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Daily Newsletter, Sunday, 02/23/2003

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The Option Investor Newsletter                   Sunday 02-23-2003
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: Bears Losing Grip? 
Futures Market: Playing the role of the Badger
Index Trader Wrap: A PAUSE
Editor’s Plays: Got Health?  
Market Sentiment: Back from the Edge
Ask the Analyst: Setting profit stops when target is near
Coming Events: Earnings, Splits, Economic Events

Updated on the site tonight:
Swing Trade Game Plan: Slippery Handle


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 02-21        WE 02-14        WE 02-07        WE 01-31 
DOW     8018.11 +109.31 7908.80 + 44.57 7864.23 -189.58 - 77.20 
Nasdaq  1349.02 + 38.85 1310.17 + 27.70 1282.47 - 38.44 - 21.23 
S&P-100  429.87 +  7.30  422.57 +  3.78  418.79 - 13.78 -  3.57 
S&P-500  848.17 + 13.28  834.89 +  5.20  829.69 - 26.01 -  5.70 
W5000   8035.97 +139.03 7896.94 + 23.52 7873.42 -251.65 - 50.67 
RUT      364.36 +  5.86  358.50 -  0.28  358.78 - 13.39 -  2.89 
TRAN    2096.41 -  6.19 2102.60 - 37.37 2139.97 - 33.38 + 10.02 
VIX       34.14 -  2.96   37.10 -  1.35   38.80 +  3.02 +  0.01 
VXN       46.10 -  2.28   48.38 -  2.59   48.26 +  1.45 +  1.76 
TRIN       0.97            0.58            1.57            0.89     
Put/Call   0.85            0.97            0.94            0.84     
******************************************************************

Bears Losing Grip?
by Jim Brown

As amazing as it may seem the bears were unable to hold back 
the bulls even after a terrorist scare knocked a positive
market for an instant -60 point loss. After three years of 
consuming high profit meals of prime beef the bears appear 
to be too fat to get up from the table. Bulls slimmed by a 
three-year diet and seeing light on the horizon that could
signal a new economic cycle are pressing against the gate. 
Dow Chart - Daily



 

Nasdaq Chart - Daily


 

What a difference a day makes. Just Thursday night we were 
fighting to hold on to 7900 and looking very heavy. Economic
news was about as grim as it gets and nobody wanted to own
stocks. What changed?

The CPI came in as expected at 0.3%. Break out the champagne!
Not worse than expected, not bearish, not a disaster, just
inline with estimates! I know we are grabbing at straws here. 
After taking out food and energy the increase was only +0.1%
or completely irrelevant. This counter balanced the soaring
PPI number from Thursday. Of course the PPI is a forward
indicator which could ripple through the CPI over the next
couple months. Still investors cheered. 

The ECRI Weekly Leading Index fell to 119.5 from last weeks
119.9 with rising unemployment the culprit. This was the
second week of declines but investors ignored the indicator
as old news. This indicator is a compendium of other reports
and includes things like equity prices, mortgage applications,
consumer sentiment and unemployment in an effort to provide
a single broad based indicator. 

Early Friday morning an explosion and fire at a refinery
just outside Manhattan knocked the legs out of a rebounding
market and for a few anxious moments it appeared the bears
had won the battle and the October lows were in our sights. 
The strength of the drop was very strong as traders pulled
bids and hit the sell button when they thought there had
been a terrorist attack. The barge that exploded had 100,000
barrels of unleaded gas and it made quite a smoke cloud over
New York. Once it was determined that it was just an accident
instead of an attack the bids returned and traders in cash
rushed to buy the dip. 

Economic conditions did not improve, Osama did not call a
truce and Iraq is still being obstinate. It simply appears
that traders are accepting as fact the lack of significant
risk in their future. The bullish percent on the Dow is
only 16%. It has only reached this level three times in the
past three years and while it is strongly in bear confirmed
territory there is not a lot of risk left or so investors
hope. Investors expect a rally or even a new bull market 
once the shooting starts in Iraq. If we are only days away
from that event then it is natural for buyers to be getting
eager.   

There were several reports during the day that caused 
investors to think it the shooting may be closer than 
previously thought. There was rumored to be a deal with
Turkey as the cooperation blackmail drew into the final
hours. The US announced it already had enough troops
and equipment in the area to begin the war without the
UN and without help. The message to Turkey was clear, 
take the current deal or our ships leave port and you
lose $26 billion in aid. Several hours later vehicles
were seen being unloaded. 

Iraq offered to enter into talk with the US about total
disarmament if the US would call off the war. Fat chance. 
However it was seen as a sign that Saddam is getting 
worried and could be exiting soon. Italy was rumored 
to have offered him asylum in an effort to avoid a 
war. Obviously Italy would be much more desirable an
exile location than others previously mentioned. A
dictator with $20 billion in stashed cash could live 
well in Italy for quite awhile. 

The UN inspectors have reportedly been rebuffed by Iraq
and are prepared to present a list of 30 demands to Iraq
and the UN on Monday on items that Iraq refuses act upon. 
This is seen as an ultimatum for Iraq and Iraq is not
expected to cheerfully comply. One of the items is the
U2 flights whose unconditional approval had more conditions
than Michael Jackson's prenuptial agreement. The planes
are still not flying. Another condition is the complete
and immediate destruction of all the illegal missiles
and 380 brand new rocket engines that were smuggled in
illegally. Millions of dollars of contraband that Saddam
is not going to want to destroy immediately or otherwise. 
I could go on but you get the picture. It is not nice to
fool the inspectors into thinking you are going to 
cooperate just before a critical UN meeting and then
leave them standing at the gates empty handed the 
following week.

The dominoes are starting to line up on the side of 
the US. The Saudi ambassador put out a plea to other 
Arab nations to get in line and quit complaining. He
said any nation not in the coalition of the willing
would not have any say in what a post war Iraq looked
like. That is totally unacceptable to the Arab community
and when faced with a US and British occupation force
the odds are good a democracy could arise that would
endanger the status quo of Arab ruling families 
everywhere. Get in line, no pushing please, plenty of
war for everyone. 

There were also several reports that Special Forces were
already on the ground in Iraq and had taken control of
several of the smaller oil fields. I find this one
hard to believe since Iraq would be protesting loudly.  

Confirmed reports had 460 UN humanitarian workers 
leaving Iraq quickly to avoid the rush next week. 
Russia also extracted its people as well as several 
other satellite countries. Doors are being boarded 
up and roads to the borders are reported to be filled
with cars. That thud you heard was realization striking
home. 

The US announced that a new resolution would be made
on Monday and the rhetoric surrounding it was very 
strong about how this is the UN's last chance to be
relevant. The implications are clear, approve it and
let's get on with the project or don't come knocking
on the US door the next time you need money or military
power. The US and Britain have made it clear they are
going to be the world's police force with or without
the UN blessing. I know this is tough talk but that 
is the way they are playing it.  
 
All this tough talk, Saddam's offer to negotiate, 
Turkey's acceptance of some kind of deal and ticked 
off UN inspectors coming back to retract their 
cooperation speech all worked together to convince
investors that the time was near. 

Nobody EVER picks the bottom exactly and the penalty 
for being late to the party is crumbs and no cake.
Eager investors decided that the Friday dip could be
their last buying opportunity. They were also bolstered
by comments from Fed governor Ben Bernanke. Ben said
the economy appeared to be in a position where many
companies could boost hiring and spending and only a
few industries were still suffering. Sure would like 
to have his crystal ball. He said there were a number
of factors that suggest investment and hiring should
pick up in the months ahead. In a very bullish speech
he said the Fed would not raise rates until well after
they were sure a strong recovery was in progress. This 
hands off policy statement seemed to encourage 
investors to put cash to work. 

The rally off the morning dip was very strong and would
seem to have been the signal that the February weakness
was over. I did say "seem". Despite the 2:1 advances
over declines across all markets the new 52 week lows
over powered the 52 week highs for the 13th straight day. 
There was definitely some money coming to market but it
was NOT a strong confirmation day that traders are always
looking for. It was enough to put us back into the win
column for the week and the close was only 55 points
below the high of the week. There was obviously some
short covering before the weekend just like we saw last
Friday. Can't leave those positions at risk in case of
a Saddam retirement event. 

Considering this was an expiration Friday the action was
even more interesting. Lately expiration Friday's have
been boring and pinned to current strike prices without
much movement. There is also the possibility that the
morning panic dip and rapid rebound jarred traders out 
of their plan and therefore the bounce continuation is
suspect. 

While the rebound was nice to see it was not overwhelming.
The high for Friday was still below Wednesday's high and
the close was still -130 points from the top of our current
range. This means we need a +130 confirmation day on 
Monday before we hit very strong resistance and there 
are several levels of decent resistance in that path. 
The bulls will have not only a wall of worry to climb 
but strong resistance and high event risk. 

Everybody expects the shooting to start soon and the 
market to rally on successful press conferences. We
tend to forget that in a war both sides shoot. Everybody
expects Iraq to roll over in the face of overwhelming
force. The wild card is the potential for a doomsday
weapon from Saddam. He has nothing to lose. He knows
they are coming for him and he will not get out alive. 
If he has nuclear, biological or chemical weapons most
strategists expect him to use them even if it takes out
his population as well. This may be smoke and mirrors
or worst case scenarios to polarize the public. Nobody
knows but the point I am making is that until we see
those press conferences bragging about successful 
operations there is still event risk. We may move up
from here but getting over Dow 8150 before the war is
going to be a challenge. 

The Nasdaq however closed near the high for the week
and in the black for the year. Tech stocks and small 
caps are normally the leaders of each cycle and traders
are definitely showing buying interest. That interest 
will face confirmation next week when it tests resistance
in the 1360-1365 range. As the only index anywhere close
to its 50 DMA (1361) it will be the first to really 
test the conviction of its buyers. 

We look constantly at the earnings guidance of every
major corporation and very few are saying good things
about the future. We moan and groan with every negative
prediction or lack of visibility statement. We should
also remember that these same corporations did not see
the top coming three years ago. They continually told
us how great things were and there were endless profits 
ahead. If they could not see the future then why do we 
put so much credibility in their dire predictions now? 
It is because we are trend followers until long after 
the trend changes. Most investors buy at the top on 
excessive optimism and sell at the bottom on excessive 
pessimism. Many claim that the pessimism is not 
excessive yet. This may be true but when pain and 
suffering from this busted bubble is weighed I think 
you will find that pessimism has turned into total 
complacency. We have been told things were so bad for 
so long that we have finally become immune to the bad 
news. Instead of a capitulation bottom to the three 
year bear market we have seen an exhaustion or 
consolidation bottom instead. 

S&P Chart - Weekly


 

Take a close look at the S&P chart. The drop to 806 on
Feb-13th was only 38 points above the October low and 31
points above the July low. In a market that lost 50% of
its value from the 1553 high, 30+ points is gimme and 
would count as a higher low triple bottom retest in most
trader's eyes. I am not claiming we have seen the bottom. 
I am not claiming any divine gifts of prophecy. I am 
just reporting the market sentiment as I see it. The 
actual charts for the Dow and Nasdaq are still showing 
a down trend but the second bounce in a week has peaked
the interest of eager investors. With 30% of the gains 
from major market rallies coming in the first five days 
I am betting that experienced investors are lining up 
at the door. In October the Dow rebounded +1058 points 
off the lows in four days. The only way you can be 
assured of not missing the train is to be aboard before 
it leaves the station. 

Now where did I put that ticket?

Jim Brown


**************  
Readers Write
**************   

Jim,
 
I've come to the conclusion news events mean little and are only 
an excuse. Whichever way the market goes there's always a 
positive or negative news event that will fit. But I believe the 
market is so technical that outside of another 9/11, and maybe 
even with one, the market will complete it's agenda regardless. 
As evidence, wasn't our fear the greatest of another terrorist 
attack right after 9/11? No one could believe it happened in the 
first place and everyone was waiting for the other shoe to drop. 
They blindsided us once and the fear was great they'd do it 
again. We had no idea where it would come from or how it would 
happen, but we’d be very surprised if it didn’t. Yet through 
October, November and December the market just kept climbing, in 
spite of the fact that large events were cancelled, we were 
warned daily and we were being told we really didn't even know 
who we were living next door to, especially here in Florida.  But 
during that time the market had a technical agenda and it went 
about it regardless. It NEEDED to drive up prices so it could 
drive them down to new levels. It needed to do it and regardless 
of the fear, it did it.
 
Now we have the fear of Iraq. Granted it's weighing heavy on the 
market but the market is still accomplishing it's goal. But news 
events are too coincidental to come exactly at the time we hit 
resistance and support levels. I believe the market does what it 
wants and then we find the news event to fit it. The Nasdaq 
needed to drop back to support and it did today (Friday). It sets 
up targets for itself and then goes for them. A high of 1314 on 
2/7 and 1315 on 2/11 was resistance it set up for itself, or a 
target as it were, and when it couldn't get through, it went all 
the way down to 1260 to come back and take a run at it. Sure 
enough, it was able to power straight up through. I knew after it 
did, in looking at it Thursday night that it really needed to 
pull back before it could go higher, but that it was indeed going 
higher. It pulled back to 1316, which was now support and took 
off again. The two levels that stopped it 1314 and 1315, and the 
level it came back to, 1316 are not coincidental. Did it pull 
back because of the oil fire? To me it looked like it was 
starting to drop before the news. It was merely completing its 
two-week project and we found a news event to fit the drop and 
one for when it took off. 
 
Everyone thought the Dow would free fall when it fell through 
8240, which was support that it had set up from October through 
December. It looked like there was nothing underneath but air 
until the bottom. Yet it bounced on resistance right at 7917, 
which was rock solid and clearly evident on a 60 minute chart. It 
banged between that and 8150 three times for a reason. It was 
setting up a target for itself. When it couldn't get through, it 
dropped way back to take more of a run at it. It drove itself 
down perfectly to the last real support it had. Go back to Oct 
8th and you'll see we hit a low of 7331 and bounced up to 7622, 
almost 300 points. When it couldn't go higher it made the final 
drop to 7198 and then plowed back up through 7622 and kept right 
on going.  7622 was hard resistance and when it came back down to 
7629 four months later (2/13), it was hard support. Find those 
two points on a 60 minute bar chart, draw a line and you'll see 
how obvious it is.
 
Everything is momentum in the market. When it knocked on the 8150 
door three times and it didn’t open it needed to go way back to 
get enough momentum to plow through. That’s what it’s doing now 
and I believe its taking a run at 8150 again. It may not do it on 
the first try but my guess is it will break through it before it 
goes below today's (Friday) low. It will do this regardless of 
the situation worldwide and the economy sucking. 
 
I'm looking for an inverted head and shoulders with last July 
being the left shoulder, October being the head and Thursday, Feb 
13th, being the right shoulder. I believe we are trying to break 
out of this bear market and we've seen the bottom. I can make a 
good case for the Nasdaq as well. The only thing that is throwing 
me is the SOX and since that will probably lead the techs I wish 
that wrench weren't in the works. Nevertheless the SOX is strong 
right now and looks to advance further. Besides, either the bear 
market is history or it better find a bottom real soon, and come 
out smelling a whole lot better than it smells right now by the 
time campaigning starts. I really believe the market wants a 
republican administration and a stinking stock market can put an 
end to that real quick. So if its going to go down, in order to 
save this administration, it better fall fast and hard and then 
get going back up so at campaign time the bad times are just a 
memory. In other words, if we haven't reached a bottom we better 
do it quick, but if the market is based on momentum, personally I 
don't think the momentum is there to do it quick.
 
I just wanted to write and share with you what I'm thinking. I’ve 
been with you a long time and I always analyze your calls. Calls 
that would have been a given before are not happening now. I'm 
finding this is not the market we've been used to dealing with. 
Gravity is not in the same places it used to be and with a 
bullish bias, falling through support doesn't always offer the 
same results as it has in the past. This may sound goofy with 
everything so negative, but I think the whole market has an up 
bias. Unless we have a world catastrophe, and I'm certainly not 
discounting one if we go Iraq alone, I think this bear market is 
history. However I also believe we'll be going through a number 
of bull and bear markets for the next several years, but we won't 
get into that now.
 
Thanks for your time and let me know what you think.
 
Best regards,

Rick Utt

Rick your letter was too insightful and I had to share it  
with the readers. I think there is a common thread beginning
to form among investors and your letter expressed it well. 
The overhead weight appears to be lighter and the rush to 
retest old lows appears to be fading. I for one am ready
to board the train. Now where did I leave that list of 
LEAPS?


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

Playing the role of the Badger 
By John Seckinger
jseckinger@OptionInvestor.com   

A badger is the most ferocious animal when backed into the 
corner.  Have bullish investors decided that now is the time to 
come out fighting and start buying pullbacks?  

Friday, February 21st at 4:15 P.M. 

Contract       Last    Net Change    High        Low       Volume    

Dow Jones     8018.11   +103.15    8039.27     7854.38      
YM03H         8000.00    +75.00    8039.00     7844.00     30,866 
Nasdaq-100    1015.92    +14.45    1019.25      986.73      
NQ03H         1014.50    +10.00    1021.00      986.00    256,119
S&P 500        848.17    +11.07     852.28      831.48    
ES03H          847.25     +8.50     852.25      829.75    678,557

Contract         S2         S1       Pivot        R1         R2    

Dow Jones      7785.70    7901.91   7970.59    8086.60    8155.48
YM03H          7766.00    7883.00   7961.00    8078.00    8156.00
Nasdaq-100      974.78     995.35   1007.30    1027.87    1039.82
NQ03H           972.25     993.25   1007.25    1028.25    1042.25
S&P 500         823.18     835.68    843.98     856.48     864.78
ES03H           820.50     834.00    843.00     856.50     865.50

Weekly Levels

Contract         S2         S1        Pivot        R1         R2    

YM03H         7748.00    7874.00    7970.00    8096.00    8192.00
NQ03H          967.50     991.00    1006.50    1030.00    1045.50
ES03H          820.00     833.50     843.50     857.00     867.00

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

Contract        S2         S1        Pivot       R1         R2    

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

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

Note: The 03H suffix stands for 2003, March, and will change as 
the exchanges shift the contract month. The contract months are 
March, June, September, and December. The volume stats are from 
Q-charts. 

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

Short 838.75, exit 838.75, change +0.00
Long  839.50, exit 839.50, change +0.00
Short 835.00, exit 835.00, change +0.00
Long  847.50, exit 847.50, change +0.00

Total for the day: +0.00
Total for the week: +9.75

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

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

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

Bulls were actually in control on Friday for all but around 25 
minutes of trading.  The "wildcard support" at 833 was tested 
(near S1 as well), but bulls kept the contract from getting to 
the weekly pivot of 828.50.  In fact, the ES fell almost exactly 
to the 50% level of the rise from 805.25 to 853.25.  Bullish as 
well.  I compiled a ton of retracement and pivot analysis 
studies, and the chart below highlights what I have found.  The 
"Resistance Zone" from 850-854 is moved higher to 854-857, with 
more resistance above at 861.25 and then from 865 to 867.  
Support is felt at 838, and then from 829 to 831.  Note that 
Monday's pivot lies at 843, and should offer slight support.  
Also note that R1 is within the new zone of resistance.  With the 
ES contract currently in a new bullish regression channel and 
above the long-term trend line (blue), bears will have to keep 
tight stops just in case the rebound grows legs.  

Chart of ES03H, 120-minute


 

Looking at a 30-minute chart of the ES contract, I haven't given 
up at a possible apex at the 853.50 level.  We might have to get 
at test back at the 843 pivot before bouncing to this apex once 
more.  If selling pressure continues, expect bears to get 
aggressive once under 838.  The objective would be for a move to 
the 829-831 area.  

Chart of ES03H, 30-minute 


 

Bullish Percent of SPX: This indicator was unchanged at 34.80% on 
Friday, and will remain in "Bull Correction" status with a 
column of O's unchanged at 14.  The volatility seen in the 
marketplace evidently didn't allow for one extra buy or sell 
signal within the index.  The last column of "O's" ended at 
20 percent.  With that said, sentiment has to remain bearish.  
Looking at P&F chart of the SPX, the contract managed to rise 11-
points on the session; however, since 835 was taken out a new 
column of O's down was formed.  Going forward, support via P&F is 
still seen at 835, with resistance seen at 850, and then between 
860-865.  

The March E-mini Nasdaq 100 Contract (NQ03H) 

The NQ contract failed once again to test the daily retracement 
level at 1024.50, and for the forth-consecutive day closed above 
the 1003 area.  This futures contract bounced off its 50 EMA on 
Friday, and closed once again above all three watched moving 
averages.  Bullish as well.  Things are definitely lining up for 
a test of the 1024.50 area and above.  The objective above 1025 
would be for a move to 1045.  Also notice that the WEEKLY low is 
983.  Also noted in the chart below is the ADX oscillator falling 
back underneath the 20 level on a daily basis.  This indicates 
that the recent upward momentum could possibly be range bound.  
Ideally for bulls, the NQ rises above the 1025 area AND the ADX 
clears the 20 level.  

Chart of NQ03H, Daily


 

Taking things to a 30-minute level, there are a ton of 
retracement levels; however, the macro picture remains the same.  
1045, 1025, 1003, and then 983.  There might be resistance above 
at the 1030.50 level.  If the NQ moves above the 1025 level in 
the near-term, it will clear the mid-part of the regression 
channel as well.  

Chart of ES03H, 30-minute


 

Bullish Percent for NDX:  The bullish percent for the NDX 
remained rose only one percent to 36 on Friday, and will stay in 
"Bear Confirmed" status.  This index needs a print of 40% to 
reverse back into a column of X's.  The last column of O's ended 
at a reading of 14%.  With that said, things continue to look 
bearish on an intermediate-term basis.  The NDX, according to P&F
charts, will have to get a 1025 print in order to produce a new 
column of X's.  This lines up well with the solid resistance seen 
up to the 1025 area.  Support is seen at 1000.   

The March Mini-sized Dow Contract (YM03H) 

The YM contract has now officially left the recent bearish 
regression channel, after setting a relative low above the top of 
the downward trending pattern (see chart).  The key levels going 
forward represent the 50% area within their own timeframe.  7969, 
8142, and 8262.  Currently above 7969 and Friday's pivot of 7961, 
bulls can begin to look for a shift in sentiment.  Once the pivot 
is taken out, the recent bullish sentiment will turn neutral.  
The 8142 objective is below the daily R2 level, but above R1 at 
8078.  Remember, bullish percent in the Dow has NOT turned into 
"Bull Alert" status, and all the other broader bullish percent 
indicators are still solidly bearish.  Is this like picking a 
bottom?  Exactly.  The key will be to not test the daily pivot 
and get over 8142.  Then 8262 is next, with bulls wanting the YM 
to stay above 8142.  If this fails to materialize, bears will be 
waiting to send this contract back to 7748 area and weekly S2.  

Chart of YM03H, 90-minute


 

Bullish Percent of Dow Jones: Using P&F analysis, the Dow needed 
an 8050 print to form a column of X's; however, the high was only 
8039.  The bearish objective for the blue chips remains at 7100, 
and we still need a move above 8200 to give a 'buy signal'.  
Resistance is seen at 8150, with support still not seen until 
7900.  As far as the bullish percent is concerned, this indicator 
finished unchanged at 16.67% once again, and will still need to 
reach 20% to get into "Bull Alert" status.  The column of O's 
remains at twenty-three. Note: The last column of O's ended at 
10%.  Until we see a "Bull Alert" sign, bears should still be in 
control, especially since the Dow is the most narrow of the 
bullish percents listed in this section.  When will we see a 
"Bull Alert" signal?  Possibly above the 8150-8200 level. 

Good Luck. 

Questions are welcomed, 

John Seckinger


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

A PAUSE
By Leigh Stevens

Even a temporary respite from fear of terrorism and some slowing 
of momentum to go to war was enough to generate some buying of 
stocks and give us two up weeks in a row. Usually when I see Index 
charts that start to look bullish but where it's also difficult to 
see what bullish fundamentals could support the charts, the 
technical picture is the one that has the true pulse of the 
market. This was the case for last week. 

THE BOTTOM LINE - 
The recent rally looks like it will have still more upside follow 
through. For example, with the Dow clearing near resistance at 
8000 the average now has a technical objective to 8400; the S&P 
100 (OEX) has potential to 450 and to 1400-1425 in the Nasdaq 
Composite (COMPX). These are also the areas in which to do new put 
buying. 

Forced to a choice last week, I would go with the charts and been 
long calls. Given also that the current rally is most likely an 
"oversold" technical type rebound, my broadest suggested strategy 
is to wait (again) for opportunities to buy puts at higher levels. 
A gun IS still being held to the head of Iraq and it still appears 
to have a better than even chance to go off. 

FRIDAY TRADING ACTIVITY -
The market replayed the late-day surge of a week ago as a wave of 
short-covering buying again surfaced in the main - the added 
factor was the Friday expiration of equities options contracts. 

And there have been some interesting plays in individual stocks - 
ones I mentioned two weeks back were GE, CSCO and INTC - all 
having nice bounces off recent lows. 

Stocks opened mostly unchanged in spite of a Labor Dept. report 
(Consumer Price Index) that eased some recent inflation worries. 
There was then a sharp sell off on the news of a fire at a Staten 
Island oil-storage facility - the fact that New York traders could 
SEE a thick cloud of black smoke was enough to spoke them and the 
market. 

With the fire reported as an accident, stocks rallied again. A 
move way into plus territory was limited by a lack of much 
positive corporate news and continuing uncertainty over Iraq. It 
was well known that the U.S. and the U.K. were preparing a new 
resolution for the Security Council on Monday. 

Volume stayed low but enough stock buying continued to put the 
indices plus on the week - for only the second time this year. The 
Dow blue chip index was up 2 weeks running - by 1.4% in the week 
just ended. The percent gain was similar in the S&P 500 (SPX) - up 
1.6%. Tech continues to lead the rally and this was shown by the 
even healthier Nasdaq Composite gain of 3% for the week. 

The Market's inflation concern was of course generated by the 
Producer Price Index or PPI, which was reported on Thursday as 
being up a whooping (in annual terms) 1.6% for January - this 
versus an expectation for an increase of 0.4%. But the Friday 
Consumer Price Index or CPI was up only 0.3%. 

Even more heartening was the fact that the CPI rise was mostly due 
to a sharp run up in fuel-oil and gas prices. The so-called "core" 
index which excludes the more volatile and seasonal food and 
energy prices, was only up a scant 0.1%. 

The PPI tends to be based on data gathered earlier in the month 
and the CPI on info culled later in the month, so the news on CPI 
was taken as more indicative of January than was the PPI. 

On hope of course in this kind of discrepancy, is that U.S. 
Companies are unable to pass on much in the way of higher costs 
for energy. Given that a big fear and worry of the market is that 
a big oil price jump will derail a fragile recovery - and, just 
when there is some pick up in business output and spending as 
suggested by the substantial 0.7% jump in Industrial Production
reported the week before. 

After the encouraging news on inflation and the Staten Island Fire 
- if an "accident" is encouraging news - some comments made by a 
Federal Reserve Governor helped keep some bullish momentum going. 
The Fed governor in question, Ben Bernanke, indicated that he 
believes that the Fed can only raise interest rates once the 
economy is on a "clear footing". During a talk Mr. Bernanke also 
suggested that once the uncertainty lifts on Iraq, investment may 
be poised to increase - but, it will take to then to better assess 
the true picture of the economy. 

The magic words were that rates would continue to be LOW and there 
will be no "head em off at pass" type preemptive move to raise 
rates to dampen possible inflation. 

U.S. equities mutual funds took in perhaps $200 million in new 
money during the week ended Feb. 19 - this versus outflows of $5 
billion during the prior week. Well, as I've been suggesting - 
traders got a little TOO bearish as highlighted by my option 
sentiment readings. 

The rally continues to be lead by tech. Investors welcomed Dell's 
announcement last week that its profit rose 32 percent in Q4. Hey, 
earnings are the linchpin of the market and this was real money - 
and, I bought my last laptop from Gateway! The Chip (SOX) and 
Computer (sym: BMX) sectors were among the best performing groups. 

OTHER MARKETS - 
Bonds declined, with the 10-year T-note falling about 1/4 a point. 
Positive inflows (net new money) continued in Bond funds for the 
week ended Friday. 

The dollar firmed up a bit - the greenback is holding steady 
around $1.07 - 1.08 against the Euro, but far above the buck it 
was trading at not too long ago. Oh well, Europe is still 
relatively cheap, especially Spain, where I continue to be paid 
well (in Euros) for my condo - that it's down on the Mediterranean 
doesn't hurt. In the words of the immortal Lex Luthor, "they're 
not making more beach front property". 

Gold also ended flat or unchanged price wise for the week. The XAU 
(Philly Gold and Silver Index) held at its 40-week moving average 
but momentum slipped enough to generate a bearish downside 
crossover on the MACD Indicator. 

See - 
http://www.OptionInvestor.com/traderscorner/080802_1.asp for more 
on the Moving Average Convergence Divergence (MACD) Indicator. 

The gold bulls figure that this is just a pause also, as Gold has 
been the best performing asset class in the new millennium. 

Merrill Lynch raised its 2003 price forecast on crude oil to 
$28.50 per barrel from $24. Well, as long as it's not more than 
$30-32, I am still hoping to fill up my gas tank for less than I 
make an hour. 

MY INDEX OUTLOOKS - 

I have some further modest upside expectations for the indexes, 
especially the Nasdaq 100 or NDX - that and the Composite are 
showing the best relative strength among all the indices. 

S&P 500 Index (SPX) - Daily chart: 

Technically, the break out above the minor consolidation of last 
week (the "bull flag") was suggested that the OEX may be about mid 
point in a move. This kind of "measured move" objective suggests 
upside potential to the 880 area. Get itchy to buy puts in the 
880-890 price zone. 



 

My CBOE Call-Put readings on daily equities options volumes have 
retreated from the oversold area, but this extreme of bearish 
sentiment is still having its "seeds of the opposite" EFFECT. 

For more on my Call to Put Indicator and about all of this topic 
of trader "sentiment" see - 
http://www.OptionInvestor.com/traderscorner/tc_011903_2.asp 

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

The OEX level to watch in the short-term is 432 - a push through 
this area, particularly on a closing basis is suggesting that OEX 
will advance to 450. 420 is key near support. 



 

I would concentrate on bullish trading strategies as long as OEX 
stays above 430 this week. The Index has potential to 450 on the 
upside, with downside to near support at 420-425. Major support 
looks like 400 still. 

NASDAQ 100 Index (NDX) Daily chart - 

As befits the volatility king, the Nas 100 or NDX, has the most 
raging bullish chart. Ya could have been a contender. 

A bullish note was seen in the Friday NDX rebound from the 21-day 
moving average - resistance "becoming" support (classic technical 
analysis). 1065 looks to be an upside objective based on a move of 
the Index into the upper trading band - 



 

This picture I'm painting here, as to the key-ness of the 21-day 
moving average, also suggests that the ability for NDX to hold 
above 985 is also KEY to maintaining my current mildly bullish 
outlook - at least for the coming 1-2 weeks. Hey, that's LONG- 
term in this market! 

The Nasdaq TRIN is not showing that buying or selling pressures 
have been in any recent extremes in terms of heavy buying or 
overly much selling for any sustained periods. 

QQQ Daily chart: 

As is one of the nifty things about OBV, sometimes it tips you to 
when accumulation of the stock "tipped" to the buy or what has 
often been called the "accumulation" side. Meaning, that this was 
when buying interest was more active on up days, then selling 
interest was on down days. 

Upside potential can easily be projected here back up to the $27 
area. Sell rallies (short stock; buy puts) that take QQQ into the 
$27-28 price zone. 

Conversely, a break of 24.5 this coming week might suggest a rapid 
collapse to the $23 area. 



More on On-Balance-Volume (OBV) and the unique uses of this 
Indicator can be found at - 
http://www.OptionInvestor.com/traderscorner/112102_2.asp 




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

Got Health?  

A survivor of the Internet bubble has found a niche and 
appears to be prospering. WebMD (HLTH) currently has 1.6
million health care professionals and 575,000 doctors
registered with their service. They are providing 
electronic transaction services to process claims, 
determine eligibility, handle patient billing and 
provider reimbursement. 

They also provide integrated physician practice management
systems including administrative, financial and clinical
management. Since most doctors are just doctors and not
managers or IT professionals there has always been a 
cottage industry of providing scheduling, billing and 
bookkeeping for small offices, mostly on a regional
scale. 

It appears WebMD has capitalized on this need on a 
nationwide basis and is doing well. They also provide
an objective source of healthcare information to more
than 15 million consumers each month. 

HLTH has rebounded from $3.25 when it was dumped with 
the rest of the Internet stocks and is now threatening
to break over $10.00. This is a strong resistance area
and could provide a challenge. However, once over $10 
I believe we could see some serious short covering.

As of Jan-31st HLTH had 23 million shares shorted, which
amounts to roughly 6.5 days of average volume. With the
strong ramp of the last week and the potential for the
Nasdaq to lead us out of the bear market I am betting
that we could see a real pop soon. 

The problem with this plan is the earnings on March 13th. 
We all know what happens if earnings are bad or the
conference call stinks. However, with a positive surprise
those 23 million shorts are going to be running for cover. 
HLTH is in the top 10 heaviest shorted stocks and the
number of shorts are at a 12-month high. 

This is a high-risk play just like everything in this
section but the July $10 call is only $1.25. I have risked
more than that for the bid/ask spread on some options
recently. I think this is a lottery play with substance
and the only pothole in our path is the potential for 
an earnings miss. Buyer beware!

I thought about putting a trigger of $10.25 or so on the
play but that is only 50 cents away and the option could
be up +50 cents by the time it gets there. I think we just
bite the bullet and go for it. 23 million shorts could
be wrong. (grin)



  

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

Play updates:

Microsoft Call - Feb-16th (MSFT $24.15 when recommended)

Microsoft surged at the open on Tuesday on strong trading volume
but weakened by the end of the week to close at $24.61 and up
only slightly from the recommendation. This is a long term
play and once the volatility from the 2:1 split is over this
stock should rise nicely. Any economic recovery would help!

MSFT Chart - Daily


 


EMC Call from Feb-2nd

After peaking at $8.59 on Tuesday EMC pulled back to close
just over $8.00 on Friday. This is a long term play and
with the market still unstable I feel EMC is doing just
fine. 

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

Newmont traded as low as $26.51 on Tuesday when investors
were convinced the war would be called off. Now that the
war appears imminent gold rose slightly again to close 
at $351 on Friday. Well off its $390 highs but still 
holding the $350 level. Once the shooting starts and
favorable reports appear it should continue downward. 
  
BZH May $50 Put - From Feb-9th ($55 when recommended)

Buying opportunity! BZH has climbed to strong resistance
at $59 and failed despite good home buying news this
week. This is a long-term play and this would be my 
ideal entry point. The May $55 put at $3.20 is now the
same price as the May-$50 when first recommended. The
$50 put is now $1.85. 

BZH Chart - Daily


 

Powerball - From 12/29/02

There was no material change in the Powerball Lottery
play this week. Several of the stocks are showing signs 
of life and any further Nasdaq gains could put us back
to breakeven quickly. Remember this is a 12 month play
and we are only seven weeks into it. 

It would cost you about $775 to buy one contract of each 
today. Any one contract could repay that $775 by 12/31/03 
leaving the rest as profit. It is a high risk "LOTTERY" 
play but then $775 is not much risk. 

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  


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

Back from the Edge
by Steven Price

The geo-political arena threw us another pitch today and reminded 
us just how sensitive the markets are to those events.  What 
started out as a day in which the markets hovered close to 
unchanged took some quick turns that left intraday traders with a 
case of whiplash.  The Techs spent most of the morning in the red 
and the Dow had been climbing higher until our first event of the 
day splashed across the news screens and just outside the NYSE's 
windows. 

An oil tanker carrying 100,000 gallons of gasoline exploded off 
the coast of Staten Island, sending the markets plummeting as 
dark clouds of smoke rose just outside of New York.  Terrorism 
fears sent bulls scrambling as the Dow dropped 100 points in less 
than thirty minutes. As reports came out as to the cause of the 
explosion, soothing terrorism fears, we rallied back strong and 
not only made up the loss, but sent the Dow up into the triple-
digit gain region.  More importantly, the Nasdaq Composite also 
reversed its earlier weakness and headed into the green.   That 
broad based buying came as a surprise after Thursday's economic 
data gave investors little to cheer. 

The rally eventually ran out of steam, but did not give back the 
gain, holding near the highs of the day.  However, after the Dow 
fell back below 8000, it seemed to have a ceiling at that level.  
At least until our second event of the day hit the wires.  Iraq 
said it was willing to negotiate with the U.S. directly, if the 
U.S. pulled troops out of the region.  That was all that was 
needed to break back above that 8000 level and set new intraday 
highs. While it is unlikely the U.S. will respond to such a 
request by pulling out troops, it was a bullish development for 
the markets as it showed evidence that Iraq was softening its 
stance.  Colin Powell said war could be averted if Saddam stepped 
down. Combine the developments with expiration Friday and we got 
an intraday environment that left both bulls and bears confused 
after two days in which it appeared that the bounce from last 
week had failed and we were headed lower.   Just yesterday we 
were contemplating the just how far the drop might take us, 
following the terrible economic data.  Today, all appeared rosy.  
The only real economic data we got this morning was the Consumer 
Price Index (CPI), which rose 0.3% in January.  While it was the 
largest jump in 9 months, it was mild compared to the wholesale 
inflation level we got on Thursday and indicated that inflation 
at the consumer level is not a big concern.  Like the PPI, it was 
led by increases in fuel costs, as gasoline prices rose 6.6%, oil 
prices rose 8.6% and natural gas increased 4.6% - its largest 
gain in 2 years. 

By the end of the day, the point and figure reversal down in the 
OEX had reversed course and turned back up into a column of "X" 
when it traded 430 (using 2.5-point box).  The OEX also just 
missed that level on the close with a finish of 429.86. The Dow 
had reversed lower into a column of "O" on Thursday, when there 
were no international developments, but bounced strongly once we 
were hit with those factors again. It did not move high enough to 
reverse back into a column of "X," but did close above the 
pivotal 8000 level, finishing the day at 8017.   The SPX has 
never reversed back down and ended just shy of 850. 

We are approaching some pivotal levels that should give us an 
idea of whether we are just seeing an oversold bounce, or the 
beginning of a significant reversal. As I mentioned last week, 
the bullish percents are in oversold territory in the Dow and OEX 
and some of the risk has shifted less in favor of the bears.  A 
reader (thanks Frank) pointed out today that although those 
bullish percents have yet to reverse, more of the stocks still on 
sell signals are now in columns of "X".   That is certainly a red 
flag for bears, but does not tell us whether we are seeing short 
entry opportunities, or the beginning of an internal shift.   The 
red flag is up, the bullish percents still have some room to fall 
before hitting the July or October lows. 

We have yet to see the signs of an economic turnaround and even 
the economy's biggest cheerleaders admit that until the Iraq 
situation is behind us, we are unlikley to see things get better.  
The theory goes that businesses are holding off on spending and 
hiring until they see how the war possibility plays out.  
However, that theory seems to hang its hat on a scenario that 
ignores the fact that things had been getting worse before we re-
focused on Iraq last year. While we may be due for a cyclical 
upturn in the economy, so far there is little evidence as to why 
that upturn will take place any time soon, even without a war. 
Certainly we can expect to see a decline in fuel prices, which 
have been the biggest price inflators in the price indices 
released the past couple of days.  However, if that reduction in 
cost doesn't spur spending on hiring and an increase in 
production, then we will be out of excuses.  With interest rates 
as low as they are now, it will be harder to continue to spur 
consumer spending with more rate cuts and although the Fed has 
other options, they are becoming fewer.

Until the economy does show some signs of a real turnaround, it 
will be tough to sustain a rally.  However, the market often 
reacts to short-term phenomena and as traders that is what we are 
faced with deciphering.  I still favor shorting the bounces, but 
we must remember to trade what we see, as we don't want to short 
the bounce all the way back to Dow 9000.  If we do get an upturn 
in bullish percents, accompanied by PnF buy signals and a move 
over the congestion levels in late January - early February, then 
I may relent and accept an up move for whatever reason it occurs.  
However, until that time, I'm still looking over the edge. 


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

Market Averages

DJIA ($INDU)

52-week High: 10673
52-week Low :  7197
Current     :  8018

Moving Averages:
(Simple)

 10-dma: 7890
 50-dma: 8328
200-dma: 8665



S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  848

Moving Averages:
(Simple)

 10-dma:  835
 50-dma:  879
200-dma:  916



Nasdaq-100 ($NDX)

52-week High: 1734
52-week Low :  795
Current     : 1016

Moving Averages:
(Simple)

 10-dma:  982
 50-dma: 1015
200-dma: 1017



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

The Gold and Silver Index (XAU): The XAU dropped hard Friday 
after attempting a rebound throughout the middle of the week. It 
actually rallied solidly when the refinery explosion on Staten 
Island took place, as traders moved quickly out of traditional 
stocks and into gold.  Once it became apparent that the explosion 
was not due to a terrorist act, the shift went back in the other 
direction and gold stocks were sold off.  Interestingly, though, 
the drop in the XAU was more severe than that in the gold 
futures. It did stop, however, right at the 200-dma, bouncing at 
the end of the day.  The move in the XAU also mirrored the 
opposite move in the U.S. dollar, which sank on the explosion and 
then rallied strong throughout the afternoon, eventually closing 
over 100 for the first time since Feb 9.  The XAU has now bounced 
off the 200-dma (71.68) for six of the last eight days, closing 
below that level once. As long as it holds above that level, it 
appears that the defensive play is still alive and well.  If it 
begins to break down below that level, look for it to mirror a 
continued rise in equities and a possible resolution to the Iraq 
situation, whether it is peace or war. 


52-week High: 89
52-week Low : 53
Current     : 72

Moving Averages:
(Simple)

 21-dma: 75
 50-dma: 76
200-dma: 71


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


The VIX finally gave up the 35% support level, breaking down on 
today's equity rally to 34.14.  35% had been a bearish indicator 
for equities as drops in premium levels to this support often 
signaled a coming pullback.  On February 3, it dropped to a 
closing low of 33.98 and gave a false indication that the equity 
rally at that time would continue.  This time, however, it also 
broke down below the 200-dma (34.35) While this is certainly not 
an exact indicator, it is giving bullish signs.  The next support 
level is 30% and if it happens to coincide with Dow 8150, which 
is strong resistance, that may be the next indication of a 
pullback and the bears next short entry point.


CBOE Market Volatility Index (VIX) = 34.14 -1.53
Nasdaq-100 Volatility Index  (VXN) = 46.10 -2.46

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.85        758,896       648,782
Equity Only    1.23        179,118       220,935
OEX            1.11         59,408        66,108
QQQ            1.32         93,474       123,688


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

Bullish Percent Data

           Current   Change   Status
NYSE          40.2    + 0     Bull Correction
NASDAQ-100    35.0    + 1     Bear Confirmed
Dow Indust.   16.7    + 0     Bear Confirmed
S&P 500       34.8    + 0     Bull Correction
S&P 100       29.0    + 0     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  1.00
10-Day Arms Index  1.18
21-Day Arms Index  1.32
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 
points.

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

Market Internals

        Advancers     Decliners
NYSE       2046           780
NASDAQ     1934          1138

        New Highs      New Lows
NYSE        66               55
NASDAQ      84               70

        Volume (in millions)
NYSE       1,626
NASDAQ     1,305


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

Commitments Of Traders Report: 02/18/02

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 added 11,000 contracts to the long side and 9,000 to 
the short side, for a net reduction to the overall short 
position. Small traders took 5,600 contracts off the long side 
and 4,000 off the short position.

Commercials   Long      Short      Net     % Of OI 
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%)
02/18/03      423,871   481,871   (58,000)   (6.4%)

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
01/28/03      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%
02/18/03      155,475    91,102    64,373     26.1%

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

Commercials reduced the long side by 1,000 contracts and the 
short side by 3,000.  Small traders reduced long positions by
 4,000 contracts and added 500 contracts to the short side. 


Commercials   Long      Short      Net     % of OI 
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%)
02/18/03       38,486     50,501   (12,015) (13.5%)

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
01/28/03       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%
02/18/03       25,482     9,425    16,057    46.0%

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

DOW JONES INDUSTRIAL

Commercials reduced long positions by 1,000 contracts and left 
the short side close to unchanged.  Small traders reduced the net 
short position by 500 contracts. 

Commercials   Long      Short      Net     % of OI
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%
02/18/03       18,812    11,939    6,873      22.4%

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
01/28/03        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%)
02/18/03        5,561     8,973    (3,412)   (23.5%)

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

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


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

Setting profit stops when target is near

I have a question re: a small short position that I took in FD at
29.18.  At that time, I did a vertical P&F count (having just 
'discovered' the concept from my friend, Jeff) and got a count of 
$21.  We're now getting within reasonable striking distance of my 
target.  What to do?  What to do?  My inclination is to simply 
watch until I think we're within intraday range of my target, 
enter a limit buy to cover, and take the target and the money to 
the bank. BUT.... (pleeeeaaasseee) what would my friend Jeff do?

I received this trader's e-mail on February 7th and while I'm not 
able to give individual direction on any type of trade via e-
mail, I will give my opinion on how to handle this type of 
predicament.

Instead of making up my own "trade," I wanted to use this 
subscribers situation as an example of one tool, or line of 
thinking, I use when handling underlying stock trades.  The above 
question is regarding a short position, but bullish traders can 
use the following explanation as a way to set profit stops.  Not 
only in underlying stock positions, but options too.

Two weeks ago (02/09/03) in our "I wouldn't change a thing" Ask 
the Analyst column, another trader asked a question about letting 
a profitable trade run, instead of locking in a 30% gain on each 
option trade when a 30% target was achieved.  I think the 
following "technique" would also be useful to a trader.

To use this technique, you the trader must have done what all 
good traders do before they initiated the trade.  You must have 
established not only an entry point, but also set a stop loss 
that made some type of "technical sense" (RISK) and had a 
potential trade target for profitability (REWARD).

The subscriber used the point and figure chart to establish his 
target of $21 after initiating his bearish position at $29.18.  
Here's the technique I described and a little later we'll see how 
things have worked out.

Here is a copy of my response and something you can test for 
yourself to see if it makes sense.  If so, then it may be 
something you'd be comfortable with and perhaps be able to 
implement into your own trading strategy.  I'd also argue that 
the following technique is very useful for that trade we all put 
on from time to time that has inched ever so slowly toward a 
target, but just isn't moving at the "rate of speed" we might of 
thought it should based on market conditions or whatever scenario 
we had for the trade that should have unfolded within a specific 
timeframe we had for the trade.

Reply:  Measure risk/reward to price target.  Let's say your 
target was the vertical count of $21.  Current reward to target 
is $2.91.  How much RISK are you willing to take (check your 
MINIMUM risk/reward from business plan).  If you're only allowed 
to risk $1 to make $2, then just lower your stop $1.46 above 
current trading and forget about it.

Since the trader used the point and figure chart to establish his 
trade setup, lets take a look at the p/f chart as it looked on 
February 7th. (Note:  As of today, there has been no change in 
the p/f chart since February 7th).

Federated Department Store (FD) - $1 box


 

FD must have looked like it was starting to reverse lower from 
its bearish resistance trend when the trader initiated his short 
position at $29.18.  I would have liked the risk reward at that 
point with the stock below a bearish trend, stop just above at 
$32 (risking roughly $3) and having a potential reward target of 
$21 based on the bearish vertical count.  Even if the stock is 
able to achieve the bearish vertical count, a questionable bulls 
might cut lose their holdings on a break at $27 as a bull's risk 
was immediately assessed to the 52-week lows near $24.

However, as the trade progressed, we're now at the February 7th 
date and FD has closed at $23.91.  RISK to a point and figure buy 
signal is still to $32, so RISK in the trade is no longer just 
$3, RISK is now roughly $8.  And to what potential reward?  
REWARD is $3 if based on the bearish vertical count, which was 
used in the trade setup.

A trader that has set forth a MINIMUM risk/reward allowable of $1 
risk for every $2 reward suddenly understands that the 
profitability of the bearish trade in FD has created an 
unfavorable risk/reward scenario as it relates to the trader's 
business plan.

There's only two ways that I know of to have the trader get the 
risk/reward profile back inline with his stated discipline, and 
that would be to either close the trade out immediately, or snug 
down a stop to a level where risk/reward then becomes $1/$2 once 
again.

The first option has the trader making the decision as to closing 
the trade, while the second method of lowering a stop to $25.50 
($1.50 risk from $24, to potential $3 reward to $21) allows a 
winning trade to still run, but will have the MARKET eventually 
making the decision as to when the trade is stopped out.

It's always understood that by holding a trade overnight, a stock 
can always gap above or below a protective stop and something to 
consider as a stock gets closer to a profitable target.

Now.  Not all of us are astute pointandfigurtoligists like the 
above subscriber.  However, if we've at least learned how to 
calculate bullish and bearish vertical counts to help establish 
potential targets which are useful in assessing risk/reward in a 
trade, then we can perhaps use that knowledge along with a bar 
chart, and tools available there, to also understand how a 
systematic approach to just snugging down stops from time to time 
can help a trader systematically try and reduce risk as a trade 
works in our favor and nears a target.

Here's how a bar chart of FD looked on February 7th.  I've placed 
a conventional retracement bracket on the chart of FD, where the 
levels of retracement may have been used in unison with the p/f 
chart to not only establish an action point, but also monitor 
levels over time.

Federated Department Store (FD) - Daily Interval


 

I'm assuming the trader initiated his bearish trade on January 
16th.  I'm not sure if he was using the above retracement bracket 
or not, but his entry point was darned close to the 21-day SMA 
and 50% retracement level of $29.17.  A bearish trader would have 
been feeling pretty good the very next day when FD gapped down 
from $30.19 to $27.80.  On January 17th, at roughly $28, risk to 
a stop at $32 from p/f chart would have been $4, while potential 
reward to $21 would have been $7.  To keep risk/reward at a 
minimum of 1:2, a stop could have been lowered to just above the 
50% retracement level of $29.17.  Potential reward would have 
remained the same, but simply based on a technical level, risk to 
a stop of $29.25 would be an attempt at reducing risk to $1.25.  

When FD fell to $25.72, risk/reward could have once again been 
measured, then reduced with a stop just above 61.8% retracement 
of $27.85 (stop #3).  I call this type of systematic snugging 
down of profit stops the "python approach" to squeezing profits 
from a trade, while still allowing a winning trade some room to 
work in the direction of trade.

Let's now "scroll forward" to today, or Friday's close.  In my 
initial reply to the subscriber, the technique of placing a stop 
based on a $1:$2 risk/reward from $23.91 might have had a trader 
weighing a stop of $25.37 ($23.91 + $1.46 = $25.37) against a 
more technical profit stop of $25.72 or just above that level, 
and still leaving some downside potential to initial target of 
$21.

Federated Department Store (FD) - Daily Interval


 

Well... a trader using conventional retracement, or the 
mathematical approach of systematically computing risk/reward 
from a stock's closing price to trade target may have been 
stopped out of his bearish trade in Federated Department Stores 
by now.  The trader never really initiated the stop loss order 
himself, but simply placed the stop with his broker's computer 
and let the market decide when it was time to stop out.

Here's one last little retracement technique that I've shown in 
other commentary where a bar chartist can use retracement along 
with point and figure vertical counts to still trade levels that 
might correlate with vertical counts.  This also allows for a 
very systematic approach to trading levels.  Let's assume for a 
minute that FD will eventually trade $21.  Couldn't we "drag 
down" the 100% level to $21 as our target?

Federated Department Stores (FD) - Daily Interval


 

The technique of still anchoring a retracement bracket at a high 
point, but dragging the 100% down to the point and figure bearish 
vertical count of $21 does show some correlation of levels being 
traded in the last couple of weeks.  I don't know if you think 
this technique has an advantage over conventional retracement, 
but it may when stocks threaten to break to new 52-week lows and 
an additional level or two is desired.  The same technique could 
be used for stocks that break to new 52-week highs, or upside 
targets or trailing stops become difficult to define.

Well, that $26.25 level in the above chart is kind of 
interesting.  A trader still short and holding out for $21, might 
give it one more day.  But no more than a 5-minute close above 
its DAILY R2 of $26.27.

Federated Department Stores - Pivot analysis matrix

            S2       S1       PIVOT      R1        R2
Daily     24.93     25.26     25.60     25.93     26.27
Weekly    24.52     25.05     25.63     26.16     26.74
Monthly   21.84     23.93     27.59     29.68     33.34

And if FD gets anywhere close to this MONTH's S2 of $21.84 and 
the bearish vertical count of $21, then I'd be using the 
mathematical risk/reward analysis to really be squeezing down a 
profit stop.

Now... a trader that trades levels may all of a sudden be 
thinking... "Holy cow, there's more levels discussed in FD than I 
can keep track of."  

My reply.  When it comes to trading levels, YOU the trader will 
chose a technique for establishing LEVELS to trade, that the 
MARKET appears to be trading.  ALL THAT MATTERS is that YOU be 
able to control RISK in the account, and in the course of doing 
so, may "stumble" across a LEVEL that suddenly becomes IMPORTANT 
as it relates to YOUR trade.

Don't begin wondering... should I have my stop in FD at $25.37, 
or $25.72, or $26.28 on a 5-minute close above $26.27.  All 
you're really wanting to do is systematically and with some sense 
of confidence determine a level by which you can protect a gain.  
I dare say that a trader short at $29.18 cares all that much if 
he takes a profit at any of the above stopping points a trader 
might chose.  All you're doing as a trader is assessing 
risk/reward as the trade progresses, placing a stop profit with 
your broker, then letting the MARKET decide if you've closed the 
trade.

Past articles that relates to this weeks column:

"Your account is your business" 
http://www.OptionInvestor.com/ask/ask_111702_1.asp
which discusses a trader's stated discipline of using risk/reward 
analysis in their account management and trade discipline.


"The BULLISH vertical count" 
http://www.OptionInvestor.com/baileysbasics/bb_091401_1.asp
which teaches the trader how to calculate a bullish vertical 
count from a point and figure chart.  Gives the trader/investor a 
POTENTIAL longer-term bullish price objective, based on the 
science of ballistics and helps a trader decide if there's still 
some upside room to a longer-term target the MARKET may have in 
mind for a stock.

"The BEARISH vertical count" 
http://www.OptionInvestor.com/baileysbasics/bb_091401_2.asp
which teaches the trader how to calculate a bearish vertical 
count from a point and figure chart.  Give the trader/investor a 
POTENTIAL longer-term bearish price objective, based on the 
science of ballistics and helps a trader decide if there's still 
some downside room to a longer-term target the MARKET may have in 
mind for a stock.

"Retracement levels" 
http://www.OptionInvestor.com/baileysbasics/bb_022001_1.asp
was a "fun" article where you the trader were forced to make 
buy/sell decisions based on LEVELS of retracement, just like a 
market maker or specialist might have to as they provide 
liquidity to market participants without getting crushed as they 
manage their long/short stock inventory.

Jeff Bailey


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

==========================================
Market Watch for the week of February 24th
==========================================

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

Symbol  Company               Date           Comment      EPS Est

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

ABV    AmBev - Comp Be Am    Mon, Feb 24  -----N/A-----       0.44
BFb    Brown-Forman Corp     Mon, Feb 24  Before the Bell     0.93
BNL    BUNZL PLC             Mon, Feb 24  Before the Bell      N/A
CHK    Chesapeake Energy     Mon, Feb 24  After the Bell      0.15
HRB    H&R Block, Inc.       Mon, Feb 24  After the Bell      0.49
LOW    Lowe's Companies      Mon, Feb 24  Before the Bell     0.33
MGA    Magna International   Mon, Feb 24  -----N/A-----       1.42
MDG    Meridian Gold Inc.    Mon, Feb 24  After the Bell      0.10
TRI    Triad Hospitals, Inc  Mon, Feb 24  After the Bell      0.47
WTW    Weight Watchers Intl  Mon, Feb 24  After the Bell      0.25
WRI    Weingarten Realty     Mon, Feb 24  Before the Bell     0.82
WRC    Westport Res Corp     Mon, Feb 24  -----N/A-----       0.07
WPPGY  WPP Group PLC         Mon, Feb 24  Before the Bell     0.94


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

AEOS   American Egl Otftrs   Tue, Feb 25  Before the Bell     0.53
ADSK   Autodesk, Inc.        Tue, Feb 25  After the Bell      0.05
BMO    Bank Of Montreal      Tue, Feb 25  -----N/A-----        N/A
BTI    British Am Tobacco    Tue, Feb 25  Before the Bell     0.50
BG     Bunge Limited         Tue, Feb 25  Before the Bell     0.87
CCU    Clear Channel Comm    Tue, Feb 25  Before the Bell     0.27
CSR    Credit Suisse Group   Tue, Feb 25  Before the Bell      N/A
FD     Federated Depart Strs Tue, Feb 25  -----N/A-----       1.95
FMS    Fresenius Med Care    Tue, Feb 25  -----N/A-----       0.25
HPQ    Hewlett-Packard       Tue, Feb 25  -----N/A-----       0.27
HIW    Highwoods Properties  Tue, Feb 25  After the Bell      0.82
HD     Home Depot Inc        Tue, Feb 25  Before the Bell     0.27
ORLY   O'Reilly Automotive   Tue, Feb 25  After the Bell      0.35
PUK    Prudential PLC        Tue, Feb 25  Before the Bell      N/A
RCI    Renal Care Group, Inc Tue, Feb 25  After the Bell      0.49
REP    Repsol YPF            Tue, Feb 25  -----N/A-----        N/A
SFD    Smithfield Foods      Tue, Feb 25  -----N/A-----       0.04
TRLY   Terra Lycos           Tue, Feb 25  -----N/A-----      -0.02
TOL    Toll Brothers         Tue, Feb 25  Before the Bell     0.61


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

APPX   American Pharm Part   Wed, Feb 26  -----N/A-----       0.34
AHM    Amersham              Wed, Feb 26  Before the Bell      N/A
CNQ    Canadian Natural Res  Wed, Feb 26  Before the Bell     0.81
CYH    Community Health Sys  Wed, Feb 26  After the Bell      0.27
RIO    Comp Vale do Rio Doce Wed, Feb 26  -----N/A-----       1.47
DRYR   Dreyer's Ice Cream    Wed, Feb 26  Before the Bell     0.13
EV     Eaton Vance Corp.     Wed, Feb 26  Before the Bell     0.40
ELE    Endesa, S.A.          Wed, Feb 26  -----N/A-----        N/A
HMT    Host Marriott         Wed, Feb 26  -----N/A-----       0.30
CLI    Mack-Cali Realty Corp Wed, Feb 26  Before the Bell     0.87
MRH    Mont Re Holdings Ltd. Wed, Feb 26  After the Bell      0.73
NXTP   Nextel Partners       Wed, Feb 26  -----N/A-----      -0.24
OKE    ONEOK Inc.            Wed, Feb 26  After the Bell      0.35
PAA    Plains All Am Pipe    Wed, Feb 26  Before the Bell     0.36
ROP    Roper Industries      Wed, Feb 26  After the Bell      0.27
TLD    TDC A/S               Wed, Feb 26  -----N/A-----        N/A
TNE    Tele Norte Leste Part Wed, Feb 26  -----N/A-----      -0.02
TOC    The Thomson Corp      Wed, Feb 26  -----N/A-----       0.49
TJX    The TJX Companies Inc Wed, Feb 26  Before the Bell     0.30
TIF    Tiffany & Co.         Wed, Feb 26  Before the Bell     0.59


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

ABB    ABB Ltd.              Thu, Feb 27  -----N/A-----        N/A
AU     Anglogold Limited     Thu, Feb 27  -----N/A-----        N/A
AXA    AXA                   Thu, Feb 27  -----N/A-----        N/A
BCM    CDN IMP BK COMMERCE   Thu, Feb 27  -----N/A-----        N/A
CMCSA  Comcast Holdings Corp Thu, Feb 27  Before the Bell    -0.11
BVN    Compania Minas Buen   Thu, Feb 27  -----N/A-----       0.49
E      ENI SpA               Thu, Feb 27  -----N/A-----       1.80
ERIE   Erie Indemnity        Thu, Feb 27  -----N/A-----       0.49
GPS    Gap Inc.              Thu, Feb 27  After the Bell      0.27
IRM    Iron Mountain Incorp  Thu, Feb 27  Before the Bell     0.19
LR     Lafarge               Thu, Feb 27  -----N/A-----        N/A
LTD    Limited Brands        Thu, Feb 27  Before the Bell     0.64
MRVL   Marvell Tech Group    Thu, Feb 27  After the Bell      0.16
NOVL   Novell                Thu, Feb 27  After the Bell       N/A
PCG    PG&E Corporation      Thu, Feb 27  -----N/A-----       0.45
PDE    Pride International   Thu, Feb 27  After the Bell      0.00
SHPGY  Shire Pharm Group     Thu, Feb 27  Before the Bell     0.40
TEF    Telefonica de Espaņa  Thu, Feb 27  Before the Bell      N/A
TD     Toronto Dominion Bank Thu, Feb 27  -----N/A-----        N/A


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

AAUK   Anglo American PLC    Fri, Feb 28  -----N/A-----        N/A
FIA    Fiat S.p.A.           Fri, Feb 28  -----N/A-----        N/A
PSS    PAYLESS SHOESOURCE    Fri, Feb 28  Before the Bell     0.15
RY     Royal Bank of Canada  Fri, Feb 28  -----N/A-----        N/A


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

Symbol  Company Name              Ratio    Payable     Executable

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
BWINB   Baldwin & Lyons           5:4      Mar. 03rd   Mar. 04th


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

Q4 Earnings reports continue to stream in but everything will
be overshadowed by the looming Iraqi conflict.  Economic reports
that the street will be watching are the Existing Home Sales,
Consumer Confidence, New Home Sales, Sentiment and the PMI.

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

Monday, 02/24/02
----------------
Treasury Budget (DM)    Jan  Forecast: $10.0B  Previous:   $43.7B


Tuesday, 02/25/02
-----------------
Existing Home Sales(DM) Jan  Forecast:  5.80M  Previous:    5.86M
Consumer Confidence(DM) Feb  Forecast:   77.0  Previous:     79.0


Wednesday, 02/26/02
-------------------
None


Thursday, 02/27/02
------------------
Initial Claims (BB)   02/22  Forecast:   392K  Previous:     402K
Durable Orders (BB)     Jan  Forecast:   1.0%  Previous:    -0.2%
New Home Sales (DM)     Jan  Forecast:  1045K  Previous:    1082K
Help-Wanted Index (DM)  Jan  Forecast:     40  Previous:       39


Friday, 02/28/02
----------------
GDP-Prel. (BB)           Q4  Forecast:   1.1%  Previous:     0.7%
Chain Deflator-Prel.(BB) Q4  Forecast:   1.8%  Previous:     1.8%
Mich Sentiment-Rev. (DM)Feb  Forecast:   79.2  Previous:     79.2
Chicago PMI (DM)        Feb  Forecast:   52.6  Previous:     56.0


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


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

Slippery Handle

Just when it looked like we had a handle on the market, after a 
day in which we got no untimely world news and were left to focus
on the economy, international forces burst back on the scene.

To read the rest of the Swing Trader Game Plan click here:
http://www.OptionInvestor.com/itrader/indexes/swing.asp


FREE TRIAL READERS
******************

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would welcome you as a permanent subscriber.

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price is 99.95 which is $20 off the monthly rate.


We would like to have you as a subscriber. You may
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information over the phone.

You may also fax the information to: 303-797-1333


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

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

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or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                   Sunday 02-23-2003
Sunday                                                      2 of 5


In Section Two:

Daily Results
Call Play of the Day: MME
Put Play of the Day: ATK
Dropped Calls: None
Dropped Puts: OSI


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

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

CALLS              Mon    Tue    Wed   Thu  Week

AMGN     54.60    0.00   1.02   1.39  0.01  0.61  Still going
EMC       8.04    0.00   0.59  -0.22  0.07 -0.08  Holding over $8
MME      34.80    0.00   1.58   0.71  0.72  3.75  New, 200-dma
ZMH      43.96    0.00   0.94  -0.75  1.02  2.16  New, Right time
SLAB     26.58    0.00   1.02  -0.16  1.31  1.02  Holding Up
TECD     22.32    0.00   0.44   0.02  0.20  0.60  Slow but sure
TRMS     43.54    0.00   0.68   0.55  0.29  2.38  $43 Breakout 


PUTS

ATK      48.89    0.00  -0.93  -0.69 -0.81 -2.21  New, Gap fill
CB       48.27    0.00   0.70  -0.32 -0.90 -0.98  Lower low
MHK      48.83    0.00   0.52  -1.36 -0.62 -1.82  No bounce
OSI      30.96    0.00  -0.62   0.00 -0.29 -0.24  Drop, no entry
VZ       35.64    0.00   0.55  -0.80 -1.84 -1.71  Entry point


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

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

MME – Mid Atlantic Medical Services $34.80 (+3.60 last week)

See details in play list




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

ATK – Alliant Techsystems, Inc. $48.89 (-2.15 last week)

See details in play list




**************************
PICKS WE DROPPED THIS WEEK
**************************

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS
^^^^^

None


PUTS
^^^^

OSI $30.96 (-0.49) Just to avoid getting caught in a bear trap,
when we added OSI, we set a trigger at the $30 level and it's
a good thing we did.  While the stock proceeded to drift a bit
lower after we added it on Tuesday, it was interesting that it
bounced strongly on Friday after a morning low of $30.05.  With
the solid volume backing the bounce and a failure to hit our
trigger, we're dropping the play this weekend in favor of
better candidates.


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

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

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

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

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

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

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


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DISCLAIMER
**********

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The Option Investor Newsletter                   Sunday 02-23-2003
Sunday                                                      3 of 5


In Section Three:

New Calls: ZMH, MME
Current Calls: EMC, SLAB, TECD, AMGN, TRMS
New Puts: ATK


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

ZMH - Zimmer Holdings - $43.96 +0.95 (+2.16 for the week)

Company Summary:
Zimmer, based in Warsaw, Indiana, is a global leader in the 
design, development, manufacture and marketing of reconstructive 
orthopaedic implants and fracture management products. Orthopaedic 
reconstruction implants restore joint function lost due to disease 
or trauma in joints such as knees, hips, shoulders and elbows. 
Fracture management products are devices used primarily to 
reattach or stabilize damaged bone and tissue to support the 
body's natural healing process. Zimmer also manufactures and 
markets other products related to orthopaedic and general surgery. 
For the year 2001, Zimmer recorded worldwide revenues of 
approximately $1.2 billion. Zimmer was founded in 1927 and has 
more than 3,600 employees worldwide. (source: company release)

Why We Like It:
What does an aging population need?  Replacement parts, of course.  
And if a company can provide those parts with minimum discomfort 
and at a lower cost than its rivals, then it seems to be providing 
the right product at the right time.  Zimmer fits that bill, as it 
specializes in orthopaedic reconstructive implants and fracture 
management products, as well as products used for orthopaedic and 
general surgery.  It got some attention recently when it revealed 
a new procedure for hip implants that relies on two small surgical 
incisions just 1.5 inches long.  It is in stark contrast to the 
industry norm that uses an eight inch cut and tears both muscles 
and tendons.  ZMH's new method harms neither. It results in less 
discomfort, quicker healing and hospital stays of only a day, as 
opposed to the typical 4-5 days.  In the current environment where 
HMOs pay for a procedure, but hospitals eat the cost of longer 
stays due to infections or other complications, ZMH is likely to 
see its new methods implemented in increasing numbers.  

The company saw a 34% percent increase in earnings year over year 
and a revenue increase of 16%.  The company's big sellers include 
both hip and knee products.  Analyst Kate Sharadin of Gerard 
Klauer Mattison recently said she expects ZMH is currently taking 
market share from competitors and that it can continue.  Industry 
prices jumped about 5% last year and the number of hip and knee 
transplants is growing about 6% a year.   The average patient is 
just over 60 years old and as baby boomers move into that range, 
ZMH's business should only accelerate. 

The daily chart shows ZMH struggling to break out above $43.00, 
going all the way back to last October.  It tested that level in 
October (high of $43.00), November ($42.93), December ($42.09) and 
now February.  The only difference is that this time it finally 
climbed the wall. After a $43.01 close on Thursday, it headed up 
to $43.96 on Friday and added to the $43 buy signal with another 
box at $44 with an intraday high of $44.03.  With the exception of 
the July 2001 dip, the stock has been in an ascending channel on 
the weekly chart since September 2001.  Going long a stock that 
breaks out to all-time highs on a big reversal day in the broader 
markets can be risky and because of that risk we favor two 
different entry strategies.  The first would be a trigger above 
$44.25, which should show continuing momentum and with no 
resistance above, could get us rolling toward our $50 target.  The 
alternative would be buying a dip to the rising trend line that 
connects the February lows and would come into play in the $42-
$42.50 range.  The dip buying strategy would be the lowest risk 
and most favorable risk/reward ratio.  We are placing our stop at 
$39.75 to allow for a bounce from $40 on a market pullback, but 
more conservative traders may want to use a stop of $41.50, which 
would amount to a break of that short-term trend line. 

BUY CALL MAR-40 ZMH-CH OI=991 at $4.50 SL=2.25
BUY CALL MAR-45 ZMH-CI OI=1562 at $1.00 SL=0.00
BUY CALL JUN-40 ZMH-FH OI=103 at $5.70 SL=2.85
BUY CALL JUN-45 ZMH-FI OI=473 at $2.40 SL=1.20

Average Daily Volume = 1.08 mln


---

MME – Mid Atlantic Medical Services $34.80 (+3.60 last week)

Company Summary:
Mid Atlantic Medical Services is a holding company for
subsidiaries active in managed healthcare and other life and
health insurance related activities.  MME and its subsidiaries
offer a broad range of managed healthcare coverage and related
ancillary insurance and other products and deliver these
services through health maintenance organizations, a preferred
provider organization, and a life and health insurance company.
MME owns a home healthcare company, a pharmaceutical services
company and a hospice company.  The company also owns a
collections company and maintains a partnership interest in an
outpatient surgery center.

Why We Like It:
Between scandals and regulatory changes, the past several months
haven't been particularly kind to health care related stocks, as
demonstrated by the persistent deterioration in the Morgan
Stanley Health Care index (HMO.X).  The index is off sharply
from its October highs, but is just now beginning to show renewed
signs of life.  After falling just fractionally below the
late-November lows, the bulls have been pretty active over the
past week and the index looks like a Buy.  So we went searching
for one of the index components that had a similar chart, and up
came MME.  The stock has performed better than the HMO index,
posting a series of higher lows since late November.  With
Friday's push through the 200-dma ($34.44), MME looks like it
is ready to break out over the $35 resistance level.  Actually,
the intraday high on January 23rd was $35.20, so the bulls will
need to clear that level before we can truly call it a breakout.
The PnF chart shows the stock already on a Buy signal (target
of $46) and currently edging above the bearish resistance line.
We're setting a trigger on the play at $35.25, and we'll wait
until the stock can break through that level before making it
active.  Aggressive traders can buy the breakout, while those
with a more conservative approach will want to target new
positions on a pullback to support after the breakout.  If
looking to enter on a pullback, look for support to hold in the
$34.50-35.00 on the pullback, with the 200-dma providing
additional support.  The 20-dma and 50-dma are both starting
to curl upwards, just above strong support at the $32.50 level,
and should provide a solid base to support the stock on any
pullbacks.  Accordingly, our initial stop is set at $32.50.

BUY CALL MAR-30 MME-CF OI=108 at $5.30 SL=3.25
BUY CALL MAR-35*MME-CG OI=263 at $1.75 SL=1.00
BUY CALL JUN-35 MME-FG OI=237 at $3.50 SL=1.75
BUY CALL JUN-40 MME-FH OI= 60 at $1.55 SL=0.75

Average Daily Volume = 513 K



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

EMC - EMC Corporation - $8.04 -0.21 (+0.13 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: 
EMC has not had any company specific news in several days and has 
been at the whim of basic supply and demand.  The stock has 
actually held up well since breaking out over $8.  Those traders 
with charts showing a low of $7.01 will note that this was a bad 
tick on the open and the stock actually traded an intraday low of 
$7.80.  The break below $8 was discouraging, but as the stock 
continues to consolidate and finish above that level, it has 
remained above an ascending support trend line stretching back to 
December 31. After recovering from the morning dip and moving back 
above $8, it tested support there on two intraday occasions, 
bouncing slightly higher each time.  However, $8.20 also provided 
a ceiling with a round top intraday.  The most recent storage 
sector analyst rating came from CSFB on February 11.  While it 
gave it a ho-hum 'market-weight' rating, it rated EMC as one of 
its two 'outperform' stocks in the sector. There has been no 
change to the PnF chart, which shows a bullish vertical count of 
$17.75 and remains on a buy signal which came at $8.  While the 
stock has not moved much recently, new entries may want to wait 
for a move back above today's resistance at $8.20, possibly on a 
trade of $8.25. 

BUY CALL MAR-5 EMC-CA OI= 926 at $3.20 SL=1.60
BUY CALL MAR-7.50 EMC-CU OI= 13653 at $1.00 SL=0.50
BUY CALL APR-5*EMC-DA OI= 3492 at $3.20 SL=1.60
BUY CALL APR-7.50 EMC-DU OI= 28479 at $1.25 SL=0.65

Average Daily Volume = 15.7 mln


---

SLAB - Silicon Laboratories - $26.58 -0.07 (+1.98 for the week) 

Company Description:
Silicon Laboratories Inc. designs, manufactures, and markets 
proprietary high-performance mixed-signal integrated circuits 
(ICs) for a broad range of communications markets. Silicon 
Laboratories is an ISO9001-certified manufacturer and has applied 
for more than 161 patents on its mixed-signal technology. 
(source: company press release)

Why We Like It:
As the SOX.X goes, so goes the NASDAQ.  At least...that's usually 
the case.  Today was the exception to the rule, when the 
semiconductor index underperformed the Composite and posted only a 
fractional gain.  A daily chart for the SOX.X shows what might be 
keeping the bulls restrained.  There's overhead resistance at the 
300 level, just above the converging 50-day and 100-day moving 
averages.  A lack of sector buyers was evident immediately after 
the opening bell when the index quickly retraced yesterday's 
gains.  SLAB started off the trading day on a more positive note 
when it moved through $27.00 and tagged a new relative high of 
$27.36.  Shares then pulled back to what became intraday support 
at $26.20 and traded under with a slight upward bias for the rest 
of the session.  Whether SLAB can continue to set new highs will 
likely depend on the SOX's ability to break above resistance.  If 
the index does move above 300, traders looking for new entries in 
Silicon Labs can think about taking action on a move above today's 
high.  Those with a conservative risk strategy can continue to use 
a stop slightly below $25.00. 

BUY CALL MAR-20*QFJ-CD OI= 90 at $6.80 SL=3.40
BUY CALL MAR-25 QFJ-CE OI= 884 at $2.70 SL=1.35
BUY CALL APR-22.50 QFJ-DX OI= 250 at $5.30 SL=2.40
BUY CALL APR-25 QFJ-DE OI= 1329 at $3.70 SL=1.85

Average Daily Volume = 1.22 mil


---

TECD – Tech Data Corporation $22.32 (+0.81 for the 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:
Slowly but surely, TECD continues to fill in its February 7th gap.  
The stock worked its way higher throughout the week without much 
regard to what the rest of the market was doing.  After this 
steady uptrend the bears weren't in much of a mood to hold short 
positions over the weekend.  TECD enjoyed heavy buying during the 
final half hour of trading today, which pushed the stock up to a 
new relative high of $22.33 - not a bad way to close out the week.  
The daily chart shows that TECD is approaching the descending 21-
dma at $23.34.  Other than this moving average, there are no 
visible obstacles standing in the way of a rally up to our profit-
target at $23.99.  But with the daily stochastics (5,3,3) at 
overbought levels, it wouldn't come as a surprise to see some 
backing and filling of the recent gains.  If shares do pull back, 
we'll be looking for buyers to emerge at short-term 
support/resistance near $21.60.  Very conservative traders could 
use a stop just below this level.  Traders considering new entries 
should note the extended daily stochastics on the (5(3)3) setting.  
The same indicator on the (14(1)3) setting shows a mid-range 
uptrend. 

BUY CALL MAR-20 TDQ-CD OI=888 at $3.10 SL=1.55
BUY CALL MAR-22 TDQ-CX OI= 15 at $1.45 SL=0.75
BUY CALL JUN-20 TDQ-FD OI=  3 at $4.00 SL=2.00
BUY CALL JUN-22 TDQ-FX OI=  3 at $2.60 SL=1.30

Average Daily Volume = 1.09 mln


---

AMGN – Amgen, Inc. $54.60 (+2.00 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:
The bulls finally did it!  After several failed attempts in the
past few days, AMGN finally broke over the $54 resistance level
with conviction, closing just off its high of the day.  Now if
the Biotechnology index (BTK.X) can just give us some follow
through next week, we'll really be cooking.  Speaking of the BTK,
it did post a respectable gain on Friday, but it is once again
butting up against that $327-330 resistance zone.  It almost
seems as though AMGN has single-handedly dragged the sector
higher and if the bulls can continue to bid this stock higher
next week, then the BTK ought to follow suit and finally clear
that resistance.  Traders that didn't enter on today's breakout
move will now want to look for entries on the next pullback to a
higher low.  Ideally we'll get a dip into the $53.50-54.00 area,
which will likely be met with buyers again.  One other piece of
bullish evidence is the fact that Friday's push to new highs was
accompanied by solid volume.  While Friday's 11.1 million shares
is still below the ADV, note that volume has been gradually
expanding over the past four days, as the stock has continued to
work higher.  The ascending trendline that has been supporting
the stock since last September has now risen to $52, so we're
raising our stop to $51.75 this weekend.

BUY CALL MAR-50 AMQ-CJ OI= 3688 at $5.50 SL=3.50
BUY CALL MAR-55*YAA-CK OI=27391 at $1.90 SL=1.00
BUY CALL APR-55 YAA-DK OI=32147 at $3.00 SL=1.50

Average Daily Volume = 12.2 mln


---

TRMS – Trimeris, Inc. $43.54 (+2.42 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:
In typical expiration Friday fashion, the broad markets provided
plenty of excitement early in the day, followed by a lackluster
close.  The Biotechnology index (BTK.X) has continued to lack
the strength of other technology sectors lately, but did manage
to push right up to the lower edge of that $327-330 resistance
zone we've been focusing on over the past week.  TRMS moved up
strongly after a bit of early weakness and proceeded to clear the
20-dma ($42.78), the 50-dma ($42.87) and then the important $43
resistance level before stalling out just below $44.  But we got
the move through resistance and bulls have got to be smiling
about that victory this weekend.  Next up is the $45-46 resistance
that provided a cap in January, and the 200-dma ($45.48) will
likely reinforce that resistance level.  Traders already in the
play can look to harvest gains on a test of that resistance,
especially if the BTK index can't convincingly push above the
$330 level.  We can still target new entries on intraday
pullbacks to support, likely in the vicinity of $42.00-42.50
area.  But chasing new entries higher is not a favorable approach
due to the proximity of that overhead resistance.  Buy the dips
and ride TRMS higher as long as the trend lasts.  Raise stops
this weekend to $41.50.

BUY CALL MAR-40 RQM-CH OI= 235 at $5.40 SL=3.50
BUY CALL MAR-45*RQM-CI OI= 370 at $2.25 SL=1.25
BUY CALL APR-40 RQM-DH OI= 309 at $6.40 SL=4.50
BUY CALL APR-45 RQM-DI OI= 752 at $3.20 SL=1.50

Average Daily Volume = 501 K



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

ATK – Alliant Techsystems, Inc. $48.89 (-2.15 last week)

Company Summary:
Alliant Techsystems is a supplier of aerospace and defense
products to the U.S. government, America's allies and major
prime contractors.  The company also supplies ammunition to
federal and local law enforcement agencies and commercial
markets.  ATK designs, develops and produces solid rocket
propulsion systems for a variety of U.S. government and
commercial applications.  ATK is the sole supplier of the
reusable solid rocket motors used on NASA's Civil Manned Space
Launch Vehicles.  The company also designs, develops and
manufactures small-, medium- and large-caliber conventional
munitions for the U.S and allied governments as well as for
commercial applications.

Why We Like It:
While just over a year old, the action in the Defense Industry
index (DFI.X) tells us a lot about what the market thinks about
potential war with Iraq.  Namely, it isn't going to last very
long, and it won't have a significant impact on the bottom lines
of the majority of Defense-related stocks.  After several tests
of the $485 level in the past 6 months, that support finally gave
way big time last week and the sellers really piled aboard on
Thursday, driving the index below $460.  There are a lot of
individual Defense stocks that have a similar chart pattern, but
few look as bearish as ATK.  And the bears have another thing
going for them with the impact to the shuttle program from the
loss of the Columbia shuttle at the end of January.  The stock
broke down hard following that tragedy and after a feeble rebound
to find resistance at prior support near $52, has reversed course
and is very close to dropping to new 52-week lows.  The PnF chart
will generate another Sell signal with a trade at $47, and that
development should really get the stock moving towards its
bearish price target of $40.  The $50 level is now looking like
pretty firm resistance and another failed rebound below that
level would provide a great entry into the play.  Those with a
more cautious approach will want to wait for a breakdown under
the $47 level, which is just below the September 2001 low.
Initial stops are set at $51.50, just below the steeply
descending 20-dma at $51.32.  Monitor the DFI index for
confirmation of continued sector weakness before playing.

BUY PUT MAR-50*ATK-OJ OI=82 at $3.00 SL=1.50
BUY PUT MAR-45 ATK-OI OI=59 at $1.00 SL=0.50

Average Daily Volume = 614 K



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The Option Investor Newsletter                   Sunday 02-23-2003
Sunday                                                      4 of 5


In Section Four:

Current Put Plays: CB, MHK, VZ
Leaps: On Shaky Ground
Traders Corner: Perfection Is Overrated – But Profits Are Not
Traders Corner: Inflating Deflation: Some causes and effects


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

CB - Chubb Corporation $48.27 (-0.42 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:
Despite the bullish action in the rest of the market, our CB play
keeps delivering for the bears.  After popping higher on Monday,
the stock has returned to its familiar pattern of posting lower
highs and lower lows.  In fact that failed rally attempt on Monday
was the best shot we had at an attractive entry point all week,
as the stock rolled over just below the $50 level.  Aside from
the bearish chart pattern, CB is continuing to be pressured by
negative comments, most recently on Thursday when Wachovia
downgraded the stock to Underperform and lowered EPS estimates
and cited a fair valuation range of $39-41.  Looks like we've got
some more room on the downside before getting there, but the PnF
chart says it just might be possible, although the current
bearish price target only projects down to the $44 level.
Friday's session started out with a bang and by the end of the
first hour, CB had traded a new relative low at $47.18, breaking
below the $47.50 level we had recommended for new momentum
entries.  But then a funny thing happened.  The broad market
caught a bid and lifted CB gradually higher throughout most of
the day before a bit of late day selling came in.  By the time
the dust settled, CB had posted another lower high and lower
low, finding resistance below $49 and not even challenging the
10-dma (now at $48.98).  Another rally failure below the 10-dma
can be used for new entries, as well as a drop under the $47
level (breaking Friday's intraday low).  We're keeping our stop
in place at $50 until the stock closes below the $47.50 level.

BUY PUT MAR-50*CB-OJ OI=746 at $3.20 SL=1.50
BUY PUT MAR-45 CB-OI OI=155 at $1.00 SL=0.50

Average Daily Volume = 1.39 mln


---

MHK – Mohawk Industries, Inc. $48.83 (-1.25 this week)

Company Summary:
Mohawk Industries and its subsidiaries, are producers of
floorcovering products for residential and commercial
applications in the United States.  The company is the second
largest carpet and rug manufacturer, and a manufacturer,
marketer and distributor of ceramic tile and natural stone.
Through its carpet and rug business, MHK designs, manufactures
and markets carpet and rugs in a broad range of colors,
textures and patterns and is a producer of woven and tufted
broadloom carpet and rugs, principally for residential
applications.

Why We Like It:
Housing stocks may have advanced on Friday, but you sure wouldn't
know it to look at shares of MHK.  Trading sharply lower shortly
after the open, even with the support of a broad market rebound,
it was all the bulls could do to claw their way back to the
opening level, just below $49 by the close.  The stock is still
struggling with the negative reaction to their cautious guidance
issued with earnings earlier in the month, and even the strong
housing numbers last week weren't enough to get the bulls
interested.  Since MHK managed to rebound from the $48 level
(right at the top of last Thursday's range), we can reasonably
infer that there is significant support at that level.  That
means we don't want to try chasing the stock lower until it
breaks below the recent low of $46.64.  Aggressive traders can
target new entries below $48, but our preferred momentum entry
would be to wait for a break under $46.50 before playing.  On
the other hand, a rebound on Monday could give us an attractive
entry on a failed rally below the $50 level.  the descending
20-dma (currently $51.06) should continue to provide a barrier
to any rally attempts, so we're lowering our stop to $51.10
this weekend.

BUY PUT MAR-50*MHK-OJ OI=34 at $2.85 SL=1.50
BUY PUT MAR-45 MHK-OI OI=30 at $0.80 SL=0.40

Average Daily Volume = 463 K


---

VZ – Verizon Communications $35.64 (-1.70 this week)

Company Summary:
Formed by the merger of Bell Atlantic and GTE, VZ is one of the
world's leading providers of communications services.  As the
largest provider of wireline and wireless communications in the
United States, VZ has 95 million access lines and 26 million
wireless customers.  Outside the United States, Verizon
affiliates serve 6 million wireless customers and operate 4
million access lines in 40 countries throughout the Americas,
Europe, Asia and the Pacific.

Why We Like It:
If that isn't a mark of indecision, what is?  After dropping to
fill its opening gap early in the day, VZ rallied up to exactly
$36.25 and then relaxed into the close, producing an almost
perfectly balanced doji candlestick pattern.  Not only that,
but after yesterday's large range day, Friday's slightly smaller
range produced a classic inside day.  So for resolution of this
pattern of resolution, all we have to do is see which way the
stock breaks out of the inside day next week.  A rally through
Thursday's high ($37.06) and we'll know the bulls have the ball
and it will be our cue to leave the field.  That will be
especially true because a trade over $37 will have to break out
$36.75 stop first.  But based on the turmoil being created in
the Telecom industry because of uncertainties induced by the
deregulation flap at the FCC, we're betting that the bears will
rule on the break from the inside day pattern.  That means a
breakdown under Thursday's low ($34.25) can be used for
momentum-based entries into the play.  We mentioned in the
initial writeup that a rally failure in the $36 area could be
used to initiate new positions and Friday's rally failure from
the $36.25 level certainly qualifies.  Another pop and rollover
from that area can still be used to enter the play, keeping in
mind that our stop is still set at $36.75.  Despite closing near
its high of the day, the North American Telecom index (XTC.X)
is still well below the 200-dma, and as long as this behavior
persists, the bears should remain in control in our VZ play.
By definition, that means a breakout in the XTC over the
200-dma will be an early warning to tighten those stops.

BUY PUT MAR-35*VZ-OG OI=9584 at $1.40 SL=0.75
BUY PUT MAR-32 VZ-OZ OI=2658 at $0.75 SL=0.40

Average Daily Volume = 7.23 mln



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*****
LEAPS
*****

On Shaky Ground
By Mark Phillips
mphillips@OptionInvestor.com

Sometimes I struggle to come up with a title for this weekly
column and sometimes the topic hits me like a ton of bricks.
This week, it actually woke me up out of a sound sleep!  Any
of my readers that live in Southern California know exactly
what I'm talking about, as we got a not-so-gentle reminder of
what it means to live in this part of the world.  About 4:30am,
a moderate (5.4 magnitude) earthquake hit about 30 miles from
where I live, and it woke me out of a sound sleep, along with
all the four-legged members of my family.

It struck me at the time, that "Shaky Ground" was also an apt
description of the broad market lately.  The tepid rebound of
the past 6 days has been all about short covering, not about
any concerted buying.  One of the metrics I use to track this
is the Buying/Selling power that is tracked by Lowry's.  This
indicator is confirming my anecdotal observation, as buying
power is not showing any signs of life, last week falling to
its lowest level since 1996.  So the lift in the market is
coming from a slight relaxation in the levels of selling
pressure.  Shorts are covering to mitigate any event risk to
the upside.  No matter which index you happen to track, the
market looks weak to rangebound.

This is also borne out by the bullish percent indicators, which
continue to drift lower.  There just isn't any interest in being
long in this market with the terrorism/Iraq event risk right
now, and the economy still looking weak.  Longs have little
conviction, but shorts are not aggressive either, as they know
they carry the bulk of the risk with the bullish percent
readings so low.  I have a hard time seeing much of a change in
this situation until the Iraq situation is resolved.  Then
attention will shift back to the issue of the economy, and that
doesn't provide much conviction for the bulls either.

So with my less than enthusiastic view for the upside, you may
ask why there are only call plays listed in the Portfolio and
Watch List.  It is all about risk control.  I can't make a
convincing case for significant downside for any longer-term
plays right here.  But any significant improvement on the
geopolitical and/or economic fronts will have the markets
moving forward with another bear-market rally.  Like I said
above, the market is currently resting on shaky ground, but I
believe that with the right catalyst, another rally like we
saw in August and October of last year could provide a nice
tradable move for longer-term positions.  So the prudent
approach is to pick some stocks with decent upside potential,
enter on pullbacks to strong support and then wait for the
expected upward move.

The VIX is confirming a lack of fear of the downside, but is
not yet giving the all-clear signal for the bulls either.
That descending trendline (now at exactly 40) once again turned
back the VIX just over a week ago and the VIX actually closed
back under its 200-dma (34.35) on Friday at 34.14.  My view is
that the VIX could go either way next week, much like my view
of the broad markets, which I think could continue their painful
upward grind or fall victim to renewed selling pressure.  Should
selling return next week, we'll want to take advantage of that
weakness to initiate new longer-term positions near strong
support.

With that as the backdrop, let's take a look at the list of
plays, updating them for the shortened week just completed.

Portfolio:

QCOM - Well, it was a rather quiet week for our QCOM play, as
it vacillated in a range of only $1.50 between the high and low.
But I think we managed to nab a good entry in this bullish play.
Weekly Stochastics still haven't started to show any bullish
signs yet, so we're still on the edge, but that 200-dma just
below $33 should provide a solid floor, as demonstrated by the
snapback move from that level just over a week ago.  The first
obstacle for the bulls to overcome is the 20-dma ($36.39), which
happens to coincide with the broken ascending trendline that
started with the August 2002 lows.  Intraday dips to the $33-34
area should still provide decent entries into the play, and
until QCOM recovers back over that trendline on a closing basis,
we'll maintain a wide stop at the $30 level.  Things should
really start moving in our favor once the stock is able to
reclaim the upper side of the 50-dma, and we'll be able to
start looking for a push back over $40.

Watch List:

DJX - The DOW bullish percent really hasn't shown any signs of
life, as most of the buying appears to be confined to
short-covering so far.  With the daily Stochastics trying to
tip bearish and the weekly Stochastics not yet really looking
strongly bullish, I'm still optimistic we're going to get our
entry at the listed $77.50 trigger.  I believe we're still early
to be entering new bullish plays on the broad market unless we
can enter on a significant pullback.  If we see a breakout over
the $81.50 level AND see some improvement in the bullish percent
reading, then we might consider raising our entry target, but
not until then.  Should we get filled next week, we'll be running
with a wide stop of $74, just below the downside target specified
by the H&S pattern that confirmed in late January.

BEAS - "Sell the News" was the apparent result after BEAS beat
consensus estimates, both on an EPS and revenue basis Thursday
night.  Weighing heavily on the stock in Friday's session was
the Pacific Growth downgrade to Underweight due to
disappointing guidance for Q1.  There are a couple of
interesting technical observations we can make here.  After
finally breaking below the 50-dma in late January, BEAS dropped
to find strong support near the $10 level.  Then last week's
pre-earnings rally was turned back at this moving average on
three consecutive days.  Support becomes resistance.  Despite
the negative reaction to earnings, there just wasn't enough
selling interest to drive BEAS below the important $10 level.
I still think we'll eventually crack that level, and I'm content
to wait for it to happen.  The combination of the 200-dma
($8.88), historical support near $9 and the PnF bullish support
line should work together to provide strong support in the $8-9
area.  We're just looking to target shoot our entry into the
play when that level first gets tested and holds as support.

NVDA - Too aggressive on the entry target is definitely the case
here, as the stock really got a strong bounce following earnings
and really hasn't come back at all since then.  It is worth
noting though, that the PnF chart still hasn't generated a new
Buy signal, so I don't think we need to move into "Chase" mode
just yet.  The Semiconductor sector (SOX.X) is looking a bit
top-heavy right now and it ought to come in a bit before the
next leg of the rally takes hold.  NVDA has a tempting gap in
the $10-11 area and I would expect the stock to at least test
the top of that gap before continuing higher.  We'll continue
to wait for that pullback to give us our desired entry.

MSFT - As noted in the Market Monitor on Tuesday, I erred in my
analysis on MSFT and raised the entry trigger to $23.50-23.50,
as this is the site of the ascending trendline that connects
the July and October lows.  The early selloff on Friday came
close to fulfilling our entry parameters, but not quite.  Based
on the tenuous nature of the current rebound, I'm content to
wait for MSFT to come back to that trendline to give us the
optimum entry.  If we do see a strong rebound in the broad
markets, MSFT is likely to lead the way, but we want to make
sure we get a good entry first.  Once filled, we're going to
work with a stop at $21.

Whether we like it or not, this remains a treacherous and
rangebound market.  The VIX relaxed somewhat throughout last
week as the market rose in agony.  But as noted above, the
buying is predominantly shorts covering, not buying conviction.
This is not the sort of environment in which to be opening full
positions or to be chasing stocks higher.  We'll continue to
expand our list of bullish candidates, taking the entries that
come our way and letting the others go.  Pickiness will be
rewarded, and it goes without saying that greed will be
punished.  Remember, our primary goal is capital preservation,
and when we have successfully accomplished that task, we can
then focus on the job of steadily growing our accounts.

Have a great weekend!


Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
None
QCOM   02/14/03  '04 $ 40  LLU-AH  $ 4.60  $ 4.80  + 4.35%  $30
                 '05 $ 40  ZLU-AH  $ 7.90  $ 8.20  + 3.80%  $30


Puts:
None



LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
BEAS   12/22/02  $8.50-9.00    JAN-2004 $ 12  LZP-AV
                            CC JAN-2004 $ 10  LZP-AB
                               JAN-2005 $ 12  ZWP-AV
                            CC JAN-2005 $ 10  ZWP-AB
NVDA   02/02/03  $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  $23.00-23.50  JAN-2004 $ 25  LMF-AE
                            CC JAN-2004 $ 22  LMF-AX
                               JAN-2205 $ 25  ZMF-AE
                            CC JAN-2005 $ 20  ZMF-AD
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
ADBE   02/23/03  $26-27        JAN-2004 $ 30  LAE-AF
                            CC JAN-2004 $ 25  LAE-AE
                               JAN-2005 $ 30  ZAE-AF
                            CC JAN-2005 $ 25  ZAE-AE
AA     02/23/03  $19-20        JAN-2004 $ 22  KJP-AX
                            CC JAN-2004 $ 20  KJP-AD
                               JAN-2005 $ 25  XAP-AE
                            CC JAN-2005 $ 20  XAP-AD


PUTS:
None


New Portfolio Plays

None

New Watchlist Plays

ADBE - Adobe Systems, Inc. $29.11  **Call Play**

The key to finding good long-term bullish plays in a weak overall
market is to find both a stock and a sector that have held up
better than the rest of the market and are showing distinct
bullish signs.  The Software index (GSO.X) has certainly done
better than the rest of the Technology group and confirmed strong
support at the $99-100 level, 6 trading days ago.  While I'm not
overly excited about the overall group, I do like the fact that
it is showing relative strength as compared to the NASDAQ Comp.
But within the GSO index, ADBE has really been shining,
particularly in the past few months.  Repeatedly finding support
near $25, the stock is once again pushing up towards resistance
in the $29-31 area.  And the relative strength chart of ADBE
relative to the GSO is a thing of beauty, and on Friday it pushed
to its best level since last July.  ADBE recently pushed back
over its 200-dma and the 50-dma just turned up and pushed through
the 200-dma as well.  Granted, the 200-dma is still headed south,
so this isn't a perfect setup, but ADBE is definitely in the
minority of stocks, just by being above both its 50-dma and
200-dma.  Add in the fact that buying volume is on the rise (with
On Balance volume pushing to its highest level since late
November), and ADBE looks to be under steady accumulation.  A
trade at $30 will give us one more factor in our favor, as it
will generate a new Buy signal for the stock, which already has
a bullish vertical count of $50.  Of course, I would be remiss
if I didn't point out that weekly Stochastics are well on their
way towards overbought territory.  So while we aren't getting
in at the bottom of this move, it certainly looks like it has
more room to run.  In line with expectations for some rangebound
action over the near-term, we're going to look for one more
pullback to support to give us a favorable entry into the play.
If this accumulation pattern is for real, ADBE should have
pretty solid support now in the $26-27 area, so a dip into that
area followed by renewed buying interest will be our trigger.
After entry, we'll set a stop at $24, as that level looks like
very strong support.

BUY LEAP DEC-2003 $30 LAE-AF
BUY LEAP DEC-2003 $25 LAE-AE **Covered Call**
BUY LEAP DEC-2004 $30 ZAE-AF
BUY LEAP DEC-2004 $25 ZAE-AE **Covered Call**

AA - Alcoa, Inc. $20.77  **Call Play**

Are you ready to go bottom fishing in a stock (and sector)
sitting right on major support?  After topping out near the $26
level in early December, AA has fallen right back to solid
support near the $19 level and has been gradually working its
was off those lows for the past couple weeks.  Normally, this
type of stock wouldn't catch my attention for a long-term
bullish play, but the combination of the picture on the PnF
chart and the price action in the Morgan Stanley Cyclical index
(CYC.X) was enough to convince me it had some decent potential.
First up, let's look at the PnF chart.  While currently in a
column of O's, AA isn't anywhere near giving a new Sell signal.
In fact, it is the big column of X's that really caught my
attention.  The vertical count from that column produces a
bullish price target of $44.  That lines up perfectly with the
stock's all-time highs, so I don't hold any expectations that
we're going to see that level any time soon.  But a return to
the high $20s, possibly up to major resistance near $30 certainly
seems possible.  Weekly Stochastics are just starting to turn
bullish and we can see from the weekly chart that the $18-20
level is very strong historical support.  Turning to the weekly
chart of the CYC index shows how it just bounced from the $400
level, which has provided strong support on 3 other occasions
since 1998.  AA isn't going to take off like a rocket, but I
like the risk/reward for this play.  Entries taken in the $19-20
area offer a solid $8-10 of upside potential and a downside
risk of roughly $2.50 to our $17.50 stop.  I picked that level
for the stop, as a trade at $17.50 would create a new Sell
signal on the PnF chart, negating the current bullish vertical
count.  There are numerous overhead obstacles like the 50-dma
($21.76) and the 200-dma ($25.32), but AA looks like a good way
to play an expected rebound in the broad market, as it is
already showing strength after a successful defense of
important support.

BUY LEAP DEC-2003 $22 KJP-AX
BUY LEAP DEC-2003 $20 KJP-AD **Covered Call**
BUY LEAP DEC-2004 $25 XAP-AE
BUY LEAP DEC-2004 $20 XAP-AD **Covered Call**

Drops

None


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

Perfection Is Overrated – But Profits Are Not
By Mike Parnos, Investing With Attitude

OK, so we’re not perfect.  The law of averages caught up with us 
this month – a little.  Overall we did just fine.   We tried a 
few experiments and now we’re wiser for the experience.  
Experimentation can be good.  Hence, my first born.

As you know, profits are not guaranteed.  It used to be only 
death and taxes were certain. Now, of course, there’s shipping 
and handling, too.  But we have to work for our profits – not too 
hard, though.  We don’t want to get carried away.

So What Have You Done For Me Lately?
The February option cycle is behind us and another 1,300 dead 
presidents have joined 12,910 of their friends in the CPTI profit 
piggy bank.  Now there are 14,210 and we haven’t had a sleepless 
night yet.  We never missed even a half-hour of prime time 
programming – except the Michael Jackson interviews.  He’s more 
than creepy.

I’m saving up for a down payment on a new house.   My next house 
won't have a kitchen - just vending machines and a large trash 
can.  So I’m going to need a lot of quarters if I’m going to eat 
– and eating is one of the two things in life that provide 
instant gratification.  Can you guess the other?

Here is how our February trades worked out . . .
_____________________________________________________________

Breakdown Of February Trades:
First, the good news:
Position #1 -- BBB Iron Condor – A Narrower Range.
We established an Iron Condor consisting of both a bull put 
spread and a bear call spread below and above the $85 - $90 
trading range. For our ten- contract position we collected 
$1,550. 

BBH, bless its heart, behaved well and finished at $89.32 – 
comfortably within the range.  The collected $1,550 can now be 
moved from the “collected premium” category to the “profit” 
category. 
_____________________________________________________________

Position #2: MMM Iron Condor – A Narrower Range.
We established an Iron Condor consisting of both a bull put 
spread and a bear call spread below and above the $120 - $130 
trading range. For our ten- contract position we collected 
$1,000. 

MMM was also cooperative, finishing at $126.85, also comfortably 
inside the range.  As above, the 1,000 is now profit.

Now for the “less than” good news
Position #3: SMH Straddle – War, no war, war, no war, war, no war 
– I hate procrastinators.
CPTI students know I hate to pick a direction – so I didn’t!  SMH 
(semiconductor index) was approaching a support level at about 
$22.50.  With Iraq tiptoeing around its weapons of mass 
destruction, it was inevitable that there would be a war – and 
soon. There would, undoubtedly, be a dramatic market reaction.  
So we put on a May $22.50 straddle – buying the May $22.50 puts 
and calls for a total of $5.85.  We were going to hold the 
position until February expiration – today.  The risk would only 
be about $.85.  

So, what happened?  A big fat nothing!  Were we asking a lot?  
Just a few bombs.  A minor invasion.  A measly two-week war.  
Hell, Dustin Hoffman did it in “Wag The Dog.”  Well, we closed 
the trade on Friday and ended up losing $1,000 ($1 x 10 
contracts).   We had no luck, but we had discipline.

Position #4 – XAU Calendar Spread
We also had high hopes for the AMEX Gold/Silver index.  With XAU 
at $74, we bought the June $80 calls and sold the February $80 
calls.  

With world turmoil on the menu, it seemed logical that investors 
would rotate to gold – and they did – but too damn fast.  In less 
than a week, XAU charged through $80, the deltas were no longer 
in our favor.  We unwound the spread for a loss of $250.  

Wouldn’t you know that XAU soon reversed and spent most of the 
rest of the month well below $80?  Hindsight is 20-20.  Take it 
from me.  I’ve seen plenty of hinds in my time.  But, once again, 
we had discipline – a trait of which CPTI students can be proud.

Position #5 -- QQQ ITM Strangle – Currently trading at $25.17.
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 owned the February $29 calls and February $21 
puts and they both expired worthless.  (See “New Positions” for 
play update).
____________________________________________________________

NEW POSITIONS FOR MARCH
New Position #1 – OEX Bull Put Spread – Trading at $429.87
The market is confused, but it’s not likely to go down to retest 
its July and October lows near 400.  If war breaks out, it might 
be a quickie.  The market may spike up.  How high?  Who knows?  
That’s why I’m not putting a bear call spread on top to create an 
Iron Condor.  So lets establish a bull put spread.

Sell 10 contracts of the OEX March 400 puts
Buy 10 contracts of the OEX March 390 puts

The OEX trades only on the CBOE.  The bid and ask spreads are 
$.30 - $.40.  If this position is placed as a spread order, it’s 
likely that you can work within the spreads and shave about $.10 
on both sides.   Currently, the posted bid ask would yield $1.20.  
Add the additional $.20 and you have a total of $1.40 or $1,400 
for 10 contracts.

If you want a little more cushion, you can do the 395/385 or 
390/380 bull put spreads.  The return will be slightly less, but 
it would be slightly safer.
______________________________________________________________

New Position #2 – XAU Iron Condor – Back to the well.
An Iron Condor is a credit position consisting of both a bull put 
spread and a bear call spread. The collected premium will come 
into your account the very next business day.  The objective is 
for the underlying, at expiration, to finish anywhere within the 
spread. 

So we will create an Iron Condor with a 15-point range. 
Sell 10 contracts of the XAU March $65 puts (XAUOM) @ $1.05
Buy 10 contracts of the XAU March $60 puts (XAUOL) @ $.50
 
Sell 10 contracts of the XAU March $80 calls (XAUCP) @ $1.25
Buy 10 contracts of the XAU March $85 calls (XAUCQ) @ $.70
 
The posted credit for our bull put spread is $.55 and for the 
bear call spread is $.55. Total posted credit for the position is 
$1.10.  However, since XAU trades only on the PHLX exchange, with 
wide bid/ask spreads.  You should be able to place the orders as 
a spreads for an additional $.15 on each – resulting in an extra 
$.30 in premium taken in for a total of $1.40 or $1,400 for ten 
contracts.  Total margin requirement is $10,000 ($5,000 for each 
credit spread). Risk is $3.60 ($5.00 - $1.40).
_____________________________________________________________  

New Position #3 -- OIH (Oil Holders Trust) Diagonal Calendar 
Spread
OK.  This is a reader’s request.  Here’s the scenario.  It seems 
that there’s about $8 of uncertainty built into the $35.50 price 
of a barrel of oil.  When, and if, the war is resolved, the price 
of oil should work its way down, along with the price of oil 
stocks.

With the OIH trading at $57.60, and the anticipation of a drop to 
around $50, lets:
Buy 10 contracts of the July OIH $55 put @ $4.30 = $4,300
Sell 10 contracts of the March OIH $50 put @ $.45 = $450
Total debit is $3.85 = $3,850
We have an almost 30-point delta advantage and we have five 
months to sell short-term puts and reduce our cost basis while 
we’re waiting for oil to fall.
______________________________________________________________  

Position #4 -- QQQ ITM Strangle – Currently trading at $25.17.
This is a long-term position we created two months ago to 
generate a monthly cash flow.  We own the January 2005 $21 LEAPS 
call and the January 2005 $29 LEAPS puts.  We owned the February 
$29 calls and February $21 puts and they both expired worthless.  
So lets:
Sell 10 contracts of the QQQ April $28 calls @ $.50
Sell 10 contracts of the QQQ April $22 puts @ $.45
Total credit of $.95 = $950
We moved our short sells in by one point because a lot of premium 
has disappeared from the QQQs in the last two months.  Never 
fear, it will be back.

Our initial risk was $7.20.  We have since reduced it by $1.90 
($.95 x 2).  Our adjusted risk is now only $5.30.   

I gave serious thought to closing this position because it is 
tying up a lot of money that could be used for other trades.  
However, there is relatively little risk and monitoring a long-
term trade like this is a good teaching tool.  If you choose to 
unwind this trade, you will have lost nothing and it is perfectly 
understandable.
______________________________________________________________

Happy trading! Remember the CPTI credo: May our remote batteries 
and self-discipline last forever, but mierde happens. Be 
prepared! In trading, as in life, it's not the cards we're dealt. 
It's how we play them.
 
Your questions and comments are always welcome.
Mike Parnos
CPTI Instructor


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

Inflating Deflation: Some causes and effects
Jonathan Levinson

Inflating Deflation: Some causes and effects Jonathan Levinson  
The Producer Price Index was released Thursday before the open.  
The full text of the release can be found at 
http://www.bls.gov/news.release/ppi.nr0.htm.  The Consumer Price 
Index was released on Friday at 
http://www.bls.gov/news.release/cpi.nr0.htm.  On Thursday, the 
price of gold spiked  modestly higher immediately following the 
release, and on Friday gold remained flat after holding  its gains 
from Thursday.  I will not discuss the price of equities or equity 
futures, given the "noise"  created by other contemporaneous 
economic reports as well as the price distortions caused by the  
usual options expiration week antics.   

The question posed by these reports concerns inflation and 
deflation.  A bit of background first:   The Federal Funds rate 
remains at multidecade lows, and consumer debt is at record highs.  
The  Federal Reserve has been discussing deflation with increasing 
regularity and, more importantly,  clarity of late.  Chairman 
Greenspan opened an address to the New York Economic Club with a  
discussion on gold, and recent inductee Governor Bernanke went so 
far as to tell the public that it  needn’t fret over a possible 
deflation, because the Fed "has a printing press" and will inflate 
money  supply as much as necessary, thereby putting the famous 
Greenspan Put under gold and other  commodities.  Unfortunately, 
as traders we have learned to take comments from central bankers,  
even clear comments, with a large grain of salt, given that these 
comments tend to be forgotten  quickly, most often by the central 
bankers themselves.   

Nevertheless, even the lip-service paid to deflation is 
significant, given the seriousness of the its  threat.  Inflation 
causes gradual damage to our collective wealth by diminishing the 
real value of  our savings, but it also diminishes the real value 
of our debts.  What is inflation?  Where a single breadwinner was 
able to support a family with a house, cars and a white picket 
fence in the 1950’s,  it now takes two breadwinners working longer 
hours to support a family.  This anecdotal observation attempts 
to present a different perspective on inflation from that implied 
by the  government’s data.  We work harder today than we did 
decades ago.  That, to me, is the ultimate effect of inflation.  
That, and the diminishing real value of our savings.  Deflation, 
on the other  hand, is a quick and lethal blow, as the real value 
of our debts rises, the amount of our debt service  payments 
remains fixed, and the amount we are paid for our work diminishes.  
While inflation hurts us slowly, deflation’s effects are far more 
rapid and violent.    



    Without engaging in an exhaustive review of the Fed’s speeches, 
I have heard it said that Chairman Greenspan used to express the 
theory that the Kondratieff Winter could be averted with  
sufficient inflation of the money supply.  Very briefly, Nicholai 
Kondratieff, who was banished to Siberia for his views in the 
early 20th century, asserted that economies are governed by a 
"long  wave" credit cycle of approximately 20 years, and that 
during the winter of that cycle, the  previously massive debt 
expansion reverses, its contraction characterized by war, 
bankruptcies,  and a general economic slowing.  For those 
interested, Kondratieff’s theories were further developed by 
Harvard economist Joseph Schumpeter.

We see the effects of Mr. Greenspan’s handiwork in the chart 
above.  Yet, despite these gargantuan efforts, and the harm to our 
society’s savers caused thereby as the value of their savings 
continues to be eroded, the Kondratieff Winter rages on, as record 
bankruptcies continue to stack up (ie. WCOM, ENE) and the overall 
bankruptcy rate continues to set new records (as announced last 
week regarding the year just ended).   

It is for this reason that the value of commodities has rallied.  
If the Fed is on a mission to print as much paper as the system 
can absorb, despite the bubbles it has created, first in equities, 
then in housing and credit, it is inevitable that items of limited 
supply such as commodities will sell for greater quantities of 
that increasingly available paper.  Thus, the price of gold in 
dollars has rallied, as has the commodity index, the CRB, as the 
US Dollar Index has dropped.  Interestingly, real estate is 
explained by this same effect, and I would hesitate to refer to it 
as a bubble, except that it has been fueled in large part by debt, 
unlike the rally in commodities.  Without the aggressive expansion 
of mortgage debt, real estate prices would not be what they are 
today.   

The Producer Price Index, which measures wholesale prices, jumped 
unexpectedly, igniting inflationary concerns.  Predictably, gold 
spiked higher following the news.  Much of the gain in the PPI was 
attributed to higher fuel and energy prices, which points to cost-
push inflation rather than demand-pull inflation.   This 
interpretation is further reinforced by the surprise jump in 
initial jobless claims for the week just ended and the persistent 
rate of roughly 400,000 new claims per week for the past several 
months.  While the increase in fuel and energy prices can be 
attributed to a host of geopolitical factors, including the strike 
in Venezuela, tensions in the middle east, the hard winter on the 
east coast, and, anecdotally, the seemingly limitless of SUV’s 
clogging North America’s roads, a rise in commodity prices is 
already implied by the above chart.  More money equals less value 
per dollar with which to purchase commodities of limited supply.   

The Consumer Price Index remained flat, and posted the lowest year 
over year increase since 1966.   Gold did not fall, but remained 
flat on the news, as it was presumably no surprise that consumers 
remain sensitive to price increases, and are thus impeding the 
pricing power of corporations.  The US consumer is driving all the 
car and living in all the house that s/he can currently borrow, 
and I’ve been hearing anecdotes from far and wide to confirm it.  
Most impressively, smokers in increasing numbers have been 
switching to generic cigarettes, despite the fact that cigarettes 
enjoy the highest brand loyalty of any consumer product.  Witness 
the "zero down, zero interest, zero payments for one year" offers 
from auto manufacturers.   

My conclusion based on the above is that input prices continue to 
rally, fed ultimately by inflation in commodities, while deflation 
in consumer prices remains a concern, fueled by excessive 
indulgence in low interest credit, and, to a lesser extent, 
imported price deflation from low-cost exporters such as China.  
All of my conclusions share the same causal link, which is the 
inflation of the money supply and the aggressive reduction of the 
Federal Funds rate- the Fed’s "easy money" policy.   

As traders, we need to be cognizant of the possible effects of 
these forces on the prices of the securities we trade.  Given the 
increase in producer prices and the softness in pricing power, I 
see corporate profits being squeezed by high costs and the 
inability to pass those costs on to the consumer.  This should 
prove to be bearish for equity prices.  On the other hand, 
commodities have rallied and it appears that the forces 
responsible for that rally are continuing to assert themselves.  
The US Dollar should remain weak given all of the above.  With 
little to motivate foreigners to loan to the US by buying its 
bonds at multidecade low coupon rates, combined with a weak 
equities market and the implication that persistent unemployment 
will threaten productivity, the US Dollar does not look like a 
good bullish bet at all.   My recipe:  Long commodities, including 
gold and silver, short US equities, and possibly long euro bonds 
and foreign currencies.  My own portfolio reflects the above, 
through Canadian mutual funds and US options.  I have no position 
in euro bonds or foreign currencies (other than Canadian dollars) 
at this time.   

It is important to note the attendant trading risk associated with 
an inflating money supply.  While some continue to assert that 
there is no housing bubble, the fact of significantly higher 
prices fueled by cheap and readily available credit remains.  We 
saw the same thing with equity prices in the 1990’s, most 
blatantly in the prices of dotcom stocks and the attendant record 
expansion in margin debt.  With this much liquidity currently in 
the financial system, there exists the risk of inflation finding 
its way into paper assets anew.  It is for this reason that equity 
bears need to be careful.  Fueled by the relentless, endless 
bullishness for stocks in the mainstream financial media, most 
egregiously on the GE telethon, CNBC, along with 401K plans 
sending a steady stream of money to fund managers each week, the 
anticipated drop in equities has so far demonstrated an  
impressive reticence.  Unlike during other bear markets of the 
past, there is a lot more money available to avert the liquidity 
crunch that has traditionally caused or at least been associated 
with the crashes that so many bears anticipate.  Doing so with 
time-sensitive options can be a very costly, disheartening 
mistake.  For this reason, taking profits regularly from open put 
positions is a wise strategy, as is shorting the markets by 
selling premium instead of buying it. 


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The Option Investor Newsletter                   Sunday 02-23-2003
Sunday                                                      5 of 5


In Section Five:

Covered Calls: One Trader's Approach To Covered-Calls
Naked Puts: Selling Puts -- Is It "Right" For You?
Spreads/Straddles/Combos: Optimism Prevails As Stocks Recover

Updated In The Site Tonight:
Market Watch: Planning For Your Future
Market Posture: News Driven


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

Trading Basics: One Trader's Approach To Covered-Calls
By Mark Wnetrzak

With the editor of this section away on vacation, we've decided
to publish another informative article on one of the most popular
stock-option strategies for conservative traders.

The Conservative Covered-Write

Commonly referred to as the "most conservative option strategy
available," this technique has cost uneducated investors billions
of dollars since options were invented.  Don't get me wrong: 
writing covered calls can be a very profitable strategy when 
implemented correctly.  It is all in the technique!

Generally, covered calls are written on stock an investor holds
in his portfolio.  The concept is to produce cash flow by selling
premium for income while obtaining downside protection.  The
underlying stock can be held in either a cash or margin account.
The advantage of trading on margin is that the potential return
on investment is doubled.  The disadvantage of using margin is
that additional capital (margin call) may be required in the
account if the portfolio value falls below a certain percentage,
usually 30%.

Many investors are very successful in this strategy because they
are not greedy.  They understand the "magic" of compound interest
and strive to consistently increase the value of their investment
portfolios each month.  Yet others constantly lose money by 
implementing the technique incorrectly.

The term "covered" is used when describing the sold (short) calls
in this strategy because the investor owns the stock on which he
is writing the calls.  For every 100 shares of stock the investor
owns, he can "write" one (1) call-option contract. Typically,
investors will pick the next strike price above the current price
of the stock to maximize the potential return on investment.  A 
conservative investor will pick an in-the-money (ITM) strike
price, choosing an acceptable return that offers reasonable
downside protection.  Aggressive investors tend to focus on the
higher returns of using out-of-the-money (OTM) strike prices at
the expense of downside protection.  These OTM positions do offer
greater "potential" rewards, but depend on an increase in price
by the underlying stock and do not really benefit from writing
the call.  If you're expecting the stock to move, why "limit"
your profit potential?  Just trade the stock!


Return On Investment

The target-yield or return on investment (ROI) for covered calls
is determined by two circumstances: Return if Called (RC), and
return not called (RNC).  Most traders use the RNC to evaluate
plays since there is no assumption made on the movement of the 
underlying equity.  To calculate the return, you take the net
premium received and divide it by the cost basis.  The cost 
basis would be the price paid for the stock, minus the premium
received; this is the maximum amount of equity required for the
duration of the play (not using margin).  In the covered-call
section, we use generally accepted formulas to calculate the
return as shown below.  

For an ITM covered call, the net premium would be the option
premium received minus the difference between the cost of the 
stock and the strike price.  ITM RNC will be the same as RC,
since the sold strike is already "in-the-money," and is the
maximum return possible.

ITM example:  

XYZ  @ $12.00, strike = $10.00, option premium = $2.50
Net premium = 2.50 - (12 - 10) = 0.50
Cost basis = 12.00 - 2.50 = 9.50
RC = 0.50/9.50 = 5.26% after multiplying by 100.
RNC = the same.

For an OTM covered call, the premium for a RC calculation
would be the option premium plus the difference between the
cost of the stock and the strike price and assumes the stock
price will move up to the sold strike!  An OTM RNC calculation
uses only the option premium and assumes the stock price remains
unchanged.

OTM example:  

XYZ @ $12.00, strike = $12.50, option premium = $1.00
Potential premium = 1.00 + (12.50-12) = 1.50
Cost basis = 12.00 - 1.00 = 11.00
RC = 1.50 / 11.00 = 13.64%
RNC = 1.00 / 11.00 = 9.09%

Remember, you do not get the benefit of the stock price moving
up to the strike price.

All of the candidates in the Covered Calls section are ITM as
the goal is to obtain the highest probability of making an
acceptable (and consistent) return.  Using the above ITM
example of 5.26% and say an expiration of 3 weeks (21 days),
I would calculate the target yield (TY) as follows: 

 TY = 5.26 / 21 * 365 / 12 = 7.61%.

Essentially the return is annualized and divided by 12.  This
helps to visualize the value of compounding a seemingly small
return over and over again.


Covered-Call Comparisons

Say an investor holding a $16 stock could possibly write three
different calls: the $15 call for $1.75; the $17.50 call for $1;
and the $20 call for $0.50.  Assuming 30 days until expiration,
using the above formulas (or the OIN Calculator) we calculate
the potential returns as follows:  

$15-call:   RC=0.75/14.25=  5.3%  RNC=0.75/14.25= 5.3% 
$17.5-call: RC=2.50/15.00= 16.7%  RNC=1.00/15.00= 6.7%
$20-call:   RC=4.50/15.50= 29.0%  RNC=0.50/15.50= 3.2%

Notice the ITM the position at the $15 strike-price offers a
maximum return of 5.3%, but also provides downside protection
to $14.25.  Generally, when comparing covered-call positions,
investors should concentrate on the return achieved if the 
stock price remains unchanged.  In this manner, no assumption
is made regarding the future movement in the underlying equity
and the overall position reflects the benefit of just selling 
the call.  The potential yield of the $20 strike-price is less 
impressive when the stock remains unchanged, and gets fairly 
ugly quickly if the stock were to fall.    

The cost basis is important as it identifies the break-even
point and the amount of downside protection.  As you can see,
the $17.50 strike offers a slightly higher “static” return 
but only half of the downside protection of the $15 strike.
Clearly, the $15 strike offers the best of both worlds; a 
reasonable return with acceptable downside protection.

Why choose OTM positions?  It simply depends on your risk-
reward tolerance.  If you're that good at picking stock
movement, wouldn't it be better to just trade the stock 
instead of capping your potential profits with a covered-
call position?


Writing Covered Calls: The Drawbacks

Assume you bought a stock at $50 that had fallen drastically
(to the $20 range), and you're trying to recover some of your
losses by writing OTM covered calls using a $25 strike.  Now,
if the stock unexpectedly rises above the sold strike price
before expiration, the issue could be called away and you would
have locked-in a loss.  Though covered-calls do hedge against
a bearish move, they are not a panacea for a protracted bear
market or catastrophic move lower.  Trying to recover a losing
position usually requires moving to strikes with more time
(LEAPs) and is a tedious at best.  If you become bearish on an
issue, it is usually best to simply buy back the calls and sell
the stock.  Why tie-up your money in a low-probability effort at
recovery.

Or, assume you bought a stock at $10 a few months ago and now
you think it is going to $50.  You want to hold it for the long
term but you would also like some downside protection.  You sell
some short-term OTM calls to generate cash flow but the stock
rockets higher and is called away.  Not only did you lose your
stock and limit your profit potential, but you probably will
incur a short-term capital gain too.  Many investors become 
disillusioned with the covered-write strategy when one of their 
positions moves drastically higher (or lower).  Generally, the
covered-call strategy works best in a neutral to slightly bullish
environment.  If you’re extremely bullish on a company and do not
want to lose the stock – DO NOT sell covered-calls.  


Risk Versus Reward!

The Covered-Call strategy isn't foolproof as there is risk in all
trading but it does have less risk than outright stock ownership.
At OptionInvestor.com, we favor a very conservative approach and
in my opinion, it is the only way to use the covered-call strategy.
We (almost) always recommend writing ITM covered-calls as we are
not interested in stock ownership or bullish movement, but prefer
the higher probability of making a low yet reasonable return.  The
fact that we really can't predict stock movement reinforces our 
reasoning for choosing to hedge stock ownership with ITM covered
writes.

We generally target a monthly return near 5% (10% using margin),
and of the 30 or so covered-calls we recommend each month, most
will expire profitably.  The ITM covered-call strategy usually 
requires a "buy-write" order to open the position at or near the
listed net debit (cost basis), since trying to leg-in (buying the
stock and selling the call later) may only see the overvalued 
premium disappear.  Generally, the newsletter recommendations 
would require a purchase of 500 to 1000 shares in order to reduce
the impact of commissions.  On a 1000 share order, the cost of
commissions at E*trade (2 stock and 1 option) would be about
$78.00, or $0.08 a share.

Here are some general guidelines for Covered-Writes:

1. Never buy a stock you don't want to own.
2. Never write calls on a stock you don't want to lose.
3. Never write calls as a cost-recovery tool on a stock you 
   don't want to lose.
4. Always write covered calls on STOCK YOU BOUGHT FOR THIS PURPOSE.
5. Always plan on being called-out EACH month.
6. Always write in-the-money calls.
7. Always write calls on neutral to bullish stocks.
8. Always use sound money-management techniques.


A Winning Strategy!

Is there a correct way to write covered calls?  Earning even 1%
per month may not seem like "big" money but 12% per year is
definitely better than the average investor's return for 2002.
Many investors lose sight of the magic of compound interest and 
start to focus on excellent single transaction returns.  In short,
they become greedy!

Again, the key points in this strategy are as follows:

1. Use only on stocks you buy for this purpose
2. Write in-the-money calls to minimize risk.
3. Plan on getting called-out every month.
4. Write calls only on neutral to bullish stocks.
5. Maintain stop-losses on the underlying equity whenever possible.


There Is Risk In All Trading

Remember, there is no "Holy Grail" in option trading.  Even with
this conservative approach, it is possible to lose money.  The
probability of loss is much lower with covered-calls but unforeseen
events do occur.  Whenever possible, maintain a (mental) stop-loss
on the underlying issue to limit losses.  Should negative news come
out during the day, or if the stock changes character, trading stops
may save you from needless loss and months of attempting to recover
lost capital.  To reduce the impact of these unavoidable, horrid 
events, we recommend that you never invest more than 10% - 20% of
your overall portfolio in one stock.  This is an important concept
of money management -- so that one stock will NOT have a significant
impact on your overall portfolio value.  No one can know what a
particular stock is going to do in the future unless they have 
"insider" information.  Therefore, you do not want to have "one
ship that sinks the whole fleet."

Even with one or two unanticipated, catastrophic events in a year,
we have found that a diversified ITM covered-call strategy, when 
used in a disciplined manner, historically will generate a 15-30%
yearly return.  The ITM covered-write strategy is for conservative
investors who prefer to target the high probability of obtaining an
acceptable return, which correlates with a low risk-reward tolerance.

Greed is for those other guys!

Editor's Note: Today's narrative was courtesy of OIN Chief Editor
Jim Brown, who has penned a plethora of comprehensive articles on
profitable option-trading strategies.


SUMMARY OF PREVIOUS CANDIDATES
*****

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of 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    7.47  FEB  5.00  0.65    0.29*   8.9%
MSTR    20.78   21.28  FEB 20.00  1.85    1.07*   8.2%
CKFR    18.25   20.66  FEB 17.50  1.25    0.50*   6.4%
ORB      5.02    5.17  FEB  5.00  0.35    0.33*   6.1%
LSS     15.01   17.82  FEB 15.00  0.80    0.79*   6.0%
SPN      7.95    8.22  FEB  7.50  0.75    0.30*   6.0%
EMIS     5.44    5.40  FEB  5.00  0.75    0.31*   5.7%
RCOM     5.71    5.50  FEB  5.00  0.90    0.19*   5.7%
NFLX    13.20   14.90  FEB 12.50  1.15    0.45*   5.4%
ALKS     8.07    7.91  FEB  7.50  1.00    0.43*   5.3%
ALA      5.76    7.21  FEB  5.00  1.10    0.34*   5.3%
WEBM    10.89   11.95  FEB 10.00  1.55    0.66*   5.1%
ALO     16.00   15.94  FEB 15.00  1.95    0.95*   4.9%
FTS      8.39    9.39  FEB  7.50  1.20    0.31*   4.7%
MVK     15.34   17.38  FEB 15.00  0.80    0.46*   4.6%
ADLR    13.45   13.07  FEB 12.50  1.45    0.50*   4.5%
ALN     13.15   13.35  FEB 12.50  0.90    0.25*   4.4%
OSUR     7.85    7.11  FEB  7.50  0.65   -0.09    0.0% **
EFII    17.46   16.64  FEB 17.50  0.70   -0.12    0.0% **
LMNX     5.16    4.08  FEB  5.00  0.60   -0.48    0.0% **
JDEC    13.86   11.19  FEB 12.50  2.05   -0.62    0.0%

ARRS     5.14    5.45  MAR  5.00  0.60    0.46*   8.8%
EMIS     5.48    5.40  MAR  5.00  0.90    0.42*   8.0%
EMIS     5.66    5.40  MAR  5.00  1.10    0.44*   7.0%
JDSU     2.68    2.87  MAR  2.50  0.40    0.22*   7.0%
SEPR    11.17   11.97  MAR 10.00  1.90    0.73*   6.8%
GLW      5.18    4.99  MAR  5.00  0.55    0.36    6.8%
RSAS     5.90    6.40  MAR  5.00  1.25    0.35*   6.5%
ASKJ     5.86    7.47  MAR  5.00  1.25    0.39*   6.1%
DNDN     5.50    6.24  MAR  5.00  0.85    0.35*   5.5%
NFLX    14.24   14.90  MAR 12.50  2.30    0.56*   4.1%
ALA      7.58    7.21  MAR  7.50  0.65    0.28    3.5%

*   Stock price is above the sold strike price.
**  LMNX, EFII, and OSUR were last week's "early exit"
    candidates.

Comments:

The drums of war receded just long enough for the market to
mount a respectable rally and the timing was excellent for
option traders.  A number of February positions benefited
from the bullish trend and all the March plays are currently
positive.  The most obvious "watch-list" members are Corning
(NYSE:GLW) and Alacatel (NYSE:ALA) and both will likely test
recent technical support in the coming sessions.

Positions Previously Closed:  Globespan-Virata (NASDAQ:GSPN),
Regeneron Pharma (NASDAQ:REGN), Cubist Pharma (NASDAQ:CBST),
Med-Design (NASDAQ:MEDC), Abiomed (NASDAQ:ABMD), Curative
Health Services (NASDAQ:CURE), and McMoran (NYSE:MMR).


NEW CANDIDATES
*********

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

ADLR   13.07  MAR  12.50  UAH CV  1.80  477  11.27   28   11.9%
CBST    7.57  MAR   7.50  UTU CU  0.75  148   6.82   28   10.8%
CRY     8.25  MAR   7.50  CRY CU  1.25  252   7.00   28    7.8%
MSTR   21.28  MAR  20.00  EOU CD  2.60  223  18.68   28    7.7%
IMCL   13.72  MAR  12.50  QCI CV  2.00 1432  11.72   28    7.2%
MCDT    8.42  MAR   7.50  DXZ CU  1.30  192   7.12   28    5.8%
OVTI   16.83  MAR  15.00  UCM CC  2.55  518  14.28   28    5.5%
RMBS   14.76  MAR  12.50  BNQ CV  2.85 1858  11.91   28    5.4%


Company Descriptions

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

*****
ADLR - Adolor  $13.07  *** Drug Speculation! ***

Adolor (NASDAQ:ADLR) is a therapeutic-based biopharmaceutical
company engaged in the discovery, development and commercialization
of proprietary pharmaceutical products for the treatment of pain
and the side effects that are caused by current pain treatments.
The company has a portfolio of small-molecule product candidates
that are in various stages of development.  Adolor's lead product
candidate, alvimopan (ADL 8-2698), is designed to selectively block
the effects of narcotic analgesics on the gastrointestinal tract.
The company's initial drug discovery and development activities
focus on three aspects of pain management: reversal or prevention
of gastrointestinal effects of narcotic analgesics administered 
during or following surgical procedures or for the treatment of
pain; novel mu and kappa opioid receptor-based analgesics that
act on peripheral opioid receptors and not in the central nervous
system, and narcotic analgesic products with significantly reduced
side effects.  The company expects to announce results late in this
quarter of its recently completed enrollment of the first Phase 3
trial of alvimopan.  Two other Phase 3 clinical studies continue
to accrue patients and the company expects their enrollment will
be completed later this year.  Speculation over Phase 3 results
have boosted the stock in recent sessions with institutions said
to be buying large blocks of shares.  Investors can use this play
to speculate on the current trend at the risk of owning ADLR near
a cost basis of $11.25.

MAR-12.50 CALL  UAH-CV  LB=1.80  OI=477  CB=11.27  DE=28  TY=11.9%


*****
CBST - Cubist  $7.57  *** Priority FDA Review! ***

Cubist Pharmaceuticals (NASDAQ:CBST) is a pharmaceutical company
focused on the research, development and commercialization of
novel anti-microbial drugs to combat serious and life-threatening
bacterial and fungal infections.  Cubist is conducting multiple
Phase III trials for Cidecin, its lead product candidate in a new
class of anti-microbial drug candidates called lipopeptides.  
The company is also conducting trials for oral formulations of 
ceftriaxone and daptomycin, and initiated a lipopeptide program
aimed at discovering other clinically useful products.   Shares
of Cubist rallied this week after US pharmaceutical regulators
said they would give priority to approving Cidecin, Cubist's new
antibiotic.  The technical outlook is recovering and our position
offers excellent reward potential at the risk of owning the issue
at a favorable cost basis.

MAR-7.50 CALL  UTU-CU  LB=0.75  OI=148  CB=6.82  DE=28  TY=10.8%


*****
CRY - Cryolife  $8.25  *** FDA Says CRY is Clean! ***

CryoLife (NYSE:CRY) is engaged in the preservation of human tissues
for a range of cardiovascular, vascular and orthopaedic transplant
applications.  Additionally, the firm develops and commercializes
implantable medical devices, including BioGlue Surgical Adhesive,
glutaraldehyde-fixed stentless porcine heart valves, and tissue
engineered SynerGraft porcine heart valves and bovine vascular
grafts.  The firm uses its expertise in biochemistry, cell biology,
immunology and protein chemistry and its understanding of the needs
of the cardiovascular, vascular and orthopaedic surgery medical
specialties, to continue expansion of its core preservation business
and to develop or acquire complementary implantable products and
technologies for these surgical specialties.  CRY shares soared this
week after the company said it would soon resume processing human
tissue for orthopedic use.  Federal regulators have re-inspected its
facilities and said it has complied with safety measures spelled out
in a warning letter issued last year.  Investors who think the trend
will continue when the company reports earnings next week should
consider this position.

MAR-7.50 CALL  CRY-CU  LB=1.25  OI=252  CB=7.00  DE=28  TY=7.8%


*****
IMCL - ImClone  $13.72  *** Rally Mode! ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company whose
mission is to advance oncology care by developing a portfolio of
targeted biologic treatments designed to address the medical needs
of patients with a variety of cancers.  The company's lead product,
Erbitux, is a therapeutic antibody that inhibits stimulation of
epidermal growth factor receptor upon which certain solid tumors
depend in order to grow.  In addition to the development of its
lead product candidates, the company conducts research in a number
of areas related to its core focus of growth factor blockers, as
well as cancer vaccines and angiogenesis inhibitors.  IMCL has also
developed diagnostic products and vaccines for certain infectious
diseases.  IMCL's shares rallied Wednesday amid optimism that new
data about the company's experimental cancer drug Erbitux will be
released shortly and prove positive.  ImClone's European partner,
Merck KGaA has been conducting its own trials of the drug and now
expects to file for European marketing approval of Erbitux in the
first half of this year, probably in advance of the annual meeting
of the American Society of Clinical Oncology in May, where it will
present its data.  U.S. regulators have said they will consider
reviewing the drug based on the results of Merck's upcoming report.

MAR-12.50 CALL  QCI-CV  LB=2.00  OI=1432  CB=11.72  DE=28  TY=7.2%


*****
MCDT - McDATA Class B  $8.42  *** Bottom-Fishing: Telecom ***

McDATA Corporation (NASDAQ:MCDTA) is a provider of open-storage
networking solutions and provides highly available, scalable and
centrally managed storage area networks (SANs) that address 
enterprise-wide storage problems.  The company's core-to-edge 
enterprise solutions consist of hardware products, software 
products and professional services.  Its SAN solutions improve
the reliability and availability of data, simplify the management
of SANs and reduce the total cost of ownership.  The recent rally
suggests that investors are expecting to hear good news at the
annual Goldman Sachs Technology Investment Symposium next week.
We simply favor the move above the 30- and 150-dmas on increasing
volume, which suggests further upside potential.  This position
offers reasonable risk-reward in a stage I telecom stock.

MAR-7.50 CALL  DXZ-CU  LB=1.30  OI=192  CB=7.12  DE=28  TY=5.8%


*****
MSTR - MicroStrategy  $21.28  *** Solid Outlook! ***

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 January after the business software maker reported better than
expected profit and rising software sales.  A number of analysts
also raised their 2003 outlooks for the company and bullish traders
can profit from continued upside activity in the issue with this
position.

MAR-20.00 CALL  EOU-CD  LB=2.60  OI=223  CB=18.68  DE=28  TY=7.7%


*****
OVTI - OmniVision Technologies  $16.83  *** Solid Earnings! ***

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 Technologies exceeded consensus
earnings estimates of $0.10 per share and revenue projections of
$22.2 million, aided by exceptionally strong demand from makers
of digital still cameras and cameras for cell phones.  The stock
is now consolidating some of the recent gains and investors who
believe the issue will soon resume its upside activity can profit
from that outcome with this position.

MAR-15.00  UCM-CC  LB=2.55  OI=518  CB=14.28  DE=28  TY=5.5%


*****
RMBS - Rambus  $14.76  *** 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 investors who think the upside activity will continue can
speculate on that outcome with this position.

MAR-12.50  BNQ-CV  LB=2.85  OI=1858  CB=11.91  DE=28  TY=5.4%


*****

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

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

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

PLUG   5.40  MAR   5.00   PQL CA  0.95  1059  4.45   28   13.4%
MACR  15.22  MAR  15.00   MRQ CC  1.45  969  13.77   28    9.7%
IBIS   5.05  MAR   5.00   UIB CA  0.45  52    4.60   28    9.4%
AYE    7.89  MAR   7.50   AYE CU  0.90  575   6.99   28    7.9%
JDAS  12.68  MAR  12.50   QAH CV  0.95  91   11.73   28    7.1%
CRAY   7.69  MAR   7.50   HQC CU  0.65  1195  7.04   28    7.1%
WDC    7.51  MAR   7.50   WDC CU  0.45  1089  7.06   28    6.8%
BOBJ  17.64  MAR  17.50   BBQ CW  1.15  8    16.49   28    6.7%
CHKP  15.22  MAR  15.00   KEQ CC  1.05  5518 14.17   28    6.4%
SONE   5.33  MAR   5.00   FBZ CA  0.60  177   4.73   28    6.2%
SMTC  13.37  MAR  12.50   QTU CP  1.50  526  11.87   28    5.8%
SOHU   8.48  MAR   7.50   UCL CU  1.35  10    7.13   28    5.6%
ADIC   7.79  MAR   7.50   QXG CU  0.65  321   7.14   28    5.5%
VRST  11.20  MAR  10.00   UVQ CV  1.65  530   9.55   28    5.1%
ARRS   5.45  MAR   5.00   AQC CA  0.65  67    4.80   28    4.5%


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

Options 101: Selling Puts -- Is It "Right" For You?
By Ray Cummins

One of the primary requirements for new readers is the need to
evaluate risk versus reward before using any trading strategy.

Risk is a fact of life for all traders and it is important to
consider the potential losses along with the possible rewards
when choosing a specific trading style or technique.  Different
strategies have varying levels of risk and understanding this
concept is the first step to long-term success.  Of course,
everyone knows you have to assume a certain amount of risk to
earn a reward but the key to profitable option trading is to
minimize your exposure to the perils of the market and that
typically involves utilizing methods which yield lower returns.
In addition, some techniques are simply not appropriate for all
traders thus another essential step in determining the best way
to approach the market is identifying your personal comfort zone
or risk-tolerance level.  Some of the best option traders earn
the bulk of their annual profits in just a few plays but is that
the right style for you?  These traders comfortably accept the
possibility that the value of their portfolio will rise and fall
substantially over very short periods while others would simply
panic and bail-out of the market at the worst possible instant.
That is why the tolerance for risk varies so much from person to
person and it also changes over time, based on each individual's
financial circumstances.  Conservative traders generally prefer
relative stability more than higher returns and that is why the
OIN provides candidates for "in-the-money" covered-call writing
and out-of-the-money "naked" puts, both of which offer a high
probability of achieving a limited, but acceptable profit.

Many investors can't get past the fact that earning 3-6% monthly
is an "acceptable" return and one that will generate wealth in
the long run.  The key to this concept is Compound Interest; a
function of capital accumulation that Albert Einstein described
as the "greatest invention of mankind."  Of course, we all know
how it relates to our savings accounts and mortgage loans but
few traders thoroughly assess its subtle, long-term affect on
their portfolio value.  As an investor, you benefit financially
from compound interest when you reinvest not only the original
capital, but also the returns from each successful trade.  The
total profit you earn on your investments will vary based on the
the gains from each trade and on the number of times you achieve
that return in a given time period.  Most traders are surprised
to learn that a 6% monthly return is roughly equal to a 100%
yearly profit after adding the gains from compounding.  Another
bonus is that, unlike a bank account, you do not have to reinvest
the profits in the same instrument (such as a savings account),
but rather you can move the money from stocks to options or other
issues as opportunities present themselves.  This means you can
diversify your portfolio as well as compound the returns.

Obviously, anyone who has followed the market in recent months
knows that stock prices do, in fact, go down and that is why it
is so important to enter new positions only when the conditions
are optimal.  That means initiating a trade only when favorable
technical or fundamental indications are present and there is a
relatively high probability of a reasonable profit.  It is also
essential for the position to be one in which the trader feels
comfortable, not only in terms of the initial cost or margin
requirement, but also with regard to the underlying strategy
and its overall risk characteristics.  With uncovered options,
the risk can be substantial, thus traders who are not absolutely
convinced about the outlook for a specific candidate, or who are
not completely knowledgeable about a particular strategy (and
the potential adjustments), should probably not initiate a new
position until those issues are resolved.  Trading just for the
sake of being "in the game" is never appropriate and although it
is difficult to remain on the sidelines when others are talking
about recent winners, the consequences of careless decisions can
be financially devastating to participants who ignore the reality
of the stock market.

Good Luck!

                        
SUMMARY OF PREVIOUS CANDIDATES 
*****

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of 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   21.28  FEB 17.50  0.45    0.45*  11.9%   3.8%
SEPR    12.99   11.97  FEB 10.00  0.35    0.35*  10.3%   3.2%
REGN    20.63   17.50  FEB 17.50  0.50    0.50    9.7%   3.2%
FTE     25.50   23.04  FEB 22.50  0.70    0.70*   9.6%   3.5%
TVX     15.08   15.45  FEB 12.50  0.40    0.40*   9.0%   2.9%
TVX     16.98   15.45  FEB 15.00  0.40    0.40*   8.3%   3.0%
QCOM    37.66   35.22  FEB 35.00  0.75    0.75*   8.3%   3.2%
ANF     27.84   29.30  FEB 25.00  0.50    0.50*   8.2%   3.0%
FTE     25.98   23.04  FEB 22.50  0.40    0.40*   7.9%   2.6%
CKFR    19.53   20.66  FEB 17.50  0.45    0.45*   7.8%   2.9%
VRTS    18.30   18.37  FEB 15.00  0.30    0.30*   7.5%   2.2%
SEPR    13.20   11.97  FEB 10.00  0.30    0.30*   7.4%   2.2%
CURE    17.49   17.10  FEB 15.00  0.40    0.40*   7.1%   2.4%
VECO    15.39   14.92  FEB 12.50  0.35    0.35*   7.0%   2.1%
APPX    24.18   22.92  FEB 22.50  0.55    0.55*   7.0%   2.7%
CVC     19.44   17.49  FEB 15.00  0.40    0.40*   6.8%   2.0%
FTE     24.40   23.04  FEB 20.00  0.45    0.45*   6.7%   2.0%
AVCT    25.10   27.05  FEB 22.50  0.35    0.35*   6.5%   2.3%
ANF     27.97   29.30  FEB 25.00  0.25    0.25*   6.4%   2.2%
MATK    23.93   24.47  FEB 20.00  0.35    0.35*   6.3%   1.9%
GTRC    19.63   20.45  FEB 17.50  0.45    0.45*   6.3%   2.3%
CURE    17.06   17.10  FEB 15.00  0.25    0.25*   5.4%   1.8%
ANF     27.11   29.30  FEB 22.50  0.40    0.40*   5.2%   1.6%
MRCY    32.11   29.95  FEB 30.00  0.45    0.40    5.2%   2.0%
EASI    37.00   35.50  FEB 33.38  0.40    0.40*   5.0%   1.8%
RGLD    26.67   21.55  FEB 22.50  0.35   -0.60    0.0%   0.0%
S       26.45   21.84  FEB 22.50  0.30   -0.36    0.0%   0.0%

MSTR    20.83   21.28  MAR 17.50  0.80    0.80*  12.0%   4.2%
ANSS    22.20   23.09  MAR 20.00  0.80    0.80*   9.9%   3.0%
CGNX    22.62   22.16  MAR 17.50  0.55    0.55*   9.4%   2.8%
MSTR    20.69   21.28  MAR 17.50  0.75    0.75*   8.6%   3.2%
RMBS    13.69   14.76  MAR 10.00  0.30    0.30*   8.6%   2.7%
OTEX    27.14   29.29  MAR 25.00  0.75    0.75*   8.6%   2.2%
OVTI    16.55   16.83  MAR 12.50  0.35    0.35*   8.3%   2.5%
LRCX    12.56   13.14  MAR 10.00  0.25    0.25*   7.9%   2.2%
IRF     20.39   21.87  MAR 17.50  0.50    0.50*   7.5%   2.6%
DIGE    15.54   17.02  MAR 12.50  0.30    0.30*   7.5%   2.1%
APPX    23.75   22.92  MAR 20.00  0.55    0.55*   7.3%   2.0%
CGNX    21.84   22.16  MAR 20.00  0.75    0.75*   7.3%   2.8%
MDCO    16.92   17.92  MAR 15.00  0.60    0.60*   5.7%   3.0%
ADBE    27.43   29.11  MAR 22.50  0.40    0.40*   5.4%   1.6%
POSS    19.50   16.58  MAR 17.50  0.55   -0.37    0.0%   0.0%

*  Stock price is above the sold striking price.
** Summary data does not reflect timely exit trade.

Comments:

Blue-chip stocks led the market higher Friday after a favorable
report on consumer price data swayed investors into a "buying"
mood.  The upside activity gave the market a much-needed boost
on the last day of the February expiration period.  Most of the
March positions are faring very well except for Possis Medical 
(NASDAQ:POSS), which has slumped to a recent support area near
its 150-dma.  Conservative traders should consider closing the
position and are advised to maintain extreme caution in their
play selection over the new few weeks as the impending Iraqi
conflict approaches.

Previously Closed Positions: Quest Software (NASDAQ:QSFT), FEI
Company (NASDAQ:FEIC), Capital One Financial (NYSE:COF), Xylinx
(NASDAQ:XLNX), and Network Associates (NYSE:NET), all of which
are currently positive.  Impath (NASDAQ:IMPH) and Med-Design
(NASDAQ:MDCO) finished negative.


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

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


MARGIN REQUIREMENTS

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

For more information on margin requirements, please refer to:

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


MONTHLY YIELD: MAXIMUM & SIMPLE

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


NEW CANDIDATES
*****

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

SRNA   15.07 MAR 12.50 NHU OV 0.30 57    12.20  28    8.7%   2.7%
XLNX   23.04 MAR 20.00 XLQ OD 0.50 4152  19.50  28    8.1%   2.8%
OVTI   16.83 MAR 12.50 UCM OV 0.25 138   12.25  28    7.5%   2.2%
MACR   15.22 MAR 12.50 MRQ OV 0.25 72    12.25  28    7.5%   2.2%
ERES   22.46 MAR 17.50 UDB OW 0.30 0     17.20  28    6.8%   1.9%
HHL    11.56 MAR 10.00 HHL OB 0.20 1      9.80  28    6.7%   2.2%
CKFR   20.66 MAR 17.50 FCQ OW 0.30 64    17.20  28    6.0%   1.9%


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).

*****
SRNA - Serena Software  $15.07  *** Bottom-Fishing! ***

Serena Software (NASDAQ:SRNA) is the Enterprise Change Management
(ECM) industry leader.  For over twenty years Serena has focused
exclusively on providing application change management solutions
to the world's leading enterprises, and today its products are in
use at over 2,750 customer sites, including 42 of the Fortune 50.
Serena leads the way in ECM by offering a single point of control
to manage software code and Web content changes throughout the
enterprise, from the mainframe to the Internet.  This ensures the
application's availability and speeds time to market, while also
reducing development costs.  With headquarters in California, the
firm serves customers worldwide through local offices and an
international network of distributors.  Serena recently reported
that its fourth-quarter net profit rose from a year earlier as
revenue increased.  The CEO also said the company was "entering
fiscal 2004 in the strongest financial condition in our history"
and that bolstered investor's interest in SRNA shares.  Traders
who want a conservative speculation plays on a relatively stable
issue should consider this position.

MAR-12.50 PUT NHU-OV LB=0.30 OI=57 CB=12.20 DE=28 TY=8.7% SY=2.7%


*****
XLNX - Xilinx  $23.04  *** Semiconductor Sector ***

Xilinx (NASDAQ:XLNX) is the world's leading supplier of complete
programmable logic solutions.  Xilinx develops, manufactures, and
markets a broad line of advanced integrated circuits, software
design tools and intellectual property.  Their customers use the
automated tools and intellectual property, which are predefined
system-level functions delivered as software cores, from Xilinx
and its partners to program the chips to perform custom logic
operations.  The beleaguered semiconductor sector was upgraded
this week by Merrill Lynch and one of the issues mentioned in the
research note was XLNX.  The stock has a stable near-term base
and excellent upside potential.  Traders who agree with a bullish
outlook can speculate on the company's future share value with
this position.

MAR-20.00 PUT XLQ-OD LB=0.50 OI=4152 CB=19.50 DE=28 TY=8.1% SY=2.8%


*****
OVTI - OmniVision Technologies  $16.83  *** Premium Selling! ***

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 Technologies exceeded consensus
earnings estimates of $0.10 per share and revenue projections of
$22.2 million, aided by exceptionally strong demand from makers
of digital still cameras and cameras for cell phones.  The stock
is now consolidating some of the recent gains and investors who
believe the issue will soon resume its upside activity can profit
from that outcome with this position.

MAR-12.50 PUT UCM-OV LB=0.25 OI=138 CB=12.25 DE=28 TY=7.5% SY=2.2%


*****
MACR - Macromedia  $15.22  *** New 9-Month High! ***

Macromedia (NASDAQ:MACR) provides software that empowers millions
of developers and designers to create effective user experiences 
on the Internet.  The company's integrated family of software 
technologies enables the development of a wide range of Internet 
solutions including Websites, rich media content, and Internet 
applications across multiple platforms and devices.  With an 
installed base of more than 3 million developers and designers,
and with Macromedia Flash Player available to 98% of Web users,
the company is a strategic information technology supplier to 
customers in the business, government and educational markets. 
There's not much news on MACR but the company recently announced
some new software titles and said it will begin selling access to
development tools on a subscription basis.  The announcement was
followed by an upgrade from DB Securities, which said it would
start coverage of Macromedia with a "buy" rating.  The technical
indications suggest the issue has successfully completed a recent
consolidation and is poised for future gains.  This play offers
excellent reward potential at the risk of owning MACR at a cost
basis near $12.25.

MAR-12.50 PUT MRQ-OV LB=0.25 OI=72 CB=12.25 DE=28 TY=7.5% SY=2.2%


*****
ERES - eResearch Technology  $22.46  *** New All-Time High! ***

eResearch Technology (NASDAQ:ERES) is a provider of technology and
services that enable the pharmaceutical, biotechnology and medical
device industries to collect, interpret and distribute cardiac
safety and clinical data more efficiently.  The company offers a
range of products and services, including Diagnostics Technology
and Services and Clinical Research Technology.  Their Diagnostics
Technology and Services include centralized diagnostic services
and clinical research operations, including clinical trial and
data management services.  Their Clinical Research Technology and
Services include the developing, marketing and support of clinical
research technology and services.  ERES is one the few stocks to
achieve a new 52-week high in the bearish market and the recent
robust volume suggests the trend will continue in the near term.

MAR-17.50 PUT UDB-OW LB=0.30 OI=0 CB=17.20 DE=28 TY=6.8% SY=1.9%


*****
HHL - Hurricane Hydrocarbons  $11.56  ** Low Risk = Low Reward! **

Hurricane Hydrocarbons (NYSE:HHL) is an international energy firm
engaged in the exploration, development, production, acquisition,
refining and marketing of oil and refined products in the Republic
of Kazakhstan.  As of January 1, 2002, the company's proved plus
probable reserve base had been assessed at 512 million barrels.
Hurricane's dominant position in exploration and production (E&P)
operations is evident through its participation in 87% of the E&P
licenses in the 80,310 kilometers of Turgai Basin.  The basin is
located in South Central Kazakhstan, approximately 1,300 km west
of Almaty.  The company has interests in 10 fields, five that are
producing (Kumkol South, South Kumkol, Kumkol North, Qyzylkiya and
Akshabulak), three that are under development (Aryskum, Maybulak
and East Kumkol) and two that are in the appraisal stage (Nurali
and Aksai).  HHL is trading at a 9-month high and the possibility
of the stock retreating to the sold strike at $10 seems rather
remote.  The company's quarterly earnings are due on 3/5/03.

MAR-10.00 PUT HHL-OB LB=0.20 OI=1 CB=9.80 DE=28 TY=6.7% SY=2.2%


*****
CKFR - Checkfree  $20.66  *** Bullish Fundamental Outlook! ***

Checkfree (NASDAQ:CKFR) is a provider of electronic billing and
payment services.  The company operates its business through 3
independent but inter-related divisions including Electronic 
Commerce, Investment Services and Software.  CKFR's electronic 
commerce services are primarily targeted to consumers through 
financial institutions and Internet portals.  Checkfree is also
a provider of electronic commerce and financial applications 
software and services for businesses and financial institutions.
Shares of CKFR rallied in January after the company raised its
earnings outlook for the rest of the fiscal year.  A number of
analysts upgraded the stock after the report and based on the
bullish fundamental outlook, a cost basis near $17 appears to be
a reasonable price at which to own the issue.

MAR-17.50 PUT FCQ-OW LB=0.30 OI=64 CB=17.20 DE=28 TY=6.0% SY=1.9%


*****

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

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

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

ADLR   13.07 MAR 10.00 UAH OB 0.40 3088   9.60  28   14.4%   4.5%
ICST   22.53 MAR 20.00 IUY OD 0.70 54    19.30  28   10.6%   3.9%
PHTN   16.99 MAR 15.00 PDU OC 0.50 82    14.50  28   10.2%   3.7%
MSTR   21.28 MAR 17.50 EOU OW 0.45 86    17.05  28    9.4%   2.9%
NVDA   12.86 MAR 10.00 UVA OB 0.20 9301   9.80  28    7.8%   2.2%
ITMN   20.15 MAR 17.50 IQY IW 0.40 49    17.10  28    7.5%   2.5%
IMCL   13.72 MAR 10.00 QCI OB 0.20 688    9.80  28    7.4%   2.2%
DAKT   16.36 MAR 15.00 QKC OC 0.35 106   14.65  28    6.9%   2.6%
BOBJ   17.64 MAR 15.00 BBQ OC 0.25 300   14.75  28    5.8%   1.8%
AVCT   27.05 MAR 22.50 QVX OX 0.25 50    22.25  28    4.2%   1.2%

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


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

Optimism Prevails As Stocks Recover
By Ray Cummins

The major equity averages advanced Friday amid favorable economic
news and another round of "short-covering" by bearish traders.

The Dow Jones Industrial Average climbed 103 points to close at
8,018 with retailers Wal-Mart (NYSE:WMT) and Home Depot (NYSE:HD)
among the issues benefiting from the tame consumer price report.
Johnson & Johnson (NYSE:JNJ), International Paper (NYSE:IP) and
Alcoa (NYSE:AA) also enjoyed new buying interest.  The composite
index of technology stocks gained 17 points to 1,348 on strength
in semiconductor, computer hardware, wireless and Internet shares.
The broader S&P 500-stock index added 11 points to close at 848
with oil service and drilling, long-term healthcare, gaming and
sporting goods stocks among the best performers.  Airline issues
traded near their lows for the year because of concerns about
ticket pricing and fuel costs.  Trading volume was thin, despite
the options expiration, with roughly 1.3 billion shares changing
hands on both the Big Board and the NASDAQ.  Advancers outpaced
decliners on the New York Stock Exchange by a little more than 2
to 1.  On the technology exchange, slightly less than two issues
rose for every one that fell.  In the U.S. Treasury bond market,
the benchmark 10-year note slipped 6/32 to 99-27/32, nudging its
yield up to 3.89%.  Money flow was favorable and Trim Tabs said
that funds investing primarily in U.S. stocks received over $200
million in new money during the week ended February 19, versus
outflows of $5 billion during the prior week.

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

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of 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.


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

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

MYL     24.50  27.65  FEB   20  23  0.40  22.60  $0.40   Closed
XAU     79.51  72.05  FEB   65  70  0.75  69.25  $0.75   Closed
BHE     35.30  35.40  FEB   25  30  0.45  29.55  $0.45   Closed
INTU    50.40  45.21  FEB   40  45  0.60  44.40  $0.60   Closed
AET     43.86  42.73  FEB   35  40  0.45  39.55  $0.45   Closed
PRX     31.50  34.56  FEB   25  30  0.45  29.55  $0.45   Closed
APA     62.41  65.72  FEB   55  60  0.60  59.40  $0.60   Closed
NBR     36.85  40.13  FEB   33  35  0.30  34.70  $0.30   Closed
BVF     31.15  34.25  FEB   25  30  0.40  29.60  $0.40   Closed
SYMC    46.09  47.81  MAR   35  40  0.50  39.50  $0.50    Open
COP     48.72  49.94  MAR   42  45  0.25  44.75  $0.25    Open
NKE     45.14  46.36  MAR   40  42  0.20  42.30  $0.20    Open

LP = Long Put  SP = Short Put  CB = Cost Basis  G/L = Gain/Loss
 
Previously closed positions include: HCA Inc. (NYSE:HCA), Intuit
(NASDAQ:INTU), Cerner (NASDAQ:CERN) and Forest Labs (NYSE:FRX),
all of which finished positive.  The only losing play was Chiron
(NASDAQ:CHIR).


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

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

ABK    57.56   49.21  FEB   70  65  0.55   65.55  $0.55  Closed
KBH    44.01   47.87  FEB   55  50  0.55   50.55  $0.55  Closed
BZH    61.98   59.00  FEB   75  70  0.50   70.50  $0.50  Closed
ITW    65.70   59.59  FEB   75  70  0.60   70.60  $0.60  Closed
BGEN   37.93   35.06  FEB   45  42  0.25   42.25  $0.25  Closed
PIXR   53.76   54.12  FEB   65  60  0.55   60.55  $0.55  Closed
RE     51.70   53.89  FEB   60  55  0.50   55.50  $0.50  Closed
ROAD   36.43   32.85  FEB   45  40  0.30   40.30  $0.30  Closed
ATK    54.75   48.89  FEB   65  60  0.45   60.45  $0.45  Closed
CAT    43.92   46.54  FEB   50  47  0.25   47.75  $0.25  Closed
IBM    78.94   79.95  FEB   90  85  0.50   85.50  $0.50  Closed
MER    36.81   34.70  FEB   42  40  0.25   40.25  $0.25  Closed
LXK    60.54   62.50  FEB   70  65  0.45   65.45  $0.45  Closed
QLGC   33.28   35.68  FEB   40  37  0.25   37.25  $0.25  Closed
BSC    59.90   61.69  MAR   70  65  0.50   65.50  $0.50   Open
HRB    35.80   37.62  MAR   45  40  0.50   40.50  $0.50   Open
BUD    47.70   47.89  MAR   55  50  0.45   50.45  $0.45   Open
MDT    44.15   45.15  MAR   50  47  0.25   47.75  $0.25   Open
PEP    39.86   39.40  MAR   45  42  0.25   42.75  $0.25   Open

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


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

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

SNPS    40.00  41.15  FEB   50  45   4.50   45.50  0.50  Closed
VIA	  38.72  38.62  FEB   45  42   2.25   42.75  0.25  Closed

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


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

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

SYMC    46.12  47.81  FEB   35  40   4.50   39.50  0.50  Closed
EBAY    73.36  78.35  FEB   60  65   4.45   64.45  0.55  Closed
AMGN    52.09  54.60  MAR   45  47   2.20   47.20  0.30   Open

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

Previously closed positions include: PacifiCare Health Systems
(NASDAQ:PHSY), Omnicare (NYSE:OCR) and University of Phoenix
Online (NASDAQ:UOPX), which finished at maximum profit.


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

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

VAR     50.38  51.64   FEB     55    45     0.10    0.20   Closed
ANF	  26.39  29.30   FEB     30    22     0.05    0.60   Closed
WPI     29.22  29.02   MAY     35    22    (0.10)   0.50    Open
UPL     10.11   9.89   MAR     10    10     0.10    0.00    Open
AFFX    27.14  25.63   MAR     30    25     0.15    0.00    Open
NVDA	  12.04  12.86   JUN     15    10    (0.25)   0.50   No Play

Nvidia (NASDAQ:NVDA) gapped-up at the open of trading on Tuesday,
thus no entry was available near the target credit.  We will watch
the issue for a consolidation in the near future, which may allow
another entry opportunity.  Previously closed positions: Pioneer
Resources (NYSE:PXD) and CTI Molecular Imaging (NASDAQ:CTMI).


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

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

BGEN	  35.52  35.06   FEB     30    40      0.10    0.40  Closed

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


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

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

AXP	  33.70  33.65   APR-30C   FEB-30C   0.75    1.20     Open?
CI	  43.02  43.19   APR-45C   FEB-45C   1.35    1.50     Open
BMET	  28.52  30.19   JUL-30C   MAR-30C   1.50    1.30     Open

Previously closed positions: Global Imaging (NASDAQ:GISX), Capital
One (NYSE:COF), Raytheon (NYSE:RTN), Hershey (NYSE:HSY) and Applied
Materials (NASDAQ:AMAT).


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

ROOM	  40.14  45.66   MAR    40    40    6.50    7.00     Open
IGT	  74.84  76.30   FEB    75    75    3.20    3.00    Closed


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

No Open Positions


CREDIT STRANGLES
****************
 
No Open Positions


Questions & comments on spreads/combos to Contact Support
*************
NEW POSITIONS
*************

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

**************
CREDIT SPREADS
**************

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may be higher than other plays in the same strategy, due to
small disparities in option pricing.  Current news and market
sentiment will have an effect on these issues, so review each
play individually and make your own decision about its outcome.

*****
CAM - Cooper Cameron  $53.03  *** Rally Mode! ***

Cooper Cameron (NYSE:CAM) is an international manufacturer of oil
and gas pressure control equipment, including valves, wellheads,
controls, chokes, blowout preventers and assembled systems for
oil and gas drilling, production and transmission used in onshore,
offshore and subsea applications.  Cooper is also a producer of
centrifugal air compressors, integral and separable gas compressors
and turbochargers.  The firm's operations are organized into four
separate business segments, Cameron, Cooper Cameron Valves, Cooper
Energy Services and Cooper Turbocompressor, each of which conducts
business as a division of the company.

Technical Outlook: Brisk upside activity Friday in conjunction with
sector rally; multi-month high; support near sold strike at 150-dma.

Potential Catalysts: Friday's fire at a Staten Island fuel storage
facility put oil service and equipment companies in the headlines;
recent upgrade by Jeffries and Co.

PLAY (moderately aggressive - bullish/credit spread):

BUY  PUT  MAR-45.00  CAM-OI  OI=200  A=$0.35
SELL PUT  MAR-50.00  CAM-OJ  OI=940  B=$1.00
INITIAL NET-CREDIT TARGET=$0.65-$0.80
POTENTIAL PROFIT(max)=15% B/E=$49.35


*****
SII - Smith International  $35.34  *** Hot Sector! ***

Smith International (NYSE:SII) is a worldwide supplier of premium
services to the oil and gas exploration and production industry,
the petrochemical industry and other industrial markets.  The firm
provides a comprehensive line of technologically-advanced products
and engineering services, including drilling and completion fluid
systems, solids-control equipment, waste-management services,
three-cone and diamond drill bits, fishing services, underreamers,
casing exit and multilateral systems, packers and liner hangers.
The company also offers supply-chain management solutions through
an extensive branch network providing pipe, valve, tool, safety
and other maintenance products.
 
Technical Outlook: Long-term lateral trading range between $28-$37;
recent buying activity culminated with Friday's sharp rally on
heavy volume; near-team technical support at $33.

Potential Catalysts: U.S. commercial oil inventories have fallen
to historically low levels and the potential conflict with Iraq is
putting the focus on oil and gas equipment companies.

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-30.00  SII-OF  OI=93   A=$0.25
SELL PUT  MAR-32.50  SII-OZ  OI=310  B=$0.50
INITIAL NET-CREDIT TARGET=$0.25-$0.30
POTENTIAL PROFIT(max)=11% B/E=$32.25


*****
BSC - Bear Stearns Companies  $61.69  *** Premium Selling! ***

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

Technical Outlook: Near-term "neutral" in a lateral trading range
with support near $58-$60; resistance near multiple tops at $65.

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

PLAY (less conservative - bearish/credit spread):

BUY  CALL  MAR-70.00  BSC-CN  OI=700   A=$0.20
SELL CALL  MAR-65.00  BSC-CM  OI=1386  B=$0.70
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$65.55


*****
NEM - Newmont Mining  $27.51  *** Bullish Market Ahead? ***

Newmont Mining (NYSE:NEM), along with its subsidiaries, is a
worldwide company engaged in the production of gold, exploration
for gold and acquisition of gold properties.  The company also
has an interest in a copper/gold mine that commenced production
in late 1999.  In addition, the company produces zinc, lead and
copper concentrates at its property in Western Australia.  The
company approved earlier this year a restructuring to facilitate
the acquisitions of Normandy Mining Limited and Franco-Nevada
Mining Corporation Limited, and to create a flexible corporate
structure.  

Technical Outlook: A lateral consolidation after recent gains on
the rise in gold prices; near-term upside potential is somewhat
limited; rallies should stall near resistance at the sold strike.

Potential Catalysts: Profit-taking underway in "overbought" gold
market; initial military conflict with Iraq could reverse trend;
for market "bulls" only!

PLAY (less conservative - bearish/credit spread):

BUY  CALL  MAR-32.50  NEM-CZ  OI=15245  A=$0.30
SELL CALL  MAR-30.00  NEM-CF  OI=15338  B=$0.60
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$30.30


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

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

*****
EXPE - Expedia  $66.57  *** 2-For-1 Split Coming! ***

Expedia (NASDAQ:EXPE) is a provider of travel-planning services.
The company's travel marketplace includes direct-to-consumer
Websites offering travel-planning services located at Expedia.com,
Expedia.co.uk, Expedia.de, Expedia.ca, Expedia.nl and Expedia.it.
Expedia also provides travel-planning services through Voyages
sncf.com, as part of a joint venture with the state-owned railway
group in France.  In addition, the company offers travel-planning
services through its telephone call centers and through private
label travel Websites through its WWTE business.  WWTE is now a
division of Travelscape, one of Expedia's primary subsidiaries.
In February 2002, a controlling stake in the Expedia was acquired
by USA Networks.
 
Technical Outlook: Lengthy downtrend (from DEC-2002) has finally
subsided; near-term bullish bias with Friday's closing price above
the 150-dma on heavy volume.

Potential Catalysts: Profit and sales have dramatically improved
in recent quarters; upgraded by Legg Mason earlier in February;
2-for-1 split on 3/11/03.
 
PLAY (less conservative - bullish/debit spread):

BUY  CALL  MAR-55.00  UED-CK  OI=588   A=$12.30
SELL CALL  MAR-60.00  UED-CL  OI=1023  B=$8.00
INITIAL NET-DEBIT TARGET=$4.25-$4.35
POTENTIAL PROFIT(max)=15% B/E=$59.35


*****
NBR - Nabors Industries  $40.13  *** Break-Out! ***

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

Technical Outlook: Short-term "bullish" on the break-out to a
new 9-month high; recent trading range top near $38 provides a
solid support area.

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

PLAY (conservative - bullish/debit spread):

BUY  CALL  MAR-35.00  NBR-CG  OI=514   A=$5.80
SELL CALL  MAR-37.50  NBR-CU  OI=3555  B=$3.60
INITIAL NET-DEBIT TARGET=$2.20-$2.25
POTENTIAL PROFIT(max)=14% B/E=$37.20


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

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

*****
WFT - Weatherford International  $40.55  *** Trading Range! ***
  
Weatherford International (NYSE:WFT) is a provider of equipment
and services used for the drilling, completion and production
of oil and natural gas wells.  The company conducts operations
in approximately 100 countries and has approximately 485 service
and sales locations, which are located in nearly all of the oil
and natural gas producing regions in the world.  The company's
business is divided into three operating divisions: The Drilling
and Intervention Services Division provides drilling systems,
well installation services, cementing products and underbalanced
drilling.

Technical Outlook: Spread based on technical indications only;
bullish near-term outlook in an intermediate-term trading range;
resistance near the spread strike and maximum profit point ($45).

Potential Catalysts: Upside sector/industry bias; oil and natural
gas prices at historic highs; recent upgrade by Jeffries and Co.

PLAY (speculative - bullish/calendar spread):

BUY  PUT  MAY-45.00  WFT-EI  OI=1047  A=$1.70
SELL PUT  MAR-45.00  WFT-CI  OI=155   B=$0.40
INITIAL NET DEBIT TARGET=$1.25-$1.30
INITIAL TARGET PROFIT=$0.40-$0.70


*****
OTEX - Open Text  $29.29  *** Reader's Request! ***

Open Text (NASDAQ:OTEX) develops, markets, licenses and supports
collaboration and knowledge management software for intranets,
extranets and the Internet, enabling users to find electronically
stored information, work together in creative and collaborative
processes, perform group calendaring and scheduling and distribute
or make available to users across networks or the Internet the
resulting work product and other information.  The firm's principal
product line is Livelink, a collaboration and knowledge management
software for global enterprises.  Livelink offers several engines,
including, but not limited to, search, collaboration, workflow,
group calendaring and scheduling and document management.  As an
extension to its solutions-based offerings, the firm also provides
professional services, training, documentation as well as technical
support services to accelerate its customers' implementation of,
and satisfaction with, its products.

Technical Outlook: Near-term "bullish" on robust volume, support
near 150-dma at $25 and at 50-dma near $26; Friday's 52-week high
suggests further upside after necessary consolidation

Potential Catalysts: Recently topped consensus expectations with
sharply higher second-quarter profit; also raised future guidance;
multiple upgrades.

PLAY (speculative - bullish/diagonal spread):

BUY  CALL  MAY-25.00  QFT-EE  OI=66   A=$5.60
SELL CALL  MAR-30.00  QFT-CF  OI=426  B=$1.00
INITIAL NET-DEBIT TARGET=$4.45-4.50
INITIAL TARGET PROFIT=11% B/E=$29.50


*****


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

Planning For Your Future


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/wl_022303.asp


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

News Driven


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/MP_022303.asp


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

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