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Daily Newsletter, Wednesday, 04/09/2003

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The Option Investor Newsletter                Wednesday 04-09-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Markets Topple Like a Statue
Futures Wrap: Rollover, No Break
Index Trader Wrap: (See Note)
Weekly Fund Family Profile: Hennessy Funds
Options 101: An Oldie, But Goodie

Updated on the site tonight:
Swing Trader Game Plan: Sell the News!

Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
04-09-2003                   High    Low     Volume Advance/Decl
DJIA     8197.94 -  100.98  8388.33  8195.14   1502 mln  411/1066
NASDAQ   1356.74 -  26.20   1393.37  1356.60   1289 mln  179/1093
S&P 100   440.53 -  6.62    451.92  440.29    totals     590/2159
S&P 500   865.99 -  12.30   887.35  865.72
RUS 2000  372.28 -   2.38    378.66  371.34
DJ TRANS 2186.35 -  14.64   2227.67 2185.36
VIX        30.91 +   1.32    30.91   29.30
VIXN       41.45 +   0.53    42.12   40.36
Put/Call Ratio 0.74
*******************************************************************

Markets Topple Like a Statue
by Steven Price

It was all about Iraq again this morning. With U.S. troops in the
center of Baghdad, television cameras were pinned on jubilant
Iraqis attempting to topple a statue of Saddam Hussein as an
overnight sell-off in the equity market reversed back into the
green.  For a few hours, no one seemed to care that economic
worries had sent a strong overnight signal that looked anything
but bullish. The statue eventually came down, and so did the
rally. It certainly looks as though the war speculation will be
short lived, with a U.S. victory imminent. Let the haggling over
how to split up the oil dollars begin.

With no significant economic releases this morning, today's
activity gave us the best snapshot of just how the markets would
react to a victory in Iraq, even though it has been assumed for
some time that the U.S. victory would eventually come. The
question had been, "At what cost?"  While it was assumed the U.S.
would eventually topple Hussein, we weren't really sure if there
would be chemical and biological weapons waiting as we got closer
to Baghdad.  Apparently those concerns were answered as troops
have suffered no attacks of that nature. the question of whether
Saddam was dead or not has yet to be answered, although a mid-
morning rumor that he had sought asylum at the Russian embassy
turned out to be false.

The "end of the war rally" actually looked pretty weak.  While
the U.S. brass has said the war is not yet over, it appears that
Baghdad has fallen and there are only small pockets of resistance
left throughout the country.  We are also about to start
receiving first quarter earnings en masse in the next few weeks.
Those numbers have already started coming in and so far they
haven't been pretty. The fact that the war lasted longer than
expected and extended right into earnings season can be seen a
couple of different ways. First, it buys companies extra time for
the excuse that spending is going to pick up after the war.
Certainly investors can't expect those results to start showing
up until next quarter and therefore we still have plenty of hope.
After all, if the war had lasted three days and there was no
improvement in spending trends, what excuse would companies have?
This way they can release poor numbers but still accompany that
data with hopeful guidance.  The second way to view this is that
a recovery won't come now until at least the third quarter, since
hiring and spending have been pushed back by another few weeks.
While the price of oil may eventually head lower, we cannot undo
the damage that has been done by higher prices and the more
companies had to spend on fuel, the fewer dollars they will now
have to spend on new employees and technology.  Did I say two
ways to look at it?  Maybe I meant two ways to spin the same
negative outlook.

Let's not ignore the bullish possibilities, though. Maybe the
theory that we will see spending pick up is valid.  Certainly
lower oil prices would help, but it appears that OPEC, which
scheduled a meeting April 24, isn't going to let prices fall too
far. OPEC had a hand in today's pullback, as well.  The secretary
general of the organization commented that there was plenty of
supply on the market, further increasing speculation that the
group would curtail production at that April 24 meeting.  Saudi
Arabia and others have been overproducing to make up for any
possible shortfall that would result from the war and most likely
also attempting to take advantage of elevated prices that might
come down soon.  OPEC would like to prevent prices from falling
too far, since a robust supply and the lack of war premium might
lead to a quick drop in oil prices. We also got news that the
country's oil reserves had dropped unexpectedly last week. Right
now the supply chain has been reduced by output reductions in
Iraq, Nigeria and Venezuela and until the Iraqi oil fields are
settled, OPEC still remains in control.

Equities have traded consistently inverse to oil prices and those
comments form OPEC and news about the reserves coincided with
both a rise in oil futures and a drop in stock prices.  Of
course, with the U.S. in control of Iraqi oil fields, it can
always help drive prices lower through increased production.  It
is unlikely that the U.S. would move to disrupt the supply/demand
structure and interfere too much with OPEC price controls, but we
have proven that we are only so concerned with what the rest of
the world thinks and if it takes increased oil supply from Iraqi
oil fields to boost the economy before the 2004 elections, then I
can certainly imagine a scenario where that occurs. However, for
the time being, May Crude Oil futures bounced strongly from the
rising 200-dma that has provided recent support. It will take
some time to set up an Iraqi government and determine how the oil
profits are distributed. We may see some big price fluctuations
during that process. However, in the end, expect the supply to
help, instead of hurt, the U.S. economy, even if the profits go
back into Iraq.

Chart of May Crude Oil Futures




There are some sectors that should see immediate benefits from
increased consumer spending.  Airlines and hotels are a couple of
the obvious travel-related industries. Many people have postponed
planning vacations that involve flying either domestically or
overseas and that should improve with the obvious celebration by
Iraqis at the Saddam ouster. If the citizens of Iraq are glad to
see the Americans, then the current level of global anti-American
sentiment should at least not increase.  Of course, the SARS
virus still looms to disrupt travel to and from Asia, so until
that situation is cleared up we may not see a return to pre-war
levels.  Wal-Mart, one of the world's largest companies, has
banned corporate travel to Asia and the Government of Malaysia
has banned tourist travel to China.  Asian hotels are currently
suffering single-digit occupancy rates, so we can't discount the
effect of this virus on the industry.

The market internals derived from the point and figure charts
continue to show an improving picture.  The bullish percents
continue to increase and we now have the Dow, SPX, NDX, COMP, OEX
and NYSE bullish percents in rising columns of "X."  However,
with Monday's big intraday rally failing and looking like a blow-
off reversal top, and the news all but done with the war, we will
be left to digest those upcoming earnings and economic data.  So
far the data has shown a steady decline since the beginning of
the year, with some of the data indicating a contracting economy.
The ISM reports showed contraction in both the manufacturing and
non-manufacturing sectors and the most recent jobs report showed
the four-week moving average well above the 400,000 level that
indicates a worsening labor market. However, if we look at the
daily charts, we also see support at Dow 8200 finally cracking,
as it did before the last dip. That was our previous line in the
sand and had been again until today.

Daily Chart of the Dow




The initial rally on the Baghdad pictures this morning ran out of
steam at a lower high than it did on Monday, and eventually faded
back into the red as night fell in Baghdad.  We took out the lows
of Tuesday afternoon, after earlier taking out the highs.  The
Nasdaq Composite continued to underperform, as recent warnings
from the sector have investors dumping some of these stocks ahead
of earnings.  The COMP not only dropped 26 points, but took out
levels of support that were in place before the big gap up on the
April 2 broad market rally.  It began filling the gap early in
the session and continued below that support, apparently headed
for the next significant pivotal level at 1350.  An upside
earnings surprise from Yahoo (YHOO) after the bell could help
halt the skid.  The company beat estimates by 0.02 and also
raised its guidance for the second quarter.

Chart of the COMP




One of the weaker sectors was the semiconductor stocks.  The
Semiconductor Index (SOX), which often leads the COMP, re-tested
the pivotal 300 level, where it eventually failed. It has now set
a series of lower highs and is once again testing support,
instead of resistance.  The RFMD warning apparently reminded
investors that the pricing pressures and weakness in the sector
could rear their heads in the earnings of the next couple of
weeks. The SARS virus also continues to present complications for
industry, as workers are quarantined and engineers stay away from
Southeast Asia. The 50-dma sits at 294 and should be the next
downside test.

The Dow saw its second major intraday bearish reversal in the
last three.  On Monday we reversed down 220 points from the high,
while today we reversed down 191. While that's not decisive
evidence that the recent rally is done, it is certainly not a
bullish indication. WE now appear to be rolling over in a
possible double-top formation in the major indices.  The second
top should actually be lower than the first, which it was in the
Dow, but it was actually a little higher in the SPX and OEX.
Still, it appears we have seen a "buy the rumor... sell the news"
scenario.  We also sit at a pivotal support level in the OEX at
440 and traders can keep their eyes on that average, which closed
at 440.53 for signs of a bounce or continued weakness.

The Congress took an unconventional approach to budget approval
today, essentially passing a plan with two different tax-cut
plans.  The plan will contain a $550 billion plan to be submitted
to the House and a $300 billion dollar cut to be submitted to the
Senate.  It was essentially a away to pass a budget with a bottom
line spending amount, but also allow for more debate between
republicans and democrats on how much of the President's plan to
implement. That doesn't sound like good news for investors
looking for the elimination of the dividend tax.  After all, if
Bush couldn't get his plan through a Congress where both houses
are controlled by Republicans, it can't exactly be considered an
administration victory.

The IMF also gave us some data to digest and it wasn't good.  The
organization cut its global growth forecast for 2003 from 3.7% to
3.2%.  It blamed a host of factors, including an average price
for oil of $31 per barrel (which is higher than current levels).
It also cited stagnant economies in Germany and Japan, a possible
stock market bubble, a possible housing bubble, the spread of the
SARS virus and a drag on European economies by social welfare
programs. It lowered its growth estimate for the U.S. for 2003
from 2.6% to 2.2%.

If our end of war rally turned into a loss, it is hard to imagine
what news will drive us higher.  Positive earnings would be one
catalyst; however, the pre-announcement phase doesn't look
promising.  Of the 1025 companies that have pre-announced, 202
have surprised to the upside, 225 have been on target and 598
have warned. The bullish percents are certainly in the bulls'
favor, but what we saw today is not terribly bullish and appears
as though we may have finally run out of steam. Common sense
seems to indicate that if we didn't rally strongly today, there's
not much out there that can still get us rolling in the short-
term. Of course, a few well placed words about the U.S. opening
the oil wells to the point of keeping energy prices down would
help. While the war may be ending, the game has not.


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

Rollover, No Break
By Vlada Raicevic

Daily Settlement Numbers 4:15pm ET

> DOW
Last: 8197.94
Net: -100.98
High: 8388.33
Low:  8195.14

> YM 03M
Last: 8185
Net: -97
High: 8389
Low:  8164

> S&P 500
Last: 865.99
Net: -12.30
High: 887.35
Low:  865.72

> ES 03M
Last: 867
Net: -11.25
High: 887.25
Low:  864.25

> Nas 100
Last: 1023.52
Net: -22.78
High: 1055.89
Low:  1023.48

> NQ 03M
Last: 1026.50
Net: -24
High: 1061
Low:  1024.50

DAILY PIVOTS

> YM 03M
R2: 8456
R1: 8297
Pivot: 8231
S1: 8072
S2: 8006

> ES 03M
R2: 894
R1: 878
Pivot: 871
S1: 855
S2: 848

> NQ 03M
R2: 1071
R1: 1045
Pivot: 1035
S1: 1009
S2: 998

Futures sold rather hard during the overnight session, but
recovered before the open to a slight gap up.  This gap was sold
but stopped sliding above yesterday's lows.   From there euphoria
took the futures up to break the highs from yesterday, and topped
out first at 887, then again at 887.25 for a double top.  The
sellers then took over and stair stepped down for hours, first
stopping at 867.25, then at 866.75, and finally, after an attempt
to rise off these lows, but failing at 874.50, one last push down
to reach a low of 864.25 before closing at 867.

We have now broken the 4/2 gap support, and have moved deeply
enough into that gap that it requires filling at 856.50, just over
10 points below today's close.  This is also the area of strong
support that held price for 9 trading days, before it broke.  That
break below the 856-857 area held only for two days, and spending
so little time there means that more than likely 856 should hold
initially when we reach it.....assuming that we do.  This is still
a news driven market, and gap fill may have to wait if something
very positive pops up on the news wires tonight.  However,
sentiment seems to have changed, for the moment, and perhaps even
good news could be met with a shrug, and continued selling.

I zoomed in a bit on the posted Daily chart so that several things
can become more clear.  Note that price has broken below the
uptrend line.  Macd has crossed to the downside, but is still
above the centerline.  Both stochastics are also pointing down,
but they too are above the centerline.  Remember, that centerline
acts as support and resistance, and there is still plenty of time
for these indicators to bounce from that area.  However, also note
that fast stochastic is below the slow, meaning that short term
trading is outpacing the longer term trading to the downside.  RSI
has broken below both its uptrend line and the 21 period moving
average (pink line).  ADX is converging, but is not close to
crossing over yet, and D+ is still well away from its uptrend
line.  So I would mark this chart as having rolled over, but not
yet at a point where I would say it is broken.  There are still
enough positive elements to say that the bullish case can be
saved, and it looks like that test will come, yet again, at 856-
857.

ES Daily Chart:




The 270 minute chart also shows that Macd has not yet broken down,
and the longer stochastic is also holding the trendline (blue) and
centerline.  The fast stochastic is actually getting into the
oversold level, which when coupled with the uptrend lines on the
RSI and Macd, could potentially indicate that another half day of
selling may lead to a bounce or reversal.  This seems to work well
with the idea that a gap fill could happen in the morning, and the
oversold levels could then be bought along with the filling of the
gap.

ES 270 Minute Chart:




Looking at the 60 minute chart, we see the carnage that the
selling from Monday's highs has done.  But again, note the
stochastic and CCI are both getting to oversold levels, which
could get more oversold since RSI still has room to the downside.
ADX bearish cross continues to hold, but doesn't point to a high
degree of sellers, with D+/- diverging, but not by much.  I don't
really know what to make of this, and it bears watching, since the
continued selling should be more obvious on the ADX panel.  Note
that regression channels show first support at around 860-861 and
then again at 853, which can be considered a target if the selling
gets severe and overshoots the gap fill, however that is unlikely
as the chart is already getting somewhat oversold.

ES 60 Minute Chart:




Quick peek at the new fibonacci numbers, since we now take our top
as 805 rather than the previous top.  Here we see that .382
reversal is also at the 860 level, which lines up with the
regression channel on the above chart, and would allow for a 3
point overthrow to the gap fill.  Also note that the 50ema (daily)
is also right there, giving additional support that level (arrow).

ES Daily Fibonacci Chart:




The NQ Daily chart is again more bearish than the ES, with heavier
selling, and less dip buying.  Macd is below the trendline and
about to break the centerline, both stochastic are breaking the
centerline, and ADX has crossed bearish.  Surprisingly, while RSI
is below the moving average, it still has a bit of support from
the trendline, although that doesn't look like much comfort for
bulls with everything else giving breakdown signals.  However, it
is not uncommon to get a bounce just when things break, and here
we see that NQ is at the centerline support of the blue regression
channel, as well as horizontal support.  If selling continues, it
may break to the recent lows of 1015-1019 before the selling
stalls.

NQ Daily Chart:




NQ 270 minute shows that Macd, RSI and ADX are just beginning to
break. Fast stochastic is getting oversold, again making it look
like a short term bounce may be expected at some point tomorrow or
Friday.

NQ 270 Minute Chart:




The NQ 60 minute chart is also getting fairly oversold.  Since the
NQs have been selling harder than the ES, it looks like they will
reach support sooner.  Will they then bounce and diverge with the
ES, or will they meander sideways while the ES catches up.  Hard
to say, but even this chart shows that there is good support at
the 1017-1018 level, where BOTH regression channels converge with
their lower tines.

NQ 60 Minute Chart:




The NQ Fibonacci chart shows that the .500 level of the recent run
has been reached twice.  As this is a good horizontal support
area, it is no wonder that price has bounced from there.  But we
have also moved below the 50ema (thick purple line) for the second
time, and there is a chance that it may become resistance on any
attempts to move back up.  That moving average now sits at around
1030.

NQ Daily Fibonacci Chart:




Some of the charts are showing signs of being oversold, and while
a bounce is most likely to be expected from the support levels
that we are approaching, those oversold levels can also be
relieved by sideways trading.  Remember how the overbought levels
of the recent month didn't always lead to a selloff, but rather to
a sideways consolidation before another push up.  This can happen
on the way down as well.  As I've been saying for awhile now, the
real test of this rally is coming up, and how we react to another
test of support will tell us a great deal.


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

Check the Site Later Tonight For Jeff’s Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_040903_1.asp


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

Hennessy Funds

The Hennessy Funds is a no-load fund family based in California
that takes a conservative approach to investing and offers five
mutual funds designed to meet a variety of investment objectives
and risk tolerance levels.  There are four equity-based funds to
choose from and one money market fund.  All of Hennessy's equity
strategies use money management techniques that seek to combine
strong stock selection formulas with discipline and consistency.

Neil Hennessy is a director and president of Hennessy Management
Company, his employer since 1989.  Hennessy attended the Wharton
School of Upper Management and began his investment career about
25 years ago as a broker with Paine Webber, his biography states.
In 1989, Hennessy established his own broker/dealer business and
in 1996, he launched the Hennessy Funds.  Hennessy Balanced Fund
(HBFBX) commenced operations on March 8, 1996 with Neil Hennessy
at the portfolio management reins.

The firm's most successful mutual fund based on assets, the $458
million Hennessy Cornerstone Growth Fund (HFCGX) has been around
since November 26, 1996.  The fund was actually founded by James
O'Shaughnessy (author of What Works on Wall Street), a book that
espouses "mechanical" investing.  Neil Hennessy has run the fund
since his company bought it from O'Shaughnessy in September 2000.
The same is true for the Hennessy Cornerstone Value Fund (HFCVX).
According to Morningstar, Hennessy brought trading capability to
the funds that O'Shaughnessy lacked.

In 1998, Hennessy Total Return Fund (HDOGX) was started.  It was
the first mutual fund to utilize the strategy known as the "Dogs
of the Dow."  The fund follows a value-oriented strategy that is
designed to produce high total return consistent with a low risk
strategy.  In this fund, Hennessy seeks to beat the total return
of the Dow Jones Industrial Average in the long run by investing
75% of assets "equally weighted" in the top 10 dividend-yielding
stocks of the Dow Jones Industrial Average (i.e. Dogs of the Dow)
and 25% in short-term Treasury securities.

A money market fund offering is also available for investors who
seek income and preservation of principal.  First American Prime
Obligations Fund Class A (FIVXX) currently offers a 7-day simple
yield of only 0.60%.  If you need a money market fund, there are
better investment options elsewhere.  At 0.60%, the fund's yield
is below average within the "taxable" money market fund universe
(0.76% is average per iMoneyNet.com's most recent weekly report).

The Hennessy Balanced Fund and Hennessy Total Return Fund have a
minimum initial investment of $1,000, while Hennessy Cornerstone
Growth Fund and Hennessy Cornerstone Value Fund require a $2,500
initial investment ($250 for IRAs).  Annual expense ratios range
from a low of 1.11% on the Hennessy Cornerstone Growth Fund to a
high of 2.33% on the Hennessy Total Return Fund.  The high 2.33%
expense ratio is a function of the fund's low assets ($5 million
per Morningstar).  For more information on Neil Hennessy and his
family of no-load funds, go to the www.hennessyfunds.com website.

Performance

Below is a performance summary for the four equity-oriented funds
offered by the Hennessy Funds.  Returns in excess of one year are
annualized.


 1-Year Total Return/Category Ranking:
 - 9.0%  Hennessy Balanced (HBFBX) 1st Percentile
 -13.5%  Hennessy Cornerstone Growth (HFCGX) 2nd Percentile
 -19.3%  Hennessy Cornerstone Value (HFCVX) 27th Percentile
 -14.5%  Hennessy Total Return (HDOGX) 3rd Percentile
 -20.6%  S&P 500 Index

 3-Year Average Total Return/Category Ranking:
 - 0.0%  Hennessy Balanced (HBFBX) 7th Percentile
 + 0.0%  Hennessy Cornerstone Growth (HFCGX) 3rd Percentile
 + 0.2%  Hennessy Cornerstone Value (HFCVX) 6th Percentile
 - 0.5%  Hennessy Total Return (HDOGX) 9th Percentile
 -15.4%  S&P 500 Index

 5-Year Average Total Return/Category Ranking:
 + 0.6%  Hennessy Balanced (HBFBX) 9th Percentile
 + 7.3%  Hennessy Cornerstone Growth (HFCGX) 6th Percentile
 - 1.1%  Hennessy Cornerstone Value (HFCVX) 24th Percentile
   N/a   Hennessy Total Return (HDOGX) N/a
 - 3.2%  S&P 500 Index

Note that three Hennessy funds - Balanced, Cornerstone Value and
Total Return - are currently ranked in the Morningstar large-cap
value category (based on their average investment style over the
past three years).  However, keep in mind that Hennessy Balanced
Fund does allocate assets between stocks and bonds, so you might
also want to compare the fund versus other domestic hybrid funds.

The same is true for the Hennessy Total Return Fund, which has a
normal mix of 75% stocks and 25% bonds.  The equity stake of the
three funds may vary, but they all have a "large-cap value" bias
according to Morningstar.




Hennessy Cornerstone Growth Fund's at the opposite corner of the
style box, landing in the Morningstar small-cap growth category.

It utilizes computer-aided models to select stocks of companies
with attractive "value" and "earnings momentum" characteristics,
which also certain "price momentum" criterion.  Relative to its
small-cap growth category peers, the Cornerstone Growth Fund has
generated top-decile returns with a below average level of risk.
Its trailing 5-year average annual return of +7.3% outperformed
the broad S&P 500 index by more than ten full percentage points
on average per year.

Three of Hennessy's equity funds - Balanced, Cornerstone Growth
and Total Return - currently receive Morningstar's highest star
rating (5 stars) for overall risk-adjusted performance relative
to category peers.  Hennessy Balanced Fund's top rating results
from having produced high returns with low risk relative to the
average large-cap value fund.   Hennessy Total Return Fund also
has produced high returns relative to its large-value peers but
Morningstar rates its risk level as average within the category,
still good enough on a risk-adjusted basis to warrant a "5-star"
overall rating.

Hennessy Cornerstone Growth Fund has produced high returns with
below average risk relative to its category peer group of small-
cap growth funds, according to Morningstar.

The Hennessy website says they believe in taking a conservative
approach to investing and Morningstar's "risk-adjusted" ratings
would appear to show the benefits of following such an approach.

All four Hennessy funds are rated as "Lipper Leaders" for total
return by Lipper Analytical Services, their highest "1" ranking
for relative total return performance over the past three years
relative to similar funds.  Below is a summary of how the funds
are rated in the Lipper system (1-best, 3-average, and 5-worst).


 Lipper 3-Year "Total Return" Rating:
 1  Hennessy Balanced (HBFBX) Lipper Leader
 1  Hennessy Cornerstone Growth (HFCGX) Lipper Leader
 1  Hennessy Cornerstone Value (HFCVX) Lipper Leader
 1  Hennessy Total Return (HDOGX) Lipper Leader

 Lipper 3-Year "Consistent Return" Rating:
 1  Hennessy Balanced (HBFBX) Lipper Leader
 3  Hennessy Cornerstone Growth (HFCGX)
 1  Hennessy Cornerstone Value (HFCVX) Lipper Leader
 1  Hennessy Total Return (HDOGX) Lipper Leader

 Lipper 3-Year "Preservation" Rating:
 2  Hennessy Balanced (HBFBX)
 2  Hennessy Cornerstone Growth (HFCGX)
 1  Hennessy Cornerstone Value (HFCVX) Lipper Leader
 1  Hennessy Total Return (HDOGX) Lipper Leader


According to Lipper, all four of Hennessy's equity mutual funds
have excelled at generating consistent, strong returns relative
to similar funds, while also doing better at preserving capital.
The result, strong risk grades from both Morningstar and Lipper.

Note that Lipper also ranks funds on the basis of expense and tax
efficiency.  None of the Hennessy funds are Lipper Leaders based
on relative expense or tax efficiency; instead, receiving average
ratings in general.

Conclusion

Conservative equity investors with long-term investment horizons
may want to take a closer look at the Hennessy Funds.  Two funds,
Hennessy Balanced and Hennessy Total Return, invest primarily in
stocks, but also invest in bonds, giving them greater income and
stability than the average pure equity fund.  That means the two
mixed equity funds could lag pure stock funds in a rising market,
but they will generally hold up better in a declining market, as
they have over the past three years.

Three of the Hennessy funds have "large-cap value" equity styles,
which are generally less volatile than other equity mutual funds.
Because of their value bias, they could lag other funds during a
rising market, such as growth-oriented funds.  If you believe in
the value approach to investing then Hennessy offers three funds
worth considering, Hennessy Balanced, Hennessy Cornerstone Value
and Hennessy Total Return.  If you seek greater potential return
over the long term and are willing to assume greater volatility,
then you may want to set your sights on the Hennessy Cornerstone
Growth Fund, which has a small-cap growth style and has produced
solid risk-adjusted returns for more-aggressive equity investors.

For more information, or to download a fund prospectus, go to the
Hennessy Funds website at www.hennessyfunds.com.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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

An Oldie, But Goodie
By Mark Phillips
mphillips@OptionInvestor.com

As regular as clockwork, every few months, I get a new wave of
emails asking about the selection of options - which expiration,
ITM, ATM or OTM, effect of time decay, volatility, etc. - to which
I am only too happy to respond.  The frequency of those questions
has picked up recently and it occurred to me that the majority of
the questions are coming from new subscribers that haven't yet
worked their way through all the great information in the OIN
archives.

You see, a little over a year ago, I started a series on option
basics that took a couple months to complete on a one article per
week basis.  Usually when these questions come up, I just refer
readers to the articles I've written in the past.  But with the
frequency of the questions picking up again, I thought it would be
useful to issue the initial article again, with links to all the
follow-on articles at the bottom.  So with apologies to my long-
time readers who were looking for something new tonight, we're
going to spend our time together here in review mode.  Next week,
we'll delve back into new topics, just as we usually do in this
space.

So without further ado, here goes.

When trading options, there are a lot more factors to pay
attention to, when compared to just trading stocks.  Due to the
plethora of additional factors that influence option pricing, most
notably "the Greeks", it is possible to enter an option trade that
produces a loss, even when a corresponding trade in the underlying
equity or index would have produced a profit.  Understanding these
factors and their influence on option pricing is essential to
profitable option trading, especially in the volatile market we
currently have at our disposal.

So what are the Greeks?  In order to answer that question, we need
to say a few words about how option prices are calculated.  Option
prices are determined by applying the standard Black-Scholes
pricing model, which uses 5 inputs to create the theoretical price
of the option.  They are as follows:

1. Time to expiration
2. Strike price
3. Value of the underlying equity or index
4. Implied volatility of the underlying equity or index
5. The risk-free interest rate

Discussion of the inner workings of the Black-Scholes model is far
beyond the scope of a single article, and there have been numerous
books written on the subject for the inquisitive student.  Rather
than delving into theory, I thought it would be far more
productive to deal with the practical measures of option pricing
and strike selection that can aid us in our pursuit of profits.
These measures are commonly referred to as the Greeks and the four
most important Greeks, in my opinion, are Delta, Gamma, Theta and
Vega.

Delta measures the amount that a given option will move with
respect to the underlying security and is stated in terms of
percentage from 0 to 100.  If a stock moves $1 and the option in
question increases in value by $0.40, we know that the option had
a Delta of 40.  At-the-money (ATM) options typically have a delta
of 50, while out-of-the-money (OTM) options have a Delta less than
50 and in-the-money (ITM) have a Delta greater than 50.  As we
move further out-of-the-money, Delta approaches zero, while it
approaches 100 as we move deeper in-the-money.  Neither of these
extremes are met in practical application, but the basic
relationship should give us a useful working understanding.

Gamma is used to describe the rate-of-change of an option's Delta,
and those that understand the relationship can use their knowledge
to give their trading profits an extra boost.  Putting the
relationship in physics terms, Delta is the equivalent of
velocity, while Gamma can be equated to acceleration.  If you
recall your high school physics, you'll remember that acceleration
can really boost velocity over time.  The same is true of the
Delta-Gamma relationship.  I'll leave you to ponder that concept
and we'll revisit it in exacting detail on our next visit.

The one constant in the universe (aside from taxes) is the passage
of time, and Theta is the Greek that measures the impact of Father
Time on option prices.  Options are, by definition, a wasting
asset, meaning that the portion of the option premium that is
attributable to time, declines day after day.  Adding insult to
injury, the rate of decay of the time-related portion of an
option's value increases as expiration Friday draws near.  The
majority of an option's time value disappears in the final 30 days
of its life and most of that evaporates in the final 2 weeks.
During expiration week, an equity must move in your favor
substantially, just to offset the loss in value due to Theta-decay
in an OTM or ATM option.

Volatility is perhaps the most apparent determinant of option
pricing; at least it has seemed that way during recent months as
we have watched the VIX race from 35 to 57 and then back down to
the low 20's.  While normal trending markets don't have nearly
that kind of volatility movement, when it does occur, it can yield
outsized returns for appropriately positioned traders, and exact
staggering losses from those unaware of its potential effects.
Last week, I highlighted the perils of trading in a high-
volatility environment.  Traders that sell options in such an
environment can reap substantial rewards, but need to be
cognizant of the inherent risks that come with the territory.

One interesting point about time-value in options is that on a
percentage basis, ATM options are the most expensive in terms of
time value.  So when we buy ATM options, we need to understand
that we are buying the most time-value possible for that
expiration month, and every last shred of that time-value will
melt away by expiration Friday.  By expiration, either all the
time value will have melted away leaving a worthless option (great
for option sellers, but unpleasant for option buyers), or the
stock will have appreciated so that the option is ITM, now
possessing intrinsic value equivalent to how far in the money the
option is.

As a simple example, let's take a $50 OCT Call on stock XYZ which
is trading for $3.00 one month before expiration.  If on
expiration Friday, the price of the stock is $48 (even if that is
above the price of the stock one month earlier), the option will
expire worthless, with no time value and no intrinsic value.  On
the other hand, if XYZ appreciates to $54 by expiration Friday,
the option will be worth $4.00 ($4 intrinsic value, and no time
value).  In both cases, the time value of the option fades away to
nothing by expiration, but if the stock moves sufficiently so that
our option is in the money, we have real, as opposed to
anticipated value.

Delta and Vega are fairly easy to quantify, and there are a number
of websites that provide this data for those interested in
learning the inter-relationships and how they influence the
potential success of option trading.  One of my favorite sites is
iVolatility (www.ivolatility.com), which provides detailed
analysis of option Greeks, as well as historical volatility
charts.  While this site also provides an option calculator to
determine Theta and Gamma for specific options, I think these two
Greeks are more important to understand from a qualitative sense,
so I tend to focus less on the actual numbers and more on their
general influence on option prices.

One interesting trend I have noticed in recent months is that
online brokers are doing a better job of catering to option
traders.  All 3 of the brokers that I currently use, have recently
added options analysis tools to their trading sites. This provides
me with the ability to research the various Greeks on a
prospective option trade without ever leaving the trading screen.
In addition to basic option calculators that provide the ability
to check Delta, Gamma, Vega and Theta for any option, these sites
now provide charts of both historical and implied volatility.
Using this latter tool, I can see where a stock's volatility is in
relation to its historical range, helping me to make sure I am
buying low volatility and selling high volatility.  We'll devote a
future article to just talking about volatility and how to use it
to our advantage.

When properly understood, the inter-relationship of the Greeks on
option pricing can be very useful to option traders (both buyers
and sellers) who understand how to capitalize on the opportunities
provided.  Now that we've covered the basics, we're ready to dig
into all the details you can stand.  Fortunately, I don't have to
write the whole series of articles again, as they are archived in
the Options 101 section on the website.  If this article whetted
your appetite for more details, then feel free to peruse the list
of articles below.

The Greeks, Part 1 - Delta and Gamma
http://members.OptionInvestor.com/options101/012302_1.asp

Application of Gamma and Delta to Strike Selection
http://members.OptionInvestor.com/options101/013002_1.asp

Back to the Olympians of Old
http://members.OptionInvestor.com/options101/021302_1.asp

Oh, That Vexing Volatility
http://members.OptionInvestor.com/options101/022002_1.asp

Volatility - Part Deux
http://members.OptionInvestor.com/options101/022702_1.asp

The Greeks - Putting It All Together
http://members.OptionInvestor.com/options101/030602_1.asp

A Greek Encore
http://members.OptionInvestor.com/options101/031302_1.asp

Varying Views on Volatility
http://members.OptionInvestor.com/options101/032002_1.asp

A Primer on Online Volatility Tools - Part I
http://members.OptionInvestor.com/options101/040302_1.asp

Hope this helps!

Mark


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

Sell the News!

Well, it looks like we got our end of the war rally. Too bad it
ended up with a triple-digit Dow loss.


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


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Contact Support
The Option Investor Newsletter                Wednesday 04-09-2003
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 - ROOM
Spreads, Combinations & Premium-Selling Plays: A Post-War Slump?

Updated on the site tonight:
Market Posture: Bulls Out of Breath
Market Watch: Getting Our Breakdowns


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

None

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

None


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

None


************************Advertisement*************************
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
stock
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offers fast option executions

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

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


*********************
PLAY OF THE DAY - PUT
*********************

Hotels.com - ROOM - close 54.35 change: -0.52 stop: 58.00

Company Description:
Hotels.com is a provider of discount hotel rooms and other
lodging accommodations, allowing customers to select and book
hotel rooms in major cities through the company's websites and
its toll-free call centers.  ROOM contracts with hotels in
advance for volume purchases and guaranteed availability of hotel
rooms and vacation rentals at wholesale prices and sells these
rooms to consumers, often at discounts to published rates.  In
addition, its hotel supply relationships often allow the company
to offer its customers hotel accommodation alternatives for
otherwise unavailable dates.  At the end of 2001, ROOM had room
supply agreements with over 4500 lodging properties in 178 major
markets in North America, the Caribbean, Western Europe and Asia.

Most Recent Write-Up:
It's hard to draw any conclusions from Tuesday's session, with
ROOM's exceedingly light volume.  The mild morning bounce faded
into the close for a 25-cent loss, but with volume only 25% of
the ADV, it is clear that it wouldn't have taken much to push the
pile around.  We're left with price action that still looks weak,
barely holding above the $54 support level and any elevation in
the level of concern about the SARS virus could produce a quick
downdraft.  Failed rallies in the $55-56 area still look good for
new entries, although more conservative traders will still want
to wait for the break below $54 on increasing volume before
taking the plunge.  With the 10-dma falling to $55.67 today and
yesterday's intraday surge capped at $57.20, it seems both
prudent and safe to lower our stop to $57.25.

Why This Is Our Play of the Day:

We finally got the breakdown below $54 in ROOM.  With the
apparent imminent end to the war with the U.S. capture of
Baghdad, we would have expected less bearishness from ROOM, as
the danger of travel seems likely to drop a notch.  However, no
such luck for this put play, as SARS continues to interrupt
worldwide travel.  Asian hotels are suffering single digit
occupancy rates and Wal-Mart, one of the world's largest
companies, has now banned corporate travel to Asia.  On top of
that, the Malaysian Government has banned tourism travel to
China.  It appears that it could be a while before this problem
is brought under control and ROOM is reflecting those concerns.
The stock dropped to within $0.05 of a new double-bottom sell
signal on the point and figure chart at $53 and momentum traders
can use a break below that level for entry. While the 200-
dma/200-ema level sits just over $50, the PnF also shows a spread
triple bottom at $53, with a vacuum down to $45. A failed rebound
at $54, the previous support level, would be an alternate entry
point for more aggressive traders looking to capitalize on a
better reward/risk ratio.

BUY PUT APR-55 URD-PK OI=2957 at $3.00 SL=1.50
BUY PUT MAY-55 URD-QK OI= 224 at $5.60 SL=3.25
BUY PUT MAY-50 URD-QJ OI= 101 at $3.30 SL=1.75

Chart of ROOM
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-09/ROOM040903.gif




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

“7 Steps to Success – Trading Options Online”.

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

http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
**************************************************************


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

A Post-War Slump?
By Ray Cummins

Stocks retreated Wednesday, despite indications of an end to the
war in Iraq, as investors focused on the fragile outlook for the
U.S. economy.

The Dow Jones Industrials slumped 100 points to 8,197 as declines
in McDonald's (NYSE:MCD), AT&T (NYSE:T), Home Depot (NYSE:HD),
Hewlett-Packard (NYSE:HPQ), American Express (NYSE:AXP), and
General Electric (NYSE:GE) led the blue-chip average lower.  The
NASDAQ Composite Index fell 26 points to 1,356 as software and
Internet stocks pulled back in conjunction with selling pressure
in Microsoft (NASDAQ:MSFT) and Yahoo! (NASDAQ:YHOO).  The S&P 500
Index slipped 12 points to 865 as retailers, banks, chemicals and
paper products drifted lower.  Gold, natural gas, and oil services
issues were among the few upside movers.  Decliners led advancers
6 to 5 on the New York Stock Exchange and 3 to 2 on the NASDAQ.
Trading volume was moderate, coming in at 1.27 billion shares on
the Big Board and just over 1.31 billion shares on the technology
exchange.  In the bond market, traders focused on the progress in
Iraq and the U.S. economic outlook with the 10-year treasury note
climbing 9/32 to yield 3.90 percent.

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

SUMMARY OF CURRENT POSITIONS - AS OF 4/8/03

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

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

CELG     APR    22   21.25  26.30   $1.25   8.68%  5.88%
ERES     APR    20   19.20  27.76   $0.80   8.04%  4.17%
EXPE     APR    40   39.50  49.92   $0.50   4.15%  1.27%
GENZ     APR    30   29.60  36.58   $0.40   4.69%  1.35%
KLAC     APR    32   31.95  37.46   $0.55   5.84%  1.72%
MSFT     APR    24   23.35  25.58   $0.40   4.85%  1.71%
APPX     APR    20   19.45  19.39  ($0.06)  0.00%  2.83% *
GENZ     APR    30   29.70  36.58   $0.30   4.56%  1.01%
KLAC     APR    32   32.10  37.46   $0.40   5.35%  1.25%
NVLS     APR    25   24.65  27.50   $0.35   6.36%  1.42%
ROOM     APR    50   49.10  54.46   $0.90   8.23%  1.83%
YHOO     APR    22   21.90  23.81   $0.60   9.63%  2.74% *
BSTE     APR    35   34.75  39.54   $0.25   4.56%  0.72%
CAT      APR    47   47.10  52.10   $0.40   4.51%  0.85%
GENZ     APR    35   34.60  36.58   $0.40   6.10%  1.16%
GILD     APR    40   39.60  42.97   $0.40   5.36%  1.01% *
KLAC     APR    32   32.25  37.46   $0.25   4.87%  0.78%
AVID     MAY    20   19.50  25.21   $0.50   5.89%  2.56%
ERES     MAY    22   21.90  27.76   $0.60   6.03%  2.74%
JCOM     MAY    25   24.70  31.01   $0.70   6.83%  2.83%
RYL      MAY    42   41.50  47.38   $1.00   4.45%  2.41%

Conservative traders should closely monitor the positions
in American Pharmaceutical Partners (NASDAQ:APPX), Yahoo!
(NASDAQ:YHOO) and Gilead (NASDAQ:GILD).


Naked Calls
***********

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

COF      APR    32   33.05  33.31  ($0.26)  0.00%  1.66% *
MERQ     APR    35   35.80  31.78   $0.80   7.15%  2.23%
IGEN     APR    45   45.55  34.57   $0.55   7.71%  1.21%
MCHP     APR    25   25.40  18.66   $0.40   7.37%  1.57%
BSX      APR    45   45.40  42.66   $0.40   3.93%  0.88%
IGEN     APR    45   45.45  34.57   $0.45   7.93%  0.99%
NE       APR    35   35.50  31.08   $0.50   6.06%  1.41%
VIA.b    APR    42   39.00  39.40   $0.30   3.37%  0.77%
IGEN     APR    42   42.95  34.57   $0.45   11.18% 1.05%
NE       APR    35   35.30  31.08   $0.30   5.39%  0.85%
QCOM     APR    37   37.90  32.40   $0.40   7.07%  1.06%

Capital One Financial (NYSE:COF) remains on the "early exit"
watch-list.  As noted last week, the position in Pulte Homes
(NYSE:PHM) has previously been closed to limit losses.


Put-Credit Spreads
******************

Symbol  Pick   Last   Month L/P S/P Credit  C/B    G/L  Status

AMGN    55.33  58.65   APR   47  50  0.30  49.70  $0.30  Open
NKE     46.48  51.87   APR   40  42  0.30  42.20  $0.30  Open
ADBE    33.02  32.38   APR   25  30  0.50  29.50  $0.50  Open
CMCSA   29.91  29.65   APR   25  27  0.30  27.20  $0.30  Open
FRX     53.10  54.49   APR   45  50  0.60  49.40  $0.60  Open
LXK     65.89  67.91   APR   55  60  0.50  59.50  $0.50  Open
SLM     110.21 114.50  APR   95  100 0.45  99.55  $0.45  Open
BSTE    38.47  39.54   APR   30  35  0.40  34.60  $0.40  Open
CFC     58.00  59.40   APR   50  55  0.40  54.60  $0.40  Open
ERTS    59.56  57.97   APR   50  55  0.50  54.50  $0.50  Open *
IBM     81.46  80.07   APR   70  75  0.50  74.50  $0.50  Open
BBH     97.50  95.95   MAY   85  90  0.60  89.40  $0.60  Open

Electronic Arts (NASDAQ:ERTS) is on the "early exit" watch-list.


Call-Credit Spreads
*******************

Symbol  Pick   Last  Month L/C S/C Credit  C/B    G/L   Status

BHI     30.13  29.64  APR  35  32   0.25  32.75  $0.25   Open
INTU    50.44  38.55  APR  60  55   0.55  55.55  $0.55   Open
OMC     53.96  57.54  APR  65  60   0.50  60.50  $0.50   Open
CCMP    44.61  44.05  APR  55  50   0.50  50.50  $0.50   Open
DVN     47.70  45.33  APR  55  50   0.45  50.45  $0.45   Open
IP      35.63  34.72  APR  40  37   0.20  37.70  $0.20   Open
APC     46.05  44.21  MAY  55  50   0.50  50.50  $0.50   Open
ATK     53.08  50.35  MAY  65  60   0.45  60.45  $0.45   Open
TOT     65.30  67.35  MAY  75  70   0.65  70.65  $0.65   Open

As noted last week, positions in Centex (NYSE:CTX), Lennar
(NYSE:LEN), and Lehman Brothers (NYSE:LEH), have previously
been closed to limit potential losses.


Synthetic Positions
*******************

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

GGP     54.02  54.62   APR     55    50     0.00    0.40    Open


Calendar Spreads
****************

No Open Positions


Credit Strangles
****************

No Open Positions


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

NEW POSITIONS

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As with
any 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.

***************
AVID - Avid Technology  $25.73  *** New "All-Time" High! ***

Avid Technology (NASDAQ:AVID) develops, markets, and supports a
wide range of software, and hardware and software systems, for
digital media production, management and distribution.  Avid
Technology participates in two principal markets transitioning
from well-established analog content-creation processes to
digital content-creation tools.  Both of these markets, video
and film editing and effects and professional audio, are using
the worldwide web to collaborate and distribute video and audio
content.  The company's products, which are categorized into the
two principal markets in which they are sold, are used worldwide
in production and post-production facilities, film studios,
network, affiliate, independent and cable television stations,
recording studios, advertising agencies, government and also
educational institutions, corporate communication departments,
and by game developers and Internet professionals.  Quarterly
earnings are due 4/17/03.

AVID - Avid Technology  $25.73

PLAY (sell naked put):

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

SELL PUT  APR 25    AQI PE      86    0.55  24.45  18.4%   2.2%
SELL PUT  MAY 22.5  AQI QX       4    0.80  21.70   8.4%   3.7%
SELL PUT  MAY 20    AQI QD      33    0.30  19.70   4.5%   1.5% *


**************
CMCSA - Comcast  $29.08  *** Bullish Sector! ***

Comcast (NASDAQ:CMCSK) is a cable operator involved in three
principal lines of business: cable, through the development,
management and operation of broadband communications networks;
commerce, through QVC, its electronic retailing subsidiary; and
content, through its consolidated subsidiaries Comcast Spectacor,
Comcast SportsNet, Comcast SportsNet Mid-Atlantic, Comcast Sports
Southeast, E! Entertainment Television, The Golf Channel, Outdoor
Life Network, G4 Media, and through other programming investments.
The company has deployed digital cable applications and high-speed
Internet service to most of its cable communications systems.

CMCSA - Comcast  $29.08

PLAY (sell naked put):

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

SELL PUT  APR 27.5  CCQ PY   4,914    0.25  27.25   8.2%   0.9% *
SELL PUT  MAY 27.5  CCQ QY     283    1.00  26.50   7.4%   3.8%


**************
CTSH - Cognizant Tech.  $22.10  *** Post-Split Entry Point? ***

Cognizant Technology Solutions (NASDAQ:CTSH) delivers full life
cycle solutions to complex software development and maintenance
problems that companies face as they transition to e-business.
These information technology (IT) services are delivered through
the use of a seamless on-site and offshore consulting project
team.  The company's solutions include application development
and integration, application management and re-engineering
services.  The company's customers include ACNielsen Corporation,
ADP, Incorporated, Brinker International, Incorporated, Computer
Sciences Corporation, The Dun & Bradstreet Corporation, First
Data Corporation, IMS Health Incorporated, Metropolitan Life
Insurance Company, Nielsen Media Research, Incorporated, PNC
Bank and Royal & SunAlliance USA.

CTSH - Cognizant Technology  $22.10

PLAY (sell naked put):

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

SELL PUT  APR 22.5  UPU PX   2,410    0.60  21.90  20.6%   2.7%
SELL PUT  MAY 20    UPU QD      49    0.75  19.25   8.2%   3.9%
SELL PUT  MAY 18.3  UPU QW     386    0.35  18.03   5.3%   1.9% *


**************
DCX - DaimlerChrysler AG  $32.74  *** Bottom Fishing! ***

DaimlerChrysler AG (NYSE:DCX) develops, manufactures, distributes
and sells a wide range of automotive products, mainly passenger
cars, light trucks and commercial vehicles.  The company also
provides financial and other services relating to its automotive
business.  It has five business segments: the Mercedes Car Group,
Chrysler Group, Commercial Vehicles, Services and Other Activities.
DaimlerChrysler offers its automotive products and related financial
services primarily in Europe and in the North American Free Trade
Agreement (NAFTA) region, which consists of the United States,
Canada and Mexico.  In 2002, the company's automotive business,
including related financial services, contributed 98% of its
revenues.  Additionally 52% is derived from sales in the United
States, 15% from sales in Germany and 16% from sales in other
countries of the European Union (EU).  The company's quarterly
earnings report is due 4/24/03.

DCX - DaimlerChrysler AG  $32.74

PLAY (sell naked put):

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

SELL PUT  APR 30    DCX PF   7,470    0.45  29.55  14.1%   1.5% *
SELL PUT  MAY 27.5  DCX QY     118    0.45  27.05   4.5%   1.7%
SELL PUT  MAY 30    DCX QF      64    1.20  28.80   8.5%   4.2%


**************
JCOM - j2 Global Communications  $31.05  *** Premium Selling! ***

j2 Global Communications (NASDAQ:JCOM) provides outsourced value
added messaging and communications services to individuals and
businesses throughout the world.  The company offers faxing and
voicemail solutions, Web initiated conference calling, document
management solutions and unified messaging services.  j2 Global
markets its services principally under the brand names eFax and
jConnect.  The company delivers its services through its global
telephony/Internet protocol network, which spans more than 600
cities in 18 countries across five continents, including four
capital cities in Latin America where j2 Global is in the process
of launching its unique service.

JCOM - j2 Global Communications  $31.05

PLAY (sell naked put):

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

SELL PUT  APR 30    JQF PF     535    1.15  28.85  31.0%   4.0%
SELL PUT  MAY 30    JQF QF   1,151    2.95  27.05  16.9%  10.9%
SELL PUT  MAY 25    JQF QE     162    1.25  23.75  13.5%   5.3%
SELL PUT  MAY 22.5  JQF QX      30    0.70  21.80   8.3%   3.2% *


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

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.

***************
CAT - Caterpillar  $51.71  *** Uptrend Intact! ***

Caterpillar (NYSE:CAT) manufactures and markets construction,
mining, agricultural and forest machinery; engines for on-highway
use and locomotives, as well as for electrical power generation
systems and other applications, and provides financing for the
purchase and lease of its equipment.  The company operates three
principal lines of business: machinery, engines and financial
products.  The company designs, manufactures, markets, finances
and provides support for its Caterpillar, Cat, Solar, Perkins, FG
Wilson, MaK, and Olympian brands.

CAT - Caterpillar  $51.71

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAY-45.00  CAT-QI  OI=2559  A=$0.65
SELL PUT  MAY-47.50  CAT-QW  OI=553   B=$0.90
INITIAL NET-CREDIT TARGET=$0.30-$0.35
POTENTIAL PROFIT(max)=14% B/E=$47.20


**************
RYL - The Ryland Group  $47.52  *** New 2002 High! ***

The Ryland Group (NYSE:RYL) is a homebuilder and mortgage-finance
company.  The company has built more than 190,000 homes during its
34-year history.  Ryland homes are available in more than 260 new
communities in 21 markets across the United States.  In addition,
the Ryland Mortgage company has provided mortgage financing and
related services for more than 165,000 homebuyers.  The company's
operations span all the significant aspects of the home-buying
process, from design, construction and sale to mortgage financing,
title insurance, settlement, escrow and homeowners insurance.

RYL - The Ryland Group  $47.52

PLAY (very conservative - bullish/credit spread):

BUY  PUT  APR-40.00  RYL-QH  OI=86  A=$0.50
SELL PUT  APR-42.50  RYL-QV  OI=70  B=$0.70
INITIAL NET-CREDIT TARGET=$0.25-$0.30
POTENTIAL PROFIT(max)=11% B/E=$42.25


**************
VIP - Vimpel Communications  $37.73  *** Bullish Telecom! ***

Vimpel Communications (NYSE:VIP) is an established provider of
telecommunications services in Russia, operating under the Bee
Line family of brand names.  VimpelCom's license portfolio covers
approximately 70% of Russia's population (100 million people),
including the City of Moscow and the Moscow Region.  VimpelCom
introduced two digital cellular communications standards to Russia
and built a dual band GSM-900/1800 cellular network.  The company
also led the development and emergence of the mass consumer market
for wireless communications in Russia by introducing a prepaid
product solution.  In 2000, VimpelCom introduced new technologies,
such as wireless application protocol and BeeOnline, a multi-access
Internet portal that offers a multitude of wireless information and
entertainment services, including location-based features.

VIP  - Vimpel-Communications  $37.73

PLAY (less conservative - bullish/credit spread):

BUY  PUT  MAY-30.00  VIP-QF  OI=105  A=$0.25
SELL PUT  MAY-35.00  VIP-QG  OI=113  B=$0.80
INITIAL NET-CREDIT TARGET=$0.60-$0.75
POTENTIAL PROFIT(max)=14% B/E=$34.40


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

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.

***************
CCMP - Cabot Microelectronics  $42.78  *** Downtrend Resumes? ***

Cabot Microelectronics (NASDAQ:CCMP) is a global supplier of high
performance polishing slurries used in the manufacture of advanced
integrated circuit (IC) devices, within a process called chemical
mechanical planarization (CMP).  CMP is a polishing process used
by IC device manufacturers to planarize or flatten many of the
multiple layers of material that are built upon silicon wafers
and necessary in the production of advanced ICs.  Planarization is
a polishing process that levels, smoothes, and removes the excess
material from the surfaces of these layers.  CMP slurries are
liquid formulations that facilitate and enhance this polishing
process and generally contain engineered abrasives and proprietary
chemicals.  CMP enables IC device manufacturers to produce smaller,
faster and more complex IC devices with fewer defects.

CCMP - Cabot Microelectronics  $42.78

PLAY (sell naked call):

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

SELL CALL  APR 45   UKR DI    1,611   0.65  45.65  14.1%   1.4%
SELL CALL  MAY 45   UKR EI      271   2.10  47.10  10.2%   4.5%
SELL CALL  MAY 50   UKR EJ      806   0.70  50.70   5.4%   1.4% *


**************
MERQ - Mercury Interactive  $30.85  *** Sector Slump! ***

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  $30.85

PLAY (sell naked call):

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

SELL CALL  APR 32.5 RQB DZ    1,676   0.65  33.15  19.4%   2.0%
SELL CALL  MAY 32.5 RQB EZ      903   1.80  34.30  11.8%   5.2%
SELL CALL  MAY 35   RQB EG      421   0.95  35.95   8.5%   2.6%
SELL CALL  MAY 37.5 RQB ET      253   0.45  37.95   5.6%   1.2% *


**************
QLGC - QLogic  $37.53  *** Premium Selling! ***

QLogic Corporation (NASDAQ:QLGC) designs and supplies storage
network infrastructure components and software for server and
storage subsystem manufacturers.  The company's products are
based on SCSI, iSCSI, Fibre Channel and Infiniband standards.
The company is the only end-to-end supplier of Fibre Channel
network infrastructure components that aid in the transfer and
acquisition of data within the SAN.  Their products include its
SANblade HBAs, SANbox Fibre Channel Switches and SANsurfer Tool
Kit management software.  QLogic is the only HBA vendor that
supports SCSI, Internet Protocol, Virtual Interface and FICON
protocols with the same Fibre Channel HBA.  In addition, the
company designs and supplies controller chips used in a variety
of hard drives and tape drives as well as enclosure management
and baseboard management chip solutions that monitor the health
of the physical environment within a server or storage enclosure.

QLGC - QLogic  $37.53

PLAY (sell naked call):

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

SELL CALL  APR 40   QLC DH    9,499   0.40  40.40  10.4%   1.0%
SELL CALL  MAY 40   QLC EH      811   1.65  41.65   9.6%   4.0%
SELL CALL  MAY 42.5 QLC EV    1,019   0.90  43.40   6.8%   2.1% *
SELL CALL  MAY 45   QLC EI      441   0.40  45.40   4.1%   0.9% TS


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

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.

**************
CAH - Cardinal Health  $56.55  *** Accounting Issues? ***

Cardinal Health (NYSE:CAH) is a provider of products and services
to healthcare providers and manufacturers, helping them improve
the efficiency and quality of healthcare.  The company has four
segments: Pharmaceutical Distribution and Provider Services,
which offers pharmaceutical and other healthcare products, as
well as pharmacy management services; Medical-Surgical Products
and Services, which includes medical products and services;
Pharmaceutical Technologies and Services, which provides a broad
range of technologies and services, and Automation and Information
Services, which focuses on meeting the needs of customers through
proprietary automation and information products and services.

CAH - Cardinal Health  $56.55

PLAY (moderately aggressive - bearish/credit spread):

BUY  CALL  MAY-65.00  CAH-EM  OI=386  A=$0.25
SELL CALL  MAY-60.00  CAH-EL  OI=935  B=$1.10
INITIAL NET-CREDIT TARGET=$0.85-$1.00
POTENTIAL PROFIT(max)=20% B/E=$60.85


**************
GM - General Motors  $34.48  *** Another Downgrade! ***

General Motors (NYSE:GM) is a diversified automotive business
with interests in communications services, locomotives, finance
and insurance.  GM's automotive business designs, manufactures,
and/or markets vehicles primarily in North America under the
Chevrolet, Pontiac, GMC, Oldsmobile, Buick, Cadillac, Saturn and
Hummer nameplates, and outside North America under the Vauxhall,
Opel, Holden, Isuzu, Saab, Buick, Chevrolet, GMC, and Cadillac
nameplates.  GM's communications services relate to its Hughes
Electronics Corporation subsidiary, which includes its digital
entertainment, information and communications services, and
satellite-based private business networks.  GM also is engaged
in the design, manufacturing and marketing of locomotives and
heavy-duty transmissions.  The firm's financing and insurance
operations are conducted through the General Motors Acceptance
Corporation, which provides a broad range of financial services.

GM - General Motors  $34.48

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAY-40.00  GM-EH  OI=23887  A=$0.20
SELL CALL  MAY-37.50  GM-EU  OI=2781   B=$0.50
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$37.80


**************
MXIM - Maxim Integrated  $35.51  *** Chip Stock Retreat! ***

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  $35.51

PLAY (moderately aggressive - bearish/credit spread):

BUY  CALL  MAY-45.00  XIQ-EI  OI=3873  A=$0.30
SELL CALL  MAY-40.00  XIQ-EH  OI=5595  B=$1.05
INITIAL NET-CREDIT TARGET=$0.75-$0.80
POTENTIAL PROFIT(max)=17% B/E=$40.75


**************
MHP - McGraw-Hill  $56.65  *** A Big "Down" Day! ***

McGraw-Hill (NYSE:MHP) is a global information products and
services provider serving the financial services, education and
business information markets.  The company also serves other
markets including energy, construction, aerospace and defense,
as well as medical and health.  McGraw-Hill serves its customers
through its distribution channels, including books, magazines
and newsletters, online via web-sites and digital platforms,
through wireless and traditional on-air broadcasting and with a
variety of conferences and trade shows.  The company's quarterly
earnings report is due 4/29/03.

MHP - McGraw-Hill  $56.65

PLAY (less conservative - bearish/credit spread):

BUY  CALL  MAY-65.00  MHP-EM  OI=96    A=$0.20
SELL CALL  MAY-60.00  MHP-EL  OI=3397  B=$0.80
INITIAL NET-CREDIT TARGET=$0.65-$0.80
POTENTIAL PROFIT(max)=15% B/E=$60.65


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

SEE DISCLAIMER - SECTION 1

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


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

Bulls Out of Breath

To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://www.OptionInvestor.com/marketposture/mp_040903.asp



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

Getting Our Breakdowns

To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/wl_040903.asp


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