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Daily Newsletter, Sunday, 09/14/2003

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The Option Investor Newsletter                   Sunday 09-14-2003
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: Market Trips Over Oracle
Futures Market: TGIF
Index Trader Wrap: Pullback and Bounce
Editor's Plays: Come Fly With Me
Market Sentiment: Rumble on Wall Street
Ask the Analyst: Cap-weighted vs. Price Weighted Index
Coming Events: Earnings, Splits, Economic Events


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 9-12         WE 9-05         WE 8-29         WE 8-22 
DOW     9471.55 - 31.79 9503.34 + 87.52 9415.82 + 66.95 + 27.18 
Nasdaq  1855.03 -  3.21 1858.24 + 47.79 1810.45 + 45.13 + 63.31 
S&P-100  512.30 -  0.19  512.49 +  9.13  503.36 +  5.94 -  0.88 
S&P-500 1018.63 -  2.76 1021.39 + 13.38 1008.01 + 14.95 +  2.39 
W5000   9877.31 - 29.38 9906.69 +136.23 9770.46 +158.03 + 64.92 
RUT      509.06 +  0.19  508.87 + 11.45  497.42 + 11.91 + 13.59 
TRAN    2735.60 - 11.69 2747.29 + 64.05 2683.24 + 41.68 + 17.90 
VIX       20.25 +  0.88   19.37 -  0.12   19.49 -  0.78 +  0.07 
VXN       32.68 + 11.98   30.70 +  1.18   29.52 +  0.05 +  0.26 
TRIN       1.11            1.04            0.78            1.36 
Put/Call   0.90            0.72            1.29            0.91
******************************************************************

 
Market Trips Over Oracle
by Jim Brown

Oracle said it stumbled on execution in the last quarter and 
it saw a -7% drop in revenue. The market tripped over the ORCL
news and took a dive at the open. Helping accelerate that drop
was a drop in Consumer Sentiment and weaker Retail Sales. It
appears the wheels on this rally may need some serious grease
soon or we could see them start falling off. 

Dow Chart


 
Nasdaq Chart


 

Friday started off negative with a weaker than expected Retail
Sales report for August at +0.6%. Consensus was +1.3%. You may
remember that we had many retailers announcing during the month
that sales were ahead of plan, tax checks were boosting the
trend, back to school was strong, etc. Unfortunately that was
primarily focused on the discount retailers like Wal-Mart. The
broader sectors of apparel, building supply and non-store 
retailers experienced declines. Auto parts, electronics, food 
and beverage also declined. If you were not in the back to 
school category you did not see the same gains. This depressed
the broad economic recovery viewpoint. Sales were still up
overall but only marginally and after the multiple guidance
upgrades by Wal-Mart investors expected much better.

The PPI came in at +0.4% and inline with estimates but only 
because of the increase in energy prices. Excluding food and
energy the core rate was only +0.1%. While we are not seeing
that "unwelcome fall in inflation" that Ben Bernanke is on
guard for I am not sure that seeing prices rise due to high
energy prices is actually the desired result. The weaker
dollar and the higher import prices will continue to pressure
producer prices but the amount of increase is still minor. 
This report will not give the Fed any reason to hold off on
any future rate cut. 

The Michigan Consumer Sentiment fell slightly to 88.2 from 
89.3 in August but was significantly under the 90.4 estimate. 
The index is only 4 points below its May high but this was 
the third consecutive drop. The current conditions fell to 
98.8 from 99.7 and expectations fell to 81.3 fro 82.5. The
jobless rate was given as the major factor. If they had a
job and an income then the tax rebate checks and reduction
in withholding was a plus. Unfortunately with over 9 million
workers still unemployed the drag is being felt. Confidence
is falling with the increased Jobless Claims and the rising
energy prices. $2 gas impacts the blue-collar sector with
long commutes and $40 fill ups takes discretionary funds
out of the economy. This slows eating out, movies and other
recreational events. The tax rebate checks helped to ease 
any pent up demand and a falling confidence could put the 
consumer led recovery at risk. 

Economic reports for Monday include Business Inventories,
NY Empire State Survey, Industrial Production and Capacity
Utilization. Tuesday has CPI and the FOMC meeting. 

Oracle announced earnings inline with estimates at 8 cents
but new license revenue dropped -7%. Oracle said they see
a modest uptick in current quarter revenues but that new
license revenue could continue to drag. This is not what
the market wanted to hear. Since Oracle deals with the large
corporate client they are viewed as an indicator of IT
spending on a broader scale. Microsoft software is broken 
up into hundreds of small bites of a couple hundred dollars
a piece and has customers from the smallest home computer
to the largest corporations. It is hard to get a true read
on corporate spending from MSFT results. Oracle however 
deals with mostly large scale enterprises and its products
are generally more expensive. If Oracle is having trouble 
then there is a good possibility the broad based IT recovery
is not making any progress. Maybe Oracle should spend more 
time building its business than trying to mount a hostile 
takeover of PeopleSoft. 

There were conflicting reports of fund flows with TrimTabs
claiming that all equity funds had outflows of -$400 million
for the week ending Sept-10th compared to inflows of +$3.4
billion the prior week. However, if you only take funds
that invest in U.S. stocks they reported a +$2.8 billion
inflow. Confused? It gets worse. Fred Alger Management 
reported that there were $20 billion of inflows in the ten
weeks covering July/Aug and there was +$2.7 billion inflow
in the first week of September. They also pointed out that
-$15 billion flowed out of money markets as investors 
started thinking about the stock market again. CNBC reported
that there was only $94 million in equity inflows for the 
first week of September compared to +$4 billion in inflows
for the prior two weeks. What this means to me is that
nobody knows exactly and the numbers reported can be skewed
in any direction you want to report and the timeframe
you choose to use. Personally I saw a flood of buyers last
week and a flood of willing sellers. If the retail customer
is coming off the bench to the tune of +$15 billion flowing
out of money markets then they are right on time and I think
we saw evidence of that money moving into the stock market.
It remains to be seen if the lure of Dow 10,000 only a couple
hundred points away pulled them into the market at the top
or just before the next breakout. 

JPM upgraded their outlook on the economy and raised their
GDP estimates for the second half of the year to 5% from 4%
and said they thought there was still +6% upside in the market
for the year. They said they felt there was an increase in
capital expenditures that would benefit the industrials and
the materials sectors. They reiterated their overweight on
U.S. equities. Another analyst was quoted on Friday as 
expecting as much as 7% growth in the 3Q with the fastest 
GDP growth since 1999. I want some of his drugs. 

The real bear market is in Iraq. We heard on Friday that a
new round of firefights had claimed the lives of even more
U.S. soldiers and the violence appears to be increasing with
the opposition becoming more organized. I report this only
because it is reaching the point where it could begin to
drag on the market. If investors feel we have gotten into 
a Vietnam style quagmire with no foreseeable way out then
they could begin to withdraw from the market. They will 
expect the deficit to continue to skyrocket with the $87
billion Iraq request this week as only the first installment.
If the economic recovery is slowing and the government is
going to be flooding the market with paper then bonds are
going to suffer as well as stocks. For every $50 billion
of new bonds sold that removes money from stocks. It is not
even close to 1:1 basis but there is a negative drag.

The 9/11 anniversary is over and the numerous TV specials
and sound bites are fading. All eyes are now focused on the
Fed meeting on Tuesday as though there was going to be a
proclamation from on high that would soothe all fears. What
they are probably going to get is a reworded release similar
to the last several releases. Lately they have not even 
been changing the words to most of it. This has been the 
meat of the statement for the last two meetings. "The 
Committee continues to believe that an accommodative 
stance of monetary policy, coupled with still-robust 
underlying growth in productivity, is providing important
ongoing support to economic activity. The evidence shows 
that spending is firming, although labor market indicators
are mixed. Business pricing power and increases in core 
consumer prices remain muted." Expect nothing but more of
the same with a possible bone for the bond market. Saying
anything about the "D" word will help keep bonds in check
while talking up the recovery will pressure interest rates
and actually slow the recovery. Sounds like to me we need 
to hear some more "unwelcome disinflation" comments to keep
everything on track. 

Fund managers will be back at work on Monday after two weeks 
of conferences hosted by the various investment banking firms. 
They will have new and updated information about the stocks
they own and the ones they want to own. This is normally
when the hard decisions about the end of year portfolio
restructuring take place. We will also get another flurry
of mid quarter updates and the earnings warnings will 
accelerate as we near the first earnings dates in three
weeks. 

After a serious slump at the open the markets managed to 
pull out of their depression and rally back to positive
territory. The Dow hit a low of 9380, yes under 9400, and
rallied back to close at 9468 after making a decent attempt
to retest 9500 again. The Nasdaq dropped to 1822 at the open
on the Oracle news but rallied back to 1853 and a close over
the prior 1850 strong support. All things considered this
was a bullish showing by the major indexes although volume
was even lighter than Thursday's. The advancers got the nod
and the new 52-week highs climbed for the second consecutive
day. While I think the effort was positive, especially the
close over 1850 by the Nasdaq after the Oracle news, we are
far from ruling out any September weakness ahead. The wave
of bullishness is building again and I would not be surprised
to see another move up. The last dip in late August lasted
five days and we have had four weak days in this current bout
of profit taking. I said I would not be surprised but that 
was not exactly correct. I am surprised each day the market 
overcomes the distribution at these levels. I am surprised 
at the strength and depth of the bids. It refuses to go down
despite a growing parade of analysts predicting a drop. Sounds
like a new bull market. When they start predicting Dow 10,000
again we may need to worry.  

Next week should be critical to the bulls. They will be faced
with the Fed on Tuesday but it is doubtful the Fed can or
will say anything that can hurt equities. Bonds will be the
target. This gives equities a free pass until Thursday when
we get Jobless Claims again along with the Philly Fed and
FOMC minutes for August. The Philly Fed had a blowout in Aug
at 22.1 when consensus was only 10.0. If this report can just
hold that line then the bulls could continue to romp. If it
reverses back to the 10.0 level and proves to be a one month
wonder we could see some weakness. We also get the semiconductor
book-to-bill on Wednesday night. In July the number rose to 
0.97 and just slightly under breakeven. If the BTB can break 1.0
then the bears could hibernate early. 

Look for initial resistance at Dow 9500 then much stronger 
resistance at 9600. Initial support is 9250. The Nasdaq has
strong resistance at 1885 and support at 1820. The 50% 
retracement level for the Nasdaq is 1853 and exactly where
it closed on Friday. 50% for the Dow is 9500. That puts both
the indexes right in the middle of their recent ranges with
the opportunity to wander in either direction without much
effort. Keep your finger on the trigger and look for the 
next major move to come after the Fed meeting. 

Enter Very Passively, Exit Very Aggressively!

Jim Brown


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

TGIF
Jonathan Levinson

Friday was a day of sharp moves in treasuries, equities and 
precious metals, with silver and gold getting aggressively sold 
alongside the US Dollar Index, while treasuries and equities 
printed intraday reversals against their opening trends.


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






10 minute chart of the US Dollar Index




The US Dollar Index got dropped like a bad habit upon the release 
of Friday's 8:30AM economic data, and spent the remained of the 
day twitching near the lows.  Gold, however, got clocked as well, 
while treasuries and foreign currencies got bought.  The US 
Dollar Index finished the week on a third bearish crow candle.

Daily chart of December gold


 

December gold sold off by 4 points to close at 376.80 despite the 
drop in the US Dollar Index.  It engulfed Thursday's candlebody 
and once again respected the confines of the narrowing apex on 
the daily bear wedge.  The daily chart oscillators are on 
preliminary sell signals, with the weekly candlechart printing a 
bearish shooting star doji.  The HUI dropped and closed below 
200, the XAU below 93.  The CRB dropped 2.69 to 242.18 on 
weakness in silver, lean hogs and coffee futures.


Daily chart of the ten year note yield


 

Treasuries got bought aggressively on Friday, with the TNX 
closing lower by 6.5 basis points at 4.269%, but spiking well 
lower intraday to below 4.2%.  On the daily chart, the move 
brought the ten year note yield below horizontal resistance but 
closed back on the line within the context of the ongoing cycle 
downphase.  For the week, the TNX set a lower high and lower low, 
but the candle blew off its lower shadow, creating the suggestion 
of a possible doji low.  The outlook is unclear on that basis, 
but the trend remains lower on the daily chart, bullish for 
treasuries.

Daily NQ candles


 

The NQ printed a bullish doji hammer below the failed wedge 
trendline, testing but not exceeding the line at 1362.  The move 
continues the ongoing return-to-the-scene-of-the-crime rally, but 
until the lower trendline is successfully regained, it remains 
bearish.  The daily oscillators progressed further into their 
nascent downphases, also bearish, but for the week, the spike off 
Friday's low was sufficient to close the NQ right at the middle 
of its range, for a weekly doji.  We have neutral indecision on a 
weekly basis, as the market continues to work out whether Tuesday 
was the rally's high or not.


30 minute 20 day chart of the NQ


 

The NQ bounced again off the rising bear flag support line at 
1331.50 on Friday morning and truncating the 30 minute chart 
oscillator downphases in the process.  The higher oscillator lows 
are bullish, as is the marginally higher price low from Thursday.  
A lower high on this bounce would set the bulls up for big 
disappointment, however, and next week should be very educational 
as to the future of this rally.  Two weeks ago, I discussed the 
need to evaluate the bounce off the first pullback from the rally 
highs.  We got a new rally high, a respectable first pullback, 
and an ongoing bounce.  A lower high on the bounce would be 
bearish, while a higher high will convert a lot of bears to the 
bull case.


Daily ES candles


 

The ES printed a long tail doji hammer on Friday, closing 
marginally higher on the day but well off the intraday lows, and 
giving the tentative daily oscillator downphase a pause.  The top 
of the move briefly violated the broken lower ascending trendline 
but could not hold it, with the body closing below.

The 30 minute chart reveals the most bullish interpretation I can 
muster, with the decline off the Tuesday high forming a bull 
wedge projecting back to that high.  The Macd is bottoming and 
would support such a move, as would the rising trend on the 
stochastic lows. However, the Friday price low took out 
Thursday's low, significant weakness compared with the NQ which 
did not.  As with the NQ, the bounce is in progress, and the top 
of this bounce will add a great deal of clarity to the bull-bear 
debate going into the autumn.


20 day 30 minute chart of the ES


 

Daily YM candles


 

We see the same picture on the daily YM candles, with a bullish 
hammer challenging but not breaking the lower rising trendline.  
The cycle picture is the same, with a tentative top likely 
printed on the oscillators but the downphase hesitating to get 
itself underway.


20 day 30 minute chart of the YM


 

The 30 minute chart of the YM reveals the same bullish divergence 
on the oscillators as we see on the other indices, but the same 
lower low printed on Friday.  NQ remains the stronger of the 
equity futures, but the question remains the same for all, namely 
how far the current bounce will run.

With the daily chart oscillators topped out and trying to roll 
over, it will take a successful assault on the Tuesday highs to 
undo the early sell signals and start them trending in 
overbought.  Anything less will look like a broad top forming for 
equities.  While any outcome is possible, as the market does what 
it does and not what it should, the daily chart oscillators have 
been dominant throughout much of the rally, and are less likely 
to trend than to begin a downphase once topped in overbought 
territory.  It is for this reason that I am bearish at current 
levels, but while this bounce is in play, I'm more cautious than 
anything else.

For the week, equities managed a positive close with a mostly 
sideways move, with wide blowoff ranges to the up- and downsides.  
Treasuries remains bullish, the dollar bearish, and gold bearish 
with a shooting star doji.  On gold, it occurs to me that the 
bulk of the losses causing that weekly shooting star occurred on 
Friday afternoon, and I have yet to be convinced that it will 
stick.  Nevertheless, that it the setup for now.  The word 
"uncertainty" has come up a lot in the context of the different 
markets I follow- caution remains key until those spiky candles 
choose a clear direction. 


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

Pullback and Bounce
Jonathan Levinson

This week brought the markets to new 52 week highs, followed a by 
a sharp pullback and a bounce.  While bulls and bears trade their 
convincing arguments, the stage is set for a resolution in the 
coming week. 

Daily COMPX candles


 

The Nasdaq daily chart shows a failure of the lower trendline 
within a steep bearish ascending wedge, followed by the attempt to 
regain the lower trendline since Wednesday's break.  Friday saw 
the Nasdaq eke out a 9 point gain after setting the day low 
shortly after the open, with moderate volume of 1.7B shares.  The 
bear wedge trendline remains intact, but note that one could 
interpret the pattern of higher lows since Wednesday as respecting 
a secondary (undrawn) lower rising trendline.  The oscillators are 
rolling over from overbought, but if the bounce from Wednesday 
regains the trendline, those sell signals could reverse.

One the 30 minute chart, I've used the secondary trendline to 
illustrate support.  In fact, that lower trendline is exactly 
parallel to the upper rising trendline, forming a bear wedge.  
Herein lies the debate between bulls and bears:  support has 
either been broken or not, depending on how its interpreted.  In 
any event, a move below 1825 or above the rally highs above 1880 
will clarify the picture.  If this bounce fails from a lower high, 
bears will jump on and bulls will protect profits.  There's a 
bullish divergence on the 30 minute chart oscillators, with their 
steeply higher lows established Friday morning.  All eyes remain 
on the outcome of the bounce now in progress.


30 minute 20 day chart of the COMPX


 


Daily INDU candles


 

The Dow is set up similarly to the COMPX, with Friday's volume 
moderate at 1.5B shares.  The bounce from Friday morning's lows 
launched from a low below Thursday's low, unlike on the stronger 
Nasdaq.  The bullish divergence on the 30 minute chart oscillators 
below lends credence to the bullish descending wedge projecting to 
just below the rally highs.  Note that the bear wedge never 
fulfilled its downside target below 9240, and the higher low thus 
established is certainly not bearish.  With the daily chart 
oscillators toppy and the 30 minute chart oscillators bouncing, 
the stage is set for more upside on Monday morning.  If the bounce 
takes out 9600, bears will have a problem. In order to do so, 
however, 9500 will have to fail first, no small task for the 
bulls.

20 day 30 minute chart of the INDU


 
Daily OEX candles


 

The OEX did not break down to the same extent as the Nasdaq on 
this week's pullback, and remains clearly above trendline support 
on the daily chart.  There has been no sell signal printed on the 
daily chart oscillators, and the decline on the 30 minute chart 
from the rally highs has been far more gradual than for either the 
COMPX or the INDU.  This relative strength in the OEX reflects 
bullishly on the broader market, but the lower Friday low 
complicates the otherwise rosy picture.

Traders found this week to be tricky in the extreme, and no 
wonder, given the opposing cyclicality on the daily and 30 minute 
chart oscillators.  On Friday morning, the 30 minute and daily 
chart oscillators appeared to be lining up for a sharp drop, but 
the save at OEX 507 put in an unexpected reversal on the 30 minute 
chart oscillators.  Whether the bull wedge projecting back to 518 
plays out next week will determine whether we're in for bearish 
autumn or not. 

20 day 30 minute chart of the OEX


 

Daily QQQ candles


 

The opposing cyclicality is clearest on the Qube chart, in which 
the daily chart is covered with bear tracks, including a bear 
wedge breakdown and clear oscillator sell signals, while we have a 
double bottom and buy signals on the 30 minute chart.  Traders 
need to trade their timeframe and stick to it, but the safer 
approach is simply to watch for the results of the inevitable 
trendline tests from current levels.  If we've learned anything 
during the past two weeks, it is that trading in chop is a stop-
runner's paradise, and a veritable gauntlet for traders seeking 
viable entries.

20 day 30 minute chart of the QQQ


 

The new highs seen this week gave traders a reference point from 
which to base their analysis.  Bears will not want to be shot 
above the 52 week high, and will continue to attempt to pile onto 
each resistance level below it.  The vertical launches off the 
Friday lows felt like short covering/stop running frenzies above 
those resistance levels, and lined up well with our intraday 
Fibonacci levels discussed in the Market and Futures Monitors.  In 
theory, the markets could lurch all the way up to the rally highs 
fueled by such moves, an enviable goal for bulls.  The short 
covering at the top could act as jet fuel to higher highs.  
However, if they fail to do so, bears will begin to press and 
bulls will fret.  This is the setup for next week.  See you at the 
bell!


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

Come Fly With Me

The airline sector is flying high and after a week of pullback
prior to the 9/11 anniversary they have started to firm again. 
Passenger traffic is up and vacancies are down. The airlines
are flying fewer planes, fewer routes and passenger traffic is
increasing. Costs are down after the benefits were slashed to
both the passengers, get your bag lunch at the door and the
employees. Employees were forced to take wage concessions in
order to save their jobs in the restructuring after 9/11. 

While they are far from the capacity levels they saw prior to
9/11 they are far more profitable now than they were then. 
Many of the airlines took the slow traffic period as an 
opportunity to upgrade equipment and retire older more costly
planes. 

The only negatives for the industry now are the suits against
UAL and AMR for allowing 9/11 hijackers to take over the planes. 
The cost of jet fuel is also a drawback but once the gasoline
shortage is corrected over the next couple of weeks that should
get better. With the advent of fall many refineries shut down
to switch to the winter blends. This can take a couple weeks
and usually occurs right after Labor Day. This has heightened
the current shortage. 

Two companies not a party to the suits and profiting from the
return of the traveler are Airtran Holdings and Southwest
Airlines. AAI and LUV are both cheap stocks at under $20 but
they are both on a roll. Neither pulled back like the major
carriers last week and both set new highs on Friday. The other
major carriers like DAL, AMR and CAL all dropped off their
highs from last week as we approached 9/11 and rebounded on
Friday to form a bullish wedge at last weeks highs. 

One prominent airline analyst said this week that you better
book any holiday travel now because rates were going up. Now
that 9/11 has passed uneventfully travelers will begin hitting
the air again. Also, now that summer is over the business
travel will also increase and that will put high paying 
travelers in seats normally used by the discounters. That 
means more profits and fewer cheap seats. 

I am looking at January calls on LUV and AAI. Don't wrinkle
your nose up at January calls as a long term play. It is only
four months away. Just consider this Christmas money. Buy them
now, sell in December and use the money for those holiday gifts. 

LUV @ $18.58 Jan-$20 Call LUV-AD $0.75
AAI @ $17.78 Jan-$20 Call AAI-AD $1.45

No, that is not a misprint. The AAI stock price is -80 cents
less than LUV but the calls are +70 cents more expensive. It
is a factor of how fast the AAI stock price has been rising 
and the volume is 50% less. I would suggest only playing one 
stock and I would pick LUV for obvious reasons. 

One way to play the high premiums in AAI would be with a
covered call. Buy the stock at $17.78 and sell the Jan-$20
covered call for $1.35. If the stock hits $20 by January 
that is a 20% return, 40% if using margin. 

LUV Chart


 
AAI Chart


 


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


Powerball 

The Nasdaq dip took some of the excitement out of the Powerball
portfolio as investors took some profit off the table. Still
five months remaining and plenty of time for that 4Q recovery.  

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

Rumble on Wall Street
- J. Brown

Let's Get Ready to RUMBLE!!!!!  The markets are smack dab in the 
middle of September, traditionally the worst month of the year 
for stocks, and the fight is on between the bears and the bulls.  
Thus far the fight has been relatively even as the markets have 
pulled back from their early September gains but the edge has to 
be given to the bulls. 

Many professional investors are surprised that there is little 
desire to take profits off the table, thus allowing equities to 
maintain their gains. The potential bearish reversal we witnessed 
in the markets this week has been stymied by another round of dip 
buying Thursday and Friday.  There is mixed reaction to the fact 
that the markets are holding up so well.  Emotions run from hope 
and encouragement to distrust and disbelief.

Looking at the market reaction on Friday we did notice that Gold 
futures dropped almost $4 or 1% to $376.90/ounce.  This pushed 
the XAU lower by 2% making it the biggest sector loser on the 
session.  Despite the move the XAU is still in a rising channel.
Also contributing to bullish sentiment was Friday's drop in crude 
oil.  The December contracts traded below $28 intraday on Friday 
to levels not seen since June.  

As we suggested earlier the biggest event was the market's lack 
of weakness.  Many sector indices and individual stocks produced 
a nice bounce on Friday afternoon.  The Wilshire 5000 index looks 
ready to make another run at the 10K mark.  The Semiconductor 
index (SOX), which many believe leads the tech market higher (and 
lower), has rebounded back above the 450 level.  Even the Retail 
Index (RLX), which has been the big loser for September, is still 
in its rising trend and finding support at the simple 50-dma.
The volatility indices continue to show weakness and Friday's 
move hints at another leg higher in the broader indices, much to 
the bears distaste.

This coming week's big event is the Tuesday FOMC meeting but Wall 
Street is not expecting much.  Meanwhile investors will have to 
deal with a full week of economic reports on top of any new 
earnings warnings.  This could really challenge the bulls 
fortitude as we are now about three weeks from the October 
earnings season and negative corporate confessions could be 
disheartening.


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

Market Averages

DJIA ($INDU)

52-week High:  9609
52-week Low :  7197
Current     :  9471

Moving Averages:
(Simple)

 10-dma: 9504
 50-dma: 9276
200-dma: 8653



S&P 500 ($SPX)

52-week High: 1032
52-week Low :  768
Current     : 1018

Moving Averages:
(Simple)

 10-dma: 1020
 50-dma:  996
200-dma:  925



Nasdaq-100 ($NDX)

52-week High: 1387
52-week Low :  795
Current     : 1357

Moving Averages:
(Simple)

 10-dma: 1359
 50-dma: 1288
200-dma: 1129



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


Just when trader might begin to see a change in trend for the 
volatility indices, they roll over again.  This indicates that 
the bulls may not be finished yet.

CBOE Market Volatility Index (VIX) = 20.25 -0.25
Nasdaq Volatility Index (VXN)      = 32.68 -0.29

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.90        531,656       479,064
Equity Only    0.70        370,727       259,515
OEX            0.91         33,277        30,277
QQQ            2.46         20,820        51,354


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

Bullish Percent Data

           Current   Change   Status
NYSE          72.7    + 0     Bull Confirmed
NASDAQ-100    78.0    + 0     Bear Correction
Dow Indust.   83.3    + 0     Bull Confirmed
S&P 500       81.2    + 0     Bull Confirmed
S&P 100       88.0    + 0     Bull Confirmed


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

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

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

 5-Day Arms Index  1.31
10-Day Arms Index  1.10
21-Day Arms Index  1.01
55-Day Arms Index  1.04


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    1629      1717
Decliners    1162      1325

New Highs      86       116
New Lows       12         6

Up Volume    856M      801M
Down Vol.    576M      867M

Total Vol.  1469M     1688M
M = millions


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

Commitments Of Traders Report: 09/09/03

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

No change in sentiment for the commercial traders here.  Meanwhile
small traders forked out a little more cash to increase both
their long and short positions.


Commercials   Long      Short      Net     % Of OI
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%)
09/09/03      418,958   486,209   (67,251)   (7.4%)

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
08/19/03      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%
09/09/03      176,401    81,444    94,957    36.8%

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

Commercial traders in the e-minis continue to pump up their
long positions.  The last numbers show the most bullish 
posture in quote sometime.  Meanwhile the small trader has
rotated a little bit of money from short back to long.


Commercials   Long      Short      Net     % Of OI 
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%
09/09/03      370,909   237,610    133,299    21.9% 

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:  133,299   - 09/02/03

Small Traders Long      Short      Net     % of OI
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%)
09/09/03       59,692   130,270   (70,578)  (37.1%)

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


NASDAQ-100

Commercial traders are increasing their bets on the NDX
but they're still beating more heavily on a move lower.
Small Traders are also active with larger net positions 
but they're still beating on the bulls.


Commercials   Long      Short      Net     % of OI 
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%)
09/09/03       44,677     62,369   (17,692) (16.5%)

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
08/19/03       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%
09/09/03       28,788    13,370    15,418    36.6%

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

DOW JONES INDUSTRIAL

No change in investor sentiment for the professional traders
here.  There is little change for the small trader but they
have bumped up their long positions a tad.


Commercials   Long      Short      Net     % of OI
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%
09/09/03       25,807    10,756   15,051      41.2%

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
08/19/03       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%)
09/09/03        7,429    13,796   (6,367)   (30.0%)

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

Cap-weighted vs. Price Weighted Index

I'm new to trading indices and was wondering if you could give me 
an simplistic explanation to help me better understand what, or 
how, a market capitalization weighted index operates versus a 
price weighted index like the Dow Industrials.  

I'm trying to learn how I can perhaps use the indices to at time 
hedge some individual stocks that I own, but I'm not sure if I 
should use the Dow or S&P 500 to do this.  My general preface is 
that I think stocks have gotten a little bit ahead of themselves 
and I'm hesitant to sell my stocks and looking to hedge with some 
index options.  I've also got a pretty good job that pays well 
and I'm pretty sensitive to capital gains taxes at this point.  
Don't get me wrong, I'm holding some losses too, but have been 
writing covered calls on some of these positions to work down the 
cost.

Well, I think I can tackle the bulk of your question, but for the 
sake of brevity, how about we use your example of the Dow 
Industrials being a price weighted index, but instead of using 
the S&P 500, I'm going to use the S&P 100 Index for the example.  
I think when we do this, it will also be easier to understand how 
a price-weighted versus cap-weighted index can be impacted 
positively or negatively by just a couple of stocks.

Now, I'm also under the assumption that the trader, but more 
likely an investor, has a relatively large sized portfolio of 
stocks.  Sometimes a pure "tech investor" with holding in 10 
stocks might well use QQQ puts/calls to hedge those positions, 
but I'm also under the assumption that the subscriber may also be 
holding a portfolio of larger capitalization stocks, most likely 
a mix between tech and non-tech companies.

Let's start out with a price-weighted index like the Dow 
Industrials (INDU) 9,471.  

Here's the Dow 30 components, where I've sorted them by price as 
of their September 12, 2003 closing values.

Dow Indu. components - sorted by price


 

I've placed some pink numbers by some of the Dow components, 
which we will see later, is how that stock is weighted on a 
ranking of 1 to 100 in the OEX by its market capitalization.  For 
instance, while 3M (MMM) is the most heavily PRICE-weighted stock 
in the Dow (it will split 2:1 on Sept. 29) and currently carries 
a 7.2% weighting, it is the 30th-largest weighted stock in the 
OEX, and there it carries a 1.03% weighting.

When 3M splits 2:1 on September 29, it will fall from the #1 
largest-weighted stock in the Dow, to approximately the 16th 
largest weighted stock.  While 3M's split will have no impact on 
the price of the INDU when it splits, going forward, share PRICE 
fluctuation of MMM will have less near-term impact on the Dow's 
performance than it does today.

Sticking with the same table above, General Electric (NYSE:GE) is 
the most heavily weighted stock in the OEX, with Microsoft 
(NASDAQ:MSFT) #2, but their lower share PRICE values has them 
carrying less WEIGHT in the Dow than 3M (MMM) or Procter & Gamble 
(NYSE:PG).

Quiz:  What current Dow component was one of the original 12 Dow 
components?

I've added a couple of other columns of data just for 
informational purposes like P/E ratio, annual dividend and 
current annual dividend yield, along with a general sector 
association.  Microsoft (NASDAQ:MSFT) announced today that it was 
raising its annual dividend to 16 cents per share, thus the 
asterisk (*) by dividend and dividend yield.

Now we see how the Dow Industrials, a PRICE-weighted index is 
valued.  Let's take a look at the S&P 100 Index (OEX.X), which is 
market cap weighted.  Remember!  Caterpillar (NYSE:CAT) is the 
only Dow component, which does not have representation in the S&P 
100 Index (OEX).

Due to vertical screen limitations, I have to show the OEX 
components in two segments of 50 each.

S&P 100 (OEX.X) Components - 1-50 most heavily weighted


 

In pink I've quickly made some cross-references to how a 
particular stock was PRICE-weighted in the Dow.  We can really 
see a difference in how General Electric (GE) and Microsoft 
(MSFT) are weighted in the OEX versus the PRICE-weighted Dow 
Industrials.  To the far left, I've placed each stock's 12-month 
net price gain/loss.  In a minute I'm going to re-sort everything 
by sector and see if we can pick out some trends.

S&P 100 (OEX.X) Components - 51-100 most heavily weighted


 

There's not a lot to make note of as some of the Dow 30 
components begin to get market cap weighted out of the S&P 100.  
However, one can imagine some of the impact Williams Co. 
(NYSE:WMB) $8.80 may have had on the OEX's decline when it 
plummeted from roughly $40.00 per share in the summer of 2001 to 
$2.50 per share in just 1-year's time, but the stocks recent 12-
month gain of 206% hasn't helped all that much as the stock's 
market cap weighting is now more minimal.

Anyway, we should now have a pretty good understanding of how a 
market cap-weighted index versus a price-weighted index can have 
certain stocks having greater impact on how an index will trade.

Since I had placed some sector and 12-month gains/losses on my 
OEX table, I thought I'd sort the OEX by sector, and see if there 
hasn't been some similar percentage gains with sector 
association.  What traders will also look for is that one stock.  
Just that ooooone stock in a sector, which is DIVERGING from the 
sector itself.  That DIVERGENCE, when found early, could well be 
a signal from the MARKET that that stock has something wrong with 
it, or something very right getting ready to take place, where 
perhaps a new product innovation or business model is superior to 
the competition.  

Again, the sectors listed by q-charts are rather general, but 
we'll be able to quickly make some associations.  If a 
trader/investor will benchmark these type of observations, then 
check back with a similar comparison a couple of weeks later, if 
not months, they should be able to generate some trends 
developing, perhaps some sector rotation and establish some 
trading scenarios.

S&P 100 Index Components - Sorted by sector


 

My right hand is cramping up from over usage of my mouse today, 
but after sorting by sector, I also moved some stocks around from 
their sort order to make some associations.  A trader/investor 
doesn't necessarily need a platform like q-charts to do some of 
this data gathering and you should feel free to just quickly 
populate a spreadsheet during a slow market day and build a 
similar foundation if you think this type of sector/stock 
analysis might help you.

I moved AA and ATI together, as they are in the non-ferrous 
metals industry.  DD and DOW produce chemicals.  BCC, IP and WY 
are forest/paper products stocks.  You get the idea.

General Electric (GE) and Tyco (TYC) have very similar business 
models and have their corporate fingers in many of the worlds 
various sectors.  12-month gains of roughly 12.5% is notable.

What do you like to drink?  Beer (BUD), Pepsi (PEP) or Coke (KO).  
I prefer some good old Rocky Mountain spring water to Mississippi 
mud water (that's what living in Colorado for 36 years will do to 
you).  I'd like to take the blindfold test sometime, but think I 
prefer the taste of Coke (KO).  Still, put a 12-pack of PEP on 
sale for 10-cents less and I'll put on a white glove like Michael 
Jackson and be on my way.

Further down, I moved Bank of America (BAC) and Bank One (ONE) 
closer together.  New York Attorney General Spitzer is evidently 
keeping an eye on their recently discovered mutual fund trading 
activities.  This is a different way to keep an eye on things.

Earlier we made note of Williams Co. (WMB).  When Enron was about 
half-way to bankruptcy, I started sniffing out other company's 
with energy trading operations and found stocks like WMB and 
others as put candidates.  Those that exhibited similar 
technicals to Enron became very good put candidates and "guild by 
association" found just about every energy trader, or utility 
with some newly created energy trading division getting whacked 
to the downside.

Further down, I group some of the insurers.  Some micro-sector 
work may be needed to differentiate property/casualty compared to 
life/annuity, etc,.

Citigroup (C) and JP Morgan (JPM) are big money center banks.

Like I said, my hand started cramping up and my eyes are starting 
to cross, but you can see some different ways of actually 
breaking the OEX down by sector, arranging your stocks how you 
like, then revisit the data once every couple of weeks.

Funny.  I was just thinking.  I received a yellow Labrador 
Retriever for my 40th birthday from a buddy of mine and his dog's 
litter.  I've seen him just about every day for the 6-months that 
I've had him.  Looking at him day after day, I really didn't see 
or notice him growing.  A friend of mine hadn't seen my puppy 
drake (now 75 pounds and still growing) in about 2 months and his 
eyes popped out of his head when he saw him.

Sometimes I think we as traders/investors stare at a stock or set 
of data way too often and NEVER see the change.  Take a $10 stock 
as an example.  You can stare at it day after day, watch it go 
down a penny for 1,000 days and probably not think anything of it 
until it is worth $0.00.  

Here's the second part of the S&P 100 sorted by sector.

S&P 100 Index Components (Part 2)- Sorted by sector


 

One last thought before I close.  See the double asterisk (**) I've 
placed by Texas Instruments (NYSE:TXN) $23.88.  

I ran a query using Dorsey/Wright and Associates point and figure 
search engine.  Just as you and I can look at the 12-month 
percentage gains and see that Williams Company (WMB) has been the 
OEX's best performing stock for the past 12-months, I wanted to 
know what stock in the OEX was a stock where relative strength on 
a point and figure basis was showing a stock that was recently 
coming into favor on a longer-term basis.

I first ran a query using the following sets of parameters.

Price between $0.00 and $200.00 per share,
Relative Strength is "buy"
Relative Strength trend/column is X
All Sectors
Universe is OEX

Without listing them it was on November 6, 2002 that WMB's 
relative strength chart gave its first buy signal. I went back to 
a bar chart and see that on November 6, 2002, WMB closed at 
$2.75.  I missed that, and I also missed the triggering of a 
bullish triangle pattern in WMB on February 20, 2003 at $3.75.

The reason I double-asterisk TXN is that on September 5, 2003, 
just last week, TXN's relative strength chart gave its first 
relative strength buy signal since doing so on December 11, 2000 
when TXN traded $51.88.  That relative strength buy signal was 
then reversed (negated) with a relative strength sell signal on 
February 7, 2001, when TXN traded $39.00.

TXN's point and figure chart currently has a bullish vertical 
count of $42.50 associated with the chart, and the stock has 
successfully held tests of its bullish support trend (currently 
at $18.50) three times since its January lows.  LEAPS options 
traders might look at a partial bullish position in the TXN Jan. 
05 $25 calls (ZTNAE) $4.00 x $4.30.

Oh!  Did anyone figure out my question earlier regarding what 
current Dow component was one of the original 12 Dow components?  

On July 3, 1884, Charles Dow first published his initial market 
average in the "Customer's Afternoon Letter," now known as The 
Wall Street Journal.

Mr. Dow's original list was comprised of 9 railroad stocks and 2 
industrials stocks.

It wasn't until May 26, 1896 that Mr. Dow first published an 
index comprised exclusively of industrial stocks.  You should 
recognize at least one of these names.

American Cotton Oil 
American Sugar 
American Tobacco 
Chicago Gas 
Distilling and Cattle Feeding 
General Electric 
Laclede Gas
National Lead 
North American 
Tennesseee Coal & Iron 
U.S. Leather preferred 
U.S. Rubber 

The value of the average was 40.94, which Mr. Dow calculated 
using a simplistic unweighted method by simply totaling the value 
of each stock and dividing by the number of stocks, or 
observations.  You should also note, that Mr. Dow constructed a 
chart of his then to be famous Dow Industrials using the point 
and figure charting system in order to track the laws of supply 
and demand for the index, and stocks themselves.

Those were the days!  I can almost here Mr. Dow telling his 
newsletter subscriber that the letter was cut short as his pen 
hand was cramping up.  I never did much care for mouses/mice.

Jeff Bailey


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

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

Symbol  Company               Date           Comment      EPS Est

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

None


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

FDS    FactSet Research Sys  Tue, 16 Sep  Before the Bell     0.37
GIS    General Mills, Inc.   Tue, 16 Sep  Before the Bell     0.62
KBH    KB Home               Tue, 16 Sep  After the Bell      2.14
LEN    Lennar Corporation    Tue, 16 Sep  After the Bell      2.23
PIR    Pier 1 Imports, Inc.  Tue, 16 Sep  Before the Bell     0.20
KR     The Kroger Co.        Tue, 16 Sep  Before the Bell     0.32
TIBX   TIBCO Software        Tue, 16 Sep  After the Bell      0.02


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

BBY    Best Buy Co., Inc.    Wed, 17 Sep  Before the Bell     0.42
CC     Circuit City Stores   Wed, 17 Sep  -----N/A-----      -0.13
CLC    CLARCOR Inc.          Wed, 17 Sep  After the Bell      0.55
ELN    Elan Corporation, PLC Wed, 17 Sep  Before the Bell    -0.19
FDX    FedEx                 Wed, 17 Sep  -----N/A-----       0.57
GPN    Global Payments Inc.  Wed, 17 Sep  After the Bell      0.43
HAVS   Havas Advertising     Wed, 17 Sep  -----N/A-----        N/A
MLHR   Herman Miller         Wed, 17 Sep  After the Bell      0.10
PT     Portugal Telecom SGPS Wed, 17 Sep  Before the Bell      N/A
WOR    Worthington Ind       Wed, 17 Sep  Before the Bell     0.19


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

COMS   3Com                  Thu, 18 Sep  After the Bell     -0.14
AGE    A.G. Edwards          Thu, 18 Sep  Before the Bell     0.34
BSC    Bear Stearns          Thu, 18 Sep  Before the Bell     1.65
BMET   Biomet, Inc.          Thu, 18 Sep  Before the Bell     0.29
CCL    Carnival Corp         Thu, 18 Sep  -----N/A-----       0.87
CTAS   Cintas Corporation    Thu, 18 Sep  Before the Bell     0.37
CAG    ConAgra Foods, Inc.   Thu, 18 Sep  Before the Bell     0.38
JBL    Jabil                 Thu, 18 Sep  After the Bell      0.20
NKE    Nike                  Thu, 18 Sep  After the Bell      0.88
RHAT   Red Hat, Inc.         Thu, 18 Sep  After the Bell      0.01
TEK    Tektronix Inc.        Thu, 18 Sep  After the Bell      0.12


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

KMX    CarMax, Inc           Fri, 19 Sep  Before the Bell     0.36
CM     Coles Myer            Fri, 19 Sep  -----N/A-----        N/A


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

Symbol  Company Name              Ratio    Payable     Executable

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
BKST    Brookstone Inc            3:2      Sep   5th   Sep   8th
SNPS    Synopsys Inc              2:1      Sep   5th   Sep   8th
SAFE    Invivo Corp               3:2      Sep   5th   Sep   8th


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

The big event this week will be the FOMC meeting on Tuesday.  
While Wall Street isn't expecting much from the Fed we do have
a very full week of economic reports.  


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

----------------
Monday, 09/14/03
----------------
None


----------------
Tuesday, 09/15/03
----------------
Business Inventories(BB)Jul  Forecast:    0.0%  Previous:     0.1%
Current Account (BB)     Q2  Forecast:-$138.0B  Previous: -$136.1B
NY Empire Ste Index (BB)Sep  Forecast:    12.0  Previous:     10.0
Industrial Prodction(BB)Aug  Forecast:    0.3%  Previous:     0.5%
Capacity Utilization(BB)Aug  Forecast:   74.7%  Previous:    74.5%


-------------------
Wednesday, 09/16/03
-------------------
CPI (BB)                Aug  Forecast:    0.3%  Previous:     0.2%
Core CPI (BB)           Aug  Forecast:    0.2%  Previous:     0.2%
FOMC Meeting (DM)       Aug


------------------
Thursday, 09/17/03
------------------
Housing Starts (BB)     Aug  Forecast:  1.844M  Previous:   1.872M
Building Permits (BB)   Aug  Forecast:  1.800M  Previous:   1.800M
Treasury Budget (DM)    Aug  Forecast: -$78.5B  Previous:  -$54.7B


----------------
Friday, 09/18/03
----------------
Initial Claims  (BB)  09/13  Forecast:     N/A  Previous:     422K
Leading Indicators(DM)  Aug  Forecast:    0.4%  Previous:     0.4%
Philadelphia Fed (DM)   Sep  Forecast:    15.1  Previous:     22.1
FOMC Minutes (DM)       Aug  

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


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The Option Investor Newsletter                   Sunday 09-14-2003
Sunday                                                      2 of 5


In Section Two:

Watch List: Buy The Bounce or Breakout
Call Play of the Day: MERQ
Dropped Calls: PGR
Dropped Puts: None


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Watch List
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Buy The Bounce or Breakout

Navistar Intl Corp - NAV - close: 41.00 change: +0.67

WHAT TO WATCH: The auto-related and auto/truck manufacturers have 
done pretty well lately (unless you're Ford).  Shares of NAV are 
certainly one of the winners and dip buyers are probably moving 
in now that shares have pulled back from short-term resistance at 
$45 to the psychological level at $40.  Support at $40 has also 
been bolstered by the rising 50-dma.  Bullish traders might want 
to use the bounce on Friday as an entry point with a tight stop.

Chart=


---

Ingersoll Rand - IR - close: 55.71 change: +0.71

WHAT TO WATCH: Shares of IR are producing a similar pattern to 
NAV's.  The rising trend has produced a small double top at 
resistance of $60.  The recent profit taking has brought it back 
down to the $55 level with support underpinned by the rising 50-
dma.  Bullish traders can use the bounce at support as an entry 
point for any rally back to $60.  Use a tight stop.

Chart=


---

SanDisk Corp - SNDK - close: 63.61 change: +1.36

WHAT TO WATCH: One stock that did not succumb to the profit 
taking in technology stocks last week was SNDK.  There was a pull 
back from $65 towards the $60 level but dip buyers began moving 
in early with a two-day bounce Thursday-Friday.  Skeptical 
traders might look at SNDK's chart and merely see how extended 
and overbought it is.  Optimistic traders may look at SNDK's 
chart and see its impressive relative strength.  Aggressive 
traders might want to consider bullish entries on dips to $60 or 
a breakout over $65 (shoot, if you're aggressive then current 
levels look good too), but we would use a tight stop just under 
$60.

Chart=


---

Avid Technologies - AVID - close: 52.91 change: -0.02

WHAT TO WATCH: Here is a technology stock that reminds you of the 
go-go momentum days of the late 90's.  Shares have moved higher 
in a strong trend from its $17 lows in March to almost $56 a few 
days ago.  If you're yearning for a little momentum play to 
follow then keep AVID on your watch list.  Aggressive players 
might like the bounce above the $50 level.  $50 was previous 
resistance so it should now act as new support.  However, if 
you'd like to catch a move off the bottom of its rising channel 
then watch for a dip to its simple 30-dma where shares have 
bounce continuously for months.

Chart=


---

Anthem Inc - ATH - close: 74.81 change: +1.33

WHAT TO WATCH: Healthcare insurance stocks like ATH and AET look 
ready to produce some big upside breakouts for the bulls.  After 
a very painful round of profit taking six weeks ago both have 
rebounded and are just under support/resistance levels and their 
simple 50-dma.  Use a trigger for a new long play and target the 
next psychological level higher.  For ATH we'd look for a move to 
$80-82.  For AET we'd look for a move to $65.

Chart=



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

AMGN $68.52 - AMGN on our mind!  The MACD is curving higher from 
oversold and the stock appears to be breakout of a trend of 
higher lows.  Aggressive traders can pick new positions now but 
more conservative bulls might want to wait for a breakout over 
$69 or even $70.  Target $75.

PCAR $80.28 - For three weeks now we've been suggesting that 
bullish traders look for a bounce from the $80 area.  That's 
exactly what PCAR is producing with is simple 50-dma directly 
underneath.  Shares still look overbought but this momentum play 
could easily make another run for the sky.  Use a tight stop!

CECO $47.96 - The education sector took off on Friday with many 
of its biggest winners producing impressive rebounds.  CECO is 
hitting new highs and traders may want to watch it for an entry 
point.  Also take a look at EDMC and COCO.


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

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

Mercury Interactive - MERQ - cls: 48.26 change: +0.82 stop: 44.75

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
^^^^^

Progressive Corp. - PGR - close: 69.64 change: -3.19 stop: 71.25

That was definitely not what the bulls wanted to see.  The 
breakout above $70 was firmly crammed down their throats on 
Friday, as PGR suffered more than a 4% loss.  Most of the decline 
occurred right at the open, with the stock falling below $71 and 
violating our stop.  The weakness was solidified by a midday 
valuation downgrade from Keefe Bruyette & Woods and the stock 
continued its downward slide, ending at its daily low.  There's 
nothing left to do here, but issue the final post-mortem on the 
play.  Sticking with the stop was the way to go, as it took us 
out of the play very near the high of the day and it was never 
touched again.  Apparently we should have been more aggressive 
and locked in those modest gains when PGR was unable to clear the 
$74 level and the oscillators turned down.  

Picked on August 27th at    $70.74
Change since picked:         -1.10
Earnings Date             10/15/03 (unconfirmed)
Average Daily Volume =       785 K
Chart =



PUTS
^^^^

None

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

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

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

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

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

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

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


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**********

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Contact Support
The Option Investor Newsletter                   Sunday 09-14-2003
Sunday                                                      3 of 5


In Section Three:

Current Calls: AU, ERTS, GILD, GS, LUV, UTX
New Calls: LEA, MERQ
Current Put Plays: EBAY, KKD, KSS
New Puts: None


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  Trailing stops based on the option price or the stock price
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******************
CURRENT CALL PLAYS
******************

Anglogold Ltd. - AU - close: 39.08 change: -0.90 stop: 37.50

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:
Just when it looked like the Gold & Silver index (XAU.X) was 
going to follow through on its breakout through the $95 level, 
profit taking (prompted by some late-week weakness in the price 
of gold) took over and the index tallied up a 2% loss on Friday.  
Our bullish gold play on AU suffered a hit as well, falling back 
to the $39 level at the close.  While it is disconcerting to see 
the $40 level acting as such strong resistance, on the other side 
we have the stock holding consistently above the $38.50 breakout 
level of the week before.  Based on the way both AU and the XAU 
are trading, buying rebounds from support is the more prudent 
strategy as each breakout attempt continues to be turned back.  
Look for a rebound from the $38.00-38.50 area (supported by the 
20-dma) as a viable entry point next week, and look for 
confirmation from the XAU index rebounding from its own 20-dma, 
which is just now climbing above $90.  Maintain stops at $37.50.

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

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 on Friday!

BUY CALL SEP-40 AU-IH OI=  681 at $0.55 SL=0.25
BUY CALL OCT-40 AU-JH OI= 3571 at $1.75 SL=0.80
BUY CALL JAN-40 AU-AH OI= 1180 at $3.40 SL=1.75

Annotated Chart of AU:

 

Picked on September 2nd at  $39.51
Change since picked:         -0.43
Earnings Date             10/30/03 (unconfirmed)
Average Daily Volume =       841 K
Chart =


---

Electronic Arts - ERTS - close: 89.27 chg: -0.65 stop: 85.99     

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:
We originally added ERTS to the call list as it was breaking out 
to new highs amidst a parade of technology and software stock 
upgrades from Wall Street.  Investors were looking for an up tick 
in technology company revenues and ERTS was benefiting from 
excitement over improving retail sales and the upcoming Q4 
holiday shopping season.  

Now it appears that the technology bloom has faded a bit.  
Suddenly analysts and investors are worried that the rally has 
gone too far.  The August retail sales numbers weren't so hot 
unless you were in the discount retailer space.  Putting more 
pressure on the software sector was the Oracle news on Thursday 
night where they hit their estimates but reported lower revenues.  
The GSO gapped down Friday on the ORCL announcement but rebounded 
from its lows.  ERTS was under pressure after UBS downgraded 
three video-game related stocks (ERTS was not one of them).  

Despite all the recent negativity in the last few days, the 
relative strength in shares of ERTS is still impressive.  
Investors had plenty of excuses to take profits in this big 
winner and chose not to.  The stock is still in its rising trend 
and the low from Friday is a bounce off its rising simple 30-dma.  
It almost looks like an entry point for new bullish entries.  
However, traders may do better to wait and see ERTS trade back 
above the $91 mark, which has been short-term resistance since 
the 4th of September.  The stock's last week and a half almost 
looks like a small bull flag formation.  

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

! Warning, September options EXPIRE on Friday!

BUY CALL OCT 85 EZQ-JQ OI= 676 at $6.70 SL=4.00
BUY CALL OCT 90 EZQ-JR OI= 580 at $3.70 SL=1.85
BUY CALL OCT 95 EZQ-JS OI= 759 at $1.80 SL=0.95
BUY CALL DEC 85 KZQ-LQ OI= 313 at $9.30 SL=6.00
BUY CALL DEC 90 EZQ-LR OI=1365 at $6.50 SL=4.00
BUY CALL DEC 95 EZQ-LS OI= 133 at $4.40 SL=2.25


Annotated Chart:


 

Picked on August 28 at $89.06
Change since picked:    +0.21
Earnings Date        07/23/03 (confirmed)
Average Daily Volume:     3.3 million 
Chart =


---

Gilead Sciences - GILD - cls: 67.15 chg: +0.31 stop: 64.75

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:
Once again, after a close scare, the biotech rally is still 
alive.  A couple of days ago the BTK had produced a three-candle 
reversal pattern but bulls bought the dip and the BTK bounced 
back from its simple 10-dma on Friday.  The BTK.X had been a big 
winner for the bulls the last couple of weeks and GILD has 
reluctantly followed along.  As the BTK reached for its old 
closing highs, so did GILD and shares came very close to hitting 
our initial target of $70.  Investors' unwillingness to sell the 
winners and eagerness to buy the dip could be enough to keep this 
rally alive despite overbought conditions.  

Meanwhile we like how GILD has continued to trade higher in its 
slowly ascending bullish channel.  The bounce on Friday actually 
looks like an entry point for new bullish positions, but keep in 
mind the first hurdle/resistance level is $70.  We're going to 
keep our stop loss at $64.75 after seeing the intraday low on 
Friday near $65.00.

There were some new headlines for GILD on Friday with a 
California company, Chimerix, who has licensed rights from GILD 
to develop an oral version of GILD's antiviral cidofovir.  
Chimerix plans to develop a treatment for smallpox that they can 
sell to governments around the world.  GILD will be paid a 
royalty based on a percentage of sales.

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

! Warning, September options EXPIRE on Friday!

BUY CALL OCT 65 GDQ-JM OI= 225 at $4.70 SL=3.00
BUY CALL OCT 70 GDQ-JN OI= 427 at $2.20 SL=1.15
BUY CALL NOV 65 GDQ-KM OI= 915 at $6.10 SL=4.00
BUY CALL NOV 70 GDQ-KN OI=1367 at $3.60 SL=1.90

Annotated Chart:


 

Picked on August 19 at $65.32
Change since picked:    +1.83
Earnings Date        07/31/03 (confirmed)
Average Daily Volume:    3.31 million  
Chart =


---

Goldman Sachs Grp. - GS - close: 90.73 change: +0.89 stop: 88.00

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:
Is this the rebound that will finally break through that pesky 
resistance?  Ever since we initiated coverage of GS, the stock 
has been mired between the $89-92 levels, without the ability to 
move through either.  Confirming our bullish premise though, the 
stock caught a solid rebound from the 20-dma ($88.95) over the 
past couple sessions and finished strongly on Friday, ending with 
a 1% gain.  The Broker/Dealer index (XBD.X) is showing renewed 
signs of life as well, after finding solid support near $580 (the 
site of the 20-dma), as old resistance has been converted to new 
support.  Traders that took advantage of the dip to $89 last week 
that turned out to be the entry point we thought it might, are 
now in a good position to benefit if GS is able to finally break 
out.  Successive intraday rebounds from above the $89 level still 
look favorable for new entries, while momentum players will need 
to wait for that elusive breakout over $92.25 before going long.  
Once clear of that resistance, GS should make rapid progress to 
our first target near $95, where conservative traders may want to 
harvest partial gains.  Our eventual target remains at $100, 
which ought to be an achievable level if the bulls ever get 
serious.  Maintain stops at $88.

Suggested Options:
Shorter Term: The October 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 next week.

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 on Friday!

BUY CALL SEP-90 GS-IR OI= 6222 at $1.85 SL=0.90
BUY CALL OCT-90 GS-JR OI=21971 at $3.90 SL=2.50
BUY CALL OCT-95 GS-JS OI= 8695 at $1.65 SL=0.75

Annotated Chart of GS:


 

Picked on September 2nd at  $90.45
Change since picked:         +0.28
Earnings Date              9/24/03 (unconfirmed)
Average Daily Volume =    3.80 mln
Chart =


---

Southwest Airlines - LUV - cls: 18.58 chng: +0.22 stop: 
17.25*new*

Company Description:
Southwest Airlines is a domestic airline in the United States 
that provides predominantly short-haul, high-frequency, point-to-
point, low-fare service.  As of the end of 2002, LUV operated 375 
Boeing 737 aircraft and provided service to 59 airports in 58 
cities in 30 states throughout the country.  The company focuses 
principally on point-to-point, rather than hub-and-spoke, service 
in markets with frequent, conveniently timed flights and low 
fares.

Why we like it:
After breaking out over $18.25 resistance on Thursday, shares of 
LUV continued their ascent into the weekend, tacking on another 
1.2% on very strong volume.  The overall Airline index (XAL.X) 
joined in the party, adding 1.5% to reach a new 52-week closing 
high.  The XAL will have its work cut out for it as it nears 
strong resistance near $70, and LUV bulls will have to work hard 
to press the stock up towards the top of the current resistance 
band at $20.  But with a fresh PnF Buy signal under its belt and 
a bullish price target of $23.50, we think it is definitely a 
reasonable goal.  With three days of building support near $18, 
an intraday pullback near that level looks good for fresh 
entries.  Aggressive traders can certainly buy further strength 
above $18.60, but need to be aware of the risk of a pullback due 
to the fact price is continuing to press against the upper 
Bollinger band.  If buying into strength, make sure to confirm 
further strength in the XAL index as well.  We're inching our 
stop up to $17.25 this weekend, keeping it below what should be 
strong support offered by the 20-dma ($17.42) and last 
Wednesday's intraday low ($17.40).

Suggested Options:
Shorter Term: The October 17 Call will offer short-term traders 
the best return on an immediate move, as it is currently in the 
money.  Note that the September contract expires next week.

Longer Term: Aggressive traders looking to capitalize on an 
extended rally will want to look to the December 20 Call.  This 
option is currently out of the money, but should provide 
sufficient time for the stock to move higher without time decay 
becoming a dominant factor over the short run.  More conservative 
long-term traders will want to use the December 17 Call.

! Warning, September options EXPIRE on Friday!

BUY CALL SEP-17 LUV-IW OI=6488 at $1.15 SL=0.50
BUY CALL OCT-17 UVM-IT OI=1575 at $1.50 SL=0.75
BUY CALL DEC-17 LUV-LW OI=3118 at $1.90 SL=0.90
BUY CALL DEC-20 LUV-LD OI=1473 at $0.65 SL=0.30

Annotated Chart of LUV:


 

Picked on September 11th at  $18.36
Change since picked:          +0.22
Earnings Date              10/20/03 (unconfirmed)
Average Daily Volume =     2.45 mln
Chart =


---

United Technologies - UTX - cls: 78.53 chg: +0.24 stop: 77.20

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:
We added UTX to the OI call list a couple of weeks ago when the 
markets were in rally mode and UTX broke out above the $80 
resistance level.  Unfortunately, since that time the rally has 
cooled and UTX has seen some consolidation.  Despite the pause in 
UTX's advance we have heard plenty of positive comments the last 
couple of weeks regarding the outlook for the economy and the 
industrial sectors that UTX is apart of.  

It is this improving economy and higher defense spending that 
will eventually translate into more business and corporate 
profits for companies like UTX.  The company's Chairman George 
David reaffirmed UTX's 2003 outlook on Thursday in their mid-
quarter update.  Given the strong gains from spring, traders have 
been selling stocks that only reaffirm their numbers instead of 
raising them but UTX has managed to maintain its share price 
above support near $77.  While Mr. David was very encouraging in 
his outlook for 2004 he did not see much improvement yet for 
2003.  UTX still chose to raise their cash dividend by 30 percent 
from 27-cents to 35-cents a share.  The dividend is payable on 
Dec. 10th for shareholders of record on Nov. 14th.  

If analysts like, the J.P. Morgan one who just upgraded their 
outlook on the economy with a higher GDP forecast are correct, 
then UTX should certainly benefit.  However, short-term traders 
need to keep a sharp eye on the stock.  We've seen several 
bounces above the $77.20 level but we're also seeing declining 
highs.  Only aggressive traders should seek new positions at this 
time as we'd prefer to see a new move back above the $80 mark.  
We're keeping our stop at $77.20.

FYI: some of the weakness in UTX may be concerns over another 
explosion at a UTX plant on Friday.  A UTX plant was leveled in 
August after rocket fuel ignited in a mixing process.

Suggested Options:
We are not suggesting new plays in UTX until we see a move back 
above the $80 mark.  Should that occur then our preference would 
be the October or November strikes.  

! Warning, September options EXPIRE on Friday!

BUY CALL OCT 75 UTX-JO OI= 239 at $4.90 SL=2.50
BUY CALL OCT 80 UTX-JP OI=2045 at $1.85 SL=0.95
BUY CALL NOV 75 UTX-KO OI=2041 at $5.80 SL=3.25
BUY CALL NOV 80 UTX-KP OI=1234 at $2.85 SL=1.50
BUY CALL NOV 85 UTX-KQ OI= 149 at $1.10 SL=0.50

Annotated Chart:


 

Picked on August 29 at $80.05
Change since picked:    -1.52
Earnings Date        07/17/03 (confirmed)
Average Daily Volume:     2.1 million 
Chart =



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

Lear Corp - LEA - close: 53.60 change: +0.58 stop: 50.99

Company Description:
Lear Corporation, a Fortune 500 company headquartered in 
Southfield, Mich., USA, focuses on integrating complete 
automotive interiors, including seat systems, interior trim and 
electrical systems. With annual net sales of $14.4 billion in 
2002, Lear is the world's largest automotive interior systems 
supplier. The company's world-class products are designed, 
engineered and manufactured by 115,000 employees in more than 280 
facilities located in 33 countries.
(source: company press release)

Why We Like It:
The auto-related stocks have been hot this last quarter and LEA 
is certainly one of them.  They've almost doubled from their 
March lows near $32.50.  Not only has LEA's share price 
appreciated but they're earnings have actually been worthy of the 
gains.  The company last announced earnings on July 17th and LEA 
beat estimates by 28 cents with $1.54 a share.  On top of the 
blow out numbers they raised guidance for Q3.  Prudential 
followed up the next day with a very encouraging upgrade.  PRU 
raised their own outlook for LEA for 2003 and believes the 
company could have its credit rating improved soon while the 
stock might be added to the S&P 500 index over the next 12 
months.  A couple of weeks later in early August Barron's 
highlighted the stock in a positive light.

Since then we've seen shares breakout to new all time highs.  The 
recent pull back to the $52.50 level and its 50-dma happens to 
coincide with old highs, which should be new support.  The recent 
bounce looks like a chance to buy the dip before its next leg 
higher.  We're also seeing a reversal in the stock's technical 
indicators to support a turnaround.  However, we would like a 
little bit of confirmation so we're going to use a TRIGGER at 
$54.05 to open the play.  Only when the stock trades at or above 
this level will the newsletter be suggesting longs.  If and when 
we are triggered, we'll use a stop loss at $50.99.  More 
conservative traders might want to consider using a stop under 
the 50-dma.  Our target range is $57.00-60.00.

Suggested Options:
Short-term bullish traders should probably consider the October 
or December calls on LEA while long-term traders can look to 
January and March calls.  Our preference will be for the 
Octobers.

! Warning, September options EXPIRE on Friday!

BUY CALL OCT 50 LEA-JJ OI=  0 at $4.60 SL=2.25
BUY CALL OCT 55 LEA-JK OI= 28 at $1.40 SL=0.75
BUY CALL OCT 60 LEA-JL OI= 69 at $0.35 SL= -- riskier!
BUY CALL DEC 50 LEA-LJ OI=409 at $5.80 SL=3.25
BUY CALL DEC 55 LEA-LK OI=459 at $2.90 SL=1.50
BUY CALL DEC 60 LEA-LL OI= 46 at $1.20 SL=0.60

Annotated chart:


 

Picked on September x at $00.00
Change since picked:     + 0.00
Earnings Date          10/17/03 (confirmed)
Average Daily Volume:       694 thousand
Chart =


---

Mercury Interactive - MERQ - cls: 48.26 change: +0.82 stop: 44.75

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

Why we like it:
Catching our attention back on September 2nd, when it broke above 
more than 2 years of resistance, MERQ has been taunting us for 
nearly 2 weeks as we have patiently been waiting for the 
inevitable pullback.  That pullback got started in earnest on 
Wednesday, as the stock fell back sharply from its first attempt 
at the $50 level.  But it still looked like it had further to 
fall before the rebound could commence.  That view was right on, 
as MERQ opened quite negative on Friday, gapping down to near 
$45.45 before rebounding strongly throughout the day.  Looking at 
the daily chart, the significance of the rebound point is clear, 
as it lines up almost perfectly with the July intraday high of 
$45.55.  Despite its early deficit, MERQ managed to post a 1.7% 
gain on Friday and based on the above-average volume, looks 
determined to test and break above the $50 resistance level.  The 
PnF chart is over-the-top bullish with a fairly fresh Buy signal 
and a bullish price target of $75.  Achieving that level anytime 
soon is not likely, but it certainly demonstrates the fact that 
there is some serious upside potential.  

Clearly, the initial rebound in the $45-46 area would have 
provided an excellent entry point into the play, but it's too 
late for that.  Instead, we'll have to settle for a milder 
pullback near $47 or else enter on a breakout over Friday's high.  
Normally, we'd want to wait for the price to exceed the recent 
highs, but Friday's volume certainly hints of follow through to 
the upside early next week.  More conservative traders can wait 
for that breakout to new highs by setting an entry trigger above 
$50.25.  If Friday's rebound was the turnaround we believe it 
was, then that session's intraday low should not be violated.  
We're giving it a bit of extra room though, setting our initial 
stop at $44.75, just below the 20-dma ($45.04).

Suggested Options:
Shorter Term: The October 47 Call will offer short-term traders 
the best return on an immediate move, as it is currently at the 
money.  Note that September contract expires next week.

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

! Warning, September options EXPIRE on Friday!

BUY CALL SEP-47 RQB-IR OI=  514 at $1.65 SL=2075
BUY CALL OCT-47 RQB-JR OI=  971 at $3.30 SL=1.75
BUY CALL OCT-50 RQB-JJ OI= 1343 at $2.00 SL=1.00
BUY CALL JAN-50 RQB-AJ OI=  550 at $4.40 SL=2.75

Annotated Chart of MERQ:


 

Picked on September 14th at  $48.26
Change since picked:          +0.00
Earnings Date              10/15/03 (unconfirmed)
Average Daily Volume =     3.14 mln
Chart =



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

eBay, Inc. - EBAY - close: 52.64 change: +0.94 stop: 54.25

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

Why we like it:
EBAY has certainly confirmed the wisdom of our decision to 
initiate coverage with an entry trigger below strong support.  
Despite the weakness exhibited earlier in the week, the stock 
stubbornly held above $50 and then staged a pretty solid rebound 
on Friday, closing over $52.50.  We initially set our entry 
trigger at $49.85 to prevent getting caught in a bearish position 
just before a rebound and that trigger served its function 
admirably.  With the stock now nearing its 10-dma ($52.80) and 
daily Stochastics turning up from oversold territory, it just may 
be that this will turn out to be a failed play.  We're not 
changing our stance just yet though, as this could turn out to be 
a rebound that fails below resistance, producing a subsequent 
breakdown under resistance.  Wait for a drop through that entry 
trigger and only then take a position.  Momentum traders will 
want to enter on the initial break, while more conservative 
players may want to game a subsequent rebound failure in the $50-
51 area.  Maintain stops at $54.25, which is just above the 50-
dma.

Suggested Options:
Aggressive short-term traders will want to focus on the October 
47 Put, as it will provide the best return for a short-term play.  
More conservative traders will want to use the October 50 
contract, which will be at the money when our entry trigger is 
satisfied.  

! Warning, September options EXPIRE on Friday!

BUY PUT OCT-50 QXB-VJ OI=30078 at $1.75 SL=0.80
BUY PUT OCT-47 QXB-VR OI=16834 at $1.10 SL=0.50

Annotated Chart of EBAY:


 

Picked on September 9th at   $50.87
Change since picked:          +1.77
Earnings Date              10/23/03 (unconfirmed)
Average Daily Volume =     13.1 mln
Chart =


---

Krispy Kreme Doughnut - KKD - cls: 42.03 chg: -0.05 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:
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.  

We originally added KKD to the put list with a trigger to go 
short at 41.69.  A couple of days after we added it to the play 
list the stock broke support and hit our trigger. The drop 
continued a bit before KKD saw an oversold bounce above the $40 
level.  We're still bearish on the play despite the bounce.  
KKD's chart shows volume the strongest on down days and weakening 
on up days.  While we're not encouraged to see shares close above 
the $42 level they remain below their simple 10-dma.  More 
conservative traders may want to wait for a move back below the 
$41.50 before opening any new positions.  

KKD was not without its own headlines late this week.  The store 
has combined with Wal-Mart in an experiment to build five KKD 
stores inside specific WMT outlets.  It does sound like a win-win 
for both companies to give WMT shoppers the temptation to do so 
with a Krispy Kreme doughnut in hand, but these five are just 
experimental and will probably not play a significant role in 
KKD's bottom line yet.

Suggested Options:
As a short-term play our preference would be the October and 
November 40 strikes but the 45s should work well too.

! Warning, September options EXPIRE on Friday!

BUY PUT OCT 40 KKD-VH OI=2807 at $1.40 SL=0.70
BUY PUT OCT 45 KKD-VI OI= 797 at $4.00 SL=2.25
BUY PUT NOV 35 KKD-WG OI=2536 at $0.80 SL= --
BUY PUT NOV 40 KKD-WH OI=2220 at $2.05 SL=1.00
BUY PUT NOV 45 KKD-WI OI=1283 at $4.60 SL=2.30

Annotated Chart:

 

Picked on September 8 at $41.69
Change since picked:     + 0.34
Earnings Date          08/21/03 (confirmed)
Average Daily Volume:       1.0 million 
Chart =


---

Kohl's Corp - KSS - close: 58.43 change: -0.87 stop: 61.01*new*

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

Why We Like It:
It's been a rough week for Kohl's.  One of its directors resigned 
on Monday to "pursue other interests".  The stock gapped down 
below support at $60 and stayed there.  Bearish comments coming 
from Wall Street regarding the Retail sector did not give KSS a 
chance to rebound and the stock remained under the $60 level all 
week.  Friday morning KSS was hit really hard by the worse than 
expected August retail sales report.  The stock came reasonably 
close to our initial target of $55 but bounced at expected 
support near its 200-dma.  

Bears can be encouraged to see KSS back under its simple 50-dma 
but the big intraday rebound on Friday does not make this look 
like an entry point for new plays.  The trend in September has 
been down and this big one-day reversal candle could be 
forecasting another change in trend.  The $60 level, which became 
new resistance this week, should hold so conservative traders can 
reduce their risk by adjusting their stop.  We are going to lower 
ours to $61.01.

We would probably look for new entries on another failed rally 
below $60 or a move back under $58.00.

Suggested Options:
Short-term option traders will probably want to use the October 
strikes.  There are January and April strikes available but we're 
not looking that far ahead.

! Warning, September options EXPIRE on Friday!

BUY PUT OCT 60 KSS-VL OI=2072 at $3.70 SL=1.75
BUY PUT OCT 55 KSS-VK OI=3079 at $1.45 SL=0.75

Annotated Chart:


 

Picked on September 9 at $59.35
Change since picked:     - 0.92
Earnings Date          08/14/03 (confirmed)
Average Daily Volume:       2.9 million 
Chart =



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

None


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The Option Investor Newsletter                   Sunday 09-14-2003
Sunday                                                      4 of 5


In Section Four:

Leaps: I Give Up!
Traders Corner: The Long Term QQQ ITM Strangle Continues


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*****
LEAPS
*****

I Give Up!
By Mark Phillips
mphillips@OptionInvestor.com

Recall the opening to last week's commentary? "If at first you 
don't succeed... 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."  Well, I've been trying to play the downside 
in this market long enough that I now capitulate.  I give up!  
There, that ought to be the final sign the markets are waiting for 
in order to tip over and once again leave me with egg on my face.

After a very full week of studying charts and other data and 
reflecting on what has been driving my continued leaning towards 
the bearish side these past several months, I came to the 
conclusion that it was an erroneous bias.  I've made no secret of 
the fact that I think this market should go down and go down hard.  
But what I think doesn't matter one whit to the market.  There are 
three factors that determine the direction of any given stock or 
the overall market - Fundamentals, Technicals and Sentiment.

By my read, the fundamentals in the economy, the market and for 
most stocks is still weak.  I've gone into my rationale for this 
view in the past, so I don't want to dwell on it here today.  
Suffice to say, I have yet to see the catalyst for sustained 
growth, any reversal to the unemployment trend, the poor capacity 
utilization rates, corporate debt, the huge unfunded pension 
liability in corporate America, and the list goes on.  About the 
only thing going for the bulls is the record low interest rates 
and the unprecedented flood of liquidity being supplied by the Fed 
in its all-out battle against deflation.  If the Fed wins, then 
the natural result should be inflation, which will then have to be 
fought with rising interest rates.  If that happens before true 
sustained economic growth, then the picture won't be pretty -- 
rising inflation and interest rates with stagnant growth is the 
recipe for stagflation.  I know many of you remember what fun that 
was in the 1970s.  But I'm getting carried away.  The bottom line 
is that I see the current fundamentals as negative for the economy 
and the stock market.

Next up are the technicals.  While there is always a way to make 
the technical picture suit one's personal bias, I think we can all 
agree that the overall technical view is bullish.  Whether looking 
at individual stocks, specific sectors or the overall market, we 
have patterns of higher highs and higher lows, a plethora of new 
52-week highs and barely a handful of new 52-week lows, long term 
resistance levels being broken and volume patterns tending to 
favor the bulls.  Any attempt to paint the technical picture as 
bearish right now (as I have been trying to do for quite some 
time) is an attempt to pick at top in a rising market.  Over the 
past 3 years, that has been a lucrative practice and I expect it 
to be again sometime soon.  But right now, it is a losing 
proposition.

If those two factors were all we have to work with, then we could 
say that perhaps there is a stalemate, with the bulls winning 
short-term and the bears having the ultimate victory longer term.  
But then we have the third factor of Sentiment.  Something I am 
being forced to rediscover is that sentiment (how most investors 
feel about the market) can frequently trump both technicals and 
fundamentals.  Think back to the summer of 2002.  Sentiment was 
overwhelming fundamentals as everything was being sold together, 
whether a given stock had solid or weak fundamentals, and in many 
cases caused major breakdowns in technically strong stocks.  Take 
a look at the charts of JNJ and PG in that period of time.  They 
had been channeling steadily higher until early June and then got 
pummeled lower as the sentiment in the overall market changed 
dramatically.  JNJ lost 35% between the first of May and mid-July, 
while PG shed more than 21% from 6/19-7/19.  Both of these 
declines commenced from technically healthy chart patterns as 
sentiment changed dramatically.

No matter how you look at things right now, sentiment is extremely 
bullish, as the financial analysts are trumpeting the rise of a 
new bull market, and investors that took a bath in the past 3 
years are being lured by the siren's song of winning back all 
their losses in the new bull.  I've seen reports that trumpet the 
call of new highs for all the major market averages by the end of 
2004.  Do I believe it?  Not on your life!  But if there are 
enough investors and money managers that believe it, then it 
becomes a self-fulfilling prophecy in the near term and the market 
continues to rise, whether on not it should, based on the 
technicals and fundamentals.

I still think the CBOE Volatility index (VIX.X) is giving us a 
huge warning sign that downside risks are large, but that won't 
preclude the VIX from trolling along in the 18-22 area for a 
period of weeks or months with the market slowly rising until the 
tipping point arrives.  Let me be perfectly clear here.  A low VIX 
does not in and of itself signal a market top.  What it does do is 
give us a reading on how heavily skewed market sentiment is to 
either the bullish or bearish side, based on investors' propensity 
to either buy puts or calls.  When it falls below 20, it signals 
excessive complacency and that the risks are weighted to the 
downside - this is a clear warning that bullish traders need to be 
aggressive about protecting profits.

Another sentiment indicator that I occasionally mention is the 
American Association of Individual Investors poll, which is a 
pretty accurate representation of the crowd's psychology.  As of 
last week, the latest numbers came in with 71.4% bullish and 8.6% 
bearish.  That seemed pretty extreme to me too!  Anybody want to 
guess the last time it was that bullish?  Just weeks before the 
1987 crash!  Does that mean that we are just weeks away from a 
market crash?  Not on your life!  But it does tell us the risk is 
there.  I mentioned several weeks ago that I had moved all of my 
family's long-term investment/retirement funds to cash.  One might 
wonder if I feel foolish about that in light of the fact the 
market has continued to rise.  My answer is an unequivocal "NO"!  
I didn't make that move based on an expectation of an imminent 
crash but out of prudence because the risks of that happening were 
too high for my comfort.

I'm not even going to touch on the bullish percents this weekend.  
Suffice to say they are still extremely overbought, showing that 
the bulls are carrying the bulk of the risk in the current market.  
You sure wouldn't know that to look at the price action, would 
you?  Painful grin.  I am going to delve into a different view on 
the Bullish Percents in next week's Trader's Corner article 
though, so if you're interested, I'll see you there.

My market bias continues to be quite bearish, but in light of my 
study and reflection over the past week, I can no longer in good 
conscience present such a biased and lop-sided selection of play 
candidates.  So starting this week, we're going to be running with 
the bulls until such time as they stumble and fall.  Then we'll 
revive some of our favorite bearish play candidates.  But I'm done 
trying to pick tops in this forum until market action demonstrates 
that is a prudent strategy once again.

Portfolio:

BBH - Did you take advantage of any of the intraday weakness in 
the Biotechs last week to close our your BBH position?  Good!  
With the BBH tapping our $138 stop on several occasions last week, 
it seems like we're fighting the trend and I'm dropping the play 
this weekend.

LEH - Due to an oversight of mine, I neglected to appropriately 
tighten the stop on LEH based on developments on the PnF chart.  
With the Brokers breaking out and a new PnF Buy signal on LEH, it 
is definitely time to pull the plug on this failed bearish play.

Watch List:

WMT - So, did I screw up and idle our WMT play just in time to 
miss the optimum entry point that I had been targeting up near 
$60?  Perhaps, but I think it was the prudent course of action.  
WMT had just moved through strong resistance at $57-58, gave a new 
PnF Buy signal and looked more bullish than bearish.  Add in the 
fact that the Retail index (RLX.X) has yet to break down out of 
its rising channel from the March lows and contrary to the initial 
play writeup, I think we're premature in fishing for a bearish 
play here.  At a minimum, we need to see the RLX break and close 
below its 50-dma (which is right at the bottom of its channel), 
and at the same time get a PnF Sell signal from WMT.  Right now, 
it looks like that will require another rally up to the $60 area 
and then a subsequent breakdown under $56.  It's time to be 
patient.

QQQ - I actually contemplated just pulling the plug on these 
bearish Technology plays, but decided that it would be prudent to 
keep them close at hand, just in case the sentiment truly does 
change in favor of the bears.  QQQ has been channeling higher 
since the middle of March, with only a brief penetration of the 
lower channel line in early August.  So we're going to keep the 
play alive, but require some proof of weakness before getting our 
paws wet.  At this point, the critical development would be a 
break below the bottom of the channel ($32.00) and below the 50-
dma ($32.04).  Realistically though, I think we're going to need 
to see a break below $30 (1200 on the NDX) before we'll really be 
able to make a bearish case for QQQ.  Watching from the sidelines 
is still the preferred strategy and it has the added benefit of 
now having us in a losing position.

SMH - If anything, the picture presented by the SMH is even more 
bullish than that seen on the QQQ, as it has broken solidly above 
the top of its rising channel and is now using that upper channel 
line as support, rather than resistance.  In order to give us a 
favorable bearish picture, SMH would need to break back inside the 
channel, then violate its 50-dma ($33.55) and then break back 
under $32 (currently the bottom of the channel.  That's a lot of 
work for the bears to accomplish, especially when the PnF chart is 
on a strong Buy signal, with a bullish price target of $55.  I'm 
not yet willing to pull the plug on this play, but I am quite 
happy to keep it on Hold, pending further price action.

Radar Screen:

HD - I'm still sitting on the fence as far as HD is concerned, but 
it does look more bearish than bullish.  The $35 level is strong 
resistance (PnF bearish resistance line) and the $30 level is 
strong support.  A break below $30 will be necessary to generate a 
PnF Sell signal, and I think we need to see that happen before 
casting our lot to the downside.  Watch and wait is my preferred 
course of action.

FNM - With bonds rising again, FNM investors seem to have breathed 
a huge collective sigh of relief.  The stock quickly rose back to 
the $70 level and after a brief pullback looks poised for the next 
leg of its upward journey.  I'm in no hurry to initiate a bearish 
play with the weekly Stochastics in full bullish ascent and a 
fresh PnF Buy signal that comes complete with a bullish price 
target of $86.  FNM will have to prove its bearish intentions with 
price weakness to get my attention and I'm thinking seriously of 
removing it from the Radar Screen next week.

QCOM - Let's get bullish!  It's been a long time since shares of 
QCOM visited this column, and it looks like it might be time.  The 
stock is breaking out of its nearly year-long consolidation 
between $30-43 and is looking quite bullish on the PnF view with a 
quadruple top breakout.  That breakout is still fairly young, but 
a pullback to test and confirm $40 as newfound support would go a 
long ways towards solidifying this breakout.

FRX - It certainly hasn't been a very positive summer for shares 
of FRX, but the picture appears to be changing for the better.  
Off sharply from its $62 June highs, the stock is also up 
significantly from its $42 August lows.  Stuck in the middle and 
right at the 200-dma is not what I would call an advisable place 
to be initiating new bullish positions.  But with the weekly 
Stochastics turning clearly bullish and a fresh PnF Buy signal 
(bullish target of $70), there's clearly some re-emerging strength 
here that deserves our attention.  I'll be looking for a pullback 
into the $46-47 area as a viable bullish entry in the weeks ahead.

Closing Thoughts:

Being the astute readers you all are, I'm sure you took notice of 
the fact that I've abandoned my practice of predicting what I 
expect in terms of broad market action.  This is likely a 
temporary shift, but I felt that our discussion above was far more 
important than any gesticulating over where I THINK the market is 
headed.  Technically, the market action is bullish and will remain 
so until the S&P 500 breaks back under 960, the DOW breaks 8900 
and the NASDAQ-100 breaks 1200.  As long as those long-term levels 
of support hold, then bullish positions in the right sectors and 
stocks should be the preferred strategy.  Over the next few weeks 
we'll endeavor to align our Watch List and Portfolio in that 
direction, while leaving ourselves in a position to play the 
downside if those support levels should give way.

The other important reason from stepping back from the broad 
market prediction is that I feel I've been spending too much time 
on that activity and not enough on picking winning LEAPS plays.  
Our primary focus here needs to be in making money through winning 
trades, and prognosticating broad market action may or may not be 
conducive to that effort.  When I think it is helpful, we'll 
definitely include it.  But it will now only be included where 
appropriate, not as a matter of habit.  I want our focus to be on 
profitable trading, not on expounding on why the market should do 
what we want.

I know we've really made a large course change from just a couple 
weeks ago, but I think it is appropriate.  As I stated in last 
week's Trader's Corner article, doing the same thing over and over 
and expecting different results is the definition of insanity.  So 
we're making a big change here.  I'm taking my market biases and 
putting them in cold storage until such time as they begin to be 
aligned with the action in the broad market.  In the meantime, 
we'll put our efforts into what is important -- listening to the 
language of the markets, and accordingly trading in a profitable 
manner.

See you next week!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
None

Puts:
None


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
AGN    09/14/03   $82          JAN-2004 $ 85  ZFH-AQ
                            CC JAN-2004 $ 80  ZFH-AP
                               JAN-2005 $ 90  YOK-AR
                            CC JAN-2005 $ 80  YOK-AP
AMGN   09/14/03   $66          JAN-2004 $ 70  ZAM-AN
                            CC JAN-2004 $ 65  ZAM-AM
                               JAN-2005 $ 70  WAM-AN
                            CC JAN-2005 $ 60  WAM-AL


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

AGN - Allergan, Inc. $81.02  **Call Play**

I must confess that AGN is one stock that has always puzzled me.  
Try as I might, I have always been at a loss to understand how the 
stock can continue to move so strongly, despite being unable to 
turn a real profit.  Sure the quarterly EBITDA (Earnings Before I 
Trick Dumb Accountants) has continued to grow quarter after 
quarter, but look at the actual real net cashflow and it is 
negative.  But look at the price chart and AGN looks ready to bust 
out big time.  Why the dichotomy?  It's what we were discussing 
above -- sometimes sentiment rules and clearly AGN is expected to 
do great things in the future.  Perhaps not quite on the success 
scale of the Botox treatment that fueled AGN's rise in the past, 
but perhaps enough to reach that elusive century mark.  The stock 
is trading just below its July highs and prior to that, the stock 
hasn't seen the north side of $80 since July of 2000.  Looking at 
the PnF chart shows a stock threatening to break out and if it can 
trade $82, we'll have a fresh Buy signal to work with and an 
accompanying tentative bullish price target of $95.  If it can 
trade $95, then why not $100?  It goes against my normal 
preference in the LEAPS column to buy the dips, but I think the 
only prudent way to play AGN is on the breakout.  So we'll set an 
entry trigger at $82 and go long at that point, looking for a 
strong rally to unfold.  This is a more aggressive play to be 
sure, and with it comes a much wider stop as well.  The stock has 
been consolidating in the $76-82 area for the past 3 months, so 
we'll set our stop at $75.50, just below the low end of that 
range.  Traders unwilling to buy into the breakout over $82 can 
wait for a subsequent pullback to enter on a rebound from the $80-
81 area, as the bulls demonstrate that old resistance is newfound 
support.

BUY LEAP JAN-2005 $85 ZFH-AQ
BUY LEAP JAN-2005 $80 ZFH-AP **Covered Call**
BUY LEAP JAN-2006 $90 YOK-AR
BUY LEAP JAN-2006 $80 YOK-AP **Covered Call**

AMGN - Amgen, Inc. $68.52  **Call Play**

It has been awhile since we played AMGN, but I'm sure many of you 
remember with fondness the success we had to the long side last 
spring as we rode it from $60 up to $72.  We had some solid 
technicals in our favor that time around and while the landscape 
is different now, I think the bullish prospects for the stock are 
just as bright.  With the BBH (dropped this weekend) giving a 
bullish triangle breakout on the PnF chart, the sector picture is 
bullish.  AMGN has been consolidating for the past two months and 
has been mired in a trading range between $65-70 for the past 
several weeks.  But it could just be that this consolidation is 
simply a basing action in preparation for a run at new all-time 
highs.  Yes, you read that right, new all-time highs.  To be fair, 
the standard scale PnF chart is still technically bearish with a 
bearish price target of $60.  But if we look at the 2-point box 
size chart, we have an image of a very strong stock that has just 
been consolidating a powerful bullish run.  Here, we still have a 
bullish price target of $82 at work.  On the standard price chart, 
AMGN appears to be finding very strong support near $65 (the site 
of former resistance) and on Friday the stock closed back above 
the 50-dma.  Note also that weekly Stochastics are just beginning 
to turn upwards in a short-cycle bullish reversal.  The real key 
will be whether AMGN can get back over $70, but I think that's 
simply a matter of time.  I'm going to set two possible entry 
strategies in motion.  The first and most aggressive would be to 
enter on a dip to and successful rebound from the $66 level.  This 
is aggressive because we're taking a position before AMGN has 
demonstrated strong bullishness by printing a new PnF Buy signal.  
The more conservative strategy will be to enter on a breakout 
above the $70 level, which would give us both the PnF Buy signal, 
as well as a confirmed breakout of what currently looks like a 
double-bottom formation on the candle chart.  AMGN won't be a fast 
mover, but that is one of the things that makes it such a good 
candidate for the LEAPS column.  It has a propensity for slow and 
steady gains.  Let's see if the bulls can continue to deliver that 
sort of price action.  Once the play is entered, we'll look to set 
a stop at $64, as a trade below that level would force us to 
acknowledge that perhaps the bulls are losing their nerve.  Our 
upside target will be for a move into the $80-82 area, in line 
with the target on the larger-scale PnF chart.

BUY LEAP JAN-2005 $70 ZAM-AN
BUY LEAP JAN-2005 $65 ZAM-AM **Covered Call**
BUY LEAP JAN-2006 $70 WAM-AN
BUY LEAP JAN-2006 $60 WAM-AL **Covered Call**


Drops

BBH - $137.69 Biotechnology stocks remained strong throughout last 
week, beginning with the strong upward surge on Monday.  While the 
BBH couldn't quite manage a close over the $138 level, it did tap 
that price on several occasions during the week.  A quick glance 
at the PnF chart is all the convincing I needed to abandon this 
bearish play.  After a broad consolidation, BBH has broken out to 
new highs, giving a Bullish Triangle breakout on the PnF chart and 
the stock has now taken on a renewed bullish appearance.  Rather 
than battle the rising tide, we'll take our lumps and close out 
the play for a loss as of Friday's close

LEH - $68.13 Unfortunately, I neglected to look at the PnF chart 
for LEH last weekend and if I had, I would have noticed the 
important change in the landscape.  with the reversal down and 
then back up in late August, the level at which LEH would have 
given a new Buy signal dropped to $67.  Armed with that 
information, I would have dropped the play last weekend, so I am 
regrettably late in this drop.  LEH is on a Buy signal, the XBD 
index has broken out and momentum appears to be building to the 
upside.  LEH is still underperforming the XBD index, but the stock 
is still rising after failing to deliver the breakdown I was 
expecting, and now is the time to cut our losses.


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The Long Term QQQ ITM Strangle Continues
By Mike Parnos, Investing With Attitude

I know many CPTI students have enjoyed, and profited from, their 
monthly Quickies, but I wanted to continue our discussion of the 
long term ITM QQQ Strangle.  It's a good long-term strategy that 
can generate a nice amount of cash during the life of the 
position.

As a matter of fact, let's put this position in our official CPTI 
portfolio so we can monitor it on a regular basis - and make 
money, too.  At the end of this column, we'll outline the new 
position, based on Friday's closing numbers instead of Thursday's.

In Review
On Thursday, in Part One, we bought the January 05 QQQ $38 puts 
and the January 05 QQQ $28 calls for a total of  $14.40.  Then we 
sold the October QQQ $33 puts and the October $33 calls for a 
total credit of $2.50.

What we've created with our long LEAPS options is a range ($28 to 
$38) in which the QQQs can bounce around.  As the 16 months go by, 
we will be selling near term puts and calls against the long puts 
and calls.

Our initial risk is only $4.40 for the 16 months because by owning 
the $38 puts and $28 calls, we have a built in intrinsic value of 
$10.  Every month that we sell near term puts and calls against 
the longs, we will be reducing some of that risk.  It may take a 
few months to totally wipe out the $4.40, but then the rest is P-
R-O-F-I-T - and that spells money.

What Do We Know For Sure?
One thing we know is that the chances of the QQQs finishing 
exactly at $33 are slim and none - and slim just left town.  That 
means that we will HAVE TO ACT, but not until the last few days 
prior to near term expiration.  

Design Your Own Position
This long term ITM Strangle is very flexible.  You can pretty much 
design it based on your personal preferences.  There are those who 
will choose not to sell at-the-money near term puts and calls, but 
rather create a small range ($32-$34, $33-$35, etc).  They will 
take in less premium, but will still have to face the fact that an 
action in the last few days before expiration is the prudent thing 
to do - even if the QQQs are within the small range.  

Why buy back a QQQ option that is going to expire worthless in two 
days?  Let's say it's Wednesday.  The QQQs are at $34 and you have 
the $33-$35 range.  Both near term puts and calls are worth a 
nickel ($.05).   Take a look at the premiums for the same strike 
prices for the next month.  What's going to happen to these time 
premiums after another four or five days?  Will they be less?  
Hell, yes.  AND, they will erode by a lot more than a nickel.  
Depending on the volatility in the market, they may erode $.10-
$.20.  So, it pays to spend the nickel and put the $.10-$.20 in 
your pocket.  That's money that will not be available to you after 
expiration if you wait.

If you have an upward market bias, you can create a long LEAPS 
range of $39 to $29 or even $40 to $30, although I wouldn't advise 
it.  Remember, at the CPTI, we try not to pick directions. 

It's "What if . . ." Time
Let's look at how our proposed trade will work with a variety of 
scenarios.  These scenarios will be based on our having sold both 
the $33 puts and $33 calls.  Also, these scenarios will be based 
on the time frame being the Thursday prior to expiration Friday.  
Keep in mind that the rollout prices are projections and may vary.  
What if . . .

1. QQQs are at $33?  Will this happen?  Probably not, but, if it 
does, you will: 
a) Buy the $33 puts back for $.10 and roll them out to the Nov. 
$33 puts for about $1.15.  You can 
b) Buy the $33 calls for $.10 and roll out to the Nov. $33 calls 
for about $1.15.  
c) Total new premium credit = $2.10

2) QQQs are at $35?  
a) The  $33 calls can be bought back for $2.05 and rolled into the 
$33 Nov. calls for $2.30 (+ $.25 time premium).  
b) The $33 puts can be bought back for a nickel and rolled out to 
the $35 ATM puts for $1.15.   
c) Total new premium credit = $1.40.

3) QQQs are at $29?   Obviously, it's best if the QQQs remain 
within the $28-$38 trading range as long as possible.  Why?  
Because when we have to establish a new trading range, we will 
incur a bit of a loss.  See below: 
a) Buy back the $33 put for $4.05.  
b) Buy back the $33 call for a nickel.  
Unless you believe the market will reverse, it's time to adjust 
the long LEAPS.
c) Sell the 2005 $38 put for $10.00
d) Sell the 2005 $28 call for $ $4.60
e) Buy the $34 puts for $7.30
f) Buy the $24 calls for $7.10
The cost of adjusting the LEAPS is about a wash.  What you get for 
selling the $28 & $38 LEAPS would be about $14.60.  Re-
establishing with a new $10 range would cost about $14.40.
g) Sell the Nov. $29 puts for about $1.20
h) Sell the Nov. $29 calls for about $1.20
i) Total premium credit = $2.40
The cost of buying back the original $33 puts and calls is about 
$4.10.  We will bring in $2.40 when we sell the new $29 puts and 
calls.  The loss for the month we establish a new trading range 
will be about $1.70.  But, hopefully, the new trading range will 
last for a number of months and we'll earn back the $1.70 quickly.

The Return?
Some months you'll make $2 on your original $14.40 investment, 
some months you'll make $1.20, others you'll make $.85 and 
occasionally you'll lose $1.70 in a month when you create a new 
trading range.  Our objective is to average 7-8% per month - which 
translates to about 85-100% a year.
_____________________________________________________________

New CPTI Portfolio Position
Let's make it official.  The QQQs finished at $33.82, so premiums 
have changed a little from our Thursday example.  Plus, we're not 
going to sell the same strikes for the puts and calls.  It's a 
matter of personal preference . . . and this is mine (for what 
it's worth).
Buy 10 contracts of the 2005 QQQ $39 puts @ $7.00 = $7,000
Buy 10 contracts of the 2005 QQQ $29 calls @ $7.30 = $7,300
Total debit of $14,300
Sell 10 contracts of the QQQ Oct. 33 puts @ $.85 = $850
Sell 10 contracts of the QQQ Oct. 34 calls @ $1.05 = $1,050
Total credit of $1,900
_____________________________________________________________

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

September Position #1 - SPX Iron Condor - SPX @ 1018.63
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 
taken in more money.   At 1018.63, the SPX has moved up.  We still 
have a decent cushion and it's time for a pullback, so we'll keep 
the faith - at least for now.

September Position #2 - COF Sell Straddle - COF @ $ 58.67
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 were the parameters of 
our profit range.  Maximum potential profit was, again, $4,850.  

A lot can happen in five weeks of exposure to market movement - 
and did.  On 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.   It was seemingly a wise move because COF 
finished Thursday @ $58.67 - far beyond our upside

September Position #3 - HPQ (Hewlett Packard) Bear Put Spread - 
(Replacement) - HPQ at $20.08.
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 (Replacement) - OEX - Bearish Calendar 
Spread - OEX @ $512.30
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.
__________________________________________________________

New To The CPTI?
Are you a new Couch Potato Trading Institute student?  Do you have 
questions about our educational plays or our strategies?  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


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The Option Investor Newsletter                   Sunday 09-14-2003
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Stock Stages Explained -- Part II
Naked Puts: Develop A Plan For Success
Spreads/Straddles/Combos: Stocks Close Higher Amid Late-Session Rally

Updated In The Site Tonight:
Market Posture: Traders Hit Snooze and Miss Friday's Session


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

Trading Basics: Stock Stages Explained -- Part II
By Mark Wnetrzak

One of our readers offered some great comments on the use of
"stage analysis" to identify entry and exit signals in stocks.


Attn: markw@OptionInvestor.com
Subject: Stage II -- Now What?

Mark,

When I read your article this regarding the different stages
stocks go through based on Stan Weinstein's book, I just had to
ask you a few questions.  After reading his book this summer I
wanted to apply what I learned by trading a stock on a breakout
after a lengthy basing stage.

Earlier this summer I started purchasing shares of WWCA after
it broke out of it's base.  The correct entry would have been
at $7 but I decided to wait for confirmation and got in later
at $11.45.  I purchased 1,000 shares with the plan to sell
calls once it hit $20.  After watching this stock's options
trade with like zero volume I began to feel less confident
about that strategy.  My conservative self took over and I
took half off the table at $17.50.  Now I am sitting on some
pretty good unrealized profits still as the stock has caught
fire and is now starting to capture more attention in the form
of analyst's upgrades.

My question has to do with the appropriate time to sell and
or hedge my unrealized profits.  Waiting for a breakdown of
the 30 week moving average down around the price at which I
entered makes no sense as I would give back some healthy
unrealized gains.  Selling calls on the stock I own would be
fine unless the stock decides to correct in which case I would
want to be hedged with some low cost puts just in case.  Either
one of those strategies would very likely lock in profits at
this level from either being called out or moving back down
with the calls expiring worthless and the protective puts
hedging my downside.

My desire is to hold onto the stock as it is making a nice
break from a long term base looking like it has the potential
to really take off.  The chart pattern broke from its base on
strong volume and now looks like a classic rounding bottom.
As I write this I realize that I will probably try to hold on
to the stock and hedge my profits with protective puts.

I would really like to hear from someone with an objective
view since I really have no one to discuss strategies like
this with.  If I am whacked you could save me from myself.
Since you mentioned the book and the different stages, I
thought you might be able to weigh in with some of your own
ideas on my thought process.  You may have noticed my omitting
any fundamental information.  I use technical analysis as my
primary filter in selecting stocks although I will mention
that IBD has this puppy rated at 99 with an A+.  Western
wireless provides wireless services to rural customers and
has a large contract with AT&T.  Earlier this year they paid
off significant debt and just recently had strong revenue
numbers come in from it's European subsidiary.

I realize this is pretty long winded but if you get the time
I sure would like to know your thoughts. I have enjoyed your
stuff in OI.  I am one of those who reads everything out there
every week.  All of you do a wonderful job in not only your
analysis but more importantly in teaching by imparting your
knowledge on a most challenging subject.

Thanks,

Sko


Hello Sko!

First, thank you for the kind words.  Hopefully, we at the
OIN will continue to live up to your praise as we strive to
produce the best "options-trading" newsletter on the Internet
and at a reasonable price.

Sko, you are dealing with what afflicts everyone - defining
your personal risk-reward tolerance, and it looks like you
are doing a great job.  After entering a position, most
professional traders reduce their exposure to loss, either by
taking partial profits or hedging the position.  Remember the
clich‚, "You can't go broke taking profits!"  It looks like
you did that but feel guilty about lost profits as the stock
continued to move up.  But what if the stock had subsequently
collapsed?

Every trader has to deal with the emotional impact of "selling
too soon" but that is better than the pain of "why didn't I
take profits sooner!"  Most professionals start out with a set
trading system which they eventually adjust and fine-tune to
fit their personality.  What do they use when a stock is in a
strong up-trend?  There are many choices and you must find one
that works for you: A simple trend-line; maybe a shorter-term
MA that hasn't been violated (20-, 30-, 50-, 100-day MA); as
you said, protective puts or taking partial profits as the
stock rises; a trailing stop that rises every day/week for a
preset percentage and forces a selling decision, etc.  There is
no "perfect" plan as there is a risk of loss in all trading
strategies.

In Stan Weinstein's book, he generally uses a 30-week MA for
an investment position (1 to 2 years) until the stock enters
Stage III, and then he recommends tightening stops.  Yet even
Stan waxed philosophically about whether it is better to trade
or invest, or to consider a mixed approach.  He even mentions
taking partial profits on stocks that spike way above their
30-week MAs (read page 193).

What can one conclude from all this?  That each individual
must establish a trading plan that fits their own personal
risk-vs-reward tolerance.  That one must remain disciplined
and strive to remove emotion from their trading decisions.
That one must endeavor to be flexible as conditions change
while at the same time attempting to limit the risk of loss
through proven money-management techniques.  Finally, that
there isn't one perfect strategy, but we must always struggle
to develop techniques as complete and faultless as possible.

Best Regards,

Mark W.
OIN

Editor's note:  Ok readers, if you have a specific strategy
that could help Sko, please send it to:

markw@OptionInvestor.com

We welcome any and all comments on option trading techniques
and will happily discuss them in this column.



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

CBST    13.51   13.34  SEP 12.50  1.50    0.49*   8.9%
PLXT     5.25    5.83  SEP  5.00  0.60    0.35*   8.2%
IPXL    15.16   14.99  SEP 15.00  0.70    0.53    8.0%
WAVX     3.46    3.41  SEP  2.50  1.20    0.24*   7.7%
XOMA     8.09    8.93  SEP  7.50  1.30    0.71*   7.6%
FWHT    25.56   27.18  SEP 25.00  1.40    0.84*   7.6%
TER     20.11   20.46  SEP 20.00  0.75    0.64*   7.2%
PLUG     5.13    4.99  SEP  5.00  0.45    0.31    7.1%
ENER    10.39   13.06  SEP 10.00  1.10    0.71*   6.6%
EMBT    10.25   10.20  SEP 10.00  0.65    0.40*   6.3%
NWAC     8.30   10.83  SEP  7.50  1.40    0.60*   6.3%
EPNY     5.07    5.81  SEP  5.00  0.40    0.33*   6.1%
NEOF    12.45   16.21  SEP 12.50  0.90    0.95*   6.0%
FLML    28.49   37.13  SEP 25.00  4.40    0.92*   5.8%
WAVX     3.20    3.41  SEP  2.50  0.85    0.15*   5.5%
MCRL    12.60   13.22  SEP 12.50  0.65    0.55*   5.0%
IBIS    10.70   12.12  SEP 10.00  1.00    0.30*   4.7%
USG     14.11   15.99  SEP 12.50  2.35    0.74*   4.6%
XOMA     9.45    8.93  SEP  7.50  2.25    0.30*   4.5%
ITMN    19.01   21.00  SEP 17.50  2.00    0.49*   4.4%
VSAT    15.09   16.06  SEP 15.00  0.80    0.71*   4.3%
TKLC    15.46   17.85  SEP 15.00  1.15    0.69*   4.2%
CCRN    15.60   15.90  SEP 15.00  1.00    0.40*   4.2%
ISIS     5.33    7.20  SEP  5.00  0.60    0.27*   4.1%
RFMD     8.07   10.13  SEP  7.50  0.90    0.33*   4.0%
SNIC    11.18   14.75  SEP 10.00  1.70    0.52*   4.0%
ADLR    13.96   15.95  SEP 12.50  1.90    0.44*   4.0%
GSIC    11.52   10.14  SEP 10.00  1.95    0.43*   3.9%
CREE    16.30   16.08  SEP 15.00  1.75    0.45*   3.4%
TALK    15.34   14.40  SEP 15.00  0.80   -0.14    0.0%
KVHI    30.99   28.88  SEP 30.00  1.85   -0.26    0.0%
SIB     22.60   20.92  SEP 22.50  0.90   -0.78    0.0%

*   Stock price is above the sold striking price.

Comments:

The major averages failed to make any headway this week; neither
up nor down.  The "model" covered-call portfolio continues to do
quite well and may even be causing some "call-selling" regret in
Cubist Pharmaceuticals (NASDAQ:CBST), which announced after hours
Friday that it has received FDA approval for its new antibiotic.
As we move into the last week of the September expiration period,
monitor closely those issues that are testing key support areas:
GSI Commerce (NASDAQ:GSIC) -- 50-day MA; Cree (NASDAQ:CREE) -- 30-
and 50-day MAs; and Staten Island Bancorp (NYSE:SIB) -- 50-day MA.
As always, re-evaluate any stocks you may own after next week and
act accordingly.

Positions Previously Closed: Cerus (NASDAQ:CERS)

 
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

SCMR    5.20  OCT  5.00  SMZ JA  0.65  832    4.55  35   8.6%
ARIA    5.24  OCT  5.00  UAQ JA  0.60  220    4.64  35   6.7%
CHU     7.43  OCT  7.50  CHU JU  0.50  422    6.93  35   6.3%
VXGN    6.50  OCT  5.00  UWG JA  1.80  1095   4.70  35   5.5%
THOR   16.83  OCT 15.00  TQU JC  2.70  2463  14.13  35   5.4%
HEPH   26.29  OCT 22.50  QGQ JX  4.90  277   21.39  35   4.5%
DSCM    7.99  OCT  7.50  QKS JU  0.85  0      7.14  35   4.4%


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).

*****
SCMR - Sycamore  $5.20  *** New Government Contract? ***

Sycamore Networks (NASDAQ:SCMR) develops and markets intelligent
optical networking products that enable telecommunications service
providers to cost-effectively transform the capacity created by
their fiber-optic networks into usable bandwidth to deliver a
broad range of telecommunications services.  Their software-based
intelligent optical switching products are designed to enable
service providers to leverage their optical network infrastructure 
to deliver a broad range of end-to-end services to meet the
bandwidth intensive needs of data applications.  The company's
products incorporate intelligent optical networking software,
synchronous optical networking/synchronous digital hierarchy
(SONET/SDH) functionality, dense wave division multiplexing 
(DWDM) technology and network management.  Shares of Sycamore
Networks jumped to a 2-1/2 year high Friday on reports that
the company may have won a portion of a government contract
worth as much as $900 million over two years.  We simply favor
the breakout above near-term resistance on heavy volume and
traders can use this position to speculate conservatively on
the company's future.

OCT-5.00 SMZ JA LB=0.65 OI=832 CB=4.55 DE=35 TY=8.6%


*****
ARIA - Ariad  $5.24  *** New Drug Speculation ***

Ariad Pharmaceuticals (NASDAQ:ARIA) is engaged in the discovery
and development of breakthrough medicines that regulate cell 
signaling with small molecules.  Breakthrough medicines are
products created de novo that may be used to treat diseases in
innovative ways.  The company is developing a comprehensive 
approach to the treatment of cancer.  It is primarily focused
on a series of product candidates for targeted indications:
AP23573, which is in Phase I development, to treat solid tumors
and other malignancies; AP23464, which is intended to block the
spread of cancer and to treat certain forms of leukemia, and
AP23841, which is intended to treat cancer that has spread to
bone, as well as to treat primary bone cancers, such as osteogenic
sarcomas.  Ariad is another stock which has recently rallied above
near-term resistance on heavy volume.  The move suggests further
upside potential in the near-term and traders can profit from that
outcome with this position.

OCT-5.00 UAQ JA LB=0.60 OI=220 CB=4.64 DE=35 TY=6.7%


*****
CHU - China Unicom  $7.43  *** Pure Internet Speculation ***

China Unicom (NYSE:CHU) is a telecommunications operator in China,
offering a wide range of telecommunications services, including 
cellular, international and domestic long-distance, data, Internet
and paging services.  The controlling shareholder, Unicom Group,
has the exclusive license to offer code division multiple access
(CDMA) cellular services in China.  Unicom has constructed CDMA
networks nationwide and completed construction of the initial
phase of its CDMA network at the end of 2001.  China Unicom,
including Unicom New Century, has leased capacity on the network
and operates the CDMA network in the cellular service areas.
China Unicom recently announced a stronger-than-expected rise in
first-half earnings thanks to robust subscriber growth at its
Little Smart wireless service and broadband divisions.  This 
very speculative position offers reasonable reward at the risk of
owning China Unicom shares near a technical support level.

OCT-7.50 CHU JU LB=0.50 OI=422 CB=6.93 DE=35 TY=6.3%


*****
VXGN - VaxGen  $6.50  *** Bio-Terror Play ***

VaxGen (NASDAQ:VXGN) is a biopharmaceutical company engaged in
the development, manufacture and commercialization of biologic
products for the prevention and treatment of human infectious
disease.  The company is developing preventive vaccines against
anthrax, smallpox and HIV/AIDS and is the largest shareholder
in Celltrion Inc., a joint venture to build biopharmaceutical
manufacturing operations.  Celltrion was formed by VaxGen and
certain South Korean investors to provide manufacturing of 
complex proteins made through mammalian-cell fermentation. 
This type of manufacturing is used to make many of the drug
products developed by the biotechnology industry, including
monoclonal antibodies and therapeutic proteins.  Products under
development by VaxGen include an anthrax vaccine, a smallpox 
vaccine and the AIDSVAX AIDS vaccine.  VaxGen rallied strongly
on Friday as analysts speculated that the company will benefit
from U.S. government spending on vaccines.  Investors who agree
can use this position to target-shoot a cost basis closer to
technical support.

OCT-5.00 UWG JA LB=1.80 OI=1095 CB=4.70 DE=35 TY=5.5%


*****
THOR - Thoratec  $16.83  *** Expecting News On Monday! ***

Thoratec (NASDAQ:THOR) offers 2 complementary circulatory support
product lines, the Thoratec Ventricular Assist Device system 
(Thoratec VAD system), an external device for short- to mid-term 
cardiac support, and the HeartMate Left Ventricular Assist system
(HeartMate), an internal device for longer-term cardiac support. 
In addition to its cardiac assist products, the company offers
vascular access grafts used in hemodialysis for patients with
end-stage renal disease.  The company is also developing a small
diameter access graft for use in coronary artery bypass graft
surgery.  In addition, the company sells whole-blood coagulation
testing equipment used in bedside anticoagulation management, 
coagulation screening and skin incision devices for the drawing 
of blood from adult, children and infant patients.  Thoratec 
expects to hear from U.S. regulators by Monday on whether the
U.S. Medicare health program will extend payment for additional
patients for its costly implanted heart pump.  Investors can use
this position to speculate on the outcome.

OCT-15.00 TQU JC LB=2.70 OI=2463 CB=14.13 DE=35 TY=5.4%


*****
HEPH - Hollis-Eden  $26.29  *** On The Move! ***

Hollis-Eden Pharmaceuticals (NASDAQ:HEPH), a development-stage
pharmaceutical company, is engaged in the discovery, development
and commercialization of products for the treatment of immune
system disorders and hormonal imbalances.  HEPH's development
efforts target a series of indications in which the body is 
unable to mount an appropriate immune response: radiation and
chemotherapy induced immune suppression and immune dysregulation
caused by infectious diseases such as HIV, malaria and tuberculosis.
The company's initial technology development efforts are focused
on a series of potent hormones and hormone analogs that are key
components of the body's natural regulatory system.  Hollis-Eden
continues to rally higher on heavy volume and conservative 
investors can use this position to obtain an entry point closer
to technical support.

OCT-22.50 QGQ JX LB=4.90 OI=277 CB=21.39 DE=35 TY=4.5%


*****
DSCM - Drugstore.com  $7.99  *** Rally Mode! ***

Drugstore.com (NASDAQ:DSCM) is an online drugstore and information
web site focused on health, wellness, beauty, personal care and
pharmacy products and related information.  Located on the Web at
www.drugstore.com, the company sells health, beauty, wellness and
pharmacy products.  DSCM also sells prestige beauty products
through Beauty.com, an online retailer located at www.beauty.com,
and sexual well-being products through its Website located at 
www.sexualwellbeing.com.  During 2002, Drugstore.com organized
its operations into 2 principal business segments: over-the-counter
health, beauty and wellness products (non-pharmaceutical segment)
and prescription drugs (pharmaceutical segment).  The Internet
sector remains bullish and this position offers traders who think
the rally will continue a method to profit from that outcome.

OCT-7.50 QKS JU LB=0.85 OI=0 CB=7.14 DE=35 TY=4.4%


*****


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

NKTR   13.83  OCT 12.50  QNX JV  2.40  3077  11.43  35   8.1%
ABTL   10.02  OCT 10.00  BCU JB  0.85  50     9.17  35   7.9%
TWTC    7.50  OCT  7.50  JMQ JU  0.60  169    6.90  35   7.6%
ADLR   15.95  OCT 15.00  UAH JC  2.05  3036  13.90  35   6.9%
ASKJ   21.29  OCT 20.00  AUK JD  2.55  2272  18.74  35   5.8%
CRYP   10.55  OCT 10.00  UFW JB  1.10  149    9.45  35   5.1%
IMMU    8.64  OCT  7.50  QUI JU  1.55  173    7.09  35   5.0%
GOLD   23.93  OCT 22.50  GUD JX  2.55  6     21.38  35   4.6%
OXGN   11.90  OCT 10.00  QYO JB  2.35  453    9.55  35   4.1%
LWSN    8.01  OCT  7.50  QPA JU  0.85  229    7.16  35   4.1%
USG    15.99  OCT 12.50  USG JV  4.00  1072  11.99  35   3.7%




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

Options 101: Develop A Plan For Success
By Ray Cummins

One of the most common requests we receive is how to develop a
trading plan and what strategies it should include.

When it comes to constructing a profitable arsenal of trading
techniques, no single method or procedure will work for every
market participant.  Each trader has his (or her) own needs and
requirements.  Issues and concerns that may be important to one
person can be of very little significance for another.  The only
principle that applies to everyone is that traders must identify
their strengths and limitations and structure their approach to
the market accordingly.

One of the initial stages in creating a successful trading plan
is assessing your financial situation.  The easiest way to begin
this process is to define your objectives and constraints.  That
means establishing a target portfolio return and risk tolerance
level.  Time is an important factor in this regard as it can be
both an ally and an enemy.  With short-term positions, it is more
difficult to recover from substantial losses but the returns are
generally higher.  Strategies with a longer-term outlook have a
greater chance for success, however they usually produce lower
relative profits.  In addition, the longer the time horizon, the
more risk the entire portfolio can tolerate as there is ample
opportunity to recover from unexpected losses.  Regardless of the
methods you choose, an acceptable risk-reward profile should be
established before any strategy is initiated.  The overall level
of downside potential must be proportionate to the size of the
portfolio and its primary purpose.  The fundamental question is,
"How much do you expect to earn on a monthly (percentage) basis
and is your trading capital sufficient to absorb the occasional
draw-downs necessary to yield that amount?"  By combining your
profit objective with the appropriate risk tolerance, a set of
primary guidelines can be established for your trading system.

In order to determine the appropriate trading strategy, you must
identify the potential for profit with each individual technique.
In most cases, it is relatively easy to estimate the returns you
can expect from a particular approach through the use of trading
models and historical results.  You can also examine the returns
from similar techniques and calculate the maximum profit and the
break-even points for a specific position with scenario analysis.
A number of inexpensive software products are available for this
type of research and there are also some (free) web-based models
that provide basic option pricing and volatility analysis.  These
tools can help you determine an expected overall return for your
portfolio, based on how much capital you devote to each position.
Of course, the amount of risk exposure you are willing to endure
should play an important role when you select specific strategies
for your option trading arsenal.  There is a definite trade-off
between risk and reward and most people do best with techniques
that are low cost and offer a reasonable probability of a high
(potential) reward.  That reason is, one winning play can offset
a number of losing positions.  In contrast, low risk strategies
are often limited profit as well, and although the probability
of loss is remote, the amount of downside potential is too great
to warrant the risk.

The process of developing a profitable approach to trading in the
market is dynamic and constantly changing.  For that reason, the
the final step in the procedure can also be the most difficult.
This phase involves measuring and comparing the success of your
trading tactics to other popular systems and current benchmarks.
If the results are favorable, only small alterations are needed
to maintain the integrity of the system and adapt it to current
conditions.  However, if your current strategies are not yielding
the returns necessary to achieve portfolio targets, you may need
to conduct additional analysis and make some adjustments to bring
the system up to a minimal level of performance.  If a thorough
overhaul of the process fails to yield noticeable improvements, it
may be time to consider another approach altogether.

Good Luck!



SUMMARY OF PREVIOUS CANDIDATES 
*****

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

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

GNTA    16.20   14.25  SEP 12.50  0.45    0.45*   8.1%  26.5%
AMSC    13.20   12.31  SEP 10.00  0.70    0.70*   6.5%  18.2%
CBST    12.72   13.34  SEP 10.00  0.50    0.50*   4.6%  14.3%
NEOF    16.40   16.21  SEP 15.00  0.35    0.35*   5.2%  13.8%
GNTA    16.00   14.25  SEP 10.00  0.30    0.30*   4.7%  13.0%
RIMM    24.61   31.96  SEP 20.00  0.75    0.75*   2.8%   9.1%
RIMM    28.48   31.96  SEP 25.00  0.50    0.50*   3.1%   9.0%
SINA    34.32   37.41  SEP 30.00  0.40    0.40*   2.9%   8.9%
TIVO    10.91   10.02  SEP 10.00  0.30    0.30*   3.4%   8.7%
OVTI    43.77   44.14  SEP 35.00  0.95    0.95*   2.4%   8.5%
CVTX    27.33   25.82  SEP 25.00  0.35    0.35*   3.1%   8.5%
THER    13.93   14.27  SEP 12.50  0.55    0.55*   3.3%   8.5%
DRIV    28.75   27.12  SEP 25.00  0.30    0.30*   2.6%   8.1%
NFLX    34.55   34.57  SEP 30.00  0.35    0.35*   2.6%   7.9%
RIMM    28.74   31.96  SEP 25.00  0.60    0.60*   2.7%   7.8%
NTAP    22.36   22.17  SEP 20.00  0.35    0.35*   2.7%   7.7%
IDTI    13.10   14.40  SEP 12.50  0.35    0.35*   3.1%   7.6%
FLML    28.49   37.13  SEP 22.50  0.30    0.30*   2.1%   7.6%
BLUD    23.12   26.25  SEP 22.50  1.00    1.00*   3.4%   7.5%
BOBJ    27.05   27.49  SEP 25.00  0.45    0.45*   2.8%   7.4%
SEPR    21.76   29.75  SEP 17.50  0.50    0.50*   2.1%   7.3%
NFLX    28.80   34.57  SEP 25.00  0.55    0.55*   2.4%   7.2%
TKLC    13.73   17.85  SEP 12.50  0.45    0.45*   2.7%   6.9%
PHTN    28.90   31.23  SEP 25.00  0.65    0.65*   2.3%   6.8%
SRNA    18.77   18.88  SEP 17.50  0.40    0.40*   2.5%   6.5%
JDAS    13.90   16.77  SEP 12.50  0.40    0.40*   2.4%   6.4%
UTEK    25.75   29.69  SEP 22.50  0.55    0.55*   2.2%   6.3%
SEPR    23.49   29.75  SEP 20.00  0.45    0.45*   2.0%   6.2%
PDII    24.25   23.85  SEP 20.00  0.50    0.50*   1.9%   6.1%
NFLX    33.33   34.57  SEP 27.50  0.30    0.30*   1.7%   5.8%
IMCL    46.56   46.44  SEP 40.00  0.30    0.30*   1.6%   5.3%
BRCM    25.80   27.01  SEP 22.50  0.35    0.35*   1.7%   5.2%
PSUN    22.37   21.14  SEP 20.00  0.23    0.23*   1.8%   5.1% **
AEIS    21.02   22.54  SEP 17.50  0.30    0.30*   1.5%   5.0%
PHTN    29.57   31.23  SEP 25.00  0.35    0.35*   1.5%   5.0%

*  Stock price is above the sold striking price.
** Adjusted for a 3-2 Split

Comments:

Despite Friday's late rally, all three indexes ended lower for
the week as investors took profits from the recent rise in share
values.  The near-term outlook is somewhat ambiguous with the
technical indications suggesting a bullish bias while analysts
are saying the market is overvalued at current levels.  With the
quarterly earnings season approaching, it is certainly prudent
to be especially vigilant in position management.  Issues on the
early-exit "watch" list include CV Therapeutics (NASDAQ:CVTX),
Genta (NASDAQ:GENTA), and Pacific Sunwear (NASDAQ:PSUN).

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

EMIS    6.19  OCT  5.00  MTQ VA 0.35 70     4.65  35   6.5%  18.6%
ADLR   15.95  OCT 12.50  UAH VV 0.50 4367  12.00  35   3.6%  11.8%
STAT   14.58  OCT 12.50  TAQ VV 0.40 2     12.10  35   2.9%   8.4%
ASKJ   21.29  OCT 17.50  AUK VW 0.45 889   17.05  35   2.3%   7.6%
NKTR   13.83  OCT 10.00  QNX VB 0.25 45     9.75  35   2.2%   7.2%
INSP   19.92  OCT 17.50  IOU VW 0.35 53    17.15  35   1.8%   5.2%
GOLD   23.93  OCT 20.00  GUD VD 0.35 0     19.65  35   1.5%   5.1%


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).

*****
EMIS - Emisphere  $6.19  *** Rally Underway! ***

Emisphere Technologies (NASDAQ:EMIS) is a biopharmaceutical
company engaged in solving one of the most challenging technical
hurdles in the pharmaceutical industry: the oral delivery of
medicines, which, for a variety of reasons, cannot be offered to
patients directly in an oral form.  EMIS has pioneered the oral
delivery of otherwise injectable drugs, including proteins,
peptides, polysaccharides and other compounds not deliverable by
oral means.  These drugs present challenges for oral delivery
because they are often large molecules, which are inactivated in
the gastrointestinal tract, have limited ability to cross cell
membranes and generally cannot be delivered orally.  There is no
"public" news to explain the recent rally in EMIS shares but the
heavy-volume buying pressure suggests further upside potential.
Traders who perform the appropriate due-diligence may find this
position to be attractive in a speculative options portfolio.

OCT-5.00 MTQ VA LB=0.35 OI=70 CB=4.65 DE=35 TY=6.5% MY=18.6%


*****
ADLR - Adolor  $15.95   *** New 52-Week High! ***

Adolor (NASDAQ:ADLR) is a development stage biopharmaceutical
company specializing in the discovery, licensing, acquisition,
development and commercialization of prescription pain management
products.  The company has a number of small molecule product
candidates that are in various stages of development ranging
from preclinical studies to Phase 3 clinical trials.  Adolor's
lead product candidate, alvimopan, selectively blocks unwanted
effects of opioid analgesics on the gastrointestinal tract.
Alvimopan is a potential first-in-class compound that is being
evaluated in acute and chronic indications, which includes the
management of postoperative ileus and for reversal of the severe
constipating effects associated with the chronic use of opioids.
Shares of ADLR hit a 52-week high Friday and the recent buying
pressure suggests additional upside potential in the near-term.

OCT-12.50 UAH VV LB=0.50 OI=4367 CB=12.00 DE=35 TY=3.6% MY=11.8%


*****
STAT - i-STAT  $14.58  *** New Product Marketing Approvals! ***

i-STAT Corporation (NASDAQ:STAT) develops, manufactures and sells
diagnostic products for blood analysis that provide health care
professionals critical diagnostic information accurately and
immediately at the point of patient care.  Through the use of
advanced semiconductor manufacturing technology, established
principles of electrochemistry and state-of-the-art computer
electronics, i-STAT developed the first hand-held automated blood
analyzer capable of performing a panel of commonly ordered blood
tests on two or three drops of blood, generally in just two to
three minutes at the patient's side.  i-STAT recently announced
it has received U.S. Food and Drug Administration clearance to
market two new products: a kaolin-based activated clotting time
(kaolinACT) test and a 10-minute Cardiac Troponin I (cTnI) test.
The news is definitely favorable and traders who believe the FDA
approvals will translate to higher share values should consider
this position.

OCT-12.50 TAQ VV LB=0.40 OI=2 CB=12.10 DE=35 TY=2.9% MY=8.4%


*****
ASKJ - Ask Jeeves  $21.29  ***  Hot Sector! ***

Ask Jeeves (NASDAQ:ASKJ) is a provider of natural language
question answering technologies and services.  The company's
proprietary technology creates an interaction centered on
understanding users' specific needs and interests and 
connecting them to the most relevant information, products
and services.  Specifically, its natural language technology
allows users to ask a question in plain English (or another
language) and receive a response pointing to relevant answers.
The company serves its customers through its two divisions, 
Web Properties and Jeeves Solutions.  Stocks in the Internet
information group are "hot" and ASKJ has been one of the best
performing issue on the NASDAQ for over a year.  Traders who
think the bullish trend will continue in the near-term should
consider this position.

OCT-17.50 AUK VW LB=0.45 OI=889 CB=17.05 DE=35 TY=2.3% MY=7.6%


*****
NKTR - Nektar Therapeutics  $13.83  *** Drug Speculation ***

Nektar Therapeutics (NASDAQ:NKTR) provides industry-leading drug
delivery technologies, expertise and manufacturing to enable the
development of high-value, differentiated therapeutics.  Nektar's
advanced drug delivery capabilities are designed to enable the
firm's biotechnology and pharmaceutical partners to solve drug
development challenges and realize the full potential of their
therapeutics, from developing new molecular entities to managing
the lifecycles of established products.  A number of drug makers
are working to advance the insulin market and Aventis (NYSE:AVE)
is now testing Nektar Pharmaceuticals' oral insulin in Phase III
trials.  Traders who believe the outcome will be favorable should
consider this position.

OCT-10.00 QNX VB LB=0.25 OI=45 CB=9.75 DE=35 TY=2.2% MY=7.2%


*****
INSP - Infospace  $19.92  *** Merger/Buyout Candidate? ***

InfoSpace (NASDAQ:INSP) develops and delivers a wireless and
Internet platform of software and application services to a
range of customers that span each of its wireline, merchant
and wireless business units.  Many of the company's products
and application services are offered to its customers, which,
in turn, offer these products and application services to their
customers as their own solutions.  InfoSpace provides its many
services across multiple platforms, including personal computers
and non-PC devices.  Investors are speculating on a potential
buyout offer for INSP and analysts say suitors are considering
Infospace because of its strong balance sheet, low valuation
relative to cash flow, tech assets, and $300 million in cash.
Traders who agree with a bullish outlook for the firm's share
value in the near-term should consider this position.

OCT-17.50 IOU VW LB=0.35 OI=53 CB=17.15 DE=35 TY=1.8% MY=5.2%


*****
GOLD - Randgold Resources  $23.93  *** Broad Market Hedge! ***

Randgold Resources (NASDAQ:GOLD) is engaged in surface gold
mining, exploration and related activities.  Its activities are
focused on West Africa.  The company has discovered the seven
million-ounce Morila deposit and the 1.5 million-ounce Yalea
Deposit in Mali and the three million-ounce Tongon deposit in
the Cote d'Ivoire.  The company developed the Morila deposit
into a high-margin gold mine that, in 2002, produced just over
one million ounces.  Randgold has advanced feasibility projects
at Loulo in Mali and Tongon in Cote d'Ivoire.  In addition, it
has a portfolio of prospective exploration projects in Mali,
Cote d'Ivoire, Senegal and Tanzania.  This position in GOLD is
an excellent play for traders who want a broad-market hedge in
their options portfolio.

OCT-20.00 GUD VD LB=0.35 OI=0 CB=19.65 DE=35 TY=1.5% MY=5.1%


*****


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

DNDN    8.74  OCT  7.50  UKO VU 0.35 519    7.15  35   4.3%  11.7%
CELL   27.50  OCT 22.50  ULN VX 0.80 17    21.70  35   3.2%  10.2%
CAL    17.98  OCT 15.00  CAL VC 0.55 812   14.45  35   3.3%  10.0%
SINA   37.41  OCT 30.00  NOQ VF 0.90 435   29.10  35   2.7%   9.3%
IMCL   46.44  OCT 40.00  QCI VH 1.25 530   38.75  35   2.8%   8.1%
JCOM   42.50  OCT 32.50  JQF VZ 0.80 229   31.70  35   2.2%   7.5%
NFLX   34.57  OCT 27.50  QNQ VY 0.65 1988  26.85  35   2.1%   7.5%
IBIS   12.12  OCT 10.00  UIB VB 0.25 25     9.75  35   2.2%   7.3%
PKN    18.96  OCT 17.50  PKN VW 0.50 36    17.00  35   2.6%   6.6%
MERQ   48.16  OCT 42.50  RQB VS 0.90 490   41.60  35   1.9%   5.4%
MSFT   28.34  OCT 27.50  MSQ VY 0.65 61415 26.85  35   2.1%   5.1%
APPX   38.74  OCT 30.00  AQO VF 0.45 150   29.55  35   1.3%   4.8%


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


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

Stocks Close Higher Amid Late-Session Rally
By Ray Cummins

The major equity averages ended on a bullish note Friday as buying
pressure emerged during the final two hours of trading.

The Dow Jones industrial average closed 11 points higher at 9,471
with solid performances seen in Alcoa (NYSE:AA), Dupont (NYSE:DD),
and General Motors (NYSE:GM).  The technology-laden NASDAQ ended
8 points higher at 1,855 with software industry stalwart Microsoft
(NASDAQ:MSFT) leading the advance after announcing it will double
its annual dividend.  The broader Standard & Poor's 500 Index rose
2 points to 1,018 with aluminum, homebuilding, managed healthcare,
casino & gaming, and chemicals among the popular groups.  Winners
outnumbered losers 3 to 2 on the New York Stock Exchange with only
1.2 billion shares traded.  Advancers outpaced decliners 4 to 3 on
the NASDAQ, where 1.7 billion shares changed hands.  The U.S. bond
market finished the session with gains across the yield curve and
the 10-year note up 16/32, bringing its yield down to 4.25%.

*****************
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   40.54  SEP   30  35   0.65  34.35  $0.65   Open
BOW     38.57   43.85  SEP   30  35   0.60  34.40  $0.60   Open
MXIM    39.11   42.23  SEP   30  35   0.65  34.35  $0.65   Open
BBY     47.90   50.94  SEP   40  42   0.30  42.20  $0.30   Open
JCI     96.49   99.00  SEP   85  90   0.65  89.35  $0.65   Open
MBI     53.13   55.34  SEP   45  50   0.65  49.35  $0.65   Open
WMT     57.77   57.48  SEP   50  55   0.50  54.50  $0.50   Open
BSX     63.25   61.40  SEP   50  55   0.40  54.60  $0.40   Open
SNPS    66.53   64.53  SEP   55  60   0.50  59.50  $0.50   Open
ISIL    27.58   28.05  SEP   22  25   0.30  24.70  $0.30   Open
POWI    32.08   35.08  SEP   25  30   0.55  29.45  $0.55   Open
VIA     44.64   43.82  SEP   40  42   0.30  42.20  $0.30   Open
AMZN    46.32   45.68  SEP   40  42   0.25  42.25  $0.25   Open
GS      88.48   90.73  SEP   80  85   0.40  84.60  $0.40   Open
TTWO    29.81   35.71  SEP   25  27   0.30  27.20  $0.30   Open
SYMC    59.45   59.48  SEP   50  55   0.40  54.60  $0.40   Open
AMLN    29.04   28.60  OCT   22  25   0.30  24.70  $0.30   Open
MERQ    49.41   48.16  OCT   40  42   0.30  42.20  $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

ESRX    62.23   60.78   SEP   75  70   0.60  70.60  $0.60   Open
DB      59.64   64.56   SEP   70  65   0.60  65.60  $0.60   Open
AMGN    66.48   68.52   SEP   75  70   0.35  70.35  $0.35   Open
MEDI    34.58   37.67   SEP   40  37   0.25  37.75  $0.08   Open
CTX     75.42   72.72   SEP   85  80   0.40  80.40  $0.40   Open
DNA     79.40   83.46   SEP   90  85   0.50  85.50  $0.50   Open
CAH     56.36   57.50   OCT   65  60   0.65  60.65  $0.65   Open
PFE     30.51   31.90   OCT   35  32   0.25  32.75  $0.25   Open
XL      76.05   74.80   OCT   85  80   0.60  80.60  $0.60   Open

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

Previously closed spreads in Intuit (NASDAQ:INTU) and Investors
Financial Services (NASDAQ:IFIN) are profitable (Murphy's Law!).
SAP AG (NYSE:SAP) has been closed to limit losses.  Deutsche Bank
AG (NYSE:DB), Genentech (NYSE:DNA), and MedImmune (NASDAQ:MEDI),
which offered a great exit opportunity on Friday, are now on the
"watch" list.


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

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

MWD     48.54  48.86  SEP   40  45   4.45   44.45  0.55   Open
MGAM    24.97  27.04  SEP   20  22   2.30   22.30  0.20   Open
MUR     52.94  57.43  SEP   45  50   4.45   49.45  0.55   Open
CTSH    31.90  37.06  SEP   25  30   4.40   29.40  0.60   Open
ERTS    89.97  89.27  SEP   80  85   4.50   84.50  0.50   Open
HTCH    33.02  34.17  OCT   25  30   4.50   29.50  0.50   Open
AVII     5.54   5.29  DEC    5   7   0.90    5.90 (0.61)  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  72.46  SEP   75  70   4.10   70.90 (1.56) Closed

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

As mentioned last week, traders in the "Reader's Request" spread
on Hershey Foods (NYSE:HSY) should evaluate their risk-reward
outlook to determine when to exit the play.  Our closing trade
was initiated on Tuesday for a smaller-than-published loss.


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

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

SHPGY   22.77  22.78   JAN     30    17     0.00    0.20    Open?
AVCT    27.83  30.04   SEP     30    25    (0.10)   1.30    Open?
ADRX    20.79  21.75   DEC     25    17    (0.20)   0.15    Open
CVTX    27.55  25.82   OCT     35    20    (0.10)   0.00    Open

The new position in CV Therapeutics (NASDAQ:CVTX) is at a "key"
moment and a move to the downside would suggest an early exit in
the speculative position.  Avocent (NASDQ:AVCT) has been a solid
performer with a potential credit of up to $1300 on $950 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  24.49   OCT-20C   SEP-22C   1.90    2.25    Open?
MSFT    27.31  28.34   JAN-27C   SEP-27C   1.20    1.50    Open
NE      34.86  34.56   DEC-37C   SEP-37C   1.15    1.50    Open
ING     19.07  20.56   JAN-20C   SEP-20C   0.75    1.00    Open
NSM     22.77  34.20   JAN-20C   SEP-25C   3.90    5.30    Open?
MDCO    26.17  29.41   JAN-30C   SEP-30C   1.50    2.40    Open
GNTA    13.95  14.25   OCT-12C   SEP-15C   2.00    2.40    Open?
PRU     36.41  36.46   DEC-37C   SEP-37C   1.10    1.25    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
position in Brady Pharmaceuticals (NYSE:BDY) is no 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  36.99   OCT    30    30     3.75    7.00    Open
AMTD    10.00  11.98   OCT    10    10     1.45    2.40    Open?
TRI     30.50  32.11   NOV    30    30     4.90    5.00    Open
ADBE    34.36  39.53   SEP    35    35     2.80    4.80    Open?
BBY     50.08  50.94   SEP    50    50     4.05    4.90    Open?
CLS     17.55  17.71   OCT    17    17     2.35    3.10    Open
NVDA    18.17  19.35   OCT    17    17     2.90    3.50    Open
PDCO    54.42  55.42   SEP    55    55     2.35    2.20    Open

Sony (NYSE:SNE) and Ameritrade (NASDAQ:AMTD) were "big" winners
this month.  Adobe Systems (NASDAQ:ADBE) has also performed better
than expected and straddle plays in Best Buy (NYSE:BBY), Celestica
(NYSE:CLS), Nvidia (NASDAQ:NVDA) 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
******************
TRADING STRATEGIES
******************

Opening a new position is the easiest thing in the world.  The
hard part comes when you are faced with the decision to exit
the position.  Many of my clients have been asking about the
different ways to exit a spread positions.  I will try to give
readers some of my insights with regards to Credit Spreads.

Credit spreads are, until expiration, a limited risk position.
When the position is initiated, the risk and reward outlook is
predefined.  Personally, I like to hold credit spreads all the
way to expiration.  As a trader, I am aware of the worst case
in this scenario and I adjust the number of contracts to match
my risk tolerance before placing the initial order.  In addition,
I utilize software (available to clients as well) that can help
quantify the probability of the stock moving beyond the short
option before expiration.  As expiration nears, I encourage my
clients to monitor the short option for favorable opportunities
to close that position.  This is the exposure leg of the trade.
Once this portion of the spread is closed, the risk ends and
there may be an unexpected gain in the long position.  When the
sold option is trading at $0.10 or less, the risk/reward outlook
is skewed against you, and although it may be "wasted money" to
close this position, it usually allows for some better sleeping.

Many of people who try to "leg-out" or "roll" the spreads will be
exiting at a market top or bottom.  I prefer a more conservative
approach -- sticking with the position until expiration.  Then I
can make a decision based on the market conditions at that time.
I may close the entire position or roll the spread to the next
expiration period.  Another benefit of waiting until expiration
is the fact that the time value in the options will be near zero.
This is one of the primary components of option pricing that we
are trying to take advantage of when using credit spreads.

Next week, I will address "Naked" Puts and Index Options.

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

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

OneStopOption Strengths:
 
* Dedicated option brokerage with "live" option principals/brokers
* Order routing to "best-priced" exchange and timely executions
* All types of orders (stop/limit/OCO) to encourage disciplined
  trading and proper money management
* Advanced option trading level approval for inexperienced traders
* Foreign accounts including Canada -- Futures trading available
* Direct electronic trading and personalized customer services
* Ability to filter recommendations and provide strategy advice
* Free OIN subscription for those who qualify (based on account
  size and portfolio activity)

Get Execution, Education, and Option Experience at OneStopOption

Visit their new site -- www.onestopoption.com -- or send an E-mail
to: Aaronson@OptionInvestor.com

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

*****
BBH - Biotechnology Holdrs Trust  $137.69  *** Biotech Boom! ***

The Biotechnology Holdrs Trust (AMEX:BBH) is a unique instrument
that represents an investor's ownership in the stock of specified
companies in the biotechnology sector.  HOLDRS allow investors to
own a diversified group of stocks in a single investment that is
highly transparent, liquid and efficient.  Each HOLDR is a fixed
basket of 20 stocks (except the Telebras HOLDR, which holds 12
companies).  They work operate much like ADRs; American Depositary
Receipts, which allow U.S. investors to purchase foreign-owned
companies on the U.S. exchanges in dollar denominated amounts.  In
just the same way, the investor actually owns the shares of each
underlying company, receives dividends, proxies, and annual reports
from each.  The HOLDRs are not managed, and once the companies and
amounts have been determined they are fixed, no companies will be
substituted.  In this way, the HOLDRs differ somewhat from Spiders
(SPDRs), or Standard & Poor Depositary Receipts and other exchange
traded funds, which will add and delete stocks on a regular basis,
usually in conjunction with an index that they are tracking.

A complete explanation of this issue, including the companies that
make up each HOLDRS' particular industry, sector or group can be
found here:

http://www.holdrs.com/holdrs/main/index.asp?Action=Definition

BBH - Biotechnology Holdrs Trust  $137.69

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-120.00  BBH-VD  OI=2329  ASK=$0.65
SELL PUT  OCT-125.00  BBH-VE  OI=2149  BID=$1.10
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$124.50


*****
CELG - Celgene  $45.48  *** New Patents! ***

Celgene (NASDAQ:CELG) is a commercial-stage biopharmaceutical
company.  The company is primarily engaged in the discovery,
development and commercialization of small molecule drugs that
are designed to treat cancer and immunological diseases through
gene and protein regulation. Small molecule drugs are man-made,
chemically synthesized drugs that, because of their relatively
small size, can typically be administered orally.  The firm's
drugs are designed to modulate multiple disease-related genes,
including cytokines (which are proteins) such as Tumor Necrosis
Factor alpha, or TNF(alpha), growth factor genes such as those
that control angiogenesis, blood vessel formation and apoptosis
genes.  Because the company's drugs can be administered orally,
they have the potential to advance the standard of care beyond
current injectible protein drugs that inhibit TNF (alpha) and
other disease-causing cytokines.

CELG - Celgene  $45.48

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-35.00  LQH-VG  OI=1266  ASK=$0.25
SELL PUT  OCT-40.00  LQH-VH  OI=590   BID=$0.70
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$39.50


*****
MYL - Mylan Laboratories  $39.00  *** All-Time High! ***

Mylan Laboratories (NYSE:MYL) is engaged in developing, licensing,
manufacturing, marketing and distributing generic and brand
pharmaceutical products.  The company conducts business through
its generic and brand pharmaceutical operating segments.  The
Generic segment consists of two principal business units, Mylan
Pharmaceuticals and UDL Laboratories, both of which are wholly
owned subsidiaries.  The Brand segment consists of two principal
business units, Bertek Pharmaceuticals and Mylan Tech, both of
which are wholly owned subsidiaries.  Bertek's primary therapeutic
areas of concentration are neurology, dermatology and cardiology.

MYL - Mylan Laboratories  $39.00

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-32.50  MYL-VZ  OI=1873  ASK=$0.25
SELL PUT  OCT-35.00  MYL-VG  OI=694   BID=$0.50
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$34.75


*****
SINA - SINA Corporation  $37.41  *** Internet Sector Strength! ***

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.

SINA - SINA Corporation  $37.41

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-25.00  NOQ-VE  OI=681  ASK=$0.40
SELL PUT  OCT-30.00  NOQ-VF  OI=435  BID=$0.90
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$29.50


*****
APC - Anadarko Petroleum  $42.70  *** Next Leg Down? ***

Anadarko Petroleum (NYSE:APC), through RME Petroleum Company,
RME Holding Company, Anadarko Canada Energy, Anadarko Canada
Corporation, RME Land and Anadarko Algeria Company, is a global
independent oil and gas exploration and production company.  The
The company's major areas of operations are located in the United
States, primarily in Texas, Louisiana, the mid-continent region
and the western states, Alaska and in the shallow and deep waters
of the Gulf of Mexico, as well as in Canada and Algeria.  APC is
also active in Venezuela, Qatar, Oman, Egypt, Australia, Tunisia,
Congo and Gabon.

APC - Anadarko Petroleum  $42.70

PLAY (moderately aggressive - bearish/credit spread):

BUY  CALL  OCT-47.50  APC-JW  OI=2870  ASK=$0.70
SELL CALL  OCT-45.00  APC-JI  OI=5278  BID=$1.10
INITIAL NET-CREDIT TARGET=$0.40-$0.50
POTENTIAL PROFIT(max)=19% B/E=$45.40


*****
CNF - CNF Inc.  $28.87  *** Trading Range? ***

CNF Inc. (NYSE:CNF) is a $4.8 billion management company of global
supply chain services with businesses in regional trucking, air
freight, ocean freight, customs brokerage, logistics management
and trailer manufacturing.  While CNF transports freight for many
of its customers, for an increasing number of them the company is
taking on a much larger role.  Today the CNF companies are assuming
total management of the complex transportation and information
networks required for companies to get all of the raw materials
they need in the door not just on the right day, but at the right
time of day.  CNF also focuses on effectively managing warehouses,
completing final configuration, packaging products and distributing
the finished goods with the same timing and precision.

CNF - CNF Inc.  $28.87

PLAY (moderately aggressive - bearish/credit spread):

BUY  CALL  OCT-32.50  CNF-JZ  OI=43   ASK=$0.35
SELL CALL  OCT-30.00  CNF-JF  OI=318  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.35-$0.45
POTENTIAL PROFIT(max)=16% B/E=$30.35


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

*****
APPX - American Pharma Partners  $38.74  *** On The Move! ***

American Pharmaceutical Partners (NASDAQ:APPX) is a specialty
drug company that develops, manufactures and markets injectable
pharmaceutical products, focusing on the oncology, anti-infective
and critical care markets.  The company is one of the largest
producers of injectables, with more than 130 generic products in
more than 350 dosages and formulations.  APPX has acquired the
exclusive North American rights to manufacture and market ABI-007,
a proprietary nanoparticle injectable oncology product that has
completed Phase III clinical trials for metastatic breast cancer
and for which the FDA has granted "Fast Track" designation.  The
NDA submission has commenced and it is anticipated that the entire
submission will be completed in 2003.  The company believes that
it has established the only commercial scale protein-engineered
nanoparticle manufacturing capability in the United States.

APPX - American Pharma Partners  $38.74

PLAY (less conservative - bullish/debit spread):

BUY  CALL  OCT-30.00  AXD-JF  OI=51   ASK=$9.40
SELL CALL  OCT-33.37  AXD-JV  OI=652  BID=$6.40
INITIAL NET-DEBIT TARGET=$2.90-$2.95
POTENTIAL PROFIT(max)=14% B/E=$32.95


*****
HEPH - Hollis-Eden Pharmaceuticals  $26.29  *** Rally Mode! ***

Hollis-Eden Pharmaceuticals (NASDAQ:HEPH), a development-stage
pharmaceutical company, is engaged in the discovery, development
and commercialization of products for the treatment of immune
system disorders and hormonal imbalances.  HEPH's development
efforts target a series of indications in which the body is 
unable to mount an appropriate immune response: radiation and
chemotherapy induced immune suppression and immune dysregulation
caused by infectious diseases such as HIV, malaria and tuberculosis.
The company's initial technology development efforts are focused
on a series of potent hormones and hormone analogs that are key
components of the body's natural regulatory system.

HEPH - Hollis-Eden Pharmaceuticals  $26.29

PLAY (less conservative - bullish/debit spread):

BUY  CALL  OCT-20.00  QGQ-JD  OI=36   ASK=$7.10
SELL CALL  OCT-22.50  QGQ-JX  OI=277  BID=$4.90
INITIAL NET-DEBIT TARGET=$2.10-$2.20
POTENTIAL PROFIT(max)=14% B/E=$22.20


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

*****
GLGC - Gene Logic  $6.00  *** Bottom-Fishing! ***

Gene Logic (NASDAQ:GLGC) is a contract service provider to
pharmaceutical, biotechnology, and institutional researchers
worldwide combining extensive experience in sample collection
and data analysis of gene expression information and expertise
in preclinical safety and pharmacology studies and clinical
trial consulting services.  Service offerings are designed to
improve the predictive value of research and pharmaceutical
product development success rates.

GLGC - Gene Logic  $6.00

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  NOV-7.50  CYV-KU  OI=240  ASK=$0.40
SELL PUT   NOV-5.00  CYV-WA  OI=95   BID=$0.20
INITIAL NET-DEBIT TARGET=$0.05-$0.10
INITIAL TARGET PROFIT=$0.30-$0.50

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $170 per contract.  However, do not
open this position if you can not afford to purchase the stock at
the sold put strike price ($5.00).


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

*****
EASI - Engineered Support  $59.70  *** A Reader's Request! ***

Engineered Support Systems (NASDAQ:EASI) is a diversified supplier
of high-tech, integrated military electronics, support equipment
and logistics services for all branches of America's armed forces
and certain foreign militaries.  It has nine subsidiaries: Systems
and Electronics, Engineered Air Systems, Keco Industries, Radian,
Engineered Coil Company, Engineered Electric Company, Universal
Power Systems, ESSIbuy.com and Engineered Specialty Plastics.  The
firm's products are manufactured within three operating segments:
light military support equipment, heavy military support equipment
and electronics and automation systems.
 
EASI - Engineered Support  $59.70

PLAY (speculative - neutral/debit straddle):

BUY CALL  NOV-60.00  UFE-KL  OI=47  ASK=$4.30
BUY PUT   NOV-60.00  UFE-WL  OI=90  ASK=$4.40
INITIAL NET-DEBIT TARGET=$8.30-$8.50
INITIAL TARGET PROFIT=$2.90-$3.50


*****
AFCI - Advanced Fibre Comm.  $22.66  *** Probability Play! ***

Advanced Fibre Communications (NASDAQ:AFCI) develops, manufactures
and supports a family of telecommunications access products and
services.  The firm's products and services enable the connection
between the central office switches of telecommunications service
providers and their end users for voice and high-speed Internet,
data and video communications.  Their products include integrated
multi-service access platforms, central office switching platforms,
optical add-drop multiplexers, integrated access devices, network
element management systems and cabinets, as well as many related
professional services.

AFCI - Advanced Fibre Comm.  $22.66

PLAY (speculative - neutral/debit straddle):

BUY CALL  OCT-22.50  AQF-JX  OI=215  ASK=$1.65
BUY PUT   OCT-22.50  AQF-VX  OI=124  ASK=$1.55
INITIAL NET-DEBIT TARGET=$3.00-$3.10
INITIAL TARGET PROFIT=$0.85-$1.45


*****


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