Option Investor

Daily Newsletter, Wednesday, 03/12/2003

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The Option Investor Newsletter                Wednesday 03-12-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Will History Repeat?
Futures Wrap: Oversold Reversal
Index Trader Wrap: (See Note)
Weekly Fund Family Profile: Metropolitan West Funds
Options 101: LEAPS Update

Updated on the site tonight:
Swing Trader Game Plan: H&S Redux

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
03-12-2003                   High    Low     Volume Advance/Decl
DJIA     7552.07 +  28.01  7552.07  7416.64   1839 mln  877/925
NASDAQ   1279.24 +  7.77   1279.59  1253.22   1491 mln  824/601
S&P 100   408.92 +  2.18    408.92  400.24    totals    1701/1526
S&P 500   804.19 +  3.46    804.19  788.90
RUS 2000  345.94 -  1.09    347.03  343.06
DJ TRANS 1950.65 +  8.46   1951.63 1918.12
VIX        38.99 +  0.91     41.16   38.88
VIXN       47.50-   0.03     48.33   46.59
Put/Call Ratio 0.89

Will History Repeat?
by Steven Price

For the last few months, the possibility of war has been blamed
for the market's big drop.  However, anyone watching only the
charts would have pegged a move right to these levels. I'm not
suggesting we ignore the environment in which we are trading, but
it is interesting just how reliable the technical indicators have

I'm looking at the head and shoulders patterns that have formed
over the past few months in the Dow, OEX and SPX in particular.
It may have taken the specter of war to get us there, but the
breakdowns over the past few sessions mirrored those that we saw
over the summer-fall session. Not only did the Dow fulfill its
objective, as it did in October, but so did the SPX and OEX (more
on these objectives later). A look at the daily charts completes
the picture that I've been drawing over the past couple of months
and leaves us wondering if it's time to call a bottom, or jump on
short for a further breakdown.  Certainly we see no signs that
would indicate a possible reversal, with not only the U.S.
testing multi-month lows, but also European markets sinking hard.
The FTSE dropped 4.8%, the DAX fell 4.4%. When the market plague
is spreading across the globe, it is hard to find any reason to
step in long. However, we did see a big bounce after fulfilling
those objectives in the U.S. markets and bulls will point to
history (as far back as October, at least) as a possible
indicator that it is time for a rally.

Chart of the Dow

We continue to hear that the possibility of war is what drove the
recent collapse.  But we have known the U.S. was planning an
Iraqi invasion ever since last summer.  How then do we explain
the rallies of last fall and early January?  The easy explanation
is that last fall we got a number of earnings releases that,
while seemingly awful, weren't as bad as some had predicted. That
led to a reallocation between bonds and stocks that gave the
market a boost. Once we got into the retail season and saw signs
of further weakness in consumer spending, it was back down again
until the end of the year.  Then came the fund money.  Those
investors funding their retirement plans and brokerage accounts
at the beginning of each year were apparently the impetus for the
beginning of the year rally for the first couple of weeks, as was
the President's announcement that his stimulus plan would seek to
eliminate the tax on dividends.  That would have amounted to a
fundamental change in the value of dividend paying stocks and
gave the bulls an excuse to step back in.  However, the rally
failed once again, forming a nice right shoulder to the head and
shoulders pattern we saw market wide. The failure came as
companies beat fourth quarter expectations with January and
February earnings releases, but painted a grim picture for the
rest of the year.  We saw numerous lowered expectations and heard
many cautious statements. That turned attention back on the
economy and with war closer and fuel prices higher, there was a
snow ball effect.

We continue to get daily doses of international developments and
although we can spin them as bullish or bearish for the market,
the overall trend has remained down.  That indicates that even
developments that seem to delay the war, such as Britain's new
set of conditions for Iraq, can't seem to give the market a
boost. Most analysts simply say the market hates uncertainty and
once we know whether we will attack and when, we'll finally get a
rebound.  Another school of thought says that Britain's new
proposal suggests a split with the U.S. that indicates the U.S.
will be heading in alone. That could be bad for the U.S. markets,
as foreign investors pull money out of dollar denominated stocks.

While the war fears have remained consistent, the price of oil
has continued to climb as the timetable grows closer.  While we
have yet to approach the spike to $40 per barrel in the crude oil
futures that was achieved on February 27, we have maintained much
of the recent gains, with the futures still holding over $37.
That is a far cry from 2002's top right around $30. As fuel
prices remain high, business costs do as well.  In spite of OEPC
and Saudi Arabia's comments this week that they would make up for
any shortfall in the world oil supply in the case of war, anyone
who has filled up a car with gas recently is feeling the same
pinch as many businesses. We are already in a world of weak
business spending and the price of fuel continues to cut further
into the bottom line.  This can be seen especially in the Dow
Transports. Traditional Dow Theory relies on this average to
confirm moves in the Dow Industrials and so far we are seeing new
multi-year lows in that average.  When it bounced from its
October low on February 25, it appeared we may have seen a short-
term bottom.  However, that bounce was short lived and not only
have we rolled back over below that October low, but also took
out the September 2001 low on an intraday basis this morning.
That low followed the 9/11 attacks and cut the price of many
airline stocks in half.  The Transports seem to be signaling
another shot at the October lows in the Industrials, which would
give us another 200 points of downside, at least. However,
today's bounce back above that September 2001 low and into
positive territory by the close may also signal that we finally
reached at least a temporary floor, as we bounced from a
significant level.  At the very least, it signals a confluence of
important levels tested across the board today.

Another 200 points of downside may be wishful thinking for
shorts, but there is little argument that the trend is on their
side. There is little horizontal support on the bar charts to
indicate any point at which we might bounce now that we have
taken out the 7500 level intraday.  Not only was that the July
low, it was also the head and shoulders objective and the point
and figure target on the Dow Diamonds (75.00). The head and
shoulders objectives I referred to earlier are just below 400 in
the OEX; just under 790 in the SPX and 7500 in the Dow. Those
objectives were hit almost to the point in the OEX and SPX, with
lows of SPX 788.90 and OEX 400.24.  The fact that the Dow fell
below its H&S objective this morning can be seen one of two ways
when comparing it to the SPX and OEX.   Bears will view it as
signaling further weakness and as the first domino to fall ahead
of the others.  Bulls will cite the reversal after the objectives
were matched, similar to October's action, as well as the higher
number of stocks in the OEX and SPX and the ability to trade
futures on the SPX as signs that they are more representative of
true sentiment. If the bulls were able to defend those broader
averages, then maybe we should be weighing the action there more
heavily than the break below 7500 in the Dow.  Remember that the
Dow did not close below that H&S objective.  Also note the fact
that the Dow underperformed the others in October, hitting its
H&S objective while the others bounced just above theirs.  That
would be similar to relative levels we see now if we rally from

Chart of the OEX

Chart of the SPX

Chart of Crude Oil Futures

Those point and figure charts are showing us some signals that
actually favor the bulls at this point. Now that we have
fulfilled the head and shoulders objectives in the broad market
indices, we are also seeing the bullish percents across the board
in oversold conditions. 30% is considered oversold and the
current readings are Dow 10% SPX 30% and OEX 24%. These bullish
percents measure the number of stocks in an index that are
currently giving buy signals on the point and figure charts. The
Dow saw its bullish percent sink as low as 4% in July and 8% in
October.  Those extended percents both signaled a coming rebound.
The current reading of 10% would indicate a similar extension and
when combined with the achievement of the 75.00 target on the
Diamonds, which are based on the Dow, we see a shift of risk less
in favor of the bears. The OEX is also bounced just 10 points
away from its target at 390.  The SPX target is 785, which we
came just points 3.90 points away from achieving, as well. The
SPX, however, derives its count from the current column it is
working on to the downside and if it does trade 785 on this drop,
the count is extended lower to 775 (and 10 additional points for
each five it falls until a rebound of 15 points).

Certainly none of these indicators is an absolute target.  Each
of the indices is made up of numerous stocks.  However, there are
plenty of technicians and institutions watching these patterns
and they tend to become a self-fulfilling prophecy.  If you were
going to pick a bottom, the completions of a number of head and
shoulders patterns, combined with extended, oversold bullish
percents might not be a bad place to do it.  Therefore, we tend
to get some nibbling from the long side when we achieve those
targets. The last time we achieved the Dow target, we got a
massive reversal the same day.  While we did end the day in the
green, registering a reversal of 140 points intraday, it still
does not measure up to the bounces we got in July or October off
the bottoms.   However, the fact that they successfully defended
the OEX and SPX head and shoulders fulfillments could still be
signaling at least a short-term bounce.  Certainly if history
were to repeat itself, a rally from these levels would fit the
pattern. How far that takes us is still anyone's guess and in a
weak economic environment, it may be just another shorting

Another indicator that has been reliable in the recent past has
been the Market Volatility Index (VIX).  The VIX has been range
bound between 34-35% and 40-41% for the past couple of months,
with moves to those levels signaling at least short-term
reversals in the equity markets.  The VIX, which measures option
premiums in the OEX, generally increases as the market drops and
traders are more leery of selling puts and decreases on the way
up as the fear abates. The upper end of that range has been
between 40-41% intraday, with each foray over 50% eventually
ending in a market bounce and a close below that level.  The 40%
mark was hit again today for the first time since February 13,
and voila! - a market bounce.  We traded as high as 41.16%
intraday, but finished the day at 38.99%.  Traders should have
this measure on their screens and exercise caution with current
positions think about tightening stops as we approach either end
of the range.

If traders are looking for a pocket of strength in stocks, they
should look no further than the formerly beleaguered
Semiconductor Stocks. This sector led the way down in 2002 and
again in late January. However, it stayed in the green for most
of the day and finished with a 3% gain.  While its hard to peg
just why these stocks are hanging in there, they have held
support at 280 ever since making a failed run at 300 a couple of
weeks ago. For those traders taking clues from this sector, it
gave a good indication that the early sell-off was doomed.

The Nasdaq Composite staged an equally impressive rally.  After
closing at new relative lows on Tuesday, it continued down past
its Feb 13 bounce level at 1261 and looked as though it was on
its way to a test of 1200. However, after bottoming at 1253, it
followed the Dow, SPX and OEX to a close up 7 points, finishing
on its highs of the day.

Financials got yet another dose of the ongoing credit problems.
It all started last year when J.P. Morgan suffered losses due to
growing problems with underperforming debt in the telecom
industry.  Those problems have extended to almost every area of
business, and also to consumers. Morgan Stanley was downgraded
today by Wachovia, which lowered its estimates for 2003 and 2004
due to weakening consumer credit trends which could lead to a
higher credit card charge-off scenario.

Chart of the VIX

So what did we see today?  We saw some downside objectives filled
and a big bounce afterward.  It wasn't the same type of major
reversal off the lows we saw in July and October, but it was
still an impressive defense by the bulls. The trend remains down,
and the world markets are still setting new lows.  However, with
oversold bullish percents, a VIX reading at the top of its range
and a recent drop of more than 1300 Dow points from the January
highs, the risks certainly seem to be shifting. I'm not going to
declare the end of the drop, but if there were ever a time for
the bears to start worrying and tightening their stops, this is


Oversold Reversal
By Vlada Raicevic

Daily Settlement Numbers 4:15pm ET

Contract	Last	Net	High	Low
Dow	7552.07	+28.01	7552.07	7416.64
YM 03H	7531	+41	7535	7392
Nas 100	970.54	+11.72	971.39	946.79
NQ 03H	977.00	+16.50	977.00	948.50
S&P 500	804.19	+3.46	804.19	788.90
ES 03H	804.25	+5.25	804.25	787.25

Daily Pivots

Contract	S2	S1	Pivot	R1	R2
YM 03H	7346	7444	7489	7587	7632
NQ 03H	941.13	962.25	969.63	990.75	998.13
ES 03H	783.06	795.88	800.06	812.88	817.06
Wild swings in the futures during the overnight session still had us
opening the day session with a mild gapdown, which at first attempted
to rally, then went to new lows, then moved up again, trying twice to
break to the upside.  When this failed, a long grind down led to new
yearly lows on both the ES and YM.  The NQ broke yesterdays lows, but
again stayed well above the yearly lows.

Once the lows were hit, a weak attempt was made to rally, then we
rolled over again to make slightly lower lows.  Soon after that pierce
of the initial lows, a strong push upwards hit initial resistance, sold
off, then rallied hard again.  Sellers showed up to blunt the
bullishness, and it looked like we had finished moving up for the day,
but a third push up took out the highs of the day to close everything
above moday’s lows.

The question is, how much more upside is there?  Closing at the highs
of the day normally carries over into the open of the next day, but
with all the rumors that pop up and disappear during the night session,
nothing is assured.

We have heavy overhead resistance and it would require either real
news, or another strong rumor’ (which isn’t immediately denied) to
push above these areas.  Also of note, this push upward is, in e-wave
terms, a very nice 5-wave-up move, with the (5) either being complete,
or having some more upside at one of near term resistance points.

Looking at the ES 15 minute chart, you can see how the breaking of the
800 area coincides with the MACD and RSI breaking above their
centerlines, a long signal.  Also note the rounded bottom on the
selloff where price hit the bottom trendlines of the regression
channels.  Above, you can see both horizontal and regression resistance
in the 808-810 area.

On the 60 minute chart you can see the 809-810 area of horizontal
resistance, and the cluster of resistance at 818-820, which will be
extremely tough if we manage to get anywhere near there.  Also note
that the bottoms of the candle tails on the 60 minute chart hold for 3
candles (3 hours) at support.  The breaking of the trendlines to the
upside were on the close of a 60 minute candle at 796.50.  Looking at
the candle, with the long upper tail, it looks like the move was going
to fail, but the indicators said a reversal had happened:

Look at the tail on that daily candle!   It could indicate a reversal,
and in a normal market we could consider it that way.  But,  these
types of reversals have been the norm rather than the exception.  You
can see on the following chart that these reversal candles have not
always been reversal candles, and in fact were just as often followed
by strong down days.   The indicators are showing the strong selling
we’ve been having and RSI is very low, but not showing anything
resembling a change of trend.

Here is another view of the daily ES chart.  Note the trendlines on the
price chart, and where we bounced from today.  ADX shows a pick up in
the selling, with D- increasing again, and no buying at all with D+
hovering near its lows.  On Balance Volume (OBV) also shows no buying.

For NQ and YM, you can see in the daily’s how the selling on the DOW
has been much stronger than on NQ.  On both, you can see how the ADX is
showing a complete lack of buyers, and an increase in the selling.  NQ

The YM daily:


Check the Site Later Tonight For Jeff’s Index Trader Article

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Metropolitan West Funds

Metropolitan West Asset Management ("MWAM"), founded in 1996, is
an independent, employee-owned fixed income management firm that
offers five mutual funds to institutional and personal investors,
including four fixed income portfolios and a unique fixed income-
based, enhanced S&P 500 index fund.  The firm was founded in 1996
by Tad Rivelle and Laird Landmann, the former co-directors of the
Hotchkis & Wiley fixed income group, along with Scott Dubchansky,
a former regional manager with the taxable fixed income division
of Donaldson, Lufkin & Jenrette.  Other members of the Hotchkis &
Wiley fixed income team departed along with Rivelle and Landmann,
becoming owners in the new firm, MetWest.

Rivelle and Landmann co-managed the Hotchkis & Wiley Low Duration
Fund until 1996, when Hotchkis & Wiley announced its intention to
sell the firm to Merrill Lynch.  Before Hotchkis & Wiley, the two
were portfolio managers with PIMCO (Pacific Investment Management
Company).  By the time Merrill Lynch completed its acquisition of
Hotchkis & Wiley in November 1996, seven members of the H&W fixed
income team had already left the firm and started their own fixed
income management shop.  By the end of the year, MWAM had already
amassed $1.1 billion in assets under management.  So, the company
got off to a hot start.

The Metropolitan West mutual funds were established in March 1997
with the launch of the Low Duration Fund (MWLDX) and Total Return
Fund (MWTRX).  In September 1997, MWAM received its first mandate
for its enhanced equity index strategy and in June 1998, the firm
introduced the MWAM AlphaTrak 500 Index Fund (MWATX).  This fixed
income-based, enhanced equity index fund seeks to beat the return
of the S&P 500 index over time, while maintaining similar risk to
that of the index.  It purchases S&P futures to capture the price
return of the 500 index, while actively managing the fund's short
duration fixed income assets to add incremental return (above the

In 2001, the firm hired a mortgage-backed securities (MBS) expert
and an asset-backed securities (ABS) specialist and the following
year, they hired a high-yield specialist.  Those hires led to the
launch of an intermediate-term bond fund and a high-yield fund in
2002.  In January 2003, Jeff Koch joined MWAM as a co-director of
high yield and portfolio manager.  Koch is the former co-director
of fixed income investments at Strong Funds.  Until mid-2002, he
managed the Strong High Yield Fund and the Strong Advantage Fund.

As of November 2002, MWAM had around $18 billion in assets under
management, including the five mutual fund portfolios.  The MWAM
mutual funds are available in Class I shares (institutional fund
investors) and Class M shares for retail investors.  The Class M
shares impose no front-end or back-end load fees, but require an
initial minimum investment of $5,000 ($1,000 for IRAs).  MWAM's
funds enjoy wide brokerage availability.  In some fund networks,
such as Schwab's OneSource program, the MWAM funds are available
on a no-load, no-transaction fee (NTF) basis.  For more info, or
to download a fund prospectus, go to the www.mwamllc.com website.

Fund Overview

Metropolitan West Asset Management currently offers five no-load
mutual funds, as follows:

 Metropolitan West Low Duration Bond Fund (MWLDX)
 Metropolitan West Total Return Bond Fund (MWTRX)
 Metropolitan West Intermediate Bond Fund (MWIIX)
 Metropolitan West High Yield Bond Fund (MWHYX)
 Metropolitan West AlphaTrak 500 Fund (MWATX)

Note that the Intermediate Bond Fund is currently available only
to institutional investors in the form of Class I shares.  There
are no Class M shares at this time for retail investors.  All of
the MetWest funds strive to consistently outperform their market
(index) benchmark, while maintaining below average volatility of
returns.  In their effort to achieve consistent, strong returns,
MWAM employs five "value-enhancing" investment strategies in the
management of its fixed income accounts and mutual funds.

MWAM seeks to add value over benchmarks by making limited average
maturity/duration shifts, managing the yield curve, utilizing all
fixed income markets, performing quantitative security selection,
and employing sophisticated buy/sell execution strategies per the
company website.  The firm uses a diversified investment approach
to add value by relying on the measured application of "multiple"
investment strategies.

Each of the MWAM funds has a different performance benchmark that
they strive to outperform over time with consistency.  The market
(index) benchmark for the Low Duration Fund is the Merrill Lynch
1-3 Treasury Index.  The Total Return Fund strives to outperform
the Lehman Brothers Aggregate Bond Index over time, while MWAM's
Intermediate Bond strategy seeks to enhance value over the Lehman
Brothers Intermediate Government-Credit Index.  MWAM's High Yield
Fund seeks to outperform the Lehman Brothers U.S. High Yield Bond
Index.  The AlphaTrak strategy attempts to beat the return of the
S&P index over time.

Below is a summary of the Morningstar categories assigned to each
of the MWAM mutual funds, based on their average management style
over the past three years.

 Morningstar Categories:
 Low Duration Bond Fund (MWLDX) Short-Term Bond
 Total Return Bond Fund (MWTRX) Intermediate-Term Bond
 Intermediate Bond Fund (MWIIX) N/a
 High Yield Bond Fund (MWHYX) N/a
 AlphaTrak 500 Fund (MWATX) Large-Blend Stock

Because the Intermediate Bond Fund and High Yield Bond Fund began
operations in 2002, there is limited fund information online.  In
regards to the first three mutual funds, there is sufficient data
online to evaluate relative return, risk and expense, and to view
key portfolio characteristics to get a better sense of management
style/strategy.  All three funds (Low Duration, Total Return, and
AlphaTrak 500) are co-managed by Stephen Kane, Laird Landmann and
Tad Rivelle.  The three portfolio managers worked at PIMCO and at
Hotchkis & Wiley before co-founding Metropolitan West.

According to Morningstar, the Metropolitan West Low Duration Fund
(MWLDX) had an average effective maturity of 2.7 years at the end
of the third quarter 2002 and an average credit quality of AA (AA
is considered "high-grade" quality).  Those numbers land the fund
in the Morningstar short-term, high-grade fixed income style box.
The Total Return Fund (MWTRX) seeks greater total return than its
low-duration sibling by extending the fund's average maturity and
duration and maintaining a hefty stake in corporate bonds (taking
on more credit risk).  According to Morningstar, the Total Return
Bond Fund (MWTRX) had an average effective maturity of 6.7 years
at September 2002 and average credit quality of A (A is "medium-
grade" paper).

The AlphaTrak 500 Fund, while classified as a large-blend fund by
Morningstar, relies on the low duration strategy to enhance value
over money market rates - since a money market rate is implied in
the pricing of S&P 500 futures.  If the fund's three managers can
generate incremental return over this implied rate, then the fund
makes an incremental return over the S&P 500 index, since the S&P
futures held in the portfolio capture the price return of the S&P
index.  The idea of porting "alpha" to any index that futures and
options actively trade is attractive, but fund investment results
since inception are disappointing.

In the next section, we take a closer look at relative investment

Fund Performance

The Low Duration Bond Fund and the Total Return Bond Fund got off
to great starts.  In 1998 and 1999, the Low Duration Fund (MWLDX)
produced total returns of 6.6% and 6.2%, respectively, ranking in
the 2nd percentile of the Morningstar short-term bond category in
1999.  The Total Return Bond Fund (MWTRX) produced annual returns
of 10.0% (1998) and 1.7% (1999), ranking in the top 3% and top 4%
of the Morningstar intermediate-term bond category, respectively.
Because the low duration strategy excelled in 1999, the AlphaTrak
500 Fund (MWTAX) returned 22.5% in 1999, its first full year.  It
ranked in the top one-third of the large-cap blend stock category
that year.

Kane, Rivelle and Landmann didn't fare quite as well in 2000, and
since then relative performance has been hit or miss.  The result
is relatively weak category rankings for the MetWest Low Duration
Bond Fund and the MetWest Total Return Bond Fund for the trailing
3-year and 5-year periods through March 11, 2003 per Morningstar.
Below is a performance summary for the three MWAM funds discussed
herein (returns are shown on an annualized basis).

 3-Year Average Annual Returns & Category Rankings:
 + 4.7%  Low Duration Bond Fund (MWLDX) 93rd Percentile
 + 6.2%  Total Return Bond Fund (MWTRX) 96th Percentile
 -16.2%  AlphaTrak 500 Fund (MWATX) 53rd Percentile

 5-Year Average Annual Returns & Category Rankings:
 + 4.7%  Low Duration Bond Fund (MWLDX) 93rd Percentile
 + 6.2%  Total Return Bond Fund (MWTRX) 96th Percentile

You can see that on an annualized basis relative to similar funds
the Metropolitan West fund have disappointed investors, producing
trailing average returns which rank in the bottom decile (10%) of
their respective fund peer groups.  The bright side of the firm's
AlphaTrak 500 strategy is that when active management doesn't add
incremental value over the implied money market rate (embedded in
the S&P 500 futures), it generates no worse than average relative
returns in the Morningstar large-blend stock category.  So, there
may still be some merit to the income-based, AlphaTrak strategy.

Morningstar recently reported that MWAM management makes a strong
case for its fixed income investments, having hung on to some low
quality, high yield "troublemakers" as they put it that in their
opinion still hold much value.  Morningstar noted the high yield
advantage the MWAM bond funds currently offer, which can generate
competitive total returns even if there aren't strong price gains
available in the fixed income market.  So, now may be a good time
from a buyer's perspective to consider the MetWest funds.  If you
stuck it out, you may want to stay on board for the higher upside
potential now.

The other thing you have to consider is the long-term performance
record of three co-managers.  Kane, Rivelle, and Landmann enjoyed
success in Metropolitan West's earlier years and had success with
Hotchkis & Wiley.  They also learned their value-enhancing skills
at PIMCO, arguably the premier fixed income shop in America under
the direction of bond guru and PIMCO founder, Bill Gross.  So, it
bodes well for MWAM's long-term prospects.


If you seek long-term growth of capital, you may want to consider
the Metropolitan West AlphaTrak 500 Fund for the core equity part
of your investment portfolio.  Even though the portfolio managers
weren't able to achieve incremental return over the implied money
rate in the S&P 500 futures through active management, AlphaTrak
Fund's trailing 3-year average returns were no worse than average
within the large-blend category, per Morningstar.  If you do not
believe active managers can pick stocks but want equity exposure,
as well as the opportunity to enhance returns over the S&P index
with similar risk, this income-based, enhanced equity index fund
may be suitable for you.

Kane, Rivelle, and Landmann are good portfolio managers but human
too.  Like many other managers with hefty corporate stakes, these
three got tripped up by some of the corporate debacles last year.
That hurt their trailing total returns and rankings, but now that
the worst seems over, shareholders may benefit from the potential
recovery and the high current yields.  For more information or to
download a fund prospectus, log on to www.mwamllc.com.

Steve Wagner
Editor, Mutual Investor


LEAPS Update
by Mark Phillips

Normally, I use this space for educational content or a topic
that I think is timely as it pertains to the action in the
market.  While we're going to certainly touch of timely
developments in the market today, there were enough developments
related to the plays we're following in the LEAPS column, that
I think it warrants a mid-week update.  Sure, on any normal day,
I could have accomplished this in the Market Monitor.  But
technology issues kept me sidelined for most of the day,
eliminating that opportunity.

So what happened that got my attention for a mid-week update?
We've got a number of Portfolio plays that have been opened in
recent weeks and a number of Watch List plays as well.  And
they're all bullish.  If you think I haven't been sitting on
pins and needles about trying to be long-term bullish when the
overall market has continued south, you've got another think
coming.  The play that has caused me the most consternation is
the DJX Call play, as I got suckered into moving that one onto
the Portfolio back on February 25th on that big intraday
reversal.  Technically, I still think is was the right play,
but the timing of the entry was downright lousy.  My fault.

So let's look at the big picture.  We got a pretty solid
midday reversal today, with the all three of the big indices
(SPX, OEX and DOW) fulfilling their bearish price targets from
the Head & Shoulders formations Steve Price has been talking
about.  There is still some room to the downside PnF price
targets in some of the major indices, but we're getting awfully
close.  Bullish percent readings are pretty low across the
board, although there is still some room to the downside.  The
early selloff in the market propelled the VIX through the 41
level, but that was it, as the fear index got a nice reversal
back down at the end of the day.  No panic, just an orderly
selloff and a solid bounce.  The NASDAQ Composite got its own
very solid bounce off the 1260 level, holding above those
mid-October lows.  Even the Dow Transports managed to close
in the green after hitting a new multi-year low earlier in the
session.  I wouldn't call this a key reversal day or be so bold
as to call it "A Bottom", but there are some bullish
undercurrents at play that we need to pay attention to.  This
should be a real warning to the bears, as their risk just went
up measurably today, despite the continued uncertainty in the
global arena.

I have it on good authority that Steve will be addressing the
issue of achieved and yet-to-be-achieved targets in the broad
market in his Market Wrap tonight.  So for further details on
that topic, be sure to check out his prose!

With a rather bullish backdrop, let's take a look through the
current list of plays, as there are some significant developments.


QCOM - I think it's clear that we entered this play a bit too
early, as the stock has been stuck in the $33-36 area for nearly
a month now.  But despite missing out on an optimal entry, I
think we're in good shape.  In sharp contrast to the rest of
the market, QCOM has not been losing ground these past couple
weeks, solidifying that $33-34 support.  I would still favor
entries into the play on rebounds from the lower end of its
range, as its recent relative strength should translate into
outperformance to the upside when the market does turn up.

DJX - As mentioned above, it would have been difficult to get
much worse of an entry point into the DJX play.  And the past
few weeks have been frustrating, watching as the market has
continued to deteriorate towards the area where we ideally would
like to have entered the play.  The rebound from just above $74
today looks like a solid bullish entry into this play and I'm
going to do something a bit unconventional today.  Because I'm
still concerned about the likelihood of a full retest of the
October lows, I'm going to look for a rebound from the vicinity
of $72 to establish a SECOND position in the play.  That way, if
our $74.50 stop on the current position gets clipped on a closing
basis, we'll have an action plan in place to get right back in
if the conditions are right.  Just to be clear though, I am NOT
changing the stop on the current Portfolio position, as that
would set a very bad precedent.  If filled on the second
position, we'll use a stop of $69.50

MSFT - After finally getting a dip down to the ascending
trendline (then just above $23) at the end of February, we logged
MSFT into the Portfolio.  To my chagrin, Mr. Softee proceeded to
drift lower with the rest of the market, taking out that
trendline and falling as low as $22.55 this morning.  But the
stock came screaming back this afternoon, ending very near where
we initially entered the play.  I like today's rebound back over
$23 for new positions, although more conservative traders may
want to wait for a move back over the long-term ascending
trendline and the 3-week descending trendline, which converge
in the $23.40-23.50 area.

ADBE - If you need any proof that Technical Analysis is as much
art as science, you need look no further than our ADBE play.  I
initially drew the wrong trendline, using it as the support
level at which to target new entries.  That trendline started
at the intraday low on October 16th, catching a number of
intraday lows in December and January.  Using that as my key,
I took the bait on February 28th and entered the play just
before the latest downdraft.  The break of that trendline sent
me back to the drawing board, ending up with the trendline shown
on the chart below.

See how the stock rebounded from the site
of that trendline, just as it crossed through the 200-dma?
Looks like a solid entry point to me, and today's rebound back
near the $27.50 level (and back above the initial trendline
confirms it.  If still looking for an entry into the play,
today may have been it, and I would recommend using dips into
the $26.50-27.00 area to get on board.

Watch List:

BEAS - Here's an example where excessive patience appears to
have gotten in the way of a choice entry.  I kept waiting for a
test of the $8.50-9.00 support area before logging an entry into
the play and it looks like I missed it.  On three consecutive
days last week, BEAS traded down to $9.15, and it has looked
really strong this week, closing back at $10 today.  I may be
throwing caution to the wind, but with the stock bouncing before
the rest of the market and weekly Stochastics turning up, I'm
going to initiate a Portfolio position in BEAS as of the close
tonight.  Initial stops will still be set rather liberally at
$7.50, just below the bullish support line on the PnF chart.
See the weekend edition for further details.

NVDA - This play would test the patience of Job!  While I still
like it's relative strength, the fact that weekly Stochastics
have already traveled into overbought territory is enough to
keep me from chasing it higher.  It may turn out to be the big
one that got away, and if it is, I'm willing to let it go.
Traders that don't want to exercise that level of patience can
use repeated rebounds from the $12 level to enter the play, but
keep in mind that the best level for a technical stop is down at
$9.50.  For now, our official entry target remains in the $10-11

AA - One of only 3 DOW stocks still on a PnF Buy signal, AA is
as close to major support as I think it's going to get, without
breaking it.  I recently revised the entry target down to the
$18.00-18.50 area, and I think today's rebound certainly
qualifies.  Volume was still on the light side, and there's a
lot of technical work to be done before AA will be considered
truly bullish, but in terms of risk and reward, new entries taken
here look favorable.  The LEAPS portfolio will take an entry
into the play as of tonight's closing price of $18.87.  Stops are
going to be tight at $17.50, as a trade at that level would put
AA on a PnF Sell signal, negating the current bullish target of
$44.  Our initial target on the play (market permitting) will
be the bearish resistance line of $27.

EMC - Looking for excitement from our EMC play is a bit like
looking for business ethics from the likes of Ken Lay, Dennis
Kozlowski and Bernie Ebbers.  It might be there somewhere, but
it sure is hard to find.  But there's no arguing with the bullish
trend in shares of EMC, which are still well above the December
lows.  Our target for entry into the play was a dip into the
$6.50-7.00 area, followed by a rebound.  I think you'd have to
call today's trading action a successful fulfillment of that
goal, as EMC dropped as low as $6.54 before rebounding to close
at the high of the day.  Here again, the Portfolio will log a
new position, with full details to come over the weekend. Initial
stops will be set at $5.50.

NEM - The war hasn't even gotten here yet, and investors are
already dumping both gold and gold shares.  Easy guys, we're
not in a hurry!  You can take your time.  In all seriousness, I
didn't expect the $25 level in NEM to crack until the war
started.  The long-term ascending trendline for the stock is
just below $24, so we're looking to target shoot new entries
on a decline AND BOUNCE from this area AFTER the start of
hostilities.  See the operative words?  Entries are only going
to be recommended on a rebound from that trendline after the
war starts.  This is definitely an aggressive play, based on my
belief that the stock will continue to benefit from the secular
bull market in gold, especially once investors figure out that
the recent runup in the price of gold is NOT about Iraq.  Be
patient on this one, as I think we'll be well rewarded in the

I know today's discussion doesn't rise to the normal level of
interesting commentary I try to save for this column.  But
hopefully, you found this mid-week update of value.  If you'd
like to see things like this in the future, drop me an email
with "Mid-week Update" in the Subject line.  I don't want to
leave anyone out of the fun, so if you didn't like the mid-week
update, feel free to send me an email as well, putting "Waste
of Time" in the subject line.  Don't worry, I can take the
criticism!  GRIN

See you in the weekend edition!


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The Option Investor Newsletter                Wednesday 03-12-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

In Section Two:

Stop Loss Updates: None
Dropped Calls: None
Dropped Puts: None
Play of the Day: Put - XL
Big Cap Covered Calls & Naked Puts: A Great Opportunity For A

Updated on the site tonight:
Market Posture: Neutralized
Market Watch: Ready for Reversal

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Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.
Anything else is too slow!








If you trade options online, then you need an online broker that:
offers true direct access to each option exchange
offers stop and stop loss online option orders
offers contingent option orders based on the price of the option or
offers online spread order entry for net debit or credit
offers fast option executions

PreferredTrade offers these online option trading features and more;
call 1-888-889-9178 or click for more information.



XL - XL Capital - $69.00 +0.38 (-1.94 for the week)

Company Summary:
XL Capital Ltd, through its operating subsidiaries, is a leading
provider of insurance and reinsurance coverages and financial
products to industrial, commercial, and professional service
firms, insurance companies, and other enterprises on a worldwide
basis. As of December 31, 2002, XL Capital Ltd had consolidated
assets of approximately $35.6 billion and consolidated
shareholders' equity of approximately $6.6 billion. (source:
company release)

Most Recent Write-Up:
Capital has continued the slide since we picked it at $68.50. We
got the failed rally at $70 for entries and it has been an ugly
couple of days after some sideways movement. While there has not
been company specific news behind the recent drop, the insurance
industry as a whole has been getting hit hard. The S&P Insurance
Index (IUX), which had been slowly sliding lower since bouncing
off of the 220 level in early February, gave up that support in
grand fashion on Friday with a 10 point drop. The IUX extended
those losses today and headed down to yet another 52-week low
after giving up 2.2% and taking XL along for the ride. Other
major insurers that are also seeing new relative lows are AIG and
CB, with AET getting in on the slide as well. Traders looking for
more shorts in the sector may want to stick these stocks on the
radar as well. A look at the PnF chart shows the last sell signal
in XL coming at $69 and the nearest support at $57. That support
is now history and the next level that looks apparent is all the
way down at $59, which correlates to the July 2002 lows. Momentum
traders can look for entry on a break below $65. With a close of
$65.17, we may get a bounce off $65 and the best entries may come
on a failed bounce below today's intraday resistance at $66.75.

Why This Is Our Play of the Day:
Most stocks in the market are showing an intraday chart similar
to XL.  Big drop early, rebound late.  Unlike many other stocks,
however, XL gave up an important level of support when it dropped
through $65.  More importantly, while the Dow, Nasdaq and other
broad market indices were rallying to highs of the day, XL found
sellers at that previous support level, indicating resistance at
$65 now in place.  We picked this stock originally at $68.50 and
suggested entries on a failed bounce at $70.  New additions
however, were looking for a momentum move through support at $65
and with the failed rebound at that level, those entries look
even better. If the stock does rally back through $65 on a broad
market continuation higher, then wait for a failed run at
resistance in the $66.75 range for a better risk reward. If we
instead see the market run out of steam after today's bounce we
like short entries under $65.

** March Options Expire Next Week**

BUY PUT MAR-70 XL-ON OI=314 at $6.00 SL=3.00
BUY PUT APR-70*XL-PN OI= 95 at $6.70 SL=3.35
BUY PUT APR-65 XL-PM OI=551 at $3.80 SL=1.90

Average Daily Volume = 734 K

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



A Great Opportunity For A Review!
By Ray Cummins

While the major equity averages languish in a sea of uncertainty,
it's an excellent time to take a break and discuss the basics of
a popular combination strategy that works well with range-bound

The derivatives market is unique because it offers a variety of
ways to be successful. Although the majority of participants are
comfortable with simply buying calls, the difficulties involved
in profiting from long positions in directional strategies compels
many traders to use a more neutral approach -- one that does not
suffer from the effects of time-value erosion.  Historically, the
option writer enjoys profit potential that is greater than any
other segment of options trading.  Through the sale of "naked"
options, the disciplined player can easily generate returns of
50-75% annually, in all types of market conditions.  The strategy
of selling premium also offers a higher success ratio than other
option-trading techniques because the odds are stacked in your
favor.  The reason is simple: using this approach is similar to
being the "house" in a casino.  The house takes bets from players
in the casino and they always have a mathematical advantage over
the gaming customer.  Traders who write options are in a similar
position as they take the place of the market-maker, providing
additional liquidity for other retail participants.  Since option
writers are essentially selling time, they have the benefit of a
statistical edge because the premium in options erodes with every
passing day.  This advantage allows the option writer to profit
in a high percentage of positions, even when the underlying issue
does not move as expected.  Traders who sell "out-of-the-money"
options have a bigger edge, as only the most adverse activity
will result in a losing transaction, and that is the basis for
the use of the credit (short) strangle.

The credit strangle or "combination" is a neutral-outlook options
strategy in which the trader sells a call and a put on the same
underlying instrument, with the same expiration date, but with
different (out-of-the-money) strike prices.  The major advantage
to this technique is that the trader has a wide margin for error
in predicting how the underlying will move in the future.  Some
people believe the position is called a "strangle" because it
suffers a higher rate of time (premium) decay than an individual
short option but in fact, the unique label emerged in 1978 after
a number of traders holding short positions in IBM options "lost
their shirts" as a result of wide, unexpected price swings in the
stock.  Indeed, the strategy has unlimited risk and limited profit
potential, and is subject to large margin requirements, thus it is
best suited to traders with substantial portfolio capital.  The
credit strangle will profit from limited directional activity but
will likely suffer losses if the underlying moves significantly in
either direction.  A successful outcome occurs when the price of
the underlying issue finishes the expiration period between the
sold strike prices, but profits can also be achieved through the
depreciation of premiums over time.

Unlike most option trading strategies, which depend on directional
forecasts and accurate market timing, the credit strangle is best
suited to range-bound issues where the trends have less bias and
extreme movements are rare.  The idea is to construct a position
that generates acceptable returns and yet has a wide range for
success.  In choosing the underlying issue, a trader must balance
his desire for volatility, which produces excess premium in the
options, against the probability of unexpected activity, which may
result in significant position losses.  Since the primary risk to
an option writer (after the short position has been initiated) is
unanticipated volatility, the easiest way to avoid this problem is
to focus on issues that are not subject to large, gapping moves.
One category of financial instruments well suited to this strategy
is the equity index.

Premium-Selling With Index Options

As a trader, you may be familiar with options on individual stocks
where you have the right to buy (call option) or the right to sell
(put option) a particular stock at a specific price within some
predetermined time.  The buyer has the rights and the seller the
obligations.  With index options, the basic ideas are the same but
because an index is composed of many stocks, they allow you to make
investment decisions on a specific sector or industry group, or on
the market as a whole.  In addition, spread and other combination
strategies can be implemented with index options similar to those
with individual stock options.  Professional money managers employ
a number of different techniques to profit from the broader market
movements and one of the most common hedging strategies is writing
"out-of-the-money" options on the major equity indexes.  Traders
who participate in these techniques often utilize S&P 100 Index or
S&P 500 Index derivatives because they contain more premium than
options on individual stocks and also provide an instrument less
prone to large, unexpected moves.

The primary differences between stock and index options are the
style, the method of settlement, and the margin (or collateral)
requirements.  The style of an option refers to when that option
is exercisable.  An American-style option (such as those on U.S.
stocks and the S&P 100 Index) may be exercised any time prior to
its expiration while a European-style option (such as the S&P 500
Index) may be exercised only during a specified period before the
option expires.  Next, there are two basic types of options with
regard to payment: physical delivery options and cash-settled
options.  A physical delivery option gives its owner the right to
receive physical delivery (if it is a call), or to make physical
delivery (if it is a put), of the underlying interest when the
option is exercised.  A cash-settled option gives its owner the
right to receive a cash payment based on the difference between
the price of the underlying instrument at the time the option is
exercised and the fixed exercise price of the option.  Since index
options are cash settled, they require a large amount of portfolio
equity, especially when you are short in the option.  For example,
writers of uncovered S&P 100 options must deposit and maintain 100%
of the option proceeds plus at least 10% of the aggregate contract
value (current index level x $100) as well as a minimum account
balance of $25,000.  That's a sizable amount of money for most
people, thus the strategy is generally  suitable only for those
with larger portfolios.  There is, however, a more conservative
premium-selling technique that can be used by the average retail

Selling Index Options: A Limited-Risk Approach

A spread is a strategy that involves the buying and selling of
simultaneous but opposing positions in different option series.
When the premium from the sold option exceeds the cost of the
option that was purchased, the resulting position is called a
"credit" spread.  A credit spread is a popular option position
that allows traders to have time (premium) decay work in their
favor while maintaining a limited-risk outlook.  The objective is
for both options to expire worthless so the spreader can keep all
of the credit (which is profit) in their account.  Normally, a
credit-spread trader uses front-month options only, as the time
decay evaporates most rapidly in the final few weeks ahead of
expiration.  This time erosion benefits credit spreads, assuming
no change in the other variables that affect option pricing such
as the underlying security's price, option volatility, dividends,
or interest rates.  By combining two "out-of-the-money" credit
spreads in one position, you can participate in a conservative,
neutral-outlook strategy known as the Credit-Spread Strangle.
For those who enjoy more dramatic titles, the technique is also
sometimes called a Long Iron Condor.  The strategy is generally
used with range-bound issues or broad-market indexes and it is
a limited-risk, limited-profit position that offers a wide range
for success.  The benefit to this technique, when compared to
writing uncovered options, is that most brokers require far less
collateral for the combined position, as only one credit spread
can lose money at expiration.  And, because of the stability of
broad stock indexes, the technique offers a sizeable margin for
error, regardless of the overall outlook for the market or its
recent volatility.  In addition, unforeseen events often produce
volatility spikes that can be exploited (in the form of premium
selling) with a very high probability of a successful outcome.

Guidelines for Selling Index Options:

1) Utilize a broad-based index such as the S&P 100 index (OEX) or
another major equity index, and focus primarily on options that
are "deep-out-of-the-money," preferably at well-defined support
and resistance areas.  Remember, the key to consistent success in
this strategy is to initiate a position where the sold options
are far from the index value, thus reducing the probability that
the underlying will ever trade near the break-even points.

2) Perform a volatility analysis of the underlying issue and the
target spreads.  Most professional traders construct their spread
positions based on statistical volatility and the value of this
type of assessment cannot be overstated.  A thorough study of
historic option pricing can also help determine which series offer
favorable premiums when compared to relative fair values.

3) Establish a stop-loss (mental or mechanical) that is well inside
the break-even points of the position and never allow short options
to become "in-the-money."  If the underlying moves sharply in one
direction early in the life of the position, consider closing the
spread that is in jeopardy, even if the stop-loss has not been hit.
With this type of conservative, sensible approach, you will rarely
incur the maximum loss.

4) Write index options that have no more than one or two months
remaining until expiration.  Remember, maximum time value erosion
occurs in the last month of an option's life, and with less time
for unexpected volatility, you have a higher probability of profit.

5) Consider the use of net-debit or net-credit orders to initiate
and close combination positions.  This is, by far, the safest way
to trade spreads.  Experienced traders also advocate the use of
contingency orders, where you place a limit price for one of your
transactions, and either a market or a limit price for your other
transaction, to implement simultaneous trades.  The technique is
useful with multiple positions because the second order will be
put into play only after the first transaction is completed.

Options: Something For Everyone!

The wonderful thing about option trading is its diversity.  There
are an incredible number of strategies available, one for every
type of market trend, character and outlook.  Positions involving
combinations of calls and puts, with different strike prices and
expiration periods, along with index and futures options offer the
astute trader a variety of ways to participate in the market.  This
assortment provides even the most conservative investor the ability
to construct positions with an acceptable level of risk and reward
in almost any situation.  Obviously, there is no such thing as a
"perfect" position but successful traders learn to maximize profits
and hedge their risk in as many different ways as possible, limiting
the effects of short-term volatility and market gyrations.  While
there is no way to completely eliminate risk but with knowledge and
good judgment, you can certainly reduce it much more than that of a
inexperienced trader, who does not utilize all of the available

Good Luck!




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


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  27.24   $0.60   5.97%  2.46%
CLX      MAR    40   39.00  42.21   $1.00   5.01%  2.56%
OTEX     MAR    25   24.50  25.64   $0.50   4.97%  2.04%
SYMC     MAR    40   39.15  42.30   $0.85   5.10%  2.17%
VIP      MAR    30   29.40  35.40   $0.60   4.74%  2.04%
ANF      MAR    25   24.65  27.24   $0.35   4.66%  1.42%
AVCT     MAR    22   22.20  27.23   $0.30   4.59%  1.35%
DISH     MAR    22   22.00  28.50   $0.50   7.13%  2.27%
IGEN     MAR    30   29.50  30.77   $0.50   6.04%  1.69%
PTEN     MAR    30   29.45  31.35   $0.55   5.17%  1.87%
RYL      MAR    37   36.95  38.20   $0.55   4.42%  1.49%
AVCT     MAR    25   24.70  27.23   $0.30   4.78%  1.21%
BJS      MAR    32   31.95  32.32   $0.37   4.10%  1.72% *
DISH     MAR    22   22.15  28.50   $0.35   6.56%  1.58%
NE       MAR    35   34.35  34.55   $0.20   1.99%  1.89% *
NBR      MAR    35   34.65  38.89   $0.35   4.30%  1.01%
PTEN     MAR    32   31.95  31.35  ($0.60)  0.00%  1.72% *
VLO      MAR    35   34.60  40.32   $0.40   4.49%  1.16%
LLTC     MAR    27   27.15  28.95   $0.35   6.76%  1.29%
MXIM     MAR    30   29.70  33.60   $0.30   5.88%  1.01%
SLAB     MAR    22   22.30  26.18   $0.20   5.78%  0.90%
XNLX     MAR    20   19.75  22.18   $0.25   7.16%  1.27%
CELG     APR    22   21.25  23.83   $1.25   8.68%  5.88%
ERES     APR    20   19.20  24.27   $0.80   8.04%  4.17%

As noted last week, stocks in the oil sector are in a slump
and the trend became more bearish Tuesday.  Positions in that
group, such as Patterson-UTI (NASDAQ:PTEN), Noble (NYSE:NE)
and BJ Services (NYSE:BJ) should be closed to lock-in gains
or limit losses.  Other issues on the early-exit list include
Open Text (NASDAQ:OTEX), Igen International (NASDAQ:IGEN) and
Ryland (NYSE:RYL).

Naked Calls

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

ESRX     MAR    55   55.70  50.36   $0.70   5.07%  1.26%
GM       MAR    37   38.10  29.92   $0.60   4.60%  1.57%
VIA      MAR    40   40.95  34.29   $0.95   6.44%  2.32%
CCMP     MAR    50   50.55  38.34   $0.55   5.47%  1.09%
KLAC     MAR    40   40.50  32.35   $0.50   5.63%  1.23%
QCOM     MAR    40   40.45  34.53   $0.45   4.59%  1.11%
VZ       MAR    40   40.55  32.41   $0.55   4.73%  1.36%
OMC      MAR    60   60.55  49.02   $0.55   4.52%  0.91%
QCOM     MAR    37   37.85  34.53   $0.35   4.77%  0.92%
QLGC     MAR    37   37.90  35.31   $0.40   5.75%  1.06%
COF      APR    32   33.05  25.38   $0.55   5.56%  1.66%
MERQ     APR    35   35.80  30.10   $0.80   7.15%  2.23%
PHM      APR    50   51.10  45.50   $1.10   4.92%  2.15%

Put-Credit Spreads

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

BHE     34.68  30.20  MAR   25  30  0.60  29.40   $0.60   Open?
PRX     33.67  36.60  MAR   25  30  0.40  29.60   $0.40   Open
SLM    105.54 104.21  MAR   90  95  0.45  94.55   $0.45   Open
EBAY    76.99  78.87  MAR   65  70  0.55  69.45   $0.55   Open
CAT     45.95  44.50  MAR   40  42  0.25  42.25   $0.25   Open
BRL     77.21  73.39  MAR   65  70  0.50  69.50   $0.50   Open
AGN     63.82  64.80  MAR   55  60  0.50  59.50   $0.50   Open
CTSH    69.62  67.48  MAR   60  65  0.60  64.40   $0.60   Open
EOG     42.14  41.74  MAR   35  47  0.50  39.50   $0.50   Open
LXK     62.82  60.83  MAR   55  60  0.70  59.30   $0.70   Open?
AMGN    55.33  55.00  APR   47  50  0.30  49.70   $0.30   Open
NKE     46.48  47.55  APR   40  42  0.30  42.20   $0.30   Open

Benchmark Electronics (NYSE:BHE) is now on the watch-list for an
early exit as is Lexmark (NYSE:LXK).

Call-Credit Spreads

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

CCU    36.70   32.35  MAR   45  40  0.75  40.75  $0.75   Open
FDX    50.87   49.67  MAR   60  55  0.55  55.55  $0.55   Open
UTX    60.50   54.23  MAR   70  65  0.60  65.60  $0.60   Open
BGEN   38.16   32.69  MAR   45  42  0.00  42.50  $0.00  No Play
RD     39.56   38.86  MAR   45  42  0.25  42.75  $0.25   Open
AZO    64.86   64.21  MAR   75  70  0.50  70.50  $0.50   Open
MRK    52.10   50.77  MAR   60  55  0.55  55.55  $0.55   Open
CTX    50.03   48.74  APR   60  55  0.60  55.60  $0.60   Open
LEN    49.40   48.75  APR   60  55  0.55  55.55  $0.55   Open
LEH    53.42   51.80  APR   65  60  0.55  60.55  $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  63.16   APR-65C   MAR-65C  (0.40)   1.10    Closed
STJ	  43.69  45.50   APR-45C   MAR-45C   0.20    0.80     Open

Apache Oil (NYSE:APA) has been closed to protect gains.  St. Jude
Medical (NYSE:STJ) has also offered favorable "early-exit" profits.

Credit Strangles

No Open Positions

Synthetic Positions:

No Open Positions

Questions & comments on spreads/combos to Contact Support


There will be no "New Positions" today as the editor of this
section is on a brief (but much-needed) hiatus with his family.






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