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Daily Newsletter, Thursday, 09/18/2003

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The Option Investor Newsletter                Thursday 09-18-2003
Copyright 2003, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: NYSE Hurricane
Futures Markets: Cinders
Index Trader Wrap: See Note
Market Sentiment: Another Round of New Highs, Please.


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      09-18-2003           High     Low     Volume Advance/Decline
DJIA     9659.13 +113.50  9662.84  9538.28 1.84 bln   2104/1068
NASDAQ   1909.55 + 26.50  1910.51  1874.30 2.02 bln   1960/1250
S&P 100   522.60 +  7.17   522.84   515.25   Totals   4064/2318
S&P 500  1039.58 + 13.61  1040.16  1025.75
W5000   10076.16 +124.40 10076.16  9945.50
RUS 2000  519.46 +  4.36   519.48   513.21
DJ TRANS 2825.07 + 63.90  2825.07  2760.19
VIX        19.30 -  0.32    20.37    19.17
VXN        29.75 -  2.00    32.31    29.67
Total Volume 4,148M
Total UpVol  3,087M
Total DnVol    966M
52wk Highs  821
52wk Lows    23
TRIN       0.67
NAZTRIN    0.56
PUT/CALL   0.51
************************************************************

NYSE Hurricane

Storm clouds blew over not only the east coast but also over
the NYSE and in both cases left behind far less devastation
than had been expected. Richard Grasso was asked to resign by
the same board that thought he was worth $139 million and the
exchange is going back to business as usual with hopes that
the furor has passed. Isabel blew ashore with winds of 65-100
mph but mainly produced only heavy rains and minor flooding
and some random damage. By this time next week Grasso and
Isabel will be regulated to the back pages and the small
print of the daily papers. The fallout from the Grasso event
will be another month of sound bites for television reporters.
Isabel is at least expected to add between $5 to $10 billion
to the 3Q GDP.

Dow Chart



Nasdaq chart




What a day! The markets celebrated a massive drop in Jobless
Claims to less than 400,000 for the first time in three weeks.
Well, maybe not a massive drop at 399,000 but the market did
react like it was 349,000. Nobody seemed to care that the
numbers from last week rose to 428,000 with a +6,000 upward
revision. The headline number began with a 3 and that was all
that mattered. The four-week average rose to 410,750 and a
two month high and the continuing claims rose to 3.68 million
and the highest level since June. The recent pattern of upward
revisions to past weeks would indicate that the 399K will
really be 400+ by this time next week. Two thirds of workers
without jobs have now exhausted all of their benefits and are
no longer counted in the 3.68 million base. This puts the
real unemployed number somewhere close to ten million.

The Conference Board's Leading Indicators rose +0.4% for Aug
and inline with estimates but less than the +0.6% from July.
This was the fourth consecutive monthly increase in the
indicators but it is well off the May highs at +1.1%. Three
of the four coincident components rose but the one that fell
was the employment component. Conditions are improving but
the rate of increase is very slow.

The Philadelphia Fed Survey was the most negative report of
the day and fell to 14.6 from 22.1 in August. This is a survey
of conditions in the Philadelphia Fed district and this was
a serious headline drop. However, there were some positives
hidden in the internals. The New Orders component rose to
19.3 from 14.6 and order backlogs rose to 6.5 from 1.1. The
New Orders component hit a new four-year high. While the
estimate miss on the headline number and the drop from last
month appeared negative the internals painted a different
picture of strength still slowly building in the
manufacturing sector.

The only other release for the day was the FOMC minutes for
the August meeting. The highlights were a clear desire to
keep rates low for a much longer time than was customary,
fear of potential deflation and concern over job losses.
The meeting itself was uneventful and the topic of most
concern was the sharp rise in rates since the June meeting.
There were minor reports of small increases in various
economic sectors and the committee still thought the recovery
was proceeding, just very slowly. The confidence level was
beginning to build without any apparent summer lag. The
committee met again on Sept-15th to review their methods
of communication of their policy to consumers. This was
after several board members had made statements about a
kindler gentler Fed with posted targets and actions when
those targets were hit. The committee met and decided to
make no changes to the current policy dissemination method.
The "keep us in the dark" and "talk up the markets" method
is going to continue.

On the stock side of the news GE said orders in its plastics
division fell -5% in August. The plastics division contributes
about 10% to GE earnings. This is seen as a short cycle
indicator of future economic activity. This comes on the
heels of warnings by DD, NYT, JBX, KROL, TKR, ENTG, JILL and
several others that would seem to indicate that things were
not going well. Appearances can be deceiving as there were
quite a few inline guidance updates and even some raised
guidance and earnings beats from companies like NKE, SLR,
COMS, RHAT, CAMD, JBL and CNF. BSC was the winner today with
a whopper of an earnings win with earnings of $2.30 compared
to analysts estimates of only $1.65. They said trading profits
in bonds and their fixed income business was the reason.
Several brokers have mentioned that trading volumes have
been rising over the last three weeks but volume on the
exchanges has not been showing any big gains until today.

Another indication that things may not be as rosy as investors
think was the Semiconductor Book-to-Bill report late Wednesday.
The BTB number fell to 0.91 for August a drop from the
previously reported 0.97 in July. Unfortunately the July
number was also revised down to 0.90. Bookings fell to only
$721 million and the lowest bookings since Jan-2002. While
the book-to-bill is not as low as it was in that period at
0.81 it is because the billings have fallen significantly
as well. When both numbers fall in tandem the BTB remains
stable. Just looking at the BTB gives a false indication of
the actual strength of the sector. The bookings number is
the critical number as it is a precursor to what companies
are going to bill 3-6 months from now. What does an 21-month
low say about the strength in the semiconductor sector? I
would think it meant the tech recovery was losing strength.
It appears conventional wisdom does not work in this sector
because the $SOX closed up for the day as investors bought
semi stocks. That takes a lot of faith at this point in the
face of the facts. Or, maybe most investors really do not
understand the BTB and heard the sound bites that the BTB
"ROSE" to 0.91 from last month's 0.90. I gave you the actual
numbers, you be the judge.

SUNW added to the coming jobless claims with news that they
were cutting another 1080 workers amid a protracted slowdown
in server sales. The move was an additional effort to return
to profitability. They also cut prices on their servers and
launched an aggressive advertising campaign promoting servers
at 50% less than a comparable Dell product. This push is in
addition to a software announcement that took aim at Windows
as a replacement product. The software is priced as low as
$50 a year and will be updated quarterly for life for no
additional charge. The software will run on any computer
capable of running Windows-2000 and is compatible with
programs like Microsoft Office. While it sounds good on the
surface SUNW will have to perform and on a wide scale before
Microsoft will begin to get worried. SUNW was up nearly +4%
today and MSFT finished down with the Nasdaq up +26. Does
that tell you anything? There may not be a rush into the
SUNW product but cautious investors are looking ahead.

The hurricane on Wall Street has passed and Richard Grasso
has gone home to count his money. It is still not clear but
evidently the board asked for his resignation and he complied.
That would guarantee his salary for the remainder of his term
as a termination payment. This would amount to about $9 mil
more. Speculation is rampant on whether he can rescind his
cancellation of the $48 million in additional compensation
that he said he would forgo a couple weeks ago. As an
ex-employee he might not be so favorable about that
concession. Either way they do not have Grasso to kick around
any more and the hunt is on to find a replacement. NYSE board
member Carl McCall said the co-chief operating officers would
continue to run the exchange on a day to day basis. McCall is
the acting lead director at the present time. He, as well as
many others, have already turned down Grasso's job. Evidently
nobody wants to take the hot seat for what is expected to be
significantly less money.

AOL Time Warner, excuse me, Time Warner voted to drop AOL from
its name and change its stock symbol back to TWX. Investors
wish it was that easy to erase the pain and frustration from
the failed AOL merger which cost investors billions. Just
changing the name will not help anyone but at least it will
prevent the name AOL from popping up in every news article
and stock report going forward. Out of sight, out of mind
is what the board is hoping for. Guess we will not have AOL
to kick around either. Now if we can just get them to quit
filtering our newsletters as spam we would be ok.

Tomorrow is a quadruple witching Friday and several analysts
were attributing today's gains to short covering in front
of those expirations. The max-pain point for the S&P was
985 and it closed at 1040. There was definitely some pain
for many with that big a miss. The same level for the DJX
was 91.00 and 32.00 for the QQQ. The max-pain point is the
level where the most options expire worthless and insure
the most profit for those that sold them. If the gains today
were really from short covering then there is little to
continue the bounce come Tuesday. Friday could see some
follow through and Monday is settlement day. After that we
will be left to our own to determine direction based on
things like earning and book-to-bill numbers. Until then
those traders that sold covered calls on their stocks
expecting a typical September decline are faced with buying
additional shares to cover the calls or buying the calls
back at much higher prices. Those that sold the calls
naked and are flat the stock are in serious trouble. Who
would have thought that the markets would be at 52-week
highs on an expiration Friday in September when they sold
those calls last month? If options expiration was behind
the move then Friday will have to do without help from the
S&P and DJX options which ceased trading on Thursday. With
the short interest on the QQQ near all time highs at 287
million shares short there is still plenty of ammo left.

Regardless of the reason for the strong gains on Thursday
all the indexes closed at new yearly highs. The Wilshire
5000 closed above 10,000 at 10,076 and the Dow is not far
behind. The morning started off with a short dip before
being pushed higher by no less than five strong buy programs.
Each program brought another round of short covering and
buying by bulls chasing the indexes higher. The Dow broke
over 9600 and closed right at decent resistance at 9660.
The Nasdaq closed well over 1900 resistance and is staring
resistance at 1915, 1935 and eventually 2000 right in the
face. Just imagine how strong it would have been if the semi
bookings had actually risen!

I am not going to try and justify the bounce today or predict
the outcome for tomorrow. As an expiration Friday it could
be wild or mild and volume could be strong or gone. The
volume today was over two billion on the Nasdaq and 1.9
billion on the NYSE. This is very strong volume for an up
move in September. The internals were equally strong with
813 new 52-week highs and only 20 new lows. Advancing
volume was 3:1 over declining volume. Once the smoke
cleared the reality of how strong it really was hit me.
The gradual rise during the day was deceiving. +60 points
of the Dow gain was due to the first buy program in the
first 45 min of trading. That propelled the Dow to
resistance at 9600 where is languished for an hour before
another buy program popped it to 9635. It trended down
from there for two hours and suckered the shorts back
into the market just as another buy program hit at 1:30.
The Dow traded in a narrow 20-point range for the rest of
the afternoon and right at 9650 resistance. It sounds like
it struggled higher and as I lived it I felt like it was
struggling. Looking back after the close produced one of
those moments felt by traders many times when they realize
the trend they were fighting all day never faltered and the
pauses and dips were only head fakes.

Friday is a tossup. When a market closes at new highs the
obvious thought is a follow through the next morning after
the European and Asian markets rise on our gains. Add in
the expiration pressures and we could see additional
volatility. We just do not know which way those remaining
pressures will push us. With the indexes so far above the
max-pain points you would think the pressure would be up.
The futures are flat in the overnight session and giving
us no clue. Whichever way you feel led to trade tomorrow
please be careful. I am marking next Tuesday on my calendar
as the make or break day. Settlement Mondays are generally
volatile but don't produce big moves. That makes Tuesday
the one to watch. Now if we can just get some follow through
on Friday we will be well positioned for a really big move
next week.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


***************
FUTURES MARKETS
***************

Cinders
Jonathan Levinson

If yesterday was bear flambi, today finished the job, with
equities launching to new 52 week intraday and closing highs,
while treasuries, gold and the dollar hovered around unchanged.

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




10 minute chart of the US Dollar Index




The US Dollar Index sold off ahead of the 8:30AM employment
report, and recovered shortly after the 10AM LEI data.  Whether
the data had anything to do with the price of the US Dollar Index
is open to debate, but the times matched up roughly.  The index
settled into a range between 95.80 and 96, with gold pulling back
to near unchanged and the CRB dropping .91 to 237.55 despite
strength in sugar and platinum futures.


Daily chart of December gold




December gold managed to break 380 for awhile today and closed in
positive territory on the COMEX, up .70 as of this writing at
378.  The move brought gold above its lower support trendline,
and I've adjusted the support line lower to accommodate more data
points.  The move didn't do much to alter the downphases on the
daily chart oscillators, but it did reverse the downside bear
wedge break that appeared to be starting earlier this week.  For
the day, HUI was lower by .62 at 200.15, XAU -.58 at 92.61.

Daily chart of the ten year note yield




Bonds had a tumultuous session but closed mixed, with the five
year note yield (FVX) higher by 2.1 basis points at 3.085%, TNX
lower by .7 bps at 4.184%, and TYX –1.4 bps at 5.1%.  TNX
consolidated yesterday's break below horizontal resistance but
appears to still be within the allowable range for a valid bull
flag as drawn above.  These trendlines are open to interpretation
and serve to provide decision points only.  Upside yield risk
exists to 4.6% on a break of the upper trendline as drawn.
Nevertheless, the oscillator downphase is behaving as it should,
as the TNX continues lower and bonds add to their gains.


Daily NQ candles




The NQ blew the lid off last week's highs, breaking and closing
above 1402.  Nasdaq volume was solidly higher than yesterday in
the 2B area, and the intraday chart was as close to
unidirectional as it gets.  On a cycle basis, the move stopped
the downphase as expected in last night's Futures Wrap, and left
the oscillators on bullish kisses.  Any more upside will put them
back on buy signals and cause them to trend in overbought
territory.  This was the low-odds scenario, but it appears to be
playing out as of today.  The NQ led its peers to the upside,
gaining 1.41% on the day, compared with 1.19% for the ES and
1.08% for the YM.

30 minute 20 day chart of the NQ




The move left room for doubt, as they always do.  The push to
1405 touched and failed at the upper rising trendline parallel to
that supporting the range lows.  This is bear flag behavior, and
the pullback, extremely shallow though it was, lined up with a
top and reversal on the 300 minute stochastic on the 30 minute
chart.  This coincidence of a top on the stochastic and on the
trendline makes it pretty reliable, and should signal a downphase
commencing, with a downside target of the lower trendline at
1380.

The alternative is for trading tonight or tomorrow to blow out
upper resistance and pin the oscillators in overbought.  This is
entirely possible, but less likely-  note how the oscillator tops
have tended to coincide with at least short term pullbacks.


Daily ES candles




ES looks very similar to NQ after its banner day.  As with NQ,
I've drawn alternate upper trendlines on the bear wedge- one of
which indicates a bullish breakout, the other showing the top of
the pattern range.  Either is valid, depending on which wave top
you use in July. Both capture roughly the same number of data
points.

The cycles played out as expected given today's rally:  The
downphases are potentially reversing, certain paused for the time
being.  More upside tomorrow will blow out the bear flag on the
30 minute chart below, and cause both the daily chart oscillators
and the 30 minute to begin trending in overbought.  Again, this
is the less likely but entirely possible scenario.

20 day 30 minute chart of the ES




The same discussion for the 30 minute chart and its cycles as we
had on the NQ applies to the ES chart.  There's nothing bearish
about a rise in price, and the trend is certainly not down.
Whatever caused the buying, be it opex hedging, short covering,
bullish momentum chasing or BOJ purchasing, is entirely
irrelevant for the time being.  If it was opex related, the move
should not be sustainable past this week, but that's also
irrelevant for traders making decisions today and tomorrow.
Until the trend reverses with a break back below support, in this
case the lower trendline below 1030, shorting spikes is like
catching knives in reverse.  Bulls got bludgeoned last year, and
now it's the bears.

As with the NQ, we have the stochastic topping, the Macd
hesitating, and the upper rising trendline containing.  Note the
127.2% retracement at 1045ish.  An upside trending break should
encounter resistance in that area, assuming that the bear flag
can be busted to the upside.

150 tick chart of the ES




Whether because it's a sacred sequence or because the program
bots are programmed to follow them, Fibonacci retracements are a
very good tool.  Note the failure and support between the 100%
and 127.2% lines today.

Daily YM candles




Same setup on the YM.

20 day 30 minute chart of the YM




It's easy to forget, but there was weakness in equities at the
open today.  It didn't last long and was violently reversed.
The market continues to surprise, and equities continue to trade
in lockstep with the US Dollar Index.

For tomorrow, bulls already profitable should be snugging their
stops to protect profits, and bears should be watching lower
support and upper resistance, and exercising the crucial skills
of patience, caution, and account management.  Buying the dips at
support continues to work, but buying highs is difficult to do.
Depending on your timeframe, that's where the market currently is
and it's mostly short covering that is setting new highs.  If so,
it can't last forever, but the whole is speculation.  What
matters is the price, and the decision points on our charts.  See
you at the bell!


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

Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_091803_1.asp


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

Another Round of New Highs, Please.
- J. Brown

The bullish locomotive running rampant on Wall Street has yet to
slow down as the NASDAQ marked an 18-month high above the 1900
level and the INDU traced a 15-month high above the 9650 mark.
It's becoming a common cliche these days that the path of least
resistance is up.

Today's rally was boosted by a better than expected drop in
jobless claims.  Economists had been hoping for a move down to
the 410,000 level.  Instead we got a drop of 29,000 to 399,000.
Add another drop in mortgage rates and investors were flocking
into equities.

Advancing stocks beat decliners 18 to 9 on the NYSE and 19 to 11
on the NASDAQ.  Up volume was almost three times down volume on
the NASDAQ and more than four times down volume on the NYSE.

August and September are seasonally the worst two months of the
year for the equity markets.  This last August bucked that trend
and so far September is right on track to do the same.  The
recent move seems pretty convincing and bears may choose to
hibernate until Q3 earnings come out.  However, I have to caution
our readers.  Seasonal trends may not have held up very well
lately but we are still approaching one of the most perilous 2-
to-3 week periods the markets typically witness.  This danger
zone runs from September's option expiration into the first week
of Q3 earnings announcements.

Play the trend but keep a good eye on your risk.


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

Market Averages

DJIA ($INDU)

52-week High:  9662
52-week Low :  7197
Current     :  9659

Moving Averages:
(Simple)

 10-dma: 9516
 50-dma: 9307
200-dma: 8667

S&P 500 ($SPX)

52-week High: 1040
52-week Low :  768
Current     : 1039

Moving Averages:
(Simple)

 10-dma: 1023
 50-dma:  998
200-dma:  927

Nasdaq-100 ($NDX)

52-week High: 1401
52-week Low :  795
Current     : 1400

Moving Averages:
(Simple)

 10-dma: 1366
 50-dma: 1296
200-dma: 1135


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


The NASDAQ VXN has rolled back under the 30 level while the older
VIX continues to sleep towards new one-year lows as the markets
rally.

CBOE Market Volatility Index (VIX) = 19.30 -0.32
Nasdaq Volatility Index (VXN)      = 29.75 -2.00

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.51      1,058,699       542,582
Equity Only    0.47        700,389       325,880
OEX            1.13         58,584        66,447
QQQ            1.69         42,616        72,061


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

Bullish Percent Data

           Current   Change   Status
NYSE          73.5    + 0     Bull Confirmed
NASDAQ-100    80.0    + 2     Bear Correction
Dow Indust.   83.3    + 0     Bull Confirmed
S&P 500       83.2    + 1     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  0.92
10-Day Arms Index  1.13
21-Day Arms Index  1.02
55-Day Arms Index  1.01


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    1876      1907
Decliners     935      1176

New Highs     264       376
New Lows        7         3

Up Volume   1394M     1424M
Down Vol.    413M      507M

Total Vol.  1826M     1995M
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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The Option Investor Newsletter                 Thursday 09-18-2003
Copyright 2003, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: None
Call Play Updates: AMGN, APOL, AU, ERTS, GS, LEA, LUV, MERQ, UTX
New Calls Plays: AMZN, AXP
Put Play Updates: KKD
New Put Plays: None


****************
PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

None


PUTS:
*****

None


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********************
PLAY UPDATES - CALLS
********************

Amgen, Inc. - AMGN - close: 70.00 change: +0.37 stop: 67.50*new*

After trading an inside day on Wednesday, AMGN finally got moving
to the upside today, ending right at the magical $70 level, just
below the intraday high.  What's magical about $70?  It is the
level needed to create a new PnF Buy signal and with that
accomplished, the stock now has a bullish vertical count of $81
in play.  With daily Stochastics now in overbought and price
pressing against the upper Bollinger band, it wouldn't be
surprising to see a bit of a pullback before the bulls make a
serious run at the $72 resistance level, but any pullback should
now find solid support near $68.50, with the 10-dma ($68.46)
crossing up through the 50-dma ($68.38).  Entries on a pullback
into that area make the most sense, although momentum traders
should do well by buying a breakout over the $70.20 level.  We're
raising our stop to $67.50 tonight, which is just below both the
long-term ascending trendline and the 20-dma ($67.53).

Picked on September 16th at  $69.81
Change since picked:          +0.19
Earnings Date              10/21/03 (unconfirmed)
Average Daily Volume =     7.97 mln
Chart =


---

Apollo Group - APOL - close: 69.00 chg: +0.52 stop: 64.00*new*

Shares of APOL have been kind of quiet the last couple of
sessions since we added it on Tuesday.  The stock has been able
to maintain its gains and find new very short-term support near
$68 but we would have preferred to see even more follow through
on the big breakout from Tuesday.  We suspect that the extreme
bullishness has merely drawn investors' attention to software and
technology stocks instead of ho-hum names like APOL.
Fortunately, the intraday chart suggests that APOL looks ready to
tackle the $70 mark soon and we could see another breakout.  We
are going to raise our stop to $64.00 near the 50-dma.

Picked on September 16 at $68.45
Change since picked:      + 0.55
Earnings Date           10/07/03 (confirmed)
Average Daily Volume:        1.9 million
Chart =


---

Anglogold Ltd. - AU - close: 39.30 change: -0.12 stop: 37.50

With the price of gold stagnating in the $375-380 area and the
rest of the broad market advancing sharply this week, our AU play
has been a bit disappointing.  But given the fact that the Gold &
Silver index (XAU.X) hasn't been able to advance either, we're
willing to cut this play a bit of slack.  The XAU is
consolidating above the $92 level and AU is consolidating above
the $38 level and we suspect that both are just building up their
strength for another bullish advance, especially with the
continuing weakness in the U.S. Dollar.  Intraday dips and
rebounds from the $38.25-38.50 area are likely to provide the
best entry points, with support provided by the 20-dma ($38.33)
and the broken resistance at $38.50.  Note that the 30-dma
($37.78) is rising to meet this support level, so our $37.50 stop
should be safe so long as this uptrend remains intact.

Picked on September 2nd at  $39.51
Change since picked:         -0.21
Earnings Date             10/30/03 (unconfirmed)
Average Daily Volume =       864 K
Chart =


---

Electronic Arts - ERTS - close: 94.85 chg: +0.60 stop: 89.90*new*

The buying in technology stocks has been strong the last two days
and leading the charge in software is the titan of video games
ERTS.  The stock rocketed off its simple 30-dma on Tuesday to a
new closing high and the last two sessions have seen the stock
build on that move.  We're very impressed that ERTS managed to
maintain its gains but still suggest that short-term traders book
some of the profits since opening this play near $89.  This is
probably not the best entry point for new long positions.  A
bounce from the $92.00 mark might be our best bet.  Longer-term
traders following ERTS' rising channel can target the $100 mark
but don't get greedy and forget to raise your stops.  We're going
to raise ours to $89.90.

Picked on August 28 at $89.06
Change since picked:    +5.79
Earnings Date        07/23/03 (confirmed)
Average Daily Volume:     3.3 million
Chart =


---

Goldman Sachs Grp. - GS - cls: 93.25 chng: +2.25 stop: 89.50*new*

We were really beginning to wonder if GS was ever going to
deliver this long-awaited breakout and on Thursday the bulls
delivered big time.  With volume strongly above the ADV, GS
blasted through the $92.25 resistance area shortly after the open
and never looked back, ending very near the high of the day and
in territory not seen since January of 2002.  The Broker/Dealer
index (XBD.X) was no slacker either, vaulting to its highest
level since January 2001.  Next target for the XBD index is $650.
Based on the strength of today's breakout, GS looks like it has
further upside in store, and our next upside target will be the
1/02 highs near $97.  Aggressive traders still looking for an
entry can use a breakout over $93.50 as an entry trigger, while
those willing to wait for a pullback can look to enter on a
rebound from the $91-92 area.  We're raising our stop to $89.50
tonight, which is just below the 20-dma ($89.53).

Picked on September 2nd at  $90.45
Change since picked:         +2.80
Earnings Date              9/24/03 (unconfirmed)
Average Daily Volume =    3.52 mln
Chart =


---

Lear Corp - LEA - close: 55.67 change: +0.97 stop: 52.49

There is little news to report for Lear Corp but shares of the
company have continued their bounce off the $52.50 level and the
simple 50-dma.  Today's move was encouraging as LEA closes above
the $55 mark.  Oscillators are bullish and the MACD is very close
to giving a new bullish buy signal.  What could be a little
concerning is the lack of volume on today's move.  Average volume
is close to 700K a day and Thursday's gain was fueled by 338K
shares.  There is potential resistance near $56 and again at $57
but if the rally holds we're still aiming for the $60 mark.

Picked on September 16 at $54.05
Change since picked:      + 0.78
Earnings Date           10/17/03 (confirmed)
Average Daily Volume:        694 thousand
Chart =


---

Southwest Airlines - LUV - cls: 18.67 chng: +0.15 stop:
17.75*new*

With Financial and Technology stocks taking center stage on
Thursday, the Airline index (XAL.X) was a clear laggard, still
being held back by firm resistance in the $64-65 area.  But with
the strong bullishness across the broad market, and the Dow
Transports ($TRAN) breaking out to a new high above 2800, the
prospects look bright for the XAL to break its resistance and for
LUV to advance through $19 and achieve our initial $20 target.
The stock was turned back from the $19 level earlier this week
after an impressive 2-week rally from below $17.  So a bit of
consolidation was not unexpected.  We still like new entries in
the $18.25-18.50 area, which provided intraday support once again
on Thursday.  Traders looking to enter on strength will want to
see a breakout over $19 before adding new positions.
Conservative traders may want to harvest some gains when the $20
level is reached, as a move to that level will likely generate
some more profit taking.  Raise stops to $17.75, which will be
just under the 20-dma (currently $17.72) at tomorrow's open.

Picked on September 11th at  $18.36
Change since picked:          +0.31
Earnings Date              10/20/03 (unconfirmed)
Average Daily Volume =     2.56 mln
Chart =


---

Mercury Inter. - MERQ - cls: 51.92 chng: +1.97 stop: 47.65*new*

It seemed Technology stocks could do no wrong on Thursday, with
every sub-sector contributing to the NASDAQ's breakout over 1900,
its first move above this level since March of 2002.  Amazingly,
the Semiconductor index (SOX.X) was not the leader of the pack,
as that honor fell to the Software index (GSO.X), which took top
honors with a 1.78% advance.  That put the GSO right at the highs
from earlier in the month and it certainly looks like a breakout
to new highs is in store.  Our MERQ play performed admirably in
the bullish environment, extending its breakout over the $50
level with a 3.9% advance on continued solid volume.  We can now
look for continuation entries either on a pullback into the $49-
50 area or on a continued advance over today's $52.12 high.
Raise stops to $47.65, just under Monday's intraday low.  Next
resistance should appear near $55 and conservative traders may
want to harvest some gains near that level.

Picked on September 14th at  $48.26
Change since picked:          +3.66
Earnings Date              10/15/03 (unconfirmed)
Average Daily Volume =     3.05 mln
Chart =


---

United Technologies - UTX - cls: 79.44 chg: +0.18 stop: 77.20

The constant stream of positive economic news and the parade of
analysts comments on the improving fundamentals for the nation
should be doing more for UTX. Almost daily you hear another
analyst say they're bullish on industrials but UTX can't seem to
break the $80 mark.  This is concerning for us, especially given
the big moves in the $INDU the last few days.  Traders may want
to wait for a confident close above the $80 (80.50) level before
considering new positions.

Picked on August 29 at $80.05
Change since picked:    -0.61
Earnings Date        07/17/03 (confirmed)
Average Daily Volume:     2.1 million
Chart =



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

Amazon.com - AMZN - close: 47.89 change: +1.73 stop: 44.50

Company Description:
Amazon.com is a website where customers can find virtually anything
they want to buy online.  The company lists millions of unique
items in categories such as books, music, DVDs, consumer electronics,
toys, software, computer and video games, lawn a patio items, kitchen
products and wireless products.  Through its Amazon Marketplace,
Auctions and zShops services, any business or individual can sell
virtually anything to AMZN's approximately 30 million cumulative
customers.

Why we like it:
Internet stocks have once again been leading the NASDAQ higher,
and Thursday's 2.2% advance for the CBOE Internet index (INX.X)
placed it at its best level in over two years.  One of the clear
leaders in the sector has been AMZN, which has more than tripled
in price over the past year.  The amazing thing is the way the
stock continues to advance in its steadily rising channel, the
top of which is now at $50.  Each time AMZN looks like it may
have topped out, it consolidates the prior breakout and then
proceeds to charge to new multi-year highs.  Today's 3.74% gain
puts the stock at fresh 3-year highs and the above-average volume
indicates that there's more upside in store.  The PnF chart has
issued one Buy signal after another, with the most recent Sell
signal being all the way back in July of 2002.  Clearly the bulls
are very much in charge.  Despite the impressive strength, this
remains an aggressive play, simply due to the amount of ground
covered.  AMZN is up nearly $9 since the last time it tested the
bottom of its rising channel.  One factor underscoring the
stock's strength is the way it only pulled back to just below the
middle of that channel before this latest upward move got
underway.

That leaves behind solid support in the $44.75-45.00 area, giving
us the confidence to set our stop at $44.50, just under the
intraday lows seen since late August.  A pullback into the
$46.50-47.00 area should provide a solid entry point, since there
will be solid support now provided by the combination of the
center of the channel ($46.50), the 10-dma ($46.34) and the 20-
dma ($46.25).  Momentum traders looking for an entry will want to
exercise caution due to the fact price is right up against the
upper Bollinger band, and it may be more prudent to wait for the
band to begin to expand upwards before chasing the stock higher.
We're expecting AMZN to continue working higher in its ascending
channel that has been in place since late February.  So our
initial target will be for a move to the $50 level, at which
point we would expect to see a bit of profit taking.  But looking
at the long-term chart shows that resistance doesn't become firm
until $55.  So long as the INX index continues to push to new
highs, we're looking for AMZN to lead that charge and we'll
target an eventual move to $55.

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.

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

BUY CALL OCT-47 ZQN-JW OI=8511 at $2.60 SL=1.25
BUY CALL OCT-50 ZQN-JJ OI=5768 at $1.45 SL=0.75
BUY CALL JAN-47 ZQN-AW OI=2667 at $5.50 SL=3.50
BUY CALL JAN-50 ZQN-AJ OI=9259 at $4.30 SL=2.75

Annotated Chart of AMZN:




Picked on September 18th at  $47.89
Change since picked:          +0.00
Earnings Date              10/21/03 (unconfirmed)
Average Daily Volume =     8.45 mln
Chart =


---

American Express - AXP - close: 47.08 chg: +1.73 stop: 44.49

Company Description:
American Express Company is a diversified worldwide travel,
financial and network services company founded in 1850. It is a
world leader in charge and credit cards, Travelers Cheques,
travel, financial planning, business services, insurance and
international banking.  (source: company press release)

Why We Like It:
It was an historic day for American Express.  The stock rallied
more than 3.8 percent to levels not seen since February 2001.
The breakout above resistance was powered by news Wednesday
night.  A federal appeals court upheld a prior ruling that member
banks belonging to the Visa and MasterCard network should be
allowed to also offer credit cards from rivals American Express
and Discover.  Visa & MC said they would appeal the decision
(again) but this has major financial implications for AXP.  One
J.P.Morgan analyst estimated that AXP's credit business could
jump $20 billion over the next three years.

Sometimes we'd rather not chase big moves but the breakout over
the $46.00-46.50 level on volume of 7.4 million shares looks too
tempting to pass up.  The AXP weekly chart does suggest possible
resistance at $50 but we do not expect it to hold for very long.
We're going to start the play with a stop loss at $44.49.

Suggested Options:
This is a short-term play for us but given the breakout longer-
term investors who believe in the story might want to consider
lengthier options.  Our preference is the October 45s and 50s.

BUY CALL OCT 45.00 AXP-JI OI=8577 at $2.65 SL=1.30
BUY CALL OCT 47.50 AXP-JW OI=4916 at $1.05 SL=0.50
BUY CALL OCT 50.00 AXP-JJ OI=2773 at $0.35 SL= --

Annotated Chart:




Picked on September 18 at $47.08
Change since picked:      + 0.00
Earnings Date           10/27/03 (unconfirmed)
Average Daily Volume:        3.9 million
Chart =



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*******************
PLAY UPDATES - PUTS
*******************

Krispy Kreme Doughnut - KKD - cls: 40.76 chg: -0.31 stop: 44.01

KKD is probably one of the few stocks that did not participate in
the big rally today.  Of course that's just fine with us and what
we would hope from a put play.  As a matter of fact we noticed
that volume was pretty good for the 31-cent drop and the intraday
chart appears to be showing some selling pressure near the $41
level.  However, given the recent bounce at $40, new positions
are probably best considered on a breakdown below this
psychological mark.

Picked on September 8 at $41.69
Change since picked:     - 0.93
Earnings Date          08/21/03 (confirmed)
Average Daily Volume:       1.0 million
Chart =



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

None


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**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support

The Option Investor Newsletter                 Thursday 09-18-2003
Copyright 2003, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Play of the Day: CALL - AMZN
Traders Corner: SPX Condor – It's Deja Vu All Over Again


**********************
PLAY OF THE DAY - CALL
**********************

Amazon.com - AMZN - close: 47.89 change: +1.73 stop: 44.50

Company Description:
Amazon.com is a website where customers can find virtually anything
they want to buy online.  The company lists millions of unique
items in categories such as books, music, DVDs, consumer electronics,
toys, software, computer and video games, lawn a patio items, kitchen
products and wireless products.  Through its Amazon Marketplace,
Auctions and zShops services, any business or individual can sell
virtually anything to AMZN's approximately 30 million cumulative
customers.

Why we like it:
Internet stocks have once again been leading the NASDAQ higher,
and Thursday's 2.2% advance for the CBOE Internet index (INX.X)
placed it at its best level in over two years.  One of the clear
leaders in the sector has been AMZN, which has more than tripled
in price over the past year.  The amazing thing is the way the
stock continues to advance in its steadily rising channel, the
top of which is now at $50.  Each time AMZN looks like it may
have topped out, it consolidates the prior breakout and then
proceeds to charge to new multi-year highs.  Today's 3.74% gain
puts the stock at fresh 3-year highs and the above-average volume
indicates that there's more upside in store.  The PnF chart has
issued one Buy signal after another, with the most recent Sell
signal being all the way back in July of 2002.  Clearly the bulls
are very much in charge.  Despite the impressive strength, this
remains an aggressive play, simply due to the amount of ground
covered.  AMZN is up nearly $9 since the last time it tested the
bottom of its rising channel.  One factor underscoring the
stock's strength is the way it only pulled back to just below the
middle of that channel before this latest upward move got
underway.

That leaves behind solid support in the $44.75-45.00 area, giving
us the confidence to set our stop at $44.50, just under the
intraday lows seen since late August.  A pullback into the
$46.50-47.00 area should provide a solid entry point, since there
will be solid support now provided by the combination of the
center of the channel ($46.50), the 10-dma ($46.34) and the 20-
dma ($46.25).  Momentum traders looking for an entry will want to
exercise caution due to the fact price is right up against the
upper Bollinger band, and it may be more prudent to wait for the
band to begin to expand upwards before chasing the stock higher.
We're expecting AMZN to continue working higher in its ascending
channel that has been in place since late February.  So our
initial target will be for a move to the $50 level, at which
point we would expect to see a bit of profit taking.  But looking
at the long-term chart shows that resistance doesn't become firm
until $55.  So long as the INX index continues to push to new
highs, we're looking for AMZN to lead that charge and we'll
target an eventual move to $55.

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.

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

BUY CALL OCT-47 ZQN-JW OI=8511 at $2.60 SL=1.25
BUY CALL OCT-50 ZQN-JJ OI=5768 at $1.45 SL=0.75
BUY CALL JAN-47 ZQN-AW OI=2667 at $5.50 SL=3.50
BUY CALL JAN-50 ZQN-AJ OI=9259 at $4.30 SL=2.75

Annotated Chart of AMZN:




Picked on September 18th at  $47.89
Change since picked:          +0.00
Earnings Date              10/21/03 (unconfirmed)
Average Daily Volume =     8.45 mln
Chart =



************************Advertisement**********************************
Option traders, check what PreferredTrade offers:
-    true direct access to each option exchange
-    stop and stop loss online option orders
-    contingent option orders based on the price of the option or stock
-    online spread order entry for net debit or credit
-    fast option executions
-    rates as low as $1.50 per contract ($14.95 min)

PreferredTrade, Inc.
Call 888-889-9178 or
Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN
Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC
***********************************************************************


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

SPX Condor – It's Deja Vu All Over Again
By Mike Parnos, Investing With Attitude

It seems like only yesterday, but it was just a few months ago –
that we were at the mercy of a Friday morning open S&P 500
settlement price.   This month our CPTI short call option in our
condor position was 1040.  Today (Thursday), the S&P 500 Index
closed at 1039.58.

Thursday was the last day of trading for the S&P 500.  Under
normal circumstances, we'd be celebrating because the index closed
below 1040 – supposedly worthless.  But, alas, the S&P doesn't
work that way – and a few months ago, we learned the hard way.  In
a similar scenario, the S&P opened that Friday morning about six
points higher and we incurred a substantial loss on our position.

It's A Crap Shoot -- And We Have More Than Our Share
So, here we are again.  It's a helpless feeling, but, should we
have to take a loss, you have to look at it as a cost of doing
business.  Remember, we're the visiting team playing on their home
field.  It's their ball.  It's their game.  We're just wagering on
the outcome – conservative wagers, but wagers none-the-less.

Tomorrow, when the market opens, all 500 S&P stocks will open
individually.  Then, some bean counter with a computer will insert
these opening prices into a predetermined formula and it will spit
out the official opening price – also referred to as the
"settlement" price.  To make it just a little more suspenseful
(and painful), this calculation process takes until past noon.
Why?  Who knows?  Maybe they're using an abacus.

Toward Thursday's close, the September SPX 1040 call could have
been bought back for $2.40 and the 1050 could have been sold for
about $.20.  The net debit was about $2.20 – less than what we
brought in when we established the position.  This was the prudent
way out!  Did anyone take it?  Probably not.  Why miss an
opportunity to expose yourself to some financial and emotional
stress?

It provides, those inclined, time to imbibe in 80-proof liquid
pain-killers and say another "Hail Mary" or two.   Or, you can
always tune in to two hours of "ER" on TNT from 10 a.m. to Noon.
Now, THAT can be painful!

Usually, the official numbers are released shortly after Noon.
You can call your broker for the S&P settlement price or those
nice chaps at 1-888-OPTIONS.

In the meantime, here are a few questions (and answers) on our new
CPTI QQQ ITM Strangle position and strategy.
____________________________________________________________

Hi Mike,
First, I have been following and trading with you for a while and,
of course, making money. Thank you.  I'm very interested in the
QQQ ITM strangle. Also, I wonder if it works for different
indexes. Can you maybe write little more of different indexes use?
Thank you very much for the work.
Emil

Emil:
The ITM Strangle strategy can be used for other indexes – but not
nearly as efficiently.  Why?  Very few other indexes have $1
strike increments.  Those small increments are what give you the
flexibility to put on a trade that makes sense.

Look at the option chains of the various indexes you're
considering (www.cboe.com).  For instance, run the numbers on the
DJX (Dow).  It's do-able. However, the bid/ask spreads are wider
and not all the strikes may be available for the long LEAPS.  The
cost of LEAPS adjustments, that happen occasionally, might be a
little steep.  But there's some volatility and premium to be had.
There's more liquidity (volume) in the QQQ options – for easier
trading fills, but there might be enough to get by when trading
the DJX options.

Also, look at the amount of risk.  That's the amount over and
above the intrinsic value in the long LEAPS position.  The larger
the risk, the longer the position takes to become profitable.
_____________________________________________________________

Mike,
I am a long time follower of yours and look forward to your trade
suggestions.  I see you now have a change of heart.  Earlier in
the year you did the long QQQ coupled with selling the shorter
QQQ.  At that time premiums were fading and the capital commitment
was large so you blew it out.  Now you want back in and are
willing to sell a straddle for the near month.  I looked at that
trade.  Certainly selling the straddle makes more sense than a
strangle, but why the change of heart?  -- Len

Len
Earlier this year I tried to create a position -- using the
K.I.S.S. principle -- that would require as few adjustments as
possible.  We established a long-term QQQ LEAPS Strangle with the
intention of selling short term calls against it.  At the time, we
were trying to sell strike prices closer to the LEAPS strikes – in
the hope that the near term puts and calls would expire worthless
– therefore, no additional action would be required.

For instance, if we would have created a long LEAP range of $28 to
$38, we would have tried to sell the $37 calls and $29 puts.  The
problem is that there was (and is) very little premium available
at the near term strikes near the long LEAPS strikes.  Taking in
so little each month leaves very little margin for error.  Losses
taken on the inevitable LEAPS adjustments would take many months
to recoup.

While the trade could have been profitable, the chances were
reduced and the degree of potential profit couldn't justify tying
up those funds for such a long period of time.

My slew of email indicates that many CPTI students have come a
long way.  CPTI students (for the most part) no longer break into
the sweats at the thought of making an occasional adjustment.  So,
in my somewhat less than infinite wisdom, I chose to re-establish
the QQQ Strangle position, but to sell close to or at-the-money
near term puts and calls – generating more premium and
flexibility.  Hopefully, when it comes time for rollouts and
adjustments, we can do it without Valium or Kopectate.  It doesn't
have to be traumatic – or messy.
 _____________________________________________________________

SEPTEMBER POSITIONS – Remember that September was a five-week
option cycle.  Expiration is TOMORROW, Friday, September 19th.

New CPTI Portfolio Position – QQQ ITM Strangle – Long Term
The QQQs finished at $34.78.
We bought 10 contracts of the 2005 QQQ $39 puts @ $7.00 = $7,000
and also bought 10 contracts of the 2005 QQQ $29 calls @ $7.30 =
$7,300 for a total debit of $14,300.  Then we sold 10 contracts of
the QQQ Oct. 33 puts @ $.85 = $850 and also sold 10 contracts of
the QQQ Oct. 34 calls @ $1.05 = $1,050 for a total credit of
$1,900.

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.

September Position #1 – SPX Iron Condor – SPX @ 1039.58
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.
(See article above).

September Position #2 – COF Sell Straddle – COF @ $ 61.55
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 would have made 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 was a necessary money management move to make sure we live to
trade another day.

September Position #3 – HPQ (Hewlett Packard) Bear Put Spread – HPQ at $20.97.
HPQ is weak and may return to the $15 range.  So, we bought 10
contracts of the HPQ Feb. 2004 $20 puts @ $2.25 and we sold 10
contracts of the HPQ Feb. 2004 $15 puts @ $.40.  Total debit of
$1.85.   Potential max profit of $3.15.  In reality, if HWP makes
the move down, it will probably happen on the coattails of a
market move down.  It shouldn't take until February.  I'd gladly
accept a profit of $800-900 and close the position early if the
opportunity presented itself.  This is a long-term position.

September Position #4 – OEX – Bearish Calendar Spread – OEX @
$522.60
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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