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Daily Newsletter, Sunday, 09/07/2003

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The Option Investor Newsletter                   Sunday 09-07-2003
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: Got Lipstick?
Futures Market: Gold and Treasuries Rally, Equities Pull Back
Index Trader Wrap: Just a Shake?
Editor's Plays: New VIX
Market Sentiment: September score: Bulls 3, Bears 1
Ask the Analyst: See Note
Coming Events: Earnings, Splits, Economic Events


Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 9-05         WE 8-29         WE 8-22         WE 8-15
DOW     9503.34 + 87.52 9415.82 + 66.95 9348.87 + 27.18 +130.60
Nasdaq  1858.24 + 47.79 1810.45 + 45.13 1765.32 + 63.31 + 57.98
S&P-100  512.49 +  9.13  503.36 +  5.94  497.42 -  0.88 +  4.50
S&P-500 1021.39 + 13.38 1008.01 + 14.95  993.06 +  2.39 + 13.08
W5000   9906.69 +136.23 9770.46 +158.03 9612.43 + 64.92 +154.78
RUT      508.87 + 11.45  497.42 + 11.91  485.51 + 13.59 + 17.98
TRAN    2747.29 + 64.05 2683.24 + 41.68 2641.56 + 17.90 + 44.63
VIX       19.37 -  0.12   19.49 -  0.78   20.27 +  0.07 -  1.09
VXN       30.70 +  1.18   29.52 +  0.05   29.47 +  0.26 -  2.82
TRIN       1.04            0.78            1.36            1.01
Put/Call   0.72            1.29            0.91            0.53
Avg Highs   949             408             720             338
Avg Lows     20              40              58              62
******************************************************************

Got Lipstick?
by Jim Brown

It would take a lot of lipstick to turn the Jobs Report from
Friday into anything but a pig but analysts tried to spin it
from every angle. If it looks like a pig, walks like a pig and
smells like a pig it is probably a pig. That oinking noise
coming out of the Labor Dept on Friday did not prevent the
bulls from buying the dip and running the Nasdaq back into
positive territory before the morning coffee had turned cold.

There were a couple economic reports on Friday but only one
mattered. The August employment report showed a drop of
-93,000 jobs and it was broad based and far worse than expected.
The consensus estimates had been around +10,000 with bearish
whisper numbers as low as -50,000. Nobody expected the disaster
we received. The unemployment survey showed the rate dropped
to 6.1% from 6.2% and the administration (Elaine Chao) kept
pounding the table that the administration's jobs program was
working. Excuse me? When questioned about how the economy
could lose -93,000 jobs with the continuing unemployment
claims rising and result in a lower rate she was unable to
answer. Actually the unemployment rate is a different survey
than the jobs number. Unemployment is determined by phone
calls to individual households asking if they have job. The
job loss number is done by surveying businesses on recent
hiring and firing action. The calling list for households
last month must have covered Beverley Hills.

Job losses were spread across all major sectors including
services, manufacturing, civilian and government. Only the
construction, education, health care and hospitality sectors
showed slight gains in jobs. This was the 7th consecutive
month of job losses and the biggest drop since the -151,000
in March. Manufacturing lost -44,000 jobs and the workweek
remained at 40.1 hours. Normally a leading indicator of an
increase in jobs is a growth in the hours worked. It has been
flat to down since March except for a slight bounce in June
that was quickly retraced. Workers are finding it harder to
get work with 22% of unemployed workers jobless for more than
six months and 12% unemployed for more than a year. Temp
workers did rise by +7,000 in August and this could be
vacation hires or employers testing the water as signs of
a recovery grow. Monster.com said they had 24 million resumes
online and they were seeing an increase in hiring in the
consulting, customer service, healthcare, food services and
real estate sectors. Food service was up +38% and real estate
+36%. Manufacturing was down -18% on Monster. An analyst
speculated that layoffs in high tech, financial management,
brokerages and small business management were probably not
going to be strong future consumers with new jobs in the
food service arena. The tone of the conversation was that we
were seeing a trend into any area hiring and not necessarily
that it was their chosen field.

One of the remaining economic reports was the Future Inflation
Gauge which rose +1.7% in August to 117.6 and the highest level
since March. It was the sharpest jump in a year. Suddenly
the Bernanke comments from Thursday seem at risk. They will
not be cutting rates again if the FIG continues to move up
sharply. This was the second monthly increase but a real
recovery will produce inflation pressures so it was not a
real surprise. It is not close to any critical levels but
simply an indicator of the rising trend. The second report
was the Composite Leading Indicators which rose to 123.4 in
July from 122.1 in June. I don't know why they call it leading
indicators when they are just now reporting July numbers but
this was the fourth consecutive monthly rise for the global
economy. The recovery appears to be spreading with the Euro
Zone up +2.1 and NAFTA +7.7. It also appears the U.S. at +7.8
is behind only Mexico at +9.1.

JPM joined the rapid growth club on Friday with an upgrade
to their GDP estimates for the 3Q to +5.0% to +5.25%. GS also
changed their estimates by lowering their Q1 outlook. They
feel the recovery will slow in the 4Q and not pick up again
until late 2004. All bets are for a strong Q3 and Merrill
Lynch said on Friday that earnings estimates for the 3Q were
up +4% in August. The gain was probably related to the job
losses as that is the primary cost reduction tool. The very
high productivity we saw reported this week is a poison pill
for labor because higher productivity means less need for
more workers. The +4% earnings growth in August is a very
strong gain and so far we have not had any real warnings
although the season is young. Merrill also said after the
3Q market momentum could slow because the easy money has
been made. Tech stocks are selling for an average PE of 66
and twice the S&P PE of 33. Both are very high historically
and when this happened last in Nov-2002 it was followed by
six months of flat to down markets. We are also reaching
that period in the market where valuation downgrades are
accelerating. Last week we saw several that included blue
chips MMM and WMT as well as some tech stocks like BEAS.

The markets took a well deserved breather on Friday after
the Jobs Report reminded the bulls that the recovery game
is not over until the whistle blows. With the Jobless Claims
expected to be higher next week the bloom may be fading. In
fact it should not be fading just maturing. We have known
for months that jobs were dropping and while a negative jobs
number should not have been a surprise it was the severity
that really fired up the sellers. While the bulls bought the
dip early, especially in techs, they could not hold the party
line any longer. It was not because the economy or the market
had changed but simply a case of a buyer boycott. The bulls
ran out of investors willing to buy the top. Not the top in
the market, but the top for this cycle. Once normal profit
taking eases we can take another run at it.

The problems for next week will be earnings warnings with
IBM already a leading candidate. With CSCO, DELL and INTC
already saying positive things about the quarter we would
not expect many tech warnings but the PC sector is not a
strong profit center for IBM. They are also dependent on
a currency hedge for overseas sales. They received a major
bump in the 2Q from currency translation profits. The
dollar has reversed and is causing a drain for Q3. ODP
has already warned for Q3 because of that weaker dollar.
That could hurt IBM and other multinationals. Another
problem will be the continuing valuation downgrades. With
many tech stocks up +50% or more this year and some up +100%
from last year there is the potential for analysts to book
downgrades so they can say they recommended them at $XX
and downgraded at $YY. It is all about bragging rights when
trying to attract new clients.

This is not a very strong week economically and the biggest
focus will probably be the 9/11 anniversary. We could see
some market weakness prior to Thursday as traders book
profits in case of an anniversary attack. I am surprised we
have not seen a raised terror alert but that could come next
week. Economic reports for the week include the Kansas Fed
Survey and Consumer Credit on Monday, Richmond Fed and
Wholesale Trade on Tuesday. Wednesday is almost a blank
with only the Mortgage Applications Survey. Thursday, the
anniversary of 9/11, has Jobless Claims, Import/Export Prices
and International Trade. Friday is the strongest day of the
week with PPI and Michigan Sentiment for September.

For the week the Dow managed to crack 9600 but was unable to
hold it. This is the upper end of resistance from the January
uptrend bearish wedge. The wedge has already been violated on
the downside twice but recovered after only a short dip. The
current support is around 9450 with congestion all the way to
9000. As long as it stays above 9000 the rally is intact. This
does not appear to be a problem after the performance the
index managed this week. 9475 is the 50% retracement level
from the all time high to the October lows. Now trading over
that level it could be tough to break on the downside. The
next target for the bulls has got to be 10000 and next week
will be pivotal in that quest. If we do trade below 9450 then
old resistance levels could come back into play and this late
in the quarter we could languish there for some time.

Dow Chart - Daily



Dow Chart - Monthly




The Nasdaq spurted off to touch a new range on Wednesday and
never looked back. It touched a new high at 1880 and just
below monthly resistance. The Nasdaq held 1850 on Friday and
traded in positive territory despite the Jobs Report and the
seven day string of positive closes but in the end the profit
taking held it to a loss. This is actually a positive. Support
held and the string is broken. It is poised start a new run
next week if the bulls can attract some new money.

While we are well below any retracement levels the monthly
Bollinger Bands are suggesting that 1930 could be serious
resistance. Several other analysts are suggesting 2000 is
the ultimate goal and one that mutual funds have set as
their exit point. With the strength of the techs and the
weakness in the blue chips it is possible the Nasdaq could
approach 2000 about the same time the Dow hits 10,000. That
would be a major profit taking event. It still will be
regardless of which hits their target level first only the
combination of the two would make it even worse.

Nasdaq Chart - 30 min



Nasdaq Chart - Monthly




The S&P came to a dead stop just below 1030 but that is a major
improvement over the 1010 resistance level we had seen for two
months. The S&P has support in the 1000 range and that should
give us plenty of room to wander next week. I posted potential
targets for the S&P on Thursday night and in the interest of
continuity I am posting them again below. Most analysts agree
that 1140 is the likely cooling off point.

S&P Chart - 60 min



S&P Chart - Monthly




Even if you never read the header of this commentary you
should take notice of a couple items. The daily average of
new 52-week highs was nearly 1000 for the week while the
average new lows was only 20. This is astronomical sentiment
numbers. Also, The Dow dropped -120 points at the low for the
day on Friday but the VIX closed only a few ticks away from
the 52-week closing low at 19.23. Despite the Jobs Report and
the profit taking the bullishness is still growing and reaching
extreme levels. Check out the Editors Plays today for important
changes to the VIX by the CBOE. Would you believe futures and
options are going to be offered on the new VIX? No kidding.

I mentioned earlier that I was surprised we had not seen any
hikes in the Terrorist Alert level and recent events make that
more of a possibility next week. The FBI announced late Friday
that it is looking for four terrorist suspects who according
to the release are still trying to organize some more "aerial
suicide attacks" against the United States. Whether these men
are real threats or not this follows a similar pattern of the
prior 9/11 anniversaries and major events like the NY New
Years Eve party. First warn about individuals, then quote
specific and credible intelligence, then raise the alert level
until the date passes. Not that I think the government would
manage our expectations and reactions to their alerts but
stranger things have happened. Keep your eyes open for this
scenario and see if it comes to pass.

If this becomes a bigger news item over the weekend the markets
are likely to resist any urge to move higher until after the
11th. This could also prompt some profit taking in advance
just in case something happens. Next week could either go
into hibernation while waiting or move down on profit taking
but I would be surprised to see any new highs before Friday.
But, I have been surprised a lot lately. Keep those stops in
place and it would not hurt to own a few out of the money
index puts as well.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


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

Gold and Treasuries Rally, Equities Pull Back
Jonathan Levinson

Anticipation and frustration amongst equity bears was only
slightly relieved by a sharp decline within the range we've been
following all week.  Treasuries rallied strongly and gold reached
a new 7 month closing high.

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




10 minute chart of the US Dollar Index




The US Dollar Index Friday morning advancing cautiously until
getting slammed on the employment data at 8:30AM.  The Index
dropped from 98.30 to 97.50, and spent the rest of the day
sinking to 97 support.  Gold rallied, and the CRB jumped 1.19 to
242.99. For the week, the US Dollar Index printed a bearish
gravestone doji, closing near the bottom of its range.


Daily chart of December gold




December gold printed its highest closing price in 7 months on
the NYMEX on Friday, up 4.70 to 378.70, with an intraday GLOBEX
high of 381.50.  The precious metals indices were very strong,
with the HUI adding 2.40 to close at 198.35, and the XAU up 1.50
to close at 93.45.  Despite my overwhelmingly bullish feelings
about gold, I have noted the possibility of a bearish ascending
wedge formed on the daily chart.  The apex of this wedge is not
far above its current price, and projects to a low of 345.  For
the week, gold printed a bullish harami, completing its fifth
consecutive week of gains.

Daily chart of the ten year note yield




Treasuries rallied right out of the gate and never looked back,
with the ten year note yield gapping below the secondary rising
support line and closing at its lows of the day, dropping 15.9
basis points to 4.354%.  This drop in the yield occurred despite
an impressive $9B net drain from the Fed via its open market
operations.The TNX is now on clear sell signals on the
oscillators, with the stochastic printing a lower high that
diverged from the rising trend on the yield before today's
collapse.  The ten year treasury note looks like a buy here.  For
the week, the TNX printed a bearish engulfing candle.


Daily NQ candles




We spent the week waiting for a correction, and at noon on Friday
it arrived with a steep bout of selling.  The NQ was drilled to a
low of 1354, traded weakly off that low but nevertheless managed
to close 12.5 points above it.  The action did little to change
the picture on the daily chart, other than breaking what was
setting up to be an 8 day winning streak.  The oscillators
continue to show signs of wanting to end the ongoing up-phase,
but it will take more than what amounted to a small correction
with today's selling.

30 minute 20 day chart of the NQ




The selloff no doubt trapped a number of bears watching for a
break of the lower trendline on the 30 minute chart.  The bounce
of the low remains a return-to-the-scene of the crime, and the
bearish divergences I've highlighted on the stochastic and Macd
lend some support to that interpretation.  Any recovery above the
lower trendline will constitute yet another in this season's
seemingly endless string of false signals and pattern failures.
Bears are not out of the woods, but on a trading basis, shorts
below the trendline with stops just above it seem reasonable,
particularly given the bearish orientation of the oscillators on
the 30 minute chart and the toppiness on the 10 day stochastic
above.

Daily ES candles




The ES engulfed Thursday's gains but closed at 1022.50, close
enough to bring the ES tentatively back within range.  Whether
this is an insignificant end-of-session tape painting operation
or a confirmation of higher support, we have no way of knowing.
As appears in the 30 minute candle chart below, there are two
interpretations possible, neither of which requires excessive
lenience in chart interpretation.  Under the one, there was a
bear wedge failure and a return-to-the-scene-of-the-crime rally,
and under the other, a mere test of the lower trendline.  Monday
will have to tell.

20 day 30 minute chart of the ES




The cyclic picture is the same on the ES as for the NQ.  The
bearish divergences on the oscillators appear all over the index
charts this weekend, and cause me to doubt whether we'll be
seeing the week's range broken to the upside at all.  A bounce
from the lower trendline to test the upper wedge trendline
without violating it would not impede the bear case at all, as
long as the pattern remains intact.  Its projected target is 982
on a full completion.


Daily YM candles




There's nothing to add on the YM, which appears to be rolling
over on the daily, but well within the bounds of its rising daily
trendline.  Any weakness on Monday could embolden the bears
eyeing that lower trendline at 9515.


20 day 30 minute chart of the YM




All of the equity contacts finished the week on a bearish
"Meeting Lines" formation, which is a type of exhaustion top.
The printed higher highs but could not hold them, closing near
the middle of the range but above the prior week's range.
Whether this is distribution or consolidation remains an
unanswered question.  Treasuries gave us a bullish week, gold a
bullish week, and the US Dollar Index a bearish week.

This is the same market configuration that brought us the spring
2003 rally, and my way of understanding it is to think of Ben
Bernanke holding the pedal to the metal on his printing presses,
creating ever-less valuable money to chase all other assets,
including stocks, bonds, foreign currencies and commodities.
Whether that is what we are seeing, or whether the markets are
adopting a defensive posture ahead of a stock collapse remains my
principal question, and it appears that we'll have to look to
next week to hopefully provide the answer.


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

Just a Shake?
Jonathan Levinson

The indices were long overdue for a pullback, and Friday finally
brought it.  A bounce from the day lows restored part of the
day's losses, and left traders wondering whether the move was
more than just a simple, overdue, widely expected correction.

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




Daily COMPX candles




Buy the time the dust settled, the COMPX was down just 10 points
on the day following a better than 70 point gain since Tuesday.
The move was quick and violent, and felt "impulsive", just as the
bounce off the intraday low felt corrective.  However, when
viewed on the daily chart, it's simply premature to read more
into the 10 point decline than that.  The daily uptrend remains
intact, not even threatened by the day's decline, and the move
respected the ascending channel within which the COMPX has been
trading since its August lows.

That said, the oscillators on the daily chart are in overbought
territory and appear ripe for a rollover, and the rising
"channel" looks like a possible bear flag.  On the 30 minute
candles below, the move appears to have broken the bottom of the
bear wedge, following a bearish divergence on the stochastic and
Macd oscillators, both of which are on sell signals.

I'm not trying to sound as ambiguous as it may appear.  Friday
was a corrective day that could well be the start of something
more.  The session finished on a bounce, however, and we'll need
to see how next week begins to determine whether what is so far
corrective on the daily chart will extend into more meaningful
selling.

30 minute 20 day chart of the COMPX





Daily INDU candles




Again, the context of today's selling is well-illustrated on the
Dow, which finished lower by 84 points after having been down
triple digits.  The oscillators remain aimless on this timeframe
following over two months of chop above 9000.  9600 remains
important resistance, having been tested numerous times this
week.

On the 30 minute chart, the "impulsive-corrective" dilemma is
clearer as well, as we have two possible interpretations of the
chart patterns.  Both patterns play out as bearish ascending
wedges, which, as we've discussed, tend to break to the downside.
We have no way of knowing whether today's break was the beginning
of the end for this wedge, or whether it's just another pullback
to lower support.  The oscillators are still bearish but
approaching bottoming territory, and the outlook for next week
remains murky.  If Friday's close was anything more than a quick
round of tape-painting, we could see a bounce to reverse these
sell signals on Monday.


20 day 30 minute chart of the INDU





Daily OEX candles




The OEX is set up similarly to the INDU, with Friday's decline
merely a correction of a small portion of the week's significant
gains.  The oscillators remain ambiguous, but they do not look
bearish to me yet.  The 30 minute wedge is still intact on the
OEX, despite the bearish divergences and strong sell signals on
the oscillators.  Until 510 gets taken out, bulls will remain
unruffled.  Below that level, there's risk to 504 fib support,
followed by 493 as the bear wedge target.


20 day 30 minute chart of the OEX




Daily QQQ candles




QQQ 34 was a significant level all week, and Friday did not
disappoint.  Like the Nasdaq, the Qubes appear ripe for the
correction that bears have been so eagerly awaiting.  The steeply
ascending channel on the daily chart remains intact, with the
oscillators toppy and suggesting just the first hint of a
possible rollover.  The 30 minute chart has that same bear wedge,
but the bounce looks more like a return to the scene of the crime
than a true continuation of the wedge.  A move below 33.60 will
have bears targeting 33.20, below which I'd expect the selling to
intensify.  Above 34, and it will look like a most unwelcome
continuation of this week's range.


20 day 30 minute chart of the QQQ




This week completed a fourth consecutive week of gains for the
COMPX, a fifth for the INDU.  It's difficult to say anything
bearish about a setup comprised entirely of gains, other than
"what goes up must (should?) go down".  In all seriousness, this
year has been rich with important lessons, the most important of
which is to trade what we see.  I believe that a deeper
correction is forthcoming, but the charts aren't confirming it
just yet.  We need to watch the levels outlined, using the
trendlines as decision points and the oscillators to highlight
our direction bias at those points.  Add stops into the mix and
we have a way to remove the lion's share of the risk from what
have been proving to be very difficult markets.  See you at the
bell!


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

New VIX

Rather than suggest a trade today I have something earthshaking
to tell you. The VIX is being replaced. Yep, for those option
traders that have lived with this indicator of market volatility
for years you are about to lose an old friend and market timer.

Actually you will not lose it but it will begin trading under
the alias of VXO as of September 22nd. The VIX is currently
calculated based on near the money options on the OEX. The
OEX is the top 100 blue chip companies. The CBOE thought that
the growth in SPX option volume to 141,000 contracts a day
average in 2003 warranted a new look at market volatility.

Instead of the OEX options they are now going to use SPX options
as the basis for the VIX. The symbol will stay the same (VIX)
but it will be based on the SPX instead of the OEX. You will
not really be losing the VIX you have grown to love but getting
a new and improved version. Does that bring up images of the
scene from the Six Million Dollar Man? "We have the technology,
we can rebuild him and make him better than before."

There will be a broader range of strike prices and each strike
price will be weighted depending on its closeness to the money.
Those closest to the actual price will have the highest weight.
They are dropping the Black Scholes option pricing model and
are using an entirely new formula to derive volatility from
the option price.

Not only are they changing the index but they are going to
start listing futures and options on the VIX. Yes, futures
and options on the volatility index. Scary thought but I
can't wait.

According to the CBOE the change to the broader S&P and the
broader range of strike prices as well as the strike price
weighting will more accurately provide an indicator of future
market volatility and allow portfolio managers to hedge that
volatility. They are also going to provide the script to
calculate your own VIX based on an S&P portfolio.

The CBOE has created a historical model dating from 1986
to the present of how the new VIX would have performed in
relation to known market conditions and the old VIX.

Basically, we can see how the old VIX in 1987 compares to the
new VIX in 1987. We can see what the July 2002 high of 56.74
on the old VIX will equate to on the new VIX. How did the
Russian debt crisis impact both?

Based on the comparison charts available at the CBOE the new
VIX will be less volatile than the old VIX. I assume it makes
it more predictive and therefore easier to write futures and
options against it.

To view the CBOE white paper on the VIX/VXO changes go here:
http://www.cboe.com/micro/vix/vixwhite.pdf


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

Play updates:

DJX strangle - Aug-31st.

I made a mistake last week in the play write up and did not
adequately tell you how to exit the trade at Dow 9600 other
than just closing both sides. I said if the Dow hit our stop
loss at 9600 either close the play or close the puts and trail
the stop on the calls. That was kind of vague in retrospect.
We did hit the stop at 9600 but only by six points and not
really enough to trail the stop.

If you closed the play as scripted you would have received
about $1.70 for options that cost $1.50. Not a whopping
risk/reward move there but as a stop loss it worked perfectly.
The problem on trailing the calls was the lack of a serious
penetration of 9600. It was there for a minute several times
but there was no momentum. Since the exit at 9600 was a STOP
LOSS exit and not meant to be a profit target I am going to
consider the play dead. The actual target on the play was to
the downside and that did not occur.

Because I failed to cover the exit specifically I do not know
how to suggest an exit now if you are still in it. The ideal
exit would have been to sell the calls and the puts and just
close the play as scripted. If you are holding either side
now then you have to play the hand you are dealt next week.

http://members.OptionInvestor.com/editorplays/edply_083103_1.asp


SMH Puts - August 24th.

The chip stocks are not bullet proof but they are also armor
plated. The SMH puts finally stopped out at $38 on Friday
after Intel raised guidance once again. The jobs report did
nothing to depress the chip sector and we are out. The entry
was $1.50 on 8/25 and the Oct-35 SMH put was trading for $1.00
when the SMH hit $38 on Friday.

http://members.OptionInvestor.com/editorplays/edply_082403_1.asp


Powerball

On fire! The Nasdaq new high is continuing to inject value into
the Powerball leaps portfolio. Even the laggards are starting to
move. Once the recovery really takes off in the last quarter
we could be rocking. Assuming of course we have a recovery.
The portfolio is up over 50% and we still have nearly five months
to go.

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

Powerball Chart




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

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

Good Luck

Jim Brown


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

September score: Bulls 3, Bears 1
- J. Brown

It's been a big week for the bulls.  Traditionally, the markets
see a strong day after Labor Day rally and then institutional
traders clean house making September one of the worst months of
the year.  Not so this September - at least the first week.
Positive analyst comments and upgrades set the tone Tuesday-
Thursday and their enthusiasm was bolstered by improving economic
reports.  To top it off, CSCO came out with unexpected good news
about its August sales numbers.  One market commentator reflected
on the week and said it was nice to see the improving economic
numbers actually show up in corporate sales and guidance.

But it wasn't just John Chamber's comments that influenced
investor sentiment.  Intel had a positive mid-quarter update on
Thursday night, Wal-Mart came out with strong same-store sales
numbers and software was the favored sector of the week by
analysts.  It almost felt like the go-go momentum days of the
late 90's.

Alas, the Friday morning August employment report was much worse
than expected and the rally stalled ending a 7-day winning streak
for the NASDAQ Composite, the Russell 2000 and the Wilshire 5000.
Bulls stepped in to buy the dip for many equities but it wasn't
enough to reverse some much needed profit taking ahead of the
weekend.

Investors feel empowered that the economy has finally moved from
a "might improve" to a "definitely improving" status and
economists are raising their forecasts for the Q3 GDP growth
numbers.  Fueling the fire even more is an "I don't want to miss
the train" mentality among many investors.  I'm encouraged by the
Industrials ability to close above the 9500 level and stay there.
The same can be said for the NASDAQ composite and the 1850 level
and the S&P 500 and the 1020 level.  Yet, the markets are so
overbought I don't expect them to stay there.  A multi-day
consolidation (a.k.a. round of selling) would be healthy and help
set up for the next move higher.

This coming week is the September 11th anniversary and it could
be the perfect excuse to spark such a consolidation of recent
gains.  Many investors may not want to initiate new long
positions ahead of Thursday for fear of some sort of anniversary
attack.  The same psychological affect will probably provoke many
investors to lock in some gains.  If we don't see a dip, I'd be
surprised.  It's possible that traders will merely buy more puts
to protect their current investments.


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

Market Averages

DJIA ($INDU)

52-week High:  9609
52-week Low :  7197
Current     :  9503

Moving Averages:
(Simple)

 10-dma: 9431
 50-dma: 9232
200-dma: 8633



S&P 500 ($SPX)

52-week High: 1029
52-week Low :  768
Current     : 1021

Moving Averages:
(Simple)

 10-dma: 1008
 50-dma:  993
200-dma:  922



Nasdaq-100 ($NDX)

52-week High: 1380
52-week Low :  795
Current     : 1361

Moving Averages:
(Simple)

 10-dma: 1336
 50-dma: 1274
200-dma: 1123



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


The VIX is still trading near lows not seen since the market top
in March 2002.  Meanwhile, check out Jim's editor's plays for
more info on changes in the VIX from the CBOE.

CBOE Market Volatility Index (VIX) = 19.37 -0.52
Nasdaq Volatility Index (VXN)      = 30.70 -0.21

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.72        564,609       408,748
Equity Only    0.55        477,672       263,298
OEX            1.28         20,967        26,496
QQQ            1.26         34,504        43,546


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

Bullish Percent Data

           Current   Change   Status
NYSE          72.3    + 1     Bull Confirmed
NASDAQ-100    79.0    + 1     Bear Correction
Dow Indust.   86.6    + 7     Bull Confirmed
S&P 500       81.0    + 1     Bull Confirmed
S&P 100       89.0    + 2     Bull Confirmed


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

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

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

 5-Day Arms Index  1.29
10-Day Arms Index  1.37
21-Day Arms Index  1.52
55-Day Arms Index  1.30


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

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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1160      1356
Decliners    1647      1727

New Highs     145       293
New Lows       13        10

Up Volume    795M      923M
Down Vol.    989M      984M

Total Vol.  1812M     1926M
M = millions


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

Commitments Of Traders Report: 09/02/03

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

More of the same for commercial traders in the large S&P
futures contracts, but we do see a slight bump in short
positions.  There is barely any change between longs
and shorts for the small traders.


Commercials   Long      Short      Net     % Of OI
08/12/03      399,414   456,767   (57,353)   (6.7%)
08/19/03      404,665   455,381   (50,716)   (5.9%)
08/26/03      410,378   472,987   (62,609)   (7.1%)
09/02/03      417,973   482,392   (64,419)   (7.2%)

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
08/12/03      158,821    71,040    87,781    38.2%
08/19/03      162,034    87,064    74,970    30.1%
08/26/03      170,424    76,967    93,457    37.8%
09/02/03      169,030    75,748    93,282    38.1%

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

The bullish trend of growing long positions for the
commercials in the e-minis has continued.  The latest
report shows drop of 10K short positions and 9K new
long positions.  Locksteppening in the opposite direction
are the small traders with a big jump in short positions
to the most bearish we've seen them in a long time.


Commercials   Long      Short      Net     % Of OI
08/12/03      306,014   217,233     88,781    17.0%
08/19/03      296,971   235,779     61,192    11.5%
08/26/03      338,766   234,841    103,925    18.1%
09/02/03      347,724   224,011    123,713    21.6%

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:  123,713   - 09/02/03

Small Traders Long      Short      Net     % of OI
08/12/03       62,534   106,403   (43,869)  (26.0%)
08/19/03       90,428   125,980   (35,552)  (16.4%)
08/26/03       52,131   120,853   (68,722)  (39.3%)
09/02/03       56,709   134,094   (77,385)  (40.6%)

Most bearish reading of the year: (77,385)  - 09/02/03
Most bullish reading of the year: 449,310   - 06/10/03


NASDAQ-100

Commercials caught part of the stampede fever and added
some long positions to their NDX futures.  Meanwhile
small traders rotated some money out of longs and into
shorts but no big change.


Commercials   Long      Short      Net     % of OI
08/12/03       34,374     53,015   (18,641) (21.3%)
08/19/03       32,107     53,665   (21,558) (25.1%)
08/26/03       33,991     55,849   (21,858) (24.3%)
09/02/03       37,002     55,379   (18,377) (19.9%)

Most bearish reading of the year: (21,858)  - 08/26/03
Most bullish reading of the year:   9,068   - 06/11/02

Small Traders  Long     Short      Net     % of OI
08/12/03       23,957     7,871    16,086    50.5%
08/19/03       25,607    10,134    15,473    43.3%
08/26/03       26,108     8,864    17,244    49.3%
09/02/03       23,168    10,561    12,607    37.4%

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

DOW JONES INDUSTRIAL

No serious changes among the commercial traders while
small traders have grown fur and drastically reduced their
bullish positions.  The spike in shorts have them looking
for a INDU drop.


Commercials   Long      Short      Net     % of OI
08/12/03       24,942     9,878   15,064      43.3%
08/19/03       21,088    18,984    2,104       5.3%
08/26/03       24,586    10,386   14,200      40.6%
09/02/03       25,462    10,447   15,015      41.8%

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
08/12/03        6,933    13,248   (6,315)   (31.3%)
08/19/03       15,717     9,143    6,574     26.4%
08/26/03       14,115     5,592    8,523     43.2%
09/02/03        6,629    13,402   (6,773)   (33.8%)

Most bearish reading of the year:  (8,777) - 10/12/01
Most bullish reading of the year:   8,523  -  8/26/03

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


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

Jeff Baily, our regular contributor to the "Ask the Analyst"
column, is currently on vacation.  Look for his column to return
next weekend.


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

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

Symbol  Company               Date           Comment      EPS Est

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

CMVT   Comverse Technology   Mon, Sep 08  After the Bell     -0.04
SSL    Sasol Ltd ADR         Mon, Sep 08  Before the Bell      N/A


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

MATK   Martek Biosci Corp    Tue, Sep 09  After the Bell      0.15
NMGa   Neiman Marcus Group   Tue, Sep 09  Before the Bell     0.12


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

ADBE   Adobe Systems         Wed, Sep 10  After the Bell      0.25
EN     Enel S.p.A.           Wed, Sep 10  -----N/A-----        N/A
PUB    PUBLICIS Groupe SA    Wed, Sep 10  -----N/A-----        N/A
UTIW   UTI Worldwide         Wed, Sep 10  Before the Bell     0.34


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

BNG    Benetton Group        Thu, Sep 11  -----N/A-----        N/A
CPB    Campbell Soup         Thu, Sep 11  Before the Bell     0.17
CBRL   CBRL Group            Thu, Sep 11  Before the Bell     0.70


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

FCEa   Forest City Ent, Inc. Fri, Sep 12  -----N/A-----        N/A
GTK    GTECH Holdings Corp.  Fri, Sep 12  Before the Bell     0.68
ORCL   Oracle                Fri, Sep 12  Before the Bell     0.08
IMI    SanPaolo IMI SpA      Fri, Sep 12  -----N/A-----        N/A


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

Symbol  Company Name              Ratio    Payable     Executable

PFB     PFF Bancorp Inc           7:5      Sep   5th   Sep   8th
RBKV    Resource Bankshares Corp  3:2      Sep   5th   Sep   8th
PSUN    Pacific Sunwear of CA Inc 3:2      Sep   5th   Sep   8th
CWTR    Coldwater Water Inc       3:2      Sep   8th   Sep   9th
POOL    SCP Pool Corporation      3:2      Sep  12th   Sep  15th
CBAN    Colony Bankcorp Inc       5:4      Sep  15th   Sep  16th
HNBC    Harleysville National Corp5:4      Sep  15th   Sep  16th
COH     Coach Inc                 2:1      Sep  17th   Sep  18th
URBN    Urban Outfitters Inc      2:1      Sep  19th   Sep  22nd


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

It's another busy week with several investor conferences.  There
are also several economic reports hitting late in the week.
Traders also need to be on the lookout for more earnings
warnings.


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

----------------
Monday, 09/08/03
----------------
Consumer Credit (DM)    Jul  Forecast:   $5.0B  Previous:   -$0.4B
Bear Stearns Healthcare conference
Lehman Brothers Financial Services Conference

----------------
Tuesday, 09/09/03
----------------
Wholesale Invntories(DM)Jul  Forecast:    0.0%  Previous:     0.0%
Bear Stearns Healthcare conference
Lehman Brothers Financial Services Conference
Merrill Lynch Media & Entertainment Conf.


-------------------
Wednesday, 09/10/03
-------------------
Lehman Brothers Financial Services Conference
Merrill Lynch Media & Entertainment Conf.


------------------
Thursday, 09/11/03
------------------
Initial Claims  (BB)  09/06  Forecast:     N/A  Previous:      N/A
Export Prices es-ag (BB)Aug  Forecast:     N/A  Previous:    -0.1%
Import Prices ex-ag.(BB)Aug  Forecast:     N/A  Previous:     0.1%
Trade Balance (BB)      Jul  Forecast: -$40.5B  Previous:  -$39.5B
Merrill Lynch Media & Entertainment Conf.


----------------
Friday, 09/12/03
----------------
PPI  (BB)               Aug  Forecast:    0.3%  Previous:     0.1%
Core PPI (BB)           Aug  Forecast:    0.1%  Previous:     0.2%
Retail Sales (BB)       Aug  Forecast:    0.9%  Previous:     1.4%
Retail Sales ex-auto(BB)Aug  Forecast:    0.7%  Previous:     0.8%
Mich Sentiment-Prel.(DM)Sep  Forecast:    92.0  Previous:     89.3


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


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Contact Support
The Option Investor Newsletter                   Sunday 09-07-2003
Sunday                                                      2 of 5


In Section Two:

Watch List: Another Mixed Bag
Call Play of the Day: AU
Dropped Calls: None
Dropped Puts: None


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

Another Mixed Bag

General Dynamics - GD - close: 85.85 change: -1.14

WHAT TO WATCH: The DFI defense index has been a big winner the
last several months and it owes a lot of that strength to shares
of GD.  The stock has broken out strongly above the $80 level and
almost made it to $88 before the recent weakness.  The intraday
chart suggests the late day bounce on Friday might be an entry
point for short-term traders targeting $90.

Chart=


---

Education Mmgt Corp - EDMC - close: 58.80 change: -2.17

WHAT TO WATCH: The education sector has also been a big winner
for investors this year.  Unfortunately for the bulls they have
come under some weakness these last two or three sessions.  One
stock in the bunch is EDMC, which has a strong rising channel.
However, profit taking has brought it back toward the bottom of
its channel and the simple 50-dma.  A breakdown under $58 and
bears might want to evaluate new positions.  A bounce from $58
and bulls might want to reconsider new positions.

Chart=


---


Donaldson Co - DCI - close: 55.83 change: -1.42

WHAT TO WATCH: Shares of DCI have almost doubled from their
February lows near $32.  The stock has traded in a rising channel
since mid-February that was until mid-August when shares took
off.  The stock broke out through the top of its rising channel
and the trajectory got steeper in late August as buyers flooded
into the DCI with rising volume.  It is possible DCI has run out
of steam after trading near $58 on Wednesday.  Very aggressive
bears could target a consolidation back to the $50 area while
bulls may want to wait and see where it bounces.

Chart=


---

Inamed Corp - IMDC - close: 70.24 change: -1.57

WHAT TO WATCH: Medical supply stock IMDC has been a stellar
performer.  While the stock looks extremely overbought it is
likely attracting the attention of both bulls and bears.  We'd
rather play the trend, which is obviously up.  Look for a pull
back to the 65.00-67.00 level.  A bounce there might be a good
entry point for the next leg higher.

Chart=



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

MMM $138.68 - Bad news for MMM.  The breakdown under $140 doesn't
look good but shares bounced off their simple 50-dma and the
$137.50 level.

GDT $51.02 - The breakout for GDT over the $50 level survived
Friday's profit taking.  Volume is rising on the rallies.  It
could make a good bullish candidate.

LEH $67.46 - The XBD broker/dealer index has been out performing
the other financial lately.  Meanwhile shares of LEH have broken
above resistance at $66.  It might try and trade towards its old
highs.

JNJ $50.50 - JNJ has been stuck in a descending channel for
months.  Shares continue to roll over near their 50-dma.  The
failed rally happened again on Thursday-Friday.


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

Call Play of the Day:
*********************

Anglogold Ltd. - AU - close: 39.51 change: +0.96 stop: 37.00

See details in play list




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

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


CALLS
^^^^^

None


PUTS
^^^^

None


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

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

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

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

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

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

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


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

Please read our disclaimer at:



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ADVERTISING INFORMATION

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Contact Support
The Option Investor Newsletter                   Sunday 09-07-2003
Sunday                                                      3 of 5


In Section Three:

Current Calls: CCMP, ERTS, GILD, GS, OMC, PCAR, PGR, RYL, SPW, UTX
New Calls: AU, MRVL
Current Put Plays: ESRX, KKD, XL
New Puts: ANPI


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

Cabot Microelect. - CCMP - cls: 66.92 chng: +0.77 stop: 64.00*new*

Company Description:
Cabot Microelectronics is a supplier of high performance
polishing slurries used in the manufacture of advanced integrated
circuit (IC) devices, within a process called chemical mechanical
planarization (CMP).  CMP is a polishing process used by IC
device manufacturers to flatten many of the multiple layers of
material that are built upon silicon wafers and necessary in the
production of advanced ICs.  CMP enables IC device manufacturers
to produce smaller, faster and more complex IC devices with fewer
defects.

Why we like it:
Early on Friday, it certainly looked like the Semiconductor
sector (SOX.X) was going to finally break out over the $460
level, with an early surge to the $468 level.  But just as
quickly, the bears sent the SOX back under the $460 level, where
it remained into the close.  Despite the inability of the SOX to
hold its gains, the index did close at a new 52-week high, and
our CCMP benefited, gaining just over 1% to close just a hair
below $67 and looking like it really wants to break out.  The
ascending channel is continuing to provide support, with the
early dip on Friday tagging both the bottom of the channel and
the 20-dma ($64.53) before rebounding higher.  We'll continue to
use the channel to gauge the health of the play and as long as
the stock continues to find support above the bottom of that
pattern, the bullish prospects look good.  Obviously the next
challenge will be to see if the SOX can truly break out over
resistance, which ought to be able to propel CCMP through the
$67.50 resistance for a test of the $69 intraday high from late
August.  Until that breakout occurs, buying the dips to support
remains the preferred entry strategy.  Our initial target remains
the $71 level, with our stop now rising to $64, which is just
below last week's intraday lows.

Suggested Options:
Shorter Term: The September 65 Call will offer short-term traders
the best return on an immediate move, as it is slightly in the
money.  Note that September contracts expire in two weeks.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the October 70 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 65 Call.

! Warning, September options EXPIRE in 2 weeks!

BUY CALL SEP-65 UKR-IM OI=1671 at $3.50 SL=1.75
BUY CALL SEP-70 UKR-IN OI=1103 at $1.05 SL=0.50
BUY CALL OCT-65 UKR-JM OI= 583 at $5.50 SL=3.50
BUY CALL OCT-70 UKR-JN OI= 771 at $2.90 SL=1.50

Annotated Chart of CCMP:




Picked on August 27th at    $64.45
Change since picked:         +2.47
Earnings Date             10/23/03 (unconfirmed)
Average Daily Volume =       792 K
Chart =


---

Electronic Arts - ERTS - close: 88.75 chg: -1.40 stop: 85.75

Company Description:
Electronic Arts (EA), headquartered in Redwood City, California,
is the world's leading interactive entertainment software
company. Founded in 1982, Electronic Arts posted revenues of $2.5
billion for fiscal 2003. The company develops, publishes and
distributes interactive software worldwide for video game
systems, personal computers and the Internet. Electronic Arts
markets its products under three brand names: EA SPORTS(TM), EA
GAMES(TM), and EA SPORTS BIG(TM). (source: company press release)

Why We Like It:
Try as they might the bulls couldn't push their winning stretch
to eight consecutive days.  The NASDAQ, the GSO software index
and shares of ERTS all pulled back on Friday.  Now this isn't
necessarily negative as it offers traders patiently waiting for a
dip a chance to look for new entries.  This last week has been a
very positive one for the software sector.  Nearly every morning
was greeted with more upgrades and positive analyst comments for
the industry as a whole.  The GSO.X has certainly been a leader
in the rally but itself and the markets are in need of some
consolidation of the gains.

ERTS is a great way to play the enthusiasm for the software
group.  Not only did they beat earnings by 10 cents back in July
but it is one of the few software companies that has been
consistently growing revenues.  We'll be nearing the all-
important Q4 holiday sales season soon and with video game sales
out numbering movie box office sales it is always big business.
ERTS is the biggest publisher in the industry and we could see
the bullish trend continue into Christmas.

Some headlines for ERTS came out on Friday.  They just became the
official sponsor for the NFL Matchup Show, which normally airs
pre-game.  The commentators will actually use the EA Sports
Madden 2004 video game to illustrate their points.  Just another
coup for the hottest selling sports game.  There was a broke
downgrade for ERTS this week but shares didn't really react to
it.  The pull back on Friday was market related.  Traders can
watch for a bounce from its 21-dma or the $87.50 level.  If this
falls, then the next minor support is $86.50 from Aug. 26-27.

Suggested Options:
Bullish traders can choose from October and December options.
There are only two weeks left for the September calls
so our preference is the October strikes.

! Warning, September options EXPIRE in 2 weeks!

BUY CALL OCT 85 EZQ-JQ OI= 636 at $6.40 SL=4.00
BUY CALL OCT 90 EZQ-JR OI= 332 at $3.60 SL=1.85
BUY CALL OCT 95 EZQ-JS OI= 613 at $1.85 SL=0.95
BUY CALL DEC 90 EZQ-LR OI=1358 at $6.40 SL=4.00
BUY CALL DEC 95 EZQ-LS OI= 131 at $4.40 SL=2.25

Annotated Chart:




Picked on August 28 at $89.06
Change since picked:    -0.31
Earnings Date        07/23/03 (confirmed)
Average Daily Volume:     3.3 million
Chart =


---

Gilead Sciences - GILD - cls: 66.86 chg: -0.47 stop: 62.99

Company Description:
Gilead Sciences is a biopharmaceutical company that discovers,
develops and commercializes therapeutics to advance the care of
patients suffering from life-threatening diseases worldwide. The
company has seven marketed products and focuses its research and
clinical programs on anti-infectives. Headquartered in Foster
City, CA, Gilead has operations in the United States, Europe and
Australia. (source: company press release)

Why We Like It:
This last week was also very positive for the biotech sector.
The BTK.X biotech index saw strong follow through on its breakout
above the simple 50-dma.  More importantly the BTK was able to
break out of its descending trendline of lower highs.  This was
followed with a move above resistance at 470 and the BTK was one
of the few sectors that ended positive on Friday.  All of this
strength in the BTK hasn't directly translated to gains in GILD
yet but we're still seeing a trend of higher lows as investors
slowly bid the stock higher again.

We do note that the oscillators on GILD are mixed with the MACD
showing a bullish signal from oversold and the stochastics
rolling over from overbought.  Yet we suspect the stock itself
will continue to drift higher and finally hit the $70 level,
which is resistance from July.  Short-term traders can look to
take profits as the stock approaches our initial target.  At the
moment out stop loss is just under $63 but more conservative
traders might be able to getaway with a stop near $64.00 or
64.50.  FYI: to the point-and-figure chart fans out there, the
recent strength in GILD has produced a new double-top breakout
bullish buy signal.

Suggested Options:
Our preference to capitalize on the current trend in GILD is the
October 65's and 70's.

! Warning, September options EXPIRE in 2 weeks!

BUY CALL OCT 65 GDQ-JM OI= 210 at $4.80 SL=3.00
BUY CALL OCT 70 GDQ-JN OI= 271 at $2.50 SL=1.25
BUY CALL NOV 65 GDQ-KM OI= 908 at $6.20 SL=4.00
BUY CALL NOV 70 GDQ-KN OI=1353 at $3.80 SL=2.00

Annotated Chart:




Picked on August 19 at $65.32
Change since picked:    +1.54
Earnings Date        07/31/03 (confirmed)
Average Daily Volume:    3.31 million
Chart =


---

Goldman Sachs Grp. - GS - close: 90.96 change: -0.30 stop: 87.50

Company Description:
The Goldman Sachs Group is a global investment banking and
securities firm that provides a wide range of services worldwide
to a substantial and diversified client base that includes
corporations, financial institutions, governments and high net-
worth individuals. The company provides investment banking, which
includes financial advisory and underwriting, and trading and
principal investments, which includes fixed income, currency and
commodities, equities and principal investments.  GS recently
completed the acquisition of Spear, Leeds & Kellog, which is
engaged in securities clearing, execution and market making, both
floor-based and off-floor.

Why we like it:
Compared to the powerful breakout in shares of GS on Tuesday that
got our attention, the remainder of the week was pretty boring.
Sure the stock managed to inch a bit higher, but for all
practical purposes, it spent the remainder of the week pinned
between the $90 breakout level and the $92 resistance.  It's
actually no great surprise to see GS unable to advance
significantly just yet, as the upper Bollinger band is still
being pressed higher by price.  The stock looks destined for
higher levels, especially if the Broker/Dealer index (XBD.X) can
continue higher.  The XBD was really looking bullish on Thursday,
with the close over $600 (for the first time since 2001), but
profit taking on Friday pushed both the index and GS back under
resistance.  Look for the XBD to now find support in the $580-585
area, in conjunction with GS finding support above $88, as price
dips back to test old resistance as new support.  Note that this
support should be reinforced by both the 10-dma ($88.50) and the
20-dma ($88.03).  Our stop remains just below there at $87.50, as
a break of that level would call into question the validity of
last week's breakout.

Suggested Options:
Shorter Term: The September 90 Call will offer short-term traders
the best return on an immediate move, as it is slightly in the
money.  Note that September contracts expire in two weeks.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the October 95 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 90 Call.

! Warning, September options EXPIRE in 2 weeks!

BUY CALL SEP-90 GS-IR OI= 5373 at $2.45 SL=1.25
BUY CALL SEP-95 GS-IS OI= 1519 at $0.50 SL=0.25
BUY CALL OCT-90 GS-JR OI=21713 at $4.20 SL=2.50
BUY CALL OCT-95 GS-JS OI= 8386 at $1.85 SL=0.90

Annotated Chart of GS:




Picked on September 2nd at  $90.45
Change since picked:         +0.51
Earnings Date              9/24/03 (unconfirmed)
Average Daily Volume =    3.78 mln
Chart =


---

Omnicom Group - OMC - close: 80.30 chg: -0.06 stop: 75.75

Company Description:
Omnicom is a leading global marketing and corporate
communications company. Omnicom's branded networks and numerous
specialty firms provide advertising, strategic media planning and
buying, direct and promotional marketing, public relations and
other specialty communications services to over 5,000 clients in
more than 100 countries. (source: company press release)

Why We Like It:
There appear to be a number of developing reasons for investors
to turn bullish on advertising stocks.  The general economy is
improving, we're starting the fall sports/tv line up, we'll soon
see ads for the 2004-2005 political season, and there is going to
be a free for all among the drug giants with the new ED drugs
hitting the U.S. market soon.  This hasn't been lost on shares of
OMC.

New headlines have been few for Omnicom lately but that didn't
stop the share price from hitting our initial target of $80.00.
We're also impressed that after touching and closing near
potential resistance of $80 that the stock has managed to trade
there the rest of the week.  OMC could be benefiting from a lack
of willing sellers but buyers seem to be exhausted with the stock
trading in a very narrow range the last three sessions.

Traders have multiple options.  First, we still suggest that
short-term traders who took advantage of the dip to $75 can sell
some of their position to lock in profits.  Second, if they'd
rather tighten their stop, one could really try and lock in
profits with a stop near $79.50.  Third, if you were looking for
a new entry we'd prefer a dip back to $79-78 and then jump on a
bounce.  However, if the momentum of this market continues then a
move above $81 might work (with a stop tighter than our 75.75).
Our next target is $85.  FYI: point-and-figure chart fans will
notice that the move above $80 has produced a new spread-triple-
top buy signal.

Suggested Options:
Currently OMC has September, October and January calls to choose
from.  With only two weeks left for the September options our
preference for new positions would be the October 80s.

! Warning, September options EXPIRE in 2 weeks!

BUY CALL OCT-75 OMC-JO OI= 1413 at $6.70 SL=4.00
BUY CALL OCT-80 OMC-JP OI= 2304 at $3.30 SL=1.75
BUY CALL OCT-85 OMC-JQ OI=  107 at $1.30 SL=0.65

Annotated Chart:




Picked on August 19 at $76.67
Change since picked:    +3.63
Earnings Date        07/29/03 (confirmed)
Average Daily Volume:     881 thousand
Chart =


---

PACCAR - PCAR - close: 84.00 change: -2.54 stop: 82.45

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

Why We Like It:
Is PCAR beginning to run out of gas?  The steady advance for
shares of this truck builder finally began to falter as the
fervor for technology stocks stole the wind in PCAR's sails.
Most of the previous month's winners suffered a similar fate.  We
were patient and willing to hold onto PCAR because the stock was
able to maintain its price above $85.00.  This support failed on
Friday as the markets slipped backward in profit taking.  Shares
of PCAR still have some support near $82.50, hence our stop at
$82.45.  However, per out comments a few weeks ago when we last
played PCAR, we would actually prefer to make new entries on a
bounce from the $80 level.  This would coincide better with the
bottom of its rising weekly channel and the 40-dma, where shares
have bounced in the past.

A bounce from $82.50 would be great but we're not suggesting new
entries at this time except for the more aggressive traders.
Cautious investors may want to actually close their positions and
wait to see if the markets slip even further next week.

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

Annotated Chart:




Picked on August 31 at $85.37
Change since picked:    -1.37
Earnings Date        07/24/03 (confirmed)
Average Daily Volume:    1.15 million
Chart =


---

Progressive Corp. - PGR - close: 72.76 change: -0.12 stop: 70.00

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

Why we like it:
Don't you just love it when Technical Analysis works?  First PGR
broke from its horizontal consolidation and then continued up
until reaching the $73.50 resistance level (actually $73.49) on
Friday, which was the point we identified as likely resistance
and a good point for conservative traders to harvest some gains.
PGR pulled back a bit, but nothing that we're overly concerned
about.  This just looks like the bulls regrouping for another run
at that resistance enroute to our target (also the target from
the break of the consolidation pattern) in the $75-76 area.  Look
for a pullback to the $72 or even $71 (near the 10-dma) price
levels as an opportunity to initiate new positions for that next
push up the chart.  We're sticking with our initial
recommendation to close the play for a tidy gain if price trades
into that $75-76 area, which is the site of the June/July highs.
Maintain stops at $70, as a break back inside that consolidation
pattern would be a clear sign that the breakout move has failed.

Suggested Options:
Shorter Term: The September 70 Call will offer short-term traders
the best return on an immediate move, as it is currently in the
money.  Note that September contracts expire in two weeks.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the October 75 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 70 Call.

! Warning, September options EXPIRE in 2 weeks!

BUY CALL SEP-70 PGR-IN OI= 217 at $3.30 SL=1.75
BUY CALL OCT-70 PGR-JN OI=  56 at $4.20 SL=2.50
BUY CALL OCT-75 PGR-JO OI= 163 at $1.35 SL=0.75

Annotated Chart of PGR:




Picked on August 27th at    $70.74
Change since picked:         +2.02
Earnings Date             10/15/03 (unconfirmed)
Average Daily Volume =       785 K
Chart =


---

The Ryland Group - RYL - close: 70.65 change: -1.53 stop: 66.75

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

Why we like it:
Ask and you shall receive!  When we initiated coverage of RYL on
Thursday, we voiced concerns about chasing the stock higher due
to the fact that price was looking a bit extended in the near
term, pressing well above the upper Bollinger band.  That caution
was well placed, as the profit taking appeared first thing on
Friday and RYL pulled back right along with the pullback in the
overall Home Construction sector ($DJUSHB).  This is exactly what
we wanted to see, as a dip back near the $69-70 area should
provide an excellent entry into the play.  The 50-dma ($68.79)
and 10-dma ($68.05) should provide solid support for a bounce,
backed up by the top of the bullish triangle pattern (near $68)
RYL broke out of on Wednesday.  Traders preferring to enter on
strength now have a defined resistance level to monitor near
$72.15.  A breakout over that level can be used for new momentum
entries.  Note that our stop remains at $66.75 for now, as that
is just below the 20-dma ($67.01), which should provide very
strong support after holding up price for the last two weeks of
August.

Suggested Options:
Shorter Term: The September 70 Call will offer short-term traders
the best return on an immediate move, as it is slightly in the
money.  Note that September contracts expire in two weeks.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the October 75 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 70 Call.

! Warning, September options EXPIRE in 2 weeks!

BUY CALL SEP-70 RYL-IN OI= 913 at $2.55 SL=1.25
BUY CALL SEP-75 RYL-IO OI= 267 at $0.60 SL=0.25
BUY CALL OCT-70 RYL-JN OI= 981 at $4.20 SL=2.50
BUY CALL OCT-75 RYL-JO OI=1446 at $1.95 SL=1.00

Annotated Chart of RYL:




Picked on September 4th at  $72.18
Change since picked:         -1.53
Earnings Date             10/21/03 (unconfirmed)
Average Daily Volume =       998 K
Chart =


---

SPX Corp. - SPW - close: 49.34 change: -0.56 stop: 48.00*new*

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
generation.

Why we like it:
After finally closing over the $50 level on Tuesday, it looked
like SPW was finally going to make a run at higher levels, but
that stubborn resistance held and by the end of the week it
became clear that if the bulls are going to manage that breakout,
they're going to have to do so after one more test of support.
The ascending trendline from the mid-July bottom is still holding
and has now risen to $49, just below both the 10-dma ($49.12) and
Friday's $49.34 close.  A rebound from that level of support
early next week can be used for aggressive entries, but the
problem is that the daily Stochastics have once again turned
south and from a lower high that the last time.  In conjunction
with the higher high in price, that sets up bearish Stochastics
divergence, which certainly isn't a good sign.  With that
negative development, we'd certainly feel better about new
positions if price can reverse back higher and take out last
week's intraday highs.  If the bulls can manage that feat, then
we'll look for a move to the $53 resistance level as an
opportunity to harvest gains and then evaluate whether the stock
appears to have the necessary strength to push up towards our
eventual target of $56.  Note that as a precautionary measure due
to the bearish Stochastics picture, we've raised our stop to
$48.00 this weekend.

Suggested Options:
Shorter Term: The September 47 Call will offer short-term traders
the best return on an immediate move, as it is currently in the
money.  Note that September contracts expire in two weeks.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the October 50 Call.  This
option is slightly out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  More conservative
long-term traders will want to use the October 47 Call.

! Warning, September options EXPIRE in 2 weeks!

BUY CALL SEP-47 SPW-IW OI= 649 at $2.30 SL=1.25
BUY CALL SEP-50 SPW-IJ OI=3584 at $0.70 SL=0.35
BUY CALL OCT-47 SPW-JW OI=  41 at $3.20 SL=1.50
BUY CALL OCT-50 SPW-JJ OI=2946 at $1.75 SL=0.85

Annotated Chart of SPW:




Picked on August 14th at    $48.14
Change since picked:         +1.19
Earnings Date             10/27/03 (unconfirmed)
Average Daily Volume =       888 K
Chart =


---

United Technologies - UTX - cls: 78.05 chg: -1.43 stop: 77.20*new*

Company Description:
United Technologies Corp., based in Hartford, Connecticut, is a
diversified company that provides a broad range of high
technology products and support services to the building systems
and aerospace industries.  It's four main business segments are
Otis, Carrier, Pratt and Whitney, and Flight Systems.
(source: company press release)

Why We Like It:
The combination of an improving economy and higher defense
spending is going to translate into more business for companies
like UTX.  One look at the stock price and you can see that it's
no secret.  Shares have improved strongly and recent action put
UTX at two-year highs.  Giving the stock an extra boost has been
the recent blackouts.  A UTX spokesman said they are seeing more
interest in their fuel cell and microturbines power products.
This most recent week of economic reports was good news for UTX.
The stronger ISM manufacturing data should give investors more
confidence in companies like United Technologies.

The Dow Industrials were down more than 125 points midday on
Friday so it was no surprise to see profit taking hit shares of
UTX, one of the Industrials better performers for August.  The
good news is that support at $77.50 held up.  The bad news is the
decline came on strong volume of 2.9 million shares and the MACD
has rolled over into a new bearish signal.

Previously we suggested that if the markets see a pull back then
a bounce from $78 would be a decent entry point for new bullish
positions.  This is it.  If we see a bounce on Monday, then
traders can jump in at current levels.  Conservative traders can
even use a tighter stop just under $77.50. We're going to raise
our stop from 75.99 to 77.20.  Momentum traders might want
to wait for a move back over $80.00-80.50 to open new plays.

Suggested Options:
There are just two weeks left for the September options on UTX
so our preference would be the October or November strikes.

! Warning, September options EXPIRE in 2 weeks!

BUY CALL OCT 75 UTX-JO OI= 214 at $4.70 SL=2.50
BUY CALL OCT 80 UTX-JP OI= 933 at $1.75 SL=0.95
BUY CALL NOV 75 UTX-KO OI=2055 at $5.50 SL=3.25
BUY CALL NOV 80 UTX-KP OI=1228 at $2.65 SL=1.35
BUY CALL NOV 85 UTX-KQ OI= 108 at $0.95 SL= --

Annotated Chart:




Picked on August 29 at $80.05
Change since picked:    -2.00
Earnings Date        07/17/03 (confirmed)
Average Daily Volume:     2.1 million
Chart =



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

Anglogold Ltd. - AU - close: 39.51 change: +0.96 stop: 37.00

Company Description:
Anglogold Limited produces approximately six million ounces of
gold each year.  The company has a global presence with 20
operations comprised of open-pit and underground mines and
surface reclamation plants in eight countries (Argentina,
Australia, Brazil, Mali, Namibia, South Africa, Tanzania and the
United States).  The company's mining activities are supported by
extensive and focused exploration activities in 10 countries.

Why we like it:
It really isn't that common (at least in recent memory) to see
the stock market and precious metals rallying together.  When it
does happen (like now) it is usually the product of increased
money creation, as stocks rise due to the increased liquidity,
and gold (and gold related stocks) rise due to investors seeing
the reality of higher inflation in the future.  That inflation
will devalue paper assets like currencies, while at the same time
hard assets like gold will become more valuable.  We've been
seeing some pretty impressive action from the Gold and Silver
index (XAU.X) lately as it has solidified its breakout over $90
and continues to charge to new multi-year highs.  AU is one stock
in the sector that is certainly shining brightly.  Over the past
2 weeks, the stock has been resolutely banging against its
January highs near $38.50.  With the price of gold cresting the
$375 level again on Friday, AU surged through that resistance on
above average volume and now that it is trading at all-time
highs, it looks like the bulls could really have some fun.

Stocks trading at all-time highs are problematical, as it is
difficult to ascertain possible resistance points.  So we're just
going to jump aboard and look for a move up to the $45 level,
figuring that $5 increments will continue to be significant in
terms of resistance.  Note how the stock paused just below the
$40 level on Friday?  A breakout over that level should be a good
momentum entry trigger, while traders looking for a pullback
entry will want to enter on a rebound from the $38.00-38.50 area,
as that old resistance is tested as new support.  We're initially
setting our stop at $37, which is just below last week's intraday
lows, as well as the converged 10-dma ($37.63) and 20-dma
($37.32).  If entering on a breakout move, make sure the XAU is
continuing to trade in a bullish mode as well.

Suggested Options:
Shorter Term: The September 40 Call will offer short-term traders
the best return on an immediate move, as it is currently at the
money.  Note that September contracts expire in two weeks.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the October 40 Call.  This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  More conservative
long-term traders will want to use the January 40 Call.

! Warning, September options EXPIRE in 2 weeks!

BUY CALL SEP-35 AU-IG OI=  946 at $4.80 SL=2.75
BUY CALL SEP-40 AU-IH OI=  647 at $0.95 SL=0.50
BUY CALL OCT-40 AU-JH OI= 3272 at $1.90 SL=1.00
BUY CALL JAN-40 AU-AH OI= 1062 at $3.50 SL=1.75

Annotated Chart of AU:




Picked on September 2nd at  $39.51
Change since picked:         +0.00
Earnings Date             10/30/03 (unconfirmed)
Average Daily Volume =       840 K
Chart =


---

Marvell Tech. - MRVL - close: 42.53 change: +2.42 stop: 39.00

Company Description:
Marvell Technology Group is a global semiconductor provider of
broadband communications and storage solutions.  The company's
product portfolio consists of switching, transceiver, wireless,
PC connectivity, gateways, communications controller and storage
solutions that power the entire communications infrastructure.
Its core technologies were initially focused on the storage
market, where it provided products to disk drive manufacturers
such as Fujitsu, Hitachi, Samsung, Seagate and Toshiba.  The
company subsequently applied its technology to the high-speed
communications market, where it provides physical layer
transceivers to manufacturers of high-speed networking equipment,
including Cisco, 3Com Corp, Foundry Networks, Dell and Intel.

Why we like it:
It's the perfect storm for shares of MRVL, as the stock is
benefiting from the continued bullish run in the Semiconductor
sector (SOX.X), which closed at a new 52-week high on Friday,
just a hair below $460.  On the other side is the bullish action
in the Networking index (NWX.X), which got another boost on
Thursday from positive comments from CSCO, the biggest company in
the industry, along with one of MRVL's primary customers.  MRVL
broke out to new 52-week highs in late August, and after
consolidating above that breakout for the past couple weeks, it
looks like the bulls want to go for an encore performance.  While
a breakout over the recent intraday high ($43.50) can certainly
be used for new momentum entries, we need to keep in mind the
ride may be a bit bumpy at first.  The reason why is that just
overhead is resistance from March/April of 2002 at $44.35 and
then there's the January 2002 high of $46.24.

With volume on the rise and the PnF chart on a strong Buy signal,
MRVL looks like it will be able to scale both of those resistance
levels and move up towards strong resistance (and our exit
target) at $50.  Entries are the real challenge though.
Aggressive traders can use a breakout over the recent highs to
initiate new positions, while those with a more conservative
style will want to target a pullback and rebound from the
vicinity of $41.  The $40 level should be very strong support on
a steeper dip, with additional support being provided by the
rising 20-dma ($39.02).  That gives us the $39 level as an
eminently logical level for our stop.  Conservative traders may
want to only target a move to the $46 level, but we're going to
go for the gusto and target the psychological level of $50, which
is also a significant level from the middle of 2000.  Remember to
monitor the action in both the NWX and SOX indices before
playing.

Suggested Options:
Shorter Term: The September 42 Call will offer short-term traders
the best return on an immediate move, as it is currently at the
money.  Note that September contracts expire in two weeks.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the October 45 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 42 Call.

! Warning, September options EXPIRE in 2 weeks!

BUY CALL SEP-40 UVM-IH OI=4976 at $3.10 SL=1.50
BUY CALL SEP-42 UVM-IT OI=1880 at $1.40 SL=0.75
BUY CALL OCT-42 UVM-JT OI= 824 at $2.60 SL=1.25
BUY CALL OCT-45 UVM-JI OI= 104 at $1.55 SL=0.75

Annotated Chart of MRVL:




Picked on September 4th at  $42.53
Change since picked:         +0.00
Earnings Date             11/20/03 (unconfirmed)
Average Daily Volume =    3.15 mln
Chart =



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

Express Scripts - ESRX - cls: 58.99 chng: -1.84 stop: 62.00*new*

Company Description:
Express Scripts provides health care management and
administration services on behalf of clients that include health
maintenance organizations, health insurers, third-party
administrators, employers and union-sponsored benefit plans.  The
company's fully integrated pharmacy benefit management services
include network claims processing, mail pharmacy services,
benefit design consultation, drug utilization review, formulary
management, disease management, medical information management
services and informed decision counseling services through its
Express Health Line division.

Why we like it:
Now, that's more like it!  Last week at this time, we were
contemplating the very real likelihood that our ESRX play was
going to break above the $65 resistance level and stop us out.
My how things have changed.  The stock finally caved in on
Wednesday, crashed through the late August lows and came to rest
just above $60.  After one day of consolidation, the bears piled
on again on Friday, knocking the stock lower by more than 3% and
it is now sitting just above the 200-dma ($58.68), its lowest
level since the end of April.  Confirming the strength of the
decline has been the very heavy volume over the past 3 days,
which has been running roughly double the ADV.  While there's the
possibility of a bounce from the 200-dma, it should be short-
lived and with the bearish look of the PnF chart (price target
$52), our $54 profit target on this play is looking more and more
likely by the day.  While things are certainly looking favorable
right now, with ESRX having moved more than $4 in our favor,
there's no sense in risking all of those paper gains.  So we've
lowered our stop to $62.  Realistically, if the downtrend is
going to continue (as we expect) any rebound from the 200-dma
should run into trouble near $61 (near the top of Thursday's
consolidation) and then again in the $61.50-61.75 area, which is
the site of the late August low.  A bounce and subsequent
rollover from one of these resistance levels can be used for new
entries, although those traders looking for entries on further
weakness will need to wait for a break of the 200-dma before
entering.  There's more potential support in the $56-57 area, but
as long as selling volume remains robust, we'll go for the gusto
and look for our $54 target to be reached.

Suggested Options:
Short-term traders will want to focus on the September 60 Put, as
it will provide the best return for a short-term play.  Traders
with a more conservative approach will want to utilize the
October 60 contract, as it should not be as susceptible to time
decay issues in the near term.  Note that September contracts
expire in two weeks.

! Warning, September options EXPIRE in 2 weeks!

BUY PUT SEP-60 XTQ-UL OI=2617 at $2.25 SL=1.00
BUY PUT OCT-60 XTQ-VL OI= 316 at $3.90 SL=2.50
BUY PUT OCT-55 XTQ-VK OI= 182 at $1.65 SL=0.75

Annotated Chart of ESRX:




Picked on August 24th at   $63.48
Change since picked:        -4.49
Earnings Date            10/22/03 (unconfirmed)
Average Daily Volume =   1.41 mln
Chart =


---

Krispy Kreme Doughnut - KKD - cls: 42.06 chg: -0.70 stop:44.01

Company Description:
Founded in 1937 in Winston-Salem, North Carolina, Krispy Kreme is
a leading branded specialty retailer of premium quality
doughnuts, including the Company's signature Hot Original Glazed.
Krispy Kreme currently operates more than 305 stores in 41
states, Canada and Australia. An estimated 7.5 million Krispy
Kreme doughnuts are made every day and more than 2.7 billion are
produced each year. (source: company press release)

Why We Like It:
(Original Play Description from Thursday)
Has the sweet spot for Krispy Kream already soured?  Shares had a
tremendous run up from its May 2003 lows right up into its August
21st earnings announcement.  Then the share price deflated. The
company beat estimates of 20 cents a share by a penny and turned
in tremendous revenue growth but Wall Street was not happy with
the earnings quality.  Average sales per week were flat.  Both
RBC Capital Markets and JP Morgan quickly downgraded the stock.
JPM felt that at almost 53x and 42x fiscal year '03 and '04
estimates the stock was already priced for perfection.  Analysts
became concerned that the only way KKD would meet its aggressive
targets was through massive store openings, which weren't
necessarily turning out the same opening bang they used to.

Now that the market is in rally mode we see absolutely zero
participation by KKD.  Shares have dropped strongly on big volume
and closed below their simple 50-dma.  However, while the stock
looks bad it still has support at $41.70.  We are going to use a
TRIGGER to go short at $41.69.  Until then we're just spectators.
More aggressive traders can target bearish entries on failed
rallies under $44.  Our target range is the $37.50 to $36 area
near its 200-dma. If we are triggered at $41.69 we'll open the
play with a stop loss at $44.01.

! Friday Update: Good news for the bears, shares of KKD continue
to slip lower on Friday and look even closer to breaking support
at $42.00-41.70.  KKD could hit our trigger soon.

Suggested Options:
There are only two weeks left for September options so our
preference will be the October and November 40's.
-- Remember, we are using a trigger to open the play.

! Warning, September options EXPIRE in 2 weeks!

BUY PUT OCT 35 KKD-VG OI= 620 at $0.40 SL= -- higher risk
BUY PUT OCT 40 KKD-VH OI= 758 at $1.40 SL=0.70
BUY PUT OCT 45 KKD-VI OI= 646 at $4.00 SL=2.25
BUY PUT NOV 35 KKD-WG OI=2461 at $0.80 SL= --
BUY PUT NOV 40 KKD-WH OI=2032 at $2.55 SL=1.00
BUY PUT NOV 45 KKD-WI OI=1340 at $4.60 SL=2.30

Annotated Chart:




Picked on September 4 at $xx.xx
Change since picked:     - 0.00
Earnings Date          08/21/03 (confirmed)
Average Daily Volume:       1.0 million
Chart =


---

XL Capital Ltd. - XL - close: 76.05 change: -0.10 stop: 77.10

Company Description:
XL Capital Ltd. provides insurance and reinsurance coverages and
financial products and services to industrial, commercial and
professional service firms, insurance companies and other
enterprises on a worldwide basis.  Insurance business written
includes general liability, other liability, professional and
employment practices liability, environmental liability,
property, program business, marine and energy, aviation and
satellite, as well as other product lines.  Reinsurance business
written includes treaty and facultative reinsurance to primary
insurers of casualty and property risks, as well as life
reinsurance, primarily European term assurances, group life,
critical illness coverage , immediate annuities in payment and
disability income business.

Why we like it:
It's make or break time for our XL play.  For over a week now,
the stock has been gradually (and we mean excruciatingly slowly)
creeping up to the $76 level, which is the confluence of
horizontal resistance and the descending trendline from the June
highs.  The stock tested the $76 level every day last week, but
the best the bulls could manage was two consecutive closes at
$76.15.  But at the same time, the bears have been unable to make
any progress either.  A rollover from current levels is essential
to the success of this play.  Look for additional resistance just
above the descending trendline, first at the 20-dma ($76.67) and
then at the 30-dma ($77.06), which is just above our $77.10 stop.
We've aggressively tightened our stop over the past week, as we
want to limit our risk in a play that as of yet has failed to
perform.  The good news is that Friday's sideways action was
enough to cause the stock to fall below the bottom of the bear
flag pattern that has been building over the past 2 weeks.  This
could be an early sign we're going to get that rollover we've
been waiting for.  Only aggressive traders should consider new
positions here unless we get a sharp rollover.  The more
conservative traders will need to see a break at least back under
$75 before playing.

Suggested Options:
Aggressive short-term traders will want to focus on the September
75 Put, as it will provide the best return for a short-term play.
Traders with a more conservative approach will want to utilize
the October 75 contract, as it should not be as susceptible to
time decay issues in the near term.  Note that September
contracts expire in two weeks.

! Warning, September options EXPIRE in 2 weeks!

BUY PUT SEP-75 XL -UO OI= 345 at $0.90 SL=0.45
BUY PUT OCT-75 XL -VO OI=1299 at $2.15 SL=1.00
BUY PUT OCT-70 XL -VN OI=  96 at $0.85 SL=0.40

Annotated Chart of XL:




Picked on August 21st at   $75.92
Change since picked:        +0.13
Earnings Date            10/30/03 (unconfirmed)
Average Daily Volume =      820 K
Chart =



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

Angiotech Pharma - ANPI - cls: 38.95 chg: -0.61 stop: 41.01

Company Description:
Angiotech Pharmaceuticals, Inc. (www.angiotech.com) is dedicated
to enhancing the performance of medical devices and biomaterials
through the innovative use of pharmacotherapeutics.
(source: company press release)

Why We Like It:
The story for ANPI is an interesting one.  It was the middle of
June and shares of ANPI, which had already risen substantially
from their January lows, surged higher on good news from partner
Boston Scientific (BSX).  BSX had just filed what was to be there
one of their last approval applications to the U.S. FDA for its
drug-eluting stent.  ANPI owns the rights to paclitaxel, which is
used on BSX's stents.  Investors who were paying attention had
been bidding up shares of ANPI from January to June for two
reasons.  Number one was news that BSX's stent was outselling
rival Johnson and Johnson's stent in Europe.  Number two was the
expectation for a U.S. FDA approval some time later this year.

The good news in June prompted several weeks of analyst comments,
upgrades and rising price targets ranging from $51 to $71.  The
problem for ANPI is Johnson and Johnson (JNJ).  Boston Scientific
is set to announce the results of another test for its stents on
September 15th, which will probably come out very positive and
would normally drive share prices for both stocks (ANPI and BSX)
higher.  Unfortunately, JNJ has filed a patent infringement
lawsuit against BSX and asked Federal court to order BSX to stop
its stent development.  BSX quickly counter sued with their own
patent infringement case.  A Barron's article recently suggested
that a recent appellate court ruling may give JNJ the upper hand
in this patent dispute.

This is obviously devastating news for ANPI who's shares have
soared on the expected approval by the FDA of BSX's stent.  News
of the JNJ lawsuit and the possible edge to JNJ have seen shares
of ANPI fallen rapidly and on very strong volume.  The close
under $40.00 looks very bad and the stock's point-and-figure
chart looks even worse.  Aggressive traders can probably pick new
positions at current levels.  We are going to suggest a TRIGGER
at $37.69 since ANPI has already bounced three times at 37.70,
37.75 and 37.95.

Our play will begin when ANPI trades at or below $37.69.  When
that occurs we'll use a stop loss at $41.01.  Looking at the
daily and P&F chart bears can probably target a move to $30 or
$27.50 near its 200-dma.  There is significant HEADLINE RISK as
the court process develops and news from the latest round of
tests from BSX are revealed.  Use caution and only play with risk
capital.

Suggested Options:
Option traders in ANPI can choose September, October and December
options.  However, there is not enough time left to safely play
September strikes.  Our preference is the October 40s and 35s.

! Warning, September options EXPIRE in 2 weeks!

BUY PUT OCT 40 AUJ-VH OI= 525 at $4.60 SL=2.25
BUY PUT OCT 35 AUJ-VG OI=   0 at $2.15 SL=1.00
BUY PUT DEC 40 AUJ-XH OI= 646 at $6.00 SL=4.00
BUY PUT DEC 35 AUJ-XG OI=1998 at $3.50 SL=1.85

Annotated Chart:




Picked on September x at $xx.xx
Change since picked:     - 0.00
Earnings Date          08/12/03 (confirmed)
Average Daily Volume:       538 thousand
Chart =



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The Option Investor Newsletter                   Sunday 09-07-2003
Sunday                                                      4 of 5


In Section Four:

Leaps: If At First You Don't Succeed...
Traders Corner: Getting Out On Bail – Or Bailing Out
Traders Corner: Not morning breath - Morning Reversal
Brokers Corner: Readers Write


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*****
LEAPS
*****

If At First You Don't Succeed...
By Mark Phillips
mphillips@OptionInvestor.com

Try, try again, is the way the saying goes.  The next line of the
saying is "Then give up.  There's no sense being an idiot about
it."  I've been trying to judiciously pick tops in various stocks
at technically significant levels for the past two months and
quite honestly it hasn't worked out in the least.  Does that mean
that my bearish premise for the market is wrong?  Yes, at least
for the time being.  As the saying goes, Wall Street is littered
with the bodies of investors that were right too soon.  I believe
that is at the core of our problems in this column recently.

As I've written on several occasions of late, this market feels
eerily reminiscent of the heady bullish action last witnessed in
late 1999 and early 2000.  The market is floating higher on a sea
of liquidity generated by the Fed and the net result over the long
term is inflation.  Right now, we're seeing it in inflation of
paper assets, most notably stocks.  I've frequently touched on the
fact that the market is ridiculously overvalued at current levels.
There's nothing wrong with that assessment -- it is correct.  The
issue that keeps biting me is the fact that overvalued can always
become more so.  The NASDAQ was quite overvalued in the fall of
1999 when it was banging against the 2900 resistance level.  But
with the ballooning liquidity the Fed was providing ahead of the
Y2K problems.  That was all it took for the bulls to charge
forward and by the end of the bullish run in March of 2000, the
NASDAQ had gained more than 70% from that overvalued level of just
6 months prior.

Does that mean we should throw caution to the wind and pursue a
bullish strategy?  To be entirely honest, I don't know.  But I can
tell you with absolute certainty that I will not be chasing the
upside in this market with any of the recommendations in this
column.  Conditions are quite different now than in 1999, as we
are now in a secular bear market vs. a secular bull at that time.
Certainly, this has been a powerful cyclical bull market since the
October lows and in hindsight, I've badly misplayed it.  But
looking back at the newsflow, the technicals and the fundamentals,
I just can't see how I would have done things any differently.
Perhaps more importantly, I am acutely aware of my responsibility
to you in my capacity running this column.  My recommendations are
used by many of you as the basis of trade decisions.  That is the
primary reason that I am frequently so hesitant about adding new
plays either to the Watch List or the Portfolio.  If I wouldn't be
willing to place the trade myself, how can I, in good conscience
recommend that you do so?  I can't.  I cannot justify new bullish
trades for any of my long-term money, so there's no way that I can
recommend new bullish long-term plays here.

I've actually seen reports that show the valuation of both the
NASDAQ and the S&P 500 (based on P/E ratios) are more stretched
now than at the top of the bubble in early 2000.  Does that seem
like an advisable place to be looking for long-term bullish
positions?  It doesn't seem that way to me either.  I've seen
numerous reports that have shown how the current action in the
major indices are tracking along the bullish trajectories of
several different bullish years prior to the popping of the
bubble.  At the same time, I've seen an equal number of reports
showing similarities between this year and several other bearish
years, both from the recent past and further back in history.  And
of course we have the repeated comparisons back to 1929 on the DOW
and to the Nikkei for the NASDAQ.  Each of these reports make a
very compelling argument for their respective cases.  In reality,
they're all probably a little bit right and a little bit wrong.
Something I'm being forced to rediscover is that the market rarely
presents the same appearance twice.  It is a living, breathing
monster that is exceedingly stubborn about allowing us to
understand it.

Do I sound confused and ambivalent about market direction?  Good,
because I am.  Based on the recent action, I expect to see near-
term strength and long-term weakness.  I don't believe we have
come anywhere near the lows for this bear market, but at the same
time I'm not seeing ANYTHING that would suggest we'll come
anywhere near testing the 2002 lows anytime this year.  As long as
the bulls continue to feast on easy money being created by the Fed
and the convenient lie of a robust economic recovery "just around
the corner", pullbacks will likely continue to just be fresh
bullish entry points.

Therein lies our problem, as the action in the market these past
few months has not been conducive to providing technically
advisable bullish long-term entries, but those technical setups
for long-term bearish plays have all been mirages.  That leaves me
with a choice.  Either I retool what I've been using for the past
several years and look to apply a revised strategy for play
selection and setting entry and exit points OR I acknowledge that
the basic premises I've been following are not working because of
an aberration in the market.  The latter choice is fraught with
peril, as it is very close to stating "I know I'm right and the
market is wrong."  Remember, the market is never wrong.  If we are
in disagreement with the market, then we are incorrect either in
terms of direction or timing.

If my errors are the result of being off in terms of timing, then
it is appropriate to wait for the market to confirm my views, but
I must wait for confirmation from the market before continuing to
apply a trading strategy that has obviously not been working
recently.  On the other hand, if the source of my errors is rooted
in my being out of sync with the actual direction of the market
over the long-term, then perhaps it would be prudent to look for
new tools or modifications to existing tools that can perhaps put
my trade selection process more in sync with the market.

Obviously we don't have time to delve into that process of
discovery here today, but I think it will make an interesting
topic for discussion in Monday's Trader's Corner article.  The
crux of the issue is not whether there are good bullish trades or
bearish trades to be had in the market right now.  A big part of
the problem we're currently facing is the nature of the LEAPS
column and the types of plays we target here.  We're looking for
long-term trends we can ride that last for months.  When the broad
market is chopping sideways for nearly 3 months, clearly it is a
first order challenge to find favorable entries into viable
trends.  That process is made all the more challenging by the fact
that we can't select just any stock for our plays, as we must
first confirm that LEAPS are available for the stock.

I'm going to be very brief with my actual market commentary this
weekend.  My perception of what to expect in terms of market
direction are still contained within the Trader's Corner article I
wrote on August 25th.  All of the major indices broke out to new
52-week highs last week and held those breakouts into the end of
the week.  That certainly looks bullish.  To me, the action in the
DOW is the most significant, as the move through 9500 breaks the
50% retracement of the 2000-2002 bear market decline.  It now
seems very likely to me that the bulls will make a serious assault
on the 10,000 level before we see any meaningful decline.

We got more of the same from the VIX last week, as it once again
fell under 20 and at 19.37, is very close to a new 52-week low.  I
think it is a safe bet that if the DOW goes up from here, the VIX
is heading lower.  But that isn't the real excitement for the
week.  The CBOE is shaking things up big time!  The VIX will no
longer be calculated on the OEX, but is being moved to the SPX due
to the greater option volume on the SPX.  The Volatility index for
the OEX is getting a new symbol, VXO.  As if that wasn't enough to
rock your world, the CBOE is going to start listing options and
futures on the VIX.  Wow!  I actually had written quite a bit more
on this topic, but just noticed that Jim Brown has done an
excellent writeup on the topic in his Editor's Plays column this
weekend.  There's no need to make you read about it twice, so if
you're interested in all the gory details, be sure to check out
Jim's column this weekend.

In my opinion, it is currently a waste of our time to continue
looking at the bullish percent readings on a weekly basis.  This
tool has not provided the clarity provided over the past few years
on this latest up cycle.  While they are all at or above
overbought territory (showing the bulls carrying the majority of
the risk), that has not yet produced any meaningful price
weakness.  At some point, the bullish percents will once again
give us some useful data, but right now all we're seeing is that
they are overbought, but not willing to reverse back down.

Based on the very strong action in the markets again last week, I
seriously considered pulling the plug on every play in both the
Portfolio and the Watch List.  The trend is up and as long as that
continues to be the case, each of those plays are fighting the
trend in the market.  But just pulling the plug seems a bit too
much like overkill.  The DJX and GM plays got stopped out early in
the week, and our only two other active Portfolio plays are LEH
and BBH, both of which are slightly underwater.  We'll stick with
those two positions, keeping our stops in place.  As for the Watch
List, I am placing all of those plays on Hold this weekend.  I
expect to either reactivate them or drop them in the next week or
two, but in the meantime, I don't want anyone entering new bearish
positions, when that seems inadvisable based on the action in the
rest of the market.  We've got further details on a play by play
basis below.

Portfolio:

DJX - So long and farewell!  We took our shot at a bearish play on
the DOW and it never worked in our favor.  Last week's breakout
triggered our stop and we're currently flat any further attempts
to pick a top in this market.

BBH - Despite an encouraging drop at the end of August, the BBH is
looking bullish again, and is building a trend of higher lows and
higher highs from the early August low.  With the bullish
sentiment in the overall market still looking strong, my
expectation is that this play will likely be stopped out on a
break above the July highs.  Conservative traders may just want to
pull the plug here and keep their losses small.  Traders still
willing to stick with the initial premise of the play should keep
their stop in place and honor it if hit.  Obviously, we're not
recommending new entries at this time.

GM - My sentiment from last weekend's update was right on target,
as GM soared with the rest of the market, triggering our stop on
Tuesday.  Never mind the bearish fundamentals, with sales numbers
for the company continuing to drop.  Like the rest of the market,
GM is rising on the sea of liquidity.  After three failed bearish
plays on this symbol in the past year, it's going to take a very
compelling technical setup to prompt me to go to this well again.

LEH - LEH may still be underperforming the Broker/Dealer index
(XBD.X), but with that index breaking out last week, the stock
couldn't help but go along for the ride.  LEH has now moved back
over the 50-dma, $67 resistance and is threatening to move through
stronger resistance near $69.  We're sticking with our technical
stop at $70, but more conservative traders may just want to exit
the play at current levels or on a pullback near that 50-dma.  As
with the BBH play, we are not recommending new positions at this
time.

Watch List:

WMT - For those that have been watching, WMT perfectly fulfilled
our entry target on Wednesday and Thursday, tagging the $60
descending trendline resistance and then dropping back sharply on
Friday following an analyst downgrade.  So why didn't we take a
Portfolio entry?  Quite simply because I have no faith in the
downside right now.  While off of its high early in the week, the
Retail index (RLX.X) is still very much in the ascending channel
that has been in force since late March.  I'm done trying to pick
a top in this market until we can see at least the beginning of a
trend of lower highs and lower lows in both WMT and the RLX.  I'm
leaving WMT on the Watch List, but putting the play on hold this
weekend.  If you entered the play on the failure at the $60 level
last week, then my recommendation is to exit the play on any sign
of renewed strength next week.  We'll look for a more favorable
entry after there are some concrete signs of a real top being in
place.

QQQ - The picture certainly hasn't changed in the NASDAQ over the
past week, with the index pushing to new highs again.  The QQQ
followed suit, setting another new closing high above $34 on
Thursday and entering the play up here is simply fishing for a top
in a market that continues to rise.  Like everything else on the
Watch List, I'm placing the QQQ play on hold until there is some
sign that a top has been reached.

SMH - You certainly can't make a bearish case for the
Semiconductor index (SOX.X) here, as it logged another new closing
high on Friday, with the SMH following suit.  This sector looks
poised to break out again next week, and I just can't justify
trying to pick a top in this sector that so far has failed to show
any real signs of weakness.  It looks extended, it's components
are overbought and it looks like it should tip over.  But at this
point the bulls seem intent on driving price higher and I see no
merit in trying to stand in their way.  Eventually the group will
come crashing back down and we'll look to play that move when it
sets up.  But right now is not the time.  SMH is likewise on hold.

Radar Screen:

HD - Quick!  Is the price action in HD a pending breakout or
another opportunity to enter near major resistance for the
eventual breakdown?  For the life of me, I can't decide, so the
stock remains one to watch, but not to take action on.  Based on
what's happening in the rest of the market and with the resurgence
in the Housing sector, I'd expect to see a breakout.  But I have a
hard time seeing significant upside to that move.  At the same
time, we could be seeing a reverse H&S pattern on the daily chart,
and that would point to a breakout that could extend up to the $39
area.  It's growing increasingly difficult to make a bearish case
though, so clearly HD just remains one to watch.

FNM - Apparently the interest rate scare is over, as FNM has been
surging higher over the past couple weeks, helped along by some
strong upgrades.  The stock found strong support near $60 and is
now back near the $70 level, looking like it wants to continue
higher.  I still have a very negative view of this stock and will
continue to watch for a topping formation, possibly in the
vicinity of $74-75, which is both the site of historical
resistance, as well as the descending trendline connecting the
4/02 and 6/03 highs.  I know it is getting old, but wait and watch
is still the operative phrase.  Better to be on the sidelines than
in a losing trade.

Closing Thoughts:

As expected, volume came back into the market and with a bullish
bias.  But that bullish action was stronger than I was prepared
for.  Even with the dismal employment report on Friday, the
downside action was minimal.  I'm still expecting to see a top in
the market during the first part of next week, but I've seen
estimates for the top in the DOW from 9600-10,200, a top for the
SPX anywhere in the 1040-1080 range and the NASDAQ from 1900-2050.
New bearish positions taken anywhere near the bottom of those
respective ranges should be stopped out long before reaching the
tops of those ranges and therein lies my reluctance about
initiating new plays.  Bulls have been carrying the majority of
the risk in this market since early June, but still all the
indices continue to bleed higher in very ugly fashion.  As I
mentioned above, I think it is absolute suicide to initiate new
bullish positions at these lofty levels.  But at the same time,
carefully considered bearish trades are not working either.  My
choice is to err on the side of caution and look for some sign
from the market that it is ready to move in line with my views
before any more attempts at picking a top.

Nobody is more frustrated than I am about the past several trades
that have not worked out in the least.  Tune in on Monday, as I
will be trying to address that shortcoming in my Trader's Corner
article.  Regardless of what changes we find may be necessary, it
should be an educational process for all, and that is rarely a
unproductive use of time.

See you next week!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
None

Puts:
BBH    08/22/03  '05 $125 XBB-ME  $14.60  $13.20  - 9.59%  $138
                 '06 $120 YEE-MD  $15.50  $14.30  - 7.74%  $138
LEH    08/22/03  '05 $ 65 ZHE-MM  $ 9.80  $ 8.10  -17.34%  $70.00
                 '06 $ 60 WHE-ML  $10.00  $ 8.90  -11.00%  $70.00


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
None


PUTS:
WMT    08/03/03  HOLD          JAN-2005 $ 55  ZWT-MK
                               JAN-2006 $ 55  WWT-MK
QQQ    08/10/03  HOLD          JAN-2005 $ 30  ZWQ-MD
                               JAN-2006 $ 30  WD -MD
SMH    08/24/03  HOLD          JAN-2005 $ 35  ZTO-MG
                               JAN-2006 $ 35  YRH-MG


New Portfolio Plays

None


New Watchlist Plays

None


Drops

DJX - $95.68 Well, it's nice to know I'm still able to pick a top
in the market.  Unfortunately, I did so by placing my stop just
below the high!  We took our shot at picking a top in the DOW and
it just plain didn't work.  I thought we exercised the appropriate
amount of patience, picked our entry near the top of the summer's
range and setting our stop just above what should have been very
strong resistance.  Obviously the market disagreed and the DJX
moved through the $95 level, triggering our $95.50 stop on
Wednesday.  While the market rolled over a bit on Friday, it came
too late to keep us in the play.  And quite honestly, with
Friday's close still coming above $95, I'm glad to be out of the
play.  I wouldn't take a long position here on a bet, but
obviously we're still premature in trying to pick a top.  I'll
continue to look for a favorable entry to the short side, but not
until we see more definitive signs of weakness.  For traders still
holding bearish long-term positions, my recommendation is to use
any further weakness next week to exit the play and then look for
a new entry further down the road.

GM - $42.48 Fundamentals may matter over the long term, but
clearly using them to game a top in GM has not been productive
over the past year.  There's nothing on the fundamental front that
would justify the bullishness seen over the past 2 weeks, but
there it is nonetheless.  This is the third time I've attempted to
pick a top in GM over the past year and each time, the stock has
surged higher to just barely stop us out before heading lower. I
truly have no idea if GM is going to head lower from here, but I
can no longer make a technical case for that happening.  With last
week's trade above $42, GM is now on a solid PnF Buy signal on the
2-point box size chart, with a bullish price target of $68.  Chalk
up another failed play for the LEAPS Portfolio.


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

Getting Out On Bail – Or Bailing Out
By Mike Parnos, Investing With Attitude

It has come to my attention that many of us may be in the wrong
business.  Here we are, trying to figure out what's going to
happen tomorrow, next week, or next month in a world over which we
have literally no control.

We're at the mercy of gamblers, wishful thinkers, professional
traders, day traders, institutional traders and, let's not forget,
those loveable marketmakers.   It’s a helpless feeling.  What
chance do we have?

What's The Alternative?
I just read where a California woman named Annie Lever makes over
$200,000 a year walking dogs for the stars (Mike Meyers, Steven
Spielberg, etc.).  Think about it.  Low overhead -- a few leashes,
plastic bags, plastic gloves and a substantial olfactory
tolerance.  But then, life stinks sometimes – and we might as well
get paid for it.

For those of us whose aspirations go beyond a walk in the park
with a pooper-scooper, let's take a look at the markets.  We know
what to do when things go well.  What do we do when things go
badly?
_____________________________________________________________

Bailing Out A Sinking Ship With A Teaspoon
Actually, “bailing out” is a rather negative term.  When you have
to exit a position, it should be part of your trading plan.  It
should fall under the category of “wise money management.”  It’s a
more delicate term and makes you feel like you do have some
control of the situation.  If you follow your plan, you ARE in
control.  It may be a little painful, but it could be a lot worse.

What Happens If . . .
The underlying begins to move against you.  Now what? Well,
because you have a plan you won’t be caught with your Fruit Of The
Looms around your ankles.  There are a few choices.

Stocks:  When a stock hits the short strike price of your spread
position, you can buy the stock (or short the stock if you have a
put spread) to cover the short option.  You monitor the underlying
and continue to buy and sell it if it fluctuates above and below
the short strike. You may incur some additional commissions along
the way, but it’s a small price to pay.  This strategy may take a
substantial trading account – depending on the price of the stock.
But, if the stock has, indeed, established a new trend, it can be
a useful solution.  This is a solution for those who can monitor
their position throughout the day and have the ability to also
place trades during the day, if necessary.

Indexes: As the underlying breaks support (or resistance), it’s
time to “Hit The Road, Jack!” or GTFO.  In layman’s terms – it’s
important that you close your position immediately.  This enables
a trader to preserve one’s trading capital.  Your risk was defined
when you put on the trade.  You knew the possibility of a loss.
No crying in your beer or over spilled milk or bitching at the
trading gods.  As in life, and especially in relationships, you
need to know when to cut your losses and move on.  You may have to
swallow a small frog, but it’s a lot better than swallowing a huge
frog -- and you’ll live to trade another day.

Are You A Believer?
There aren’t always repairs for trades that don’t go the way we
want.  Sometimes, you just have to bite the bullet.   Like Baretta
used to say, “if you can’t do the time, don’t do the crime.”
Robert Blake should know that very well.

There is a strategy, one that we’ve discussed at length before, to
pare your potential losses – or even eliminate them.  If, when the
stock or index has broken through a support or resistance level,
you believe that it has established a trend, here’s what you can
do.

You can sell an appropriate number of credit spreads going in the
opposite direction – enough spreads to cover what it cost you to
close out the initial position.  If you originally traded 10
contracts, it may be necessary for you to trade 20-25 to replace
the spent credit.

The risk here is that, if the stock/index reverses again, you’re
now exposed for twice as many contracts and potential loss.  It
will also require a lot more maintenance.  If you have a
substantial account size, you can repeat the process by closing
the current 20-25 and establish even more credit spreads going in
the opposite direction.  If you’re vigilant, eventually the
spreads will expire worthless.  You may have incurred some
additional commissions, but the bulk of the profit will have been
preserved.  It’s like the Indian rain dance.  Why do you suppose
it always worked when the Indians performed their famous rain
dance?  Simple.  They just kept dancing until it rained.
_________________________________________________________________

In Summation
Establish your plan, do your charting, check the sectors, check
the volatilities, use self-discipline and some common sense.  You
should be fine and you’ll make money on the vast majority of your
trades.  However, if one aspect of your research doesn’t line up,
don’t do the trade.

Always hedge your positions and define your risk before you put on
the trade.  If you get into a bad position and don’t know how to
handle it, painful things can happen.  How painful?  A lot more
than two Tylenol painful!
 ________________________________________________________________

As The Terminator Says, “I’ll Be Back”
I’m currently away and cannot access my email from this location.
I will return this coming Friday and will do my best to catch up
on your emailed questions as soon as possible.  Keep the faith and
use common sense.
______________________________________________________________

SEPTEMBER POSITIONS – Remember that September is a FIVE- WEEK
option cycle.  Expiration is Friday, September 19th.

September Position #1 – SPX Iron Condor – SPX @ 1021.39
S & P 500 Index = SPX
We sold 10 contracts of SPX 1040 Sept. calls and bought 10
contracts of SPX 1050 Sept. calls for a net credit.  Then we sold
10 contracts of the SPX 950 Sept. puts and bought 10 contracts of
the SPX Sept. 940 puts.  Our net credit was $2.70 (a total credit
of $2,700).  We have a huge maximum profit range of 950 to 1040.
More aggressive investors may have narrowed the range a bit and
take in more money.   At 1021.39, the SPX has moved up.  We still
have a bit of a cushion and it's time for a pullback, so we'll
keep the faith – at least for now.

Position Activity!
September Position #2 – COF Sell Straddle – COF @ $ 53.92
Capitol One Financial = COF
We sold 10 contracts of COF Sept. $50 calls @ $2.35 and also sold
10 contracts of COT Sept. $50 puts @ $2.50 for a 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.

A lot can happen in five weeks of exposure to market movement.  On
Tuesday (Sept. 2), COF continued its uptrend – through our bailout
point of $54.85.  When COF hit out exit point, we bought back the
short September $50 calls for $5.40 ($5,400).   Since we had taken
in premium of $4,850, we incurred a loss of only $550.  This is a
necessary money management move to make sure we live to trade
another day.  COF backed off and is now back in the profit range
(for those who still hold the position).  However, we had to
adhere to our plan.  It's the only way to survive.

September Position #3 – HPQ (Hewlett Packard) Bear Put Spread –
HPQ at $20.23.
HPQ is weak and may return to the $15 range.  So, we bought 10
contracts of the HPQ Feb. 2004 $20 puts @ $2.25 and we sold 10
contracts of the HPQ Feb. 2004 $15 puts @ $.40.  Total debit of
$1.85.   Potential max profit of $3.15.  In reality, if HWP makes
the move down, it will probably happen on the coattails of a
market move down.  It shouldn't take until February.  I'd gladly
accept a profit of $800-900 and close the position early if the
opportunity presented itself.  This is a long-term position.

September Position #4 – OEX – Bearish Calendar Spread – OEX @
$512.49
Maybe it's time for the market to return to reality.  Let's see if
we can take advantage of this with a calendar spread.  We bought 8
contracts of OEX November 470 puts @ $10.60 and sold 8 contracts
of OEX September 470 puts @ $2.20 for a total debit of $8.40.  As
the market retreats, we will sell near term puts against the
November long 470 puts to further lower our cost basis.  This
position may take a few months to come to fruition.  It's a
directional bet, but with a limited risk as we get paid while we
wait.

Still EBAY-ING At The Moon
There are some CPTI readers who entered the EBAY position
discussed at the beginning of the month when EBY was trading at
about $103.  Since then, a lot has happened.  EBAY, as you know,
gapped up enough to discourage our participation in the position.
Then, the stock split two-for-one.  Ten contracts of the $110/$115
bear call spread became 20 contracts of the $55/$57.50 bear call
spread.

As I suspected, EBAY got well ahead of itself.  Despite the market
moving up, EBAY has pulled back and finished today at $53.63 –
within our max profit range.   We still have two weeks remaining,
but those still in this trade are not in a bad place.
______________________________________________________________

New To The CPTI?
Are you a new Couch Potato Trading Institute student?  Do you have
questions about our educational 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" on
the OI home page and click on "Traders Corner."  They're waiting
for you 24/7.
______________________________________________________________

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

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


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

Not morning breath - Morning Reversal

Each morning the major indexes gap up or down. Overnight economic
reports released, scandals revealed or reports of Osama bin Laden
found, all put upward or downward pressure on prices so the
morning's open almost never match the previous day's close. You
can take advantage of this.

It has been proven statistically that price has a very high
tendency to fill 50 to 100% of the gap during the first hour of
trading. This tendency is found in bear markets, bull markets,
gap ups or gap downs.

Brian Babcock and Arthur Agnelle backtested three years of DOW,
S&P and NDX prices to verify the statistical reliability of the
basis for the strategy I am about to introduce you to called the
Morning Reversal Strategy.

The analysis is broken into three parts:

First the size of the morning gap was broken three groups: gaps
smaller than 1%, gaps ranging in size from 1% to 2% or gaps
ranging in size from 2% to 3%. Then the retracement was broken
into Fibonannci levels; 0-39%, 50%, 63% and 100%. The following
table shows what percentage of gaps fell into each category.



	GAP SIZE
% Retracement	1%	1-2%	2-3%	Averages
39%	14%	20%	35%	23%
50%	1%	2%	5%	2.66%
63%	3%	10%	5%	6%
100%	82%	68%	55%	68.33%

In explaining the table I will use some of the data. Looking in
the first cell of data where you see 14%, of the gaps tested that
were 1% or less is size, 14% of them retraced up to 39% of the
gap. The cell that contains the 82% is telling us that of all the
gaps tested that were 1% or less, 82% retraced up to 100%. Of the
gaps that were 1%-2% in size, 68% retraced 100% of the gap and of
the gaps that were 2-3% in size 55% of them retraced up to 100%
of the gap. On average 68.33% of all gaps were filled up 100% .

The second part of the study looked at the time factor and how
quickly the gaps retraced. The gaps typically closed 50% by
9:55ET. Of the gaps that closed completely, 67% of them did so in
the first 30 minutes of the trading session and 86% of them
closed by the end of the first hour of trading (10:30ET).
Interestingly, the chance of a gap retracing declined
substantially after the first hour. Another interest point is the
success rate of this strategy declined on the days economic news
was released at 10:00ET. This would be due to the unpredictable
and volatile nature of the market's reaction to some of the
reports released at 10:00ET.

The third part of the study identified the time "markers" during
the gap reversal period. What the study found was the reversal
began, on average, six minutes after the open, at 9:36ET and was,
on average, completed 23 minutes after the open, at 9:53ET. There
is also a time when the market looked to be heading back in the
direction from which it came and gives a head fake. This happens,
on average, around 9:42ET and lasts for 5 minutes until, on
average, 9:47ET.

Suggested rules for trading this strategy are as follows:

1. It is suggested the best vehicle for this strategy is the QQQ
but use the pre-market futures as a way to anticipate the gap
direction before it happens, which is very easily done.

2. Make note of how the pre-market futures are affected by the
economic reports released at 8:30ET. You are looking for all
three index futures, S&P, NASDAQ and Dow, trading in the same
direction, if one is up and another down, you stand aside.

3. Since very narrow gaps reduce the profit potential, the gap in
the S&P futures needs to be excess of 5 points, the gap in the
Nasdaq futures needs to be in excess of 10 points and the gap in
the DOW futures needs to be in excess of 20 points.

4. No trade is taken if a position has not been entered by
9:42ET.

5. Use the 1-minute chart because entry has to be very precise.

Suggested ways to enter a trade:

1. Since the average start time is 9:36ET enter at 9:36ET
regardless of what the market is doing. This entry rule is easy
to execute but could easily put you on the wrong side of the
market.

2. Use a price pattern to telegraph a reversal. This could be a
swing high or low or something as simple as two 1 minute bars
trading in the direction of the anticipated trade. For example if
you are looking to go long (gap down) and the market is trading
in the direction of the gap (down) and two 1 minute bars close
higher than the close of the previous bar.

3. Break your trade into two and stagger the entries. For the
first 1/2, use rule #1 and enter at 9:36ET no matter what the
market is doing. For the 2nd 1/2 use rule #2 and enter when you
see a reversal pattern. This rule will have you in the market if
it reverses quickly on you and if the reversal does not happen
you will have only exposed 1/2 your trade to the stop loss.

 Suggested rules for placing a Stop Loss

1. Place a stop at 15 cents above the high of the morning for
shorts and below the low of the morning for longs. This should
keep you in most trades that have a head fake.

2. Once the trade is 25 cents into profit, place your stop at
breakeven. Once the trade is 35 cents into profit place your stop
at 25 cents and move it up (or down if in a short trade) by 1
cent each time profit increases by 1 cent. For example if you
enter a long at 32.00 and the Qs move up to 32.25 place your stop
at 32.00. If the Qs move up to 32.30 place your stop at 32.05. If
the Qs move to 32.50 your stop will be set at 32.25. Never move
your stop back and away from your profit.

3. Exit the trade at 10:30 or when the gap is filled whichever
comes first.

Here's an example. On 8/22 the S&P futures gapped up 9.5 points,
the NASDAQ futures gapped 24 points and the DOW futures gapped 67
points.





On 8/21 the Qs close at 32.65 and open on 8/22 at 33.67, an
almost 2% gap. A price reversal forms right on schedule at 9:36
and we take a short at 33.26 with a stop placed at 15 cents above
the daily highs of 33.35 at 33.50.

The head fake happens right on schedule also at 9:42 but does not
stop us out. When the Qs reach 33.01 the stop is placed at
breakeven. Profits are taken at 10:30 when the Qs are 32.99 and
we pocket a 27-cent profit. Not bad for a morning's work.

To put this trade in perspective for us futures traders, I
applied the same criteria to the NASDAQ futures using a 4-point
stop loss. We would have entered the trade at 1339 and taken
profits at 10:30 at 1327. Isn't that a nice way to start the day?

I was about to send this article in for posting but I decided to
wait and see if we could apply this strategy to Friday mornings
trading.

Checking the futures, the S&P futures gapped down 5 points, the
Nasdaq gapped down 10 and the DOW gapped 60 points. Looks like it
would have worked here also:





The morning reversal uses the statistically relevant tendency for
price to reverse back to the previous day close and incorporates
a risk management plan to build a trading strategy that even
novice traders can use.

Remember plan your trade and trade you plan.

Jane Fox


**************
BROKERS CORNER
**************

Readers Write: This week's questions concern the use of credit
spreads as a primary strategy for option portfolios.


Subject: Credit Spread Fundamentals

(Questions/Comments Condensed)

I have been trading credit spreads on broad-based indices with fairly
good success over the past couple of years and have a number of follow
up question regarding credit spreads to round out my understanding.

I know there are a lot of questions, but I would be most grateful if
you could share your perspective regarding the following topics.

JA


Regarding Credit Spreads on Broad-Based Indices:

If the option spreads on equity options involve gaps, why not stick
to just index spreading?

If you want to look at Equity options and compare them to Indexes,
it may be comparing apples to oranges.  An index is a broad picture
or collage of the market.  An individual stock is a single picture.
The Index may be smoother but it certainly can make large moves and
gap higher or lower.  If you are in a spread, then the leg you bought
should hedge the option you sold.  Gaps are not bad by themselves.
A trader without a good plan to deal with the gaps is one that will
sooner or later find them in a large amount of financial trouble.  A
credit spread and a debit spread both have defined risk-reward worst
and best case scenarios.  If the worst case is too much risk, then
you could do fewer contracts and lower your exposure.  You must
always be careful of selling options on a cash-settled American
style index (OEX). I will discuss some of the pitfalls in a future
article.


Regarding NASDAQ Indices:

Now that QQQ options are becoming more popular, do you prefer the
QQQ over the OEX options?  I believe that they are both American
options?

The QQQ and the OEX are different indexes.  The QQQ is based on
the Nasdaq-100 and the OEX is the S&P 100 index.  They have some
common stocks, but the QQQ are more weighted to the more volatile
NASDAQ index.  One very important aspect of the OEX is that it is
a cash-settled index.  This may lead to a complicated situation.
If a client is short an OEX option and the option is exercised,
the cash is taken-out of the clients account.  The client is not
notified until the next day.  If the client is short puts, and the
options are exercised the cash difference between the strike and
the closing index price of the day is debited from the client's
account.  If the Market has a large rally and gaps higher the next
day, the client will not realize the decrease in value of the puts
sold because they were already exercised.  The QQQ options deliver
stock to fulfill assignment.  If the market rebounds, the client
will see the gain in the long stock position.  Therefore, the OEX
should be handled very carefully.  The CBOE offers a very similar
product; the XEO, that is European exercisable and could easily be
substituted for the OEX.

If the implied volatility of the NDX/MNX indexes are higher than
the SPX, would you prefer trading spreads on the NASDAQ indices
over the S&P 500?

The first thing to remember is that you are comparing different
indexes.  Since volatility is a measure of the amount of risk or
movement one should expect in the stock, index, etc., the higher
the volatility, the greater the amount of movement one could
expect in the future.  If one is very bullish on the NASDAQ, it
would not make sense to take a bullish position in the SPX because
of the implied volatility is lower.  If the volatility is higher,
a credit spread should give a larger credit than if the volatility
is lower and vice-versa.


Regarding American vs. European Indices:

There is a preference for American over European options because
of richer premiums.  For example: OEX over the SPX -- I know that
the implied volatility is usually the same for the OEX and SPX.
But what if the implied volatility is actually higher on the SPX?
Does that make the credit spread more attractive for the SPX if
this case?  Better yet, I know that that the implied volatility
is always higher on the NASDAQ indices.  Why not just trade the
NDX or MNX (European) or QQQ (American)?

The situation where a client needs to be careful of American-style
options is if the options are settled in cash.  A cash-settled
option requires lots of money to trade effectively.  If the market
makes a large swing and the option is exercised against a client,
the cash is debited out of the account.  Unfortunately, the client
does not realize this until the next morning.  At which time, the
market or index could make a large swing the opposite way and the
client would not participate in the market movement.

One should be careful in devising a trading strategy based solely
on the implied volatility.  The higher the volatility, the more
one would expect an index or stock to fluctuate.  Spreads can
become more expensive and outright options may also increase in
value, thus affecting the characteristics of the position.


Regarding the Price Decay Model:

An ATM option decays at the square root of time.  What is the
price decay model for OTM options (+/- 1 std dev) and Deep OTM
(+/- 2 std dev).  When, therefore, is the best time to initiate
OTM or Deep OTM options?

All option time-value is based upon the square root of time.  As
far as the best time’ to initiate OTM or Deep OTM options, I do
not think there is a simple answer to that question, nor would it
be practical to base positions on such small differences in value
when other components have so much more impact on a trade.  If you
are interested in a complete knowledge of the subject, a thorough
study of Sheldon Natenburg's book, Option Pricing and Volatility,
would be a good start.

More questions and answers next week...


Andrew Aronson

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The Option Investor Newsletter                   Sunday 09-07-2003
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Stock Stages Explained
Naked Puts: Careful Planning And Execution Leads To Success
Spreads/Straddles/Combos: Optimism Prevails Despite Market Retreat

Updated In The Site Tonight:
Market Posture: Nearing Resistance


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

Trading Basics: Stock Stages Explained
By Mark Wnetrzak

New readers are always asking about the things we look for in our
technical analysis of stocks.

There is no form of analysis that will guarantee your success in
the market, but having a basic understanding of the different
phases of stock price activity can help you trade with greater
confidence and make the task of position management much easier.
The four primary stages of a stocks' movement cycle are described
at length in "Secrets for Profiting in Bull and Bear Markets," by
Stan Weinstein.  Here is a brief description of the first two
categories and a simple explanation of how they can help identify
favorable issues for bullish positions, as well as some hints for
timing the entry transactions.

Stage I is the basing stage that can last for months or sometimes
years.  The condition is usually defined by little or no vertical
activity with a long-term moving average that is basically flat.
A common axiom suggests that, "the longer the base, the stronger
the case" and issues with this type of pattern have relatively
low capital risk as there is little downside potential remaining.

Stage I Chart:




Stage II is when the issue begins to exhibit signs of a new upward
trend.  The stock price closes above a long-term moving average
(150-200 dma) with the average turning up, and that is the ideal
time to enter a bullish play.  Investors should look for the next
resistance level to identify the potential profit target or range
of  movement.  You should focus on stocks that have "room to run,"
picking only those issues that are in stage II climbs and buying
on pullbacks to technical support; trend-lines, moving averages,
previous resistance, etc.

Stage II Chart:




Some Hints...

1. Stage II is the "ideal" time to enter for a bullish play.  For
   trend trading, pick stocks that are in stage II rallies and buy
   on the pullbacks to technical support or major trend-lines.

2. Look for volume -- this is vital!  Most big movers climb on
   substantially larger volume than that which occurs at any time
   during the basing stage.

3. Look for strong Relative Strength.  When a stock breaks out of
   a base, the relative strength should cross up above the zero
   line into positive territory.  The higher the climb to cross
   above the zero line, the more upside potential in the movement.

4. Look for the "Runner's Crouch" pattern before the stock breaks
   out of a long-term base.  In many cases, stocks will go through
   a short period of "building steam."  It's usually a small dip
   to gather strength for the upward push above the moving average.
   Once the stock crosses above the top of the base (resistance)
   it should also continue through the moving average.

5. As the rally begins in earnest, the long-term moving average
   should start to turn upward and after the stock corrects back
   to a technical support area, the next run-up, which must be
   supported by heavier-than-average volume, should continue
   until a new (near-term) high is achieved.

It is important for new traders to become familiar with the common
methods used to determine the overall movement of the market and
apply this knowledge as a practical element of a proven trading
strategy.  After you are comfortable with the popular indicators,
combine them with proven timing strategies and practice using the
various systems until your "paper" portfolio is profitable on a
regular basis.

Trade Wisely!


SUMMARY OF PREVIOUS CANDIDATES
*****

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

Note:  Margin not used in calculations.

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

PLXT     5.25    5.45  SEP  5.00  0.60    0.35*   8.2%
WAVX     3.46    3.19  SEP  2.50  1.20    0.24*   7.7%
XOMA     8.09    8.40  SEP  7.50  1.30    0.71*   7.6%
PLUG     5.13    5.15  SEP  5.00  0.45    0.32*   7.4%
ENER    10.39   12.35  SEP 10.00  1.10    0.71*   6.6%
NWAC     8.30   10.51  SEP  7.50  1.40    0.60*   6.3%
EPNY     5.07    5.83  SEP  5.00  0.40    0.33*   6.1%
NEOF    12.45   16.40  SEP 12.50  0.90    0.95*   6.0%
FLML    28.49   33.19  SEP 25.00  4.40    0.92*   5.8%
WAVX     3.20    3.19  SEP  2.50  0.85    0.15*   5.5%
MCRL    12.60   14.07  SEP 12.50  0.65    0.55*   5.0%
IBIS    10.70   11.85  SEP 10.00  1.00    0.30*   4.7%
USG     14.11   16.51  SEP 12.50  2.35    0.74*   4.6%
XOMA     9.45    8.40  SEP  7.50  2.25    0.30*   4.5%
ITMN    19.01   19.19  SEP 17.50  2.00    0.49*   4.4%
VSAT    15.09   16.45  SEP 15.00  0.80    0.71*   4.3%
TKLC    15.46   16.93  SEP 15.00  1.15    0.69*   4.2%
CCRN    15.60   15.35  SEP 15.00  1.00    0.40*   4.2%
ISIS     5.33    6.51  SEP  5.00  0.60    0.27*   4.1%
EMBT    10.25    9.86  SEP 10.00  0.65    0.26    4.1%
RFMD     8.07    9.01  SEP  7.50  0.90    0.33*   4.0%
SNIC    11.18   13.77  SEP 10.00  1.70    0.52*   4.0%
ADLR    13.96   15.20  SEP 12.50  1.90    0.44*   4.0%
GSIC    11.52   11.66  SEP 10.00  1.95    0.43*   3.9%
CREE    16.30   16.73  SEP 15.00  1.75    0.45*   3.4%
CERS     7.62    5.27  SEP  7.50  0.40   -1.95    0.0%

*   Stock price is above the sold striking price.

Comments:

What a way to end a bullish week -- with selling.  Just profit
taking or a sign of something more worrisome?  As always, time
will tell.  Overall, the covered-call portfolio has done fairly
well though Cerus (NASDAQ:CERS) took a severe dive after the
company halted its Phase III testing of a red blood cell system
because of an immune reaction seen in two patients.  The play
will be closed in the interest of capital management.  Other
stocks to monitor for an early-exit include: XOMA (NASDAQ:XOMA),
Embarcadero Tech. (NASDAQ:EMBT), and GSI Commerce (NASDAQ:GSIC).

Positions Previously Closed: None


NEW CANDIDATES
*********

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

CBST   13.51  SEP 12.50  UTU IV  1.50  1455   12.01  14   8.9%
IPXL   15.16  SEP 15.00  UPR IC  0.70  148    14.46  14   8.1%
SIB    22.60  SEP 22.50  SIB IX  0.90  1916   21.70  14   8.0%
FWHT   25.56  SEP 25.00  HFQ IE  1.40  372    24.16  14   7.6%
TER    20.11  SEP 20.00  TER ID  0.75  2443   19.36  14   7.2%
TALK   15.34  SEP 15.00  QQK IC  0.80  10     14.54  14   6.9%
KVHI   30.99  SEP 30.00  VJU IF  1.85  344    29.14  14   6.4%


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).

*****
CBST - Cubist Pharmaceuticals  $13.51  *** Pending Breakout? ***

Cubist Pharmaceuticals (NASDAQ:CBST) is focused on becoming a
global leader in the research, development and commercialization
of novel pharmaceuticals to combat serious and life-threatening
infections.  Cubist has submitted a New Drug Application with the
FDA for Cidecin (daptomycin for injection) for the treatment of
complicated skin and skin structure infections (cSSSI) and is
conducting additional Phase 3 studies under the FDA's priority
review status.  Cubist's pipeline includes multiple pre-clinical
candidates, including CAB-175, a next generation cephalosporin
antibiotic that has demonstrated unique in-vitro activity against
methicillin-resistant Staphylococcus aureus (MRSA), and an oral
version of ceftriaxone (OCTX), a broad-spectrum cephalosporin
antibiotic.  Cubist is a solid biotechnology stock with excellent
upside potential and traders can speculate on its future share
value with this position.

SEP-12.50 UTU IV LB=1.50 OI=1455 CB=12.01 DE=14 TY=8.9%


*****
IPXL - IMPAX Laboratories   $15.16  *** FDA Approval! ***

IMPAX (NASDAQ:IPXL)) is a technology-based specialty pharmaceutical
company focused on the development and commercialization of generic
and brand name pharmaceuticals, utilizing its controlled-release
and other in-house development and formulation expertise.  In the
generic pharmaceuticals market, IMPAX is primarily focusing its
efforts on selected controlled-release generic versions of brand
name pharmaceuticals.  The company is also developing other generic
pharmaceuticals that present one or more competitive barriers to
entry, such as difficulty in raw materials sourcing, complex
formulation or development characteristics, or special handling
requirements.  In the brand-name pharmaceuticals market, IMPAX is
developing products for the treatment of central nervous system
disorders.   On Friday, IMPAX said it received tentative approval
from the FDA to market a generic form of Oxycontin, a powerful
prescription pain killer.  We simple favor the "break-out" above
the recent consolidation phase and investors can use this position
to target an entry point closer to support.

SEP-15.00 UPR IC LB=0.70 OI=148 CB=14.46 DE=14 TY=8.1%


*****
SIB - Staten Island Bancorp  $22.60  *** New All Time High? ***

Staten Island Bancorp (NYSE:SIB) serves as the unitary holding
company for SI Bank & Trust.  The business and management of the
company consists primarily of the business and management of the
Bank.  The Bank is a community savings bank providing retail and
commercial banking services along with trust services and life
insurance sales.  Through its subsidiary, SIB Mortgage Corp., the
Bank originates residential mortgage loans in 42 states and sells
them into the secondary market.  It also provides a full range of
trust and investment services, and acts as executor or administrator
of estates and as trustee for various types of trusts.  Services
offered include fiduciary services for trusts and estates, money
management, custodial services and pension and employee benefits
consulting.  SIB has rallied to a new 52-week on heavy volume,
which suggests further upside potential.  Investors who want to
diversify their portfolio should consider this position.

SEP-22.50 SIB IX LB=0.90 OI=1916 CB=21.70 DE=14 TY=8.0%


*****
FWHT - FindWhat.com  $25.56  *** The Rally Continues! ***

FindWhat.com (NASDAQ:FWHT) operates online marketplaces that
connect the consumers and businesses that are most likely to
purchase specific goods and services with the advertisers that
provide those goods and services.  Online advertisers determine
the per-click fee they will pay for their advertisements, which
FindWhat.com and its private-label partners such as Terra Lycos's
Lycos.com and HotBot distribute to millions of Internet users.
Their network includes hundreds of distribution partners, such as
CNET's Search.com, Excite, Webcrawler, NBCi, MetaCrawler, Dogpile,
Go2Net and Microsoft Internet Explorer Autosearch.  Traders who
like the outlook for this unique company can profit from future
upside activity in the issue with this position.

SEP-25.00 HFQ IE LB=1.40 OI=372 CB=24.16 DE=14 TY=7.6%


*****
TER - Teradyne  $20.11  *** On The Move! ***

Teradyne (NYSE:TER) is a supplier of automatic test equipment, high-
performance interconnection systems and electronic manufacturing
services.  The company's automatic test equipment products include
Semiconductor Test Systems, Circuit Board Test and Inspection
Systems and Broadband Test Systems.  Teradyne's interconnection
systems products and services (Connection Systems) include high-
bandwidth backplane assemblies and associated connectors used in
electronic systems, and electronic manufacturing services of
assemblies that include Teradyne backplanes and connectors.  The
technical outlook continues to improve for Teradyne and traders
can speculate on the near-term performance of the issue with this
short-term position.

SEP-20.00 TER ID LB=0.75 OI=2443 CB=19.36 DE=14 TY=7.2%


*****
TALK - Talk America  $15.34  *** New 52-week High! ***

Talk America Holdings (NASDAQ:TALK) through its subsidiaries,
provides local and long distance telecommunication services to
residential and small business customers in the U.S.  TALK
offers both local and long distance telecommunication services
that are billed to customers in one combined invoice.  Local
phone services include local dial tone, various local calling
plans that include free member-to-member calling and a variety
of features such as caller ID, call waiting and 3-way calling.
Long distance phone services also includes international and
calling cards.  The company uses the unbundled network element
platform of the regional bell operating companies network to
provide local services, and its nationwide network to provide
long distance services.  Another stock exhibiting bullish
technical signals and this position offers a method to
participate in the future movement of the issue with a cost
basis closer to technical support.

SEP-15.00 QQK IC LB=0.80 OI=10 CB=14.54 DE=14 TY=6.9%


*****
KVHI - KVH Industries  $30.99  *** Milestone C Status! ***

KVH Industries (NASDAQ:KVHI) designs and manufactures systems and
solutions using its proprietary satellite antenna and fiber-optic
technologies for two principal markets: satellite communications,
and defense-related navigation and guidance.  Its mobile satellite
communications products connect people on the move to satellite
television, telephone and high-speed Internet services worldwide.
In the defense-related navigation and guidance market, the company
uses its core magnetic, fiber-optic sensing, navigation systems
integration and display technology to develop and manufacture
products that address a variety of systems requirements for military
and commercial customers.  KVH announced this week that the U.S.
Army Special Operations Command (SOCOM) has formally certified
that KVH's TACNAV Light vehicle navigation system has achieved
Milestone C, authorizing the system for full rate production and
fielding aboard U.S. Army SOCOM vehicles.  Investors obviously
cheered the news and the stock continues to power higher in its
Stage II run.  Investors who wouldn't mind owning KVH near $29
can use this position to speculate on the near-term performance
of the issue.

SEP-30.00 VJU IF LB=1.85 OI=344 CB=29.14 DE=14 TY=6.4%


*****


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

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

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

                                                     42
ELN     5.67  OCT  5.00  ELN JA  1.20  14456   4.47  42   8.6%
SGMS   10.10  SEP 10.00  TUJ IB  0.45  105     9.65  14   7.9%
ADLR   15.20  OCT 12.50  UAH JV  3.90  1587   11.30  42   7.7%
AMR    12.90  SEP 12.00  AMR IN  1.30  6144   11.60  14   7.5%
VXGN    5.46  OCT  5.00  UWG JA  0.90  771     4.56  42   7.0%
TXN    25.13  SEP 25.00  TXN IE  0.90  5104   24.23  14   6.9%
HMY    15.26  SEP 15.00  HMY IC  0.70  2184   14.56  14   6.6%
CAL    18.27  SEP 17.50  CAL IW  1.25  21552  17.02  14   6.1%
ISIS    6.51  OCT  5.00  QIS JA  1.85  1359    4.66  42   5.3%
IIJI    7.12  OCT  5.00  IQD JA  2.45  551     4.67  42   5.1%
TIBX    5.78  OCT  5.00  PAV JA  1.10  81      4.68  42   5.0%
NWAC   10.51  OCT 10.00  NAQ JB  1.15  117     9.36  42   5.0%
DNDN    8.95  OCT  7.50  UKO JU  1.90  369     7.05  42   4.6%
EXTR    7.95  OCT  7.50  EXJ JU  0.90  634     7.05  42   4.6%
OXGN   11.91  OCT 10.00  QYO JB  2.50  433     9.41  42   4.5%




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

Options 101: Careful Planning And Execution Leads To Success
By Ray Cummins

Traders who follow sensible and prudent wealth-building strategies
can achieve their goals in any market environment.

Most people invest for a reason: they want to achieve specific
goals such as a higher standard of living, early retirement, or
providing a college education for their children.  But, investing
is just one part of the financial planning process and in many
cases, the fundamental steps in building a profitable portfolio
are ignored due to an overwhelming desire to "get rich quick" in
the stock market.  Rather than focus on picking the next "winner"
in the "hot" sector, today we are going to discuss some concepts
that can help you achieve success with any financial instruments.

The first step to long-term capital appreciation is to establish
tangible goals based on specific dollar amounts and time frames.
Vague and imprecise targets are difficult to achieve because they
require no distinct commitment with regard to attaining necessary
returns and adhering to loss limits.  Goals that are well defined
in monetary terms and include target completion dates create an
obligation to identify and implement strategies for realizing the
objectives.  At the same time, all goals must be realistic and
achievable, and the strategy selection process should strive for
a balance between acceptable capital risk and potential reward.
If a suitable balance cannot be achieved, the investor should
consider whether the potential gain is worth the risk, or if the
primary portfolio goals need to be altered or adjusted.

The second step is to examine your current portfolio holdings and
cash reserves, to determine how they can best be used to achieve
the established objectives.  You should consider existing assets
as well as future inflows when making this assessment but do not
include financial resources that have been allocated for other
purposes such as short-term saving accounts and emergency funds,
or money from previously established retirement investments such
as company stock-options, pensions and cash-value life insurance.
After you have calculated the total available capital and income
for investing, a critical determination will have to be made: Do
the existing resources provide an adequate asset base to achieve
your long-term goals?  If the answer is yes, no further action is
necessary.  If not, your assets may require repositioning before
the plan is initiated or you may need to adjust the time frame or
portfolio risk tolerance to attain the portfolio goals.

After the monetary resources are established and the objectives
are clearly defined, the next step is to consider the possible
strategies and financial products for achieving your goals.  The
vast array of investing vehicles offers ample tools for tailoring
the plan to the purpose, thus the most important task is to find
a combination of methods and instruments that will accomplish the
desired results.  The basic differences among investments are the
required time period, the risk-reward outlook, and the capital
and liquidity requirements.  All of these components should be
carefully evaluated when selecting a particular strategy and in
addition, any method used to help achieve portfolio goals must be
clearly understood (including loss-limiting techniques) before
new positions are initiated.

The final phase of the investing process includes implementing
the plan and monitoring the results so that future adjustments
can be made in a timely manner.  Because circumstances change,
the portfolio must be reviewed on a regular basis to determine
if its performance is on pace to achieve the original goals.  A
periodic evaluation of each individual position is necessary to
determine if the issue or instrument is yielding the estimated
earnings.  If the investment is not performing as expected, an
adjustment can be made to remedy the situation before it has a
substantial (negative) effect on the overall portfolio value.

There are a number of proven investing strategies than can be
used to achieve your personal financial goals and in the next
segment, we will discuss some of the most popular techniques
among successful stock and option traders.

Good Luck!

Editors Note:  Ray is on a brief market hiatus with his family,
so we are reprinting some of his more popular articles until he
returns in mid-September.


SUMMARY OF PREVIOUS CANDIDATES
*****

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

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

AMSC    13.20   13.30  SEP 10.00  0.70    0.70*   6.5%  18.2%
CBST    12.72   13.51  SEP 10.00  0.50    0.50*   4.6%  14.3%
GNTA    16.00   16.20  SEP 10.00  0.30    0.30*   4.7%  13.0%
RIMM    24.61   27.85  SEP 20.00  0.75    0.75*   2.8%   9.1%
RIMM    28.48   27.85  SEP 25.00  0.50    0.50*   3.1%   9.0%
TIVO    10.91   10.63  SEP 10.00  0.30    0.30*   3.4%   8.7%
OVTI    43.77   45.19  SEP 35.00  0.95    0.95*   2.4%   8.5%
THER    13.93   15.32  SEP 12.50  0.55    0.55*   3.3%   8.5%
RIMM    28.74   27.85  SEP 25.00  0.60    0.60*   2.7%   7.8%
NTAP    22.36   23.31  SEP 20.00  0.35    0.35*   2.7%   7.7%
IDTI    13.10   14.96  SEP 12.50  0.35    0.35*   3.1%   7.6%
FLML    28.49   33.19  SEP 22.50  0.30    0.30*   2.1%   7.6%
BLUD    23.12   25.96  SEP 22.50  1.00    1.00*   3.4%   7.5%
BOBJ    27.05   28.33  SEP 25.00  0.45    0.45*   2.8%   7.4%
SEPR    21.76   28.86  SEP 17.50  0.50    0.50*   2.1%   7.3%
NFLX    28.80   34.55  SEP 25.00  0.55    0.55*   2.4%   7.2%
TKLC    13.73   16.93  SEP 12.50  0.45    0.45*   2.7%   6.9%
PHTN    28.90   32.77  SEP 25.00  0.65    0.65*   2.3%   6.8%
SRNA    18.77   19.81  SEP 17.50  0.40    0.40*   2.5%   6.5%
JDAS    13.90   16.80  SEP 12.50  0.40    0.40*   2.4%   6.4%
UTEK    25.75   30.02  SEP 22.50  0.55    0.55*   2.2%   6.3%
SEPR    23.49   28.86  SEP 20.00  0.45    0.45*   2.0%   6.2%
PDII    24.25   24.19  SEP 20.00  0.50    0.50*   1.9%   6.1%
NFLX    33.33   34.55  SEP 27.50  0.30    0.30*   1.7%   5.8%
PSUN    33.55   31.85  SEP 30.00  0.35    0.35*   1.8%   5.2%
BRCM    25.80   27.74  SEP 22.50  0.35    0.35*   1.7%   5.2%
AEIS    21.02   24.02  SEP 17.50  0.30    0.30*   1.5%   5.0%
PHTN    29.57   32.77  SEP 25.00  0.35    0.35*   1.5%   5.0%

*  Stock price is above the sold striking price.

Comments:

Stocks endured a necessary consolidation Friday as traders took
profits after a week of bullish activity.  The outlook remains
positive, however, in the wake of favorable economic data and
renewed institutional interest in equities.  Positions on the
"watch" list include Pacific Sunwear (NASDAQ:PSUN) and Research
In Motion (NASDAQ:RIMM).

Previously Closed Positions: None


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

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


MARGIN REQUIREMENTS

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

For more information on margin requirements, please refer to:

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


MONTHLY YIELD: MAXIMUM & SIMPLE

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


NEW CANDIDATES
*********

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

GNTA   16.20  SEP 12.50  GJU UV 0.45 10394 12.05  14   8.1%  26.5%
NEOF   16.40  SEP 15.00  QZX UC 0.35 31    14.65  14   5.2%  13.8%
SINA   34.32  SEP 30.00  NOQ UF 0.40 4235  29.60  14   2.9%   8.9%
CVTX   27.33  SEP 25.00  UXC UE 0.35 1810  24.65  14   3.1%   8.5%
DRIV   28.75  SEP 25.00  DQI UE 0.30 259   24.70  14   2.6%   8.1%
NFLX   34.55  SEP 30.00  QNQ UF 0.35 2047  29.65  14   2.6%   7.9%
IMCL   46.56  SEP 40.00  QCI UH 0.30 2433  39.70  14   1.6%   5.3%


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).

*****
GNTA - Genta  $16.20  *** Genasense Speculation! ***

Genta Incorporated (NASDAQ:GNTA) is a biopharmaceutical company
with a diversified product portfolio that is focused on delivering
innovative products for the treatment of patients with cancer.  The
company's research platform is anchored by two major programs that
center on oligonucleotides (RNA/DNA-based medicines) and small
molecules.  Genasense (oblimersen sodium), the firm's lead compound
from its oligonucleotide program, is being developed with Aventis
and is currently undergoing late-stage, Phase 3 clinical testing.
The leading drug product in Genta's small molecule program is
Ganite (gallium nitrate injection), which the company intends to
launch this year for treatment of cancer-related hypercalcemia that
is resistant to hydration.  Genta has Phase III trials coming up,
which, if successful, could unlock a new market in chemotherapy
sensitizing agents.  Traders continue to speculate on the report
and the option premiums are inflated, suggesting the potential for
excessive volatility when the results are announced.  This is a
very speculative play and traders should perform due diligence in
the company and the upcoming events before opening any position.

SEP-12.50 GJU UV LB=0.45 OI=10394 CB=12.05 DE=14 TY=8.1% MY=26.5%


*****
NEOF - Neoforma  $16.40  *** Rally Mode! ***

Neoforma (NASDAQ:NEOF) is a provider of supply chain management
solutions for the healthcare industry.  Through a combination of
technology, information and services, Neoforma's web-based supply
chain management solutions enable effective collaboration among
hospitals and their suppliers, helping them to reduce operational
inefficiencies and lower costs.  Through its Healthcare Products
Information Services business unit, the firm also offers market
intelligence services and through its Med-ecom business unit, it
provides contract management and administration services.  Shares
of NEOF were in "rally mode" this week, despite a lack of public
news to explain the activity.  The heavy-volume trading suggests
that "something" is up, and traders who believe the bullish trend
will continue should consider this position.

SEP-15.00 QZX UC LB=0.35 OI=31 CB=14.65 DE=14 TY=5.2% MY=13.8%


*****
SINA - SINA Corporation  $34.32  *** Consolidation Complete? ***

SINA Corporation (NASDAQ:SINA), formerly known as SINA.com, is an
online media company and value-added information service provider
for China and the global Chinese communities.  With a branded
network of localized Websites targeting China and overseas Chinese,
the company provides an array of services to its users including
region-focused online portals, search, directory, interest-based
and community-building channels, free and premium e-mail, wireless
short messaging, online games, virtual Internet service provider,
classified listings, e-commerce, e-learning, and enterprise
e-solutions.  In turn, SINA generates revenue through advertising,
fee-based services, e-commerce and enterprise services.  Shares of
SINA appear to be finding renewed buying interest near the current
price range and with recent technical support at $30, this position
offers a favorable risk/reward outlook for speculative traders.

SEP-30.00 NOQ UF LB=0.40 OI=4235 CB=29.60 DE=14 TY=2.9% MY=8.9%


*****
CVTX - CV Therapeutics  $27.33   *** On The Rebound? ***

CV Therapeutics (NASDAQ:CVTX) is a biopharmaceutical firm focused
on the discovery, development and commercialization of new small
molecule drugs for the treatment of cardiovascular diseases.  The
company's New Drug Application (NDA) for Ranexa (ranolazine) for
the treatment of chronic angina has been filed at the U.S. FDA.
Tecadenoson (CVT-510), an A1-adenosine receptor agonist, is being
developed for the potential reduction of rapid heart rate during
atrial arrhythmias.  CVT-3146, an A2A-adenosine receptor agonist,
is being developed for the potential use as a pharmacologic agent
in cardiac perfusion imaging studies.  Adentri, an A1-adenosine
receptor antagonist, is being developed by the company's partner,
Biogen, for the potential treatment of acute and chronic congestive
heart failure.  CVTX also has several research and preclinical
development programs designed to bring additional drug candidates
into human clinical testing.  Shares of CVTX appear to be "on the
rebound" after a recent slump and the technical indications suggest
continued upside potential in the near-term.

SEP-25.00 UXC UE LB=0.35 OI=1810 CB=24.65 DE=14 TY=3.1% MY=8.5%


*****
DRIV - Digital River  $28.75  *** Multi-Year High! ***

Digital River (NASDAQ:DRIV) is a provider of electronic commerce
outsourcing solutions.  As an application service provider, the
firm enables its clients to access its proprietary electronic
commerce system over the Internet.  The firm's unique technology
platform allows it to offer various electronic commerce services,
including Internet commerce development and hosting, transaction
processing, fraud screening, digital delivery, integration as well
as physical fulfillment and customer service.  Digital River also
provides analytical marketing and merchandising services to assist
clients in increasing Web page view traffic to, and sales through,
their Web commerce systems.  Digital River's stock reached a new
"multi-year" high this week and investors who believe the bullish
trend will continue for the next two weeks can speculate on that
outcome with this position.

SEP-25.00 DQI UE LB=0.30 OI=259 CB=24.70 DE=14 TY=2.6% MY=8.1%


*****
NFLX - Netflix  $34.55  *** Another All-Time High! ***

Netflix (NASDAQ:NFLX) is an online entertainment service in the
United States that provides more than 600,000 subscribers access
to a comprehensive library of more than 11,500 movie, television
and other filmed entertainment titles.  The company's standard
subscription plan allows subscribers to have three titles out at
the same time with no due dates, late fees or shipping charges.
Subscribers can view as many titles as they want in a month and
they select these titles at the firm's Website (www.netflix.com)
aided by its proprietary CineMatch technology.  They receive them
on DVD by first-class mail and return them to the company at their
convenience using prepaid mailers.  Once a title has been returned,
Netflix mails the next available title in a subscriber's queue.
Shares of NFLX reached another "all-time" high Friday and there is
little indication of a trend reversal in the near-term.  Traders
who have a bullish outlook for the company can profit from further
upside activity in the issue with this position.

SEP-30.00 QNQ UF LB=0.35 OI=2047 CB=29.65 DE=14 TY=2.6% MY=7.9%


*****
IMCL - ImClone  $46.56  *** A Big Day! ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company whose
mission is to advance oncology care by developing a portfolio of
targeted biologic treatments designed to address the medical needs
of patients with a variety of cancers. The company's lead product,
Erbitux, is a therapeutic antibody that inhibits stimulation of
epidermal growth factor receptor upon which certain solid tumors
depend in order to grow. In addition to the development of its
lead product candidates, the company conducts research in a number
of areas related to its core focus of growth factor blockers, as
well as cancer vaccines and angiogenesis inhibitors. IMCL has also
developed diagnostic products and vaccines for certain infectious
diseases.  Imclone was among the major players at a recent biotech
conference and investors were apparently pleased with the company's
outlook as its stock price was up over 10% during the past week.
Traders can speculate conservatively on the near-term performance
of the issue with this position.

SEP-40.00 QCI UH LB=0.30 OI=2433 CB=39.70 DE=14 TY=1.6% MY=5.3%


*****


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

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

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

CBST   13.51  SEP 12.50  UTU UV 0.45 408   12.05  14   8.1%  20.2%
KVHI   30.99  SEP 30.00  VJU UF 0.95 0     29.05  14   7.1%  16.7%
FWHT   25.56  SEP 25.00  HFQ UE 0.80 50    24.20  14   7.2%  16.6%
ADRX   20.79  SEP 20.00  QAX UD 0.50 2948  19.50  14   5.6%  13.5%
AMR    12.90  SEP 12.00  AMR UN 0.25 3141  11.75  14   4.6%  12.0%
TALK   15.34  SEP 15.00  QQK UC 0.30 0     14.70  14   4.4%  10.7%
AVID   52.43  SEP 50.00  AQI UJ 0.90 143   49.10  14   4.0%  10.1%
RIMM   27.85  SEP 25.00  RUL UE 0.40 5624  24.60  14   3.5%  10.0%
INTC   28.71  SEP 27.50  INQ UY 0.30 37257 27.20  14   2.4%   6.2%
ABS    22.92  SEP 22.50  ABS UX 0.25 1537  22.25  14   2.4%   6.0%
NSM    33.32  SEP 30.00  NSM UF 0.25 4216  29.75  14   1.8%   5.3%
ADVP   48.95  SEP 47.50  QVD UW 0.45 117   47.05  14   2.1%   5.3%


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


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

Optimism Prevails Despite Market Retreat
By Ray Cummins

Stocks slumped Friday after a disappointing jobs report, but
analysts remained upbeat about the outlook for share values in
light of recent favorable economic data.

The Dow Jones industrial average dipped 84 points to 9,503 with
Caterpillar (NYSE:CAT) and United Technologies (NYSE:UTX) among
the worst performers.  The NASDAQ slid 10 points lower to 1,858
as gains won earlier in the session on a bullish forecast from
chip stalwart Intel (NASDAQ:INTC) were unable to offset a late
bout of profit-taking.  The broader Standard & Poor's 500 Index
dropped 6 points to 1,021 with mild selling pressure emerging in
almost every major sector.  Trading volume was active with 1.44
billion shares crossed on the New York Stock Exchange and 1.94
billion changing hands on the NASDAQ.  Declining stocks outpaced
advancing issues by a small margin on both the Big Board and the
technology exchange.  Treasury prices rebounded in the wake of
equity losses, sinking the yield on the benchmark 10-year note
to 4.34% from the previous close of 4.51%.

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

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


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

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

ADI     39.51   41.78  SEP   30  35   0.65  34.35  $0.65   Open
BOW     38.57   44.61  SEP   30  35   0.60  34.40  $0.60   Open
MXIM    39.11   42.70  SEP   30  35   0.65  34.35  $0.65   Open
BBY     47.90   52.52  SEP   40  42   0.30  42.20  $0.30   Open
JCI     96.49   99.18  SEP   85  90   0.65  89.35  $0.65   Open
MBI     53.13   56.68  SEP   45  50   0.65  49.35  $0.65   Open
WMT     57.77   58.89  SEP   50  55   0.50  54.50  $0.50   Open
BSX     63.25   58.97  SEP   50  55   0.40  54.60  $0.40   Open
SNPS    66.53   67.75  SEP   55  60   0.50  59.50  $0.50   Open
ISIL    27.58   29.14  SEP   22  25   0.30  24.70  $0.30   Open
POWI    32.08   34.60  SEP   25  30   0.55  29.45  $0.55   Open
VIA     44.64   46.48  SEP   40  42   0.30  42.20  $0.30   Open
AMZN    46.32   46.52  SEP   40  42   0.25  42.25  $0.25   Open
GS      88.48   90.96  SEP   80  85   0.40  84.60  $0.40   Open
TTWO    29.81   36.37  SEP   25  27   0.30  27.20  $0.30   Open

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

The suggested position in Lowe's (NYSE:LOWE) was not available
near the target credit.


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

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

INTU    42.86   47.36   SEP   50  47   0.30  47.80 ($0.70) Closed
ESRX    62.23   58.99   SEP   75  70   0.60  70.60  $0.60   Open
DB      59.64   62.36   SEP   70  65   0.60  65.60  $0.60   Open
IFIN    28.42   31.12   SEP   32  30   0.50  30.50 ($0.62) Closed
SAP     27.56   34.01   SEP   32  30   0.25  30.25 ($1.05) Closed
AMGN    66.48   67.28   SEP   75  70   0.35  70.35  $0.35   Open
MEDI    34.58   33.83   SEP   40  37   0.25  37.75  $0.25   Open
CTX     75.42   76.00   SEP   85  80   0.40  80.40  $0.40   Open
DNA     79.40   80.75   SEP   90  85   0.50  85.50  $0.50   Open

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

The position in Intuit (NASDAQ:INTU), although profitable now,
should have been exited during the rally earlier in the week.
The watch-list position in SAP AG (NYSE:SAP) was closed during
Tuesday's upside activity and the summary reflect the losses as
of 9/2/03.  Investors Financial Services (NASDAQ:IFIN) became
an early-exit candidate during Friday's session.


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

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

MWD     48.54  48.31  SEP   40  45   4.45   44.45  0.55   Open
MGAM    24.97  27.40  SEP   20  22   2.30   22.30  0.20   Open
MUR     52.94  57.45  SEP   45  50   4.45   49.45  0.55   Open
CTSH    31.90  38.77  SEP   25  30   4.40   29.40  0.60   Open
ERTS    89.97  88.75  SEP   80  85   4.50   84.50  0.50   Open
AVII     5.54   5.31  DEC    5   7   0.90    5.90 (0.59)  Open

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

Multimedia Games (NASDAQ:MGAM) was not available at the target
debit, however the risk/reward outlook (potential profit of 8%)
at a basis of $22.30 was acceptable for conservative traders.


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

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

HSY     69.64  70.93  SEP   75  70   4.10   70.90 (0.03)  Open

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

Traders in the speculative Hershey Foods (NYSE:HSY) position will
have use their personal risk-reward outlook to determine when to
exit the spread.


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

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

SHPGY   22.77  24.27   JAN     30    17     0.00    0.20    Open
AVCT    27.83  30.31   SEP     30    25    (0.10)   1.30    Open?

Avocent (NASDQ:AVCT) has been a solid performer with a potential
credit of up to $1300 on $950 initially invested in less than one
month.  There was no opportunity to trade the synthetic position
in Devry (NYSE:DV) during the "gap-up" rally, and the subsequent
sell-off on news of lower quarterly profits was not conducive to
a new entry in a bullish play.


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

No Open Positions


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

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

GP      19.25  24.10   OCT-20C   SEP-22C   1.90    2.25    Open
MSFT    27.31  28.38   JAN-27C   SEP-27C   1.20    1.50    Open
NE      34.86  35.40   DEC-37C   SEP-37C   1.15    1.50    Open
ING     19.07  20.81   JAN-20C   SEP-20C   0.75    1.00    Open
NSM     22.77  33.32   JAN-20C   SEP-25C   3.90    5.30    Open?
MDCO    26.17  29.81   JAN-30C   SEP-30C   1.50    2.00    Open
GNTA    13.95  16.00   OCT-12C   SEP-15C   2.00    2.40    Open?
PRU     36.41  36.46   DEC-37C   SEP-37C   1.10    1.10    Open

Genta (NASDAQ:GNTA) was a pleasant surprise, offering a favorable
profit in less than one week.  National Semiconductor (NYSE:NSM)
has also exceeded our expectations, offering a potential gain of
up to $1.40 on $3.90 invested in less than one month.  The spread
in SPX Corporation (NYSE:SPW) was closed early for a profit.  The
recent position in Brady Pharmaceuticals (NYSE:BDY) is not longer
being tracked in the summary.


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

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

SNE     30.74  33.75   OCT    30    30     3.75    5.00    Open
AMTD    10.00  11.71   OCT    10    10     1.45    2.30    Open
TRI     30.50  31.98   NOV    30    30     4.90    5.00    Open
ADBE    34.36  37.91   SEP    35    35     2.80    4.80    Open?
BBY     50.08  52.52   SEP    50    50     4.05    4.90    Open
CLS     17.55  19.73   OCT    17    17     2.35    3.00    Open
NVDA    18.17  18.68   OCT    17    17     2.90    2.95    Open

Ameritrade (NASDAQ:AMTD) was the big winner this week, offering
up to a $850 profit on $1450 invested in less than one month.
Adobe Systems (NASDAQ:ADBE) has performed better than expected
and straddles in Best Buy (NYSE:BBY), Sony (NYSE:SNE), Celestica
(NYSE:CLS) and Overture (NASDAQ:OVER), which was closed early
for a loss, have achieved small profits.


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

No Open Positions


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

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

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

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

*****
AMLN - Amylin Pharmaceuticals  $29.04  *** Bullish Biotech! ***

Amylin Pharmaceuticals (NASDAQ:AMLN) is a biopharmaceutical firm
engaged in the discovery, development and commercialization of
drug candidates for the treatment of diabetes and other metabolic
diseases.  The company has two lead drug candidates in late-stage
development for the treatment of diabetes, SYMLIN (pramlintide
acetate) and exenatide, formerly referred to as AC2993 (synthetic
exendin-4).  Amylin has received a letter from the FDA indicating
that SYMLIN is approvable for marketing in the United States as an
adjunctive therapy with insulin, subject to satisfactory results
from additional clinical trials.  The company's second candidate,
exenatide, is in pivotal Phase III clinical trials and continues
to show to show promise for people with Type 2 Diabetes.

AMLN - Amylin Pharmaceuticals  $29.04

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-22.50  AQM-VX  OI=1228  ASK=$0.55
SELL PUT  OCT-25.00  AQM-VE  OI=1408  BID=$0.80
INITIAL NET-CREDIT TARGET=$0.30-$0.35
POTENTIAL PROFIT(max)=14% B/E=$24.70


*****
MERQ - Mercury Interactive  $49.41  *** Multi-Year High! ***

Mercury Interactive (NASDAQ:MERQ) is a provider of integrated
performance management solutions that enable businesses to test
and monitor their Web-based applications.  Its software products
and hosted services help Global 2000 companies enhance the user
experience by improving the performance, availability, reliability
and scalability of their Web-based applications.  Its many hosted
services provide its customers with a cost-effective solution that
quickly meets business needs without dedicating significant time
and internal resources.  Its integrated performance management
solutions enable customers to more quickly identify and correct
problems before users experience them.  The company also provides
outsourced load testing and Web performance monitoring services
that complement its software products.

MERQ - Mercury Interactive  $49.41

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-40.00  RQB-VH  OI=1208  ASK=$0.30
SELL PUT  OCT-42.50  RQB-VS  OI=447   BID=$0.60
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$42.20


*****
SYMC - Symantec  $59.45  *** The Rally Continues! ***

Symantec (NASDAQ:SYMC) provides content and network security
software and appliance solutions to enterprises, individuals
and service providers.  The company provides client, gateway
and server security solutions for virus protection, firewall
and virtual private network (VPN), security management,
intrusion detection, Internet content and e-mail filtering,
remote management technologies and security services to
enterprises and service providers worldwide.  Symantec has
offices in 36 countries worldwide.  The company views its
business in five operating segments: enterprise security,
enterprise administration, consumer products, services and
other activities.

SYMC - Symantec  $59.45

PLAY (less conservative - bullish/credit spread):

BUY  PUT  SEP-50.00  SYQ-UJ  OI=1569  ASK=$0.15
SELL PUT  SEP-55.00  SYQ-UK  OI=1817  BID=$0.55
INITIAL NET-CREDIT TARGET=$0.40-$0.45
POTENTIAL PROFIT(max)=9% B/E=$54.60


*****
CAH - Cardinal Health  $56.36  *** Still In A Slump! ***

Cardinal Health (NYSE:CAH) is a provider of products and services
to healthcare providers and manufacturers, helping them improve
the efficiency and quality of healthcare.  The company has four
segments: Pharmaceutical Distribution and Provider Services,
which offers pharmaceutical and other healthcare products, as
well as pharmacy management services; Medical-Surgical Products
and Services, which includes medical products and services;
Pharmaceutical Technologies and Services, which provides a broad
range of technologies and services, and Automation and Information
Services, which focuses on meeting the needs of customers through
proprietary automation and information products and services.

CAH - Cardinal Health  $56.36

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-65.00  CAH-JM  OI=254   ASK=$0.20
SELL CALL  OCT-60.00  CAH-JL  OI=1274  BID=$0.85
INITIAL NET-CREDIT TARGET=$0.65-$0.75
POTENTIAL PROFIT(max)=15% B/E=$60.65


*****
PFE - Pfizer  $30.51  *** Trading Range? ***

Pfizer (NYSE:PFE) is a research-based pharmaceutical firm.  The
firm discovers, develops, manufactures and markets prescription
medicines for humans and animals, as well as consumer products.
The company operates in two business segments: Pharmaceuticals
and Consumer Products.  The Pharmaceuticals segment includes
prescription pharmaceuticals for cardiovascular and infectious
diseases, central nervous system disorders, diabetes, urogenital
conditions, allergies, arthritis and other disorders; products
for livestock and companion animals, and the manufacture of empty
soft-gelatin capsules.  The Consumer Products segment includes
self-medications for oral care, upper respiratory health, eye
care, skin care, gastrointestinal health and other products.

PFE - Pfizer  $30.51

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-35.00  PFE-JG  OI=3740   ASK=$0.15
SELL CALL  OCT-32.50  PFE-JB  OI=26454  BID=$0.40
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$32.75


*****
XL - XL Capital Ltd  $76.05  *** Downtrend Intact! ***

XL Capital Ltd (NYSE:XL), through its operating subsidiaries, is
a leading provider of insurance and reinsurance coverages and
financial products to industrial, commercial and professional
service firms, insurance companies, and other enterprises on a
worldwide basis.  Insurance business written includes general
liability, other liability, professional and employment practices
liability, environmental liability, property, program business,
marine and energy, aviation and satellite, as well as other
product lines. Reinsurance business written includes treaty and
facultative reinsurance to primary insurers of casualty and
property risks.  XL Re is the global brand used for XL Capital
Ltd's reinsurance operations.

XL - XL Capital Ltd  $76.05

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-85.00  XL-JQ  OI=985  ASK=$0.30
SELL CALL  OCT-80.00  XL-JP  OI=251  BID=$0.85
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$80.60


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

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

*****
HTCH - Hutchinson Technology  $33.22  *** Hot Sector! ***

Hutchinson Technology (NASDAQ:HTCH) is a supplier of suspension
assemblies for hard disk drives.  The company categorizes its
products as either suspension assemblies or other products,
which consist primarily of etched and stamped components used
in connection with or related to suspension assemblies.  The
firm manufactures its suspension assemblies with proprietary
technology and processes to precise specifications with very
low, part-to-part variation.  These specifications are critical
to maintaining the necessary microscopic clearance between the
head and disk and the electrical connectivity between the head
and the drive circuitry.

HTCH - Hutchinson Technology  $33.22

PLAY (conservative - bullish/debit spread):

BUY  CALL  OCT-25.00  UTQ-JE  OI=25  ASK=$8.60
SELL CALL  OCT-30.00  UTQ-JF  OI=83  BID=$4.10
INITIAL NET-DEBIT TARGET=$4.40-$4.45
POTENTIAL PROFIT(max)=12% B/E=$29.45


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

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

*****
ADRX - Andryx  $20.79  *** Settlement = Upgrade! ***

Andrx Corporation (NASDAQ:ADRX) is a specialty pharmaceutical
company engaged in the formulation and commercialization of oral
controlled-release generic and brand pharmaceuticals utilizing
its proprietary drug delivery technologies.  Andrx also markets
and distributes pharmaceutical products manufactured by third
parties.

ADRX - Andryx  $20.79

PLAY (speculative - bullish/synthetic position):

BUY  CALL  DEC-25.00  QAX-LE  OI=641  ASK=$1.25
SELL PUT   DEC-17.50  QAX-XW  OI=653  BID=$1.05
INITIAL NET-DEBIT TARGET=$0.05-$0.10
INITIAL TARGET PROFIT=$0.85-$1.25

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $615 per contract.  However, do not
open this position if you can not afford to purchase the stock at
the sold put strike price ($17.50).


*****
CVTX - CV Therapeutics  $27.55   *** On The Rebound? ***

CV Therapeutics (NASDAQ:CVTX) is a biopharmaceutical firm focused
on the discovery, development and commercialization of new small
molecule drugs for the treatment of cardiovascular diseases.  The
company's New Drug Application (NDA) for Ranexa (ranolazine) for
the treatment of chronic angina has been filed at the U.S. FDA.
Tecadenoson (CVT-510), an A1-adenosine receptor agonist, is being
developed for the potential reduction of rapid heart rate during
atrial arrhythmias.  CVT-3146, an A2A-adenosine receptor agonist,
is being developed for the potential use as a pharmacologic agent
in cardiac perfusion imaging studies.  Adentri, an A1-adenosine
receptor antagonist, is being developed by the company's partner,
Biogen, for the potential treatment of acute and chronic congestive
heart failure.  CVTX also has several research and preclinical
development programs designed to bring additional drug candidates
into human clinical testing.

CVTX - CV Therapeutics  $27.55

PLAY (speculative - bullish/synthetic position):

BUY  CALL  OCT-35.00  UXC-JG  OI=2159  ASK=$0.65
SELL PUT   OCT-20.00  UXC-VD  OI=551   BID=$0.45
INITIAL NET-DEBIT TARGET=$0.10-$0.15
INITIAL TARGET PROFIT=$0.55-$0.80

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $600 per contract.  However, do not
open this position if you can not afford to purchase the stock at
the sold put strike price ($20.00).


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

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

*****
PDCO - Patterson Dental  $54.42  *** A Reader's Request! ***

Patterson Dental (NASDAQ:PDCO) is a value-added distributor
serving the North American dental supply and companion-pet
(dogs, cats and other common household pets) veterinary supply
markets.  The company has two operating segments, dental supply
and veterinary supply.  As the firm's largest segment, dental
supply provides a virtually complete range of consumable dental
products, clinical and laboratory equipment, and value-added
services to dentists, dental laboratories, institutions and
other healthcare providers throughout North America.  Patterson's
veterinary supply segment distributes consumable supplies,
equipment, diagnostic products, biologicals (vaccines) and
pharmaceuticals to companion pet veterinary clinics principally
in the eastern, mid-Atlantic and southeastern regions of the
United States.

PDCO - Patterson Dental  $54.42

PLAY (very speculative - neutral/debit straddle):

BUY CALL  SEP-55.00  DOU-IK  OI=584  ASK=$1.00
BUY PUT   SEP-55.00  DOU-UK  OI=102  ASK=$1.50
INITIAL NET-DEBIT TARGET=$2.35-$2.45
INITIAL TARGET PROFIT=$0.70-$1.25


*****


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

Nearing Resistance


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/MP_090703.asp


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