracked,
the next significant support levels below appear to be 1251 and
1200.  In October, we bounced off 1100, but the bears have a
little work cut out for them before reaching that plateau.  There
was a dip on October 29 down to 1279, where the COMP got a bounce
from its 50-dma.  That 50-dma was breached a few weeks ago, but
we did bounce from about the same horizontal level today. While a
one-day support level does not seem significant in the grand
scheme, we can't argue with what we saw today and conservative
bears may want to wait to enter positions for a more decisive
move below that October 29 low.

The bullish percent of the COMP has also reversed, catching up to
the Dow, OEX, SPX and NDX.  The sell signal does not officially
come until 1100, but we are in a sinking column of "O" and by the
time we get down to 1100, we may miss an awfully big bearish
opportunity. The NDX gave its sell signal at 960 today, which for
those readers following the pivot analysis in the Index Trader
Wrap also coincides with a breakdown below the weekly and daily
S1 levels. With the bullish percents all heading lower, along
with decisive sell signals in the broader indices, the stars
certainly seem aligned for shorts. Now that we've looked at the
technical picture, we still have to consider the world around us.

A national security alert certainly did nothing to help matters,
with the government raising the national terror threat level from
yellow to orange.  This was only the second time we've hit that
level since the September 11 attacks and the markets reflected an
increased level of fear. Attorney General John Ashcroft said,
"This decision for an increased threat designation condition is
based on specific intelligence received and analyzed by the full
intelligence community... This information has been corroborated
by multiple sources."  The security alert throws up a red flag
for any pattern we see, as other geo-political events have over
the past few weeks.  We are left wondering what kind of market
action we would have seen if not for that alert.  After all, we
did head higher to start the day.  If Saddam Hussein heads into
exile, will we get a big rally as the threat of immediate war
suddenly ends.

Will that rally be a short entry point before traders re-focus on
the economy?  Will it relieve much of the uncertainty surrounding
the market drop, leading to a run at the January or December
highs? After all, the possibility of war has been hanging over
the market since last summer. Oil prices are likely to drop in
that scenario, reducing the cost of doing business for almost
every company.  While that possibility seems remote, it does not
appear Hussein can win a war against either a U.N. coalition, or
just the U.S. if that ends up being the case.  Certainly he has
considered the possibility in spite of all the tough talk. My
point is that it is difficult to determine just how much of what
we are seeing is economy related and just how much difference the
geo-political issues are factoring into both the economy and
traders' behavior.   I haven't even begun to analyze North Korea
(which Bill Clinton recently said posed a much larger threat than
Iraq).  We need to be nimble and realize that any position we
have on can is subject to a big gap in the opposite direction
than we are playing.  I've certainly pointed out these risks
before, but now that the market has given us multiple signs of a
breakdown, bears are likely feeling their oats and considering
upping the stakes.  That is certainly what my emotions are
telling me. Keep it in perspective and know the risks, but most
importantly, don't play with anything you're not willing to
subject to these kinds of risks.


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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  7864

Moving Averages:
(Simple)

 10-dma: 8009
 50-dma: 8467
200-dma: 8746



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  829

Moving Averages:
(Simple)

 10-dma:  848
 50-dma:  893
200-dma:  926



Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     :  957

Moving Averages:
(Simple)

 10-dma:  982
 50-dma: 1032
200-dma: 1027



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

The Semiconductor Index (SOX.X):  The SOX just about confirmed
the breakdown in the Nasdaq Composite and NDX.  The SOX bottomed
out at 261, getting a bounce following the AMAT warning on
January 31. It has held steady above that level, bucking the
trend in the broader markets. That's not to say it hasn't slowly
worked its way down, it has just moved much more slowly than
traders are used to seeing.  Nevertheless, it cracked 260 to the
downside briefly today, but watching this sector has been akin to
watching paint dry.  Still, without a failure in this group, we
are unlikely to see the rest of the tech sector gain downside
speed.  Look for a decisive move below 260 to end up testing
support in the 235-240 range. The COMP is below 1300 and the NDX
below 960 and if we can get some action in the chips, bears
should be gleaming.

52-week High: 641
52-week Low : 209
Current:      260

Moving Averages:
(Simple)

 21-dma: 294
 50-dma: 310
200-dma: 344

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

Market Volatility

This is the one piece of the puzzle that seems to indicate we may
not yet be in store for an immediate drop.  At least that was the
indication today.  The VIX has found sellers at the 40% level for
the second straight day as the market has dropped.  Today it
topped out at 39.79, after testing 39.64 on Thursday.  It could
be weekend sellers attempting to collect a higher daily decay
level at the higher VIX, or it could be institutions taking
advantage of a temporary dip in the markets to sell premium.
Either way, it indicates that there are sellers on the spikes,
rather than panic covering of short option positions in case of a
continued market drop.  If the VIX breaks through 40 decisively,
look for a continued drop in equities, however, a VIX up against
resistance could indicate the rubber band is simply stretched and
ready for a pullback as the market bounces. For an illustration
of the concept, see Ask the Analyst from January 26.


CBOE Market Volatility Index (VIX) = 38.80 +0.38
Nasdaq-100 Volatility Index  (VXN) = 48.26 –0.36

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.94        479,551       449,323
Equity Only    0.70        344,830       241,263
OEX            1.02         29,034        29,553
QQQ            2.13         27,171        57,764


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

Bullish Percent Data

           Current   Change   Status
NYSE          43.9    - 0     Bull Correction
NASDAQ-100    38.0    - 5     Bear Confirmed
Dow Indust.   20.0    - 7     Bear Confirmed
S&P 500       42.0    - 2     Bull Correction
S&P 100       38.0    - 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  1.60
10-Day Arms Index  1.48
21-Day Arms Index  1.38
55-Day Arms Index  1.33


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        890          1960
NASDAQ     1034          2043

        New Highs      New Lows
NYSE        65              131
NASDAQ      59              121

        Volume (in millions)
NYSE       1,472
NASDAQ     1,214


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

Commitments Of Traders Report: 02/04/02

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 reduced long positions by 8,000 contracts and shorts
by 3,000, for a net increase of 5,000 shorts.  Small traders
increased long and short positions by about 8,000 contracts,
keeping the net relatively unchanged.

Commercials   Long      Short      Net     % Of OI
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%)
02/04/03      414,543   465,678   (51,135)   (5.8%)

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
01/14/03      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%
02/04/03      151,174    93,439    57,735     23.5%

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

NASDAQ-100

Commercials increased long positions by approximately 2,000
contracts and shorts by 1,600.  Small traders increased short
positions by 1,000 contracts, leaving the long side close to
unchanged.


Commercials   Long      Short      Net     % of OI
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%)
02/04/03       40,934     50,992   (10,058) (10.9%)

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
01/14/03       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%
02/04/03       25,573     8,648    16,925    49.5)

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 increased long positions by 1,500 contracts, while
reducing shorts slightly.  Small traders increased shorts by
1,600, while seeing a slight reduction to the long side.

Commercials   Long      Short      Net     % of OI
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%
02/04/03       17,596    11,232    6,364      22.1%

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
01/14/03        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%)
02/04/03        4,583     9,424    (4,841)   (34.6%)

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

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



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

I wouldn't change a thing

When I put a position into play I automatically place a trade to
close that position out at a 30% ROI & 50% SL.

I have read that one needs to let their profit plays "run".

With the service I am using, I can place a "trailing stop", but
the stop is triggered on the "ask" and filled at market on the
"bid" and I don't want a MM turning a normal spread of .2 into
5.

Is what I am doing a sound strategy, or am I missing out on more
gains?

Thanks again for your service you have a subscriber for life.

Every trader has a "style" or a "discipline" that tends to fit
their comfort level.  In fact, some traders have multiple trading
styles that seem to "fit" their business plan that we've
discussed recent Ask the Analyst columns like "Your account is
your business" (11/17/02) and "Plan the trade and trade the plan"
(11/24/02).

The question above regarding a systematic approach to closing a
position out at a 30% gain with a 50% stop loss is something I
wouldn't disagree with, as long as it fits your business plan.

Now, I'm guessing that those that have read the article "Your
account is your business," may say, "How can you (Jeff Bailey)
condone risking 50% of capital, to make 30%?"  I would say it is
"OK" to risk 50% of capital to make 30%, as long as the trade has
at least 100% or 150% potential in the direction of the trade
(put or call).

There are a couple of things this trader's "system" will do.

For one, it creates DISCIPLINE.  DISCIPLINE is created by placing
a stop loss order immediately after the trade is initiated and
this immediately removes any emotion from the trade should it
begin working against the trader.

The second thing I like is the "stated discipline" of selling at
the target of 30% also creates discipline and if followed
diligently removes any emotion from the trade as the stock/option
achieves the stated objective.

A third thing I like about this type of disciplined approach to
trading options is this.  Let's say I'm a BELIEVER IN THE BULLISH
% indicator (which I am).  As the bullish % is falling in a more
bearish market environment, I'm constantly adding put trades to
my account, taking systematic 30% profits along the way and not
getting stopped out of any trades.  At the end of each day, I
might see that I had 2 trades closed out for 30% profit and 0
trades stopped out for 50% losses.  At the end of the week, I see
in my review process (required by my business plan) that I've had
5 trades closed out for 30% profit and 0 trades stopped out for
50% loss.

Lets go forward and now imaging the bullish % are now below 30%
bullish and I make the "tie" that bearish traders now have higher
risk in bearish trading as the MARKET has been removing risk as
stock prices have been falling.  After a couple of weeks of 5,
30% winning trades for every 1, 50% losing trade, I start to see
my winning percentage from the put options begin to turn a bit.
As the bullish % has fallen, all of a sudden, I'm only seeing 2,
30% winning trades for every 1, 50% losing trade.  Aha!  I sense
my batting average, based on this systematic trading style, is
starting to drop off a bit.  Hmmmm.... something is changing,
things aren't the same.

So lets go forward another week.  Now the bullish % just aren't
falling like they were and they're all at more oversold levels
below 30%.  The bullish % charts are just sitting here.  This
week, I find I've only closed 1, 30% winning trade and gotten
stopped out of 2, 50% losing trades.  I find this "hard to
believe" as I've got some "good puts" on stocks that are breaking
to new lows and still should have some significant room to their
bearish vertical counts.  Do I continue to put on more and more
put positions?  Heck no.  My systematic trading style of taking
profits at 30% and stopping out of losing trades at 50% is
telling me there's some type of "shift" taking place, and this is
perhaps confirmed by the lower levels of bullish %.  My trading
style of buying puts with a 30%/50% gain/loss isn't necessarily
flawed and the systematic approach is "confirming" what the
bullish % are telling me about bears having the risk.  Maybe I
should put on a bullish/call trade using the 30%/50% discipline,
but just make sure the stock I'm looking to go long has good
relative strength and shows some type of bullishness either
taking place, or having taken place in the last couple of weeks.
Then, next week, I'd review how my business/trading account is
doing.  If I find that my winning trades are calls and I'm still
seeing some losing trades from the puts, then I get even more
signals that a shift or turn in the markets is taking place.

Now, as stated previously, we all have our "style" or
"discipline" for trading, and if this subscriber's discipline
seems sufficient to match your business plan, then I would think
about trying it, but here are some critiques of this "style."

I've said before, that I don't "believe" in using STOP LOSS
orders on option trades and I prefer to only risk in an option,
what I'd risk to a stop loss in the underlying stock.  In
essence, if I'm going to short 200 shares of a $25.00 stock and
try and only risk $2.00 per share, or $400, then I like to take
that $400 and buy that amount of $25.00 puts, then sell them only
when the stock reaches my target.  As the stock nears the target,
I will also place a "strop profit" for the trade, just in case
the stock reverses direction as it neared my target, but didn't
achieve it.

Another "critique" of the 30% profit and 50% stop loss is simply
based on statistical probability.  From these number I KNOW for a
fact that I will need two winning trades for every losing trade
encountered.  That's not all that bad, but depending on what type
of options strike/expiration a trader is buying, there may be a
higher probability that a $1.00 option can easily be stopped out
with a 50% loss, within an hour of initiating a trade.
Therefore, a trader needs to consider option price when using a
30%/50% type of gain/loss option trading style.

As it relates to the question... I have read that one needs to
let their profit plays "run".

I've read this also and I believe it has its merits.  I have some
thoughts on this.

My question is... "How do I or you know when a trade has run its
course?"  My simple answer is, "when the trade hits my profit
target!"  Hey, that's simple enough and why I feel YOU MUST HAVE
A TARGET.  If I bought LEAPS puts on Lucent (NYSE:LU) after it
gapped down from its 200-day SMA at $50 and had a bearish trading
target of $25, was I "wrong" to close out those LEAPS puts when
the stock traded my target, instead of letting it run?  In my
mind, when a stock trades your target, which was used to assess
risk/reward in the trade before I initiated the trade, then "NO
it was not wrong" to not have let my winner run, to $20, then $15
and so on.  When the stock hit my target and profit was taken, I
paid myself for the risk taken.

Now, I could "let the trade run" if I wanted to (based on
remaining expiration) by snugging down a trailing profit stop.
I'd be a little upset if Lucent (LU) traded my target then
rebounded back.  "Gosh darned it!  I knew I should have closed it
out at my target!"

But think of this.  Once you get your account "built up" with
some 30% gains, is there any reason why, next quarter, or at the
end of the year, when you review your business, that you see your
original $5,000 trading account now at $7,500 and feel it might
be "OK" to expand the business a little?

Take Dell Computer (DELL) as an example.  They started out just
making and selling computers.  As time progressed and profits
built fro that business, they began taking some of those profits
and RISKING some of the profits in new business areas like
servers.  They didn't jump into the server market head-first, and
a trader that is using a 30%/50% type of trading discipline with
success wouldn't just stop doing that either and begin
implementing a strategy of ..... "just let your winners run."

No sir!  A trader might do this though.  Say at the end of the
week, you review your business plan and find that you had taken a
30% gain from a put option trade in Acme Dynamite Company and
that that gain came in just 2-days.  The trade was closed out for
the 30% gain when the stock fell from $30 to $27.  After you
closed out the trade, Acme kept falling to $23.  You say...
"Shoot, I should have let that winner run and there's still quite
a bit of room to its bearish vertical count of $15."  What a
trader might do here, that still has the bulk of his trading
discipline using the 30%/50% discipline, is check the sector and
various major market index bullish % charts, and if there is
still some downside to lower levels of bullish %, look for Acme
Dynamite to rebound back near $27, initiate another put option
trade, and have this trade slated for your "let the winner run"
part of your business.

As time progresses, you may find that the "let your winner run"
trading style is actually seeing greater percentage net gain
(you'll still have some losing trades) than your 30%/50% and you
might slowly shift your business plan in that direction as your
business/account begins to grow.

Just remember, the horse and buggy served its purpose for years
and years and got people where they wanted to go.  The invention
of the automobile got people where they wanted to go at a faster
rate of speed than the horse and buggy method of transportation,
but back in the day, those that stuck with their COMFORT LEVEL of
horse and buggy transportation as a method of transportation that
got them where they wanted to go made that decision based on
risk/reward.  One could argue the risk/reward tradeoffs for horse
and buggy versus the automobile.

Check your business plan.  You've got your stated longer-term
goals.  If your 30%/50% gain/loss trading style is comfortable
and is going to get you where you want to go (your business goal)
then I wouldn't change a thing!

With the service I am using, I can place a "trailing stop", but
the stop is triggered on the "ask" and filled at market on the
"bid" and I don't want a MM turning a normal spread of .2 into
5.

I'm not sure if the subscriber is having stops triggered based on
the stock trading a certain price and that price being traded
then has the stop loss being triggered on the option, or if the
stop loss is simply being applied to the option itself, so I'm
guessing a bit here.  I will assume that the latter is true as
the trader is using a 30%/50% gain/loss trading discipline.

If stops are being placed on the option itself, then just
understand "why" the trade is executed the way it is for a put
option.  You're being filled at the "ask" on a put option,
because the market maker that takes the other side of the trade
is being FORCED and OBLIGATED to buy the 100 shares (if you sell
1 contract) at the stated strike if the stock closes below that
strike on expiration.

There are rules for market making in options and all you can do
here is make reference to time and sales.  If you feel the
option's price was "manipulated" (bid increased rather quickly or
ask increased quickly and triggered your stop) then you should
look at a bar chart of the stock.  Did the price of the stock
rise "quickly" just minutes before your put option stop was
triggered?  What did the Market Volatility Index ($VIX) or
NASDAQ-100 Volatility Index ($VXN) do at that time.  If
volatility "jumped" then that's a bad break for you.

If the stock's price didn't "jump" or volatility didn't "spike",
then call your broker/dealer and tell them that you feel the
market maker manipulated his/her bid/offer to trigger you at an
unfavorable trade (for your account).  YOU had better be able to
state your case clearly and ask your broker/dealer "how can the
bid or offer of this put option do that, if the stock edged up
just 5-cents?"  Remember, your broker/dealer gets paid a
commission (by you) and works for you.  Any fees paid by you is
partially divided up to the option exchange where your trade ran
too.  Don't take any guff or let them put you off and your
broker/dealer should be willing to work for you.  A good
broker/dealer will earn your commission by checking into things.
If at anytime they say "Hey, it's only $20.00" then ask them for
a commission free trade to make up for this "small error."  Then
say nothing, but listen to their response.

Is what I am doing a sound strategy, or am I missing out on more
gains?

It's a sound strategy, if you're making money and achieving your
stated business plan goal.

Are you missing out on more gains?  I don't know.  Go back and
review past trades.  What did those stocks do after you closed
out the trade?  Too many traders close out a trade (profitable or
unprofitable) and simply forget about the stock and never learn
anything from their success or failure.  If you review your
trades (especially the losers) you will learn what to look for in
future trading.  Hey... on losses, you lost good money, so you
might as well consider that loss the price paid for some tuition
and try and learn from it.

Now.... don't just look at your trade blotter against the stock's
eventual price movement after the trade was closed out.  I'd also
look at the bullish % charts during the time periods of trades
you review.

You might also find that after you were stopped out of a put
option trade for a loss, that the stock may have moved higher the
next day, but over the course of the next two, three or four
weeks fell and would have not only had you achieving a 30% gain,
but under a "let the winner run" style of trade, become a very
nice "winner."  If you review your trades, you may just find out
that under a "let your winner run" type of strategy, that 70% of
these trades were nice winners, 10% break-even, and 20% losers.
I don't know, but you will if you review some of your trades.

Try to review what shape the MARKET was is, what shape the SECTOR
was in, and what shape the STOCK was in when you initiated the
trade.

I'm willing to "bet" that you will find the put trades that were
LARGER winners, had you let them run, came not only from weak
technicals in the underlying stock, but when that stocks sector
bullish % was relatively high and had reversed into a column of
O's, or the major index bullish % charts were high and reversed
into a column of O.  I'm thinking the bigger winners came from
higher levels of bullish % that began reversing lower, and as you
review further trades, some gains became less on the put side
when the bullish % had fallen and more sector and market risk has
been reduced.

Also make some notes on "length" of time you held trades.  Under
"bear confirmed" market conditions, I'd think that "time held"
was rather short compared to other periods.

Take some notes here too.  With a 30%/50% trading style, you're
going to get an "average" amount of time you held a trade.  From
this you may learn.... On average, I'm closing out the bulk of my
trades for 30% profits over X-number of days held.  Aha!  My 50%
loser trades all came when I held over X-number of days.  If
you're 50% losers are all coming at 6-days or on average, then
YOU will have a feel that if you're trade isn't working in your
favor in 6-day's or so, that maybe your analysis was wrong and
instead of waiting to lose 50%, you cut out with a 20% loss and
move on.

Sounds like a lot of work doesn't it?  Just remember, your
account is your business.  What you put into it, you'll get out
of it.

Final Note:  This week, I received a lot of e-mail regarding
risk/reward assessment in trading.  This is fantastic as it comes
in a market environment filled with various scenarios of bullish
and bearish uncertainty.

One question that seems to be cropping up a bit is "when do I
take a profit."  While my blanket answer is ALWAYS... "when it
hits your target," there are those trades that either look to
have further potential in the direction of trade, or are getting
very close to the target, but juuuuuust aren't quite there yet.

Next weekend I'd like to discuss a strategy I use in my account
that has the MARKET telling me what to do that is based PURELY
off of risk/reward assessment, but you need to have a profit
TARGET for this technique to work.

Still.... send me some questions.  If you can, type "Ask the
analyst" in the subject line.  Then I can sort my 700-unread e-
mails by subject and try and address subjects that seem to be
"popular" among subscribers.

Another question that was frequently asked this week is "when are
my annual renewal specials gifts going to arrive?"  I can say
this.  It has looked like Santa's workshop around here for about
a week now.  Books, videos, mouse pads being loaded into boxes,
and labels stuck on those boxes.  Just when a big stack
disappears another stack appears, so I know for a fact that stuff
is being shipped out.

Jeff Bailey


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

==========================================
Market Watch for the week of February 10th
==========================================

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

Symbol  Company               Date           Comment      EPS Est

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

BAB    British Airways       Mon, Feb 10  Before the Bell      N/A
CHD    Church & Dwight Co    Mon, Feb 10  Before the Bell     0.35
EOC    Empresa Nac Elect     Mon, Feb 10  -----N/A-----        N/A
ETM    Entercom Comm         Mon, Feb 10  Before the Bell     0.33
EVC    Entravision Comm Corp Mon, Feb 10  After the Bell     -0.03
RE     Everest Re Group, Ltd Mon, Feb 10  After the Bell      1.54
FDG    Fording Inc.          Mon, Feb 10  -----N/A-----        N/A
LF     LeapFrog Ent Inc.     Mon, Feb 10  After the Bell      0.39
LRY    Liberty Property Trst Mon, Feb 10  -----N/A-----       0.83
LNCR   Lincare Holdings      Mon, Feb 10  After the Bell      0.46
MAR    Marriott Intl         Mon, Feb 10  Before the Bell     0.54
MCY    Mercury General       Mon, Feb 10  Before the Bell     0.59
MET    MetLife Inc.          Mon, Feb 10  After the Bell      0.64
NHY    Norsk Hydro           Mon, Feb 10  -----N/A-----       1.19
ORH    Odyssey Re Holdings   Mon, Feb 10  After the Bell      0.34
PRE    PartnerRe Ltd.        Mon, Feb 10  After the Bell      1.47
RCII   Rent-A-Center         Mon, Feb 10  After the Bell      1.24
SWFT   Swift Transportation  Mon, Feb 10  Before the Bell     0.23
UDR    Un Dom Realty Trust   Mon, Feb 10  After the Bell      0.40
VAL    Valspar               Mon, Feb 10  Before the Bell     0.30
BER    W.R. Berkley          Mon, Feb 10  After the Bell      0.89
WLP    WellPoint Hlth Ntwk   Mon, Feb 10  After the Bell      1.15
WEC    Wisconsin Energy Corp Mon, Feb 10  Before the Bell     0.70
YUM    Yum! Brands, Inc.     Mon, Feb 10  After the Bell      0.55


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

AET    Aetna Inc.            Tue, Feb 11  Before the Bell     0.59
AKZOY  Akzo Nobel N.V.       Tue, Feb 11  During the Market    N/A
AEE    Ameren Corporation    Tue, Feb 11  Before the Bell     0.21
AIV    Aptmnt Invest Mana    Tue, Feb 11  After the Bell      1.06
AMAT   Applied Materials     Tue, Feb 11  After the Bell      0.02
BBI    Blockbuster Inc.      Tue, Feb 11  -----N/A-----       0.19
BP     Bp PLC                Tue, Feb 11  Before the Bell     0.71
CVC    Cablevision Systems   Tue, Feb 11  Before the Bell    -0.40
CMX    CareMark Rx, Inc.     Tue, Feb 11  -----N/A-----       0.33
CNT    CENTERPOINT PPTYS TR  Tue, Feb 11  After the Bell      1.03
CLX    Clorox                Tue, Feb 11  -----N/A-----       0.35
CUZ    COUSINS PPTYS INC     Tue, Feb 11  After the Bell      0.55
DE     Deere & Company       Tue, Feb 11  Before the Bell     0.15
DTE    DTE Energy Company    Tue, Feb 11  After the Bell      1.26
EXPD   Expeditors Intl WA    Tue, Feb 11  Before the Bell     0.28
FDP    Frsh Del Mnte Produce Tue, Feb 11  Before the Bell     0.34
GALN   Galen Holdings PLC    Tue, Feb 11  Before the Bell     0.24
GG     Goldcorp              Tue, Feb 11  After the Bell      0.08
INET   Instinet Group Inco   Tue, Feb 11  Before the Bell      N/A
INMRY  Instrumentarium       Tue, Feb 11  Before the Bell      N/A
IPCR   IPC Holdings          Tue, Feb 11  After the Bell      0.99
LZB    La-Z-Boy Inc.         Tue, Feb 11  After the Bell      0.40
LNC    Lincoln National      Tue, Feb 11  -----N/A-----       0.58
NTAP   Network Appliance     Tue, Feb 11  After the Bell      0.06
NRD    NORANDA INC           Tue, Feb 11  Before the Bell      N/A
POM    Pepco Holdings, Inc.  Tue, Feb 11  After the Bell      0.29
PER    Perot Systems         Tue, Feb 11  Before the Bell     0.17
PRU    Prudential Financial  Tue, Feb 11  After the Bell      0.45
PUB    PUBLICIS Groupe SA    Tue, Feb 11  During the Market    N/A
ROIAK  Radio One             Tue, Feb 11  -----N/A-----       0.05
PHG    Royal Philips Elec    Tue, Feb 11  -----N/A-----        N/A
IMI    SanPaolo IMI SpA      Tue, Feb 11  -----N/A-----        N/A
SIAL   Sigma-Aldrich Corp    Tue, Feb 11  After the Bell      0.56
SRCL   Stericycle            Tue, Feb 11  -----N/A-----       0.28
SWMAY  Swedish Match         Tue, Feb 11  Before the Bell      N/A
TLTOB  Tele2 AB              Tue, Feb 11  Before the Bell      N/A
VFC    VF                    Tue, Feb 11  Before the Bell     0.75
WON    Westwood One          Tue, Feb 11  -----N/A-----       0.31
XL  XL Capital Ltd           Tue, Feb 11  After the Bell      1.79


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

AAP    Advance Auto Parts    Wed, Feb 12  -----N/A-----       0.42
AOC    Aon Corporation       Wed, Feb 12  Before the Bell     0.54
APPB   Applebee's Intl       Wed, Feb 12  After the Bell      0.36
CSG    Cadbury Schweppes     Wed, Feb 12  Before the Bell     N/A
CCJ    Cameco                Wed, Feb 12  -----N/A-----        N/A
CTSH   Cognizant Tech Solut  Wed, Feb 12  After the Bell      0.47
COX    Cox Communications    Wed, Feb 12  Before the Bell    -0.02
DCN    Dana                  Wed, Feb 12  -----N/A-----       0.23
ELUX   Electrolux Ab         Wed, Feb 12  -----N/A-----       0.75
FRT    Fed Rlty Invstmnt TrstWed, Feb 12  After the Bell      0.71
FR     First Indl Rlty Trust Wed, Feb 12  After the Bell      0.92
FST    Forest Oil Corp       Wed, Feb 12  After the Bell      0.26
FOX    Fox Entertainment Grp Wed, Feb 12  After the Bell      0.28
GRMN   Garmin Ltd.           Wed, Feb 12  Before the Bell     0.35
GSK    GlaxoSmithKline       Wed, Feb 12  -----N/A-----       0.62
HNT    Health Net, Inc.      Wed, Feb 12  After the Bell      0.60
HRH    Hilb, Rogal Hamilton  Wed, Feb 12  Before the Bell     0.46
RX     IMS Health            Wed, Feb 12  After the Bell      0.28
LAMR   LAMAR ADVERTISING CO  Wed, Feb 12  After the Bell     -0.09
TVL    LIN TV Corp.          Wed, Feb 12  Before the Bell     0.24
MDT    Medtronic Inc.        Wed, Feb 12  After the Bell     0.35
MME    Mid Atl Med Serv      Wed, Feb 12  After the Bell      0.57
MCL  Moore Corporation Ltd.  Wed, Feb 12  After the Bell      0.17
NOI  National Oilwell        Wed, Feb 12  Before the Bell     0.22
OCR  Omnicare                Wed, Feb 12  Before the Bell     0.41
PSD  Puget Sound Energy      Wed, Feb 12  After the Bell      0.51
STR  Questar.com             Wed, Feb 12  After the Bell      0.53
SCG  SCANA                   Wed, Feb 12  Before the Bell     0.59
SPW  SPX                     Wed, Feb 12  Before the Bell     1.30
SLF  Sun Lf Finl Serv Can    Wed, Feb 12  -----N/A-----       0.38
TFX  Teleflex, Incorporated  Wed, Feb 12  After the Bell      0.81
KO   The Coca-Cola Company   Wed, Feb 12  Before the Bell     0.40
FAF  The First Am Corp       Wed, Feb 12  Before the Bell     0.90
NWS  The News Corp Limited   Wed, Feb 12  After the Bell      0.23
TMS  Thomson                 Wed, Feb 12  02:00 am ET          N/A
TMPW  TMP Worldwide Inc.     Wed, Feb 12  After the Bell      0.00
WFMI  Whole Foods Market     Wed, Feb 12  After the Bell      0.40
ZBRA  Zebra Technologies     Wed, Feb 12  -----N/A-----       0.65


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

ABN    ABN Amro Holdings     Thu, Feb 13  Before the Bell      N/A
AES    AES Corporation       Thu, Feb 13  Before the Bell     0.00
ALD    Allied Capital Corp   Thu, Feb 13  Before the Bell     0.49
AW     Allied Waste Ind      Thu, Feb 13  After the Bell      0.24
AIG    American Intl Group   Thu, Feb 13  -----N/A-----       0.21
ADI    Analog Devices Inc.   Thu, Feb 13  After the Bell      0.16
BHI    Baker Hughes Incorp   Thu, Feb 13  Before the Bell     0.25
BCS    Barclays Bank PLC     Thu, Feb 13  -----N/A-----        N/A
ABX    Barrick Gold          Thu, Feb 13  Before the Bell     0.09
BTY    BT Group PLC          Thu, Feb 13  Before the Bell      N/A
CPN    Calpine Corporation   Thu, Feb 13  Before the Bell     0.08
CPB    Campbell Soup         Thu, Feb 13  -----N/A-----       0.55
CZ     Celanese AG           Thu, Feb 13  -----N/A-----       0.59
CNP    CenterPoint Energy    Thu, Feb 13  Before the Bell    -0.02
CNA    CNA Financial Corp    Thu, Feb 13  Before the Bell     0.47
DVA    DaVita                Thu, Feb 13  After the Bell      0.51
DF     Dean Foods            Thu, Feb 13  Before the Bell     0.74
DELL   Dell Computer Corp    Thu, Feb 13  After the Bell      0.23
FE     FirstEnergy           Thu, Feb 13  -----N/A-----       0.44
DA     Groupe Danone         Thu, Feb 13  During the Market   0.56
HAS    Hasbro, Inc.          Thu, Feb 13  Before the Bell     0.38
HRL    Hormel Foods Corp     Thu, Feb 13  Before the Bell     0.37
INTU   Intuit                Thu, Feb 13  After the Bell      0.57
IVGN   Invitrogen Corp       Thu, Feb 13  After the Bell      0.41
KIM    Kimco Realty          Thu, Feb 13  After the Bell      0.78
LTR    Loews Corp.           Thu, Feb 13  Before the Bell     1.25
MAC    Macerich Co           Thu, Feb 13  -----N/A-----       1.02
MAS    Masco                 Thu, Feb 13  -----N/A-----       0.37
NFX    Newfield Exploration  Thu, Feb 13  Before the Bell     0.63
NXY    Nexen                 Thu, Feb 13  -----N/A-----        N/A
NVDA   NVIDIA Corporation    Thu, Feb 13  After the Bell      0.06
ODP    Office Depot Inc.     Thu, Feb 13  Before the Bell     0.21
OSI    Outback Steakhouse    Thu, Feb 13  -----N/A-----       0.52
PDS    Precision Drllng Corp Thu, Feb 13  Before the Bell     0.11
SCIO   Scios                 Thu, Feb 13  Before the Bell    -0.52
SBL    Symbol Technologies   Thu, Feb 13  -----N/A-----       0.08
TELN   Telenor Asa           Thu, Feb 13  -----N/A-----        N/A
MAY    The May Depart Store  Thu, Feb 13  -----N/A-----       1.21
TRH    Transatlantic Holding Thu, Feb 13  -----N/A-----       0.39
TRZ    Trizec Properties,    Thu, Feb 13  Before the Bell     0.46
UBB    Unibanco              Thu, Feb 13  -----N/A-----       0.62
UN     Unilever N.V.         Thu, Feb 13  Before the Bell     0.91
UL     Unilever PLC          Thu, Feb 13  02:00 am ET         0.54
UHS    Universal Health Serv Thu, Feb 13  After the Bell      0.66
WC     WellChoice, Inc.      Thu, Feb 13  After the Bell      0.48


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

BNN    Brascan Corporation   Fri, Feb 14  Before the Bell      N/A
BSY    British Sky Brdcstng  Fri, Feb 14  -----N/A-----        N/A
CCH    Coca-Cola Hell Btlng  Fri, Feb 14  Before the Bell      N/A
SJM    J. M. Smucker Company Fri, Feb 14  Before the Bell     0.53
KEG    Key Energy Services   Fri, Feb 14  Before the Bell     0.01
LYG    Lloyds TSB Group      Fri, Feb 14  12:00 pm ET          N/A
MTA    MATAV                 Fri, Feb 14  10:00 am ET          N/A
NAV    Navistar Intl         Fri, Feb 14  Before the Bell    -1.49
RG     Rogers Communications Fri, Feb 14  Before the Bell      N/A
RCN    Rogers Wireless Comm  Fri, Feb 14  -----N/A-----      -0.29
SXT  Sensient Tech Corp      Fri, Feb 14  -----N/A-----       0.45
TI     Telecom Italia        Fri, Feb 14  -----N/A-----        N/A
TU     TELUS                 Fri, Feb 14  -----N/A-----        N/A


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

Symbol  Company Name              Ratio    Payable     Executable

CBI     ChicagoBridge             2:1      Feb. 13th   Feb. 14th
LCI     Lannett Co.               3:2      Feb. 14th   Feb. 17th


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

Earnings season isn't quite finished. Several high-profile
companies will be announcing their quarterly results next week,
including AMAT, NVDA, DELL, and KO. Also look for some key
economic reports on Thursday and Friday.


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

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


Tuesday, 02/11/02
-----------------
None


Wednesday, 02/12/02
-------------------
None


Thursday, 02/13/02
------------------
Initial Claims (BB)   02/08  Forecast:    N/A  Previous:     391K
Retail Sales (BB)       Jan  Forecast:  -0.5%  Previous:     1.2%
Retail Sales ex-auto(BB)Jan  Forecast:   0.5%  Previous:     0.0%
Export Prices ex-ag.(BB)Jan  Forecast:    N/A  Previous:    -0.1%
Import Prices ex-oil(BB)Jan  Forecast:    N/A  Previous:     0.1%


Friday, 02/14/02
----------------
Business Inventories(BB)Dec  Forecast:   0.3%  Previous:     0.2%
Industrial Producton(DM)Jan  Forecast:   0.4%  Previous:    -0.2%
Capacity Utilization(DM)Jan  Forecast:  75.6%  Previous:    75.4%
Mich Sentiment-Prel.(DM)Feb  Forecast:   82.2  Previous:     82.4


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


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

All Fall Down

The breakdowns I talked about in this space yesterday continued
today, adding bearish confirmation in areas we had yet to see.

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The Option Investor Newsletter                   Sunday 02-09-2003
Sunday                                                      2 of 5


In Section Two:

Daily Results
Call Play of the Day: TRMS
Put Play of the Day: TSCO
Dropped Calls: SYMC
Dropped Puts: None


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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

EBAY     72.37   -1.25  -0.94  -0.08 –0.37 –2.92 Alternate entry
SYMC     46.09   -0.68  -0.40  -0.42 –0.34 –0.54  Drop, sinking
TRMS     41.63   -1.79   0.28  -1.05 –0.22 –1.23  New, Bouncing


PUTS

AT       44.50    0.00  -1.04  -0.36 –0.48 –2.50 Drifting lower
AZO      64.15   -0.01  -0.35  -0.15 –1.59 –1.95 Holding up
CCMP     41.97   -1.27   0.04  -0.14 –0.43 –2.43 SOX rolled
GWW      44.90    0.30  -0.15   0.08 –0.63 –2.20 Nice start
PII      48.77   -0.79  -1.20  -0.21 –0.50 –2.73 Slow but down
PNRA     27.45    0.08  -0.77  -0.25 –0.95 –2.15 Approaching goal
TSCO     33.42   -0.55  -0.51   0.25 –0.99 –3.49  New, 200-dma


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

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

TRMS – Trimeris, Inc. $41.64 (-0.63 last week)

See details in play list




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

TSCO - Tractor Supply Co. - $33.42 -1.86 (-3.49 FOR THE 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
^^^^^

SYMC $46.09 (-0.59) Despite holding up better than the broad
market for the past several weeks, we're losing confidence in
SYMC's ability to continue this trend.  One of the key points
was the fact that the bulls were turned back a mere 3-cents shy
of a new high on Wednesday, and the stock has been languishing
ever since.  Certainly, it hasn't broken down just yet and there
could very well be another run at the highs.  But with the stock
losing its upward momentum, we would recommend using such a move
as an opportunity to exit the play.  If deciding to stay in the
play, maintain a rigid stop at $45.  We're dropping SYMC this
weekend to make room for other stronger plays.


PUTS
^^^^

None


***********
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 02-09-2003
Sunday                                                      3 of 5


In Section Three:

New Calls: TRMS
Current Calls: EBAY
New Puts: TSCO


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

TRMS – Trimeris, Inc. $41.64 (-0.63 last week)

Company Summary:
Trimeris is a biopharmaceutical company engaged in the
discovery and development of a class of antiviral therapeutics
called viral fusion inhibitors (Fis).  The company's most
advanced product candidates, T-20 and T-1249, are for the
treatment of human immunodeficiency virus (HIV), type I.
T-20 is a first-generation FI that prevents HIV from entering
and infecting cells, while T-1249 is a rationally designed
second-generation FI in an earlier stage of development.  Using
its proprietary viral fusion platform technology, TRMS has
identified and filed patent applications disclosing numerous
discrete peptide sequences that appear to inhibit fusion for
several viruses.

Why We Like It:
With the broad markets continuing to deteriorate on a daily
basis, finding a solid bullish play is almost as difficult as
finding an honest politician, but we've managed to uncover one
this weekend.  One of the few sectors to end Friday's session
in the green was the Biotechs, with the BTK index spending the
entire day in the green, even if it was by a small amount.  One
truly bright spot in this sector of the market was TRMS, as the
stock rebounded from strong support near the $40 level and then
closed with a 3.6% gain on the day.  All of the gains came at the
open, but it was impressive to see the stock hold those gains in
the face of the broad market weakness.  While there wasn't any
specific news to drive the stock today, obviously somebody
wanted to defend that $40 support level.  Perhaps investors are
positioning themselves for next month's expected approval of the
company's new HIV drug, Fuzeon.  Whatever the root cause, the
technicals certainly look favorable for a continued rebound from
current levels.  Another bounce from above the $40 level can be
used for entering the play, as can a breakout over $42, just
above Friday's intraday high.  The bulls are likely to run into
some resistance near the 50-dma ($43.39) and the 20-dma ($43.72),
but once above that congestion, the stock should be in good
shape to run up to the $45 resistance level and possibly test
the 200-dma ($45.67).  In the current market environment, any
long position carries greater risk, but TRMS should be relatively
immune to the effects of the geopolitical situation.  Initial
stops are set at $39.50.

*** February contracts expire in two weeks ***

BUY CALL FEB-40 RQM-BH OI= 416 at $3.00 SL=1.50
BUY CALL FEB-45 RQM-BI OI=1304 at $0.50 SL=0.25
BUY CALL MAR-40*RQM-CH OI=  48 at $4.40 SL=2.75
BUY CALL MAR-45 RQM-CI OI=  50 at $1.70 SL=0.75

Average Daily Volume = 5.66 K



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


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

EBAY - eBay Inc. - $75.16 +0.95 (-2.79 for the week)

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:
The weakening tech sector continues to eat away at EBAY's January
gains.  The stock tagged a new relative low today after spending
the previous three sessions in the $72-$75 range.  A round of
buying during the final hour erased some of the intraday losses,
ultimately leading to a 1.0% loss.  This was slightly better than
the NASDAQ's 1.4% decline.  This relative strength might
partially be attributed to a favorable report regarding EBAY's
used auto sales in the Wall Street Journal.  However, if the
recent selling action continues next week it'll only be a matter
of time before EBAY tests its rising 50-dma at $71.16.  You'll
recall that we've set a downside entry strategy to take advantage
of a rebound from that moving average.

Tonight we're making some modifications to our entry points.  To
begin with, we've removed our upside trigger at $75.51.  While
this might be a reasonable action point if EBAY manages to bounce
back from current levels, we're no longer looking to capture a
breakout.  Secondly, we've set the following stipulations for our
pullback strategy: If the stock trades into the $70-$71.50 area,
we'll look for a bounce back above the 50-dma.  Rather than try
to catch a falling knife, we'll look for a move above the day's
high when that level is tested for an entry trigger.  This will
ensure that we don't active the play until the stock actually
rebounds from the 50-dma.  If we're triggered we'll use a stop at
$69.94.  As we mentioned earlier, our upside target for this "buy
the dip" entry will be the $75-$76 region.  While we're being
somewhat aggressive in attempting to call a short-term bottom,
our stop-loss should keep potential losses to a bearable minimum.
If EBAY falls below the 50-dma without rebounding we'll probably
drop the play, un-triggered.

BUY CALL FEB-70 QXB-BN OI= 5132 at $3.50 SL=1.75
BUY CALL FEB-75 QXB-BO OI= 15656 at $0.85 SL=0.00
BUY CALL MAR-70 QXB-CN OI= 2285 at $5.30 SL=2.65
BUY CALL MAR-75 QXB-CO OI= 3114 at $2.60 SL=1.30

Average Daily Volume = 5.75 mln



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

TSCO - Tractor Supply Co. - $33.42 -1.86 (-3.49 FOR THE WEEK)

Company Description:
Tractor Supply Company operates more than 400 stores in 30 states
and is focused on supply products for the lifestyles needs of
hobby and part-time farmers and ranchers. The Company,
headquartered in Nashville, Tenn., also serves the maintenance
needs of suburban customers, contractors and tradesmen. Tractor
Supply stores are located in the outlying towns in major
metropolitan markets and in rural communities. (source: company
press release)

Why We Like It:
If the stock market could talk, you'd probably hear the same
phrase over and over: "What have you done for me lately?"  Wall
Street is constantly looking forward and pricing in future
developments.  Tractor Supply provides a particularly good
example of this phenomenon.  On January 23rd the company reported
quarterly earnings of 88 cents per share - a full eleven cents
better than analyst expectations.  That's pretty impressive,
especially given the difficult retail environment.  The company
also said that it expects to see a 16% increase in sales for
2003.  This positive news, however, was only good for a one-day
rally in shares of TSCO.  The muted reaction suggests that the
good news had already been priced in.  Tractor Supply has
experienced soaring sales and revenue over the past two years.
This growth is reflected in the company's stock, which exploded
from the $8.00 area in mid-2001.  Investors now appear to be
skeptical about whether the past two years of fundamental growth
are sustainable in a challenging economic climate.  These
concerns were underscored by today's release of the December
consumer credit numbers.  The data showed a contraction for $4.0
billion, versus the consensus expectation for an *increase* of
$3.5 billion.  That's quite a difference!  Consumer credit tends
to be somewhat volatile, but the large decline is nonetheless
disconcerting for the retail sector.  If Americans were reluctant
to charge items during the Holiday season it's likely that
they'll continue to be conservative about their credit spending
habits in the months ahead.

Technically, there are several reasons for our bearish bias on
TSCO.  First and foremost is today's violation of the 200-dma
34.82.  Shares have not traded below that moving average since
January 2001.  This breakdown, which came on no apparent news,
triggered a heavy round of selling as the stock posted a 5.2%
decline on the second-strongest volume of the year.  TSCO has
already been declining precipitously ever since it broke out of a
bearish p-n-f triangle at $38.00.  We suspect that the high-
volume violation of the 200-dma could lead to a test of the
October lows near $28.00.  TSCO is currently in a fast-move
region that was created by the steep rally from those lows.
$28.00 would provide a reasonable downside target for short-term
traders.  We're going to be somewhat more aggressive in targeting
a decline to the July lows at $25.50-$26.00.  This level could be
easily attainable if the major market indexes continue their
losing ways.  Our trigger to enter this play is at $32.76, one
cent under today's low.  If the play is activated we'll use a
stop at $36.55, just above yesterday's high.  Traders who are
more risk-averse could use a stop slightly above today's high of
$35.30.

BUY PUT FEB-35 QTF-NG OI= 87  at $2.60 SL=1.30
BUY PUT MAR-35 QTF-OG OI=153  at $3.50 SL=1.75

Average Daily Volume 310 K



------------------------------------------------------------
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The Option Investor Newsletter                   Sunday 02-09-2003
Sunday                                                      4 of 5


In Section Four:

Current Put Plays: AT, AZO, PII, PNRA, CCMP, GWW
Leaps: Bears Still In Charge...
Traders Corner: Getting Out From Under, Ending Up On Top
Traders Corner: Seasonal stock market trends and MACD
Brokers Corner: The Broader View


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


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

AT - Alltel Corporation $44.50 (-2.37 last 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:
Steadily, and bit by bit, the bears are grinding away at the $44
support level in shares of AT.  When we initiated coverage of the
stock near $46, we were concerned about chasing the stock lower,
with the PnF bullish support line at $44, which is also the site
of strong historical support.  So far, those concerns have been
unfounded, as each day last week saw the stock post a lower high
and a lower low, inching its way down to that $44 support.
Wednesday provided the best entry point of the whole week, with
a failed rebound near $46.50, right at the 2-week descending
trendline.  Then again on Thursday, a failed rebound near the
$45.50 level afforded entry into the play.  Friday's session
provided nothing of merit for traders seeking an entry, as the
stock dropped to the $44.50 level at the open and then stayed
there right up to the closing bell.  A strong clue as to AT's
behavior can be found in the action of the North American Telecom
index (XTC.X), which spent the week drifting lower along the
declining 200-dma ($430.16).  After closing right on that
average on Thursday, the XTC finally dropped below it on a
closing basis on Friday and this could be the beginning of the
next slide lower.  But we need to be cautious, as the last close
below this level led to a quick spurt higher.  A repeat
performance will likely give us another failed rally, which we
can use to enter new positions, with a rollover in the
$46.00-46.50 area.  Due to the proximity of strong support, we
don't want to chase the stock lower here.  Lower stops to $47.25,
just above the declining 200-dma.

*** February contracts expire in two weeks ***

BUY PUT FEB-45 AT-NI OI= 202 at $1.80 SL=0.75
BUY PUT MAR-45 AT-OI OI= 159 at $2.70 SL=1.25

Average Daily Volume = 1.25 mln


---

AZO – AutoZone, Inc. $64.15 (-1.56 last week)

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

Why We Like It:
Much like the rest of the market, AZO spent Friday providing
mixed signals, as it vacillated about the critical $64 support
level.  That level was staunchly defended early in the day
before finally giving way, but just fractionally.  There were
several rebound attempts throughout the day, but each one was
met with a fresh round of selling at a lower intraday high.  All
except for the last one, which appears to have been end-of-week
short-covering, bringing the stock up to close fractionally
above that $64 level.  In the end, it was much ado about nothing,
with the only decent entry point all day being the failed rally
near $65 in the opening 20 minutes of the day.  After that, it
was a slow grind lower.  Even after trading below our $63.75
trigger in the late afternoon, the buyers stubbornly battled
back to close the day with a fractional gain.  One interesting
point is that the final surge higher came to rest just pennies
below the descending trendline that has capped each rally attempt
since the intraday highs on Wednesday.  While not a stellar move
on Friday, the intraday dip below $64 looks to be setting the
stage for a continuation of the pattern of lower highs and lower
lows.  A rollover on Monday should provide additional entry
points as AZO breaks below Friday's intraday low ($63.50),
preferably on continued broad market weakness.  Should we be so
fortunate as to get a rebound first, another failed rally near
$65 (or even as high as $66) would make for an even better entry
point.  For now, keep stops set at $67.10.

*** February contracts expire in two weeks ***

BUY PUT FEB-65 AZO-NM OI=1326 at $2.10 SL=1.00
BUY PUT MAR-65*AZO-OM OJ=1586 at $3.90 SL=2.50

Average Daily Volume = 1.48 mln


---

PII - Polaris Industries, Inc. $48.77 (-2.79 last week)

Company Summary:
Polaris Industries designs, engineers and manufactures all
terrain vehicles (ATVs), snowmobiles, motorcycles and personal
watercraft(PWC).  The company markets them together with
related replacement parts, garments and accessories through
dealers and distributors, principally located in the United
States, Canada and Europe.  ATVs are four-wheeled vehicles with
balloon style tires designed for off-road use and traversing
rough terrain, swamps and marshland.  Snowmobiles have been
manufactured under the Polaris name since 1954.

Why We Like It:
An oversold rebound was a very real possibility when we initiated
coverage of PII last week, and if the intraday pop on Thursday
was the best the bulls could muster, then we just may be
approaching the next major breakdown in the stock.  That said,
it is rather interesting that the bears haven't been able to
appreciably break below the $48 support level, with the broad
market continuing to break support levels.  But a look at the
longer-term chart (a necessity if we want to find any support at
these levels) shows significant support just below $48 on
numerous occasions throughout 2001.  With On Balance Volume
continuing to drill lower, it is clear that there really isn't
any buying interest in the stock.  It is just taking some time
to work through this support level.  Intraday rallies into the
$50-51 level (now strong overhead resistance, backed up by the
declining 10-dma) should make for solid entry points ahead of
the next breakdown.  Traders looking to enter on continued
weakness need to be mindful of the possibility of a
short-covering rally, but a drop under $47 should make for a
reasonable entry point.  Maintain stops at $52, as this level
is now formidable resistance.  It would take a significant
change of sentiment to break above that level.

*** February contracts expire in two weeks ***

BUY PUT FEB-50 PII-NJ OI=196 at $2.60 SL=1.00
BUY PUT MAR-50*PII-OJ OJ=220 at $3.70 SL=1.75

Average Daily Volume = 420 K


---

PNRA - Panera Bread Company $27.42 (-2.00 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:
Over the past two weeks, our PNRA play has been rather good to
us, performing almost exactly to the script we originally laid
out when the stock was trading up above $31.  The steady selling
pressure in the broad markets has served to drive this stock
steadily down through one support level after another, finally
giving up the $28 level on Thursday and extending its losses to
round out the week with a $2 loss.  When we started this journey,
we were looking for an ultimate downside target of $26 to be
achieved and we're getting really close to that now.  We debated
about whether to drop PNRA this weekend, but ultimately decided
to give it a bit more room to achieve our $26 target.  But now
is not the time to be contemplating new positions.  Now the play
is all about maximizing gains without giving too much back to Mr.
Market.  To that end, we're tightening up our stop to $28.50,
which is just above Friday's intraday high.  A continuation of
the recent decline should see the $27 level broken early next
week and that's when we want to look to harvest those gains that
have already accrued.  With the daily oscillators now buried deep
in oversold, any trade below $26.50 should be looked at as a
perfect opportunity to exit the play and then look to move on
to the next winning play.

*** February contracts expire in two weeks ***

BUY PUT FEB-27 UPA-NY OI=577 at $1.05 SL=0.75
BUY PUT MAR-30*UPA-OF OI=129 at $3.50 SL=1.75

Average Daily Volume = 678 K


---

CCMP - Cabot Microelectronics - 41.97 -1.17 (-1.93 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:
Yesterday we talked about how the semiconductor index seemed to
be headed towards support at 260.  The SOX.X closed just above
that level today after setting a multi-month low of 259.43. Not
one to be left behind, CCMP also traded a new low after the bulls
succumbed to heavy selling pressure early in the session.  This
is an encouraging development for our short play.  Previously
this week CCMP had bounced around in the $42.50-$45.25 range
while trading in a somewhat directionless fashion.  Now that
shares have broken to new lows, it looks like a test of
psychological support at $40.00 could be just around the corner.
But with the daily chart showing no significant support until the
$33-$35 region, we think CCMP could really pick up downside
momentum if the SOX.X continues to descend.  Our stop-loss has
been snugged down to $45.36, two cents over the descending 200-
dma.  New entries can be evaluated on a move under today's low of
$41.89

BUY PUT FEB-50*UKR-NJ OI=1176 at $8.10 SL=4.05
BUY PUT MAR-45 UKR-OI OI= 215 at $5.30 SL=2.65

Average Daily Volume = 1.04 mil


---

GWW - Grainger Inc. - $44.90 -1.10 (-2.40 FOR THE WEEK)

Company Description:
W.W. Grainger, Inc, with 2001 sales of $4.8 billion, is the
leading North American industrial distributor of products used by
businesses to maintain, repair, and operate their
facilities.(source: company website)

Why We Like It:
That's a heckuva ugly red candle on the daily chart.  Grainger,
already in the midst of a prolonged downtrend, did not respond
very well to another negative session in the equity market.  The
stock encountered heavy selling shortly after it gapped higher
with the major indexes.  Our action trigger at $45.59 was reached
within the first hour of trading.  The rest of the day was
characterized by a steady decline that took GWW to new multi-
month lows.  The lack of underlying support seems to be scaring
away any potential buyers; shares finished near the worst levels
of the day and suffered a 2.3% loss.  The Dow Jones, by way of
comparison, gave back less than one percent.  This bodes well for
a continued decline next week.  New entries could be considered
on further weakness from current levels, but remember that GWW
has potential support at $44.00.  A move below this level would
pave the way for a possible test of the October lows.  Our stop
for this play is set at $48.06.  More conservative traders could
use a stop just above Wednesday's high of $47.25.  On a final
note, today's volume was somewhat light at 224K shares.  This
mirrored a similar lack of volume in the overall market.  We'd
like to see that number pick up as GWW continues lower.

BUY PUT FEB-50 GWW-NJ OI=83  at $5.30 SL=2.65
BUY PUT MAR-50*GWW-OJ OI=N/A at $5.60 SL=2.80

Average Daily Volume 351 K



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*****
LEAPS
*****

Bears Still In Charge...
By Mark Phillips
mphillips@OptionInvestor.com

But for how much longer, is the important question.  The
continuing decline in the broad markets doesn't seem to be
driven so much by heavy selling, but by a lack of any serious
buying.  The major indices definitely gave up some important
support levels last week, but there just didn't seem to be a
strong desire to sell.  The sellers that are at work just happen
to be outnumbering the buyers that are willing to hold stocks in
the face of the event risk related to the Iraq (and to a lesser
degree North Korea) situation.

But enough of my beliefs about the market.  Let's turn to the
important metric of the bullish percent charts.  First up is
the DOW, which fell as low as 20% last week, now deep in Bear
Confirmed and oversold territory.  Certainly it can fall further,
but bears in the DOW are now carrying the bulk of the risk.  The
OEX broke its bullish support line and traded down below $420
and is getting closer to satisfying its bearish price target ($4
box size) of $392.  The OEX Bullish Percent, while Bear
Confirmed, is still up at 38% and has plenty of room to fall
before reaching its bullish support line at 18%, also the site
of the October lows.  The SPX finally gave another PnF Sell
signal when it traded below $840 and with the Bullish Percent
still in Bull Correction up at 42%, looks entirely capable of
falling far enough to satisfy the current bearish price target
($5 box size) of $750.  Based on these three broad market
measures, I'd say there is still substantial downside ahead of us.

The sticking point is the NASDAQ market which is holding up much
better than the rest of the market.  While the NASDAQ-100
Bullish Percent is clearly deep in Bear Confirmed at 38%, the
actual NDX is still holding above that strong support in the
925-930 area, where the index based before heading higher in
mid- to late-October.  Can the NDX head substantially lower from
here?  Absolutely, as demonstrated by the still-elevated Bullish
Percent reading.  In fact, with the DOW Bullish Percent as low as
it is, if the OEX and SPX are going to achieve their downside
targets, a significant portion of the market weakness is going
to have to come from the Technology sector.

All that, is the long way of saying that the trend is still
decidedly down, but bearish traders need to be cognizant of the
fact that at some point we're going to get another explosive
upside move.  It will be just another bear market rally, most
likely failing at a lower level than the last rally, but it will
be strong, nonetheless.  The reason I've gone into this
discussion is not to dissuade readers from trading the downside
over the near-term.  It is to caution you not to chase breakdowns
lower.  At this stage of a decline, the prudent strategy is to
sell into failed rallies and aggressively manage open positions
so that winning trades can not turn into losing trades.

There's another interesting observation that I made this weekend,
looking at the action in the OEX vs. the VIX since last July.  A
apologize for the density of the chart, but I think you will see
why it caught my attention.  Over the past few days, Linda Piazza
and I have been discussing the action in the VIX, and we've posted
much of that discussion in the Market Monitor.  My contention has
been that for the price action in the market (OEX), the VIX has
really not seen the upside that I would have expected.  I have
had a hard time quantifying my perceptions until this weekend,
when I took a closer look at the stacked charts below.

OEX vs. VIX - Daily Chart




Throughout the July-October timeframe, every time the OEX fell
below the $430 level, it was accompanied by the VIX pushing back
over the 40 level and holding there.  I've highlighted each of
those occurrences in yellow on the chart above.  This time though,
something is different, with the VIX stubbornly holding below 40,
while the OEX for the past four days.  What this tells me is that
relative to price action, there is less fear of the downside than
there was in the July-October period of time.  The million $
question is whether this is smart money telling us that we are
not going to test the October lows, or if it is foolish
complacency that is going to get mauled by the almighty bear
again.  If I knew the answer to that question, I'd tell you to
position yourself accordingly.  But since I don't know the answer,
I share my observations and suggest playing the trend while it
lasts, but be ever watchful for a significant change, as the
VIX/OEX relationship seems to be a bit different this time
around.

Another sharp selloff in the market should spike the VIX well
above 40, but what about a continued gradual decline?  Could we
see the VIX hold near current levels while the markets continue
to deteriorate?  I suppose anything is possible, and only time
will tell.  Since I'm already running behind today, let's move
on to the currently listed plays and see what we can learn.

Portfolio:

NEM - Can you say consolidation?  I knew that you could!  While
gold hit another multi-year high last week, the gold stocks
continued to drift between recent support and resistance.  NEM
once again fell back into the $28-29 area as the week drew to a
close and the pincers are getting closer together.  The 50-dma
has risen to just under the $28 level, while resistance at
$30.50 remains firmly in place.  One of these levels is going
to have to give way soon, and unless I miss my guess, it's going
to be a break to the downside.  Don't misunderstand me -- the
bull market in gold and gold stocks is still in its earliest
phase, but it's looking a bit over-extended in the near term.
In recent weeks, I've advised conservative traders to harvest
gains on the play near the $30 level, and then look for fresh
entries at lower levels.  There has been ample opportunity to
do that, and now I'm going to start getting more aggressive
with our stop.  I want to force NEM to take us out of the play
with a gain, or else keep working higher.  So let's tighten our
stop to $28 (just below the level of the 50-dma, as of Monday)
and I would still recommend taking profits on open positions
above the $30 level.  We'll then look to play the stock again
after what I suspect to be a significant post-Iraq pullback,
ideally at $25, but possibly as low as $24 the site of the
still ascending trendline.

Watch List:

DJX - The slide in the DJX continues, and I would be surprised
if we don't see that push down to the $75-77 area sometime in
the next 2 weeks, as the Iraq situation gets ever closer to a
head.  Last weekend, I suggested that aggressive traders looking
to enter the play should use a failed rally in the $81.50-81.99
area to enter the play.  At this stage of the game though, I
don't think it makes sense to chase the play lower, and we
won't be listing an official entry in the Portfolio.  I continue
to monitor the play for those that did take an entry at higher
levels.  There were a couple of failed rallies at that point
last week, both of which were followed by pretty steep drops.
With the DJX now below $79, the weekly Stochastics now entering
oversold and the DOW Bullish Percent falling to 20%, risk is
really starting to shift to the upside.  Stops should now be
lowered to $81.60, and if the $78 level breaks, then I would
recommend trailing stops to $80.10, just above Friday's intraday
high.

BEAS - Now we're making some progress!  Some negative press
surfaced on Thursday, regarding GE Supply shifting from BEAS
to Jboss for their ASP software and that slammed the stock down
to almost the $10 level.  But we've still got some more work to
do, with all of the major indices looking to have further
downside risk in store.  The PnF chart has now given that Sell
signal, which currently forecasts a decline back to the $7.50
level, but I have a strong feeling that we won't see that
target achieved.  My view is that this downward move will have
run its course near the $9 level, which is just above the
200-dma ($8.85).  So, let's be patient and wait for the stock
to come to us, as the weekly Stochastics continue to drill down
towards oversold territory.  The revised entry target is now
$8.50-9.00, and if filled in the next couple weeks, we'll set
our initial stop at $7, just below what I believe is very
strong support.

GS - I debated long and hard with myself on Monday about whether
to list the failed rally in GS near the $70 level (actually
$69.75) as a Portfolio entry.  With the proximity of strong
support at $67, I just didn't think it made sense for the more
conservative approach in this section.  So I just let it go and
only commented on the breakdown the stock made later in the
week.  Another missed opportunity on the play (as hindsight
shows), but the entry strategy would have worked nicely, as GS
broke below that support and this weekend is resting just above
$65.  Note that this is right at the bottom of the 10/15 gap,
and could provide some near-term support for a bounce.  But now
that the $67 support level has been broken, GS should not be
able to challenge the $70 level again.  So traders with open
positions should now have stops trailed to $70.  If GS breaks
lower into the 10/11 gap, stops should then be trailed to $67.
This is another play, where we most likely will not be listing
an official entry, and will instead just track the play for
those intrepid readers that did take an entry at a higher level.

IBM - Alas, it appears that we missed our opportunity to play
IBM on the downside, and based on the way the stock is holding
above the 200-dma, I think that may be a good thing.  This $76
support level is turning out to be stronger than I had at first
surmised and price is trading essentially flat while the weekly
Stochastics are nearing oversold territory again.  I still like
the potential for a big breakdown though, and would still
consider new entries if we can get another rally failure in the
$81.00-81.99 area, market permitting.  If we do get an entry,
the stop will be set very tight at $83.

NVDA - The Semiconductor index (SOX.X) continues to weaken and
NVDA along with it, finally cracking the $10 level on Friday.
This is a bottom fishing play though, and we really want to see
the stock fall back towards the $8 level before playing.  With
a PnF price target of $7.50, and a PnF price target of $200 on
the SOX, that target looks quite achievable, especially if we
get one more major downdraft in the market before the bulls go
bottom fishing again.  For now, we watch and wait.

QCOM - I picked QCOM for a new Call play last weekend due to
the stock's amazing resilience in the face of the continued
deterioration in the broad market.  But I have to admit I've
been impressed with just how well the stock held up last week.
Apparently, there are some bulls determined to defend that $36
support level.  Regardless of the action last week, I still
expect we'll get some more action to the downside before the
next leg up commences.  My entry strategy will be just as I
originally listed it; partial positions on a bounce from $35,
rounding out to full positions if $33 (PnF bearish price
target) is reached.

In the current environment, it seems that economic news,
fundamental news and earnings news is all being trumped by
the news centered on Iraq and the rest of the geopolitical
environment.  I don't think the bulls will have any significant
success until these tensions are resolved or reduced
significantly.  It really doesn't matter how it is resolved,
just so it is.  The market hates uncertainty, and the current
price action is telling us that it sees a lot of uncertainty
in the international arena right now.  Play the downside as
long as it lasts, but watch for a sharp reversal if we get so
lucky as to have a speedy resolution to the current geopolitical
tensions.

Have a great weekend!


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  $ 4.50  +23.08%  $28
                 '05 $ 30  ZIE-AF  $ 6.10  $ 6.90  +26.23%  $28

Puts:
None



LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
BEAS   12/22/02  $8.50-9.00    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
MSFT   02/09/03  $21.50-22.00  WAIT Until After 2/18



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

MSFT - Microsoft Corporation $46.58  **Call Play**

One look at the PnF chart of Mr. Softee, and long-time readers
are going to wonder if I've taken leave of my senses.  To be
sure, it isn't looking particularly constructive right here, but
like last week, I'm starting to look ahead to when this latest
downswing in the markets has finished running its course.  While
the current column of O's and break of bullish support looks
ominous, it is the prior column of O's that generated the
current bearish price target of $45.  Hey, that's pretty close
to where we are right now!  But I don't think there is any need
to rush this one, especially with the company's split coming up
on February 18th.  That's just a little over a week from now
and I'm certainly not expecting to get an entry into the play
before then.  So I'm going to save us all a bunch of confusion
and not list actual strikes until after the split is completed.
Then we'll have new post-split strikes available, and I'll list
them in the 02/23 weekend LEAPS edition.  Fundamentally, there's
nothing earth-shattering to focus on, except that MSFT is still
the de facto standard for desktop computing, both for operating
systems and productivity software.  As long as the company
continues to execute on its business plan, look for institutional
sponsorship to be strong.  Due to its presence in all the major
stock indices, MSFT can be used as a proxy for the broad market.
So when the broad market reaches bottom (via the bullish percent
readings), we'll be looking for MSFT to find support where it
has throughout the past 30 months, in the $43-44 area
($21.50-22.00 post-split).  That lines up nicely with the $45
($22.50 post-split) PnF target as well.  Once entering the play,
we'll set stops at $40 ($20 post-split).  Hopefully I've been
clear that we're waiting until after the split to list strikes
or enter the play.  This is just your early warning that we're
going to target the stock after that event is out of the way.

WAIT UNTIL AFTER THE SPLIT ON 2/18

Drops

DELL - $23.34 What a dismal failure!  We gave DELL every chance
to hold support and get moving upwards, but with Friday's trade
below $23, the party's over.  Despite the fact that the stock
rebounded fractionally above that level at the end of the day,
the damage was done.  Now the PnF chart has broken through the
bullish support line and has generated a double-bottom Sell
signal.  I still expect the stock to perform well this year,
but I'm done arguing with the price action until the technicals
improve.  I'm dropping coverage of the play this weekend, so DELL
should be free to rally next week.  In fact, looking at the
weekly Stochastics, which are buried in oversold, I think we
could see a decent rebound in the stock, market permitting.  The
problem is that I just don't see the catalyst right now.  My
advice for those in the play is to evaluate the risk/reward of
closing/holding the trade open.  If the support in the $22-23
area gives way, then DELL longs have risk down to the $17 area.
When we initiated the play, our stop was set at $23, and we're
going to stick with that discipline.


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

Getting Out From Under, Ending Up On Top
By Mike Parnos, Investing With Attitude

On Friday we moved from yellow to orange.  That’s the color of
something in my sink I’m afraid to touch.  If it begins to move,
I have no choice.  I’m moving.

The secret to keeping a clean kitchen is to kill whatever it is
before it gets to the orange stage.  The same concept applies to
dealing with terrorists as well as option trades that go bad.

You have to pre-empt the moves of your opposition – whether it’s
a fungus, a terrorist group, or a trade moving in the wrong
direction.  That’s what we’ll deal with in today’s column – what
to do when a Condor lays an egg.

Believe me, you don’t want to know my politics about fungi or
terrorists – it’s easy to confuse them.
______________________________________________________________

Reader Warning:
Today’s column is rated “MI” (multiple innuendo).  If you don’t
understand the contents, ask your children.  I only answer option
questions.

It’s Nice To Have Choices
Since many of our CPTI trades are Iron Condors, and option
expiration is approaching, this is a particularly opportune time
to review the ways of dealing with trades gone bad.  I should
probably say “going” bad, because we’re going to catch these
puppies before they can do too much harm.  It’s called CPTI
damage control.

Scenario:  We have put on a 10 contract BBH Iron Condor position
with a maximum profit range of $85-$95.  We took in $1.55 in
premium.  What if BBH threatens to break below $85.00?  What do
we do?

The Choices:
1. The “Take Your Licking” I’m wearing protection method.
2. The “Put On Your Shorts” and keep your options open method.
3. The “Rawhide” -- rollin’ rollin’ rollin’, keep them options
rollin’ method.
4. The “Knees Together” close up shop method.
5. The “Going Both Ways” but it won’t last forever method.

1.  “I’ll Take My Licking” -- I’m wearing a long put for
protection.
OK, I’m easily influenced.  Sometimes my remote malfunctions and
the TV mysteriously gets stuck on the Playboy Channel.  It could
be worse.  It could be stuck on the Cartoon Channel.  Then these
titles would be like “Scooby Do’s and Don’ts”.

Hypothetically, BBH is at $85 and looks like it may continue to
fall.  However, there is support at $85 and we are believers.
Also, as part of our Condor position, we purchased the $80 put to
protect us from a catastrophic event.  In the world of options,
our “protection” can’t break.  We won’t give birth to a lot of
baby Condors.  We’re covered from $80 down to zero.  Since we
took in $1.55 in premium, our total exposure is really only
$3.45.

2.  “Put On Your Shorts” and keep your options open.
We’ve discussed this at length before.  In this method, as BBH is
about to break below $85, we’re going to short 1,000 shares of
MMM at $85.  Since it has broken below support, there’s a good
chance that it will continue on down.  The short shares now cover
the violated (sounds naughty, doesn’t it?) put.

Since the $80 put is covered, it’s time to root for BBH to
continue down.  Why?  Because we still own the $80 put.  The
further down BBH goes, the more valuable the $80 put becomes.

There’s a chance BBH will reverse and move back above $85 (where
you shorted it).  Simply buy back your 1,000 short shares at $85.
You may have to repeat the short-and-cover process a few times –
and incur some commissions and slippage – until BBH picks a
direction, but that’s the cost of doing business.

3. The “Rawhide” -- rollin’ rollin’ rollin’, keep them options
rollin’
This rolling out method is fun, but it’s not for the meek of
heart or for the meager of account size.

Here’s how it works.
a) When BBH breaks $85, you close out the position by buying
back the short $85 put and selling the long $80 put.  Let’s
estimate that it would cost you $2.50 to unwind the position.
b) Now, look at the $80/$75 bull put spread.  You may be able to
take in $1.00.  Remember, you have to make up $2.50.  So you have
to trade 25 contracts to make up the amount you paid to close out
the original position.

The premise is that BBH will have to stop going down eventually.
When it does, you’re bull put spreads will expire worthless.  You
may have to roll it out to the following month, but an escape is
an escape.  It will take an account that can withstand
substantial maintenance requirement.

To ease the burden and reduce the number of put contracts, if BBH
continues its move down, you can sell some bear call spreads
along the way.

4. The “Knees Together” close up shop method.
This is the “I was wrong and I’ll take my lumps” approach.   When
BBH breaks $85, you close out the position by buying back the
short $85 put and selling the long $80 put.  Let’s estimate that
it would cost you $2.50 to unwind the position.  You took in
$1.55, so you accept the $.95 loss and move on to the next
position figuring that you can’t win them all.

In life, the degree of your success is inversely proportional to
the number of failures.  Hopefully, you learn from your failures,
thereby increasing your chances of future success.  If one pick-
up line doesn’t work, don’t you change your approach?  Either get
with it or get in the car and go home.

5.  The “Going Both Ways” but won’t last forever.
This is a second cousin to the “Rollin’, rollin’, rollin’,”
method.  It sort of keeps it in the family.  They use it in the
deep south a lot.  It can be profitable, but you still wouldn’t
want it to date your sister.

a) When BBH breaks $85, you close out the position by buying
back the short $85 put and selling the long $80 put.  Let’s
estimate that it would cost you $2.50 to unwind the position.

b) You then sell a sufficient number of bear call spreads to
generate the $2.50 it took to unwind the position.  If BBH
continues down, the bear call spreads will expire worthless and
you will still have the original profits.  If BBH reverses,
you’ll have to close out the bear call spreads and more than
double up again on new bull put spreads.  Eventually, BBH will
pick a direction and the open spreads will expire worthless.
This, also, requires a substantial account – for maintenance.

Remember that maintenance can be in many forms – marginable
securities, mutual funds, CDs, Treasuries, and (of course) cash.
_____________________________________________________________

CPTI PORTFOLIO POSITION UPDATE
Position #1: BBB Iron Condor – Closed Friday at $87.69.
An Iron Condor is a credit position consisting of both a bull put
spread and a bear call spread. The objective is for the
underlying, at expiration, to finish anywhere within the $85-$95
range.

Position #2: MMM Iron Condor – Closed Friday at $122.48.
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 $20.64.
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.  The market has been
trading in a range and some volatility has come out of the
premiums.  We have two weeks left.

Position #4: QQQ ITM Strangle – Closed Friday at $23.81.
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.  In this position, we’re glad the QQQs have stayed in a
range.  It will make life easier when the short options expire
and we prepare to sell a new set of short options.

Position #5A: XAU Condor – Closed Friday at $74.55.
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.  Patience, patience and
patience.  Time is working in our favor.

Position #6A:  MMM Condor – closed Friday at $122.48.
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
$23.81.
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.  As time goes by . . . we’re ready for action.
______________________________________________________________

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

Seasonal stock market trends and MACD
By Leigh Stevens
lstevens@OptionInvestor.com

It is well known that commodity markets have pronounced seasonal
tendencies, especially for commodities that have growing seasons
like cotton or corn or have strong seasonal consumption patterns
like heating oil.  Not as known or recognized is a pronounced
tendency for a seasonal trend in the U.S. financial markets. I
first became aware of this back when one of my PaineWebber
colleagues, Jack Schwager, did extensive studies of “seasonality”
in the various futures markets, including the financial
(eurodollars and bonds) and stock index futures.  Surprisingly,
to me, the bond and stock futures had some of the most consistent
seasonal trends – for example, stocks would tend to bottom for
the year around October, rise into about April, then tend to
decline into late-June and so on.

Even when this seasonal tendency is recognized, there is little
that money managers have ever done in the way of having an
investment strategy of being in the market during the seasonally
strongest period and then being in a money market fund during the
rest of the year.  This works contrary to the “buy and hold”
strategy of most the fund managers stemming especially from the
belief that you cannot “time” the market.  What they mean is that
THEY don’t know how to do so and don’t want to try – perhaps to
the detriment of the mutual funds we might be holding in
retirement accounts.

For option traders, a knowledge of the seasonal tendencies for
stocks can aid the ability to make profitable index trades during
certain periods.  Holding index calls during October in the last
2 years was a lay up for a very profitable trade and month. As
always with “technical” factors like this, other technical
aspects should “confirm” single-factor decisions like this; e.g.,
a “confirmation” is to buy calls as an index breaks out above its
dominant down trendline and the market is oversold according to
stochastics and RSI.

Back to the “buy and hold” investment school – no matter how much
lip service investors give to the “we never trade, only invest”
school of thought, its also true that investors often liquidate
stocks when they decline against them by any appreciable amount.

Professional money managers certainly don’t always practice what
they “preach” regarding a buy and hold philosophy.  Some past
studies have indicated that some of the best performing stock
mutual funds have an annual turnover rate of 100% or more; i.e.,
the entire portfolio is turned over on average within a 12-month
period.  A 300% turnover rate indicates an average holding period
of only four months – some top funds have had rates like this in
some of their best years.

Contrary to “conventional” wisdom that you cannot “time” the
market, there is an example provided by at least one money
manager who has improved his track record by doing just that and
relies on a seasonally bullish tendency for a portion of most
years or the “typical” year. Sy Harding, a fund manager, has
written extensively in Barron’s magazine about his seasonal
method of market “timing” which employs an S&P 500 index fund as
the investment vehicle.

Sy defines the optimum “average” seasonal pattern as being from
around the end of September into early May – specifically, the 4th
trading day of May. However, he also notes that the actual
favorable season can contract or extend itself and range from 4
to 8 months.

Sy has also applied another key criteria – use of a technical
indicator - for entry or exit from the market, besides being in
the optimum seasonal time period.  For this purpose, a bullish
crossover of the MACD must also occur as the seasonal period
approaches within 6-weeks of the seasonal period dates he has
defined.  This is an important refinement to a purely seasonal
approach. Exit is I believe also made when there is a bearish
MACD downside crossover

I will not here go into explaining what the MACD is – other than
saying that the MACD acronym is for the Moving Average
Convergence Divergence indicator and that a complete explanation
of the MACD and its uses, can be found in my prior Trader’s
Corner article found at –
http://www.OptionInvestor.com/traderscorner/080802_1.asp

The aforementioned Sy Harding method of yearly entries and exits,
when “back-tested” from 1965 through the year 2000, resulted in
returns that were approximately triple that of continuously
holding the S&P 500 index during the same time frame.

This result should not be taken to mean that there was always a
positive return in years when the index was down, just that
negative returns were likely to be LESS than losing years for the
S&P 500 on average.  Once and a while an entire “favorable”
seasonal period could be passed over if the MACD did not achieve
a bullish crossover.  Also, his particular fund returns included
interest earned when not invested in the S&P 500 group of stocks
through an SPX index fund.

This first chart, of the weekly S&P 500 (SPX) includes the MACD
indicator shown at bottom and indicates the approximate periods
(within the vertical lines) when the criteria suggested by the
aforementioned Sy Harding resulted in being invested – any such
period is marked as “in”. The estimation of when invested is my
estimate and for purposes of demonstrating the yearly seasonal
tendency for stock prices to rise and fall.





Other periods shown between the vertical lines on the chart above
that are without any text notation are time spans when the
seasonal timing fund is earning interest only.  Note that in the
years shown, use of the seasonal tendency for gains of around
half the year or 6 months (investing during the “optimal” Oct/Nov
through April period) out of 12 - provided the MACD was ALSO in
agreement - would not necessarily result in being in the market
during every period when the index advanced.

However, several losing periods were avoided and the implied
results for the years shown appears consistent with Harding’s
studies showing that his method offered a superior return
relative to a “buy and hold” strategy.

While it not my purpose to describe in detail all possible
fundamental reasons for the seasonal stock market tendency for
strength during certain months of the year, the following factors
are among those commonly noted:

- Extra investor cash coming from November and December capital
gains distributions from mutual funds in up market years.
- More attention focused on the market before and after the
summer vacation season.
- 3rd and 4th -quarter dividend distributions from corporations.
- Company contributions to employee 401K plans and pension plans
for the year.
- Year-end bonuses.
- Individual owners of businesses see what their “profits” are by
early in the New Year and this money can be a source of funds
that adds to an advance in the 1st quarter.

SEASONAL STRENGTH LAST YEAR AND THIS YEAR –

Of course, when in a relentless bear market such as we’ve been
in, there will not be any prolonged market advances but there are
some rally periods and – guess what! – those have tended to begin
during the expected seasonal time periods for gains.  The first
part of these advances were good money makers for traders buying
index calls and shorting put options.





As you can see the rebound periods were short-lived in the past
couple of years in terms of duration and the trend fairly quickly
turned sideways – and was time to exit any call positions and to
buy index puts at least at the top of the sideways trading range
that developed.

During the period when the MACD (blue line) was above the MACD
Average, there were some opportunities for countertrend trades,
against the dominant down trend. Perhaps you would have SAVED
giving back trading profits or going into the hole by going more
lightly on put positions during the seasonal period when the
market would tend to gain – even if the indices were not very
strong in terms of a sustained advance.





As always go with the flow or be with the trend, but note what
time of the year we’re in as another confirming or background
factor relating to the odds for trade success.  And, not for
nothing is there this idea of a “Santa Claus rally” and “sell in
May and keep the flies away” – no I made that up:-

Lastly, relating to the current market it appears that any
seasonal strength has met the cold hard reality of other events
conspiring to keep investors out of stocks.  The weekly MACD on
the Nasdaq and the S&P 500 is very near to giving a “sell signal”
or to achieve a bearish downside crossover reflecting the renewed
downside momentum.  This also makes the point that economic and
political events dominate any “normal” or average seasonal
tendency.


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

The Broader View
By Jonathon Levinson

As with any speculative activity, uncertainty and risk are primary
barriers to entry, and the most important factors to manage.  That
investing is a speculative activity comes as no surprise to us,
particular when we trade options.  Derivatives of any nature are
particularly speculative because of their inherent leverage.  For
this reasons, options are said to be “riskier” than stocks or
equity-based mutual funds.  You can lose all of your investment
going long on option contracts.  Worse yet, you can go far beyond
losing all your investment going short contracts.  However, these
facts miss the broader picture, which is one of timeframe.

The mutual fund industry has numerous and compelling charts
showing that a buy and hold of the Dow in 1920 would be worth many
times the initial investment by now, and that for this reason,
stocks may go up and down, but over time they tend to appreciate.
The Dow certainly has.  However, a scratch below the surface shows
that the Dow is not a true index, insofar as the losers are
regularly removed and new issues added to replace them.  In fact,
only one of the original 30 Dow stocks still exists- as for the
other 29, buy and hold would have been a grave error, and as with
option investments gone wrong, a buy and holder of any of those 29
Dow components would be “out of Schlitz”, as my father likes to
put it.  Unlike with options, however, it would have taken longer
to occur.  Many investors who are averse to the leverage and risk
of options are currently holding their equity funds and stocks,
waiting and hoping for them to “come back”.

The trouble with investing is that it’s a speculative activity.
Some invest to make disposable income, others for fun, others,
like me, to protect the fruits of their labor and to attempt to
plan for and hopefully expedite the arrival of their eventual
retirement.    The risk of investing is an unfortunate fact of
life for most who work hard for their savings.  No matter what the
investment vehicle, investor have no choice but choose wisely.
Deferring the task to a broker or advisor does not eliminate these
risks.  The correct investments must be chosen with the correct
time horizon if one is to reasonably expect to gain, or at least
not to lose.  I wish to illustrate how investors concerned with
the overall health of their portfolios can position themselves to
reduce their risk

During the day, in the Market Monitor, we watch many different
timeframes in the attempt to game short and intermediate term
trades.  Much confusion is caused by traders trying to reconcile
what we see on and report from our charts with their own opinions
of the market’s direction or the predictions they hear from other
sources.  In assessing any market view, and more importantly, in
planning your own positions, it’s critical to establish the
timeframe.  That said, my own strategy is to align my short term
trades with the longer term trend.  This has resulted, during the
past year, in almost exclusively making bearish trades on US
equities and long trades on precious metals in particular and
commodities in general.  Here’s a closer view.  Please note that
these charts are intended to show the broader trends, and may not
reflect price action of the past few weeks.  In each of the
charts, the recent trend has continued.  These charts have been
reproduced with permission from http://www.sharelynx.net:




 We’ll use the S&P 500 as a proxy for US equities.  We see that
since 2000, the SPX has been in a downtrend.  The past 3 years
have been in a bear market for US equities.  This does not make me
a “perma bear”, but merely an investor trying to align himself
with the secular trend.  Over a longer timeframe, the trend is up,
but over the intermediate term, this wave is clearly down.  I
watch the intraday, daily and weekly action to try not to miss the
“turn” in the event that this is a corrective wave down, and don’t
want to miss the next intermediate bull market.  But in the
meantime, my equity trades have been bearish.  Other indicators
and fundamentals will help alert me to the turn, and we try to
follow the shorter term action in the market monitor.






The US Dollar Index has also been in an intermediate term
correction and is currently trading below 100.00.  This means that
investments in US Dollars, or Canadian dollars for that matter
(the Canadian Dollar forms part of the USDX) are at a great
disadvantage as the currency in which they’re denominated has been
dropping.  More worrisome, the formation it’s printing is a “head
and shoulders”, which is a bearish pattern and could portend a
much larger drop.  This makes US and Canadian bonds risky relative
to other currencies, but still a better bet than US or Canadian
equities, as bonds have provided relative shelter against the drop
in equities depicted in the previous chart.  My continuing
interpretation has been that so long as the US Dollar Index
continues to trade weakly, it will provide an incentive for
foreigners to seek other markets in which to invest.  If the USDX
has dropped 20% in one year, then foreign investors have no desire
to hold our bonds or stocks, as it requires a corresponding 20%
gain on those investments just to break even on the currency
conversion.  I believe that this phenomenon is one of the keys to
the bear market in equities we’ve been witnessing since their peak
in 2000.





As the US Dollar Index has dropped, so has the CRB, the
commodities index, risen.  It is currently trading above 245.   It
shows support in the 205-210 range, and has so far provided a
relatively “diversified” hedge against the currency depreciation
we’ve been witnessing on a worldwide basis.  In a similar vein,
one component of the CRB, gold, has also been doing well,
currently above 370/oz.  The chart below shows the broader trend
in gold.






How, then, have I positioned my own hard-earned portfolio to
benefit from what I see in these charts?  Most of my portfolio is
in sector-based mutual funds.  Being in Canada, I’m severely
restricted by the relatively unimaginative products offered by our
mutual fund industry.  The vast bulk of our funds are bullish
equity/ bond funds.  Approximately 1/3 has been in precious metals
funds, with an additional < in a managed commodities fund.  The
rest is in bond/income funds, resource funds, and money market
funds.  I trade a smaller percentage of my portfolio in option
trades as I watch the daily activity of the different markets.
Most often this has been in long put positions on US equities
using the Nasdaq-100 tracking stock, the QQQ, with rare bullish
trades or hedges when the market so dictates.  Overall, my
portfolios grew last year.

However, as we see from the longer term charts, the trends of the
past three years are not ironclad, and only form part of the
longer trend in which they occur.  I will therefore continue to
watch the daily and weekly action closely, because it’s
unreasonable to expect them to continue forever.  I believe in
buying and holding so long as it remains profitable to do so.  We
will continue to focus more closely on the shorter timeframes to
provide all of you with the indicators that signal the heads up
when things get ready to change, which, after all, is the only
true constant in the market.


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The Option Investor Newsletter                   Sunday 02-09-2003
Sunday                                                      5 of 5


In Section Five:

Covered Calls: More Q&A With The Editor
Naked Puts: Planning The Trade -- Trading The Plan
Spreads/Straddles/Combos: The Carnage Continues!

Updated In The Site Tonight:
Market Watch: Sinking Fast
Market Posture: Feeding the Bear


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

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

This week's discussion involves a common question we receive from
new subscribers.

Attn: mark@OptionInvestor.com
Subject: Covered-Calls -- A Good Strategy?

Mark,

I just started receiving the newsletter on a trial subscription
and I noticed your section focused on "covered" calls.  I have
heard that this is a good strategy for new traders because it
involves owning stock and selling options, rather than buying
them.  What is your opinion of the strategy and do you think
it is a good approach in the current market for someone who has
little experience with options?

DG


Hello DG,

Many investors view options as speculative, risky investments,
however there are several option-trading strategies that are
relatively conservative in a neutral to bullish environment.
One such method is covered call writing, a strategy where an
investor sells call options against the underlying common stock
to produce additional income and provide a measure of downside
protection against small declines in share value.  Covered call
writing is usually considered to be a more conservative strategy
than just buying the stock because the investor's cost basis is
reduced by the amount of "premium" received for selling the call.

The strategy is simple: the covered call writer buys stock and
simultaneously sells the same number of calls against the shares
purchased (a buy-write), or he sells calls against common stock
that is already owned.  Any investor can profit from the strategy
and there are three beneficial characteristics of a covered call:

1.  The sale of the call option provides immediate cash flow.

2.  Any future losses in the price of the stock are reduced by
    the amount of money received from the sale of the call.

3.  Conservative (in-the-money) covered-calls can provide a
    reasonable profit if the underlying stock is "called away"
    and substantially lower cost basis when the stock declines.

The downside of this technique is a limited return as the covered
call writer is willing to give up potential increases in the stock,
in excess of the (sold) option strike price, in return for money
received from the sale of the call.  In addition, the stock may
be called away at any time during the life of the option, creating
potential tax issues for positions with capital gains.  To avoid
losing the stock in an assignment, the investor may cancel the
obligation by closing the short position (buying-back the sold
calls) or purchasing new calls in a similar (offsetting) series
and exercising them.

In a bearish market such as we are experiencing now, covered-calls
are often used as a hedge strategy and should normally be written
only on stocks you are prepared to own.  For the candidates in this
section, our goal is to use the money from the sold call to reduce
the cost basis in technically sound stocks with favorable trends,
thus providing low-risk profits with large downside protection for
the overall position.  With this conservative approach, an investor
considers the covered-write position as a single entity and is not
interested so much in stock ownership or bullish stock movement,
but rather in obtaining a consistent (monthly) return on investment
with limited losses.

For more information on the "single-entity" approach, read the
appropriate chapter (covered-writes) in Options as a Strategic
Investment, 4th edition, by Larry McMillan.  This is the bible of
options trading, used by professional as well as retail traders,
and it is the benchmark by which all other books on this subject
are compared.  The book also provides a complete explanation of
the various methods for utilizing the covered-write strategy.

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

ASKJ     5.36    5.86  FEB  5.00  0.65    0.29*   8.9%
MSTR    20.78   20.69  FEB 20.00  1.85    1.07*   8.2%
MMR      7.92    7.65  FEB  7.50  1.00    0.58*   7.3%
ORB      5.02    5.31  FEB  5.00  0.35    0.33*   6.1%
LSS     15.01   16.01  FEB 15.00  0.80    0.79*   6.0%
SPN      7.95    7.95  FEB  7.50  0.75    0.30*   6.0%
EMIS     5.44    5.66  FEB  5.00  0.75    0.31*   5.7%
RCOM     5.71    5.66  FEB  5.00  0.90    0.19*   5.7%
ALKS     8.07    7.51  FEB  7.50  1.00    0.43*   5.3%
ALA      5.76    6.82  FEB  5.00  1.10    0.34*   5.3%
WEBM    10.89   10.91  FEB 10.00  1.55    0.66*   5.1%
ALO     16.00   15.48  FEB 15.00  1.95    0.95*   4.9%
FTS      8.39    8.30  FEB  7.50  1.20    0.31*   4.7%
MVK     15.34   15.20  FEB 15.00  0.80    0.46*   4.6%
ABMD     4.97    4.67  FEB  5.00  0.45    0.15    3.6%
EFII    17.46   17.30  FEB 17.50  0.70    0.54    3.5%
NFLX    13.20   12.18  FEB 12.50  1.15    0.13    1.6%
JDEC    13.86   11.84  FEB 12.50  2.05    0.03    0.2%
MEDC     9.26    7.09  FEB  7.50  2.15   -0.02    0.0%
MEDC     9.31    7.09  FEB  7.50  2.20   -0.02    0.0%
LMNX     5.16    4.51  FEB  5.00  0.60   -0.05    0.0%
ADLR    13.45   11.93  FEB 12.50  1.45   -0.07    0.0%
OSUR     7.85    7.01  FEB  7.50  0.65   -0.19    0.0%

* = Stock price is above the sold striking price.

Comments:

Not much to say this week that hasn't already been said as the
bearish malaise increases and the major averages march lower.
For those that eschew the current environment, sitting in cash
has been a wise move indeed.  As for the early-exit watch list,
J.D. Edwards (NASDAQ:JDEC), Med-Design (NASDAQ:MEDC), and Adolor
(NASDAQ:ADLR) look a tad suspect for a sharp move lower.

Positions Closed:  Globespan-Virata (NASDAQ:GSPN), Regeneron
Pharmaceuticals (NASDAQ:REGN), and Cubist Pharmaceuticals
(NASDAQ:CBST).



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

ALN    13.15  FEB 12.50   ALN BV  0.90 110   12.25   14    4.4%
ASKJ    5.86  MAR  5.00   AUK CA  1.25 54     4.61   42    6.1%
CKFR   18.25  FEB 17.50   FCQ BW  1.25 1715  17.00   14    6.4%
CURE   18.15  FEB 17.50   QCW BW  1.15 366   17.00   14    6.4%
DNDN    5.50  MAR  5.00   UKO CA  0.85 15     4.65   42    5.5%
EMIS    5.66  MAR  5.00   MTQ CA  1.10 418    4.56   42    7.0%
JDSU    2.68  MAR  2.50   UQD CZ  0.40 20615  2.28   42    7.0%

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

EMIS    5.66  MAR  5.00   MTQ CA  1.10 418    4.56   42    7.0%
JDSU    2.68  MAR  2.50   UQD CZ  0.40 20615  2.28   42    7.0%
CKFR   18.25  FEB 17.50   FCQ BW  1.25 1715  17.00   14    6.4%
CURE   18.15  FEB 17.50   QCW BW  1.15 366   17.00   14    6.4%
ASKJ    5.86  MAR  5.00   AUK CA  1.25 54     4.61   42    6.1%
DNDN    5.50  MAR  5.00   UKO CA  0.85 15     4.65   42    5.5%
ALN    13.15  FEB 12.50   ALN BV  0.90 110   12.25   14    4.4%


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).

*****
ALN - Allen Telecom  $13.15  *** Earnings Rally! ***

Allen (NYSE:ALN) is a global provider of wireless infrastructure
equipment and services to many large wireless communications
carriers and OEMs.  The company's business is aligned around 5
product lines: Base Station Subsystems & Components; Repeaters
& In-Building Coverage Products; Base Station & Mobile Antennas;
Geolocation Products; and Wireless Engineering & Consulting
Services.  Allen's products and services are integral to mobile
wireless communications networks and offer customers the ability
to build networks that enhance network capacity, coverage and
performance.  The company's principal customers include, among
others, Alcatel, Lucent Technologies, and Motorola.  Allen
reported its earnings this week and said sales rose 43.1% for
the quarter compared to last year and 20% sequentially.  The
stock has been on a roll since November and the recent price
history reveals one of the better charts we've seen in the
broader market (jinx?).  Investors who wouldn't mine owning ALN
can use this position to participate in the future movement of
the issue with relatively low risk.

FEB 12.50 ALN BV LB=0.90 OI=110 CB=12.25 DE=14 TY=4.4%


*****
ASKJ - Ask Jeeves  $5.86  *** Still Smoking! ***

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.

MAR 5.00 AUK CA LB=1.25 OI=54 CB=4.61 DE=42 TY=6.1%


*****
CKFR - CheckFree  $18.25  *** Own This One! ***

CheckFree (NASDAQ:CKFR) is a provider of financial electronic
commerce products and services.  The company operates 3 business
divisions: Electronic Commerce; Investment Services; and Software.
Through the Electronic Commerce division, CKFR enables consumers
to receive and pay bills electronically.  The company, through
the Investment Services division, provides a range of portfolio
management services to financial institutions, including broker
dealers, money managers and investment advisors.  In addition,
through the Software division, it delivers software, maintenance,
support and professional services to large financial service
providers and other companies across a wide range of industries.
Shares of CheckFree rallied this week on heavy volume after the
CEO said the company expects to record pro forma earnings of 74
to 77 cents a share, well above consensus estimates.  Investors
who agree with a bullish outlook for the stock can establish a
conservative basis in the issue with this position.

FEB 17.50 FCQ BW LB=1.25 OI=1715 CB=17.00 DE=14 TY=6.4%


*****
CURE - Curative Health Services  $18.15  *** Solid Outlook! ***

Curative Health Services (NASDAQ:CURE) is engaged in businesses
that serve patients who are experiencing serious or chronic medical
conditions.  The company operates two business units: Specialty
Pharmacy Services and Specialty Healthcare Services. The Specialty
Pharmacy Services business unit provides services to help patients
manage the healthcare process and offers related pharmacy products
to patients for chronic and critical disease states.  Through the
unit, the company purchases various biopharmaceutical products from
manufacturers and contracts with insurance companies, government
agencies and other payors to provide distribution, education and
other services in connection with these products.  The Specialty
Healthcare Services business unit is a disease management company
engaged in chronic wound care management.  The unit manages, on
behalf of hospital clients, a nationwide network of Wound Centers
that provide a comprehensive range of services for treatment of
chronic wounds.  On January 13, CURE reiterated its previously
stated guidance for 2003 of revenues of approximately $219-$230
million and earnings per share in the range of $1.47-$1.53.  The
current trend is bullish and investors can use this conservative
position to profit from continued upside activity in the issue.

FEB 17.50 QCW BW LB=1.15 OI=366 CB=17.00 DE=14 TY=6.4%


*****
DNDN - Dendreon  $5.50  *** Favorable Clinical Trials ***

Dendreon (NASDAQ:DNDN) is devoted to the discovery as well as
development of novel products for the treatment of diseases
through its manipulation of the immune system.  Dendreon's
product pipeline is focused on cancer, and includes therapeutic
vaccines, monoclonal antibodies and a pathway to small molecules.
Their most advanced potential products are therapeutic vaccines
that stimulate a patient's immunity for the treatment of cancer.
Provenge is a therapeutic vaccine for the treatment of prostate
cancer and is in Phase III clinical trials, the final stage of
product development.  The company is conducting Phase II clinical
trials for Mylovenge, its therapeutic vaccine for the treatment of
multiple myeloma, and Phase I clinical trials for APC8024, its
therapeutic vaccine for the treatment of breast, ovarian and colon
cancers.  Shares of DNDN surged recently after the company said
it is moving forward with late-stage testing of an experimental
treatment for prostate cancer.  The company also recently reported
favorable results from its Phase I study for APC8024.  We like the
bullish chart pattern and traders can speculate on the near-term
performance of the issue with this conservative position.  Target
a smaller "net-debit" to lower the cost basis and increase the
potential yield in the position.

MAR 5.00 UKO CA LB=0.85 OI=15 CB=4.65 DE=42 TY=5.5%


*****
EMIS - Emisphere  $5.66  *** Earnings Due! ***

Emisphere Technologies (NASDAQ:EMIS) is a biopharmaceutical company
engaged in solving one of the most challenging technical hurdles in
the pharmaceutical industry: the oral delivery of medicines, which,
for a variety of reasons, cannot be offered to patients directly in
an oral form.  EMIS has pioneered the oral delivery of otherwise
injectable drugs, including proteins, peptides, polysaccharides and
other compounds not currently deliverable by oral means.  These
drugs present challenges for oral delivery because they are often
large molecules, which are inactivated in the gastrointestinal
tract, have limited ability to cross cell membranes and generally
cannot be delivered orally.  With earnings due next week, the near
term trend in the issue is bullish and traders can speculate on the
post-announcement performance of the stock with this conservative
position.

MAR 5.00 MTQ CA LB=1.10 OI=418 CB=4.56 DE=42 TY=7.0%


*****
JDSU - JDS Uniphase  $2.68  *** Entry Point? ***

JDS Uniphase (NASDAQ:JDSU) is a worldwide leader in optical
technology.  The company designs and manufactures products for
a range of fiber-optic communications, as well as for markets
where its core optics competency provides innovative solutions
for industrial, commercial and consumer applications.  JDS
Uniphase's fiber-optic components and modules are deployed by
system manufacturers for the telecom, data communications, and
cable television industries.  JDS Uniphase also produces and
markets products for display, security, medical/environmental
instrumentation, decorative, aerospace and defense applications.
JDSU recently named a new Chief Financial Officer and although
his job will be a difficult one with the company facing sluggish
demand and more job cuts, some analysts believe the new firm
will be stronger and more prepared for growth when the recovery
begins.  Investors who agree with a bullish, long-term outlook
in JDSU can establish a relatively conservative cost basis in
the issue with this position.

MAR 2.50 UQD CZ LB=0.40 OI=20615 CB=2.28 DE=42 TY=7.0%


*****

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

PLUG    5.05  FEB  5.00   PQL BA  0.30 599    4.75   14   11.4%
WMB     2.92  MAR  2.50   WMB CZ  0.70 775    2.22   42    9.1%
RMBS   13.41  FEB 12.50   BNQ BV  1.40 6003  12.01   14    8.9%
TWTR    5.11  MAR  5.00   TQZ CA  0.65 71     4.46   42    8.8%
CELG   22.52  FEB 22.50   LQH BX  0.85 660   21.67   14    8.3%
DIGE   15.29  FEB 15.00   QDG BC  0.80 0     14.49   14    7.6%
TSO     5.00  MAR  5.00   TSO CA  0.45 1375   4.55   42    7.2%
OVTI   14.26  FEB 12.50   UCM BV  2.15 168   12.11   14    7.0%
PLCE   10.60  FEB 10.00   TUY BB  0.90 153    9.70   14    6.7%
SCIO   42.20  FEB 40.00   UIO BH  3.10 2483  39.10   14    5.0%
FTS     8.30  MAR  7.50   FTS CU  1.25 323    7.05   42    4.6%
WEBM   10.91  MAR 10.00   UUW CB  1.50 83     9.41   42    4.5%
LVLT    5.12  MAR  5.00   HGY CA  0.40 4204   4.72   42    4.3%
PVN     6.28  MAR  5.00   PVN CA  1.55 4541   4.73   42    4.1%
FDRY    8.35  MAR  7.50   OUJ CU  1.25 1150   7.10   42    4.1%


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

Options 101: Planning The Trade -- Trading The Plan
By Ray Cummins

Today's discussion concerns one of the most important requirements
for new participants in the options market: the need to develop a
trading plan.

There are two main goals in a trading plan.  The first objective
is to outline a strategy that has profit potential in a specific
situation.  The second purpose is to establish a format that will
help you execute the strategy correctly, and in a timely manner.
A trading plan will also help you remain focused on the principal
factors that affect a portfolio position and avoid a number of
common pitfalls in the financial markets.  If you are a beginning
trader, developing a trading plan should be one of the first tasks
you undertake and the following guidelines will provide a basis
for this process:

1)  Determine the maximum potential exposure of your portfolio.
    A conservative trader should risk only a small proportion of
    their total capital, perhaps 5%-10%, in any one position and
    those who participate in speculative strategies should only
    use money they are prepared to lose.  In addition, remember
    that uncovered short positions require collateral or initial
    margin and additional funds may be required if the underlying
    issue moves adversely.  For this reason, some experts suggest
    that you have a reserve capital balance of at least twice the
    initial margin requirement for any uncovered short position.

2)  Establish a basis for trading decisions, whether fundamental
    or technical.  Fundamental analysis is the process where one
    attempts to predict the future share value of a company by
    evaluating their future earnings, which are based on market
    share, product revenues, pricing structure, and operating
    margins, as well as various other financial components of the
    company's business.  Technical analysis, which is the study
    of historical share values, directional trends and patterns
    in price charts, has nothing to do with the profitability of
    the company.  Rather, it is a technique used to forecast the
    future direction and magnitude of a stock's movement based on
    its past price activity.  Although each style is often viewed
    as less than adequate by the opposing group, there is value
    in both methods and in many cases, each approach can produce
    favorable results.

3)  Study and become completely familiar with the form of analysis
    you favor most, until you can consistently identify potentially
    profitable trading opportunities.  Technical analysis is more
    suitable to short-term trading, since it offers a very accurate
    method for establishing entry and exit points.  Fundamental
    analysis can often provide a more precise picture of the long
    range outlook, but it is woefully inefficient for predicting
    the near-term movement of stock prices.  However, analyzing
    the value of a company can help to forecast potential profits
    or losses and since earnings significantly affect share values
    at least once every three months (quarterly reports), it is
    important to have complete and accurate knowledge of a company's
    financial condition when ever you trade its stock or options.

4)  Trade with the trend or character of the market and if in doubt,
    stay out!  If the primary market trend is poorly defined and
    prices are fluctuating within a small range, it is probably not
    a good time to initiate a directional trade.  At the same time,
    a strongly biased market would not favor delta-neutral positions
    such as debit straddles or credit strangles.  The simplest way
    to profit in the financial markets is to identify the current
    trend and establish positions with the appropriate (technical or
    fundamental) outlook, in a timely manner.  If this process can't
    be completed successfully under the current conditions, wait
    until a more favorable opportunity exists before trading.

5)  Identify the actions to take when a specific profit (or loss)
    occurs, as well as any potential adjustments that will be made
    to reduce losses or increase gains in a position.  The options
    market can move very quickly and profits can be lost or large
    draw-downs can occur in a short period, due to the combination
    of option leverage and the volatility of stocks.  One of the
    attributes of successful traders is the ability to limit losses
    in unsuccessful positions and this task is best accomplished
    through the use of trading stops.  The most important objective
    of the stop is to preserve capital if the play goes badly and
    yet provide every opportunity for the position to achieve its
    potential.  Most traders use major trend-lines, minor lows and
    current support/resistance areas to help identify the correct
    stop-order placement.  Although "slippage" will occur in some
    transactions, the stop order will limit a position's downside
    in all but the most volatile (gapping) situations.

6)  Above all, stick to the plan!  A successful trader will be to
    recognize early on when they have made an incorrect forecast
    but the key to success is learning to close-out the position
    before it deteriorates further.  In contrast, positions with
    large upside potential (speculative calls or puts) should be
    allowed to run their "full course" before profits are taken.
    Experienced traders know it is necessary to maximize gains on
    profitable plays to offset the losses that inevitably occur in
    losing positions.  The biggest hurdle to overcome in trading
    is making emotional decisions.  Greed, hope, and fear affect
    your thinking process and acting on these emotions reduces the
    probability of a profitable outcome.  Remember, the enemy is
    not the market, it is YOU, and that one of the primary reasons
    why a trading plan is so essential to long-term success.

A trading plan is essential for new market participants, as it can
provide a system for position management that will increase profits
and minimize losses.  In addition, it will improve the level of
discipline and curb emotional reactions during periods of volatile
market activity.  Regardless of the style of trading you favor, a
methodical approach is highly recommended in any financial market
and the best way to accomplish this task is through the use of a
trading plan.

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

MSTR    20.78   20.69  FEB 17.50  0.45    0.45*  11.9%   3.8%
SEPR    12.99   10.83  FEB 10.00  0.35    0.35*  10.3%   3.2%
REGN    20.63   17.89  FEB 17.50  0.50    0.50*   9.7%   3.2%
FTE     25.50   25.20  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%
QCOM    37.66   36.24  FEB 35.00  0.75    0.75*   8.3%   3.2%
ANF     27.84   27.97  FEB 25.00  0.50    0.50*   8.2%   3.0%
FTE     25.98   25.20  FEB 22.50  0.40    0.40*   7.9%   2.6%
CKFR    19.53   18.25  FEB 17.50  0.45    0.45*   7.8%   2.9%
VRTS    18.30   17.44  FEB 15.00  0.30    0.30*   7.5%   2.2%
SEPR    13.20   10.83  FEB 10.00  0.30    0.30*   7.4%   2.2%
CURE    17.49   18.15  FEB 15.00  0.40    0.40*   7.1%   2.4%
VECO    15.39   13.36  FEB 12.50  0.35    0.35*   7.0%   2.1%
APPX    24.18   23.75  FEB 22.50  0.55    0.55*   7.0%   2.7%
CVC     19.44   16.25  FEB 15.00  0.40    0.40*   6.8%   2.0%
FTE     24.40   25.20  FEB 20.00  0.45    0.45*   6.7%   2.0%
AVCT    25.10   26.24  FEB 22.50  0.35    0.35*   6.5%   2.3%
MATK    23.93   22.60  FEB 20.00  0.35    0.35*   6.3%   1.9%
GTRC    19.63   18.66  FEB 17.50  0.45    0.45*   6.3%   2.3%
S       26.45   23.24  FEB 22.50  0.30    0.30*   6.3%   2.0%
MRCY    32.11   31.80  FEB 30.00  0.45    0.45*   5.8%   2.2%
RGLD    26.67   26.27  FEB 22.50  0.35    0.35*   5.6%   1.7%
CURE    17.06   18.15  FEB 15.00  0.25    0.25*   5.4%   1.8%
ANF     27.11   27.97  FEB 22.50  0.40    0.40*   5.2%   1.6%
EASI    37.00   36.00  FEB 33.38  0.40    0.40*   5.0%   1.8%
MEDC     8.88    7.09  FEB  7.50  0.30   -0.11    0.0%   0.0%
IMPH    21.53   19.08  FEB 20.00  0.75   -0.17    0.0%   0.0%

* = Stock price is above the sold striking price.

Comments:

Last week's comments could easily be "pasted in" for the current
narrative as there has been little change in outlook for equity
values.  The economy continues to struggle with no recovery on
the horizon and concerns about terrorism and global politics are
on the minds of Americans almost on a daily basis.  Considering
the prevailing conditions, it is easy to see why the majority of
stocks are moving lower and the trend is likely to continue well
into the future.  The only hope, sadly, is for a "war rally" and
trading lives for share values is a concept I simply don't want
to contemplate.  As usual, traders are warned to be extremely
cautious in their position selection and extra diligent in their
portfolio management.  Conservative traders should consider early
exits in Impath (NASDAQ:IMPH) and Med Design (NASDAQ:MDCO), and
virtually all the remaining positions in the portfolio are on the
"watch-list."

Previously Closed Positions:

Quest Software (NASDAQ:QSFT), Capital One (NYSE:COF), and FEI Co.
(NASDAQ:FEIC), which are currently positive, as well as Network
Associates (NYSE:NET) and Xylinx (NASDAQ:XLNX).



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   27.97  FEB 25.00 ANF NE 0.25 606   24.75  14   6.4%  2.2%
ANSS  22.20  MAR 20.00 QUS OD 0.80 0     19.20  42   7.7%  3.0%
APPX  23.75  MAR 20.00 AQO OD 0.55 45    19.45  42   6.3%  2.0%
CGNX  21.84  MAR 20.00 QCG OD 0.75 0     19.25  42   7.1%  2.8%
MDCO  16.92  MAR 15.00 MQL OC 0.60 11    14.40  42   8.0%  3.0%
MSTR  20.69  MAR 17.50 EOU OW 0.75 65    16.75  42   9.3%  3.2%
OTEX  27.14  MAR 25.00 QFT OE 0.75 0     24.25  42   5.7%  2.2%
POSS  19.50  MAR 17.50 UPQ OW 0.55 10    16.95  42   6.3%  2.3%

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  20.69  MAR 17.50 EOU OW 0.75 65    16.75  42   9.3%  3.2%
MDCO  16.92  MAR 15.00 MQL OC 0.60 11    14.40  42   8.0%  3.0%
ANSS  22.20  MAR 20.00 QUS OD 0.80 0     19.20  42   7.7%  3.0%
CGNX  21.84  MAR 20.00 QCG OD 0.75 0     19.25  42   7.1%  2.8%
ANF   27.97  FEB 25.00 ANF NE 0.25 606   24.75  14   6.4%  2.2%
APPX  23.75  MAR 20.00 AQO OD 0.55 45    19.45  42   6.3%  2.0%
POSS  19.50  MAR 17.50 UPQ OW 0.55 10    16.95  42   6.3%  2.3%
OTEX  27.14  MAR 25.00 QFT OE 0.75 0     24.25  42   5.7%  2.2%


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  $27.97  *** 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, Abercrombie & Fitch Co. said
it enjoyed better-than-expected sales growth in January, thanks to
strong clearance sales.  Same-store sales increased 3%, exceeding
analysts' mean estimate for growth of 0.3% as total sales climbed
24% to $79.7 million.  The retailer also said it now expects its
fourth-quarter earnings to exceed its previous guidance and traders
who believe that will translate to higher share values can profit
from that outcome with this position.

FEB 25.00 ANF NE LB=0.25 OI=606 CB=24.75 DE=14 MY=6.4% SY=2.2%


*****
ANSS - Ansys  $22.20  *** Rally Mode! ***

Ansys (NASDAQ:ANSS) develops and globally markets engineering
simulation software used by designers and engineers across a
broad spectrum of industries, including aerospace, automotive,
manufacturing, nuclear, electronics and biomedical.  The company
develops open and flexible simulation solutions that enable users
to simulate design performance, providing a common platform for
fast, efficient and cost-effective product development from design
concept to final-stage testing and performance validation.  Its
subsidiary, CADOE S.A., is an independent software vendor that
specializes in the computer-aided design and engineering markets.
The company recently reported favorable earnings and an agreement
to buy CFX, a leading supplier of computational fluid dynamics
software and services.  The news was seen as very positive by
investors and the stock rose to 6-month highs on heavy trading
volume.  Investors can establish a conservative cost basis in the
stock with this position.

MAR 20.00 QUS OD LB=0.80 OI=0 CB=19.20 DE=42 MY=7.7% SY=3.0%


*****
APPX - American Pharmaceutical  $23.75   *** Entry Point? ***

American Pharmaceutical Partners (NASDAQ:APPX) is a specialty
pharmaceutical company that develops, manufactures and markets
injectable pharmaceutical products.  The company produces over
100 generic injectable pharmaceutical products in more than 300
dosages and formulations.  Its primary focus is in the oncology,
anti-infective and critical care markets.  The firm manufactures
products in all three of the three basic forms in which injectable
products are sold: liquid, powder and lyophilized (freeze-dried).
In January, American Pharmaceutical Partners raised its fourth
quarter and full year earnings guidance due to strong demand for
newly launched, higher margin products.  The firm also recently
received FDA approval for vincristine sulfate injection, which is
the generic version of Eli Lilly's Oncovin, for the treatment of
acute leukemia.  Investors who wouldn't mind owning APPX near a
cost basis of $19 should consider this position.

MAR 20.00 AQO OD LB=0.55 OI=45 CB=19.45 DE=42 MY=6.3% SY=2.0%


*****
CGNX - Cognex  $21.84  *** Trading Range? ***

Cognex Corporation (NASDAQ:CGNX) designs, develops, manufactures,
and markets machine vision systems that are used to automate a
wide range of manufacturing processes.  These systems consist of
image analysis software and high-speed, special purpose computers
that, when connected to a video camera, interpret video images
and generate information about them.  The firm has two operating
divisions: Modular Vision Systems Division (MVSD) and Surface
Inspection Systems Division (SISD). MVSD designs, develops, makes
and markets modular vision systems that are used to control the
manufacturing of discrete items.  SISD designs, develops, makes
and markets surface inspection vision systems.  In late January,
Cognex reported a quarterly profit, reversing a year-ago loss, as
cost-cutting helped offset slow spending in the semiconductor and
electronics industries.  Now the issue is near the top of a recent
trading range and the sold strike price at $17.50 is a good place
from which to speculate on the future movement of the issue.

MAR 20.00 QCG OD LB=0.75 OI=0 CB=19.25 DE=42 MY=7.1% SY=2.8%


*****
MDCO - The Medicines Company  $16.92  *** Next Leg Up? ***

The Medicines Company (NASDAQ:MDCO) operates as a pharmaceutical
company selling and developing products for the treatment of
hospital patients.  MDCO acquires, develops and commercializes
biopharmaceutical products that are in late stages of development
or have been approved for marketing.  The company began selling
Angiomax, its lead product, in U.S. hospitals in January 2001 as
an anticoagulant replacement for heparin.  MDCO is developing
Angiomax for additional potential hospital applications as a
procedural anticoagulant and for use in the treatment of ischemic
heart disease.  The Medicines Company rallied Friday, despite the
downward trend of the broader market and the technical indications
suggest the up-trend will continue in the near future.  This play
offers favorable speculation with a cost basis near recent buying
support.

MAR 15.00 MQL OC LB=0.60 OI=11 CB=14.40 DE=42 MY=8.0% SY=3.0%


*****
MSTR - MicroStrategy  $20.69  *** Post-Earnings Rally! ***

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
recently after the maker of business software reported better-than-
expected profits and rising software sales.  A number of analysts
also raised their 2003 outlooks for the company and bullish traders
can use the current consolidation to establish a conservative cost
basis in the issue.

MAR 17.50 EOU OW LB=0.75 OI=65 CB=16.75 DE=42 MY=9.3% SY=3.2%


*****
OTEX - Open Text  $27.14  *** Up-trend Intact! ***

Open Text (NASDAQ:OTEX) develops, markets, licenses and supports
collaboration and knowledge management software for intranets,
extranets and the Internet, enabling users to find electronically
stored information, work together in creative and collaborative
processes, perform group calendaring and scheduling and distribute
or make available to users across networks or the Internet the
resulting work product and other information.  OTEX's principal
product line is Livelink, a collaboration and knowledge management
software for global enterprises that integrates several engines,
including, but not limited to, search, collaboration, workflow,
group calendaring and scheduling and document management.  As an
extension to its solutions-based offerings, OTEX also provides a
range of professional services, training, documentation and other
technical support services to accelerate the implementation of,
and satisfaction with, its products.  In January, OTEX announced
that profits were up sharply in its second quarter, ahead of
expectations, and it raised its earnings guidance for the year.
Investors who like the outlook for the company can speculate on
its future share value with this position.

MAR 25.00 QFT OE LB=0.75 OI=0 CB=24.25 DE=42 MY=5.7% SY=2.2%


*****
POSS - Possis Medical  $19.50  *** Bullish Outlook! ***

Possis Medical (NASDAQ:POSS) manufactures and markets medical
products.  The company was initially engaged in the designing,
manufacturing and sales of industrial equipment, and had a
small division that provided temporary technical personnel.
The firm's involvement with medical products began in 1976 but
in 1990, Possis made the decision to focus solely on medical
products and subsequently divested all non-medical operations.
Possis Medical said last week that second-quarter earnings will
significantly exceed earlier forecasts on higher than expected
sales.  The technical indications support a bullish fundamental
outlook and investors who want to own POSS near a cost basis of
$17 should consider this position.

MAR 17.50 UPQ OW LB=0.55 OI=10 CB=16.95 DE=42 MY=6.3% SY=2.3%


*****

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

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

Sequenced by 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

DIGE  15.29  FEB 15.00 QDG NC 0.65 0     14.35  14  21.8%  9.8%
DRXR  15.95  FEB 15.00 RXQ NC 0.35 20    14.65  14  13.2%  5.2%
CVTX  19.35  FEB 17.50 UXC NT 0.35 1609  17.15  14  12.2%  4.4%
LF    23.70  FEB 20.00  LF ND 0.30 322   19.70  14  10.7%  3.3%
BVF   31.15  FEB 30.00 BVF NF 0.55 735   29.45  14  10.1%  4.1%
CURE  18.15  MAR 17.50 QCW OW 1.00 1     16.50  42   9.5%  4.4%
POWI  20.26  MAR 17.50 FPW OW 0.70 5     16.80  42   8.4%  3.0%
BCGI  13.30  MAR 12.50 QGB OV 0.55 251   11.95  42   7.9%  3.3%
PRXL  13.10  MAR 12.50 VBQ OV 0.55 15    11.95  42   7.7%  3.3%
PDG   11.21  MAR 10.00 PDG OB 0.30 2372   9.70  42   6.1%  2.2%
FLO   25.50  MAR 25.00 FLO OE 0.80 20    24.20  42   5.5%  2.4%


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


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

The Carnage Continues!
By Ray Cummins

Stocks slumped to 4-month lows Friday as investors shrugged-off
favorable employment data and instead focused on the threat of
terrorism and dismal earnings forecasts.

The blue-chip Dow Jones industrial average dipped 65 points to
7,864 amid weakness in AT&T (NYSE:T), Eastman Kodak (NYSE:EK),
and J.P. Morgan (NYSE:JPM).  The technology-laden NASDAQ index
slid 19 points to 1,282, its lowest level since mid-October, as
software, hardware and networking shares struggled with renewed
selling pressure.  The broader Standard & Poor's 500 Index fell
8 points to 829 with almost every major sector experiencing a
downward bias.  Declining stocks outpaced advancers by a ratio
of 2 to 1 on both the New York Stock Exchange and the technology
exchange.  More than 1.2 billion shares changed hands on the Big
Board and a similar amount were traded on the NASDAQ.  The bond
market was relatively unchanged with the 10-year Treasury note
up 3/32 at 100 17/32 to yield 3.93%.  The 30-year bond slid 2/32
at 108 22/32 to yield 4.81%.

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

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


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

Symbol  Pick   Last  Month  LP  SP Credit   CB    G/L   Status

MYL     24.50  26.12  FEB   20  23  0.40  22.60  $0.40   Open
XAU     79.51  74.55  FEB   65  70  0.75  69.25  $0.75   Open
BHE     35.30  34.48  FEB   25  30  0.45  29.55  $0.45   Open
AET     43.86  40.95  FEB   35  40  0.45  39.55  $0.45   Open
HCA     43.75  40.38  FEB   37  40  0.30  39.70  $0.30   Open
CERN    37.31  35.11  FEB   30  35  0.55  34.45  $0.55   Open
PRX     31.50  33.00  FEB   25  30  0.45  29.55  $0.45   Open
APA     62.41  61.60  FEB   55  60  0.60  59.40  $0.60   Open
FRX     51.75  49.88  FEB   45  47  0.25  47.25  $0.25   Open
NBR     36.85  37.66  FEB   33  35  0.30  34.70  $0.30   Open

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

Aetna (NYSE:AET), HCA Inc. (NYSE:HCA), and Cerner (NASDAQ:CERN)
are on the "early exit" watch-list.  Positions previously closed
include: Intuit (NASDAQ:INTU) and Chiron (NASDAQ:CHIR).


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

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

ABK    57.56   50.35  FEB   70  65  0.55   65.55  $0.55   Open
KBH    44.01   44.42  FEB   55  50  0.55   50.55  $0.55   Open
BZH    61.98   55.00  FEB   75  70  0.50   70.50  $0.50   Open
ITW    65.70   58.97  FEB   75  70  0.60   70.60  $0.60   Open
BGEN   37.93   39.98  FEB   45  42  0.25   42.25  $0.25   Open
PIXR   53.76   51.70  FEB   65  60  0.55   60.55  $0.55   Open
RE     51.70   48.25  FEB   60  55  0.50   55.50  $0.50   Open
ROAD   36.43   34.02  FEB   45  40  0.30   40.30  $0.30   Open
ATK    54.75   48.94  FEB   65  60  0.45   60.45  $0.45   Open
CAT    43.92   42.63  FEB   50  47  0.25   47.75  $0.25   Open
IBM    78.94   77.10  FEB   90  85  0.50   85.50  $0.50   Open
MER    36.81   32.93  FEB   43  40  0.25   40.25  $0.25   Open
LXK    60.54   59.18  FEB   70  65  0.45   65.45  $0.45   Open
QLGC   33.28   32.84  FEB   40  37  0.25   37.25  $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  36.98  FEB   50  45   4.50   45.50  0.50   Open
VIA     38.72  37.30  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  46.09  FEB   35  40   4.50   39.50  0.50   Open
PHSY    29.19  27.15  FEB   25  27   2.00   27.00  0.50   Open?
OCR     25.03  24.83  FEB   25  27   1.00   26.00 (1.00)  Open?
EBAY    73.36  72.37  FEB   60  65   4.45   64.45  0.55   Open

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

Omnicare (NYSE:OCR) is a candidate for early-exit and Pacificare
Health Systems (NASDAQ:PHSY) remains on the watch-list.  Although
barely positive, the bullish position in University of Phoenix
Online (NASDAQ:UOPX) has previously been closed to limit losses.


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

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

VAR     50.38  51.60   FEB     55    45     0.10    0.20    Open?
WPI     29.22  28.65   MAY     35    22    (0.10)   0.50    Open
ANF     26.39  27.97   FEB     30    22     0.05    0.60    Open
UPL     10.11   9.47   MAR     10    10     0.10    0.00    Open
AFFX    27.14  25.87   MAR     30    25     0.15    0.00    Open
CTMI    26.24  21.97   MAR     30    23     0.05    0.00   Closed

Our new position in CTI Molecular Imaging (NASDAQ:CTMI) was closed
following the company's quarterly earnings report, which reflected
$0.07 a share profit on revenues that rose 27%.  The company also
affirmed its second quarter projections, but the announcement was
not viewed favorably by traders and they quickly dumped the issue.
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  39.98   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

AXP     33.70  33.74   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.  Previously closed
positions: 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.

*****
BVF - Biovail  $31.15  *** New FDA Approval! ***

Biovail (NYSE:BVF) is a full-service pharmaceutical company that
applies its proprietary drug delivery technologies in developing
"oral controlled-release" products throughout North America.  The
company applies its proprietary drug delivery technologies to
successful drug compounds that are free of patent protection to
develop both branded and generic oral controlled-release products.
The branded oral controlled-release products improve on existing
formulations, providing better therapeutic and economic benefits.
The company also engages in the formulation, clinical testing,
registration, manufacturing and sales of oral controlled-release
products throughout North America.

Technical Outlook: A nearly 10% "gap-up" rally on Friday with 5X
trading volume suggests higher share prices in the near future;
recent buying support near $28.50.

Potential Catalysts: U.S. Food and Drug Administration approved
Cardizem LA as a new graded extended-release formulation for the
treatment of high blood pressure or hypertension; company also
recently provided a full-year outlook that confirmed expectations
with earnings growth of 30% or more in the second half of 2003
due to the expected success of product launches.

PLAY (moderately aggressive - bullish/credit spread):

BUY  PUT  FEB-25.00  BVF-NE  OI=1018  A=$0.15
SELL PUT  FEB-30.00  BVF-NF  OI=735   B=$0.55
INITIAL NET-CREDIT TARGET=$0.40-$0.50
POTENTIAL PROFIT(max)=8% B/E=$29.60


*****
SCIO - Scios  $42.20  *** J&J Buy-Out Candidate? ***

Scios (NASDAQ:SCIO) is a biopharmaceutical company developing
novel treatments for cardiovascular and inflammatory diseases.
The company's disease-based technology platform integrates new
protein biology with computational and medicinal chemistry to
identify novel targets and rationally design molecule compounds
for large markets with unmet medical needs.  Scios is focused on
the development of three primary product candidates: Natrecor,
for the treatment of acute congestive heart failure, SCIO-469,
an oral small-molecule inhibitor of p38 kinase for the treatment
of rheumatoid arthritis, and small molecule inhibitors of the
receptor for TGF-beta, a cytokine that has been implicated in
diseases characterized by chronic scar formation, or fibrosis.

Technical Outlook: Shares of SCIO closed at an "all-time" high
Friday on heavy volume; bullish technical indications suggest
the trend will continue in the near-term.

Potential Catalysts: Rumored to be in merger/buy-out talks with
Johnson & Johnson (NYSE:JNJ); acquisition price could be as high
as $45 per share.

PLAY (moderately aggressive - bullish/credit spread):

BUY  PUT  FEB-35.00  UIO-NG  OI=1206  A=$0.30
SELL PUT  FEB-40.00  UIO-NH  OI=151   B=$0.70
INITIAL NET-CREDIT TARGET=$0.45-$0.65
POTENTIAL PROFIT(max)=9% B/E=$39.55


*****
SYMC - Symantec  $46.09  *** No Slump Here! ***

Symantec (NASDAQ:SYMC) provides a broad range of content and
network security solutions to individuals and enterprises.  The
company is a provider of virus protection, firewall, virtual
private network, vulnerability management, intrusion detection,
remote management technologies and security services to various
consumer groups and enterprises around the world.  The company
currently views its business in five primary operating segments:
Consumer Products, Enterprise Security, Administration, Services
and Other.

Technical Outlook: Intermediate-term "bullish" with resistance
near $47; currently in consolidation with recent trading range
support at $43, and again at $40.

Potential Catalysts: Quarterly sales and profit results exceeded
consensus estimates; earnings surpassed analysts' expectations
in each of the last four quarters.

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-35.00  SYQ-OG  OI=253  A=$0.35
SELL PUT  MAR-40.00  SYQ-OH  OI=252  B=$0.80
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$39.50


*****
BSC - Bear Stearns Companies  $59.90  *** Sector Slump! ***

The Bear Stearns Companies (NYSE:BSC) is a holding company, which,
through its subsidiaries, principally Bear, Stearns & Co. Inc.,
Bear, Stearns Securities, Bear, Stearns International Limited and
Bear Stearns Bank PLC, is an investment banking, securities and
derivatives trading, clearance and brokerage firm.  The company
serves corporations, governments, institutional and individual
investors worldwide.  BSC provides professional and correspondent
clearing services, in addition to clearing and settling customer
transactions and certain proprietary transactions of the company.
The firm is primarily engaged in business as a securities broker
and dealer operating in three principal segments: Capital Markets,
Global Clearing Services and Wealth Management.

Technical Outlook: Near-term "bearish" as it tests the bottom of
a recent trading range; next level of support near $58.

Potential Catalysts: Brokerage sector slump has affected even the
top companies in the group and no fundamental improvements are
expected until the market begins to recover.

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-70.00  BSC-CN  OI=617   A=$0.25
SELL CALL  MAR-65.00  BSC-CM  OI=1274  B=$0.75
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$65.55


*****
HRB - H&R Block  $35.80  *** Low Risk = Low Reward ***

H&R Block (NYSE:HRB) is a diversified company with subsidiaries
that deliver tax services and financial advice, investment and
mortgage products and services, and business accounting and
consulting services.  As the world's largest tax services firm,
H&R Block served nearly 23 million clients during fiscal year
2002.  Clients were served at the approximately 10,400 H&R Block
retail offices worldwide and through the company's award-winning
software, TaxCut, and its online tax services.

Technical Outlook: Near-term "bearish" with resistance near $38
and again at the sold (call) strike at $40; slightly oversold
conditions and well below 150-day EMA, however no buying support
near the current price.

Potential Catalysts: Still working to overcome recent problems
with litigation concerning class-action lawsuits; also concerns
about the company's mortgage business, which involves sub-prime
lending.

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-45.00  HRB-CI  OI=177   A=$0.15
SELL CALL  MAR-40.00  HRB-CH  OI=5338  B=$0.60
INITIAL NET-CREDIT TARGET=$0.45-$0.55
POTENTIAL PROFIT(max)=9% B/E=$40.45


*************
DEBIT SPREADS
*************

These candidates offer a risk/reward outlook similar to credit
spreads, however there is no margin requirement as the initial
debit for the position is also the maximum loss.  Since these
positions are based primarily on technical indications, traders
should review the current news and market sentiment surrounding
each issue and make their own decision about the outcome of the
position.

*****
AMGN - Amgen  $52.09  *** New Trading Range? ***

Amgen (NASDAQ:AMGN) is a biotechnology company that discovers,
develops, manufactures and markets human therapeutics based on
advances in cellular and molecular biology.  Amgen manufactures
and sells human therapeutic products including Epogen, Neupogen,
Aranesp, Neulasta and Kineret.  Amgen focuses its research and
development efforts on therapeutics delivered in the form of
proteins, monoclonal antibodies and small molecules in the areas
of nephrology, cancer, inflammation and neurology and metabolism.

Technical Outlook: Near-term lateral consolidation with upside
bias; testing recent trading-range highs near $52.

Potential Catalysts: Lots of attention on drug developers with
products for arthritis and AMGN is one of the heavy hitters,
having reported fourth-quarter profit that nearly tripled on a
58% increase in revenue.

PLAY (conservative - bullish/debit spread):

BUY  CALL  MAR-45.00  AMQ-CI  OI=1074  A=$7.90
SELL CALL  MAR-47.50  AMQ-CW  OI=387   B=$5.70
INITIAL NET-DEBIT TARGET=$2.10-$2.20
POTENTIAL PROFIT(max)=14% B/E=$47.20


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

A calendar spread (or time spread) consists of the sale of one
option and the simultaneous purchase of an option of the same
type and strike price, but with a future expiration date.  The
premise in a calendar spread is simple: time erodes the value of
the near-term option at a faster rate than the far-term option.
The positions in this section are speculative (out-of-the-money)
spreads with low initial costs and large potential profits.

*****
CI - Cigna Corporation  $43.02  *** Reader's Request! ***

Cigna Corporation (NYSE:CI) and its subsidiaries are investor-
owned employee benefits organizations in the United States.  Its
subsidiaries are major providers of employee benefits offered
through the workplace, including health care products and other
services, life, accident and disability insurance, retirement
products and services and investment management.  CIGNA's main
perating divisions include Employee Health Care, Disability and
Life Benefits, CIGNA Group Insurance, Employee Retirement, and
Investment Services, and International Life, Health and Employee
Benefits.

Technical Outlook:  Neutral to bullish short-term outlook with
resistance near the current price and a recent trading-range top
at $46; potential for some consolidation before further upside
activity.

Potential Catalysts: On Friday, CI posted fourth-quarter income
that declined to $47 million versus $191 million for the same
period last year, but adjusted earnings were ahead of consensus
estimates.

PLAY (speculative - bearish/calendar spread):

BUY  PUT  APR-45.00  CI-DI  OI=1147  A=$1.90
SELL PUT  FEB-45.00  CI-BI  OI=1355  B=$0.40
INITIAL NET DEBIT TARGET=$1.35-$1.45
INITIAL TARGET PROFIT=$0.50-$0.75


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

*****
IGT - International Game Tech.  $74.84  *** Active Sector! ***

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

Technical Outlook: Intermediate-term lateral trend with near-term
"bearish" activity on higher-than-average volume; volatile issue
within a current range from $72-$79.

Potential Catalysts: Industry stocks are in a slump as companies
report mediocre quarterly earnings.  More activity likely in the
near-term with Boyd Gaming (NYSE:BYD), Mandalay Bay (NYSE:MBG),
and Penn National Gaming (NASDAQ:PENN) due to report in the coming
weeks.

PLAY (very speculative - neutral/debit straddle):

BUY  CALL  FEB-75.00  IGT-BO  OI=2279  A=$1.65
BUY  PUT   FEB-75.00  IGT-NO  OI=1025  A=$1.75
INITIAL NET-DEBIT TARGET=$3.20-$3.35
INITIAL PROFIT TARGET=$0.75-$1.25


*****


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MARKET POSTURE
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