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Daily Newsletter, Thursday, 06/19/2003

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The Option Investor Newsletter                Thursday 06-19-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Going, Going, Gone?
Futures Markets: Sellers return
Index Trader Wrap: See Note
Market Sentiment: Be the ball
Weekly Manager Microscope: Bruce Berkowitz: Fairholme Fund (FAIRX)


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
06-19-2003           High     Low     Volume Advance/Decline
DJIA     9179.53 -114.30  9313.29  9154.75 1.83 bln   1080/2148
NASDAQ   1648.65 - 28.50  1686.10  1646.79 1.94 bln   1141/2107
S&P 100   501.76 -  7.89   510.00   500.81   Totals   2221/4255
S&P 500   994.70 - 15.39  1011.22   993.08
W5000    9505.74 -140.70  9659.79  9491.20
RUS 2000  450.33 -  7.18   460.08   450.06
DJ TRANS 2449.54 - 28.40  2488.93  2447.52
VIX        22.01 +  0.41    22.27    21.32
VXN        33.86 +  0.71    34.46    33.19
Total Volume 4,041M
Total UpVol    970M
Total DnVol  2,931M
52wk Highs  518
52wk Lows    20
TRIN       1.56
PUT/CALL   0.54
************************************************************

Going, Going, Gone?

What a difference a week makes! Just a week ago the chances for
a 50 point rate cut next Wednesday were near 75%. Since then the
odds have dropped substantially and some are even saying no cut
at all. Whoa there boys, let's not get too carried away with this
pessimism. Or is it optimism that the economy is doing so well
that the Fed can take a pass?

Dow Chart - Daily



Nasdaq Chart - Daily




Today began with Jobless Claims falling to 421,000 and below
consensus estimates of 428,000. Before you start thinking the job
market has turned around let me also tell you that this was yet
another consecutive week over 400K and a streak that has not been
broken since mid February. The four-week average of continuing
claims rose to 3,726,000 and a 20-year high. Also 43% of the
jobless are running out of benefits before finding a new job. This
is also the highest level on record. Unemployment getting better?
The longer term trend is definitely not showing it.

The Philadelphia Fed Survey came in at 4.0 and inline with the
consensus estimates. Unfortunately the whisper number was 11.0
and the market did not like the 4.0 number. It was not enough
that the new orders and shipments grew from last month by a decent
percentage, traders wanted a blowout similar to the NY Empire
Survey earlier in the week. They did not want to hear about a
slow recovery. They either wanted a blowout to justify the current
market rally or bad numbers to justify a big rate cut. Steady
growth was not on the menu.

Adding insult to injury (if you are looking for a rate cut) was
the surge in the Leading Indicators from 0.10 in April to 1.0 in
May and was the second consecutive month in positive territory.
This is a huge surge in this Conference Board Index and shows
that the economy is really improving. Eight of the ten indicators
that make up the index actually increased in May. What is a rate
cut bull to do with positive signs breaking out all over?

Help came from an unexpected source today but not the kind of help
the bulls really wanted. GE warned that their short cycle plastics
orders for May had dropped between 15% and 20% from last year.
This GE business is normally seen as a leading indicator for the
manufacturing sector. If the raw materials orders fell 20% then
manufactured goods will likely fall as well. GE lost about $1 on
the news to $29.80 but the real damage was to the confidence in
a recovery. GE is now expected to warn about earnings for the
quarter in an analyst meeting scheduled for Friday. Morgan Stanley
continued its fall after JPM and UBS cut their ratings after MWD
reported a 25% drop in earnings.

This was a day filled with mixed messages on the economy. It started
with a high profile article in the Washington Post that said the
Fed would take out an insurance policy against deflation with a
50 point cut next Wednesday. Considering those odds had dropped
significantly after the NY Empire Survey and other good news this
was music to traders ears. That ray of sunshine was quickly lost in
the clouds of mixed news after the open. CNBC had alternating views
all day as commentators argued for 50, 25 or no cut next week. Total
indecision and you know how the market hates indecision.

With Friday a quadruple witching expiration after three months of
rally there was plenty of sellers squaring positions and taking
profits. The Dow failed early at 9300 and then held 9200 for the
majority of the day. Even the Philly Fed report at noon failed to
break the 9200 level for more than a few minutes. This battle line
held until after 3:PM when the bond market no longer helped to
support stocks. The drop was swift and it pushed the Dow to 9154
before late day short covering and bargain hunting softened the
blow. The Nasdaq dropped to close under 1650 for a loss of -28.50.

Neither of these numbers are really critical and the markets can
fall a lot farther and still maintain the current uptrend. The
problem as I see it has many parts. We are still grossly overbought
and heading into the summer slump and the July earnings period.
Those earnings are not shaping up as positive as many had hoped.
Earnings warnings from several high profile companies this week
have raised a cloud over the optimistic outlook for the quarter.
If GE warns tomorrow that will be a major blow to earnings
confidence. That blow was softened somewhat with the plastics news
today. The Fed is the other wild card. The confusion about 50, 25
or even no cut has traders running in circles. They are all geared
up to buy the rumor but can’t tell which rumor to buy. Add to this
confusion the end of quarter/end of half mutual fund portfolio
adjustments and traders are standing still with that deer in the
headlights look. When in doubt, get out is probably the investing
path that will be chosen. Many individuals and funds have large
profits and they will be glad to sell into any end of quarter
buying.

On Tuesday I warned that there would be some big swings over the
next two weeks. With very strong resistance at 9350-9375 the odds
are slim there are any big up moves left. That leaves more risk
for traders to the down side. Another earnings warning or two and
a little more Fed confusion and we could see the Dow testing support
at 9100 or even 9000 once again. The corresponding Nasdaq support
would be 1600-1625.

I would say the risks are neutral when we consider the money flow
into the markets and the end of quarter buying. Funds know there is
a large influx of retirement cash in the first week of July and they
would like to get in before that influx. Sellers are looking for that
bounce to sell into. The bottom line is a market that may move more
sideways than up or down for the next two weeks. The news event wild
cards are still in play and the Fed is the joker in the deck. About
the only sure thing is that a 50 point cut was already baked into the
cake and the odds of that happening are much slimmer now than they
were a week ago. That lack of incentive should cool any buying
hysteria. Keep those stops in place and tread carefully for the
next three weeks.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


***************
FUTURES MARKETS
***************

Sellers return
Jonathan Levinson

Treasuries gapped up at the 8:30 open on data that I could only
characterize as "abysmal" and "frightening", but equity futures
held positive until the cash open.  Initial claims and
unemployment data, and the current account data indicated
persistent unemployment and a 5.8% jump in the trade gap over
Q4's number to a new record.  The picture it paints is one of the
Fed's inability to stimulate more than domestic consumption of
foreign goods by growing debt to unprecedented levels.  For a
more detailed discussion, see last night's Market Wrap.

Equity futures traded mysteriously through the session, other than
a quick spike down at noon.  It felt exactly like options
expiration week today.






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

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
ES03U     1018   1005    999    986    980
YM03U     9368   9262   9194   9088   9020
NQ03U     1271   1248   1236   1213   1202


10 minute chart of the US Dollar Index




The US Dollar Index sold off from 10AM, when the Leading Economic
Indicators data was released, and began its sideways bounce from
former resistance at 93.00.  The commodity futures index (CRB)
was flat today, despite the jump in August gold futures.

Daily chart of August gold




I've hazarded some trendlines on the August gold contract, as the
lower ascending trendline fits well with this week's pattern of
higher lows.  The 61.8% fib line continues to exert magnetic pull
on the price, but the lack of weakness is bringing even the
slower MacD into position for a possible buy signal.  I continue
to see nothing bearish in this chart, but the real test begins at
the 370 level.

Daily chart of the ten year note yield





There were two buying spurts in treasuries, each coincident with
the bad news at 8:30 and the not-good news at noon with the
Philly Fed.  The ten year note yield (TNX) bottomed on both
downward spikes at 3.320%, rebounding weakly on the second bounce
to close at 3.341%, down 1.9 basis points on the day.  The two
buying spurts on bad news were obviously in anticipation of a
deeper rate cut than the 25 bps currently being taken for
granted.


30 minute 20 day chart of the NQ




Today was a fine day for equity bears, a nearly three week
trendline broken to the downside.  There is plenty of support to
the downside, but the lower ascending trendlines during this
rally have tended to be solid, and so today's break was
surprising.  It left the oscillators in oversold territory both
on the 30 minute candles and on the shorter cycle 10 minute
candles below.


5 day 10 minute NQ candles




Today's break below support had a head and shoulders "feel" to
it, as reader Matthew pointed out.  I agree, particularly given
that the next support congestion zone appears around 1210, which
would be the downside target from a failure at the "neckline"
I've drawn and that was violated today.


20 day 30 minute chart of the ES




The S&P futures were weaker than the NQ today, with this
divergence helped along by the strength in MSFT and the weakness
in GE, which was smoked for 2.86%.  The next significant support
area is in the 982 area, but again, the oscillators are telling
us that at least some sideways chop, if not a full-on bounce, is
to be expected.

5 day 10 minute ES candles




If today's action did indeed constitute a crack in the bulls'
armor, which I believe it did, it would be unreasonable to expect
a straight plunge from here given the amount of time that
equities have spent getting here.  Rapid failures reverse rapid
gains, and major tops take time to form.  If this year's bad-news
rally has taught us anything, it's to believe the charts and the
oscillators.  On a short term basis, which is what we're studying
here tonight, they are in oversold territory.  They could begin
to trend, but as we approach support levels, they indicate the
increased probability of bounces.


20 day 30 minute chart of the YM




Note that we already have our stochastic buy signal on the 10
minute Dow futures (below).  Whether it lifts price past the
38.2% fib level is another story, but it's a first indication
that support at the 23.6% level wants to hold for the time being.

5 day 10 minute YM candles





For the past few wraps, I've been trying to figure out whether the
bond-equity relationship is coming undone or not, and whether such
should benefit equities or not.  Reader Keene wrote, "BTW, I also
believe bonds and equities are now back in synch meaning they'll
drop together, with some occasional counter-cyclical moves."  I
happen to agree, but this is only at the projection/gut feel
stage, based more on logic than on observation.  Today's move
would have been countercyclical, as we saw equities drop and
treasuries rise.  However, given the FOMC uncertainty heading into
the June 24-25 meeting, it's going to be tricky to try to get a
read on the relationship from here.

While I am bearish on equities, particularly on the bullhorning
about a second half recovery, the charts are the charts.  Bears in
the early 1930's must have had some great fundamental arguments,
and they might have been able to parlay them into a free coffee or
two, but great arguments do not great trades make.  Bulls and
bears have been expecting a correction.  If there was ever a rally
in need of correction, this was it.  We must remain nimble and
trade what we see.  So far this year, the vertical moves have been
to the upside, and particularly in short positions, keeping stops
on is a necessity at all times.


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

Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_061903_1.asp


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

Be the ball

As we've been discussing, indicators are an excellent tool for
illustrating and clarifying the past and the present.  As any
experienced chartist will tell you, however, it does not pay to
anticipate signals on a chart.  So often, the crossover point is
the precise level at which a rejection or a reversal occurs.

As your experience grows, one's own feelings become another
indicator to be followed with the others.  By routinely following
a set of indicators in an organized fashion, one's own intuition
and gestalt of that stream of data can begin to develop.

The risk of correction has been amply illustrated during the past
sessions by the toppy bullish percents, just beginning to roll
over, as well as the excessive bullish speculation demonstrated
by the persistently low put to call ratios and the lack of
extreme upside moves in the TRIN and the TRINQ.  The combination
of these indicators paints a picture of prices at upside
extremes, just beginning to reverse, with exuberant bullish
speculation in the option market and, so far, an absence of
extreme or "panic" selling.  While the markets could bounce from
here, the risk, in my opinion, remains to the downside.

Nevertheless, today's session showed us declines outnumbering
advancers 2:1 and declining volume beating advancing 3:1 on the
NYSE and Nasdaq, and important trendlines were broken.  It is
either the start of a new trend lower, or, more likely for the
moment, a correction within the broader uptrend of weeks past.


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

Market Averages

DJIA ($INDU)

52-week High:  9733
52-week Low :  7197
Current     :  9180

Moving Averages:
(Simple)

 10-dma: 9171
 50-dma: 8684
200-dma: 8356



S&P 500 ($SPX)

52-week High: 1038
52-week Low :  768
Current     :  995

Moving Averages:
(Simple)

 10-dma:  996
 50-dma:  939
200-dma:  890



Nasdaq-100 ($NDX)

52-week High: 1266
52-week Low :  795
Current     : 1226

Moving Averages:
(Simple)

 10-dma: 1224
 50-dma: 1145
200-dma: 1032



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

Once again the markets appear to be showing some "volatility" yet
the volatility indices barely moved.

CBOE Market Volatility Index (VIX) = 22.01 +0.41
Nasdaq-100 Volatility Index  (VXN) = 33.86 +0.71

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.54      1,061,724       575,615
Equity Only    0.48        738,842       352,605
OEX            0.66         68,031        44,671
QQQ            1.14         65,480        74,438


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

Bullish Percent Data

           Current   Change   Status
NYSE          71.8    + 0     Bull Confirmed
NASDAQ-100    81.0    - 6     Bull Confirmed
Dow Indust.   83.3    + 0     Bull Confirmed
S&P 500       81.0    - 1     Bull Confirmed
S&P 100       81.0    + 0     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  1.05
10-Day Arms Index  1.18
21-Day Arms Index  1.05
55-Day Arms Index  1.10


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

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

Market Internals

            -NYSE-   -NASDAQ-
Advancers     981      1040
Decliners    1874      1999

New Highs      93        89
New Lows       12         4

Up Volume    443M      456M
Down Vol.   1339M     1364M

Total Vol.  1821M     1919M

M = millions


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


Commitments Of Traders Report: 06/10/03

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

This week brings us an interesting change in the commercials.
Both the long and short positions jumped by 18K to 20K but the
amount that the commercials are net long dropped significantly.
Could we be witnessing a precursor to a reversal next week?

Small traders also opened their wallets this week and bought
plenty of new contracts pushing both long and short positions
to new four-week highs.  The amount that small traders are long
moved strongly ahead, which is closer to the historical norm.
(small traders tend to move counter trend to the commercials,
who tend to be correct when judging trends.)


Commercials   Long      Short      Net     % Of OI
05/20/03      438,238   426,569    11,669     1.3%
05/27/03      435,195   423,474    11,721     1.4%
06/03/03      438,228   422,722    15,506     1.8%
06/10/03      456,967   455,024     1,943     0.2%

Most bearish reading of the year: (111,956) -   3/6/02
Most bullish reading of the year:   15,506  -   6/3/03

Small Traders Long      Short      Net     % of OI
05/20/03      157,034   154,980     2,054     0.7%
05/27/03      147,687   149,344    (1,657)   (0.6%)
06/03/03      169,650   167,172     2,478     0.7%
06/10/03      199,356   185,403    13,953     3.6%

Most bearish reading of the year:  (1,657)- 5/27/03
Most bullish reading of the year: 114,510 - 3/26/02


E-MINI S&P 500

Maybe all those full S&P contracts are being hedged here with
the e-minis (we doubt it) but the net short position for
the commercials jumped strongly this week.  Meanwhile, as if
on cue, the small traders grew excessively bullish.  Small
trader long contracts to short contracts is virtually 10 to 1.
If you're a contrarian, that smells like a top.


Commercials   Long      Short      Net     % Of OI
05/20/03      232,184   468,006   (235,822)  (33.7%)
05/27/03      252,655   485,962   (233,307)  (31.6%)
06/03/03      267,680   512,648   (244,968)  (31.4%)
06/10/03      270,359   543,221   (272,862)  (33.5%)

Most bearish reading of the year: (337,496)  - 04/29/03
Most bullish reading of the year: (222,875)  - 04/01/03

Small Traders Long      Short      Net     % of OI
05/20/03      422,555    62,580   359,975    74.2%
05/27/03      427,412    66,031   361,381    73.3%
06/03/03      470,655    58,420   412,235    77.9%
06/10/03      498,999    49,689   449,310    81.9%

Most bearish reading of the year: 283,831   - 04/08/03
Most bullish reading of the year: 449,310   - 06/10/03


NASDAQ-100

Hmm....commercials bought more short contracts on the
NDX this week and their net short position almost tripled.
As expected the small trader is thinking exactly the
opposite with a jump in longs and a decrease in shorts.
This produced a big jump in their net long position.

Again, if you're a contrarian, this looks like symptoms
of a market top.


Commercials   Long      Short      Net     % of OI
05/20/03       42,864     42,040       824    1.0%
05/27/03       40,999     41,491      (492)  (0.6%)
06/03/03       42,232     43,217      (985)  (1.2%)
06/10/03       42,877     45,793    (2,916)  (3.3%)

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
05/20/03       11,024     9,965     1,059     5.0%
05/27/03       12,194    13,339   ( 1,145)  ( 4.5%)
06/03/03       11,407     9,092     2,315    11.3%
06/10/03       14,759     7,761     6,998    31.1%

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

DOW JONES INDUSTRIAL

While we do see a drop in long positions for commercials
and a drop in short positions for small traders (what a
coincidence), the overall trend here is the same.


Commercials   Long      Short      Net     % of OI
05/20/03       18,028    14,108    3,920      12.2%
05/27/03       18,660    15,537    3,123       9.1%
06/03/03       19,480    15,282    4,198      12.1%
06/10/03       17,368    15,263    2,105       6.5%

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
05/20/03        8,378     9,922    (1,544)   ( 8.4%)
05/27/03        8,225     9,316    (1,091)   ( 6.2%)
06/03/03        7,948     9,353    (1,405)   ( 8.1%)
06/10/03        7,968     8,316    (  348)   ( 2.1%)

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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*************************
WEEKLY MANAGER MICROSCOPE
*************************

Bruce Berkowitz: Fairholme Fund (FAIRX)

Per the MSN Money website, Bruce Berkowitz's Fairholme Fund tops
the list of mid-cap blend funds for 3-year average annual return;
we'll tell you how he got there and why you may want to consider
the fund for a portion of your long-term equity portfolio.  This
Morningstar 5-star rated, mid-cap blend strategy seeks long-term
capital appreciation by investing at least 75% of assets in U.S.
equity securities.  It may also invest up to 25% of total assets
in foreign securities traded on U.S. exchanges.

Based on its average equity investment style over the past three
years, the Fairholme Fund is categorized as a mid-cap blend fund
in Morningstar's system.  However, since 2002 the Fairholme Fund
has landed in the large-cap growth style box.  That's interesting
to see since Fairholme claims to be a value investor that employs
a similar investment philosophy to the one first set forth by Ben
Graham, and followed today by value gurus, such as Warren Buffet.

So, can Fairholme be a value investor and still maintain a style
bias to large-cap growth stocks?  In the next section, we take a
closer look at Berkowitz's investment style and the fund's stock
holdings, and try to answer that question.

Investment Style/Strategy

Bruce Berkowitz's Fairholme Fund (FAIRX) seeks to provide growth
of capital over time by focusing efforts on a few "well-selected"
companies that meet specific investment criteria.  In the equity
selection process, Berkowitz favors companies with high return on
capital, sustainable competitive advantages, growing cash profits
and reasonable prices.  Therein lies the rub.  Berkowitz seeks to
buy value at reasonable prices, creating a margin of safety.  But
he doesn't stick to traditional value sectors or stocks.  So what
does Fairholme's focused value process mean in terms of portfolio
characteristics?

According to Morningstar, the Fairholme Fund had only 70% of fund
assets invested in stocks at year-end 2002.  That's because Bruce
Berkowitz's firm will only invest in stocks when they are trading
at discounts to their intrinsic value.  They would rather hold an
appreciable portion of assets in short-term investment funds than
pay more than they believe a stock is worth.

Because the Fairholme Fund is registered as non-diversified, fund
assets may be concentrated in a few individual stocks.  So it was
at year-end with the portfolio maintaining only 15 stock holdings
including such names as Berkshire Hathaway, WilTel Communications
and Leucadia National.  Rarely will the portfolio exceed 25 stock
holdings.  It would be interesting to know where stock assets are
invested today.

Because of its defensive stance (high cash balance level) through
2002, the Fairholme Fund sports a low risk rating per Morningstar
and a high return rating over the past three years in relation to
its mid-cap blend category peer group.  The result of high return
and low risk is a Morningstar 5-star highest risk-adjusted return
rating.

Investment Performance

In 2000, Fairholme Fund's first full year of operation, Berkowitz
and team produced a 46.5% return for shareholders.  The S&P index
lost 9.1% that year, per Morningstar.  Most mutual funds followed
suit, producing significant drops for the year.  The fund's 46.5%
return in 2000 was strong enough to rank in the top 1% of the mid
cap blend category.

In 2001, the fund produced a positive annual return of 6.2%, when
other mid-cap blend funds were struggling to closeout the year in
positive turf.  The S&P 500 index lost 11.9% that year, according
to Morningstar.  The fund's 6.2% return wasn't 1st percentile but
it was still strong enough to rank in the category's top quartile
(23rd percentile) for performance.

The fund sustained its first calendar year loss in 2002, when the
Fairholme Fund lost 1.6%.  The fund's loss though was pale versus
its index and fund benchmarks.  That year, the S&P 500 index lost
22.1%, while the average mid-cap blend fund lost 16.7%, according
to Morningstar.  The fund's performance in 2002 ranked in the top
2% of the Morningstar mid-cap blend category.





While the fund's trailing 1-year return of 3.1% ranks in the top
quintile (19th percentile) of the mid-blend category, the fund's
8.7% total return since December 31, 2002 lags the S&P 500 index
and average mid-blend fund by significant margins.  In fact, the
fund's 8.7% YTD total return, although positive, ranks it in the
bottom decile of the mid-cap blend category (99th percentile) per
Morningstar.

The fact that the Fairholme Fund has lagged in the last 3 months
tells me that the portfolio may still not be fully invested, and
may still have significant cash holdings.  Funds with large cash
balances would be expected to lag more fully invested funds in a
market upswing.  The Fairholme Fund website indicates that large
cash balances may not help the fund achieve its long-term growth
objective.

Conclusion

Bruce Berkowitz founded Fairholme after spending 1993 to 1997 as
a managing director of Smith Barney.  In the last three years, a
pretty turbulent period for the stock market, the Fairholme Fund
has produced a "positive" annualized return of 14.8% by focusing
efforts on common stocks of enterprises with durable competitive
positions, predictable cash earnings, high return on capital and
owner-oriented management.

When Berkowitz and his portfolio management team cannot identify
good businesses at fair prices, he will permit the cash position
to rise.  This helps in market downswings relative to funds that
are fully invested in stocks, but can limit relative performance
in market upswings.  That appears to be what is happening so far
in 2003, with the fund up but not as strongly as comparable fund
products.  However, Fairholme Fund's 3-year annualized return of
14.8% merits a look.

For complete fund information, go to the www.fairholmefunds.com
website.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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The Option Investor Newsletter                 Thursday 06-19-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: GENZ
Dropped Puts: None
Daily Results
Call Play Updates: IGT, LH, LXK, MRK, MERQ, PGR
New Calls Plays: ADI
Put Play Updates: KSS, WFMI
New Put Plays: None


****************
PICKS WE DROPPED
****************

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.


CALLS:
*****

Genzyme Corp. - GENZ - close: 43.48 change: -2.74 stop: 45.00

Well, when those channels break, they break with a vengeance!
The Biotechnology index (BTK.X) took another beating on Thursday
(losing more than 4.5%) as profit taking seemed to morph into
real selling and our GENZ play got slammed for nearly a 6% loss.
After coming to rest right on the lower boundary of its ascending
channel near $46 on Wednesday, it was make or break time today.
Break was definitely the verdict once it became clear that the
BTK was under such heavy selling pressure.  Our $45 stop broke
right at the end of the first hour of trading and the stock never
looked back, finally finding a bottom near the $43 level for a
bit of bounce into the close.  Any open positions should have
been stopped out early on Thursday, but for any stragglers, a
rebound on Friday should be viewed as a gift allowing for a
second chance at a decent exit.

Picked on June 8th at    $46.61
Change since picked:      -3.13
Earnings Date          07/16/03 (unconfirmed)
Average Daily Volume = 3.58 mln
Chart =



PUTS:
*****

None


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

Please view this in COURIER 10 font for alignment
*************************************************

CALLS    LAST      Mon    Tue   Wed   Thu

ADI      35.17    0.42  -0.11  1.27  0.00  New, buy @ 50-dma
GENZ     43.48    1.40  -0.43 -1.46 -2.74  Drop, biotech selloff
IGT      95.61   -0.40  -1.27 -0.16 -0.39  Holding up strong
LH       29.76    0.80   0.90  0.00 -0.34  Uh-oh, under $30
LXK      75.64    1.63  -0.66  2.39 -1.35  Bullish breakout
MERQ     42.11    0.34  -0.00  0.87 -0.96  Doing okay
MRK      41.87    1.57   1.57  1.18 -0.94  Low entry point
PGR      74.81    2.13   0.48  0.14 -1.29  Possible entry soon

PUTS

KSS      50.00    0.30  -1.02 -0.53  1.15  Look for under $50
WFMI     47.48   -0.81  -1.35  0.59 -0.51  Consistently lower


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********************
PLAY UPDATES - CALLS
********************

Intl Game Technology - IGT - cls: 95.61 chg: -0.39 stop: 92.00

All is quiet on the IGT front.  While the DJIA has slipped from
9350 to 9179, shares of IGT have faded from $98 to $95.60.  We're
encouraged by the stock's ability to hold its gains but a closer
look at IGT's intraday chart (look at the 5-minute interval) it
is easier to see the selling pressure that is taking place.
Fortunately, dip buyers are defending the share price at $95.25,
where the stock has bounced twice in the last two sessions.
Conservative traders can stick their stop losses under the $95
level or the $94 level.  We're going to remain somewhat
aggressive by leaving our stop at $92.00.  IGT has a little over
one week left before its 4-for-1 split and we're still shooting
for a move to the $100 mark.  A bounce from $94 might make a
decent entry for latecomers.

Picked on June 10th at $91.87
Change since picked:    +3.74
Earnings Date        07/22/03 (unconfirmed)
Average Daily Volume =   1.22 million
Chart link:


---

Laboratory Corp - LH - close: 29.76 change: -0.34 stop: 28.00

Hmmmm... since we added LH to the call list the broader markets
has gone down and shares of LH have gone relatively sideways.
While this is good news for shareholders we're a bit dismayed by
the close back under the $30.00 level.  Hopefully the simple 50-
dma will hold up the share price.  If not, we would expect LH to
pull back to the $29.00 area.  Continued profit taking in the
markets tomorrow is a big possibility so traders need to be
patient.  Look for a bounce from $29.00 or a move back up through
30.50 before evaluating new entries.

Picked on June 17th at $30.10
Change since picked:    -0.34
Earnings Date        07/28/03 (unconfirmed)
Average Daily Volume =   1.49 million
Chart link:


---

Lexmark Intl - LXK - close: 75.64 change: -1.35 stop: 71.00

Shares of LXK rallied forth on Wednesday to a new 52-week closing
high of 76.99.  The move was fueled by strong volume of 2.49
million shares.  We didn't see any noteworthy headlines
responsible for the move.  However, we did note that the surge
higher produced the upside breakout in LXK's P&F chart triangle
we'd been expecting.  A bullish triangle breakout is one of the
most powerful technical patterns investors can trade if the
market cooperates.  Meanwhile, we would not be surprised to see a
pullback to $74.00 so traders can be patient to gauge new
entries.  We are going to leave our stop at $71.00 but more
conservative traders can shave off another dollar and put theirs
at $72.00, which is just below the rising 50-dma.

Picked on June 16th at $74.51
Change since picked:    +1.13
Earnings Date        07/21/03 (unconfirmed)
Average Daily Volume =   1.78 million
Chart link:


---

Merck & Company - MRK - close: 62.30 change: -0.94 stop: 59.50

Uh-oh!  It looks like the bulls finally came down off of their
adrenaline high and Pharmaceutical stocks actually saw a bit of
profit taking on Thursday.  That's just fine with us, as we'd
prefer a lower entry point into our MRK play.  The ideal setup
would be a rebound from the $60.00-60.50 area.  Not only would
that be a confirmation that the recently broken resistance is now
acting as support, but it would be a rebound from the bottom of
the ascending channel that has been building for the past month.
An additional point of support is found in the 10-dma ($60.24),
which has been supporting MRK's rise since the beginning of the
month.  One encouraging thing about Thursday's pullback is that
volume pulled back near the ADV, a sharp contraction from the
strong volume that accompanied this week's breakout.  The other
thing to monitor is the DRG index.  It is also pulling back and
should find support above the $328-330 area.  Should the DRG
rebound from support at the same time as MRK, that would make for
a solid bullish entry point.  If buying the dip though, keep in
mind that a close below our $59.50 stop would be a bad omen,
hinting that the recent breakout wasn't as strong as it first
appeared.

Picked on June 15th a     $62.37
Change since picked:       -0.07
Earnings Date           07/21/03 (unconfirmed)
Average Daily Volume =  6.27 mln
Chart link:


---

Mercury Int - MERQ - close: 42.11 change: -0.96 stop: 38.95

MERQ has certainly given us plenty of gyrations to keep us on the
edge of our seats over the past week, hasn't it?  With the
volatility seen since last Thursday, it really has been difficult
to discern a near-term trend, but to the stock's credit, it
managed to hold above the $40 level and has actually worked
gradually higher throughout the week.  The big question is
whether it will continue to do so and move to new highs for the
year, or if we are in the process of watching a lower high be put
in place.  Volume studies and oscillators don't appear to be
giving us any clues, so we'll stick with the ascending channel
and let price action be our guide.  The bottom of the channel is
now at $39.75, with the 20-dma ($40.23) just above.  These
measures of support should stem any weakness in the stock or else
we'll know there is a trend change at hand.  Another rebound from
above the $40 level still looks like a viable entry point, but in
light of the mixed picture offered by volume and oscillators,
this appears to be a more aggressive strategy than we expected a
week ago.  But it is still preferable to trying to buy a breakout
move, which clearly isn't working for MERQ.  Even a breakout over
last week's high near $44 has problems, as the stock would likely
encounter near-term resistance at the top of the channel just
over $45.  Buy the dips is still the safest way to play, but keep
those stops in place just in case.

Picked on June 10th at   $42.62
Change since picked:      -0.51
Earnings Date          07/16/03 (unconfirmed)
Average Daily Volume = 4.39 mln
Chart link:


---

Progressive Corp. - PGR - close: 74.81 change: -1.29 stop: 71.00

Traders that have been patiently waiting for a pullback in PGR
appear to be finally getting their wish.  This Insurance stock
has continued to be inexplicably strong over the past week, but
that strength ebbed a bit on Thursday with the stock falling back
under $75.  Recalling the ascending channel that we've been
looking at, the stock is right at the midline of that channel
tonight.  Either it bounces from this level, or it ought to drop
back to the bottom of the channel near $72.  Aggressive traders
can take new positions on a rebound from the $74.50 area, while
those willing to wait, can look for an entry on a dip as low as
the $72 area.  If selling gets a bit too carried away, the 20-dma
(currently $71.98) ought to provide strong support as it has
since early May.  While it is wider than we normally like, we're
maintaining our stop at $71 for now.

Picked on June 15th a  $73.27
Change since picked:    +1.54
Earnings Date        07/16/03 (unconfirmed)
Average Daily Volume =  968 K
Chart link:



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

Analog Devices - ADI - close: 35.17 change: +0.00 stop: 33.00

Company Description:
Analog Devices is a leading maker of analog (linear and mixed-
signal) and digital integrated circuits (ICs), including digital
signal processors.  The company's broad line of ICS incorporate
analog, mixed-signal and digital signal processing technologies
that translate real-world phenomena such as pressure,
temperature, and sound into digital signals.  ADI's products are
used in communications equipment (40% of sales), computers and
peripherals, and medical and scientific instruments.  Among ADI's
more notable customers are Motorola, Dell, Lucent, and Sony.

Why we like it:
After what looks to be a fairly healthy pullback from the highs
in early June, the Semiconductor index (SOX.X) caught a nice
rebound from the $360 level earlier this week, continuing it
pattern of higher lows that has been building for the past four
months.  During that period of time, the index has been working
higher in a steady ascending channel and it is encouraging that
the latest bounce came right at the $360 level, which was the
site of the prior high and just above the bottom of the channel.
Echoing the pattern in the SOX, shares of ADI have been trading
in their own ascending channel since February, the bottom of
which is currently at $34.10, just above the rising 50-dma
($33.98).  Following some bearish comments from Bear Stearns on
Monday about expectations for flattening bookings, the stock
dropped right to the bottom of the channel.  After a brief dip
below those two measures of support, the buyers once again
appeared over the past couple days and it looks like rebound time
all over again.  A look at the relative strength chart between
ADI and the SOX shows another bullish element.  While ADI has
been losing strength since the beginning of June, the RS chart is
turning up in favor of ADI again, right from the level where it
did so back in early April.  That turnaround in RS led the stock
to rally from the $27 area to above $35 before the eventual push
above $40 in early June.  It is interesting that the rally from
the April lows started with a reversal at the 50-dma as well.

Although the PnF chart is currently in a column of O's, the stock
is still on a Buy signal, with a bullish price target of $42.
Working with the assumption that the stock will require a couple
weeks, that $42 level looks like a viable target, as the top of
the channel will reach that level by early July.  Obviously,
we'll need the SOX to continue working higher in order for this
play to achieve that bullish goal, but the current technical
picture seems to support it.  The best entries will come on
another rebound from support in the $34.00-34.50 area, at the
bottom of the channel and site of the 50-dma.  Traders looking
for confirmation of strength will want to wait for ADI to push
through the $36 level (which provided intraday resistance on
Thursday), along with the SOX rallying back above $385.  Traders
entering on strength will want to keep an eye on the 20-dma
($36.60) as well, as it could present some mild resistance.
Because of the proximity of strong support, we can set a fairly
tight stop on ADI at $32.75, which is just below yesterday's
intraday low and solid support throughout the month of May.  A
close below that level would be a clear signal that something is
wrong.

Suggested Options:
Shorter Term: The July 35 Call will offer short-term traders the
best return on an immediate move, as it is currently in the
money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the September 40 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.  More conservative
long-term traders should utilize the September 35 call.

BUY CALL JUL-35 ADI-GG OI=1060 at $2.00 SL=1.00
BUY CALL JUL-40 ADI-GH OI=3849 at $0.35 SL=0.00
BUY CALL SEP-35 ADI-IG OI=2841 at $3.50 SL=1.75
BUY CALL SEP-40 ADI-IH OI=3698 at $1.45 SL=0.75

Annotated Chart of ADI:




Picked on June 19th a     $35.17
Change since picked:       +0.00
Earnings Date           08/13/03 (unconfirmed)
Average Daily Volume =  3.99 mln
Chart =



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*******************
PLAY UPDATES - PUTS
*******************

Kohl's Corporation - KSS - close: 50.00 change: +1.15 stop: 53.25

Leading the lunacy parade on Thursday was Bernstein's upgrade of
KSS.  The firm raised their rating from Market Perform to
Outperform, while at the same time REDUCING their price target
from $60 to $58.  The firm said they view the current top-line
weakness as a result of poor weather and a soft economy, not an
indication of a secular problem.  At best, that sounds like a bit
of a mixed message to us.  Does it really matter what the source
of the weakness was.  Poor sales are poor sales, and that's bound
to trickle down to the bottom line in the form of reduced
earnings.  While investors bought the upgrade on a strong gap up
open this morning, that move ran out of steam just below the
critical $51 resistance level we've been talking about and the
stock drifted lower throughout the day, ending right at $50, at
the top of the gap.  While the failure near $51 would have made
for a great entry this morning, it looks like we'll be greeted
with another possible inflection point in the morning.  A drop
under $49.75 will take the stock under Thursday's intraday
support and likely result in a fairly quick fill of the gap.  The
only problem with tomorrow's session is that it is option
expiration, and capricious market makers just might try to pin
the stock to the $50 level, which has the highest combined open
interest (puts and calls) in the June strikes.  That does nothing
to change the big picture though, as KSS looks too be headed
lower and buying puts on failed rallies is still the preferred
entry strategy.  Resistance looks to be quite strong in the $51-
52 area now, reinforced by the declining 20-dma, now at $51.78.
Maintain stops at $53.25.

Picked on June 15th at   $49.45
Change since picked:      +0.55
Earnings Date          08/14/03 (unconfirmed)
Average Daily Volume = 4.45 mln
Chart =


---

Whole Foods Market - WFMI - cls: 47.48 chg: -0.51 stop: 50.00

-Company Description-
Founded in 1980 in Austin, Texas, Whole Foods Market is the
world's largest natural and organic foods supermarket with $2.7
billion in sales in fiscal year 2002. The company currently has
143 stores and employs more than 27,000 Team Members in the
United States and Canada. The motto, "Whole Foods, Whole People,
Whole Planet"(TM) captures the company's mission to find success
in customer satisfaction and wellness, Team Member excellence and
happiness, enhanced shareholder value, community support, and
environmental improvement. For six consecutive years, Whole Foods
Market has ranked on Fortune's annual list as one of the "100
Best Companies to Work For." Whole Foods Market, Bread & Circus.
and Harry's Farmers Market. are all registered trademarks owned
by Whole Foods Market IP, LP. (Source: company press release)

- Most Recent Update (Thursday, June 17, 2003)-
The slow drift lower for shares of WFMI continues.  We were
expecting a potential bounce soon and got one on Wednesday but
the stock has been very consistent with its trend of lower highs.
Our short-term goal of $45 is within striking distance should we
get a bad enough day in the markets.  A longer-term target of
$40-41 is still a possibility.  Despite our success we're going
to leave our stop loss at $50.00 for now.  More conservative
traders might want to consider using the descending simple 10-dma
as a guide.  WFMI hasn't touched its 10-dma in a couple of weeks.
Unfortunately, with WFMI right in the middle of its $50 to $45
range, new entries are a tough call.  A failed rally at $49.00
might work.


- Play of the Day Comments -
We're adding WFMI as the play-of-the-day today because shares
look ready for another leg down.  Short-term traders can get
ready to take profits near $45.00.  Yet if WFMI reverses on us,
then nimble bears can look for a failed rally at $49.00 as a
potential entry point for a new short.

- Suggested Options -
We have plenty of options to choose from.  WFMI has Julys, August
and November options already available.  We're going to suggest
July 50 and 45 puts but the August 45s don't look bad either.

BUY PUT JUL 50 FMQ-SJ OI= 653 at $3.90 SL=2.00
BUY PUT JUL 45 FMQ-SI OI=1898 at $1.35 SL=0.65
BUY PUT AUG 50 FMQ-TJ OI=1254 at $4.70 SL=2.25
BUY PUT AUG 45 FMQ-TI OI= 508 at $2.20 SL=1.00

Picked on June 13 at $49.44
Change since picked:  -1.96
Earnings Date      07/30/03 (unconfirmed)
Average Daily Volume: 1.6 million
Chart =



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

None


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The Option Investor Newsletter                 Thursday 06-19-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: WFMI
Traders Corner: If You're In A Gunfight, You Have To Pull The
Trigger – Or You're Dead

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

Whole Foods Market - WFMI - cls: 47.48 chg: -0.51 stop: 50.00

-Company Description-
Founded in 1980 in Austin, Texas, Whole Foods Market is the
world's largest natural and organic foods supermarket with $2.7
billion in sales in fiscal year 2002. The company currently has
143 stores and employs more than 27,000 Team Members in the
United States and Canada. The motto, "Whole Foods, Whole People,
Whole Planet"(TM) captures the company's mission to find success
in customer satisfaction and wellness, Team Member excellence and
happiness, enhanced shareholder value, community support, and
environmental improvement. For six consecutive years, Whole Foods
Market has ranked on Fortune's annual list as one of the "100
Best Companies to Work For." Whole Foods Market, Bread & Circus.
and Harry's Farmers Market. are all registered trademarks owned
by Whole Foods Market IP, LP. (Source: company press release)

- Most Recent Update (Thursday, June 17, 2003)-
The slow drift lower for shares of WFMI continues.  We were
expecting a potential bounce soon and got one on Wednesday but
the stock has been very consistent with its trend of lower highs.
Our short-term goal of $45 is within striking distance should we
get a bad enough day in the markets.  A longer-term target of
$40-41 is still a possibility.  Despite our success we're going
to leave our stop loss at $50.00 for now.  More conservative
traders might want to consider using the descending simple 10-dma
as a guide.  WFMI hasn't touched its 10-dma in a couple of weeks.
Unfortunately, with WFMI right in the middle of its $50 to $45
range, new entries are a tough call.  A failed rally at $49.00
might work.


- Play of the Day Comments -
We're adding WFMI as the play-of-the-day today because shares
look ready for another leg down.  Short-term traders can get
ready to take profits near $45.00.  Yet if WFMI reverses on us,
then nimble bears can look for a failed rally at $49.00 as a
potential entry point for a new short.

- Suggested Options -
We have plenty of options to choose from.  WFMI has Julys, August
and November options already available.  We're going to suggest
July 50 and 45 puts but the August 45s don't look bad either.

BUY PUT JUL 50 FMQ-SJ OI= 653 at $3.90 SL=2.00
BUY PUT JUL 45 FMQ-SI OI=1898 at $1.35 SL=0.65
BUY PUT AUG 50 FMQ-TJ OI=1254 at $4.70 SL=2.25
BUY PUT AUG 45 FMQ-TI OI= 508 at $2.20 SL=1.00

Picked on June 13 at $49.44
Change since picked:  -1.96
Earnings Date      07/30/03 (unconfirmed)
Average Daily Volume: 1.6 million
Chart =



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

If You're In A Gunfight, You Have To Pull The Trigger – Or You're
Dead

By Mike Parnos, Investing With Attitude

At the Couch Potato Trading Institute, the learning never stops.
Sometimes we can learn from the mistakes from others – and
sometimes we just have to learn from our own mistakes.

One of our major problems is allowing emotion to get in the way of
executing our trading plan.  This month, the markets aren't
treating our trades particularly well and I've received a number
of emails detailing how traders have panicked and lost a
substantial amount of money.

If you learn from the mistakes, it will have been a worthwhile
experience.  If you don't, then maybe trading is not for you.  I
hear Walmart is always looking for talented people to welcome
people into their stores.

Once Upon A Time . . .
About eight years ago, I was living in New York City.  One
Saturday I attended a seminar in the Battery Park area.  It was
one of those free two-hour seminars that are designed to entice
people to buy something else for thousands of dollars.

This particular seminar was sponsored by Trade Station and the
speaker was Joe Krutsinger..  Joe is a well-known author and
trading system creator as well as an extremely entertaining
presenter.  I had no intention of buying anything, but it was
worth going just to hear Krutsinger speak.

After a handful of demonstrations on how a system trader could
benefit from the software du jour, Joe opened the floor to
questions.  A trader, not unlike you and me, raised his hand. "Do
you offer a service that will trade your system for a client?
And, if so, how much do you charge per trade?"

Joe paused, smiled and said, "Yes, we do offer that service and we
charge $100 per trade."

"$100 A TRADE?" shouted the shocked questioner. "It's only $15 if
I do it myself!"

"That's right," replied Krutsinger.  "It's $15 for the trade and
$85 for the discipline to pull the trigger."

I Second That Emotion
Regardless of how much discipline we have, there's always going to
be that little voice in our head saying, "Hang on just a little
longer.  It'll come back" or "Hang on just a little longer.  You
can get another $1.00 profit."

So, how do we remove emotions from our trading?  We don't.  We can
only try to harness them.  We have to treat making certain trades
like going to the dentist.  There may be some degree of
discomfort, but, in the long run, it will be in our own best
interest.  And, maybe, if the dentist has nitrous oxide, we'll
feel no pain and laugh all the way to the bank.

Another Line Of Work
If you can't get your emotions under control, you may have to
explore other lines of work (while you still have some money
left).  Unfortunately, many Couch Potato Trading Institute
students have gotten used to their couch.  They've broken in those
cushions just right.  I suppose you could always get work as a
test pilot for La-Z-Boy, but room for advancement may be limited.
______________________________________________________________

CPTI JUNE POSITION UPDATE
June Position #1 – SPX Iron Condor – Closed at 994.70
We sold 5 contracts of SPX June 995 calls and 5 contracts of SPX
June 895 puts.  For protection we bought 5 contracts of SPX June
1010 calls and 5 contracts of SPX June 880 puts.  Total net credit
of $2.90.

We gave the S&P 500 a 100-point range.  We'll get our maximum
profit of $1,450 if SPX closes within a huge 895 to 995 range.
Our exposure is $12.10 ($15 points less the $2.90 credit).  If it
works, it's about a 24% return on risk.

We're right up at the top of the range.  We'll have to see how the
market opens in the morning to determine our profit.
_____________________________________________________________

June Position #2 – BBH Iron Condor – Aborted
_____________________________________________________________

June Position #3 – TOL – Bear Call Spread Plus – Currently at
$30.12
Sell 10 contracts of June TOL $25 calls @ $1.40
Buy 20 contracts of June TOL $30 calls @ $.15
Net credit of $1.10
We're slightly bearish on the housing market and believe TOL will
finish below $25.  But, just in case we're wrong, we're buying 10
additional contracts of the $30 calls to protect ourselves.  The
market has gone against us.  We have two weeks for TOL to move
back down to $25 or up to $35.  Maximum potential profit is
$1,100.

By taking in the $1.80 last week for the additional 10 $30 calls,
I have reduced my worst-case scenario loss to only $2.10 – a
figure I can live with.  Hopefully, it won't come to that, but I
have further defined, and limited, the maximum loss.

Tomorrow, watch for a possible spike down and be prepared to take
advantage by buying back the $25 call below $5.00.  Anything below
$5 will further reduce our loss.
______________________________________________________________

June Position #4 – COF Iron Condor – Currently at $50.77.
Sell 10 contracts of June COF $47.50 calls @ $1.55
Buy 10 contracts of June COF $50 calls @ $.95
Net credit of $.60
Sell 10 contracts of June COF $40 puts @ $1.05
Buy 10 contracts of June COF $37.50 puts @ $.65
Net credit of $.40
Total credit of $1.00.   We gave COF a $7.50 range.  This is a
credit card stock that appears to have topped out and there's
support around $40.  We'll get our maximum profit of $1,000 if COF
closes between $40 and $47.50.  The nice part is that our exposure
is only $1.50 ($2.50 less our $1.00 credit).  If it works, it's an
80% return on risk.

COF has gotten a bit carried away.  However, it has been known to
go down in chunks.  Tomorrow, watch for a spike down and be
prepared to buy back the $47.50 call.  If we get the opportunity,
whatever we can unwind the position for below $2.50 will reduce
our loss.
______________________________________________________________

June Position #5 – QQQ ITM Baby Strangle – Currently at $30.42
Buy 10 contracts of the July QQQ $30 puts @ $2.05
Buy 10 contracts of the July QQQ $28 calls @ $1.80
Total debit of $3.85.
The QQQs have made a big move up.  It's either going to break
through resistance or bounce of and head back down.  Our objective
is for a $3-4 move in the next month.  One of our long options
will hopefully pay for almost the entire position.  That will
leave our other long option, which is now practically free, poised
for the bounce back as the QQQs reverse.

Our exposure is only $1.85 because we have $2.00 of intrinsic
value.  This worked quite well in the past for us.  It will take
some time to play out so be a little patient.

Last week, an opportunity.  When the QQQs traded at $31.47, we
could have sold our long $28 calls for $3.70.  Then, when the
market retreated, the $30 puts could have been sold for $1.35 –
resulting in a profit of $1.20.
____________________________________________________________

Unofficial CPTI Replacement PositionQQQ Strangle - $30.42
We bought 10 contracts of the QQQ June $31 calls @ $.10 and 10
contracts of the QQQ June $25 calls @ $.10.  Total debit: $200.
We're playing for a big move in the QQQs.  If the QQQs move $3-4,
our long put or call could easily be worth $.75 - $1.25.  We're
only risking $.20.

Greater risk takers (speculators) could have bought closer
strikes.  The $26 put and the $30 call would cost $.20 each or a
total of $.40 ($400 for 10 contracts.  The benefit is that the
delta is slightly higher and a smaller move would be necessary to
get into the profit zone.

Last week there were opportunities. The QQQs traded up to $31.47.
Our $200 bet was worth $1,000.  A $400 bet was worth $1,700.
Hopefully, traders took advantage of these opportunities to take
their profits.
_____________________________________________________________

New To The CPTI?
Are you a new Couch Potato Trading Institute student?  Do you have
questions about our plays or our strategies?  Feel free to email
me your questions.  An excellent source for new students is the
OptionInvestor archives where we've been discussing strategies and
answering questions since last July.  To find past CPTI (Mike
Parnos) articles, look under
"Education" and click on "Traders Corner."  They're waiting for
you 24/7
______________________________________________________________

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

Your questions and comments are always welcome.
Mike Parnos
CPTI Master Strategist and HCP


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