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Daily Newsletter, Wednesday, 03/05/2003

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The Option Investor Newsletter                Wednesday 03-05-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Unclear Signals
Futures Wrap: Breaking Channels
Index Trader Wrap: (See Note)
Weekly Fund Family Profile: Buffalo Funds (Kornitzer Capital
Management)
Options 101: Reality Check

Updated on the site tonight:
Swing Trader Game Plan: Which Way Did He Go?

Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
03-05-2003                   High    Low     Volume Advance/Decl
DJIA     7775.60 +  70.73  7775.60 7661.32   1517 mln  915/576
NASDAQ   1314.40 +  6.63   1317.69 1302.05   1330 mln  578/735
S&P 100   420.30 +  4.94    420.31  413.98   totals   1493/1311
S&P 500   829.85 +  7.86    829.87  819.00
RUS 2000  356.54 +  0.03    357.06  354.64
DJ TRANS 2036.97 + 2.61    2040.49 2020.83
VIX        34.23 -   2.35    36.54   34.20
VIXN       44.34 -   0.63    46.05   44.34
Put/Call Ratio 0.74
*******************************************************************

Unclear Signals
by Steven Price

With no clear signals today, traders were left wondering if we
had seen another short-term bottom, or if the lower lows signaled
further weakness.  After a sell-off of over 300 Dow points since
the last failed test of the 8000 level, it appeared this morning
as though the nightmare would continue. The Dow broke down below
the 7700 level that held it on Tuesday's close. However, just as
it appeared we were going to sink to new levels and possibly test
the relative intraday low of 7628, the bulls came back and swept
it back over 7700. Of course, that wasn't the end of the story,
as traders were left with a case of whiplash before we eventually
finished the day near our highs.

The main piece of economic data we got this morning came from the
ISM services data.  After the ISM manufacturing report came in
below expectations and showed a barely expanding sector, the
services index was a little more soothing.  It came in just above
estimates, at 53.9, versus the consensus 53.6, and indicated more
decisive expansion. Any reading over 50 indicates expansion,
while any reading below 50 indicates contraction. The ISM
manufacturing index had come in at 50.5, which send shivers
through the market, as it bordered on contraction.  The services
index was certainly better, but it also showed a trend toward
slowing down.  The previous reading had been 54.5.  A look at the
internals of the report also raised some red flags. Although this
is the 13th straight month of expansion, the backlog orders
number was much better than the new orders data.  Backlogs
increased 2%, but new orders decreased 3.2%. That data brought
out the bears, at least temporarily.

One of the other factors weighing on the market this morning was
weakness in the U.S. dollar. The greenback has been on a slide
lately, which has been a good indication of why the dollar
denominated stock market has been in a funk. As war expectations
continue to escalate, it appears more money is leaving the U.S.,
reflected by both the dollar index and the stock market.  On the
other hand we are seeing an influx of cash into U.S. treasuries.
However, given higher returns in Eurobonds, and the sinking
dollar, it is likely that the U.S. bond market is seeing a lower
level of investment than we might otherwise see.   The dollar got
no help this morning when Treasury Secretary John Snow said he
didn't see anything wrong with the sinking dollar. Snow said,
"The dollar is in the marketplace. Everything in the marketplace
goes up some and falls some. It's within normal ranges."  While
he tried backpedaling later, saying he supported a strong dollar,
the damage was done, letting investors know that the
administration was in no rush to take defensive measures.

With Hans Blix set to speak to reporters, we saw some short
covering, since many of Blix's speeches have resulted in short-
term rallies.  However, those rallies have turned out to be gifts
for the bears that shorted them as they ran out of steam. When
Blix finally gave his news conference, he discussed progress in
the weapons inspections in Iraq.  He said that the investigators
had conducted seven interviews with scientists, completely on the
U.N.'s terms, without the presence of monitors or tape recorders.
That was progress from earlier efforts which had both and were
eventually suspended.  He also implied the possibility that the
hotel rooms in which the interviews were conducted could have
been bugged and that the scientists could have been prepped for
their responses, but he still called it progress.  He also said
that Iraq's destruction of al-Samoud missiles was a proactive
step in disarmament. Another telling revelation was that he had
renewed his contract with the U.N. through the end of June.
While this would imply an extended period for inspections, beyond
the U.S. timetable for an invasion this month, he also said that
with the U.S. build-up, the inspectors had evacuation plans in
place in the case of a U.S. attack.

The U.S. appears to be preparing the public for its invasion.  A
news conference from Donald Rumsfeld and Gen. Tommy Franks
described possible strategy and weapons that would be used in a
U.S. invasion. Colin Powell then followed their presentations
with a speech of his own in which he said Saddam was once again
playing a game of distraction and confusion. Powell said the
point of 1441 was to show everything the country had, not show as
little as possible.  He said that Saddam's response to resolution
1441 was deceit and deception and that his "too little, too late
efforts" have been meant to divide the international community
and that those efforts must fail. Powell took shots at fellow
Security Council members, as well, saying they essentially had
short memories.  He also said he had new evidence that Iraq was
still moving weapons of mass destruction around the country to
avoid detection. It certainly seems as though Hans Blix will not
have the opportunity to fulfill his contract - I certainly hope
it came with an upfront signing bonus.

Following the conclusion of Colin Powell's speech, in which he
concluded that Iraq had not complied with resolution 1441, we
headed back into the red as traders were left with the impression
that we were likely to be going to war without a coalition. The
fact that a weak Beige Book report came out during the speech
didn't help either. Of course, like every other move today, it
eventually reversed itself.  By the end of the day, we finished
on a positive note, with the Dow putting on 70 points, but still
falling short of the recent support break at 7800.

The Beige Book report said that growth in economic activity for
the past two months remained subdued and that few districts
reported any notable changes.  Consumer spending remained weak
and business spending remained very soft, with little change in
capex or hiring plans.  It also said manufacturing activity
remained lackluster, although half the districts reported some
improvement. Rising energy and insurance costs were a concern and
the agricultural sector was negatively affected by poor weather.
The lone bright spot was refinancing activity, which continues to
drive growth in residential loans.  The problem looming on that
front, however, was highlighted earlier in the week when Alan
Greenspan implied that the housing market had peaked last year
and we shouldn't expect the same level of economic support this
time around. Business loans remained weak.

When we got our mid-morning reversal ahead of Blix' testimony, it
still came at a lower level than the last few bounces.  When a
300-point Dow sell-off results in a bounce 70 points, it is hard
to conclude that we have seen anything but an oversold bounce.
Remember we are coming off a drop of 1200 Dow points that saw a
400 point bounce that has now almost evaporated. In the big
picture it seems little has changed.


60 Minute Chart of the Dow




Daily Chart of the Dow





However, we do need to be aware that we are getting to the point
where our recent head and shoulders objectives have been
approached and nearly achieved.  While we did achieve the
objective from the summer-fall pattern when the Dow traded down
to 7197, the objective of the current pattern is right around
7500.  While this morning's low of 7664 is not a full
achievement, we are getting close, just as the bullish percents
are stretching themselves deep into oversold territory and
approaching the July and October lows.

The Dow bullish percent has reached 13%, which actually rests on
the ascending bullish support line at 12%.  The fact that we have
not reversed up yet still looks bearish, but we are definitely
into territory where risks are shifting less in favor of bearish
positions. When you combine that extension with the fact that we
have nearly achieved the H&S objective and the fact that we are
nearing the start date for a U.S. invasion, we need to be aware
that a bounce is possible and we should begin to protect short
positions with tighter stops.


Chart of the Dow Bullish Percent





Notice I have not recommended shifting to the long side. That is
because the downtrend is still in effect. I am simply raising our
bounce alert to "orange." With today's lower high and the fact
that each recent bounce has been a shorting opportunity, I am not
ready to declare a reversal based on today's action.  Let's face
it; my earlier point about the 400-point bounce nearly erasing
itself still looks awfully bearish.


Last week I highlighted a possible bearish triangle forming on
the point and figure chart in the Dow on its recent rebound to
7950.  The reversal down from that level has continued and
appears to be showing a bearish breakdown of that pattern. It
followed another bearish breakdown - a triple bottom sell signal,
and the trade down through 7700 simply extended that breakdown
and underscored the overall bearish picture.

Point and Figure Chart of the Dow





The techs are presenting a slightly different picture.  The
Nasdaq Composite continues to hold up relatively well. I say
relatively because it did drop decisively from its last test of
1350 and is now flirting with support at 1300.  That support has
so far been firm.  Today's low of 1302 indicates that the bulls
are continuing to defend that level and so far winning the
battle.  Bulls and bears alike can keep their eye on that
support, as a breakdown could lead to another test of recent lows
around 1260.

So far, we have little reason to be bullish.  However, some of
our analysts have raised the possibility of the formation of a
bullish head and shoulders formation, with the left shoulder at
the July lows, the head at the October lows, and the right
shoulder currently forming right about where we are trading now.
While I am not subscribing to this theory just yet, the oversold
bullish percents require us to at least look at that pattern. We
wouldn't reach a neckline until around 9000, but in order to
avoid being labeled a dyed in the wool bear, I thought I'd at
least share the observation with readers.  After all, being
"right" should not be a concern, only adjusting to the current
action and riding it to as large a profit as possible.

I'm still leaning short, but I am also making myself aware of the
shift in risks.  It is possible that as numerous factors all come
to a head (war, H&S target, extended bullish percents), the
confluence could lead to a change of direction. Certainly today's
sprint to closing highs tells us that the bulls are still lurking
and saw something promising in today's developments that left
them looking for more at the close. Keep your stops tight and
your eyes open to all possibilities.


************
FUTURES WRAP
************

Breaking Channels
By Larry Wales

Daily Settlement Numbers 4:15pm ET

Contract	Last	Net	High	Low
Dow	7775.60	+70.73	7775.60	7661.32
YM03H	7771.00	+59.00	7772.00	7660.00
Nasdaq 100	990.23	+7.25	995.19	978.40
NQ03H	988.00	+2.50	996.50	978.00
S&P 500	829.25	+7.86	829.87	819.00
ES03H	829.50	+7.25	830.00	818.25


Daily Levels

Contract	R2	R1	Pivot	S1	S2
Dow	7851.90	7813.79	7737.56	7699.44	7623.21
YM03H	7846.38	7808.68	7734.30	7696.60	7622.22
Nasdaq 100	1004.69	997.45	987.92	980.69	971.16
NQ03H	1005.97	996.98	987.51	978.52	969.05
S&P 500	836.92	833.07	826.03	822.19	815.14
ES03H	837.65	833.57	825.90	821.82	814.15


Weekly Levels

Contract	R2	R1	Pivot	S1	S2
YM03H	8224.00	8072.00	7889.00	7737.00	7554.00
NQ03H	1053.25	1031.75	1000.25	978.75	947.25
ES03H	869.50	855.25	836.25	822.00	803.00


Monthly Levels

Contract	R2	R1	Pivot	S1	S2
YM03H	8406.00	8163.00	7890.00	7647.00	7374.00
NQ03H	1073.75	1042.25	990.25	958.75	906.75
ES03H	895.50	868.25	836.75	809.50	778.00

ES03H March S&P E-mini

Today we saw the ES break out from it’s descending channel ( if
you want to call it that ) from Monday’s highs on the 5 min
chart. The ES traded within the boundaries of S1 at 817.25 and
the pivot at 826.25 all morning while finally breaking out over
the lunch hour when most of us are sitting on our hands. While
this looks like it might have some legs I beg to differ. We got
an old fashioned oversold bounce. The trin was over 3.00 and the
bears just got disgusted with all the geo political nonsense
going on in the world. Next thing we will hear will be a Hans
Blix indicator for the markets. The ES is still in a down
trending channel from the beginning of the year on the daily
chart and while she broke the S1 Weekly level at 822.00 it has
the weekly pivot to contend with at 836.25. If we get enough
buying to take us over 836.25 if probably will induce some short
covering. But there is a lot of overhead resistance especially at
850 area. What I will look for tomorrow is a test back to the
upper value area of 826.00 and if we get through that I expect
the contract to trade back to the point of control which is
823.75 and back to weekly S1 of 822.00.





NQ03H March Nasdaq E-Mini

The NQ managed to squeak out a small gain today with the 1000.00
level keeping a lid on any attempt to move the contract higher.
This is also a key level as it is the weekly pivot as well. The
NQ traded in a tight range between R1 and S1 .The weekly S1 just
happens to be 978.75 just where the NQ bounced from today. This
definitely lends credence to the fact that a computer buy program
was set to trigger at the weekly support level just mentioned.
Even if the NQ does manage to break the 1000.00 mark, the 1022
area will be a tough nut to crack in my opinion. The NQ is in a
descending channel from back in December and the upper trend line
as seen on the daily chart will make formidable resistance as
well. With that said we have a bear flag on the 5 min but we
closed right on the bottom channel. What we will look for
tomorrow is a move back to the lower value area of 978.00 and if
we get past the pivot, which is 987.50, the 1000.00 mark should
be quite a battle.






YM03H March Dow E-Mini ($5)

The YM traded today in a tight range and is on a road to nowhere
as well. It did trade above the S1 weekly level of 7737.00 but
finished directly at the bottom trend line of the bear flag that
it broke yesterday. I expect the bears to test that S1 weekly
level again and see if the bulls have any resolve .The Dow seems
to be fighting for every single point these days and resistance
levels at the 8000 and 8050 seem almost insurmountable.



Good Trading Tomorrow

Larry Wales


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

Check the Site Later Tonight For Jeff’s Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_030503_1.asp


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**************************
WEEKLY FUND FAMILY PROFILE
**************************

Buffalo Funds (Kornitzer Capital Management)

The Buffalo Funds are a family of no-load funds run by Kornitzer
Capital Management (KCM) of Shawnee Mission, Kansas, a research-
driven investment firm that closely analyzes the industries and
companies that they invest in.  John Kornitzer, a veteran of 35
years in the investments industry, founded KCM in 1989 to serve
the needs of institutional clients.  Other key members of KCM's
management team joined in the early 1990s; namely, Kent Casaway
in 1991 (now, chief fixed income strategist), and Tom Laming in
1993 (now, chief equity strategist).

A fourth key team member is Robert Male.  He joined KCM in 1997
and assists on the equity portfolios and funds.  Each member of
KCM's management team has an extensive background in securities
and investments.  Kornitzer's 35 years of investment management
experience includes portfolio management stints with GE, Texaco,
and Employers Reinsurance Corporation.  Gasaway's 20 plus years
in the business includes ten years with the United Mutual Funds
Group.  Laming served as a technology analyst at Waddell & Reed
and as a spacecraft engineer for TRW and Martin Marietta before
joining KCM.

In 1994, approximately five years following the firm's founding,
KCM started its first mutual fund, Buffalo Balanced Fund (BUFBX),
a unique balanced product investing in equity securities and in
high-yield debt securities.  Most balanced funds concentrate the
fund's bond allocation in investment-grade debt securities.  KCM
likes the high-yield market because the research process is very
similar to that used to analyze stocks and high-yield securities
offer greater risk/reward potential than investment-grade bonds.

Three more funds were added in 1995, including the Buffalo High
Yield Fund (BUFHX), Buffalo Large Cap Fund (BUFEX), and Buffalo
USA Global Fund (BUFGX).  The USA Global Fund is unique also in
that it seeks to provide global growth exposure by investing in
the equity securities of U.S. companies, which do a big portion
of their business abroad.  This strategy is similar to the Papp
America-Abroad Fund (PAAFX), which began operations in 1991.  A
small-cap equity fund was added in 1998, and a mid-cap fund was
added in 2001 to provide investors exposure to the various "cap"
sectors of the U.S. stock market.

The Buffalo Funds family of funds have no front-end or back-end
load charges, and are available on a no-load, NTF basis through
Charles Schwab's OneSource program as well as the other leading
fund networks.  Expense ratios are below average, slightly more
than 1.00% in most cases, per Morningstar.  That compares to an
annual expense ratio of 1.40% for the average mutual fund.  The
Buffalo funds are open to new investment and require a minimum
initial purchase of $2,500 for regular accounts ($250 for IRAs).
For more information or to download a fund prospectus, the fund
website is www.buffalofunds.com.  For further info on Kornitzer
Capital Management, Inc. as an investment firm, go to the About
Buffalo Funds section.

Fund Overview

We have already talked a little bit about the history of the firm
and when the various mutual funds started operations.  KCM offers
seven no-load mutual funds in the retail marketplace, as follows:

 Buffalo Funds (Managed by Kornitzer Capital Management):
 Buffalo Balanced Fund (BUFBX)
 Buffalo High Yield Fund (BUFHX)
 Buffalo Large Cap Fund (BUFEX)
 Buffalo Mid Cap Fund (BUFMX)
 Buffalo Small Cap Fund (BUFSX)
 Buffalo Science & Technology Fund (BUFTX)
 Buffalo USA Global Fund (BUFGX)

The Buffalo Science & Technology Fund, which we have not talked
about yet, got its start in 2001 along with the mid-cap product.
Like other tech funds, it has fallen on hard times, losing near
23% a year on an annualized basis since inception.  The Buffalo
Mid Cap Fund has struggled in its infancy too, losing about 25%
per year on average since inception.  Those numbers are through
February 28, 2003 per the Buffalo Funds' website.  So, cautious
investors might want to wait until these two new offerings have
longer track records of performance.

In terms of equity strategy, KCM starts by identifying "trends"
that they believe are developing with a high level of certainty.
They place emphasis on those trends, which may provide positive
operating environments for companies over the next three to five
years.  KCM's managers then seek to identify companies that will
benefit the most from the subsequent development of these trends.
The fund website offers some examples of trends they may look at.
Final stock selection is based on price valuation, the company's
business model and potential profitability, and ongoing analysis
of each company and its industry.

Companies that pass all of KCM's criteria are then candidates for
purchase in client portfolio and mutual funds.  When a firm fails
to pass any of the above KCM analyses, it becomes a candidate for
sale.

In terms of its fixed income strategy, KCM's managers constantly
seek out the best risk/reward potential in the high-yield market,
looking at the relative value relationships among different bond
groups as they change over time.  These changes, they state, are
based on variables such as the state of the U.S. economy, supply
and demand for new bond issues, the health of the equity markets,
and changing tax rates.

In bond selection, the KCM managers focus on issuers that have
favorable long-term growth trends in the business and in their
industry.  Their research seeks the best risk-reward potential,
even if that leads them to distressed debt situations in which
there may be considerable negative sentiment.  Here, KCM seeks
value opportunities within the high yield market that may have
less to lose and more to gain, using their research to "buy in"
when others may be capitulating.  It's an area that requires a
lot of research, but offers strong growth potential if managed
well.  So, the bond strategy seeks to purchase strong companies
at bargain yields.

In the next section, we'll see how well the various strategies
have performed relative to appropriate benchmarks.

Fund Performance

KCM's most successful mutual fund on the basis of assets is the
Buffalo Small Cap Fund (BUFSX), co-managed by Kent Gasaway, Tom
Laming, and Bob Male since 1994.  It currently has $717 million
in net assets, per Morningstar.  This manager trio has produced
high returns with just average risk relative to other small-cap
growth managers, according to Morningstar, for a 5-star overall
(highest) performance rating.





The above chart shows what can happen over a shorter time period.
However, a look at the Small Cap Fund's returns "since inception"
paints a better picture of what you may expect to receive a year.
According to the fund website, the Buffalo Small Cap Fund had an
annual average return of 9.5% since fund inception (as of month-
end).  Since the fund hasn't been around the full five years yet,
we can't say with certainty where its trailing 5-year return may
rank but it's likely to be high.  For the trailing 3-year period,
the small cap fund ranked in the top 5% of the Morningstar small-
cap growth category, losing just 4.3% a year on average compared
with an annualized loss of 15.2% for the S&P 500 large-cap index.

In 1999, 2000 and 2001, the Buffalo Small Cap Fund earned annual
returns of 34.8%, 33.7% and 31.2%, respectively, so it has shown
that it can capture some big returns for investors.  Although it
has slipped a notch this year, the fund has made a good case for
itself as a supporting player in one's long-term financial plan.

Below is a performance summary for the trailing 3-year period as
of March 4, and where applicable, for the trailing 5-year period,
using data from Morningstar.

 3-Year Average Annual Returns and Rankings:
 - 6.9% Buffalo Balanced (BUFBX) 6th Percentile
 + 6.3% Buffalo High Yield (BUFHX) 3rd Percentile
 -12.9% Buffalo Large Cap (BUFEX) 25th Percentile
   --   Buffalo Mid Cap (BUFMX) N/a
 - 4.3% Buffalo Small Cap (BUFSX) 5th Percentile
   --   Buffalo Science & Technology (BUFTX) N/a
 -15.4% Buffalo USA Global (BUFGX) 44th Percentile

 5-Year Average Annual Returns and Rankings:
 - 3.5% Buffalo Balanced (BUFBX) 37th Percentile
 - 2.9% Buffalo High Yield (BUFHX) 6th Percentile
 - 3.4% Buffalo Large Cap (BUFEX) 37th Percentile
   --   Buffalo Mid Cap (BUFMX) N/a
   --   Buffalo Small Cap (BUFSX) N/a
   --   Buffalo Science & Technology (BUFTX) N/a
 - 1.1% Buffalo USA Global (BUFGX) 14th Percentile

You can see here that, for the most part, the Buffalo Funds have
performed relatively well against similar funds.  The high-yield
product has done very well, producing total returns that rank in
the first decile of the Morningstar high-yield category over the
trailing 3-year and 5-year periods.  All periods shown here, the
Buffalo Funds' performance is either first quartile, or at worse
second quartile.  So, while there are negative numbers, we think
the Buffalo Funds management team has made a strong case for why
you may want to consider investing with them.

Five of the seven Buffalo funds have Morningstar ratings, and of
those five funds, one is 5-star highest rated, three have 4-star
(above average) ratings, and only one fund is 3-star (or average)
rated for risk-adjusted return performance relative to their fund
category peers, per Morningstar.  While the average international
equity fund has been somewhat of a disappointment during the past
five years, the Buffalo USA Global Fund's "stay at home" approach
has helped to control fund losses relative to pure foreign equity
funds.

Conclusion

It would appear from the relative performance figures that KCM's
various investment strategies are worth consideration.  The firm
has performed especially well in the high-yield markets relative
to other high-yield managers; so, risk-tolerant income investors
may find the Buffalo High Yield Fund to be a suitable option for
their investment needs.  For long-term equity investors who want
some "international" exposure but don't want to invest in a non-
U.S. stock fund may wish to consider the Buffalo USA Global Fund
for their investment program.

The success of KCM's earlier funds suggests that the newer funds
may eventually do all right relative to similar funds.  For more
information, go to the fund family site at www.buffalofunds.com.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


***********
OPTIONS 101
***********

Reality Check
by Mark Phillips
mphillips@OptionInvestor.com

Sometimes, I don't know what I'd do for article ideas if it
weren't for all the great questions I get from readers.  That's
certainly the case today, as one of my regular readers reminded
me of some comments I made around the start of the year,
wondering if they're still valid.  When I was in my predictive
mode (with the rest of the Financial community) around the first
of the year, I talked about my expectations for 2003 and whether
we would get an unprecedented fourth down year, or if the markets
would somehow stumble their way to a positive close this year.
As is so often the case, I bit off more than I could chew with
that topic, and the discussion took two articles to cover.  If
you missed the articles the first time around, I'd suggest
taking a look here.

'Tis The Season
http://www.OptionInvestor.com/traderscorner/tc_010603_1.asp

'Tis The Season, Part II
http://members.OptionInvestor.com/options101/opt_010803_1.asp

Since writing those articles, Buzz Lynn has done a great job of
handling the many big-picture items that I didn't get to, saving
me that Herculean effort.  Some of my near-term views have been
proven correct and others, well, not-so-correct.  GRIN
Fortunately, today's question deals with an aspect of my
prognostication that I think is still very much in force.  So
without further delay, let's get to it!

My question this time is with regard to the amazing resilience I
see in the QQQ's. I recall you mentioning sometime ago in one of
your Sunday writings that you don't expect much weakness in the
NASDAQ stocks.  This is what I now see. The only breakdown (if
we can call it that) in the QQQ's occurred on February 13th when
they went down to 23.25. Since then I have not seen the Q's
below the 24 level.

Do you think this is genuinely bullish scenario or we could see
the Q's suddenly giving way and overtaking even the SPX to the
downside? I am puzzled as to what to make of this. NASDAQ stocks
with no earnings outperforming the Dow and the S&P.

Now see, that's a great observation.  The NASDAQ IS holding up
better than the rest of the market lately.  I don't know that
I'd exactly call it strong, but it is exhibiting strength
relative to the broader market.  This is the kind of behavior
I expected when I wrote those articles back in January, and I've
got a couple primary reasons for that view.

First off, Technology stocks fueled the irrational mania that
took the NASDAQ to its peak in early 2000, and while the rest
of the market certainly went along for the ride, the extreme
over-valuations were primarily concentrated in the Technology
arena.  So it only makes sense that the bulk of the ensuing
carnage in the market was focused in the Technology space as
well.  At its depth last October, the NASDAQ Composite had shed
78% of its peak value from March of 2000.  By that time the
COMPX had fallen back to levels not seen since July of 1996!

By contrast, at the October lows, the SPX had "only" given back
50% of its peak value from early 2000 and still had more than
130 points to go before challenging its own July 1996 levels.
By my way of thinking, that meant the broader market had more
potential downside in store than did the Technology sector.

The other factor influencing my bias of greater downside
potential away from Technology was the weekly chart patterns
of the COMPX and the SPX.  The SPX has been mired in a persistent
descending channel since topping out in 2000, and has been
methodically working its way lower in that channel.  By contrast,
the COMPX got the bulk of its decline out of the way by early
2001 and since then has been declining at a much more pedestrian
rate than the SPX.  An argument can be made for a descending
channel in the COMPX as well, but note how much shallower it
is than that seen on the SPX.

Weekly Chart of the SPX




Weekly Chart of the COMPX




We could look at the daily chart of either the COMPX or the SPX
and draw an ascending trendline from the October lows to the
February 13th low and in both cases, we can see that price
action is holding above those trendlines.  But I think a more
useful way to view the difference between the strength in these
two indices is through the application of one of my favorite
tools, the relative strength chart.  Below, I have shown a chart
of the COMPX relative to the SPX, and the relative strength
jumps out at us, don't you think?

Relative Strength Chart of the COMPX vs. the SPX - Weekly




Note how this chart bottomed just above 1.40 (don't try to figure
out the scale) in late 2001 and that defined a floor again last
October.  And while both indices would be classified as weak
right now, the upward trend since December indicates less
selling pressure in the COMPX than the SPX.  This developing
trend is even more apparent if we look at a daily chart.

Relative Strength Chart of the COMPX vs. the SPX - Daily




I think this series of charts goes a long ways toward explaining
why the QQQ has been rather resistant to selling off, even in
the midst of what is clearly weakness in the rest of the market.
Watch the center lines on the channels shown on those weekly
charts, as that will be the key for further downside from here.
I think it is highly unlikely that the COMPX will break down
into the lower half of its channel without the SPX leading the
way with a break below its channel center line.  I wouldn't say
that the QQQ makes for a great bullish trade, but I would
suggest that bears would do well to look for a better target
for playing the downside in the current environment.  Here's a
concrete measurement we can use in the future to gauge whether
the NASDAQ is continuing with this relative outperformance.
Watch the top of those channels for a breakout to the upside.
I'm betting that the bulls will be able to crest the top of the
COMPX channel before they can clear the top of the SPX channel.
Time will tell!

What it really comes down to is an issue of financial performance
RELATIVE TO expectations.  In my opinion, expectations in the
Technology arena were taken so low over the past couple years,
that successive disappointments aren't having the pronounced
effect they did in the recent past.  On the other hand,
expectations for financial performance outside of the technology
market have come down at a more controlled rate, leaving further
room to the downside as this bear market continues and
expectations continue to be reduced.

The possibility still exists for another significant leg down in
the broad market, and when that materializes, it is highly likely
that the NASDAQ market will be pressured below recent support.
One thing I do not expect is for the COMPX to suddenly plunge
and play catch up with the rest of the market.  I think the days
of the NASDAQ leading to the downside are behind us.  If I'm
correct, the better bearish play will clearly be found in areas
of the market that are not exhibiting this relative strength.
Any ideas what those might be?  Take a look at some relative
strength charts over the weekend and send your ideas along.
Please put "Relative Weakness" in the subject line.  We'll take
a look at some of your ideas next week.

Questions are always welcome!

Mark


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***********************
SWING TRADER GAME PLANS
***********************

Which Way Did He Go?

Talk about a tough day to figure out for anyone following the
minute to minute action. My neck is still sore after watching the
market equivalent of a ping-pong game.

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The Option Investor Newsletter                Wednesday 03-05-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: SLAB, ZMH, SYY, UTX
Dropped Calls: None
Dropped Puts: None
Play of the Day: Call - AMGN
Spreads, Combinations & Premium-Selling Plays: A Market Gripped By
Fear And Apprehension!


Updated on the site tonight:
Market Posture: Those Middling Markets
Market Watch: Shifting to the Middle


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*****************
STOP-LOSS UPDATES
*****************

Call
SLAB Adjust up from $23.24 to $24.50

ZMH  Adjust up from $39.75 to $40.75

Put
SYY Adjust down from $28.50 to $27.25

UTX Adjust down from $60.00 to $58.75


*************
DROPPED CALLS
*************

None


************
DROPPED PUTS
************

None


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**********************
PLAY OF THE DAY - CALL
**********************

AMGN – Amgen, Inc. $55.33 +1.21 (+0.69 for the 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.

Most Recent Write-Up:
Talk about dependability!  Every time AMGN approaches its
ascending trendline, the bulls defend that support line with a
vengeance and the resulting bounce invariably takes the stock
up to test its recent highs.  Last week was no exception, with
an early dip to support on Tuesday that met with vigorous buying
after the company reaffirmed its revenue growth (30-32%) and EPS
growth (25-27%) forecast through 2005 at its investor's
conference.  Trading a low of the day just above $52, that news
was the catalyst to drive the stock steadily higher throughout
the week, ending with a new 10-month closing high of $54.64 on
Friday.  The trend remains very much intact and barring some
unforeseen event over the weekend, AMGN looks ready to break
through the $55 level next week.  The ascending trendline that
began last September has now risen to $52.50 and should continue
to support the stock on successive pullbacks.  While aggressive
traders may feel compelled to chase the stock higher on a
breakout over $55, their enthusiasm should be tempered by the
strong resistance that is looming just overhead near $56 and
continuing up through the $60 level.  Additionally, AMGN has not
shown a recent pattern of being able to sustain a breakout,
instead pulling back after each higher high to consolidate and
confirm higher support.  So the best approach for entering the
play remains to take advantage of rebounds from the ascending
support line.  This weekend, we're leaving our stop in place at
$52.25, but will consider raising it once AMGN is able to close
over the $55 level.

Why This Is Our Play of the Day:
It's been a long time coming, but OI call play AMGN finally broke
out above the $55 mark. After testing this level unsuccessfully
numerous times over the past couple of weeks, the stock finally
appears to be breaking out.  The fact that it has remained in a
strong uptrend since last November, in spite of a schizophrenic
market and sinking Biotech Index (BTK), underscores its
achievements. It not only broke out above that resistance, but
finished there on a closing basis, as well.  We will need to be
cautious of the current channel, which the stock is nearing the
top of and the most profitable entries may come on a pullback to
a higher level of support around $54 to $54.50.  However,
momentum traders can look to enter on support at $55, which we
got this afternoon. There is quite a bit of noise on the weekly
chart between $55 and the 200-pma on that chart sits at $55.49.
Conservative traders looking to enter on momentum can look for
support above $55.50.  However, the next level of resistance
appears to be $60 and that will be our target from this level.

BUY CALL MAR-50 AMQ-CJ OI= 7028 at $5.70 SL=3.00
BUY CALL MAR-55*YAA-CK OI=33568 at $1.70 SL=0.75
BUY CALL APR-55 YAA-DK OI=34852 at $2.85 SL=1.50

Average Daily Volume = 12.0 mln



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*********************************************
SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS
*********************************************

A Market Gripped By Fear And Apprehension!
By Ray Cummins

Stocks ended higher today even as concerns over terrorism, the war
with Iraq and challenging world politics continued to dominate the
headlines.

The Dow Jones Industrial Average gained 70 points to end at 7,775
amid strength in AT&T (NYSE:T), Citigroup (NYSE:C), Exxon-Mobil
(NYSE:XOM), General Electric (NYSE:GE), Wal-Mart (NYSE:WMT),
Johnson & Johnson (NYSE:JNJ), and SBC Communications (NYSE:SBC).
The NASDAQ Composite rose 6 points 1,314 on bullish activity in
semiconductor and telecom-equipment stocks.  The S&P 500 index
added 7 points to finish at 829 with biotechnology, insurance,
bank, construction and utility shares among the best performers.
Trading volume remained light, as it has in recent weeks, with
shares exchanged totaling only 1.3 billion on the NYSE and 1.37
billion on the NASDAQ.  In the overall market, breadth was upbeat
as gainers outpaced losers 17 to 15 on the Big Board.  Technology
stocks were less popular with decliners dumping advancers by the
same margin, 17 to 15.  U.S. Treasury prices rose for an eighth
session as a downbeat Federal Reserve report on the economy drove
investors into safe-harbor debt.  The 10-year bond rose 5/32 with
its yield closing at 3.63%.

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

SUMMARY OF CURRENT POSITIONS - AS OF 3/04/03

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

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.


MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE

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


Naked Puts

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

ANF      MAR    25   24.40  27.02   $0.60   5.97%  2.46%
CLX      MAR    40   39.00  41.62   $1.00   5.01%  2.56%
OTEX     MAR    25   24.50  27.55   $0.50   4.97%  2.04%
SYMC     MAR    40   39.15  41.57   $0.85   5.10%  2.17%
VIP      MAR    30   29.40  37.50   $0.60   4.74%  2.04%
ANF      MAR    25   24.65  27.02   $0.35   4.66%  1.42%
AVCT     MAR    22   22.20  28.00   $0.30   4.59%  1.35%
DISH     MAR    22   22.00  27.65   $0.50   7.13%  2.27%
IGEN     MAR    30   29.50  32.00   $0.50   6.04%  1.69%
PTEN     MAR    30   29.45  32.28   $0.55   5.17%  1.87%
RYL      MAR    37   36.95  38.67   $0.55   4.42%  1.49%
AVCT     MAR    25   24.70  28.00   $0.30   4.78%  1.21%
BJS      MAR    32   31.95  33.42   $0.55   6.10%  1.72%
DISH     MAR    22   22.15  27.65   $0.35   6.56%  1.58%
NE       MAR    35   34.35  35.86   $0.65   6.48%  1.89%
NBR      MAR    35   34.65  39.43   $0.35   4.30%  1.01%
PTEN     MAR    32   31.95  32.28   $0.33   3.55%  1.72%
VLO      MAR    35   34.60  39.82   $0.40   4.49%  1.16%

Stocks in the oil segment are suspect right now as they retreat
to near-term support areas after the recent rally.  Issues on
the early-exit list include Noble (NYSE:NE) and Patterson-UTI
(NASDAQ:PTEN) at the $32.50 strike.  Ryland (NYSE:RYL) was hurt
by reports of a potential construction slump in new homes, thus
conservative traders should consider closing that position on
any further downside movement.


Naked Calls

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

ESRX     MAR    55   55.70  51.04   $0.70   5.07%  1.26%
GM       MAR    37   38.10  31.27   $0.60   4.60%  1.57%
VIA      MAR    40   40.95  35.41   $0.95   6.44%  2.32%
CCMP     MAR    50   50.55  40.84   $0.55   5.47%  1.09%
KLAC     MAR    40   40.50  34.21   $0.50   5.63%  1.23%
QCOM     MAR    40   40.45  34.45   $0.45   4.59%  1.11%
VZ       MAR    40   40.55  34.41   $0.55   4.73%  1.36%
OMC      MAR    60   60.55  51.97   $0.55   4.52%  0.91%
QCOM     MAR    37   37.85  34.45   $0.35   4.77%  0.92%
QLGC     MAR    37   37.90  34.76   $0.40   5.75%  1.06%


Put-Credit Spreads

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

BHE     34.68  32.25  MAR   25  30  0.60  29.40   $0.60   Open
PRX     33.67  37.60  MAR   25  30  0.40  29.60   $0.40   Open
SLM    105.54 107.70  MAR   90  95  0.45  94.55   $0.45   Open
EBAY    76.99  78.08  MAR   65  70  0.55  69.45   $0.55   Open
CAT     45.95  45.22  MAR   40  42  0.25  42.25   $0.25   Open
BRL     77.21  76.21  MAR   65  70  0.50  69.50   $0.50   Open
AGN     63.82  64.32  MAR   55  60  0.50  59.50   $0.50   Open
CTSH    69.62  70.01  MAR   60  65  0.60  64.40   $0.60   Open
EOG     42.14  40.90  MAR   35  40  0.50  39.50   $0.50   Open

Eog Resources (NYSE:EOG) is on the watch-list for "early exit"
as the oil service sector consolidates.


Call-Credit Spreads

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

CCU    36.70   33.83  MAR   45  40  0.75  40.75  $0.75   Open
FDX    50.87   51.76  MAR   60  55  0.55  55.55  $0.55   Open
UTX    60.50   56.98  MAR   70  65  0.60  65.60  $0.60   Open
BGEN   38.16   34.73  MAR   45  42  0.00  42.50  $0.00  No Play
RD     39.56   40.14  MAR   45  42  0.25  42.75  $0.25   Open
AZO    64.86   63.00  MAR   75  70  0.50  70.50  $0.50   Open
MRK    52.10   51.61  MAR   60  55  0.55  55.55  $0.55   Open

Biogen (NASDAQ:BGEN) gapped down at the open during the session
after the play was offered, thus a credit near the target price
was not available.


Calendar Spreads (Reader's Request)

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

APA	  60.74  65.00   APR-65C   MAR-65C  (0.40)   1.10     Open
STJ	  43.69  45.68   APR-45C   MAR-45C   0.20    0.60     Open

Apache Oil (NYSE:APA) and St. Jude Medical (NYSE:STJ) have both
offered favorable "early-exit" profits.


Credit Strangles

No Open Positions


Synthetic Positions:

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 new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.  The positions with "*" will be
included in the weekly summary.  Those with "TS" (Target-Shoot)
are below our minimum monthly return, but may offer a favorable
entry price with a limit order, due to the daily volatility of
the underlying issue.

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

BULLISH PLAYS - NAKED PUTS

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

WARNING: THE RISK IN SELLING UNCOVERED 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.

***************
CELG - Celgene  $23.00  *** Bullish Outlook! ***

Celgene (NASDAQ:CELG) is a commercial-stage biopharmaceutical
company.  The company is primarily engaged in the discovery,
development and commercialization of small molecule drugs that
are designed to treat cancer and immunological diseases through
gene and protein regulation. Small molecule drugs are man-made,
chemically synthesized drugs that, because of their relatively
small size, can typically be administered orally.  The firm's
drugs are designed to modulate multiple disease-related genes,
including cytokines (which are proteins) such as Tumor Necrosis
Factor alpha, or TNF(alpha), growth factor genes such as those
that control angiogenesis, blood vessel formation and apoptosis
genes.  Because the company's drugs can be administered orally,
they have the potential to advance the standard of care beyond
current injectible protein drugs that inhibit TNF (alpha) and
other disease-causing cytokines.

CELG - Celgene  $23.00

PLAY (sell naked put):

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

SELL PUT  MAR 22.5  LQH OX     851    0.65  21.85  13.2%   3.0%
SELL PUT  APR 22.5  LQH PX     568    1.25  21.25   8.7%   5.9%
SELL PUT  APR 20    LQH PD     300    0.45  19.55   4.7%   2.3% *


**************
ERES - eResearch Technology  $23.20  *** 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 - eResearch Technology  $23.20

PLAY (sell naked put):

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

SELL PUT  MAR 20    UDB OD     42     0.20  19.80   6.1%   1.0%
SELL PUT  MAR 22.5  UDB OX     47     0.80  21.70  16.2%   3.7%
SELL PUT  APR 20    UDB PD      7     0.80  19.20   8.0%   4.2% *


**************
LLTC - Linear Technology  $30.02  *** Chip Sector Strength? ***

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

LLTC - Linear Technology  $30.02

PLAY (sell naked put):

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

SELL PUT  MAR 27.5  LLQ OY   3,069    0.35  27.15   6.8%   1.3% *
SELL PUT  MAR 30    LLQ OF   1,803    1.20  28.80  17.3%   4.2%
SELL PUT  APR 27.5  LLQ PY      56    1.20  26.30   7.8%   4.6%
SELL PUT  APR 25    LLQ PE      55    0.55  24.45   5.0%   2.2%


**************
MXIM - Maxim Integrated  $34.34  *** Chip Stock Recovery! ***

Maxim Integrated Products is a worldwide leader in design,
development, and manufacture of linear and mixed-signal
integrated circuits.  Maxim circuits provide an interface between
the real world and the digital world by detecting, measuring,
amplifying, and converting real-world signals, such as
temperature, pressure, or sound, into the digital signals
necessary for computer processing.  Maxim's products are used in
a wide range of microprocessor-based electronics equipment,
including personal computers and peripherals, test equipment,
hand-held devices, wireless communicators, and video displays.

MXIM - Maxim Integrated  $34.34

PLAY (sell naked put):

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

SELL PUT  MAR 30    XIQ OF   5,275    0.30  29.70   5.9%   1.0% *
SELL PUT  APR 30    XIQ PF     685    1.10  28.90   7.2%   3.8%


**************
SLAB - Silicon Laboratories  $26.86  *** Entry Point! ***

Silicon Laboratories (NASDAQ:SLAB) designs, manufactures and sells
proprietary high-performance mixed-signal integrated circuits for
the wireless, wireline and optical communications industries.  The
company initially focused its efforts on developing ICs for the
personal computer modem market and is now applying its mixed-signal
and communications expertise to the development of ICs for other
high growth communications devices, such as wireless telephones and
optical network applications.  The company's mixed-signal design
engineers utilize standard complementary metal oxide semiconductor
(CMOS) technology to create ICs that can reduce the cost, size and
system power requirements of devices that the company's customers
sell to their end user customers.

SLAB - Silicon Laboratories  $26.86

PLAY (sell naked put):

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

SELL PUT  MAR 22.5  QFJ OX     356    0.20  22.30   5.8%   0.9% *
SELL PUT  MAR 25    QFJ OE     621    0.50  24.50  10.1%   2.0%
SELL PUT  APR 22.5  QFJ PX   2,227    1.05  21.45   9.8%   4.9%


**************
XLNX - Xilinx  $22.69  *** Another Good Chip Stock! ***

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.

XLNX - Xilinx  $22.69

PLAY (sell naked put):

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

SELL PUT  MAR 20    XLQ OD   7,267    0.25  19.75   7.2%   1.3% *
SELL PUT  MAR 22.5  XLQ OX   2,987    0.95  21.55  18.4%   4.4%
SELL PUT  APR 20    XLQ PD     589    0.90  19.10   8.5%   4.7%


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

BULLISH PLAYS - CREDIT SPREADS

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

***************
AMGN - Amgen  $55.33  *** Break-Out! ***

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

AMGN - Amgen  $55.33

PLAY (conservative - bullish/credit spread):

BUY  PUT  APR-47.50  AMQ-PW  OI=3308   A=$0.60
SELL PUT  APR-50.00  AMQ-PJ  OI=15889  B=$0.90
INITIAL NET-CREDIT TARGET=$0.35-$0.40
POTENTIAL PROFIT(max)=16% B/E=$49.65


**************
LXK - Lexmark Intl.  $62.82  *** Lateral Consolidation? ***

Lexmark International (NYSE:LXK) is a developer, manufacturer
and supplier of printing solutions, including laser and inkjet
printers, multifunction products and associated supplies and
services for offices and homes.  The company also markets dot
matrix printers for printing single and multi-part forms for
business users and develops, manufactures and markets a broad
line of other office imaging products.

LXK - Lexmark Intl.  $62.82

PLAY (moderately aggressive - bullish/credit spread):

BUY  PUT  MAR-55.00  LXK-OK  OI=1653  A=$0.30
SELL PUT  MAR-60.00  LXK-OL  OI=2867  B=$0.85
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$59.40


**************
NKE - Nike  $46.48  *** Stage I Base ***

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

NKE - Nike  $46.48

PLAY (conservative - bullish/credit spread):

BUY  PUT  APR-40.00  NKE-PH  OI=579  A=$0.50
SELL PUT  APR-42.50  NKE-PH  OI=874  B=$0.75
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$42.20


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

BEARISH PLAYS - NAKED CALLS

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered calls entails considerable financial risk,
far more than the initial margin or collateral required to open
the position.  The maximum financial obligation for the sale of a
naked option 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 options must have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  The simple fact is: stocks often experience large price
swings, exponentially increasing the margin maintenance and very
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 price moves in
a volatile manner.  Many professional traders suggest closing the
position when the underlying share value moves beyond 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.

***************
COF - Capital One  $27.71  *** Premium Selling! ***

Capital One Financial (NYSE:COF) is a holding company whose major
subsidiaries market a variety of financial products and services
to consumers using its proprietary information-based strategy.
The company's primary business is consumer lending, with a focus
on credit cards, but including other consumer lending activities
such as unsecured installment lending and automobile financing.
The company's principal subsidiary, Capital One Bank, a limited
purpose, state-chartered credit card bank, offers credit card
products.  Capital One, F.S.B., a federally chartered bank, offers
consumer lending and deposit products.  Capital One Services, the
other major subsidiary, provides various operating, administrative
and business services to the company and its subsidiaries.

COF - Capital One  $27.71

PLAY (sell naked call):

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

SELL CALL  MAR 30   COF CF   13,771  0.50  30.50  10.2%    1.6%
SELL CALL  APR 30   COF DF      500  1.30  31.30   8.9%    4.2%
SELL CALL  APR 35   COF DZ    1,446  0.55  35.55   6.2%    1.5% *


**************
MERQ - Mercury Interactive  $29.96  *** Bearish Trend Reversal? ***

Mercury Interactive (NASDAQ:MERQ) is a provider of integrated
performance management solutions that enable businesses to test
and monitor their Web-based applications.  Its software products
and hosted services help Global 2000 companies enhance the user
experience by improving the performance, availability, reliability
and scalability of their Web-based applications.  Its many hosted
services provide its customers with a cost-effective solution that
quickly meets business needs without dedicating significant time
and internal resources.  Its integrated performance management
solutions enable customers to more quickly identify and correct
problems before users experience them.  The company also provides
outsourced load testing and Web performance monitoring services
that complement its software products.

MERQ - Mercury Interactive  $29.96

PLAY (sell naked call):

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

SELL CALL  MAR 30   RQB CF      548  1.40  31.40  19.9%    4.5%
SELL CALL  APR 30   RQB DF    2,945  2.70  32.70  12.7%    8.3%
SELL CALL  APR 35   RQB DG    2,979  0.80  35.80   7.1%    2.2% *


**************
PHM - Pulte Homes  $45.98  *** Sell-Off In Progress! ***

Pulte Homes (NYSE:PHM) is a holding company whose subsidiaries
engage in the homebuilding and financial services businesses.
The company's direct subsidiaries include Pulte Diversified
Companies, Inc. (PDCI), Del Webb Corporation and others that
are engaged in the homebuilding business.  PDCI's operating
subsidiaries include Pulte Home Corporation (PHC), Pulte
International Corporation and other subsidiaries that are
engaged in the homebuilding business.  The company also has a
mortgage banking company, Pulte Mortgage Corporation, which is
a subsidiary of PHC.

PHM - Pulte Homes  $45.98

PLAY (sell naked call):

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

SELL CALL  MAR 45   PHM CI      14   2.15  47.15  19.0%    4.6%
SELL CALL  APR 45   PHM DI     393   3.30  48.30  10.1%    6.8%
SELL CALL  APR 50   PHM DJ     433   1.10  51.10   4.9%    2.2% *


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

BEARISH PLAYS - CREDIT SPREADS

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

***************
CTX - Centex  $50.03  *** Construction Industry Slump? ***

Centex Corporation (NYSE:CTX) is a multi-industry company with
operates in six principal business segments.  Conventional Homes
operations involve the construction and sale of single-family
homes, town homes and low-rise condominiums, and the purchase and
development of land.  Investment Real Estate operations involve
the acquisition, development and sale of land, and the development
of industrial, office, retail and mixed-use projects.  Financial
Services operations involve the financing of homes, home equity
and sub-prime lending, and the marketing of insurance coverage.
Construction Products involves cement production and distribution,
and the production, distribution and sale of gypsum wallboard,
concrete, aggregates and recycled paperboard.  Contracting and
Construction Services involves the construction of buildings.
Centex HomeTeam Services is involved in pest and termite control,
lawn and landscape care, electronic security, alarm monitoring
and homewiring services.  The company's quarterly earnings are
due July 18.

CTX - Centex Corporation  $50.03

PLAY (conservative - bearish/credit spread):

BUY  CALL  APR-60.00  CTX-DL  OI=615   A=$0.20
SELL CALL  APR-55.00  CTX-DK  OI=1868  B=$0.80
INITIAL NET-CREDIT TARGET=$0.65-$0.75
POTENTIAL PROFIT(max)=15% B/E=$55.65


**************
LEN - Lennar  $49.40  *** New Home Demand Slowing? ***

Lennar (NYSE:LEN) is a homebuilder and a provider of residential
financial services.  The company's homebuilding operations include
the sale and construction of single-family attached and detached
homes as well as the purchase, development and sale of residential
land directly and through its unconsolidated partnerships.  The
company's financial services operations provide mortgage financing,
title insurance and closing services for both its homebuyers and
others, resell the residential mortgage loans it originates in the
secondary mortgage market and also provide Internet access, cable
television and alarm monitoring services to residents of its many
communities.  Lennar has acquired Patriot Homes, a homebuilder in
the Baltimore marketplace, and expanded into the Carolinas with
the acquisition of Don Galloway Homes as well as the assets and
operations of Sunstar Communities.

LEN - Lennar  $49.40

PLAY (conservative - bearish/credit spread):

BUY  CALL  APR-60.00  LEN-DL  OI=110  A=$0.15
SELL CALL  APR-55.00  LEN-DK  OI=671  B=$0.65
INITIAL NET-CREDIT TARGET=$0.55-$0.70
POTENTIAL PROFIT(max)=12% B/E=$55.55


**************
LEH - Lehman Brothers  $53.42  *** Weak Brokerage Sector! ***

Lehman Brothers Holdings (NYSE:LEH) is a global investment bank
serving institutional, corporate, government and high-net-worth
individual clients and customers.  The firm is engaged primarily
in providing financial services and operates in three business
segments: Investment Banking, Capital Markets and Client Services.
Other businesses in which the firm is engaged represent less than
10% of consolidated assets, revenues or pre-tax income.  Lehman's
business includes capital raising for clients through securities
underwriting and direct placements, corporate finance and other
strategic advisory services, private equity investments, stock
sales and trading, research and the trading of foreign exchange
and derivative products and certain commodities.  The firm acts
as a market-maker in all major equity and fixed-income products
in both the domestic and international markets.

LEH - Lehman Brothers  $53.42

PLAY (conservative - bearish/credit spread):

BUY  CALL  APR-65.00  LEH-DM  OI=4924  A=$0.25
SELL CALL  APR-60.00  LEH-DL  OI=6374  B=$0.75
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$60.55


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

SEE DISCLAIMER - SECTION 1

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


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

Those Middling Markets

To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://www.OptionInvestor.com/marketposture/mp_030503.asp



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

Shifting to the Middle

To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/wl_030503.asp


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