Option Investor

Daily Newsletter, Sunday, 08/17/2003

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The Option Investor Newsletter                   Sunday 08-17-2003
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: Breakout Coming?
Futures Market: Skeleton Crew
Index Trader Wrap: DISRUPTION
Editor's Plays: Trend Change
Market Sentiment: No Fear
Ask the Analyst:  Betting on or against Treasuries with options
Coming Events: Earnings, Splits, Economic Events

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
        WE 8-15         WE 8-08         WE 8-01         WE 7-25
DOW     9321.69 +130.60 9191.09 + 37.12 9153.97 -130.60 + 96.42
Nasdaq  1702.01 + 57.98 1644.03 - 71.59 1715.62 - 15.08 + 22.20
S&P-100  498.30 +  4.50  493.80 +  0.16  493.64 -  9.30 +  1.44
S&P-500  990.67 + 13.08  977.59 -  2.56  980.15 - 18.53 +  5.36
W5000   9547.51 +154.78 9392.73 - 61.43 9454.16 -145.20 + 52.70
RUT      471.92 + 17.98  453.94 - 14.14  468.08 -  0.80 +  4.12
TRAN    2623.66 + 44.63 2579.03 - 16.88 2595.91 - 19.88 + 39.50
VIX       20.20 -  1.09   21.29 -  1.49   22.78 +  2.84 -  1.42
VXN       29.21 -  2.82   32.03 -  0.45   32.48 +  2.44 -  3.37
TRIN       1.01            0.87            1.08            0.67
Put/Call   0.53            0.81            0.91            0.67
Avg Highs   338             189             462             365
Avg Lows     62              86              72              31


Breakout Coming?
by Jim Brown

Despite the extremely low volume of only 1.5 billion shares
across all markets the Dow ended within two points of a new
52-week closing high. The previous high was 9323 on June-17th
and that level could be history if the current trend continues
on Monday. Could this be the breakout the bulls are waiting for?

The Dow has traded over 9300 on eight days since the 9323 close
nearly two months ago. It has moved up, down and sideways for
much of those two months but is finally showing an increasing
amount of resilience. Considering all the negative factors we
have seen this week this is an amazing feat. Current support
has risen to 9285 and short of a strong shift in sentiment we
could see a breakout next week. That will not be an easy task
and the deck is still stacked against it but the bulls appear
to have mastered the art of climbing the wall of worry. They
will have to pass their greatest test next week.

Friday had limited economic hurdles for the market with the
biggest challenge just getting open and staying open. The CPI
came in at +0.2% as expected with the core rate +0.2% also.
The energy component rose +0.4% and helped hold the index up.
Medical care also rose +0.5% and continued its +3.8% gain over
the last 12 months. Core inflation has held to +1.5% for the
last four months and suggests both deflation and inflation
risks have stabilized.

Helping encourage investors was a jump in Industrial Production
of +0.5% and well over estimates of +0.1%. All major components
reported increases but with Capacity Utilization at 74.5 it was
only .2 above the 20-year lows we have seen over the prior two
months. This was good news but not as good as most traders
hoped. The whisper number was 75.0 and we did not come close.
This suggests the economy is continuing to improve but at a
snails pace that may not create a 4Q recovery. The factor which
will help the most is the low inventory levels which will mean
a strong ramp in production should any real demand appear.

Going against the positive CPI and Industrial Production
numbers was the NY Empire State Manufacturing Survey. The
headline number fell to only 10 from 20.8 in July and 27.6
in June. This plummeting indicator was ignored by the markets
with the power problems taking the headlines. New Orders fell
to 12.5 from 15.1 but the employment component rose to zero
from -9.5. The six-month outlook rose to 59.5 from 51.8. We
could be seeing some summer decline but the improving jobs
and outlook components could be signs of a rebound for the

Unfortunately the next Empire Survey will likely show the
impact of the blackout and could easily drop into negative
territory. This could also happen with the NY NAPM. Just
when we were beginning to get clean data we will now have
to wait for two more months for these reports to rebound
from what could be a serious dip. Even if the reports were
going to be negative for the current month they will be
ignored as "blackout" reports. This will also be seen in
the Jobs Report for August as this was the survey week.
Jobless Claims will be impacted for next Thursday and any
low number will be ignored.

The Michigan Sentiment report was rescheduled for Tuesday
from Friday as a result of the blackout. Now, the question
here is will the numbers be as of Thursday or as of Monday?
Obviously any survey taken over the weekend would show a
dramatic drop in sentiment and even if Tuesday's numbers
are tame the revision in two weeks will be negative.

One positive result of the blackout was the flight to quality
and into bonds. Yields fell back below the 52-week highs from
Thursday but still remained at extreme levels. The 10-year
closed at 4.528 after reaching a low of 4.484 intraday. Once
the power problems are over and that should be before Monday,
we could see the bond flight return. According to the bond
junkies the 10/30 year instruments saw their worst week in
recent history with the yields on the 10-year jumping from
the prior Friday's lows of 4.19% to Thursday's high of 4.668%.
That spread is nearly unheard of in the bond markets in a
single week. However, contrary to the market reaction when
yields soared to their previous high on August 1st the Dow
closed back at its highs and has apparently shaken off the
bond fears.

The most amazing component of the recent market has been the
performance of the Russell-2000. Since the 450 low on August
7th it has been moving vertically until it hit the downtrend
resistance on Friday. Considering the light volume we cannot
make any specific analysis from the halt at resistance but
this index bears watching for next week. If it can break out
of the three year down trend then we could be off to the races.
I mentioned the Russell last Sunday when it was at 453 and at
the bottom of the initial August dip. I cautioned that should
450 fail we could test real support at 440. The instant rebound
from 450 was encouraging and showed that funds were putting
money back into small caps and the bond fears were easing.

Russell-2000 Chart

Almost as impressive as the Russell but on a different scale is
the Dow which has completely reversed from the test of 9000 on
August 6th. The Dow has recovered to close within two points of
a new closing high and has done so under difficult circumstances.
For the last two days Dow 9285 has held like a rock and could
be providing a spring board for next week. Still we could just
as easily slip back into out two month trading range.

Dow Chart

The Nasdaq is showing the least amount of excitement of the
major indexes. The Nasdaq closed right on 1700 for the second
consecutive day and it appears the bounce from the August lows
could be running out of steam. The Nasdaq is about 30 points
below its downtrend resistance if you include the artificial
spike on July-31st. If you factor that out then 1705 is the
current resistance and that is where we stopped on Friday. The
Dell earnings did little to excite tech buyers but then they
had much more on their minds on Friday. Dell did close up +95
cents on the news. Dell was the only major Nasdaq tech component
in the green.

Nasdaq Chart

Also showing more weakness than the Dow is the S&P, which has
been moving down in an orderly fashion from its June highs.
The S&P has resistance at 992.50 and then again at 1000. The
broader market is showing less resilience than the narrow Dow.
The Dow has been buoyed by strong gains in MMM, UTX, WMT, MCD,
AA and T. The composition of the Dow makes it more responsive
to cyclical strengths and that is what we are seeing now.

S&P Chart – daily

There was not much happening on Friday other than the endless
news stories on the blackout and economic factors for next week
are slim. That makes this commentary brief today. There are not
many ways to say we are at strong resistance on the Dow and
very close to a breakout but other indexes are not confirming.
With only 562 million shares trading on the NYSE and 704 million
on the Nasdaq you cannot draw any real conclusions from Friday's

Next week is very slim economically with reports on Housing
Starts and the rescheduled Michigan Sentiment not until Tuesday.
Wednesday is blank and Thursday only has Jobless, Philly Fed
and Leading Indicators. Friday is also blank and that allows
the markets to wander on their own for most of the week.
Without being too repetitive we are at resistance and poised
to either break out or down very easily. The Dow could actually
move to a new high without the Nasdaq and S&P following and
that would set up some even stronger divergence than we saw
last week.

We have the perfect storm setting up. The blackout should be
history by Monday. The buying in bonds on Friday as a flight to
quality could see a reversal on Monday once the power problem
is resolved. Traders not able to make it in on Friday should
be back at work. There are no economic reports to confuse the
issue. Options have expired with little market reaction and the
residue of position squaring should provide enough volatility
at the open to show where true resistance and support levels
are hiding. The numbers at Friday's close are bogus due to the
extremely low volume. There is a strong feeling among traders
that we will see a big move next week. The only question is
which way?

Enter Very Passively, Exit Very Aggressively!

Jim Brown


Skeleton Crew
Jonathan Levinson

That was the extent of trading during the last session, a summer
triple-witching Friday compounded by widespread power outages
keeping traders from their screens and preventing some trades
from being filled.  It was such a listless session that, as Jeff
Bailey pointed out, it would take a great leap of faith to attach
any significance to anything that occurred during Friday's trading.

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

10 minute chart of the US Dollar Index

The US Dollar Index moved higher throughout Friday's session,
 peaking at 96.70 for a lower high but nevertheless printing a
 bullish engulfing candle for the week.

Daily chart of December gold

December gold got clocked on Friday on light volume of 343
contracts, but the failure at the upper trendline fits a near
term bearish scenario.  Surprisingly, gold was higher on the
week, printing the second of two white soldiers, despite the
dollar strength.  This is a clear and rare divergence, with the
dollar rising but gold denominated in dollars rising as well.
For the day, the CRB dropped .85 to 235.67 on weakness in frozen
concentrated OJ futures, silver and heating oil.

Daily chart of the ten year note yield

Treasuries had an exciting week, with yields setting new year
highs.  The ten year note yield (TNX) broke back above the rising
trendline, and despite a spike below it on Friday, managed to
close above it at 4.528%, down 5.8 basis points on the day.  The
weekly print was the second of two white soldiers, and despite
the strength in treasuries on Friday, the trend in yields remains
higher until proven otherwise.  Note that the Fed added a huge
20B weekend repo following the widespread power outages Thursday
night, and the 12B net addition against Thursday's expiring 8B
overnight repo served only to muddy the waters further.  This sum
matures on Monday, and if not refunded, will cause corresponding
drain in liquidity.

Daily NQ candles

Some bad data during Friday's confusion has caused a downside
spike on the daily candle charts, but it is not significant to
our analysis.  Friday was a very narrow range, light volume day.
Thankfully, price did not get very far, or we'd be faced with the
prospect of analyzing the impact of a thin, low-participation day
on our charts and oscillators.  Friday moved sideways in most
respects.   The 10 day cycle oscillators moved closer to buy
signals on the NQ, but the formations we've been tracking were
not tested in either direction.  For the week, the NQ printed a
bullish harami, a positive inside week following last week's
downside breakout.

30 minute 20 day chart of the NQ

The sell signals commencing at Thursday's close didn't get much
traction, as price drifted higher through Friday's trading.  The
lower ascending trendline on the 30 minute candle bear flag
supported the drops, and while there was no breakdown, there was
no significant bounce either, with price inching up along the
support line.  Again, little of significance occurred with most
traders absent from the market, and we'll look to next week for
clues as to the fate of this potentially bearish rise in price.

Daily ES candles

Once again, bad data has corrupted the Friday's print with a
reported downside spike to 973 that never occurred.  The
oscillators advanced along the course of their buy signals as
price moved sideways within the daily candle bull flag formation.
For the week the ES printed an upside bullish engulfing, creating
a bullish morning star formation.

20 day 30 minute chart of the ES

The sell signals gained little traction on the ES 30 minute chart
as price walked higher up the lower ascending trendline of the
bear flag.  While the weekly print and the pattern on the daily
candle chart are all bullish, the 30 minute chart continues to
suggest that the rally off the lows in the 960 area is due for a
correction.  I believe that the bottom to that correction will be
determinative as to whether we've seen the year highs or not.
For the moment, the price advance within its ominous bear flag

Daily YM candles

The YM completed a positive week for a bullish morning star
formation.  It moved sideways for most of Friday, finishing
higher by 44 points to 9322.  The sideways move caused the daily
candle body to close on the ascending trendline, but I ascribe
no significance to it either way.  The daily uptrend remains
substantially intact, the oscillators still on buy signals, and
volume was too light in any event.  The Dow futures continue to
trade as the most bullish of the three equity indices, and it
remains kissing distance from its rally highs.

20 day 30 minute chart of the YM

The story is the same on the YM 30 minute candles, as Friday's
trade saw the contract walk up the lower flag trendline against
the oscillator sell signals still in progress but in danger of
reversing early.

The week showed us a dramatic downside reversal in treasuries off
their corrective bounce, while the US Dollar Index and gold
marched higher side-by-side.  I expect their opposing trends to
reassert themselves soon enough, but in the meantime, it made for
some peculiar sessions.  The outlook for equities remains hazy,
as we await the bear flag breakdowns on the 30 minute charts
within their potential bull flag formations on the dailies.  The
Dow futures continue to outperform to the upside, and the Nasdaq
to the downside, with the Dow within easy breakout territory.
With current events and outside "noise" approaching crescendo
levels, including terrorist captures, the largest power outage in
US history, declines verging on crashes in debt markets, gold and
the Dow futures near technical breakout levels, next week is
lined up to be an exciting one.  More importantly, however, we
can hope for some insight into what are becoming increasingly
contradictory intermarket relationships.  We can expect some
opening volatility on Monday associated with the settlement of
op-ex week.  See you at the bell!


By Leigh Stevens

Stocks ended on a slight up note Friday after a day of very light
trading in the wake of widespread power outages across the
Northeast. The Dow closed up 11.13 points to 9321.5 - biggest
gainers were Hewlett-Packard, Home Depot and General Electric.
Trading volume was thin -- only 560.6 million shares traded on
the NYSE. The Nasdaq Composite (COMPX) was up a scant 1.7 points
to 1,702 and the S&P 500 (SPX) Index was up a fraction of a point
(.16) to 990.67.

Without options expiration on Friday, we might have seen the
powers that be closing more markets.  And power was the problem
of course.  Economic impact? - probably not more than a big East
coast blizzard that shut down things for a day or two. The drama
of all those New Yorkers walking down 5th Ave for a change masked
the boost that some good economic data might have provided

By the way, having been a city rat for umpteen years in New York,
I can say for certain that it's no fun there when the power goes
off, especially in August.  Without air conditioning, its brutal
cause it just doesn't cool down that much at night - I used to be
able to say, unlike say England.  But with recent highs in Paris
and London hitting 100 degrees - well, time to move to Iceland.


A sideways move after a sizable advance is neither bullish or
bearish although traders tend to take it one way or the other. In
technical analysis terms, the benefit of which way next is said
to go to an eventual continuation of the preceding trend.  A
sideways narrow range trend is assumed to be a consolidation - as
in a pattern of "consolidating" prior gains. I think this is the
case here, but the economic data is tough to call.

An example of this is the gain in U.S. Industrial Production
announced Friday at up a half percent, stronger than the expected
0.2%.  Capacity utilization increased to 74.5%.  However, as Jeff
(Bailey) rightly pointed out in his intraday notes, this gain may
not have much impact on hiring back of workers in the
industrial/manufacturing sectors. This relates to recent economic
data also indicating that the average workweek is down to 33.6
hours, below a 40-hour workweek. Hence, what companies are going
to do on a pickup of orders is increase hours of existing
employees, not hire new ones.

You can see examples of the underlying economics in the release
of Applied Materials (AMAT) earnings last week - while their
earnings where a penny better than expected, revenues were down
25% from a year ago. How do they increase earnings on much less
revenue?  Cut costs and the biggest cost cutting measure is to
shed workers. The gains in productivity means that investment is
made in things that allow fewer workers to turn out more goods.

Bottom line - Q3 job growth is needed to kick the economy into
second (third?) gear and fuel a next up leg.  Otherwise, the
consolidation underway will turn out to be the building of a top.
Meanwhile, options traders can continue to trade a tight range,
by waiting for prices to get to extremes before entering a new
position that is long calls or puts. Otherwise, of course, sell
premium, as it continues to slip slide away as prices fail to
break out the box or relatively tight range.


The Fed heads decided to keep its funds target unchanged at 1.0%,
saying that low inflation, stability in spending and still weak
labor markets were calling for a still-accommodative monetary

In the Federal Open Market Committee release, the FMOC indicated
that it believes upside and downside risks to the sustainable
growth is EQUAL (my caps) for the next few quarters. They also
said that the probability of deflation (a downward price spiral)
is greater than an inflationary rise, from an already low level.
In Fed speak the Committee noted "that its policy of
accommodation can be maintained for a considerable period".

In other words, we're still in a mess for some time to come, but
we hope that we can muddle through.

June business inventories rose slightly - 0.1%. Sales in June
rose a substantial 1.1%, which put the inventory-to-sales ratio,
down to 1.38 months from May's 1.4 months. This is how long it
would take to work down inventories to zero. Businesses are
keeping to a tight production schedule with substantial
production capacity in reserve.

Retail sales rose 1.4% in July as the consumer continued to
spend. Makes you wonder if spending is a way to stave off anxiety
about not having a paycheck down the road.  So, how is the
consumer feeling these days? - well, the University of Michigan
release of its survey of consumer "sentiment" is put off to
Tuesday, thanks to lights out in Michigan.

By the way, July sales strength was said to be broad-based.
Building materials and garden supplies rose 1.3%, electronics
sales were up by 1.2%, general merchandise was up 1.1% and
gasoline station intake gained 1.6%, reflecting a rise in pump
prices - tell me about it! In troubled California, where I had to
move from troubled New York, premium was running close to 2.20 a
gallon.  Of course, I have to drive a high performance car - time
for that new Toyota hybrid?


I mentioned already release of U.S. industrial output in July -
the increase taken as further evidence that manufacturing is
picking up. However, a very warm July resulted in total electric
utility output increasing by 3.9%, after a 3.3% drop in June.
This sector lifted overall industrial production to an
unexpectedly large gain. Peak electric demand is seasonal -
cooler fall weather is near, which will cause less use.

Separately, fewer U.S. banks tightened business-loan standards
over the past three months and banks had greater demand for
consumer and mortgage loans, the Federal Reserve said.

Consumer prices rose by a slight 0.2% in July for the second
month in a row, according to the Labor Department on Friday. The
latest CPI (Consumer Price Index), the most closely watched
inflation barometer, suggested prices are fairly stable as they
were in the June report.

The Institute for Supply Management said manufacturing activity
grew for the first time in five months in July. The purchasing
managers index rose to 51.8 from a previous reading of 49.8 in
June. Readings above 50 indicate expansion of activity and prices
in the manufacturing sector, while readings under 50 are defined
as evidence of contraction.

Also, the New York Federal Reserve said its manufacturing survey
there has shown growing activity for the past several months. In
the most recent index reading, the Empire State Manufacturing
Survey slowed to 10 in August, down from 20.8 in July. Any number
above zero means more manufacturers say business conditions are
improving than say they are worsening.

As noted elsewhere, recent reports suggest that total U.S.
manufacturing has stabilized and may be recovering. Within the
industrial production report, it was indicated that manufacturing
output rose 0.2%, after a revised 0.3% rise in June.

Auto production for example, rose for the second straight month.
The mining industry experienced a July decline, as production
fell 0.4% after a 1.2% rise in June. Price related? - Gold demand
may have fallen due to higher prices. Mining capacity use sank to
a level of 84.6% in July from 84.9% the month before. Less supply
could also be one reason that the Philly Gold & Silver Index
(XAU) has finally re-tested its prior peak? See chart -

On XAU - if the Index gets above 89, a potential upside objective
is to around 110 based on the breakout above the symmetrical

Related to earnings, Dell Computer (DELL) rallied some 3% after
posting a Q2 profit late Thursday that matched Street consensus
estimates. Looking ahead, Dell said it expects to report a Q3
profit that's in line with analysts' current estimates.  This may
have been a factor in the firm close for Nasdaq for the week.
More on that below -


Treasury bonds closed lower. Often there will be "safe-haven"
buyers coming in, in reaction to a crisis like the power outage.
However, early on government officials noted that there was no
terrorism link to the shutdown.

The 10-year Treasury note was down a substantial 18/32 to yield
4.53%.  Yields over 4.5% offer competition to equities in that
this is a guaranteed return, versus further upside appreciation
potential in stocks - who knows what that is this year with the
market already up over 20% from the low in the S&P.  A "normal"
year historically will see appreciation of 10-15%. Of course,
year to date, which is a more fair comparison, has the benchmark
SPX up something closer to 8%.

In the currency market, the U.S. dollar was steady against its
major trading partners. The greenback was up 0.1% to 119.15 yen.
The Euro lost 0.2% to close in New York trading at $1.1252.


If you want to know why the Nasdaq, Nas 100 and QQQ rebounded, I
see it as the influence of the chip stocks. To revisit the
Semiconductor stock index or SOX chart, see the chart below.

The Index rebounded back above its 50-day average, which was a
near-term plus.  I thought that the SOX might move down to retest
the up trendline dating from February and closer to its 200-day
average. It may still, but last week, the Index caught support
offered by a trendline off the top as noted.

The even more key factor is that the recent reaction low occurred
above the prior downswing bottom. Lower (reaction) lows and
higher highs - that's amori - no, that's an UPtrend. Of course,
yet to come is a higher high above 400.

S&P 500 (SPX) - Hourly chart:

The benchmark S&P 500 (SPX) had to clear the two trendlines that
intersect in the 992-995 area to suggest a re-emerging uptrend.
Then of course there is anticipated resistance at 1000 - this is
more psychological than based on prior highs and chart
considerations in my estimation.

Based on prior highs, resistance can be assumed to come in at
1005, then 1015.  Paraphrasing the way that Secretary Rumsfield
asks himself questions that he then answers: "would I love to buy
puts if SPX was at 1015? - indeed I would."

Market psychology is not something I under-estimate as I pay
attention to how bullish or bearish ("sentiment") traders get as
a contrary indicator. I still figure that a breakout move is not
going to happen yet and I base this partially on the fact that my
equities call to put ratio shot up on Friday.  Yes, I know it was
options expiration Friday but still, I figure that all that call
activity suggests a bit too much bullishness around.

On balance, I would rather own puts or be short SPX futures on a
further advance, playing for another downturn ahead and the
expectation of still being locked into a trading range

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

Speaking of my principal sentiment indicator, it is found below,
under the S&P 100 (OEX) price chart.  No doubt some of the
unwinding of equities options was related to buying back covered
calls and the like, there was this jump in CBOE daily call volume
relative to puts.  Anyway, it puts this indicator up fairly
sharply relative to where it's been. I think the bulls are not
worried or not worried enough. Being a contrarian here I still
worry a good deal relative to the few stocks I am holding from
lower levels, as opposed to ones I strictly "trade".

Anyway, the near chart pattern is slightly bearish judging by the
lower rally highs.  Could be a triangle that will resolve itself
by a next up leg.  Time to look at the hourly chart.

The hourly OEX chart pattern is looking like one that is tracing
out a downtrend channel. This suggests resistance at 500 -
there's one of those even big fat round numbers again!  A close
above 500 is needed to suggest a breakout above the hourly down
trendline.  Beyond a breakout OEX should also hold this 500 area
on subsequent pullbacks, to suggest renewed upside momentum here
in the doldrums of August.

This fact noted for those of you still trading away and not
taking August off like the Italians.  By the way, the harder
working Germans have just seen their economy also slip into
recession based on a second consecutive quarter of a lower GDP.
Just an aside from a Europhile folks!

Back to levels - above 500, resistance is at 505-506; then, if
exceeded, at 510-511.  Minor support comes in at 493, but mainly
can be expected back in the 485 area, on down to 483 currently
gotten by tracing the lower end of the downtrend channel - and,
it looks a lot like OEX is in a downtrend channel.

I want to be in puts on further rally attempt, especially on a
failure to pierce 500.  Stay tuned!

Dow Industrials Index (DJX.X)- Hourly chart:

Well, the moment of truth may be at hand for the Dow Index or DJX
as it tests the top end of its recent trading range.  I find it
suspect that the Stochastic model is not confirming the recent
higher high and this is mirrored by the RSI (not shown). This
type of technical divergence is usually a good indicator for an
upcoming reversal, although it is a more solid signal on a daily
chart basis when it (the divergence) develops over a longer time.

Bullish case - a daily close above 93.5 would suggest that at
least the narrow Dow was breaking out above its price range. I
want to play the odds that the Index is still likely to be range
bound.  Acting on a trading risk to reward basis, I look to buy
puts in the 93.5 area, as I figure downside potential to be at
least twice that of a further upside move.

Risk to reward considerations work well as a part of trading
strategy provided that the trade is closed if there is a move
beyond a "breakout" point, such as here, by exiting above 94.25.

As suggested the week before, long DJX Index calls held from the
90 area met my profit objective on the move above 93 and I exited
the trade. (I also noted that puts looked attractive in the 93-
93.5 area.)

Nasdaq Composite (COMPX) – Daily & Hourly charts:

Technically, the rebound in the Composite occurred in a
predictable fashion according to the tendency for Indices and
stocks to fill prior chart gaps.  The one in question is outlined
on the daily chart to the left below -

I calculate resistance coming in around 1740-1750 and think that
a move to this area is about the best that can be expected for
COMPX.  Support looks to me to come in around 1650, according the
hourly trendline.  I continue to suggest playing the expected
trading range in the Nasdaq indices by buying puts at the top end
and calls at the low end and not in between.

As far as looking to where being long options is favorable,
unlike maybe the futures, buying calls or puts in the middle of a
relatively narrow expected range doesn't offer the needed
potential for a sizable move - unless there is breakout to
resolve the trend, but this doesn't seem likely anytime soon.

Nasdaq 100 Tracking Stock (QQQ) - Hourly:

The Q's can be traded of course for smaller moves by buying the
stock.  I thought QQQ might get down to 29, although the 30 area
was support implied by a 50% retracement as noted coming into
last week.

I continue to favor shorting the stock around 32 or a bit higher
- up to 32.50. Selling the stock in this area if reached, also
offers my suggested profit target to those long the stock at 30,
for those buying dips only. I bought a little there, but held out
for 29 to buy more - WRONG! for now.

Resistance at 31.75-32.25, on an hourly closing basis, is implied
first by the trendline drawn on the chart below and by the
previous hourly closing high. 32.50-32.60 is the next higher
expected resistance.

An hourly, then daily, close above 32.5 would look like a
technical breakout. I rate the odds greater for a new low below
the recent one at 30, than for a new sustainable high.  We'll see
if more buying interest comes in early in the coming trading week
based on bullish economic news at week's end not realized due to
lights out in New York.

The Q's could still get down to the 29 area at some point,
assuming they are unable to pierce 32 to the upside. Below 29,
next lower technical support comes in around 27.50. Maybe 30 will
be the low but buying is lackluster of late and they may drift lower again.

Good Trading Success!

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Editor's Plays

Trend Change

The last two weeks it appeared we were going to do the August
dip but as you can tell from the charts we are dipless. The
trend going into last weekend was six days of drops on the
Nasdaq and two days after a 9000 retest on the Dow. What a
difference a week makes. We are poised on the Dow to breakout
to new highs instead of new lows.

The September QQQ puts I wrote about last Sunday were $1.00
on Monday and 50 cents on Friday. We were stopped out of the
play at 75 cents on Wednesday when the QQQ hit $31. While I
am still a believer in the 50% off sale I am 0 for 3 over the
last three weeks.

July did not conform to historical trends and so far neither
has August. That leaves us with the possibility that we are
going to hold to this trading range until September and face
the normal 3Q earnings warnings from a higher level.

As I sit here this weekend trying to decide what to play for
the coming week I continue to be convinced that calls are
not it. My historical bias continues to cloud my vision. I
considered recommending nothing but that is a cop out. I
looked at DJX and QQQ calls but the DJX is at its 52-week
high. Not a high percentage play. (Not that the put record
has been high percentage lately) I just can't see the markets
setting news highs in August. I mean real new highs like Dow
9500-9600. Just getting to 9400 will not make any money for
anybody starting at our 9300 level this weekend.

The problem is the non-confirmation by the Nasdaq, S&P,
RUT and Wilshire-5000. Each has cycled back up to down trend
resistance. Where the Dow is ready to break out to a new
high the rest are ready to roll over for another down leg.
They could also break that downtrend resistance but that
resistance covers 5000 stocks where the Dow is only 30.
Which do you think has a better chance of occurring next
week? Actually both could happen. The Dow could break to
9400 intraday and the rest of the indexes could fail at
resistance. It would simply be a stronger case of bearish

Long story short, I am sticking with the QQQ puts. DJX puts
are too expensive. (Three guesses why) I still like the
September QQQ $30 puts QAV-UD at 50x55 at Friday's close.
Assuming we open up on Monday we should be able to get them
for 50 cents or less. Right or wrong that is the only play
that makes sense to me this week. There is strong congestion
between $31 and $32 on the QQQ and not much tech excitement
to push it through. Dell was the only major tech in the green
on Friday.

Set a profit target of QQQ $29.50 and a stop loss of $32.

QQQ Chart


Play updates:


The Nasdaq rebound reflated the leap portfolio but RFMD
is still the major drag. Still six months to go and if
the recovery is for real this should turn out ok.

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


No Fear
Jonathan Levinson

For the week, bonds moved lower, while the dollar and gold moved
higher, and the equities indices all posted gains.  The Dow and
S&P 500 both printed bullish morning start candle formations,
while the Nasdaq printed an upside inside week, known in
candlestick terms as a bullish harami.

The bear market in volatility continued, with QQV, VIX and VXN
all closing near their year lows.  The picture was no doubt
distorted by triple-witching Friday, but equities remain in a
significantly low volatility environment.  The put to call ratio
on Friday was very low, again subject to options expiration
doubts, but the combination of weekly gains in the equity indices
and low volatility and put to call readings should give bulls
pause.  Markets do not tend to go up significantly when everyone
is bullish.

Bonds sold off, driving yields to new yearly highs.  On the
theory that the spring rally was liquidity-driven, the erosion of
liquidity from the bond market is another cause for concern for
equity markets, as they may well be next in line.  If, however,
the money freed up by sales of treasuries seeks a new target,
equities could be biding their time before the next leg up in
this year's rally.


Market Averages


52-week High:  9361
52-week Low :  7197
Current     :  9321

Moving Averages:

 10-dma: 9203
 50-dma: 9154
200-dma: 8570

S&P 500 ($SPX)

52-week High: 1015
52-week Low :  768
Current     :  990

Moving Averages:

 10-dma:  980
 50-dma:  989
200-dma:  915

Nasdaq-100 ($NDX)

52-week High: 1316
52-week Low :  795
Current     : 1253

Moving Averages:

 10-dma: 1234
 50-dma: 1243
200-dma: 1101


The VIX and VXN dropped fractionally as equities rose
fractionally.  The VIX remains close to its  widely regarded 20
level, and with the VXN below 30, equities continue to appear

CBOE Market Volatility Index (VIX) = 20.20 –0.31
Nasdaq Volatility Index (VXN)      = 29.21 –0.06


          Put/Call Ratio  Call Volume   Put Volume

Total          0.53        891,171       471,754
Equity Only    0.43        767,588       329,007
OEX            1.16         31,536        36,593
QQQ            1.01         70,301        70,997


Bullish Percent Data

           Current   Change   Status
NYSE          68.6    + 0     Bull Confirmed
NASDAQ-100    65.0    + 0     Bear Confirmed
Dow Indust.   80.0    + 0     Bull Correction
S&P 500       74.6    + 0     Bull Correction
S&P 100       82.0    + 0     Bull Confirmed

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

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


 5-Day Arms Index  0.87
10-Day Arms Index  1.00
21-Day Arms Index  0.98
55-Day Arms Index  1.10

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


Market Internals

            -NYSE-   -NASDAQ-
Advancers    1505      1423
Decliners    1197      1423

New Highs     194       203
New Lows       28        11

Up Volume    391M      286M
Down Vol.    327M      384M

Total Vol.   733M      690M
M = millions


Commitments Of Traders Report: 08/12/03

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

Commercials added slightly to their long positions in the S&P,
whilesmall traders maintained their positions, adding a net 761
contracts for the week.

Commercials   Long      Short      Net     % Of OI
07/22/03      411,206   442,131   (30,925)   (3.6%)
07/29/03      405,429   445,114   (39,685)   (4.7%)
08/05/03      395,633   450,988   (55,353)   (6.5%)
08/12/03      399,414   456,767   (57,353)   (6.7%)

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
07/22/03      155,891    76,466    79,425    34.2%
07/29/03      155,216    73,030    82,186    36.0%
08/05/03      159,971    72,951    87,020    37.4%
08/12/03      158,821    71,040    87,781    38.2%

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

Commercials added heavily to their long positions in the e-mini,
posting their most bullish reading of the year, while small
traders added further to their short positions.

Commercials   Long      Short      Net     % Of OI
07/22/03      249,392   249,386          6     0.0%
07/29/03      272,659   216,166     56,493    11.6%
08/05/03      310,662   249,004     61,658    11.0%
08/12/03      306,014   217,233     88,781    17.0%

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:   88,781   - 08/12/03

Small Traders Long      Short      Net     % of OI
07/22/03       45,945    76,071   (30,126)  (24.7%)
07/29/03       44,437    93,144   (48,707)  (35.4%)
08/05/03       56,663    95,919   (39,256)  (25.7%)
08/12/03       62,534   106,403   (43,869)  (26.0%

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


Commercials and small traders moved in the same direction on the
NDX, as commercials lightened up slightly on their short
positions, while small traders added to their longs.

Commercials   Long      Short      Net     % of OI
07/22/03       32,502     48,139   (15,637) (19.4%)
07/29/03       31,456     50,294   (18,838) (23.0%)
08/05/03       32,813     52,383   (19,570) (23.0%)
08/12/03       34,374     53,015   (18,641) (21.3%)

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
07/22/03       27,321     8,844    18,477    51.1%
07/29/03       25,691     7,810    17,881    53.4%
08/05/03       22,188     7,783    14,405    48.1%
08/12/03       23,957     7,871    16,086    50.5%

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


Commercials added slightly to their long positions on the Dow, but
the move was sufficient to post a new bullish high for the year,
close to reaching the October 2001 high of 15,135 contracts.
Small traders added more substantially to their shorts.

Commercials   Long      Short      Net     % of OI
07/22/03       22,198     8,176   14,022      46.2%
07/29/03       23,696     9,572   14,124      42.5%
08/05/03       23,981     9,264   14,717      44.3%
08/12/03       24,942     9,878   15,064      43.3%

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
07/22/03        6,110    10,898   (4,788)   (28.2%)
07/29/03        5,744    11,601   (5,857)   (33.8%)
08/05/03        5,716    10,422   (4,706)   (29.2%)
08/12/03        6,933    13,248   (6,315)   (31.3%)

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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Betting on or against Treasuries with options

I'm wondering with the rise in interest rates whether it would
make sense to take a longer-range position in call options (like
out to next spring) on ten year yields.  When I look at the
option chains, however, there doesn't seem to be any open
interest to speak of.  Is this because these are not preferred
vehicles to be trading?

The trader is correct in his observation that Treasury bond yield
options are very thinly traded on a daily basis, with little open

It is arguable that one reason Treasury bond yield options are
thinly traded is because Treasuries themselves are regarded as a
relatively slow moving, non-volatile, but more likely is
perceived as a boring investment vehicle, and therefore attracts
little attention from the option trader.  After all, with the
bond's interest payment and the investors principal being backed
by the full faith and credit of the U.S. government, many
investors around the world regard U.S. Treasuries as the safest
investment one can make, where upon maturity, the investor will
most likely receive all of their money back.

Another reason Treasury yield options are rather thinly traded is
because the U.S. Treasury market is perhaps the most liquid of
markets, with participants from around the world readily dealing
in these bonds, especially banking and financial institutions.

We are more apt to find the European Central Bank buying or
selling U.S. Treasuries on any given day than you would see them
buying various equity-based products, which on a relative scale
may be much more illiquid than the Treasury market.

For the most part, Treasury bonds are deemed an "investment
vehicle" by the retail customer (you and I), than they are a
"trading vehicle."

It would also be my opinion that institutions, which tend to
stick with the selling of calls and puts (stocks, bonds, you name
it), which has premium attached and erodes over time, but a
premium that the retail customer (you and I) are more apt to pay
in order to limit our risk to a FINITE level.  RISK that
institutions are much more able to offset with a hedge in the
underlying security itself.

But none of this.  NONE OF IT, means a trader can't profit by
making a bet on or against Treasuries with options.  I will say,
if you are an ACTIVE options trader, that likes tight bid/ask
spreads and lots of liquidity in your options trade because your
planning on being in today and out tomorrow if the trade doesn't
immediately move in the desire direction, then trading options on
Treasuries is probably not for you.

Now, while this may seem nitpicking, lets first understand that
interest rates are not rising.  INTEREST RATES are set by the Fed.
However, Treasury yields have been on the rise, which has
had many banks and mortgage lenders raising their lending rates.

If we think INTEREST RATES have risen, then check your savings
deposit statement again this month, and see what the rate of
INTEREST is that you're receiving.  I'm checking mine right now
and see I'm getting a whopping 0.698% ANNUAL INTEREST RATE on
some rainy day funds in my savings account.

But lets imagine that INTEREST RATES are going to be on the rise,
which the Treasury bond market appears to be predicting.

Let me also add this little footnote, which was an interesting
tidbit of information/reporting/analysis from CNBC's Rick
Santelli, where he focuses on interest rates, bonds and futures.
Of CNBC's various reporters, I would have to say I put most
weight in Mr. Santelli's insights/reporting/analysis than any
other.  One point I found interesting is that he thought, based
on discussions with bond traders, is that two-thirds of the move
up in Treasury YIELDS has been attributed to large hedges being
removed on mortgage lending, and one-third based on economic
conditions showing signs of improvement.

These are about the most notable comments, with some type of
ratio attached to give us a feel for things.  Take Mr. Santelli's
comments for what you feel they're worth, but add in some
observations from PIMCO's Bill Gross, when expressing his views
(06/24/03) regarding Treasuries having little upside (based on
price), even if the Fed were to cut INTEREST RATES to 0.00%!

06/25/03 Market Monitor - Discussion on 5-year YIELD calls

I wanted to show these comments made in the OptionInvetor.com
Market Monitor on June 25th, not only as it relates to my attempt
to regurgitate what Mr. Gross had said the day before (basically
that risk/reward was terrible in Treasuries), but to also show
what a YIELD call trader may want to consider when making a
decision about YIELD calls.

On June 25th, at 10:41:18, I made note that the 5-year YIELD
($FVX.X) was trading at a 2.145% YIELD.  On any chart we might
look at, that would be shown as 21.45.  You stock traders out
there will associate this with a $21.45 stock.  To make money in
that YIELD call, if you paid the bid at $2.80, you would have
needed a move higher in YIELD (selling in the bond) to at least
24.25, or 2.425% to make money.

While illiquid, I tried to bid in between the bid/offer on
multiple occasions over the next couple of days and never got
filled.  For the most part, it's worth a try, but to get a fill,
traders in yield calls/puts are going to have to trade bid/offer.

To further address the traders question, think about Mr. Gross'
comments in the context of risk/reward, in combination with the
various maturity dates of Treasury bonds.

To try and make a point.  What are the odds of me (Jeff Bailey)
waking up tomorrow morning?  Gosh, I'm hoping on 100%.  While I'm
40-year's old, I still think I've got a good chance of waking up
in the morning.  Now, what are the chances of me being still
waking up from a night's rest 5-years from now?  Hmmmm.... I hope
you at least said 95%.  But lets go out 10-years, ask the same
question, then 30-years from today and pose the question again.
As time progresses, you should find yourself LESS CERTAIN or
perhaps finding a higher degree of uncertainty with your answer.

As it relates to selecting a Treasury yield call or put, I would
also suggest a trader think about RISK, which comes with
uncertainty.  Remember, Treasury yields were just at 40-year

While the trader mentioned a 10-year Treasury call yield with
expiration extending into next spring, should Treasury yields
continue higher, with thought that the Fed will be raising
INTEREST RATES to try and cool down any higher rates of
inflation, which could harm an economies longer-term growth
prospects, then perhaps a 30-year bond carries greater

Another alternative trading vehicle for options, that are tied to
Treasuries, may also be found in some of the ishares, but here
the trader is trading price equivalents on a basket of short-term
(1-3 years maturity), intermediate term (7-10 years maturity) and
longer-term (20+ years to maturity) Treasury bonds.

The reason I mention these iShares, which are listed on the
American Stock Exchange (SHY, IEF, TLT), is that I see higher
levels of open interest in these Treasury-based derivatives, than
in the yield calls and puts.

To answer the trader's finals question, "does it make sense to
take a longer-range position in call options" on Treasury yields,
I would certainly have to think so, especially with the powerful
move off the bottom that we've seen in YIELDS.

Here's some initial work I'm putting together for my own
information regarding Rick Santelli's comments that he made
today, which grabbed my ear regarding the 2/3 mortgage hedge
activity and 1/3 economic activity, and might tie in with past
observations regarding MONEY SUPPLY, impact on MORTGAGE RATES and
MORTGAGE ORIGINATIONS, which all can tie in with Treasury YIELDS.

Weekly Mortgage Bankers Association Survey Statistics

Traders/investors that believe the MARKET is pretty smart and can
forecast events might note that mortgage applications hit an all-
time high for the week ended May 30th (reported on June 4), just
two weeks before home mortgage rates hit 40-year lows.
Refinancing by homeowners also hit an all-time high that week,
perhaps seeing a SURGE in money supply, as consumers pulled
liquidity from their illiquid dwellings and shifted RISK at
historically low yields to their bankers.

While I put this data set together tonight, and thinking about
how I can try and create a more meaningful observation from a
point and figure chart to better analyze and trends,
bullish/bearish vertical counts and do some back testing, I can
relate some of what I see to Rick Santelli's comments regarding
how some mortgage lenders may have overdone things as huge demand
for mortgages and refinancing activities have started to unwind.

I also looked at the Dow Jones Home Construction Index (DJUSHB)
427.30, which is comprised of home builders.  It's recent
relative highs of 483 were achieved on June 16 and 17, which if
tied to the above table, would have come about two-week AFTER
mortgage applications and refinances peaked, but right when
mortgage rates were hitting their 40-year lows.

I'm working on collecting further data prior to December of last
year from the Mortgage Bankers Association Website

, but will note the current fixed rate 30-year mortgage is 6%,
which is pretty close to that found in early December of last

The time period I think I should compare current time with is
that dating back to late 1998 and 2000, when the 10-year YIELD
rose from approximately 4.25% to 6.7% by January of 2002.

Over the course of the next several months, if mortgage shoppers,
which look pretty smart back in early June, were to tip their
hand again, then this type of data may be valuable to traders in
Treasury bonds, or Treasury-related options!

Jeff Bailey


Symbol  Company               Date           Comment      EPS Est

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

A      Agilent Technologies  Mon, Aug 18  After the Bell     -0.07
DRYR   Dreyer's Gnd Ice Crm  Mon, Aug 18  After the Bell       N/A
LOW    Lowe's Companies      Mon, Aug 18  Before the Bell     0.69
TOY    Toys R Us             Mon, Aug 18  Before the Bell    -0.05

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

BJ     BJ's Wholesale Club   Tue, Aug 19  Before the Bell     0.32
CLL    Celltech Group PLC    Tue, Aug 19  Before the Bell      N/A
CCH    Coca-Cola Hlnic Btlng Tue, Aug 19  Before the Bell     0.46
DV     DeVry                 Tue, Aug 19  After the Bell      0.20
HD     Home Depot Inc        Tue, Aug 19  Before the Bell     0.54
INTU   Intuit                Tue, Aug 19  After the Bell     -0.07
NTAP   Network Appliance     Tue, Aug 19  After the Bell      0.07
PETC   PETCO ANIMAL SUPPLIES Tue, Aug 19  After the Bell      0.19
PCG    PG&E Corporation      Tue, Aug 19  -----N/A-----       0.39
SKS    Saks Incorporated     Tue, Aug 19  Before the Bell    -0.20
SPLS   Staples, Inc.         Tue, Aug 19  Before the Bell     0.16
SCMR   Sycamore Networks     Tue, Aug 19  After the Bell     -0.05

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

ADCT   ADC                   Wed, Aug 20  After the Bell     -0.01
BLI    Big Lots, Inc.        Wed, Aug 20  Before the Bell    -0.02
BCM    Can Imp Bank of Comm  Wed, Aug 20  Before the Bell      N/A
CSB    Ciba Spec Chem HoldingWed, Aug 20  Before the Bell      N/A
EV     Eaton Vance Corp.     Wed, Aug 20  Before the Bell     0.39
MW     Men's Wearhouse       Wed, Aug 20  After the Bell      0.26
OVTI   Omnivision Tech       Wed, Aug 20  After the Bell      0.20
PDCO   Patterson Dental      Wed, Aug 20  Before the Bell     0.44
ROST   Ross Stores, Inc.     Wed, Aug 20  Before the Bell     0.70
STOSY  Santos Ltd.           Wed, Aug 20  -----N/A-----        N/A
SCM    Swisscom AG           Wed, Aug 20  Before the Bell      N/A
SNPS   Synopsys              Wed, Aug 20  After the Bell      0.80
TLB    Talbots               Wed, Aug 20  -----N/A-----       0.31

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

ARO    Aeropostale, Inc.     Thu, Aug 21  After the Bell      0.05
AMCR   Amcor Limited         Thu, Aug 21  -----N/A-----        N/A
ADSK   Autodesk, Inc.        Thu, Aug 21  After the Bell      0.10
BKS    Barnes&Noble          Thu, Aug 21  Before the Bell     0.16
BGP    Borders Group Inc.    Thu, Aug 21  After the Bell      0.02
BFb    Brown-Forman Corp     Thu, Aug 21  Before the Bell     0.67
CIEN   CIENA Corporation     Thu, Aug 21  Before the Bell    -0.10
CLE    Claire's Stores       Thu, Aug 21  -----N/A-----       0.43
DYS    Dist Servicio D&S SA. Thu, Aug 21  -----N/A-----       0.07
FL     Foot Locker, Inc.     Thu, Aug 21  Before the Bell     0.24
FRED   Fred's                Thu, Aug 21  Before the Bell     0.11
GPS    Gap Inc.              Thu, Aug 21  -----N/A-----       0.21
HRL    Hormel Foods Corp     Thu, Aug 21  Before the Bell     0.27
SJM    J. M. Smucker Company Thu, Aug 21  Before the Bell     0.50
KKD    Krispy Kreme Doughnut Thu, Aug 21  Before the Bell     0.20
LANC   Lancaster Colony Corp Thu, Aug 21  Before the Bell     0.60
LTD    Limited Brands        Thu, Aug 21  Before the Bell     0.16
MRVL   Marvell Technology    Thu, Aug 21  -----N/A-----       0.21
JWN    Nordstrom             Thu, Aug 21  After the Bell      0.39
NOVL   Novell                Thu, Aug 21  -----N/A-----      -0.03
SFD    Smithfield Foods      Thu, Aug 21  Before the Bell     0.20
WSM    Williams-Sonoma       Thu, Aug 21  Before the Bell     0.14

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

PNY    Piedmont Natural Gas  Fri, Aug 22  -----N/A-----      -0.28
KPN    Royal Kpn N.V.        Fri, Aug 22  Before the Bell      N/A
WPPGY  WPP Group PLC         Fri, Aug 22  Before the Bell     1.03

Upcoming Stock Splits In The Next Two Weeks...

Symbol  Company Name              Ratio    Payable     Executable

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
GPT     GreenPoint Financial Corp 3:2      Aug  20th   Aug  21st
TSCO    Tractor Supply Company    2:1      Aug  21st   Aug  22nd
TTI     Tetra Technologies Inc    3:2      Aug  21st   Aug  22nd
CECO    Career Education Corp     2:1      Aug  22nd   Aug  25th
FOBB    First Oak Brook Bancshares3:2      Aug  25th   Aug  26th
CELL    Brightpoint Inc           3:2      Aug  25th   Aug  26th
CBK     Christopher & Banks Corp  3:2      Aug  27th   Aug  28th
BER     W. R. Berkley Corp        3:2      Aug  27th   Aug  28th
EBAY    eBay                      2:1      Aug  28th   Aug  29th
JBHT    J.B. Hunt Transport Serv  2:1      Aug  29th   Sep   1st
RCII    Rent A Center             5:2      Aug  29th   Sep   1st
AFP     United Capital Corp       2:1      Aug  29th   Sep   1st
JCOM    J2 Global Communication   2:1      Aug  29th   Sep   1st

Economic Reports This Week

The past earnings season is slowly coming to a halt as this weeks
earnings are predominantly on the retail side.  However it looks
like split season is well underway, as a grunt load of companies
are due to announce over the next two weeks.   There are not as
many economic reports this week as there was last week, but
traders should keep an eye on the Mich Sentiment-Prel. due out on
Tuesday and the Philadelphia Fed coming out on Thursday.


Monday, 08/18/03

Tuesday, 08/19/03
Housing Starts (BB)     Jul  Forecast:  1.790M  Previous:   1.803M
Building Permits (BB)   Jul  Forecast:  1.800M  Previous:   1.817M
Mich Sentiment-Prel.(DM)Aug  Forecast:    91.5  Previous:     90.9
Treasury Budget (DM)    Jul  Forecast: -$42.0B  Previous:  -$29.2B

Wednesday, 08/20/03

Thursday, 08/21/03
Initial Claims (BB)   08/16  Forecast:     N/A  Previous:     398K
Leading Indicators(DM)  Jul  Forecast:    0.4%  Previous:     0.1%
Philadelphia Fed (DM)   Aug  Forecast:    10.0  Previous:      8.3

Friday, 08/22/03

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


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The Option Investor Newsletter                   Sunday 08-17-2003
Sunday                                                      2 of 5

In Section Two:

Watch List: KSS, VRTS, KKD, AZO
Call Play of the Day: SPW
Dropped Calls: None
Dropped Puts: PGR


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Watch List

Kohl's Corp. - KSS - close: 63.54 change: +2.50

WHAT TO WATCH: Remember our recent bullish play on KSS that we had
to drop ahead of earnings?  Well, the company beat estimates and
the stock soared on Friday, extending the recent breakout.  If the
pattern continues, look for a pullback to confirm support in the
$61-62 area and the subsequent rebound should be good for a run
towards $66 resistance.


Veritas Software Corp. - VRTS - close: 31.35 change: +0.35

WHAT TO WATCH: Slow and steady, shares of VRTS have held their
recent highs quite well, despite a swoon in the overall Technology
indices.  Friday's session saw the stock climbing back over $31
and it looks like a breakout in the making.  Wait for a breakout
over $32 and then look for a bullish move to the $35 level, with
potential for a move as high as $37.50.


Krispy Kreme - KKD - close: 48.90 change: +1.22

WHAT TO WATCH: Sugar addicts rejoice!  KKD broke out to new all-
time highs on Thursday and extended those gains on Friday and on
strong volume too.  While we certainly wouldn't advocate chasing
the stock higher here, a pullback to confirm new support near $46
could set up a nice bullish play.  Doubt that the stock has the
gas to continue powering higher?  Take a look at the PnF chart,
which shows the stock on a fresh Buy signal and just for
reference, the bullish price target is $74.  Warning -- not for
the faint of heart or those that suffer from vertigo!


Auto Zone - AZO - close: 86.83 change: +0.38

WHAT TO WATCH: Sure enough, AZO's breakout over $80 last month was
the real deal and unfortunately we got shaken out on the dip back
to the 50-dma.  Believe it or not, the stock is nearing that
important $88-89 resistance zone and it looks like it could result
in a breakout this time around.  Other automotive related stocks
like AAP and AN are also showing amazing strength.  Wait for the
breakout over $89 before playing.  Once clear of round number
resistance at $90, things could get exciting for the bulls,
especially if the broad market finally manages a breakout of its


On the RADAR Screen

SNDK $52.92 - Ever since the breakdown from its very aggressive
bullish trend, shares of SNDK have been meandering between their
recent lows and to bottom of that large gap.  This is only for
aggressive bears, but targeting a rollover near the bottom of that
gap at $54 could yield some nice results, especially with the PnF
chart on a Sell signal with a bearish price target of $36.

JCI $97.40 - Here's another possible way to play the strength in
the Automotive sector.  JCI has been beating against the $98
resistance level for close to a month now and looks like it wants
to break higher.  There is likely to be some psychological
resistance at $100, but with a strongly bullish PnF chart and a
bullish price target of $112, we'd hazard a guess that there's a
favorable risk reward ratio to be found with a trigger just over
recent resistance and  a stop at $94.50.

HD $33.54 - Who cares about fundamentals?  Despite the apparent
breakdown in shares of HD, the stock has come back swinging and
appears dead set on revisiting its recent highs near $34.75.  A
breakout over $35 could really generate some follow through, as it
would not only clear stubborn resistance, but would generate a
fresh PnF Buy signal and clear the bearish resistance line.  Look
for a breakout to have upside to at least $38 and quite possibly


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Call Play of the Day:

SPX Corporation - SPW - close: 48.15 change: +1.65 stop: 44.00

See details in play list


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.




Progressive Corp - PGR - cls: 66.50 chg: +0.96 stop: 66.01

Our PGR play has been stuck in a tight-range consolidation between
$64-66 for the past two weeks, so it is rather irritating that on
a light volume day for the overall market, the stock managed to
finally break out of that range and to the upside no less.  After
waiting so long for the breakdown to materialize, it is
frustrating to have to close the play for a small loss.  But we're
happy with the way we managed it, inching our stop down to just
above resistance, minimizing the damage on the breakout.  Traders
that weren't stopped out on Friday will want to take advantage of
any early weakness on Monday to find an exit at a more favorable
price point.

Picked on July 23rd at   $65.22
Change since picked:      +1.28
Earnings Date          07/16/03 (confirmed)
Average Daily Volume:     848 K


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.

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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The Option Investor Newsletter                   Sunday 08-17-2003
Sunday                                                      3 of 5

In Section Three:

Current Calls: EBAY, HIG, LLL, PCAR, STJ
New Calls: SPW
Current Put Plays: BDK, IBM, YHOO
New Puts: None



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eBay, Inc. - EBAY - close: 103.07 change: +0.37 stop: 99.50

Company Description:
After developing a Web-based community in which buyers and sellers
are brought together in an efficient format, EBAY has emerged as
the dominant online auction site.  The eBay dynamic pricing format
permits sellers to list items for sale, buyers to bid on items of
interest and all eBay users to browse through listed items.  Items
listed on eBay include collectibles, automobiles, art objects,
jewelry, consumer electronics and a host of practical and
miscellaneous items.  Although based in the United States, through
its subsidiaries, EBAY also operates trading platforms in Germany,
the United Kingdom, Australia, Japan, Canada, France, Austria,
Italy and South Korea.

Why we like it:
Traders looking for some indication of the market's intentions on
Friday were sorely disappointed, as the major exchanges reported
the lightest volume of the year.  Between expiration Friday
machinations and the hangover from Thursday's power outage,
investors just didn't seem interested enough to push the pile
either way.  To its credit, our EBAY play managed to log a small
gain, ending the day below the $104 resistance and above the 10-
dma ($102.14).  That leaves us with no choice but to wait for some
clarity on Monday.  Intraday dips near the $101-102 area still
look good for new entries, while more conservative traders will
still want to see the move through $1o4 before taking the plunge.
Remember, the primary catalyst for this play is the company's
split at the end of the month and we're expecting a bullish run
into that event.

Suggested Options:
Shorter Term: The September 105 Call will offer short-term traders
the best return on an immediate move, as it is the closest to
being in the money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the October 110 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 October 105 Call.

BUY CALL SEP-100 QXB-IT OI=3234 at $6.00 SL=4.00
BUY CALL SEP-105 QXB-IA OI=7292 at $3.20 SL=1.50
BUY CALL OCT-105 QXB-JA OI=6499 at $5.30 SL=3.25
BUY CALL OCT-110 QXB-JB OI=4157 at $3.30 SL=1.75

Annotated Chart of EBAY:

Picked on August 12th at   $103.43
Change since picked:         -0.36
Earnings Date             10/23/03 (unconfirmed)
Average Daily Volume =    6.82 mln

Hartford Fin. Svcs - HIG - close: 53.72 change: -0.42 stop: 51.00

Company Description:
Hartford Financial Services Group is a diversified insurance and
financial services company.  The company provides investment
products, individual life, group life and group disability
insurance products, as well as property and casualty insurance
products in the United States.  HIG writes insurance and
reinsurance in the United States and internationally, and is
organized into two major operations: Life and Property & Casualty.

Why we like it:
It wasn't exactly an auspicious beginning to our bullish Insurance
play to see HIG pull back slightly from its breakout over the $54
level.  But in all honesty, it isn't a great disappointment
either, what with the complete lack of either volume or conviction
on Friday following Thursday night's power outage across the
Northeast.  Ending right in the middle of its intraday range, the
stock posted an inside day and where it goes on Monday should give
us a good idea of the viability of the play.  A return of the
bulls will have the stock breaking out over $54.30, which will be
good for momentum entries.  On the other hand, a continuation of
Friday's pullback will have us eyeing support in the $52.50-52.75
area as a possible entry on a rebound.  The 10-dma ($52.41) is
rising to meet this support area and should reinforce it.
Clearly, Monday's action should provide greater clarity, if for no
other reason than we'll have a return of more normal volume
levels.  Maintains stops at $51, which is now below the 50-dma.

Suggested Options:
Shorter Term: The September 55 Call will offer short-term traders
the best return on an immediate move, as it is the closest to
being in the money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the December 60 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 December 55 Call.

BUY CALL SEP-50 HIG-IJ OI=3010 at $4.40 SL=2.75
BUY CALL SEP-55 HIG-IK OI=1944 at $1.25 SL=0.60
BUY CALL DEC-55 HIG-LK OI= 356 at $3.10 SL=1.50
BUY CALL DEC-60 HIG-LL OI= 228 at $1.35 SL=0.60

Annotated Chart of HIG:

Picked on August 14th at    $54.14
Change since picked:         -0.42
Earnings Date             11/05/03 (unconfirmed)
Average Daily Volume =    2.82 mln

L-3 Communications -LLL - close: 49.10 change: -0.45 stop: 47.25

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:
Our LLL play has come full circle since we initially picked it
just below the $50 level.  After just barely holding above our
$47.25 stop last week, the stock rose with the rest of the market,
stopping just shy of that half-century mark on Thursday and then
pulling back on Friday amidst very light volume.  The 20-dma
($48.22) has now risen over the $48 level and should hold up in
the face of any attempts to break the stock down.  Another rebound
from the vicinity of the 20-dma can be used for aggressive entries
into the play, although at this point, we'd prefer to finally get
the confirmation of a breakout over $50.50 before opening new
positions.  Note that volume has been consistently drifting lower
over the past 2 weeks and if LLL is going to confirm our bullish
view, it is going to need to see a rise in volume to do so.

Suggested Options:
Shorter Term: The September 50 Call will offer short-term traders
the best return on an immediate move, as it is currently at the

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the October 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 October 50 Call.

BUY CALL SEP-45 LLL-II OI= 282 at $4.80 SL=3.00
BUY CALL SEP-50 LLL-IJ OI=1125 at $1.50 SL=0.75
BUY CALL OCT-50 LLL-JJ OI=2431 at $2.15 SL=1.00
BUY CALL OCT-55 LLL-JK OI= 235 at $0.60 SL=0.25

Annotated Chart of LLL:

Picked on August 3rd at    $49.90
Change since picked:        -0.80
Earnings Date            10/22/03 (unconfirmed)
Average Daily Volume =      939 K

PACCAR - PCAR - close: 81.64 change: +0.77 stop: 78.00*new*

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

Why We Like It:
Consistent as the sunrise, PCAR defied the odds on Friday and
charted to yet another new high and closed at its high of the day.
It is notable that although volume was on the light side (608K vs.
the 1.16 mln ADV), that still represented stronger volume than
what was seen in many other stocks and on the major exchanges.
The stock has been channeling higher between the upper Bollinger
band ($82.28) and the 10-dma ($78.76) for 8 days now and with
daily Stochastics stretched into overbought, we can't help but
feel that this trend is due for an adjustment and probably early
next week.  The trend is still strong, but conservative traders
should be taking advantage of further strength to harvest gains
and then look for another entry opportunity on the next pullback
to support.  With PCAR now $4.40 above our picked price, we feel
it is time to start getting a bit more aggressive with our stop,
so we're raising it to $78.00 this weekend.  Any mild pullback
should be halted by the 10-dma, so a trade at $78 would indicate a
potential end (even if just temporary) to this bullish trend.
Traders still looking for an entry will want to use the 10-dma as
their guide.  A dip and rebound above this average is a viable
entry setup, but only if the rebound is accompanied by rising

Suggested Options:
PCAR currently has September, November and January  options
available.  We're going to list September and November strikes
with a preference for September 80s and 85s.

BUY CALL SEP 80 PAQ-IP OI= 208 at $4.00 SL=2.50
BUY CALL SEP 85 PAQ-IQ OI= 412 at $1.55 SL=0.75
BUY CALL NOV 80 PAQ-KP OI=  81 at $6.40 SL=4.50
BUY CALL NOV 85 PAQ-KQ OI=   0 at $3.70 SL=2.25

Annotated Chart for PCAR:

Picked on July 31st at   $77.24
Change since picked:      +4.40
Earnings Date          07/24/03 (confirmed)
Average Daily Volume:  1.16 mln

St. Jude Medical - STJ - close: 54.00 change: +0.00 stop: 53.50

Company Description:
St. Jude Medical is engaged in the development, manufacturing and
distribution of medical technology products for the cardiac rhythm
management, cardiology and vascular access and cardiac surgery
markets.  The company has two principal business segments, Cardiac
Rhythm Management (CRM) and Cardiac Surgery (CS).  The CRM
division is focused on bradycardia pulse generator and tachycardia
implantable cardioverter defibrillator systems, interventional
cardiology catheters and vascular closure devices.  The CS group
provides mechanical and tissue heart valves and valve repair
products as well as suture-free devices to facilitate coronary
artery bypass operations.

Why we like it:
We didn't have high hopes for our STJ play on an expiration Friday
and we weren't disappointed, with the stock trading in a narrow
range and ending the day unchanged on almost nonexistent volume
that only reached about 20% of the ADV.  It is certainly hard to
draw any conclusions from that sort of action.  The stock is still
holding just above key support and our stop at $53.50 and if that
level is violated, then clearly we'll be dropping coverage of the
stock.  On a positive not though, the 20-dma ($53.41) is rising to
meet price and will be above our stop on Monday, hopefully adding
to that critical support.  As noted on Thursday, we aren't
advocating new entries at this time unless STJ can get back over
the $56 level, preferably on strong volume

Suggested Options:
Shorter Term: The September 55 Call will offer short-term traders
the best return on an immediate move, as it closest to being in
the money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the October 60 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 October 55 Call.

BUY CALL SEP-55 STJ-IK OI= 581 at $1.65 SL=0.75
BUY CALL SEP-60 STJ-IL OI= 543 at $0.40 SL=0.20
BUY CALL OCT-55 STJ-JK OI=3612 at $2.55 SL=1.25
BUY CALL OCT-60 STJ-JL OI= 781 at $0.85 SL=0.40

Annotated Chart of STJ:

Picked on August 10th at   $54.23
Change since picked:        -0.23
Earnings Date            10/15/03 (unconfirmed)
Average Daily Volume =   2.18 mln


SPX Corporation - SPW - close: 48.15 change: +1.65 stop: 44.00

Company Description:
SPX Corporation is a global provider of technical products and
systems, industrial products and services, flow technology and
service solutions.  The company offers networking and switching
products, fire detection and building life-safety products,
television and radio broadcast antennas and towers, life science
products and services, transformers, dock products and systems,
cooling towers, air filtration products, valves, back-flow
protection and fluid handling devices and metering and mixing
solutions.  The company also provides specialty service tools,
diagnostic systems, service equipment and technical information
services.  SPW services a broad array of customers in a variety of
industries, including chemical processing, pharmaceuticals,
infrastructure, mineral processing, petrochemical,
telecommunications, financial services, transportation and power

Why we like it:
Expiration Friday's are normally rather quiet and surreal, but
last Friday was even more so due to the overhang from the blackout
in the Northeast that had markets moving in a very tight range on
almost non-existent volume.  So it was pretty impressive to see
shares of SPW clear recent resistance and move to new highs for
the year on better than half the average daily volume.  Believe it
or not, that is actually respectable volume for Friday, where many
stocks traded less than a quarter of their ADV.  A quick look at
the daily chart of SPW shows a stock with potentially stiff
resistance in the $48-50 area and then another potential obstacle
at $53.  So where's the reward on the play, you ask?  Shift your
attention to the PnF chart, and things start looking better.  The
breakout in late July that took the stock over $46 generated a new
Buy signal and now has SPW well above its bearish resistance line.
The buy signal generated during May and June projects a bullish
price target of $74, which is interesting in that it corresponds
quite closely with the stock's all-time highs.  Whether that
target is realistic or not really doesn't factor into our play, as
all we're looking for is solid upside potential.

Coming back to that overhead resistance at $48-50 and then again
at $53, a big part of our willingness to give the stock a chance
at pushing through is because of the way it handled its last
resistance test.  Go back to the middle of July and the $45 level
looked like strong overhead resistance until the stock just
blasted through.  It is entirely possible that SPW will do the
same thing again, trading sideways and then moving sharply higher.
It would be our preference to see a steady trending move higher,
but we need to recognize that may not happen.  Intraday dips into
the $46-47 area look like a solid entry opportunity.  Because of
the overhead resistance, we aren't so wild about trying to enter
on strength due to our expectation that it will take a few
attempts to get through each resistance level.  Buy the dips and
target an eventual move to the $55 area.  Initial stops are set at
$44, just below the 50-dma ($44.04) and the August 7th intraday
low of $44.38.

Suggested Options:
Shorter Term: The September 47 Call will offer short-term traders
the best return on an immediate move, as it is slightly in the

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the December 50 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 December 47 Call.

BUY CALL SEP-47 SPW-IW OI= 477 at $1.95 SL=1.00
BUY CALL SEP-50 SPW-IJ OI=1044 at $0.80 SL=0.40
BUY CALL DEC-47 SPW-LW OI= 246 at $4.00 SL=2.50
BUY CALL DEC-50 SPW-LJ OI= 422 at $2.80 SL=1.50

Annotated Chart of SPW:

Picked on August 14th at    $48.14
Change since picked:         +0.00
Earnings Date             10/27/03 (unconfirmed)
Average Daily Volume =       929 K

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Black & Decker - BDK - cls: 40.77 chg: +0.52 stop: 41.01

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:
Can you believe just how long this rebound off the recent lows has
lasted, without a conclusive bullish move?  BDK is now back to the
level where the stock initially broke below the 200-dma in late
July and squeaked out a close over both the 200-dma ($40.53) and
the 20-dma ($40.72) on Friday on very light volume.  Without the
conviction of stronger volume, it is hard to determine if Friday's
action means anything or not.  For now, we're content to let the
play ride, allowing our stop at $41.01 to do its job.  We still
aren't recommending new positions at this time.  At a minimum, BDK
needs to break back under $40 in order to be a candidate for new

Suggested Options:
We are not suggesting new positions at this time.

Annotated Chart for BDK:

Picked on August 4th at  $39.99
Change since picked:      +0.27
Earnings Date          07/24/03 (confirmed)
Average Daily Volume:     729 K

Intl Business Mach - IBM - cls: 81.79 chg: +0.23 stop: 82.51

Company Description:
Big Blue is being heralded as the world's largest technology
company. Considering their massive hardware and software business
across the globe it's not surprising. However, IBM's services and
consulting business is growing by leaps and bounds and is a major
source of revenues.

Why We Like It:
Like a reflection of the overall market, shares of IBM spent last
week creeping ever so slightly higher but on rather light volume.
Friday's session was much the same and the stock ended at its best
closing level since July 29th.  So is this an entry point for the
next rollover, or is the market telling us that the recent break
under $80 was a bear trap?  It is hard to tell, especially with
the disruptions to Friday's trading session that already
compounded the normally unreliable expiration Friday action.
Daily Stochastics (5,3,3) have already turned down and we have the
200-dma ($82.13) just overhead to provide more resistance.  So
long as there is no strong bullish follow through early next week,
a rollover below the 200-dma looks like a decent entry point,
although more conservative traders will want to see a decline back
under $80 to confirm that weakness before playing.  The other
thing to monitor is the action in the DOW.  The industrials ended
the week just a couple points below their June 17th closing high.
A strong breakout over this level will likely generate some
sympathy buying in IBM and likely have the play tripping our stop.
On the other hand, if the DOW is once again rejected from this
pivotal resistance, then it will reinforce our conviction for
bearish positions in IBM on that rollover from resistance.

Suggested Options:
Aggressive short-term traders will want to focus on the September
80 Put, as it will provide the best return for a short-term play.
More conservative traders will want to utilize the October 80
contract, which should be less susceptible to the ravages of time

BUY PUT SEP 85 IBM-UQ OI= 3037 at $4.20 SL=2.50
BUY PUT SEP 80 IBM-UP OI=13194 at $1.40 SL=0.75
BUY PUT OCT 80 IBM-VP OI=28099 at $2.75 SL=1.25
BUY PUT OCT 75 IBM-VO OI=16147 at $1.25 SL=0.60

Annotated Chart of IBM:

Picked on August 5th at   $79.85
Change since picked:       +1.94
Earnings Date           07/16/03 (confirmed)
Average Daily Volume:   7.06 mln

Yahoo! Inc. - YHOO - close: 29.88 change: +0.11 stop: 31.50

Company Description:
Yahoo! Inc. is a global Internet company that offers a
comprehensive branded network of properties and services to
consumers and businesses worldwide.  The company's properties and
services for consumers and businesses reside in five vertical
areas: Search and Marketplace, Information and Content, Network
and Platform Services, Enterprise Solutions and Consumer Services.
YHOO's basic products and service offerings are available without
charge to its consumers.  The company also offers a variety of
fee-based premium services that provide its consumers access to
value-added content or services.

Why we like it:
As we noted on Thursday, we didn't expect much from Friday's
expiration session other than to see shares of YHOO likely pinned
close to the $30 level.  While the bulls managed to trade briefly
above that level, the stock ended just below it, keeping our play
in limbo.  Just as was seen in the rest of the market, volume was
exceedingly light, with YHOO seeing about 25% of its ADV.  Daily
Stochastics (5,3,3) have now stretched into overbought and if they
roll over from here, we'll have some nice bearish divergence at
play, which will add to our conviction in the play.  The action
plan remains unchanged this weekend, where failed rallies below
the $30.75 level (reinforced by the 20-dma at $30.68) should
provide attractive entries.  Traders that would prefer to enter on
weakness will need to see price drop back under $29.25 before
playing, keeping in mind that the $28 level needs to crack before
we'll really have a breakdown move in progress.  Once that
happens, we'll be able to think more seriously about whether the
stock has a reasonable shot at our $26 target.

Suggested Options:
Aggressive short-term traders will want to focus on the September
30 Put, as it will provide the best return for a short-term play.
More conservative traders will want to utilize the October 27
contract, which even though it is currently out of the money,
should provide sufficient time for to move in the money before
time decay becomes a significant factor.

BUY PUT SEP-30 YHQ-UF OI= 3255 at $1.45 SL=0.75
BUY PUT SEP-27 YHQ-UY OI= 4777 at $0.55 SL=0.25
BUY PUT OCT-27 YHQ-VY OI= 7853 at $1.25 SL=0.60

Annotated Chart of YHOO:

Picked on August 7th at   $28.87
Change since picked:       +1.01
Earnings Date           10/08/03 (unconfirmed)
Average Daily Volume =  13.4 mln



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The Option Investor Newsletter                   Sunday 08-17-2003
Sunday                                                      4 of 5

In Section Four:

Leaps: Still No Confirmation
Traders Corner: Surviving The Power Outage - Barely
Traders Corner: Where is the Dow Going?
Traders Corner: Elliott Wave Play Updates
Brokers Corner: Readers Write


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Still No Confirmation
By Mark Phillips

As amazing as it seems, here we are 2 full months after the June
17th highs were recorded and there has been no bullish
confirmation with a succeeding breakout.  At the same time,
there's been no confirmation of weakness, as each pullback has
been eagerly scooped up by the bulls.  On May 30th, the S&P 500
closed above the 960 level for the first time since last August
and so far hasn't closed back under that level.  At the same time,
the index has recorded a series of lower highs, with the trendline
connecting those highs now resting near 995.

We've seen significantly more weakness than that in the NASDAQ
market, but each time a breakdown appears imminent, the bulls buy
the dip.  Most notable in that area has been the action in the
Semiconductor index (SOX.X), which broke down out of its ascending
channel just over a week ago and then spent this week fighting its
way back into the channel and came to rest on Friday just below
the pivotal $400 resistance.

In my mind, the DOW is the key to where we go from here, as it is
really demonstrating the most strength relative to the other major
indices.  The June 17th closing high was 9323 and Friday's close
at 9321 was so close to finally giving us a breakout to new highs.
I can't help but feel there are a lot of traders watching that
9323 level and things could turn exciting if the bulls can manage
a close over that level.  Take a look at the chart below and I
think you'll see why I shifted my focus to the DOW, at least in
terms of trying to determine if we're going higher.

Daily Chart of the Dow Industrials

When this incessant range looked like it might be starting to
weaken towards the end of July, I turned my focus to the 50-dma
and looked for a break of that level to be important.  Clearly
that expectation was wrong, as the DOW sliced right through it a
couple weeks ago.  But isn't it interesting how the index found
support right at the exponential 50-dma on the latest pullback
before going right back to the recent highs.  Closing above 9323
will be very important to DOW Theorists (more on that in a bit),
but even if the bulls can manage a close over 9350 horizontal
resistance, there's that pesky descending trendline from the early
2001 highs lying in wait just under 9400.

When playing with charts this weekend and looking at the longer-
term trendlines, I was reminded of Linda's comments that
frequently these trendlines are more accurately drawn on a
logarithmic chart.  So just for grins, I shifted the scaled to LOG
and guess where that long-term trendline falls? 9500!!  Remember
that number, as it is also important when we delve into the topic
of Dow Theory.

The action in the VIX is starting to get interesting again, as it
threatens to break back under 20.  If the broad market breaks
above resistance then it is a safe bet that the VIX is heading to
new lows for the year.  That means we'll be right back in
Complacency Central, indicating there are too many investors lined
up in the bullish camp.  As we've seen over the past two months,
it isn't a guarantee that the markets are headed lower, but it
sure makes it difficult to push appreciably higher.  We've looked
at a stacked chart of the VIX and the SPX in the past and I think
it is worth revisiting this weekend.

Daily Chart of the SPX vs. the VIX

The pattern of lower highs on the SPX is much clearer here than on
the DOW, with trendline resistance at 995.  At the same time, the
VIX is right back at its lows.  This could be the prelude to a
breakout, or it could be an artifact of expiration Friday monkey
business.  Either way, it bears watching as we head into next
week.  What I really find intriguing about the VIX chart is the
way it spiked up near 26 on the most recent dip in the SPX, with
the rise being halted right at that descending trendline that
connects the July and October highs.  Coincidence?  I think not!

While we haven't seen a major breakdown in the bullish percents,
they are still indicating more weakness than strength.  The
notable exception here is the DOW, which is stubbornly holding
onto Bull Correction at the 80% level.  Also showing impressive
strength is the OEX at 82%, and it is the only major index other
than the OEX still in Bull Confirmed status.

NASDAQ-100 - 65% Bear Confirmed
NASDAQ Composite - 68.32% (well off the 73.50 all-time high)
DOW - 80% (Still in Bull Correction)
S&P 500 - 74.60% (Cycle high of 82.80% - Still Bull Correction)
S&P 100 - 82% (Just below cycle high, still Bull Confirmed)

Taking a look at the Bullish Percent SharpCharts, we have an
interesting setup in play.  After each of the indices generated
sell signals with the bullish support lines dropping under their
10-dmas, we have each of them trying to hook higher.  The rebound
looks pretty anemic (except in the case of the OEX) and my
expectation is for another rollover at lower highs, confirming the
pattern of weakness.  As I've been doing for the past couple
months, I'm including the link to the StockCharts site for those
of you that want to take a look for yourself.

Here are the pertinent Bullish Percent symbols.


Alright, as I promised earlier, I want to say a few words about
Dow Theory, as it pertains to the current situation in the market.
The basic premise that I'm focused on is the inter-relationship
between the averages, primarily the Industrials ($INDU) and the
Transports ($TRAN).  One of the principal tenets of Dow Theory
says that for confirmation of strength (weakness) in the market, a
new high (low) in one average needs to be confirmed by a new high
(low) in the other average.  Over the past two months, the $TRAN
has steadily marched higher, recording new highs on 7/08 (2565),
7/16 (2597), 7/25 (2615), 7/31 (2622) and 8/15 (2623).  Throughout
that period of time, the $INDU has yet to better its June highs.
That is a bearish non-confirmation.  But wait, there's more.
Since the $TRAN set a new high on Friday, there's the very real
possibility that the $INDU could follow through next week and that
would produce a bullish confirmation.  Are you confused yet?

Here's where it gets really interesting.  There's another aspect
to Dow Theory that looks at the 50% levels.  If in a primary bear
market (which the DOW is clearly in), the index is unable to rally
through the 50% mark of the overall bear market, then over time
the index should work its way down to test the lows.  On the other
hand, if the DOW can close above that 50% level, then it ought to
work higher and eventually test those highs.  For reference, that
level for the DOW is 7286.  The closing high from January 2000 was
11722, and doing some quick math, we can see that the midpoint of
that decline is 9502.  See, I told you we'd come back to that 9500
level.  There are lots of details and nuances that we don't have
time to cover here this weekend, but that alone gives us two
important measures of the strength of this cyclical bull market
we've been watching.  First, the DOW needs to post a new closing
high over 9323.  If successful in that venture, the bulls will
then need to convince the real doubters (like me) by rallying
through the 50% level at 9502.  I really don't believe they can do
it, but I'm willing to let them try.  At any rate, you can see how
at current levels, the market is at a pivotal point, at least in
the eyes of the Dow Theorists.

In the meantime, we're aligned with what SHOULD be the likely
direction for this market, based on both fundamentals and my
technical view.  I remain cautiously bearish over the next couple
months, but as we've been reminded all too often lately, the
market can do anything!  That's enough of my big picture analysis
and prognostications.  Let's turn our view now to our list of


SMH - Remember last week, when we looked at the relative price
channels and 50-dmas for the Semiconductor index (SOX.X) and the
SMH?  With the benefit of hindsight, we can clearly see that the
unbroken channel and 50-dma for the SMH was the key level to
watch, as the broken channel and 50-dma in the SOX meant nothing.
Both rebounded firmly last week, with the SOX once again nearing
$400 resistance and the SMH tapping its channel center line on
each of the past 3 sessions.  So for the duration of this play
(which will be short if SMH charges through our $33 stop next
week), we'll restrict our view to what is going on in the SMH.  I
still have a bearish overall view for this sector and think new
entries near current levels are favorable on a risk-reward basis
with our closing stop set at $33.  But we must keep in mind that
the Tech bulls may just defy logic and power through that
resistance, which has held for a solid month now.  If stopped out,
I can tell you without equivocation that SMH will cycle right back
onto the bearish Watch List and we'll be looking for a higher
entry point into the play.

ADBE - The absence of a breakdown in shares of ADBE on the latest
downdraft proved to be an important tell for our bearish play
there, as demonstrated by last week's rise from the $31 support
level.  It was a choppy and low-volume rise to be sure, but it
managed to put the stock back over the broken ascending trendline
and the stock is once again nearing major resistance just over
$35.  I have a hard time seeing how the stock can move higher, but
we do have the specter of earnings to be released in a little
under a month on September 10th and that may provide a lift in the
weeks ahead.  We'll continue to key off of the two key levels for
now, using $36 on the upside (which would be a new PnF Buy signal)
and $31 on the downside (which would break strong support that has
been holding since the June swoon began), as well as finally break
the PnF bullish support line.  The PnF chart is still on a Sell
signal with a bearish price target of $21 -- now we need to see if
the bears can follow through on that elusive promise.  Maintain
those stops at $36 and wait for a break back under the 50-dma
before initiating new positions.

DJX - Are we having fun yet?  My comments above should pretty much
spell out the situation on our DJX play.  We need to see a break
below the $90 level on a closing basis before we'll have any
confidence in the downside.  But right now, it looks like
resistance that is going to be tested.  Keep those stops set at
$95.50, as the DJX should be unable to come near there unless I've
badly miscalculated.  I still favor new entries on rally failures
near the $93.50 area.  It's likely to still be a rather choppy
ride until we move past Labor Day, so more conservative traders
may want to wait on the sidelines until that point on the calendar
comes and goes.

Watch List:

LEH - Either LEH is setting us up for a choice entry next week or
it is going to blast right through strong resistance and from
where I sit, I can't tell you which it is.  The stock is still
underperforming the overall Broker/Dealer index (XBD.X), which is
back over the $550 support level, but below $580 resistance.  LEH
is still on a PnF Sell signal (target $52) and appears to be
stalling out just below strong resistance in the $66-67 area.  We
could have a nice entry setting up early next week, but we'll just
have to wait and see.  With the 50-dma curling lower and just
above $67, failed rallies below that average still look good for
new entries.  After entry, we'll use an initial stop at $70 and
let gravity take over from there.

BBH - The pattern is repeating across all the major indices, as
apparent breakdowns are miraculously reversed.  BBH got slammed
lower during the first week of August, and last week it came
chugging back up to the $130 resistance area.  Not quite enough
lift to get it into our targeted entry zone ($132-135), but unless
I miss my guess, the bulls will make another assault on the recent
highs over the next couple weeks and I'll view that as a solid
entry point when the rally attempt fails.  Keep in mind that BBH
has yet to issue a PnF Sell signal, so caution is warranted as we
attempt to pick a top in this relatively strong sector of the
market.  Due to its aggressive nature, if filled, we'll be using a
rather wide stop at $141, just above the late 2001 highs.

WMT - Just as I feared, WMT pushed through the $58 level ahead of
earnings, stretching as high as $58.50 before pulling back in the
wake of earnings which were essentially in line.  Aside from the
Sell the News reaction (which was quite mild), the only notable
development last week was A.G. Edwards cutting the stock from Buy
to Hold due to valuation on Wednesday.  Note how the stock held
above $58 even after the downgrade and I think this hints at a
near-term rally attempt towards the $60 resistance, which is right
at that multi-year descending trendline.  My primary concern here
is the PnF chart, which with the trade at $58 is now on a new Buy
signal with a bullish price target of $78!  WMT will now need to
trade down to $51 just to give a PnF Sell signal, so it is
entirely possible that we're early to the party here.  Let's give
this one some room to prove itself and not be too aggressive.  A
rejection from that descending trendline will give us the go ahead
for aggressive entries, but we'll be giving it some room to
breathe, with our initial stop at $64, just over the March 2002

GM - Don't look for any excitement here.  GM is just meandering
sideways with little apparent impetus to go either up or down.  I
expect another irrational surge upward sometime in the weeks
ahead, and that will be our opportunity to initiate a bearish
position at an advantageous price level.  Once initiated, this one
could be on the list for awhile, as we let the very bearish
fundamental picture play out.  Because of my lack of a desire get
a premature entry, I'm raising the entry target to $39-40 this

QQQ - This one looks to be setting up in almost perfectly ideal
fashion.  The Nasdaq-100 bullish percent is bear confirmed, price
is creeping back up to known resistance and the volatility indices
are flirting with new lows for the year.  Sounds to me like an
ideal situation for a bearish position trade!  As noted last week,
we're looking for a failed rally in the $31.50-32.00 area as our
cue to initiate new positions.  Our initial target will be a drop
to $28 (a 50% retracement of the March-July rally) and a 38%
retracement of the rally off the October bottom.  Then, based on
the position of the bullish percents, as well as price action
relative to the weekly oscillators, we'll be able to make a
determination of the viability of a drop to our eventual target of
$25-26.  Remember, we are not looking for a breakdown to new lows
with this play.  That move likely won't come along until next year
when it becomes crystal clear that once again the second half
recovery was once again only a work of fiction.

Radar Screen:

HD - We certainly made the right decision by keeping a tight rein
on our bearish play on HD, and exiting it for a slight gain last
week.  The stock continued to rise this week, ending just over $1
below its June/July double top.  The PnF chart is still bullish,
but I continue to be amazed at the stock's ability to rise,
especially with the refinancing binge officially dead and the
Housing bubble soon to follow.  Needless to say, I think watching
the site of the recent highs over the next couple weeks could
provide another setup for a favorable bearish play.

FNM - I mentioned FNM in a bearish light several weeks ago and my
view hasn't changed.  The only reason the stock never made it onto
the Watch List was that price action peeled away from resistance
before we got a chance.  I think the stock is finding a temporary
base near $62 and we just might get another pop back towards the
$70-72 resistance.  That should provide for an attractive point to
initiate bearish position trades, as we can anticipate the
potential unpleasantness related to the bond selloff that will
have to be revealed in the next round of earnings.  With the
extensive derivative portfolio with which the company manages its
interest rate risks, I can only imagine what problems crept in
during the past two months.  Now all we need to do is find a
favorable entry point into the play.

Closing Thoughts:

Just when it looked like the bears were gaining the upper hand, we
get a bullish expiration week and all the major averages are back
to testing resistance.  Buying interest is still rather meager,
but the markets continue floating higher as selling interest is
even weaker.  The sea of liquidity is still floating the market
higher, leaving us with a rather interesting situation.  Expect
more of the same over the next couple weeks, as major moves in
either direction should be difficult to sustain until after Labor
Day, when volume should return to normal.  I can't shake the
feeling that things are setting up very similarly to August of
2000, but I'll save that discussion for my article on Monday.

The big unknown and potential danger is where all the money that
is flowing out of the bond market is going.  If it is going back
to foreign hands, then it is a confirmation of the negative
economic picture, with foreigners voting with their feet and
giving the US economy a vote of No Confidence.  On the other hand,
if that money is just lying in wait for a major asset allocation
program, then it could be very unpleasant for the bears.  In
either case, I suspect the next couple weeks to continue to
deliver rather muted action.  If my bearish views are correct,
then we have plenty of exposure to the downside in both our Watch
List and Portfolio.  I'm going to be very stingy about adding new
plays to the Watch List until the market agrees to tip its hand,
an event that I don't expect to materialize next week.  Pick your
entry points for bearish plays carefully and be aggressive about
protecting bullish gains.

Have a great weekend!


P.S. As I sat in the dark yesterday, my mind idly wondered where
all my readers are, spread around the globe.  How many are right
in my neighborhood (southern California) and how many exotic
locations might be represented.  I know I have some in Hawaii, and
have regularly corresponded with some in Denmark, Sri Lanka,
Turkey, Spain and Greece.  So if you feel like satisfying my
curiosity, feel free and let me know what other locations are
represented.  Thanks!

LEAPS Portfolio

Current Open Plays



SMH    07/09/03  '04 $ 30  SMH-MF  $ 2.70  $ 2.05  -24.07%  $33.00
                 '05 $ 30  ZTO-MF  $ 5.00  $ 4.40  -12.00%  $33.00
ADBE   07/17/03  '04 $ 35  AEQ-MG  $ 4.20  $ 4.00  - 4.76%  $36.00
                 '05 $ 35  ZAE-MG  $ 7.20  $ 6.80  - 5.56%  $36.00
                 '06 $ 35  WAE-MG  $ 9.00  $ 8.80  - 2.22%  $36.00
DJX    07/31/03  '03 $ 92  DJV-XN  $ 3.80  $ 3.90  + 2.22%  $95.50
                 '04 $ 92  YDK-XN  $ 8.20  $ 8.40  + 2.22%  $95.50

LEAPS Watchlist

Current Possibles



LEH    07/20/03  $66-67        JAN-2005 $ 65  ZHE-MM
                               JAN-2006 $ 60  WHE-ML
BBH    08/03/03  $132-135      JAN-2005 $125  XBB-ME
                               JAN-2006 $120  YEE-MD
WMT    08/03/03  $60           JAN-2005 $ 55  ZWT-MK
                               JAN-2006 $ 55  WWT-MK
GM     08/10/03  $39-40        JAN-2005 $ 35  ZGM-MG
                               JAN-2006 $ 35  WGM-MG
QQQ    08/10/03  $31.50-32.00  JAN-2005 $ 30  ZWQ-MD
                               JAN-2006 $ 30  WD -MD

New Portfolio Plays


New Watchlist Plays





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Surviving The Power Outage - Barely

By Mike Parnos, Investing With Attitude

This week I ran the entire gamut – from feeling powerful to
powerless to powerful again.  Powerful is good.  Powerless is not
good.  How is a couch potato supposed to survive during a power
outage?  A few more days of no electricity in the Northeast (I'm
in Detroit) and this couch potato would have joined the bald eagle
and buffalo as an endangered species.

Can you imagine?  No TV. No Internet. No phone. No videos. No
stock quotes.  No water. No carry out.  Warm beer.  In less than a
week they would have come into my condo and discovered my body –
simply another cushion on the couch, breathless, pale, aromatic,
emaciated and clutching the remote control.

I know that, sooner or later, representatives from Hostess,
Domino's Pizza, Pepsi and Budweiser would check on me to make sure
I was OK.

My only connection to the outside world for over two days was a $5
transistor radio.   After an hour of listening to people piss and
moan about their lack of power, I resorted to the unthinkable –
reading.  I read during the daylight hours and read by candlelight
in the evening.  I read mysteries, trading books, the back of
cereal boxes.

When the power finally went on Friday night at 1 am, I was
thrilled to discover that our CPTI portfolio was yet another big
winner – to the tune of a profit of $4,710.  That brings our nine-
month total profit to $28,210 – and using only about $30-$35 per
month of our brokerage account.  Here's a review of our August
trades.  Enjoy!

BBH Iron Condor - $1,550
SPX Iron Condor - $2,310
LLTC Sell Straddle - $850
Total: $4,710 profit


August Position #1 – BBH Iron Condor – Closed at $129.80
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 had a maximum profit range of $125 to $140 with a total credit
of $1,550.   Our risk was $3,450.  BBH tested the lows and almost
got down on all fours, but bounced up and finished at $129.80 –
comfortably in our range.  We pocketed $1,550 for our trouble.
Nice.  Very nice indeed!

August Position #2 – LLTC Sell Straddle – Closed at $37.64
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.  When, shortly
before the close, LLTC was trading at $37.50, we bought back our
short call for $2.60.  We originally took in $3,450.  Our profit
was a respectable $850.

August Position #3 – SPX Iron Condor – Closed Friday at 990.67
This was a slightly more aggressive position than usual.  Why?
The range is smaller.  Note the different number of contracts we
used 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.

It all worked out nicely as the SPX closed almost exactly in the
middle of our range and we pocketed a robust $2,310.

Quickie Results

August Quickie Trade #1 – OEX Iron Condor – Closed @ 498.30
We sold 10 contracts of August OEX 500 calls @ $2.15 and bought 10
contracts of August OEX 510 calls @ $1.00 for a credit of $1.15.
Then we sold 10 contracts of August OEX 490 puts @ $3.30 and
bought 10 contracts of August OEX 480 puts @ $2.10 for a credit of
$1.20.  Total net credit of $2.35.   OEX finished within our
maximum profit range, so we pocket $2,350.

August Quickie Trade #2 – QQQ Lottery Strangle – Closed at $31.17
It's cheap, the risk is low, and we're looking for a $2-3 move in
the QQQs. We bought 10 contracts of August QQQ $29 put @ $.15 and
bought 10 contracts of August QQQ $31 call @ $.15.  Total debit of
$3.00 ($300).  Profit potential was unlimited if we got a big
move.  We didn't.  So, we take a baby loss of $300.

August Quickie Trade #3 – EBAY Sell Strangle – Closed at $103.07
We sold 10 contracts of August EBAY $100 calls @ $1.95 and sold 10
contracts of August EBAY $100 puts @ $1.35 for a total net credit
of $3.30.  Maximum potential profit, of $3,300.  EBAY finished at
$103.07.  However, when EBAY broke above $102.60 about noon, we
decided to buy back the short calls at $2.80 and lock in a small,
but spendable, profit of $500.

August Quickie Trade #4 – RUT (Small Cap Index) Iron Condor –
Closed at 471.92
We sold 10 contracts of August RUT 460 calls @ 1.75 and bought 10
contracts of August RUT 470 calls @ $.70 for a credit of $1.05.
Then we sold 10 contracts of August RUT 450 puts @ $2.60 and
bought 10 contracts of August RUT 440 puts @ $1.05 for a credit of
$1.55. Total net credit of $2.60. Maximum profit of $2,600.   On
Tuesday, when RUT broke above our upper parameter of 460, we
unwound the trade for $3.15 and settled for a $550 loss.

Our Quickie total was a profit of $2,000 – thanks primarily to our
OEX trade.

NEW SEPTEMBER POSITIONS – Remember that September is a five-week
option cycle.

September Position #1 – SPX Iron Condor – SPX @ 990.67
S & P 500 Index = SPX
Sell 10 contracts of SPX 1040 Sept. calls
Buy 10 contracts of SPX 1050 Sept. calls
Look for a net credit of $1.30.
Sell 10 contracts of the SPX 950 Sept. puts
Buy 10 contracts of the SPX Sept. 940 puts
Look for a net credit of $1.40
Total credit of $2.70 ($2,700).  We have a huge maximum profit
range of 950 to 1040.  That's peace of mind!  More aggressive
investors can narrow the range a bit and take in more money.

September Position #2 – SMH Sell Straddle – SMH @ $32.50
Semiconductor Holders Trust = SMH
Sell 10 contracts of SMH Sept. $32.50 calls @ $2.50
Sell 10 contracts of SMH Sept. $32.50 puts @ $2.35
Total credit of $4.85 ($4,850).  We will make some profit if SMH
finishes anywhere between $27.65 and $37.35.  The closer SMH
finishes to $32.50, the more money we will make.  The bailout
points are the parameters of our profit range.  SMH can be
volatile.  This is an uncovered spread, so you need to pay
attention.  Maximum potential profit is $4,850.

September Position #3 – COF Sell Straddle – COF @ $49.76
Capitol One Financial = COF
Sell 10 contracts of COF Sept. $50 calls @ $2.35
Sell 10 contracts of COT Sept. $50 puts @ $2.50
Total credit of $4.85 ($4,850).  We will make some profit if COF
finishes anywhere between $45.15 and $54.85.  The closer COF
finishes to $50, the more money we'll make.  Our bailout points
are the parameters of our profit range.  Maximum potential profit
is, again, $4,850.

September Position #4 – EBAY Iron Condor  -- EBAY @ $103.07
Sell 10 contracts of the EBAY Sept. $95 puts @ $1.20
Buy 10 contracts of the EBAY Sept. $90 puts @ $.65
Net credit of $.55
Sell 10 contracts of the EBAY Sept. $110 calls @ $1.35
Buy 10 contracts of the EBAY Sept. $115 calls @ $.60
Net credit of $.75
Total credit of $1.30 ($1,300).  Exposure of $3.70.  Maximum
profit range of $35 to $45.  Potential maximum profit of $1,300.

Remember that these prices are based on Friday's close.  Monday's
prices will vary.  If you come within $.20 of our estimates, it's
still a good trade.  Also, remember, NO market orders.

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


I am back from vacation.  I had a great time.  We went back for my
high school reunion.  I showed the kids where I grew up and my old
stomping grounds.  They loved looking at my old high school
pictures and could not believe how much hair I used to have.

I did learn three things while I was in Chicago.  First, do not
believe the computer tech if he says he fixed your laptop.  Check
it out before you go.  Second, 56K modems are dog slow. Third it
is not the walking you do while site seeing that enervates you, it
is the SLOW walking you do that saps your strength.

I discovered that just meandering through the museums takes a
heavy toll on the legs.  When we were walking to/from the parking
lots, around my old schools and up and down the old neighborhood,
we could go for hours.  However, just slowly going from exhibit to
exhibit to exhibit really is tiring.

And now as I look at charts of the indices, I am becoming really
tired.  For the last 2+ months, the S&P 500, Dow and NASDAQ have
been meandering around a trading range sapping out all my energy.
I am discovering that this is a much more painful process than a
trending market.  At least at the zoo, you can actually see the
bears or bulls.

I left August 1st and the net difference between then and now is
really insignificant. So let's see what has happened while I was
gorging myself with Chicago pizza.

Chart: S&P 500 Weekly 8/15/2003

Let's start with a weekly chart of the S&P 500 since January 2000.
The S&P 500 shows the waves much more clearly than the Dow, but
the analysis can be carried over to the Dow or NASDAQ as they
generally move in tandem.

I am using Advanced Get's longer term labeling which is more
accurate than the default labeling.  Based on this labeling, the
S&P 500 is still in the process of the wave 4 correction.  This
correction is shaping up nicely to be an expanded flat.  The
characteristics of an expanded flat are

1. The A-B-C waves segment into a 3 wave, a 3 wave and a 5 wave.

So far the A wave is a 3 wave, the B wave is a 3 wave and the C
wave is an incomplete 5 wave.

2. The A wave and B wave are the same height (plus/minus 25%).

Right now the B wave is 90% of the A wave.

3. The C wave is somewhere between 1.38 to 1.62 times the height
of the A wave.

Currently the C wave is only 1.20 times the height of the A wave.

This wave 4 does not seem to be anywhere near complete.  Typically
4 waves correct at least 38% but 24% is not uncommon.  However, in
order for the 4 wave to meet the criteria of at least 138% of wave
A, the S&P 500 still needs to extend a bit higher.  The oscillator
can still absorb a bit more before the 1.38 level is reached.

Let's take a closer look at the daily charts and dissect the C
wave to see how high the S&P 500 will go before reversing course.

Chart: S&P 500 Daily 8/15/2003

The daily chart of the S&P 500 shows that the C wave is segmenting
into a five wave basic pattern rather nicely.  Looking more
closely at the 4-circle wave we can see that the S&P 500 has not
yet retraced to the 38% level yet.  The oscillator has retraced to
zero but I do not think that the 4 wave is complete just yet.  The
correction pattern just doesn't look fully formed.  I believe that
what we are seeing is the 1 and 2 waves of the five wave basic
pattern of the unfolding C wave and that the S&P 500 will retrace
to around the 930-900 level before heading back up.

Once the S&P 500 starts heading back up, the question becomes just
how far up will it extend?  Consider this scenario.  Let's say
that the S&P 500 retraces all the way down to the 62% level.  That
puts the S&P 500 at about 909.  According to Elliott Wave theory,
the 3 wave is never the shortest wave and normally it is the
longest wave.  This 3 wave is 174 points (1016-843).  Therefore,
in order for the 3 wave to be the longest, the 5 wave can be no
longer than 909 + 173 = 1082.  In addition, the point where 1.62 x
A wave falls is at 1088.  The 38% retracement level on the weekly
4 wave falls at 1060.  We are therefore looking as some rather
heavy resistance at the 1060-1090 range as all these confluences
converge at a super mega major pivot point.

When the S&P 500 reaches these levels, I will be looking for
reversal signals as the weekly 4 wave will be complete.  The S&P
500 should then reverse course as it starts the 5 wave and begins
heading down to about 650 over the course of the next year.

A reasonable time line, based on historic market patterns, would
be the decline to 900 through October and then a bear market rally
through at least the end of the year and possibly into January or
February of next year.  More on that as the pattern unfolds.

Unless of course, it doesn't.  Last time I presented an alternate

Chart: S&P 500 Weekly Alternate 8/15/2003

In this scenario, the S&P 500 has already completed the five wave
basic pattern and is in the process of the A-B-C correction.  The
A wave is still unfolding as a five wave basic pattern which would
most likely make the A-B-C correction a zigzag.

The short term result would be the same.  The S&P 500 would rise
to about the same level as the first scenario (1060-1090) to
complete the A wave and then decline in the B wave correction.
The B wave would be shallower as is typical in zigzags, but then
the C wave could take the S&P 500 to around the 1200-1300 level.

I do not like the alternative as much because the oscillator looks
yukky.  That is a technical term Elliotticians use to describe an
oscillator that does not correlate well to the wave pattern.  What
I find is that if I use the longer term labeling, then I have to
use the longer term oscillator as I did in the first scenario.
The long term oscillator does not support this alternate labeling.
Go back to the weekly chart of the first scenario.  Notice that
the oscillator did not retrace the minimum level of 90% to support
an already formed 5 wave.

Although the alternate scenario could come to pass and we would
have to accommodate the oscillator, I would not give the
alternative a high confidence rating.  The bottom line though, in
either case, is that we still see a S&P 500 (and Dow and NASDAQ
for that matter) falling a bit to complete the 4 wave, rising to
complete the 5 wave and then we should see a longer term decline
in the markets.


Elliott Wave Play Updates


Chart: DJX update 8/15/2003

The Dow seems to be taking an inordinate amount of time tracing
out this retracement pattern.  We have run out of time.  If you
have not already closed out this play, do so on Monday.


The original option values on 6/6/2003 were

DJX – 90.62

Pos   Qty   Sym     Strike      Type  Bid   Ask    Delta   IV
Buy*       DJVIN    SEP 92      Call  2.80  3.00    0.51   15
Buy        DJVUJ    SEP 88      Put   2.70  2.90   -0.33   23
                                      ----  ----   -----
                                      5.50  5.90    0.18

Current values on 8/15/2003 are

DJX – 93.22

Pos   Qty   Sym     Strike      Type  Bid   Ask    Delta   IV
Buy*       DJVIN    SEP 92      Call  2.50  2.65    0.64   13
Buy        DJVUJ    SEP 88      Put   0.45  0.65   -0.22   22
                                      ----  ----  ------
                                      2.95  3.30    0.29

* already sold


Chart: QQQ update 8/15/2003

The QQQs should follow the Dow and S&P 500 in retracing this 4
wave.  The first target is going to be 28.50 by early September.
Stochastics indicate that the QQQs may trend a bit higher first,
but I suspect that the QQQ should continue to decline.  Hold.


The original option values on 6/13/2003 were

QQQ – 29.96

Pos   Qty   Sym     Strike      Type  Bid   Ask    Delta   IV
Buy   2    KLFME   Jan 04 31    Put   3.00  3.20   -0.44   32
Sell  1    QQQSK   Jul 03 37    Put   6.90  7.10    0.99   41

Credit: .50

Current values on 8/15/2003 are

QQQ – 31.17

Pos   Qty   Sym     Strike      Type  Bid   Ask    Delta   IV
Buy   2    KLFME   Jan 04 31    Put   2.10  2.20   -0.44   29
Sell  1    QQQSK   Sep 03 37    Put   5.70  5.90    0.99   33

Liquidation 1:  -1.70 + .50 =  -1.20


Chart: BA update 8/15/2003

BA did continue a bit lower while I was on vacation, but it
appears to have bottomed out and is now heading higher.  This
chart shows BA and volume.  Notice that as BA was increasing in
value from March to June, the volume was increasing.  During the
wave 4 correction from June to August, the volume dried up.  This
is a good sign especially since BA has been in the news lately and
the news has not been all that good.  Look for BA to head higher
over the next several months as it completes the 5 wave.  Our
target is about 38.50 by November.  Hold.


The original option values on 6/17/2003 were

BA – 36.15

Pos   Qty   Sym     Strike      Type  Bid   Ask    Delta   IV
Sell  1     BAGF   Jul 03 30    Call  6.10  6.40   -99.5   29
Buy   2     BAAU   Jan 04 37.5  Call  2.70  2.85    52.6   25

Credit: 0.40

Current values on 7/25/2003 are
(Buy back the Aug 30 Call)

BA – 32.68

Pos   Qty   Sym     Strike      Type  Bid   Ask    Delta   IV
Sell  1     BAHF   Aug 03 30    Call  2.75  2.85   -95     21
Buy   2     BAAU   Jan 04 37.5  Call  0.75  0.80    26     22

Current values on 8/15/2003 are

BA – 32.94

Pos   Qty   Sym     Strike      Type  Bid   Ask    Delta   IV
Buy   2     BAAU   Jan 04 37.5  Call  0.80  0.85    27     25

Liquidation value: -2.85 + .40 + 1.60 = -0.85


Chart: T daily update 8/15/2003

T went up as expected and it should start heading back down toward
$12.50.  As T decreases in value, the September call will decrease
in value and hopefully expire worthless next month.

On the other hand, the weekly chart now implies that T is going

Chart: T weekly update 8/15/2003

Either way, depending on how fast this transpires, this play
should be profitable.  Hold.


T: $20.00 (entry)

Pos   Qty   Sym     Strike      Type  Bid   Ask    Delta   IV
Sell  1     TIC    Sep 03 15    Call  5.00  5.30   100     21
Buy   3     TJX    Oct 03 22.5  Call  0.50  0.65    31     22

Credit: $305

T: $21.03

Pos   Qty   Sym     Strike      Type  Bid   Ask    Delta   IV
Sell  1     TIC    Sep 03 15    Call  5.90  6.20   -98     60
Buy   3     TJX    Oct 03 22.5  Call  0.60  0.70    34     35

Liquidation 1:  -4.40 + 2.05 = -1.35


Chart: WEN daily update 8/15/2003

The daily chart of WEN is not entirely clear as to what it is
doing.  However the weekly still suggests that the play is right
on schedule.

Chart: WEN weekly update 8/15/2003

The weekly chart shows that WEN is on track to $23.00.  Hold.


The original option values on 7/22/2003 were

WEN – 28.84


Pos   Qty   Sym     Strike      Type  Bid   Ask    Delta   IV
Buy   10    WENME   Jan 04 25   Put  0.85  0.95    -20     34

Current values on 8/15/2003 are

WEN – 28.52

Pos   Qty   Sym     Strike      Type  Bid   Ask    Delta   IV
Buy   10    WENME   Jan 04 25   Put  0.75  0.85    -22     30


Readers Write
By Andrew Aronson

One of our readers submitted some excellent questions about
trading index options and we asked Andrew Aronson, Options
Principle at OneStopOption to provide some answers.

Attn: Contact Support
Subject: Trading Index Options


I am new to index options but have bought and sold equity options
for years sometimes with assignments forcing me to be short or
long stock.

I would like to move onward and upward into index options and have
a lot of questions mostly related to what one does in rolling as
they are cash settled.

Please allow me to list the questions by number as this would
you to follow in kind.

1)  I predominantly sell uncovered put options on stocks I may
want to own and I sell uncovered call options on stocks I may want
to short.  What does one consider (prerequisites) before entering
into an uncovered index option or does one almost always enter a
spread?  I have noticed that some brokerage firms such as Quick
and Reilly do not even allow uncovered index options.  So at this
brokerage one can only purchase index options.

2) If an uncovered put goes against me I sometimes sell the stock
short to reduce my exposure, sometimes I accept assignment then
sell the stock and sell double to triple the number of uncovered
option contracts at a lower strike price, and rarely do I buy to
close as a stop loss.  If an uncovered call goes against me I
sometimes buy the stock to reduce my exposure, sometimes I accept
assignment then sell the stock and then sell double to triple the
number of option contracts at a higher strike price, and rarely do
I buy to close as a stop loss.  Since assignment is not an option
I guess that leaves me fewer alternatives but what is your strategy
when positions are not in your favor?

3) Equities are easy to remember regarding the conversion, that is
1 contract equals 100 shares of stock.  With so many index options
how does one learn the conversion factor before considering a

4) What considerations about option expiration besides American or
European must one learn?  Equity options always expire the third
Friday of the month but the exercise and assignments take place
over the weekend.  When do index options expire such as oex, spx,
sox, btk in comparison to its component equity options and how does
this influence ones trading decisions?  Please excuse this novice
question:  are the qqq to the ndx like smh to sox, that is equity
option to index option or is qqq considered an index option?

5) What considerations about pre- and post-market trades are
important regarding the settlement of index options and how do you
make contingencies for the unexpected?  Please provide any
peculiarities as I have come across people surprised at some of
the outcomes unique to expiration.

6) I was thinking of an iron condor on the oex but will not place
the order due to my timidity and because of the likelihood that
you will not be able to respond to this email prior to August
expiration.  Please critique my thinking:

OEX 493.78 intraday...

Sell 480p oxb tp .75 to 1, Buy 475p oxb po .4 to .5 for credit of
35 to .5 and sell aug 505c oeb ha .7 to .9 and buy aug 510c oeb hb
2 to .35 for a credit of .5 to .65.  Potential total credit .85 to
1.05 to risk 5 if $1/contract.  It's midday and is this considered
a reasonable reward/risk return for 4 and 1/2 days?

7) Which options expire on Thursday instead of Friday and how does
this influence what you do in cash settlement options?

8)  How does one place stop loss orders on options without getting
burned by the spread?  I learned never to place market orders on
options as most equity options are thinly traded and market orders
allow the market maker to burn the customer.  If I place an order
to close an index option position based on the index then I believe
the option order is a market order.  If I place a stop loss based
on the option price it is a limit order but I wonder what guideline
one would use in choosing a stop loss for the index option price as
it seems a "guestimate" unless one has a special calculator with
software on the black-scholes?  With many index options highly
liquid is this what you do for protection on index options as
opposed to equity options?  At my broker I have to give telephone
orders for anything but standard buy and sell orders.  So for
spreads, buy writes, collars, stop loss, etc. it is a higher
commission schedule placing orders with a broker.

Although I have traded a lot of equity options please allow me
leeway on these novice questions.



Hello ES,

You sent a few questions to Ray Cummins, the Spreads/Combos editor
at OptionInvestor.com.  Many of the questions are brokerage
related, so he asked if I could help answer them.

1) Because Index options are cash settled, this adds an additional
element of risk to trading.  As you explained, if you are put the
stock you may hold it and sell calls against the position.  When
using index options, we do not get put shares.  Cash is simply
added and subtracted from your account at expiration.  Man
Financial is the firm that our division uses to clear our
business.  The minimum equity needed to sell "naked" index options
is $100,000.  Spreads can be done with $10,000.

2) I advise clients to have a predetermined exit strategy before
entering a trade.  If you are doing credit spreads on stocks or
indexes, your risk is predetermined when you place the trade.  If
a client is uncomfortable with the risk, I would advise that they
reduce the number of contracts.

3) When dealing with indexes, I like to explain the amount of
leverage involved with these options.  An example may help.  The
SPX @ 990.00 represents $99,000 worth of stock.  If we sell a 990
Put naked, our maximum exposure is $99,000 per option (minus the
initial credit received).  With the OEX @ 500.00, this represents
$50,000 worth of stock, etc.  The options work the same as regular
equity options; a $1 move = $100 per contract.

4) I would consider the QQQ an index and a stock option.  These
options are settled with stock.  The price of the QQQ is based on
the NASDAQ 100 index.

5) If you are able to call me during trading hours I would love to
share some horror stories with you.

6) The Iron condor is a good strategy because no matter what, one
half of the position will expire worthless.  In your example, a
credit of 1 will result in a maximum risk of $4 per spread (5-
1=4).Is it a good risk to reward ratio?  You put yourself against
the wall if the market moves suddenly.  I like to trade credit
spreads further from the market and with more time.

7) The SPX options stop trading on Thursday, but are settled by
the OPENING price of all 500 stocks on Friday morning.  This
should have little bearing in decision of doing a trade or not.

8) Stop-loss questions are never easy to answer.  When our clients
stops are triggered, we work the orders to get the best possible
prices in the closing or adjustment transaction.  The great thing
about a stop-loss is the fact that the trader has thought about
the position in advance and is trying to quantify the risk.  With
credit spreads, I advise that you do not place a stop-loss.  The
risk is already predefined.  If you are uncomfortable, please do
not do the trade or lower the quantity of contracts.

I would welcome the opportunity to speak to you about how we work
with our clients to help the develop good trading techniques.  I
am vailable during market hours to speak to you.  Please feel free
to contact me at (888) 281-9569.

Thank you,

Andrew Aronson
V.P. Investments
Division of Man Financial
141 W. Jackson Blvd Ste 1800-A
Chicago, IL 60604

Andrew Aronson and Alan Knuckman are skilled option principles,
as well as long-time OIN associates, and they recently started a
specialty brokerage for derivatives traders.  Their personalized
service will enable traders to be more confident, comfortable and
successful with options.  They will also help new market players
learn the "right" way to trade options with education and coaching
for maximum portfolio performance.  Alan and Andrew's expertise is
a valuable resource that will easily pay for itself through timely
executions and the piece of mind that comes from someone watching
your trades throughout the day.  The commissions are comparable to
those of discount brokers but you get to speak directly with option
professionals, not customer service clerks.  Clients can call them
directly to review positions and update orders and they also offer
"auto-trading" for many of the plays in the newsletter.

OneStopOption Strengths:

* Dedicated option brokerage with "live" option principals/brokers
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* Foreign accounts including Canada -- Futures trading available
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* Free OIN subscription for those who qualify (based on account
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Visit their new site -- www.onestopoption.com -- or send an E-mail
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because you stepped away from your computer?

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The Option Investor Newsletter                   Sunday 08-17-2003
Sunday                                                      5 of 5

In Section Five:

Covered Calls: Options 101: Success Basics
Naked Puts: Options 101: More Q&A With The Naked Puts Editor
Spreads/Straddles/Combos: Power Outage Makes August Options
Expiration A Non-Event

Updated In The Site Tonight:
Market Posture: Inside Day


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Stock Option Principals




Options 101: Success Basics
By Mark Wnetrzak

New readers often ask for suggestions on how they can be
successful in the options market.

The decision to trade options on a regular basis requires serious
consideration before a commitment can be made.  Option trading is
similar to an occupation or a career; it requires much more effort
and dedication than a hobby.  In fact the very nature of trading,
as opposed to long-term investing, will prevent the majority of
participants from devoting the time necessary to succeed, due to
their regular jobs and responsibilities.  With proper portfolio
administration, investments can be left unattended for weeks but
in contrast, some option positions need to monitored, evaluated,
and adjusted almost continuously.  Those who are considering the
possibility of option trading as a principal vocation should
determine if they can earn enough money after the cost of doing
business to justify the endeavor.  In short, does the potential
profit justify the time needed to become successful?

There are a number of elements necessary to be successful in the
options market.  Knowledge, ability and a suitable personality
are among the common traits exhibited by experienced traders and
as a group, most conform to the same basic plan.  They use sound
and sensible methods for trading options; implementing strategies
that work best for each particular situation.  They acquire the
proper tools for accurate analysis of potential candidates and
construct positions based on the appropriate market outlook and
risk/reward attitude of their portfolio.  Professionals traders
also utilize various mechanical systems and exit strategies to
manage their positions.  Setting up specific rules and targets
before a position is initiated will help control emotions and
improve consistency with exit decisions.  Of course, opening a
new position is easier because you can choose from a variety of
candidates and you don't have to buy unless you are completely
satisfied.  Successful traders will search through charts for the
perfect opportunity, waiting for the best combination of bullish
technical indicators and favorable market conditions.  They study
historical pricing patterns and perform extensive due-diligence
until the number of reasons to buy becomes overwhelming.  In all
cases, the choice to trade is yours to make and the timing in new
positions is not a constraint or limitation.  However, the entry
transaction is particularly important and it deserves your best
analysis and judgment.  In buying strategies, the option or issue
should be one you want to own and the price must be technically
favorable, with minimal downside risk.  A timely entry requires a
thorough knowledge of charting techniques and market trends and
the entire process is something you must completely understand
because a successful exit is by and large the product of a proper

One of the most critical conditions for success which new traders
often overlook is the importance of market selection.  In most
cases, option buying strategies work best in issues with high
volatility; the rate of change on a daily basis.  Of course, all
markets can provide an opportunity for trading but those with low
intra-day movement usually do not offer enough profit potential to
justify the risk of the position.  Gauging volatility in a market
allows a trader to estimate potential returns and determine the
correct methodology and approach for a particular trade.  However,
it is also important to identify situations that have acceptable
price activity; that which can generate a reasonable profit with
minimum capital exposure.  The market must be somewhat predictable
as opposed to one which exhibits extremely violent swings and the
best conditions will be accompanied by vigorous trading volume in
the underlying along with robust liquidity in its options.

An individual's personality plays an important and crucial role
in the ability to profit in the options market.  The reality of
trading is that you need to have an insightful understanding of
your character and emotional traits in order to identify personal
strengths and weaknesses.  We all have favorable and detrimental
qualities and like everything else in life, the key to success is
exploiting your positive attributes rather than trying to change
your personality.  For example, traders who find it difficult to
make timely decisions might use strategies that require very few
adjustments.  Those that have trouble exiting a losing position
should consider using a protective stop-loss, to ensure that a
bad trade is not exacerbated by one's natural reluctance to delay
the proper resolution.  Another common personality trait among
new traders is the desire to be perfect; to not have any losing
trades.  Unfortunately, the very nature of the market guarantees
that it is unpredictable and a trader who can not learn to live
with losing plays (and learn from them) will eventually endure
the setbacks he was trying so hard to avoid.  The cycle often
continues to the point where, having relinquished his initiative,
the trader is forever relegated to lost opportunities.  These are
just a few of the unwanted characteristics that can plague your
trading career and make achieving success in the options market
one of the most difficult tasks you will ever undertake.

Trade Wisely!


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

ISPH    12.75   13.98  AUG 12.50  0.80    0.55*  10.0%
SLNK    15.40   18.36  AUG 15.00  1.15    0.75*   7.6%
ROXI     7.99    7.45  AUG  7.50  0.90    0.36    7.4%
DIGE    32.50   33.18  AUG 30.00  3.40    0.90*   6.7%
IMCL    39.86   39.98  AUG 35.00  6.40    1.54*   6.7%
BEAS    12.79   12.58  AUG 12.50  1.00    0.71*   6.5%
NAV     40.59   41.84  AUG 40.00  1.75    1.16*   6.5%
AFFX    23.30   22.49  AUG 22.50  1.45    0.64    6.4%
DPMI    20.43   19.88  AUG 20.00  1.10    0.55    6.2%
CYBX    23.38   28.87  AUG 20.00  4.40    1.02*   5.8%
SSTI     5.47    6.65  AUG  5.00  0.75    0.28*   5.2%
DRIV    21.98   21.75  AUG 20.00  2.80    0.82*   4.6%
MOGN    31.97   36.21  AUG 30.00  2.90    0.93*   4.6%
EXTR     5.75    6.07  AUG  5.00  0.95    0.20*   4.5%
CY      13.84   14.30  AUG 12.50  1.95    0.61*   4.5%
RFMD     5.89    8.07  AUG  5.00  1.15    0.26*   4.0%
ANEN    10.75   11.40  AUG 10.00  1.10    0.35*   3.9%
BONZ    15.28   14.50  AUG 15.00  0.85    0.07    0.7%
CHIC    12.51   11.93  AUG 12.50  0.55   -0.03    0.0%
INSP    15.52   14.29  AUG 15.00  1.20   -0.03    0.0%
IMGN     5.05    4.35  AUG  5.00  0.50   -0.20    0.0%
CHINA   13.48    8.67  AUG 10.00  4.00   -0.81    0.0%

WAVX     3.46    3.20  SEP  2.50  1.20    0.24*   7.7%
XOMA     8.09    8.32  SEP  7.50  1.30    0.71*   7.6%
NWAC     8.30    8.76  SEP  7.50  1.40    0.60*   6.3%
NEOF    12.45   12.95  SEP 12.50  0.90    0.95*   6.0%
USG     14.11   14.86  SEP 12.50  2.35    0.74*   4.6%
ISIS     5.33    5.40  SEP  5.00  0.60    0.27*   4.1%
SNIC    11.18   11.80  SEP 10.00  1.70    0.52*   4.0%

*   Stock price is above the sold striking price.


The major averages rebounded this week only to once again test
key resistance areas.  Is anybody seasick yet?  With the primary
direction of the next trend unknown, protecting capital remains
the "name of the game."  Evaluate any August positions you may
own after this week's options expiration and act accordingly.

Positions Previously Closed:  Boston Communications (NASDAQ:BCGI),
O2Micro (NASDAQ:OIIM), Thoratec (NASDAQ:THOR), Abgenix (NASDAQ:
ABGX), Stellent (NASDAQ:STEL), Instinet (NASDAQ:INET), and Allied
Waste (NYSE:AW).


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

ENER   10.39  SEP 10.00  EQI IB  1.10  512    9.29  35   6.6%
EPNY    5.07  SEP  5.00  UEP IA  0.40  1100   4.67  35   6.1%
WAVX    3.20  SEP  2.50  KWW IZ  0.85  2358   2.35  35   5.5%
VSAT   15.09  SEP 15.00  IQS IC  0.80  75    14.29  35   4.3%
TKLC   15.46  SEP 15.00   KQ IC  1.15  36    14.31  35   4.2%
RFMD    8.07  SEP  7.50  RFZ IU  0.90  7303   7.17  35   4.0%
GSIC   11.52  SEP 10.00  UGF IB  1.95  13     9.57  35   3.9%

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).

ENER - Energy Conversion  $10.39  *** Blackout Rally! ***

Energy Conversion Devices (NASDAQ:ENER) is a technology, product
development and manufacturing company engaged in the invention,
engineering, development and commercialization of new materials,
products and production technology.  The company develops Ovonic
materials so as to design and commercialize new products, such
as nickel metal hydride (NiMH) batteries, thin-film solar
(photovoltaic) cell products and phase-change optical memory
media.  The company has established a multi-disciplinary business,
scientific, technical and manufacturing organization to market
products based on its technologies.  ENER manufactures and sells
its proprietary products through its joint venture companies and
through licensing arrangements with major companies worldwide.
Shares of alternative energy companies surged Friday after the
nation's largest blackout.  Energy Conversion has been in a
basing formation for almost a year with a support area near $9.
Traders can speculate on the near-term performance of the issue
with this conservative position.

SEP-10.00 EQI IB LB=1.10 OI=512 CB=9.29 DE=35 TY=6.6%

EPNY - E.piphany  $5.07  *** Cheap Speculation! ***

E.piphany (NASDAQ:EPNY) develops, markets and licenses the
E.piphany E.6 suite of software products, an integrated set of
customer relationship management (CRM) software products.  The
E.6 Suite includes multiple CRM software products designed to
solve specific business problems in areas such as customer
analytics, marketing, service and sales.  Their software
solutions can be deployed simultaneously or in incremental
steps as its customers seek to address new business problems.
Customers can deploy these software solutions to enhance,
supplement or replace previously installed software products.
The E.6 Suite is made up of several software modules: E.piphany
Insight, E.piphany Marketing, E.piphany Sales, E.piphany Service
and E.piphany Interaction Advisor.  E.piphany has been forging
a Stage I base for over a year and has established a strong
support area near $4.  Investors who believe the current lateral
trend will continue can profit from that outcome with this play.

SEP-5.00 UEP IA LB=0.40 OI=1100 CB=4.67 DE=35 TY=6.1%

WAVX - Wave Systems  $3.20  *** Intel Deal!  ***

Wave Systems (NASDAQ:WAVX) is a development-stage company that
develops, produces and markets hardware- and software-based
digital security products for the Internet and e-commerce
through encryption.  At the heart of Wave's technology is the
EMBASSY (Embedded Application Security System) Trust System
(the ETS), a combination of client hardware and software and
a back-office infrastructure that manages Wave's security
functions.  The client hardware consists of the EMBASSY 2100
security chip which may be embedded in user devices such as
computer keyboards, smart card readers, PC motherboards, PC
and/or cable modems, PDAs, cable set-top boxes and potentially
a wide variety of other user devices.  The EMBASSY chip is
used to securely store the user's personal information.  Wave
surged last month on news of an Intel (NASDAQ:INTC) deal which
will enable Intel to bundle Wave's software and services with
a future Intel desktop motherboard.  We simply favor the
bullish breakout supported by heavy volume which suggests
further upside potential.  Investors can use this position
to speculate on the company's future.  Target-shooting a lower
net-debit would lower the cost basis as well as raise the
potential yield in the position.

SEP-2.50 KWW IZ LB=0.85 OI=2358 CB=2.35 DE=35 TY=5.5%

VSAT - ViaSat  $15.09  *** Next Leg Up? ***

ViaSat (NASDAQ:VSAT) is a provider of advanced broadband digital
satellite communications and other wireless networking and signal
processing equipment and services to the government and commercial
marketplace.  The company's defense products include tactical data
links, such as advanced multi-function information distribution
system (MIDS) product line, simulation and test equipment (which
allows the testing of sophisticated airborne radio equipment
without expensive flight exercises), ultra-high frequency (UHF)
Demand Assigned Multiple Access (DAMA) satellite communications
products, consisting of modems, terminals and network control
systems, and the networks business, where ViaSat's information
security segment is gaining traction.  This week, ViaSat reported
a profit for its fiscal 1st-quarter citing a balanced mix of
government and commercial contracts.  We simply favor the bullish
technical indications and investors can use this position to
establish an entry point with a cost basis closer to support.

SEP-15.00 IQS IC LB=0.80 OI=75 CB=14.29 DE=35 TY=4.3%

TKLC - Tekelec  $15.46  *** Telecom Sector Speculation ***

Tekelec (NASDAQ:TKLC) is a leading developer of telecommunications
signaling solutions, packet-telephony infrastructure, network
monitoring technology, and value-added applications.  Tekelec's
innovative solutions are widely deployed in traditional and next
generation wireline and wireless networks and contact centers
worldwide.  TKLC was recently upgraded by Deutsche Securities and
Advest Inc., after the company reported sequential increases of 14%
in revenue and 18% in orders.  This week Tekelec was upgraded by
Raymond James to a "Strong Buy."  TKLC also completed a refinancing
of its convertible debt under terms that will lower annual pretax
interest expense by about $5.5 million and yearly cash interest
payments by about $1.5 million.  Apparently, analysts believe the
fundamental outlook for the company is favorable and investors who
agree with that assessment should consider this position.

SEP-15.00 KQ IC LB=1.15 OI=36 CB=14.31 DE=35 TY=4.2%

RFMD - RF Micro Devices  $8.07  *** Bottom Fishing! ***

RF Micro Devices (NASDAQ:RFMD) is a designer, developer, producer
and marketer of proprietary radio frequency integrated circuits
(RFICs), primarily for wireless communications products and
applications.  The company's products are included in cellular
and personal communications service (PCS) phones, base stations,
wireless local area networks (WLANs) and cable television modems.
The company offers a broad array of products, including amps,
mixers, modulators/demodulators and single chip transmitters,
receivers and transceivers that represent a substantial majority
of the RFICs required in wireless subscriber equipment. These
ICs perform the transmit and receive functions that are critical
to the performance of wireless and PCS phones.  The current
technical outlook is recovering and this play offers favorable
reward potential at the risk of owning this industry-leading
issue at a reasonable cost basis.

SEP-7.50 RFZ IU LB=0.90 OI=7303 CB=7.17 DE=35 TY=4.0%

GSIC - GSI Commerce  $11.52  *** Internet Sector ***

GSI (NASDAQ:GSIC) develops and operates electronic commerce
businesses for retailers, branded manufacturers, media companies,
television networks and professional sports organizations.  GSIC's
solutions encompass Website design and development, e-commerce
technology, customer service, fulfillment, merchandising, content
development and marketing.  GSI enables its partners to remain
focused on their core businesses and avoid substantial investments
and operating expenses and the commitment of significant resources
relating to e-commerce.  Depending upon the specific needs of a
partner, it can undertake either a complete outsourcing of the
partner's e-commerce activities or a more customized solution that
uses portions of its platform.  The near-term price history of GSIC
reveals one of the better charts we've seen recently (jinx?) and
investors who believe the rally will continue can profit from that
outcome with this position.

SEP-10.00 UGF IB LB=1.95 OI=13 CB=9.57 DE=35 TY=3.9%



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

XOMA    8.32  SEP  7.50  MBU IU  1.50  873    6.82  35   8.7%
PLUG    5.16  SEP  5.00  PQL IA  0.50  695    4.66  35   6.3%
ENMD    3.29  SEP  2.50  QMA IZ  0.95  380    2.34  35   5.9%
PSTI   15.00  SEP 15.00  MQA IC  0.95  52    14.05  35   5.9%
NXTL   17.51  SEP 17.50  FQC IS  1.05  4194  16.46  35   5.5%
ADLR   13.19  SEP 12.50  UAH IV  1.40  39    11.79  35   5.2%
SMMX   22.65  SEP 22.50  OFU IX  1.35  35    21.30  35   4.9%
ISPH   13.98  SEP 12.50  JPU IV  2.05  970   11.93  35   4.2%
TRN    25.38  SEP 25.00  TRN IE  1.35  150   24.03  35   3.5%


Options 101: More Q&A With The Naked Puts Editor
By Ray Cummins

With the recent volatility in the market, we've received a number
of questions concerning exit and adjustment strategies for naked

Attn: Naked-Puts Editor
Subject: Naked Puts and Stop Losses

In Sunday's (8-3-03) Naked Put section, you mentioned limiting
losses to 20% of the initial investment.  Would that mean that if
I received $0.50 for the premium, I would buy it back if the cost
of the option goes up to $0.60 or more, or does the stock price
need to move down by 20%?


Regarding the comment on position management with uncovered puts:

"While each individual situation will require a slightly different
solution, we suggest limiting individual position losses to 20% of
the initial investment."

Actually, the percentage loss-limiting technique with "naked" puts
is based on the initial collateral (or investment) required for the

Using an example: the Research In Motion (NASDAQ:RIMM) play on 8/3:

With the stock at $27.28, the AUG-22.50 Put (RUL-TX) is trading at
$0.35.  Thus, the position requires collateral of approximately $650
per contract.  If you sell 5 contracts of the AUG-22.50 Put, the
total margin (investment) will be roughly $3250.  Since 20% of $3250
is $650, the maximum amount of investment collateral allotted to
this position should be no more than $3900.  That equates to a stock
price near $25, so the underlying issue has at least $2.25 of
downside potential before an exit should be considered (based on
this technique).  Keep in mind this is just a suggested exit point
with regard to one particular "loss-limiting" strategy.  It will not
be appropriate for all (naked put) positions due to differences in
option premiums, the volatility and technical character of the
underlying issue, and your personal trading style, experience level
and risk tolerance.

Hope that helps!

Attn: Contact Support
Subject: Covering sold puts with short stock

I noticed you talk a lot about exiting naked put plays when the
stock price drops below the strike sold, but what about shorting
the stock to cover the sold put and then buying it back if the
stock recovers?  I haven't seen anything on this subject in your
Email replies...is the strategy feasible and do traders use it
very often?


Hello Again EW,

Indeed, one of the less utilized loss-limiting techniques for put
writers is to cover the sold option with "short" stock.  For those
who are new to this technique, recall that writing uncovered puts
is an option strategy that basically involves the sale of insurance
for a premium on issues that the trader expects to remain above the
sold strike price.  In most cases, puts sold deep out-of-the-money
expire worthless, allowing the investor to retain the premium and
receive a profit without ever having to buy the underlying stock.
The strategy is used with neutral to bullish issues and can produce
consistent, low-risk returns when applied correctly.  The broker's
margin requirement ensures that the short option is covered against
a decline in price in the underlying issue and this collateral is
posted in the form of equities or cash deposits in the trader’s

A put writer is also "covered" if there is a corresponding short
position in the underlying security, or its equivalent, in his
account.  Remember that a "short" sale is the sale of a security
that is not owned, with the intention of repurchasing it later,
at a lower price.  An investor borrows the stock from another
investor through a broker and then sells it in the open market.
Eventually, the investor repurchases the stock and returns it to
the broker, replacing the borrowed position.  The technique where
a stock is "shorted" after the sale of a (naked) put is used with
bullish issues that change direction abruptly due to unfavorable
news or events.  The sold (short) put is "covered" with the sale
of stock as the issue moves below the options’ strike price.  If
the short put is exercised, and the stock is purchased, the shares
can be further assigned to replace the previously borrowed stock.

The main problem with this strategy is the risk involved when the
underlying stock is volatile as a rebound above the initial short
price can cause large losses if the sold stock is not repurchased
in a timely manner.  In that case, the short (stock) position will
generate losses offset only by the initial option premium received
and that will generally be a small amount with "out-of-the-money"
puts.  Slippage (buying at the "bid" and selling and the "ask") and
the requirement to sell stock short only on the "up-tick" will also
affect the success of this technique, so it is not recommended for
inexperienced traders.  For the average investor, the potential for
loss far outweighs the limited gains that might be achieved through
the effective use of this strategy.

For more information on basic option trading strategies, review
Options as a Strategic Investment, by Lawrence McMillan, which is
available in the OIN bookstore.

Good Luck!


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    23.48   23.86  AUG 20.00  0.35    0.35*   3.9%  12.1%
AMLN    22.97   23.86  AUG 20.00  0.55    0.55*   4.1%  11.8%
RIMM    27.28   25.97  AUG 22.50  0.35    0.35*   3.4%  11.7%
ALGN    13.38   11.18  AUG 10.00  0.35    0.35*   3.2%  10.1%
OSIP    32.70   33.03  AUG 25.00  0.30    0.30*   2.6%   9.5%
OVTI    40.03   43.77  AUG 35.00  0.45    0.45*   2.8%   8.6%
BLUD    23.10   23.00  AUG 20.00  0.65    0.65*   2.9%   8.3%
BOBJ    25.00   24.52  AUG 22.50  0.45    0.45*   3.0%   8.2%
CYBX    23.72   28.87  AUG 20.00  0.60    0.60*   2.7%   8.2%
KOSP    28.29   34.65  AUG 25.00  0.45    0.45*   2.7%   7.7%
UNTD    29.39   34.29  AUG 25.00  0.40    0.40*   2.4%   7.5%
MRVL    35.32   36.20  AUG 32.50  0.40    0.40*   2.7%   7.4%
SIE     25.36   24.00  AUG 22.50  0.35    0.35*   2.3%   6.6%
SNDK    54.98   52.80  AUG 42.50  0.70    0.70*   1.8%   6.5%
UNTD    33.64   34.29  AUG 30.00  0.30    0.30*   2.2%   6.4%
AMAT    19.30   18.95  AUG 17.50  0.25    0.25*   2.1%   5.9%
NFLX    26.49   24.99  AUG 20.00  0.35    0.35*   1.5%   5.4%
SHPGY   22.05   22.77  AUG 20.00  0.35    0.35*   1.9%   5.3%
DRIV    23.05   21.75  AUG 17.50  0.30    0.30*   1.5%   5.3%
TRN     21.93   25.38  AUG 20.00  0.35    0.35*   1.9%   5.3%
SNDK    48.18   52.80  AUG 37.50  0.60    0.60*   1.4%   5.1%
MRVL    38.10   36.20  AUG 32.50  0.60    0.60*   1.6%   5.1%
CELG    32.18   35.91  AUG 25.00  0.30    0.30*   1.3%   4.8%

RIMM    24.61   25.97  SEP 20.00  0.75    0.75*   2.8%   9.1%
THER    13.93   14.00  SEP 12.50  0.55    0.55*   3.3%   8.5%
BLUD    23.12   23.00  SEP 22.50  1.00    1.00*   3.4%   7.5%
SEPR    21.76   23.49  SEP 17.50  0.50    0.50*   2.1%   7.3%
TKLC    13.73   15.46  SEP 12.50  0.45    0.45*   2.7%   6.9%
JDAS    13.90   14.12  SEP 12.50  0.40    0.40*   2.4%   6.4%
PDII    24.25   24.25  SEP 20.00  0.50    0.50*   1.9%   6.1%

*  Stock price is above the sold striking price.


The East Coast power outage had far-reaching effects, not the
least of which was silencing the recent volatile activity in the
equity markets.  The major averages finished almost unchanged on
meager trading volume and there was little directional bias for
the coming week.  With that outlook in mind, we will continue to
monitor the issues in our portfolio diligently and exit or adjust
any positions with less than outstanding technical indications.

Previously Closed Positions: Candela (NASDAQ:CLZR), Lexar Media
(NASDAQ:LEXR), Microstrategy (NASDAQ:MSTR), Monster Worldwide
(NASDAQ:MNST), Rowan Companies (NYSE:RDC), and BJ Services
(NYSE:BJS), all of which ended profitable, and Sohu.com


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.


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:



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.


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

AMSC   13.20  SEP 10.00  QAY UB 0.70 4     9.30  35   6.5%  18.2%
CBST   12.72  SEP 10.00  UTU UB 0.50 680   9.50  35   4.6%  14.3%
OVTI   43.77  SEP 35.00  UCM UG 0.95 1325 34.05  35   2.4%   8.5%
PHTN   28.90  SEP 25.00  PDU UE 0.65 264  24.35  35   2.3%   6.8%
UTEK   25.75  SEP 22.50  UQT UX 0.55 241  21.95  35   2.2%   6.3%
SEPR   23.49  SEP 20.00  ERQ UD 0.45 666  19.55  35   2.0%   6.2%
AEIS   21.02  SEP 17.50  OEQ UW 0.30 1    17.20  35   1.5%   5.0%

Company Descriptions

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

AMSC - American Superconductor  $13.20  *** Blackout = Rally! **

American Superconductor (NASDAQ:AMSC) develops solutions and
builds products to dramatically improve the cost, efficiency and
reliability of systems that generate, deliver and use electric
power.  The company has a vertically integrated portfolio of
products supported by more than 500 patents, patent applications,
and licenses covering technologies fundamental to revolutionizing
the way the world uses electricity.  Products from AMSC include
high temperature superconductor equipment for electric power,
transportation, medical and industrial processing applications;
motors and generators for ship propulsion; and advanced power
electronic systems that ensure the quality and reliability of
electricity for residential, commercial and industrial customers.
Shares of alternative energy companies surged Friday as much of
the Northeast staggered back from the nation's largest blackout.
Analysts say the outage highlights the weakness of the power grid
as the major cause of disruptions and could act as a catalyst for
alternative distribution and backup-power companies.  Traders who
agree with that viewpoint can speculate on the future of back-up
power generation and alternative energy companies with this play.

SEP-10.00 QAY UB LB=0.70 OI=4 CB=9.30 DE=35 TY=6.5% MY=18.2%

CBST - Cubist  $12.72  ** Drug Speculation! ***

Cubist Pharmaceuticals (NASDAQ:CBST) is a biopharmaceutical firm
focused on the research, development and commercialization of
antiinfective drugs.  Cubist has submitted a New Drug Application
to the U.S. Food & Drug Administration for Cidecin (daptomycin
for injection) for the treatment of complicated skin and skin
structure infections.  The NDA for CIDECIN is currently being
reviewed by the FDA under priority review status.  The company's
pipeline also includes CAB-175, a next-generation parenteral
cephalosporin antibiotic in Phase 1 trials, and an oral version
of ceftriaxone, a broad-spectrum cephalosporin antibiotic in
pre-clinical development.  Investors are speculating on the
revenue potential of Cidecin, which analysts say will likely be
approved by the FDA in the near future.  Cidecin is among a new
generation of antibiotics that may help to combat "super bugs,"
which are deadly pathogens that are resistant to most drugs in
the antibiotic arena.  Traders who are optimistic about the
drug's future success should consider this position.

SEP-10.00 UTU UB LB=0.50 OI=680 CB=9.50 DE=35 TY=4.6% MY=14.3%

OVTI - OmniVision  $43.77  *** New All-Time High! ***

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.  Analysts suggest that Omnivision's chips are
cheaper, smaller, and simpler than those of their competitors and
the company's sales reflect that opinion, having more than doubled
in the latest twelve months.  Traders who think the upside bias
will continue can profit from that outcome with this position.

SEP-35.00 UCM UG LB=0.95 OI=1325 CB=34.05 DE=35 TY=2.4% MY=8.5%

PHTN - Photon Dynamics  $28.90  *** On The Rebound! ***

Photon Dynamics (NASDAQ:PHTN) is a provider of yield management
solutions to the flat panel display (FPD) industry.  The company
also offers yield management solutions for the printed circuit
board assembly and advanced semiconductor packaging industries
and the cathode ray tube display and CRT glass and auto glass
industries.  The firm's test, repair and inspection systems are
used by manufacturers to collect data, analyze product quality
and identify and repair product defects at critical steps in the
manufacturing.  Shares of PHTN have been in "recovery mode" over
the past few sessions and the move above near-term resistance at
$27 bodes well for its future share value.  Traders can profit
from continued bullish activity in PHTN with this position.

SEP-25.00 PDU UE LB=0.65 OI=264 CB=24.35 DE=35 TY=2.3% MY=6.8%

UTEK - Ultratech  $25.75  *** Rally Mode! ***

Ultratech (NASDAQ:UTEK) designs, makes and markets photolithography
equipment used worldwide in the fabrication of semiconductor and
nanotechnology devices.  The company produces products designed to
substantially reduce the cost of ownership for manufacturers in the
electronics industry.  Ultratech is the market leader in gold and
solder bump lithography and 300 mm wafer-level chip scale packaging.
Shares of UTEK have been in "rally mode" since last Tuesday and the
bullish technical indications show no sign of a retreat in the near
future.  Traders can speculate on the issue's near-term performance
with this position.

SEP-22.50 UQT UX LB=0.55 OI=241 CB=21.95 DE=35 TY=2.2% MY=6.3%

SEPR - Sepracor  $23.49  *** Own This One! ***

Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company
dedicated to treating and preventing human disease through the
discovery and development of innovative pharmaceutical products
that are directed toward serving unmet medical needs.  Sepracor's
drug development program has yielded an extensive portfolio of
pharmaceutical compound candidates, including candidates for the
treatment of respiratory, urology and nervous system disorders.
In July, Sepracor reported a far narrower second-quarter loss than
expected, driven by higher sales of its allergy and asthma drugs.
Revenue rose 59% to $76.5 million, from $48.1 million a year ago,
and company officials told analysts that the firm is on track to
become profitable in 2004, assuming its new sleep drug, Estorra,
wins regulatory approval later this year.  Investors who wouldn't
mind owning the issue near a cost basis of $20 should consider
this position.

SEP-20.00 ERQ UD LB=0.45 OI=666 CB=19.55 DE=35 TY=2.0% MY=6.2%

AEIS - Advanced Energy  $21.02  *** Rally Underway! ***

Advanced Energy (NASDAQ:AEIS) is a leader in the development and
support of technologies for unique high-technology manufacturing
processes used in the production of semiconductors, flat panel
displays, data storage products, compact discs, digital video
discs, architectural glass, and similar product applications.
Leveraging a diverse product portfolio and technology leadership,
the firm creates solutions that maximize process impact, improve
productivity and lower cost of ownership for its customers.  This
portfolio includes a comprehensive line of technology solutions in
power, flow, thermal management, plasma and ion beam sources, and
integrated process monitoring and control for original equipment
manufacturers and end-users around the world.  Advanced Energy
posted mediocre results for the second quarter but the company
also said it expects demand to increase in the coming months with
third quarter revenue rising 3% to 8%.  Investors are apparently
happy with the outlook as they have supported the stock with new
buying pressure since the earnings report and traders can profit
from continued upside activity in AEIS with this position.

SEP-17.50 OEQ UW LB=0.30 OI=1 CB=17.20 DE=35 TY=1.5% MY=5.0%



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

SGR     8.26  SEP  7.50  SGR UU 0.50 217   7.00  35   6.2%  14.3%
RIMM   25.97  SEP 22.50  RUL UX 0.80 947  21.70  35   3.2%   9.0%
FLSH   16.09  SEP 15.00  FFU UC 0.60 32   14.40  35   3.6%   8.8%
DCTM   18.20  SEP 17.50  QDC UW 0.70 75   16.80  35   3.6%   8.4%
AG     20.46  SEP 20.00   AG UD 0.75 33   19.25  35   3.4%   7.7%
NTE    23.65  SEP 20.00  NTE UD 0.55 92   19.45  35   2.5%   7.5%
DIGE   33.18  SEP 30.00  QDG UF 0.85 167  29.15  35   2.5%   6.8%
NTES   44.52  SEP 35.00  NQG UG 0.70 2329 34.30  35   1.8%   6.3%
ACN    20.60  SEP 20.00  ACN UD 0.55 0    19.45  35   2.5%   5.8%
WMS    22.60  SEP 20.00  WMS UD 0.45 11   19.55  35   2.0%   5.7%


Power Outage Makes August Options Expiration A Non-Event
By Ray Cummins

Stocks traded in small range Friday after a massive blackout
brought the Northeast United States to a virtual standstill.

The major exchanges opened normally, and on schedule, however
trading volume was diminutive as brokerage firms depended on
emergency power and stores and offices in New York's financial
district remained closed due to lack of electricity.  The Dow
Jones Industrial Average added 11 points to close at 9,321 with
3M Corp. (NYSE:MMM), McDonald's (NYSE:MCD) and Eastman Kodak
(NYSE:EK) among the few bullish issues.   The technology-laced
NASDAQ Composite Index closed up 1 point at 1,702 with little
activity of significance in any segment.  The broad Standard &
Poor's 500 Index finished unchanged at 990, despite the added
volatility that is normally present during the monthly options
expiration.  Only 699 million shares traded on the technology
exchange, making it the lightest trading day so far this year.
Volume was also extremely light on the Big Board, with just 562
million shares changing hands.  Advancers outpaced decliners 17
to 14 on the NYSE while winners roughly equaled losers on the
NASDAQ.  The bond market closed early because of transportation
problems linked to the blackout.  Treasury issues ended lower,
with the 10-year note down a 18/32 to yield 4.53%.  Trim Tabs
said that equity funds continued to attract investors.  They
estimated that all equity funds had inflows of $4.3 billion
during the week ended August 13, compared with inflows of $400
million in the prior week.


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.


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

IRF     28.00   33.84  AUG   22  25   0.25  24.75  $0.25  Closed
MER     49.25   52.99  AUG   42  45   0.25  44.75  $0.25  Closed
EBAY   113.07  103.07  AUG   95 100   0.50  99.50  $0.50  Closed
GENZ    44.02   45.35  AUG   35  37   0.20  37.30  $0.20  Closed
MEDI    39.01   35.46  AUG   32  35   0.25  34.75  $0.25  Closed
SYMC    45.65   48.71  AUG   35  40   0.55  39.45  $0.55  Closed
CCMP    57.61   62.05  AUG   45  50   0.55  49.45  $0.55  Closed
GILD    66.52   62.32  AUG   55  60   0.55  59.45  $0.55  Closed
SII     37.87   37.39  AUG   32  35   0.25  34.75  $0.25  Closed
AMZN    41.60   40.10  AUG   35  37   0.25  37.25  $0.25  Closed
NTES    42.07   44.52  AUG   30  35   0.50  34.50  $0.50  Closed
ADI     39.51   36.35  SEP   30  35   0.65  34.35  $0.65   Open
BOW     38.57   42.07  SEP   30  35   0.60  34.40  $0.60   Open
MXIM    39.11   39.96  SEP   30  35   0.65  34.35  $0.65   Open
BBY     47.90   49.32  SEP   40  42   0.30  42.20  $0.30   Open
JCI     96.49   97.40  SEP   85  90   0.65  89.35  $0.65   Open
MBI     53.13   53.59  SEP   45  50   0.65  49.35  $0.65   Open
WMT     57.77   58.10  SEP   50  55   0.50  54.50  $0.50   Open

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

Positions in Yahoo! (NASDAQ:YHOO) and Garmin (NASDAQ:GRMN) have
previously been closed to limit potential losses.  Analog Devices
(NYSE:ADI) is on the "watch" list.  There was no play initiated
in ImClone (NASDAQ:IMCL) as the AUG-$32.50 strike was posted in
error by the OCC/ISE.


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

ACS     45.06   45.34   AUG   55  50   0.65  50.65  $0.65  Closed
BBBY    38.59   40.53   AUG   45  42   0.35  42.85  $0.35  Closed
ICUI    27.90   28.62   AUG   35  30   0.60  30.60  $0.60  Closed
PG      88.56   89.12   AUG   95  90   1.25  91.25  $1.25  Closed
BGEN    40.05   37.74   AUG   47  45   0.30  45.30  $0.30  Closed
NVLS    35.70   35.72   AUG   42  40   0.30  40.30  $0.30  Closed
BSTE    46.06   43.37   AUG   55  50   0.60  50.60  $0.60  Closed
BVF     41.60   41.59   AUG   50  45   0.50  45.50  $0.50  Closed
FNM     62.35   62.37   AUG   70  65   0.50  65.50  $0.50  Closed
JPM     33.36   33.66   AUG   37  35   0.25  35.25  $0.25  Closed
INTU    42.86   44.58   SEP   50  47   0.30  47.80  $0.30   Open
ESRX    62.23   63.75   SEP   75  70   0.60  70.60  $0.60   Open
DB      59.64   61.96   SEP   70  65   0.60  65.60  $0.60   Open

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.


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

TECD    31.03  31.39  AUG   25  30   4.20   29.20  0.70  Closed
EBAY   110.02 103.07  AUG   95 100   4.60   99.60  0.40  Closed
RGLD    23.94  23.48  AUG   20  22   2.20   22.20  0.30  Closed
MWD     48.54  48.64  SEP   40  45   4.45   44.45  0.55   Open

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


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

LXK     73.50  62.75  AUG   85  80   4.80   80.20   0.20  No Play
BRCM    22.76  21.26  AUG   27  25   2.30   25.20   0.20  Closed
KBH     55.84  56.94  AUG   65  60   4.60   60.40   0.40  Closed

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.


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

SHPGY   22.77  22.77   JAN     30    17     0.00    0.00    Open
AVCT    27.83  28.95   SEP     30    25    (0.10)   0.60    Open

ITT Educational Services (NYSE:ESI), which has previously been
closed, was one of the best plays this the month with a potential
gain of $6 (or more) for speculative traders.


No Open Positions


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

GP      19.25  22.09   OCT-20C   SEP-22C   1.90    1.75    Open
MSFT    27.31  25.54   JAN-27C   AUG-27C   1.40    1.50    Open
NE      34.86  34.90   DEC-37C   AUG-37C   1.40    1.50    Open
ING     19.07  20.90   JAN-20C   AUG-20C   0.90    1.00    Open
SPW     44.65  48.15   DEC-47C   AUG-47C   2.50    3.20    Open
NSM     22.77  24.11   JAN-20C   SEP-25C   3.90    4.50    Open
BDY     20.65  24.19   JAN-22C   SEP-22C   1.35    1.60    Open?

As noted last week, traders have had plenty of opportunities to
transition to a diagonal spread in the Georgia-Pacific (NYSE:GP)
position.  A similar situation is emerging in SPX Corporation
(NYSE:SPW), which is now profitable, and an adjustment may also
become necessary in the Ing Groep (NYSE:ING) time spread.  The
new position in Brady Pharmaceuticals (NYSE:BDY) was far more
bullish than anyone could have expected, but the brisk upside
activity, which began Monday morning, left little opportunity to
enter the play at the target debit and required close attention
to achieve a profit before issue continued its sharp rally.  The
speculative position in Netscreen Technology (NASDAQ:NSCN) has
previously been closed to limit losses.


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

OVER    23.68  22.76   SEP   25    22     1.50     1.60    Open
SNE     30.74  31.30   OCT   30    30     3.75     3.60    Open
AMTD    10.00  10.07   OCT   10    10     1.45     1.25    Open
TRI     30.50  29.86   NOV   30    30     4.90     4.75    Open

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 previously been closed to limit


No Open Positions

Questions & comments on spreads/combos to Contact Support


Attn: Contact Support
Subject: Margin requirements for Straddle/Strangles


I closely follow your section on OIN and must say that I have
learned a lot from you by just simply looking at the tables of
spreads, combos, etc.  Next to the general market comments,
yours is the part of OIN I go right after for information.  A
long time ago, I downloaded from OIN a spreadsheet on ROI,
margin reqs, etc., on covered calls, naked puts, and credit/debit
spreads.  Do you have a similar spreadsheet for evaluating
strangles and straddles?  If you do, would you please provide
the subscribers with it?  If not, would you please give me some
quick formulas for evaluating those option strategies; margin
requirements, ROI, etc?  I would really appreciate your help on
this.  A lot of other subscribers will also be thankful.

Best Regards,

EZ (London)

Hello EZ,

Regarding the spreadsheet, we did not include straddles and
strangles in the calculations, however the formulas for
margin/collateral are fairly simple:

Debit straddles/strangles -- No margin; full cost of each
option paid in advance (equivalent to buying call and put
options outright).

Uncovered "naked" options -- For individual options (uncovered
equity or index calls or puts), the margin requirement is the
greater of the following per contract:

Premium received plus 40% of the underlying issue price, minus
the out-of-the-money amount


Premium received plus 20% of the underlying issue price.

Uncovered equity or index straddles/strangles -- For short
combinations, the margin is generally equal to the greater
collateral requirement of the two positions (uncovered call
or put), plus the premium amount received from the other
position (uncovered call or put).

For practical purposes, OTM credit strangles require roughly
25% of the underlying value of the stock as an initial margin
requirement and ATM credit straddles require approximately 40%
of the underlying value of the stock as an initial margin

For the official OCC margin requirements, go here:


Hope that helps!


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.


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.

BSX - Boston Scientific  $63.25  *** Stent-Maker Extraordinaire! ***

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

BSX - Boston Scientific  $63.25

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-50.00  BSX-UJ  OI=8909   ASK=$0.45
SELL PUT  SEP-55.00  BSX-UK  OI=12955  BID=$0.90
POTENTIAL PROFIT(max)=11% B/E=$54.50

LOW - Lowe's Companies  $48.90  *** Earnings Speculation! ***

Lowe's Companies (NYSE:LOW) is the world's second largest home
improvement retailer.  Headquartered in Wilkesboro, N.C., Lowe's
is the 14th largest retailer in the United States as well as the
30th largest retailer worldwide.  With over 100,000 employees,
Lowe's is "Improving Home Improvement" for over seven million
do-it-yourself retail and commercial business customers each week.
Lowe's reports earnings on 8/18 (Home Depot reports a day later).

LOW - Lowe's Companies  $48.90

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-42.50  LOW-UV  OI=958  ASK=$0.25
SELL PUT  SEP-45.00  LOW-UI  OI=444  BID=$0.45
POTENTIAL PROFIT(max)=11% B/E=$44.75

SNPS - Synopsys  $66.63  *** Near All-Time Highs! ***

Synopsys (NASDAQ:SNPS) is the world leader in electronic design
automation (EDA) software for integrated circuit design.  The
company delivers technology-leading IC design and verification
platforms to the electronics market, enabling the development of
complex systems-on-chips.  Synopsys also provides intellectual
property and design services to simplify the design process and
accelerate time-to-market for its customers.  The company is
headquartered in Mountain View, California and has offices in
more than 60 locations throughout North America, Europe, Japan
and Asia.

SNPS - Synopsys  $66.63

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-55.00  YPQ-UK  OI=2160  ASK=$0.30
SELL PUT  SEP-60.00  YPQ-UL  OI=1148  BID=$0.80
POTENTIAL PROFIT(max)=12% B/E=$59.45

IFIN - Investors Financial Services  $28.42  *** Bond Market Woes? ***

Investors Financial Services (NASDAQ:IFIN) provides services
for a variety of financial asset managers such as mutual fund
complexes, investment advisors, banks, and insurance companies.
Through a wholly-owned subsidiary, Investors Bank & Trust Company,
they offer core services including global custody, multicurrency
accounting, and mutual fund administration, and value added
services including securities lending, foreign exchange, and cash

IFIN - Investors Financial Services  $28.42

PLAY (speculative - bearish/credit spread):

BUY  CALL  SEP-32.50  FLQ-IZ  OI=16  ASK=$0.40
SELL CALL  SEP-30.00  FLQ-IF  OI=29  BID=$0.90
POTENTIAL PROFIT(max)=25% B/E=$30.50

SAP - SAP Ag Ads  $27.56  *** Software Slump! ***

SAP (NYSE:SAP) is the world's leading provider of business software
solutions.  Through mySAP(TM) Business Suite, people in businesses
around the globe are improving relationships with customers and
partners, streamlining operations and achieving significant
efficiencies throughout their supply chains.  The unique core
processes of various industries, from aerospace to utilities, are
supported effectively by SAP's 23 industry solution portfolios.
Today, more than 20,000 companies in over 120 countries run more
than 64,500 installations of SAP software.  With subsidiaries in
over 50 countries, the company is listed on several exchanges,
including the Frankfurt stock exchange and the NYSE.

SAP - SAP Ag Ads  $27.56

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-32.50  SAP-IZ  OI=922   ASK=$0.20
SELL CALL  SEP-30.00  SAP-IF  OI=3056  BID=$0.45
POTENTIAL PROFIT(max)=11% B/E=$30.25


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

MGAM - Multimedia Games  $24.97  *** Trading Range? ***

Multimedia Games (NASDAQ:MGAM) is the leading supplier of
interactive electronic games and player stations to the rapidly
growing Native American gaming market.  The company's games are
delivered through a telecommunications network that links its
player stations with one another both within and among gaming
facilities.  Multimedia Games designs and develops networks,
software and content that provide its customers with a range of
gaming systems.  The company's development and marketing efforts
focus on Class II gaming systems and Class III video lottery
systems for use by Native American tribes throughout the United

MGAM - Multimedia Games  $24.97

PLAY (conservative - bullish/debit spread):

BUY  CALL  SEP-20.00  QMG-ID  OI=625  ASK=$5.30
SELL CALL  SEP-22.50  QMG-IX  OI=92   BID=$3.00
POTENTIAL PROFIT(max)=11% B/E=$22.25

MUR - Murphy Oil  $52.94  *** Solid Earnings! ***

Murphy Oil Corporation (NYSE:MUR) is a worldwide oil and gas
exploration and production company with refining and marketing
operations in the United States and the United Kingdom.  The
firm's operations are classified into two business activities:
Exploration and Production; and Refining and Marketing. Murphy's
principal exploration and production activities are conducted in
the United States, Ecuador and Malaysia by wholly owned Murphy
Exploration & Production Company and its subsidiaries; in western
Canada and offshore eastern Canada by wholly owned Murphy Oil and
its subsidiaries; and in the U.K. North Sea and Atlantic Margin
by wholly owned Murphy Petroleum Limited.  Murphy Oil USA, Inc.,
a wholly owned subsidiary, owns and operates two refineries in
the United States.

MUR - Murphy Oil  $52.94

PLAY (conservative - bullish/debit spread):

BUY  CALL  SEP-45.00  MUR-II  OI=52    ASK=$8.40
SELL CALL  SEP-50.00  MUR-IJ  OI=3275  BID=$3.90
POTENTIAL PROFIT(max)=12% B/E=$49.45


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.

DV - DeVry  $27.16  *** Upside Potential! ***

DeVry (NYSE:DV) is the holding company for DeVry University,
Ross University and Becker Conviser Professional Review.  DeVry
University offers associate, bachelor's and master's degree
programs in technology, business and management.  Ross University
is focused exclusively on professional medical and veterinary
education awarding both doctor of medicine and doctor of
veterinary medicine degrees.  Becker Conviser Professional Review
is a leading provider of preparatory coursework for the certified
public accountant, certified management accountant and chartered
financial analyst exams.

DV - DeVry  $27.16  *** Upside Potential! ***

PLAY (speculative - bullish/synthetic position):

BUY  CALL  NOV-30.00  DV-KF  OI=70   ASK=$1.20
SELL PUT   NOV-25.00  DV-WE  OI=510  BID=$1.10

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $985 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).


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.

MDCO - The Medicines Company  $26.17  *** Testing 2003 Highs! ***

The Medicines Company (NASDAQ:MDCO) operates as a pharmaceutical
company selling and developing products for the treatment of
hospital patients.  MDCO acquires, develops and commercializes
biopharmaceutical products that are in late stages of development
or have been approved for marketing.  The company began selling
Angiomax, its lead product, in U.S. hospitals in January 2001 as
an anticoagulant replacement for heparin.  MDCO is developing
Angiomax for additional potential hospital applications as a
procedural anticoagulant and for use in the treatment of ischemic
heart disease.

MDCO - The Medicines Company  $26.17

PLAY (speculative - bullish/calendar spread):

BUY  CALL  JAN-30.00  MQL-AF  OI=95  ASK=$1.90
SELL CALL  SEP-30.00  MQL-IF  OI=43  BID=$0.30


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

ADBE - Adobe Systems  $34.36  *** Earnings Speculation ***

Adobe Systems (NASDAQ:ADBE), the leader in network publishing,
offers a comprehensive line of software for enterprise and
creative professional customers. Its products enable customers
to create, manage and deliver visually rich, compelling and
reliable content.  Adobe Systems helped launch the desktop
publishing revolution in 1982 and is at the heart of the next
publishing revolution, network publishing.  Network publishing
is about making reliable, visually rich information available
to anyone, anywhere, on any device.  Today, Adobe offers a
comprehensive line of software for enterprise and creative
professional customers.  Adobe's quarterly earnings report is
due on 3/10.

ADBE - Adobe Systems  $34.36

PLAY (very speculative - neutral/debit straddle):

BUY CALL  SEP-35.00  AEQ-IG  OI=3491  ASK=$1.15
BUY PUT   SEP-35.00  AEQ-UG  OI=404   ASK=$1.80



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