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Daily Newsletter, Sunday, 08/03/2003

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The Option Investor Newsletter                   Sunday 08-03-2003
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: Jobloss Recovery
Futures Market: Less liquidity, lower prices
Index Trader Wrap: INDECISION
Editor's Plays: Not Over Till the Fat Lady Sings
Market Sentiment: First Friday of the Month
Ask the Analyst: China Depository Receipts for Hot and Sour trading
Coming Events: Earnings, Splits, Economic Events


Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 8-01         WE 7-25         WE 7-18         WE 7-11
DOW     9153.97 -130.60 9284.57 + 96.42 9188.15 + 68.56 + 49.38
Nasdaq  1715.62 - 15.08 1730.70 + 22.20 1708.50 - 25.43 + 70.48
S&P-100  493.64 -  9.30  502.94 +  1.44  501.50 -   .98 +  6.40
S&P-500  980.15 - 18.53  998.68 +  5.36  993.32 -  4.82 + 12.44
W5000   9454.16 -145.20 9599.36 + 52.70 9546.66 - 64.23 +148.38
RUT      468.08 -  0.80  468.88 +  4.12  464.76 -  9.01 + 17.42
TRAN    2595.91 - 19.88 2615.79 + 39.50 2576.29 + 30.71 +130.27
VIX       22.78 +  2.84   19.94 -  1.42   21.36 +   .64 -  0.89
VXN       32.48 +  2.44   30.04 -  3.37   33.41 +   .61 +  0.33
TRIN       1.08            0.67            0.60            0.94
Put/Call   0.91            0.67            0.61            0.98
Avg Highs   462             365             522             791
Avg Lows     72              31              29              21
******************************************************************



Jobloss Recovery
by Jim Brown

Traders are beginning to believe that the jobless recovery has
turned into a jobloss recovery instead. The economic numbers on
Friday did not help improve sentiment despite some positive signs
under the hood. The markets closed the week with a loss despite
a barrage of good numbers over the last several days.

S&P Chart



Dow chart



Nasdaq Chart




The Consumer Sentiment improved slightly to 90.9 from the
preliminary 90.3 for July. The expectations index fell from 86.4
to 83.7 but the present conditions index jumped to 102.1. This
surprised some traders as it was different to what the Consumer
Confidence showed earlier in the week. What it did not show was
a marked decrease in sentiment to confirm the confidence numbers.
Instead the gain in the present conditions was the biggest in a
decade. Analysts think this is related to the higher take home
pay, tax credit checks and recent market gains. Clearly it was
not due to higher interest rates and analysts think the next
report could show a drastic drop.

The Nonfarm Payroll report added to the frustration with a loss
of -44,000 jobs when +18,000 were expected. The June number was
also revised down to -72,000 and more than twice the -30,000
initially reported. The May number was also revised down and
this makes the sixth consecutive month of job losses. The
unemployment rate dropped unexpectedly to 6.2% from 6.4% simply
due to 500,000 workers dropping out of the job market in disgust
without finding jobs. Sounds like a summer vacation to me. 9.06
million workers are currently officially unemployed if you don't
count the -556,000 dropouts. Had there been no dropouts the
unemployment rate would have been 6.5%. March was the only other
month this year with a drop in the workforce at -64,000. If those
workers return in September after the summer vacation then the
unemployment rate could be even higher. The average workweek
for manufacturing fell to 40.1 hrs and 33.6 for nonmanufacturing.
Conditions may be slowly improving but so slowly that employers
cannot afford to hire more workers and are continuing to layoff
workers to cut costs. Temporary hiring picked up as employers
replaced full time employees with part time and added part time
to replace workers on vacation. This too shall pass when the
summer is over.

I went back to the 8/2/2002 report to see what had changed in
the last 12 months. In 2002 the report made these points. "The
unemployment rate remained unchanged in July at 5.9%. However,
part of this is the result of a contracting labor force and
unemployed workers see few opportunities in the labor market
and drop out." No change there. "Manufacturing losses continue
to abate. Only 7,000 jobs were lost in July". Big change here
with -67,000 manufacturing jobs lost in 2003. "The labor market
added 6,000 in July, but the gains for the previous months were
revised up to 66,000, nearly double." Big change here as well
with six months of losses in 2003 instead of the four months
of gains in August 2002. There were 8.1 million unemployed in
Aug-2002 and 9.06 million in Aug-2003. Investors have to ask
themselves, Are things really better now than they were in
Aug-2002? The Dow traded in a 305 point range on the report
Friday in 2002 with a high of 8508 and a low of 8203, closing
at 8313. Interest rates on both the 10-year and 30-year were
lower on the 2002 report date and dropping.

Contrary to the negative picture above the ISM posted a number
over 50 at 51.8 for the first time five months. This does
indicate an expansion. It was yet another positive in a week of
bullish economic reports. This was inline with expectations.
New orders jumped to 56.6 from 52.2 and the third month for
that component over 50. This report indicates that a recovery
is in progress but at a snails pace.

Personal Income rose by +0.3% in June despite falling hours
and wage pressure from job competition. Personal Spending also
rose +0.3%. Depending on which numbers you look at they were
not buying cars with the increase in wages. Compared to last
July the automakers reported drops in sales. GM -5.7%, Ford
-11.5%, Daimler Chrysler -7.5%. Compared to last month sales
rose to 17.3 million in annually adjusted terms. GM rose
+5.3%, Ford +3.3%, DCX +2.0%, Honda +1.5%, Toyota +1.9%. Sales
are limping in on the backs of incentives but the drop in
mortgage refinancing is going to impact those numbers.

Construction Spending came in flat for June compared to +0.5%
estimates. Construction has either been flat or down since
February. The market is still in turmoil with low mortgage
rates a drag on new apartment construction. A high vacancy
rate in commercial office buildings is depressing rents and
convincing investors to wait for a change before building
new office projects.

Overall the reports were not bad other than the Jobs report
so what happened to the markets? Friday was an ugly day and
when combined with Thursday it was a two day bear market.
While there was no really big drop on Friday there was
almost zero interest in buying. There was a strong rumor
buoyed by some truth that Saddam was cornered in a farm house
in Tikrit. The truth, U.S. forces surrounded and raided two
houses in Tikrit capturing two Saddam associates. The
initial reports of the attack had Saddam in the house. The
market barely budged with only a +30 point bounce at 1:15.
Last week this would have been good for a +100 point spike.
Considering it came on a Friday it is even more amazing
that nobody rushed to cover with the potential for a weekend
capture. The Dow ended with a close at 9153, only 15 points
above the low for the day but the volume was very low.

Bonds continue to press the issue and there was some buying
after the ISM report but it was very light. The rumors
continued that there is a big bond fund in trouble and that
is keeping pressure on bonds. If somebody is in trouble then
the sharks will eventually sniff them out. There is also a
strong and persistent rumor that overseas investors, pension
funds and other governments are selling bonds by the boatload.
They are responsible for more than half of the U.S. Treasury
debt and the spiraling deficits are scaring them. Japan holds
more than $400 billion, China $125 billion. They see the
60% drop in refinancing applications in the last six weeks,
rates making a two year move in six weeks and the prospect
that the government could be forced to sell $1 trillion in
bonds in the next 12 months to support the deficit and the
war.

High yield bond funds saw outflows of $1.06 billion in
outflows last week and the single week record is $1.4 billion.
The swap spreads soared +20 basis points in two days which is
unheard of. The carry trade, where banks and hedge funds borrow
Yen from Japan at 1% or less to leverage into dollar-linked
bonds, is collapsing. The Yen is gaining on the dollar and
dollar bonds are falling through the floor. As the trend
continues the squeeze becomes painful and companies are racing
to liquidate positions before huge losses pile up. Another
problem is the pension shift. Whenever yields hit 4.5% and
we hit 4.59% Friday, conservative pension funds shift out of
risky stocks and into the safety of bonds. This could have
been the problem on Friday. Stocks were being sold and bonds
being bought by pension funds. Also, AMG data said that equity
funds saw the first week of outflows in a month for the week
ended on Wednesday.

There are massive forces at work here that we do not see on
the surface. Hedge funds and bond junkies always over leverage
when bonds appear to be headed in one direction. With bonds
hitting a 45 year high there had to be a large number of
over margined, over leveraged funds. With the bond disaster
there has got to be casualties and those casualties have not
come to the surface yet. If you doubt the rumors of an
impending failure look at the chart for FRE, which is only
about $1 from a multiyear low. LEH and BSC, both big bonds
firms are falling off the cliff as investors fear an imminent
disclosure. Even if they are not in trouble financially they
are probably going to take a hit. Don't forget gold. The same
traders who leveraged bonds to the moon thinking the economy
was going in the tank were doing the same with gold. It hit
a two week low on Friday. Sometimes when it rains it pours.

The GDP showed a +2.4% Q2 rate. Unfortunately 44% of that
jump came in government spending for the war. As Art Cashin
said several times on Friday, unless there is another war
scheduled for the fourth quarter that burst in spending is
not going to happen again. Another factor depressing the
markets is the impending Fed meeting on Aug-12th. The fed
funds futures are showing a zero chance of another rate cut.
Zero! There is nothing for traders to speculate on or to get
excited about. The Fed speak has been a constant, "slow
recovery in progress" and "over accommodative stance" which
means don't even think about another rate cut. The threats of
other nontraditional stimulus have been taken off the table
and the Fed has effectively neutered itself. It will have to
start talking the talk and walking the walk to get investors
attention because the walk softly and carry a big stick only
works when your stick is bigger than 100 basis points. With
a stick the size of a toothpick you won't get much respect.

The interest rate pressure is killing the homebuilders and
the related industries. The drop in mortgage applications
and rise in rates has finally popped the building bubble.
The soaring builder stocks, which trade at absurdly low PEs
of 8-12 are getting cheaper by the day.

Despite all the problems the selling for the week was not
that bad. The S&P is on a streak of five winning months that
it has not had since 1998. The -18 point drop for the week
was hardly a drop in the bucket. The Dow closed at 9153 and
is still well above support levels it has defended
successfully since the beginning of June. The Nasdaq closed
over 1700 despite the selling. The sell off only seems worse
due to the 52-week highs hit on Thursday. When compared to
those numbers and considering the bullish economic data the
outlook becomes more cloudy. The most negative event was the
failure of the 50 DMA on the S&P-500 at 985. This is the
first close under the 50 since March 14th. If this holds on
Monday it could setup some serious technical selling.

As I mentioned on Thursday, August has been the worst month
of the year for the markets for the last 15 years. That is
during good times and bad times. The first week of August
is typically the worst week. Considering we did not get the
typical end of July decline for reasons including Udai,
Qusai and Saddam, the market could just be tired. Add in
the ticking bond bomb and traders are ready to take some
profits. The bulls are worried. They got the great economic
news in every report but the Nonfarm Payrolls but the market
died. Saddam was thought to be trapped in a farmhouse in
Tikrit and the market ignored it. The market rallied on
every piece of bad news imaginable for months and failed
miserably on the first really concrete evidence of a recovery.
Now I am bullish. Confused?

I am always early. I am still expecting a decline below 9000
but I think the time is growing short. July earnings are over
and we are a third of the way through the 3Q. Man, does time
fly. In about two weeks we will start seeing the mid quarter
updates. In four weeks we will start hitting the earnings
warnings. But, the pump is primed. There was a significant
number of companies that said business was improving. They
probably lied hoping the 3Q would rescue them but that is
not the point. The reports are actually showing a jobless
recovery and that was expected. It could be mid 2004 before
the jobs picture really picks up. However the manufacturing
picture is improving. We are showing a serious decline in
inventories across the board. This will have to be replenished
before the 4Q or the holiday season will flop. Intel said it
best this week. CEO Barrett said "IT spending will probably
remain flat for the rest of 2003." But, Intel cannot afford
to wait for business to pick up and they will be buying
35,000 PCs to replace their outdated equipment. They are
expecting others to wait but they cannot afford to wait for
the rush. There are countless others in the same shape with
Y2K computers slowly dying. Unfortunately he also said he
only expected a growth rate of 15% over the next 5-10 years
IF the economy cooperated. Probably being a little cautious
there and talking down future analyst estimates.

On Thursday Merrill Lynch went bullish on chips saying the
demand was rising and orders were starting to stack up. On
Tuesday Bear Stearns raised their projected computer sales
for 2003 from 6% to 9% and said notebooks could grow to +22%.
We will get the Semiconductor billings for June on Monday
and that is expected to increase for the fourth consecutive
month. Right or wrong traders will be buying the dips on
techs expecting a positive surprise in October.

Copper and aluminum prices have been rising and that is
commonly seen as a leading indicator of economic growth.
Almost every hard product made has those metals inside. Add
the wire and cable for new construction and the metals touch
almost every sector. Cyclical stocks have been rocking. Check
out the charts on MMM, BCC, IP, IR and DOW just to mention a
few.

Now before everyone gets carried away I may be bullish on
a long term basis but the next few weeks could be rocky.
We are entering the three most volatile months of the year.
They are volatile in good times and bad times. There are any
number of reasons for this which I will not go into today.
Just check some historic charts and take my word for it.
That means the huge gains made on paper over the last
several months are still at risk. Many funds will be
adjusting their portfolios over the next three months.
They will be selling the losers, picking more winners
and positioning themselves for the fourth quarter run. The
current external market factors like an impending bond
disaster could accelerate those moves. If you thought there
was another Long Term Capital about to explode over the
front page and take a thousand points off the stock market
would you be in a hurry to take profits?

In July of 1998 with the Dow at a new high of 9350, Long
Term Capital, a hedge fund with assets of $4.8 billion and
liabilities many time in excess of that, imploded. Highly
over leveraged in bonds and derivates and in hundreds of
deals with other banks it was facing a $250 million a day
loss due to rapidly declining bond markets stimulated by
the Russian default initially and then by the smell of blood
as the rumors began to fly. With dozens of deals over $500
million to other banks like JP Morgan, Salomon, Citigroup,
Goldman Sachs, etc, a default by LTCM would cause massive
liabilities to ripple through the investment community and
endangered the current financial system. The Fed later
organized a multimillion rescue to protect the system but
the stock market fell to 7400 from the 9350 high when the
problem came public. -2000 points on a bond default from
a $4.8 billion hedge fund. How much would we get today if
it was FRE, LEH or BSC? For a complete history of LTCM:

In another bond collapse one trader working for Barings, a
200 year old English bank, leveraged into over $60 billion
of bonds and futures using only $615 million in capital.
The company failed and the assets were sold for $1. Is it
possible there is a ticking bond bomb? Absolutely.

Everybody with big money knows that October is planting time.
August and September are harvest time. You reap the profits
in Aug/Sep and reinvest them by planting in the October
furrows. This year I fully expect that time table to be
accelerated as eager fund managers try to beat the crowd to
the punch. When? Who knows? We can only speculate that the
next 90 days will be like a roller coaster in a hurricane.
There will be peaks and valleys and dangerous cross currents
but when we come out of October we should be in good shape
if the recovery is still on track. Assuming the bond market
gets back on track without a disaster the race to beat the
crowd could begin quickly as long as economics continue to
improve. Just like every roller coaster ride you have ever
been on, they scare the hell out of you in the middle but
the end of the ride is always smooth and level. We need to
step up to the ticket counter and get ready to pay our
money because the ride is about to start.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


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

Less liquidity, lower prices
Jonathan Levinson


Friday saw the Fed let 4.5B in maturing repos go unrefunded, a
trend that has been occurring with increasing regularity.
Wednesday's report from the Mortgage Bankers' Association saw a
huge decline in mortgage and refinancing activity.  Overall,
equities, treasuries and gold were lower for the day and for the
week, while the US Dollar Index finished the week positive.


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

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
ES03U      999    989    983    973    967
YM03U     9301   9218   9168   9084   9033
NQ03U     1295   1280   1270   1256   1246


10 minute chart of the US Dollar Index




The disappointing economic data on Friday at 8:30 took some of
the bloom off the US Dollar Index rally for the week, but at 10AM
the positive ISM report and the Fed’s drained 4.5B in reserves
via its open market operations helped to pause the dollar's
slide.  The buying took the form of a bear wedge which broke down
subsequently.  On the week, the US Dollar Index printed a bullish
engulfing candle, as liquidity from the mortgage market and from
the Fed dried up simultaneously and reduced the supply of dollars
overall.


Daily chart of August gold




The party in gold might have ended or is merely pausing, but
either way Friday's close wasn't pretty for gold bulls.  The
closing print was 347.80, which was the site of the bullish
breakouts in mid-July, just above the rising trendline completing
the pennant off the low and Fibonacci support at 345. The
oscillators are on preliminary sell signals right above support,
and if it fails on Monday, we'll watch for support at 342,
followed by 335 and 325 below.  For the week, August gold went
out on a bearish engulfing, corresponding to the US Dollar Index'
bullish engulfing candle.


Daily chart of the ten year note yield




Treasuries finished in positive territory but off their intraday
highs, with the ten year treasury yield (TNX) closing lower by
5.9 basis points at 4.415% in a wide ranging session.  The
uptrend in the TNX remains so far relentless, and I've been
receiving an increasing number of emails asking my view on going
long treasuries to play the reversal.  My reply all week has been
and continues to be that I prefer to wait for a trendline break
to confirm the move.  As can still be seen in the NQ future daily
chart below, uptrends have a way of going longer than we expect,
for whatever reason.  Patience above the trendline will protect
your accounts and your sanity at the cost of missing the very top
of the move.

Daily NQ candles




I find that the market tends to deal in question marks, with the
occasional foray into exclamation points that increase in
frequency as the timeframe diminishes.  The Nasdaq futures
managed to leave us holding the former with a minimal number of
the latter on Friday, spending most of the session going nowhere
within a range, but nevertheless completing a lower low, lower
high and lower close.  The session and the week closed out right
on the ascending support line, and it's now make-or-break time
for Nasdaq bulls.  The extent of the ambivalence is reflected on
both the daily and the 30 minute candle chart below.  The closing
uptick left us with preliminary buy signals right above support.


30 minute 20 day chart of the NQ




The 30 minute chart looks like a bear flag to me, particularly in
light of the lower weekly closes on the NQ and its ES and YM
peers. The 22 period EMA has crossed the 50 to the downside,
generating a sell signal, and the bounce in the oscillators is
unconvincing, particularly considering the softness in price all
Friday afternoon on the up-phase.  This lack of buyers following
Thursday's vertiginous plunge sets up a bear flag with Friday
afternoon's range, and if it doesn’t bounce on Monday, the bulls
and the daily ascending trendline in place since March will be in
trouble.


Daily ES candles




There are no two ways about Friday's bearish engulfing candle
print, capping a bearish engulfing week.  The 78.6% Fibonacci
support line and the 50 day EMA just below it (purple line) have
yet to fail but are close within striking range.  Again, it's
make-or-break time for the bulls.


20 day 30 minute chart of the ES




That last statement is clearer still on the 30 minute candle
chart.  Bulkowski describes expanding wedges or "megaphone"
patterns, which I term "bulloney bullhorns," as somewhat chaotic
patterns to trade.  They are, as Thursday's climactic runup and
selloff proved.  The pivot calculator generated 973 as first
support, and it coincides with my calculations based on the head
and shoulders formation described in Thursday's Futures Wrap and
in the intraday Futures Monitor.  Note the divergence on the
oscillators, however.  While I'm bearish on it, it does
constitute a divergence.  Whether it's bullish or bearish is in
the eye of the beholder:  I would say, "If this is the upphase, I
can't wait to see the down."  A bullish trader would counter that
the move is building energy and exhausting the sellers, who were
unable to push the ES below the rising support line today.
Monday should resolve it one way or the other.


Daily YM candles




Like the NQ, the Dow Futures closed right on the trendline, but
with its oscillators just starting sell signals from lower highs.

20 day 30 minute chart of the YM




As with the ES and NQ, the Dow is either going higher or lower on
Monday.  Don't all thank me at once for that incisive analysis,
but the close left us on a cycle divergence.  Note that the
oscillators reversed from lower lows on the 30 minute candles,
which is not bullish.  It was a bearish engulfing day to complete
a bearish engulfing week, and for this reason, I personally see
more downside.  Until support breaks, however, I will be wrong.

Overall, they threw multiple Saddam rumors at the tape,
spectacular economic data on Thursday and all the usual
garnishes, but still the equity bulls couldn't post new highs, or
even avoid a negative close for the week.  The liquidity drought
implied by the mortgage data this week and the ongoing collapse
in treasuries has, to my mind, barely touched equities.  Bears
remain too scared to short aggressively, bulls continue to
generate +1000 ticks and intraday put to call readings below .50.
P/E ratios remain high, CNBC remains on-air, and the equity
market continues to buy analyst upgrades of chip stocks while the
treasury market sets new year lows day after day.

The 7 week closing high in crude oil futures and new lows in
treasury bonds do not look good for corporate profitability, and
unlike many, I do not see the yield rally to be a sign of
economic recovery or impending strength in equities.  I believe
that we are witnessing a reversal of the macro trend that drove
the Spring rally, which is liquidity.  A rising tide of liquidity
buoyed all US financial assets except the US Dollar.  This week
brought us a decline in all US financial assets, and a rise in
the dollar.  Unless it reverses course, we can expect more of the
same next week.


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

INDECISION
By Leigh Stevens
lstevens@OptionInvestor.com

The sideways consolidation continued for yet another week as I
thought it would.  There is, as of yet, nothing major unfolding
to cause the bulls to do still more buying or the Bears to press
the short side.

The S&P 500 (SPX) Index fell to 980.15 on Friday, off about 1
percent - as a comparison, the RUT (Russell 2000 Index) was down
by 1.7%. The Dow Jones Average was down by 79.8 points (0.9%), to
9,153.9. (Down was J.P. Morgan Chase, Alcoa, Citigroup and
Johnson & Johnson following an analyst downgrade. Disney was one
of the Dow's best performers, reaching a new 52-week high,
following improved earnings.)

The Nasdaq Composite (COMPX) gave up 19.40 points (1.1%) to
1,715.62 and the Nasdaq 100 Index (NDX) was off by nearly 13
points to 1,264.34.

THE BOTTOM LINE -
If you did anything but take that road trip I suggested or to
sell (time) premium (e.g., short calls and puts), which is
eroding at a predictable clip in a trend-less market, you might
have had a difficult trading week.

As noted on OIN last week, NYSE 52-week lows on the big board
begin to creep up relative to new (52-week) highs.  This reality
is also very much reflected in the sideways Index chart patterns.

A sideways move - I consider this a lateral trend (rather than
being "trendless") - has also been called an "indecision"
pattern.  This raises the question of what would it take to cause
a breakout above or below the price range and for investors to
make their next portfolio decisions? -i.e., add or lighten up on
stocks. Answer: In a word, JOBS.

LAST WEEK -
Tuesday (last) saw the release of the Conference Board's July
Consumer Confidence Index, which fell to 76.6, well below
expectations forecasted around 85.0 and well under June's 83.5
reading. Why do consumers remain skeptical?  - a big part of it
is that is NO perceived improvement in the jobs market.

The Director of The Conference Board's Research Center, stated
that:  "The rising level of unemployment and sentiment that a
turnaround in labor market conditions is not around the corner
have contributed to deflating consumers' spirits this month,"
... "expectations are likely to remain weak until the job market
becomes more favorable."

Look at the some of the underlying confidence numbers -

Consumers claiming jobs are "hard to get" rose to 33.1% from
31.9%, while those claiming jobs are "plentiful" declined to
10.5% from 11.2%.

Those surveyed that were anticipating more jobs to become
available over the next 6 months declined to 16.8% from 18.9%,
while those expecting fewer jobs increased to 19.8% from 16.9%.
The proportion of consumers anticipating an increase in their
incomes, declined to 15.7% from 17.1%.

This later statement regarding an increase in income is part of
the problem of lack of confidence in the future - Time Magazine
recently did a cover story on "Hey, where's my raise!"

Merit and cost of living increases in salaries seem to have gone
the way of the Dodo bird.  Factory workers are often in the same
boat, especially non-unionized factories of which the trend has
seen these numbers increasing.

Wednesday did not bring the bulls much help in the form of the
Fed Beige book as the word they used the most was "mixed" in
terms of the levels of current activity and things that would
suggest an economic pick up.

Some earnings over the week came in ahead of expectations - Dow
30 component DuPont (DD) reported Q2 earnings of $0.62 per share,
5 cents above consensus. Aetna (AET) reported its Q2 income at
$1.28 per share, which was well ahead of Street forecast of
$1.02.  (Excluding a 1-time benefit of realized capital gains,
net income would have been $0.87 per share, a 24% increase.)
Verizon (VZ) indicated its Q2 numbers at a penny over the 68 cent
forecast.

Earnings season is winding down and the next big focus is going
to be continued economic reports and Q3 earnings.

Oh, Thursday brought some tidings to gladden the bulls as the
Advance GDP was released at 2.4%, well ahead of expectations of
1.5% and the prior period's (Q1) 1.4%.  Q2 growth increased
mainly due to defense spending, some business investment in plant
and equipment and by consumer spending. Defense spending shot up
by 44% and is not going to be an ongoing thing - nor, will it
help boost consumer confidence, except maybe for those who work
in this sector.

There was some recovery in business spending which is slightly
encouraging. "Nonresidential spending", a broad category of
investment, rose at a 6.9% annual rate in the second quarter
after decreasing 4.4% in the first 3 months and the strongest
advance in investment spending in 3 years. No doubt that some of
this money was being put to work in the market.

On balance, just enough bullishness to prevent a sell off, not
enough to cause a round of new buying that would lead to a second
up "leg".

FRIDAY'S TRADING -
The ISM (Institute for Supply Management) Index was released at
51.8 in July, up from 49.8 in June. Over 50 is defined as showing
expansionary numbers. Some highlights - new orders rose to 56.6
from 52.2 in June, the highest reading since January (59.7). The
July employment reading of 46.1 was little changed from June's
46.2 and still indicates contraction in the jobs numbers, but it
was holding above April's 41.4 reading.

As you've heard elsewhere no doubt, we can anticipate market
participants to focus even more on what is happening in the labor
market.  If this component does not begin to improve along with
the economic data (e.g., GDP, etc.), its not a good sign.  As the
existing consumer base is maybe getting a bit tapped out,
especially as interest rates creep back up, the pent up demand of
those going BACK to work is the one factor that could really put
the economy on a solid growth track.  By the way, the jobs
numbers are one of last component indicators that will tend to
also improve.

Other economic data released showed construction spending in June
unchanged and under the consensus of economists' forecast for
a gain of 0.4% - there was a 1.7% drop in May.

Personal income and spending for June were in-line with
forecasts, but non-farm payrolls, which fell by 44,000 in July
(after losing a revised 72,000 jobs in June) got MOST attention
from traders as it was the SIXTH straight month of job losses and
tallies the U.S. economy as losing 486,000 jobs since February.
That's a lot of jobs - and potential spending power.

There was a drop in the unemployment rate from 6.4 to 6.2% but
this is deemed to have hardly any significance relative to the
lack of jobs growth.

OTHER MARKETS -
The 10-year Treasury fell sharply yet again this past week,
losing 1 and 23/32 points - this makes the 6th. decline in the
last 7 weeks since the 10-year benchmark topped in mid-June. The
yield is now 4.4%.

The U.S. dollar was lower against major trading rivals, falling
0.4% percent to 120.10 yen while the euro gained 0.3% to $1.1264.


INDEX OUTLOOKS –


S&P 500 (SPX) - Daily chart:

The chart pattern remains bullish overall as long as there is no
decisive downside penetration of the 970 area.  With a big leg
up, then a sideways consolidation, benefit of the doubt goes to
the bull case.  A breakout above 1017 is needed to suggest that
another up leg was underway.  SPX may just continue to trade in
this same 973-1017 range. The only predictor in this situation is
a breakout above/below the range. Until then trade the "range".





One deeper correction to the 940 area can't be ruled out if 970-
973 gives way.  Such a move would complete a "typical" a-b-c type
correction.  Stay tuned!

Sentiment and the RSI indicator are both in neutral areas, and
reflect what we're seeing in the chart pattern.

S&P 100 Index (OEX) – Hourly chart:

The range in the OEX continues to be bound by 492 on the downside
and 510 on the upside. Next lower support, implied by an earlier
downswing low is 485.  I still am inclined to buy calls in the
492 area, with tight stops just below 490, with a buy-back
strategy at 485. Conversely, buying puts in the 505 area and
above - such as a move back up to retest the 510 area resistance
- is favored on rallies.





If you don't get prices right at the lower or upper end of the
range in terms of buying calls and puts, it will be hard to make
money in such a meandering market - so, stay on "vacation" or
take advantage of strategies that achieve some profits in a range
bound market.

Dow Industrials Hourly (DJX.X) chart:

I wish I had "new" charts to show you - but its sameO-sameO as
the Dow and other indices drift sideways.  Hey, when we get a big
new move, I will have more exciting lines and notations!

Well there is actually something a bit different shown below as
DJX starts finally to slip below its long-standing uptrend line.
This may suggest that the Index will come back down again to what
I've thought would be the low end of its trading range at 9000-
9050 in the Dow.





In line with an unchanged outlook and strategy, I'm looking to
buy the Index calls in the 90 area and puts back up at 93.  In
between these "extremes" I don't find an attractive risk to
reward outlook, at least in long options.

Nasdaq Composite Index (COMPX) – Daily:

The Composite may take out or pierce its daily chart uptrend
channel - although the lows again last week held the lower
channel line.

1700 continue to look like near support, then around 1650 and
finally at 1600. My favored Nasdaq buying area is in the 1650 to
1600 zone.  A move to 1650 would "fill in" the upside gap there.

Resistance is apparent at 1750, then at 1800-1825 based on the
projected upper channel line.






Nasdaq 100 Tracking Stock (QQQ) - Hourly:

The Q's continue to look like a short in the 32 to 32.75 area and
a potential buy on a dip to the $30 area.  I could see a 50%
retracement occurring, which would take QQQ to around 30.





A break of 30, especially on a daily closing basis, would turn
the chart picture more bearish, although I would not give up on
the bullish case unless 29 was pierced.  In fact, would like to
have a buying opportunity in the 29-30 price zone - risking to
28.70 would then look pretty good relative to upside potential
for an eventual new high above 33.

Good Trading Success!


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

Not Over Till the Fat Lady Sings

While I do not hold out much hope for the Aug-DJX-88 puts we
are holding there is still a possibility they will recover.
Instead of the fat lady the saying should be "not over till
Aug-15th" which of course is expiration Friday. Given two
full weeks and the very negative tone of the market it is
possible we could still reach 8600. It is also possible to
draw to an inside straight but not a good idea to bet heavy
on it. However, I am wishing now I had doubled down on
Thursday for 10 cents. Heck, maybe even tripled down.

That brings us back to a play for today. You may think I am
crazy but I can think of no better play than the Aug-DJX-88
puts for 35 cents.

Think about it. If you read my wrap you know that the first
week of August is the worst week of the month and August has
been the worst month of the year for the last 15 years. We
have a potential ticking bond bomb killing the bond market.
Yields have risen to the point where bonds look attractive to
investors wanting to ride out the three most volatile months
of the year in relative safety and the Jobs report showed that
all is not rosy in the economy.

Any other potential play this weekend would probably cost
more than 35 cents and have far less going for it than a
potential DJX implosion.

I will be the first to acknowledge that this play has not gone
as scripted. We have had drop after drop tantalize us with
impending doom only to have one miraculous recovery after
another push us back to the recent highs. Had we been swing
trading these options we could have made a killing. Hindsight
is always 20:20.

My outlook is simple. If the S&P breaks below 975 we are toast.
That is the line in the sand and the next line could be 950 or
even 920. It could also move fast. Once a cascade-selling event
starts they tend to feed on themselves. Just look at the Jan-15th
sell off. The Dow dropped nearly -1000 points in eight days. I
am not saying it will happen but at the current prices even a
-300 point move could easily double the premiums.

The ATM DJX put option today is $1.15 (DJX-91) Using a very
precise mathematical modeling tool call the SWAG method it
predicts the ATM DJX-88 put to be worth $1.00 if the Dow drops
to near 8800. That would be a 200% return. Can we get to 8800
by the end of next week? Odds are very good if S&P-975 breaks.

So here are the plan(s).

Plan A: Buy the puts at the open Monday or better yet on any
bounce after the open and possibly get them for 20-25 cents.
Your risk is that the Dow continues to go up.

Plan B: Buy the puts ONLY when the S&P touches 973.00. This
insures a break of the 975 critical resistance and a better
than 50/50 chance the market is going to tank hard. You will
pay more than the risk takers who buy the options at Monday's
open but your risk is less. I would estimate 40-45 cents is
what you would pay using the SWAG method.

The sell target would be $1.00 for the conservative trader.
Dow 8600 for the high risk, all or nothing trader.

This is a high-risk play as August options will turn to dust
instantly if the market rebounds again. Please consider your
options before entering this play.

Dow/DJX Chart



S&P Chart





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

Play updates:

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

EBAY Calls

A quick death. No lingering questions over when to sell or
what would happen post split. The $110 stop was hit on Tuesday
and the play died. It appears the frustration over the earnings
was much stronger than previously thought. Play closed.


Powerball

New life on the powerball portfolio. RFMD is improving, CMVT
is accelerating and GLW is on fire. If TLAB and RFMD can just
get back to zero things would really start to look up. Remember
these are January-2004 options and the entire concept was to
capture the 3Q/4Q recovery. With signs of a recovery in progress
we only have a couple or rocky months left and we should see
some real gains.

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

First Friday of the Month
Jonathan Levinson

We have a shortened trading month for August expiration due to
the one day week just finished.  What have the past five sessions
left us with?

This week was tumultuous in a number of different markets, but
the pattern appears to be a clear reversal of the trends at work
during the spring rally.  I won't harp on what is becoming a
recurrent concept in my understanding of the markets, but
liquidity drove us up, and appears to be letting us down.

We finished the week with bearish engulfing candles on the Dow
futures, S&P futures, INDU and SPX.  On the Nasdaq futures and
the COMPX, we got imperfect bearish haramis, but in any event,
negative closes.  On the ten year note yield, a bullish three
white soldiers pattern, as bonds continue to make new yearly
lows.  Lastly, the US Dollar Index rallied higher, printing a
bullish engulfing candle, while the August gold contract,
bludgeoned in Friday's trading, printed a bearish engulfing for
the week.

Just as we saw a tidal wave of liquidity caused by the home
mortgage boom and the fed's "anti-disinflation" operations during
the spring rally, floating bonds, stocks and commodities, this
week brought us exactly the reverse.  We saw mortgage and refi
activity reverse, a huge "bearish engulfing" decline as reported
in Wednesday's market wrap, and the Fed was busy draining in its
open market operations as well.  If it continues, as the weekly
candles suggest, we should see rates continue higher, equities
continue lower, along with gold and a rising US dollar.



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

Market Averages

DJIA ($INDU)

52-week High:  9361
52-week Low :  7197
Current     :  9153

Moving Averages:
(Simple)

 10-dma: 9190
 50-dma: 9078
200-dma: 8527



S&P 500 ($SPX)

52-week High: 1015
52-week Low :  768
Current     :  980

Moving Averages:
(Simple)

 10-dma:  987
 50-dma:  984
200-dma:  910



Nasdaq-100 ($NDX)

52-week High: 1316
52-week Low :  795
Current     : 1264

Moving Averages:
(Simple)

 10-dma: 1265
 50-dma: 1233
200-dma: 1088



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


Both the VIX and VXN are bouncing from recent lows but it will take
the creation of a new relative high to convince us that a change in
sentiment is at hand.

CBOE Market Volatility Index (VIX) = 22.78 +1.54
Nasdaq-100 Volatility Index  (VXN) = 32.48 +1.26


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.91        480,735       436,251
Equity Only    0.74        334,416       246,327
OEX            0.71         35,395        25,000
QQQ            1.54         21,840        33,550


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

Bullish Percent Data

           Current   Change   Status
NYSE          69.2    + 0     Bull Confirmed
NASDAQ-100    75.0    + 0     Bull Confirmed
Dow Indust.   80.0    - 7     Bull Correction
S&P 500       76.2    - 1     Bull Correction
S&P 100       82.0    - 2     Bull Confirmed


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

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

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

 5-Day Arms Index  1.05
10-Day Arms Index  1.00
21-Day Arms Index  1.03
55-Day Arms Index  1.12


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     785      1001
Decliners    2039      2028

New Highs      93       159
New Lows       63         9

Up Volume    411M      591M
Down Vol.   1146M      872M

Total Vol.  1590M     1475M

M = millions


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

Commitments Of Traders Report: 07/29/03

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

Still looking at a lack of major change in the large S&P futures
contracts.  Commercial traders and small traders have yet to make
any big moves lately.


Commercials   Long      Short      Net     % Of OI
07/08/03      415,053   453,720   (38,667)   (4.5%)
07/15/03      414,020   453,033   (39,013)   (4.5%)
07/22/03      411,206   442,131   (30,925)   (3.6%)
07/29/03      405,429   445,114   (39,685)   (4.7%)

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
07/08/03      152,239    74,749    77,490    34.2%
07/15/03      148,716    70,279    78,437    35.8%
07/22/03      155,891    76,466    79,425    34.2%
07/29/03      155,216    73,030    82,186    36.0%

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

Quite the opposite of the large S&P futures above, we're seeing
some big differences in the e-mini positions.  Commercial traders
have turned very bullish while the small traders is increasing
their net bearish positions.  These are new milestones for both.


Commercials   Long      Short      Net     % Of OI
07/08/03      192,815   224,124    (31,309)  ( 7.5%)
07/15/03      214,274   218,765    ( 4,491)  ( 1.0%)
07/22/03      249,392   249,386          6     0.0%
07/29/03      272,659   216,166     56,493    11.6%

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:   56,493   - 07/29/03

Small Traders Long      Short      Net     % of OI
07/08/03       56,394    72,090   (15,696)  (12.2%)
07/15/03       45,372    54,654    (9,282)   (9.3%)
07/22/03       45,945    76,071   (30,126)  (24.7%)
07/29/03       44,437    93,144   (48,707)  (35.4%)

Most bearish reading of the year: (48,707)  - 07/29/03
Most bullish reading of the year: 449,310   - 06/10/03


NASDAQ-100

There is very little change in positions for either the
small trader or the commercials.

Commercials   Long      Short      Net     % of OI
07/08/03       30,489     48,311   (17,822) (22.6%)
07/15/03       28,467     49,154   (20,687) (26.7%)
07/22/03       32,502     48,139   (15,637) (19.4%)
07/29/03       31,456     50,294   (18,838) (23.0%)

Most bearish reading of the year: (20,687)  - 07/15/03
Most bullish reading of the year:   9,068   - 06/11/02

Small Traders  Long     Short      Net     % of OI
07/08/03       26,136     9,035    17,101    48.6%
07/15/03       26,489     8,004    18,485    53.6%
07/22/03       27,321     8,844    18,477    51.1%
07/29/03       25,691     7,810    17,881    53.4%

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

It's the same story here.  Maybe it's the summer doldrums
that's leaving the size of futures positions in a very sideways
trend.


Commercials   Long      Short      Net     % of OI
07/08/03       20,752    11,860    8,892      27.3%
07/15/03       21,607     7,855   13,752      46.7%
07/22/03       22,198     8,176   14,022      46.2%
07/29/03       23,696     9,572   14,124      42.5%

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

Small Traders  Long      Short     Net     % of OI
07/08/03        5,005     8,093   (3,088)   (23.6%)
07/15/03        5,475     9,717   (4,242)   (27.9%)
07/22/03        6,110    10,898   (4,788)   (28.2%)
07/29/03        5,744    11,601   (5,857)   (33.8%)

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

China Depository Receipts for Hot and Sour trading

Could you please tell me how to find a list of the Chinese
telecom and technology stocks---or other growth industries
peculiar to China?

Yes!  Whether you're a bull or a bear and get a hankering for
some Chinese food, the Bank of New York has a wonderful search
engine and information on various Depository Receipts, where a
trader can build a menu of stocks that'll add some volatility to
your account.

Traders/investors that have been trading the technology,
telecommunications and Internet stocks the past couple of years
may comprehend or associate some of these stocks with a bowl of
hot and sour soup!  That's right.  At times these stocks are hot
and their share prices will rocket, but when the fire drill takes
place, they can sour just as quickly.

Of late, many of these stocks have been running wild.  Kind of
like a bull in a China closet!

Here's a link to the Bank of New York's depository receipts page
http://adrbny.com/dr_directory.jsp where a trader/investor can
scan the Pacific Rim in a matter of minutes.

I can't believe the amount of information the Bank of New York's
Depository Receipt web page contains and if you plink around long
enough you'll find what you're looking for.

In the left hand column of the front page, if you place your
mouse cursor over the "DR Profiles, News & Quotes" button, you
should see a pull down menu for searching the various Depository
Receipts and I clicked the "Search DRs by Country," and then
selected China.

Now, you have to do some looking, but I see Netease.com
(NASDAQ:NTES) $48.13 -4.61%, which has made a nice little move
from $10.00 the past couple of months listed as belonging to the
"publishing" industry.

I also found China Telecom (NYSE:CHA) $26.57 -1.81%, which is
categorized as "fixed line communications."  Hmmm... What's this
China Unicom (NYSE:CHU) $6.86 (unchanged) categorized as
"wireless communications?"

Cha, Chu!  Bless you!

A bull that held China Unicom (NYSE:CHU) from the $20's may not
have felt so blessed as the stock fell to $5.00 this past April,
and while this DR doesn't trade options, some option traders have
been known to buy an option or two at $7.00 per contract.

If that list of DRs under the "Search DRs by Country" isn't
enough, then take some good advice and expand your horizons!

Instead of clicking on the "Search by Country," how about "Search
by Region" and select Asia?  Here you'll expand your geographic
search to Australia, China, Hong Kong, India, Japan, Malaysia,
Taiwan, Thailand, Singapore and more!

I tried performing some searches by "category" to get a more
simplified list of "telecom," stocks, but the list seemed much
more limited that simply browsing down through the list of stocks
with an eye on the category column.  If I found something that
looked telecom/Internet related, I could quickly type in the DR's
symbol on my q-chart, or whatever charting service you prefer to
use, to see if it looked like a stock that traded enough volume
or had a pattern that you find compelling.

If you find one of interest, then there's a neat little feature
where you can add the stock to a watch list.

If these two types of scans are not sufficient, then you might
also try this.  I like this one the best!

In the far left column, click on the "DR Performance Analytics"
button.  At the top of that page, there is a set of six search
criteria you can perform.

One search criteria that I performed was....

Give me...
The top 50 Exchange-Listed DR
sorted by Quarter-to-date Price Performance (% Change)
for Asia

Boom!

Internet Initiative Japan Inc. (NASDAQ:IIJI) $8.30 -1.89%.  Must
be a misprint as it has supposedly gained 403% in the latest
quarter.  No stock could ever gain that much in 3-months.  Oh my!
Nope that looks right and it's just off its recent highs of $14.00
from July 8th.

Now, if we are going to trade some of these stock, long or short,
and would want to WISELY try and measure the stock's relative
strength versus a similar category/index or market, the I'd
strongly suggest we use some of the information from the June 15,
2003 Ask the Analyst column regarding HOLDRs and iShares
http://www.OptionInvestor.com/ask/ask_061503_1.asp, where we
could find an appropriate sector or like market to measure a
stock's relative strength against.

For instance, the iShare MSCI Taiwan (AMEX:EWT) $10.28 -0.19%,
which has risen from $7.50 to current levels since May might be a
market-like security to quickly check a Taiwan-based stock
against.  If there's little analysis that can be gleaned from a
relative strength chart, but you have a directional bias, then
perhaps it bets to simply trade the iShare and spread your risk
among a basket of stocks from that particular region.

For a quick review of how to try and interpret relative strength
of a stock versus a like sector or index, I tried to cover this
topic in a December 12, 2002 Ask the Analyst column titled
"Relative Strength, but with X's and O's" http://www.OptionInvestor.com/ask/ask_122902_1.asp

Anyway... I'm glad the trader asked this question, as it has been
an educational experience for me.

Hot and sour soup!  Bull in a china closet!

Remember.  When you sit down at a Chinese food restaurant
and order a main entree, they usually offer you a choice of soups
as an appetizer.  I like the hot and sour soup and that's what I
usually order.  A bull can run ramped in a china closet, but when
the china hits the floor....

As it would relate to trading/investing in some of these
stocks/Drs, think about how small that bowl of soup is in
relation to the main course.

With many of these Asian telecom/Internet stocks, I'd suggest a
small portion to start out with.  Maybe my stomach is weak,
but if I were to eat a big bowl of hot and sour soup, I'd have
indigestion for weeks.

Jeff Bailey


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

==========================================
Market Watch for the week of August 4th
==========================================

-----------------
Earnings Calendar
-----------------

Symbol  Company               Date           Comment      EPS Est

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

AAA    Altana AG             Mon, Aug 04  Before the Bell      N/A
CEPH   Cephalon, Inc.        Mon, Aug 04  After the Bell      0.31
CHD    Church & Dwight Co.   Mon, Aug 04  Before the Bell     0.42
CIG    Co Ener de Minas Ger  Mon, Aug 04  -----N/A-----       0.29
CUZ    Cousins Prop Incorp   Mon, Aug 04  After the Bell      0.52
HNT    Health Net, Inc.      Mon, Aug 04  After the Bell      0.61
HTG    Heritage Prop Invest  Mon, Aug 04  After the Bell      0.64
HBC    HSBC Holdings plc     Mon, Aug 04  04:00 am ET          N/A
MET    MetLife Inc.          Mon, Aug 04  After the Bell      0.70
PRE    PartnerRe Ltd.        Mon, Aug 04  After the Bell      1.45
PPS    Post Properties, Inc  Mon, Aug 04  After the Bell      0.49
QGENF  Qiagen N.V.           Mon, Aug 04  After the Bell      0.07
STO    Statoil ASA           Mon, Aug 04  Before the Bell     0.20
SGY    Stone Energy          Mon, Aug 04  After the Bell      1.33
PFG    Principal Finl Group  Mon, Aug 04  After the Bell      0.61
TP     TPG NV                Mon, Aug 04  Before the Bell     0.37
X      United States Steel   Mon, Aug 04  -----N/A-----      -0.06
WWCA   Western Wireless      Mon, Aug 04  After the Bell     -0.11
WRC    Westport Res Corp     Mon, Aug 04  -----N/A-----       0.18


------------------------- TUESDAY ------------------------------

AGI    Alliance Gaming Corp. Tue, Aug 05  -----N/A-----       0.27
ACAS   Am Capital Strategies Tue, Aug 05  After the Bell      0.66
AMH    AmerUs Group Co.      Tue, Aug 05  After the Bell      0.93
BOX    BOC Group PLC         Tue, Aug 05  -----N/A-----        N/A
VNT    C. A. Nacl Tele de VenTue, Aug 05  After the Bell     -0.14
CVC    Cablevision Systems   Tue, Aug 05  Before the Bell    -0.28
CDX    Catellus Development  Tue, Aug 05  After the Bell      0.37
FUN    Cedar Fair LP         Tue, Aug 05  -----N/A-----       0.43
CKFR   CheckFree             Tue, Aug 05  After the Bell      0.23
CSCO   Cisco Systems         Tue, Aug 05  After the Bell      0.15
CSR    Credit Suisse Group   Tue, Aug 05  Before the Bell      N/A
CEI    Crescent Rl Est Eq    Tue, Aug 05  Before the Bell     0.41
CMLS   Cumulus Media Inc.    Tue, Aug 05  After the Bell      0.07
DTC    Domtar Inc.           Tue, Aug 05  -----N/A-----        N/A
EIX    Edison International  Tue, Aug 05  Before the Bell     0.42
EDMC   Education Management  Tue, Aug 05  Before the Bell     0.25
EMR    Emerson Electric      Tue, Aug 05  -----N/A-----       0.74
EXPE   Expedia, Inc          Tue, Aug 05  Before the Bell     0.31
EXPD   Expeditors Intl       Tue, Aug 05  Before the Bell     0.26
FE     FirstEnergy           Tue, Aug 05  -----N/A-----       0.53
FMS    Fresenius Med Care    Tue, Aug 05  Before the Bell      N/A
GLG    Glamis Gold Ltd       Tue, Aug 05  Before the Bell     0.04
GRP    Grant Prideco Inc     Tue, Aug 05  Before the Bell     0.05
GTM    GULFTERRA ENERGY PART Tue, Aug 05  After the Bell      0.36
HSIC   Henry Schein          Tue, Aug 05  Before the Bell     0.72
HPC    Hercules              Tue, Aug 05  Before the Bell     0.21
HPT    Hospitality Prop TrustTue, Aug 05  -----N/A-----       0.91
ICN    ICN Pharmaceuticals   Tue, Aug 05  Before the Bell     0.27
ICOS   ICOS Corporation      Tue, Aug 05  After the Bell     -0.42
IACI   INTERACTIVECORP       Tue, Aug 05  Before the Bell     0.17
MBI    MBIA Inc.             Tue, Aug 05  Before the Bell     1.12
MDP    Meredith Corporation  Tue, Aug 05  Before the Bell     0.58
OHP    Oxford Health Plans   Tue, Aug 05  Before the Bell     0.81
TLK    P.T. Telkom           Tue, Aug 05  -----N/A-----        N/A
PRU    Prudential Financial  Tue, Aug 05  After the Bell      0.60
PSA    Public Storage        Tue, Aug 05  -----N/A-----       0.68
RA     Reckson Ass Rlty      Tue, Aug 05  After the Bell      0.54
RMD    ResMed                Tue, Aug 05  After the Bell      0.36
RYAAY  Ryanair Holdings      Tue, Aug 05  Before the Bell     0.33
TRK    Speedway Motorsports  Tue, Aug 05  Before the Bell     0.87
TLD    TDC A/S               Tue, Aug 05  Before the Bell      N/A
TLTOB  Tele2 AB              Tue, Aug 05  Before the Bell      N/A
G      The Gillette Company  Tue, Aug 05  Before the Bell     0.29
MNY    The MONY Group Inc.   Tue, Aug 05  Before the Bell     0.07
SVM    The ServiceMaster Co  Tue, Aug 05  Before the Bell     0.23
TM     Toyota Motor Corp     Tue, Aug 05  -----N/A-----        N/A
TRZ    Trizec Properties     Tue, Aug 05  Before the Bell     0.41
UNM    UnumProvident Corp    Tue, Aug 05  After the Bell      0.40
WMI    Waste Management      Tue, Aug 05  -----N/A-----       0.34
WPI    Watson PharmaceuticalsTue, Aug 05  Before the Bell     0.44
HLTH   WebMD                 Tue, Aug 05  After the Bell      0.10
WTW    Weight Watchers Intl  Tue, Aug 05  After the Bell      0.51
WON    Westwood One          Tue, Aug 05  Before the Bell     0.24


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

AAP    Advance Auto Parts    Wed, Aug 06  After the Bell      1.05
ASX    Adv Semi Engineering  Wed, Aug 06  -----N/A-----       0.04
ACF    AmeriCredit Corp.     Wed, Aug 06  After the Bell      0.21
AOC    Aon Corporation       Wed, Aug 06  Before the Bell     0.45
AIV    Apartment Inv & Man   Wed, Aug 06  After the Bell      0.90
RMK    Aramark Corporation   Wed, Aug 06  Before the Bell     0.30
ADP    Automatic Data Proc   Wed, Aug 06  -----N/A-----        N/A
AVT    Avnet                 Wed, Aug 06  -----N/A-----       0.10
AXS    Axis Capital Hold LmtdWed, Aug 06  After the Bell       N/A
BAY    Bayer                 Wed, Aug 06  -----N/A-----        N/A
EAT    Brinker International Wed, Aug 06  Before the Bell     0.56
CPN    Calpine Corporation   Wed, Aug 06  -----N/A-----       0.03
CNQ    Canadian Nat Res Lmtd Wed, Aug 06  -----N/A-----       1.13
CHINA  chinadotcom corp      Wed, Aug 06  Before the Bell     0.02
DVN    Devon Energy Corp     Wed, Aug 06  Before the Bell     1.52
EOG    EOG Resources         Wed, Aug 06  -----N/A-----       0.84
FST    Forest Oil Corp       Wed, Aug 06  After the Bell      0.57
GALN   Galen Holdings PLC    Wed, Aug 06  Before the Bell     0.45
HIG    Hartford Finl Serv    Wed, Aug 06  After the Bell      1.18
KSE    KeySpan               Wed, Aug 06  Before the Bell     0.14
LAMR   LAMAR ADVERTISING CO  Wed, Aug 06  Before the Bell     0.02
MGA    Magna International   Wed, Aug 06  -----N/A-----       1.68
MAS    Masco                 Wed, Aug 06  Before the Bell     0.46
MCCC   Mediacom Comm Corp    Wed, Aug 06  Before the Bell    -0.22
MME    Mid Atlantic Med Serv Wed, Aug 06  After the Bell      0.76
NVO    Novo-Nordisk          Wed, Aug 06  -----N/A-----        N/A
OGE    OGE Energy            Wed, Aug 06  Before the Bell     0.30
PSC    Philadelphia Suburban Wed, Aug 06  Before the Bell     0.23
RL     Polo Ralph Lauren CorpWed, Aug 06  Before the Bell     0.04
PL     Protective Life Corp  Wed, Aug 06  Before the Bell     0.67
DNY    RR Donnelley          Wed, Aug 06  Before the Bell     0.21
SRV    Service Corp Intl     Wed, Aug 06  After the Bell      0.07
SHU    Shurgard St Centers   Wed, Aug 06  After the Bell      0.65
SIRI   Sirius Satellite RadioWed, Aug 06  Before the Bell    -0.11
TOT    Total                 Wed, Aug 06  During the Market   1.54
TRN    Trinity Industries    Wed, Aug 06  After the Bell     -0.17


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

ABN    ABN Amro Holdings     Thu, Aug 07  Before the Bell      N/A
AEG    AEGON N.V.            Thu, Aug 07  -----N/A-----       0.25
ATK    Alliant Techsystems   Thu, Aug 07  Before the Bell     0.82
BCS    Barclays Bank PLC     Thu, Aug 07  Before the Bell      N/A
BRL    Barr Laboratories     Thu, Aug 07  Before the Bell     0.71
BF     BASF                  Thu, Aug 07  -----N/A-----        N/A
BNN    BRASCAN CORP          Thu, Aug 07  -----N/A-----       0.36
BGG    Briggs & Stratton CorpThu, Aug 07  Before the Bell     1.20
CZN    Citizens Comm         Thu, Aug 07  Before the Bell     0.11
CNA    CNA Financial Corp    Thu, Aug 07  Before the Bell     0.35
DF     Dean Foods            Thu, Aug 07  Before the Bell     0.57
ELX    Emulex                Thu, Aug 07  -----N/A-----       0.22
EVC    Entravision Comm Corp Thu, Aug 07  Before the Bell    -0.01
HCC    HCC Insurance HoldingsThu, Aug 07  After the Bell      0.51
IDA    Idacorp Holding       Thu, Aug 07  Before the Bell     0.32
KGC    Kinross Gold          Thu, Aug 07  After the Bell      0.01
LNC    Lincoln National      Thu, Aug 07  Before the Bell     0.86
LTR    Loews Corp.           Thu, Aug 07  Before the Bell     1.36
MAC    Macerich Co           Thu, Aug 07  -----N/A-----       0.83
CLI    Mack-Cali Realty Corp Thu, Aug 07  Before the Bell     0.90
NXL    New Plan Excel Rlty   Thu, Aug 07  -----N/A-----       0.47
NVDA   NVIDIA Corporation    Thu, Aug 07  After the Bell      0.12
PNRA   Panera Bread          Thu, Aug 07  Before the Bell     0.18
PIXR   Pixar Animat Studios  Thu, Aug 07  After the Bell      0.22
ROIAK  Radio One             Thu, Aug 07  Before the Bell     0.10
RUK    Reed Elsevier NV/Plc. Thu, Aug 07  -----N/A-----        N/A
SRE    Sempra Energy         Thu, Aug 07  Before the Bell     0.60
SPIL   SILICONWARE PRECISION Thu, Aug 07  -----N/A-----       0.02
TS     TENARIS S A           Thu, Aug 07  -----N/A-----       0.61
UVV    Universal Corporation Thu, Aug 07  After the Bell       N/A
UVN    Univision Comm        Thu, Aug 07  After the Bell      0.13
WIN    Winn-Dixie Stores     Thu, Aug 07  After the Bell      0.28
XMSR   XM Satellite Radio    Thu, Aug 07  Before the Bell    -1.28


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

HME    Home Properties       Fri, Aug 08  Before the Bell     0.76
KNBWY  Kirin Brewery Company Fri, Aug 08  -----N/A-----        N/A
VNO    Vornado Realty Trust  Fri, Aug 08  -----N/A-----       1.05
WR     Westar Energy, Inc.   Fri, Aug 08  Before the Bell      N/A


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

Symbol  Company Name              Ratio    Payable     Executable

RARE    Rare Hospitality          3:2      Aug  11th   Aug  12th
ODSY    Odyssey Healthcare        3:2      Aug  12th   Aug  13th
OSK     Oshkosh Truck             2:1      Aug  13th   Aug  14th
REBC    Redwood Empire            3:2      Aug  13th   Aug  14th
SCHN    Schnitzer Steel           2:1      Aug  14th   Aug  15th
RNT     Aaron Rents               3:2      Aug  15th   Aug  18th
ARRO    Arrow Intl                2:1      Aug  15th   Aug  18th
JEF     Jeffries Group            2:1      Aug  15th   Aug  18th


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

Wall Street still has plenty of earnings announcements to process
but it's the economic news that is making headlines and moving
the market.  This week most of the economic reports are on
Thursday.


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

----------------
Monday, 08/04/03
----------------
Factory Orders (DM)     Jun  Forecast:    1.5%  Previous:     0.4%


----------------
Tuesday, 08/05/03
----------------
ISM Services (DM)       Jul  Forecast:    58.0  Previous:     60.6


-------------------
Wednesday, 08/06/03
-------------------
None


------------------
Thursday, 08/07/03
------------------
Initial Claims (BB)   08/02  Forecast:    393K  Previous:     388K
Productivity-Prel (BB)   Q2  Forecast:    2.2%  Previous:     1.9%
Wholesale Invntories(DM)Jun  Forecast:    0.0%  Previous:    -0.3%
Consumer Credit (DM)    Jun  Forecast:   $6.9B  Previous:    $7.3B


----------------
Friday, 08/08/03
----------------
None


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


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Contact Support
The Option Investor Newsletter                   Sunday 08-03-2003
Sunday                                                      2 of 5


In Section Two:

Watch List: Approaching, At or Under Support
Put Play of the Day: ATH
Dropped Calls: LOW
Dropped Puts: LEN


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

Approaching, At or Under Support

Intl Business Machine - IBM - close: 81.27 change: +0.02

WHAT TO WATCH: We've been watching Bib Blue for days now.  The
stock has slowly been melting toward support at the $80 mark.
Shares broke through their 200-dma a couple of days ago but from
the looks of the bounce off $80 on Friday, bulls might try and
drive it higher.  IBM did have some news on Friday when a judge
ruled against the company's pension program that is alleged to be
unfair to older workers.  Bulls could try and buy support with a
stop under $80.  Bears can look for a breakdown under $80 and
target $75.00.

Chart=


---

eBay Inc - EBAY - close: 105.28 change: -2.02

WHAT TO WATCH: Strong earnings and a 2-for-1 stock split
announcement were not enough to keep the Internet darling EBAY at
yearly highs.  The stock has sunk on long-overdue profit taking.
Friday's session saw shares actually close below their simple 50-
dma.  Apparently some analysts are hyping a potential rivalry
between EBAY and Google.  Follow through on the technical
breakdown could be interesting but we suspect bulls will defend
it near the $100 level.

Chart=


---

Rent-A-Center - RCII - close: 70.11 change: -2.81

WHAT TO WATCH: RCII came really close to making it to the OI put
list.  The huge technical breakdown and failed rally at the
broken 50-dma looks like bad news.  The drop back to $70 looks
even worse.  The company beat by a penny and announced a stock
split but that didn't keep investors from selling the news.  Look
for a move under Friday's low and target support at $65.00.

Chart=


---


Amgen Inc - AMGN - close: 68.25 change: -1.18

WHAT TO WATCH: One of our favorite stocks to trade, shares of
AMGN have rolled over after peeking back above the $70 mark.  We
suspect it will retest its simple 50-dma as support or the $65
level.  A breakdown at either could be bad news for the biotech
sector, as AMGN is the most heavily weighted component.

Chart=


---

Goldman Sachs - GS - close: 85.10 change: -2.04

WHAT TO WATCH: The XBD broker/dealer index took a dive on Friday
and closed under what should have been support at the 550 level.
Shares of GS are following suit with their own rollover from
Thursday's failed rally.  The stock closed under its simple 50-
dma and should it break the $85 mark we believe it could quickly
retest support at $80.

Chart=




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

BSX $63.84 - Strong earnings and split announcement have this
stock poised near new highs.  A breakout above the $65.00 mark
could be an entry point for bulls.

MBG $35.25 - This casino stock is at new relative highs and is
approaching all-time highs.  Technical indicators look positive
and volume was climbing late last week.

BRCM $21.22 - Will this chip stock bounce at support of $20.00 or
rollover and start a new leg lower.  Shares have already lost 1/3
their value since mid-July.


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*******************
THE PLAY OF THE DAY
*******************

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

Anthem Inc. - ATH - close: 74.49 chg: -1.02 stop: 77.01

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
^^^^^

Lowe's Companies - LOW - cls: 47.00 chng: -0.56 stop: 46.50

It's time to throw in the towel on our LOW play.  After more than
two weeks, the stock has been unable to sustain a breakout over
the $48.  With the Housing sector continuing to weaken, the
Retail index looking like it is breaking down and flat price
action in LOW, we're going to err on the side of caution and drop
the play near our picked price.  Aggressive traders might try to
hold on and exit on another push up near the $48 level, but it
appears to be time to move on to more promising plays.

Picked on July 13th at    $46.87
Change since picked:       +0.13
Earnings Date           08/18/03 (unconfirmed)
Average Daily Volume =  4.89 mln
Chart =



PUTS
^^^^

Lennar Corp. - LEN - close: 63.20 change: -1.98 stop: 67.30

Wow!  What a ride!  We thought we might be able to finally grab a
good downside move from the Housing sector, and we scored this
time, as continued selling in the bond market finally broke the
$DJUSHB index under the critical $414 support level.  Our
eventual profit target for our LEN play was $62-63 (the site of
the July 2002 highs) and the stock nailed that on Friday with an
intraday low of $62.30 and a close just over $63.  Aggressive
traders might hold on in anticipation of a continued decline down
towards stronger support near $60, we're going to harvest gains
($8.36 from our picked price) and chalk this up as a solid win.
Traders opting to keep open positions should ratchet their stops
down to no higher than $65.50, just above Friday's intraday high.

Picked on July 15th at   $71.12
Change since picked:      -8.36
Earnings Date          09/09/03 (unconfirmed)
Average Daily Volume =  1.72 mln
Chart =



***********
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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**********
DISCLAIMER
**********

Please read our disclaimer at:



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Contact Support
The Option Investor Newsletter                   Sunday 08-03-2003
Sunday                                                      3 of 5


In Section Three:

Current Calls: AZO, FDX, GDW, GENZ, KSS, PCAR
New Calls: LLL
Current Put Plays: BDK, FITB, FRE, HD, MRK, PGR
New Puts: ATH


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

AutoZone, Inc. - AZO - close: 82.65 change: -0.61 stop: 80.50

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 charging higher early last week, our AZO play has been
rather disappointing, as it twice failed to touch our initial
profit target at $85 and appears to be rolling over.  As
mentioned throughout the week, those forays near the $85 level
would have made a solid point to harvest some gains and those
that took advantage of the opportunity can now watch for a new
entry point.  Due to the strong volume with which it took place,
we still think the breakout over $80 was technically significant
and with the volume on the pullback so far being light, we're
still inclined to try to buy the dip.  But the realistic support
level where that will make sense now appears to be in the $81.00-
81.50 area, which should coincide with the 10-dma (currently
$80.94) early next week.  Wait for the rebound from support
before playing.  Note that our stop is currently $80.50, as a
break of both the 10-dma and last Monday's low would force us to
concede that the breakout has failed.

Suggested Options:
Shorter Term: The August 80 Call will offer short-term traders
the best return on an immediate move, as it is currently in the
money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the September 85 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 can use the September 80 Call.

*August Options Expire in Two Weeks!

BUY CALL AUG-80 AZO-HP OI=2161 at $3.70 SL=2.25
BUY CALL AUG-85 AZO-HQ OI=1534 at $1.00 SL=0.50
BUY CALL SEP-80 AZO-IP OI=1336 at $5.30 SL=3.25
BUY CALL SEP-85 AZO-IQ OI=1515 at $2.50 SL=1.25

Annotated Chart of AZO:




Picked on July 27th at    $80.17
Change since picked:       +2.48
Earnings Date           09/26/03 (unconfirmed)
Average Daily Volume =  1.31 mln
Chart =


---

Fedex Corp - FDX - close: 64.66 change: +0.27 stop: 62.99

Company Description:
With annual revenues of $22 billion, FedEx Corp. is the premier
global provider of transportation, e-commerce and supply chain
management services. The company offers integrated business
solutions through a network of subsidiaries operating
independently, including: FedEx Express, the world's largest
express transportation company; FedEx Ground, North America's
second largest provider of small-package ground delivery service;
FedEx Freight, the largest U.S. provider of regional less-than-
truckload freight services; FedEx Custom Critical, North
America's largest provider of expedited time-critical shipments;
and FedEx Trade Networks, North America's largest customs broker
and a provider of international freight forwarding and trade
facilitation services. FedEx ranked highest in the J. D. Power
and Associates 2002 Small Package Delivery Service Business
Customer Satisfaction Study(SM) in the categories of air, ground
and international delivery services. (source: company press
release)

Why We Like It:
We have mentioned before how traditional Dow Theory suggests that
a sustained rally in the broader markets cannot occur unless
there is a rally in the Transports.  The month of July was an
interesting month as the markets traveled mostly sideways while
the Transports did their job by making a steady climb higher.
With no participation or follow through by bulls in the rest of
the market sectors, the weakness in the Transports on Friday is
somewhat foreboding.  It would appear the $TRAN is looking tired
and it closed back under the 2600 level.

FDX also ended the month with a positive gain but has been
consolidating some of those gains since the 21st.  The rising 50-
dma for the stock has held up as support the last three sessions
and we're pleased to see the bounce on Friday despite market
weakness.  Strong earnings results from rivals UPS and ABF in the
last two weeks have not given any lift to the group or FDX.
There have been several headlines recently about a lawsuit
involving FDX, UPS and Astar Air.  FDX and UPS claim Astar is a
German owned carrier and Federal law prohibits or limits
ownership of ground cargo companies by Foreign entities.  A
recent ruling was a set back from FDX's argument.

Meanwhile the stock action in FDX makes us cautious.  We're still
witnessing a triple-top breakout on its P&F chart but the daily
is giving mixed signals.  As mentioned earlier the 50-dma is
holding up as support but its oscillators have rolled over into
bearish signals.  We could be seeing a bull flag consolidation
pattern form and if that were the case then a move over $65.00
would be a good entry point.  Otherwise we are now suggesting
traders wait for a move above $66.00.

Suggested Options:
We're going to list the August, September and October 65 and 70
calls but the recent dips have probably offered opportunities to
jump on the 60 strikes as well.

*August Options Expire in Two Weeks!

BUY CALL AUG 60 FDX-HL OI= 712 at $5.00 SL=3.00
BUY CALL AUG 65 FDX-HM OI=2255 at $0.90 SL= --
BUY CALL SEP 65 FDX-IM OI= 630 at $2.10 SL=1.25
BUY CALL SEP 70 FDX-IN OI= 416 at $0.55 SL= --
BUY CALL OCT 65 FDX-JM OI=3855 at $2.80 SL=1.50
BUY CALL OCT 70 FDX-JN OI=1712 at $0.95 SL=0.50

Annotated chart of FDX:




Picked on July 20 at $65.32
Change since picked:  -0.66
Earnings Date      09/23/03 (unconfirmed)
Average Daily Volume:  1.70 million
Chart =


---

Golden West Fincl. - GDW - cls: 83.13 chg: +0.53 stop: 81.60 *new*

Company Description:
Headquartered in Oakland, California, Golden West is the nation's
third largest savings institution with assets of $72 billion as
of June 30, 2003. Currently operating 476 savings and lending
offices in 38 states under the World name, the Company has one of
the most extensive thrift branch systems in the country.
(source: company press release)

Why We Like It:
Uh-oh.  Friday was not a good day for the markets.  The declines
may not have been that threatening but the technical damage done
to the banking indices is bad news.  After weeks of churning
sideways the BKX and BIX had pulled back to the simple 50-dma(s)
on Thursday.  All we needed to see was a bounce.  Instead we
witnessed a breakdown on Friday.  This could spark a whole new
round of profit taking in the financial sector.

As if GDW didn't already know that.  We added the stock to the
bullish play list on the 27th of July when it broke to new highs.
It's spent the last five days slowing digesting gains.  We're not
against mild dips because they can offer new traders entry points
for the next leg higher.  However, GDW is now at a crucial
turning point.  It bounced off the $82.00 level on Friday
morning.  We need to see some follow through by the bulls or GDW
could see its own breakdown through its 50-dma.  Speaking of
which we're going to raise our stop loss to 81.60 - just below
the simple 50-dma.  Volume was pretty strong on Friday for GDW so
maybe that was buyers stepping in at the dip.  The company did
announce a cash dividend of 8.5 cents a share yesterday (payable
in September).

This actually looks like an entry point for new positions but
given the breakdown in the banking indices on Friday we are not
suggesting anyone initiate new longs in GDW.

Suggested Options:
Despite the apparent entry point at the bottom of its rising
trend we're not suggesting new positions due to the weakness in
the banking indices.  We'll re-evaluate on Tuesday.

Annotated chart:



Picked on July 27 at $85.66
Change since picked:  -2.53
Earnings Date      07/21/03 (confirmed)
Average Daily Volume:  581  thousand
Chart =


---

Genzyme Corp - GENZ - close: 49.28 change: -1.20 stop: 47.49

Company Description:
Genzyme Corporation is a global biotechnology company dedicated
to making a major positive impact on the lives of people with
serious diseases and medical conditions. This commitment has
driven innovation in treating both widespread diseases and rare
genetic conditions, in providing leading diagnostic products and
services, in bringing the benefits of biotechnology to the
practice of surgery, and in developing novel approaches to
cancer. Genzyme's 5,300 employees worldwide serve patients in
more than 80 countries. (source: company press release)

Why We Like It:
This is when you want to hear that robot on Lost in Space shout
out "warning, warning!"  Friday's performance in GENZ is not good
news.  The strong month-long channel higher has been broken and
oscillators like the MACD, Stochastics, RSI and Momentum all look
or are about to turn bearish.  Even GENZ's bullish P&F chart has
rolled over into a column of O's.  The close below the $50 level
and its simple 10-dma could just be short-term profit taking.
However, the BTK biotech index dropped below its 50-dma and the
DRG drug index fell strongly towards its 200-dma. Further
breakdowns in either could weigh strongly on GENZ.  The stock did
have (previous) strong resistance in the $48.00 region so this
should come back into play as support.  A bounce from $48.00
might be a tempting entry point for more nimble traders and a
lower risk one with a stop at $47.49.  Unfortunately, given the
weakness in GENZ and the relevant sector indices we're really not
suggesting new bullish positions at this time.

Suggested Options:
GENZ has August, September and October options available.
However, we're not going to list any as Friday's breakdown
doesn't look encouraging.

Annotated chart of GENZ




Picked on July 22 at $49.76
Change since picked:  -0.48
Earnings Date      07/16/03 (confirmed)
Average Daily Volume:  3.52 million
Chart =


---

Kohl's Corporation - KSS - close: 59.35 change: +0.00 stop: 56.50

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:
We set a trigger on our KSS play for a reason and that reason
should be clear after Friday's failure to rally through it.
While the stock looks like it wants to break out and run higher,
we need to see it clear that key $60.60 resistance level before
playing.  Once that breakout occurs, momentum traders can jump in
on the breakout, while more conservative players may want to look
for a subsequent pullback into the $59-60 area.  For now we wait
for confirmation of the compelling technical setup.  One
potential fly in the ointment is the action in the overall Retail
index (RLX.X), which finally broke below the bottom of its
ascending channel.  If KSS is going to break out, it is likely
going to need the support of the RLX, which will need to get back
over the $338 level that defines the bottom of the channel.

Suggested Options:
Shorter Term: The August 60 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 September 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 can use the September 60 Call.

*August Options Expire in Two Weeks!

BUY CALL AUG-60 KSS-HL OI=5655 at $1.45 SL=0.75
BUY CALL SEP-60 KSS-IL OI=1476 at $2.90 SL=1.50
BUY CALL SEP-65 KSS-IM OI=1235 at $1.15 SL=0.50

Annotated Chart of KSS:




Picked on July 31st at    $59.35
Change since picked:       +0.00
Earnings Date           08/14/03 (unconfirmed)
Average Daily Volume =  4.56 mln
Chart =


---

PACCAR - PCAR - close: 76.92 change: -0.32 stop: 72.99

Company Description:
PACCAR is a global technology leader in the design, manufacture
and customer support of high-quality light-, medium- and heavy-
duty trucks under the Kenworth, Peterbilt, DAF and Foden
nameplates. It also provides financial services and distributes
truck parts related to its principal business. In addition, the
Bellevue, Washington-based company manufactures winches under the
Braden, Gearmatic and Carco nameplates. (source: company press
release)

Why We Like It:
PCAR is a new addition to the call list from Thursday.  There has
been little change to the stock price and no new news.  The
original play write up is below.

We are a little hesitant to be adding new bullish plays in the
current sideways/overbought market but it is hard to ignore
PCAR's incredible relative strength.  The company announced
earnings on July 24th and the numbers were positive.  Analyst had
been expecting 98-cents a share.  The company turned in $1.06
(per diluted share).  Revenues were 12 percent higher than the
same period last year at $2.0 billion.  Net income jumped by 68
percent to $124.1 million.  Management said things were improving
and the industry saw heavy-duty truck orders jump almost 10
percent in North America.  We're actually surprised that
management didn't announce another stock split.

The breakout over the $75 level of resistance is not only a new
yearly high but it's a new all-time high.  The burst higher was
on stronger than average volume and the stock's MACD has now
rolled back up into a buy signal.  Stochastics, momentum and RSI
are also creeping higher.  PCAR's P&F chart is also impressive.
The move today produced a fresh triple-top buy signal.  We
realize that shares look over-extended and due for a major pull
back, especially on the weekly chart.  However, as a short-term
options trader we think there is an opportunity to catch a move
to the $82.50 maybe the $85.00 level.  We're going to try and
reduce our risk with a stop loss at 72.99.  We're not opposed to
new positions at current levels but the best entry point would be
on a dip towards the $75.00-75.50 area (previous resistance).

Suggested Options:
PCAR currently has August, September, November and January
options available.  We're going to list August and September
strikes with a preference for September 75s and 80s.

*August Options Expire in Two Weeks!

BUY CALL AUG 75 PAQ-HO OI= 450 at $3.10 SL=1.60
BUY CALL AUG 80 PAQ-HP OI=  66 at $0.70 SL= --
BUY CALL SEP 75 PAQ-IO OI=  39 at $4.70 SL=2.75
BUY CALL SEP 80 PAQ-IP OI=  50 at $2.15 SL=1.10

Annotated Chart:




Picked on July 31 at $77.24
Change since picked:  -0.32
Earnings Date      07/24/03 (confirmed)
Average Daily Volume:  1.15 million
Chart =



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

L-3 Communications -LLL - close: 49.90 change: +0.82 stop: 46.50

Company Description:
As a leading supplier of sophisticated secure communication
systems and specialized communication products, LLL provides
critical elements of virtually all major communication, command
and control, intelligence gathering and space systems.  The
company's high data rate communication, avionics, telemetry and
instrumentation systems and components are used to connect a
variety of airborne, space, ground-based and sea-based
communication systems.

Why we like it:
It wasn't all that long ago that Defense stocks were out of favor
in the wake of the expected quick victory in Iraq.  Since that is
old news, this group of stocks is back to trading on its own
merits and we can see the bullish trend in the Defense index
(DFI.X), which hasn't deviated from its ascending channel since
it began in early March.  Last week saw the index charge up to
test the $580 level and probably the only thing that held it back
was the top of that channel.  Well that, and the 61% retracement
of the 5/02-3/03 decline.  But the group looks strong and it
appears that it is only a matter of time until that resistance is
cleared and that will have the $600 level in play.  LLL hasn't
been rising at the same rate as the overall DFI index, but it has
been chugging along with a series of higher lows and higher
highs.  Blasting higher last Monday, the stock cleared the $48
resistance on a breakaway gap move and it is currently
threatening a breakout over $50.  The PnF chart is looking
extremely bullish with another Buy signal with the breakout over
$46.  The current vertical count is $64, so there's definitely
some room to run.

Any pullback into the $48-49 area looks like a gift of an entry
point right here, as the top of last week's gap and the 10-dma
($47.89) should provide solid support for the eventual breakout.
More conservative traders may want to wait for the break above
$50.50 before playing though, as that will get the stock over
last week's intraday highs, setting the stage for a run towards
next resistance at $52.  Look for renewed strength (preferably a
move over $580) from the DFI index before entering on a breakout
move.  There's also some solid resistance near $54, but we're
looking at a more extended target up at $58, which is the site of
the September-02 highs.  Setting our stop initially at $46.50,
should leave plenty of room for a modest pullback without risk of
being stopped out prematurely.

Suggested Options:
Shorter Term: The August 50 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 September 55 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 will want to use the September 50 Call.

*August Options Expire in Two Weeks!

BUY CALL AUG-50 LLL-HJ OI=1960 at $1.00 SL=0.50
BUY CALL SEP-50 LLL-IJ OI= 926 at $2.05 SL=1.00
BUY CALL SEP-55 LLL-IK OI=  44 at $0.50 SL=0.25

Annotated Chart of LLL:




Picked on August 3rd at    $49.90
Change since picked:        +0.00
Earnings Date            10/22/03 (unconfirmed)
Average Daily Volume =      962 K
Chart =



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

Black & Decker Corp - BDK - cls: 40.20 chg: -0.66 stop: 42.01

Company Description:
Black & Decker is a leading global manufacturer and marketer of
power tools and accessories, hardware and home improvement
products, and technology-based fastening systems.
(source: company press release)

Why We Like It:
The post-earnings depression in BDK continues albeit slowly.
Investors were unhappy with the quality of earnings and the 5%
decline in sales.  Shares of the fabled toolmaker have been
slowly deteriorating above support of $40.00 but we expect this
level to give soon.

Currently, OptionInvestor.com is still untriggered as we wait for
shares of BDK to trade or below our entry price of $39.99.  We're
certainly encouraged by the new failed rally at $41.00 on
Thursday, especially since we suggested more aggressive traders
consider new bearish positions on just such an occurrence.  If
our stop at $42.01 is too wide for you consider a stop above
Thursday's high or the simple 10-dma.

As mentioned in earlier updates the weekly chart shows
significant support near the $35.00 level while the daily chart
suggests some support near $38.00.  We're going to aim for $35.00
and see how it plays out.

Suggested Options:
We're going to list the September & November strikes but BDK also
has August and Februarys available.  The August strikes expire in
two weeks and BDK may move too slowly to make those worthwhile.
We're shifting our preference to September/Novembers.

BUY PUT SEP 40 BDK-UH OI=351 at $1.65 SL=0.85
BUY PUT SEP 35 BDK-UG OI= 30 at $0.35 SL= --
BUY PUT NOV 40 BDK-WH OI=166 at $2.45 SL=1.20
BUY PUT NOV 35 BDK-WG OI=281 at $0.80 SL= --

Annotated Charts:




Picked on July 29 at $xx.xx
Change since picked:  +0.00
Earnings Date      07/24/03 (confirmed)
Average Daily Volume:  731  thousand
Chart =


---

Fifth Third Bancorp - FITB - cls: 54.20 chg: -0.81 stop: 56.51 *new*

Company Description:
Fifth Third Bancorp is a diversified financial services company
headquartered in Cincinnati, Ohio. The Company has $88 billion in
assets, operates 17 affiliates with 943 full-service Banking
Centers, including 132 Bank Mart. locations open seven days a
week inside select grocery stores and 1,883 Jeanie. ATMs in Ohio,
Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee and
West Virginia. The financial strength of Fifth Third's affiliate
banks continues to be recognized by rating agencies with deposit
ratings of AA- and Aa1 from Standard & Poor's and Moody's,
respectively. Additionally, Fifth Third Bancorp continues to
maintain the highest short-term ratings available at A-1+ and
Prime-1 and is recognized by Moody's with one of the highest
senior debt ratings for any U.S. bank holding company of Aa2.
Fifth Third operates four main businesses: Retail, Commercial,
Investment Advisors and Fifth Third Processing Solutions.
(source: company press release)

Why We Like It:
Finally!  As expected FITB's series of lower highs and failed
rallies at its 200-dma and the $56.50 level have paid off with a
more significant drop.  Friday's move was a continuation of the
Thursday afternoon selling and shares paused near their 100-dma.
The weakness in the financial sector with the BIX and BKX both
closing below their respective 50-dma(s) on Friday is not good
news for the bullish investor.  FITB was already an under-
performer of the markets and the sector and now that we might see
more accelerated profit taking we expect this stock to out
perform to the downside.

For days we've been suggesting that more aggressive traders
target entries on failed rallies under $57.00.  They've had ample
opportunities.  Now that we have a strong close under $55.00 we
have an entry point for the rest of us.  We've lowered our stop
loss to $56.51 to reduce our risk.  There is potential support at
$52.50 and $51.00.

Suggested Options:
We're going to list the September and November options.  Our
preference would be for the $55 strikes but we'll list the 50's
as well.

*August Options Expire in Two Weeks!

BUY PUT SEP 55 FTQ-UK OI= 338 at $2.60 SL=1.30
BUY PUT SEP 50 FTQ-UJ OI= 420 at $0.80 SL= --
BUY PUT NOV 55 FTQ-WK OI= 444 at $3.90 SL=2.00
BUY PUT NOV 50 FTQ-WJ OI=7898 at $1.75 SL=0.90

Annotated Chart:




Picked on July 17th at $55.26
Change since picked:    -1.06
Earnings Date        07/15/03 (confirmed)
Average Daily Volume =    2.4 million
Chart link:


---

Freddie Mac - FRE - close: 48.10 change: -0.75 stop: 50.25*new*

Company Description:
Freddie Mac (Federal Home Loan Mortgage Corporation) is a
stockholder-owned corporation tht was established by Congress in
1970 to support home ownership and rental housing.  FRE purchases
single-family and multi-family residential mortgages and
mortgage-related securities, which it finances primarily by
issuing mortgage passthrough securities and debt instruments in
the capital markets.  The company guarantees these securities and
mortgage lenders sell their loans to the company and use the
proceeds to fund new mortgages, which in turn increases the money
supply to homebuyers.

Why we like it:
It took a couple tries to get the job done, but our FRE play
looks to have solidified its breakdown under $50, with Thursday's
failed rebound at that level and Friday's follow through with
another 1.5% loss to end just above $48.  This is the lowest
close for the stock since early June, and it looks encouraging
for a break of that level to continue down towards our $45 target
in the near future.  The opening spike below $48 looks like a bad
tick, as the rest of the day's action was just above there, so we
don't yet have the PnF Sell signal working in our favor, but odds
favor that occurring early next week.  Successive failed rebounds
below $50 (preferably below $49) look good for new entries into
the play, while momentum traders can jump onto the break below
$48.  The past few weeks have shown the 10-dma ($50.14) to be
acting as solid resistance, so our new stop at $50.25 should be
safe.  There is the possibility of support appearing near $47,
which defined the lows in June, but given the consistent weakness
in the bond market, that level should prove to be only a speed
bump on the way to our $45 target.

Suggested Options:
Short-term traders will want to focus on the August 50 Put, as it
will provide the best return for a short-term play.  Conservative
traders will want to utilize the September 50 Put, while
aggressive traders looking for a longer-term move down towards
$45 or below will want to utilize the September $45 contract, due
to its greater insulation against time decay.

*August Options Expire in Two Weeks!

BUY PUT AUG-50 FRE-TJ OI= 5598 at $2.60 SL=1.25
BUY PUT SEP-50 FRE-TU OI= 1768 at $4.00 SL=2.50
BUY PUT SEP-45 FRE-UU OI= 3201 at $1.65 SL=0.75

Annotated Chart of FRE:




Picked on July 22nd at    $50.33
Change since picked:       -2.23
Earnings Date           07/15/03 (confirmed)
Average Daily Volume =  7.35 mln
Chart =


---

The Home Depot - HD - close: 30.80 change: -0.40 stop: 32.00*new*

Company Description:
A home improvement retailer, The Home Depot operates more than
1500 stores throughout the United States.  The do-it-yourself
warehouse retail stores offer building materials, home
improvement products and related furnishings.  Additionally, the
company provides lawn and garden products and an assortment of
services to both individual home-owners and independent
contractors.

Why we like it:
It has taken a lot longer than we originally expected, but our HD
play is making consistent progress towards our initial target of
$30.  Shedding another 1.28% on Friday, shares of the home
improvement retailer finally gave us the close under $31.  The
10-dma ($31.61) appears to be providing resistance on an intraday
basis, as the stock continues to ride the lower Bollinger band
towards a confrontation with $30 support and the exponential 200-
dma ($29.85).  Failed rebounds below $31.50 can still be used for
aggressive entries, but we must keep in mind that after losing
ground every day last week, an oversold rebound may be just
around the corner.  We're managing our risk against such an event
by lowering our stop to $32 this weekend, which is just below
breakeven and above last week's best closing levels.
Conservative traders will want to harvest gains on a test of the
$30 level, while those willing to hold on through a bit of
volatility may want to hold on for the expected decline towards
our final target of $28.  Keep an eye on the action in both the
bond market and the Housing sector ($DJUSHB).  Strength in either
area of the market will likely produce a bounce in HD and we'll
want to see price action remain below the 10-dma to give us
confidence to hold open positions in anticipation of lower
levels.

Suggested Options:
Aggressive short-term traders will want to focus on the August 32
Put, as it will provide the best return for a short-term play.
Longer-term traders will want to utilize the September 30
contract due to its greater insulation against time decay.

*August Options Expire in Two Weeks!

BUY PUT AUG-32 HD-TZ OI=11174 at $1.95 SL=1.00
BUY PUT SEP-32 HD-UZ OI= 6054 at $2.60 SL=1.25
BUY PUT SEP-30 HD-UF OI= 1752 at $1.25 SL=0.60

Annotated Chart of HD:




Picked on July 10th at   $32.43
Change since picked:      -1.63
Earnings Date          08/19/03 (unconfirmed)
Average Daily Volume =  9.78 mln
Chart =


---

Merck & Co. - MRK - close: 54.22 change: -1.06 stop: 56.75*new*

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:
Providing entries for all tastes, MRK couldn't have performed
better for us last week if it had tried.  First up was a rebound
on Thursday that failed just below the 200-dma and that rollover
gave the first potential entry point.  Confirming the weakness
that was advertised by that rollover, the stock then proceeded to
break the $55 level at the open and then trade below $54.  The
remainder of the day consisted of tight-range trade around the
$54 level, with a close fractionally above that level.  But by
then, the damage was done, as the PnF bullish support line had
been violated and the trade at $54 gave a new Sell signal.  This
looks like the early stages of a solid breakdown and the
Pharmaceutical index (DRG.X) breaking below $315 support only
confirms that bearish outlook.  Successive failed rebounds below
$56 (preferably below $55) can be used for fresh entries, while
momentum traders coming to the party late can use a trade below
$53.50 (Friday's intraday low) as their entry trigger.  If
entering on further weakness, look for the DRG index to break its
200-dma ($308) as well.  Lower stops to $56.75 this weekend,
which is just above Thursday's intraday high and the 200-dma.

Suggested Options:
Short-term traders will want to focus on the August 55 Put, as it
will provide the best return for a short-term play.  Aggressive
traders looking for a sustained move down towards our $50 target
will want to utilize the September 50 contract, while more
conservative long-term traders will want to focus on the
September $55 strike.

*August Options Expire in Two Weeks!

BUY PUT AUG-55 MRK-TK OI= 5058 at $1.60 SL=0.75
BUY PUT SEP-55 MRK-UK OI= 1935 at $2.70 SL=1.25
BUY PUT SEP-50 MRK-UJ OI= 1737 at $0.80 SL=0.40

Annotated Chart of MRK:




Picked on July 29th at    $55.39
Change since picked:       -1.17
Earnings Date           10/20/03 (unconfirmed)
Average Daily Volume =  6.35 mln
Chart =


---

Progressive Corp - PGR - close: 65.40 chg: -0.59 stop: 67.26

Company Description:
The Progressive group of insurance companies ranks third in the
nation for auto insurance based on premiums written, offering its
products by phone at 1- 800-PROGRESSIVE, online at
progressive.com and through more than 30,000 independent
insurance agencies. (source: company press release)

Why We Like It:
We're still stuck in limbo with our put play on PGR.  The stock's
perilous plummet from north of $72.50 has halted at the $65 mark
and it won't budge.  Shares have been vacillating above this
support level but there is a definite trend of lower highs.
Thus, we believe that eventually sellers will overwhelm current
demand and send the stock lower.  However, given the stock's
stubborn opposition to another leg down we have been suggesting
that most traders wait for a strong move below the $65.00 mark
before initiating any new positions.

Suggested Options:
PGR has plenty of options to choose from.  Currently there are
August, September, November and Februarys to choose from. Our
preference will be for the September-November strikes with an
emphasis on August 65's.

*August Options Expire in Two Weeks!

BUY PUT SEP 70.00 PGR-UN OI= 14 at $5.70 SL=3.25
BUY PUT SEP 65.00 PGR-UM OI=111 at $2.55 SL=1.30
BUY PUT SEP 60.00 PGR-UL OI=176 at $0.95 SL= --
BUY PUT NOV 65.00 PGR-WM OI=292 at $3.70 SL=1.75
BUY PUT NOV 60.00 PGR-WL OI=200 at $1.90 SL=1.00

Annotated Chart for PGR:




Picked on July 23 at $65.22
Change since picked:  +0.18
Earnings Date      07/16/03 (confirmed)
Average Daily Volume:  941  thousand
Chart =



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

Anthem Inc. - ATH - close: 74.49 chg: -1.02 stop: 77.01

Company Description:
Anthem, Inc. is an Indiana-domiciled publicly traded company
that, through its subsidiary companies, provides health care
benefits to more than 11.7 million people. Anthem is the fifth
largest publicly traded health benefits company in the United
States and an independent licensee of the Blue Cross Blue Shield
Association. Anthem is the Blue Cross and Blue Shield licensee
for Indiana, Kentucky, Ohio, Connecticut, New Hampshire,
Colorado, Nevada, Maine and Virginia, excluding the immediate
suburbs of Washington, D.C. Anthem had assets of $12.9 billion as
of June 30, 2003 and full year 2002 revenue of $13.3 billion.
(source: company press release)

Why We Like It:
Day in and day out investors seem to be looking for the stocks
with good news and good fundamentals.  So along comes a company
like ATH who delivers both with strong earnings and a positive
outlook going forward and what do traders do?  They sell it!  Of
course that's not so surprising.  The stock is up strongly from
its $55 lows in February.  What we're witnessing is a simple
"sell the news" effect but we believe it could turn into some
sharper profit taking now that it looks like the broader markets
could dip lower.

ATH released its earnings numbers on the 31st of July and the
results were indeed positive.  The company beat estimates by 6-
cents.  Unfortunately for ATH and rivals like AET there appears
to be some disbelief that the HMO sector can continue to keep up
the breakneck pace of profits and new enrollments.  Looking at
the stock it's easy to see why technicians might be bearish.  ATH
is showing a strong double-top and shares just recent broke
through their rising 50-dma.  Not only that but they've broken
down though its rising channel and closed under support of
$75.00.  Volume has been strong the last three days due to
earnings but strong volume on big moves is what momentum traders
are looking for.  Weekly and daily oscillators are all rolling
over or are already pointing downward and its has a very ominous
looking bearish sell signal on its P&F chart.

We're going to suggest new positions at current price levels but
another failed rally at $76 wouldn't hurt either.  Our first
target is the $70 area but it's been suggested that ATH could
retest its 200-dma near $67.50.  Our initial stop will be $77.01,
near the 50-dma.

! Editor's note.  It is possible that the double top (with the
lower right top) and the recent lows could all be part of a big
bull flag consolidation pattern.  Traders who feel hesitant might
want to wait for a little more conviction and a push through
Friday's low.

Suggested Options:
ATH currently has August, September and December options
available but our preference is for the Septembers.

*August Options Expire in Two Weeks!

BUY PUT SEP 75 ATH-UO OI=2188 at $3.40 SL=1.70
BUY PUT SEP 70 ATH-UN OI= 448 at $1.60 SL=0.90
BUY PUT DEC 75 ATH-XO OI= 273 at $5.30 SL=3.25
BUY PUT DEC 70 ATH-XN OI= 462 at $3.30 SL=1.65

Annotated chart:



Picked on August 3rd at $74.49
Change since picked:     -0.00
Earnings Date         07/31/03 (confirmed)
Average Daily Volume:      1.1  million
Chart =



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The Option Investor Newsletter                   Sunday 08-03-2003
Sunday                                                      4 of 5


In Section Four:

Leaps: Key Reversal?
Traders Corner: Madam Butterfly's Beauty Spreads More Than
Profits


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*****
LEAPS
*****

Key Reversal?
By Mark Phillips
mphillips@OptionInvestor.com

Thursday's session was not a pretty one for the bulls, and I think
it could be argued that it was a key reversal.  Positive economic
news sent the shorts running for cover at the open, but after
churning along near the highs for most of the day it all came
tumbling down.  That left an awful big "gravestone doji" on the
daily chart and a look at the weekly chart shows critical support
being threatened and slow Stochastics (10,5,3 setting) finally
cracking below the overbought threshold for the first time since
entering that region in late April.  Could the much-anticipated
summer swoon finally be here?

I got rather carried away with my commentary last week and after
all the changes relative to plays this week, find myself running a
bit behind.  So I'll be brief, as I think there is one chart that
really tells the whole story.  It isn't much different than the
one we looked at last weekend, as I think the big picture is being
painted on the S&P 500.

It seems everyone is talking about the 50-dma of this stock or
that index lately.  The reason why is that a cross of that moving
average can often signal an important inflection point in the
market.  In the chart below, I've put on the standard 50-dma
($983) and 200-dma ($910) and as you can see, the 50-dma was
broken on Friday.  But the SPX is still trading within the bearish
descending wedge that has been building (with a few intraday
violations) since the middle of June.  So the big question is
whether the break of the 50-dma on Friday was really significant.
I don't think it was.  Oh, it wasn't irrelevant.  But I don't
think it is the "key" breakdown the market is waiting for.

Daily Chart of the S&P 500




In addition to the simple 50/200 moving averages, I've added
50/200 exponential moving averages, which apply a greater
weighting to the more recent data.  The important point is that
the 50-ema is currently $976.82, which is just above the bottom of
that bearish wedge.  I think that $975 level will be the key test
and I expect the bulls to try at least one more time next week to
defend it.  I think the different use of the 200-dma is critical
as well.  Looking back over the past several months, I can see a
decent case for the 911 area being solid support (along with it
being a significant psychological level), but I think the
exponential 200-dma ($939.50) may be more critical to the debate
on the longevity of this "bull market" we've been 'enjoying' these
past few months.  Note how the 940 level was a strong resistance
zone to push through on the way up and I suspect it may be again
on the way down.

But the battle right now has shifted to the wedge and the 50-dmas.
Rather than a slow and boring August, we may have our fireworks
showing up a month late!  I've been saying for weeks that I can't
see where the fuel for further upside in the market was going to
come from, but with market internals consistently strong, it has
been hard for the bears to make any progress either.  Turning to
the internals, I certainly don't see a dramatic weakening yet.
How many times have I said that in the past several weeks?  Too
many, that's for sure!  But turn to the bullish percent readings
and I think you'll agree.  Here's the updated table for the week.

NASDAQ-100 - 75% Still Bull Confirmed, down from the 91% high
NASDAQ Composite - 71.84% (just off the 73.50 all-time high)
DOW - 80% (Still in Bull Correction)
S&P 500 - 76.20% (Cycle high of 82.80% - Now Bull Correction)
S&P 100 - 82% (Just below cycle high, 11/98 all-time high = 84%)

It almost seems as though nothing really happened last week,
doesn't it?  We can turn to the Sharpcharts of bullish percent and
while we don't see any real renewal of strength, neither do I see
any significant weakness.  The DOW and COMPX are joining the
frustratingly slow declines in the SPX and NDX, but as you can
see, Mr. Market is still playing his hand very close to his chest.
Feel free to take a look for yourself at the following link.

http://stockcharts.com/def/servlet/SC.web?c=$bpspx,uu[w,a]dacaynay[dd][pb10][iLd20]&pref=G

Here are the pertinent Bullish Percent symbols.

DOW - $BPINDU
SPX - $BPSPX
OEX - $BPOEX
NDX - $BPNDX
COMPX - $BPCOMPQ

Aside from the setup that continues to taunt us in the SPX chart
above, I think the key development last week was the action in the
VIX.  Monday's session ended with the VIX below 20 for the second
day in a row, and it has shot significantly higher in the past few
days, ending at 22.78 on Friday.  While that is still historically
low, Friday's rise amounted to 7.25% and the VIX ended the week
with a gain of 14.2%.  I won't say that the VIX is heading
straight up from here, but I think we've seen the VIX low for this
cycle.

While we haven't seen a strong show of market weakness just yet,
I'm going to go out on a limb and say the top is in for this
market and say that it needs to come in and at least drop back to
a 38% retracement of its rally off the March lows.  I personally
think much lower levels are in order, but there is still far too
much bullishness among market participants for a strong downdraft
to materialize right now.  Faith in the fabled 2nd half recovery
will still keep this pig propped up for a while longer, but it is
only a matter of time until it comes crashing down to new lows.
For now, our task is to play the rather moderate downside between
now and October, as I suspect we'll see another bout of irrational
bullishness to round out the year.

Since I'm already running late on my deadline, we better get right
to the plays and update them accordingly.  Once again, it was a
busy week here.

Portfolio:

HD - Still moving in our favor, HD is being pressured by the
continued rise in bond yields, which is in turn impacting both the
Housing sector and the Retail sector.  The $DJUSHB index broke key
support on Friday and the Retail index (RLX.X) slipped below the
bottom of its rising channel.  At the same time, HD closed below
the $31 level for the first time since late May and a test of the
$30 level looks like it could arrive early next week.
Conservative traders may want to harvest some gains there, but
we're going to try to hold on for a decline down to the $28 level.
Note that the 200-dma is at $27.11 and the 50% retracement of the
January-June rally is at $27.41.  Our stop is now set at $32.50,
which is the site of the 20-dma and just over what should be
strong resistance at $32.  Once the stock breaks below $30, that
stop should be trailed to $32.

SMH - The Semiconductor index (SOX.X) is holding up better than
just about any other area of the Technology market and once again
last week, the SOX rebounded from just above the bottom of its
ascending channel.  Correspondingly, the SMH is looking a lot
stronger than we'd like to see, as it continues to hold in the
upper half of its own channel, finding support just above the 20-
dma ($31.77).  We need to see a close below that moving average
and preferably $31.50 before we'll be able to breathe on this play
again.  Thursday's early surge had the SMH trading over our $33
stop, so I recognize that some of you may have been stopped out of
the play.  I wouldn't be in a hurry to re-enter the play until we
see some definite signs of weakness.  Once they emerge, even if
we've already been stopped out officially, I'll be looking to get
right back in due to my bearish expectations for the sector
through the end of the year.

ADBE - I guess we'll have to call that a false breakdown for now,
as ADBE's drop below $32 on Wednesday met with an immediate
rebound and the stock is now hugging the bottom of its broken
trendline.  I still feel bears have control here, but only by the
narrowest of margins.  The next key test on the downside will be
the 200-dma near the pivotal $30 support level.  With the PnF
chart now clearly on a Sell signal (target $21) there's certainly
plenty of bang for the buck in this bearish play.  But first the
bears are going to need to accomplish that trade at $30, which
will accomplish 2 important goals -- it will generate another PnF
Sell signal and break below the bullish support line.  For now, we
need to remain cautious, keeping our stop in place and waiting for
selling pressure to pick up again.  Maintain stops at $36.50.

DJX - Hey, we finally got our entry!  Patient traders should be
thrilled.  Details below.

Watch List:

LEH - This is looking like another missed opportunity to me, with
the Brokerage index (XBD.X) cratering under $550 support on Friday
and LEH finally losing the $63 support near its 50% retracement of
the March-June rally.  Friday's decline dropped LEH all the way to
the $61 and the stock is nearing what should be strong support at
both the 62% retracement ($60.40) and the 200-dma ($60.46).  We'll
need to watch for the oversold rebound and see how high it carries
before deciding whether there is still a future in the downside on
LEH or if we ought to just remove it from consideration.  For now,
I'm leaving the entry target set at $66-67.

RIMM - Wow!  That's a big move and clearly we're removing the
stock from consideration this weekend.  See below for details.

Radar Screen:

LEN - Too much time waiting for a better entry point and I missed
this play.  It would have worked out nicely, but I arrived at the
party a bit too late.  Now that the stock is nearing major support
and is nearly $20 below its June high, I think it is best to
remove it from consideration.

GM - We're starting to see some weakness in the DOW (hence our new
Portfolio play), but something about GM just doesn't feel right.
Even in the wake of lackluster earnings and disappointing sales
numbers last week, the stock continues to meander aimlessly
between $35-38.  I am of the view that next quarter will actually
see the company lose money on its automotive manufacturing
business and with the sharp rise in interest rates, I think the
GMAC financing arm is going to get pinched hard as well.  With
profits getting squeezed on both ends, it will be interesting to
see how the company handles the continuing problem of its pension
underfunding.  But we need a more favorable price point in order
to play.  In actuality, I would have put GM on the Watch List this
weekend, but simply ran out of time.  So long as price continues
to meander in this range, look for GM on the Watch List next
weekend.  We'll still be targeting a failed rebound in the $39-40
area.

XL - Another missed opportunity, as XL cratered in response to its
earnings report.  My target for the play would have been in the
$70-72 area, and with the stock ending the week at $75, there just
isn't a favorable risk/reward ratio for us.  Hopefully next time I
can be quicker on the draw.

Closing Thoughts:

The Radar Screen is a bit anemic this weekend as I ran out of time
with all the new play writeups.  But we'll look to fill it up
again next weekend.  In retrospect, I should have put both LEN and
XL on the Watch List last weekend, as we'd be sitting on some nice
paper gains tonight.  Fortunately there's always another
opportunity lurking just around the corner!

Even though we really haven't seen it confirmed either by price
action or internal weakening yet, reading between the lines, I
think the market is getting ready to tip over and there are likely
to be some modest profits to be had between now and the seasonal
October bottom.  I've been leaning to the downside for so long I
feel like I have a permanent crick in my back, but I want to make
sure that I'm clear on my expectation that this is not going to be
a major slide.  I view this impending downward move as a
correction in the overall bullish move, which may very well
continue through early 2004.  We'll take what the market gives us
on the way down and then start looking for some bullish plays once
we've seen that 38% retracement we've been expecting.

Have a great weekend!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
None

Puts:
HD     07/09/03  '04 $ 32  HD -MZ  $ 2.45  $ 3.60  +46.94%  $32.50
                 '05 $ 30  ZHD-MF  $ 3.20  $ 4.20  +31.25%  $32.50
SMH    07/09/03  '04 $ 30  SMH-MF  $ 2.70  $ 2.30  -14.81%  $33.00
                 '05 $ 30  ZTO-MF  $ 5.00  $ 4.50  -10.00%  $33.00
ADBE   07/17/03  '04 $ 35  AEQ-MG  $ 4.20  $ 5.10  +21.43%  $36.50
                 '05 $ 35  ZAE-MG  $ 7.20  $ 7.90  + 9.72%  $36.50
                 '06 $ 35  WAE-MG  $ 9.00  $ 9.50  + 5.56%  $36.50
DJX    07/31/03  '03 $ 92  DJV-XN  $ 3.80  $ 4.80  +26.32%  $95.50
                 '04 $ 92  YDK-XN  $ 8.20  $ 9.00  + 9.76%  $95.50


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
None


PUTS:
LEH    07/20/03  $66-67        JAN-2004 $ 65  LEH-MM
                               JAN-2005 $ 65  ZHE-MM
                               JAN-2006 $ 60  WHE-ML
BBH    08/03/03  $135-137      JAN-2004 $130  BBH-MF
                               JAN-2005 $125  XBB-ME
                               JAN-2006 $120  YEE-MD
WMT    08/03/03  $57-58        JAN-2004 $ 55  WMT-MK
                               JAN-2005 $ 55  ZWT-MK
                               JAN-2006 $ 55  WWT-MK


New Portfolio Plays

DJX - Dow Jones Industrials $92.34  **Put Play**

We certainly had to exercise the patience of Job to finally get a
decent entry in this play, as it has been lurking on the Watch
List since early May.  But I think we finally got enough stars to
align in our favor on Thursday and if this play doesn't work, it
will certainly go against a lot of what I understand about
Technical Analysis.  We had to wait nearly two months for the
retest of the $93.50 level, but it finally arrived on Thursday,
with the DJX tagging $93.61, just slightly exceeding the top on
June 17th.  But the market internals are definitely more in our
favor than they were in mid-June.  The insane levels of new highs
vs. new lows has abated significantly, the DOW Bullish Percent has
finally reversed to Bull Correction at 80%, we've seen the VIX
edge just below the 20 level and it rose sharply on Friday, giving
a bit more conviction to the bears.  On top of all that, it looks
like we have the setup for a double top on the DJX and some
downside follow-through next week will give us some bearish
divergence on the weekly Stochastics (5,3,3 setting).  It has
certainly been an irrational market these past couple months and
the possibility exists for the weakness we saw late last week turn
on a dime.  But this is probably as good as the technical setup
for a bearish position trade on the DOW is going to get.  Another
failed bounce below Thursday's intraday high can be used for
entries and we're starting with our stop set at $95.50, just above
the 50% retracement of the entire bear market decline.  We really
shouldn't see that level broken, especially given Thursday's DOW
Theory non-confirmation, with the DOW once again failing to
confirm the Transports break of the June highs.  The first
significant milestone for the play will be a break below the 50-
dma (currently $90.67), then a close under $90.  There may be some
mild support found near $87, but once the $90 level is broken, the
DJX ought to seek out strong support at $85 before being able to
stage more than a weak rebound.

BUY LEAP DEC-2003 $92 DJV-XN $3.80
BUY LEAP DEC-2004 $92 YDK-XN $8.20


New Watchlist Plays

BBH - Biotechnology HOLDR $132.50  **Put Play**

A few words of caution before we even dive in here.  This is a
very aggressive play, where we're looking to pick a top in what
has been a very strong sector that is not as susceptible to the
downward tug of economic weakness.  That said, the continued
inability of the Biotechs (as measured by BBH) to push measurably
higher than the $135 resistance level we've been monitoring
deserves attention.  The slower (10,5,3) weekly Stochastics have
been buried in overbought for since the middle of April, and there
is very strong resistance looming at the $140 level.  In fact,
connecting the weekly closing highs from June and November of 2001
produces a slightly descending trendline that exactly nailed last
week's high of $137.  While there are a lot of factors that
indicate IMPENDING weakness, we haven't seen it yet, and that is
what makes this a more risky play.  While the original PnF bullish
price target was only $114 and BBH has gone well beyond that, we
will need to see a trade at $120 just to give the first sign of
weakness with a Sell signal on the PnF chart.  I want to get in
ahead of that event, so I'm targeting another failure to penetrate
the $135-137 area.  In keeping with the aggressive nature of the
play, we're going to have to work with a liberal stop as well, and
I'm starting coverage with a stop at $145, just above the June
2001 high.  I think the aggressiveness in the play is warranted,
as a trade at $120 would give a bearish price target of $102.  If
achieved, that would make the risk eminently worthwhile.  Note
that the strikes I've listed proceed progressively further out of
the money as we go forward in time.  This is one way of mitigating
risk in the play, as with more time in the '05 and '06 LEAPS and
with them being further out of the money, an adverse move will do
less damage to our position value.  By the same token, it means
we'll need a larger move in our favor to start seeing the position
pay off, but I think there is more than enough time available for
that to occur.

BUY LEAP JAN-2004 $130 BBH-MF
BUY LEAP JAN-2005 $125 XBB-ME
BUY LEAP JAN-2006 $120 YEE-MD

WMT - Wal Mart Stores $55.27  **Put Play**

I know I've been making cautionary statements about playing the
downside in shares of WMT in recent weeks due to my expectation of
a run at the descending trendline on the weekly chart at $60.  But
based on last week's price action, I no longer have faith in such
a move unfolding.  One key to my change in perception was the
price action late last week in both WMT and the Retail index
(RLX.X).  The RLX has been working higher in an ascending channel
that began in early April, and for the first time on Friday, it
closed below the bottom of that channel.  Rising bond yields are
going to have a very negative impact on the refi boom (I think it
already is) and that is going to put the pinch on consumers'
discretionary spending, despite the tax cut.  The intraday
reversal on Thursday looked particularly bearish, for both WMT and
the RLX, with both showing a trend of lower highs for the past few
weeks.  But it should be perfectly clear that we have yet to see
anything that could be called a significant breakdown.  The first
thing along those lines that is likely to materialize is for WMT
to break and close below its 50-dma (currently $54.84).  Before
that happens though, I hope we get served up a favorable entry
point in the form of a failed rally below the $57-58 area.  Weekly
Stochastics (10,5,3) are just starting to roll at a lower low than
the last upward cycle and should that rollover complete, we'll
have a nice bearish divergence setup with higher price highs and
lower Stochastics highs.  Once support decisively breaks, the
first objective will be a drop to the 200-dma just under $53.  But
our real goal for the play will be for a drop to the $48 area to
test the ascending trendline connecting the July 2002 and March
2003 lows.  I want to leave plenty of room for the play to gyrate
before really picking up steam to the downside, so initial stops
will be set at $61, just above that dominant descending trendline.

BUY LEAP JAN-2004 $55 WMT-MK
BUY LEAP JAN-2005 $55 ZWT-MK
BUY LEAP JAN-2006 $55 WWT-MK

Drops

RIMM - $27.28 Wow!  That was amazing AND unexpected!  We were
looking for a bearish play in shares of RIMM just a week ago, and
that plan got blown totally out of the water on Thursday and
Friday as the stock exploded upwards on very heavy volume.  The
only "news" to which the move can be attributed is a rumor that
HPQ is considering a takeover bid.  Talk about dodging a bullet!
For those of you wondering why we didn't take an entry into the
play on the rollover early in the week from the prescribed $23
area, it goes back to the old volume rule.  RIMM had rallied
strongly on robust volume the prior week, bringing it right up to
resistance.  The rollover from that resistance came on anemic
volume, indicating that there was no conviction to the drop.  Once
again, paying attention to volume kept us out of trouble.
Needless to say, it's better to retire this play candidate from
consideration with the volatility that is likely to surround the
stock until the takeover rumor is either confirmed or refuted.


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

Madam Butterfly's Beauty Spreads More Than Profits
By Mike Parnos, Investing With Attitude

While living in NYC, I heard about a woman known to the informed
public as "Madam Butterfly."  Curiously enough, the mention of her
name did not inspire thoughts of the "butterfly" options trading
strategy.

She was reputed to have a unique skillset that generated
substantial profits along with an equal amount of pleasure. Hers
was more of a "hands on" strategy than our typical CPTI "hands
off" strategies.  Both, however, can yield an appealing "end"
product.

I can't elaborate upon Madam Butterfly's successful methods (trade
secrets, you know). We'll have to leave her skills to your
imagination.  I can, however, go into some depth on our
"butterfly" options strategy.
______________________________________________________________

The market has been churning lately.  It wants to go higher.  It's
made a real nice move, but it seems to have stopped.  Maybe it's
taking a breather before  resuming its climb.  Maybe it simply
went too far too fast and will move back down a bit.

While the market is banging its head against resistance,
regrouping and trying again, not much progress is being made.  As
we've seen in the past, when the market goes into consolidation
mode, it doesn't kid around.  It may stay in the range for months.

The Butterfly
This is a passive-aggressive method to make money in a
directionless market.  It’s a safe way to take advantage of
premium decay.  The risk reward is very attractive.  It’s a great
strategy for CPTI students to add to their trading arsenals.  They
probably call it a "butterfly" because it's a beautiful thing with
it works.

Butterfly spreads can use either puts or calls and can be long or
short.  It doesn’t really matter which.  The risk/reward profiles
are the same.  So, you should price it out both ways and,
obviously, use the method that provides you with the higher credit
(short butterfly) or the lowest debit (long butterfly).

To simplify things, we’ll use call options in our first butterfly
example.  We'll address other types of butterfly spreads in future
columns.  A “Call Butterfly” consists of:
1.  The purchase of 1 in-the-money (ITM) call option
2.  The sale of 2 at-the-money (ATM) call options.
3.  The purchase of 1 out-of-the-money (OTM) call option

All options will have the same expiration.  The object is to take
advantage of the higher premiums in the ATM calls, and use those
to pay for the other long calls.  If it works out, the risk will
be minimal and the potential rewards worthwhile.

Don’t be too early to the party.  No need to be there before the
bar opens.  Butterflies work best when the time exposure is
limited.  The less time with your assets exposed, the fewer bad
things can happen.

Today’s Example:
Surprise, surprise.  We’re going to use our favorite trading
vehicle – the QQQs as our hypothetical example.  Friday they
traded at about $31.50.  We can expect the QQQs to bounce around a
bit, but we’re only going to be in this position for two weeks.

Okay, let’s make a butterfly that would make Madam Butterfly
proud.  Prepare for take-off.   A "butterfly" spread consists of a
“body” and two “wings.”  Do we have any volunteers to be the body?
The wings?
We’re going to:
a)  Buy 1 contract – QQQ Aug. 29 calls @ $2.60 = ($2.60) – a
“wing”
b)  Sell 2 contracts –  QQQ Aug. 31 calls @ $1.00 = $2.00 – the
“body”
c)  Buy 1 contract – QQQ Aug. 33 calls @ $.20 = ($.20) – a “wing”

Our cost, and maximum risk, is $.80 – or $80 per contract.  The
maximum profit is the difference between the body strike $31 and
either wing less the initial debit.  That’s is $2.00 less $.80 =
$1.20.  Maximum profit is achieved if the QQQs finish at exactly
$31.  You profit if the QQQs finish anywhere between $29.80 and
$32.20.

The “What If” Analysis . . .
As CPTI students know, the only way to understand a strategy is to
examine all possible scenarios.  So let’s analyze this puppy.

What if the QQQs finish at $27?
a)  Aug. $29 call expires worthless; b)  Both Aug. $31 calls
expire worthless; and c)  Aug. $33 call expires worthless.  You
experience the maximum loss of $.80.

What if the QQQs finish at $30.25?
a)  Aug. $30 call is worth $1.25; b) Both Aug. $31 calls expire
worthless; and c) Aug. $33 call expires worthless.  You make a
profit of $.45 ($1.25 less initial $.80 debit).  Now $.45 doesn’t
sound like much, but what was the risk?  $.80.  That’s a 56.25%
return on risk.

What if the QQQs finish at $32.00?
a)  Aug. $29 call and one Nov. $31 call are exercised – Yielding
$2.00; b) The other short Aug. $31 call must be bought back for
$1.00 (leaving $1); and c) Aug. $33 call expires worthless.  You
make a profit of $.20 ($2.00 less $1.00 buyback less $.80 initial
debit).  Again, it may not seem like a lot, but it’s still a 25%
return on risk for only two weeks of exposure.

What if the QQQs finish at $33.75?
a)  Aug. $29 call and one Aug. $31 call are exercised – yielding
$2.00:  b) The other Aug. $31 call and the Aug. $33 call are
exercised – costing $2.00.  The $2.00 profit and $2.00 debit
cancel each other out and you experience the loss of the initial
$.80 debit.

The butterfly, as you can see, is a commission intensive spread.
So, if you’re still using a full service broker who charges $5 a
contract, you need to figure these commissions into your
calculations.

A butterfly spread may also yield a seemingly small profit.  If
you decide to partake, it may be wise to do a large number of
contracts to minimize the effect of commissions.  You won’t make a
killing, but, if you’re right, the percentage return is very
healthy – and it's a very "hands off" strategy.

Watch for stocks trending sideways, or consolidating in a range –
possibly in the handle of a cup-and-handle formation.  Try to use,
for the body of your butterfly spread, option strikes that have
the largest open interest.  As we’ve discussed, market makers like
to move their stocks towards the high open interest strikes.

You'll find that the longer you're exposed to the market, your
initial cost is a little less.  The same butterfly spread for
September would cost only about $.60.  The maximum potential
profit thereby becomes $1.40.  The problem is that the exposure
has increased from two weeks to seven weeks.
____________________________________________________________

AUGUST CPTI PORTFOLIO TRADES

August Position #1 – BBH Iron Condor – Closed at $132.56
We sold 10 contracts of BBH August $125 puts @ $1.45 and bought 10
contracts of BBH August $120 puts @ $.80 for a net credit of $.60.
We also sold 10 contracts of BBH August $140 calls @ $1.75 and
bought 10 contracts of BBH August $145 calls @ $.85.
We have a maximum profit range of $125 to $140 with a total credit
of $1,550.   Our risk is $3,450.  At $132.56, we're comfortably
positioned – smack dab in the middle of our range.

August Position #2 – LLTC Sell Straddle – Closed at $37.15
We sold 10 contracts of LLTC August $35 call @ $1.45 and sold 10
contracts of LLTC August $35 put @ $2.40 for a total credit of
$3.45. Our maximum profit can be about $3,450 if LLTC finishes at
$35.  Our profit range is from $31.55 to $38.45.  Our bailout
points are at the parameters of the profit range.  At $37.15,
we're still in pretty good shape, but there's still a long way to
go.

August Position #3 – SPX Iron Condor – Closed at 980.15
This is a slightly more aggressive position than usual.  Why?  The
range is smaller.  Also, note the different number of contracts we
use for the calls and the puts.

We sold 3 contracts of the SPX August 1025 calls and bought 3
contracts of the August 1050 calls for a net credit of $3.70
($1,110).  Then, we'll sold 6 contracts of the August SPX 960 puts
and bought 6 contracts of the August SPX 950 puts for a net credit
of $2.00 ($1,200).  The total credit was $2,310 – and that's our
maximum profit.  I reduced the number of contracts on the bear
call spread because there's a $25 exposure.  As of Friday's close,
SPX did not have call strike prices between 1025 and 1050.
Monday, no additional strikes were opened, so we went with the
original plan.  Thus far, no additional strikes, between 1025 and
1050 have been opened.  The SPX closed at 980.15 – comfortably
within our range.
______________________________________________________________

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

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

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


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The Option Investor Newsletter                   Sunday 08-03-2003
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Q&A With The Covered-Calls Editor
Naked Puts: Fundamentals Of Success
Spreads/Straddles/Combos: Stocks Retreat As Employment Data Stalls
Recovery Hopes

Updated In The Site Tonight:
Market Posture: Simon Says, "Sideways! Seek profits while you still
can!"


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

Trading Basics: Q&A With The Covered-Calls Editor
By Mark Wnetrzak

One of our new readers wants to know how much he can expect to
earn on a consistent basis with the covered-calls strategy.


Attn: Covered-Calls Editor
Subject: Strategy Selection

Mark,

Just one question:  Is it realistic thinking [that] someone
could generate a 3% or more monthly return on average doing
covered calls with say $100,000 or $1,000,000?

Thanks for all you do.

KR


Hello KR,

The success of any trading strategy, whether it is aggressive or
conservative, will always depend on money-management discipline.
In-the-money covered calls simply offer a higher probability
of profit that requires no movement in the underlying equity.
The fact that it is really difficult to predict stock movement
(look at some of the wild moves the last few days) reinforces
our reasoning for choosing to hedge stock ownership with ITM
covered writes.  The key to this strategy is the "magic" of
compound interest and Lawrence McMillan, the "guru" of option
trading strategies, suggests looking for a minimum return of 1%
(2% with margin) per month, with downside protection of at least
10%, because it will force one to choose ITM covered-calls.  The
answer, then, is "Yes, it is a viable strategy but it requires
a very disciplined approach."

The ITM covered-write strategy is best for conservative traders
who prefer to target the higher probability of obtaining an
acceptable return, which correlates with a low risk-reward
tolerance.  It doesn't guarantee success, as there is risk of
loss in all trading.  Some of the candidates we profile will
experience catastrophic losses and, as the professionals say,
"Trading, whether buying stock, shorting, writing covered-calls,
etc., is hard work and can be quite difficult when the markets
change character."  The key is to know intimately all aspects of
any strategy you intend to use so that you can react when things
don't go as planned.  Larry McMillan's popular book "Options: As
A Strategic Investment", is very informative on the subject of
covered-calls and is highly recommended by experienced traders.

Good Luck,

Mark W.


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

SLNK    15.40   18.38  AUG 15.00  1.15    0.75*   7.6%
IMCL    39.86   39.00  AUG 35.00  6.40    1.54*   6.7%
BEAS    12.79   13.07  AUG 12.50  1.00    0.71*   6.5%
CYBX    23.38   29.31  AUG 20.00  4.40    1.02*   5.8%
BONZ    15.28   16.26  AUG 15.00  0.85    0.57*   5.7%
SSTI     5.47    6.12  AUG  5.00  0.75    0.28*   5.2%
CHINA   13.48   11.99  AUG 10.00  4.00    0.52*   4.8%
DRIV    21.98   21.00  AUG 20.00  2.80    0.82*   4.6%
MOGN    31.97   38.85  AUG 30.00  2.90    0.93*   4.6%
EXTR     5.75    6.16  AUG  5.00  0.95    0.20*   4.5%
CY      13.84   14.30  AUG 12.50  1.95    0.61*   4.5%
INSP    15.52   15.97  AUG 15.00  1.20    0.68*   4.1%
RFMD     5.89    7.59  AUG  5.00  1.15    0.26*   4.0%
ANEN    10.75   11.05  AUG 10.00  1.10    0.35*   3.9%
ABGX    13.05   12.22  AUG 12.50  1.15    0.32    3.9%
STEL     8.25    7.17  AUG  7.50  1.10    0.02    0.2%
INET     5.08    4.61  AUG  5.00  0.45   -0.02    0.0%
THOR    16.35   14.32  AUG 15.00  1.95   -0.08    0.0%
ROXI     7.99    6.98  AUG  7.50  0.90   -0.11    0.0%
AW      12.55   10.83  AUG 12.50  0.60   -1.12    0.0%
OIIM    17.90   14.48  AUG 17.50  1.20   -2.22    0.0%

*   Stock price is above the sold striking price.

Comments:

Is the beast we call the "Market" having an identity crisis?  Good
news appears no longer to be the catalyst it was a few months ago.
Maybe it is time to be a bit more defensive?  In the model covered-
call portfolio, a few issues have suffered from a "sell-the-news"
post-earnings drop:  Allied Waste (NYSE:AW), O2Micro (NASDAQ:OIIM)
and Roxio (NASDAQ:ROXI).  OIIM will be shown closed next week.  AW
and ROXI are also strong candidates for an early exit and will be
shown closed on further weakness, as both stocks are testing their
50-day EMAs.  Of course, adjusting the position by rolling forward
and/or down could also be a viable choice for those investors with
a longer-term neutral-to-bullish outlook.  Other candidates on our
early-exit watch list include:  Abgenix (NASDAQ:ABGX), Stellent
(NASDAQ:STEL), Instinet (NASDAQ:INET) and Thoratec (NASDAQ:THOR).

Positions Previously Closed:  Boston Communications (NASDAQ:BCGI)


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

IMGN    5.05  AUG  5.00  GMU HA  0.50  184     4.55  14  21.5%
ISPH   12.75  AUG 12.50  JPU HV  0.80  155    11.95  14  10.0%
CHIC   12.51  AUG 12.50  UYC HV  0.55  206    11.96  14   9.8%
DPMI   20.43  AUG 20.00  DUD HD  1.10  25     19.33  14   7.5%
DIGE   32.50  AUG 30.00  QDG HF  3.40  280    29.10  14   6.7%
AFFX   23.30  AUG 22.50  FIQ HX  1.45  3351   21.85  14   6.5%
NAV    40.59  AUG 40.00  NAV HH  1.75  1714   38.84  14   6.5%


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).

*****
IMGN - ImmunoGen  $5.05  *** Aventis Deal! ***

ImmunoGen (NASDAQ:IMGN) is a developer of antibody-based cancer
therapeutics.  Its proprietary, tumor-activated prodrug (TAP)
technology combines extremely potent, small-molecule drugs with
monoclonal antibodies that recognize and bind specifically to
tumor cells.  The company licenses its TAP technology to other
companies for use with their antibodies.  IMGN also uses its
proprietary TAP technology in conjunction with its in-house
antibody expertise to develop its own anti-cancer products.
ImmunoGen has technology out-license agreements with Genentech,
Millennium Pharmaceuticals, Abgenix, and Boehringer Ingelheim,
which permit these companies to use its TAP technology with
their antibodies to develop their own TAP products.  Shares of
ImmunoGen soared on Thursday after the company said that the
drug maker Aventis will pay as much as $99 million in research
funding for rights to develop and commercialize its experimental
cancer drugs.  We simply favor the bullish break-out on heavy
volume and investors who wouldn't mind owning ImmunoGen can
use this position to speculate on the company's future.  The
company will report earnings on August 7.

AUG-5.00 GMU HA LB=0.50 OI=184 CB=4.55 DE=14 TY=21.5%


*****
ISPH - Inspire Pharma  $12.75  *** FDA Priority Review! ***

Inspire Pharmaceuticals (NASDAQ:ISPH) is a development-stage
company engaged in the discovery and development of novel
pharmaceutical products that treat diseases characterized by
deficiencies in the body's innate defense mechanisms of mucosal
hydration and mucociliary clearance, as well as other non-mucosal
disorders.  The company's technologies are based, in part, on
exclusive license agreements with The University of N.C. at Chapel
Hill.  The company has five product candidates, all of which are
P2Y2 receptor agonists, in clinical development.  These include
diquafosol tetrasodium (INS365) for the treatment of dry eye
disease; INS37217 Intranasal for upper respiratory disorders;
INS316 Diagnostic to aid in the diagnosis of lung cancer and
lung infection; INS37217 Respiratory for the treatment of cystic
fibrosis, and INS37217 Ophthalmic for the treatment of retinal
disease.  Inspire jumped higher on Thursday after the company
said the FDA granted a priority review of the drug company's
treatment for dry eye, a painful condition that affects about
10 million Americans.  Traders can use this position to
speculate on the near-term performance of the issue.

AUG-12.50 JPU HV LB=0.80 OI=155 CB=11.95 DE=14 TY=10.0%


*****
CHIC - Charlotte Russe  $12.51  *** Bracing For A Rally ***

Charlotte Russe Holding (NASDAQ:CHIC) is a mall-based specialty
retailer of fashionable, value-priced apparel and accessories
targeting young women between the ages of 15 and 35.  The company
has two distinct, established store concepts, Charlotte Russe and
Rampage.  The company's Charlotte Russe stores offer fashionable,
affordable apparel and accessories that have been tested and
accepted by the marketplace, thus appealing to women who prefer
established fashion trends.  The company's Rampage stores feature
emerging fashion trends and thus appeal to women who have a flair
for making fashion statements and who want to create a cutting-edge
look.  As of September 28, 2002, the company operated 197 Charlotte
Russe stores, 44 Rampage stores and 10 Charlotte's Room stores
throughout 34 states and Puerto Rico.  CHIC rallied in the middle
of July after Banc of America raised its rating on the company
from "neutral" to a "buy."  Our outlook is also bullish, due to
the recent technical strength and this position offers a short-
term, low-risk cost basis in the issue.

AUG-12.50 UYC HV LB=0.55 OI=206 CB=11.96 DE=14 TY=9.8%


*****
DPMI - Dupont Photomasks  $20.43  *** Bottom Fishing!  ***

Dupont Photomasks (NASDAQ:DPMI) is a world-wide provider of
microimaging solutions, developing and producing advanced
photomasks, a key enabling technology used in the manufacture
of semiconductor and other microelectronic devices; pellicles,
the protective covers for photomasks, and electronic design
automation (EDA) software.  Photomasks, also called masks, are
high-purity quartz or glass plates containing precise, microscopic
images of integrated circuits that are used as masters, similar
to negatives in a photographic process, to optically transfer the
image of circuit patterns onto semiconductor wafers during the
fabrication process.  DPMI is developing a suite of software tools
that ensures manufacturability of deep subwavelength designs during
the design phase, and these products will significantly reduce the
design cycle time of ICs.  DPMI has been in a Stage I base for
over a year with strong support around $19.  Investors who retain
a bullish long-term outlook on the company can use this position
to establish a relatively low-risk cost basis in the issue.

AUG-20.00 DUD HD LB=1.10 OI=25 CB=19.33 DE=14 TY=7.5%


*****
DIGE - Digene  $32.50  *** ACOG Recommended!  ***

Digene (NASDAQ:DIGE) develops, manufactures and markets proprietary
gene-based testing systems for screening, monitoring and diagnosis
of human diseases.  Its primary focus is in women's cancers and
infectious diseases.  The firm has applied its proprietary Hybrid
Capture technology to develop a unique diagnostic test for human
papillomavirus, which is the primary cause of cervical cancer and
is found in greater than 99% of all cervical cancer cases.  In
addition to its HPV Test, the company's product portfolio includes
gene-based tests for detecting chlamydia, gonorrhea, hepatitis B
virus and cytomegalovirus.  Digene exploded higher on Thursday
after the American College of Obstetricians and Gynecologists
(ACOG) recommended using Digene's HPV test, which was recently
approved by the FDA, to screen for cervical cancer.  The rally
on heavy volume suggest further upside potential and investors
can use this position to speculate on that outcome.

AUG-30.00 QDG HF LB=3.40 OI=280 CB=29.10 DE=14 TY=6.7%


*****
AFFX - Affymetrix  $23.30  *** Genomic Research Giant! ***

Affymetrix (NASDAQ:AFFX) is a company engaged in the development,
manufacture, sale and service of systems for genetic analysis in
the life sciences.  The company has developed and intends to
establish its GeneChip system and related microarray technology
as the platform of choice for acquiring, analyzing and managing
complex genetic information.  The company's integrated GeneChip
platform consists of disposable DNA probe arrays containing gene
sequences on a chip, certain reagents for use with the probe
arrays, a scanner and other instruments to process the probe
arrays, as well as software to analyze and manage information
from the probe arrays.  AFFX's related microarray technology
includes instrumentation, software and licenses for fabricating,
scanning and collecting and analyzing results from low-density
microarrays.  Affymetrix reported a 2nd-quarter profit on July 23
due to lower expenses and higher sales of its gene chips and
instruments.  The company also projected 3rd-quarter revenue of
$68 million to $73 million and net income of 7 cents to 9 cents
per share.  Investors who want to own a popular issue in the
genomic group should consider this position.

AUG-22.50 FIQ HX LB=1.45 OI=3351 CB=21.85 DE=14 TY=6.5%


*****
NAV - Navistar  $40.59  *** Hot Sector! ***

Navistar International (NYSE:NAV) is a holding company whose
principal operating subsidiary is International Truck and Engine
Corporation.  The company operates in three principal industry
segments: truck, engine and financial services.  The truck segment
is engaged in the manufacture and marketing of class five through
eight trucks, including school buses, and operates primarily in
the U.S. and Canada, as well as in Mexico and other selected
export markets.  The engine segment is engaged in the design and
manufacture of mid-range diesel engines and operates in the U.S.,
Brazil and Argentina.  The financial services operations provide
wholesale, retail and lease financing for new and used trucks
sold by the NAV's subsidiary and its dealers.  The financial
services operations consist of Navistar Financial Corporation
and the company's foreign finance and insurance subsidiaries.
While analysts are seeing increased demand for trucks, investors
have been driving Navistar's share price to new 52-week highs.
The recent price history of NAV reveals one of the better charts
(Jinx?) we've seen in the broader-market groups and investors who
want to diversify their portfolio should consider this position.

AUG-40.00 NAV HH LB=1.75 OI=1714 CB=38.84 DE=14 TY=6.5%


*****


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

GTW     4.98  AUG  5.00  GTX HA  0.25  598     4.73  14  11.5%
MVIS    7.50  AUG  7.50  QMV HU  0.35  111     7.15  14  10.6%
RTEC   20.65  AUG 20.00  UXH HD  1.45  831    19.20  14   9.1%
MU     15.11  AUG 15.00   MU HC  0.65  88512  14.46  14   8.1%
MERX   10.55  AUG 10.00  KXQ HB  0.90  205     9.65  14   7.9%
BOBJ   25.43  AUG 25.00  BBQ HE  1.30  1939   24.13  14   7.8%
RMBS   18.07  AUG 17.50  BNQ HW  1.15  5208   16.92  14   7.5%
MOVI   20.29  AUG 20.00  QLV HD  0.95  710    19.34  14   7.4%
SNIC   12.89  AUG 12.50  QNI HV  0.80  272    12.09  14   7.4%
ECLP   12.85  AUG 12.50  IQV HV  0.75  207    12.10  14   7.2%
ISRG   15.29  AUG 15.00  AXQ HC  0.70  95     14.59  14   6.1%
IPXL   12.83  AUG 12.50  UPR HV  0.65  700    12.18  14   5.7%




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

Options 101: Fundamentals Of Success
By Ray Cummins

New readers are always asking for suggestions to help them become
successful traders.


Some Guidelines For Profitable Option Trading

1. Before opening any position, it is important to completely
understand the strategy you are using and clearly identify the
goals for that particular trade.  You can't make good decisions
without knowing the mechanics of a specific technique and you
should not use complex or advanced methods simply because they
are intriguing.  The best strategy is usually the simplest one
that accomplishes your goals.  Prior to initiating any position,
you should know exactly what the break-even point (or cost basis)
is and be prepared to take action if the underlying issue reaches
that price range.  Once you have selected a strategy and have a
specific candidate in mind, do your homework!  Find out about the
company and its (near-term) calendar of events such as earnings
dates and scheduled reports.  When you have a superior knowledge
of a stock and its industry, you are way ahead of the investor
that trades on intuition or outside advice.

2. Portfolio management is critical to the success of any trading
strategy.  After you take a position in a particular issue, stay
informed by monitoring all the news and announcements affecting
that company.  Observe the daily progress of the your plays and
realize that you have the ability and control to adjust or close
a position at any time.  Obviously, you do not need to check the
stock prices on an hourly basis, but we recommend that you review
each day's closing quotes.  News and public opinion can have a
significant impact on a stock's price and though it is impossible
to research "future" events before you buy an issue, you should be
able to react in a timely manner when something unforeseen occurs.

3. The concepts of most exit (or adjustment) techniques are fairly
simple but there is no way to develop a specific guide for proper
position management.  For investors who utilize option-selling
strategies such as naked puts, the key to success is to evaluate
the overall risk-reward outlook of each potential position and
initiate only those plays that fit your trading plan and technical
outlook for the underlying issue.  Remember, there is one primary
objective with this type of approach; a consistent flow of income
with limited portfolio risk.  The focus of position selection and
management should be to continually generate an acceptable level of
option premium while protecting against the potential for downside
losses.  Positions that become unfavorable due to changes in the
fundamental or technical characteristics of the underlying issue
must be removed from the portfolio before they can generate large
deficits.  While each individual situation will require a slightly
different solution, we suggest limiting individual position losses
to 20% of the initial investment.  For inexperienced traders, this
can be very difficult but one of the most crucial accomplishments
in this brutal game is learning how to close a losing play in a
timely manner.

4. While even the most catastrophic events can usually be managed
to reduce the effects of the shortfall, there are occasions when
issues plunge without warning, leaving no opportunity for exit or
adjustment.  Unexpected things simply occur; earnings warnings,
shareholder lawsuits, negative news in the industry or sector and
changes in public sentiment.  All of these activities can affect
the success of an individual position but with a well diversified
portfolio, the long-term effects are minimal.  Experienced traders
know that losses are inevitable with any strategy.  Instead of
being surprised, you should anticipate them.  Statistics dictate
that a percentage of the positions you select will be unprofitable
thus, when the situation arises, it should not be regarded as a
failure but rather an integral part of investing activity.  Your
portfolio should be evaluated based on the sum of its positions,
rather than each specific transaction.  In this manner, success is
gauged by growth in portfolio value and individual losses become
less significant.  That is the primary reason for maintaining a
balanced portfolio with several positions; it becomes easier to
identify and act on a potentially negative play when it doesn't
have a significant effect on your overall success.

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

AMLN    22.97   23.48  AUG 20.00  0.55    0.55*   4.1%  11.8%
LEXR    12.76   13.31  AUG 10.00  0.30    0.30*   3.4%  11.4%
SOHU    40.90   37.18  AUG 35.00  1.20    1.20*   3.9%  11.2%
ALGN    13.38   12.46  AUG 10.00  0.35    0.35*   3.2%  10.1%
BLUD    23.10   21.21  AUG 20.00  0.65    0.65*   2.9%   8.3%
BOBJ    25.00   25.43  AUG 22.50  0.45    0.45*   3.0%   8.2%
CYBX    23.72   29.31  AUG 20.00  0.60    0.60*   2.7%   8.2%
KOSP    28.29   36.23  AUG 25.00  0.45    0.45*   2.7%   7.7%
UNTD    29.39   33.64  AUG 25.00  0.40    0.40*   2.4%   7.5%
MSTR    43.68   42.63  AUG 35.00  0.75    0.75*   1.9%   6.8%
SIE     25.36   25.07  AUG 22.50  0.35    0.35*   2.3%   6.6%
SNDK    54.98   56.32  AUG 42.50  0.70    0.70*   1.8%   6.5%
MNST    26.15   26.10  AUG 22.50  0.30    0.30*   2.0%   6.1%
AMAT    19.30   19.56  AUG 17.50  0.25    0.25*   2.1%   5.9%
NFLX    26.49   24.95  AUG 20.00  0.35    0.35*   1.5%   5.4%
SHPGY   22.05   22.80  AUG 20.00  0.35    0.35*   1.9%   5.3%
DRIV    23.05   21.00  AUG 17.50  0.30    0.30*   1.5%   5.3%
TRN     21.93   22.34  AUG 20.00  0.35    0.35*   1.9%   5.3%
SNDK    48.18   56.32  AUG 37.50  0.60    0.60*   1.4%   5.1%
MRVL    38.10   35.32  AUG 32.50  0.60    0.60*   1.6%   5.1%
CELG    32.18   35.88  AUG 25.00  0.30    0.30*   1.3%   4.8%

*  Stock price is above the sold striking price.

Comments:

Stocks ended lower Friday, despite hopeful signs about the U.S.
economy, and analysts are now suggesting that the recovery in
the labor market make take much longer than expected.  If that
is the case, share values may be in for another downward leg
and that means timely position management will become essential
to maintaining a profitable portfolio.  With that idea in mind,
traders should closely monitor suspect issues such as: Sohu.com
(NASDAQ:SOHU), Immucor (NASDAQ:BLUD) and Align Tech (NASDAQ:ALGN).

Previously Closed Positions: Rowan Companies (NYSE:RDC), but
currently positive, and BJ Services (NYSE:BJS).


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

AMLN   23.48  AUG 20.00  AQM TD 0.35 708  19.65  14   3.9%  12.1%
RIMM   27.28  AUG 22.50  RUL TX 0.35 658  22.15  14   3.4%  11.7%
CLZR   17.05  AUG 15.00  UKZ TC 0.25 20   14.75  14   3.7%  10.8%
OSIP   32.70  AUG 25.00  GHU TE 0.30 1229 24.70  14   2.6%   9.5%
OVTI   40.03  AUG 35.00  UCM TG 0.45 2456 34.55  14   2.8%   8.6%
MRVL   35.32  AUG 32.50  UVM TZ 0.40 1025 32.10  14   2.7%   7.4%
UNTD   33.64  AUG 30.00  QAB TF 0.30 862  29.70  14   2.2%   6.4%


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).

*****
AMLN - Amylin Pharmaceuticals  $23.48  *** Bullish Biotech! ***

Amylin Pharmaceuticals (NASDAQ:AMLN) is a biopharmaceutical firm
engaged in the discovery, development and commercialization of
drug candidates for the treatment of diabetes and other metabolic
diseases.  The company has two lead drug candidates in late-stage
development for the treatment of diabetes, SYMLIN (pramlintide
acetate) and exenatide, formerly referred to as AC2993 (synthetic
exendin-4).  Amylin has received a letter from the FDA indicating
that SYMLIN is approvable for marketing in the United States as an
adjunctive therapy with insulin, subject to satisfactory results
from additional clinical trials.  The company's second candidate,
exenatide, is in pivotal Phase III clinical trials.  AMLN shares
have been in a steady uptrend over the past few weeks, despite
the volatility in the market, and on Wednesday the company posted
encouraging results from a Phase II study of a new drug candidate.
AC2592 uses continuous subcutaneous infusion of a glucagons-like
peptide for the treatment of congestive heart failure in patients
ineligible for transplant.  The study shows that AMLN has viable
products outside the realm of diabetes treatment and investors
who like the outlook for the issue should consider this position.

AUG-20.00 AQM TD LB=0.35 OI=708 CB=19.65 DE=14 TY=3.9% MY=12.1%


*****
RIMM - Research In Motion  $27.28  *** A Big Day! ***

Research In Motion Limited (NASDAQ:RIMM) is a designer, builder,
and marketer of wireless solutions for the mobile communications
market.  Through development and integration of hardware, software
and services, the firm provides solutions for seamless access to
time-sensitive information and communications, including e-mail,
telephone, messaging and Internet- and intranet-based applications.
The company's technology also enables a broad array of third-party
developers and manufacturers around the world to enhance their own
products and services with wireless connectivity.  RIM's portfolio
of products includes a family of wireless handhelds, the BlackBerry
wireless e-mail solution, embedded radio modems and a suite of
software development tools.  Shares of RIMM soared Friday on rumors
that the maker of the BlackBerry wireless e-mail device could be
the target of a takeover bid by Hewlett-Packard.  Regardless of the
reason for the activity, the stock is in "rally mode" and traders
who believe it will continue can profit from future upside activity
with this position.

AUG-22.50 RUL TX LB=0.35 OI=658 CB=22.15 DE=14 TY=3.4% MY=11.7%


*****
CLZR - Candela  $17.05  *** Multi-Year High! ***

Candela (NASDAQ:CLZR) develops, manufactures, and distributes
innovative clinical solutions that enable physicians, surgeons,
and personal care practitioners to treat selected cosmetic and
medical conditions using lasers, aesthetic laser systems, and
other advanced technologies.  Founded near Boston in 1970, the
company markets and services its products in over 60 countries
from offices in the United States, Europe, Japan and other Asian
locations.  Candela established the aesthetic laser market 14
years ago, and currently has an installed base of over 6,000
lasers worldwide.  CLZR has been in "rally mode" since April
when the firm reported that revenue for the nine months ending
in March rose 34% to $54.4 million.  The company also posted net
income of $3.8 million, compared to a loss of $2.7 million in the
year-ago period, and investors are hoping for similar results in
mid-August when quarterly earnings are reported.

AUG-15.00 UKZ TC LB=0.25 OI=20 CB=14.75 DE=14 TY=3.7% MY=10.8%


*****
OSIP - OSI Pharmaceuticals  $32.70  *** Entry Point? ***

OSI Pharmaceuticals (NASDAQ:OSIP) is a biotechnology firm focused
on the discovery, development and commercialization of oncology
products that both extend life and improve the quality of life
for cancer patients worldwide.  The company has established a
balanced pipeline of oncology drug candidates that includes both
next-generation cytotoxic chemotherapy agents and novel mechanism
based, gene-targeted therapies.  The company's most advanced drug
candidate, Tarceva (erlotinib HC1), is a small-molecule inhibitor
of the epidermal growth factor receptor (HER1/EGFR).  The protein
product of the HER1/EGFR gene is a receptor tyrosine kinase that
is over-expressed or mutated in many major solid tumors.  OSIP
has moved in a lateral pattern since mid-June and the share price
appears to be stabilizing near $32.  Investors who wouldn't mind
owning the issue at a basis near $25 should consider this position.

AUG-25.00 GHU TE LB=0.30 OI=1229 CB=24.70 DE=14 TY=2.6% MY=9.5%


*****
OVTI - OmniVision  $40.03  *** Up-trend Intact! ***

OmniVision Technologies (NASDAQ:OVTI) designs, develops and sells
high performance, high quality and cost efficient semiconductor
imaging devices for computing, telecommunications, industrial,
automotive and consumer electronics applications.  The company's
main product, an image sensing device called a CameraChip, is used
to capture an image in cameras and camera-related products in a
range of imaging applications such as personal computer cameras,
digital still cameras, security and surveillance cameras, personal
digital assistant cameras, mobile phone cameras, and cameras for
automobiles and toys that incorporate both still picture and live
video applications.  Shares of OVTI traded near "all-time" highs
last week and after a necessary consolidation, the bullish trend
should continue.  Investors with a positive outlook for the stock
can speculate conservatively on its near-term performance with
this position.

AUG-35.00 UCM TG LB=0.45 OI=2456 CB=34.55 DE=14 TY=2.8% MY=8.6%


*****
MRVL - Marvell Technology  $35.32  *** Consolidation Complete? ***

Marvell (NASDAQ:MRVL) designs, develops and markets integrated
circuits utilizing proprietary communications mixed-signal and
digital signal processing technology for communications-related
markets.  Marvell offers its customers a wide range of integrated
circuit solutions using proprietary communications mixed-signal
processing and digital signal processing technologies.  Marvell's
product groups include: storage products, consisting of a variety
of read channel, system-on-chip and preamplifier products; and
broadband communications products, consisting of a variety of
transceiver products, switching products, internetworking
products and wireless LAN products.  MRVL has consolidated after
reaching the top of a historic resistance area near $40 and the
stock appears poised to move higher (market permitting) in the
near future.  Investors who believe the firm's share value is
destined for a rally can profit from additional upside activity
in the issue with this position.

AUG-32.50 UVM TZ LB=0.40 OI=1025 CB=32.10 DE=14 TY=2.7% MY=7.4%


*****
UNTD - United Online  $33.64  *** New "All-Time" High! ***

United Online (NASDAQ:UNTD) is an Internet service provider
offering consumers free and value-priced Internet access and
e-mail.  Its Internet access services are offered through its
NetZero and Juno subsidiaries under their brands, and are
available in more than 5,000 cities across the United States
and Canada.  In addition, the company offers marketers numerous
online advertising products, as well as online market research
and measurement services.  As of June 30, 2002, the company had
approximately 1.7 million subscribers to its pay Internet access
services and approximately 4.8 million active users, including
pay users.  Active users include all pay users and those free
users that have logged onto its services during the preceding
31-day period.  UNTD shares have performed very well in recent
after the company reported favorable earnings and traders who
believe the rally "has legs" can profit from that outcome with
this position.

AUG-30.00 QAB TF LB=0.30 OI=862 CB=29.70 DE=14 TY=2.2% MY=6.4%


*****


*****************
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   11.20  AUG 10.00  QYO TB 0.40 748   9.60  14   9.1%  23.6%
PCLN   31.76  AUG 30.00  PUZ TF 1.05 352  28.95  14   7.9%  19.0%
PWER   10.83  AUG 10.00  OGU TB 0.25 214   9.75  14   5.6%  14.5%
AEG    12.64  AUG 12.50  AEG TV 0.35 117  12.15  14   6.3%  14.4%
SANG   15.48  AUG 15.00  QDY TC 0.40 60   14.60  14   6.0%  14.2%
HEPH   19.03  AUG 17.50  QGQ TW 0.40 63   17.10  14   5.1%  13.4%
ATYT   12.80  AUG 12.50  QFY TV 0.30 198  12.20  14   5.3%  12.7%
SLNK   18.38  AUG 17.50  SXU TW 0.40 4    17.10  14   5.1%  12.6%
IRF    30.85  AUG 30.00  IRF TF 0.70 1120 29.30  14   5.2%  12.5%
WWCA   15.48  AUG 15.00  WRQ TC 0.35 10   14.65  14   5.2%  12.5%
FWHT   21.00  AUG 17.50  HFQ TW 0.25 241  17.25  14   3.1%  10.5%
COHU   20.51  AUG 20.00  QCH TD 0.30 41   19.70  14   3.3%   8.2%
MNST   26.10  AUG 22.50  BSQ TX 0.25 1026 22.25  14   2.4%   7.7%
TRI    31.70  AUG 30.00  TRI TF 0.25 272  29.75  14   1.8%   4.8%



SEE DISCLAIMER IN SECTION ONE
*****************************


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

Stocks Retreat As Employment Data Stalls Recovery Hopes
By Ray Cummins

The major equity averages slumped Friday after a government report
showed that employers continued to slash payrolls during the month
of July.

The Dow Jones Industrial average fell 79 points to close at 9,153
with financial stocks such as J.P. Morgan (NYSE:JPM) and Citigroup
(NYSE:C) leading the retreat in blue-chip shares.  Hi-tech stocks
also slid lower with the NASDAQ Composite down 19 points to 1,715
amid across-the-board weakness.  The broader Standard & Poor's 500
Index dropped 10 points to 980 with selling pressure emerging in
airlines, aluminum, pharmaceuticals, managed healthcare, insurance,
homebuilders, and gold companies.  Breadth was negative with losers
ousting losers 2 to 1 on the NASDAQ as 1.5 billion shares changed
hands.  The Big Board saw declining issues outpace winners by almost
3 to 1 on volume of 1.35 billion shares.  The yield on the benchmark
10-year U.S. Treasury note reached a one-year high of 4.59% during
the session but at the close, it was up 5/32 at 93-31/32, while its
yield fell to 4.39%.

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

IRF     28.00   30.85  AUG   22  25   0.25  24.75  $0.25   Open
MER     49.25   53.45  AUG   42  45   0.25  44.75  $0.25   Open
EBAY   113.07  105.28  AUG   95 100   0.50  99.50  $0.50   Open
GENZ    44.02   49.28  AUG   35  37   0.20  37.30  $0.20   Open
MEDI    39.01   38.73  AUG   32  35   0.25  34.75  $0.25   Open
SYMC    45.65   46.59  AUG   35  40   0.55  39.45  $0.55   Open
CCMP    57.61   62.24  AUG   45  50   0.55  49.45  $0.55   Open
GILD    66.52   64.55  AUG   55  60   0.55  59.45  $0.55   Open
SII     37.87   35.75  AUG   32  35   0.25  34.75  $0.25   Open
AMZN    41.60   40.03  AUG   35  37   0.25  37.25  $0.25   Open
NTES    42.07   48.13  AUG   30  35   0.50  34.50  $0.50   Open
GRMN    45.23   38.23  AUG   35  40   0.35  39.65 ($1.42) Closed
IMCL    39.86   39.00  AUG   30  32   0.00  32.50  $0.00  No Play

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

Garmin (NASDAQ:GRMN) shares plunged after the company said third
quarter results would be below consensus estimates.  Although the
spread did not achieve our entry target, the summary will reflect
the loss for continuity.  The position in ImClone (NASDAQ:IMCL)
was not available as the AUG-$32.50 series was apparently listed
in error by the ISE/OCC.  The position in Yahoo! (NASDAQ:YHOO),
which is currently positive, has been closed to limit potential
losses.


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

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

ACS     45.06   48.20   AUG   55  50   0.65  50.65  $0.65   Open
BBBY    38.59   38.28   AUG   45  42   0.35  42.85  $0.35   Open
ICUI    27.90   24.25   AUG   35  30   0.60  30.60  $0.60   Open
PG      88.56   86.70   AUG   95  90   1.25  91.25  $1.25   Open
BGEN    40.05   37.74   AUG   47  45   0.30  45.30  $0.30   Open
NVLS    35.70   35.70   AUG   42  40   0.30  40.30  $0.30   Open
BSTE    46.06   42.04   AUG   55  50   0.60  50.60  $0.60   Open
BVF     41.60   38.31   AUG   50  45   0.50  45.50  $0.50   Open
CI      44.49   45.55   AUG   55  50   0.30  50.30  $0.30  No Play
BRL     59.25   67.48   AUG   70  65   0.00  65.00  $0.00  No Play

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

Bearish spreads in Barr Labs (NYSE:BRL) and Cigna (NYSE:CI) were
not initiated as both issues "gapped" at the open on the day after
the plays were offered.  The position in 3M Corporation (NYSE:MMM)
has previously been closed to limit potential losses.


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

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

TECD    31.03  32.37  AUG   25  30   4.20   29.20  0.08   Open
EBAY   110.02 105.28  AUG   95 100   4.60   99.60  0.40   Open
RGLD    23.94  21.63  AUG   20  22   2.20   22.20 (0.57)  Open?

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

eBay (NASDAQ:EBAY) is on the "watch" list and conservative traders
should consider closing the position on further downside movement.
Royal Gold (NASDAQ:RGLD) is a speculative spread for gold "bulls"
and a move below the current price range would signal a reversal
in the current trend.


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

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

LXK     73.50  64.79  AUG   85  80   4.80   80.20   0.20  No Play
BRCM    22.76  21.22  AUG   27  25   2.30   25.20   0.20   Open

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

There was no position initiated in Lexmark (NYSE:LXK) as the issue
"gapped" lower prior to the open on the first trading day after the
play was offered.


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

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

ESI     29.63  40.20   OCT     35    25     0.15    5.00   Closed
SHPGY   22.77  22.80   JAN     30    17     0.00    0.00    Open

ITT Educational Services (NYSE:ESI) was one of the best plays this
the month with a potential gain of $5 (or more) for speculative
traders.


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

No Open Positions


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

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


NSCN    24.18  21.00   SEP-25C   AUG-25C   0.40    0.25   Closed
GP      19.25  21.75   OCT-20C   AUG-20C   0.90    1.00    Open
MSFT    27.31  26.17   JAN-27C   AUG-27C   1.40    1.50    Open
NE      34.86  33.00   DEC-37C   AUG-37C   1.40    0.90    Open
ING     19.07  20.03   JAN-20C   AUG-20C   0.90    0.90    Open

Georgia-Pacific (NYSE:GP) moved above the sold strike at $20 this
week and traders who are bullish on the issue should consider a
transition to a diagonal spread (OCT-20C/SEP-22C) for a small debit.
The speculative position in Netscreen Technologies (NASDAQ:NSCN)
has been closed to limit losses.


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

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

AIG     55.69  64.65   AUG   55    55     4.90    10.00   Closed

American International Group (NYSE:AIG) was the big winner this
month, offering up to $5.10 profit on $4.90 invested in less than
three weeks.  Straddles on R.J. Reynolds (NYSE:RJR) and Freddie Mac
(NYSE:FRE) have previously achieved favorable "early-exit" profits.
Positions in MBIA Inc. (NYSE:MBI), Dollar General (NYSE:DG), and
Boston Scientific (NYSE:BSX) have been closed to limit losses.


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

No Open Positions


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

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

*****
ADI - Analog Devices  $39.51  *** Chip Sector Speculation! ***

Analog Devices (NYSE:ADI) is engaged in the design, manufacture
and sales of high-performance analog, mixed-signal and digital
signal processing (DSP) integrated circuits.  The firm's products
play a fundamental role in converting real-world phenomena, such
as temperature, motion, pressure, light and sound, into electrical
signals to be used in an array of electronic equipment, ranging
from industrial process control, factory automation systems, smart
munitions, base stations, office equipment, wireless telephones,
computers, automobiles, computer-aided tomography scanners, DVDs,
and digital cameras.  The company's quarterly earnings report is
due 8/14/03.

ADI - Analog Devices  $39.51

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-30.00  ADI-UF  OI=1405  ASK=$0.30
SELL PUT  SEP-35.00  ADI-UG  OI=1896  BID=$0.85
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$34.40


*****
BOW - Bowater  $38.57  *** A Broad-Market Hedge ***

Bowater (NYSE:BOW) is a leading producer of newsprint and coated
groundwood papers.  In addition, Bowater makes uncoated groundwood
papers, bleached kraft pulp and lumber products.  The company has
12 pulp and paper mills in the United States, Canada and South
Korea and 13 North American sawmills that produce softwood lumber.
Bowater also operates two facilities that convert a groundwood base
sheet to coated products.  Bowater's operations are supported by
over 1 million acres of timberlands owned or leased in the United
States and Canada and 32 million acres of timber cutting rights in
Canada.  Bowater is also one of the world's largest consumers of
recycled newspapers and magazines.

BOW - Bowater  $38.57

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-30.00  BOW-UF  OI=686  ASK=$0.30
SELL PUT  SEP-35.00  BOW-UG  OI=595  BID=$0.90
INITIAL NET-CREDIT TARGET=$0.65-$0.70
POTENTIAL PROFIT(max)=15% B/E=$34.35


*****
MXIM - Maxim Integrated Products  $39.11  *** Merrill Upgrade! ***

Maxim Integrated Products (NASDAQ:MXIM) designs, develops, makes
and markets a broad range of linear and mixed-signal integrated
circuits, commonly referred to as analog circuits.  The firm also
provides a broad range of high-frequency design processes and
capabilities that can be used in custom design.  Maxim's products
include data converters, interface circuits, microprocessor
supervisors, operational amplifiers, power supplies, multiplexers,
delay lines, real-time clocks, microcontrollers, switches, battery
chargers, battery management circuits, radio frequency circuits,
fiber-optic transceivers, sensors and voltage references.  Their
products are sold to customers in numerous markets, including
automotive, communications, consumer, industrial control,
instrumentation and data processing.

MXIM - Maxim Integrated Products  $39.11

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-30.00  XIQ-UF  OI=417  ASK=$0.30
SELL PUT  SEP-35.00  XIQ-UG  OI=529  BID=$0.85
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$34.40


*****
FNM - Fannie Mae  $62.45  *** Bond Market Blow-Out! ***

Federal National Mortgage Association (NYSE:FNM), commonly known
as Fannie Mae, is a company that works to assure that mortgage
money is readily available for existing and potential homeowners
in the United States.  Fannie Mae does not directly lend money
to homebuyers, but works with lenders to ensure that there is no
shortage of funds available for mortgage loans.  The method in
which Fannie Mae accomplishes this is by purchasing mortgages
from a variety of institutions that make up the primary mortgage
market.  Primary market lenders include mortgage companies,
savings and loans, commercial banks, credit unions and state and
local housing finance agencies. These are the businesses where
the mortgages are originated and the funds are loaned directly
to the borrower.  Fannie Mae then purchases the mortgage, thus
allowing the primary market lender to replenish their funds and
lend more money to homebuyers.

FNM - Fannie Mae  $62.45

PLAY (speculative - bearish/credit spread):

BUY  CALL  AUG-70.00  FNM-HN  OI=8455  ASK=$0.10
SELL CALL  AUG-65.00  FNM-HM  OI=8892  BID=$0.65
INITIAL NET-CREDIT TARGET=$0.55-$0.70
POTENTIAL PROFIT(max)=12% B/E=$65.55


*****
INTU - Intuit  $42.86  *** Stuck In A Trading Range? ***

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  $42.86

PLAY (very conservative - bearish/credit spread):

BUY  CALL  SEP-50.00  IQU-IJ  OI=279  ASK=$0.45
SELL CALL  SEP-47.50  IQU-IW  OI=938  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.30-$0.35
POTENTIAL PROFIT(max)=14% B/E=$47.80


*****
JPM - J.P. Morgan Chase  $33.36  *** A Big Down Day! ***

J.P. Morgan Chase & Co. (NYSE:JPM) is a financial holding company
incorporated in 1968, with over $750 billion in assets and $42
billion in stockholders' equity.  The company's activities are
internally organized into five business segments: Investment Bank,
Treasury & Securities Services, Investment Management & Private
Banking, JPMorgan Partners and Chase Financial Services.

JPM - J.P. Morgan Chase  $33.36

PLAY (speculative - bearish/credit spread):

BUY  CALL  AUG-37.50  JPM-HU  OI=7958   ASK=$0.10
SELL CALL  AUG-35.00  JPM-HG  OI=30615  BID=$0.35
INITIAL NET-CREDIT TARGET=$0.25-$0.30
POTENTIAL PROFIT(max)=11% B/E=$35.25


*************
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.

*****
KBH - KB Home  $55.84  *** Sector Slump! ***

KB Home (NYSE:KBH) is a diversified homebuilder with operations
in Arizona, California, Colorado, Florida, Nevada, New Mexico and
Texas.  KB Home builds homes that cater primarily to first-time
and "move-up" homebuyers, generally in medium-sized developments
close to major metropolitan areas.  The company, through its main
subsidiary Kaufman & Broad S.A., also has operations in France.
KBSA constructs single-family homes and high-density residential
properties such as condominium complexes and commercial projects.
During the fiscal year ended November 30, 2002, the firm delivered
25,452 units and operated an average of 330 active communities.
The company also provides mortgage banking services through its
subsidiary, KB Home Mortgage Company.

KBH - KB Home  $55.84

PLAY (speculative - bearish/debit spread):

BUY  PUT  AUG-65.00  KBH-TM  OI=965   ASK=$9.30
SELL PUT  AUG-60.00  KBH-TL  OI=1865  BID=$4.70
INITIAL NET-DEBIT TARGET=$4.50-$4.60
POTENTIAL PROFIT(max)=8% B/E=$60.40


****************
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.

*****
NSM - National Semi  $22.77  *** Chip Sector Speculation! ***

National Semiconductor (NYSE:NSM) designs, develops, manufactures
and markets a wide array of semiconductor products, including a
broad line of analog, mixed-signal and other integrated circuits.
Its unique analog and mixed-signal devices include amplifiers and
regulators, image sensors, power monitors and line drivers, radio
frequency, audio amplifiers, display drivers and signal processors.
NSM's other products with digital-to-analog or analog-to-digital
capability include products for local area and wireless networking
and wireless communications, as well as products for personal
systems and communications.  It uses the brand name Super I/O to
describe its ICs that handle system peripheral and input/output
functions on the personal computer motherboard.  Its operations are
organized in five groups: the Analog Group, Information Appliance
and Wireless Group, Displays Group, Wired Communications Group and
the Custom Solutions Group.

NSM - National Semiconductor  $22.77

PLAY (speculative - bullish/diagonal spread):

BUY  CALL  JAN-20.00  NSM-AD  OI=1966  ASK=$4.70
SELL CALL  SEP-25.00  NSM-IE  OI=460   BID=$0.70
INITIAL NET DEBIT TARGET=$3.80-$3.95
INITIAL TARGET PROFIT=$1.05-$1.25


*******************
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.

*****
AVCT - Avocent  $27.83  *** A Reader's Request! ***

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.

AVCT - Avocent  $27.83

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  SEP-30.00  QVX-IF  OI=50   ASK=$1.30
SELL PUT   SEP-25.00  QVX-UE  OI=100  BID=$1.00
INITIAL NET DEBIT TARGET=$0.10-$0.15
INITIAL TARGET PROFIT=$0.65-$0.90

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $950 per contract.  However, do not
open this position if you can not afford to purchase the stock at
the sold put strike price ($25.00).


***********************
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.

*****
OVER - Overture Services  $23.68  *** Volatility Speculation ***

Overture (NASDAQ:OVER) is engaged in the Pay-For-Performance
search on the Internet.  The company's search service is
comprised of advertiser's listings, which are screened for
relevance and accessed by consumers and businesses through
Overture's affiliates, a network of Web properties that have
integrated its search service into their sites or that direct
user traffic to Overture's own site.  In some cases, consumers
and businesses access the company's search listings directly
at its site.  The search listings are ranked by the advertisers'
bid; the higher the bid, the higher the ranking.  Advertisers
pay Overture the bid price for clicks on the advertisers' search
listing, click-through or a paid click.  As of December 31, 2002,
Overture and its wholly owned subsidiaries operated the search
service in the United States, United Kingdom, Germany, France
and Japan.

OVER - Overture Services  $23.68

PLAY (very speculative - neutral/debit strangle):

BUY CALL  SEP-25.00  GUO-IE  OI=158  ASK=$0.80
BUY PUT   SEP-22.50  GUO-UX  OI=269  ASK=$0.85
INITIAL NET-DEBIT TARGET=$1.50-$1.55
INITIAL TARGET PROFIT=$0.50-$0.70


*****
SNE - Sony  $30.74  *** Probability Play ***

Sony Corporation (NYSE:SNE) and its consolidated subsidiaries
develop, design, manufacture and sell electronic equipment,
instruments and devices for consumer and industrial markets.  It
also develops, produces, manufactures and markets home-use game
consoles and software, and develops, produces, manufactures and
distributes recorded music in all commercial formats and musical
genres.  Sony is also engaged in the development, manufacture,
distribution and broadcasting of image-based software, including
film, video and television, and in various financial service
businesses, including insurance operations through a Japanese
life insurance subsidiary and non-life insurance subsidiaries,
banking operations through a Japanese Internet-based banking
subsidiary and leasing and credit financing operations in Japan.
Sony also has Internet-related businesses, an advertising agency
business in Japan and location-based entertainment businesses in
Japan and the United States.

SNE - Sony  $30.74

PLAY (speculative - neutral/debit straddle):

BUY CALL  OCT-30.00  SNE-JF  OI=8390  ASK=$2.30
BUY PUT   OCT-30.00  SNE-VF  OI=2857  ASK=$1.60
INITIAL NET-DEBIT TARGET=$3.75-$3.80
INITIAL TARGET PROFIT=$1.45-$1.70


*****


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