Option Investor

Daily Newsletter, Thursday, 05/01/2003

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The Option Investor Newsletter                Thursday 05-01-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.

In Section One:

Wrap: ISM Blues
Futures Markets: Globex Interruptus
Index Trader Wrap: (See Note)
Market Sentiment: Hear That In The Background?
Weekly Manager Microscope: Robert H. Lyon: ICAP Select Equity
Portfolio (ICSLX)

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
      05-01-2003           High     Low     Volume   Adv/Dcl
DJIA     8454.25 - 25.80  8488.35  8340.23 1.68 bln 1638/1541
NASDAQ   1472.56 +  8.30  1478.85  1451.32 1.43 bln 1747/1443
S&P 100   465.34 -  0.19   467.13   458.33   Totals 3385/2984
S&P 500   916.30 -  0.62   919.68   902.83
W5000    8698.40 -  3.62  8727.83  8577.53
RUS 2000  398.83 +  0.15   399.90   394.19
DJ TRANS 2404.79 -  4.10  2412.52  2374.17
VIX        24.50 +  0.73    25.70    24.01
VXN        32.49 -  0.18    34.08    32.20
Total Volume 3,314B
Total UpVol  1,893B
Total DnVol  1,373M
52wk Highs  420
52wk Lows    55
TRIN       1.23
PUT/CALL   0.85

ISM Blues

Investor sentiment based on hope may be surging but reality
always seems to come back to wake us up from our dream. The
ISM disappointed investors this morning and the Jobless Claims
just added to the gloom. Friday will be another wake up call
when the Nonfarm Payrolls for April are announced at 8:30.

Dow Chart - Daily

Nasdaq Chart - Daily

S&P Chart - Daily

Economically nothing has changed. The new Jobless Claims hit
448,000 for the week and last weeks 455,000 was revised upward
to 461,000. The four-week moving average hit its highest level
in a year at 442,000. This is not good news for the Jobs report
on Friday. This was the 11th consecutive week over 400,000 and
the third week in the 450,000 range. With the war over there has
been no pickup in hiring over the last three weeks. If anything
it has gotten worse.

Adding to the negativity was the Construction Spending which
fell -1.0% compared to estimates for a gain of +0.4%. Private
construction dropped -0.2% and residential construction rose
a modest +0.1%. The biggest drop came in the public sector
which dropped -3.5%. State and local governments have continually
fallen short on revenue and they are no longer filling in the
gaps from the private sector. Productivity also came in less
than expected at only +1.6% and disappointed analysts. A slowing
of productivity would indicate a continued slowing of demand
and an increase in unused capacity.

The big report for the day was the ISM, which was much worse than
expected at 45.4 compared to estimates at 47.0. Anything under
50 reflects a contracting economy. One analyst has done a study
on the ISM and found that any number under 47 normally meant a
negative growth quarter for the GDP. This is the fourth consecutive
monthly drop for the ISM after topping out on the rebound at 55.2
for December. The 45.4 is the lowest number since October 2001
at 38.8 and the first full month after the 9/11 attack. Obviously
this is not an encouraging signal. New orders fell to 45.2 and
the employment index fell to 41.4 and the weakest level since
Dec-2001. With the Jobless Claims rising and the employment index
falling to disaster lows the outlook for the Jobs Report on Friday
is not good. The consensus of opinion is for a loss of -58,000
jobs but I would be very surprised if it is not more. This could
be the one-two punch that finally slows the rally.

There was some good news from a sector that has been grounded
lately. The latest airline traffic survey showed passenger
traffic up over prewar levels and a decreasing fear of travel
due to SARS. This is a plus for the industry but a far cry from
being bullish. It simply means the SARS panic may be easing
and the fear of a terrorist attack related to the Iraq war may
also have passed. This is far from saying the sector is recovering
and may only be an indication the worst has passed. Until business
travel picks back up and the travel bans in Asia ease there will
still be problems.

Soundview cautioned on techs today saying that 1/3 of Intel's
revenue comes from Asia. China accounts for 10% of all personal
computer sales worldwide. The largest Chinese PC manufacturer,
Legend Computer, said sales were only running at 60% of plan.
With the panic phase of the SARS scare almost a month old the
odds are good that at least another month of sales depression
is ahead. Take 60 days out of the quarter at only 60% of plan
and the global outlook for the tech sector does not look good.
When the mid-quarter updates begin flowing there are likely
to be some negative surprises.

There was a very unusual event today that impacted trading in
ways we will not understand until tomorrow. Trading on the Globex
exchange ceased at 10:39 and was not reopened all day. The halt
was due to a massive network failure and as of 5:30 tonight it
still has not been corrected. Only 276,000 of the normal 750,000
contracts of the Emini S&P futures were traded before the outage.
The Dow had crashed to 8340 on the ISM news and the futures to 900
before rebounding slightly on a dead cat bounce. The Dow had rolled
over again at 8380 and was heading back down when the outage first
occurred. Once it was announced there was an immediate pop in the
Dow futures and the large S&P as traders short the Eminis decided
to hedge against potential losses and positions they could not
close. The buying leveled out while traders waited for news and
when Globex announced it could be several hours more traders
elected to hedge their bets further. The Dow and S&P rose until
just before 3:15 when Globex had announced they would reopen.
When there was not a rush of pre-open orders the markets sold
off again. At 3:15 Globex announced the problems were continuing
and they would not open as expected and would remain closed the
rest of the day. As traders became aware of their inability to
close positions overnight the Dow again found buyers as traders
grabbed the only futures hedges available.

This is setting up a major spectacle at the open tomorrow. There
is a strong feeling among traders that there was heavy short
interest today. We have seen heavy volume on the sell side every
time we near 920 and we have had plenty of chances this week.
With this heavy short interest on the futures and now offsetting
long interest in the Dow futures as a hedge we could see some
fireworks at the open. If you are short the S&P and went long
the Dow futures as a hedge then a bad Jobs Report tomorrow will
confirm your bearish direction and you would sell your Dow futures
and add to S&P shorts. (if Globex actually comes back) This would
create a double hit to the downside. Conversely if the Jobs Report
surprises to the upside they will just sell the Dow futures higher.

The wildcard here is the traders that cannot trade overnight due
to broker restrictions. They are at the mercy of the Jobs Report
which is announced an hour before the market opens. If they bought
the dip this morning then they will be praying for an upside
surprise and selling on the news an hour later at the cash open.
If they are short they will be praying for a downside surprise to
stop the bleeding and keep them from losing their shirts before
the open. There are so many scenarios for the open I cannot cover
them all in the space allowed here. The bottom line for me is the
potential for extreme volatility as positions are added to or

This was the first time in four days that the Dow did not test
the resistance high at 8520. The economics and the repeated
failure at that level prompted strong profit taking at the open.
Without the Globex problem and the hedging in the Dow futures
the result could have been a lot different. The morning dip stopped
only 40 points above the 8300 support from the last couple weeks.
That stop had all the appearance of a dead cat bounce, which was
already failing when the Globex problem appeared. There was a
rumor making the rounds this week that the gains early in the
week were due to market makers on the NYSE clearing positions,
which were weighted to the short side, as the investigation into
trading practices accelerated. While I doubt this was reality it
would mean no bias by the specialists going into Friday.

The Nasdaq was a different story. It rose off the lows, possibly
due to hedging in the larger NDX futures contract as well and
closed very near its highs for the week. For whatever reason the
Nasdaq bounced it was very impressive in the face of bad economic
data and those downgrades from Soundview.

For Friday we have an opening out of the twilight zone. The last
major economic report for April at 8:30 and potentially 500,000
contracts of missing Emini volume to square at the open. The
volatility could be huge if the Jobs Report surprises to the
upside. If it surprises to the downside the volatility could
ease the closer we get to 905 on the S&P Futures. This is where
the problem began and would represent no harm/no foul for most
traders. With the war in Iraq over there is really no hindrance
to holding over the weekend so predicting the closing direction
is a tossup. We are up for the week and still near the highs so
the educated guess would be profit taking in the afternoon.
Either way the fireworks are likely to be at the open and they
may be extreme.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


Globex Interruptus
Jonathan Levinson

Daily Pivots (generated with a pivot algorithm and unverified):

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
DJIA      8575   8515   8427   8367   8279
COMPX     1496   1484   1468   1456   1439
SP03M      931    923    912    904    893
YM03M     8541   8485   8401   8345   8261
ND03M     1139   1126   1110   1097   1081

The Globex data feed went down at 11:40 EST and stayed down
throughout the session due to "widespread network failure." An
announcement was made projecting a reopen at 3:15 EST, but the
Globex remained down at the time of this writing.

The markets opened on abysmal initial claims and productivity
data, but managed to tread water until the ISM data at 10AM when
the real selling began.  The lows of the day were set within the
following half hour, a retest was made, and an aimless drift
ensued until buying returned, coinciding roughly with the outage
at the Globex, and continued for most of the afternoon before
closing higher on the day.  The US Dollar Index set a new bear
market low at approximately 11:00AM below 96.50, and continues to
trade weakly just above that level.

Volume was lighter than yesterday on the COMPX and NYSE, with
1.54B COMPX shares and 1.71B NYSE shares changing hands.  The VIX
closed higher by .73 at 24.50, while the VXN dropped .18 to 32.49
and the QQV -.12 to close at 27.86.

Chart of the COMPX

Other than the recovery off the lows today, there were few
surprises on the COMPX as price continued to respect the
boundaries of the bearish ascending wedge.  The sell signals on
the stochastics have been headfakes so far, while the slower MacD
continues to grow toppier.

Chart of the INDU

Few surprises from the INDU either, although the morning decline
nearly took out the lower ascending trendline of what is either a
bearish ascending wedge or a bullish ascending triangle.  To
reflect this ambivalence, I've added the alternate upper
trendlines for both formations.  Notice the bullish candle on
printed today-  that long tail indicates a lack of commitment to
the downside and a sharp intraday reversal, which is what we got.
Whether that reversal was caused by panic hedging of short
positions "trapped" on the Globex, or whether it was "genuine"
bargain hunting, tomorrow will have to tell.

60 minute chart of the YM

The 60 minute candle view depicts the ascending triangle
discussed above.  I've highlighted the lower highs being printed
on the 10(5) stochastics.  There is no signal yet on the
oscillator, and we saw a similar trend violated today on the ND
contract below.  Nevertheless, this trend on the YM contract
depicts a gradual weakening in the up-phases on this 10 period
cycle, and if the trend holds, we should see a failure well
before the next challenge of the upper trendline of the triangle.
The 200 point range has narrowed to a 175 point range over the
course of this week, which is comforting to those of us who are
growing tired of the current pattern.  Unless the market achieves
perfect equilibrium, a meaningful breakout can be expected.

60 minute chart of the SP

The break below the ascending trendline this morning proved to be
a headfake, and the only comfort for traders is that with the
range now just 11 points on the SP contract, a resolution one way
or the other can be expected soon.  We have the same weakening
trend on the 10(5) stochastic as we saw above on the YM, and it
too implies a failure below the upper trendline.  However,
oscillators oscillate, and I have far less confidence in these
indicator trends than I do in price trends.  Nonetheless, the VIX
confirmed the slight decline in price for a change, rather than
falling alongside price, and this could also be portentious of
further weakness to come.  A break below 909 will be the first
step, but given the headfake today below that level, we'll want
to see a violation of next support at 897 to confirm it.

60 minute chart of the ND

The ND was the strongest of the bunch today, actually closing in
the green, confirmed by the drops in the VXN and QQV.  The range
here is at its narrowest, with just 7 points' distance between
the upper and lower trendlines of the rising triangle.  As usual,
the ND should lead the other indices.  While the rising triangle
is a bullish chart formation, the stochastic is toppy, but
nothing prevents it from getting and staying toppier.  The
violation of the weakening stochastic trend with this morning's
reversal is bullish, as is the green close despite today's
terrible economic data.  A clean break of the upper trendline
will be the first sign, but note the tall spike printed on the
29th – you will want to be patient and wait for a successful
retest before trusting a breakout move in either direction.

For tomorrow, patience will be key.  There been several fakeouts
during the course of this rally, this morning's being the latest.
I would wait for a decisive violation of today's low or of April
29th's high before showing any hint of confidence in the move's


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Hear That In The Background?
- James Brown

It's subtle but I almost get the feeling that investors are
holding their breath.  There are so many variables to watch and
they're all stuck on pause.  The Dow Jones Industrials are
coiling ever tighter in their six-week bullish wedge.  The NASDAQ
Composite and the NDX are at new relative three-month highs but
the last week has been more sideways.  The S&P 500 is valiantly
trying to break the critical 920 level but sell orders over power
it ever time it gets close.

The Iraqi war is over.  President Bush is about to tell us that
the combat "phase" is over tonight.  The SARS crisis seems to be
ebbing.  Corporate earnings news is slowing down.

For weeks and months we've heard that this conflict in Iraq has
clouded businesses' ability to look ahead.  We've heard that
consumers will start spending again after the war's over.  We
hear that the economy is going to rebound in the 2nd half now
that the war's over.  blah, blah, blah... it's all the same.
We've heard these excuses about the economy getting better when
the war's over.  Now the war is over and all eyes are focused on
the economy and every minute report.

Let me tell you, it's not good.  Jim has gone into greater detail
in his wrap tonight but the ISM report this morning did not give
investors any reason to buy stocks.  On top of it the weekly
Jobless Claims numbers continue to get worse.  The Friday morning
nonfarm payrolls report could make or break the recent rally.

So what is a trader to do?  Tread carefully, my friend.  The VIX
and the VXN, volatility indices that measure investor fear and
complacency, are both at their lows but the descent has slowed.
What's that you hear in the background?  Is that a stampede of
bulls or the long, slow growl of a still hungry bear?

If the S&P 500 can breakout above 920 and the Dow Jones can break
to the upside from its recent consolidation then the bears may
have to let the bulls have their fun.  We could see another
mighty leg higher.  Looking across the different sector indices
one does see a lot of bullish trends.  However, many of those are
butting their heads right against overhead resistance.  The risk-
reward is in favor of the bears right now, not the bulls.

On top of it all you're about to hear market pundits and talking
heads on TV parrot the old saying "Sell in May and go away".
It's an old Wall Street maxim about selling stocks in May to
avoid the "worst" six months of the year.  We know it sounds
rather odd to a trading crowd like us, but there are plenty of
people that do just that.  The last fifty years offers plenty of
proof that it works.

The "best" six months of the year, the end of October through
May, has seen the S&P 500 tally up a 50-year gain of 2,806
percent.  That's about seven percent a year.  Ah, but since it is
only six months, it's really fourteen percent, but that's
splitting hairs (or years).  The "worst" six months of the year,
the end of May through early October, has produced a 50-year
grand total for the S&P 500 of just 24 percent.  This is a
whopping 0.48% per year (again, we're actually talking six
months).  Whether you believe it or not, the numbers don't lie.
It's going to be a "stock-pickers market", as they like to say on
Wall Street.

Meanwhile, we've seen gold prices (June contracts) rally higher
the last couple of sessions.  This could be traders trying to get
in front of any big moves as they anticipate a bearish reversal
in the stock market, which would be bullish for gold.

You either need to keep your fingers nimble or take a step back so
you don't get run over.


Market Averages


52-week High: 10106
52-week Low :  7197
Current     :  8454

Moving Averages:

 10-dma: 8432
 50-dma: 8125
200-dma: 8308

S&P 500 ($SPX)

52-week High: 1098
52-week Low :  768
Current     :  916

Moving Averages:

 10-dma:  908
 50-dma:  864
200-dma:  879

Nasdaq-100 ($NDX)

52-week High: 1230
52-week Low :  795
Current     : 1113

Moving Averages:

 10-dma: 1099
 50-dma: 1041
200-dma:  994


The rate of descent for the VIX and VXN have slowed.  As a matter
of fact the VIX actually popped higher by three percent today.
Has the tide finally turned for the markets or is this just a
bear trap before the major indices breakout above resistance?

CBOE Market Volatility Index (VIX) = 24.50 +0.73
Nasdaq-100 Volatility Index  (VXN) = 32.49 -0.18


          Put/Call Ratio  Call Volume   Put Volume

Total          0.85        460,713       392,831
Equity Only    0.72        368,127       263,537
OEX            1.18         20,537        24,211
QQQ            2.24          9,989        22,416


Bullish Percent Data

           Current   Change   Status
NYSE          52.7    + 1     Bull Confirmed
NASDAQ-100    70.0    + 0     Bull Confirmed
Dow Indust.   50.0    + 0     Bull Alert
S&P 500       57.8    + 1     Bull Confirmed
S&P 100       58.0    + 1     Bull Confirmed

Bullish percent measures the number of stocks in an index
currently trading on a buy signal on their point and figure
chart.  Readings above 70 are considered overbought, and readings
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend


 5-Day Arms Index  1.14
10-Day Arms Index  1.12
21-Day Arms Index  1.07
55-Day Arms Index  1.29

Extreme readings above 1.5 are bullish, and readings below .85
are bearish.  These signals don't occur often and tend be early,
but when they do, they can signal significant market turning


Market Internals

            -NYSE-   -NASDAQ-
Advancers    1425      1633
Decliners    1403      1370

New Highs     118       155
New Lows       20        22

Up Volume    776M      974M
Down Vol.    891M      431M

Total Vol.  1683M     1430M

M = millions


Commitments Of Traders Report: 04/22/02

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the
Chicago Mercantile Exchange and Chicago Board of Trade. COT data
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs tend
to be wrong.

S&P 500

We see some shuffling here in the Commercials as both short and
long positions rise but new shorts increase by more than 13K
contracts.  Small traders remain net long but the tide of bears
is growing.

Commercials   Long      Short      Net     % Of OI
04/01/03      417,637   409,332     8,305     1.0%
04/08/03      420,084   407,452    12,632     1.5%
04/15/03      424,219   409,853    14,366     1.7%
04/22/03      430,758   423,295     7,463     0.9%

Most bearish reading of the year: (111,956) -   3/6/02
Most bullish reading of the year:   14,366  -  4/15/03

Small Traders Long      Short      Net     % of OI
04/01/03      143,580   126,594    16,986      6.3%
04/08/03      136,173   122,006    14,167      5.5%
04/15/03      148,434   137,680    10,754      3.8%
04/22/03      147,068   140,153     6,915      2.4%

Most bearish reading of the year:  10,754 - 4/15/03
Most bullish reading of the year: 114,510 - 3/26/02

E-MINI S&P 500

Meanwhile, on the smaller e-mini contracts a wave of new
bearish activity has appeared in the Commercials.  This is
not good news for the markets as the "smart money" is usually
right and we just saw 47,000 new short positions.  Retail
traders remain excessively long with nearly 30K new long
positions and a drop of 3600 short positions.

Commercials   Long      Short      Net     % Of OI
04/01/03       98,460   321,335   (222,875)  (53.1%)
04/08/03      114,210   344,961   (230,751)  (50.3%)
04/15/03      119,316   390,555   (271,239)  (53.2%)
04/22/03      124,200   437,597   (313,397)  (55.7%)

Most bearish reading of the year: (313,397)  - 04/22/03
Most bullish reading of the year: (222,875)  - 04/01/03

Small Traders Long      Short      Net     % of OI
04/08/03      319,460    35,629   283,831    79.9%
04/15/03      365,876    44,137   321,739    78.5%
04/22/03      395,596    40,480   355,116    81.4%

Most bearish reading of the year: 283,831   - 04/08/03
Most bullish reading of the year: 355,116   - 04/22/03


Interestingly enough, the Commercials remain net long on
the NDX with the Nasdaq breaking out to the upside this week
and the small traders remain next short (almost 2 to 1).

Commercials   Long      Short      Net     % of OI
04/01/03       40,493     36,893     3,600    4.7%
04/08/03       44,257     36,711     7,546    9.3%
04/15/03       44,976     37,929     7,047    8.5%
04/22/03       45,647     38,531     7,116    8.5%

Most bearish reading of the year: (15,521) -  3/13/02
Most bullish reading of the year:   9,068  - 06/11/02

Small Traders  Long     Short      Net     % of OI
04/01/03        9,771    13,306   ( 3,535)  (15.3%)
04/08/03       11,365    17,790   ( 6,425)  (22.0%)
04/15/03       11,182    17,438   ( 6,256)  (21.9%)
04/22/03       10,929    20,376   ( 9,447)  (30.2%)

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


There has not been much change in the futures positions
for either the commercials or the small traders.  The
retail trader is pretty much neutral and the big guy
is slightly bullish.

Commercials   Long      Short      Net     % of OI
04/01/03       19,068    12,672    6,396      20.2%
04/08/03       18,566    12,616    5,950      19.1%
04/15/03       17,881    13,124    4,757      15.3%
04/22/03       16,942    14,750    2,192       6.9%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
04/03/01        5,142     7,459    (2,317)   (18.4%)
04/08/03        5,886     7,964    (2,078)   (15.0%)
04/15/03        7,748     8,704    (  956)   ( 5.8%)
04/22/03        8,081     8,275    (  194)   ( 1.2%)

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


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Robert H. Lyon: ICAP Select Equity Portfolio (ICSLX)

Robert H. Lyon is the president and chief investment officer of
Institutional Capital Corporation ("ICAP"), which has served as
investment advisor to the ICAP Select Equity Portfolio since its
December 31, 1997 inception.  During 1991, Mr. Lyon led a group
of senior ICAP professionals in arranging a buyout of the firm's
founder.  Before joining ICAP in 1988, Lyons spent 7 years as an
executive vice president and director of research with Fred Alger

Mr. Lyons' bio states that he also worked as a portfolio manager
and analyst with Institutional Capital Corporation for 5 years,
and as an economist and strategist with First National Bank,
Chicago for 2 years.  The 28-year industry veteran has a BA in
Economics from Northwestern University and an MBA from Wharton
School of Finance.

Lyons is supported by other senior members of the ICAP investment
team, including Gary Maurer (30 years), Donald Niemann, CFA (33
years), Jerrold Senser, CFA (24 years), Thomas Wenzel, CFA (16
years), and Doug Scott, CFA (15 years).  Each professional has
developed expertise in at least one functional investment area,
and is responsible for managing one or more economic sectors so
that collectively, the firm has expertise across all industries.

The ICAP Select Equity Portfolio is one of four stock funds that
are offered by Institutional Capital Corp.  The no-load fund has
a minimum initial investment of $1,000 for both regular accounts
and IRAs.  According to Morningstar, the fund's expense ratio is
currently 0.80%.  For complete information or to download a fund
prospectus, go to the www.icapfunds.com website.

Manager Style/Strategy

According to the ICAP website, the Select Equity Portfolio seeks
to provide a superior total return for investors.  By "superior"
they mean a total return, which exceeds the S&P 500 index return
over a full market cycle.  It can invest in the common stocks of
companies with market caps of $2 million or more, but the fund's
average market capitalization of $24 billion as of March 31, per
Morningstar, tells you that the fund concentrates its investment
in the giant-cap and large-cap ranges.  According to Morningstar,
mid-caps and small-caps comprised less than 10% of net assets at

Under normal conditions, Lyons will invest at least 65% of fund
assets in equity securities.  He may invest up to 35% of assets
in fixed income and money market securities for any purpose and
may put the entire portfolio in such instruments as a temporary,
defensive measure.  As of March 31, 95% of assets were invested
in stocks, with a 5% cash position.  Foreign stocks made up 15%
of assets at quarter-end, per Morningstar.  Lyons uses a bottom-
up approach, favoring undervalued stocks that are consistently
growing their earnings and offer "catalysts" for future growth.

Since ICAP Select Equity Fund is registered as "non-diversified"
Lyons can invest a larger portion of fund assets in his favorite
stocks.  At March 31, the portfolio had just 25 stocks with over
53% of assets in the fund's top 10 holdings.  The top 3 holdings
at were Bank of America (7.1%), Public Service Enterprise Group
(PEG), and ConocoPhillips (6.4%).

The members of the investment team review and discuss the merits
of potential investments and, as a team, make a decision whether
to invest in a company or not, the ICAP website states.  Once a
model portfolio of about 40-45 stocks is chosen, Lyons picks 15-
25 of the most compelling of these stocks to include in the ICAP
Select Equity Portfolio.

The ICAP Select Equity Portfolio is in Morningstar's large value
category based on its average style box location for the past 36
months.  The mostly recently available portfolio, however, falls
into the large-cap blend style box.  At 309%, the fund's average
annual portfolio turnover is high, and could potentially lead to
poor tax efficiency, something to note if you're considering the
fund for a regular (taxable) account investment.

Management fees for the ICAP Select Equity Portfolio are 0.80%.
Further, ICAP has been paying 100% of the fund's other expenses,
resulting in an expense ratio of 0.80%, well below the category
average of 1.40% per Morningstar.  The prospectus says that the
expense cap will terminate on April 30, 2003 unless extended by
mutual agreement of the parties.  Contact ICAP to find out more.
Certainly, if ICAP stops paying all of the fund's other expenses
that will materially affect performance, since total returns are
calculated net of all fund expenses/costs.

Manager Performance

In the fund's first two full years of operation, 1998 and 1999,
Lyons produced annual returns of 15.3% and 27.2%, respectively.
His 15.3% return in '98 ranked the ICAP Select Equity Portfolio
in the top 30% of the Morningstar large-cap value category, but
his 1999 performance ranked in the category's top 1%.  In years
1998-2001, Lyons' performances ranked in one of the two highest
quartiles of large-value category.

Lyons' focused portfolio struggled in 2002, losing 24.5% on the
year and ranking in category's fourth (bottom) quartile.  Sears
and Tyco stock blowups last year contributed to the fund's loss.

In 2003, the ICAP Select Equity Portfolio is back on track.  For
the year-to-date period through April 30, 2003, Lyons has posted
a total return of 8.8% for investors.  His 8.8% YTD return ranks
the ICAP Select Equity Portfolio in the top 1% once again of the
Morningstar large-cap value category.

While the fund's trailing 1-year and 3-year annualized returns
through April 30, 2003 are closer to middle-of-the-pack in the
Morningstar large-value category, Lyons' 5-year average annual
return of +2.1% ranks the Select Equity Portfolio in the top 7%
of the category.  For the same 5-year period, the S&P 500 index
benchmark had a negative annualized total return of 2.5%, while
the average large-value fund lost 1.8% a year, per Morningstar.

The ICAP Select Equity Portfolio is a Morningstar Analyst Pick.
In its report, Morningstar notes the impressive record that Mr.
Lyons built running sibling, ICAP Equity Portfolio.  Since this
fund contains Lyons "highest-conviction" stocks, it should beat
its more-diversified sibling over time; well, theoretically, at
least.  That is, of course, if Lyons hits his target more often
than he misses which he does in Morningstar's view, referring to
Lyons' stock-picking skills as "top-notch."

As 2002 shows, with net assets concentrated in a small number of
holdings, one or two torpedoes can hurt relative performance but
the flip side is true as well.  One or two home runs can help to
deliver strong relative performance.  So, while the fund's large-
cap value/blend management style makes it appropriate as a "core"
investment, Lyons' rapid trading style and concentrated portfolio
can result in poor tax efficiency and make it more susceptible to
ups and downs.


Many argue that too much diversification results in average-type
returns.  Focused portfolios such as the Select Equity Portfolio
offer greater total return potential over the long term, but are
almost guaranteed to be associated with higher volatility in the
short-term.  Therefore, it is most appropriate for investors who
can tolerate very significant fluctuations in share price in the
pursuit of higher potential appreciation over full market cycles.

For more information, go to the www.icapfunds.com website.  Note
again the fund's "expense cap" agreement terminated on April 30,
2003 (unless extended by mutual agreement of the parties).  Your
best bet is to contact ICAP Funds directly (888-221-4227) to get
the scoop on whether ICAP may continue to pay for some or all of
the fund's other operating expenses (beyond the management fees).

Steve Wagner
Editor, Mutual Investor

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The Option Investor Newsletter                 Thursday 05-01-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.

In Section Two:

Dropped Calls: None
Dropped Puts: None
Daily Results
Call Play Updates: ADTN, AZO, ERTS, IMDC, NXTL
New Calls Plays: SLM
Put Play Updates: FITB, INTU, KSS
New Put Plays: None


When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.






Please view this in COURIER 10 font for alignment

CALLS    LAST      Mon    Tue    Wed   Thu  Week

ADTN     41.40    0.53   1.20  -0.22  0.92 Finally Triggered
AZO      80.34    1.27   1.02   0.47  0.15 Still Looks Great
ERTS     59.53    1.33  -1.35  -0.39 -0.18 Still Cautious
IMDC     37.05    0.95  -0.15   0.24  1.71 Take Profits!
MEDI     35.92    0.81   0.15  -0.47  0.00 Long-Term, no update
NXTL     15.30    0.75   0.63  -0.29  0.54 Like Clockwork
SLM     112.18                        0.18 NEW, Split Coming


FITB     49.58    1.10  -0.16  -0.36 -0.48 Still Untriggered
INTU     38.74   -2.17   3.95   0.08 -0.35 Still Under Resistance
KSS      57.28    1.67   0.59  -0.48 -1.31 Looks better

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ADTRAN, Inc. - ADTN - close: 41.40 change: +0.92 stop: 38.50*new*

After initiating bullish coverage of ADTN on Tuesday, yesterday's
session was a bit of a disappointment, with the stock drifting
slightly lower.  Today's session was a different affair
altogether, as the stock rebounded sharply from its early low near
$40, launching through our $41.40 trigger and trading an intraday
high of  $41.75, before relaxing a bit in the afternoon.  It is
interesting how ADTN fell back at the close to end the day right
on that $41.40 level.  A pullback into the $40-41 area should
provide a solid opportunity for new entries on the rebound, as any
dip should now be strongly supported by the ascending trendline,
now at $39.50.  Momentum types will want to see a break above
today's intraday high ($41.75) before adding new positions.  We're
ratcheting our stop just a bit higher to $38.50 tonight, as this
is just below Monday's intraday low and the 20-dma ($38.91).

Picked on April 29th at  $40.70
Change since picked:      +0.70
Earnings Date          07/15/03 (unconfirmed)
Average Daily Volume = 752 K
Chart link:


AutoZone, Inc. - AZO - close: 80.96 change: +0.15 stop: 77.90

Consistency is a wonderful thing, especially when it is in one of
our plays.  In the face of the rather interesting trade in the
broad market on Thursday, AZO dipped at the open, found support at
a higher low and then pushed higher right into the closing bell.
Today's close fractionally eclipsed Wednesday's close of $80.81
and it certainly looks like the stock is intent on continuing its
way up the chart.  On Balance Volume has now pushed to its highest
level since mid-December, when the sharp slide lower began.  One
cautionary note comes from the daily Stochastics though, as they
are once again back in overbought territory.  Of course, each drop
out of overbought over the past month has just resulted in a fresh
buying opportunity, not a break of the upward trend.  This
morning's dip could have been used for aggressive entries into the
AZO play, but at this point we need to be careful about new
entries.  AZO is up more than $10 in the past month, and we have
to question how much more upside there is.  Conservative traders
will want to use a move into the $82-83 area as an opportunity to
harvest gains.  We're still looking for the stock to trade our
upper target zone of $84-85 though and so far things are looking
good.  For now, we're maintaining our stop at $77.90, but we'll
look to raise it on a close above $81.50.

Picked on April 13th at  $75.24
Change since picked:      +5.72
Earnings Date          06/03/03 (unconfirmed)
Average Daily Volume = 1.21 mln
Chart link:


Electronic Arts - ERTS - close: 58.95 change: -0.19 stop: 58.00

There's no question that our ERTS play has been disappointing, as
it has slowly drifted lower following the failed breakout above
the $61 level.  But there hasn't been an overabundance of selling
pressure, as volume has been light and the stock continues to find
support above our $58 stop.  However, it did get uncomfortably
close to that level on Thursday, with an intraday low of $58.33.
Working against our hoped-for bullish outcome, ERTS is now finding
resistance at the 20-dma ($59.33) and 200-dma ($59.41), rather
than support.  With earnings looming next Tuesday, the fuse is
growing quite short for ERTS to redeem itself.  At this point,
only aggressive traders should consider new entries on a rebound
from above the $58 level.  If the stock can't show us some upside
on Friday, we'll likely close the play over the weekend.

Picked on April 20th at  $60.04
Change since picked:      -1.04
Earnings Date          05/06/03 (confirmed)
Average Daily Volume = 3.10 mln
Chart link:


Inamed Corp - IMDC - close: 39.00 change: +1.71 stop: 36.00*new*

Sigh.  The earnings date reporting for some of these smaller
companies is NOT very accurate.  No one was showing an earnings
announcement date of April 30th for IMDC.  This is why it is
essential to trade with stop losses.  Instead of good news, it
could have been bad news on IMDC.  Lucky or not, traders need to
evaluate their position status.  Shares of IMDC are up $4.00 from
our pick price of $35.00.  The stock is very close to the top of
its channel and it just $1.00 away from potential resistance at
$40.00.  Now would be a good time for investors to consider
taking some profit off the table, if not close the position
entirely.  Here are some actions to consider. 1) Take profits and
close the play at the open tomorrow. 2) Close half your position
and raise the stop on the remainder.  3) Set a good-til-cancel
order to exit when IMDC trades at $39.50 or $40.00 (or somewhere
in between).  Or if you've suddenly become a longer-term investor
based on the good earnings news then wait and watch how far the
rally might go.  Maybe your new target is $45.  It is certainly
possible that any shorts in this stock have started to cover or
will cover soon.  As of the latest short-position report, there
was about three days worth of volume or more than 600K shares
short.  The official OptionInvestor.com position will be to close
the play on any intraday spike to $40.00.  This means we will
pass up the opportunity should the stock continue to rally but we
have to be a bit more conservative as an end-of-day newsletter.
On the other hand, the individual trader can monitor their
positions and continue to raise their stops as the stock moves.
Maybe we'll get another entry point in a few days time.  As far
as the recent news, IMDC announced earnings on April 30th.  The
results of 58-cents a share were two cents above estimates.  Net
income was $12 million compared with $8.4 million the year
earlier.  IMDC said sales rose by 19% to $75.5 million for the
quarter.  Inside IMDC's earnings report was news that the company
had received approvals by the FDA and successfully launched its
CosmoDerm(tm) and CosmoPlast(tm) products.  For the moment, we
are raising our stop to $36.00.  This is a bit wide consider the
profit at risk but we do expect to be stopped out for a profit
early Friday morning.  New positions are not recommended.

Picked on April 17th at $35.00
Change since picked:     +4.00
Earnings Date         04/30/03 (confirmed)
Average Daily Volume = 215 K
Chart link:


Nextel Communications - NXTL - cls: 15.30 chg: +0.54 stop: 13.90

So far the play on NXTL could not have been scripted better. It
has done exactly what we wanted it to do.  The breakout over
$14.65 was huge but shares looked overextended.  We expected a
pull back but now we had broken resistance to look to as new
support.  We listed a range of $14.50 to $15.00 as an entry
point.  The stock closed at $14.76 on Wednesday and dipped to
$14.45 this morning before bouncing higher.  Individual traders
who target shot their way in are probably in a good position.
Our official entry will be the top of the range at $15.00.
Currently, our stop is at $13.90 but more conservative traders
might be able to get away with $14.45.  There really is no
overhead resistance until $18.25-20.00 (our target profit range).
Assuming the markets don't crash on us, NXTL should do well.

Picked on April 30th at $15.00
Change since picked:     +0.30
Earnings Date         04/23/03 (confirmed)
Average Daily Volume = 21.6 Million
Chart link:


SLM Corporation - SLM - close: 112.18 change: +0.18 stop: 110.00

Company Description:
SLM Corporation is engaged in the provision of a broad array of
education credit and related services to the education community,
including student loan origination, student loan and guarantee
servicing  and debt management and collection services.  The
company participates in all phases of the student loan process by
holding and servicing the loan from origination and guarantee
through ultimate collection, and in some cases, post default
collection.  SLM manages a large portfolio of student loans under
the Federal Family Education Loan Program, serving over seven
million borrowers through its ownership and management of $79
billion in student loans.

Why we like it:
In case you haven't noticed education-related stocks have been a
bastion of strength for months now, with many of them surging to
new highs on this latest bull run.  In addition, the Financials
have been one of the key leadership sectors off of the March lows,
with the KBW Banking index (BKX.X) threatening to finally break
above the critical $800 resistance level.  How about a bullish
play that can benefit from both trends?  We've got just the ticket
in SLM, as the company is involved in the business of providing
loans to students.  As an added bonus, the company announced a 3-
for-1 stock split on March 21st and the shareholders are set to
vote on it in 2 weeks.

SLM has been persistently working higher in its 9-month ascending
channel, much to the chagrin of the bears that have been
attempting to short into every new high.  The latest 52-week high
accompanied the company's latest stellar earnings report, which
came in a penny ahead of estimates and more than double that
posted in the year-ago quarter.  Over the past couple weeks, the
stock has been drifting lower as investors harvested recent gains,
but based on Thursday's sharp intraday reversal, it looks like the
stock has found strong support.  The $110 level was strong
resistance on the way up, and should perform the opposite function
now.  Not only that, but there is some firm support at the $111
level, reinforced by the 50-dma ($111.11).  A quick look at the
chart below shows how sharply the stock rebounded today.  Turning
to the PnF chart, we're presented with a strong bullish chart that
hasn't given a Sell signal since launching off the $80 level last
July.  The current bullish vertical count is $120, which isn't too
far above its recent high at $117.35.

New entries near current levels look attractive and a slight dip
near the 50-dma would look even better for new positions.  Daily
Stochastics appear to have bottomed in oversold and are attempting
to turn up and the $110-111 area should provide strong support for
the next leg up to begin.  Add in the anticipation of acceptance
of the stock split at the shareholder meeting in two weeks and we
have strong catalysts on both the sentiment and technical front.
If the BKX index can clear the $800 level, then that ought to seal
the deal and have SLM charging back towards its recent highs.
That will be our initial target on the play, although more
aggressive traders may want to hold out for a push all the way to
the $120 level.  Initial stops will be set at $110, on a closing

Suggested Options:

Shorter Term: The May 115 Call will offer short-term traders the
best return on an immediate move, but this is a higher risk
approach with May expiration only 2 weeks away.  Traders with less
tolerance for risk will want to use the May 110 Call.

Longer Term: Traders looking to capitalize on a breakout move
toward the $120 bullish price target will want to look to the June
115 Call.  This option is currently out of the money, but should
provide sufficient time for the stock to move higher without time
decay becoming a dominant factor over the short run.

BUY CALL MAY-110 SLM-EB OI= 191 at $3.40 SL=1.75
BUY CALL MAY-115 SLM-EC OI=1798 at $0.70 SL=0.30
BUY CALL JUN-110 SLM-FB OI=  37 at $4.70 SL=2.75
BUY CALL JUN-115 SLM-FC OI= 146 at $2.05 SL=1.00

Annotated Chart of SLM:

Picked on May 1st at    $112.18
Change since picked:      +0.00
Earnings Date          07/17/03 (unconfirmed)
Average Daily Volume = 912 K

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Fifth Third Bancorp - FITB - cls: 48.70 change: -0.52 stop: 50.25

If you are wondering what is holding our FITB play up, you need
look no further than the BKX index, which is stubbornly holding up
near the $800 resistance level.  So long as this index is unable
to crest this persistence, then FITB looks like it could
eventually go our way.  That said, it was rather disconcerting how
the BKX rebounded so smartly from its intraday low to close just
off its highs.  FITB went along for that bounce after tagging an
intraday low of $48.  When we initiated this play, we set a
trigger of $47, and since that level has not been traded, the play
is still dormant.  We're looking for a solid break under that
level to bring the play to "live" status, at which point momentum
traders can consider entering on the breakdown.  More conservative
traders will then want to look for a failed bounce in the $47-48
area as an entry.  Our stop remains just above the recent highs at

Picked on April 24th at $47.73
Change since picked:       +0.97
Earnings Date         07/15/03 (unconfirmed)
Average Daily Volume = 2.68 mln
Chart link:


Intuit Inc. - INTU - close: 38.47 change: +0.35 stop: 40.00

It looks like the strength in the GSO software index may be
propping up shares of INTU.  Shares produced what looks like a
failed rally on Wednesday's intraday spike but a real follow
through of declines did not appear in today's session.  We're
still bearish on the stock and the new lower high yesterday
doesn't hurt.  Given our stop at $40.00 this isn't a risky place
to consider new shorts but we'd like to see just a little bit of
momentum to the downside again.  Tread carefully.  The weekend
approaches, maybe we'll see some selling towards the close

Picked on April 27th at $37.24
Change since picked:     -1.23
Earnings Date         05/15/03 (confirmed)
Average Daily Volume = 4.53 mil
Chart link:


Kohl's Corporation - KSS - close: 55.49 change: -1.31 stop: 58.00

Negative comments from Lehman on some of the softline retailers
this morning put the entire group under pressure, and gave our KSS
play the push off its ledge of support we were looking for.  Once
below $56.50, the stock quickly sought out the $55 support level,
from which it saw a very mild afternoon rebound.  Once again, the
50-dma ($55.14) provided support, and we're going to need a
decisive break of that level to get KSS moving towards our
downside target in the $50-51 area.  While in hindsight the rally
failure near $58 is looking like a great entry into the play, more
conservative traders will want to wait for a break under $55 or
even under Monday's intraday low of $54.35 before entry.  Daily
Stochastics are just tipping bearish again, and that ought to pave
the way for lower prices ahead.

Picked on April 27th at $55.02
Change since picked:       -0.47
Earnings Date         05/15/03 (confirmed)
Average Daily Volume = 3.61 mln
Chart link:



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Contact Support
The Option Investor Newsletter                 Thursday 05-01-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
charts and graphs, click here:

In Section Three:

Play of the Day: CALL - NXTL
Traders Corner: When The "Fear Factor" Kicks In – Don't Worry, Be
Options 101: Currency Trading Simplified


Nextel Communications - NXTL - cls: 15.30 chg: +0.54 stop: 13.90

Company Description:
Nextel Communications, a Fortune 300 company based in Reston,
Va., is a leading provider of fully integrated wireless
communications services and has built the largest guaranteed all-
digital wireless network in the country covering thousands of
communities across the United States. Nextel and Nextel Partners,
Inc., currently serve 197 of the top 200 U.S. markets. Through
recent market launches, Nextel and Nextel Partners service is
available today in areas of the U.S. where approximately 240
million people live or work. (source: company press release)

Why We Like It (Original Write Up, April 29th):
It's nice to see some corporate profits again.  NXTL recently
announced their Q1 results and the numbers were pretty positive.
Not only that, it was their fourth consecutive quarterly profit.
Earnings came out on April 23rd and the Q1 numbers showed a 21%
jump in revenues.  Net income was 20 cents a share or $240
million, which is a huge improvement over the same quarter a year
ago with an 82-cent loss.  Analyst estimates for the latest
quarter were just 16 cents.

The company said the higher earnings were driven by much better
than expected subscriber growth.  New customers totaled 480,000
for the quarter.  This brought total subscribers to 11.1 million.
At an average monthly revenue per subscriber of $67, the new
additions really boosted revenues.  The company also shared that
customer churn, the rate at which customers leave their service,
was down to 1.9%.  This was the lowest level in four years.
Management also said they would meet or exceed their 2003 goals.
How's that for guidance?

As a matter of fact, the entire "wireless" industry is doing
pretty well despite previous slow downs from the go-go days of
the late 90's.  Verizon Wireless saw a big jump in revenues and
AT&T Wireless (AWE) isn't doing so bad either.  Some Wall Street
pundits are speculating that the bigger telecom companies in the
U.S. may actually have to buy NXTL or AWE to have an edge against
the competition.

HOW TO PLAY IT -- We put that in capital letters because it's
essential to plan for the right entry point given NXTL's low
stock price.  Only truly aggressive traders should try chasing
the stock right now.  The short-term trend is very strong but
shares look overbought from their recent lows at $12.  Keep in
mind the move today over multi-month resistance near $14.50 is
huge and probably has a number of shorts desperately trying to
cover.  Instead of chasing it, with the call option prices
already inflated, we want to catch an entry on a pull back.

We are going to USE a TRIGGER to go long NXTL if and when the
stock pulls back between $15.00 and $14.50.  Essentially, we're
target shooting an entry.  We provide a range because one never
knows when a stock might gap open.  If NXTL gaps open below
$14.50, then we don't want to play it.  The most probable
scenario is that NXTL pulls back to somewhere within that range
and officially we have to claim an entry price of $15.00.  As the
reader, you can wait and see how far the pull back goes.  Should
we get triggered we'll initiate the play with a stop loss at
$13.75.  Worse case scenario is that NXTL pulls back and just
keeps on going down.  Should you never see a bounce, then don't
go long.  Our initial target will be $20.  Keep tabs on NXTL's
progress in the MarketMonitor.  NXTL's next update will be on
Thursday unless we get triggered tomorrow.

Play-of-the-Day Comments (May 1st, 2003):
So far the play on NXTL could not have been scripted better. It
has done exactly what we wanted it to do.  The breakout over
$14.65 was huge but shares looked overextended.  We expected a
pull back but now we had broken resistance to look to as new
support.  We listed a range of $14.50 to $15.00 as an entry
point.  The stock closed at $14.76 on Wednesday and dipped to
$14.45 this morning before bouncing higher.  Individual traders
who target shot their way in are probably in a good position.
Our official entry will be the top of the range at $15.00.
Currently, our stop is at $13.90 but more conservative traders
might be able to get away with $14.45.  There really is no
overhead resistance until $18.25-20.00 (our target profit range).
Assuming the markets don't crash on us, NXTL should do well.

Suggested Options:
Most of the volume is going to be in the short-term front month
options in May.  These will also be the least expensive to play.
However, if you believe the rebound in wireless and the growth
seen by NXTL can keep up, then consider August or Novembers.  You
don't have to hold them that long and can close the position at
any time.

BUY CALL MAY 15.00 FQC-EC OI=30154 at $0.90 SL=0.00
BUY CALL MAY 17.50 FQC-ES OI= 7213 at $0.15 SL=0.00*more risky*
BUY CALL AUG*15.00 FQC-HC OI=10188 at $1.90 SL=1.00
BUY CALL NOV 17.50 FQC-KS OI= 1838 at $1.65 SL=0.90

Annotated Chart of NXTL:

Picked on April 30th at $15.00
Change since picked:     +0.30
Earnings Date         04/23/03 (confirmed)
Average Daily Volume = 21.6 Million

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Note: Options involve risk. Risk disclosure:


When The "Fear Factor" Kicks In – Don't Worry, Be Happy

By Mike Parnos, Investing With Attitude

During the life of a trade, there will be times that the
underlying stock or index moves against us.  That's enough to piss
off anyone.  So, what do we do?

Many traders simply freeze.  They pretend (and pray) it will just
go away.  Well, in many situations, it's true.  If you freeze, a
big chunk of YOUR MONEY will go away.  At the CPTI, we advocate
and preach the maintaining of your composure.

Basically, if you're worried, that means you don't have a plan --
unless you're basically paranoid.   That means you probably worry
about everything -- the sun coming up, the sun going down, SARS,
alien abductions, what's in hot dogs, body odor, tooth decay,
being too loud, being too quiet, wearing white after Labor Day,
long sleeves or short sleeves, your cholesterol level and what
you're going to have for lunch three days from now.  You fill your
gas tank even though it's half full.   You worry about the ozone
layer, the temperature in your refrigerator, and running out of
toilet paper.  In other words, you're a mess and shouldn't be
allowed by yourself on any street let alone Wall Street.

Plans are nice.  They provide peace of mind.  At the Couch Potato
Trading Institute (CPTI) we have contingency plans.  We know that
we're going to have our share of losses.  We try to keep them
reasonable.   We shouldn't enter trades if we don't know what to
do if it goes wrong.   That's what paper-trading is for – to learn
how to react (or not) to any given situation.

In trading, you can't be afraid to go out on a limb, because
that's where the fruit is.  You just have to choose your limbs
carefully and you have to know how high the limb is from the

Some of our readers have been experiencing the "fear factor."
That well known philosopher "anon" once said, those who fear the
future are destined to fumble the present.   Ain't it the truth?


Hi Mike,
I'm sure you have a plan for your minage a-qua.  Care to share it?
That spike up this morning on MSFT came really close.  Thanks.

Patience, my friend. Patience.  Remember, we're only exposed for
$1.15.  During the life of a trading-range position like this, the
stock can bounce all over the place -- up and down.  There's a
reasonably good chance it will end up somewhere near $25.

The best part about only risking $1.15 is that you don't have to
lose sleep over the trade.  Every transgression near, or even
beyond, $26.35 or $23.65 does not require an action or an

The market is just as fickle as people.  It can have severe mood
swings.  Why?  Because it's people who are doing the buying and
selling.  They'll fluctuate from "irrational exuberance" on news
of an upgrade to depression if another stock in the same sector
has a bowel obstruction.

It averages out over time.  All we can hope for is that the return
to reality happens by option expiration.  It's all in the timing .


A big question we have is about how to combat irrational fear.  We
often exit perfectly good trades because they near the resistance
and support areas of both the trades you suggest and similar
trades we make.  It's unfortunate because the fear is irrational
many times and the trades end up working out 9 times out of 10.
Unfortunately we are not in them to take in the profits and most
likely we have taken a hit to get out of them because of the
spread in bid and ask.

One example of irrational fear is the current SPX bear call
spread.  Earlier this week, one morning the market was running hot
and heavy. We really started to feel some irrational fear coming
on when the SPX recently hit 924.  How do you combat that and keep
from pushing that button?  Thanks

Hide the button.  Take a valium.  Go to the movies.  You're going
to drive yourself crazy (or crazier) if you watch the computer
screen every minute. Get a life.  The whole concept behind this
kind of low-risk trading is to enable you to get off the couch and
smell the roses.  Why stay home and smell the Formula 409?

An Opportunity
Sometimes an adverse market move will provide an opportunity.
When an underlying is trading near the high end of its range in a
condor, it's a good time to take a look at the bottom end of the
range.  In our SPX position, the 825/800 bull-put spread could now
be closed for about $.30.  What would that accomplish?

First, it would remove any obligation you would have to perform
if, in the next 2+ weeks, the market had a dramatic reversal and
came down to threaten the lower extremities of the condor.
Secondly, it would free up all the money that was being held as
maintenance for the bull-put spread.  This money could be put to
use in a variety of ways – generating more money in another

Finally, explore and see if you are in a position to close out
your obligation by buying back only the short put at a reasonable
price.  If you can do that, you will still own the long protective
put (800) that is, at the moment, almost worthless.  Look at it as
a lottery ticket.  If, per chance, the market dramatically
reverses (stranger things have happened), that "worthless" long
put could have significant value if the market moves far enough
and fast enough.

A Story Of "Courage"
When I was in college (a zillion years ago), I was a psychology
major (among others).  In one particular psych class, we studied a
multitude of concepts for 13 weeks.  Our entire grade was to be
based on how we performed on the final exam.  The fateful day
arrived. We were all armed with bluebooks and a pen.  The
professor wrote the single question on the blackboard – "What is

As we opened our bluebooks and began to write, one student got up
from his chair, walked to the podium, handed the professor his
bluebook, and left the room.

We all wrote diligently for the two hours until time had elapsed.
One after another, we handed in our filled bluebooks, shaking our
heads, and hoping for the best.

Only one student earned an "A" on the final examination.  It was
the student who handed in his test and left only moments after the
test began.  What did he write?

The question was, "What is courage?"  He wrote, "THIS is courage."


May CPTI Portfolio Positions

Position #1 -- SMH Baby Condor.  Thursday's Close: $26.48
SMH is the Semiconductor Holder Trust.  We feel that semiconductor
stocks have moved up a little too far and too fast.  We created a
baby condor by selling the May SMH $25 puts and $27.50 calls.  For
protection, we bought the May $22.50 puts and $30 calls.  The net
credit is $1.05

Our maximum profit range is $25 to $27.50.  We're only exposed for
the 2 1/2 point difference between the strikes ($25/$22.50 or
$27.50/$30) less what we've taken in ($1.05) = $1.45.  Maximum
potential profit is $1,050.

SMH has been bouncing around within the range – but then, that's
what it's supposed to do.  Actually, it traded as high as $27.78.
Our safety range is $23.95 to $28.55.  So far, so good.

Position #2 – SPX Iron Condor.  Thursday's Close: 916.30
We believe the market may be a bit extended so we gave it a big
sandbox to play in.  We sold the SPX May 825 puts and the May 950
calls.  Then we bought the SPX May 800 puts and May 975 calls for
protection.  The net credit was $2.95.  Our exposure is a little
more than usual – 25 points less the $2.95 we took in = $22.05.
That's why we're only doing five contracts. Our maximum potential
profit is $1,475.

SPX traded up to 924.24 a few days ago and put fear into the
hearts of a few timid souls.  Today it traded back down and almost
broke 900.    We'll watch it, but we won't obsess over it.

Position #3 – MSFT Minage-A-Qua – Thursday's Close: $25.71
Microsoft just came out with respectable earnings and
unenthusiastic guidance.  We believe that MSFT will finish at or
around $25.

We sold the May MSFT $25 puts and calls for a credit of $1.80.  We
bought the $27.50 calls and $22.50 puts for protection at a cost
of  $.45 – yielding a net credit of $1.35.  Our maximum profit
occurs if MSFT closes right at $25.  Our profit range is from
$23.65 to $26.35.  Our risk is only $1.15 with the potential to
make $1.35.  Maximum potential profit is $1,350.

Position #4 – DJX Minage-A-Qua – Thursday's Close: $84.54
The DJX tracks the DOW.  It looks like the DOW is in a minor
uptrend with resistance at $85 and support at $82.   We sold 10
contracts of the May DJX $84 puts and bought the May DJX $80 puts.
Then sold 10 contracts of the May DJX $84 calls and bought the May
DJX $88 calls for a credit of $.80 for a total net credit of
$2.25.   We'll receive our maximum profit if the DOW closes right
at 8400.  However, we will be profitable if the DOW closes
anywhere between 8175 to 8625.  That's a 450-point range.  The
closer it finishes to 8400, the greater the profit.  Maximum
profit potential: $2,250

Happy trading! Remember the CPTI credo: May our remote batteries
and self-discipline last forever, but mierde happens. Be prepared!
In trading, as in life, it’s not the cards we’re dealt. It’s how
we play them.

Your questions and comments are always welcome.
Mike Parnos


Currency Trading Simplified
Buzz Lynn

Welcome to the Cheapskate revolution - the Cheap Decade, actually.
The coining of the phrase isn't original.  It came from Rich
Karlgaard, Publisher of Forbes Magazine.  For him, it's a new but
recurring theme of his magazine editorial every month.

Here's the concept:  Extremely cheap goods and services by a
factor of 10.  Karlgaard's words:  "CEO's, listen up.  If you are
on the wrong side of this revolution, you better rethink your
company's mission.  Quickly."

Most of us are not CEO's, but traders, or perhaps working a "real"
job with some trading and investing on the side.  The Cheap
Revolution is important to us too.  Like in the early 1900's when
the automobile showed up on the scene, we wouldn't have wanted to
be in the buggy whip business.  Similarly, we don't want to be
mired in a bloated corporate IT department, selling expensive
corporate software installations, or working in an America-based
calling center.  Why not and why pick these examples?

Consider that Google, the Web's most popular search engine with
170 mln page views per day runs off 12,000 servers (think of a
cheap PC without a monitor) costing $2,000 a piece.  When a
computer breaks, they don't call in the IT department to labor
over a solution or call IBM to perform under a service contract.
No, they JUNK the machine and replace it with a new one.  It saves
90 cents on the IT Dollar.  Think cheap.

Here' another example.  Siebel's sales have been flat and they are
struggling under a sales proposition that has customer
relationship management (CRM) software costing the prospect
millions.  Conversely, salesforce.com has 90% of the same
functionality with perhaps 10% of the cost.  It's available for as
little as $65 per month.  Think cheap.

Oh, and that call center for customer service or help?  It's moved
to China or India where those folks offer superb service and are
paid $300 per month.  I've had personal experience reaching India
for McAfee help and the Philippines for Chevron credit card
service.  Think cheap.

How about an example for personal consumption (literally)?  Tired
shelling out ten to twenty dollars for a decent bottle of
Cabernet?  Good.  Me too.  Put them in storage for a while and let
them become collector's items, or save them for company.
Meanwhile head to your local Trader Joe's and pick out a bottle of
Charles Shaw - cabernet, chardonnay, merlot, and sauvignon blanc -
for an unbelievable $1.99 per bottle.  It's affectionately called
"Two-buck Chuck".  Garbage?  Hardly, the stuff is made from an
oversupply of grapes grown all over California and bottled in
Napa, the heart of California wine country.  It's actually a very
good bottle of wine and at $1.99, it's a GREAT bottle of wine.
Again, think cheap.

Well, that's the trend.  For those of you on Paradigm (I hate that
word and can't believe I used it) Beach, this is your wave.  Think

I realize that falls a long way from trading options.  So as long
as we're completely off the subject, I'll be glad to relay that we
are publishing the first edition - and probably the last - of the
Cheapskate Report.  Yes, it's a spoof born of an e-mail exchange
with one of the cheapest guys I know.  Call him Bill.  He and his
wife probably came up with these over a bottle of Two-buck Chuck.
I assume this because he was the one who told me about the stuff
four months ago!

Some are worth repeating for those interested in adding an element
of frugality into their lives.  Ready?  Here goes.  Cut and paste
from Bill's own e-mail

Be good to the earth and recycle. It pays you very little and
often does not pay for the gasoline, but it makes you feel good
and gets you into a conservation mode.  You'd be surprised how
much you eventually save by noticing the waste of some things and
the reuse potential of others.

Same goes for old clothes.  Give them to Good Will or St. Vincent
de Paul.  You get a tax write off and don't have to garage sale
your stuff.

Buy big-ticket tools or toys with a friend or couple.  The stuff
gets used and maintained more often, it costs you at least half or
less and gives you a group to do stuff with.  Tractor, log
splitter, chain saw, motor home. . .use your imagination.

Live substantially beneath your means and you will always have
money to travel.

Or, unless it's an emergency don't ever get a negative
amortization loan.  It's a fool's game waiting for a correction in
real estate.

Trash the Airline mileage cards and take the cash back card
instead.  Frequent flyer seats are harder to come by and are wiped
clean by bankruptcies.  More and more cards are offering cash back
instead.  [They are replacing all their cards and of, course, pay
them off monthly].

Or only go to Chinese drycleaners.  They are the best and you
don't have to put up with the nose-ringed attitude crowd.

Pizza. Never ever pay retail.  There is always a coupon. You can
find them even if you stop at a pizza joint on an impulse, often
in the free weekly newspapers at the same pizza parlor.

Freeze your bread and take out the slices one at a time for
toasting.  They toast just fine.  Make your sandwiches in the
morning with frozen bread and your sandwich stays cold until
lunch.  Benefit.  You will never throw away moldy bread again.
The bread lasts for 6 months or more in the freezer.

Wash your plastic zip lock bags.  Throw them away when the seams
rip.  I've been re-using the same bags for up to a year.  Hardly
ever buy them.   A lot of stuff you buy now comes in them, like
salad greens.  [OK, Bill, you went to far on this one.  Next to
sliced bread and ice cubes, zip lock bags are the greatest.  But
that goes against the first thing mentioned - about conservation
rubbing off on the rest of your life.]

Put the plastic grocery bags around a paper grocery bag for
garbage.  It stands up by itself; the paper absorbs any normal
liquid on trash and coffee grounds.  The plastic bag has handles,
which make it easy to tie off, carry to the trashcan and dispose
off.  Benefit.  I have never paid for garbage bag liners, ever.
Why pay for trash?

Disposable razors are the cheapest way to shave.

A slightly smaller size of any given product at Wal-Mart is often
cheaper per unit of measure than the "Tribe-size" product.  Case
in point - Listerine 1.5 liter mouthwash $4.73. Listerine 1.0
liter mouthwash $2.98.  $3.15/litre vs. $2.98/litre.  Take 2 of
the smaller for a better deal.  [My contribution to the Cheapskate

For non-perishable goods, e-bay frequently has a better deal than
many stores.  But use it as your last stop, as there are a few
shysters out there passing their expensive stuff off as a great
deal compared to the stores.  Sometimes, it just aint so.
[Another contribution born of experience]

0% credit card cash advance deal where you pay down your home loan
with the cash to get a "free" home loan for that portion of the

Buy the faux wood blinds at half the cost of wood, cut to fit at
Home Depot.  Buy white, which looks clean and doesn't offend the
subsequent buyer.

Spend $1000 on good landscaping equipment, fire your gardener, and
recoup the cost savings of the purchase in less than a year.
Landscape maintenance becomes free, excepting your labor and
incidental maintenance expenses - gas, oil, sharpening, etc.

Shop for cheap long distance on the Internet.  I'm currently
paying 4.5 cents a minute to anywhere outside my local calling
area and it bills monthly to my credit card.

Put every recurring bill possible on automatic payment to save

If you are careful with your credit cards and pay them off every
month, use them to pay electronic bills and cash back points
toward your next major purchase.  Better yet, take cash bonus
points to use elsewhere.

Always get your shirts done professionally.  The cost of the
cleaning is offset by increased longevity in your shirts.  Net
cost, practically zero.  BTW. Someone will always do them for
$.99.  I've paid the same for shirts for the last 10 years.  [See
Chinese laundry above]

Always drive a Japanese car [Brand, not country of manufacture].
They last forever, hardly ever break down and can be sold easily.
The best case is to buy a 2-year-old Honda and sell it a year
later.  Hondas are bought and sold within a $3,000 range.  If you
study the ads, you can buy and sell for the same price and get a
years driving for free or better.  Buying low and selling high can
even turn this into a profitable side business with additional tax

Men: Buy one blue suit and forget about the rest [only if you
really don't need to wear them daily].  People only care that you
are dressed appropriately and not in polka dots.  They do not
remember your clothes.

Women: You will need a few ties, ten white shirts, one pair of
black shoes, and one pair of burgundy shoes.  That's it.  You'll
be into it for way south of $1,000.

Marry a frugal wife.  Nothing saves you more money.  Nothing.
[Clair, Bill's wife came up with this one.  Really!]

Enjoy nice vacations.  It encourages you to not spend your money
stupidly because you gauge incidental expenditures on the basis of
how much it cost versus a trip.

Always max your retirement funds first, then play later.  The
stress of an un-funded retirement costs too much, as does the
extra tax bite of regular income.

Dress your infant children in hand-me-downs.  Most of them have
been worn only a few times because kids grow so fast.  You will
only use them a couple of times before you give them to the next
person.  Huge savings.  Barring that, shop at used clothing stores
for the same items for the same reasons - used little and can be
sold back once they're outgrown.

Never throw away leftovers.  Freeze them, put it in a Tupperware
and microwave it for lunch when you are eating alone.

OK, there you have it - The Cheapskate Report!  Sort of a Hints
From Heloise for financial matters.  I'm not sure how many like
this practical, cheap stuff, or at least find it entertaining.

Perhaps you have some of your own to share.  Got a favorite
cheapskate maneuver?  If I get enough, we can actually put
together a second Cheapskate Report.  Unfortunately, there is no
pay (one of the reasons it's the Cheapskate report ),
but there is personal notoriety as a consolation prize if you'd
like credit for the idea.  Otherwise, consider it a contribution
for the betterment of financial conditions everywhere, or a source
of entertainment in the options trading business!

Until next time, make a great weekend for yourselves!  And think


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