Option Investor

Daily Newsletter, Sunday, 02/16/2003

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The Option Investor Newsletter                   Sunday 02-16-2003
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: Relief or Reaction?
Futures Market: Getting Bears' Attention
Index Trader Wrap: MR. PRESIDENT?
Editor’s Plays: Expiration Week Explosion?
Market Sentiment: Seeing Red (Flags)
Ask the Analyst: (See Note)
Coming Events: Earnings, Splits, Economic Events

Updated on the site tonight:
Swing Trade Game Plan: Follow the Bouncing Ball

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
       WE 02-14        WE 02-07        WE 01-31        WE 01-24
DOW     7908.80 + 44.57 7864.23 -189.58 8053.81 - 77.20 -455.73
Nasdaq  1310.17 + 27.70 1282.47 - 38.44 1320.91 - 21.23 - 34.06
S&P-100  422.57 +  3.78  418.79 - 13.78  432.57 -  3.57 - 21.22
S&P-500  834.89 +  5.20  829.69 - 26.01  855.70 -  5.70 - 40.38
W5000   7896.94 + 23.52 7873.42 -251.65 8125.07 - 50.67 -354.59
RUT      358.50 -  0.28  358.78 - 13.39  372.17 -  2.89 - 13.04
TRAN    2102.60 - 37.37 2139.97 - 33.38 2173.35 + 10.02 -181.20
VIX       37.10 -  1.35   38.80 +  3.02   35.78 +  0.01 +  7.09
VXN       48.38 -  2.59   48.26 +  1.45   46.81 +  1.76 +  2.21
TRIN       0.58            1.57            0.89            1.69
Put/Call   0.97            0.94            0.84            0.83

Relief or Reaction?
by Jim Brown

It was a new form of terror attack. Terrorists poured massive
amounts of money into stocks on Friday in a devious psychological
attack. With everybody expecting the worst, the best came to
pass as is normally the case. Once everybody finally decided a
retest of the October lows was inevitable buyers appeared.

Dow Chart - Daily

Nasdaq Chart - Daily

Economically Friday was a good day with Industrial Production
soaring +0.7% in January according to the headline number. The
jump was actually a reaction bounce from the -0.4% decline in
December which was likely a calendar issue. Averaging both gives
you a more realistic +0.15% growth. Analysts credit the strong
gains to a jump in auto parts and higher output by power
companies due to the cold winter weather.

Business Inventories jumped +0.6% in December, which was
strongly over expectations of only +0.1%. On the surface this
would appear good that businesses are stocking up for a coming
increase in demand. Unfortunately the rise came from a slowing
of existing sales to only a +0.2% gain and that caused the
inventory levels to grow. This was not a bearish report
but yet another cautionary item.

The most bearish report was the Michigan Consumer Sentiment
which came in at 79.2 for the first two weeks of February.
This is a new nine-year low and a drop from 82.4 in January.
This should not surprise anybody with high unemployment, war
worries, terrorist alerts, weak economy and a falling market.
Higher gasoline prices hit consumers with every fill up and
being told to buy duct tape and plastic is not a confidence
builder either. Bankruptcy filings came in at 8.7% for the
last quarter and the full 2002 calendar year set a new record.
Money is tight for most people and stock profits are not

Friday was a slow news day if you were looking for stock news.
It was totally focused on the different speeches coming from
the UN and the perceived reactions to the different presentations.
I am going to try and keep this brief but it is relative. To
put it bluntly the US was slam dunked by the inspectors and
the opposing countries. There was actually applause in the
normally reserved climate of the meeting room. Unfortunately
the applause was for speeches against the US position.

The most prevalent market view towards the war WAS to get a
coalition quick then launch the attack and get it over with
so the nation could get on with business. In a few short hours
that view changed to "this could take months before the
shooting starts" and fears that the drag on the markets would
last all summer. By mid afternoon the view had changed again
to "there may not be a war any time soon and over the next
several months the need for a war may disappear completely."
No war means no market drag, let's buy stocks.

We could debate the various possibilities that energized
traders but the bottom line is that investors decided to
spend some money after the fear of an immediate war has
passed. While I have no problem with the concept I was
surprised at the magnitude of the bounce just before a
three day weekend during a high terrorist alert. This
would not be a normally bullish day.

However there was news on the alert front as well. It appears
that some of the information that officials relied on to
issue the alert was bogus. The Al Qeada captive who
told investigators that a radiological/chemical/biological
weapon would be deployed, failed a lie detector test. He
had told officials that Washington, New York or Florida
would be hit by a "dirty" bomb sometime this week but it
was a concocted story. He said a cell in Virginia or Detroit
had found a way to smuggle the equipment into the country
and they were going to target specific government buildings
and religious events. It was reported that officials decided
to leave the orange alert over the weekend as a precaution.

The combination of these two events transformed the current
market sentiment from bearish to bullish. Suddenly there
was no war overhang. Maybe I should say "immediate" war
overhang. Traders would always rather put off worrying
about problems as long as possible. With the expected start
of the war just two weeks away it was fully priced into the
market. Now with the war 60-90 days away or maybe never
that war premium can be taken out again.

The wildcard in this equation is the 200,000 troops already
in the region and the full weight of the US military moving
full speed towards an attack in two weeks. The administration
has found itself between a rock and a hard place. Those troops
cannot be left there indefinitely. The cost to just run in
place is horrendous. Troops keyed up for action and then
left to bake in the sun for months would lose their combat
edge. Units would have to be continually rotated back to the
states and replaced with new troops and equipment. The
military showed up for the game but the gates to the
stadium are locked.

The Powell team is in full court press to get a new resolution
passed that will allow the use of force. According to news
reports on Friday this effort will be dead on arrival. Four
different countries have already threatened veto of the measure.
Now the US has to decide to go it alone or back down. We all
know how tough to swallow a retreat would be. Conversely an
attack by the US on its own with no help would be viewed very
badly on the world stage. There are several major antiwar
demonstrations around the world this weekend with over a
million participants in a single event. In my opinion the
Bush administration has been checkmated by an Iraq regime
that has made good use of four years without inspectors and
hidden everything very well.

I relate this not to bombard you with a constant barrage of
political viewpoints but to relate how the market might
react and why. I think what you saw on Friday was this
realization sinking in to investors consciousness. Traders
were putting 2+2+2 together and getting "buy" instead of 6.
That buying also took the form of short covering. Those who
were expecting that last downdraft between the UN update today
and the start of the war in two weeks suddenly found themselves
without a war. Instead of a smoking gun from the inspectors
they found reluctant cooperation from Iraq and outright
defiance from the inspectors. Instead of a new resolution
for war there is more than likely going to be a resolution
for peace. The smoking gun that would have every nation on
earth riding down on Iraq with legions of soldiers was
found this week. Unfortunately it was in North Korea.
Instead of trying to link Al Qeada to Iraq maybe they
should have been looking for the Korean connection to
prove their case. (grin)

There may actually be a smoking gun about to appear. Or,
more correctly a loose canon. According to www.debka.com
there really was a defection on Thursday and it was Adib
Shaaban, the right hand man of Uday Hussein, Saddam's son.
According to Debka, which is a highly biased and not always
verifiable source, Uday was in charge of the hidden weapons
and as his right hand man Adib would be better than a
smoking gun. While this story is unverified you can read
about it on their website. If it is true you can expect
serious changes in the deadlock soon.

Where to now? Obviously that is the $64 question. We were
trapped in a trading range between 7950-8150 for two weeks
in late January and early February. We fell out of that range
last week and dipped to a 75% retracement of the October lows.
With economic reports showing glimmers of hope those lows
may be way overdone. Earnings have not come back yet but
even with the negative economic overtones they are not falling
out the bottom. For the 1Q 40% of the pre-announcements have
been warnings. 23% have raised guidance and 37% affirmed
estimates. That means 60% are doing ok, not great but ok.
The 40% that warned is higher than normal but not the end
of the world. It is the economy after all and the Iraq ate
my earnings excuse will not fly for the 2Q. If the economy
was on the verge of collapse because of the impending
uncertainties of war the will removing the war card give
it an injection of speed?

You should be very confused by now. It boils down to these
decisions. Will the US be able to get a new resolution? I
strongly doubt it without inspectors uncovering a surprise
stockpile over the weekend. Will the UN pass a resolution
specifically prohibiting use of force and canceling the
war? I doubt that because the US could veto it. Will the
US decide to mount up and ride into Iraq with all guns
blazing and risk major consequences with major allies? I
doubt that as well. There was even an implied threat of
force against the effort by Russia. What a twist! We
would have to loan them money to buy gas to attack us.
The administration may have to give up trying to assemble
the coalition of the willing and settle for a coalition
of the reluctant if they proceed with the attack.

The betting on the street is less than a 20% chance of a
war at this time. That means there is an 80% chance of the
market rallying on this news next week. That rally should
reach 8150 at a minimum and possibly 8300. The majority
of the gains are not going to be made on better earnings
or a better economy but simply on an equalizing of the
war premium. We are very oversold long term and there is
substantial cash waiting on the sidelines for a signal.
That signal was the +158 Dow gain on Friday. That was
the shot heard around the world.

Obviously I over stated the simplicity of next weeks
decision. The political war will continue over the
weekend as the administration attempts damage control
and offers the dissenting countries some type of bribe
to regain their support. How eager would you be to come
back to our side after the various diplomats and talking
heads slandered you in the world press. If you cave in
now you would lose face on the global stage. The markets
are going to love this war of words instead of bullets.
However, if the US appears to be winning the political
battle the market will be quick to remove its bullish

I will be so glad to get back to regular markets with
real fundamentals. I would love to worry about NVDA
beating estimates instead of nuclear missiles in Korea.
I would much rather watch Gateway and Dell duke it out
on CNBC than round the clock replays of the UN meeting.
Give me Larry Ellison or John Chambers instead of Tariq
Aziz any day. You know it has gone too far when you start
reminiscing about the good old days of 2001 when all you
had to worry about was a bear market. Things have certainly
changed in the last 18 months.

There will be a lot of late night hours spent over the
long weekend as politicians ply their trade. By Tuesday
morning this may all be mute and conditions reversed
again. There are still hawks expecting the war to start
as early as this weekend. If not then Tuesday should be
a good day for the bulls.

Sell Too Soon!

Jim Brown

"If you bet on a horse, that's gambling. If you bet you
can make three spades, that's entertainment. If you bet
IBM will go up three points, that's investing."
Blackie Sherrod


Getting Bears' Attention
By John Seckinger

All three futures contracts rallied from one daily retracement
area to another.  Are these contracts simply at the top of a
range, or was Friday's rally more than just short covering?

Friday, February 14th at 4:15 P.M.

Contract       Last    Net Change    High        Low       Volume

Dow Jones     7908.80   +158.93    7908.80     7725.32
YM03H         7925.00   +165.00    7950.00     7712.00     35,129
Nasdaq-100     982.09    +30.19     982.12      952.70
NQ03H          985.00    +23.50     985.50      950.50    265,382
S&P 500        834.89    +17.52     834.89      815.03
ES03H          837.00    +18.00     837.25      813.75    728,664

Contract         S2         S1       Pivot        R1         R2

Dow Jones      7664.16    7786.48   7847.64    7969.96    8031.12
YM03H          7624.00    7775.00   7862.00    8013.00    8100.00
Nasdaq-100      942.88     962.48    972.30     991.90    1001.72
NQ03H           938.75     961.75    973.75     996.75    1008.75
S&P 500         808.41     821.65    828.27     841.51     848.13
ES03H           805.75     821.50    829.25     845.00     852.75

Weekly Levels

Contract         S2         S1        Pivot        R1         R2

YM03H         7486.00    7706.00    7836.00    8056.00    8186.00
NQ03H          919.25     952.25     971.25    1004.25    1023.25
ES03H          790.75     814.00     828.25     851.50     865.75

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

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

Short 817.25, exit 818.25, change -1.00
Long  822.25, exit 821.25, change -1.00
Short 820.75, exit 822.75, change -2.00

Total for the day: -4.00
Total for the week: +10.67
Total for five weeks: +51.92

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


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

A short-covering rally in the equity markets was bound to take
place one of these days, and what better time than from the
BOTTOM of a daily retracement area (805.25) to the top (839.50).
The halfway mark came in at 822.25, and was just above the high
print seen after Thursday's recovery.  With that said, this
recovery rally late Thursday and Friday didn't do any technical
damage to bearish positions.  It is also encouraging for bears to
see the 90-minute Bollinger Bands fall outline this retracement
range almost perfectly (see chart below).  Moreover, the daily
MACD oscillator has not yet crossed higher; thus making it clear
bears are still active in this trading environment.  If, on the
other hand, we do get a daily close above 839.50, it will be time
to re-evaluate conditions.

Recapping Friday's session, the ES did rally to its daily R1
after taking out this 822.25 level, but then ensuing sell-off
trapped bears under the daily pivot 815 as the Dow failed to test
its daily pivot at 7720.  I thought that the ES falling under its
pivot would drag the Dow under 7720, but the blue chips were
unexpectedly more powerful.  With that said, if the ES does move
above 839.50 and portends a move to 850.50, I would be worried if
the Dow falls back underneath 7900.

Chart of ES03H, 90-minute

A 60-minute chart of the ES contract shows prices simply getting
back to the bottom of the recent long liquidation pattern
(lowercase "b") and intermediate term pivot of 839.50.  If this
level is broken, there is the likelihood that the daily R1 level
of 845 could cap the rally (the possible trend line drawn
below).  If not, the range from 850 to 853 is very strong.  On
the other hand, with the daily pivot at 829.25 and weekly pivot
below at 828.25, I would look for a break of the weekly pivot at
as a reason to expect lower prices and not simply a move under
the daily level.  The Daily S1 level is below at 821.50, and
would be the objective to the downside (or range from 821.50 to
822.25 - noted above).

Chart of ES03H, 60-minute

Bullish Percent of SPX: This indicator fell one percent on Friday
to 34.80%.  The recent column of O's stands at 14, and is
currently in "Bull Correction" status.  The last column of "O's"
ended at 20.  Still short- and long-term bearish, but risk is
getting close to shift to the bears' camp.  Looking at P&F
analysis, the SPX reversed back into a column of X's on Friday,
but will need an 845 print to give a buy signal.  The bearish
price objective remains at 750.  This 845 level is the most
recent quadruple bottom area.  Expect resistance at 840, and
support below at 795.

The March E-mini Nasdaq 100 Contract (NQ03H)

The rally on Friday in the NQ contract actually settled the
contract above the 50% retracement area (983) at 985; however,
the mid-point of the daily Bollinger Bands comes in at 987.25 and
should be the last line of defense before a test of 1003.  Bears
should look for a move back under 983 as a signal that Friday's
rally was simply short covering, while also looking for a
rollover from the 1003 level if bids do continue.  For bulls, the
play would be for a move from 987.25 to 1003; however, in this
market environment (still bear market), stops have to be tight.
Note:  The daily MACD oscillator has not crossed higher.  The
most bullish projection would be for a test of 1023.75 and the
weekly R2 level.  Downside support under 983 is seen at 962.50
and then back to 941.50.

Chart of NQ03H, Daily

A 60-minute chart of the NQ contract shows both a breakout above
the recent bearish regression channel, as well as closing above
Tuesday's pivot of 973.73.  I would prefer to look for weakness
under 970, since this move should (depending on the time) put the
NQ back into the regression channel and signal the recent move
was simply short covering and a bull trap.

Chart of NQ03H, 60-minute

Bullish Percent for NDX:  The bullish percent for the NDX
remained unchanged on Friday at 34%.  This indicator remains in
"Bear Confirmed Status".  The last column of O's ended at a
reading of 14%.  Remember, once under 30%, risk should start to
shift towards bearish positions.  The NDX, according to P&F
charts, still shows resistance at 1000 and support near 925.  The
bearish objective remains at 775, and only a print of 1025 will
have this indicator reversing in a column of X's.

The March Mini-sized Dow Contract (YM03H)

The YM contract also managed to close just below the top of a
retracement area (61.8% to 80.4% retracement of the move from
October to December; 7937 to 7611, respectively), and bears will
be forced to defend this 7937 level going forward.  Note that the
DOW closed above its 7902 retracement area at 7908, so look for
the Dow for confirmation.  If bears are able to successfully
pressure prices back into the regression channel, the downside
objective would be for a move to 7770.  Along the way down,
support is seen at 7862 and 7800.  I am not treating the 8048
level as an actual level traded; however, notice how this print
does line up nicely with the mid-point of the Bollinger Bands and
the halfway area from 7937 to 8143.   Note:  The MACD oscillator
on a daily basis did not cross higher, and the bullish percent in
the Dow failed to reverse into a column of X's and signal a "Bull
Alert" reading.  With that said, bears are still in control for
the time being.

Chart of YM03H, Daily

Looking at the YM contract on a 90-minute basis, the bearish
regression channel has been cleared on a closing basis and the
bottom of the recent long liquidation pattern is just above at
7920.  The apex of this bearish pattern appears to come in just
under the daily R2 reading of 8100, and should be more important
for bears than any other level.  There is always the chance that
the 8100-8150 level will simply become the top of a much larger
wedge (not drawn), so remember to be prepared to re-short the
contract in this area if this larger wedge pattern comes to
fruition.  If the daily pivot is cleared, the YM contract should
fall back into the bearish regression channel and give bears more
ammunition going forward and keep risk manageable (7937 and the
retracement area just above).

Chart of YM03H, 90-minute

Bullish Percent of Dow Jones: A P&F chart of the Dow shows a
strong reversal back into a column of X's on Friday (five total
back to 7900); however, the most recent quadruple bottom is just
above at 7950 and should offer some resistance for the blue
chips.  Only a move above 8200 would give a 'buy signal' and
cancel out the recent bearish objective of 7100.  As far as
the bullish percent is concerned, it remained unchanged at
13.33%.  The column of O's remains at twenty-three. Note: The
last column of O's ended at 10%.  Moreover, the next column of
X's will put this indicator in "Bull Alert" status; thus giving
bears a possible reason to take some profits off the table.  It
is both interesting that the Dow didn't get a "Bull Alert"
status, and that the bullish percent of the NYSE (much broader
index) actually fell to 39.76 and added another "O".  This should
have bears thinking Friday's rally was simply short-covering.

Good Luck.

Questions are welcomed,

John Seckinger


By Leigh Stevens

Monday is President’s Day honoring past greats especially, but many
U.S. citizens are more focused on our present leader. And, are
wondering if President Bush remains intent and determined to take
military action against Iraq. It seems the public is supportive on the
war on terrorism but doubtful about going it alone on Iraq – Blair is
our one stalwart ally, but his public is very against military action
without a further UN mandate.  Of course the U.S. can go it alone but
the end game is a big and doubtful question.

Recent polls suggest that the public is very against the nation
building (i.e., its “cost”) work that should come after a Saddam
overthrow.  Anybody besides me know what we are doing in Afghanistan
these days other than an occasional firefight?  Politically, it’s a
mess in terms of International unity.  In the age of the global
integrated economy this goes against the grain.

In terms of the market going nowhere fast, its because the economy is
on “hold” of course, as also pointed out by Chairman Greenspan.
Resolution is needed one way or the other to have a chance to sustain
an uptrend – meanwhile the market is doing what I would call “basing”
ahead of that possibility.

The S&P and the (Nasdaq) Composite rallied from the low end of
its downtrend channels after getting fully oversold.  A short-
covering type rebound should be expected in these conditions,
ESPECIALLY after the sharp build up of bearish sentiment and on
relatively low volume.  Gold retreated from technical resistance
as seen with the Gold stock index (XAU).

As the market read it on Friday, the prospects of us not going to
war with Iraq increased somewhat. Ahead of a 3-day weekend those
short wanted to take some profits. Besides which key stocks like
GE, Microsoft, Cisco and Intel were into technical support areas.

Taking at least some index put profits off the table was not a
bad idea on Friday.  However, it’s very doubtful that the rebound
will have sustainable “legs” and I suggest bearish trading
strategies again in resistance areas.  A caution on being too
quick on this as the market could continue to move sideways to
higher this week – maybe enough to confound the bears for a time.

In a volatile session, but on low volume – they often go hand and
hand – the Dow rebounded 159 points or 2% to inch back above
7900, while the Nasdaq (COMPX) advanced more, gaining 2.6% or a
gain of nearly 33 points. Much of the gain was a final hour push.
Stocks first rallied when chief U.N. weapons inspector Hans Blix
suggested that Iraq was being cooperative.  But this rally didn’t
last and stocks fell sharply again but did rebound strongly
before the close.

The Indices have broken a 4-week losing streak although the S&P
500 (SPX) was only up 5 points (+0.6%) on the week and the
Composite (COMPX) 28 points or around 2% – hey, but it’s the
thought that counts!?

The best technical clues suggesting an area for a rebound, was
provided by the Nasdaq 100 tracking stock QQQ per the trendlines
and retracement level (62%) I pointed out last week –

Of course there was an intraday dip under the trendline on

hursday, but I discount that given the upside or “bear trap”
reversal on Thursday – more on upside/downside reversal patterns
can be found in my Trader’s Corner article at –

For those who want an instant memory jog, an upside or bear trap
reversal is a move to a new low (a sharp spike to a new low for
the move is even better), followed by a close above the prior
close.  [Even more “potent” is a close above a prior day’s High,
which would have also have made it a “key” reversal in my book.]

Since I won’t repeat this chart again, key resistance looks like
25.30-25.60, then 26.30-26.50, at the top of the hourly downtrend
channel – I suggest shorting QQQ at the top of the hourly channel
if reached.

Of course, keep in mind that the upper channel line is falling
over the next few trading sessions, so resistance implied by a
trendline falls accordingly in terms of where prices intersect
the line.  But that’s why you have Q-charts, TradeStation or some
type of charting software – or on a web site – so you can track

What does not change in terms of resistance are prior significant
swing highs – currently the prior hourly (up) swing high around
26.80 on an hourly closing basis is key and the most significant
technical resistance in terms of keeping the Q’s downtrend.

Bonds fell on Friday – the 10-year (Treasury) note was off 28
32nds, as its yield rose to 3.96%.  The dollar was mixed – down
against the Yen slightly and was up marginally (to $1.0795)
against the euro.

Nearby (March) crude oil futures ran up to nearly $37 dollars a
barrel (close: 36.80) on the NYMEX (New York Mercantile
Exchange). The intraday high was only a dime shy of 37 bucks and
this makes it the highest price since the fall of 2000.  Gold
also ran up sharply during this same period 2+ years ago, with
bullion prices going from under $300 to the $375 area – not
unlike what we’ve seen over the past 2 years with the yellow

Gold prices peaked in the week before last in the low 380 area.
The top for a while? – stay tuned.  If we look at the key gold (&
silver) mining index, XAU, I wonder if the gold sector has much
further upside, per my musings on its chart –

Housing starts and the producer price index are due on Wednesday;
jobless claims, the trade balance, leading indicators and the
Philly Fed comments are due on Thursday. Friday will see the
release of the latest data on consumer prices.

With inflation in check – and why I think the gold rally is
temporary rather than a big sea change – the PPI and the CPI
numbers are not likely to move the market much.  However, housing
stats, jobless claims, leading indicators and the Philly Fed
comments are significant in terms of the clues they provide on a
further economic recovery.

With about 9 of 10 of the S&P 500 having reported their earnings
already, we can mostly look to Wal-Mart (WMT) for some spark in
terms of earnings trends after trading begins on Tuesday – WMT
reports on Tuesday after the NYSE close.  However, earnings
guidance is mostly downward revisions and Analysts are cutting
their Q1 and Q2 estimates.  Expectations are for weakness in the
first half of 2003.


S&P 500 Index (SPX) – Hourly chart:

Down down we went until the index both got oversold and reached a
trendline forming the bottom of likely channel.  What now?

Doubtful that SPX climbs above 843 and if it does, there is a
tough zone of resistance and selling interest that we can assume
starts just over 850 and extends 20 points higher.  I would like
to buy OEX and SPX puts with the SPX back into the 855-865 area,
but so would many others no doubt.  I would settle for buying S&P
puts with the 500 Index around the prior 843 high and unable to
pierce this level.

The chart pattern above has one bullish aspect that I note, but
the fundamentals don’t appear to support much of a rally at this

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

We got to the next implied downside objective around 415 in the
S&P 100, at the low end of the daily chart downtrend channel and
then some. OEX made yet another dip to the 6% lower envelope line
that its been following lower.

From this lower trading “band” or moving average envelope line,
just like a similar pattern in Sept-Oct. there was a technical
rebound. “Technical” here mostly refers to influences UNrelated
to fundamentals factors – such as when many hedge funds and
individuals that are short a lot of S&P stocks, all head for the
exit at the same time.  The fear is that nice fat profits might
slip away.

Since I am talking “technicals”, what often happens when the S&P
final rebounds substantially from the lower envelope line is a
tendency to rally to the area, or just shy of, the 21-day moving
average.  This implies a “maximum” move up to the 430 area then
good bye.  A bit higher than implied resistance at 430-432 there
are a cluster of prior hourly highs in the 435 to 439 area.

Above this zone is resistance implied by the top end of the
hourly downtrend channel which intersects in the 450 area.  Do I
think that OEX can get back up to 450 – especially after getting
down so close to 400 already?  Unlikely, but I like to point out
successive “layers” of resistance in case – I don’t know – Saddam
decides to take early retirement in Libya.

The 430-435 area is my suggested area to buy puts again, if you
don’t already own them – or are looking to re-short the market.
It would take two consecutive closes ABOVE OEX’s 21-day average
to suggest to me that this Index was headed back up the upper
envelope or to the upper channel line I mentioned.

Note on my CALL-PUT readings – the way I keep them, comparing
CBOE daily EQUITIES call volume to puts.  Option traders got
quite bearish recently judging by the sizable jump in put volume
relative to call volume on individual stocks.  Some of which –
e.g., GE, MSFT, INTC, CSCO – were looking like they were going to
pop to the upside.

There are a number of key bellwether type stocks that are getting
into price areas where the bears stop shorting them and there is
some buying interest. Keep in mind that the most money is locked
up in regular ol mutual funds that either are in cash or are LONG

Dow 30 Daily Chart -

While its certainly consistent with the way chart looks for there
to be another shot down to the 7500 area (or lower), the pattern
of 2 higher relative lows on either side of (the “wings” so to
speak) of the lowest low, is also consistent with a possible Head
& Shoulder’s bottom.

I’m not so convinced of this (a H&S bottom), but do see an
apparent bottoming process on balance going on with the major
indices.  If so, then lows often get made in the same approximate
area multiple times or lows are slightly higher than the all-time
low for that index (or is higher than the low that preceded the
most recent one).

In terms of the Dow Industrials, the average did not get as
oversold as it has in at least the prior instance shown.
However, it also did not get AS oversold as the lower low, which
may be significant in terms of suspecting that when the economic
uncertainty factor – go away Saddam – is lifted, this may be the
spark that lead to a bullish economy in the second half.  Since
this is a few months away, the market would be right on target to
mount a sustained rally anticipating this.

The foregoing is by way of saying to not get entirely bearish,
bearish, and more bearish.  All bears eventually wind up as rugs
or worm food.  Bulls may at least finish as steaks.

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Editor's Plays

Expiration Week Explosion?

I was planning on doing a low premium index option like
the DJX this weekend with expiration only four days away.
Unfortunately the Friday explosion has rocketed the
volatility and the prices for the DJX calls are too
expensive for me.

I think there is a possibility for doing something with
the QQQ @ $24.49. The Feb-$25.00 call is only $.30 cents
but it would require a +$1.00 move to profit.

The SMH was also a choice but the rebound off Thursday's
lows was incredible. At $22.00 the $22.50 call is $.45
cents but would need another $1.00 move to break even.

Both of these plays are marginal. I can see us getting
a strong bounce on Tuesday but it would require at least
one more positive day to really be assured of a profit.

Instead I elected to go with an old friend that is
slumming below the $25 level. Three guesses?

The stock split 2:1 after the close on Friday and will
be trading at the new price of $24.15 on Tuesday morning.

Think about it $24.15 for a share of stock in a company
that has nearly $50 billion in cash and makes money by
the truck load. Of course I am talking about Microsoft.

Microsoft for $24. Can you believe it? I am banking on
several million other investors that can't believe it
either. It just became far more attractive for investors
with small retirement accounts to ignore. 100 shares for
$2400 compared to 100 shares at $5800 just a month ago.
Granted there are twice as many shares but it is the
perceived value that counts.

The stock got killed after it announced earnings and the
split because many mutual funds cannot own more than a
fixed number of shares of any stock. If your fund limit
was five million then you will have to sell 2.5 million
shares post split to stay within the rules. Guess what?
Most companies don't wait they sell the shares early,
especially if the market is going down. This is what
happened to Microsoft.

I think this is the strongest tech company in the world.
This company will recover quickly when the economy recovers.

The option I am recommending is the July-$25 call MSQ-GE.
If you look it up in a quote system this weekend you will
probably see it referenced as the $125 call. The CBOE has
already assigned it as the new $25 symbol as it should be
but the quote systems have not picked it up yet.

The price should be half of the current $50 call at $4.50
or $2.25 for the $25 call. It could be a little less on
Tuesday due to premium decay.

Longer term investors would be better served to buy the
Jan-$25 call (LMF-AE) at $3.50 or the $20 call (LMF-AD) at
$6.40. That $20 option is already $4.15 in the money and
that makes the real time premium only $2.25. That would
be my first choice.  There are no puts deep enough in the
money to be worthwhile or that would be my preferred way
to play.

The stock appears to have bottomed on rising support and
it gained +$1.31 on Friday.

Own a piece of the rock!


Play updates:

EMC Call from Feb-2nd

Inch by inch, penny by penny, EMC is moving up. The $8.00
resistance is proving strong but EMC is still on track.
Considering the market set new lows for the year this week
I am still positive on EMC and will be adding it to the
Powerball portfolio today.

TMPW Put from Feb-2nd  ($11.05 when recommended)

The TMPW dip occurred right on schedule this week with a
drop to $8.17 and 3 cent below our target of $8.20. The
$1.10 March $10 put when recommended traded for $2.00 on
Thursday and nearly a +100% gain. They do not get much
better than this for doing exactly what we expected.
This play is now closed. The stock was $11.05 when

NEM Put from Jan-26th ($30.15 when recommended)

Newmont continued falling from the $30.15 level when
recommended and closed at $27.24 on Friday. The March
$27.50 put rose to $2.00 from $1.10 and the June $27.50
put rose to $3.30 from $2.25. Gold has fallen from six
year highs at $390 to close at $352. This play has
gone exactly as we expected and any further easing of
war fears could cause that support at $27.25 to break
with significantly lower lows ahead. We have plenty of
time on this play but I would not be a pig. If we hit
$25 I would exit the play. We are up substantially
and I do not see a change insight. However, keep those
stops in place in case a war breaks out unexpectedly.

AMZN Puts from Jan-19th ($21.40 when recommended)

Finally the break we needed! The tax problems with Internet
retailers may finally be the straw that breaks its back.
The Feb-$22.50 put moved back into slightly profitable
territory at $2.55 from the $2.25 when recommended.
Considering the stock rallied on bad news this is a
welcome change. I think the stock still has further
to fall but due to expiration next Friday I would close
this play now and roll out into March options. I reported
on the AMZN problems on Thursday night in the market wrap
so I will not repeat it here. Because time is expiring
on this option I am going to consider this play closed
for a breakeven. Frankly I am glad to get it. We were
right about the direction but wrong in the time frame.
This option may still continue into profitability with
further drops next week but it is not worth the risk.

DJX $85 Puts from Jan-5th. (86.01 when recommended)

Put this one in the win column. The BIG win column.
The target for this move when recommended on Jan-5th
was Dow 7700. We hit that level this week as expected.
The Feb-$85 put traded at $8.20 from the $2.85 price
when recommended. The March $85 put traded at $8.90
from the $3.40 price when recommended. The instructions
were to exit at 7700 and that level was hit on Thursday.
Chalk this one up as your Valentines present.

BZH May $50 Put - From Feb-9th ($55 when recommended)

The stock got a life from some better than expected
earnings in the sector but is still in the longer term
down trend. This is a long term play using May options
and there has been no change in the outlook. See the
Feb-9th Editors Plays for info.

Powerball - From 12/29/02

The Powerball Lottery play for December-2003 dropped
another to a loss of -$515 at the close Friday. This
is a 12-month "lottery" play and we are only six weeks
into it. Be patient. If you are not in it I would consider
it a buying opportunity. It would cost you about $740 to
buy one contract of each today. Any one contract could
repay that $740 by 12/31/03 leaving the rest as profit.
It is a high risk "LOTTERY" play but then $740 is not
much risk.

When I setup the Powerball play on Jan-1st IDTI and VTSS
did not have January 2004 options. I used the longest
option available but that was July/August.

In order to standardize the expirations I replaced them
with stocks that have January 2004 options.

I replaced the August IDTI call with a Jan-EMC call
for a net change of -.15 cents in original cost.

I replaced the VTSS July call with a GLW Jan call
for a net change of +1.30 in cost.

It would have taken $1,255 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


Seeing Red (Flags)
by Steven Price

We continue to see wild swings dominated by world events.
Picking direction over a period of days is becoming more
difficult, much less picking direction for just a couple of
hours. What world event is going to drive the markets higher?
What will be seen as a negative?  There are plenty of scenarios
offered to explain the market's reaction to certain events in
hindsight, but few that have successfully predicted the immediate
future.  Overall, we have undoubtedly been trending lower.
However, as we have approached oversold conditions and gotten a
big bounce the past couple of days, we are left to decipher
whether the bounce we've seen is due to market or world
conditions.  For that matter, we are still left to decide whether
the recent drop has been due to market or world conditions. It
seems that any moved can be explained once it is over, but
deciding what will happen next is becoming more difficult than it
has been in recent times.

Thursday's and Friday's action is a prime example of that
difficulty.  Thursday started off deep in the red.  We continued
the sell-off that has taken us down over 1000 Dow points since
the middle of January. We then got a triple digit bounce that
continued with a triple-digit gain Friday morning. That gain was
followed by a triple-digit drop, which was followed by an equally
powerful rally. Going back to the drop that got us to these
levels, why did sentiment suddenly shift after two bullish weeks
to start the year?  The obvious answer seems to be that investors
were funding their retirement plans for 2003, buoyed buy the
President's stimulus plan that included the elimination of taxes
on dividends.  When those contributions were completed, the rally
ended and we were left to focus on corporate earnings reports
that looked decent as far as beating estimates for the fourth
quarter, but painted a grim picture for 2003.  We have
undoubtedly seen institutions switch their balancing between
bonds and stocks as we have reached extreme ends of the spectrum
and that has led to some of the market activity. However, they
were most likely shifting those assets from bonds into stocks as
the Nasdaq fell over the past few years and it simply continued
lower, so while that strategy works well for traders engaging in
similar action, it does not necessarily tell us if we have found
a bottom or a top. July's closing low in the Dow was breached on
Thursday morning, but a rebound since that time has taken us
higher.  Is it merely a stop on the way to the October lows 500
points lower, or our rebound level?  Obviously this is an
impossible question to answer without a crystal ball and right
now the trend remains down.  However, as I mentioned in
Thursday's Sentiment, as we approach those bottoms and the
bullish percents become further extended to the downside, the
risks are shifting less in favor of the bears.

I have devoted some discussion in this space to the recent
patterns in the point and figure charts and we once again saw a
reversal in those signals. The reversals we got over the past
couple days were more powerful than the past few reversals in the
SPX and Dow.  In the case of the OEX, the last few reversals
varied between 3 and 5 boxes and the Dow has seen several 4-box
reversals recently, as well.  The SPX, however has seen only
three-box reversals on the last three bounces and this is not
only its biggest bounce since it rallied off of the 850 level,
but also the first bounce that has made it past the breakdown
level since giving a triple bottom sell signal back at 840.  The
Dow has now seen a 5-box reversal, which also went beyond the
strength of recent rallies.

Bullish percents are still sinking, but the Dow is becoming very
extended, down to 14% (oversold territory is 30% and lower) and
sitting right on its bullish support line.  The recent lows are
8% and 4%, so we are getting close to those levels, but yet still
heading down inspite of the rally of the last two days. The OEX
has also entered oversold territory at 28% and the SPX sits at
36%, but usually lags the others due to a higher number of

A couple of significant previous support levels today failed to
act as resistance on the end of week rally.  The Dow had been
bouncing off 7800 before finally giving in and tumbling down to
7628.  However, that tumble led to a big bounce and the only
obvious explanation was short-covering ahead of the Hans Blix
speech.  Blix had a much different tone this morning than he did
the last time, when he crucified Iraq for non-cooperation.  He
essentially said they had found nothing and that Iraq had shown
some signs of cooperation, such as allowing scientists to be
interviewed without Iraqi monitors present. The market loved the
news that maybe the U.S. case for war would be more difficult to
make and we rallied right through the 7800 level.  Then came a
turnaround sell-off that made it appear as though the rally had
just been short covering as the Dow reversed all its gains and
went into the red.  We then climbed higher all afternoon and
eventually took out the previous intraday high at the close, in
what appears to be a sign of further bullishness.  The market has
tended to trick us with new relative highs rolling over into big
losses, but what we can take from today (and yesterday) are the
most significant bullish reversals in a while. The previous floor
on the Dow prior to the drop to 7800 was between 7900 and 7950
and we are right back into that area.  If we rally above 7950 on
Tuesday, look for the next level of resistance at 8000 and then
8150.  We are getting into choppy waters and traders should keep
that in mind when choosing direction. Each bounce has rolled over
for the past month, but none have been as powerful as the last
two days. While I have a hard time making a case for bullishness
in the current market and I still believe we are seeing only an
intermediate bounce, I will try to trade what I see.  Right now I
see a big red flag for bearish positions.


Market Averages


52-week High: 10673
52-week Low :  7197
Current     :  7908

Moving Averages:

 10-dma: 7908
 50-dma: 8370
200-dma: 8695

S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  834

Moving Averages:

 10-dma:  835
 50-dma:  883
200-dma:  920

Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     :  982

Moving Averages:

 10-dma:  968
 50-dma: 1018
200-dma: 1020


The Semiconductor Index (SOX.X):  The chip stocks rallied today,
following Dell's earnings release on Thursday night.  During the
broad market drop over the past couple of weeks the SOX has
actually held steady support at 260, indicating the sell-off
might not be as decisive as it seemed.  After holding that level,
it bounced today through its previous support at 270 and finished
at 280.16.  280 had been a significant support level going back
to a head and shoulders neckline begun in November.  While we
haven't seen a decisive move above that neckline, the level it is
now sitting on should be pivotal to tell us whether we get a
rollover at that neckline, or make another run at 300.  Dell
didn't have any positive news, other than meeting estimates and
giving forward guidance in-line with expectations.  That was a
departure from other forecasts which have recently come in on the
low end and it was good enough to get the bulls interested again
after the SOX sold off from a high of 393 in December.

52-week High: 641
52-week Low : 209
Current:      280

Moving Averages:

 21-dma: 278
 50-dma: 300
200-dma: 338


The VIX ended the day in the red by over a point, but it's early
action was a warning that the morning rally might not hold.
While the market was soaring on Hans Blix weapons inspection
report to the UN, the VIX was holding up in positive territory,
rather than sinking as it does on most rallies.  That indication
bore fruit when the market rolled over, giving up 160 Dow points
after Blix finished speaking.  It also forecast a more decisive
rally in the afternoon.  As the market climbed later in the day,
the VIX sank, letting us know this rally had more staying power.
The fact that we have a three-day weekend ahead of us also may
have played a part in weekend premium selling, as traders attempt
to capture (or avoid) three days of time decay.

CBOE Market Volatility Index (VIX) = 37.10 -1.35
Nasdaq-100 Volatility Index  (VXN) = 48.38 -2.59


          Put/Call Ratio  Call Volume   Put Volume

Total          0.98        458,347       447,017
Equity Only    0.79        318,083       249,717
OEX            1.19         31,833        37,877
QQQ            1.53         40,653        62,146


Bullish Percent Data

           Current   Change   Status
NYSE          40.3    - 0     Bull Correction
NASDAQ-100    32.0    - 0     Bear Confirmed
Dow Indust.   13.0    - 0     Bear Confirmed
S&P 500       34.6    - 1     Bull Correction
S&P 100       28.0    - 1     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  1.16
10-Day Arms Index  1.38
21-Day Arms Index  1.43
55-Day Arms Index  1.36

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


Market Internals

        Advancers     Decliners
NYSE       1827          1003
NASDAQ     1930          1165

        New Highs      New Lows
NYSE        42              104
NASDAQ      58              103

        Volume (in millions)
NYSE       1,583
NASDAQ     1,289


Commitments Of Traders Report: 02/11/02

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 slightly decreased long positions, while increasing
shorts by a more significant amount.  The net result was an
increase of 8700 on the short side. Small traders increased longs
by 10,000 and shorts by 2,000.

Commercials   Long      Short      Net     % Of OI
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%)
02/11/03      412,333   472,156   (59,823)   (6.8%)

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
01/23/03      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%
02/11/03      161,126    95,618    65,508     25.5%

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


Commercials reduced longs by 1,500 and increased shorts by 3,000,
for a 6% increase in overall short position. Small traders
increased the long side by 4,000 contracts, while leaving shorts
close to unchanged.

Commercials   Long      Short      Net     % of OI
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%)
02/11/03       39,412     53,818   (14,406) (15.5%)

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
01/23/03       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%
02/11/03       29,667     8,915    20,752    53.8%

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


Commercials increased long positions by 2,000 contracts and
shorts by 600.  Small traders took a similar approach with an
increase of 800 to the long side and a small decrease to shorts.

Commercials   Long      Short      Net     % of OI
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%
02/11/03       19,826    11,800    8,026      25.4%

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
01/23/03        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%)
02/11/03        5,390     9,300    (3,910)   (26.6%)

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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Please Check the Site on Tuesday to read Jeff's Ask the Analyst


Market Watch for the week of February 17th

Major Earnings This Week

Symbol  Company               Date           Comment      EPS Est

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

PBR    Petrobras             Mon, Feb 17  -----N/A-----       1.26
TEVA   Teva Pharmaceutical   Mon, Feb 17  After the Bell      0.46

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

ANF    Abercrombie & Fitch   Tue, Feb 18  After the Bell      0.90
AMCR   Amcor Limited         Tue, Feb 18  After the Bell       N/A
BRG    BG Group              Tue, Feb 18  Before the Bell     0.28
VNT    C. A. Nac Tele Vene   Tue, Feb 18  -----N/A-----      -0.09
CU     Compania Cerv Unidas  Tue, Feb 18  -----N/A-----       0.34
CE     Concord EFS           Tue, Feb 18  Before the Bell     0.18
ECL    Ecolab Inc.           Tue, Feb 18  Before the Bell     0.44
FHCC   First Health Group    Tue, Feb 18  Before the Bell     0.33
GPC    Genuine Parts         Tue, Feb 18  -----N/A-----       0.52
GLG    Glamis Gold Ltd       Tue, Feb 18  Before the Bell     0.03
KG     King Pharmaceuticals  Tue, Feb 18  Before the Bell     0.39
LH     Lab Corp of Am        Tue, Feb 18  After the Bell      0.36
RTRSY  Reuters Group         Tue, Feb 18  Before the Bell      N/A
SNY    Sanofi Synthelabo     Tue, Feb 18  Before the Bell      N/A
STO    STATOIL ASA           Tue, Feb 18  Before the Bell     0.25
SDS    SunGard Data Systems  Tue, Feb 18  After the Bell      0.31
RSE    The Rouse Company     Tue, Feb 18  -----N/A-----       1.26
UBS    UBS AG                Tue, Feb 18  Before the Bell      N/A
WMT    Wal-Mart Stores Inc.  Tue, Feb 18  Before the Bell     0.56
WMI    Waste Management      Tue, Feb 18  Before the Bell     0.34

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

ADCT   ADC                   Wed, Feb 19  After the Bell     -0.04
ACL    Alcon Inc.            Wed, Feb 19  After the Bell      0.30
AIB    Allied Irish Banks    Wed, Feb 19  -----N/A-----        N/A
AFG    American Financial GrpWed, Feb 19  Before the Bell     0.63
BLDP   Ballard Power Systems Wed, Feb 19  -----N/A-----      -0.34
CEPH   Cephalon, Inc.        Wed, Feb 19  After the Bell      0.36
KOF    COCA-COLA FEMSA       Wed, Feb 19  Before the Bell     0.45
DCI    Donaldson             Wed, Feb 19  After the Bell      0.45
FMX    FEMSA                 Wed, Feb 19  Before the Bell     1.02
JHX    James Hardie Ind N.V. Wed, Feb 19  After the Bell       N/A
PHA    Pharmacia Corporation Wed, Feb 19  Before the Bell     0.40
Q      Qwest Communications  Wed, Feb 19  Before the Bell    -0.11
STOSY  Santos Ltd.           Wed, Feb 19  -----N/A-----        N/A
TK     TEEKAY SHIP MRSHL ISL Wed, Feb 19  After the Bell      0.67
TEM    Telefonica Moviles    Wed, Feb 19  Before the Bell      N/A
TLSN   TELIASONERA A B       Wed, Feb 19  -----N/A-----        N/A
XTO    XTO Energy Inc.       Wed, Feb 19  Before the Bell     0.43

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

AMLN   Amylin Pharm Inc.     Thu, Feb 20  Before the Bell    -0.29
AHG    Apria Healthcare Grp  Thu, Feb 20  -----N/A-----       0.49
ARW    Arrow Electronics     Thu, Feb 20  -----N/A-----       0.05
BEAS   BEA Systems           Thu, Feb 20  After the Bell      0.08
CBRL   CBRL Group            Thu, Feb 20  -----N/A-----       0.48
CIEN   CIENA Corporation     Thu, Feb 20  Before the Bell    -0.14
CXR    COX RADIO INC         Thu, Feb 20  Before the Bell     0.16
CEI    Cres Rl Est Eq Co     Thu, Feb 20  Before the Bell     0.58
DCX    DaimlerChrysler       Thu, Feb 20  02:00 am ET          N/A
DDR    DEVEL DIVERS RLTY CO  Thu, Feb 20  After the Bell      0.64
DEO    Diageo PLC            Thu, Feb 20  02:00 am ET          N/A
ENL    Elsevier NV ADS       Thu, Feb 20  -----N/A-----        N/A
ECA    EnCana Corporation    Thu, Feb 20  -----N/A-----       0.50
HAL    Halliburton Company   Thu, Feb 20  Before the Bell     0.23
HAN    Hanson PLC            Thu, Feb 20  02:00 am ET          N/A
HCC    HCC Insurance Hldng   Thu, Feb 20  After the Bell      0.50
HRL    Hormel Foods Corp     Thu, Feb 20  Before the Bell     0.37
IM     Ingram Micro          Thu, Feb 20  -----N/A-----       0.18
JDEC   J.D. Edwards          Thu, Feb 20  -----N/A-----       0.03
JCP    JC Penney             Thu, Feb 20  Before the Bell     0.66
MLS    Mills Corporation     Thu, Feb 20  Before the Bell     0.93
NXTL   Nextel Communications Thu, Feb 20  Before the Bell     0.10
JWN    Nordstrom             Thu, Feb 20  After the Bell      0.42
PDCO   Patterson Dental      Thu, Feb 20  Before the Bell     0.43
PDG    Placer Dome           Thu, Feb 20  -----N/A-----       0.08
RSH    RadioShack Corp       Thu, Feb 20  Before the Bell     0.59
RUK    Reed Elsevier NV/Plc. Thu, Feb 20  -----N/A-----        N/A
SRE    Sempra Energy         Thu, Feb 20  -----N/A-----       0.53
SCRI   SICOR                 Thu, Feb 20  -----N/A-----       0.21
SYT    Syngenta              Thu, Feb 20  Before the Bell      N/A
TGT    Target Corporation    Thu, Feb 20  -----N/A-----       0.75
TOT    Total Fina Elf        Thu, Feb 20  Before the Bell     1.27
TP     TPG NV                Thu, Feb 20  -----N/A-----       0.40
VCI    Valassis Comm Inc.    Thu, Feb 20  -----N/A-----       0.62
WGR    Western Gas Resources Thu, Feb 20  Before the Bell     0.32
WMB    Williams Companies    Thu, Feb 20  Before the Bell    -0.17

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

A      Agilent Technologies  Fri, Feb 21  Before the Bell    -0.25
ING    ING Groupe NV         Fri, Feb 21  -----N/A-----        N/A
MDG    Meridian Gold Inc.    Fri, Feb 21  -----N/A-----       0.10
PBR    Petrobras             Fri, Feb 21  -----N/A-----       1.26
TKP    Technip-Coflexip      Fri, Feb 21  Before the Bell     0.24

Upcoming Stock Splits In The Next Two Weeks...

Symbol  Company Name              Ratio    Payable     Executable

TARR    Tarragon Realty Investors 3:2      Feb. 14th   Feb. 18th
MSFT    Microsoft                 2:1      Feb. 14th   Feb. 18th
ODSY    Odyssey Healthcare        3:2      Feb. 21st   Feb. 24th
LCI     Lannett                   3:2      Feb. 28th   Mar. 03rd
EXAC    Exactech                  2:1      Feb. 28th   Mar. 03rd

Economic Reports This Week

Economists may be looking towards the upcoming PPI and CPI
reports this week but the world and the stock markets will
be watching and waiting for the next scene to unfold in the
Iraqi-UN-US saga.


Monday, 02/17/02

Tuesday, 02/18/02

Wednesday, 02/19/02
Housing Starts (BB)     Jan  Forecast: 1.775M  Previous:   1.835M
Building Permits (BB)   Jan  Forecast: 1.800M  Previous:   1.887M

Thursday, 02/20/02
Initial Claims (BB)   02/15  Forecast:   386K  Previous:     377K
PPI (BB)                Jan  Forecast:   0.4%  Previous:     0.0%
Core PPI (BB)           Jan  Forecast:   0.1%  Previous:    -0.3%
Trader Balance (BB)     Dec  Forecast:-$38.5B  Previous:  -$40.1B
Leading Indicators (DM) Jan  Forecast:   0.0%  Previous:     0.1%
Philadelphia Fed (DM)   Feb  Forecast:   11.0  Previous:     11.2

Friday, 02/21/02
CPI (BB)                Jan  Forecast:   0.3%  Previous:     0.1%
Core CPI (BB)           Jan  Forecast:   0.2%  Previous:     0.1%
Treasury Budget (DM)    Jan  Forecast:  75.6%  Previous:    75.4%

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

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Follow the Bouncing Ball

Wow!  That's about all I can say after a wild day of movement
that gave us just about every emotion and gave both bulls and
bears a scare at various times throughout the day. I had been
talking about a short-covering rally ahead of and possibly during
Hans Blix' testimony at the U.N. regarding weapons inspections in
Iraq.  And boy, did those shorts cover.

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The Option Investor Newsletter                   Sunday 02-16-2003
Sunday                                                      2 of 5

In Section Two:

Daily Results
Call Play of the Day: EMC
Put Play of the Day: EXPE
Dropped Calls: None
Dropped Puts: CCMP, WHR, GWW, AZO, AT, PII

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For Best Alignment view in Courier Ten Font

CALLS              Mon    Tue    Wed   Thu  Week

AMGN     52.59    0.85   0.47  -0.83 -0.67  0.46  Channeling
EMC       7.91    0.55  -0.27  -0.18  0.21  0.51  New, uptrend
NPSP     23.68    0.49  -0.16  -0.53  0.06  1.58  New, new supply
TECD     21.51    0.53   0.33  -0.21  0.23  1.71  New, into gap
TRMS     41.02   -0.28   0.78  -1.46 -0.79 -1.19  Holding over $40


AT       44.88   -0.35  -0.28  -0.80 -0.51  0.38  Drop, stopped
AZO      65.70   -1.11   1.31   0.43 -0.43  1.60  Drop, stopped
CB       48.69    0.80  -1.25  -0.43  0.14 -0.61  Weakness
CCMP     44.31    0.28  -0.78   0.77 -0.17  2.03  Drop,SOX strong
EXPE     59.75   -0.87   0.27   0.16 -1.94 -3.10  New, Rolled
GWW      46.17   -0.10   1.22  -0.81  0.03  1.77  Drop, Market
HIG      50.30    0.32  -1.16  -0.58 -0.93 -1.68  New, weakness
PII      50.30    0.95  -0.03  -1.77  0.36  1.65  Drop, over $50
WHR      50.42    0.53  -0.45  -0.04 -0.63 -0.38  Drop, never in

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Call Play of the Day:

EMC - EMC Corporation - $7.91 +0.05 (+0.48 for the week)

See details in play list

Put Play of the Day:

EXPE – Expedia, Inc. $59.75 (-3.45 last week)

See details in play list


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.




CCMP –44.31 +2.38 (+2.34 for the week) On Friday morning the
semiconductor index broke out of its recent trading range – but
not in the direction we hoped it would.  The sector was lifted by
a positive reaction to DELL’s (and to a lesser extent, NVDA’S)
quarterly earnings announcements.  There were also some bullish
comments out of the Taiwan Semi (TSM) camp.  While these
developments probably would’ve taken a back seat to a U.N.-
induced market sell-off, the major indexes actually rallied on
Hans Blix’s comments. This proved to be too much for CCMP bears
to handle.  Shares proceeded to move through $44.00 and our stop-
loss at $44.06.  Our short play was stopped out for a loss of
less of one percent.  On the 60-minute chart, we see that the
SOX.X has traced a double-bottom pattern.  This formation, along
with the breakout from the recent consolidation range, is a sign
that the index could be headed for a test of overhead resistance
at 290.  Further upside action in the SOX.X could push CCMP above
the 200-dma near $45.00.  The stock faces more substantial
resistance at $48.00.  A failed rally from this level might
provide another bearish entry point.


WHR $50.42 +1.09 (-0.17 for the week) Our entry trigger was set
on this short at $48.67.  WHR bounced hard, with the rest of the
broader market, following Hans Bilx UN presentation that seemed
to indicate weapons inspections may continue for a while and the
prospect of war may not be as immediate as most investors
believed.  Whether that ends up being true or not, this stock
managed to erase the previous day's loss and pop back above the
$50 level that seemed to provide resistance after serving as
support since late January.   We don't like the move back over
$50 and since we were never triggered, we are simply going to
call a do-over and drop this one from the play list.  If it does
roll over and break down below our trigger, it would look much
better as a short and we would consider adding it back at that


GWW  $46.17 +1.47 (+1.27 for the week) Grainger is one of the
broad sector stocks that caught fire with the rest of the market
following the Blix testimony. it managed to erase the entire
week's loss in one fell swoop and burst back above its recent $45
breakdown level to just about where we entered the short. We are
concerned about the broad market action and this stock has some
room to bounce if the rally continues.  The 21-dma still sits
just above the current level, at $46.81 and more aggressive
traders that choose to hold the play can target that level as a
stop from here, but we are going to let it go after it bounced
twice from $44.  A breakdown below those recent bottoms may
signal a new round selling, so if we pullback with a big drop on
Monday and the stock gets below that level, traders may want to
give it another chance.  If not, use a pullback to pick up some
gains on an exit.


AZO $65.70 (+1.55) Just when AZO looked like it would break back
under the $63 level on Thursday, the shorts threw in the towel
and the stock recovered back to just below the $64 level at the
close.  Friday's session was ruled by news events, whipping the
markets strongly in both directions until the bulls finally won.
AZO found early support just above $63 and then the buying began.
After stalling just below our stop at $65, the final ramp into
the close took out that resistance with conviction.  That broke
the stock above the 2-week descending trendline, so we are
obviously dropping the play tonight.


AT $44.88 (+0.38) After more than two weeks of consistently
tracing out lower highs and lower lows, AT really caught fire
on Friday with the rampant short-covering in the afternoon
session.  AT recouped all of its losses from the first four
days of the week and then closed above its 10-dma for the first
time since the middle of January.  The initial rally stalled
just below the $44.50 level, but when it continued higher into
the close, it removed any question about dropping the play this
weekend.  AT was a nice winner of a play while it lasted, but
the music stopped on Friday, so we'll chalk it up as a small


PII $50.30 (+1.53) Our PII play got a reprieve on Tuesday with
its rally failure just below the descending trendline, and that
rollover was enough to drive the stock down to new recent lows
near the $47 level.  But things changed dramatically on Friday,
with the broad market rebound taking our play along for the
ride.  It still looked like resistance at the descending
trendline would serve to keep the stock under pressure up until
the final hour.  Then the final group of shorts covered and PII
blew through both that trendline and our $50.10 stop.
Additionally, the stock closed above its 10-dma for the first
time in over a month, solidifying our rationale for dropping
the play this weekend.


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.

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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Contact Support
The Option Investor Newsletter                   Sunday 02-16-2003
Sunday                                                      3 of 5

In Section Three:

New Calls: NPSP, EMC, TECD-
Current Calls: AMGN, TRMS
New Puts: EXPE, HIG

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offers true direct access to each option exchange
offers stop and stop loss online option orders
offers contingent option orders based on the price of the option or
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offers fast option executions

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NPSP - NPS Pharmaceuticals Inc. +1.32 (+1.72 for the week)

Company Summary:
NPS discovers, develops and intends to commercialize small
molecules and recombinant proteins as drugs, primarily for the
treatment of bone and mineral, metabolic, gastrointestinal, and
central nervous system disorders. (source: company release)

Why We Like It:
Sometimes a company can have a great idea, but run into
roadblocks along the way.  Fellow OI call play Trimeris ran into
a similar problem to NPS - good products, but difficulty making
enough of them. NPSP saw its stock drop 25% last May when it
warned that trials of osteoporosis drug Preos could be disrupted
because of a lack of supply of the material needed to make it.
The company came out a week ago and said it had now acquired
enough of the material to complete clinical trials.  It has also
signed long-term agreements with its Synco, it current supplier
and partner Boehringer Ingelheim that will allow it to meet
commercial requirements if the drug is approved.  Even prior to
that announcement, the company saw its rating raised at Morgan
Stanley from 'equal-weight' to 'over-weight' on January 29.
While the biotechs have been a tough lot to predict, Salomon
Smith Barney analyst Elise Wang recently stressed focusing on
those companies with products with strong earnings growth, or
with products in late stage testing, highlighting NPSP as one of
those stocks.  NPS said it expects to complete a late-stage
clinical trial of Preos in September.

The stock took a beating in late January, but has rebounded
nicely and was defended by Lehman, which cited its expectation
for strong data in the next 12 months for both Preos and AMG-073
and said the stock's recent weakness presented a buying
opportunity.  Apparently investors stepped up and took advantage
and now the stock has not only bounced after setting a double
bottom just over $20, but is approaching a vacuum are to the
upside just above $25.  That $25 mark is also where bearish
resistance comes in on the point and figure charts and
conservative traders may want to hold off until the stock clears
that hurdle before going long. However, the stock blew through
its 200-dma on Friday on a closing basis.  That 200-dma had
provided a ceiling over the last three weeks and we like the
strength of the bounce on a volume spike to get our play
activated at current levels. If the stock does break above the
$25 mark, which will likely present some resistance, we will get
a new PnF buy signal at $25 and a bullish vertical count of $34.
That count can grow with the current column of 'X'.  Set stops at
$20.94, just below recent closing lows.  More aggressive traders
can set stops below $20 to allow `for another bounce from those
double bottoms $20.30.  Longer term traders should note the
company will be releasing earnings on February 27 and as is our
policy, we will be dropping the play ahead of those earnings.

BUY CALL MAR-22.50 QKK-CX OI= 61 at $2.90 SL=1.45
BUY CALL MAR-25 QKK-CE OI= 432 at $1.50 SL=0.75
BUY CALL MAY-22.50 QKK-EX OI= 13 at $4.10 SL=2.05
BUY CALL MAY-25 QKK-EE OI= 569 at $2.80 SL=1.40

Average Daily Volume = 432 K


EMC - EMC Corporation - $7.91 +0.05 (+0.48 for the week)

Company Summary:
EMC Corporation is the world leader in information storage
systems, software, networks and services, providing automated
networked storage solutions for organizations across the
globe.(source: company release)

Why We Like It:
Friday's rally in the techs was quite powerful, lifting the
Nasdaq Composite 32 points and breaking through previous
resistance (and support) at 1300.  EMC added only a nickel to the
price, but in actuality looks much stronger than may of the techs
that saw big gains.  Those stocks showing the biggest numbers
over the last two days are also the stocks that have been the
weakest and had some room to bounce.  We'd rather put our call
money on a stock that has been in a consistent uptrend and has
decent future prospects.   EMC has held its upward trend
throughout the market decline of the last month, establishing a
rising support trend line, indicating higher lows ever since the
end of December.  The current formation has encountered
resistance around $8, so has a rising bottom and a flat top.
This pattern is very bullish on an upside breakout.  The stock
has actually been putting together a series of higher lows as it
has risen since bottoming with the rest of the market last

The company recently introduced a new line of data storage boxes
named Symmetrix DMX, which have been positively received by beta
testers and analysts alike. The new product could account for 50%
of the Symmetrix sales for EMC.  The company is betting a big
investment on the product and CEO Joe Tucci said, ""We have
clearly said that in this year, we will grow faster than any
high-end storage provider... We (currently) have over 50% market
share. Clearly, we expect to grow faster than the rest of the
high-end of the market."  In addition to the mew system, the
recent earnings release and projections from Dell are a big boost
for EMC, as well. Dell is a significant partner of EMC's in the
storage area and its guidance matched expectations as it
continues to build market share.  While matching expectations
does not seem to be a reason to bang the drum, it has been a rare
occurrence recently, with companies such as Microsoft and IBM
making cautious statements about the future.   Analysts expect
EMC's sales to increase steadily throughout 2003, with revenue
for the year pegged close to $6 billion. While that is short of
2001's numbers, it is $550 million higher that 2002 and earnings
projections of 11 cents per share far outstrip 2002's loss of 5

A look at the point and figure chart shows the stock in a column
of 'X', having spiked higher from the October low of $4 per
share.  The stock rallied, got a pullback to a higher low and has
once again moved higher, giving a buy signal at $8.  The current
bullish vertical count puts the stock close to $15, which
coincides with its bearish resistance line and that number can be
used as an eventually target for longer term players.  That would
amount to almost a doubling in price and we are going to target
the next level of resistance on the PnF at $12.50 as a more
reasonable target on the play. The stock has not managed to close
above $8 and conservative traders can wait for that achievement
before getting in long.  We will enter the play here, but with a
recent high of $8.28, momentum traders may want to wait for a
break over $8.30 for entry. Set stops at $6.49, just below recent
lows, as that would indicate a break in the trend of higher lows.

BUY CALL MAR-5    EMC-CA OI= 701   at $3.00 SL=1.45
BUY CALL MAR-7.50 EMC-CU OI= 10274 at $0.90 SL=0.00
BUY CALL APR-5*   EMC-DA OI= 3461  at $3.10 SL=1.55
BUY CALL APR-7.50 EMC-DU OI= 27808 at $1.15 SL=0.00

Average Daily Volume = 15.7 mln


TECD – Tech Data Corporation $21.51 (+2.01 last week)

Company Summary:
Tech Data Corporation is a provider and distributor of
information technology products, logistics management and other
value-added services.  The company distributes microcomputer
hardware and software products to value-added resellers, direct
marketers, retailers corporate resellers and Internet resellers.
TECD and its subsidiaries distribute to more than 80 countries
and serve over 100,000 resellers in the United States, Canada,
the Caribbean, Latin America, Europe and the Middle East.  The
company's broad assortment of vendors and products meets the
customers' need for a cost-effective link to those products
through a single source.

Why We Like It:
There aren't many stocks that can claim a 10% gain last week,
with the broad markets still very nervous ahead of military
action in Iraq.  Even more impressive would be if it were a
technology stock involved in the Information Technology food
chain. Guess what?  That's exactly what we have this weekend.
TECD got pummeled just over a week ago, after the company warned
of a 15-25% shortfall in earnings for the 2004 fiscal year.
First Albany followed up by slashing its estimates for the
company and the stock fell from the $24 level almost to the $19
level on very heavy volume.  That was a 21% haircut, and
apparently investors have now figured all the bad news is
discounted in the price of the stock.  In the past 5 days, the
stock has been rebounding smartly, and on pretty robust volume
too.  We're not looking for any great rally out of the stock,
just a move up to fill that gap near the $24 level.  A quick dip
to the $20-50 level (intraday support for the past 4 days) would
make for the ideal entry, although we aren't going to pass up a
momentum entry either.  Those looking to trade a breakout will
want to wait for a trade above the $21.75 level (just above
Friday's intraday high) before jumping in.  Our initial stop is
set at $19.74

*** February contracts expire next week ***

BUY CALL FEB-20*TDQ-BD OI=101 at $1.75 SL=0.75
BUY CALL MAR-20 TDQ-CD OI=888 at $2.50 SL=1.25
BUY CALL MAR-22 TDQ-CX OI= 15 at $1.00 SL=0.50
BUY CALL JUN-22 TDQ-FX OI=  3 at $2.15 SL=1.00

Average Daily Volume = 1.09 mln

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options,” claims author Larry Spears in his new compact guide book:

“7 Steps to Success – Trading Options Online”.

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and clicking on the link to the book on its home page.



AMGN – Amgen, Inc. $52.60 (+0.51 last week)

Company Summary:
The biggest of the Biotech big guns, AMGN makes and markets
therapeutic products for hematology, oncology, bone and
inflammatory disorders, as well as neuroendocrine and
neurodegenerative diseases.  Anti-anemia drug Epogen and immune
system stimulator Neupogen account for about 95% of sales.  Its
Infergen has been commercialized as a treatment for hepatitis C,
and Stemgen is approved for stem cell therapy in Australia,
Canada, and New Zealand.  The company has a strong pipeline of
new drugs in various stages of development as well as research
and marketing alliances with Hoffman-La-Roche and
Johnson & Johnson.

Why We Like It:
After pulling back from its recent attempt at pushing through
resistance, AMGN wasn't looking very good Thursday morning,
once again testing the $51 support level.  But then a funny
thing happened, as buyers showed up to support the stock right
at its ascending support line that has been in force since
late September.  While AMGN stabilized near the $51.50 level,
it wasn't having much success at actually pushing significantly
higher until the broad market rebound really got underway Friday
afternoon.  That pushed the stock back up to the $52.50
support/resistance level, leaving the play right at a critical
level.  We were looking for a push through the $52.75 level to
give us confirmation on a bullish move and the bulls didn't
quite get there before the clock ran out on Friday.  Traders
that took advantage of the rebound from the $51 level to open
new positions are looking good right now, and we can still use
a dip and rebound from above that level (preferably above
$51.50) as a solid entry point.  A continuation of Friday's
bullish move early next week can be used to open new positions
on a successful push through that $52.75 level.  The big picture
is that AMGN is still maintaining its trend of higher lows and
as long as that pattern continues, an eventual breakout over
$54 seems likely.  Critical to the success of our AMGN play will
be whether the Biotechnology sector (BTK.X) can solidify its
rebound of the past couple days and push up through resistance
in the $325-330 area.  Maintain stops at $50.50.

*** February contracts expire next week ***

BUY CALL FEB-50 AMQ-BJ OI=11310 at $2.95 SL=1.50
BUY CALL MAR-50*AMQ-CJ OI= 3657 at $4.20 SL=2.50
BUY CALL MAR-55 YAA-CK OI=22967 at $1.25 SL=0.50
BUY CALL APR-55 YAA-DK OI=30363 at $2.35 SL=1.25

Average Daily Volume = 12.6 mln


TRMS – Trimeris, Inc. $41.12 (-0.51 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:
Despite the strong rebound in the broad markets on Friday, the
Biotechnology sector (BTK.X) was notably absent from the leader
board throughout the day.  Although it did manage to finally end
the day in the green, it wasn't far off its worst levels since
the middle of October.  Despite that sector weakness, our TRMS
play bravely fought its way back in the afternoon session.
After a quick spike down to the $39.50 level Friday morning,
the stock spent most of the day drifting around the $40.50 level
before a surge of short-covering volume showed up in the final
hour of trade, propelling price back over $41.  TRMS isn't out
of the woods by any stretch of the imagination, but Friday's
rebound is encouraging in that it confirmed the strength of that
$40 support level.  While aggressive players could certainly
have bought the rebound from the $40 level, those with a more
conservative risk profile will need to exercise a bit of
patience.  Should Friday's sharp afternoon rebound continue next
week, a push through the $41.50 level can be used for new
entries, as it would have TRMS once again over its 10-dma
($41.19) and recent intraday resistance.  Those looking for a
real breakout before playing will need to wait for the bulls
to push through the $43 resistance level that held them in check
last week.  Note that the 50-dma has now fallen below $43
(actually $42.89) and a break over this level should have TRMS
bulls setting their sights on the $45 level.  Keep stops in
place at $39.50, because if that support fails to hold, we'll
clearly have a busted play on our hands.

*** February contracts expire next week ***

BUY CALL FEB-40 RQM-BH OI= 445 at $2.20 SL=1.25
BUY CALL MAR-40*RQM-CH OI= 298 at $4.20 SL=2.50
BUY CALL MAR-45 RQM-CI OI= 336 at $1.65 SL=0.75
BUY CALL APR-45 RQM-DI OI= 715 at $2.25 SL=1.25

Average Daily Volume = 517 K


EXPE – Expedia, Inc. $59.75 (-3.45 last week)

Company Summary:
Expedia is a provider of online travel services for leisure and
small business travelers, offering one-stop shopping and
reservation services with real-time access to schedules, pricing
and availability.  The company's global travel marketplace
includes direct-to-consumer Websites offering travel-planning
services at Expedia.com, Expedia.co.uk, Expedia.de, Expedia.nl
and Expedia.it.  In addition, the company provides
travel-planning services through its telephone call centers and
through private label travel Websites through its WWTE business.
WWTE is a division of Travelscape, Inc., one of EXPE's wholly
owned subsidiaries.

Why We Like It:
Between the still-weakening economy and the growing geopolitical
and terrorism concerns, travel-related stocks have not been on
investors' "Buy" lists.  And that situation isn't likely to
change to any appreciable degree until one or both of those
impediments to earnings growth are removed.  Ever since early
December, shares of EXPE have been in a persistent downtrend,
with every rebound providing yet another opportunity for entry
into new bearish positions.  The descending trendline connecting
the early December and early January highs currently rests at
$63, and with the declining 20-dma and 200-dma both drifting
southwards below that line, we've got some stiff overhead
resistance.  The latest rebound attempt came on February 6th
after the company reported better than expected earnings and
announced a 2-for-1 split.  Remember the days when that sort of
news was good for a 20% gain the next day?  Well, not this
time.  Dampening investors' spirits was news that the company's
was resigning.  So even with a Legg Mason upgrade the morning
after earnings, the upside action was short-lived (1 day)
before the selling party resumed.  The past week has been a
series of lower highs and lower lows, but after testing the
$58.75 level on Friday, EXPE went along with the short-covering
theme in the rest of the market, recovering all its intraday
losses by the close.  It doesn't take a rocket scientist to
see that the bulls expended a lot of energy getting back to
break even, and it is our hope that they continue on that path
when the markets reopen on Tuesday.  A rally to the $62 level
looks like a high-odds short entry opportunity, with both the
20-dma and 200-dma clustered around that level.  A weaker rally
attempt that fails near the $61 level is also a viable entry,
especially if it occurs at the same time the broad market is
rolling over as well.  Initial stops are set at $63.10, just
above the descending trendline.

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

BUY PUT FEB-60 UED-NL OI=4925 at $1.85 SL=1.00
BUY PUT MAR-60*UED-OL OI=2565 at $4.20 SL=2.50
BUY PUT MAR-55 UED-OK OI=2351 at $2.35 SL=1.25

Average Daily Volume = 2.20 mln


HIG - Hartford Financial Services $37.00 (-1.67 last week)

Company Summary:
Hartford Financial Services Group is a diversified insurance and
financial services company.  The company provides investment
products, individual life, group life and group disability
insurance products, as well as property and casualty insurance
products in the United States.  HIG writes insurance and
reinsurance in the United States and internationally, and is
organized into two major operations: Life and Property & Casualty.

Why We Like It:
Blame it on the terrorists, investment losses, liability concerns
or just the overall market environment, but Insurance stocks have
not been doing well lately.  This fact is borne out by the action
in the Insurance index (IUX.X), which broke both its July and
October lows last week. The index finally finding a bit of support
following some bullish comments from insurance giant AIG.  Last
week, we added a put play on CB, and with its lack of
participation in the short-covering rally on Friday, we decided
to add another bearish play in the sector.  HIG has been in a
persistent downtrend since mid-January, with the last test of
the declining 10-dma (currently $38.76) being a month ago.  A
rumor surfaced on Thursday that HIG might announce a secondary
offering soon, but trading sources disputed that rumor, saying
the company won't be able to raise money in the near-term due
to their asbestos liability along with investors' reluctance
to buy insurance shares during a period of heightened terrorism
concerns.  While that rumor may not have hurt the stock, it
certainly didn't help, as HIG slipped below its October lows
($37.25) at the close on Thursday and found intraday resistance
near that level on Friday.  The PnF chart is downright ugly,
with the most recent column of O's now pointing to a bearish
price target of $24.  An oversold rebound early next week could
provide a very attractive entry point, as the $38.75 level ought
to make for some stiff resistance.  More aggressive traders can
target a breakdown below Thursday's intraday low ($36.25) as
their entry into the play.  Our initial stop is set at $39.50.

*** February contracts expire next week ***

BUY PUT FEB-40 HIG-NH OI=108 at $3.20 SL=1.50
BUY PUT MAR-40*HIG-OH OJ=116 at $4.10 SL=2.50
BUY PUT MAR-35 HIG-OG OJ=543 at $1.40 SL=0.75

Average Daily Volume = 1.31 mln

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The Option Investor Newsletter                   Sunday 02-16-2003
Sunday                                                      4 of 5

In Section Four:

Current Put Plays: CB
Leaps: Was That The Bottom?
Traders Corner: Covering Your “6”, But What About Your 1 through

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CB - Chubb Corporation $48.69 (-0.75 last week)

Company Summary:
Chubb Corporation, incorporated in June 1967, is a holding
company with subsidiaries principally engaged in the property and
casualty insurance business. The Company presently underwrites
most forms of property and casualty insurance. The Company's
Property and Casualty Insurance Group writes non-participating
policies. Several members of the Property and Casualty Insurance
Group also write participating policies, particularly in the
workers' compensation class of business, under which dividends
are paid to the policyholders.

Why We Like It:
Remember that pattern of lower highs and lower lows that
attracted us to the CB play in the first place?  Well, it is
still very much in place, as the stock opened at its high of
the day and after plunging down to a fractionally lower low
just above the $47.50 level, had to struggle to get back into
the green by the close.  That isn't very impressive from a
bullish standpoint, as the broad market really ramped up into
the closing bell.  Even the Insurance index (IUX.X) tacked on
nearly 2.5% to round out the day.  That leaves the impression
that, even if the market or IUX index continue their rebound
next week, CB is likely to lag that advance, making it a solid
put candidate, especially if the broad market rebound once
again fails.  The PnF chart still has a bearish price target
of $44, and at the current rate, that target looks very
attainable.  The best possible entry into the play right now
looks to be a rally failure in the vicinity of $50, which is
both recent historical resistance, as well as the declining
10-dma ($50.15).  Given the way the stock has been finding
support at its slightly lower lows over the past couple days,
we need to exercise caution with trying to enter on what
appears to be a breakdown move.  But for those so inclined,
a trade below $47.50 looks like the appropriate trigger point.
If trading momentum to the downside, make sure to confirm
weakness in the IUX index before taking the plunge.  On the
outside chance that CB is finding a bottom near current levels,
we're lowering our stop to $50.75, just above last week's
intraday highs.

*** February contracts expire next week ***

BUY PUT FEB-50 CB-NJ OI=612 at $1.90 SL=1.00
BUY PUT MAR-50*CB-OJ OI= 95 at $3.30 SL=1.75
BUY PUT MAR-45 CB-OI OI=100 at $1.15 SL=0.60

Average Daily Volume = 1.41 mln

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Was That The Bottom?
By Mark Phillips

I'm going to keep it short and sweet this weekend, as I quite
honestly don't know what to make of the market action late last
week.  Everything appeared to be proceeding towards the October
lows in an orderly fashion, with rallies continually capped at
lower levels.  Then an interesting thing happened on Friday, as
we got some serious short-covering at the end of the day.  Here's
what I found interesting about it.  Nothing happened to reduce
the risk of a terrorism attack over the long weekend, and the
Bush administration seems just as intent to go to war with Iraq
as they have been for the past several months.  Nothing that
transpired at the UN seems to have had any impact except that it
seems that whatever is done will occur without the participation
of the French and the Germans.  Big Deal!

So I'm left with the thought that maybe the market has fully
discounted the prospects of war and is once again turning to
developments in Corporate America for direction.  Wow, wouldn't
that be a pleasant change of pace?  I think there's some merit
to this idea, because of how the market reacted.  Thursday night
brought a couple of really nice earnings reports from DELL and
NVDA (I'm ticked about both of them, but more on that below) and
the market started out on Friday in the green.  But the bulls
didn't want to bet too heavily ahead of the Blix report and as
he revealed the details of his report the market released a big
sigh of relief, quickly shooting the DOW up to just below the
7900 level, nearly 300 points above Thursday's intraday low.
Then things got choppy through the middle of the day until the
final hour.  I think what happened is that the bears figured
out that if anything, the geopolitical situation had cooled off
a bit in the near term and they turned their attention to the
Thursday night's earnings reports.  By now, the bulls had done
the same thing and it was a good old-fashioned short-squeeze
into the close.

So the $64,000 question is whether what we saw was a bottom or
if Friday's gains are going to be taken away by the cranky bears
again next week.  Personally, I would side with the bearish
thesis, as most of the bullish percent readings still have a
ways to go before reaching oversold territory.  The DOW is the
only one that looks to be close to a bottom (now below 14%),
with the SPX at 34%, the OEX at 28% (just barely into oversold),
the NDX still up at 32% and the COMPX at 38%.  With the notable
exceptions of the SPX and COMPX, the other indices are all still
in Bear Confirmed, so we're still premature in trying to call a
bottom to the recent slide.  That said, the bears are now
carrying the bulk of the risk in this market, and we saw what
effect that can have on Friday.

Continuing in its role as the Great Humiliator, the market has
continued to use me as its foil over the past several weeks.
Another way of looking at it is that timing is everything!  Need
proof? Take a look at the following list of recent LEAPS
Portfolio plays, all of which were very frustrating on a
personal level.

BBH (Put) - Entered at $89.52, and stopped out at $93.05
GM (Put) - Entered at $39.95, and stopped out at $40.50
DELL (Call) - Entered at $26.81, and stopped out at $23.34

Why are these plays so frustrating?  Because each of them
stopped me out (some just barely) before reversing substantially
in my favor.  Have you taken a look at where they're trading
as of Friday's close?

GM has now fallen to $33.10 and looks to be headed lower.  After
barely stopping us out, the BBH was back to testing the $85
support level (also the site of the 200-dma) late last week.
And DELL really took off on Friday, to the tune of almost 11%
following its strong earnings report.  Want an idea of the
magnitude of DELL's move?  In one day, the stock wiped out an
entire MONTH's losses.  So I'm not upset about getting stopped
out of any of these plays.  What irritates the $%*& out of me
is just barely getting stopped out on each of them before they
turned around and ran in my favor.  If any of you are holding
onto positions in any of these plays from my prior coverage, I
would consider tightening stops on the Put plays to no worse
than breakeven.  DELL is a stickier question, as the PnF chart
is still on a Sell signal.  But based on Friday's action, I
think that Sell signal was a bear trap and now the stock is
going to go on to fulfill the bullish aspirations I had for it
a couple months ago.  See what I mean about timing?

The real wild card in my opinion is the action in the VIX.  I
think it is really interesting that even when the market was
selling off early on Thursday, the VIX still couldn't top 41.
That wasn't an accident!  I highlighted that issue in my
commentary last weekend, and the chart I showed got even more
stretched out of proportion this past week, with the OEX falling
all the way to 408...but still no breakout in the VIX.  Call
me a conspiracy nut if you like, but the simple fact is that
the VIX didn't break out because there wasn't enough fear in
the market to cause that to occur.  Now we'll find out if it
was nerves of steel or just plain complacency.  I've replicated
last week's chart for reference here.

OEX vs. VIX - Daily Chart

As I said last week, another sharp selloff in the market "should"
spike the VIX well above the 40 level.  But it didn't happen.
When what you expect to happen in the market doesn't, that should
be a wake up call, that perhaps you're wrong.  At the very
minimum it should tell you that market participants with deeper
pockets than you or I are acting differently than we thought they
would at this point in the game.  That's a warning to be very
careful.  With that, let's move onto the plays, as we've got
some major changes to deal with this week.



Watch List:

DJX - Dropped from the active list, but it seems it is time to
switch sides.  I'm swapping this one from Put to Call and now
we're looking for a bullish entry.

BEAS - Friday's action in shares of BEAS was really interesting,
as the stock didn't participate in the short-covering party.
Instead, the stock just meandered around its recent support near
$10, closing just fractionally above there, just as it has for
the past week.  No hurry to enter this play, as we are waiting
for that bullish support line at $8.50 to be tested.  Keep the
entry target set where it is and exercise patience.

NVDA - All right, now that just ticked me off!  Working
perfectly according to my plan, NVDA cracked the $10 support
level early last week, and it seemed well on its way to
fulfilling our entry requirements.  Then the company came out
with earnings that were 400% better than consensus estimates
and this was real earnings, not pro-forma!  Where was the
comment from the company giving some indication of this blowout?
Sounds fishy to me!  But all I'm really complaining about is
missing out on a great entry point, because now we need to try
to find a way to get aboard.  I'm now looking at the area of
Friday's gap to measure the strength of the stock.  A successful
rebound from anywhere in the $10.50-11.00 area can still be
used to enter the play.  I'm just not comfortable with chasing
the stock higher with the PnF chart still on a Sell signal.

QCOM - Now that's what I call a perfect entry.  Check out the
details below.

MSFT - Still waiting to see what transpires after the split next
Tuesday.  I expect a drop after that event, but it will likely
depend on what is going on in the broad market.  Given the
explosion in DELL on Friday, MSFT's nearly 3% gain seems rather
tame.  I'm sticking with the initial entry strategy, which means
after the split, we'll be looking for a dip into the $21.50-22.50
area to provide entry.  In the meantime, we'll just keep it on
the radar screen.  If anything significant happens next week,
look for updates on MSFT in the Market Monitor.

Despite the impressive earnings late last week from the likes
of DELL and NVDA, I continue to believe this is a
geopolitically-driven market.  That means the market can soar
for apparently no reason, just as easily as it can dive for
the same invisible reasons.  Conservative traders should be
on the sidelines until there is some resolution to the Iraq
situation and even those with a more aggressive approach should
still be playing with reduced capital positions.  Keep in mind,
the VIX is still trolling along just below its recent highs,
and if it something 'bad' happens, it will likely punch through
that 41 resistance level like a hot knife through butter!

Have a great extended weekend!


LEAPS Portfolio

Current Open Plays


QCOM   02/14/03  '04 $ 40  LLU-AH  $ 4.60  $ 4.90  + 6.52%  $30
                 '05 $ 40  ZLU-AH  $ 7.90  $ 8.30  + 5.06%  $30


LEAPS Watchlist

Current Possibles


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  $10-11        JAN-2004 $ 12  KMF-AV
                            CC JAN-2004 $ 10  KMF-AU
                               JAN-2005 $ 12  XMF-AV
                            CC JAN-2005 $ 10  XMF-AU
MSFT   02/09/03  $21.50-22.00  WAIT Until After 2/18
DJX    02/16/03  $77.50        DEC-2003 $ 80  DJX-LB
                            CC DEC-2003 $ 76  DJX-LX
                               DEC-2004 $ 80  YDJ-LB
                            CC DEC-2004 $ 76  YDJ-LX


New Portfolio Plays

QCOM - Qualcomm $34.70  **Call Play**

The rebound in the broad markets late last week gave us just
about the perfect setup for our QCOM play.  Recall that we
added the stock to the Watch List due to its stubborn resilience
throughout the January swoon in the broad market, holding
stubbornly to the $35 support level.  Well, we really wanted to
take our first position on a successful rebound from that level,
but we never got the chance.  Some negative press from the WSJ
on Thursday morning knocked the legs out from under the stock,
driving it down to just below our secondary entry target of $33
and then the stock popped up above that level after being
defended by Lehman brothers on both the issue of INTC competition
and expansion in China.  Bang!  Entry point!  Confirming the
bounce, QCOM fell on Friday to almost kiss the 200-dma ($32.39)
before a powerful afternoon rebound drove the stock to just below
the $35 level.  Subsequent dips and rebounds above the 200-dma
can still be used to enter the play, while more conservative
traders may want to wait until the stock is able to once again
close over the $35 level.  Remember that we targeted the $33
level for entries, as the PnF chart had that level pegged as its
bearish price target.  Now that it has been achieved, we'll have
to watch for a new PnF Buy signal, as well as the weekly
Stochastics turning bullish again.  To avoid being stopped out
prematurely, I'm setting our initial stop at $30.

BUY LEAP JAN-2004 $40 LLU-AH $4.90
BUY LEAP JAN-2005 $40 ZLU-AH $8.30

New Watchlist Plays

DJX - Dow Jones Industrials $79.09  **Call Play**

Ready to rumble again?  It seems like we've been playing the DJX
one way or the other for months on end now, and the plain and
simple reason is that it gives us lots of metrics for monitoring
the play.  That and the fact that it tends to have some pretty
significant moves, if we can only get a decent entry point early
in the move.  Well with the DOW's Bullish percent falling to 14%
last week and the weekly Stochastics just trying to turn a
bullish reversal, I think we're about as close as we're going to
get to a solid bullish setup.  The one remaining fly in the
ointment is the bearish measuring objective from the Head &
Shoulders breakdown, which is near th3e $75 level.  That tells
me to expect one more push to the downside before the bulls
truly show some conviction.  But even with all the geopolitical
risks, I don't think we'll see a move much below the $75 level
on this downward move.  In fact, my biggest concern is that the
bulls just ramp this thing away from us next week for no good
reason.  If that happens, I won't be chasing it.  Either the
market gives us the entry we're looking for, or we let it go
without us.  Speaking of entries, I'll bet you're wondering
what I'm hoping for.  First up, I'd prefer to see this rally
attempt fail below the $80 level and give us another drop to the
$76-77 area, to confirm it as support.  But we may not go quite
as low on the next downward move, so I'll set the entry target
at $77.50, subject to potential revisions, based on action in
the broad market.  Once we're in the play, we're going to start
with a wide stop set at $74.

BUY LEAP DEC-2003 $76 DJX-LX **Covered Call**
BUY LEAP DEC-2004 $76 YDJ-LX **Covered Call**


NEM - $27.64 I sure hope those of you following along with this
play heeded my repeated advice to harvest gains near the $30
level!  With the price of gold surging so strongly in recent
weeks and NEM unable to break above the $30 level, it seemed
like a bit of divergence setting in, and not in favor of the
play.  Sure enough, gold finally relaxed from its recent highs
and settled at the end of a rather volatile week more than $30
below its recent highs.  We were stopped out of our NEM play on
Monday when the stock fell below both our $28 stop and the
50-dma.  Note that this was the first close under the 50-dma
since charging higher in early December.  At its best levels
our NEM play was sitting with better than a 40% gain, but with
volatility coming out of the stock over the past few weeks,
we've done well to get out at par, right where we started.  While
we've exited the play for now, I'll be watching for another
opportunity to play the long side in the weeks to come, as I
think the bull market in gold has a long ways to run after
this correction has run its course.

DJX - $79.09 That was close enough, and it is time to pull the
plug on this bearish play.  Although we never officially took a
position in the play, those that did, got a nice little ride for
their trouble.  We were initially looking bearish the DJX up
near the $88 level, with an eventual target of $75-77 in mind.
Isn't it interesting that the DJX traded down to just above $76
on Thursday before the solid rebound to round out the week.  It
has been a winning play for those that chose to take it, but now
with the DOW bullish percent deep in oversold and the weekly
Stochastics trying to turn up, I think it is time to close this
one out.  While I don't personally think last week's rebound will
continue higher from here with the war fears still lingering
about, I think we may have seen the bottom for this cycle.

GS - $66.70 Turn out the lights, the party's over.  I'll be the
first to tell you that I've been impressed with the resilience
of this Brokerage stock over the past month.  Even with the
extreme weakness in the broad market and the Brokerage sector
(XBD.X), I expected to see more weakness from GS.  I thought
the breakdown under the $67 level was going to lead to much
lower levels, but apparently not, with the $64 level apparently
providing strong support.  What really convinced me to pull the
plug was the break of the descending trend.  GS entered into a
steady descending trend back in the middle of January, when it
rolled over just below $76.  Friday's late-day short covering
blasted the stock through that descending trendline for the
first time in a month, and on strong volume too.  For those of
you that were following the play, I think it is time to close
it out and move on.

IBM - $77.45 Too late to the party, is my excuse on IBM.  The
ideal entry would have been up near the $88 level, but that was
before I even listed it on the Watchlist.  After I did highlight
the stock, there wasn't one decent bounce to give us a good entry
into the play and I think we may be looking at the bottom for the
time being.  Note the strong rebound from Thursday's dip below
the 200-dma and on Friday Big Blue ended right at its high of the
day.  Finally, we have the weekly Stochastics trying to bottom in
oversold and the daily once again turning up.  I'm dropping the
play in favor of some of our new bullish candidates.


Covering Your “6”, But What About Your 1 through 5?
By Mike Parnos, Investing With Attitude

You've heard about Spain's famous "Running of the Bulls"?  But
did you know there are two "follow-up" events?  The "Soiling of
the Pants." And then the "Burying of the Idiots."

Well, we at the Couch Potato Trading Institute (CPTI) can’t help
the idiots that have already been soiled and buried.  However,
for those who are still breathing, relatively unsoiled and
reasonably coherent, we can offer some guidance.

Building Your Parachute
Readers have asked of how to trade safely in their IRA accounts.
As much as we at the CPTI like our complicated, low risk spread
strategies, there is a problem.  Only a select few brokerages
allow spread trading or pure (unmarried) option purchases in an

So, in a situation where you have to own stocks (we HATE owning
stocks, but . . .), can you do it without risking the entire
value of the stocks?  Yes.

Readers on this site are very familiar with covered calls.  One
of the “selling” points of a covered call is that it’s supposed
to provide you with a cushion.  A buck?  Two?  That’s no cushion.
That’s a joke.  Even if you sell an ITM (in-the-money) covered
call, you’re still taking a substantial risk – especially since
most traders don’t have the discipline to close out a position
before it can do serious damage to their account.  Hey! Dirty
Harry said, “a man’s got to know his limitations.”
Unfortunately, too few traders know theirs.

At the CPTI we need something more substantial than a simple
covered call.  We’re not gamblers and we recognize the fact that
we’re not going to be right all the time.  We want our risk to be
small and defined.  No surprises.  Below is a hypothetical
examples of how you can be optimistic and cover your “6” (I watch
“JAG”) at the same time.

Dialing Up AOL
AOL is trading at $10.50.  Where do you think it’s going to be by
January 2005?  Could it be at $15?  20?  25?
Buy The Stock -- Buy 1,000 shares of AOL at $10.50 = $10,500
Buy Your Insurance -- Buy 10 contracts of the AOL January 2005
$10 put for $2.70 = $2,700

Your out-of-pocket (cost basis) for the position would be
$13,200.  That means that you would not be profitable until AOL
trades above $13.20.  But you’re optimistic, right?  Miss Cleo
personally told you AOL would be over $20.  George W. should have
such good sources . . .

What A Bargain!
Look at what you paid for your insurance -- $2.70 – for 22
months.  $2.70 seems like a lot of money, but it’s only 12.3
cents per month – and you’re protected from $10 all the way down
to zero!

What If . . .
AOL is $18.00 by January 2004 expiration (in 10 months)?
a) You could close the entire position.  Sell the AOL for $18.
Plus, your 2005 $10 put still has a year to go and may have a
value of about $.20.  So you’ve taken in $18.20.  You’re profit
would be about $5,000.

b) But wait!  You just checked with Miss Cleo again and she said
“don’t sell! AOL is going to $30!”  You can repeat the process by
buying the January 2006 $17.50 put.  The numbers would be
approximately the same and you would have locked in your profit.

This method of trading is commonly used (by knowledgeable
traders) in regular (non-IRA) brokerage accounts.  It allows them
to lock in profits without selling the stock – which could avoid
potential capital gains tax ramifications.

So, if you’re right – and patient – this is a method that can
save you from catastrophic events and allow you to lock in
profits – for only pennies a month.

You Want More?
There are ways to further enhance your return using this same
a) You can actually sell a covered call on AOL if you believe its
move up will be slow and methodical.  What if you only took in an
average of $.25 per month? Multiply that by 22 months and you
would have an additional $5.50 over the life of the position.
b) You could also (not in an IRA) sell an OTM (out-of-the-money)
put against your long January 2005 $10 put and possibly generate
an additional $.15 per month.

These “enhancing” strategies may better be used with a more
volatile stock.  By selling a covered call too close, you risk a
sudden upward move of the stock and having the stock called away
prematurely.  Plus, selling against your long put, unless it’s
far OTM, can limit your downside protection.

Risk vs. Peace Of Mind
Your risk was $.50 (the difference between where you originally
bought the shares of AOL) plus the $2.70 you paid for the January
2005 $10 put.  You would lose this $3.20 if AOL closed below $10
in January of 2005.  But you were bullish on AOL.  Look at all
the peaceful nights of sleep you will have had.  You didn’t have
to worry about Ted Turner being caught wearing Jane Fonda’s
bikini underwear at a truck stop with three midgets and a salami.

Plug In General Electric’s Numbers
Using the AOL example above, let’s try it on GE – another widely
held stock people are long-term bullish on.
GE is trading at about $22.50
Buy 1,000 shares of GE at $22.50 = $22,500
Buy 10 contracts of the GE January 2005 $20 put for $3.40 =
(GE does not have any January 2005 $22.50 calls – which would
have been preferable).
Total out of pocket would be $_____________
Risk: ______________

Note:  GE is currently paying  3.4% interest, which you will be
collecting as long as you own the stock

Position #1: BBB Iron Condor – Closed Friday at $86.75.
An Iron Condor is a credit position consisting of both a bull put
spread and a bear call spread. The objective is for the BBH to
finish anywhere within the $85-$95 range.  BBH has traded down
and will hopefully continue to bounce off support.

Position #2: MMM Iron Condor – Closed Friday at $125.09.
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 trading days.

Position #3: SMH Straddle – Closed Friday at $22.01.
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 only four trading days left to expiration.

Position #4: QQQ ITM Strangle – Closed Friday at $24.49.
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 $72.15.
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.  XAU has been moving lower.  We’ll keep an eye on this
one.  Time is working in our favor.

Position #6A:  MMM Condor – closed Friday at $125.09.
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
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

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The Option Investor Newsletter                   Sunday 02-16-2003
Sunday                                                      5 of 5

In Section Five:

Covered Calls: A Conservative Approach To Covered-Calls
Naked Puts: Success Basics
Spreads/Straddles/Combos: A Brief Respite!

Updated In The Site Tonight:
Market Watch: Ready for a Reversal
Market Posture: Big Bounce

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offers true direct access to each option exchange
offers stop and stop loss online option orders
offers contingent option orders based on the price of the option or
offers online spread order entry for net debit or credit
offers fast option executions

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



Trading Basics: A Conservative Approach To Covered-Calls
By Mark Wnetrzak

With the editor of this section away on a much-needed vacation,
it's a great time to review the fundamentals of one of the most
popular stock-option strategies.

Investors usually write covered-calls to generate monthly income,
collecting the premium for the sale of an option against a stock
position in his or her portfolio.  This conservative strategy can
be used effectively on all type of stocks as long as the outlook
(fundamental or technical) for the issue is favorable.  One of the
advantages to this approach is that it allows new investors to
learn successful trend-trading techniques with a small margin of
safety while managing the combined position for upside profit and
downside risk.  This underlying basis for this strategy is a high
probability of limited profit.  The primary advantage to a novice
trader is the technique is easy to use and the resultant position
is more conservative than outright stock ownership.  In writing an
option on the stock, the investor has insured the issue against a
future drop in value.  Of course, the downside risk in ownership
is not eliminated, only reduced.  In addition, the actual cost of
opportunity loss or potential upside movement can be substantial.
There are other, more subtle benefits and disadvantages but these
are the most common reasons that investors choose (or avoid) this

Each week we receive a number of questions regarding the various
approaches to the investment strategy of selling covered-calls.
In our personal portfolios, we utilize the "in-the-money" covered
write as a primary technique for consistent profits.  This method
is easy to master and works in harmony with a low maintenance, low
risk investing style.  The theory behind this approach is to be
"aggressively conservative."  This tactic is in contrast to the a
popular "conservatively aggressive" outlook used by many traders,
where the underlying position is bullish, (based on OTM calls) and
requires an upward movement from the stock for profit.  In general
we are traditional, long-term investors with contempt for excessive
risk and the potential for large losses.  Studies suggest (and our
results confirm) that the average investor will make substantially
greater returns through the consistent profits from "in-the-money"
covered writing than he/she would using the high risk, high reward
approach of more aggressive positions.

You may think that this technique is far too conservative to yield
favorable returns however, the "magic" ingredient of the strategy
is the power of compound interest.  Covered call writing allows
investors to potentially compound their returns on stock ownership
each month of the year.  Unfortunately, while most investors begin
writing covered calls with the goal of compounding their money on
a monthly basis, many lose focus of the fundamental outlook of the
technique (consistent, low risk profits) and begin to concentrate
on higher, single transaction returns.  This is a common mistake
and it can substantially increase risk and the probability of loss.
The market historically offers a 2-4% monthly (annualized) return
for this strategy but with diligent research and analysis, and
proper money management, the margin of profit can be increased.
In our personal portfolios, we attempt to establish positions
that offer on average, a 4-6% (8-12% on margin) monthly return on
investment.  Even with this meager profit, the long-term portfolio
growth is excellent, due to the unique mathematics of compounding.
Earning 3% per month in a personal portfolio, without compounding
or margin trading, equates to a 36% yearly return.  We have yet to
find a bank or CD that matches that rate.  Obviously, most retail
option traders regard a 3% monthly return as far too low.  In fact,
why would anyone want such a paltry reward when the market offers
such great potential for wealth.  There is answer is quite simple:
RISK.  Any strategy that yields 10% will be riskier (on a purely
theoretical basis) than one offering a 3% return.  The old adage,
"The greater the risk, the greater the reward" is quite accurate.
Regardless, some of you will learn the hard way, just as we did.
After getting hammered on the majority of aggressive positions, we
made the transition to ITM covered-writes with lower returns.  Now
our portfolio value grows (most of the time) on a consistent basis.

The goal of the covered-call writer is to have a good selection of
favorable positions with adequate downside protection.  With this
approach, an investor reduces risk by entering several stock and
option plays with a predetermined conservative profit target for
each one.  We strive for a 5-8% monthly return in the newsletter
but again with a lower profit target, the higher the probability
of a favorable outcome and the lower the risk.  To further reduce
the potential for catastrophic loss, a trader should diversify his
market exposure through a wide variety of covered-call positions.
The stocks you purchase should generally represent companies of
different types in a variety of favorable industries.  Most novice
investors ignore this principle and consequently, their portfolio
losses are substantial when a heavily weighted sector falls "out
of favor."  Many experts suggest you should limit each investment
to no more than 10% of your overall portfolio value.  This is very
important to the success of the covered call strategy as you don't
want one issue to have a significant impact on your overall gains
or losses.  The fact is, no one really knows what a specific stock
is going to do in the future.  History suggests that even the most
prolific traders are correct in only slightly more than one-half
of their directional forecasts and that statistic reinforces our
basis for choosing to hedge poor selections with "in-the-money"
covered writes.

Before you open any position, it is important to understand the
strategy that you are using and identify the specific goals for
that particular trade.  You can't make good decisions without
knowing the mechanics of a specific technique.  In addition, don't
use complex or advanced methods simply because they are intriguing.
The best strategy is usually the simplest one that accomplishes
your goals.  Prior to executing a transaction, you should know
exactly what the break-even (cost basis) point is, and be prepared
to take action if the underlying issue reaches that price range.
Once you have a candidate in mind, do your homework!  Study the
company and the calendar; upcoming events, earnings dates and any
other scheduled reports.  When you have a superior knowledge of a
stock and its industry, you are way ahead of the investor that
trades simply on intuition or outside advice.

Portfolio management is critical to the success of any portfolio.
After you take a position in a particular issue, stay informed by
monitoring all the news and announcements affecting that issue.
Observe the daily progress of the your stocks and realize that you
have the ability and control to adjust or close the position at any
time.  Obviously you do not need to check the prices on an hourly
basis, but we do recommend that you review each session's closing
quotes.  News and public opinion can have a significant impact on
a stock's price and unfortunately, it is impossible to research
"future" events before you buy an issue.  The key is to be fully
prepared for any outcome because the most difficult lesson comes
when you close a losing trade.  Indeed, it is very hard to learn
to exit unsuccessful plays in a timely manner but the simple fact
is, there is no reason to hang on to a losing position when there
are so many other profitable plays that deserve your time and
money.  Accept your losses, learn from your mistakes (evaluate
each one critically) and move on!  With any strategy losses are
inevitable and instead of being surprised, you must anticipate
them.  History has proven that a percentage of the covered write
positions selected will be unprofitable thus, when the situation
arises, it is not regarded as a failure but rather an integral
part of the trading system.  Your personal portfolio should be
evaluated based on the sum of its positions, rather than each
transaction.  In this manner, success is gauged by growth in
portfolio value and the losses become less significant.  That is
one of the principal reasons for entering several positions; it
becomes much easier to identify and act on a potentially negative
play when it doesn't have a substantial effect on your overall

The concepts of most exit and adjustment strategies are relatively
simple but there is no way to develop a specific guide for proper
position management.  With stock and option combinations, the key
is to evaluate the risk-reward outlook of each possible scenario
and construct a position that fits your trading plan and technical
outlook for the underlying issue.  Success with this strategy lies
in one objective; a consistent flow of monthly income with limited
portfolio risk.  The focus of play selection and management should
be to continually generate an acceptable level of option premium
while protecting against the potential for downside losses.  Any
positions that become unfavorable due to changes in the fundamental
or technical characteristics of the underlying issue should be
removed from the portfolio before they can generate significant
deficits.  Catastrophic failures are not unavoidable but they can
be sufficiently managed to reduce the effects of the shortfall.
Obviously, each situation will require a different solution but in
general, a trader should try to limit individual position losses
to 20%.  Unfortunately, there are some occasions when issues fail
without warning, leaving no opportunity for exit or adjustment.
Unexpected events simply occur; earnings warnings, shareholder
lawsuits, negative news in the industry or sector and changes in
public sentiment.  All of these activities can affect the success
of an individual position but with a diversified portfolio, the
long-term effects are minimal.

Our approach to "in-the-money" covered calls is designed to lock
in profits whenever possible and reduce the inevitable losses to
a minimum.  A rise in share value is the ultimate goal of stock
ownership and with this strategy, a significant short-term move
can provide additional opportunities for profit.  When the share
value rises substantially after the initial position has been
established, you have several choices.  You can do nothing, get
"called-out" and accept the original return that was established
when the play was opened.  If the option is priced near parity,
you can close the play early or, you may also choose to adjust
the position to match the new outlook for the underlying issue,
"rolling" the call up and forward to a higher strike price.  When
you roll up (repurchase the current sold call and sell a higher
strike call), the profit potential of the position is increased.
Unfortunately, the downside break-even point is also increased by
the amount of debit required to complete the transaction.  That
is the main reason most traders transition to a future expiration
date; it reduces the debit required for the new position.

While it is not always compatible with our weekly candidates,
there are a number of benefits and advantages to long-term stock
ownership.  If that is your intention, additional measures are
necessary when utilizing "in the money" covered-writes.  As
expiration nears and the time-value premium disappears from the
written option, you should consider rolling forward to reduce the
likelihood of early assignment.  The overall profit potential of
the position will be increased and the risk versus reward outlook
for the combination can be adjusted, consistent with your forecast
for the movement of the underlying issue.  With deep-in-the-money
calls, most of the time premium vanishes long before expiration.
However, as long as time value remains in the call option, there
is little risk of early assignment.  When the option price (bid)
falls to parity or a discount, there is a considerable probability
of exercise by arbitrageurs; specialists and floor traders who do
not pay commissions for trading.  When this situation occurs, you
should endeavor to roll-forward or adjust the position in some
manner that prevents a monetary loss through unexpected assignment
of the short option.

Trade Wisely!


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 our subscribers, 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 editor of this section does not take actual positions in any
published plays and the summary comments are 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 in
any way 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    6.20  FEB  5.00  0.65    0.29*   8.9%
MSTR    20.78   20.83  FEB 20.00  1.85    1.07*   8.2%
CKFR    18.25   19.55  FEB 17.50  1.25    0.50*   6.4%
ORB      5.02    5.30  FEB  5.00  0.35    0.33*   6.1%
LSS     15.01   16.37  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    5.48  FEB  5.00  0.75    0.31*   5.7%
RCOM     5.71    5.47  FEB  5.00  0.90    0.19*   5.7%
NFLX    13.20   14.24  FEB 12.50  1.15    0.45*   5.4%
ALA      5.76    7.58  FEB  5.00  1.10    0.34*   5.3%
ALKS     8.07    7.54  FEB  7.50  1.00    0.43*   5.3%
WEBM    10.89   11.94  FEB 10.00  1.55    0.66*   5.1%
ALO     16.00   15.72  FEB 15.00  1.95    0.95*   4.9%
FTS      8.39    9.30  FEB  7.50  1.20    0.31*   4.7%
MVK     15.34   15.95  FEB 15.00  0.80    0.46*   4.6%
ALN     13.15   13.23  FEB 12.50  0.90    0.25*   4.4%
JDEC    13.86   12.52  FEB 12.50  2.05    0.69*   4.2%
ADLR    13.45   12.05  FEB 12.50  1.45    0.05    0.5%
EFII    17.46   16.70  FEB 17.50  0.70   -0.06    0.0%
OSUR     7.85    7.00  FEB  7.50  0.65   -0.20    0.0%
MMR      7.92    6.72  FEB  7.50  1.00   -0.20    0.0%
LMNX     5.16    4.20  FEB  5.00  0.60   -0.36    0.0%
ABMD     4.97    3.78  FEB  5.00  0.45   -0.74    0.0%
MEDC     9.31    6.14  FEB  7.50  2.20   -0.97    0.0%
MEDC     9.26    6.14  FEB  7.50  2.15   -0.97    0.0%
CURE    18.15   15.87  FEB 17.50  1.15   -1.13    0.0%

EMIS     5.66    5.48  MAR  5.00  1.10    0.44*   7.0%
JDSU     2.68    2.81  MAR  2.50  0.40    0.22*   7.0%
ASKJ     5.86    6.20  MAR  5.00  1.25    0.39*   6.1%
DNDN     5.50    6.10  MAR  5.00  0.85    0.35*   5.5%

* = Stock price is above the sold striking price.


Finally, some upside activity in the market!  Even if it is
only for a brief period, it sure makes the portfolio summary
look better.  In the current environment it's surprising that
any of the covered-call plays are positive but Friday's move
suggests there may be some "light at the end of the tunnel."
Thomas McManus, a popular market analyst at Banc of America
Securities, said he sees "attractive equity valuations" and a
"meaningful economic pickup in 2003-04."  I hope that outlook
is correct because it is getting hard to find any stocks with
bullish trends.  As noted last week, Med-Design (NASDAQ:MEDC)
was closed for a small loss and Abiomed (NASDAQ:ABMD), McMoran
(NYSE:MMR) and Curative Health Services (NASDAQ:CURE) are also
candidates for early exit.  Luminex (NASDAQ:LMNX), Electronics
For Imaging (NASDAQ:EFII) and Orasure (NASDAQ:OSUR) are the
most prominent "watch-list" members, however in this (bearish)
market, almost every stock is subject to a sell-off at a the
drop of a hat.

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


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

ARRS	  5.14  MAR   5.00  AQC CA  0.60   27   4.54   35    8.8%
EMIS	  5.48  MAR   5.00  MTQ CA  0.90  418   4.58   35    8.0%
ALA	  7.58  MAR   7.50  ALA CU  0.65 1932   6.93   35    7.1%
GLW	  5.18  MAR   5.00  GSG CA  0.55 13k+   4.63   35    6.9%
SEPR	 11.17  MAR  10.00  ERQ CB  1.90  168   9.27   35    6.8%
RSAS	  5.90  MAR   5.00  QSD CA  1.25   78   4.65   35    6.5%
NFLX   14.24  MAR  12.50  QNQ CV  2.30   663  11.94  35    4.1%

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).

ALA - Alacatel  $7.58  *** On The Rebound! ***

Alcatel (NYSE:ALA) is a provider of advanced telecommunications,
Internet, networking and optics products and services, integrating
communications onto a single broadband network and creating unique
end-to-end networks that help people communicate.  With operations
in 130 countries, the firm sells terrestrial and submarine optical
transmission systems and in direct subscriber line (DSL) services.
Alcatel's primary business services include high-speed Internet
access, terrestrial and submarine optical networks and intelligent
networking.  The company's many customers are telecommunications
operators and Internet service providers, as well as businesses
and consumers.  In early February, investment bank Morgan Stanley
lifted its price target and earnings forecasts on this company and
investors who believe there is growth potential in the European
telecom market should consider this position.

MAR 7.50 CALL  ALA-CU  LB=0.65  OI=1932  CB=6.93  DE=35  TY=7.1%

ARRS - Arris Group  $5.14  *** New Trading Range? ***

Arris Group (NASDAQ:ARRS) develops and supplies equipment and
technology for cable system operators and other broadband service
providers.  The company specializes in developing advanced cable
telephony equipment, enabling the delivery of converged services
(voice, video and data) through broadband local access networks,
and designing and engineering hybrid fiber-coax architectures.
The firm's complete solutions for Internet protocol and optical
transport allow broadband service providers to deliver a range of
integrated voice, video and data services to their subscribers.
The company's product offerings are divided into three categories:
broadband, transmission, optical and outside plant, and supplies
and services.  Arris Group was formerly known as Broadband Parent
Corporation, and is the successor to ANTEC Corporation.  Earlier
this month, Credit Suisse First Boston said analyst Monica Gould
raised her 2003 earnings estimate for Arris Group on expectations
of a "modestly higher level of business among (Arris') existing
customer base."  That's good news and investors have pushed the
issue to a multi-month on increasing volume.

MAR 5.00 CALL  AQC-CA  LB=0.60  OI=27  CB=4.54  DE=35  TY=8.8%

EMIS - Emisphere Technologies  $5.48  *** Own This One! ***

Emisphere Technologies (NASDAQ:EMIS) is a biopharmaceutical firm
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 in
an oral form.  The company has pioneered the oral delivery of
injectable drugs, including proteins, peptides, polysaccharides
and other compounds not 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.  Emisphere is one of our favorite small-cap
drug stocks and investors who like the outlook for the company
can establish a low risk cost basis in the issue with this play.

MAR 5.00 CALL  MTQ-CA  LB=0.90 OI=418  CB=4.58  DE=35  TY=8.0%

GLW - Corning  $5.18  *** Recovery Underway! ***

Corning Incorporated (NYSE:GLW) is a worldwide, technology-based
firm that operates in three business segments: Telecommunications,
Advanced Materials, and Information Display.  Telecommunications
produces optical fiber and cable, optical hardware and equipment,
photonic modules and components and optical networking devices for
the worldwide telecommunications industry.  Advanced Materials has
specialized products with properties for customer applications
utilizing glass, glass ceramic and polymer technologies.  The major
businesses within this segment include environmental products, life
science products, semiconductor materials and optical and lighting
products.  The Information Display Segment makes glass panels and
funnels for televisions and cathode ray tubes, LCD glass for flat
panel displays and precision lens assemblies for projection video
systems.  Shares of GLW have been slowing recovering since hitting
an all-time low last October and it appears the company is on track
for a long-term rebound.  Investors can speculate on that outcome
with this conservative position.

MAR 5.00 CALL  GSG-CA  LB=0.55  OI=13763  CB=4.63  DE=35  TY=6.9%

NFLX - Netflix  $14.24  *** Up-Trend Intact! ***

Netflix (NASDAQ:NFLX) is an online entertainment service in the
United States that provides more than 600,000 subscribers access
to a comprehensive library of more than 11,500 movie, television
and other filmed entertainment titles.  The company's standard
subscription plan allows subscribers to have three titles out at
the same time with no due dates, late fees or shipping charges.
Subscribers can view as many titles as they want in a month and
they select these titles at the firm's Website (www.netflix.com)
aided by its proprietary CineMatch technology.  They receive them
on DVD by first-class mail and return them to the company at their
convenience using prepaid mailers.  Once a title has been returned,
Netflix mails the next available title in a subscriber's queue.
Netflix is becoming popular among movie-watchers and the company's
subscription base in growing exponentially.  Investors who think
this will translate into higher share values can profit from that
outcome with this position.  Target a lower "net-debit" initially,
to increase the potential yield in the play.

MAR 12.50 CALL  QNQ-CV  LB=2.30  OI=663  CB=11.94  DE=35 TY=4.1%

RSAS - RSA Security  $5.90  *** A Technical Bounce? ***

RSA Security (NASDAQ:RSAS) is a provider of electronic security
(e-security) solutions that are designed to help organizations
ensure the authenticity of the people, devices and transactions
involved in e-business.  The company's core competencies are in
two-factor user authentication solutions, Web access management
software, digital certificate management solutions and encryption
software.  Through its RSA SecurID, RSA ClearTrust, RSA Keon and
RSA BSAFE product lines, the company directly addresses critical
e-security requirements for e-business.  Shares of RSAS slumped
in late January after the company announced losses for the fourth
quarter and all of 2002.  However, the E-security company also
posted a sequential growth in revenue and a favorable order rate
as bookings exceeded revenue by approximately 10% for the fourth
quarter.  Investors who think the stock is "fairly" valued can
establish a cost basis near recent buying support (and below the
long-term MA) with this position.

MAR 5.00 CALL  QSD-CA  LB=1.25  OI=78  CB=4.65  DE=35  TY=6.5%

SEPR - Sepracor  $11.17  *** Drug Sector Speculation ***

Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company
dedicated to treating and preventing human disease through the
discovery, development and commercialization of pharmaceutical
compounds, including product candidates directed toward serving
unmet medical needs.  The firm's proprietary compounds are either
single-isomer or active metabolite forms of existing drugs, which
Sepracor refers to as improved chemical entities, or new chemical
entity compounds, which are unrelated to current products.  Beyond
the multitude of lawsuits, the most recent news for SEPR occurred
in mid-December when the company announced it is on track to seek
government marketing approval for its new insomnia drug.  Estorra,
a unique compound used to treat transient and chronic insomnia, has
successfully completed clinical Phase III studies and the company
recently announced that it has been granted U.S. Patents covering
the use of Estorra brand eszopiclone for the treatment of insomnia.
Investors who agree with a bullish near-term outlook for the issue
should consider this position.

MAR 10.00 CALL  ERQ-CB  LB=1.90  OI=168  CB=9.27  DE=35  TY=6.8%



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

BELM	 6.47	 MAR	 5.00	  QBL CA  2.00   56   4.47   35   10.3%
AYE	 7.65	 MAR	 7.50	  AYE CU  0.90  204   6.75   35    9.7%
CRY	 5.34	 MAR	 5.00	  CRY CA  0.80   48   4.54   35    8.8%
AMKR	 5.02	 MAR	 5.00	  QEL CA  0.45 1199   4.57   35    8.2%
PLUG	 5.10	 MAR	 5.00	  PQL CA  0.50 1004   4.60   35    7.6%
JDEC	12.52	 MAR	12.50	  QJD CV  1.00   58  11.52   35    7.4%
NEOF	10.40	 MAR	10.00	  QZX CB  1.15    5   9.25   35    7.0%
RMBS	13.69	 MAR	12.50	  BNQ CV  2.10 1634  11.59   35    6.8%
SNDK	16.09	 MAR	15.00	  SWQ CC  2.15  342  13.94   35    6.6%
IMCL	10.96	 MAR	10.00   QCI CB  1.65  298   9.31   35    6.4%
NXTL	12.89  MAR	12.50	  FQC CR  1.25 11k+  11.64   35    6.4%
FFIV	13.00  MAR	12.50	  FLK CV  1.35   53  11.65   35    6.3%
HEPH	 5.41	 MAR	 5.00	  QGQ CA  0.75  329   4.66   35    6.3%
QSFT	10.53	 MAR	10.00	  QUD CB  1.20    7   9.33   35    6.2%
ITMN	18.33	 MAR	17.50	  IQY CW  2.00 1625  16.33   35    6.2%
IDCC	13.23	 MAR	12.50	  DAQ CV  1.55 2388  11.68   35    6.1%
SBL	 9.90	 MAR	10.00	  SBL CB  0.60  231   9.30   35    5.6%
NVDA	12.04	 MAR	10.00	  UVA CB  2.45 5783   9.59   35    3.7%
CENT	23.07	 MAR	22.50	  EQH CX  1.40   22  21.67   35    3.3%
ROK	22.30	 MAR	22.50   ROK CX  0.80   33  21.50   35    3.2%


Options 101: Success Basics
By Ray Cummins

In this unique game, the education never ends, and since stocks
are dynamic, ever-changing entities, traders must continuously
improve their skills to be successful.  When the market becomes
unruly or difficult to forecast, it’s important to concentrate on
historically proven methods that provide the most accurate means
of identifying primary directional trends and the character of
individual issues.  In most cases, the preferred technique for
experienced options traders is charting or technical analysis.

The recent slump in technology and industrial issues highlights
the potential downside risk in the stock and options market.  It
also sets the stage for widespread speculation among investors
and gives rise to the "doomsday" analysts.  However, technical
traders should not be persuaded by the onslaught of media hype
and propaganda such as "sell every rally," that is fashioning
much of the current market sentiment.  Historical charts should
continue to guide your decisions and during periods of excessive
pessimism, the most important patterns to study are long-term.
Traders generally use daily charts for entry and exit signals but
the best way to determine major support and resistance levels is
through the analysis of weekly or monthly time frames.  Primary
support and resistance levels are especially significant during
periods when the market appears to be overextended or near a
potential climax and by carefully reviewing long-term cycles and
trends, a trader can identify areas where significant supply or
demand will likely be encountered.  In addition, major reversal
and continuation patterns found in daily charts also occur with
both weekly and monthly periods and the significance of these
formations is strikingly similar.

In the Covered-Call and Naked-Put sections, our methodology of
selecting stocks with chart analysis and option pricing models
has been very successful regardless of the market’s condition.
In most cases, we take a purely technical view with regard to
each individual issue and our decision-making process is based
on the stock’s past trading history along with its current share
value and primary directional trend.  We carefully analyze the
price action of each candidate using a wide range of technical
indicators to determine if the issue meets our minimum criteria
for a favorable position.  The secret is to identify relatively
strong issues early in a bullish cycle where there is far less
downside risk and longer time frames often provide more accurate
indications in that respect.  After we have compiled a list of
potential stocks, a thorough review of the option premiums is
conducted to determine if the overall position offers sufficient
downside protection, relative to the issue’s technical history
and price support.  Once the minimum acceptable cost basis has
been established, it is relatively easy to select positions in
which the return on investment warrants our participation in a

Most traders agree that technical analysis is an art and this
concept is even more apparent when we are near the end of a
bearish market environment.  The best indicators can be highly
unreliable when extreme emotion dictates the daily movements in
stocks and it is far more difficult to earn consistent returns
under these conditions.  The best we can do is focus on methods
that have worked well in the past and simply let the technical
condition of each individual issue be our guide.  In short, we
use the more recent price action of the stock to alert us to
favorable opportunities while at the same time relying on the
longer-term patterns to determine if the movement is likely to
continue.  After the position is initiated, the performance of
the issue will determine our future actions.  If we are wrong
about the character of the underlying stock, we simply exit the
position and look for another potential play.  The worst outcome
that can occur with this approach is a modest loss in capital
and usually, that limited shortfall is more than offset by other
gains in the portfolio.  In fact, the primary reason that novice
investors achieve poor results with low risk, low return trading
strategies is not due to a deficiency in play selection, but
rather their inability to effectively manage failing positions
for minimum loss.  That's a subject we'll tackle in one of the
upcoming narratives.

Good Luck!


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 our subscribers, 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 editor of this section does not take actual positions in any
published plays and the summary comments are 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 in
any way 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   20.83  FEB 17.50  0.45    0.45*  11.9%   3.8%
SEPR    12.99   11.17  FEB 10.00  0.35    0.35*  10.3%   3.2%
FTE     25.50   25.89  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%
ANF     27.84   26.98  FEB 25.00  0.50    0.50*   8.2%   3.0%
FTE     25.98   25.89  FEB 22.50  0.40    0.40*   7.9%   2.6%
CKFR    19.53   19.55  FEB 17.50  0.45    0.45*   7.8%   2.9%
VRTS    18.30   17.27  FEB 15.00  0.30    0.30*   7.5%   2.2%
SEPR    13.20   11.17  FEB 10.00  0.30    0.30*   7.4%   2.2%
CURE    17.49   15.87  FEB 15.00  0.40    0.40*   7.1%   2.4%
VECO    15.39   13.88  FEB 12.50  0.35    0.35*   7.0%   2.1%
APPX    24.18   23.01  FEB 22.50  0.55    0.55*   7.0%   2.7%
CVC     19.44   16.75  FEB 15.00  0.40    0.40*   6.8%   2.0%
FTE     24.40   25.89  FEB 20.00  0.45    0.45*   6.7%   2.0%
AVCT    25.10   26.50  FEB 22.50  0.35    0.35*   6.5%   2.3%
ANF     27.97   26.98  FEB 25.00  0.25    0.25*   6.4%   2.2%
GTRC    19.63   19.60  FEB 17.50  0.45    0.45*   6.3%   2.3%
MATK    23.93   23.19  FEB 20.00  0.35    0.35*   6.3%   1.9%
MRCY    32.11   31.24  FEB 30.00  0.45    0.45*   5.8%   2.2%
RGLD    26.67   25.75  FEB 22.50  0.35    0.35*   5.6%   1.7%
CURE    17.06   15.87  FEB 15.00  0.25    0.25*   5.4%   1.8%
ANF     27.11   26.98  FEB 22.50  0.40    0.40*   5.2%   1.6%
EASI    37.00   36.55  FEB 33.38  0.40    0.40*   5.0%   1.8%
QCOM    37.66   34.70  FEB 35.00  0.75    0.45    5.0%   1.9%
REGN    20.63   17.25  FEB 17.50  0.50    0.25    4.8%   1.6%
S       26.45   21.85  FEB 22.50  0.30   -0.35    0.0%   0.0%
MEDC     8.88    6.14  FEB  7.50  0.30   -1.06    0.0%   0.0% **
IMPH    21.53   16.57  FEB 20.00  0.75   -2.68    0.0%   0.0% **

ANSS    22.20   22.80  MAR 20.00  0.80    0.80*   9.9%   3.0%
MSTR    20.69   20.83  MAR 17.50  0.75    0.75*   8.6%   3.2%
OTEX    27.14   27.73  MAR 25.00  0.75    0.75*   8.6%   2.2%
APPX    23.75   23.01  MAR 20.00  0.55    0.55*   7.3%   2.0%
CGNX    21.84   22.62  MAR 20.00  0.75    0.75*   7.3%   2.8%
MDCO    16.92   16.93  MAR 15.00  0.60    0.60*   5.7%   3.0%
POSS    19.50   17.47  MAR 17.50  0.55    0.52    4.0%   2.2%

*  Stock price is above the sold striking price.
** Summary data not reflective of a timely exit trade.


Friday's rally boosted a number of issues in the portfolio but
the activity did little to help Impath (NASDAQ:IMPH) and Med
Design (NASDAQ:MDCO), both of which were recommended for "early
exit" in last week's summary comments.  The good news is, there
is only one week left in the February options expiration period
and with any luck, the oversold market conditions will shore up
the bullish trend in the near-term.  All of the March positions
are faring relatively well, however traders are cautioned to be
very careful in their position selection and diligent in their
portfolio management due to the potential for downside activity.

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


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 order at a price that is no more than twice
the original premium received from the sold option.


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:



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.


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   20.83 MAR 17.50 EOU OW 0.80   79 16.70   35  12.0%   4.2%
CGNX   22.62 MAR 17.50 QCG QW 0.55   11 16.95   35   9.4%   2.8%
RMBS   13.69 MAR 10.00 BNQ OB 0.30 2586  9.70   35   8.6%   2.7%
OVTI   16.55 MAR 12.50 UCM OV 0.35  141 12.15   35   8.3%   2.5%
LRCX   12.56 MAR 10.00 LKR OB 0.25 2465  9.75   35   7.9%   2.2%
IRF    20.39 MAR 17.50 IRF OW 0.50  638 17.00   35   7.5%   2.6%
DIGE   15.54 MAR 12.50 QDG OV 0.30  120 12.20   35   7.5%   2.1%
ADBE   27.43 MAR 22.50 AEQ OX 0.40  295 22.10   35   5.4%   1.6%

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).

ADBE - Adobe Systems  $27.43  *** Portfolio Stock? ***

Adobe Systems (NASDAQ:ADBE) builds software solutions for network
publishing, including Web, print, e-paper, video, wireless and
broadband applications.  Its graphic design, imaging and dynamic
media authoring tools enable customers to create, manage and
deliver visually rich, reliable content.  The company licenses
its technology to hardware manufacturers, software developers and
service providers, and it offers integrated software solutions to
businesses of all sizes.  Its software runs on Microsoft Windows,
Apple Macintosh, Linux, UNIX, Palm OS and Pocket PC platforms and
Adobe distributes its products through a network of distributors
and dealers, value-added resellers, systems integrators and OEMs;
direct to end users through Adobe call centers, and through its
own Website, www.adobe.com.  ADBE shares have found a comfortable
range near $25 and investors who wouldn't mind owning this stock
in a long-term portfolio can establish a cost basis near $22 with
this position.

MAR 22.50 PUT AEQ-OX LB=0.40 OI=295 CB=22.10 DE=35 MY=5.4% SY=1.6%

CGNX - Cognex  $22.62  *** A Big Day! ***

Cognex (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 company has two operating divisions:
Modular Vision Systems Division and Surface Inspection Systems
Division.  MVSD designs, develops, manufactures and markets modular
vision systems used to control the manufacturing of discrete items.
SISD designs, develops, manufactures and markets surface inspection
vision systems.  In late January, CGNX reported a quarterly profit,
reversing a year-ago loss, as cost cutting helped offset reduced
spending in the semiconductor and electronics industries.  Despite
the lack of news since then, the stock rallied Friday to a recent
high near $22 and this position offers favorable speculation for
traders who believe the bullish trend will continue.

MAR 17.50 PUT QCG-QW LB=0.55 OI=11 CB=16.95 DE=35 MY=9.4% SY=2.8%

DIGE - Digene  $15.54  *** Warburg Upgrade = Rally! ***

Digene (NASDAQ:DIGE) develops, manufactures and markets proprietary
gene-based testing systems for screening, monitoring and diagnosis
of human diseases.  Its primary focus is in women's cancers and
infectious diseases.  The firm has applied its proprietary Hybrid
Capture technology to develop a unique diagnostic test for human
papillomavirus, which is the primary cause of cervical cancer and
is found in greater than 99% of all cervical cancer cases.  In
addition to its HPV Test, the company's product portfolio includes
gene-based tests for detecting chlamydia, gonorrhea, hepatitis B
virus and cytomegalovirus.  In early February, DIGE rallied after
UBS Warburg analyst Ricky Goldwasser raised his investment rating
for the medical diagnostic company to a "buy," saying he is more
confident after a survey that physicians will adopt Digene's "DNA
Pap" test when it is approved by the U.S. FDA.  The stock is now
at a 9-month high near $15 and traders who believe it will remain
in that range (or move higher) can profit from that outcome with
this position.

MAR 12.50 PUT QDG-OV LB=0.30 OI=120 CB=12.20 DE=35 MY=7.5% SY=2.1%

IRF - International Rectifier  $20.39  *** Favorable Outlook! ***

International Rectifier (NYSE:IRF) is a designer, manufacturer
and marketer of power semiconductors, and a worldwide supplier of
metal oxide semiconductor field effect transistors (MOSFET), a type
of power semiconductor.  The company's products are used in a range
of end markets, including communications, consumer electronics,
information technology, automotive, industrial and government/space.
The company's products are divided among three product categories:
integrated circuits and advanced circuit devices, power systems and
power components.  International Rectifier reported earnings last
month and although the numbers weren't overly impressive, analysts
optimistic about the outlook.  The company expects revenues for the
third quarter to be sequentially flat with gross margin up about a
percentage point but for 2003, IRF said it is on target to achieve
its target revenue growth of 17% to 23%.  Traders can speculate on
the company's near-term stock performance in a conservative manner
with this position.

MAR 17.50 PUT IRF-OW LB=0.50 OI=638 CB=17.00 DE=35 MY=7.5% SY=2.6%

LRCX - Lam Research  $12.56  *** Chip-Equipment Specialist! ***

Lam Research Corporation (NASDAQ:LRCX) designs, manufactures,
markets and services semiconductor processing equipment used in
the fabrication of integrated circuits.  The company's products
are currently used in the front-end of the wafer processing
manufacturing cycle: etch, CMP, and post-CMP clean.  Lam's unique
family of etch systems incorporates plasma technologies designed
to meet both current and future needs.  The company offers both
200-milimeter and 300-milimeter Teres CMP integrated polishing
and cleaning systems with Linear Planarization Technology (LPT),
which uses a high-speed belt instead of the rotating table used
in conventional polishers.  The company also provides the Synergy
Integra, which incorporates advanced cleaning technology with a
platform that integrates polisher and cleaner.  LRCX is one of
our old favorites in the chip-equipment segment and the current
lateral trend suggests the issue has found a "comfort zone" near
$12.  Traders who think the range-bound activity will continue in
the coming weeks can profit from that outcome with this position.

MAR 10.00 PUT LKR-OB LB=0.25 OI=2465 CB=9.75 DE=35 MY=7.9% SY=2.2%

MSTR - MicroStrategy  $20.83  *** 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
in late January after the maker of business software posted better
than expected profit and rising software sales.  Industry analysts
also raised their 2003 outlook for the company and bullish traders
can profit from continued upside activity in the issue with this

MAR 17.50 PUT EOU-OW LB=0.80 OI=79 CB=16.70 DE=35 MY=12.0% SY=4.2%

OVTI - OmniVision Technologies  $16.55  *** Earnings Due! ***

OmniVision Technologies (NASDAQ:OVTI) designs, develops and sells
high performance, high quality and cost efficient semiconductor
imaging devices for computing, telecommunications, industrial,
automotive and consumer electronics applications.  The company's
main product, an image sensing device called a CameraChip, is used
to capture an image in cameras and camera-related products in a
range of imaging applications such as personal computer cameras,
digital still cameras, security and surveillance cameras, personal
digital assistant cameras, mobile phone cameras, and cameras for
automobiles and toys that incorporate both still picture and live
video applications.  OmniVision is set to report quarterly earnings
next week and investors are hoping the announcement will be bullish.
Traders who believe the report will result in future upside movement
for OVTI can profit from that outcome with this position.

MAR 12.50 PUT UCM-OV LB=0.35 OI=141 CB=12.15 DE=35 MY=8.3% SY=2.5%

RMBS - Rambus  $13.69  *** Rally Mode! ***

Rambus (NASDAQ:RMBS) designs, develops and markets "chip-to-chip"
interface solutions that enhance the performance and effectiveness
of its client's chip and system products.  These solutions include
multiple chip-to-chip interface products, which can be grouped into
two categories: memory interfaces and logic interfaces.  Rambus'
memory interface products provide an interface between memory chips
and logic chips.  In addition, the firm's logic interface products
provide an interface between two logic chips.  Rambus has two major
memory interface products: Rambus dynamic random access memory and
Yellowstone.  Additionally, it offers a logic interface product for
high-speed serial chip-to-chip communications between logic chips
in a range of computing, networking and communications applications.
RMBS shares soared in January after a favorable ruling in a patent
case.  A federal appeals court ruled that Rambus had not committed
fraud in a dispute involving memory maker Infineon, reversing the
ruling of a lower court, and the court also revived Rambus' patent
infringement claim against Infineon.  The current trend is bullish
and traders who believe it will continue can speculate on that
outcome with this position.

MAR 10.00 PUT BNQ-OB LB=0.30 OI=2586 CB=9.70 DE=35 MY=8.6% TY=2.7%



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

NVDA   12.04 MAR 10.00 UVA OB 0.40  2632  9.60   35   10.9%   3.6%
SNDK   16.09 MAR 12.50 SWQ OV 0.40   725 12.10   35    9.6%   2.9%
NXTL   12.89 MAR 10.00 FQC OB 0.30  1247  9.70   35    9.1%   2.7%
ICST   21.54 MAR 17.50 IUY OW 0.45    18 17.05   35    7.8%   2.3%
HPQ    17.79 MAR 15.00 HHY OC 0.35  6219 14.65   35    6.5%   2.1%
VSEA   25.88 MAR 20.00 UES OD 0.35    90 19.65   35    5.5%   1.5%
MSTR   20.83 MAR 15.00 EOU OC 0.25    14 14.75   35    4.9%   1.5%
PSUN   17.51 MAR 15.00 PVK OC 0.25    51 14.75   35    4.6%   1.5%
ADI    26.90 MAR 22.50 ADI OX 0.35   821 22.15   35    4.5%   1.4%



A Brief Respite!
By Ray Cummins

Stocks rebounded Friday as investors went bargain-hunting in the
wake of better-than-expected economic data and an upbeat forecast
from Dell Computer (NASDAQ:DELL).

The Dow Jones Industrial Average soared 158 points to 7,908 amid
renewed strength in Hewlett Packard (NYSE:HPQ), SBC Communications
(NYSE:SBC) and United Technologies (NYSE:UTX).  The NASDAQ jumped
32 points to 1,310 on bullish performances by Intel (NASDAQ:INTC),
Dell Computer (NASDAQ:DELL) and Microsoft (NASDAQ:MSFT).  The S&P
500 index rose 17 points to 834 with the majority of broad-market
sectors enjoying upside activity.  On the Big Board, where 1.37
billion shares traded, 2,074 stocks rose and 1,165 fell.  On the
NASDAQ, where 1.31 billion shares changed hands, 1,986 advanced
and 1,198 declined.  The benchmark 10-year treasury slipped 20/32,
driving yields to 3.96%, while the 30-year bond lost 1-6/32 for a
closing yield of 4.89%.  Trim Tabs said that $6.3 billion flowed
out of the equities markets during the week ended Wednesday, down
from $7.1 billion in the week-ago period.


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 our subscribers, 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 editor of this section does not take actual positions in any
published plays and the summary comments are 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 in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


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

MYL     24.50  26.62  FEB   20  23  0.40  22.60  $0.40   Open
XAU     79.51  72.15  FEB   65  70  0.75  69.25  $0.75   Open?
BHE     35.30  34.28  FEB   25  30  0.45  29.55  $0.45   Open
AET     43.86  41.24  FEB   35  40  0.45  39.55  $0.45   Open
HCA     43.75  39.89  FEB   37  40  0.30  39.70  $0.19  Closed
CERN    37.31  33.80  FEB   30  35  0.55  34.45 ($0.65) Closed
PRX     31.50  33.88  FEB   25  30  0.45  29.55  $0.45   Open
APA     62.41  62.48  FEB   55  60  0.60  59.40  $0.60   Open
FRX     51.75  46.25  FEB   45  47  0.25  47.25 ($1.00) Closed
NBR     36.85  37.52  FEB   32  35  0.30  34.70  $0.30   Open
BVF     31.15  31.76  FEB   25  30  0.40  29.60  $0.40   Open
SCIO    42.20  43.56  FEB   35  40  0.00  40.00  $0.00  No Play
SYMC    46.09  44.80  MAR   35  40  0.50  39.50  $0.50   Open

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

As previously noted, HCA Inc. (NYSE:HCA) and Cerner (NASDAQ:CERN)
were candidates for early exit and Forest Labs (NYSE:FRX) also
joined that group this week, despite the fact that the company
reported record quarterly profits.  Positions previously closed
include: Intuit (NASDAQ:INTU), which is positive, and Chiron
(NASDAQ:CHIR).  The bullish position in the Gold Index (XAU) is
a candidate for exit/adjustment on any further downside movement.


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

ABK    57.56   49.17  FEB   70  65  0.55   65.55  $0.55   Open
KBH    44.01   45.88  FEB   55  50  0.55   50.55  $0.55   Open
BZH    61.98   57.07  FEB   75  70  0.50   70.50  $0.50   Open
ITW    65.70   58.02  FEB   75  70  0.60   70.60  $0.60   Open
BGEN   37.93   37.64  FEB   45  42  0.25   42.25  $0.25   Open
PIXR   53.76   52.10  FEB   65  60  0.55   60.55  $0.55   Open
RE     51.70   51.60  FEB   60  55  0.50   55.50  $0.50   Open
ROAD   36.43   32.84  FEB   45  40  0.30   40.30  $0.30   Open
ATK    54.75   51.04  FEB   65  60  0.45   60.45  $0.45   Open
CAT    43.92   43.25  FEB   50  47  0.25   47.75  $0.25   Open
IBM    78.94   77.45  FEB   90  85  0.50   85.50  $0.50   Open
MER    36.81   33.75  FEB   42  40  0.25   40.25  $0.25   Open
LXK    60.54   59.16  FEB   70  65  0.45   65.45  $0.45   Open
QLGC   33.28   34.56  FEB   40  37  0.25   37.25  $0.25   Open
BSC    59.90   60.36  MAR   70  65  0.50   65.50  $0.50   Open
HRB    35.80   36.82  MAR   45  40  0.50   40.50  $0.50   Open

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


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

SNPS    40.00  38.36  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


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

SYMC    46.12  44.80  FEB   35  40   4.50   39.50  0.50   Open
PHSY    29.19  21.40  FEB   25  27   2.00   27.00 (1.10) Closed
EBAY    73.36  75.00  FEB   60  65   4.45   64.45  0.55   Open
AMGN    52.09  52.60  MAR   45  47   2.20   47.20  0.30   Open

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

PacifiCare Health Systems (NASDAQ:PHSY) slumped Thursday after the
firm posted quarterly earnings that were $0.02 ahead of consensus
estimates, but the profits came on revenues that fell 5% in the
latest three months.  The issue "gapped-down" at the open to the
$25.50 range, preventing a favorable roll-out, however the sale of
long option provided some capital preservation in the bullish play.
Omnicare (NYSE:OCR) was exited for a loss during Wednesday's drop
and although barely positive, the bullish spread in University of
Phoenix Online (NASDAQ:UOPX) has previously been closed to limit


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

VAR     50.38  50.03   FEB     55    45     0.10    0.20    Open?
WPI     29.22  28.55   MAY     35    22    (0.10)   0.50    Open
ANF	  26.39  26.98   FEB     30    22     0.05    0.60    Open?
UPL     10.11   9.58   MAR     10    10     0.10    0.00    Open
AFFX    27.14  25.45   MAR     30    25     0.15    0.00    Open
Our new position in CTI Molecular Imaging (NASDAQ:CTMI) was closed
following the company's quarterly earnings report, which reflected
$0.07 per 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.


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

BGEN	  35.52  37.64   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).


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

AXP	  33.70  33.15   APR-30C   FEB-30C   0.75    1.20     Open?
CI	  43.02  42.03   APR-45C   FEB-45C   1.35    1.25     Open
The bearish position in American Express (NYSE:AXP) reached the
short-term profit target and conservative traders should consider
closing the spread.  Previously closed positions: Global Imaging
(NASDAQ:GISX), Capital One (NYSE:COF), Raytheon (NYSE:RTN),
Hershey (NYSE:HSY) and Applied Materials (NASDAQ:AMAT).


Stock   Pick   Last   Exp.   Long  Long  Initial   Max     Play
Symbol  Price  Price  Month  Call  Put    Debit   Value   Status

ROOM	  40.14  41.17   MAR    40    40    6.50    6.70     Open
IGT	  74.84  75.87   FEB    75    75    3.20    3.00     Open

Both of our speculative straddles have been volatile, but within
a relatively small range and if there are no large moves early in
the week, traders should begin to plan an exit in the IGT position.


No Open Positions


No Open Positions

Questions & comments on spreads/combos to Contact Support

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.


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.

COP - ConocoPhillips  $48.72  *** Trading Range! ***

ConocoPhillips (NYSE:COP), formerly Phillips Petroleum Company, is
an international, integrated energy company with operations in 49
countries.  The firm has four core activities worldwide: petroleum
exploration and production, petroleum refining, marketing, supply
and transportation; natural gas gathering, processing and sales,
including a 30.3% interest in Duke Energy Field Services, and a
chemicals and plastics production and distribution business through
a 50% interest in Chevron Phillips Chemical Company.  The company
was founded in August 2002, following the merger of Conoco and
Phillips Petroleum.

Technical Outlook: Current lateral trend with buying support near
sold strike at $45, resistance near $50 (150-day EMA).

Potential Catalysts: U.S. commercial oil inventories have fallen
to historically low levels and potential conflict with Iraq is
holding crude prices at recent highs.

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-42.50  COP-OV  OI=27    A=$0.30
SELL PUT  MAR-45.00  COP-OI  OI=4740  B=$0.55
POTENTIAL PROFIT(max)=11% B/E=$44.75

NKE - Nike  $45.14  *** Basing Pattern? ***

Nike (NYSE:NKE) principally is engaged in the design, development
and worldwide marketing of footwear, apparel, equipment and other
clothing accessory products.  Nike sells its products to over
17,000 retail accounts in the United States and through a mix of
independent distributors, licensees and subsidiaries in over 140
countries around the world.  Virtually all of Nike's products are
manufactured by independent contractors.  Most of the company's
footwear products are produced outside the United States, while
apparel products are produced in the United States and abroad.

Technical Outlook: Lengthy base (established AUG-DEC 2002) with
recent buying support near $42; near-term bullish activity on
average volume; strong moves Friday in Apparel/Footwear sector.

Potential Catalysts: Margins expected to rise due to new supply
chain system, which gives NKE more flexibility to respond to
market conditions; declared a quarterly cash dividend of $0.14
per share, payable to SOR as of 3/17/03.

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-37.50  NKE-OU  OI=20   A=$0.35
SELL PUT  MAR-40.00  NKE-OH  OI=200  B=$0.60
POTENTIAL PROFIT(max)=11% B/E=$39.75

BUD - Anheuser-Busch  $47.70  *** Beverages & Brewers ***

Anheuser-Busch Companies (NYSE:BUD) is the holding company of
Anheuser-Busch, Incorporated (ABI), a brewer of beer.  The firm
is also the parent corporation to a number of subsidiaries that
conduct various other business operations.  The company's main
operations are comprised of the following business segments:
domestic beer, international beer, packaging, entertainment and
other.  Its domestic and international beer operations produce
and distribute ABI brand beers.  Its packaging operations make
beverage cans and liners, as well as glass bottles.  The firm's
entertainment area operates theme parks, and the other business
area is engaged in real estate development.

Technical Outlook: Current lateral consolidation in the wake of
a longer-term bearish trend; near-term "oversold" with support
at $47 and resistance near short (call) strike at $50.

Potential Catalysts: Recent earnings stumble by Coors (NYSE:RKY)
is weighing on sector; BUD had previously reported quarterly
numbers in line with estimates but analysts are projecting an
overall industry volume growth of only 1% to 1.5% in 2003.

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-55.00  BUD-CK  OI=1975  A=$0.10
SELL CALL  MAR-50.00  BUD-CJ  OI=3415  B=$0.55
POTENTIAL PROFIT(max)=9% B/E=$50.45

MDT - Medtronic  $44.15  *** Pure Premium Selling! ***

Medtronic (NYSE:MDT) is a medical technology firm that provides
lifelong solutions for people with chronic disease.  With roots
in the treatment of heart disease, Medtronic has expanded beyond
its historical core business and provides a range of products
and therapies that help solve many challenging, life-limiting
medical conditions.  The company operates in five major business
segments that make and market device-based medical therapies.
These are: cardiac rhythm management, vascular, cardiac surgery,
neurological and diabetes and spinal and ear, nose and throat.

Technical Outlook: On the rebound from an earnings-related slump
and downgrade; near-term upside potential should provide premium
for bearish (call) plays; expect rally to stall near resistance
at $47-48.

Potential Catalysts: Recent mediocre quarterly earnings report
with concerns over profits in vascular and diabetes divisions;
Morgan Stanley downgrade also negatively affected share value.

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-50.00  MDT-CJ  OI=121  A=$0.15
SELL CALL  MAR-47.50  MDT-CW  OI=668  B=$0.40
POTENTIAL PROFIT(max)=11% B/E=$47.75

PEP - PepsiCo  $39.86  *** More Beverages & Brewers ***

PepsiCo (NYSE:PEP) manufactures, markets and sells soft drinks
and concentrates, and snack foods. PepsiCo and its divisions and
subsidiaries operate in three business segments: Worldwide Snacks,
Worldwide Beverages and Quaker Foods North America.  Pepsi's snack
food business is comprised of two business units: Frito-Lay North
America and Frito-Lay International.  Pepsi's beverage business is
comprised of three major business units: Pepsi-Cola North America,
Gatorade/Tropicana North America and PepsiCo International.  The
Quaker Oats Company is a wholly owned subsidiary of PepsiCo.

Technical Outlook: Near-term "bearish" with resistance near $41
and also at the sold (call) strike at $42.50; currently oversold
and well below 150-day EMA, however Friday's rally may carry the
issue to a test of February highs near $42.

Potential Catalysts: Profits up 21% in the fourth quarter, due to
improvements in margins and U.S. market share; expects volume and
revenue growth in the mid-single digit range and EPS growth in the
low double digit range going forward.

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-45.00  PEP-CI  OI=1190  A=$0.15
SELL CALL  MAR-42.50  PEP-CV  OI=5924  B=$0.40
POTENTIAL PROFIT(max)=11% B/E=$42.75


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.

BMET - Biomet  $28.52  *** Trading Range! ***

Biomet (NASDAQ:BMET) operates in one primary business segment,
musculoskeletal products, which includes the design, manufacture
and marketing of four product groups: reconstructive devices,
fixation products, spinal products and other.  Reconstructive
devices include knee, hip and extremity joint replacements, as
well as dental reconstructive implants, bone cements and other
accessories and the procedure-specific instrumentation required
to implant the firm's reconstructive systems.  Fixation products
are internal and external fixation devices, craniomaxillofacial
fixation systems and electrical stimulation devices that do not
address the spine.  Spinal products are electrical stimulation
devices addressing the spine and spinal fixation systems.  The
other sales category includes soft goods and bracing products,
arthroscopy products, casting materials, surgical instruments,
operating room supplies, wound care products and other surgical

Technical Outlook: Spread based on technicals only; neutral to
bullish short-term outlook in an intermediate-term trading range;
resistance near the spread strike and maximum profit point ($30).

Potential Catalysts: Analysts expect relatively robust earnings
growth in the sector; competitor recently reported a 39% jump in
quarterly profit on increasing sales of its artificial joints.

PLAY (speculative - bearish/calendar spread):

BUY  PUT  JUL-30.00  BIQ-GF  OI=567  A=$1.95
SELL PUT  MAR-30.00  BIQ-CF  OI=307  B=$0.40


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

NVDA - Nvidia  $12.04  *** Xbox Settlement = Rally! ***

Nvidia (NASDAQ:NVDA) designs, develops and markets graphics and
media communication processors and related software for personal
computers, workstations and digital entertainment platforms.
The company provides an architecturally compatible family of 3-D
graphics processors and graphics processing units that set the
standard for performance, quality and features for a broad range
of desktop PCs.  Its processors are designed to be architecturally
compatible backward and forward between generations, which allows
for a low cost of ownership.

Technical Outlook: Short-term bullish trend on Friday's spike;
resistance near current price and again at $14-15; some support
at previous trading-range bottom near $10.

Potential Catalysts: Company posted a smaller net profit for its
fourth quarter but gained more than $40 million in revenue after
settling a pricing dispute with Microsoft; multiple upgrades.

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  JUN-15.00  UVA-FC  OI=1512  A=$1.10
SELL PUT   JUN-10.00  UVA-RB  OI=1067  B=$1.20

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $400 per contract.  However, do not
open this position if you can not afford to purchase the stock
at the sold put strike price ($10).


”If you haven’t traded options online – you haven’t really traded
options,” claims author Larry Spears in his new compact guide book:

“7 Steps to Success – Trading Options Online”.

Order today and save 25% (only $15) by clicking on PreferredTrade
and clicking on the link to the book on its home page.



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