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Daily Newsletter, Sunday, 06/22/2003

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The Option Investor Newsletter                   Sunday 06-22-2003
Copyright 2003, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: Fear of the Fed?
Futures Market: Gravestone Dojis
Index Trader Wrap: IMAGINE THAT!
Editor's Plays: Russell Shuffle
Market Sentiment: Expiring options
Ask the Analyst: A new security to grab a gold bugs attention
Coming Events: Earnings, Splits, Economic Events


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 6-20         WE 6-13         WE 6-06         WE 5-30 
DOW     9200.75 + 83.63 9117.12 + 54.33 9062.79 +212.53 +248.88 
Nasdaq  1644.72 + 18.23 1626.49 -  0.93 1627.42 + 31.51 + 85.82 
S&P-100  502.39 +  4.57  497.82 +  2.15  495.67 + 12.47 + 13.45 
S&P-500  995.69 +  7.08  988.61 +  0.85  987.76 + 24.17 + 30.37 
W5000   9511.63 + 57.47 9454.26 +  1.72 9452.54 +233.65 +302.66 
RUT      449.56 -  0.15  449.71 -  4.23  453.94 + 12.94 + 22.60 
TRAN    2442.28 - 13.28 2455.56 - 25.98 2481.54 -  4.81 +102.99 
VIX       21.09 -  1.79   22.88 -  0.55   23.43 +  1.73 +   .32 
VXN       32.34 -  2.12   34.46 -  1.67   36.13 +  4.47 +  1.93 
TRIN       1.00            1.23            1.06            0.92  
Put/Call   0.51            0.73            0.78            0.67  
******************************************************************

Fear of the Fed?
by Jim Brown

The lack of material economic reports on Friday left traders
wondering which way to jump. Some decided to take profits as
news of potential terrorist attacks jumped back into the news. 
KB Homes added to the negative sentiment with a new look at 
the future in the home builder segment. The Dow reversed roles
with the Nasdaq and with the help of GM traded in the positive
all day. 

Dw Chart - Daily

 
Nasdaq Chart - Daily

 

The ECRI Weekly Leading Index was the only economic report and
most traders would have a tough time finding the results without
a roadmap. It rose slightly to 123.4 for an insignificant +0.2
gain. However, the six month growth rate, which is probably the
most watched portion of this lightly regarded index, jumped to 
6.1% from last weeks 5.5%. This is a vast improvement from the 
0.2% growth rate from the April-25th report. If the economy 
comes even remotely close to that 6.1% growth rate by year end
the Fed will be raising rates by 50 points a shot. 

GM jumped +1.50 at the open after saying they were going to 
sell $13 billion in bonds to shore up its massive pension 
deficit. In the world of magic numbers GM derived about 50%
of its 2002 net profit from its pension plan despite the plan
being $25 billion underwater. How they can do that is anybody's
guess. Actually 63 of the S&P companies reported net pension
income as part of their earnings in 2002 despite their funds
being in the a deficit. Let's see, if my pension fund liability
is increasing $10 billion a year but assets are only increasing
$100 million a year, is it right for me to claim a profit of 
that $100M? Other deficit winners include Ford -$16 billion
and BA -$7 billion. 

Lipper said fund flows for last week were +$4.3 billion and
twice the +$2.0 billion from the week before. Considering the
Dow had gained over +200 points for the prior two weeks I am
not surprised. If you noticed the graphic at the top of the 
page the Dows gains for the last two weeks were only +54 and
+83 points. That could indicate the money flow is weakening. 
Funds may be finding it a little harder to attract money this 
close to a top or at least this close to the Fed meeting and 
earnings. 

The quadruple witching is history and the market was torn by
opposing forces most of the day. The indexes gapped open Friday
morning on S&P imbalances related to the expiration and the GM 
news. After drifting sideways most of the morning at just over 
9250 the market was looking for an excuse to move. That excuse 
came from a terrorist threat in Kenya that closed the embassy 
there. The State Dept said there was a very real and credible 
threat that the new embassy was going to be attacked with an Al 
Queda truck bomb. The Dow dropped about -70 points in just a few
minutes and failed to recover for the rest of the day. There
was concentrated selling at the close but it is unknown if it
was traders worried about a weekend attack or simply expiration
volatility. After the close the U.S. said they had picked up
Saddam's trail and could have him in custody by next week. Sure,
and I assume they have a trail on the Easter bunny and tooth
fairy as well. The report actually said that if they did not
capture him next week they probably would not get him at all. 
And what is the reasoning behind that?

Helping the bounce this morning was an S&P rebalancing of sorts. 
IBM increased its shares outstanding by 2.2% by donating them
to its pension fund. This increase in outstanding shares means
every index fund must increase its outstanding position in IBM
by +2.2%. Over the last week this has pushed IBM up to strong
resistance at $85. Going the opposite direction CMCSA has 
bought back 60 million shares and fund managers have to reduce
their stake. This rebalancing at the end of the half added to 
the quadruple witching confusion. 

GE also helped keep the Dow positive after affirming their range
of estimates for the quarter and the year despite the warning 
about their plastics business on Thursday. They said business 
gains in other areas had offset the plastic losses. They did say 
they would narrow the range of estimates when they announce 
earnings on July-11th. Most analysts think they will narrow the
$1.55 to $1.70 range to the bottom of the range. Seven analysts
lowered their estimates on GE on Thursday.    

Weighing on the market was news that home foreclosures had
soared to a record high of 1.20% in the first quarter. The
previous record was 1.18%. Homes that started into foreclosure
in the first quarter also increased. The rise in joblessness
is being blamed for the high rates. This weighed on the market
sentiment causing beliefs that the recovery may not come soon
enough to stave off an even larger problem over the summer. 

Unemployment was also given as the reason KB Homes failed to
please investors on Friday. KBH beat the street by 30 cents
and raised future estimates by 20 cents. Everything appears
rosy on the surface but traders were expecting even better news
from the home sector. The KBH CEO said they saw the market
weakening due to unemployment and lack of job growth in some of
their biggest markets. Despite the low interest rates they are
having trouble selling homes in some areas and they see the
problem growing. The CEO said, "it was a much more challenging
market now than in the last couple years". This is not what
investors wanted to hear. After months and months of worries
about the real estate bubble it appears it may finally be
coming to pass. KBH lost -5.70 after beating the street by 30
cents and raising estimates. Ok, but that is past tense, what
are you going to do for us this quarter? CTX, PHM RYL and HOV
all had similar drops. NVR dropped -$16 but then they are a
$400 stock. (no options)

The biggest weight on the stock market was simply the market
itself. After a +26% gain over the last 14 weeks in the S&P
there is plenty of profit on the table. Next week is going to
be a monster week in terms of news drivers. The FOMC meeting
is a serious threat to the status quo. Next week is also the
heaviest earnings warning week of the cycle. Add in the new
terrorist threat and the urge to take profits was strong. 

The Fed is still floating balloons about the amount of any
potential rate cut. On Wednesday the Washington Post, claiming
input from an unnamed Fed source said the Fed would cut 50
points. This was after several economic reports and analysts
comments were seen reducing that possibility. Did the Fed want
to telegraph to the market to hold on, help was coming? On
Thursday night the WSJ ran a story, also reportedly using a
Fed source for info, that leaned more to the 25 point cut
scenario. Was the Fed again floating a balloon to see how the
markets would react to the smaller cut? We may never know but
the odds of the 50 point cut settled near 50% by Friday's
close. They have been all over the board from 65% to 30% in
just one week. It is not surprising that traders are taking
profits with all the confusion. 50 points was priced into the
market and now it is very unsure that we will have a cut at
all much less 50 points. Personally I would be very surprised
if the Fed did not cut at least 25 points since they have been
saying they were going to cut for over a month. A complete
retraction of those comments would be very negative to the
market. Plus, there has not been any Fedspeak about a reduction
in need for more stimulus. Again, this means that about a 37
point cut has been priced in (half way between 25-50) and a
25 cut will be disappointing and a 50 will be barely acceptable.
Either way I see a sell the news event in our future. 

The second threat comes from an expected flurry of earnings
warnings next week. This is the heaviest week of the cycle and
with some of the big confessors this week it makes you wonder
who will don the scarlet E next week. With tech exports down
to $166 billion in 2002 from $223 billion in 2000, a -26%
drop and still falling, it is likely we will eventually see
another wave of tech earnings problems. The key is whether 
the economic recovery will fill the gap first. Since the
recovery has not yet appeared the odds are some more techs
will confess next week. I would not be surprised to see more
big caps warn as well. Remember, the beginning of this quarter
was not exciting. 

Offsetting the potential negatives is the end of the quarter
and half window dressing. It is not over yet despite Friday's
swoon. There is still a good chance the funds with cash to 
spend will buy Friday's dip or a post FOMC dip in hopes of
getting some bargains and appeasing investors with a broad
range of winners in their portfolio when statements come out. 

I attended a conference last week where quite a bit of time
was spent predicting the economic future. I have to say it 
was not bright. We are talking long term here, in years not
months. The overall consensus of opinion was that 2003 would 
end well and the recovery would carry over into 2004. It is
an election year and we know how politicians like to paint 
a rosy picture in their campaign speeches. Typically the 3rd
year of a presidents term is the best year of the term. The
problems come in year 2005. The tax cut just approved was said
to be $350 billion. There are things in it that sunset in 2004.
Get serious, are politicians going to raise taxes again in
an election year? The consensus was a total cut before it 
could be rescinded of about $850 billion. The deficit for 2003
is already $292 billion as we saw this week. It is expected to
be $400 billion by the end of September. Add another $450
billion in 2004 and the numbers start to be really ugly. What
most people don't realize is this is in funded items like 
defense, security, etc. Unfunded items like social security,
Medicare and military pensions are not accounted for in these
totals. The estimates I am hearing are for a $1.5 trillion
deficit by 2005. 

Assuming Bush is reelected he will tackle this problem head on 
in order to clean up his legacy and prepare for the transition 
to the next republican president. He cannot get elected again so 
he has nothing to lose. He will take the first two years 2005-06
and force stringent changes in the economy including the tax
code. He has to. He cannot let the deficit continue to climb. 
The current capital gains tax is the lowest it has been since
the depression. This is the first place he is likely to act as
it is the least painful to most taxpayers. Regardless of where
he acts it will not be pleasant and the market is not going
to like it. The next president is going to have it even 
tougher. In 2008 37 million baby boomers will begin hitting 
the social security/Medicare rolls. This massive influx of 
retirees will decimate the workforce and swamp the already 
overburdened social security system. This massive cash drain
will have to be compensated for in some form. That means taxes
on the rest of us in some fashion. Lots of taxes. The drain 
of 18% of workers from the workforce will be good for employment
but that will raise wages significantly. Obviously all 37
million are not workers and not all are going to instantly
quit working and move to Florida. Still the trend is there 
and 2008 is not that far away. 

The number one field for investment to profit from this boom
was healthcare and drugs. With that many people moving into
the geriatric category there is going to be a huge demand 
for health services. Real estate in retirement locales was
also mentioned as potential targets. Oddly enough the beef
industry was mentioned as something likely to suffer as
retirees ate less beef due to income and health reasons. 

I am bringing this up as something to think about as you
position your portfolios for the future. We get so preoccupied
about the next day or the next week when the big money is
really made over time in those retirement accounts. Next
week is going to be tumultuous with opposing forces wielding
large volume as each event transpires. The key is to balance
your attack. Don't get so caught up that everything you have
is riding on the outcome of the Fed meeting. They will cut, 
the market will spike up and down and life will go on. We are
very overbought and I suspect earnings will not be exciting. 

There is no such thing as a summer rally although we hear
the term every summer. Odds are good we will move sideways
to down until we get some more positive signs of economic 
improvement. Since this is the summer doldrums it could take
a couple months before we really start to see some strong
positive signs. Capacity utilization is at a ten year low
(75%) which means there is no incentive for companies to 
spend money to buy more equipment. Until demand picks up 
and the excess capacity is absorbed there is not going to 
be a broad based recovery. This is not likely to happen over
the summer. Until those numbers begin to pickup there is a 
26% S&P gain at risk. Only one time in the last 50 years has 
the S&P gained more than 26% off a bottom. Can you say 
over bought? 

The first week of July is the best week of the month as the
retirement contributions for those 37 million baby boomers
hits the market. After July 8th it begins to get grim for
cash flow and that is when earnings ramp up to a fever pitch. 
For short term traders I would be cautious about being long
around July 15th. I could only find one July in the last seven
or so that actually went up after the 15th. The historical 
down trend for the second half of the month is very clear.
For shorter term traders there is a lot of scuttlebutt about
institutions loading up on shorts beginning on June-30th. 
Seems there are a lot of skeptics out there that also feel 
we have come a long way for the lack of visible earnings. 
Nobody knows what will happen in the market but the external 
short term stimulus is very strong regardless of what the Fed
does. This will keep a floor under the market while we wait 
for the future. That floor could be significantly lower than
we are now, maybe as far as 8500, but it is there. The most
likely initial level is Dow 9000. 

10-Year Treasury Index - Daily

 

The upside should be limited from here regardless of the Fed.
Dow 9375-9500 is strong resistance and at this overextended
level it may be tough to break. 50% of the S&P has warned for
this quarter. That could also mean we have some upside surprises
ahead. The wild card is still the bonds. They have started to
sell off as worries over the Fed increase. If the Fed only
cuts 25 points and then says the deflation threat was over
stated then the bonds should sell off more and that money 
find its way into the stock market. We have hit a plateau on
the ten year yield at about 3.4% and until that breaks the
big sell off may not occur. At this point it all depends on
the Fed not only in what they do but in what they say on
Wednesday. The guidance will be the key as the cut is already
baked into the cake. 

Enter Very Passively, Exit Very Aggressively!

Jim Brown


**************
FUTURES MARKET
**************

Gravestone Dojis
Jonathan Levinson

That's what printed on the weekly candles for the major equity 
indices.  This candlestick formation indicates a "blowoff" spike, 
in which a push to new highs is rejected, with the price rapidly 
to return to or near its starting level.  Of course, we saw
numerous gravestone dojis on the daily candles all the way up 
throughout the current rally, but it seems more dramatic on a 
weekly basis.


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

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
ES03U     1005    998    995    988    984
YM03U     9292   9222   9185   9115   9078
NQ03U     1226   1224   1222   1220   1218


10 minute chart of the US Dollar Index




The US Dollar Index got lifted Friday on a huge move, blowing 
through multiple resistance levels and then finding support near 
94.  Speculation of a shallower than anticipated rate cut by the 
Fed likely sparked the move, and the Fed's third consecutive 
reverse repo (the new term for the old matched sale-purchase 
agreement) at 10AM seemed to feed it.  As noted in the Market 
Monitor, I have never seen three consecutive reverse repos.  It's
significant because it marks a change of bias in the Fed's open 
market operations, with the Fed now actively draining reserves 
instead of supplementing them.  Tighter money means more valuable 
money, and the US Dollar Index benefited.


Daily chart of August gold

 

What's good for the buck is bad for gold, and unfortunately,
Friday's trading did not diverge from that rule.  August gold was 
whacked for 4.80, closing at 357, with the HUI dropping 2.75 to 
153.72 and the XAU –1.22 to close at 80.65.  Surprisingly, the 
commodity futures index was lightly positive, the CRB closing up 
.40 to 235.15.

Daily chart of the ten year note yield

 


Also predictably, treasuries got sold off.  There were different 
forces at work here.  Buying in the dollar should see buying in 
US treasuries as a place in which to park those dollars.  
However, the Fed drained 2.25B in reverse repos, which no doubt 
caused some selling in bonds.  But more significantly, the "rate 
cut trade", which saw vertical moves past resistance in the ten 
year t-bill in particular, got further reversed on Friday as 
traders backed away from a gamble on a 50 basis point cut at the 
next Fed meeting commencing June 24.  The ten year t-bill yield 
closed higher by 5.5 basis points to close at 3.396%. 


30 minute 20 day chart of the NQ

 

The Nasdaq futures are trading on a sell signal from a lower 
oscillator high, but managed to close right on support at 1223.  
Nevertheless, it has closed near the bottom of the week's range, 
printing that bearish gravestone doji for the weekly candle as 
mentioned above.  The MacD lags the stochastic, and it is 
bottomy but showing no signs of crossing up on the 30 minute 
candle chart.

5 day 10 minute NQ candles

 

Zooming in on the 10 minute candles, we see the NQ starting a leg 
down within what could be a bull flag.  The test will come on the 
bounce from just above 1200, always assuming that 1220 support 
fails.  The stochastic fits well with the price action within the 
channel, and I'm expecting to see a lower open on Monday.  


20 day 30 minute chart of the ES

 


There's a clear trendline break on the 20 day S&P futures chart, 
with the oscillators on sell signals.  As discussed yesterday, 
there's plenty of support to be tested, but this was clearly not 
a bullish week for the ES.

5 day 10 minute ES candles

 

I've left the channel undrawn here, but the 5 day chart shows the 
ES very close to the airball zone above 984 support.


2 day 5 minute ES candles

 
Thursday's lows were violated by the ES only after the cash 
close, with all of the short cycle oscillators on sell signals 
following Friday's gap and crap open.

20 day 30 minute chart of the YM

 



5 day 10 minute YM candles

 


This week gave us a potential doji top in equities, a bullish engulfing 
tweezer bottom in treasury yields and in the US Dollar Index.  While 
the trend has been difficult to discern on a daily basis, on the weekly 
charts it's so far clear:  treasuries and equities continue to trade in 
tandem (so far, no asset reallocation rally), and the dollar continues 
to trade against both of them.  Note further that the Fed's tightening 
up of its open market operations liquidity fiesta has hurt both bonds 
and stocks, and benefited the dollar.  I have discussing the ocean of 
liquidity added by the Fed over the past months, and it appears that 
the draining of that ocean has behaved exactly as we might expect.  
Unfortunately, gold has also suffered, also printing a gravestone doji 
for the week. 

For next week, we have the Fed's decision on interest rates.  My view 
is that an unexpected 50 bp cut should benefit treasuries, equities and 
gold, and hurt the US Dollar Index.  Unexpected tightening, such as if 
no cut occurs, would accomplish the reverse.  The big question is what 
will happen if the expected 25 bp cut is confirmed.  In that case, 
look at the charts above- I expect the trends they depict this week to 
continue, which should be bearish for equities, bearish for treasuries, 
bullish for the US Dollar Index, and bearish for gold.


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

IMAGINE THAT! 
By Leigh Stevens

The OEX finished above 500 and QQQ above 30 on Friday, causing 
the puts at those strikes and below to expire worthless - imagine 
that! Duh, who could have guessed it?!  It's the bears turn to 
NOT have things go their way as market participants wear only 
rose colored glasses and not just their dark shades.  With 
competing bond yields so low, money managers are following each 
other into the market, not wanting their April-June (Q2) report 
cards to reflect underperformance.    

THE BOTTOM LINE -
At least a modest pullback to around 980 in SPX, to between 490-
495 in OEX, 1600 in COMPX and to the 1180 area in the Nasdaq 100 
(NDX) seems likely - especially once Q2 stock portfolio buying is 
done, which is coming up this week. 

Also, the Fed meeting is on Wednesday and with the rally partly 
based on the anticipated rate cut, it's doubtful that we see 
further upside based on that.  Buy the rumor (anticipation) and 
sell the fact as they say.

Actual earnings will be coming out for the current quarter in 
July and there will likely then be a period of sideways to lower 
price action that is longer than 1-2 days. Of course the market 
is anticipating a better second half, but the over-optimism going 
on here may get a dose of sobriety with the bound to be overall 
current slow recovery of corporate profits.      

LAST WEEK and FRIDAY'S TRADING - 
There was a jump in the equities call to put daily volume ratio 
on Friday to a bearish 2.8 on triple (now being called quadruple) 
expiration day. While this jump is in significant measure related 
to expiration-related unwinding, I usually find these extremes to 
be nevertheless meaningful. Stay tuned. 

The Dow Jones rose 21 points (0.2%) on Friday to 9200.75 after 
spending most of the day about 60 points above its Thursday 
close. The Nasdaq Composite Index (COMPX) fell 3.92, or 0.2%, to 
close at 1644.72, as heavyweight Nasdaq stocks like Cisco, Oracle 
and Nortel fell.  For the week, the Industrials gained 83.6 
points, while the Nasdaq was up 18 points. 

General Motors (GM) was up some 2.5% and led gains in the big cap 
blue chips after the company announced plans to beef up its 
balance sheet with new debt offerings and Prudential upgraded the 
stock. 

The amount involved is $10 billion in debt and convertible 
securities, which doubles its original balance sheet 
strengthening target for 2003.  GM stated that it intends to use 
"substantially all" of the proceeds to partially fund its pension 
fund and other benefit obligations.

The move by GM caused Prudential to upgrade the stock to "buy" 
from "sell" on the belief that an eventual economic recovery will
overcome any short-term negative news. Imagine that - an actual 
sell on the stock! Not just some wimpy "under-perform" rating or 
the like. That's the effect of not having an investment banking 
arm.  And, why, when Pru speaks the market often takes more 
notice these days.   

It used to be that heavy borrowing was NOT a great bullish plus. 
But rates are low and GM has heavy unfunded pension liabilities - 
better to deal with it now than have the past come bite you when 
it might be more difficult to deal with. Or at least that's what 
my dear ol pappy used to say - well, at least the "bite" part, 
said a little differently. 

Fellow Dow stock General Electric (GE) climbed a half percent 
after the company reaffirming its Q2 earnings outlook at an 
analyst meeting. On Thursday, several Street analysts cut their 
full-year earnings forecasts on GE, noting the softness in the 
global economy and weak performance in the plastics division.

An article in the business-influential Wall Street Journal 
speculated on the Fed being undecided on how deep this week's 
rate cut should be. 

On Thursday, there was a Washington Post article suggested the 
Fed was ready to drop its (Fed funds) rate a full half, which 
currently stands at 1.25%. Hey, how low can you go!?

And, the Street of Dreams influential Goldman Sachs indicated a 
"more optimistic" attitude about the U.S. economic outlook due to 
improving financial conditions over recent months. Goldman raised 
its growth projection for '04 gross domestic product to 3.3% from 
2.5%. "What's important here is the shift in the Fed's regime -- 
to focus on keeping short-term rates low for a sustained period 
in order to prevent deflation," according to their economist. 
They're expectation was for a 1/2 point cut this week, and then 
to be on "hold" through 2004. Well, again, how low can they go - 
this ain't Japan you know! 

By the way, Goldman also forecasted a "slightly firmer" corporate 
profit growth this year and predicted the yield on the 10-year 
bond will rise further, to 3.8% by year end. (I usually no longer 
call the 10-year a "Note", as its more the bellwether bond than 
the diminishing supply of 30-year paper.) 

OTHER MARKETS - 
The 10-year Treasury note fell about one quarter point to yield 
3.374%. The 30-year bond dropped a half point and at its closing 
price, yielded 4.44%.

The dollar gained against the Yen slightly, trading at 118.35, up 
from 118.28 on  Thursday, while the euro eased against the dollar 
to $1.159 from $1.172.

INDEX OUTLOOKS – 

GOLD - 
In updating the XAU (Philly Gold & Silver Index) chart below, 
you'll see that the Index did achieve a bullish break out above 
the triangle pattern I highlighted last week.  What's it all mean 
in the bigger scheme of things? - I can't say with authority, but 
there is still a lot of unrest and threats out there and gold is 
the traditional go-to asset for times of uncertainty and war. 

The metal itself and shares of the gold mining companies usually 
move inversely or opposite of financial assets like stocks in 
general, at least over the long haul.  Either gold stops going up 
and stocks go down, or vice versa.  Maybe they both go up. I find 
it worthwhile to keep an eye on the gold market as representing a 
possible different view of how things are -  

 

  
S&P 500 (SPX) - Hourly chart:  

Technical support implied by the lower boundary of the uptrend 
channel is up to around 965-967.  Resistance and selling 
developed in the 1015 area last week rather than in a move all 
the way back up to the upper channel boundary.  My best guess is 
that a minor rally develops next, but that falls short of the 
prior (1015) peak.  This should be a put buying opportunity - 
certainly a stop out point will be close at hand (assuming 
another rally) at just above 1015.  Reward potential from there 
should be decent.    

 

Moderate to good rallies have developed when the 21-hour 
stochastic has gotten to a fully oversold reading, which it has 
done here. This tendency suggests buying calls into a dip on 
Monday morning, such as to the 985 area.   

S&P 100 Index (OEX) – Daily & Hourly charts:

The extreme reading in my "sentiment" indicator of course has to 
be viewed in the context of the expiration as equities call 
volume ran 2.8 times puts.  However, now the 5-day average is at 
the kind of extreme that tends to mark points where bullishness 
is extreme enough to suggest that the S&P is overbought and due 
for a countertrend move.  Stay tuned!

As with my analysis of SPX, I think there could be another rally 
that would set up a put buy, such as back up to the 505-507 area.  
If so and in puts at that point, I would exit if OEX trades back 
above 510.     

 

Support implied by the lower end of the daily and hourly channels 
comes in in the 485-490 area. Resistance at the "line" of prior 
hourly highs is at 512.  More major resistance looks to be in the 
515-517 area. 

When tracking support and resistance implied by steeply rising or 
falling trendlines it does change significantly over a few days 
so my view here is also a "snapshot" in time and looking ahead 
only 2 or at most 3 trading sessions usually. Like a "moving" 
average, trendline support and resistance needs to be checked 
periodically by applying a trendline that is up to date so to 
speak.          

 

I note with interest the price/RSI divergence that has shaped up 
here.  Does such a divergence always signal a top, no. But the 
reliability of such divergences is as high as any patterns and 
indicators in common use.   

Dow Industrials (INDU) Daily & Hourly (DJX.X) charts: 

93.5 - 94 is the key technical resistance I would peg.  The 14-
day stochastic has rolled over to the downside - sell (buy puts) 
rallies. And, there should be another rally attempt to sell into, 
such as back up the 93 area.    

If DJX were to get all the way back down to the lower end of its 
trend channel, 88 looks like a downside target.  I think support 
being 92 and 88 is the midpoint 90.  Look for the bulls to 
support (buy stock) in this area of the Dow.  A close above 94 
would be enough for me to exit puts.  

  

Picking a top is like choosing Miss America - tough to find the 
right one.  However, the move to a new high followed by a fairly 
immediate pullback after one further move up the upper channel 
line is suggesting that the market is due for a pause, pullback 
and "rest".      

Nasdaq Composite Index (COMPX) – Hourly: 

The Composite has made a potential double top.  This is 
"confirmed" (as long as there is not a higher high) when the 
prior downswing low is pierced - in this case, by a move below 
1625.  Key support looks to be down in the 1600 area.    

When I see a double top I tend to believe it, as it's a pretty 
reliable signal for a reversal - in a market with upside momentum 
(MO), there is usually another rally attempt. And there has been 
plenty of MO in this rally.

We've been starting the weeks lately with rallies such as last 
week, in the pick up in New York State manufacturing activity.  
Of course New York is not a powerhouse in this sector, but never 
mind. Hard work there is commonly doing such things as using your 
brains and instincts on the Street of Dreams, but there are 
industrial sectors so I don't want to make the garment workers 
mad at me.         

 

Nasdaq 100 Tracking Stock (QQQ) - Daily & Hourly: 

So the bulls kept the Q's above 30 and rained on the bears 
parade.  Too bad for them, but they should get a trade in the 
July options and by shorting further rallies, looking for a move 
back to the 29-29.50 area at a minimum. I would love to short QQQ 
around 31, taking a short risk to 31.5, with downside potential 
to 29.50 - a worthwhile trade from a risk to reward standpoint.  
With earnings season ahead there is bound to be some selling 
pressure pockets.  

 

The spike top on a big upward spike in volume suggests at least 
an interim top.  After a decent pullback, if the bulls give a 
chance to buy much of a correction, upside is still pretty good 
into the end of Q3 and earnings to see if the bulls can prove 
their case on this optimistic view that techs can make money this 
year.       

Good Trading Success!


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**************
Editor's Plays
**************

Russell Shuffle   

It is that time of year again when the Russell Indexes are 
shuffled to reconstitute the top 3000 companies. Those that
have dropped in market cap are kicked out and new leaders
are added. The dates are June 13th, 20th and 27th. The initial
list of candidates was published on the 13th and an updated
list on Friday the 20th. The final list will be posted on 
the 27th and become effective on July 1st. 

http://www.russell.com/us/Indexes/US/membership/reconstitution.asp

In 2002 486 companies were added to the Russell-2000 and 371
companies dropped. That produces significant volume in the 
process as funds update their portfolios. Over $250 billion 
is invested in funds based on the Russell indexes. 

It was interesting going through the list as it read more like an
obituary than a list of up and coming companies. Many of the giants
of the past are coming back from the dead. These companies are
going back into the Russell after being in penny stock hell. 
BVSN, MKTW, TSCM, CMGI, KANA, KOMG, ASKJ, ABTL, CNQR, EELN, INSP,
ISPH, MCLD and my favorite MSTR (grin). 

There were some new kids on the block as well like IPMT but by 
far the majority of the candidates looked like penny stock 
refugees. Here is the list if you want to spend your weekend
doing research. 

http://www.russell.com/us/indexes/us/membership/recon_additions.asp

Ironically the one I liked the best for some reason was
CME but they have no options. Think about it. An options and 
futures exchange with no options. Duh!

Actually out of the top 12 charts I picked as possibles only
two companies had options. I am sure there were more potential 
plays but I did not waste the time pulling up charts on all the
several hundred additions. 

The two that I did like and did have options were ASKJ and MSTR.
Both pulled back on Friday for different reasons and gave us 
potential entry points. 

ASKJ has been on a roll with the market and spurted about +1.50
on the announcement on the 17th but fell back to pre announcement
levels around $13 on the two days of Nasdaq weakness. 

MSTR has been trying to break $42 for two weeks with no success. 
A court ruling on Thursday gave traders an excuse to take profits
and knocked it back to $38. I read the news on it and it did 
not appear to be earth shaking. MSTR was suing two former employees
for stealing trade secrets. The judge said there was no evidence
and ruled against MSTR. No big deal in my opinion. I will take
the entry point, thank you. 

The new MSTR has a market cap of about $600 million and a float
of about 8 million shares. The ADV is only 450,000. It traded
twice that on the Friday drop. Stock price is $38.

ASKJ has a market cap of about $600 million and a float of about
37 million shares and ADV of 2.44 million. The stock price is
about $13.00. 

Since both companies are about the same market cap but ASKJ has
4.5 times more shares trading than MSTR that makes MSTR the most
likely candidate on the surface. However with MSTR trading at
$38 compared to $13 for ASKJ that 3:1 price ratio brings it back
to almost an even proposition. MSTR still gets the nod by a nose. 
The lower volume should make it more volatile as funds try to take 
a position. 

MSTR - 120 min

 

 
MSTR has dropped back to support at $38 and is set to either
rebound or crash to next level support at $34. I would not buy 
calls on MSTR until it starts moving up again. 

The July $45 put is $8.10 and a naked seller could do well if 
the stock bounces back to $42. I would not recommend that. I
was naked 20 contracts at $220 when MSTR was cut in half before
the open on accounting concerns a couple years ago. It was not
a pretty picture. Fortunately it bounced enough for me to trade
out of it before finally dying completely.

You could also buy the stock and sell the $40 covered calls but
that has a worst risk ratio than just selling the $45 naked put. 

The bottom line is to buy a July $40 call for $2.60 in expectation
of MSTR seeing $42 again next week. 



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

Play updates:

I am only listing the current recommendations with a 
link to the initial write up and unless the play changed 
substantially. 

The three Powerball plays submitted from two weeks ago by readers
were MANU calls, JNJ puts and TNX bond yield calls. 

MANU drifted down to $5.04 from its highs over $6.00 but did not
hit the execute trigger of $4.92. We may get another chance next
week. 

JNJ bounced back to resistance at $55 and appears stuck there 
for the immediate future. 

The bond yield calls on the TNX.x submitted by Keene Little are
moving in the right direction. Yields are up slightly from two
weeks ago and the calls are up slightly from the article price. 
Once that 3.40% level breaks these should do well. 

http://members.OptionInvestor.com/editorplays/edply_060803_1.asp


EMC Call from Feb-2nd  $10.25 
($7.70 when recommended)

http://members.OptionInvestor.com/editorplays/edply_020203_1.asp


Powerball 

Still holding up the portfolio is up +305 and growing. Without
RFMD it would still look significantly better.  

It would have taken $1,255 to buy one contract of each on 
January-2nd. Any bets on what this will be worth on 12/31/03 

Powerball Chart 

  

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

Remember, these are high risk plays and should only be made
with risk capital.

Good Luck

Jim Brown  


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

Expiring options
 
This week was options expiration week, and we've grown accustomed 
to otherwise unexpected moves (or the lack thereof) as we 
approach opex Friday.  The largest writers of options have 
sufficient resources to at least temporarily move the underlying 
security to levels favorable for their open expiring positions.  
We see this with stocks and even indices becoming "pinned" at or 
near strike prices on opex Friday.
 
We also see divergent activity in options-related indices, most 
notably the volatility indices (VIX, VXN and QQV) and the put to 
call ratios.  Friday showed us substantial drops in the 
volatility indices accompanied by very low put to call readings 
throughout the session.  In particular, I saw the equity 
component of the put to call ratio at an eye-popping .29 in the 
morning.
 
Trying to gestalt these data, we see that the put to call ratio 
drops as call volume outpaces put volume.  The VIX, VXN and QQV 
drop as the premium on option contracts drops.  Premium drops 
when sellers accept lower prices for their contracts, which 
occurs when they're selling aggressively.  Friday's activity 
looks to me as if option sellers were selling calls as fast as 
the buyers could pick them up, settling for lower prices.
 
We can draw upon other information to help tweak this up a bit- 
consider the lofty bullish percents and the Investors 
Intelligence data discussed in the Market Monitor this week, 
showing a new low in bearish sentiment and a new high in the 
number of bullish advisors.  These price and sentiment indicators 
tell us that we should be closer to a relative top than to a 
bottom.
 
While no participant can predict the future, one interpretation 
of the options activity on Friday is that some large bets were 
being made on impending downside for equities.  Of course, opex 
Friday muddies the water for us, so we'll keep this in mind for 
next after Monday's squaring of positions from this week has 
cleared up.


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

Market Averages

DJIA ($INDU)

52-week High:  9410
52-week Low :  7197
Current     :  9201

Moving Averages:
(Simple)

 10-dma: 9184
 50-dma: 8704
200-dma: 8360

S&P 500 ($SPX)

52-week High: 1005
52-week Low :  768
Current     :  996

Moving Averages:
(Simple)

 10-dma:  997
 50-dma:  942
200-dma:  890

Nasdaq-100 ($NDX)

52-week High: 1266
52-week Low :  795
Current     : 1223

Moving Averages:
(Simple)

 10-dma: 1225
 50-dma: 1149
200-dma: 1034


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

The VIX is very near to a new 52-week low while the VXN continued
its weeklong slide back toward previous lows.  The VIX remains a
big flashing "warning" sign for bullish traders and this could be
the week we see why.

CBOE Market Volatility Index (VIX) = 21.09 -0.92
Nasdaq-100 Volatility Index  (VXN) = 32.34 -1.52

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.51        987,497       505,887
Equity Only    0.35        824,846       294,278
OEX            1.31         41,690        54,664
QQQ            0.82         49,828        40,634


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

Bullish Percent Data

           Current   Change   Status
NYSE          71.7    + 0     Bull Confirmed
NASDAQ-100    82.0    + 1     Bull Confirmed
Dow Indust.   83.3    + 0     Bull Confirmed
S&P 500       81.0    + 0     Bull Confirmed
S&P 100       82.0    + 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  0.93
10-Day Arms Index  1.16
21-Day Arms Index  1.06
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    1418      1521
Decliners    1390      1550

New Highs      73        96
New Lows        4         4

Up Volume    913M      644M
Down Vol.   1085M     1080M

Total Vol.  2016M     1741M

M = millions


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


Commitments Of Traders Report: 06/17/03

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

The large S&P contracts continue to see more buying as Commercials'
long positions have hit highs not seen in a while.  Short positions
took a significant jump higher as well but big money is 
expecting strength.

Commercials   Long      Short      Net     % Of OI
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%
06/17/03      519,887   501,401    18,486     1.8%

Most bearish reading of the year: (111,956) -  3/06/02
Most bullish reading of the year:   18,486  -  6/17/03
 
Small Traders Long      Short      Net     % of OI
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%
06/17/03      202,040   184,028    18,012     4.6%

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

In contrast to the full S&P contract data above, the S&P e-mini
contracts are showing the most bearish reading in a long time,
at least from the Commercial traders.  We saw significant jumps
in both long and short positions but Commercials or "smart money"
are exceptionally bearish on the e-minis.

Commercials   Long      Short      Net     % Of OI 
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%)
06/17/03      306,279   661,114   (354,835)  (36.6%)

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year: (222,875)  - 04/01/03

Small Traders Long      Short      Net     % of OI
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%
06/17/03      466,837    70,609   396,228    73.7%

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


NASDAQ-100

Again, we're seeing large increases in the number of contracts
outstanding for both commercials and small trades but there is
no discernable change in investor sentiment here.

Commercials   Long      Short      Net     % of OI 
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%)
06/17/03       60,964     65,561    (4,597)  (3.6%)

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
05/27/03       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%
06/17/03       29,400    23,232     6,168    11.7%

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

No change in investor sentiment here either, despite increases
in the number of contracts outstanding.

Commercials   Long      Short      Net     % of OI
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%
06/17/03       20,625    18,593    2,032       5.1%

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
05/27/03        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%)
06/17/03        9,092     9,398    (  306)   ( 1.6%)

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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***************
ASK THE ANALYST
***************

A new security to grab a gold bugs attention

I really enjoyed and learned from your discussion last week on 
ETFs.  I never knew there were so many.  This week I saw a 
program on TV that talked about the potential launch of a gold 
ETF that could rival futures and gold stocks.  My question is, if 
launched, what impact might it have on gold stocks themselves?

I think I saw the same spot this trader is talking about, and boy 
does it sound like a security that will really attract a gold 
bug's attention, and most likely his/her money if launched.

Yes, the World Gold Council has filed with the SEC to launch its 
Equity Gold Trust, which may be listed on the New York Stock 
Exchange under the symbol (NYSE:GST).

Have you've ever sat in your car and thought of a neat invention 
that would really serve the publics needs, but never did anything 
about it, and then years later see that somebody is now making 
millions with a product "just like yours," that they did invent?

This type of security, if approved by the SEC, is one that I 
think will rival the QQQ, SPY and DIA for trade volume in the not 
too distant future.  I don't think it will surpass daily volume 
levels of the QQQ, SPY and DIA, but it will be one of the more 
actively traded ETFs.

A brief background on the new Gold ETF would actually have the 
World Gold Council, establishing a trust with the underlying 
asset being gold!  From what I've seen/read, they're actually 
going to set aside gold bullion and the trust will be "valued" by 
that store of gold bullion.  From that point on, the Gold ETFs 
price would then be tied directly to the price of gold bullion.

What a great idea I thought years ago.  Why not set up a security 
where I could store a head of lettuce in the refrigerator, or a 
basket of apples, then try and list a security with the NASDAQ 
that trades as a perceived value of the vegetables and fruits in 
my refrigerator!  I'd be rich with the revenue generated from 
exchange and clearing fees!  Hmmmm.... I should have thought 
about gold, lumber, oil, etc.

What impact might this cleverly design ETF have on gold equities 
themselves?

This is a good question, and a difficult one to answer isn't it?  
My initial thoughts that it would have a more negative than 
positive impact.

One thing I've said before as it relates to gold equities, is 
that while companies do explore and produce gold, it is a 
false assumption to think that if I truly wanted ultimate 
exposure to the gold commodity, where the underlying commodity of 
gold might provide a hedge, I'm not really able to get a true 
hedge with a gold stock.  Am I?

Take Newmont Mining (NYSE:NEM) $33.89 as a random example.  If 
I'm looking for exposure to gold as a hedge against inflation, is 
Newmont's stock a real hedge on the thought that gold prices will 
rise?  Not necessarily.  It is possible that gold prices could 
surge from $300 to $800 per ounce, but Newmont's price just sit 
at $33.89 or even decline.  What if Newmont suddenly doesn't find 
any more gold reserves and has been selling their gold production 
on a daily basis.  The bottom of the mine could be $0.00.

What moves a stock's price higher?  More buying than selling.
What moves a stock's price lower?  More selling than buying.

It is feasible that the creation of a Gold ETF, like the World 
Gold Council is proposing may become a more popular security and 
take some demand (in the form of buying) away from gold equities 
like a Newmont Mining, Barrick Gold (NYSE:ABX), or Anglogold 
(NYSE:AU).  If anything, we might expect trade volumes in gold 
equities to decline.

The proposed Gold ETF may very well take business from the 
futures markets, as RISK for traders could be mitigated.  For 
those of you that have delved into futures trading, you know very 
well the amount of leverage (up and down) you can have exposure 
to in that market.  While its great when the trade works in your 
favor, when it goes against you, that leverage can create an 
"ouch" for the account.  The proposed GOLD ETF, which will trade 
based on the underlying commodity itself, will have downside to 
zero.  The details haven't been ironed out, but I would think 
these ETF's will be sold in increments of 100 shares, and talk is 
that they will be priced at the daily value of gold bullion per 
ounce.  

Options traders will also get "excited" if options are listed on 
the Gold ETF.

The trader asked about the potential impact on gold equities.  I 
would also wonder about impact on the collectible coin industry.  

Many "gold bugs" find that gold bullion itself is a difficult 
item to store in our homes, and we can't just go down to the 7-
eleven and exchange some shavings for a gallon of milk and loaf 
of bread.  Many "gold bugs" have turned to the collectible coin 
market and gold coins as a way to hold a "gold hedge," but here 
too, the coin itself doesn't always accurately depict the 
fluctuating price of gold itself.  Gold coin prices are just like 
any other fixed asset, where price is determined by the MARKET.  
While a collectible coin is obviously limited in supply, part of 
its price component is tied to the collectibles market.
One potential benefit of a rare gold coin is that its price can 
actually increase above any price increase in gold.  The problem?  
Who wants to sell one of their rare treasures to capture a price 
gain?

Heck!  I've always wanted to start my own rare gun collection, 
but I'm the kind of person that once I have a beautiful shotgun 
with serial number 00001 on it, I'd never be able to part with 
it!  While my initial intention was to hold the asset for price 
gain, I could never part with such a treasure.  You should have 
seen the look on the guys face that stopped by the house the 
other day, asking me if I was interested in a casket for my 
eventual eternal rest in peace.  I chuckled and told him I 
already had a gun vault picked out for such a day as I 
take my sacred treasures with me!

I'm much more unemotional with my stock/option/ETF trading.  
Those are only pieces of paper to me and I love'em when they are 
treating me right, and hate'em when they're treating me wrong.  
If I held a gold bar, I'd probably get superstitious with it and 
want to rub it every night before going to sleep, or have a 
collectible coin frame mounted so I could enjoy its beauty and 
think about where it had journeyed all those years ago.

The Gold ETF may also help reduce a trader's frustration. One 
question I get quite often about gold equities is.... "why is 
this stock gold stock down, when gold futures have been rising?"  
It's harsh to reply with the answer... "there's just more sellers 
than buyers in the stock today."  But it is so true!

If this newly proposed Gold ETF does get approval from the SEC, 
then many "gold bugs" that tend to trade/invest in gold stocks 
will have one less thing to worry about, and the actual security 
they hold long/short or call/put will most likely be a much more 
accurate representation of the commodity they wish to trade to 
begin with, as the ETF isn't represented by a group of stocks, 
but a group of gold bars!

The Gold ETF.  Why didn't I think of that?

Jeff Bailey


*************
COMING EVENTS
*************

======================================
Market Watch for the week of June 23rd
======================================

------------------------
Major Earnings This Week
------------------------

Symbol  Company               Date           Comment      EPS Est

------------------------- MONDAY -------------------------------

APOL   Apollo Group          Mon, Jun 23  Before the Bell     0.35
SCS    Steelcase Inc.        Mon, Jun 23  After the Bell     -0.04
UOPX   Un of Phoenix Online  Mon, Jun 23  Before the Bell     0.25
WAG    Walgreen              Mon, Jun 23  Before the Bell     0.29
------------------------- TUESDAY ------------------------------

AM     American Greetings    Tue, Jun 24  Before the Bell     0.26
FDX    FedEx                 Tue, Jun 24  Before the Bell     0.90
PAYX   Paychex               Tue, Jun 24  After the Bell      0.19
RAD    Rite Aid Corporation  Tue, Jun 24  -----N/A-----      -0.01
KR     The Kroger Co.        Tue, Jun 24  Before the Bell     0.45


-----------------------  WEDNESDAY -----------------------------

COMS   3Com                  Wed, Jun 25  After the Bell     -0.12
ATYT   ATI Technologies      Wed, Jun 25  -----N/A-----       0.04
CCL    Carnival Corp & Crnvl Wed, Jun 25  Before the Bell     0.22
FDO    Family Dollar         Wed, Jun 25  Before the Bell     0.40
GIS    General Mills, Inc.   Wed, Jun 25  Before the Bell     0.63
GS     Goldman Sachs         Wed, Jun 25  Before the Bell     1.19
MLHR   Herman Miller         Wed, Jun 25  After the Bell      0.03
RIMM   Res In Motion Lmtd    Wed, Jun 25  After the Bell     -0.09

------------------------- THURSDAY -----------------------------

CAG    ConAgra Foods, Inc.   Thu, Jun 26  Before the Bell     0.41
DLM    Del Monte Foods       Thu, Jun 26  Before the Bell     0.21
LNR    LNR Property          Thu, Jun 26  -----N/A-----       0.60
NKE    Nike                  Thu, Jun 26  After the Bell      0.92
TEK    Tektronix Inc.        Thu, Jun 26  -----N/A-----       0.09

------------------------- FRIDAY -------------------------------

MKC    McCormick & Company   Fri, Jun 27  Before the Bell 0.26
SJR    Shaw Communications   Fri, Jun 27  Before the Bell  N/A

----------------------------------------------
Upcoming Stock Splits In The Next Two Weeks...
----------------------------------------------

Symbol  Company Name              Ratio    Payable     Executable

SLM     SLM Corp                  3:1      Jun  20th   Jun 23rd
FLO     Flowers Company           3:2      Jun  27th   Jun  30th
UBMT    United Financial          3:2      Jun  30th   Jul   2nd
FRED    Fred's                    3:2      Jul   1st   Jul   2nd
IGT     Intl Game Technology      4:1      Jul   2nd   Jul   3rd
MTLG    Metrologic Instruments    3:2      Jul   3rd   Jul   7th

--------------------------
Economic Reports This Week
--------------------------

The big event this week is the FOMC meeting on Tuesday.  Their
decision will stall the markets before the meeting and set the
tone for the markets afterwards.  However, we have a full schedule
of economic reports on top of what could be a heavy week of
earnings warnings.  Hang on to your hats.

==============================================================
                       -For-           

Monday, 06/23/02
----------------
None


Tuesday, 06/24/02
-----------------
Consumer Confidence(DM) Jun  Forecast:    85.0  Previous:     83.8
FOMC Meeting (Day 1 of 2) (DM)    


Wednesday, 06/25/02
-------------------
Durable Orders (BB)     May  Forecast:   1.00%  Previous:   -2.30%
Existing Home Sales(DM) May  Forecast:   5.80M  Previous:    5.84M
New Home Sales (DM)     May  Forecast:   1030K  Previous:    1028K
FOMC Meeting (Day 2 of 2) (DM)  


Thursday, 06/26/02
------------------
Initial Claims (BB)   06/21  Forecast:     N/A  Previous:     421K
GDP-Final (BB)           Q1  Forecast:   1.90%  Previous:    1.90%
Chain Deflator-Final(BB) Q1  Forecast:   2.50%  Previous:    2.50%
Help-Wanted Index (DM)  May  Forecast:      35  Previous:       35
FOMC Minutes (DM) 

Friday, 06/27/02
----------------
Personal Income (BB)    May  Forecast:   0.30%  Previous:    0.00%
Personal Spending (BB)  May  Forecast:   0.20%  Previous:   -0.10%
Mich Sentiment-Rev.(DM) Jun  Forecast:    88.0  Previous:     87.2


Definitions:
DM=  During the Market
BB=  Before the Bell
AB=  After the Bell
NA=  Not Available


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The Option Investor Newsletter                   Sunday 06-22-2003
Sunday                                                      2 of 5


In Section Two:

Watch List: Entry Point?  Maybe...
Put Play of the Day: RYL
Dropped Calls: None
Dropped Puts: None


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**********
Watch List
**********

Centex Corp - CTX - close: 79.50 change: -2.49

WHAT TO WATCH: The homebuilders are finally starting to crack
under their own weight.  The group has been bullet proof for
months but some recent concerns over the ongoing growth for the
housing market has investors taking profits off the table.  The
close under $80.00 sounds like the starting gun for hungry bears
looking for an easy meal.  We'd target the 50-dma nearing $72.

Chart=


---

Verizon Communications - VZ - close: 41.21 change: +1.10

WHAT TO WATCH: Shares of this telecom provider have continued to
rally despite market indecision.  The recent breakout above the
$40 level has also produced a bullish breakout on VZ's P&F chart.
Shares traded a huge 16.7 million on Friday, closing up 2.74%.
We're not sure what's driving it but that kind of volume could
produce some follow through next week.

Chart=


---

Wellpoint Health Network - WLP - close: 85.90 change: -0.09

WHAT TO WATCH: Shares of WLP were hammered on Thursday as the
stock moved down from $90.46 to $86.  We knew profit taking would
hit sooner or later but we didn't expect it all in one day.  Of
course who's to say the selling is over?  So far shares of WLP
have stopped at the $85.00 level, which was expected as support.
The question now is will it hold here and bounce or will it break
and test the $80 level?

Chart=


---

FLIR Systems - FLIR - close: 30.65 change: -0.78

WHAT TO WATCH: Shares of FLIR were pretty strong heading into its
2:1 split more than three weeks ago.  They impressed us again by
climbing above the $30.00 level (pre-split would have been $60)
and holding here for a couple of weeks.  It looked like the bulls
had built a big enough base to support more upside when shares
inched higher Wednesday-Thursday.  Alas, Friday profit taking
brought it back down but the $30 level held.  Aggressive traders
can evaluate longs above $30 with a tight stop to limit their
risk.

Chart=


---

Saint Jude Medical - STJ - close: 56.29 change: -0.41

WHAT TO WATCH: It definitely looks like an entry point.  The
problem is we can't tell whether to go long here at support of
its rising channel or look for a breakdown below the $55 mark and
its rising 50-dma.  Gosh, shares have already fallen from the $63
level.  Of course they've also risen from the $35 level last
December.  Looks like one to watch.

Chart=




===================================
RADAR SCREEN - more stocks to watch
===================================

BLL $46.66 - This is the FOURTH test of support near $46.50 in
four weeks.  A breakdown here and the $45 level may not hold for
BLL.  The weekly chart looks open to more consolidation.

QCOM $36.45 - Shares really surprised us this week with a strong
breakout above its 200-dma and above the $35-36 levels.  The
stock still has strong resistance at $38.00 but a breakout there
and it might be worth playing.

SPY $99.46 - You guessed it; these are the S&P Deposit Receipts
or the SPDRs (spiders).  If you want to trade the "market" this
is a good way to do it.  The close under $99 looks ominous and a
retest of previous resistance (as support) at $95 and its rising
50-dma sound like a good bet.



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********************
THE PLAYS OF THE DAY
********************


Put Play of the Day:
********************

RYL – The Ryland Group close: 69.95 change: -4.03 stop: 75.25

See details in play list




**************************
PICKS WE DROPPED THIS WEEK
**************************

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS
^^^^^

None

PUTS
^^^^

None


***********
DEFINITIONS
***********

SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


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**********

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The Option Investor Newsletter                   Sunday 06-22-2003
Sunday                                                      3 of 5


In Section Three:

Current Calls: ADI, IGT, LH, LXK, MRK, MERQ, PGR, 
New Calls: AZO
Current Put Plays: KSS, WFMI
New Puts: COF, RYL


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******************
CURRENT CALL PLAYS
******************

Analog Devices - ADI - close: 33.99 change: -1.18 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:
When we initiated coverage of ADI on Thursday, another pullback 
to the bottom of the ascending channel seemed like the perfect 
setup for a new entry point.  The catch is that we wanted to see 
a rebound from that level to confirm our bullish view on the 
stock.  Well, we got half of that setup on Friday -- the drop, 
but not the pop, as ADI fell under its 50-dma ($34.20) to close 
at $33.99, arguably right on the bottom of the channel.  So what 
now?  Unfortunately, we need to see what transpires early next 
week, but we need that rebound in order to consider an entry into 
the play.  a breakdown from the channel is a possibility that we 
considered before initiating coverage and that's a big part of 
why we started out with such a tight stop at $33.  If the channel 
breaks, we want to be gone from the scene quickly.  Aggressive 
traders can enter on that rebound, but should confirm strength in 
the overall sector by monitoring the SOX index before playing.  
More conservative players will want to wait for a rebound back 
over the $36 level on solid volume before initiating new 
positions.

Suggested Options:
Shorter Term: The July 30 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 either the July 35 Call or 
the September 40 Call.  These options are 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-30 ADI-GF OI= 184 at $4.70 SL=2.75
BUY CALL JUL-35 ADI-GG OI=1353 at $1.35 SL=0.75
BUY CALL SEP-35 ADI-IG OI=2846 at $2.90 SL=1.50
BUY CALL SEP-40 ADI-IH OI=3814 at $1.10 SL=0.50

Annotated Chart of ADI:

 

Picked on June 19th at    $35.17
Change since picked:       -1.18
Earnings Date           08/13/03 (unconfirmed)
Average Daily Volume =  4.00 mln



---


Intl Game Technology - IGT - cls: 95.47 chg: -0.14 stop: 92.00

Company Description:
IGT is a world leader in the design, development and manufacture
of microprocessor-based gaming and lottery products and software
systems in all jurisdictions where gaming and lotteries are
legal. (source: company press release)

Why We Like It:
We're down to the last seven trading days before IGT splits 4-
for-1 on July 2nd, 2003.  Shares have held up admirably during 
this recent market volatility and profit taking in certain 
sectors.  Dip buyers have been defending the stock at $95.25 and 
above but a quick look at the intraday chart does show some 
selling near $96.00.  So someone is taking profits here but 
there's been enough buying interest to keep shares propped up.  
Honestly, the stock looks tired and the rally appears to be 
running out of steam but with just seven days left before the 
split there may be a home stretch ramp up by the momentum 
traders.  Oscillators are still overbought and looking ready to 
roll over (actually some have already turned bearish).  
Conservative traders can try and protect some profits with a 
tighter stop loss.  The $95.00 and the $94.00 levels look like 
prime candidates for a tighter stop.  We're going to leave our 
stop at $92.00 because we expect some volatility next week and 
don't want to be stopped out prematurely.  Our short-term target 
is still $100 and if IGT gets close to it start planning your 
exits.  Something to consider is what will happen to shares after 
the split.  Normally, stocks tend to go through a post-split 
depression as the momentum traders move on to other plays.  
However, every once in a while there is so much interest in a 
stock that new investors are drawn to it due to its "cheaper" 
price.  Considering that IGT still has a dividend payment on July 
28 for shareholders on record as of July 14th there may be plenty 
of interest left for bulls to hold shares a couple of weeks 
longer.


Suggested Options:
Our strategy is to play IGT for any potential split run.  With
the split on July 2nd, it doesn't make sense to buy options
longer than July's but we're going to list an October for those
who are interested.

BUY CALL JUL-90  IGT-GR OI=2031 at $7.70 SL=4.50*on a dip*
BUY CALL JUL-95  IGT-GS OI=3010 at $4.50 SL=2.25
BUY CALL JUL-100 IGT-GT OI=2944 at $2.15 SL=1.00*looking risky*
BUY CALL OCT-95  IGT-JS OI= 745 at $7.70 SL=4.50

Annotated Chart of IGT:

 

Picked on June 10th at $91.87
Change since picked:    +3.60
Earnings Date        07/22/03 (unconfirmed)
Average Daily Volume =   1.22 million 
Chart link:


---

Laboratory Corp - LH - close: 30.37 change: +0.61 stop: 28.00

Company Description:
The first national clinical laboratory to fully embrace genomic 
testing, Laboratory Corporation of America® Holdings (LabCorp®) 
has been a pioneer in commercializing new diagnostic 
technologies. As a national laboratory with annual revenues of 
$2.5 billion in 2002 and approximately 24,000 employees, the 
Company offers more than 4,000 clinical tests ranging from 
routine blood analyses to sophisticated molecular diagnostics. 
Serving over 200,000 clients nationwide, LabCorp combines its 
expertise in innovative clinical testing technology with its 
Centers of Excellence. The Center for Molecular Biology and 
Pathology, in Research Triangle Park, North Carolina, offers 
state-of-the- art molecular gene-based testing in infectious 
disease, oncology and genetics. DIANON Systems, Inc., its 
Anatomic Pathology Center of Excellence, is a leader in oncology 
and genetic testing, and National Genetics Institute in Los 
Angeles is an industry leader in developing novel, highly 
sensitive polymerase chain reaction (PCR) methods for testing 
hepatitis C and other blood borne infectious agents. LabCorp's 
Minneapolis-based ViroMed offers molecular microbial testing 
using real time PCR platforms, while its Center for Esoteric 
Testing in Burlington, North Carolina, performs the largest 
volume of specialty testing in the network. LabCorp's clients 
include physicians, state and federal government, managed care 
organizations, hospitals, clinics, pharmaceutical and Fortune 
1000 companies, and other clinical laboratories. (source: company 
press release)

Why We Like It:
The slow roll higher for shares of LH continue.  The stock has 
been gaining ground in a wide ascending channel since its 
disastrous gap down in October.  The intraday give and take 
between buyers and sellers has fought its battles around the 100-
dma and the 50-dma for the last few months.  A couple of weeks 
ago, LH was bouncing along the bottom of its rising channel and 
the 100-dma, which held as support.  This last trading week the 
stock has rebounded higher and buyers have supported the stock at 
the 50-dma for the last three sessions.  We're encouraged by 
Friday's move of more than two percent and its close back above 
$30.00.  The stock's MACD is about to curve higher back into a 
bullish crossover while its Stochastics, RSI and momentum have 
already crossed.

LH's point-and-figure chart supports the rising channel we see 
and the stock is currently above its bearish resistance.  If the 
markets see additional volatility this week due to uncertainty 
regarding the Fed's interest rate decision or end of the quarter 
shuffling, stocks like LH may see some additional buying interest 
as many investors view healthcare as a "safety" play.  We're 
going to keep our stop loss at $28.00 for now and new entries 
above $30.00 look okay.

Suggested Options:
We like the July 30's and the August 32.50s as they're not too 
expensive and have decent open interest.

BUY CALL JUL 30.00 LH-GF OI= 929 at $1.60 SL=0.80
BUY CALL JUL 32.50 LH-GZ OI=1248 at $0.55 SL=0.00
BUY CALL AUG 30.00 LH-HF OI=3640 at $2.20 SL=1.10
BUY CALL AUG 32.50 LH-HZ OI=9101 at $1.10 SL=0.55
BUY CALL AUG 35.00 LH-HG OI= 434 at $0.50 SL=0.00

Annotated Chart of LH:


 


Picked on June 17th at $30.10
Change since picked:    +0.27
Earnings Date        07/28/03 (unconfirmed)
Average Daily Volume =   1.49 million 
Chart link:


---

Lexmark Intl - LXK - close: 74.78 change: -0.86 stop: 71.00

Company Description:
Lexmark International, Inc. is a leading developer, manufacturer 
and supplier of printing solutions -- including laser and inkjet 
printers, multifunction products, associated supplies and 
services -- for offices and homes in more than 150 countries. 
Founded in 1991, Lexmark reported approximately $4.4 billion in 
revenue in 2002.  (source: company press release)

Why We Like It:

Ta-da!  We suspected that shares of LXK would pull back to the 
$74.00 level (see Thursday's update) and sure enough some traders 
took a little money off the table heading into the weekend.  We 
like LXK as it has been one of the leaders in the hardware sector 
while not shooting up so high and fast that it would be foolish 
to play it.  There have been a lot of expectations for hardware 
companies to show signs of a recovery but with business spending 
still lagging behind consumers it's been a tough road for many.  
Except for LXK.  Printer cartridges and other printing solutions 
have been a high margin business despite competition from the 
likes of HPQ, Canon, Epson and a host of small Internet 
discounters spamming your inboxes with ads for cheap refillable 
ink cartridges.

What really turned us on to LXK was its weekly chart.  Shares 
have been battling with the $70 level as resistance for years.  A 
few weeks ago LXK broke out above this level and has since pulled 
back to retest it now as support.  We could easily see the stock 
trade up to the $80 mark or beyond.  Supporting our bullish 
outlook is LXK's point-and-figure chart.  The P&F chart has been 
building a triangular-shaped (pennant) pattern and we were 
expecting an upside breakout.  Sure enough, the rally on 
Wednesday produced the technical breakout we were looking for and 
LXK is now showing what P&F chartists call a "bullish triangle 
breakout", which is one of the most successful bullish patterns 
traders can play. 

Now nothing is infallible and technical patterns get broken all 
the time.  That's why we have to play with a stop loss.  
Currently ours is at $71.00.  More aggressive traders should 
probably consider dropping theirs below the 70 mark, which is 
natural psychological support.  More conservative traders can 
consider upping theirs near the $72 range so that it's just below 
LXK's rising 50-dma, which has been support the last few weeks.

The daily oscillators are mixed and frankly a couple of them are 
looking bearish as they turn down from overbought.  While we 
suspect shares will bounce from here ($74) the stock might see 
further profit taking to the 50-dma ($72).

Suggested Options:
We don't have a preference over July or October strike prices as 
the trend on LXK looks rather strong.  Still, it's a lot cheaper 
to play the July options.  The July 75s don't look too bad.

BUY CALL JUL 70 LXK-GN OI=2421 at $6.50 SL=4.00
BUY CALL JUL 75 LXK-GO OI=6068 at $3.20 SL=1.60
BUY CALL JUL 80 LXK-GP OI=1362 at $1.10 SL=0.55 *riskier*
BUY CALL OCT 75 LXK-JO OI=1641 at $6.30 SL=4.00
BUY CALL OCT 80 LXK-JP OI=3492 at $4.00 SL=2.00

Annotated Chart of LXK:

 

Picked on June 16th at $74.51
Change since picked:    +0.27
Earnings Date        07/21/03 (unconfirmed)
Average Daily Volume =   1.78 million 
Chart link:


---

Merck & Company - MRK - close: 62.89 change: +0.59 stop: 59.50

Company Description:
MRK is a global, research-driven pharmaceutical company that 
discovers, develops, manufactures and markets a broad range of 
human and animal health products, directly and through its joint 
ventures.  Additionally, the company provides pharmaceutical 
benefit services through Merck-Medco Managed Care, LLC.  The 
company's operations are managed principally on a products and 
services basis and are comprised of two business segments.  Merck 
Pharmaceutical is involved in marketing products, while Merck 
Pharmaceuticals is focused on therapeutic and preventive agents, 
sold by prescription, for the treatment of human disorders.  The 
pharmaceutical benefit services provided by Merck-Medco include 
sales of prescription drugs through managed prescription drug 
programs as well as services through programs to manage patient 
health and drug utilization.

Why we like it:
Considering the weakness in the rest of the market on Friday, the 
Pharmaceutical index (DRG.X) actually held up rather well, 
holding support at $340 and actually advancing by 0.50%.  The DRG 
index is certainly acting healthy after last week's impressive 
breakout.  The same can be said about our MRK play, as the stock 
has been consolidating nicely above the $62 level after last 
week's breakout over the $60 resistance level.  So can it last?  
We think so, but probably not without a slightly deeper pullback 
first.  The resistance at $60 was a major threshold to overcome, 
and we're thinking an intraday dip to confirm that level as new-
found support may be in order, especially if market weakness 
prevails ahead of next week's FOMC meeting.  More aggressive 
traders can look to enter the play on another rebound from the 
$62 area, but must be willing to accept the risk of a potential 
drop to our stop at $59.50.  Waiting for the dip to support is 
the more conservative strategy.  The other advantage of waiting 
for a drop back to the $60 area for entry is that we can also see 
how the DRG index behaves.  If the current bullishness is to 
continue, then the DRG should find strong buying interest above 
the $330 level, which was the site of its own breakout.

Suggested Options:
Shorter Term: The July 60 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 July 65 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 October 65 call.

BUY CALL JUL-60 MRK-GL OI=41053 at $3.90 SL=2.50
BUY CALL JUL-65 MRK-GM OI=17333 at $0.95 SL=0.50
BUY CALL OCT-60 MRK-JL OI=13149 at $5.30 SL=3.25
BUY CALL OCT-65 MRK-JM OI=14638 at $2.40 SL=1.25

Annotated Chart of MRK:

 

Picked on June 17th at    $62.37
Change since picked:       +0.52
Earnings Date           07/21/03 (unconfirmed)
Average Daily Volume =  6.27 mln



---

Mercury Int - MERQ - close: 41.44 change: -0.67 stop: 38.95

Company Description:
As a provider of integrated performance management solutions that 
enable businesses to test and monitor their Internet 
applications, MERQ is looking for growing e-commerce demand to 
continue to fuel its business.  The company's products perform 
such tasks as analyzing and eliminating Web site performance 
bottlenecks and automating quality assurance testing.  MERQ's 
client base spans a wide range of industries including Internet 
companies such as Amazon.com and America Online, infrastructure 
companies Ariba and Oracle, as well as Apple Computer, Cisco 
Systems and Ford Motor Company.

Why we like it:
There's been no shortage of volatility in our MERQ play over the 
past 2 weeks, as the stock has been bouncing between the $40 and 
$44 levels like a ping-pong ball.  The net result is that that 
stock has essentially gone sideways since clearing the $40 level 
on June 4th.  During this process, the ascending channel has 
almost caught up with the price of the stock and the bottom of 
the channel (now at $39.90) in conjunction with the 20-dma 
($40.82) should provide strong support for the next upward leg, 
market permitting.  the $40 level has been successfully defended 
as support on two other occasions since the initial breakout, and 
based on the action of the past couple days, another test seems 
to be likely early next week.  With solid support to back it up, 
we like new entries near the $40 level.  The initial target 
should be for a return to the $44 level, the site of the recent 
highs.  Conservative traders may want to harvest some gains near 
there.  But if the bulls can manage a breakout over that level, a 
run to our $48 target still seems achievable.  If support fails, 
we'll know it with price closing below the bottom of the channel 
and likely violating our stop.  Despite the fact the bottom of 
the channel is now just below $40, we're going to play it 
cautious and keep our stop at $38.95, which is just below the 30-
dma ($39.34), which provided support back in late May, the last 
time the channel was briefly violated.

Suggested Options:
Shorter Term: The July 40 Call will offer short-term traders the 
best return on an immediate move, as it is currently slightly in 
the money.

Longer Term: Aggressive traders looking to capitalize on an 
extended rally will want to look to the July 42 Call.  This 
option is currently slightly 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 can utilize the October 42 call.

BUY CALL JUL-40 RQB-GH OI=7464 at $3.60 SL=1.75
BUY CALL JUL-42 RQB-GS OI=5440 at $2.20 SL=1.00
BUY CALL OCT-42 RQB-JS OI=1362 at $4.40 SL=2.75
BUY CALL OCT-45 RQB-JI OI=1401 at $3.30 SL=1.75

Annotated Chart of MERQ:

 

Picked on June 10th at   $42.62
Change since picked:      -1.18
Earnings Date          07/16/03 (unconfirmed)
Average Daily Volume = 4.35 mln



---

Progressive Corp. - PGR - close: 74.95 change: +0.14 stop: 71.00

Company Description:
Traditionally a leader in non-standard, high-risk personal auto 
insurance, PGR has moved into standard-risk and preferred auto 
insurance, as well as other personal use vehicle coverage, such 
as motorcycles and recreational vehicles.  The company's 
property-casualty insurance products protect its customers 
against collision and physical damage to their vehicles and 
liability to others for personal injury or property damage.

Why we like it:
After a healthy-looking breakout last Monday, the Insurance index 
(IUX.X) got clocked on Thursday, falling back to the $269 level 
and now needed to take another run at resistance.  In light of 
that weakness, PGR's performance has been nothing short of 
astounding.  After breaking out with a bang a week ago, the stock 
has resisted the urge to pull back with the IUX, instead 
consolidating near the $75 level.  Oh sure, that is still more 
than a dollar below last week's intraday high, but compared to 
the IUX, this stock is showing some impressive resilience.  
Another look at the PnF chart certainly tells the picture though, 
with the week's action generating another Buy signal and hinting 
that while the $118 bullish price target may be a bit far-
fetched, the bulls definitely still seem to have the ball.  
Remember that ascending channel (shown on the chart below)?  
Well, PGR is now getting close to the center-line of that channel 
and a rebound from there might make for a decent, albeit 
aggressive entry point.  Those more timid souls will want to wait 
for the more conservative entry point, which would still be for a 
dip and bounce from the bottom of the channel near $72.50.  In 
either case, we're maintaining our stop at $71 -- it's a bit 
wider than we'd like, but we want to give the stock enough room 
to breathe without stopping us out prematurely.

Suggested Options:
Shorter Term: The July 75 Call will offer short-term traders the 
best return on an immediate move, as it is currently at the 
money.

Longer Term: Aggressive traders looking to capitalize on an 
extended rally will want to look to the August 80 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 August 75 call.

BUY CALL JUL-70 PGR-GN OI=174 at $5.70 SL=3.75
BUY CALL JUL-75 PGR-GO OI=192 at $2.05 SL=1.00
BUY CALL AUG-75 PGR-HO OI=239 at $2.90 SL=1.50
BUY CALL AUG-80 PGR-HP OI= 17 at $1.00 SL=0.50

Annotated Chart of PGR:

 

Picked on June 15th a  $73.27
Change since picked:    +1.68
Earnings Date        07/16/03 (unconfirmed)
Average Daily Volume =  960 K




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

AutoZone, Inc. - AZO - close: 76.65 change: -0.18 stop: 74.95

Company Description:
AutoZone is a retailer of automotive parts and accessories, 
primarily focusing on do-it-yourself customers.  Each of its more 
than 2900 stores in 42 states and Mexico carries an extensive 
product line for cars, vans and light trucks, including new and 
re-manufactured automotive hard parts, maintenance items and 
accessories.  Approximately half of its domestic stores also have 
a commercial sales program, which provides commercial credit and 
prompt delivery of parts and other products to local repair 
garages, dealers and service stations.

Why we like it:
After a really impressive rally off its January lows, AZO somehow 
lost its way in late May and quit rising with the rest of the 
market.  After putting in a double top near the $87.50 level, the 
stock has been consistently pushed lower over the past month, 
building a consistent pattern of lower highs.  With a lead-in 
like that, you're probably wondering why we're listing it as a 
call play.  The key is the way the stock has been finding support 
over the past few days, right at the 200-dma ($75.73), which is 
also the level of the 38% retracement of the January-June rally.  
Healthy pullbacks in strong rallies should normally retrace about 
38% of the initial advance, so this is clearly the point where 
bulls ought to be stepping up to support the stock, and it 
appears we're starting to see some early signs of that.  Daily 
Stochastics are bottoming in oversold, MACD is trying to flatten 
out, and it does in fact seem that the bulls are trying to defend 
the $75 level based on the increasing volume over the past few 
days.

This is clearly an aggressive play, where we're attempting to 
pick a bottom in a stock that has been headed south for the past 
month.  Please make sure that fits your risk profile before 
playing.  The PnF chart is still on a Sell signal and it is 
possible that the selling could continue right through that 
support next week.  But if the stock does rebound as we expect, 
then it should be good for a fairly rapid rise back to the $80 
level and possibly as high as the 50-dma (currently $81.36).  
Since the stock is right at strong support, we can set a really 
tight stop at $74.95.  That produces a favorable risk-return 
ratio for the play.  Target entries either at current levels or 
on another rebound from the 200-dma.  Traders that want to see a 
bit of life in AZO before playing could wait for a rally through 
the $77.50 level (just above Friday's intraday high) before 
playing, with the understanding that they must then assume 
greater risk to the stop.

Suggested Options:
Shorter Term: The July 55 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 July 80 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 80 call.

BUY CALL JUL-75 AZO-GO OI=1002 at $4.10 SL=2.50
BUY CALL JUL-80 AZO-GP OI= 598 at $1.50 SL=0.75
BUY CALL SEP-75 AZO-IO OI=1108 at $6.40 SL=4.50
BUY CALL SEP-80 AZO-IP OI= 983 at $3.80 SL=2.25

Annotated Chart of AZO:

 

Picked on June 22nd at     $76.65
Change since picked:        +0.00
Earnings Date            08/26/03 (unconfirmed)
Average Daily Volume =  1.31 mln




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CURRENT PUT PLAYS
*****************

Kohl's Corp. - KSS - close: 49.44 change: -0.56 stop: 52.25*new*

Company Description:
Kohl's Corporation operates family-oriented, specialty department 
stores, primarily in the Midwest.  The company's stores sell 
moderately priced apparel, shoes, accessories and home products 
targeted to middle-income customers shopping for their families 
and homes.  Kohl's stores have fewer departments than full-line 
department stores, but offer customers assortments of merchandise 
displayed in complete selections of styles, colors and sizes.  Of 
the 420 stores the company operates, 116 are takeover locations, 
which have facilitated the entry into several new markets, 
including Chicago, Illinois; Detroit, Michigan; Ohio; Boston, 
Massachusetts; Philadelphia, Pennsylvania; St. Louis, Missouri, 
and the New York region.  

Why we like it:
A perfect picture of weakness, our KSS play has already shrugged 
off the dubious Bernstein upgrade from Thursday and is back under 
$50.  Of course, it didn't hurt that the Retail index (RLX.X) did 
nothing but head south after Monday's breakout to new highs.  In 
fact, another down day could have the RLX breaking its last 
reaction low near $323 and that would call into question whether 
more substantial support near $305 might be tested.  In a bearish 
picture for the RLX, KSS seems destined to bear (all puns 
intended) the brunt of the selling due to the stock's dismal 
performance over the past couple months.  While the RLX was 
charging to new highs for the year, KSS is threatening to break 
below the March lows.  The past two days have seen the stock 
attempt to rally and fail, both times below $52 and below the 20-
dma (currently $51.64).  That $51 level is proving to be a 
formidable obstacle for the bulls, as broken support is now 
acting as resistance.  As mentioned earlier in the week, failed 
rallies below $51 should make for solid entries into the play 
ahead of an expected break down to the $47 level and possibly all 
the way to our $45 target.  That ought to still work next week as 
well.  In light of the price action of the past week, it should 
be safe to lower our stop to $52.25.  Traders that want to enter 
on weakness can use a break below the $48 level as their trigger, 
but need to be on guard for a possible rebound from the vicinity 
of $47.

Suggested Options:
Short-term traders will want to focus on the July 50 Put, as it 
will provide the best return for a short-term play.  Conservative 
traders looking for a larger move down towards the $45 level or 
below may want to utilize the October contract, which provides 
greater insulation from the spectre of time decay.

BUY PUT JUL-50 KSS-SJ OI=7997 at $2.80 SL=1.50
BUY PUT JUL-45 KSS-SI OI=4344 at $0.95 SL=0.50
BUY PUT OCT-45 KSS-VI OI=2326 at $2.70 SL=1.25

Annotated Chart of KSS:

 

Picked on June 15th at   $49.45
Change since picked:      -0.01
Earnings Date          08/14/03 (unconfirmed)
Average Daily Volume = 4.45 mln



---


Whole Foods Market - WFMI - cls: 47.94 chg: +0.46 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)

Why We Like It:
We expected a rally in WFMI, and we got one today: a 0.97 percent 
rally.  The rally nevertheless preserved the series of lower 
highs we've seen on the WFMI chart since its precipitous descent.  
The rise was accompanied by less than two-thirds the average 
daily volume.  However, that increase came on a day when 
competitors Safeway (SWY), Kroger (KR), Albertson's (ABS), and 
the retail sector ($RLX.X) all declined, so perhaps it's time for 
WFMI to try a bigger bounce.

Today's rise produced a bullish kiss on the stochastics and 
hinged the RSI up, but didn't change the downward slant of the 
MACD.  Prices have been settling into a neutral wedge, with lower 
highs but also with higher lows.  While we still believe that an 
upside breakout will stop short of our $50.00 stop, conservative 
traders might set an alternative stop just above the 10-dma.  As 
we mentioned earlier in the week, that average has been stopping 
WFMI's advances since early June.  

A downside break out of the wedge will confirm the bearish 
sentiment.  Those seeking new entries could wait for a downside 
break of that neutral wedge and a move below last week's low of 
$46.54, but those entries would have less reward offered due to 
support at $45.00, our first target, and would be high risk.  A 
failed rally that rolls over anywhere beneath 50 would also 
provide a new entry, and that may be the first one that's 
offered, as it looks as if a bounce might be imminent. 

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= 660 at $3.50 SL=1.75
BUY PUT JUL 45 FMQ-SI OI=1885 at $1.15 SL=0.50
BUY PUT AUG 50 FMQ-TJ OI=1264 at $4.30 SL=2.00
BUY PUT AUG 45 FMQ-TI OI= 633 at $2.00 SL=1.00

Annotated Chart for WFMI:

 


Picked on June 13 at $49.44
Change since picked:  -1.50
Earnings Date      07/30/03 (unconfirmed)
Average Daily Volume: 1.6 million
Chart =



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

Capital One Financial - COF - close: 49.64 chg: -1.13 stop: 52.51

Company Description:
Headquartered in McLean, Virginia, Capital One Financial 
Corporation (www.capitalone.com) is a holding company whose 
principal subsidiaries, Capital One Bank and Capital One, F.S.B., 
offering consumer lending products. Capital One's subsidiaries 
collectively had 46.4 million managed accounts and $59.2 billion 
in managed loans outstanding as of March 31, 2003. Capital One, a 
Fortune 500 company, is one of the largest providers of 
MasterCard and Visa credit cards in the world.

Why We Like It:
Here we go getting aggressive again.  A week (five days) ago we 
offered an aggressive put play on GS with a tight stop to really 
limit any losses.  While we were right about shares falling 
several points to profit taking this week, we were too 
conservative with our stop and our timing was off a day or two.  
We plan to avoid that with a significantly overbought stock that 
has already begun to breakdown.  Our new bearish candidate is 
COF.  Shares have rallied from $25.00 in early March to almost 
$55 a couple of weeks ago.  The last week saw shares slowly sink 
towards minor support at $50.00 and Friday saw that level fall to 
profit taking on slightly better than average volume.  

Overall the banking sectors have been areas of strength and the 
BKX and the BIX have been leading the markets higher.  Well now 
both of them look tired and ready for some consolidation.  Shares 
of COF, which have out performed these two banking sectors to the 
upside should also out perform them to the downside.  We like the 
close under $50.00 and the breakdown below the rising 21-dma.  
There is potential support near $47.50 but our short-term target 
is $45.00 near the 50-dma.  COF's MACD has already produced a 
bearish crossover and additional oscillators are significantly 
negative.  We're going to initiate the play with a stop loss at 
$52.51.  COF's earnings are in less than 3.5 weeks and while we 
don't necessarily expect bad news from them, the strong 
unemployment could be putting press on their loan defaults and 
speculation might grow if there are any warnings in the next 
couple of weeks.

Suggested Options:
The options available to us are July's and September's.  We're 
going to list both but our preference will be for July 50s and 
47.50s.

BUY PUT JUL 50.00 COF-SJ OI=7023 at $3.50 SL=1.75
BUY PUT JUL 47.50 COF-SW OI=8132 at $2.50 SL=1.25
BUY PUT JUL 45.00 COF-SI OI=2979 at $1.65 SL=0.85
BUY PUT SEP 47.50 COF-UW OI=1092 at $4.50 SL=2.25
BUY PUT SEP 45.00 COF-UI OI= 724 at $3.40 SL=1.70

Annotated Chart of COF

 

Picked on June 22 at $49.64
Change since picked:  -0.00
Earnings Date      07/16/03 (unconfirmed)
Average Daily Volume: 4.3 million
Chart =


---


The Ryland Group - RYL - close: 69.95 change: -4.03 stop: 75.25

Company Description:
The Ryland Group is a homebuilder and mortgage-finance company 
that has built more than 175,000 homes.  Additionally, the Ryland 
Mortgage Company (RMC) has provided mortgage financing and 
related services for more than 155,000 homebuyers. Currently, 
Ryland homes are available in more than 260 communities in 21 
markets across the United States.

Why we like it:
If you're thinking we just played RYL in this space, you're 
right.  We tried gaming a bearish play (picking a top) less than 
two weeks ago after the stock's sharp reversal from the $73 area.  
As you'll recall, that didn't go so well and we ended up closing 
the play early for a small loss.  This time things look a bit 
different though.  Investors seem to be taking their leave of 
interest-rate sensitive stocks ahead of next week's FOMC meeting, 
either due to normal profit taking or fears that the Fed won't 
deliver the hoped for 50-basis point cut.  The Dow Jones Home 
Construction index ($DJUSHB) got pummeled on Friday to the tune 
of 4.5% and if the 20-dma ($444) is broken then it could have a 
ways to fall, possibly all the way to the 50-dma below $400.  we 
see a similar picture with shares of RYL, as the stock plunged 
more than 5% on Friday and is just above its own 20-dma ($69.40).  
Either this was a whopper of a profit-taking session, or the 
sellers are just getting started.  Obviously, we think it is the 
latter.  The picture looks a bit different this time around than 
2 weeks ago, as Friday's decline produced a solid breakdown from 
overbought for the daily Stochastics and volume appears to be on 
the rise.

The nice thing is that the PnF chart also generated a Sell signal 
with the drop under $72, and the current vertical count gives a 
price target of $61.  Looking at the chart below, you can see 
that looks entirely reasonable if we get a decent decline, as 
$59-60 is strong support and is further reinforced by the 50-dma 
just below $60.  But at the same time, there isn't a lot between 
here and there to serve as support.  Once below the 20-dma, RYL 
has mild support at $67 and then again at $65 before then heading 
towards our $60 target.  Two weeks ago, the initial drop was 
aggressively bought near $67, so we must contend with the 
possibility that could happen again, but it does seem less 
likely.  Aggressive traders can look to enter on a break below 
$69, while a more conservative approach would be to look for a 
failed rebound near $71.50, or possibly as high as $73.50.  Owing 
to the aggressive nature of the play, we're starting with a wide 
stop at $75.15, which is just above the last two intraday highs.  
Should the stock break down early next week, we'll look to lower 
that stop significantly from there.  Note, it is entirely 
possible that RYL could see a brief rebound ahead of the FOMC 
meeting and the real play might occur after the Fed delivers the 
verdict on interest rates.

Suggested Options:
Short-term traders will want to focus on the July 70 Put, as it 
will provide the best return for a short-term play.  Those 
looking for a larger move down towards the $65 level will want to 
utilize the July 65 contract or even the October strike, the 
latter of which provides greater insulation from the spectre of 
time decay.

BUY PUT JUL-70 RYL-SN OI= 453 at $4.30 SL=2.75
BUY PUT JUL-65 RYL-SM OI=1289 at $2.40 SL=1.25
BUY PUT OCT-65 RYL-VM OI= 192 at $5.60 SL=3.50

Annotated Chart of RYL:

 

Picked on June 22nd at   $69.95
Change since picked:      +0.00
Earnings Date           07/23/03 (unconfirmed)
Average Daily Volume =    851 K




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The Option Investor Newsletter                   Sunday 06-22-2003
Sunday                                                      4 of 5


In Section Four:

Leaps: Bullish Facade Starting To Crack?
Traders Corner: A Pound Of Flesh Is Gone, But There's Plenty Adipose
Tissue To Go Around Traders Corner: Does Elliott Wave Work? Traders Corner: Elliott Wave Play Updates Traders Corner: Where is the Dow Going? ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***** LEAPS ***** Bullish Facade Starting To Crack? By Mark Phillips That's certainly how it appeared as the week wound down, at least from where I sit. We've got some pieces of the puzzle that are nicely starting to fall into place for a decent round of downside action -- you know, the kind that lasts more than 2 or 3 days -- but there's always the chance that it's only another bear trap. I think a lot of the weakness over the past couple days has been due to fear of the Fed and what they may or may not do at their meeting next week. Up until a few days ago, it seemed the market had been figuring on a lead-pipe lock for a 50 basis-point cut in rates. I'm not so sure though, as if that were the case, should bonds have been selling off? Well that's what they did all week, almost right from the opening tick on Monday, as bond traders (who in my opinion, are a lot smarter than equity investors) appear to have been unwinding the 50 basis point trade that was built up during the first two weeks of June. Using the Ten-Year Note Index as our reference point, we can see that Friday's close of 3.396% is very close to the closing levels on 5/19, 5/27 and 6/02 before it slid all the way to a new multi-decade low of 3.074%. You see, much has been made in the press and I believe it has come directly from the Fed about how they wouldn't allow deflation to gain even a minor toe-hold in the economy. They would use every tool at their disposal to head the deflation monster off. The term "unconventional means" has been bandied about as a descriptive term for these tools. Could one of these unconventional tools the Fed has been using be the direct buying of government bonds? Hey, there's nothing that says they can't monkey around in the bond market, just not in the equity market. If the Fed was buying bonds in large quantities, that would certainly help to explain the sharp drop near the 3% level for the 10-year note, don't you think? But the best part is that the net result is a direct cash infusion into the system. Where do you think the Fed gets the money to buy those bonds? Why, they print it up in the basement, that's where -- money for nothing. But my intent here is not a diatribe about Ben Bernanke and his merry band of mischief-makers -- that little trip would take me all night. No, what I'm trying to do is make the case for what the Fed might or might not do next week with respect to interest rates. Uncle Alan knows that he has a very limited ability to stimulate the economy by lowering interest rates, and the prior dozen or so certainly hasn't had a measurable beneficial impact. The market and economy have built up an immunity to them, so to speak and the Fed knows this. So they needed a different way to get some stimulus into the system -- buying those bonds might be the chosen strategy this time around. But here's the point. If that was the stimulus, then he and the rest of the Fed governors may just decide that they've already done their work and they don't need to cut rates too. I think that could help explain the sharp drop in yields during the first half of the month and the snap-back this past week could be the result of bond investors (you know, those smart guys) figuring out the game and taking appropriate action on the thought that the 50-point cut that everyone thought was "in the bag" just might have escaped. So I think we're looking at the possibility that we get only a 25-basis point or even no cut from the Fed next week, and I suspect equity investors will not respond kindly. It's just one man's opinion/speculation, but I think it will be interesting to see how the game plays out next week. Alrighty then, let's get back to topics more directly tied to our weekly fare -- specifically, where are the markets in this rally phase and what might be next. I know I've been harping on this for awhile now, but in my opinion it is all about the position of the bullish percents and the VIX, as well as the overall sector PnF charts, but to a lesser degree. The broad market has looked overdone to the upside for quite some time now, but it has just continued to rise. In the face of this persistent rise, we've seen the VIX just refuse to fall into the "MOPO zone" below 20. If there is to be a significant downside reversal in the broad market like we saw last year, it should be preceded by the overblown complacency reflected by a VIX below 20. We haven't gotten there just yet, but the market action of the past two days hints that we might be getting close. While the SPX ended very near its low for the week (after the gap up move on Monday morning), the VIX also ended near its low of the week at 21.09. May 16th was the only day in the past year with a lower close (21.01). Here's the interesting thing though. That reading of 21.01 came the day before a sharp plunge in the market, with the SPX closing with a loss of roughly 25 points. This time though, we just saw a sharp fall on Thursday and tight rangebound trade on Friday with the VIX closing practically at its lowest point for the past month. Call me an eternal bear, but I smell excessive complacency brewing. That view is certainly borne out by the latest report from Investors Intelligence, with the ratio between bullish and bearish advisors growing ever more slanted to the excessive bullish side. As of this week, the percentage of advisors that are bullish has crept still higher to 60.2%, while those with a bearish view fell still lower to 16.1%, a new bear-market high for the former and a new 16-year low for the latter. What happens when you have too many people all on the same side of a boat? That's right, it tips over. Either that or you get quite a volatile ride as some of the passengers jostle to rebalance the craft. I'm thinking we get the latter scenario and in the process of taking some of the excessive bullishness out of this market, we ought to get a new jolt of volatility. Whether it amounts to just a healthy correction or something more exciting remains to be seen. But with the bullish percents just starting to relax from their lofty levels, a decent correction is long overdue. That's next on the agenda, the bullish percents. We actually got some meaningful action last week, with the table reflecting the important changes: NASDAQ-100 - 82% Now in Bull Correction, down from the 91% high NASDAQ Composite - 71.19% (still a new all-time high) DOW - 83.33% (Highest reading since 1/99 -- highs in 1998 = 92%) S&P 500 - 81.24% (Cycle high of 82.80% - Still Bull Confirmed) S&P 100 - 82% (New cycle high, 11/98 all-time high = 84%) I got an email on Friday inquiring about the picture on the NDX Bullish Percent, directed specifically at the Sharp Chart I've been commenting on recently. With the NDX BP now 9% off its high, we might expect that the BP line moved further below its 10-dma and we should have gotten the CCI oscillator dropping below the zero line. NASDAQ-100 Bullish Percent SharpChart Indeed, that is precisely what happened last week and the NDX is certainly looking attractive to the short side. But here's the problem that has me staying very cautious on the decline so far. Note that none of the other BP readings have shown any meaningful deterioration, with the COMPX, DOW and OEX actually gaining ground to new cycle highs. We know the NDX is usually the first and fastest to move and that is why we're seeing the reversal there right now. The big question is whether this is just a pullback, or if it is the beginning of something more significant. Time will tell, but my gut feel is that we have yet to print the highs on the rally from the March lows, at least for the broader market. As I've mentioned over the past several weeks, I invite each of you to monitor these charts on your own over at StockCharts.com. Here's the link I use, for your convenience. Here are the pertinent Bullish Percent symbols. DOW - $BPINDU SPX - $BPSPX OEX - $BPOEX NDX - $BPNDX COMPX - $BPCOMPQ This makes 3 weeks in a row that the bears have prevented the SPX from closing over the magical 1000 level, and I find this week's rejection perhaps the most telling as it was rejected from a much higher level (1015) than in the prior two weeks. It feels like a topping market, numerous technical and sentiment studies indicate we're near an important top and after the EOQ window dressing games are complete we have July earnings staring us in the face. Call me stubborn, but I just can't see how the markets can continue substantially higher than last week's Monday highs after the first of July without an infusion of some actual good economic/corporate news. I've taken up a tremendous amount of time here on my Fed action speculation and analysis of the broad market. Let's take a few minutes now and delve into our play list, meager as it is. Portfolio: AIG - If you are in this play and were feeling a bit nervous last week with more testing of the $60 resistance, you're not alone. I kept watching and waiting for the eventual tag of our stop, but thankfully it never came. Then the Insurance index (IUX.X) got tanked on Thursday and hasn't made a serious attempt at a rebound. That pressured AIG back from resistance, with two consecutive closes back under $58. Now the point to watch is that pesky 200- dma (now at $57.14), as a break back under that level should have AIG making tracks back towards critical support at $54.50. Make note of the fact that the PnF chart is still on a Buy signal and will remain so until the stock trades $54. I like the increase in welling volume over the past few days, but I remain quite cautious while that PnF chart still says Buy. Traders that had the guts to enter up near $60 last week have likely gotten nearly the perfect entry point into the play. Now we just wait to see whether it works in our favor. It is looking good so far, but there are numerous obstacles for the bears to navigate before we'll be able to call it a winner. GM - Irrationality reins and Monday's sharp surge higher stopped us out of what I thought was a very well executed play. Details on the drop are found below, but I want to take a few minutes to comment on the developments on Friday as they relate to GM. As I noted in the Market Monitor, the company decided to issue $10 billion worth of debt and convertibles and use the proceeds to shore up its pension fund shortfall. That makes sense. A company with a debt-to-equity ratio of more than 22:1 is taking on more debt to service an obligation that is looming large as a potential train wreck. The additional debt further deteriorates the quality of earnings and the convertibles (when converted) will dilute the value of the already outstanding stock. All the while, the company will be using operating cashflow to service an even greater debt load. Brilliant! At least that's what they thought over at Prudential. Just a month ago, the firm downgraded GM from Hold to Sell. This morning, they did an about-face and upgraded the stock all the way to Buy! The comments from Prudential are so good (loony is a better word), that I just have to share them here exactly as I found them on Briefing.com. After the upgrade to Buy and raising their price target from $29 to $45 (a 45% increase!), the firm said "the perception of an economic recovery should trump short-term negative news flow (sales, share, quarterly earnings, UAW), new models in 2004-05 should stem share slide, and the company's pension and healthcare problem should stabilize after peaking in 2004. Also, firm things the $2 dividend is likely safe in the medium term, providing a downside cushion for the shares. Emphasis mine. Do you see all those qualifying weasel words in there? Do you think that shows the conviction that ought to propel the stock higher by another 18% from Thursday's close over the next 12 months. Neither do I and if anything, I think GM is a bigger dog than I did 3 months ago. You can rest assured the next time GM finds its way onto the LEAPS Watch List, it will be as a Put play again. I'm not easily discouraged when I have a strong belief that I'm right. AMGN - Well, the market certainly dished up some volatility last week, didn't it? AMGN surged to a new high of $67.50 on Monday and then it was all downhill from there. A big part of the weakness appears to be sector-wide profit taking, and they took the profits alright. AMGN hit an intraday low of $63.61 on Thursday before Friday's mild rebound brought it back to the $65 level to close out the week. While volatile, the uptrend remains intact and barring any other surprises next week, we should consolidate between last week's extremes. note the very strong volume on Friday (70% above the ADV), as that gives the impression there are plenty of willing buyers on the dips. We've been using the 50-dma as our last-ditch level of support on the play and with that average moving up to $62.39 as of Friday, I think we can safely raise our stop to $62.00, which is also just below the 6/09 reaction low. QQQ - The discussion above on the NDX BP really says it all for our QQQ play, as it appears we may have finally put in a near-term top. That doesn't mean that we go straight down the charts, but it certainly looks good for a meaningful retracement. At a minimum, we ought to see a drop into the $28.40 area, which would be a 38% retracement of the Arch-June rally. I'm personally expecting a more pronounced pullback and have my eye on $27.50, which is the 50% retracement. For traders still looking for an entry into the play, I really like additional failures to push through the $31 level, which would be much better than my VERY early entry at $29. In order to get that process moving though, the NDX needs to break back under 1200 and we need some better action from the NASDAQ-100 Volatility index (VXN.X), which spent the week heading sharply lower in response to falling prices. That is reminiscient of the bullish divergence we saw not too long ago with respect to the OEX and the VIX. QQQ looks early in a bearish move, but it has looked that way before. Play with caution. Watch List: DJX - Once again, there's little to report on our DJX play, except that in terms of the Bullish Percent, the index became even more overbought than it was last week. The VIX is once again approaching "MOPO" territory, and I'm going to stick to my guns. A failed rally in the $94-95 area is our ticket to ride on DJX, preferably with the VIX tagging a low below 20. Look for next week's FOMC meeting to throw some additional volatility into the tape and then possibly a rise into our entry target towards the end of the month as fund managers attempt to paint the tape in as bullish a manner as possible to protect their jobs. Closing Thoughts: I'm writing this VERY late on Friday night, as I leave early tomorrow morning for a long weekend and won't return until Tuesday. Due to the lateness of the hour, and the amount of discussion above, I must say that I'm getting a bit rummy. From my vantage point last week, I saw more validation of the lunacy of the market, as it continued to show bullish tendencies where I believe they are unwarranted. The NDX is the only index that is showing any signs of weakness yet and while I think a large decline should ensue from here, I am left with a strong suspicion that we have yet to see the highs for this rally. I would still prefer to play bearish than bullish with long-term positions and that's how I'm trading my own accounts. But if you are tempted to play the same way, I caution you to make sure you understand the risks involved and use the appropriate stop losses. I want to express my gratitude to all of you who took the time to write and tell me what you wanted me to do with the plays portion of this column. There were far more responses than I could respond to individually, but I did read them all and want you to know that the comments helped me to decide what I'm going to do from here on out. For the most part, you told me not to change a thing -- keep the format the same as it is now. Additionally, the overwhelming consensus said that they only wanted me to list Watch List and Portfolio plays that I feel strongly about -- and here's the key -- even if it means several weeks between adding new plays. Thank you!! That is my preferred approach as well, but hearing it from you helps to validate that some weeks I can refrain from adding plays (if that's what I feel is best) and I won't feel like I'm cheating my readers. There were several emails that expressed a desire for me to continue to provide an additional list like I did last week -- a few stocks that I have on my radar screen that I think may make good Watch List candidates, but not quite yet. I think that's a great idea, so I'll continue that practice going forward. While I've left them here at the end of the commentary this week, look for them to move up above the Closing thoughts section next week. By the way, when I list a play in the Radar Screen, I'll continue to update it each week until such time as it transitions to the Watch List or I lose interest in it. HD - That certainly didn't take long, did it. By Friday's close, HD was pressing hard on the bottom of its ascending channel, and I think this is an extension of the concerns about interest rates and a lack of a cut having a detrimental impact on the Housing industry. If the channel does break down next week, I expect a rebound back towards the recent highs. That will be the point where we'll want to consider taking action. GS - Apparently this one wasn't quite as aggressive as I thought it was, as the stock saw a major reversal from the $92 area. Friday's close took the stock back near the $86 level and now we look for the oversold rebound and how high it goes. A failure below last week's high could set the stage for a very favorable play all the way back to the $78-80 area. WMT - My views on WMT remain unchanged. After being the bellwether for the Retailers for so long, the stock is most definitely lagging the rest of the group. We need a solid rebound back near the $56-57 area to take action, and then we should have some fun in store. FNM - I think the mortgage stocks, primarily FNM and FRE are going to get very interesting after the results of the FOMC meeting are known. I don't want to list a new play on FNM this weekend, due to the expected volatility surrounding the announcement, but I suspect a failed rebound in the $72-73 area would provide a very nice long-term bearish entry point. ADBE - I was a bit surprised to see such minimal weakness from ADBE last week and I get the impression that there could be another rebound coming. The stock is right at that long-term ascending trendline, and holding above the $30 level. My target for a bearish play on the stock will be for a move into the gap from just over a week ago and then a failure near $35. Note the PnF chart has already turned bearish with a $21 price target, but the bullish support line is lying in wait at $29. It is definitely not a candidate for chasing lower right now. LEN - Have you given any thought to the impact a decision of no rate cut might have on the home builders? I have, and I don't think it would be pretty. It is too speculative a trade to put on ahead of the FOMC meeting, but we could have a nice setup next week, depending on the intervening price action. The Home Builders have been absolutely on fire, at least up until the past few days. LEN really shows the extended nature of the group, as the stock gapped higher on Monday and began its steep descent from there. If we can get an entry on a nice topping chart formation over the next few weeks, a pullback into the $60 area looks reasonable. TE - A beautiful chart formation and cheap options to boot. Over the past several months, TE has been building a nice cup and handle formation and with Friday's rally over $13.50, the stock looks to be breaking out to the upside on volume. I like a pullback into the $13 level for new entries, with a tight stop at $12. To the upside, the $16 level looks like a solid medium-term target, with the outside possibility of a run towards $20. BBH - Biotechs have been absolutely on fire in recent weeks, but we saw some serious weakness in the latter half of last week. Not only did the BTK index give a PnF Sell signal, but the sector went Bear Alert. That sounds like an early warning for a downside play to me. While there's some minor resistance near the recent highs, I wouldn't rule out a rebound for the BBH to slightly higher highs in the $135-140 area before the sector rolls over for the count. That's where we'll want to stake our claim on a bearish position trade. The setups are either getting clearer or more confusing, and I suspect next week that I'll have to cut my commentary short and get busy with adding new Watch List plays. But for now, I'm still feeling a bit timid. I'll let this list of Radar Screen candidates suffice until next week, when I suspect things ought to be heating up. And with that, I'll wish you all a fine weekend and look forward to joining the fray on Tuesday. For those of you following my series on Futures, fear not. Next week's article will appear on Monday. I wrote it ahead of time and James has promised to put it in Monday's edition! Mark LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: AMGN 05/21/03 '04 $ 60 YAA-AL $ 7.00 $ 9.40 +34.29% $62.00 '05 $ 60 ZAM-AL $10.90 $13.60 +24.77% $62.00 Puts: AIG 04/24/03 '04 $ 55 LAJ-MK $ 5.60 $ 4.00 -28.57% $61.00 '05 $ 55 ZAF-MK $ 8.50 $ 7.00 -17.65% $61.00 QQQ 05/27/03 '04 $ 27 KLF-MA $ 1.70 $ 1.25 -26.47% $32.25 '05 $ 27 ZWQ-MA $ 3.10 $ 2.45 -20.97% $32.25 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: None PUTS: DJX 05/04/03 $94-95 DEC-2003 $ 92 DJV-XN DEC-2004 $ 92 YDK-XN New Portfolio Plays None New Watchlist Plays None Drops GM - $39.14 Did anyone get the license number of that truck? As much as I hate to say it, I was completely blind-sided by GM's strong breakout on Tuesday. Not only did the stock blast through the descending trendline, but it surged higher by more than $2.00 from Monday's close and it did so on nearly double its average daily volume. Here's the kicker -- no news to drive the move and it came on a day where the broad market went nowhere. Fundamentally, I still think this stock stinks and expect that a year from now it will be trading sharply lower than where it currently resides. But that doesn't mean we should blindly remain in a play that is going against us. That's what stop losses are for. Ours was well thought out and placed just above the descending trendline and the 200-dma. Am I irritated about the play. You bet! But emotions have no place in our trading, right? It is a safe bet, we'll be back to pick on GM later this year -- we just have to wait for another favorable technical setup. That may come as soon as the $40-41 level, but I'm in no hurry to rush things right here, as the stock just gave a new PnF Buy signal that currently projects to the $52 level. Better to let the bulls have their way for now and we can rest up while awaiting a better bearish entry point. ************************Advertisement************************* "If you haven't traded options online – you haven't really traded options," claims author Larry Spears in his new compact guide book: "7 Steps to Success – Trading Options Online". Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************** TRADERS CORNER ************** A Pound Of Flesh Is Gone, But There's Plenty Adipose Tissue To Go Around By Mike Parnos, Investing With Attitude Whew! What A Relief!! T.G.I.F.O. This was the first month the CPTI portfolio showed a loss. It was inevitable. We knew it was coming. The law of averages kicked in. With a little luck and some expiration day trading, we managed to take a month that looked like a disaster we ended up taking a relatively insignificant loss of $950. SPX Iron Condor = +1,450 TOL Bear Call Spread (Plus) = (1,300) COF Iron Condor = (1,100) Net Loss: ($950) Read the explanations and position summaries below. You'll discover how valuable it is to be available to trade option Friday. We made $1,800 more by closing out TOL, COF and LLTC (Quickie) at opportune times on Friday. New Total Our new total, since we instituted the CPTI portfolio, is still an impressive $23,435 in eight months. We'll do our best to get back on the profit-train this month. The pound of flesh is gone. But, when I lose 10 pounds it's like a brick out of the Empire State Building. ___________________________________________________________ CPTI JUNE POSITION SUMMARY 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. OK. We got lucky again and kept the maximum profit of $1,450. _____________________________________________________________ June Position #3 – TOL – Bear Call Spread Plus – Currently at $28.86 We sold 10 contracts of June TOL $25 calls @ $1.40 and bought 20 contracts of June TOL $30 calls @ $.15 for a net credit of $1.10. The maximum potential profit is $1,100. Last week, when TOL popped up, we took in $1.80 for the 10 additional $30 calls, and reduced the worst-case scenario loss to only $2.10. In Thursday night's column, I suggested you 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. Well, we got the spike-down as TOL fell steadily from the open. Not wanting to get greedy, with TOL trading at about $29.10, we bought back the June $25 call for $4.20. TOL went all the way down to $28.80, but I wanted to lock in the $800. We still owned the June $30 call that had a value of only $.05. If TOL bounced back up towards $30, we could sell the $30 calls and pick up some additional savings. Perhaps the market maker will try to manipulate TOL back up to the $30 strike where it has a large volume of open interest. With a value of only $.05, if we subtract the $19.50 commission, we would realize only $30.50 from the sale of the $30 calls. It's worth it to risk the $30.50 on the possibility of a bounce back up to near the $30 level. As it turned out, TOL never bounced back up. Our loss on this trade is calculated as follows: $5.00 less our initial credit of $1.10, less $1.80 credit for the sale of the 10 extra calls, less $800 credit on expiration Friday spike-down (described above). The loss was: $1,300. ______________________________________________________________ June Position #4 – COF Iron Condor – Closed at $49.64. We sold 10 contracts of June COF $47.50 calls @ $1.55 and bought 10 contracts of June COF $50 calls @ $.95 for a net credit of $.60. Then we sold 10 contracts of June COF $40 puts @ $1.05 and bought 10 contracts of June COF $37.50 puts @ $.65 for a net credit of $.40. Total credit of $1.00. We gave COF a $7.50 range. We'll get our maximum profit of $1,000 if COF closes between $40 and $47.50. COF went up with the market and never looked back. We didn't get the pullback we were looking for, so we have to swallow most of the maximum $1.50 loss. On Friday, COF started up, but came back down. We were able to unwind our $47.50/$50 bear call spread for a debit of $2.10 by buying back the $47.50 calls for $2.25 and selling the $50 calls for $.15. That's a savings of $400. Our loss is reduced to $1,100. ______________________________________________________________ June Position #5 – QQQ ITM Baby Strangle – Currently at $30.34 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. (See further explanation under New July Positions) ____________________________________________________________ Unofficial CPTI Replacement Position—QQQ Strangle - $30.34 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. Although we're not going to figure this into our official CPTI calculations, an alert trader could have made up to $800 profit on their $200 bet or more if they bet $400 on a narrower strangle. _____________________________________________________________ Quickie Results We provided three quickies for the last week in June. The first was a Baby Condor on SMH. There was a problem, however. In my somewhat less than infinite wisdom, I used the wrong month's (July) premiums. So the SMH play never got off the ground. Second, we tried a cheap $.10 risk strangle on the QQQs. Since Monday, the market never moved enough to provide any profit and the $.10 was lost. Last, but not least, the ménage-a-qua on LLTC. We took in $1.25 and wanted LLTC to finish as close as possible to $32.50. Today (Friday), LLTC traded down as low as $32.89. We waited to see if it would go lower, but it didn't. When it started to move back up, we closed out the $32.50 calls for $.65. We had taken in $1.25. Our profits were a welcome $600. ____________________________________________________________ NEW JULY POSITIONS July Position #1 – LLTC Baby Condor – Closed at $33.04 Sell 10 contracts of LLTC July $35 calls @ $1.05 Buy 10 contracts of LLTC July $37.50 calls @ $.45 Net credit is $.60 Sell 10 contracts of LLTC July $30 puts @ $.75 Buy 10 contracts of LLTC July $27.50 puts @ $.40 Net credit is $.35 Total credit of $.95. Risk is $1.55 ($2.50 - $.95) Linear Technology (LLTC) was one of our profitable quickies. We now want to try to establish a slightly longer relationship. We've created a maximum profit range of $30 to $35 and a safety range of $29.05 to $35.95. Maximum profit is $950. _____________________________________________________________ July Position #2 – SPX Iron Condor – Closed at $995.69 Sell 4 contracts of SPX July 940 puts Buy 4 contracts of SPX July 925 puts Net credit: $1.50 Sell 4 contracts of SPX July 1025 calls Buy 4 contracts of SPX July 1040 calls Net credit: $2.55 Total credit: $4.05. Risk is $10.95 ($15 - $4.05) Here we go again. The range is 940 to 1025. I'm still anticipating (what do I know?) that pullback we never really got in June. I've reduced the number of contracts to four to reduce our exposure. This still may be a bit aggressive for some of you. Be careful and stay within your risk tolerance. Maximum profit is $1,620. ______________________________________________________________ July Position #3 – RUT Iron Condor – Closed at $449.56 Sell 7 contracts of RUT July 470 calls Buy 7 contracts of RUT July 480 calls Net credit of $2.20 Sell 7 contracts of RUT July 420 puts Buy 7 contracts of RUT July 410 puts Net credit of $1.50 Total credit: $3.70. Risk is $6.30. The Russell 2000 Index has, like most of the market, moved up quickly. Hopefully, it's time for a rest. Let's hope a 50-point range is enough room for it to flop around for the next four weeks. Maximum profit is $2,590. _____________________________________________________________ Position #4 – Ongoing QQQ ITM Baby Strangle – Currently at $30.34 In May we bought 10 contracts of the July QQQ $30 puts @ $2.05 and bought 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. ______________________________________________________________ Watch For Another Position for July To Be Announced Soon ______________________________________________________________ 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 ************** TRADERS CORNER ************** Does Elliott Wave Work? Steve Gould I got an email from a reader last week. He wrote: I have been following Elliott Wave for several months now. Not a long time. The Elliott Wave website has NOT been very good in their short term calls these last few months. They have been calling tops in bonds, gold, and the equity markets and a bottom in the dollar for months. They have obviously been wrong. Does Elliot Wave have a consistently good record and they are just in a slump or are they mediocre at best? Your honest opinion would be really appreciated. This is a very valid question in light of the fact that just about every Elliottician I know of right now is long term bearish. The market, on the other hand, has been very (short term) bullish, especially since the low of March 11, 2002. How can every Elliottician be so bearish when the market has been so definitely bullish? Even a famous stock market radio show host, who has been bearish the last 2 years, has called a new bull market, albeit cautiously. In fact, lots of people are calling a new bull market. Who is right? No one can predict who the winner of a baseball game will be, even in the ninth inning, two outs and the home team is down by 10 runs. Not until the fat lady sings (no offense to fat ladies, mind you) will we know the final score. Let me convey an analogy here and see if I can tie it in with what is happening with the market. Say you out driving. You are exiting from the parking lot of a McDonalds onto a busy street. You want to make a left turn. No cars are coming from the right. Only one car is approaching from the left. This car has its right turn blinker on. The only place this car could possibly turn would be into the same McDonalds parking lot that you are exiting from. Since the driveway has two lanes, you are not worried. As this car approaches, you notice that it is slowing down. You can see a child on the inside of the car pointing to the McDonalds. As the car gets closer to the driveway, it slows down enough to negotiate the turn. You even see the wheels turning right. At this point, you make your left turn, confident of your assessment of the situation. Just as you are half way across the street, this car slams into you, t-boning your car. As the ambulance rushes you to the hospital, you ponder what went wrong. The stock market can be the same way. Every indicator that you may follow points to a particular directional move. Historically, you have a high degree of confidence in these indicators as they have been accurate in the past. Yet, the market this time decides to behave erratically and you are left bloodied and bludgeoned. Elliott Wave theory has been studied intensely for over 50 years and can be boiled down to one simple concept: pattern recognition. Historically, a core set of patterns tend to repeat themselves consistently and predictably over time. When an Elliottician sees the beginnings of a particular pattern that he recognizes, he can draw reasonable conclusions as to the future behavior of the market. He must be cautious, however, because several different patterns look very similar in the beginning. Many times, it is better to take a wait and see attitude until the pattern can identify itself before coming to a conclusion. Unfortunately, we are all way too fallible and tend to rush into conclusions. We want to be the first on the block to call a pivot. It is that old fear and greed monster rearing its ugly head. What I have been seeing recently is that certain Elliotticians are so convinced that we are in a bear market, that they are trying to force every pattern into the bear market mold and it is just not fitting. Consequently, they are making errors in judgment and bestowing upon themselves a bad reputation by dogmatically insisting that every down turn is the start of the next major leg down. (Guilty!) In my opinion, Elliott Wave theory works and it works amazingly well when applied properly. It is not perfect, but I find that it is more right than it is wrong. In fact, it is always right in retrospect. The problem is that sometimes it is difficult to call the underlying pattern until it is complete. Interpretation of an unfolding pattern is an art, not a science. If you are looking for one thing and it is really another, you will get it wrong until it is too late. The best Elliotticians will keep open all alternatives. Early on it is best not to pick a direction because a case could be made for the market to go either way. Thinking back, I remember that in my first article I talked about the trading sweet spots. Those two spots are really the only two times when trading decisions should be made. They are historically high percentage trades. All the other times should be considered with caution. Making predictions is tough. If it weren't, we would all be rich. You make your best guess based on the available information at the time. As new data comes in, the prediction needs to be reevaluated, if only to conclude that the original forecast is still valid and on target. I think Elliot Wave analysis, used in conjunction with other indicators, is incredibly accurate. The key to this accuracy is to recognize the unfolding pattern and confirm it with the other indicators. However, if it just doesn't fit, don't make the call. Even if you have a deadline to meet. Once certain though, future movement can be predicted with astonishing precision. What I have seen over the last several months, and I should know better, is that a preferred scenario is laid out that does not correlate with other indicators. We want this wave count to be complete, but the other indicators say that it is not quite ready. So we ignore them. I have been guilty of desperately hanging on to a wave count despite the evidence that it looks like it is going to fail and the alternate count is going to usurp it. I am going to strive to be less dogmatic and to account for alternate counts. I am also going to be showing more indicators. Because we need to take into account the "what if I am wrong" scenario, I have been searching of late for plays where I make money if I am right, but also make money if I am wrong. Or at least I don't lose money. The only reason these plays are working right now is that they require a low volatility. Since the market has been in an upswing, the volatility is at historic lows. When the volatility rises, these same types of plays will become very high risk and a new strategy will need to be found. That is the beauty of options. Strategies exist for every market condition. Finding the right one just requires a little leg work. Am I going to give up on Elliott Waves because it has been wrong lately? No. Elliott Waves have not been wrong. My interpretation of them has been. What I am going to do instead is go back and see where I was wrong and try to discern why. I will evaluate the "what if I am wrong" scenario more thoroughly. Then when the same situation arises in the future, I will be able to use my experience to avoid making the same type of mistake. I think by the time I am 99, I will get it right all the time. ************** TRADERS CORNER ************** Elliott Wave Play Updates Steve Gould DJX Chart: DJX update 6/20/2003 With options expiration this week, we have had a lot of ups and downs but no real net movement. Activity should pick up next week. See "Where is the Dow Going?" for an analysis as to what could happen next. The Dow has made a move, but not a big enough move yet to make this play profitable. Option The original option values on 6/6/2003 were DJX – 90.62 Pos Qty Sym Strike Type Bid Ask Delta IV Buy DJVIN SEP 92 Call 2.80 3.00 0.51 15 Buy DJVUJ SEP 88 Put 2.70 2.90 -0.33 23 ---- ---- ----- 5.50 5.90 0.18 Current values on 6/20/2003 are DJX – 92.00 Pos Qty Sym Strike Type Bid Ask Delta IV Buy DJVIN SEP 92 Call 2.95 3.20 0.53 16 Buy DJVUJ SEP 88 Put 1.95 2.20 -0.31 22 ---- ---- ------ 4.90 5.40 0.18 QQQ Chart: QQQ update 6/20/2003 With options expiration this week, we have had a lot of ups and downs but no real net movement. Activity should pick up next week. Volatility has decreased a bit, which hurts the play, but it is way too early to take any action. Option The original option values on 6/13/2003 were QQQ – 29.96 Pos Qty Sym Strike Type Bid Ask Delta IV Buy 2 KLFME Jan 04 31 Put 3.00 3.20 -0.44 32 Sell 1 QQQSK Jul 03 37 Put 6.90 7.10 0.99 41 Credit: .50 Current values on 6/20/2003 are QQQ – 30.30 Pos Qty Sym Strike Type Bid Ask Delta IV Buy 2 KLFME Jan 04 31 Put 2.75 2.85 -0.49 28 Sell 1 QQQSK Jul 03 37 Put 6.60 6.80 1.00 35 Liquidation: -1.30 + .50 = -0.80 BA Chart: BA update 6/20/2003 It looks like BA is beginning the wave 4 correction. The A wave of the A-B-C correction has begun. It is way too early to know anything yet about the form of this correction but we will be watching it to try and discern its type (zigzag, flat, etc). The oscillator is turning over and we will keep a close eye on it as it approaches the zero mark. Option The original option values on 6/17/2003 were BA – 36.15 Pos Qty Sym Strike Type Bid Ask Delta IV Sell 1 BAGF Jul 03 30 Call 6.10 6.40 -99.5 29 Buy 2 BAAU Jan 04 37.5 Call 2.70 2.85 52.6 25 Credit: 0.40 Current values on 6/20/2003 are BA – 35.53 Pos Qty Sym Strike Type Bid Ask Delta IV Sell 1 BAGF Jul 03 30 Call 5.50 5.70 -95 38 Buy 2 BAAU Jan 04 37.5 Call 2.20 2.30 44 29 Liquidation value: -1.30 + .40 = -0.90 ************** TRADERS CORNER ************** Where is the Dow Going? Steve Gould I have a major announcement to make. Trumpets. Fanfare. OK. Here it is. THE BEAR IS DEAD. There. I said it. Now the market can head lower. Yes, I know. I said it under my breath. And I did have my fingers crossed. Somehow I fear that the market knew that I was not sincere. So just to spite me, the market will trend even higher. I am going back to my room now to eat worms. (Sorry, that is my daughter's newest, favorite expression.) Let's look at some charts. Chart: Dow Daily Big Picture 6/20/2003 This is the daily chart of the Dow since January 2000. No major change here. By the way, this chart is the reason I am still long term bearish. Every wave count points to a continued move down. It seems that it is just a matter of time. After having written the article, "Does Elliott Waves Work" I am trying to visualize a scenario where the Dow has already bottomed out, the correction is over and the Dow is actually starting a 5 wave basic pattern up. I am going to have to research this a bit more, but the labeling would have to look something like this. Chart: Dow Bull 6/20/2003 If this scenario pans out, then we could easily see the Dow hit 10400 before the wave 4 (circle) retraces some of those gains. However, economic conditions just do not warrant this type of development. Could it happen? Yes, but I do not think it is likely. So, until the bearish wave count is invalidated (and it could take months or years before we would know for sure) I am going to stick with the bearish scenario. However, I am now hedging my bets, just in case the wave count does indeed morph into the bullish alternative. Chart: Dow Daily Wave 2 Retracement 6/20/2003 Turning back to the bearish wave count, and trying to ascertain precisely where this wave 2 is going to peak, this chart shows that the Dow has retraced almost exactly 61.8% and is starting to turn over. Statistically, 85% of wave 2s retrace by the 62% level. That means, of course, that 15% could still retrace up to 99.9%. If the Dow gets close to 78.6% we should start thinking about an alternate wave count. Chart: Dow Daily Wave A Comparison 6/20/2003 This chart shows wave A in comparison to wave C. Wave C is "equal" (within a few ticks) to wave A thus satisfying the Elliott Wave flat correction requirement. Because the Fibonacci level and the flat correction level are within a few ticks of each other, this represents a major resistance level for the Dow. Should the Dow bust through this level, 9965 and then 10400 would be the next destinations. Chart: Dow Hourly 6/20/2003 The hourly chart of the Dow shows what could be the final, or near final, top of the C wave. As labeled, the C wave shows a completed 5 wave basic pattern with an almost consistent oscillator. Almost because the oscillator never really did retrace to the zero line during the wave iv correction. Alternately, and this is more probable, the C wave could now be undergoing the iv wave correction. That would correlate better with the oscillator now going to zero. Should this be the case, the Dow will retrace a bit more before a final thrust up of the v wave. At that point, we should have a completed C wave and the Dow should head down. Bottom line, I am long term bearish and short term hedging. All the ducks are in a row, or nearly so, for the Dow to have completed the wave 2 correction and start the next leg down. And as the Genie said to Aladdin, "Go ahead. Any time now." ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter                   Sunday 06-22-2003
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Trading Basics: Success With Covered-Calls
Naked Puts: Option Trading 101: Staying The Course
Spreads/Straddles/Combos: The Consolidation Begins!

Updated In The Site Tonight:
Market Posture: Mostly Sideways


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offers stop and stop loss online option orders
offers contingent option orders based on the price of the option or
stock
offers online spread order entry for net debit or credit
offers fast option executions

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

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*************
COVERED CALLS
*************

Trading Basics: Success With Covered-Calls
By Mark Wnetrzak

One of our readers asked about the correct timing for entering
covered-call positions.

Attn: Covered-Calls Editor
Subject: Buying Stocks For Covered-Calls

Hello Mark,

I've been doing pretty well with your picks (and some of my own)
over the last few weeks but the rally may be slowing a bit and
I want to be sure about the stocks I choose for covered calls.

My plan has been to look for $7-$12 stocks that are breaking
through old resistance levels on heavy volume.  Then I check
the in the money options for good premiums that will lower my
cost basis below a 15 or 18 day moving average.  I try to sell
the call when the stock hits an overbought area, and usually
end up with a fairly decent play -- so far.  Anyway, I wanted
your thoughts on how important it is to time the entry (when
to buy the stock and sell the call) with the current market.

KI


Regarding Covered-call entry strategies and timing techniques:

The technique you have for buying stocks seems to be working fine
in a bullish environment but the type of chart pattern to look for
really depends on what strategy you are using.  A "single entity"
approach, where an investor is not interested so much in stock
ownership or bullish movement, but rather in obtaining a consistent
return on investment, is not really dependent on timing the trade
with a "break-out" in the underlying issue.  Remember, the primary
goal of this technique is to achieve acceptable returns while still
receiving an above-average amount of downside protection.  With the
in-the-money covered-call, an investor is more interested in the
overall technical outlook of the underlying issue for the duration
of the option series chosen.  Is there a high probability the stock
will remain above the cost basis (break-even point) until expiration
and does the overall position meet my risk-reward tolerance?  Those
are the questions you must answer.  Regardless of whether the ITM
covered-write strategy is applied short-term or even in the longer
term, it requires a neutral to bullish outlook on the underlying
issue and its industry, as well as the overall market.  If you think
the underlying equity will fall below the cost basis of the position,
or the overall market is due for a correction, then searching for a
different candidate or waiting for a more optimum entry point may be
the best course of action.  However, if you desire stock ownership
or are writing calls on stocks in your long-term portfolio that you
don't want to sell, short-term timing becomes much more important.

Essentially, an investor begins trading calls against the stocks
in his portfolio as they cycle through the first three stages of
price activity (basing, breakout/rally, consolidation) and with the
use of advanced chart indicators such as oscillators or other timing
signals, he can often improve the profit potential of a covered call
play.  Obviously, there are lots of ways to enhance the strategy; it
simply depends on your personal preference and the manner in which
you choose to initiate covered-call positions.  Lawrence McMillan
adeptly outlines the full range of covered-write strategies in his
brand new book, "New Insights on Covered Call Writing: The Powerful
Technique That Enhances Return and Lowers Risk in Stock Investing."
The OIN bookstore should have copies of the book available and if
not, we will let you know where it is available at the best price.

Regards,

Mark
OIN


SUMMARY OF PREVIOUS CANDIDATES
*****

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

Note:  Margin not used in calculations.

Stock   Price   Last    Option    Price   Gain  Potential
Symbol  Picked  Price   Series    Sold   /Loss  Mon. Yield

SUPG     5.04    5.86  JUN  5.00  0.65    0.61*  20.1%
ARIA     3.37    3.61  JUN  2.50  1.05    0.18*  11.2%
LGTO     7.60    7.63  JUN  7.50  0.45    0.35*   7.1%
IPXL     7.86   11.37  JUN  7.50  0.80    0.44*   7.0%
PLUG     5.08    5.08  JUN  5.00  0.35    0.27*   6.4%
MOSY     7.50    9.05  JUN  7.50  0.60    0.60*   6.3%
IDNX     5.60    6.99  JUN  5.00  0.90    0.30*   5.5%
CBST    10.79   10.76  JUN 10.00  1.15    0.36*   5.4%
TER     13.06   17.91  JUN 12.50  1.40    0.84*   5.2%
FCS     12.55   13.35  JUN 12.50  0.60    0.55*   5.2%
OVER    14.55   17.18  JUN 12.50  2.75    0.70*   5.2%
OVER    17.80   17.18  JUN 15.00  3.30    0.50*   5.0%
MDR      5.08    5.53  JUN  5.00  0.40    0.32*   5.0%
AWE      7.64    7.93  JUN  7.50  0.45    0.31*   4.9%
PLUG     5.39    5.08  JUN  5.00  0.65    0.26*   4.8%
FEIC    17.65   18.62  JUN 17.50  0.85    0.70*   4.7%
FFIV    15.45   17.12  JUN 15.00  1.30    0.85*   4.4%
GNTA     8.78   12.65  JUN  7.50  1.70    0.42*   4.3%
MRVL    26.72   32.90  JUN 25.00  3.10    1.38*   4.2%
MLNM    15.55   15.05  JUN 12.50  3.40    0.35*   4.2%
CELG    31.48   32.05  JUN 30.00  2.80    1.32*   4.0%
GP      17.99   17.85  JUN 17.50  1.40    0.91*   4.0%
BRCM    21.40   25.86  JUN 20.00  2.25    0.85*   3.9%
PEGS    13.00   16.76  JUN 12.50  0.85    0.35*   3.2%
NOR      2.67    2.34  JUN  2.50  0.40    0.07    2.7%

MIR      2.78    2.77  JUL  2.50  0.65    0.37*  15.1%
BEAV     2.69    3.76  JUL  2.50  0.35    0.16*   5.9%
SEBL    10.98   10.44  JUL 10.00  1.65    0.67*   5.2%
QSFT    12.58   12.41  JUL 12.50  1.00    0.83    5.2%
WEBX    13.90   14.45  JUL 12.50  2.10    0.70*   5.2%
SEBL    10.85   10.44  JUL 10.00  1.40    0.55*   5.1%
DNDN     7.66    6.97  JUL  7.50  1.05    0.36    4.7%
MTON     5.60    5.96  JUL  5.00  0.90    0.30*   4.6%
ASIA     5.75    6.27  JUL  5.00  1.00    0.25*   4.6%
MHR      8.11    7.90  JUL  7.50  0.95    0.34*   4.1%
RHAT     8.27    7.45  JUL  7.50  1.20    0.38    3.9%
EDS     21.99   23.27  JUL 20.00  3.00    1.01*   3.9%
IMMU     6.91    6.49  JUL  5.00  2.15    0.24*   3.7%
ASIA     5.97    6.27  JUL  5.00  1.15    0.18*   2.7%

*   Stock price is above the sold striking price.

Comments:

After Monday's bounce, the markets drifted slowly lower as the
June expiration approached, making for a rather boring week.  Is
a dreaded/desired correction near or will the end-of-month fund-
games continue to float the indices higher?  As always, time
will tell as we continue to focus on conservative in-the-money
covered-calls.  The model portfolio did quite well for the June
expiration though Alkermes (NASDAQ:ALKS), an early-exit candidate,
was the lone loser and is shown closed - Monday's rally offered
a nice, painless exit.  Even FreeMarkets (NASDAQ:FMKT) and Abgenix
(NASDAQ:ABGX), previously closed positions listed below, rallied
into profitable territory - go figure.  As for the July positions,
some of the red-hot movers are acting a bit worrisome and should
be monitored closely.  Possible early-exit candidates include:
DNDN, MHR, RHAT and QSFT.

Positions Previously Closed: Alkermes (NASDAQ:ALKS), FreeMarkets
(NASDAQ:FMKT) - now profitable, and Abgenix (NASDAQ:ABGX) - also
profitable.


NEW CANDIDATES
*********

Sequenced by Target Yield (monthly basis)
*****
Stock   Last   Option    Option  Last  Open   Cost  Days Target
Symbol Price   Series    Symbol  Bid   Int.   Basis Exp. Yield

SUPG    5.86  JUL  5.00  UQG GA  1.20  1341    4.66  28   7.9%
SGR    12.62  JUL 12.50  SGR GV  0.90  844    11.72  28   7.2%
Q       5.23  JUL  5.00    Q GA  0.50  25425   4.73  28   6.2%
RSYS   13.00  JUL 12.50  MKU GV  1.05  0      11.95  28   5.0%
BLUD   22.02  JUL 20.00  QMQ GD  2.85  424    19.17  28   4.7%
OVRL   20.68  JUL 20.00  QOJ GD  1.50  13     19.18  28   4.6%
WEBX   14.45  JUL 12.50  UWB GV  2.45  670    12.00  28   4.5%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
SUPG - SuperGen  $5.86  *** Drug Stock Speculation  ***

SuperGen (NASDAQ:SUPG) is a pharmaceutical company dedicated to
the acquisition, development and commercialization of oncology
therapies for solid tumors, hematological malignancies and blood
disorders.  The company has 3 key compounds: Nipent, Orathecin
and decitabine.  Nipent is approved by the United States FDA and
marketed by SuperGen for the treatment of hairy cell leukemia.
Orathecin, its lead drug candidate, is close to completing three
randomized Phase III studies and has been submitted for two New
Drug Applications.  Decitabine is also in Phase III clinical
studies.  SuperGen's portfolio of products also includes generic
daunorubicin (leukemias), Mitozytrex (mitomycin for injection),
cancer vaccine Avicine, Partaject-delivered busulfan and inhaled
versions of Orathecin and paclitaxel.  SuperGen broke through a
resistance area near $4.50 on increasing volume, and the current
consolidation phase could be offering a second-chance entry point.
Investors who have researched the company's drug-pipeline and
retain a bullish outlook can use this position to obtain a
favorable cost basis in the issue.

JUL-5.00 UQG GA LB=1.20 OI=1341 CB=4.66 DE=28 TY=7.9%


*****
SGR - Shaw  $12.62  *** Bottom-Fishing ***

The Shaw Group (NYSE:SGR) is a global provider of comprehensive
services to the power, process, environmental and infrastructure
industries.  The company operates 3 business segments: Integrated
Engineering, Procurement and Construction (EPC) Services; the
Environmental and Infrastructure segment; and the Manufacturing
and Distribution segment. The EPC Services segment provides a
range services including design, engineering, construction,
procurement, maintenance, piping system fabrication as well as
consulting services - mainly to the power generation and process
industries.  The Environmental and Infrastructure segment includes
the identification of contaminants in soil, air and water and the
subsequent design and execution of remedial solutions.  Through
the Manufacturing and Distribution segment, Shaw manufactures
specialty stainless, alloy and carbon steel pipe fittings for use
in pipe fabrication.  Shaw rallied sharply on Friday after the
company announced that its subsidiary, Shaw Infrastructure was
awarded a $150 million residential development contract by the
U.S. Air Force.  We simply favor the bullish change-of-character
and this position offers a reasonable cost basis in the issue.

JUL-12.50 SGR GV LB=0.90 OI=844 CB=11.72 DE=28 TY=7.2%


*****
Q - Qwest  $5.23  *** On The Mend! ***

Qwest Communications (NYSE:Q) provides local telecommunications
and related services, wireless services and directory services
in the 14-state local service area of Arizona, Colorado, Idaho,
Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota,
Oregon, South Dakota, Utah, Washington and Wyoming.  The company
broadband data, voice and image communications globally and serves
business and government customers, as well as residential and small
business customers.  The company has 4 segments: retail services,
wholesale services, network services and directory services, but
intends to add a business services segment this year.  Qwest has
been in rally mode since the March low and appears ready to test
the JAN'03 high.  Investors who believe the rally will continue
can profit from that outcome with this position.

JUL-5.00 Q GA LB=0.50 OI=25425 CB=4.73 DE=28 TY=6.2%


*****
RSYS - RadiSys  $13.00  *** Stage II - Rally Mode! ***

RadiSys Corporation (NASDAQ:RSYS) provides embedded systems for
compute, data processing and network-intensive applications to
OEMs within the commercial systems, service provider systems
and enterprise systems markets.  The company provides technology
solutions to its customers while improving their time-to-market
advantage and reducing total life-cycle costs.  RadiSys provides
system architecture, design, sourcing, configuration, delivery
and full product life-cycle management to systems providers.
The company designs and delivers a broad range of products at
different levels of integration: complete turnkey systems;
embedded subsystems and functional platforms; compute, I/O and
packet processing blades; software, middleware and microcode,
and semiconductors.  A nice break-out above the resistance area
around $10 (NOV and DEC highs) on heavy volume suggests further
upside potential, and this position simply offers a method to
participate in the future movement of the issue.

JUL-12.50 MKU GV LB=1.05 OI=0 CB=11.95 DE=28 TY=5.0%


*****
BLUD - Immucor  $22.02  *** What's Up Doc? ***

Immucor (NASDAQ:BLUD) develops, manufactures and sells a complete
line of reagents and automated systems used mainly by hospitals,
clinical labs, and blood banks for a number of tests performed to
detect and identify certain properties of the cell and serum
components of human blood prior to blood transfusion.  Immucor
has been forming a Stage III top on a long-term chart but appears
ready to challenge the APR and JAN'03 high in the near-term.  No
news on Friday's rally?  Option-expiration related or the start
of a new leg higher?  This position offers a reasonable cost
basis from which to speculate on the current lateral trend.

JUL-20.00 QMQ GD LB=2.85 OI=424 CB=19.17 DE=28 TY=4.7%


*****
OVRL - Overland  $20.68  *** New High Territory ***

Overland Storage (NASDAQ:OVRL) designs, develops, manufactures,
markets and supports magnetic tape data automation solutions.
Businesses use these solutions for backup, archival and data
interchange functions in high-availability network computing
environments.  The company's primary products are automated
tape libraries, minilibraries and loaders that combine electro-
mechanical robotics, electronic hardware and firmware.  Overland
also distributes products manufactured by other OEMs and markets
various other products, including spare parts and tape media.
The company licenses a proprietary tape encoding technology
that it developed and patented under the name Variable Rate
Randomizer (VR2).  With Overland's solid fundamental outlook,
the stock has rallied into Blue Sky Territory and made a new
all-time high.  Investors who wouldn't mind owning the issue
near a cost basis of $19 can profit from future upside activity
with this position.

JUL-20.00 QOJ GD LB=1.50 OI=13 CB=19.18 DE=28 TY=4.6%


*****
WEBX - WebEx Communications  $14.45  *** Stage I Speculation ***

WebEx (NASDAQ:WEBX) develops and markets services that allow users
to conduct meetings and share software applications, documents,
presentations and other content on the Internet using a standard
Web browser.  Integrated telephony and Web-based audio and video
services are also available using telephones, computer Web-cameras
and microphones.  The company's activities have been focused on
continuing to enhance and market its WebEx Interactive Services
and its WebEx Multimedia Switching Platform, developing and
deploying new services, expanding its sales and marketing
organizations and deploying its global WebEx Media Tone Network.
The company sells WebEx Meeting Center, WebEx Meeting Center Pro,
WebEx Training Center, WebEx Support Center, WebEx OnStage and
WebEx Enterprise Edition.  It also provides a service called
WebEx Business Exchange to existing customers.  The company
recently announced a new deal with Yahoo (NASDAQ:YHOO) to
integrate instant messaging into business applications and
allow them to be shared.  WebEx continues to forge a Stage I
base and the recent move back above its 150-day MA bodes well
for the future.  Investors can speculate on the company's share
value with this conservative position.

JUL-12.50 UWB GV LB=2.45 OI=670 CB=12.00 DE=28 TY=4.5%


*****


*****************
SUPPLEMENTAL COVERED CALL CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Target Yield (monthly basis)
*****
Stock   Last   Option    Option  Last  Open   Cost  Days Target
Symbol Price   Series    Symbol  Bid   Int.   Basis Exp. Yield

VVUS    5.08  JUL  5.00  QJS GA  0.45  30      4.63  28   8.7%
TELK   15.06  JUL 15.00  ZUL GC  1.05  230    14.01  28   7.7%
AZPN    5.02  JUL  5.00  ZQP GA  0.35  10      4.67  28   7.7%
EXTR    5.51  JUL  5.00  EXJ GA  0.80  529     4.71  28   6.7%
ABI    20.23  JUL 20.00  ABI GD  1.35  735    18.88  28   6.4%
JCOM   44.35  JUL 40.00  JQF GH  6.20  564    38.15  28   5.3%
OIIM   15.67  JUL 15.00  XQQ GC  1.35  306    14.32  28   5.2%
GNTA   12.65  JUL 10.00  GJU GB  3.10  371     9.55  28   5.1%
AMR     9.24  JUL  7.50  AMR GU  2.05  8538    7.19  28   4.7%
BCGI   17.61  JUL 15.00  QGB GC  3.20  537    14.41  28   4.4%
THQI   18.52  JUL 17.50  QHI GW  1.70  2055   16.82  28   4.4%
RIMM   22.95  JUL 20.00  RUL GD  3.70  860    19.25  28   4.2%
CAL    14.60  JUL 12.50  CAL GV  2.55  2739   12.05  28   4.1%


*****************
NAKED PUT SECTION
*****************

Option Trading 101: Staying The Course
By Ray Cummins

With the ever-increasing deluge of chatter from so-called market
"gurus," it's important to focus on the traits that make traders
successful in the long run.

If you study the methods of the most well-known financial experts,
you will encounter a number of common characteristics.  The first
attribute is a fundamental knowledge of market economics and the
basic concept of supply and demand.  The second important trait
is the use of a specific trading system or methodology.  Another
worthwhile quality is patience, and the discipline to execute the
plan without regard to emotion and other outside influences.  The
final trait centers on the ability to view the investment world
in counterintuitive or contrarian ways.  This capacity involves
the need to be creative and oppose the current of popular opinion.
In many ways, that is the essence of any successful strategy in
today's financial markets.

One of the first concepts that inexperienced traders must learn is
to separate the company from its stock.  Companies do not change
much from a fundamental viewpoint in the short term, and yet their
share value moves substantially.  The primary point to remember is
that today's price of the stock is not the company’s true value.
Price is simply a reflection of the current state of the public’s
attitudes about a specific company.  It is common knowledge that
perceptions and expectations are often completely out of line with
absolute valuations.  Understanding the differences between value
and the market price is one of the initial steps to becoming an
independent thinker and a successful trader.

Another difficult influence to overcome is the vast amount of
information that we are faced with in today’s technologically
advanced society.  Investors have access to a wide selection of
inexpensive market data; economic news, company announcements,
real-time quotes and professional quality charting services.
With the current revolution in communications, it is possible for
a trader to receive this information at almost any location on
the planet, with little or no delay.  Financial news services
featuring every conceivable expert and their opinions on the
latest developments are also available around the clock.  While
the value of such immediate (and hardly intellectual) analysis
is suspect, they continue to flood the airwaves with perpetual
appraisals of every event.  To maintain an appearance of wisdom,
market "gurus" try to justify each individual price movement with
logical reasoning.  Unfortunately, these experts can be motivated
by self-promotion and ego enhancement and thus the analysis often
exceeds common rationale.  In addition, the media is constantly
searching for stories or angles that will increase their exposure
and improve advertising ratings.  This leads to a sophisticated
and widely disseminated form of gossip that is not particularly
helpful from an informational point of view.

In simple terms, the investing public has extremely easy access
to news and analyses that tend to arouse emotions and overcome
one’s intellect.  Regrettably, this appetite for real-time data
and market information becomes a kind of addiction on which our
emotional subconscious thrives.  As with any dependency, it takes
a greater amount of participation to maintain the same level of
excitement.  The overdose may be in the form of new services or
software and often, more expensive equipment.  Regardless of the
path to "information overload," the end result is generally the
same; a tendency to indulge in excess trading with a minimum of
actual research and planning.  The outcome is similar to a drug
addict’s withdrawal symptoms but in this case, poor decisions
simply lead to financial ruin as the market brutally assaults
every hastily conceived position that you have initiated.

The best way to avoid the effects of outside influences is to
deliberately structure your trade selection process so that the
critical decisions are made only when the markets are closed.
The key is to set aside time for examination and analysis when
external events will have less influence on your judgment.  You
should also use proven strategies and sound money management
techniques to avoid situations that can be affected by external
elements.  A popular theory suggests that the average investor
may very well try to be rational but his rationality tends to be
hampered by emotional instincts and social influences.  That’s
not something that you want working against you when it is time
to make an important trading decision.

Good Luck!


SUMMARY OF PREVIOUS CANDIDATES
*****

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

Stock   Price   Last    Option    Price   Gain   Simple  Max
Symbol  Picked  Price   Series    Sold   /Loss   Yield  Yield

IMCLE   28.50   30.85  JUN 22.50  0.50    0.50*   3.3%  11.7%
USG     11.85   13.05  JUN  7.50  0.35    0.35*   4.3%  11.2%
OVTI    35.89   32.24  JUN 30.00  0.70    0.70*   3.5%  11.1%
CTIC    11.96   10.01  JUN 10.00  0.30    0.30*   3.5%  10.8%
ANPI    28.27   39.39  JUN 22.50  0.80    0.80*   3.2%  10.8%
IMCLE   38.39   30.85  JUN 30.00  0.40    0.40*   2.9%  10.8%
CTIC    10.21   10.01  JUN  7.50  0.25    0.25*   3.0%   9.5%
ANPI    25.20   39.39  JUN 17.50  0.75    0.75*   3.2%   9.4%
FLEX    10.50   10.67  JUN 10.00  0.25    0.25*   3.7%   9.2%
IMCLE   21.20   30.85  JUN 15.00  0.50    0.50*   3.0%   9.2%
CELG    34.76   32.05  JUN 30.00  0.40    0.40*   2.9%   9.1%
BRCM    26.01   25.86  JUN 22.50  0.30    0.30*   2.9%   9.1%
OVTI    28.64   32.24  JUN 22.50  0.80    0.80*   2.7%   8.9%
APPX    27.77   34.87  JUN 22.50  0.65    0.65*   2.6%   8.7%
SOHU    28.04   27.83  JUN 22.50  0.35    0.35*   2.3%   8.4%
CYMI    34.51   31.61  JUN 30.00  0.35    0.35*   2.6%   7.9%
NVDA    21.37   23.68  JUN 17.50  0.55    0.55*   2.3%   7.6%
CELG    27.42   32.05  JUN 22.50  0.70    0.70*   2.3%   7.5%
BSX     56.06   60.00  JUN 45.00  0.40    0.40*   1.9%   7.4%
OVTI    30.92   32.24  JUN 25.00  0.45    0.45*   2.1%   7.3%
ICOS    40.25   39.48  JUN 30.00  0.25    0.25*   1.8%   6.5%
OSIP    26.08   30.91  JUN 22.50  0.40    0.40*   2.0%   6.2%
SOHU    22.83   27.83  JUN 17.50  0.35    0.35*   1.8%   6.2%
ICST    26.05   28.91  JUN 22.50  0.30    0.30*   2.0%   6.1%
NVLS    34.67   36.57  JUN 30.00  0.40    0.40*   2.0%   6.0%
CELG    31.10   32.05  JUN 25.00  0.35    0.35*   1.6%   5.9%
ANPI    28.45   39.39  JUN 22.50  0.30    0.30*   1.5%   5.6%
SFA     20.29   24.43  JUN 17.50  0.35    0.35*   1.8%   5.4%
MERQ    42.26   41.44  JUN 37.50  0.30    0.30*   1.8%   5.2%
NVDA    21.26   23.68  JUN 17.50  0.30    0.30*   1.5%   5.2%
APPX    23.40   34.87  JUN 15.00  0.35    0.35*   1.7%   5.0%
APPX    32.20   34.87  JUN 25.00  0.30    0.30*   1.4%   5.0%

GNTA    14.21   12.65  JUL 10.00  0.50    0.50*   4.6%  13.0%
CBST    12.95   10.76  JUL 10.00  0.40    0.40*   3.6%  11.6%
AMLN    25.45   21.72  JUL 20.00  0.45    0.45*   2.0%   7.1%
MEDI    37.71   36.52  JUL 30.00  0.60    0.60*   1.8%   6.4%
SOHU    32.45   27.83  JUL 22.50  0.50    0.50*   2.0%   6.2%
CTSH    24.25   23.74  JUL 20.00  0.40    0.40*   1.8%   5.9%
NTES    33.70   31.45  JUL 25.00  0.45    0.45*   1.6%   5.4%
CVTX    34.43   30.00  JUL 25.00  0.45    0.45*   1.6%   5.3%

*  Stock price is above the sold striking price.

Comments:

The "quadruple-witching" expiration of options turned out to be
a rather humdrum affair with the broader equity markets ending
the day almost unchanged.  That's great news for the Naked-Puts
portfolio as the recent consolidation was beginning to take its
toll on a number of previously bullish issues.  Looking forward,
the biotechnology segment appears to be at a "key" moment and
any further downside activity in the volatile group would signal
an early exit in Cubist (NASDAQ:CBST), Amylin (NASDAQ:AMLN), and
Genta (NASDAQ:GNTA).  Other stocks to watch include the China
Internet firms: Sohu.com (NASDAQ:SOHU) and Netease (NASDAQ:NTSE).

Previously Closed Positions: Artisan (NASDAQ:ARTI) and Cyberonics
(NASDAQ:CYBX), which are profitable, and Intermune (NASDAQ:ITMN),
and Genesis Microchip (NASDAQ:GNSS).


WARNING: THE RISK IN SELLING NAKED OPTIONS IS SUBSTANTIAL!
*****

The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.


MARGIN REQUIREMENTS

The Initial Margin is the amount of collateral you must have in
your account to initiate the position.  In specific terms, margin
refers to cash or securities required of an option writer by his
brokerage firm as collateral for the writer's obligation to buy
or sell the underlying interest if assigned through an exercise.
The Maintenance Margin is the amount of cash (or securities)
required to offset the changing collateral requirements of the
written options in your portfolio.  As the price of the option
and the underlying stock changes, so does the maintenance margin.
With (short) put options, the margin requirements can increase
when the underlying stock price declines and also when it rises
significantly.  The reason is the manner in which the collateral
amount is determined (with the formula listed above) and traders
should always consider not only the initial margin requirement,
but also the maximum margin needed for the life of the position.
Option writers occasionally have to meet calls for additional
margin during adverse market movements and even when there is
enough equity in the account to avoid a margin call, the need
for increased collateral will make that equity unavailable for
other purposes.  Please consider these facts carefully before
you initiate any "naked" option positions.

For more information on margin requirements, please refer to:

http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf


MONTHLY YIELD: MAXIMUM & SIMPLE

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


NEW CANDIDATES
*********

Sequenced by Maximum Yield (monthly basis - margin)
*****
Stock  Last    Option    Option Last Open Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int. Basis Exp. Yield  Yield

FWHT   19.14  JUL 15.00  HFQ SC 0.40 292  14.60  28   3.0%  10.3%
ADVS   17.74  JUL 15.00  UIV SC 0.45 195  14.55  28   3.4%  10.2%
KMRT   25.20  JUL 20.00  KTQ SD 0.50 25   19.50  28   2.8%   9.8%
AVCT   31.21  JUL 27.50  QVX SY 0.70 40   26.80  28   2.8%   8.0%
CHKP   19.94  JUL 17.50  KEQ SW 0.40 2682 17.10  28   2.5%   7.3%
PLMD   42.59  JUL 35.00   PM SG 0.50 262  34.50  28   1.6%   5.5%
YHOO   32.14  JUL 27.50  YHQ SY 0.40 3756 27.10  28   1.6%   5.0%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, SY-Simple Yield (monthly basis - without
margin), MY-Maximum Yield (monthly basis - using margin).

*****
FWHT - FindWhat.com  $19.14  *** Rally Mode! ***

FindWhat.com (NASDAQ:FWHT) operates online marketplaces that
connect the consumers and businesses that are most likely to
purchase specific goods and services with the advertisers that
provide those goods and services.  Online advertisers determine
the per-click fee they will pay for their advertisements, which
FindWhat.com and its private-label partners such as Terra Lycos's
Lycos.com and HotBot distribute to millions of Internet users.
Their network includes hundreds of distribution partners, such as
CNET's Search.com, Excite, Webcrawler, NBCi, MetaCrawler, Dogpile,
Go2Net and Microsoft Internet Explorer Autosearch.  Shares of
FWHT soared this week after agreeing to merge with Espotting Media
of Europe to create an international group in the paid listings
sector, which the company said is the fastest growing segment of
Internet advertising.  FWHT also raised its earnings and revenue
guidance for the second quarter and full-year, and said it may
further increase its revenue forecast for the second half of 2003.
Traders who like the outlook for this unique company can profit
from future upside activity in the issue with this position.

JUL-15.00 HFQ SC LB=0.40 OI=292 CB=14.60 DE=28 TY=3.0% MY=10.3%


*****
ADVS - Advent Software  $17.74  *** Strong Sector! ***

Advent Software (NASDAQ:ADVS) has been providing trusted solutions
to the world's leading financial professionals since 1983.  Firms
in over 50 countries use Advent technology to manage investments
totaling more than $8 trillion.  Advent's quality software, data,
services and tools enable financial professionals to provide better
service and communication for their clients, allowing them to grow
their business while controlling costs.  Stocks in the application
software group have been "in the news" recently with the attempted
hostile takeover of Peoplesoft (NASDAQ:PSFT) by Oracle (NASDAQ:ORCL).
The activity has drawn investor's attention to other stocks in the
industry and Advent is receiving a better-than-average share of the
renewed buying pressure.  Traders who like the outlook for the firm
can speculate on its future share value in a conservative manner
with this position.

JUL-15.00 UIV SC LB=0.45 OI=195 CB=14.55 DE=28 TY=3.4% MY=10.2%


*****
KMRT - Kmart Corporation  $25.20  *** Born Again Retailer! ***

Kmart (NASDAQ:KMRT) is a discount retailer and general merchandise
retailer.  The firm operates in the general merchandise retailing
industry through over 1,800 Kmart discount stores with locations
in all 50 states, Puerto Rico, the United States Virgin Islands
and Guam, and through its e-commerce shopping site, www.kmart.com.
In January 2002, Kmart and 37 of its United States subsidiaries
filed voluntary petitions for reorganization under Chapter 11 of
the federal bankruptcy laws, and, subsequently, obtained an exit
financing facility.  In May 2003, the company emerged from Chapter
11 protection and its new stock is trading with a sharply bullish
character.  Investors who wouldn't mind owning this "reborn" firm
can establish cost basis near $20 in the issue with this position.


JUL-20.00 KTQ SD LB=0.50 OI=25 CB=19.50 DE=28 TY=2.8% MY=9.8%


*****
AVCT - Avocent  $31.21  *** Entry Point? ***

Avocent Corporation (NASDAQ:AVCT), together with its wholly owned
subsidiaries, designs, manufactures and sells analog and digital
KVM (keyboard, video and mouse) switching systems, as well as serial
connectivity devices, extension and remote access products and also
display products for the computer industry.  The firm's switching
and connectivity solutions provide information technology managers
with access and control of multiple servers and network data centers
from any location.  Avocent traded at a multi-year high this week
and some traders believe it is due to the firm's upcoming earnings
report, due in mid-July.  Others say it's because of the company's
relatively low forward-looking P/E, a great management team, and
new product line.  Regardless of the reason, a cost basis near $27
seems a reasonable price for this unique issue.

JUL-27.50 QVX SY LB=0.70 OI=40 CB=26.80 DE=28 TY=2.8% MY=8.0%


*****
CHKP - Check Point Software  $19.94  *** Lehman Upgrade! ***

Check Point Software Technologies (NASDAQ:CHKP) develops, markets
and supports Internet security solutions for enterprise networks
and service providers, such as Telcos, Internet service providers,
application service providers as well as managed service providers
including virtual private networks (VPNs), firewalls, intranet and
extranet security.  Check Point has solutions that enable secure,
reliable and manageable business-to-business communications over
Internet protocol networks, including the Internet, intranets and
extranets.  Check Point product offerings also include traffic
control and quality of service and IP address management.  The
company's products are fully integrated as a part of its secure
virtual network architecture, and provide centralized management,
distributed deployment and comprehensive policy administration.
Shares of CKHP have moved higher in recent sessions after Lehman
Brothers raised its rating on the firm to "overweight" and upped
its price target to $25.  Lehman said an investigation of Check
Point's distribution channel suggests the company will be able to
beat estimates in the second quarter.  Traders can speculate on
that outcome with this position.

JUL-17.50 KEQ SW LB=0.40 OI=2682 CB=17.10 DE=28 TY=2.5% MY=7.3%


*****
PLMD - PolyMedica  $42.59  *** Favorable Earnings! ***

PolyMedica (NASDAQ:PLMD) is a provider of direct-to-consumer
medical products and services, conducting business through its
Chronic Care, Professional Products and Consumer Healthcare
segments.  The company sells diabetes supplies and products,
and provides services to Medicare-eligible seniors suffering
from diabetes and related chronic diseases through its Chronic
Care segment.  Through its Professional Products segment, it
provides direct-to-consumer prescription respiratory supplies
and services to Medicare-eligible seniors suffering from chronic
obstructive pulmonary disease.  It also markets, manufactures
and distributes a broad line of prescription urological and
suppository products and sells prescription oral medications
not covered by Medicare to its existing customers through its
Professional Products segment.  Shares of PLMD have been "too
hot to handle" for short-sellers and the recent rally in the
stock has been exacerbated by bearish traders covering their
positions.  With a higher fourth-quarter profit on strong sales
of their diabetes and respiratory care products, Polymedica has
found favor among drug sector investors and this play offers a
favorable method to profit from future upside activity.

JUL-35.00 PM SG LB=0.50 OI=262 CB=34.50 DE=28 TY=1.6% MY=5.5%


*****
YHOO - Yahoo!  $32.14  *** New 2-Year High! ***

Yahoo! (NASDAQ:YHOO) is a global Internet business and consumer
services company that offers a comprehensive branded network of
properties and services to more than 200 million individuals
worldwide.  The company offers an online navigational guide to the
Internet via its www.yahoo.com Website, which is a guide in terms
of traffic, advertising and household and business user reach.
Through Yahoo! Enterprise Solutions, the firm also provides many
business services designed to enhance the productivity and Web
presence of its clients.  Yahoo! has offices in the United States,
Europe, Asia, Latin America, Australia and Canada.  Shares of YHOO
reached a 2-year high this week and analysts say the company is
the best positioned Internet portal to benefit from the future
growth of online advertising.  Investors who agree with a bullish
outlook for the all-time Internet giant can establish a cost basis
near $27 in the issue with this position.

JUL-27.50 YHQ SY LB=0.40 OI=3756 CB=27.10 DE=28 TY=1.6% MY=5.0%


*****


*****************
SUPPLEMENTAL NAKED PUT CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Maximum Yield (monthly basis - margin)
*****
Stock  Last    Option    Option Last Open Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int. Basis Exp. Yield  Yield

OXGN    9.59  JUL  7.50  QYO SU 0.85 11    6.65  28  13.9%  33.4%
IPXL   11.37  JUL 10.00  UPR SB 0.45 116   9.55  28   5.1%  13.5%
USG    13.05  JUL  7.50  USG SU 0.30 1470  7.20  28   4.5%  11.2%
NEOF   11.00  JUL 10.00  QZX SB 0.35 45    9.65  28   3.9%  10.1%
JCOM   44.35  JUL 35.00  JQF SG 0.90 203  34.10  28   2.9%  10.0%
PALM   16.72  JUL 15.00  UPY SC 0.45 577  14.55  28   3.4%   9.0%
CVTX   30.00  JUL 22.50  UXC SX 0.50 509  22.00  28   2.5%   8.4%
IMCLE  30.85  JUL 22.50  QCI SX 0.45 2218 22.05  28   2.2%   7.4%
PRWK   17.87  JUL 15.00  QRZ SC 0.30 10   14.70  28   2.2%   7.1%
ICOS   39.48  JUL 30.00  IIQ SF 0.50 1814 29.50  28   1.8%   6.5%
GILD   53.75  JUL 45.00  GDQ SI 0.80 2114 44.20  28   2.0%   6.4%
NVLS   36.57  JUL 30.00  NLQ SF 0.35 1987 29.65  28   1.3%   4.5%




************************
SPREADS/STRADDLES/COMBOS
************************

The Consolidation Begins!
By Ray Cummins

Stocks ended mixed Friday with the major equity averages trading
in a relatively small range ahead of next week's key meeting of
the Federal Reserve.

The Dow Jones industrial average finished up 21 points at 9,200
on strength in McDonald's (NYSE:MCD), Honeywell (NYSE:HON), and
SBC Communications (NYSE:SBC).  The tech-laden NASDAQ Composite
index slumped 3 points to 1,644 as communications equipment and
electronic manufacturing issues retreated.  The broader S&P 500
index ended almost unchanged at 995 with homebuilders, oil & gas
equipment, and utilities among the worst performers.  Trading was
active due to the quadruple-witching expiration of futures and
options.  Almost 1.8 billion shares traded on the NASDAQ, while
about 1.7 billion shares changed hands on the Big Board.  Losers
roughly equaled winners on both the technology exchange and the
NYSE.  Bond prices moved lower, with the benchmark 10-year note
down 7/32, taking its yield to 3.37%.  The 30-year bond slid a
full point for a yield of 4.43%.

*****************
PORTFOLIO SUMMARY
*****************

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


PUT CREDIT SPREADS
******************

Symbol  Pick   Last   Month LP  SP  Credit  CB     G/L   Status

BZH     71.80  87.00   JUN  60  65   0.55  64.45  $0.55  Closed
CECO    60.52  66.63   JUN  50  55   0.50  54.50  $0.50  Closed
FDC     40.22  43.11   JUN  35  37   0.30  37.20  $0.30  Closed
RCII    65.35  74.17   JUN  55  60   0.50  59.50  $0.50  Closed
ADTN    45.05  53.28   JUN  35  40   0.45  39.55  $0.45  Closed
KLAC    42.49  47.15   JUN  35  37   0.30  37.20  $0.30  Closed
LLTC    36.34  33.04   JUN  30  32   0.30  32.20  $0.30  Closed
ROST    40.09  42.36   JUN  35  37   0.40  37.10  $0.40  Closed
BSX     48.70  60.00   JUN  37  40   0.25  39.75  $0.25  Closed
UNH     47.70  50.59   JUN  42  45   0.55  44.45  $0.55  Closed
WLP     81.05  85.95   JUN  70  75   0.40  74.60  $0.40  Closed
BSX     50.51  60.00   JUN  40  42   0.25  42.25  $0.25  Closed
PHM     63.71  65.52   JUN  55  60   0.40  59.60  $0.40  Closed
BSX     50.51  60.00   JUN  40  42   0.25  42.25  $0.25  Closed
CYMI    33.31  31.61   JUN  25  30   0.50  29.50  $0.50  Closed
GILD    52.50  53.75   JUN  45  47   0.25  47.25  $0.25  Closed
KLAC    46.23  47.15   JUN  40  42   0.30  42.20  $0.30  Closed
AGN     77.24  79.39   JUL  65  70   0.50  69.50  $0.50   Open
ERTS    72.35  74.75   JUL  60  65   0.55  64.45  $0.55   Open
MEDI    39.04  36.52   JUN  32  35   0.35  34.65  $0.35   Open
UNH     48.93  50.59   JUL  42  45   0.60  44.40  $0.60   Open
BGEN    46.25  43.80   JUL  37  40   0.30  39.70  $0.30   Open
PRX     49.16  48.75   JUL  40  45   0.60  44.40  $0.60   Open
WLP     86.87  85.95   JUL  75  80   0.60  79.40  $0.60   Open

LP = Long Put  SP = Short Put  CB = Cost Basis  G/L = Gain/Loss

The position in Pixar (NASDAQ:PIXR), although profitable, did
not offer a viable opening credit.  Medimmune (NASDAQ:MEDI) is
on the "early exit" watch-list.


CALL CREDIT SPREADS
*******************

Symbol  Pick    Last   Month  LC  SC  Credit  CB     G/L   Status

PG      90.15   91.23   JUN   100 95   0.40  95.40  $0.40  Closed
MMM    122.81  130.78   JUN  135 130   0.50 130.50 ($0.28) Closed
ANF     27.25   26.53   JUN   32  30   0.20  30.20  $0.20  Closed
GM      34.41   38.59   JUN   40  37   0.25  37.75 ($0.84) Closed
JCI     81.61   88.27   JUN   90  85   0.55  85.55 ($2.72) Closed *
KSS     51.22   49.44   JUN   60  55   0.55  55.55  $0.55  Closed
LLL     43.35   45.51   JUN   50  45   0.55  45.55  $0.04  Closed
IBM     80.05   84.92   JUN   90  85   0.40  85.40  $0.40  Closed
APC     44.46   45.69   JUL   50  47   0.40  47.90  $0.40   Open
FNM     68.55   69.85   JUL   80  75   0.60  75.60  $0.60   Open
GDT     39.95   40.01   JUL   50  45   0.60  45.60  $0.60   Open
KSS     49.45   49.44   JUL   60  55   0.60  55.60  $0.60   Open
LOW     44.15   44.20   JUL   50  47   0.30  47.80  $0.30   Open

LC = Long Call  SC = Short Call  CB = Cost Basis  G/L = Gain/Loss

The Johnson Controls (NYSE:JCI) spread should have been exited
during Monday's broad rally, for a smaller than published loss.
Positions in Nabors Industries (NYSE:NBR), which is positive,
Barr Labs (NYSE:BRL), Cabot Micro (NASDAQ:CCMP), and Goldman
Sachs (NYSE:GS) have previously been closed to limit losses.


CALL DEBIT SPREADS
******************

Symbol  Pick   Last  Month  LC  SC   Debit   B/E   G/L   Status

AXP     38.46  42.93  JUN   32  35   2.20   34.70  0.30  Closed
GENZ    41.47  44.14  JUN   35  37   2.20   37.20  0.30  Closed
BSX     46.91  60.00  JUN   37  40   2.25   39.75  0.25  Closed
MERQ    35.75  41.44  JUN   30  32   2.25   32.25  0.25  Closed
PNC     49.25  48.50  JUN   45  47   2.25   47.25  0.25  Closed
NBIX    56.84  50.65  JUL   45  50   4.25   49.25  0.75   Open?
GILD    53.81  53.75  JUL   45  47   2.20   47.20  0.30   Open

LC = Long Call  SC = Short Call  B/E = Break-Even  G/L = Gain/Loss

Neurocrine Biosciences (NASDAQ:NBIX) is at a "key" moment and a
close below Thursday's low (near $48.80) would signal our exit
in the position.


PUT DEBIT SPREADS
*****************

Symbol  Pick   Last  Month  LP  SP   Debit   B/E    G/L   Status

WMT     52.92  54.26  JUN   60  55   4.50   55.50   0.50  Closed
HDI     40.81  41.90  JUN   45  42   2.10   42.90   0.40  Closed

LP = Long Put  SP = Short Put  B/E = Break-Even  G/L = Gain/Loss

Harley Davidson (NYSE:HDI), although now positive, was previously
closed to limit losses.


SYNTHETIC (BULLISH)
*******************

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

SMH     26.43  28.90   AUG     30    22     0.10    3.10   Closed
MRVL    26.72  32.90   JUN     30    22    (0.20)   3.60   Closed
ICOS    29.85  39.48   JUL     35    25    (0.40)  12.00+  Closed
QCOM    33.55  36.45   JUL     37    30     0.10    0.90    Open

The position in Icos Corporation (NASDAQ:ICOS) did not offer the
target entry price, but the play was incredibly profitable for
traders who paid a small debit to open the speculative synthetic
position.  Qualcomm (NASDAQ:QCOM) has offered a favorable profit
for short-term traders.  The Silicon Laboratories (NASDAQ:SLAB)
position, although profitable, has previously been closed.


SYNTHETIC (BEARISH)
*******************

No Open Positions


CALENDAR & DIAGONAL SPREADS
***************************

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

BMET    28.52  29.26   JUL-30C   JUN-30C  (0.70)   0.80   Closed
ESI     29.11  27.80   OCT-30C   JUN-30C   1.35    1.80   Closed
CHKP    18.05  19.94   OCT-20C   JUN-20C   0.70    2.10    Open
GDT     39.98  40.01   OCT-45C   JUN-45C   1.45    1.70    Open
NSM     21.80  21.50   JAN-25C   JUN-25C   2.10    2.50    Open
BRCM    21.40  25.86   JAN-25C   JUN-25C   2.15    4.30    Open
SRNA    19.71  20.73   AUG-22C   JUN-22C   0.70    0.90    Open
VRTY    18.85  18.10   SEP-20C   JUN-20C   1.00    1.40    Open
VIA     44.95  45.10   AUG-47C   JUN-47C   1.10    1.40    Open
SEAC    11.26   9.53   OCT-12C   JUN-12C   0.85    0.65   Closed
MCDT    13.47  12.83   OCT-15C   JUN-15C   0.95    0.90    Open
EDS     21.99  23.27   SEP-25C   JUN-25C   1.00    1.25    Open
BEAS    11.08  11.30   SEP-12C   JUN-12C   0.95    0.95    Open

A profitable calendar spread in International Business Machines
(NYSE:IBM), as well as the Filenet (NASDAQ:FILE) position, have
previously been closed.


CREDIT STRANGLES
****************

Symbol  Pick   Last   Month  SC  SP  Credit   C/V    G/L   Status

NXTL    13.60  17.78   JUN   15  12   0.75    2.80  (2.05) Closed *
MGAM    24.53  24.25   JUN   25  22   1.90    0.90   1.00  Closed

SC = Short Call SP = Short Put C/V = Current value G/L = Gain/Loss

Traders who did not take profits in these volatility positions (as
suggested last week) were forced to exit the Nextel (NASDAQ:NXTL)
play during Monday's rally for a small loss.  The summary does not
reflect the previous profits, or the relatively low cost ($1.05)
of exiting the NXTL play at the market close on 6/16/03.


DEBIT STRADDLES
***************

Stock   Pick   Last   Exp.   Long  Long  Initial   Max     Play
Symbol  Price  Price  Month  Call  Put    Debit   Value   Status

TYC     17.27  19.33   JUL   17.5  17.5   1.80     2.70    Open?
RJR     36.19  37.00   AUG   37.5  35.0   3.15     3.70    Open
DG      18.64  18.60   AUG   20    17.5   1.20     1.30    Open
EXPE    70.63  72.51   JUN   70    70     3.25     6.25   Closed

The speculative straddle in Expedia (NASDAQ:EXPE) was a profitable
position in only one session.  Tyco (NYSE:TYC) and R.J. Reynolds
(NYSE:RJR) have also achieved profitability in a very short time.

Questions & comments on spreads/combos to Contact Support
*************************
OPTION-TRADING STRATEGIES
*************************

One of the most useful tools that professional traders use when
initiating spreads, naked positions or even covered positions is
an option probability calculator.  This tool can help develop a
sound game plan based upon market expectations because a trader
can determine the probability or "odds" of an option (or spread)
ending in- or out-of-the-money at expiration.

If an option has a 15% chance of being in the money at expiration,
this would be an excellent option to sell to collect premium.
When the option is sold for a credit, this credit can be added
or subtracted to the strike price to determine the "break-even"
point for the position.  Example: If a trader sells the QQQ JUL-29
puts for 40 cents, the true break-even point would be 29 minus the
credit of 40 cents or 28.60.  The probability calculator would
tell us that the option has a 20% chance of being in-the-money and
a 14% chance of ending the expiration period below our break-even
of 28.60.  As you can see, this tool drastically increases one's
ability to analyze a position and thus helps quantify the risk of
selling options.  Of course, if the volatility increases after we
sold the options, the odds of being in-the-money and/or the below
break-even point will also increase.  Fortunately, we can also use
the probability calculator to help adjust the position.

Most traders are not aware of the tools available to option traders
that can help define and improve the risk/reward outlook of spreads
and selling or buying options.  At www.onestopoption.com, we are
dedicated to helping Stock and Futures traders develop a sound game
plan for trading the derivatives markets.  This is one of the most
important steps to becoming a successful trader.  Please feel free
to contact me (Aaronson@OptionInvestor.com) so that I may show you
ways to become a successful options trader.

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OneStopOption
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Alan and Andrew's expertise is a resource that will easily pay
for itself thorough timely executions and the piece of mind that
comes from someone watching your trades throughout the day.  The
commission rates are comparable to discount brokers but you get
to speak directly with option professionals, not customer service
clerks.  Clients can call them directly to review positions and
update orders and they also offer "auto-trading" for many of the
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*************
NEW POSITIONS
*************

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.

**************
CREDIT SPREADS
**************

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may be higher than other plays in the same strategy, due to
small disparities in option pricing.  Current news and market
sentiment will have an effect on these issues, so review each
play individually and make your own decision about its outcome.

*****
GILD - Gilead Sciences  $53.75  *** AIDS Fighter! ***

Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical
company that discovers, develops and commercializes therapeutics
to advance the care of patients suffering from life-threatening
diseases.  The company has five products that are marketed in the
United States and in other countries worldwide.  These are Viread,
a drug for treating HIV infection; AmBisome, a drug for treating
and preventing life-threatening fungal infections; Tamiflu, a drug
for treating and preventing influenza; Vistide, a drug for treating
cytomegalovirus (or CMV) retinitis in AIDS patients, and DaunoXome,
a drug for treating AIDS-related Kaposi's sarcoma.

GILD - Gilead Sciences  $53.75

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JUL-45.00  GDQ-SI  OI=2114  ASK=$0.95
SELL PUT  JUL-47.50  GDQ-ST  OI=1181  BID=$1.25
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$47.20


*****
JCOM - j2 Global Communications  $44.35  *** All-Time High! ***

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

JCOM - j2 Global Communications  $44.35

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JUL-30.00  JQF-SF  OI=222  ASK=$0.30
SELL PUT  JUL-35.00  JQF-SG  OI=203  BID=$0.90
INITIAL NET-CREDIT TARGET=$0.60-$0.75
POTENTIAL PROFIT(max)=14% B/E=$34.40


*****
MRK - Merck & Co.  $62.59  *** Next Leg Up? ***

Merck & Co. (NYSE:MRK) is a global, research-driven pharmaceutical
company that discovers, develops, manufactures and markets a broad
range of human and animal health products, directly and through
its joint ventures, and provides pharmaceutical benefit services
through Merck-Medco Managed Care, L.L.C. (Merck-Medco).  The firm's
operations are managed principally on a products and services basis
and are comprised of two business segments: Merck Pharmaceutical,
which includes products marketed either directly or through joint
ventures; and Merck-Medco. Merck Pharmaceutical products consist
of therapeutic and preventive agents, sold by prescription, for
the treatment of human disorders.  Pharmaceutical benefit services
provided by Merck-Medco include sales of prescription drugs through
managed prescription drug programs as well as services provided
through programs to manage patient health and drug utilization.

MRK - Merck & Co.  $62.59

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JUL-55.00  MRK-SK  OI=18508  ASK=$0.25
SELL PUT  JUL-60.00  MRK-SL  OI=10598  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$59.50


*****
BZH - Beazer Homes  $87.00  *** Profit-Taking Underway! ***

Beazer Homes USA (NYSE:BZH) designs, builds and markets single
family homes in the following locations within the United States:
Florida, Georgia, North Carolina, South Carolina, Tennessee,
Arizona, California, Colorado, Nevada, Texas, Maryland, Virginia,
New Jersey, and Pennsylvania.  The company designs its homes to
appeal primarily to entry-level and first time move-up homebuyers.
The company's objective is to provide its customers with homes that
incorporate quality and value while seeking to maximize its return
on invested capital.  Beazer's homebuilding and sales activities
are conducted under the name of Beazer Homes in each of its markets
except in Colorado (Sanford Homes) and Tennessee (Phillips Builders).

BZH - Beazer Homes  $87.00

PLAY (moderately aggressive - bearish/credit spread):

BUY  CALL  JUL-100.00  BZH-GT  OI=337  ASK=$0.80
SELL CALL  JUL-95.00   BZH-GS  OI=513  BID=$1.65
INITIAL NET-CREDIT TARGET=$0.85-$0.95
POTENTIAL PROFIT(max)=20% B/E=$95.85


*****
HOV - Hovnanian Enterprises  $62.12  *** Too Fast, Too Furious? ***

Hovnanian Enterprises (NYSE:HOV) constructs and sells single-family
detached homes and attached condominium apartments and townhouses
in more than 196 new home communities in New Jersey, Pennsylvania,
New York, Virginia, Maryland, North Carolina, Texas and California.
The firm offers a wide variety of homes that are designed to appeal
to first-time buyers; first- and second-time, move-up buyers; luxury
buyers; active adult buyers, and empty nesters.  In addition, the
company provides financial services, including mortgage banking and
title services to the homebuilding operations' customers.  The firm
does not retain or service the mortgages that it originates, but
rather sells the mortgages and servicing rights to investors.

HOV - Hovnanian Enterprises  $62.12

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JUL-75.00  HOV-GO  OI=422  ASK=$0.45
SELL CALL  JUL-70.00  HOV-GN  OI=728  BID=$1.05
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$70.60


*****
IBM - International Business Machines  $84.92  *** Triple-Top? ***

International Business Machines Corporation (NYSE:IBM) manufactures
and sells computer services, hardware and software.  The firm also
provides financing services in support of its computer business.
The company's major operations comprise a Global Services segment;
three hardware product segments (Enterprise Systems, Personal and
Printing Systems, and Technology); a Software segment; a Global
Financing segment; and an Enterprise Investments segment.  IBM
offers its products through its global sales and distribution
organizations.  The company operates in more than 150 countries
worldwide and derives more than half of its revenues from sales
outside the United States.

IBM - International Business Machines  $84.92

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JUL-95.00  IBM-GS  OI=21837  ASK=$0.25
SELL CALL  JUL-90.00  IBM-GR  OI=44853  BID=$0.80
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$90.60


*************
DEBIT SPREADS
*************

These candidates offer a risk-reward outlook similar to credit
spreads, however there is no margin requirement as the initial
debit for the position is also the maximum loss.  Since these
positions are based primarily on technical indications, traders
should review the current news and market sentiment surrounding
each issue and make their own decision about the outcome of the
position.

*****
INTU - Intuit  $46.13  *** Head-N-Shoulders Top? ***

Intuit (NYSE:INTU) is a provider of business tax preparation and
personal finance software products and Web-based services that
simplify complex financial tasks for consumers, small businesses
and accounting professionals.  The company's principal products
and services include Quicken, QuickBooks, Quicken TurboTax,
ProSeries, Lacerte and Quicken Loans. Intuit offers products and
services in five principal business divisions, which include Small
Business, Tax, Personal Finance, Quicken Loans and Global Business.

INTU - Intuit  $46.13

PLAY (conservative - bearish/debit spread):

BUY  PUT  JUL-55.00  IQU-SK  OI=86    A=$9.10
SELL PUT  JUL-50.00  IQU-SJ  OI=1357  B=$4.60
INITIAL NET-DEBIT TARGET=$4.40-$4.45
POTENTIAL PROFIT(max)=12% B/E=$50.55


****************
CALENDAR SPREADS
****************

A calendar spread (or time spread) consists of the sale of one
option and the simultaneous purchase of an option of the same
type and strike price, but with a future expiration date.  The
premise in a calendar spread is simple: time erodes the value of
the near-term option at a faster rate than the far-term option.
The positions in this section are speculative (out-of-the-money)
spreads with low initial cost and large potential profit.

*****
IR - Ingersoll-Rand  $47.95  *** Trading Range? ***

Ingersoll-Rand (NYSE:IR) is a leading innovation and solutions
provider for the major global markets of Security and Safety,
Climate Control, Industrial Solutions and Infrastructure.  The
company's diverse product portfolio encompasses such leading
industrial and commercial brands as Schlage locks and security
solutions; Thermo King transport temperature control equipment;
Hussmann commercial and retail refrigeration equipment; Bobcat
compact equipment; Club Car golf cars and utility vehicles;
PowerWorks microturbines; and Ingersoll-Rand industrial and
construction equipment.  In addition, IR offers products and
services under many more premium brands for customers in both
industrial and commercial markets.

IR - Ingersoll-Rand  $47.95

PLAY (conservative - bullish/calendar spread):

BUY  CALL  SEP-50.00  IR-IJ  OI=221  ASK=$1.95
SELL CALL  JUL-50.00  IR-GJ  OI=64   BID=$0.65
INITIAL NET DEBIT TARGET=$1.15-$1.25
INITIAL TARGET PROFIT=$0.60-$0.85


*******************
SYNTHETIC POSITIONS
*******************

These stocks have momentum-based trends and favorable option
premiums.  Traders with a directional outlook on the underlying
issues may find the risk-reward outlook in these plays attractive.

*****
SGR - The Shaw Group  $12.62  *** Break-Out? ***

The Shaw Group (NYSE:SGR) offers a broad range of services to
clients in the environmental and infrastructure, and the power
and process industries worldwide.  The company is a leading
provider of consulting, engineering, construction, remediation
and facilities management services to the environmental,
infrastructure and homeland security markets.  Shaw is also a
vertically-integrated provider of comprehensive engineering,
consulting, procurement, pipe fabrication, construction and
maintenance services to the power and process industries.  The
company is headquartered in Baton Rouge, Louisiana with offices
and operations in North America, South America, Europe, the
Middle East and the Asia-Pacific region and employs over 17,000
people.

SGR - The Shaw Group  $12.62

PLAY (speculative - bullish/synthetic position):

BUY  CALL  OCT-15.00  SGR-JC  OI=640  ASK=$0.95
SELL PUT   OCT-10.00  SGR-VB  OI=420  BID=$0.70
INITIAL NET DEBIT TARGET=$0.05-$0.15
INITIAL TARGET PROFIT=$0.55-$0.80

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $330 per contract.  However, do not
open this position if you can not afford to purchase the stock at
the sold put strike price ($10).


***********************
STRADDLES AND STRANGLES
***********************

Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable volatility-based plays.

*****
BSX - Boston Scientific  $60.00 *** Reader's Request! ***

Boston Scientific (NYSE:BSX) is a global developer, manufacturer
and marketer of less-invasive medical devices. The firm's unique
products are offered by two major business groups, Cardiovascular
and Endosurgery. The Cardiovascular segment focuses on products
and technologies for use in the firm's interventional cardiology,
interventional radiology, peripheral vascular and neurovascular
procedures. The Endosurgery organization focuses on products and
technologies for use in oncology, vascular surgery, endoscopy,
urology and gynecology procedures.

BSX - Boston Scientific  $60.00

PLAY (speculative - neutral/debit straddle):

BUY CALL  AUG-60.00  BSX-HL  OI=3297  ASK=$3.60
BUY PUT   AUG-60.00  BSX-TL  OI=5730  ASK=$3.60
INITIAL NET-DEBIT TARGET=$6.80-$7.00
INITIAL TARGET PROFIT=$1.75-$3.00


*****
MBI - MBIA Incorporated  $50.24  *** Probability Play! ***

MBIA Incorporated (NYSE:MBI) is engaged in providing financial
guarantee insurance, investment management services and municipal
services to public finance clients and financial institutions on
a global basis.  Financial guarantee insurance provides customers
an unconditional and irrevocable guarantee of the payment of the
principal of, and interest or other amounts owing on, insured
obligations when due.  The firm conducts its financial guarantee
business through its wholly owned subsidiary, MBIA Insurance,
which is the successor to the business of the Municipal Bond
Insurance Association that began writing financial guarantees for
municipal bonds in 1974.  MBIA is the parent of MBIA Insurance of
Illinois and Capital Markets Assurance Corporation, both financial
guarantee companies that were acquired by MBIA Corp.  MBIA also
owns MBIA Assurance S.A., a French insurance company, which writes
financial guarantee insurance in the countries of the European
Community.

MBI - MBIA Incorporated  $50.24

PLAY (speculative - neutral/debit straddle):

BUY CALL  AUG-50.00  MBI-HJ  OI=1130  ASK=$2.70
BUY PUT   AUG-50.00  MBI-TJ  OI=552   ASK=$2.65
INITIAL NET-DEBIT TARGET=$5.15-$5.25
INITIAL TARGET PROFIT=$1.60-$2.50




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

Mostly Sideways

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**********

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