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Daily Newsletter, Sunday, 09/21/2003

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The Option Investor Newsletter                   Sunday 09-21-2003
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: Calm After The Storm
Futures Market: Bonds and Gold Gain, Equities Retrace
Index Trader Wrap: Higher highs
Editor's Plays: Guess What?
Market Sentiment: Bulls Forge Deep Into Bear Territory
Ask the Analyst: Day trader's 5-minute bar technique
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 9-19         WE 9-12         WE 9-05         WE 8-29
DOW     9644.82 +173.27 9471.55 - 31.79 9503.34 + 87.52 + 66.95
Nasdaq  1905.70 + 50.67 1855.03 -  3.21 1858.24 + 47.79 + 45.13
S&P-100  520.62 +  8.32  512.30 -  0.19  512.49 +  9.13 +  5.94
S&P-500 1036.30 + 17.67 1018.63 -  2.76 1021.39 + 13.38 + 14.95
W5000  10054.07 +176.76 9877.31 - 29.38 9906.69 +136.23 +158.03
RUT      520.20 + 11.14  509.06 +  0.19  508.87 + 11.45 + 11.91
TRAN    2794.71 + 59.11 2735.60 - 11.69 2747.29 + 64.05 + 41.68
VIX       19.07 -  1.18   20.25 +  0.88   19.37 -  0.12 -  0.78
VXN       29.74 -  2.94   32.68 + 11.98   30.70 +  1.18 +  0.05
TRIN       1.35            1.11            1.04            0.78
Put/Call   0.68            0.90            0.72            1.29
******************************************************************


Calm After The Storm
by Jim Brown

While the cleanup begins on the hurricane battered east coast
the cleanup in the markets also began. The excesses from the
big gains on Thursday eased and the NYSE board began its search
for a new chairman and started the long task to rebuild its
image. The quadruple witching Friday ended calmly after traders
apparently cleared their books on Thursday

Dow Chart



Nasdaq Chart



The only economic report on Friday was the Weekly Leading Index
and it came in at 129.5 which was +1.0 over last weeks reading.
This is a sleeper report and is not really a market mover as
most of the components have been announced earlier in the week.
Components of this index include Jobless Claims, Ten year yields,
NYSE Composite, money supply, etc. This is an index created
from all the other data for the week. Next week is devoid of
material economic reports until Thursday when we will be overrun
with numbers beginning with Durable Goods, Jobless Claims, Help
Wanted Index, New Home Sales, Monthly Mass Layoffs and Existing
Home Sales. Friday has GDP and Michigan Sentiment.

While we will not get consumer sentiment numbers again until
next week the sentiment numbers that matter were announced
by AMG Data on Friday. U.S. stock mutual funds had inflows of
$2.2 billion in the week ended Sept 17th. This was the 17th
consecutive week that these funds have generated positive
flows. International funds saw inflows of $987 million and
small-cap funds received $615 million. The headline number
was up +$94 million from the prior week. With positive fund
flows continuing to feed the markets it is no wonder we are
still seeing some upward pressure.

The profit taking from Thursday's strong gains to new highs
was weak and on low volume. The Dow only gave back -10% of
its gains and the Nasdaq only slightly more. Considering the
current levels this should be considered very bullish. My
opinion is still the same concerning the huge spike and I
think it was option related short covering. We will not know
for sure until Tuesday. Impacting the markets on Friday other
than the options expiration was a rebalancing of the S&P
indexes and the FTSE Global Index. These were not major
movers as they were simply an adjustment of percentages of
stock held. As companies add or remove stock from the market
the index fund managers must add and subtract stock from
their portfolios to maintain an equal balance with the index.
For instance MSFT has increased its weighting in the S&P-500
by 0.72%. Funds must add 0.72% to their current positions.
If your fund position was 25 mil shares then you had to buy
an additional 180,000 at the close on Friday to bring your
position into parity. PFE saw its weighting drop -1.39% so
index funds needed to reduce their holdings by that amount.
Multiply this by several hundred stocks and you can see why
there was some serious volume at the close. HPQ announced
that is was going to buy back an additional $1 billion in
stock. This means the next quarterly rebalancing will
reflect the change in HPQ once they actually buys that stock
back.

I am not going to bore you today with repetitious stock news
from Friday because there was hardly any. It was a quiet news
day with most stories focusing on the Isabel damage and clean
up, the Grasso exit or the California recall election. This
was not a day where the news moved the markets. There were
no real economics and other than a couple of small cap
earnings warnings it was quiet. Boring and quiet. The calm
before the storm. I know, you have heard it before, but here
it is again. Is that thunder in the distance?

Volume on the exchanges was evenly split between advancers
and decliners and despite the negative headline numbers the
new 52-week highs rose to 824 and a two week high. The
quarterly quadruple witch appeared to be over after the open
based on the lack of volatility for the balance of the day.
The VIX closed at 19.07 and only .17 off the 52-week closing
low of 18.90. The investor sentiment levels rose to 56.1%
and bearish sentiment dropped to 19.4%. The Dow bullish
percent rose to 83.33, OEX 87.0, SPX 82.8, Compx 77.41.
In the OEX Bullish percent chart below you will notice that
the index is running off the top of the chart while the RSI
and MACD are showing clear bearish divergence. How much
higher can it go?




A reading over 80, much less 87.00, is very rare. This is the
highest reading since 1996 and the oldest date I could chart.
It has only been over 80 three times in six years and it has
been over 80 since mid June. Think about it. Not only is it
very rare but this length of time over 80 is unheard of.




The VIX close at 19.07 is at a level only seen four times
since Jan-1999. This is very bearish but it is not a trigger
indicator. That means it can stay there for some period of
time before the reaction takes place.




I have shown this chart before but it bears repeating. Each
time since 1998 that the VIX moved under 19 the results were
the same. I don't make this up, I just report it. Everybody
says quit harping on the VIX. In my opinion anybody that
does not watch the VIX is asking for trouble. It is up to
you to decide to react to it or ignore it.

VIX/Dow 5-year chart



Let's recap the facts and the result:

Bullish investor sentiment at 56%  (bearish)
Bearish investor sentiment at 17%  (bearish)
Bullish percent on the OEX at 87.0 (very bearish)
VIX at 19 for the 4th time in 5 yrs. (bearish)
Bearish divergence on indicators
on the OEX bullish percent chart     (bearish)
Monday begins the worst four weeks  (bearish)
Markets at new highs after 7 mo run  (bearish)


It is statistics like those that are driving the bears crazy.
The market refuses to go down and extreme bullish indicators
are growing even more bullish on a daily basis. The off the
scale bullishness is feeding on itself and providing the
urge for investors to chase stocks even higher.

Next week is going to be a major test for the indexes. I
have been reporting for weeks that we were about to enter
the worst six weeks of the year from mid September to the
end of October. Well boys and girls we are now moving into
the worst four weeks of the year. This is the period after
September options expiration and before the October
expiration. Why?

Mutual funds have an October 31st fiscal year-end. This
means funds wanting to lock in profits and/or off set losses
have to sell over the next four weeks. They could wait
longer but the normal plan is to wait for the Sept option
expiration period to pass before dumping stocks. They try
to get all the portfolio rebalancing, including buying new
stocks, done before the October option expiration. This
compresses the time frame for all these events to occur
into the next 3-4 weeks. In a year where many stocks have
more than doubled in value since March the odds are good
that many funds are going to lock in profits to dress up
statements. After three years of a bear market the urge
to show a nice profit is going to be strong. Don't get me
wrong. The funds are not stupid. If the market opens up
on Monday and they feel the momentum is still there they
will try to stretch their gains just like everyone else.
Once the momentum appears to fade it may trigger the end
of that stretch attempt. The next three weeks are the three
most important weeks of the year for funds. This is where
all the planning and pain pays off and bonuses are earned.
Until those profits are translated into cash they can
disappear in an instant with any negative event. However,
not all funds sell and they do not sell all stocks. If
they think there is more upside in a stock and they do
not have anything better to replace it with then just
taking profits to take profits is a self defeating process.
Confused? The bottom line is that some will and some won't
and until it happens nobody has a clue.

I feel like Chicken Little. I have been reporting on the
"normal" market trends since late July and none of them
have come to pass. The fix was in and the retail traders
are convinced the worst is over and recovery is ahead.
This belief has produced a positive inflow of cash to
funds for the last 17 weeks. The Fed is going out of its
way to promise no rate hikes until well into the recovery
cycle. We are poised for a huge explosion in earnings if
the recovery comes to pass. At this point that is more
of "when" instead of "if" but it has not happened yet.
We are seeing a slow increase in the economy but maybe
not enough to justify the strong rally from March.

This brings us to next week. "Normally" this would be the
beginning of the lock in profits volatility period. However,
with the funds still pouring in and the investing public
counting dollars instead of sheep at night it remains to
be seen what will happen. The Dow and Nasdaq are in nosebleed
territory not seen in over a year and by many indicators
very overbought. This could produce a spectacular dip back
to the August lows or just another dip to be bought by the
bulls. Until it happens it is just speculation and nobody
has a clue. The market has embarrassed quite a few analysts
over the last couple months and has proved one thing more
often than not. The market will always do exactly the
opposite of what analysts expect at critical points.
Hopefully by doing my Chicken Little imitation again today
if the sky does fall you will be ready for it. If it doesn't
then no harm done. While Friday could have been the calm
after the storm there is a much better chance it was the
calm before the storm. Or should I say calm before the
next buying opportunity?

Enter Very Passively, Exit Very Aggressively!

Jim Brown



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


Bonds and Gold Gain, Equities Retrace
Jonathan Levinson

Friday was a quiet session following Thursday's tumult, with
precious metals emerging on top, treasuries advancing and
equities giving back part of Thursday's gains.

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

15 minute chart of the US Dollar Index




The US Dollar Index got sold again in Friday's trading,
compounding a week of losses and completing the fourth
consecutive week of declines.  The weekly candlestick is a doji,
but the negative week doesn't make it look bullish to this
observer.  Friday saw a failure  below 95 support, with a weak
bounce commencing from the 94.70 area.  Gold rallied, and the CRB
added .93 to close at 238.50.

Daily chart of December gold




December gold added 5.90 on Friday to close at 383.60, printing
an intraday high of 384.40.  It's been rising for seven weeks,
and printing a bullish hammer for the week portending further
upside to come.  This week's action confirmed the rising
trendline support within the daily bear wedge we've been
following and brought more indication of the possible truncation
of the oscillator downphase.  The 10 day stochastic has turned up
to a bullish kiss, though it will take a new year high to drive
it back to a buy signal.  Such a move would be very bullish if
the bulls can do it.  The HUI and XAU were also very strong in
Friday's trading, with the HUI breaking 207 but closing up 4.35
at 204.50, XAU up 2.77 at 95.38.

Daily chart of the ten year note yield





The Ten year note yield (TNX) dropped 2.2 basis points on Friday
to close at 4.162%.  The closing print reversed part of the day's
decline, leaving a doji on the daily candle if you squint at it,
but more importantly leaving the 10 day stochastic on a bullish
kiss.  A further decline on Monday would reverse it, but it's a
sign of potential trouble for ten year note bulls.  For the week,
the TNX completed a third black crow, bearish for the yield /
bullish for bonds, but showing early signs of possible reversal.


Daily NQ candles




The NQ retraced part of Thursday's considerable gains on Friday,
but the bears could not keep the bulls at bay for longer than a
few ticks, with the lows blowing off in a doji spike.  The
reversal off the lows was not particularly violent, the low
volume was sufficient to create a candle shadow at the lows.

If the pattern this week holds into next week, Monday will bring
another "shock and awe" bullish advance, as can be seen in the
repeated bullish engulfing candles that followed each negative
day for the past several sessions.  With quadruple witching
Friday just completed, however, the pattern may well fail.  The
week's advance left the oscillators on bullish kisses very early
in their downphases, but it will take an up Monday to seal the
deal.  Meanwhile, the failure below the wedge resistance line
above 1400 is an encouraging sign for bears, despite the sharper
uptrend within the ongoing bear wedge.

30 minute 20 day chart of the NQ




The 30 minute NQ dipped from its high at the open as we
speculated it might in Thursday's Futures Wrap.  The downphase
was orderly, and NQ bounced right on schedule, with the 300
minute oscillator confirming the lower trendline bounce.  As
traders, we often try to divine the future, and a trendline
confirmed by oscillator patterns is as good as it gets.  The
upphase implies a trip to the upper trendline next, and to new
rally highs in the process, but any failure will bring in an test
of the lower bear flag trendline.  A failure there would spell a
possible end to the rally.


Daily ES candles




ES failed at the primary upper bear wedge trendline on the daily
chart, but bounced from the secondary upper wedge, proving that
even ambivalence has its merits in the market.  The bounce off
the lows at 1029.50 following the decline from the morning high
blew off the lower candle body to leave a candlestick hammer.
This ordinarily bullish candle is mitigated by a –4.50 point
close on the day, and leaves it looking more bearish to me.  Note
that the oscillators remain choppy, looking for a confirming move
on Monday to either fortify the early buy signals trying to
print, or reverse them.

20 day 30 minute chart of the ES




The same successful lower trendline support test seen on the 30
minute NQ is here on the ES.  I noted the support in the intraday
Futures Monitor as a possible long entry with a stop against the
1029.50 low of the day, and the bounce delivered but fell short
below 1036.  If the pattern holds true, Monday could bring upside
fireworks to the upper flag resistance line above 1045.  However,
the unwinding of opex week could hinder the run, as suggested by
the end-of-session pullback to 1032.75, the ES closing print.

150-tick ES





Daily YM candles




YM touched a high of 9649 but closed at 9596.

20 day 30 minute chart of the YM




This week saw equity futures break to new 52 week highs. I had
noted, at the previous highs 2 weeks ago, that the bounce would
determine the fate of many bears and the chances for a continued
rally.  That bounce came this week from a low above 1000 ES and
took the top off the previous 52 week highs.  Whether such was
the result of op-ex antics, frantic short covering, manipulation
or otherwise, is only of passing interest to devoted chartists.
The price is the price, and many technicians are looking for
continued advances.  I see the potential, and am in no hurry to
chase retracements to the downside with shorts.  However, the low
VIX (19.07 closing print today), the widespread despair amongst
bears, and the unanimous consensus amongst bulls partying like
it's 1999 all raise antennae on bears looking for a significant
trend change.  Rallies don't tend to launch from points at which
everyone is bullish, though they can drag out longer than many
bears can remain liquid.

Caution and active stops remain our best friend on both sides of
the trade.




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


Higher highs
Jonathan Levinson

The indices broke to higher highs this week, despite Friday's
light pullback.  The Nasdaq dropped 3.85 points to close at 1905,
the Dow lost 14.31 to close t 9644, and the S&P 500 dropped 3.28
to close at 1036.

Volume on Friday was higher than it felt, with 1.9B Nasdaq shares
changing hands and 1.72B NYSE shares traded.  Sellers were present
for a change, generating a closing TRIN of 1.42 and TRIN.NQ of
1.19 despite the renewed complacency reflected in the volatility
indices, leaving the VIX -.23 at 19.07, VXN -.01 at 29.74 and the
QQV –2.11 at 24.93.

As we've been squinting at intraday and multiday charts for what's
proven to be a very long week, I've zoomed out to the weekly
candles to review the Nasdaq and SPX.

Weekly COMPX candles




The COMPX chart is surprising from a bearish perspective.  I've
been hearing anecdotally that short interest on QQQ remains near
record high, each short squeeze blamed for what feels like
increasingly unsustainable advances.  Yet the 4 year weekly chart
doesn't confirm it, with the COMPX having retraced not even 23.6%
off its lows measured from the alltime high in Spring 2000.  While
the move off the March 2003 lows has felt and looks like a nearly
straight line up, the oscillators are only beginning to trend in
overbought.  A Fibonacci target of 2100 COMPX is not out of the
question, though to achieve it without a prior downphase on the 10
week stochastic would be surprising.

Weekly SPX candles




The weekly SPX has gone relatively further, approaching its 38.2%
Fibonacci resistance in the 1060 area.  The oscillators are trying
to start a downphase within the context of what appears as a clear
bearish ascending wedge projecting to the March 2003 lows.   Bears
who have been shorting and getting skinned this week can consider
waiting for a break below 1000 or try to catch a failure near 1060
with tight stops.

The bigger picture affirms that this remains a cyclical rally
secular within a secular decline, a bear market rally.  Bulls will
argue that every bull market begins as a bear market rally, which
is true, but I don't see how we're there yet.

On to the trading vehicles:

Daily OEX candles




The OEX daily remains a difficult chart to read, for the simple
reason that it spent the better part of the summer doing nothing
in a choppy range between 485 and 510.  That chop creates a
potential reverse head and shoulders pattern with a neckline
around 511.  I say "potential" because reverse head and shoulders
belong at the bottom of a decline, and not near the top of an
advance.  Nevertheless, the formation projects to an upside target
near 530, 10 points above Friday's close.  That said, the better
defined bearish ascending wedge should cap the advance near 525,
with support again at 511.  The daily chart oscillators remain
toppy, and while further upside is not out of the question, risk-
reward favors lower prices.

20 day 30 minute chart of the OEX




The 30 minute chart of the OEX shows a bounce on schedule at the
lower bear wedge trendline, lining up with a lower low on the 300
minute stochastic.  The bounce projects to trendline resistance
just above 525, and if the bulls can keep opex unwinding on Monday
from taking out the lower rising trendline at 520, they have a
good chance of seeing it.

Daily QQQ candles




The Qubes bounced from their lower wedge trendline on the daily
chart, and failed at the lower of the two competing upper rising
trendlines.  A downphase aborted very early in its run this week,
catching bears by surprise on what appeared to be a bear wedge
breakdown.  The counter-cyclical bounce was either op-ex related
or not, and again, we'll find out Monday, Tuesday at the latest,
whether the bounce was genuine or not.  For call writers and put
buyers of September contracts, that answer will be of merely
academic interest.

20 day 30 minute chart of the QQQ




The 30 minute chart of the NQ reveals the same trendline bounce as
we see on the OEX.  The stochastic upphase underway needs to be
confirmed by a Macd buy signal, but any further upside on Monday
will provide it.  The trend remains higher within this ongoing
bear wedge until the lower support line gets taken out.

For next week, op-ex unwinding will be critical.  If the 30 minute
chart oscillator upphases are going to fail, it will occur Monday
as option-related positions get squared and portfolios adjusted.
If the markets don't drop, it's reasonable to expect this week's
highs to be tested.




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


Guess What?

If you were expecting me to suggest index calls today you
are smoking something funny. With the historical worst
three weeks of the year starting on Monday it would be
crazy to do anything buy play the odds with an index put.

IF, and I qualify that in capital letters, IF, the normal
historical trend appears then tech stocks could be hit the
worst. Fortunately the put options on the QQQ are the
cheapest options available.

I am opting for the Oct-$34 puts at a 75-cent close as of
Friday. They should be slightly lower on Monday assuming
we do not gap down. If you want to get really crazy you
could buy the Oct-$33 puts for 45 cents. A move to $32
would double your money and at 45 cents there is not much
risk as long as you don't buy a huge quantity.

QQQ Chart





The second option would be to use the DJX in hopes of a
retest of 9000 which I see as the worst cast October low.
My preferred strike would be the Oct-95 put at $1.10. We
would need to see a drop to 93 to double our money but that
could easily come to pass.





These are high-risk plays in a bullish market. Enter them
only if you agree with the potential and accept the risk
of the contrarian entry.


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

Play Recaps

LUV Calls (recommended 9/14)

We saw a bounce and then a pullback in LUV from last week
but the stock finished the week flat. With the drop in oil
prices the outlook is still good for the sector and this
is a long term play.

http://members.OptionInvestor.com/editorplays/edply_091403_1.asp


Powerball

The portfolio roared back with the rally to new highs. Still
five months remaining and plenty of time for that 4Q recovery.
We are likely to see some more negative signs before October
is out but the Nov/Dec period should be strong.

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


Bulls Forge Deep Into Bear Territory
- J. Brown

The last couple of months have certainly been eye openers.  I'm
not just talking about Dick Grasso's pay package.  Look at the
weekly charts on the Industrials and the Nasdaq composite.  The
NASDAQ has been up five out of the last six weeks and the INDU
has been up six out of the last seven.  Making the trend even
harder to believe (if you're a bear) is that these gains have
come in the heart of bear territory: August & September.  August
has broken the seasonal trend of weakness and September is on
track to follow suit.

However, as I mentioned on Thursday we're stepping into a
dangerous part of the year.  This is the thickest part of bear
territory.  It's time to tighten up the laces on those hiking
boots and keep your eyes and ears open.  Bear attacks tend to be
quick!

The last two weeks of September and the first week or two of
October can be the most painful for the equity markets.  They
tend to be ripe with profit warnings about the third quarter.
Fortunately, this year the earnings warning have been low in
number as many analysts have already raised their expectations
for the markets as whole.

One of the rules for hiking in bear country is to make plenty of
noise so you don't startle the bear and provoke a violent
response.  There's nothing more dangerous than a surprised bear
except one that's also wounded and scared.  You'd have to admit,
given the market's performance wounded and scared is probably
their current condition.  Hopefully, the parade of positive
analyst comments in August and September followed with the roar
of the markets climbing higher may have been enough noise to
actually scare aware the casual ursine.

Next week's calendar is a little quiet.  Keep an eye on the
broker-dealers.  Bear Stearns blew away earnings this last week
and we'll hear from Lehman Brothers, Morgan Stanley and Goldman
Sachs on Tuesday.

FYI: no new CBOT data yet.


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

Market Averages

DJIA ($INDU)

52-week High:  9686
52-week Low :  7197
Current     :  9644

Moving Averages:
(Simple)

 10-dma: 9531
 50-dma: 9319
200-dma: 8671

S&P 500 ($SPX)

52-week High: 1040
52-week Low :  768
Current     : 1036

Moving Averages:
(Simple)

 10-dma: 1024
 50-dma:  999
200-dma:  927

Nasdaq-100 ($NDX)

52-week High: 1406
52-week Low :  795
Current     : 1392

Moving Averages:
(Simple)

 10-dma: 1369
 50-dma: 1299
200-dma: 1136


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


If you looked at a chart of the VIX on Friday you probably saw the
long candlestick down towards the 16 level.  We believe that is just
a bad tick.  The real low of the day was near the 19 mark.  The
markets continue to push higher, showing less and less fear, which
makes the VIX drop lower and lower.

CBOE Market Volatility Index (VIX) = 19.07 -0.23
Nasdaq Volatility Index (VXN)      = 29.74 -0.01

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.68        970,777       660,827
Equity Only    0.53        805,493       432,906
OEX            0.82         59,414        49,129
QQQ            1.86         57,744       107,723


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

Bullish Percent Data

           Current   Change   Status
NYSE          73.4    + 0     Bull Confirmed
NASDAQ-100    80.0    + 0     Bear Correction
Dow Indust.   83.3    + 0     Bull Confirmed
S&P 500       82.8    + 0     Bull Confirmed
S&P 100       87.0    - 1     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  0.99
10-Day Arms Index  1.15
21-Day Arms Index  1.03
55-Day Arms Index  1.02


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    1537      1594
Decliners    1250      1495

New Highs     198       266
New Lows        6         0

Up Volume    789M      882M
Down Vol.    917M      977M

Total Vol.  1743M     1887M
M = millions


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

! The COT Website has NOT updated their data since 09/09/03.

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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Day trader's 5-minute bar technique

This week's e-mail was full of question's regarding the technique
shown in the OptionInvestor.com Market Monitor and intra-day
commentary, where a trader can utilize the retracement tool and
the first 5-minutes of a day's trade to begin defining some
short-term levels, where an institutional trader working an
order, might set some parameters to get that order completed
before the day's close.

While a good investor or swing trader understands the importance
of correlating a stock's price action (quarterly, monthly or
weekly), a good day trader will focus on the index/sector/stock
relationship as well.

In Friday's Market Monitor at OptionInvestor.com, I polled
subscribers for a list of three stocks they liked to day trade on
a regular basis.  Some sent me requests for the various tracking
securities, which I thought would be a good idea to cover with
this technique, as it would be useful to track the Dow Diamonds
Trust (AMEX:DIA) $96.47, which tracks the Dow Industrials (INDU)
9,644.82.

I was taken aback at the number of day traders that actually
requested the Dow Diamonds (DIA) and the CBOE's DJX $96.45.  What
has the world come to when day traders vie for the sleepy Dow,
when they could be getting jerked around with the NASDAQ-100
Tracking Stock (AMEX:QQQ) $34.58?

What also surprised me is that 3M (NYSE:MMM) $141.98 was the most
requested stock in Friday's late after-the-close poll.  If I'd
have thought to place the poll earlier in both the
OptionInvestor.com and premierinvestor.net intra-day updates, I'm
sure MMM wouldn't have received the highest number of requests.
It probably would have been IBM (NYSE:IBM) $93.28.  Another Dow
component?

And here's an interesting pattern from Friday afternoon's late
session poll.  NYSE listed stocks.

A quick story here.  In my broker days, in the early 1990's, I
shared an office with a fellow broker, and before day trading of
stocks was made more available with the invention of individual
investor on line trading software, this guy, who was busier day
trading his father's money by filling out a carbon copy paper
ticket, than building a client base, would only trade NYSE listed
stocks.  He wouldn't look at a 4-lettered stocks, only because he
felt they were just too volatile on an intra-day basis to day
trade. (Lesson:  If your just starting to day trade, start with a
NYSE listed stock, which may tend to be less volatile than a
NASDAQ listed stock, where you have to contend with market makers
all jockeying for position)

Of course, his observations were correct in the context of day
trading when at that time we had to fill in the account number,
write out the stock's name and symbol on the ticket, write the
number of shares along with price, add the firm's discounted
commission, then total it all up before the buy/sell order was
ever placed.

This 5-minute bar chart technique, whereby a trader simply look
to measure the first 5-minute of trade, place TWO separate
retracement on the first 5-minute bar and start trading is crazy
to some.  It makes little sense that the resulting levels from
the retracement could ever be traded by the MARKET on an intra-
day basis.

While there are times when the levels won't come into play on an
intra-day basis, it is uncanny how stocks will track these
levels, which a day trader can trade with a very simple and
disciplined approach to trading levels.

The reason I polled traders for a list, is so that you and I can
test this technique on a few stocks.  If at the end of this
article you think this might be a viable tool to add to your
arsenal of day trading observations (daily pivot analysis levels,
Level II bid/ask size, conventional trend and horizontal
correlations) then that would be great!

General rules:

The first rule is to let the stock trade for 5-minutes.

The second rule is for a higher probability for a lasting trend
to develop over the session, the stock should trade two levels of
retracement.  This would be an attempt to get a feel for a
lasting directional trade during the day, the trader must observe
the stock trading TWO levels (up or down) AFTER the first 5-
minute bar has been formed.  The trader allows 5-minutes of trade
to past, to try and sense, based on visual observation, just how
much interest and disagreement there is on the stock.  The
thought being that the FIRST 5-minute bar will be the MARKET's
early reaction (news, etc) that creates the length of price range
in the bar.  Think about it.  If a $40 stock opens where it
closed at the prior session and trades a 5-cent price range in
the first 5-minutes, how much disagreement/interest or trend is
likely to develop during the session?  Trader's that can monitor
volume with their charting system on 5-minute intervals may also
want to observe normal or abnormal volume pattern in a stock they
day trade on a regular basis to get a feel for that day's
disagreement/interest in the stock at that price level early in
the session.

The third rule is that once a stock trades two levels higher, it
should NOT violate two levels below, if a trend for the session
is to have a higher probability of developing.  The same would be
true for a lower trade to take place where a stock that trades to
levels lower, should not be able to violate two levels higher.  I
will try and explain this with a chart in a minute.

The fourth and final rule is that the trader's goal should be to
close the day trade when/if the stock trades the outer-limits of
the soon-to-be-defined day trader range.

Here's a chart to help with the understanding of the second rule.

Second Rule Chart -




I've placed two retracement brackets on a blank chart with a base
value of 0.00.  I've drawn in a 5-minute bar.  All you should
care about is after the first 5-minutes of trade is to get your
BEARISH (red) retracement anchored at the top of the 5-minute
bar, and fit the 80.9% retracement at the lower end of the bar.
The rest of the red levels are RESULTS and further levels of
trade.  After you have your RED retracement drawn, then draw your
blue retracement on the chart by anchoring 0% at the bottom of
the first 5-minute bar, and then fit the 19.1% at the top bar.
Please note that it does NOT matter if your 100% or 0% is at a
top or bottom, all the trader cares about is PRICE levels to
trade.

A day trader is unemotional; he/she is only interested in making
money short-term and if wrong, keeping losses to a minimum and
moving on.  The first 5-minutes of trade is NEUTRAL, let the
MARKET sort things out and you look to follow the market.

In PINK text, I've made note as to how a trader looking to trade
a stock that has gapped higher on the session, should initially
disregard the 2-level (#1, #2) approach to trading the levels
initially.  Often times a stock will gap higher (say $1.00, then
fall back 50 cent, to then finish the session higher by $1.50.).
The above retracement technique is useful for trading gapping
stocks.  If a stock you like to trade gaps higher at the open,
then pulls back to RED #5, but is able to begin a rally back to
Red #3, trader can trade long at RED #3, stop goes below RED #5
and daily target is BLUE #6.

One question often asked is why might this type of trading
technique have credence?

Imagine that I'm a mutual fund manager and you are the primary
trader I run the bulk of my mutual fund trading business through.
Today, I call Christine (Christine was a subscriber that asked
about IBM, as did 7 others) and tell, I mean... ask her if she
can get me 100,000 shares of IBM at net $93.00 by close.
Christine trades IBM frequently, has a good feel for the stock,
and I've found her to be honest and gives me fair price fills for
orders.  Christine says, "no problem," but reminds me that today
is Triple Witch Friday.  I tell her I don't care what day it is.
(grin).  Christine goes to work.

While Christine's main priority is to get my order filled by the
close of the day, she will also try and work the order for me and
try and get the best prices she can, as she would like to keep my
business in the future.  Christine has heard how pleased I've
been in the past when she has delivered stock to me at prices
much lower than I was willing to pay.  One day I wanted here to
buy 200,000 shares of Enron at $32, and she got me filled at a
net of $25 by the close.  I was very pleased that day.

However, the LEVELS of trade at her retracement, will have her
checking how much of my order is complete, as she knows she needs
to get the order for 100,000 shares filled before the close, and
billed to my at the 04:00 PM EST close.  If there is too much
bullish competition from buyers in today's trade, Christine will
likely get more aggressive with here buying in an attempt to get
my 100,000 shares filled before the close.

What would be Christine's first alert that she might not get my
order done for 100,000 shares at net $93 by the close?  If you
answered, "when it trades blue #2," then you're on the right
track.

So now that we have a feel for how an institutional trader may
have to approach a session, let's come back to earth and simply
trade based on our rules for the 5-minute retracement technique.

IBM Chart - 5-minute intervals




We won't see IBM trade 1.1 million shares in the first 5-minutes
of every session, and today's Triple Witching Friday most likely
had something to do with today's opening volume.  When IBM traded
$92.65 (BLUE #2), a day trader would have developed a bullish
bias toward the stock, STOP below RED #1 as (based on the rules).

I won't go into detail here, but does a bull buy BLUE #2 or look
for a pullback entry to BLUE #1, with stop still at RED #1.  It
may depend on what the Dow Industrials as a group are doing, or
broader technology in general, which might influence a bullish
traders preference.

Let's say a bull paid up and bought 100 shares of IBM at $92.65.
At PINK "(A)" I've outlined the rules of trade.  Remember, your
daily goal was BLUE #6 (based on retracement).  Does a bull long
at $92.65 sell $93.09 (BLUE #5), and risk a stop just below
$92.77 (BLUE #3), which is two levels below?  Maybe, maybe not.
If the Dow Industrials were higher, bull might let IBM try and
run higher, feeling the risk was worth the potential reward.  If
Dow or broader technology were lower, IBM bull might take the
money and run.  The trader that uses oscillators may also use
them to make a decision.

Is a day trader done when they've opened a closed a trade on a
stock earlier in the session?  Heck no!  Especially if they just
found a winning trade.  A trader will keep going as long as they
feel their more profits to be made.

Does a day trade BEAR show interest in IBM on Friday after the
stock rose from $92.40 to $93.00?  Probably not after seeing a
trade above BLUE #4 or higher at BLUE #5.  That might have been a
sign that there was just too much bullish sentiment for the
stock.  A day trade BEAR might show interest if he/she were to
see a BLUE #3 get followed by a decline to BLUE #1, but the BEAR
would most likely look for a short entry back at BLUE #2 and then
look for some confirming weakness to RED #1.  I'll try and find
this type of trade later.

At the PINK (B).  This is the same price level a BULL at BLUE #2
may have bought earlier in the morning, dumped at BLUE #5 for a
gain.  Is a day trade BULL interested here?  I would think so and
looks to pick up a trade at BLUE #2 ($92.65) again, or look for a
bullish entry on renewed intra-day STRENGTH at BLUE #4 ($92.89)
and PINK (C), with stop just below BLUE #2 and still targets BLUE
#6 as a daily goal.  Another tactic in all of this is for a very
patient bull that saw the pullback to BLUE #2, then bounce to
BLUE #4 (two levels higher) then feel the stock did something
(trade two levels higher that it shouldn't have if a more BEARISH
or weakening trend were going to develop), and then look for a
BULLISH entry at BLUE #3 of $92.77, where I've placed the PINK
(C).  Take your time with this paragraph.  Now, put yourself back
in Christine's shoes, and work that order for long 100,000 shares
of IBM at net $93 for me.

Today, IBM reached BLUE #6.  A day trader bull might have worked
just one trade today (buy $92.65 / sell $93.09 as an example),
but may have gotten two profitable trades with another at buy
$92.95 and sell $93.30.

Some notes a trader should be making mentally is that once you
set up a retracement as such, you want to look at the RANGE, and
see if the trade makes sense on a day trader perspective.  If
your trying to day trade 100 shares of IBM, it is one thing to
have a $1 bullish potential to BLUE #6 on one day, but just $0.50
BLUE #6 the next day.  While its true that this technique is
based on just the first 5-minutes of trade, but one way to see if
there might be the potential for a good advance or decline that
you can trade.  A trader that trades 1,000 shares using day trade
margin, may be satisfied with a full 0.50 trade potential if the
trader things they can take $500 out of the trade.

From an institutional trader's perspective... What if Christine
went into today's trade with a BEARISH bias on IBM, despite my
instruction for her to buy 100,000 shares of IBM at net $93?  If
she thought she new better than the mutual fund manager's
instruction to buy the stock before the close, and waited around
all day with the thought the stock was GOING to trade lower, then
she might not have been able to get the order done.  Can you
imagine the explaining that would have to be done if at 03:50 PM
EST she called me and said "Jeff, I haven't bought a share, but
I'll get to it on Monday."  Ooooo I'd be a little upset,
especially if one of my analysts had told me late Thursday that
IBM might ink a deal with the Government to sell $400 million in
new computers, and I had asked Christine to get me some exposure
to the stock.  I didn't need to tell Christine why I wanted the
stock, I just wanted her as a trader to get me the 100,000 shares
net $93, using her expertise as a trader.

The pressures are immense for an institutional trader.  They know
it isn't necessarily their job to call a market.  They just trade
the levels and try to get the orders filled at the best possible
price for their customers.

Let's look at the Dow Diamonds (AMEX:DIA).  Nothing different
here, and all we do is let the 5-minute bar develop, then go to
work with retracement!

Dow Diamonds (AMEX:DIA) - 5-minute intervals




A day trader lets the 5-minute bar develop, then goes to work
with retracement.  It may have been darned tempting after
Thursday's impressive gains for an eager bull to get long the DIA
when they broke to a new 52-week high 15-minutes into Friday's
trade, but there wasn't quite enough bullish bias to get a trade
at BLUE #2.  More than an hour later, a BEARISH bias was
developed with a traded at RED #2.  A BEARISH day trader could
have initiated a short at $96.52, or looked for a bounce back to
RED #1 and $96.68.

At the PINK (A) I make note that the DIA traded $96.68 exactly.
Traders that subscribe to the Market Monitor will often note that
I preface certain price action levels with the phrase, "look for
a 5-minute close" above or below a certain level.  Over the
years, I've simply noticed that often times, a level will be
traded, and the trade at that level may then initiated a trade in
the OPPOSITE direction of how the level was traded.  For
instance, at points marked (A), it could be, especially on an
expiration Friday, that there were a lot of computer programs set
for distribution in the DIA, that may have needed to sell X-
number of DIA shares before the day's session was over, and after
computers (which can easily establish retracement levels based on
the opening 5-minute bar chart) saw RED #3 traded, a SELL BIAS
was in place at RED #1, the level was traded, and computers began
feeding stock out, or selling again at that level.

The reason I mention 5-minute closes ABOVE, or BELOW a level is
to simply try and see if the MARKET is seeing enough BUYING or
SELLING, even on such a brief time frame, to try and make sure
I'm not BUYING into COMPUTER SELLING, or that I'm SELLING into
COMPUTER BUYING.

On Friday, a trader that did sell short the first test of RED #2,
stop above BLUE #1, and did nothing until RED #4 was traded, when
they would have lowered their stop to RED #2, would have been
stopped out at RED #2 for roughly break-even.  At PINK (B), that
first test of RED #2, did see a 5-minute close above that level,
and perhaps computers had finished there jobs, perhaps got things
squared for the Triple Witch expiration.  We don't know for sure,
but by trading the rules, the DIA should not have been able to
trade much above RED #2 after trading RED #4.

I was rather surprised that there were so many requests regarding
3M (NYSE:MMM) $141.98.  We must have a lot of big hitters in the
Market Monitor.  My q-charts 5-minute bar shows today's 5-minute
opening range as being from $140.55 to $142.55, but there were
bad ticks to the $140.55 level.  Closer inspection on 1-minute
intervals would have the first 5-minutes, which actually had MMM
seeing a delayed open 3-minutes after the open (hey, it's the
largest PRICE weighted stock in the Dow and on Triple Witch,
there were probably lots of various trades around MMM on
expiration) trading a high of $142.55 to low of $142.30.  Not
much to show today for a 5-minute open and we'll look at a
different day in a second.

But this brings up a quick point, especially on listed stocks.
Some day's, especially with a lot of economic data, it is not
uncommon to see an NYSE listed stock delayed opening until 2 or
3-minutes after the 09:30 AM EST open.  A trader can still use
the 5-minute bar chart technique, but I would simply change my
time frame to a 10-minute interval, set your retracement just as
you would if it were a 5-minute bar, then when you're done
setting up your retracement levels, switch our time interval back
to 5-minute and be ready to trade!

This brings up another thought.  A lot of day traders like to
trade off of 2 or even 1-minute interval bar charts.  You can do
this still, but I would want at least 5-minutes of trade to set
my retracement up.  Get some time observation to give the market
a chance to develop an early 5-minute range, then trade the time
interval you prefer.

Let's do this with 3M.  Let's test this 5-minute interval
technique on 3M, but let's go back to a gapping higher 3M, which
took place on July 21, 2003.  Before the opening bell, the market
was abuzz as 3M had just reported Q2 earnings, beat estimates and
guided higher for Q3.

Still concentrate on the RED and BLUE retracement, but on this
day, the technique I've shown before regarding "stacked
retracement" may also have been used by traders, when MMM traded
BLUE #6 just 1.5 hours into that day's session.  There was still
a lot of time left to the close, where the simple cloning of BLUE
retracement, could have been staked on top of the first, to give
further upside level for a trader to trade against.  I colored
the stacked retracement pink, so you can better see what a trader
will do in such circumstances.

3M Chart - 5-minute intervals (07/21/03)




Despite a gap higher, a day trader is still "neutral" and lets
the 1st 5-minute bar develop, and gets retracement set and ready
to trade.  3M didn't fill its higher gap from the Friday, July 18
close, but a rough estimate shows that a decline to approximately
$131.56 would have been a 50% retracement of the gap.  Remember,
the RED retracement was taken from the 1st 5-minute interval too.

Anyway... we see that MMM did trade BLUE #2 about 30-minutes into
the session at $133.55, and as we count the levels higher, when
MMM traded BLUE #3, it never came below BLUE #1, where a bullish
entry at BLUE #2 would begin raising their stop at.  When BLUE #4
was traded, MMMM never came back below BLUE #2, the next level
for a raised stop.  On and on it went as gains built.  At 10:55
AM EST, MMM had already achieved BLUE #6 and a profit could have
been taken.  With the Dow Industrials trading lower that day, a
day trader long MMM at $133.55 may have said enough was enough.

The PINK retracement, is simply a clone of BLUE (or red
retracement for that matter) where the PINK retracement is simply
stacked on top of the BLUE, and just like that, a trader has new
upside levels to trade rule number 3, where once MMM traded PINK
#1, it should not trade BLUE #5.  If the Dow Industrials would
have been up 100-points, instead of down that day, the use of
cloned and stacked retracement could have given the day trader
some good level to systematically trade by.  It looks like the
MARKET was trading levels similar to this retracement technique.

Enough with these "boring" stocks, and lets try and tackle KLA-
Tencor (NASDAQ:KLAC) and take on some market makers and
institutional computers in our 4-lettered friends.

Are you getting the feel for how systematic this is?  Do you see
how you can back test this technique on a stock, any stock,
index, security, over several prior days and see if a stock will
show some type of consistency?  If you find a stock that just
gives too many "false" triggers and shows poor back testing
consistency, then don't try day trading that stock with this
technique.

KLA-Tencor




No trade in KLAC on Friday.  I sure hope that those requesting a
day trade lesson on KLAC aren't disappointed.  I do think a good
lesson from this chart is found.  EVERY DAY is not necessarily
THE DAY to trade a stock you like to day trade.  That's why most
day traders have 10 BULLISH candidates and 10 BEARISH candidates
each morning.

For instance, let's Stuart (one of several traders requesting
KLAC) has a bearish view of KLAC after the SEMI book-to-bill data
this week, or some other news on the semi-equipment sector.
Stuart may also have AMAT or NVLS as stocks to trade in the
sector.  Stuart might also have a list of BULLISH candidates at
hand in a different sector, like software.

Heck, each day there's got to be a stock in the NASDAQ-100 Index
(NDX.X) that is either notably up, or down early in the morning,
which can easily be identified by a trader with the NASDAQ-100
heatmap at the NASDAQ web site.  It's free!  Here's the link.
http://screening.nasdaq.com/Heatmaps/Heatmap_100.asp

Speaking of the NASDAQ-100 Index, the QQQ was a tracking stock
that received several votes for discussion.

I'm going to look for a "gap" day, so we can try and find a tough
intra-day chart to trade.  I'm going to look for a gap that gets
backfilled, creates a day trader loss, but see if we can't shift
our first bias, get back on trend, and make back the gain.  This
is perhaps the toughest day trade a trader will face.

NASDAQ-100 Tracking Stock (QQQ) - 5-minute intervals





A quick check of the BLUE range (BULLISH) would show QQQ
potential from roughly $33.33 to $33.69, so 1% gain potential to
BLUE #6, and RED range (BEARISH) would show QQQ potential from
roughly $33.33 to $32.97 and 1%.  Not a whole lot from the mid-
point, but still some room where a MAX 0.75% gain might be found.

I've marked three points at PINK (A), (B) and (C), which after
the September 12 morning gap lower, a day trader could have
turned BEARS the QQQ at RED #2 and shorted.  At RED #5, a QQQ
trade was briefly found, which would have had the BEARISH trader
moving DOWN his/her stop to RED #3 (two levels above RED #5) and
getting stopped out at point (C) for either fractional gain or
break even.

A trader might then be alert to STRENGTH, or lack of weakness as
the QQQ was able to trade two levels above a prior lower level
test of RED #5 for the first time in the session.

A trader could have made further attempts to short the QQQ while
in the RED retracement area, but after 11:00 AM EST, when QQQ
traded BLUE #2, further alertness to potential strength was
observed.  The rather tight zones and ease with witch the QQQ was
trading through the various intra-day levels becomes tough to
trade and looks to turn into a scalper session.

While my chart is rather busy, a trader that does monitor 5-
minute bars and their closing value, will note that when the QQQ
first tests BLUE R2, it was NOT able to hold a close above that
level of $33.44, and mental note that there was some type of
formidable selling being triggered at that level, which was
enough to hold on a 5-minute closing basis was just too
formidable for further gains.  From there, the QQQ falls lower
and yet again violates RED #1 (two levels below BLUE #2), which
the QQQ should not do, and falls further to RED #3 and closes
below RED #2 on a 5-minute basis.  At this point, it would be my
analysis that the QQQ is still showing intra-day bearish
tendency.

A trader also notes inconsistency with the QQQ and trading system
this day and either moves on to another security, which is
showing consistency this session, or sticks with his favorite
looking for more clues, but better yet, DIVERGENCE from daily
inconsistencies.

At PINK (D) the QQQ comes back to test RED #2, pierces briefly,
but holds a 5-minute close.  This may get the trader's attention
with a pattern also be identified that this slight DIVERGENCE or
holding of RED #2 comes after a higher low.

At PINK (E) the QQQ is back to test BLUE #2, and for the first
time in the session, the QQQ is able to hold a 5-minute close
above this level $33.45.  This is also DIVERGENCE from early
morning trade.  Intra-day simple moving averages are turning
higher, MACD has moved above zero and a BULLISH bias and trade at
PINK (E) could be taken, stop just below RED #1, target BLUE #6.

At PINK (F) the QQQ bulls may stack retracement, but with 1.25
hours left in the session, looks to close out the trade, or has
raised his/her stop to BLUE #6, with full intention to sell close
if a stacked retracement (not shown) upper level were to be
traded.

As mentioned, this would be one of the more difficult day trades
a trader would face.  However, I've tried to mix in some of the
observations of trying to look for clues, where the noting of a
higher low, 5-minute closes, direction of intra-day moving
averages and oscillator setups might be used.

There are days when the QQQ is "just as easy" to trade as a
single stock, but index traders must remember that there is more
than 1 stock in an index, and stock-specific news on a heavily
weighted stock in the index or tracking stock you're trading,
brings in some complexity to the intra-day trade.

I feel the key to day trading is to "get to know" the security
you are trading.  One of the biggest mistakes a young day trader
will make, is jumping around from this stock to that stock, then
to another stock, and then another, without really getting a feel
for how a stock trades.

A trader can take this 5-minute retracement technique and back
test it on some of your favorite stocks.  After you study 5 days
of trade, you may be able to begin recognizing the poor trading
days for that security early in the session, with the
observations of "I've seen this before, tried to trade it, and
either found losses, or gains that just were not worth my time."

A day trader should have 2 or 3 stocks to trade in a sector.
Three semiconductors, three software, three net workers, the deep
cyclicals, three retailers, three banks, three gold stocks, etc.
etc.  Have a list of names at your ready, and look/listed for
market/sector moving news.

It takes about 2-minutes to slap a retracement bracket on a
chart, and when you do, and see some apparent levels being traded
by the MARKET, then you should be ready to roll.

If a stock is making a strong advance and is trading at BLUE #4
or BLUE #5 by the time you get to it, but has been darting to
through these levels, don't feel like you need to chase it at
BLUE #5.  Look for an intra-day pullback to BLUE #4 (stop BLUE
#2) or better yet a pullback to BLUE #3 (stop BLUE #1).

A general rule of thumb I like to use for day trading is if a
sector or market is generally bullish, but I you like to trade
the semiconductors when the QQQ is rallying, I DON'T like to try
and trade a semiconductor if there is bad news in the group that
day.

For example, on Thursday, the market staged a nice morning rally
to their close, but the semiconductors had "bad news" in the
group as it relates to the weaker August book-to-bill data.  The
Semiconductor Index (SOX.X) fell 1.8% in the early morning, but
did rally back to finish up 0.75%.  While that was a nice intra-
day reversal from the lows, a day trader trading a semiconductor
stock may end up with his/her favorite stock not being the stock
that was able to advance, where a better trade in the software
sector may have been had.

Don't have more than two day trades open at one time.  A good day
trader wants to stay focused.  If you're going to have two trades
open at the same time, try to have both of them in the same
sector where you can pick up any divergence between the two.

When you're day trading a stock, it is helpful to also be
monitoring its corresponding sector.  For the most part, a day
trade bulls wants to see his/her stock trading as strong, if not
stronger than the sector on a given day.  A bearish day trade
short want to be shorting a stock that is trading as weak or
weaker than the sector.  If so, then the sector should give
earlier hint to a potential shift in intra-day momentum and if a
trader sees his/her trade reaching a BLUE #6 or RED #6, then it
may be time for the day trader to lock in the gain at what could
be a MAX inflection point that day.

Here's a profile for day trader to be looking to close out an
earlier profiled day trader bullish trade in micro-cap gold
producer Bema Gold (AMEX:BGO) $2.29 -1.29% in today's market
monitor.  It was a good thing I was keeping an eye on the AMEX
Gold Bugs Index ($HUI.X) 204.45 -2.17%.

Market Monitor - Sector observation for stock trade




There were plenty of up-tick at the $2.46 and ample opportunity
to sell the bid in BGO for a day trade bull long from $2.43, and
it may have been the observation that the sector was slipping to
an afternoon low that would have an a day trade bull taking a
fractional gain off the table, instead of risking some intra-day
loss of momentum.

Well.  I would have loved to cover more stocks that everyone is
interested in, but hopefully you have a good grasp of the 5-
minute retracement technique and see how this systematic trading
of levels can be utilized.

Have a great weekend, and do some back-testing on your favorite stocks!

Jeff Bailey




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


Symbol  Company               Date           Comment      EPS Est

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

AZO    AutoZone Inc.         Mon, Sep 22  After the Bell    1.92


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

FDS    FactSet Research Sys  Tue, 16 Sep  Before the Bell   0.37
CBK    Christopher & Banks   Tue, Sep 23  -----N/A-----     0.21
GS     Goldman Sachs         Tue, Sep 23  Before the Bell   1.22
LEH    LEHMAN BROS HLDGS INC Tue, Sep 23  Before the Bell   1.34
MWD    Morgan Stanley        Tue, Sep 23  Before the Bell   0.69
SCHL   Scholastic            Tue, Sep 23  After the Bell   -0.68
WOS    Wolseley              Tue, Sep 23  -----N/A-----      N/A


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

BBBY   Bed Bath & Beyond Inc.Wed, Sep 24  After the Bell   0.30
COGN   Cognos                Wed, Sep 24  After the Bell   0.18
CGA    Corus Group plc       Wed, Sep 24  Before the Bell   N/A
DRI    Darden Restaurants    Wed, Sep 24  -----N/A-----    0.38
LNR    LNR Property          Wed, Sep 24  -----N/A-----    0.88
MKC    McCormick & Company   Wed, Sep 24  Before the Bell  0.29
PAYX   Paychex               Wed, Sep 24  Before the Bell  0.20
SCS    Steelcase Inc.        Wed, Sep 24  After the Bell   0.02
VE     Veolia Environnement  Wed, Sep 24  -----N/A-----     N/A
V      Vivendi Universal     Wed, Sep 24  -----N/A-----     N/A


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

COMS   3Com                  Thu, 18 Sep  After the Bell  -0.14
AM     Am Greetings Corp     Thu, Sep 25  Before the Bell -0.17
RIMM   Res In Motion Lmted   Thu, Sep 25  -----N/A-----    0.07
RAD    Rite Aid Corporation  Thu, Sep 25  -----N/A-----   -0.04
SLR    Solectron             Thu, Sep 25  -----N/A-----   -0.05


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

None


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

Symbol  Company Name              Ratio    Payable     Executable

BKST    Brookstone Inc            3:2      Sep  23rd   Sep  24th
SNPS    Synopsys Inc              2:1      Sep  23rd   Sep  24th
SAFE    Invivo Corp               3:2      Sep  26th   Sep  29th
CCBI    Commercial Capital Bancorp3:2      Sep  29th   Sep  30th
KVA     KV Pharmaceutical         3:2      Sep  29th   Sep  30th
MMM     3M                        2:1      Sep  29th   Sep  30th
ABVA    Alliance Bankshares Corp  3:2      Sep  29th   Sep  30th
PLMD    PolyMedica Corp           2:1      Sep  29th   Sep  30th
WERN    Werner Enterprises Inc    5:4      Sep  30th   Oct   1st
GPRO    Gen-Probe Inc             2:1      Sep  30th   Oct   1st
BMTC    Bryn Mawr Bank Corp       2:1      Oct   1st   Oct   2nd


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

The first half of the week is empty of major economic reports
but Thursday and Friday are full.  Home sales on Thursday and
the Sentiment numbers on Friday are probably the biggest ones
to watch.  We're still in earnings warning season.


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

----------------
Monday, 09/22/03
----------------
UBS Warburg Global Life Sciences Conference


----------------
Tuesday, 09/23/03
----------------
Redbook Retail Sales
UN General Assembly - President Bush speaks about 10:30 AM ET.
UBS Warburg Global Life Sciences Conference
Merrill Lynch Global Pharmaceutical Conference.

-------------------
Wednesday, 09/24/03
-------------------
API/Dept. of Energy Oil/Gasoline inventories.
UBS Warburg Global Life Sciences Conference


------------------
Thursday, 09/25/03
------------------
Initial Claims  (BB)  09/13  Forecast:     N/A  Previous:      N/A
Durable Orders (BB)     Aug  Forecast:    0.6%  Previous:     1.0%
Help-Wanted Index (DM)  Aug  Forecast:      39  Previous:       38
Existing Home Sales(DM) Aug  Forecast:   6.07M  Previous:    6.12M
New Home Sales (DM)     Aug  Forecast:   1110K  Previous:    1165K
Wells Fargo Securities Consumer Conference
Natural Gas Inventories

----------------
Friday, 09/26/03
----------------
GDP-Final (BB)           Q2  Forecast:    3.1%  Previous:     3.1%
Chain Deflator-Final (BB)Q2  Forecast:    0.9%  Previous:     0.8%
Mich Sentiment-Rev. (DM)Sep  Forecast:    89.2  Previous:     88.2
Greenspan speaks to US Congressional Black Caucus.


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




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Contact Support
The Option Investor Newsletter                   Sunday 09-21-2003
Sunday                                                      2 of 5


In Section Two:

Watch List: Another Mixed Bag of Three-lettered stocks
Call Play of the Day: Gushing Higher (SLB)
Dropped Calls: None
Dropped Puts: None


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


Automatic Data Processing - ADP - close: 39.00 change: +0.54

WHAT TO WATCH: Falling somewhere between business services and
software, ADP is making a comeback no matter what sector you
classify it.  The stock has been in a very steady rising trend
from its March lows.  The recent profit taking in September may be
offering bullish traders another entry point.  The stock pulled
back to the $37.50 level and its simple 50-dma.  The bounce on
Friday looks very tempting and traders could use it as an entry
point with a tight stop.  More momentum-minded traders might
prefer to wait and see ADP break the $41 level again but keep in
mind that the P&F chart shows resistance near $45.

Chart=


---

DST Systems - DST - close: 39.90 change: +0.30

WHAT TO WATCH: DST is another computer services company, like
ADP, but this one looks ready to attempt another breakout over
long-time resistance at $40-41.  Actually, looking at the weekly
chart, shares of DST have already broken the multi-year trend of
lower highs.  Plus the point-and-figure chart has already broken
bearish resistance.  All we need to see now is some conviction by
the bulls to break this $41 level and get this train moving
again.

Chart=


---

Briggs Stratton - BGG - close: 60.76 change: +0.56

WHAT TO WATCH: If you look at a long-term chart of BGG you'll
notice two things.  Number one, shares appear to have completed a
multi-year basing pattern (2000-2002). Number two, that the
recent trend, while extremely overbought and extended, has broken
out of that basing pattern.  We hesitate to suggest bullish plays
on the breakout over $60 because the stock does look so extended.
The best bet would be on a pull back to the bottom of the channel
near its simple 30-dma and use a tight stop loss.  However,
aggressive players willing to speculate that BGG might be able to
make it to $65 before pulling back could use a stop near $57.50.
FYI: BGG's last stock split was in November of 1994.  It was a 2-
for-1 when shares were trading between $60-65.

Chart=


---

Eli Lilly - LLY - close: 60.21 change: -0.83

WHAT TO WATCH: Profitable bearish plays have been tough to
uncover in this bullish market but LLY might fit the bill.
Shares dropped strongly in early September and have continued to
produce lower highs as the share price creeps closer to the $60
level of support.  Bearish traders will note that the point-and-
figure chart is already on spread triple-bottom sell signal.  We
believe there is always headline risk when playing drug stocks so
more research is needed but a trigger under $60 might work to
open a bearish position.

Chart=





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********************
THE PLAYS OF THE DAY
********************

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

Schlumberger Ltd. - SLB - close: 50.99 change: +1.74 stop: 47.50

Company Description:
Schlumberger Limited is a global technology services company
consisting of three business segments: Schlumberger Oilfield
Services, SchlumbergerSema and Other Businesses.  Schlumberger
Oilfield Services is a provider of technology services and
solutions to the international petroleum industry.
SchlumbergerSema is an information technology services company,
providing consulting and systems integration services and network
and infrastructure solutions, primarily to the global energy
sector, including oil and gas, and other regional markets
spanning the telecommunication, finance and public sectors.  The
Other Business segment includes the manufacture of smart cards,
pay telephones, point-of-sale terminals, parking and mass transit
terminals, meters and trading systems.  In addition, this segment
provides advanced test and diagnostic systems, as well as
engineering services to the semiconductor industry.

Why we like it:
Owing in large part to the diversity of its business operations,
SLB has been handily outperforming the Oil Services sector
(OSX.X) for the past few months.  Ever since the first wave of
buying off the spring lows subsided, the stock has been building
a classic bullish wedge formation, with the top forming in the
$49.75-50.00 area.  Over the past few weeks, price has been
adhering to a slightly rising floor just above $47.50, waiting
for the catalyst that would break the narrowing bullish pattern
to the upside.  The catalyst arrived Wednesday morning with UBS
raising their price target for the stock from $55 to $63.  But
investors didn't quite figure it out at the time.  Instead, price
dipped back to the long-term ascending trendline (currently
$47.85) and then  launched higher on Thursday, with the volume-
backed breakout coming on Friday.  SLB exploded through the $50
level to gain more than 3.5% on volume that more than doubled the
ADV.  This breakout looks like it has room to run to the upside,
and next major resistance comes in the $54-56 area.

Of course, if the PnF chart is to be believed, then significantly
higher price levels are in store.  In that view, we have the
stock in a column of X, on a mature Buy signal and with a
vertical count of $77!  We're not saying it can't happen, but it
is exceedingly unlikely within the duration of this play.  We'll
content ourselves with a move to $56, with an outside chance of a
move up to $60.  Following Friday's breakout, there are a couple
ways to play this one.  The first and most obvious would be on a
continuation over $51.10 with volume remaining strong.  The lower
risk approach will be to look for a pullback into the $49.50-
50.00 area to buy the dip.  Either scenario looks equally
attractive and we'll take whichever one sets up first.  Initial
stops should be set at $47.50, which is below both the ascending
trendline and the intraday lows since the first of September.

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

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the November 55 Call.  This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  More conservative
long-term traders will want to use the November 50 Call.

BUY CALL OCT-50 SLB-JJ OI= 3057 at $2.05 SL=1.00
BUY CALL OCT-55 SLB-JK OI=   96 at $0.40 SL=0.20
BUY CALL NOV-50 SLB-KJ OI=13305 at $2.90 SL=1.50
BUY CALL NOV-55 SLB-KK OI= 8345 at $0.80 SL=0.40

Annotated Chart of SLB:




Picked on September 21st at  $50.99
Change since picked:          +0.00
Earnings Date              10/21/03 (unconfirmed)
Average Daily Volume =     3.07 mln


See details in play list




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

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


CALLS
^^^^^

None

PUTS
^^^^

None

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

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

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

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

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

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

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


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**********

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The Option Investor Newsletter                   Sunday 09-21-2003
Sunday                                                      3 of 5


In Section Three:

Current Calls: AMGN, AMZN, AXP, APOL, AU, ERTS, GS, LEA, LUV, MERQ, UTX
New Calls: SLB
Current Put Plays: KKD
New Puts: GILD


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


Amgen, Inc. - AMGN - close: 68.89 change: -1.11 stop: 67.50

Company Description:
The biggest of the Biotech big guns, AMGN makes and markets
therapeutic products for hematology, oncology, bone and
inflammatory disorders, as well as neuroendocrine and
neurodegenerative diseases.  Anti-anemia drug Epogen and immune
system stimulator Neupogen account for about 95% of sales.  Its
Infergen has been commercialized as a treatment for hepatitis C,
and Stemgen is approved for stem cell therapy in Australia,
Canada, and New Zealand.  The company has a strong pipeline of
new drugs in various stages of development as well as research
and marketing alliances with Hoffman-La-Roche and Johnson &
Johnson.

Why we like it:
The timing of the Wachovia downgrade seems just a bit suspicious,
coming the day after AMGN traded the $70 level, which created a
new PnF Buy signal and a new bullish price target of $81.  The
firm called into question investor expectations for a 20% five-
year growth rate and lowered their targeted price range from $76-
84 to $66-75.  Hey, that's fine with us, as our upper target for
the play ($74.50) is still within that lowered range.  It was
actually impressive to see how the stock rebounded off the
initial drop on Friday.  After trading just fractionally below
$68, the buyers appeared, lifting the stock back above the 10-dma
($68.62) and the 50-dma ($68.36).  Last ditch support is found
just above $67.50 at the juncture of the long-term ascending
trendline and the 20-dma ($67.55), so our stop seems to be aptly
placed at $67.50.  Our ideal entry point, as noted on Tuesday,
was for a trade at $70 and then a pullback into the $68-69 area.
Patient traders got just that served up on Friday.  Successive
rebounds from the vicinity of the 50-dma can still be used for
entry, while the next move over $70 (actually $70.15) can be used
for entry by the momentum set.

Suggested Options:
Shorter Term: The October 70 Call will offer short-term traders
the best return on an immediate move, as it is just slightly out
of the money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the January 75 Call.  This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  More conservative
long-term traders will want to use the January 70 Call.

BUY CALL OCT-65 YAA-JM OI=16152 at $4.90 SL=3.00
BUY CALL OCT-70 YAA-JN OI=35220 at $1.65 SL=0.75
BUY CALL JAN-70 YAA-AN OI=21841 at $4.00 SL=2.50
BUY CALL JAN-75 YAA-AO OI=10725 at $2.00 SL=1.00

Annotated Chart of AMGN:




Picked on September 16th at  $69.81
Change since picked:          -0.92
Earnings Date              10/21/03 (unconfirmed)
Average Daily Volume =     7.96 mln



---


Amazon.com - AMZN - close: 47.58 change: -0.31 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:
Friday was pretty much a throwaway, with option expiration
clouding the significance of any price action.  There was slight
weakness across the market, but given the gains through the rest
of the week, the shallow pullback can only be interpreted in a
bullish fashion.  AMZN pulled back with the remainder of the
market, ending just above $47.50 as market makers were successful
in pinning the stock to within a dime of that strike.  Next week,
we'll be back to business as normal and AMZN looks poised to head
higher still.  There might be the need for a bit more of a
pullback, and if it does occur, we can consider it a gift of an
entry point.  Look for pullback entries in the $46.50-47.00 area,
with support being reinforced by the 10-dma ($46.44) and the 20-
dma ($46.35).  If the bulls charge out of the gate again on
Monday, breakout entries can be taken on a move over $48.24
(Thursday's intraday high).  Our initial target is $50, which is
currently the top of the ascending channel, but once above there,
$55 looks like a reasonable goal.

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=10304 at $2.35 SL=1.25
BUY CALL OCT-50 ZQN-JJ OI= 6411 at $1.25 SL=0.60
BUY CALL JAN-47 ZQN-AW OI= 2730 at $5.30 SL=3.25
BUY CALL JAN-50 ZQN-AJ OI= 9333 at $4.20 SL=2.50

Annotated Chart of AMZN:




Picked on September 18th at  $47.89
Change since picked:          -0.31
Earnings Date              10/21/03 (unconfirmed)
Average Daily Volume =     8.46 mln



---


American Express - AXP - close: 47.05 chg: -0.03 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:
Thursday 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.

Friday's session held up rather well as AXP saw almost no profit
taking on Thursday's breakout.  Meanwhile in  the news the EU has
approved AXP's purchase for Britian's Threadneedle, one of
England's best known fund houses for 340 million pounds in cash.


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=9331 at $2.60 SL=1.30
BUY CALL OCT 47.50 AXP-JW OI=5233 at $1.05 SL=0.50
BUY CALL OCT 50.00 AXP-JJ OI=3075 at $0.30 SL= --

Annotated Chart:




Picked on September 18 at $47.08
Change since picked:      - 0.03
Earnings Date           10/27/03 (unconfirmed)
Average Daily Volume:        3.9 million
Chart =



---


Apollo Group - APOL - close: 68.03 chg: -0.97 stop: 64.00

Company Description:
Apollo Group Inc. has been providing higher education programs to
working adults for more than 25 years. Apollo Group Inc. operates
through its subsidiaries The University of Phoenix Inc.,
Institute for Professional Development, The College for Financial
Planning Institutes Corp., and Western International University
Inc. The consolidated enrollment in its educational programs
makes it the largest private institution of higher education in
the United States. It offers educational programs and services at
67 campuses and 118 learning centers in 37 states, Puerto Rico
and Vancouver, British Columbia. (source: company press release)

Why We Like It:
One of the major beneficiaries of the economic slow down are the
purveyors of higher education.  Stocks like EDMC, CECO, COCO and
APOL have all done extremely well for investors this year based
on higher enrollment numbers.  Out work employees have decided to
go back to school and make themselves more attractive and
marketable to employers when the recovery finally does start
hiring again.

We like APOL out of the bunch because shares have been
consolidating its gains for the last couple of months.  The
recent breakout to a new all-time high has much stronger legs to
stand on than some of the other stocks.  The company actually
raised its guidance in late August telling Wall Street it expects
fiscal 2004 to beat estimates fueled by higher enrollment and new
campus openings.  APOL forecasts that its University of Phoenix
division (with its own tracking stock) should see enrollment grow
from 12 to 14 percent just in the first quarter.  APOL raised its
Q1 revenue numbers to $392 - 395 million compared to estimates of
$389 million.

FRIDAY Update: The sharp spike down at the open may have been a
little confusion among investors.  An analyst came out with
negative comments over valuation concerns for eCollege.com (ECLG)
comparing it to APOL.  Shares of APOL quickly recovered but
started to slip later into the afternoon.  Any bounce from above
the $66 level looks like a bullish entry point to us.

Suggested Options:
Short-term traders can choose between Octobers and Novembers.  We
still like the 65s and 70s.

BUY CALL OCT 65 OAQ-JM OI=1586 at $4.70 SL=2.75
BUY CALL OCT 70 OAQ-JN OI=2836 at $1.80 SL=0.90
BUY CALL NOV 65 OAQ-KM OI=1028 at $5.80 SL=3.85
BUY CALL NOV 70 OAQ-KN OI= 742 at $2.90 SL=1.50
BUY CALL FEB 70 OAQ-BN OI=2256 at $4.90 SL=3.25

Annotated Chart:




Picked on September 16 at $68.45
Change since picked:      - 0.42
Earnings Date           10/07/03 (confirmed)
Average Daily Volume:        1.9 million
Chart =



---


Anglogold Ltd. - AU - close: 40.05 change: +0.75 stop: 38.00*new*

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:
We were starting to think the Gold stocks were starting to run
out of juice towards the end of last week, but then along came
Friday's excitement that vaulted AU as high as $40.74 early in
the day before the surge faded, allowing the stock to fall back
to just above $40.  While the fade was a bit discouraging in
light of the fact that December gold futures held their gains to
close just off their highs at $383, this is a new all-time
closing high for AU.  Both the Amex Gold Bugs index (HUI.X) and
the Gold and Silver index (XAU.X) pushed to new closing highs and
appear right on the verge of another strong breakout.  Critical
support for AU is now found in the $38.50-39.00 area and a
pullback and rebound near that level can still be used for
pullback entries.  Aggressive momentum types will want to target
entries on a breakout above Friday's intraday high ($40.74) and
the 9/09 high of $40.90.  Remember, we're looking to harvest
gains when our $44 target is achieved, as that is the bullish
price target from the PnF chart.  Raise stops to $38.00

Suggested Options:
Shorter Term: The October 40 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 45 Call.  This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  More conservative
long-term traders will want to use the January 40 Call.

BUY CALL OCT-40 AU-JH OI= 3462 at $1.85 SL=0.90
BUY CALL JAN-40 AU-AH OI= 1445 at $3.90 SL=2.25
BUY CALL JAN-45 AU-AI OI=  510 at $1.90 SL=1.00

Annotated Chart of AU:



Picked on September 2nd at  $39.51
Change since picked:         +0.54
Earnings Date             10/30/03 (unconfirmed)
Average Daily Volume =       854 K



---


Electronic Arts - ERTS - close: 94.75 chg: -0.10 stop: 89.90

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:
The NASDAQ may be near 18-month highs but the GSO software index
is just below its own 16-month highs.  A move above the 147 level
by the GSO would be very encouraging for traders bullish on
software stocks.  Leading the software group high has been shares
of ERTS, which notched a few all-time highs of its own this week.

It feels like it has been a long three weeks but so far it has
paid off in ERTS.  The stock is up almost six points from the day
we picked it.  Shares of ERTS have been moving strongly higher in
its channel as investors continue to pour more money into growth
plays.  Fortunately, ERTS is one of the better growth plays for
this sector.  Not only does America spend more money on video
games than movie tickets but ERTS has been posting rising
revenues and net income and is the titan of its field.  The
company beat its latest earnings report by 10-cents.

We are very encouraged by the strong rise on decent volume and
Friday's lack of profit taking but two things make us pause.
Number one, the stock is just underneath its trendline of highs
where traders normally take profits before letting it drift back
to the bottom of its rising channel.  This alone suggests that
our readers may want to close all or part of their position and
take some money off the table.  Secondly, it was only a few weeks
ago that Bank of America raised their price target on ERTS from
$80 to $95.  The stock has reached their goal and we could see a
downgrade based on valuation from BAC at any time.  The stock did
weather a downgrade on valuation by Wedbush Morgan on September
3rd but if BAC makes the call it could carry more weight.  For
those doing their homework you'll also find out that Dougherty &
Co raised their price target on ERTS from $85 to $100 back in
mid-August.

So why don't we close the play out here near $95?  Two more
reasons.  First, the path of least resistance is still up and
investors will be looking ahead to the upcoming Q4 holiday
shopping season.  Thus dip buyers will probably step in to buy
the dip if ERTS pulls back to the $92 area in anticipation of a
big Q4 run up.  Third, Jeff likes to refer to it as a 90-100
rule.  Most stocks that trade $90 also tend to trade to the $100
level before investors choose to take profits.  It's a
psychological phenomenon that doesn't always work but one to take
note of.  Should we see ERTS spike higher to the $97-99 area, we
would suggest closing current positions for a profit.

Suggested Options:
Bullish traders can choose from October and December options.
Right now we'd prefer to enter new plays on a pull back and the
90 or 95s probably look the best.

BUY CALL OCT 90 EZQ-JR OI= 843 at $6.50 SL=4.00
BUY CALL OCT 95 EZQ-JS OI=2612 at $3.40 SL=1.70
BUY CALL OCT100 EZQ-JT OI=2327 at $1.35 SL= -- Higher risk!
BUY CALL DEC 90 EZQ-LR OI=1370 at $9.40 SL=6.00
BUY CALL DEC 95 EZQ-LS OI= 219 at $6.60 SL=4.00
BUY CALL DEC100 EZQ-LT OI=2519 at $4.40 SL=2.25

Annotated Chart:




Picked on August 28 at $89.06
Change since picked:    +5.69
Earnings Date        07/23/03 (confirmed)
Average Daily Volume:     3.3 million
Chart =



---


Goldman Sachs Grp. - GS - cls: 93.73 chng: +0.48 stop: 89.75*new*

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:
While we had to exercise a lot of patience in waiting for it to
unfold, Thursday's explosion in the Broker/Dealer index (XBD.X),
thanks to the huge upside earnings surprise from BSC before the
open.  The XBD slammed through the $620 resistance level and came
to rest just a hair below $630, while our GS play burst through
the $92.25 resistance, coming to rest at $93.25, it's best close
since January of 2002.  Friday's action was even more
encouraging, as the XBD consolidated a bit and GS moved higher to
another new 52-week high.  The bulls have got that $95 target in
their sights and will likely achieve it early next week.
Conservative traders may want to harvest some gains near that
point, while those with a stronger constitution can hang on for a
move to test the January 2002 highs at $97.  Now we can look for
a pullback and rebound in the $92 area for a continuation entry,
but we are not recommending new momentum entries this close to
our initial target.  Note that our stop is now set at $89.75, as
it continues to walk up behind the 20-dma.

Suggested Options:
Shorter Term: The October 95 Call will offer short-term traders
the best return on an immediate move, as it is currently just
slightly out of the money.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the January 100 Call.  This
option is currently slightly out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  More conservative

long-term traders will want to use the January 95 Call.

BUY CALL OCT- 90 GS-JR OI=23195 at $5.60 SL=3.50
BUY CALL OCT- 95 GS-JS OI=10521 at $2.25 SL=1.10
BUY CALL JAN- 95 GS-AS OI= 9515 at $4.90 SL=3.00
BUY CALL JAN-100 GS-AT OI= 7533 at $3.10 SL=1.50

Annotated Chart of GS:




Picked on September 2nd at  $90.45
Change since picked:         +3.28
Earnings Date              9/24/03 (unconfirmed)
Average Daily Volume =    3.62 mln



---


Lear Corp - LEA - close: 55.32 change: -0.35 stop: 52.49

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.

We're still witnessing a bounce off the rising 50-dma for LEA and
the move back over the $55 level is encouraging for bullish
traders.  We would like to see more volume supporting the move
but we do see the MACD signaling a new bullish buy signal (well,
it should be signaling a buy signal on Monday).  There is some
very short-term resistance near $56 and again at $57 but we don't
expect these to hold.  Our target is the $60 mark.

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.

BUY CALL OCT 50 LEA-JJ OI= 14 at $6.00 SL=3.75
BUY CALL OCT 55 LEA-JK OI=121 at $2.10 SL=1.00
BUY CALL OCT 60 LEA-JL OI= 58 at $0.45 SL= -- riskier!
BUY CALL DEC 50 LEA-LJ OI=409 at $7.00 SL=4.25
BUY CALL DEC 55 LEA-LK OI=460 at $3.70 SL=1.75
BUY CALL DEC 60 LEA-LL OI= 58 at $1.55 SL=0.75

Annotated chart:




Picked on September 16 at $54.05
Change since picked:      + 0.43
Earnings Date           10/17/03 (confirmed)
Average Daily Volume:        694 thousand
Chart =



---


Southwest Airlines - LUV - close: 18.50 change: -0.17 stop: 17.75

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:
Along with the rest of the market, the Airline sector (XAL.X) saw
a bit of profit taking on Friday, as much due to option
expiration as to any other factor.  Our LUV play got hit by the
sellers as well, but we were quite pleased to see a very solid
rebound from the $18.25 level, confirming old resistance is now
acting as support.  We've been looking for a dip and rebound from
the $18.00-18.25 level as the next likely entry point for most of
the past week, so we hope you took advantage of it.  This support
area should now define the floor for LUV to launch itself higher.
Next resistance is found at $19, at last Tuesday's intraday high
and then our initial target at $20.  If the XAL index can finally
break through the $64-65 resistance, then LUV has a fighting
chance of reaching the $22 level, its highs from early 2002.
Maintain stops at $17.75, which is just below the 20-dma.

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.

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.

BUY CALL OCT-17 UVM-JW OI=1720 at $1.35 SL=0.75
BUY CALL DEC-17 LUV-LW OI=3229 at $1.80 SL=0.90
BUY CALL DEC-20 LUV-LD OI=1716 at $0.55 SL=0.25

Annotated Chart of LUV:




Picked on September 11th at  $18.36
Change since picked:          +0.14
Earnings Date              10/20/03 (unconfirmed)
Average Daily Volume =     2.60 mln



---


Mercury Interactive - MERQ - cls: 50.93 chng: -0.99 stop: 47.65

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:
Offering something for everyone last week, MERQ has certainly
been a cooperative bullish play.  Giving us one sedate day of
consolidation after we initiated coverage, the stock then broke
higher to close right on the $50 resistance level on Tuesday and
then breaking through it with authority (and volume) on Thursday.
Then, providing one more opportunity for the bulls that hadn't
yet gotten aboard, MERQ fell back to test the $50 level as
support on Friday.  Certainly another dip into the $49-50 area is
possible, but we're looking for new entries at that point.
Aggressive traders can enter on a breakout over Thursday's
intraday high ($52.12), but will need to evaluate risk to reward
accordingly, as our upside target for the play is $55.  Maintain
stops at $47.65 (just under Monday's intraday low) and look for
continued strength from the Software sector (GSO.X) to continue
to fuel the rally.

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

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the October 55 Call.  This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  More conservative
long-term traders will want to use the January 55 Call.

BUY CALL OCT-50 RQB-JJ OI= 1573 at $3.20 SL=1.50
BUY CALL OCT-55 RQB-JK OI= 1061 at $1.10 SL=0.50
BUY CALL JAN-50 RQB-AJ OI=  582 at $5.90 SL=4.00
BUY CALL JAN-55 RQB-AK OI=  593 at $3.60 SL=1.75

Annotated Chart of MERQ:




Picked on September 14th at  $48.16
Change since picked:          +2.77
Earnings Date              10/15/03 (unconfirmed)
Average Daily Volume =     3.14 mln



---


United Technologies - UTX - cls: 79.15 chg: -0.29 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:
It's been three weeks and we're starting to grow a little
disappointed with the performance in UTX.  Almost daily we hear
analysts and economists offering their positive outlooks for the
economy and suggesting that investors look to industrials to
capitalize on the move.  Well, UTX is an industrial but it just
can't seem to break out above the $80-80.50 level.

An improving economy and higher defense spending should be a
strong boost for UTX business and their chairman is very
optimistic for 2004.  Unfortunately, their latest mid-quarter
update didn't have any positive things to say about the current
quarter.  One bit of positive news did come out on Friday.  One
of UTX's subsidiaries won a $1.3 billion contract to build power
systems for a Chinese aircraft manufacturer.

The stock still has a very weak trend of higher lows during the
last week and the longer-term trend is still positive but the
failure to participate in the big rallies this last week are a
little concerning.  Friday's move saw volume of 2.3 million
shares, which is only a little above average but felt like
someone was getting out or lightening up on their positions.

We're very cautious and would not recommend new long positions
until UTX broke the 80.50 level.

Suggested Options:
We are not suggesting new plays in UTX until we see a move back
above the $80.50 mark.  Should that occur then our preference
would be the October or November strikes.

BUY CALL OCT 75 UTX-JO OI= 381 at $5.20 SL=2.75
BUY CALL OCT 80 UTX-JP OI=2182 at $1.80 SL=0.95
BUY CALL NOV 75 UTX-KO OI=2111 at $6.10 SL=3.25
BUY CALL NOV 80 UTX-KP OI=1317 at $2.90 SL=1.50
BUY CALL NOV 85 UTX-KQ OI= 162 at $1.10 SL=0.50

Annotated Chart: 



Picked on August 29 at $80.05
Change since picked:    -0.90
Earnings Date        07/17/03 (confirmed)
Average Daily Volume:     2.1 million
Chart =





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


Schlumberger Ltd. - SLB - close: 50.99 change: +1.74 stop: 47.50

Company Description:
Schlumberger Limited is a global technology services company
consisting of three business segments: Schlumberger Oilfield
Services, SchlumbergerSema and Other Businesses.  Schlumberger
Oilfield Services is a provider of technology services and
solutions to the international petroleum industry.
SchlumbergerSema is an information technology services company,
providing consulting and systems integration services and network
and infrastructure solutions, primarily to the global energy
sector, including oil and gas, and other regional markets
spanning the telecommunication, finance and public sectors.  The
Other Business segment includes the manufacture of smart cards,
pay telephones, point-of-sale terminals, parking and mass transit
terminals, meters and trading systems.  In addition, this segment
provides advanced test and diagnostic systems, as well as
engineering services to the semiconductor industry.

Why we like it:
Owing in large part to the diversity of its business operations,
SLB has been handily outperforming the Oil Services sector
(OSX.X) for the past few months.  Ever since the first wave of
buying off the spring lows subsided, the stock has been building
a classic bullish wedge formation, with the top forming in the
$49.75-50.00 area.  Over the past few weeks, price has been
adhering to a slightly rising floor just above $47.50, waiting
for the catalyst that would break the narrowing bullish pattern
to the upside.  The catalyst arrived Wednesday morning with UBS
raising their price target for the stock from $55 to $63.  But
investors didn't quite figure it out at the time.  Instead, price
dipped back to the long-term ascending trendline (currently
$47.85) and then  launched higher on Thursday, with the volume-
backed breakout coming on Friday.  SLB exploded through the $50
level to gain more than 3.5% on volume that more than doubled the
ADV.  This breakout looks like it has room to run to the upside,
and next major resistance comes in the $54-56 area.

Of course, if the PnF chart is to be believed, then significantly
higher price levels are in store.  In that view, we have the
stock in a column of X, on a mature Buy signal and with a
vertical count of $77!  We're not saying it can't happen, but it
is exceedingly unlikely within the duration of this play.  We'll
content ourselves with a move to $56, with an outside chance of a
move up to $60.  Following Friday's breakout, there are a couple
ways to play this one.  The first and most obvious would be on a
continuation over $51.10 with volume remaining strong.  The lower
risk approach will be to look for a pullback into the $49.50-
50.00 area to buy the dip.  Either scenario looks equally
attractive and we'll take whichever one sets up first.  Initial
stops should be set at $47.50, which is below both the ascending
trendline and the intraday lows since the first of September.

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

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the November 55 Call.  This
option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  More conservative
long-term traders will want to use the November 50 Call.

BUY CALL OCT-50 SLB-JJ OI= 3057 at $2.05 SL=1.00
BUY CALL OCT-55 SLB-JK OI=   96 at $0.40 SL=0.20
BUY CALL NOV-50 SLB-KJ OI=13305 at $2.90 SL=1.50
BUY CALL NOV-55 SLB-KK OI= 8345 at $0.80 SL=0.40

Annotated Chart of SLB:




Picked on September 21st at  $50.99
Change since picked:          +0.00
Earnings Date              10/21/03 (unconfirmed)
Average Daily Volume =     3.07 mln




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


Krispy Kreme Doughnut - KKD - cls: 40.28 chg: -0.48 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:
It's been a rough few weeks for KKD.  The stock topped out near
$50 near its earnings report and have sharply fallen since then.
The company actually beat earnings estimates of 20 cents by a
penny with strong revenue growth but the Street was not happy
with the earnings quality.  Average sales were flat and a couple
of major brokerage downgrades quickly followed.  We initially
wrote the play with a trigger to go short at $41.69 and we were
quickly triggered on the first drop towards $40.  The bounce from
Sept. 9th-15th was market related.  Then shares got hit hard
again when a new Wall Street Journal article revealed some
concerning news for KKD.

The company's average-store weekly sales were down to $35K, which
is significantly less than the $64K they're used to.  On top of
weekly sales drops KKD's biggest franchisee, Great Circle Family
Foods LLC, reported a 10% drop in wholesale shipments and a 20%
drop in visitor traffic.  The article also revealed that Great
Circle had put themselves up for sale early this year with no
takers yet.

KKD has been priced for sweet perfection at 62 times earnings
compared to the S&P average near 28.  So bad news tends to spark
a sell first and ask questions later response.  We're encouraged
by the drop this week back towards the $40 mark but new plays are
probably best considered on a move below this support.

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

BUY PUT OCT 40 KKD-VH OI=3888 at $1.90 SL=0.90
BUY PUT OCT 45 KKD-VI OI=1134 at $5.20 SL=3.20
BUY PUT NOV 35 KKD-WG OI=2721 at $1.05 SL=0.50
BUY PUT NOV 40 KKD-WH OI=2282 at $2.55 SL=1.20
BUY PUT NOV 45 KKD-WI OI=1271 at $5.70 SL=2.70

Annotated Chart:




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


Gilead Sciences - GILD - close: 59.96 chg: -2.29 stop: 64.01

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:
It's a tough market to try and find attractive bearish plays
these days so when we do see something that looks trade-worthy
we're loathe to pass them up.  Even if they were a call play
earlier in the week.  Shares of GILD had been enjoying a slow,
but steady climb higher from the $60 level to its old highs near
$70 as the BTK (biotech index) continued to make new relative
highs.  Then out of nowhere J.P.Morgan downgrades the stock to
"neutral" from "over weight" and shares gap lower below support
at the simple 50-dma.  The analyst at JPM felt it was going to be
a lot tougher for GILD to actually beat earnings and revenue
estimates in the future and felt that the stock was already
richly valued.  The stock traded down more than five points on
the downgrade before bouncing a bit into the close.  That was
four days ago.

Since that time shares of GILD have continued to drop despite
Merrill Lynch trying to defend the stock and reiterating their
"buy" rating and $78 price target.  The decline has been on
decent volume and the close under $60 on Friday looks pretty
ominous.  However, we're a bit gun shy in this bullish market
environment and want to see a little more conviction by sellers
in GILD.  Thus we're going to use a TRIGGER at $59.75 to open the
play for us.  The point-and-figure chart suggests that bears can
target support near $55 while the daily chart hints at support
near $50.  If we are triggered we'll open the play with a stop
loss at $64.01 but more conservative traders might want to
consider a stop near $62.50.

Suggested Options:
The October and November puts are probably the best bet for
short-term traders.  We like the 60s but the 55s should work well
too.

BUY PUT OCT 55 GDQ-VK OI= 795 at $1.15 SL=0.60
BUY PUT OCT 60 GDQ-VL OI=1161 at $3.00 SL=1.50
BUY PUT OCT 65 GDQ-VM OI=2349 at $6.30 SL=4.00
BUY PUT NOV 55 GDQ-WK OI= 890 at $2.50 SL=1.25
BUY PUT NOV 60 GDQ-WL OI=1099 at $4.50 SL=2.25

Annotated Chart:





Picked on September 16 at $00.00 <-See trigger
Change since picked:       -0.00
Earnings Date           07/31/03 (confirmed)
Average Daily Volume:       3.31 million
Chart =





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The Option Investor Newsletter                   Sunday 09-21-2003
Sunday                                                      4 of 5


In Section Four:

Leaps: Mixed Emotions
Traders Corner: The Family Jewels Are Safe – For At Least Another Month!
Traders Corner: Buying the Pullbacks is notAlways as Easy as it Looks


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*****
LEAPS
*****


Mixed Emotions
By Mark Phillips

On one hand, I can look at last week's continued bullish action
and I'm pleased that I finally shed my market bias and decided to
trade what is in front of me, no matter how silly I think it is.
On the other hand, I'm irritated that it took me this long to
shift gears and start leaning to the long side.  Now that I've
made the switch, am I the last one and now the markets will tip
over in their never-ending drive to embarrass me?  Please tell me
I'm not the only one that ever feels that way!

In the grand scheme, it was another clearly bullish week for the
broad markets, as they all notched new 52-week highs.  The DOW
closed over 9600 for the first time since June of 2002 and 9800
looks like a cinch to be tested next week.  I idly speculated some
time back that if the 9500 resistance level was broken, that
10,000 would be in the cards.  The 10K level is the 62%
retracement of the entire bear market decline and I know I'm not
the only one that has noticed that fact.  That level is looking
more likely by the day, and I could even see an extreme bullish
target of 10,300 being in play.

The S&P 500 had another clearly bullish week, despite the slight
decline on Friday.  The SPX cleared the 1030 level and while 1050
looms as a near-term target, I've got my eye on the 1070 level as
a reasonable upside target from here.  The 38% retracement of the
entire bear market decline is at 1068, while the 75% retracement
of the entire 2002 range is at 1072.  Until tested, these just
remain idle observations, as I search for meaningful levels to
monitor.

Owing to the fact its losses were so much greater, the NASDAQ
Composite has been the leader to the upside so far this year.  I
pointed out this likely occurrence back in January, but
unfortunately I didn't capitalize on the observation.  Lack the
saying goes, timing is everything and I really didn't expect an
upside continuation without some sort of summer swoon.  It never
occurred, and I've watched in frustration as the NAZ has climbed
without me aboard.  Peak to trough, the COMPX lost a whopping 78%
from its March 2000 highs.  Form its bottom last October, the
COMPX has rebounded an impressive 72%.  But putting everything in
perspective, the 1875 level is only the 19.1% retracement of the
entire bear market decline.  It has a long ways to go before even
getting close to testing its bull market highs.  Putting it
somewhat differently, the COMPX is still roughly 300 points below
the FLOOR established in early 1999 from which this market
launched to its blowoff top roughly a year later.  I think it is
quite reasonable that the COMPX could extend its advance as high
as 2100 before running out of steam and that would be a full
retracement of the 2002 high-low range.  I also note that 2113 is
the 25% retracement of the entire bear market decline.  For now,
it is just another point on a chart, but I think it deserves to be
monitored as it is approached by price action.

So what should we expect over the near term?  I can make both a
bearish and a bullish case.  I think I've effectively expounded on
the bearish side for these past many months.  There are numerous
reasons why this market should drop from here, not the least of
which are the still lacking signs of true economic recovery, the
high rate of joblessness, off the charts levels of debt at the
government, corporate and individual levels and what I view to be
very negative action in the U.S. Dollar, as a direct result of
those off the chart government debt levels.  And let's not forget
about the huge unfunded liabilities in the government sector
(Medicare, Social Security, etc.) and in the corporate sector in
the form of underfunded pensions.  And still the market continues
to shrug off these concerns.

The reason why is quite simple.  A massive infusion of liquidity
through the combined money-printing activities of the Fed, along
with the staggering amount of cash that was released earlier this
year through the refinancing boom, which is now effectively dead.
All of these factors are what we term fundamentals.  They affect
the very long-term picture and are difficult if not impossible to
trade in the intermediate term.  In the trading world, timing is
everything, and if we hope to remain solvent (unless we have very
deep pockets), we cannot trade on fundamentals that are in
opposition to the dominant trend in the market.  That means that
bearish fundamentals are meaningless until the market tells us
through price action that they are important.  So file all of
those bearish facts away for a future date.  For now, we must
either play the bullish trend with the understanding that the
music could stop at any time or we must sit on the sidelines in
cash.  I'm tired of doing the latter, so I have reluctantly agreed
to play the upside as long as it lasts.

Many of the technical tools I use are screaming that a top is
near, but so far it has not come to pass.  Weekly Stochastics
across most of the major markets are all looking toppy in or near
overbought territory.  But they've been dancing around in this
area since April.  Bullish Percents on the major indices are also
VERY extended, indicating the bulls are carrying the bulk of the
risk.  the BP for the OEX just recently hit 89% and the usually
staid COMPX BP is currently at 77%, fully 20% higher than it has
been going all the way back to 1996!  And still the market churns
higher.  The bulls may be carrying the bulk of the risk, but that
does not mean the markets must drop.  How about the levels of
insider selling?  It's the heaviest it has been in many years, and
normally this would be a sign of an impending top.  Not yet.

I write frequently about the VIX, as its relative levels typically
tell us a lot about the overall market's propensity to either rise
or fall.  For the past month, it has been trolling along between
19-22, at the upper edge of what I've termed The Complacency Zone.
On Friday, despite a slight drop across the market, the VIX once
again dropped to just above 19, showing the fear of the downside
is still quite uncommon.  Certainly part of Friday's action could
have been due to option expiration, but the trend is clear.  The
VIX is headed gradually lower until something happens to inject
fear into the market.  Put it all together and it tells me that it
is not prudent to try to short this market by picking a top.  By
the same token though, I would not view it as safe to be
establishing long-term bullish positions in economically sensitive
areas of the market either.

We've started to dabble in the long side again with a couple of
new bullish play candidates last week and one this week.  But I
can tell you without equivocation that I view these plays as only
appropriate for more aggressive traders.  While the market (and
these plays) may indeed go higher -- in fact I think they will –
the downside risk is higher than I am normally comfortable with
assuming, primarily due to the host of factors mentioned above.

Let's look at a couple of recent examples proving the wisdom in
laying off the short side for now.  We recently dropped bearish
plays on the LEH and BBH.  LEH surged through the $70 level last
week, aided by the strength in the XBD index.  And with strength
continuing to build in the Biotechs, the BBH pushed through the
$140 level on Thursday.  Both of these would have constituted
violations of our stop losses, had we continued to keep the plays
alive instead of pulling the plug prematurely.  Remember when we
were looking for a move UP to the $31.50-32.00 area to initiate a
bearish QQQ play?  Friday's close above $34.50 is well above where
we would have placed a stop, and quite honestly it is showing no
signs of slowing down just yet.

Rant Of The Week

On more than one occasion in the past few years, I have expressed
my ire with the entire Brokerage industry due to what I think is
shoddy research and a complete lack of concern for individual
investors.  I know there are notable exceptions and many
individuals in that industry are first and foremost concerned with
their customers.  Many of the questionable practices that grew
like a cancer in the late 1990s and continued even after the crash
got underway have been corrected, at least on the surface.  But
last week I once again stumbled on a piece of information that
really irked me.

On Thursday, the Broker/Dealer index was launched sharply higher
when Bear Stearns (BSC) reported blowout earnings.  Hurray for
them!  What caught my attention was the subsequent comments from
Smith Barney Citigroup.  The firm reiterated their Sell rating on
the stock based on their view that BSC's mortgage-driven fixed
income strength (a large part of what enabled the company to
surprise to the upside) would be unsustainable going forward.  I
actually happen to agree with Smith Barney's view.  What really
bothers me is that this was a reiterated Sell rating, while at the
same time the firm raised their price target from $60 to $64.
First off, how do you maintain your most negative possible view of
a stock, while at the same time stating an expectation that the
fair value is higher?  A look at BSC's chart provides that answer,
as Friday's closing price was fully $12 above the firm's view of
fair value.

The more important issue in my mind is the assertion that this is
a "reiterated" Sell rating.  I went back through the ratings
history on several different sites this weekend and could find no
evidence of a prior Sell rating.  The most recent evaluation of
BSC was back in January, when the firm upgraded the stock from
Underperform to In-Line.  I'm sure in a detailed search, I could
find numerous instances of similar discrepancies and Smith Barney
Citigroup would not be the only offender.  My point in
highlighting this one instance is to point out that while there
are many tangible improvements that have taken place in recent
years, there are numerous problems that still exist.  The moral of
the story is that the only research we should rely on is that
which we do ourselves.  Alright, rant off.

Our playlist has gotten pretty meager in recent weeks, and frankly
I'm content to have it that way.  As I've said on numerous
occasions of late, this remains a treacherous market both to the
bulls and the bears.  When considering the best use of your
investment capital, remember that cash is a position as well.
Alright, let's see what's cooking in the few plays we do have
listed.

Portfolio:

None

Watch List:

AGN - It looks like we set our entry trigger right where it
belonged, just above firm resistance.  AGN has been struggling
with resistance just below $82 since the middle of June.  It is
possible to draw a bullish ascending wedge, with rising support
near $77.50 and based on the price action last week, that lower
support just might be tested in the next week or two.  Aggressive
traders might try initiating new positions on a successful test of
that support, but officially, we're going to stick with the
trigger at $82, just above the top of that wedge.  Once triggered,
we'll use a wide stop at $76, which is just under nearly four
months of support.

AMGN - That was just about the perfect way to see things play out
last week.  AMGN pushed up to trade the $70 level on Thursday,
creating that new PnF Buy signal and solidifying the bullish
picture.  Then Wachovia came out on Friday (interesting
coincidence, don't you think?) downgrading the stock.  That sent
price down to just below $68, before the afternoon rebound took it
up well off the lows.  I view the shallowness of the dip and the
solid rebound as quite bullish and I like the setup for new
entries next week.  Accordingly, our entry target rises to $67-68,
as another dip to near the long-term rising trendline looks like a
favorable price point at which to enter the play.  Note that the
PnF bullish price target is now $81, so there's enough upside
potential to justify the risk to our $64 stop.

WMT - Based on the price action in the Retail index (RLX.X) and my
fundamental view of the U.S. Consumer being just about tapped out
due to the high levels of consumer debt and unrelenting
unemployment rate, I still think bearish plays in this sector will
hold merit, but only when the time is right.  With the RLX still
in its steady ascending channel, that time is not yet here,
although I do note that the RLX is starting to lag the rest of the
market, falling short of reaching new highs last week.  At a
minimum, we'll need to see this channel break before considering
an entry into our WMT play, which continues to troll along near
the $58 level, just below key $60 resistance.

QQQ - As noted above, I view higher levels in the NASDAQ as more
likely than lower over the near-term and we're premature to
consider new bearish entries.  The QQQ tracks the NASDAQ-100, and
1700 would be the level in that index that would correspond to my
2100 target for the COMPX.  For the QQQ, that would correspond to
roughly $42!  Whether that level is achievable or not (I view it
as highly unlikely), it is very difficult to make the case for new
bearish positions making sense right here.  The QQQ remains in its
ascending channel, with the bottom of that formation now at
$32.50, just over the 50-dma ($32.30).  At a minimum, that channel
will need to be broken before we can seriously consider a bearish
stance.  A more realistic target in this market may be the $39
level, which equates to the 19.1% retracement of the entire bear
market decline.

SMH - The Semiconductors seemed to lag the rest of the Technology
sector last week, as the SMH found consistent resistance near the
$38 level and failed to push to new highs.  But on the bullish
side of the coin, price continued to hold above the top of the
ascending channel that had contained price action from March
through late August.  We may be watching a topping formation get
put in place, but until we see some sign of defined weakness, the
bias is still to the upside.  Another upside breakout could easily
take the SMH up to the $40-42 area to test the bottom of the
consolidation pattern established in late 2001 and early 2002.
Wait and see is the operative phrase here as well.

Radar Screen:

HD - Is that an inscrutable chart or what?  Fundamentally I see
problems ahead for HD, but as discussed above, fundamentals are
difficult to turn into winning trades.  With the stock essentially
trading in a flat, choppy range now for more than 3 months, I'm
rapidly losing interest.  I'll keep it here for another week or
two, but am getting very close to removing it from my list of
candidates.

FNM - Can you now see why I had no interest in trying to short
into FNM's rise?  The stock is back at the $70 level after the
briefest of dips and looks to me like it wants to break higher.
This is another one that should provide a very nice ride to the
downside, but only when the timing is right.  Clearly this is not
that time.  The next level to watch for some sort of inflection
will be on a test of the long-term descending trendline, now at
$74.  But with the PnF chart now on a strong Buy signal and above
the bearish resistance line, we may be best served by turning our
attention elsewhere.  I'll continue to monitor for a favorable
entry setup, but am content to not have it be an active play for
now.

QCOM - Snooze and lose!  QCOM broke out with a vengeance over the
past week and ended the week at its highest point since January of
2002.  I'm not interested in chasing the stock higher here, and
will remain vigilant now for a pullback to test support in the
$40-41 area as the next viable entry opportunity.  Note that the
PnF chart is now quite bullish with a vertical count of $67 and
growing.

BVF - How about another bullish candidate in the Health Care
industry.  BVF had quite the slide from its June highs, falling
all the way back to its 200-dma.  But after four successful
rebounds from that moving average, the stock is starting to show
some signs of life, having moved back over its 50-dma and recently
gave a new PnF Buy signal.  It's a bit early to be getting overly
excited here, as the bullish action has been rather muted.  But
I'll be looking for some basing action above $40 to give us the go
ahead to turn this into a Watch List play.


Closing Thoughts:

Quite honestly, it has been rather challenging for me to change my
mindset and go along with the bullish flow in the near term,
especially knowing all the longer-term risks that exist.  You'll
notice that the bullish plays that I've been listing these past 2
weeks are oriented towards the Health Care sector of the market,
which is historically less sensitive to economic strength or
weakness.  Let's see if we can play the long side in this somewhat
safer area over the near term, while at the same time leaving
ourselves open to playing the downside once economic weakness
begins to prevail in those areas that should be most susceptible.
Cautious optimism remains my guiding principle for now.

Have a great 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   $67-68       JAN-2004 $ 70  ZAM-AN
                            CC JAN-2004 $ 65  ZAM-AM
                               JAN-2005 $ 70  WAM-AN
                            CC JAN-2005 $ 60  WAM-AL
FRX    09/21/03   $46          JAN-2004 $ 50  ZML-AJ
                            CC JAN-2004 $ 45  ZML-AI
                               JAN-2005 $ 50  WRT-AJ
                            CC JAN-2005 $ 40  WRT-AH


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

FRX - Forest Laboratories, Inc. $48.93  **Call Play**

In light of the price action in the rest of the market, FRX
certainly doesn't seem like a favorable bullish candidate,
especially as investors have dumped the stock on unfavorable
fundamental developments.  But I think that negative news has been
factored into the stock and we're just starting to see some
favorable technical developments unfold.  First up was the fact
that the stock rebounded from the $42 level roughly a month ago.
This level was strong resistance throughout 2001 and for most of
2002 before the launch all the way above $60.  Since that rebound,
FRX bounced up to the $51 area, where it was turned back by the
200-dma.  That is no great surprise.  What catches my attention is
the fact that the PnF chart is now back on a Buy signal, and has a
vertical count of $70.  I suspect that may be a bit optimistic,
but I can easily see a return to major resistance near $56 and
possibly another run at the $60 level.  With the 50-dma ($46.87)
still declining and below the 200-dma ($50.55), this is clearly an
aggressive bullish play, but I think we can take advantage of a
favorable entry on weakness.  Both the 30-dma and the 50-dma
appear to be converging on $46, which is also the sit of some
solid support over the past few months.  Note also that the weekly
Stochastics (10,5,3) are just emerging from oversold and appear to
have plenty of room to the upside.  At the same time, weekly MACD
is just threatening to give a bullish cross as well.  Signs point
to an early bullish setup and this looks like an attractive time
to take a position.  Our approach will be to game an entry on a
rebound from that level, using a stop at $41.  That is below the
August lows and a trade at that level would clearly show the error
of my ways with a new PnF Sell signal.  Even if we just target a
return to the $56 level, that gives us a clear 2:1 reward-risk
ratio and I like those odds.

BUY LEAP JAN-2005 $50 ZML-AJ
BUY LEAP JAN-2005 $45 ZML-AI **Covered Call**
BUY LEAP JAN-2006 $50 WRT-AJ
BUY LEAP JAN-2006 $40 WRT-AH **Covered Call**


Drops

None




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


The Family Jewels Are Safe – For At Least Another Month!

By Mike Parnos, Investing With Attitude

Friday.  12:15 p.m.  The friendly voice paused for what seemed
like an eternity.  Then he said – "1039.60."  Ladies and
gentlemen, we have a winner -- again!!   Such suspense, such
intrigue, such PROFIT.

A Magic Number
1039.60.  No, that's not the cost of a Weight Watcher's
membership, 104 large Pizza Hut pizzas, your wife's bill from the
beauty parlor, or your two hour massage (therapeutic, of course)
with Bambi.  It's the SPX settlement number.

Because we at the CPTI are such fine, upstanding, clean living
(yeah, sure) citizens, the trading gods have smiled on us once
again.  When the S&P 500 settlement price came in Friday below
1040, our SPX Iron Condor expired harmlessly.

Are We Good or Are We Lucky?
Who cares?  The money's in our pocket.  However, this happens a
little to frequently to be luck, don't you think?  The family
jewels are safe.  Long live the CPTI!  OK, let's get back to
reality.  It's time to review September's results.

S&P 500 Iron Condor trade:  $2,700 profit
COF Sell Straddle trade:  $550 loss
Total:  $2,150 Profit

$30,360 And Climbing
We're like The Jeffersons.  We're "Movin' On Up."  With the $2,150
profit for September, the CPTI portfolio charged through the
$30,000 profit mark to $30,360.  Not bad for a bunch of under-
appreciated couch potatoes.
_________________________________________________________________

SEPTEMBER POSITION RESULTS –
September Position #1 – SPX Iron Condor – SPX @ 1036.30
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).  Profit:  $2,700

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.
_____________________________________________________________

ONGOING POSITIONS:

New CPTI Portfolio Position – QQQ ITM Strangle – Ongoing Long Term.
The QQQs finished at $34.58.
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.


HPQ (Hewlett Packard) Bear Put Spread – HPQ at $21.15.
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.

OEX – Bearish Calendar Spread – OEX @ $520.62
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 sold near term puts against the November
long 470 puts to lower our cost basis.  The Sept. 470 puts
obviously expired worthless.  Now, let's sell the October 490 puts
and take in another $2.10 while we continue to patiently wait for
the market to correct.  Our cost basis is now $6.30.

By The Way
Even those traders who entered the original EBAY September
position would have made a maximum profit of $1,300 as EBAY
finished at $54.91 – below the $55 short call in our Iron Condor.
______________________________________________________________

NEW OCTOBER POSITIONS
October Position #1 – SPX Iron Condor – Trading @ 1036.30
After the September scare, I bet you still have some TUMS left in
the bottle, so here we go again.
Sell 10 contracts of October SPX 995 puts
Buy 10 contracts of October SPX 985 puts
Credit of $1.20 ($1,200)
Sell 5 contracts of October SPX 1075 calls
Buy 5 contracts of October SPX 1100 calls
Credit of $1.10 ($1,100).   Total credit and potential profit:
$2,300.

The premium figures are based on Friday's posted closing prices
plus an extra $.20 here and there that you should be able to shave
off the wide bid/ask spreads.  We've created a maximum profit
range of 995 to 1075.  Note that we're only trading five contracts
on the calls because we have to limit our risk.  Strike prices
weren't available that would enable us to have a 10 point
exposure, so we had to use a 25 point exposure in the calls.

October Position #2 – BBH Joined Iron Condor  - Trading at $139.46
This is sort of a sell straddle with protective wings.  In other
words, the puts and calls we are selling have the same strike
prices.
Sell 10 contracts of October BBH 140 calls @ $3.90
Sell 10 contracts of October BBH 140 puts @ $4.50
Buy 10 contracts of October BBH 150 calls @ $.85
Buy 10 contracts of October BBH 130 puts @ $1.40
Total credit: $6.15 ($6,150) -- which is also our maximum
potential profit.
We have created a profit range of $133.85 to $146.15.  The closer
BBH finishes to $140, the more we will make.  Our risk is limited
to $3.85.  This trade is going to be fun – and hopefully
profitable as well.

October Position #3 – QQQ – Put Calendar Spread – Trading @ $34.58
Want to risk a buck?  Maybe less?  Since many folks think the
market is due to correct, let's create a cheap play that will let
us take advantage of a nice down move.
Buy 10 contracts of January 04 QQQ $32 puts @ $1.20
Sell 10 contracts of October 03 QQQ $32 puts @ $.20
Total debit:  $1.00 ($1,000)

If/when the QQQs make their move down, the January $32 put will
increase in value more rapidly than the October $32 put.  We'll
look for a $500-$750 profit on this position and take the money
and run.  The risk is small.  The percentage profit potential is
very appealing.

October Position #4 – APPX – Short Term Straddle – Trading @
$37.24
Here's a hit and run trade.  APPX (a biotech stock) is scheduled
to have some FDA drug test results released this month.  These
announcements (good or bad – we don't particularly care) often
result in $5+ moves in the stock.  If there's a reaction, we want
to be in position to take advantage of it – and limit our risk at
the same time.
Buy 10 contracts of the January AFFX $36.25 calls @ $5.90
Buy 10 contracts of the January AFFX $36.25 puts @ $5.30
Total debit: $11.20 ($11,200).  You may be able to shave a little
off of each bid/ask and save $.20-.30.

Don't panic.  I know $11,200 sounds like a huge risk, but remember
that we're only going to be in this trade for 30 days or less.
Since these are four-month options, only about 10-15% of the
$11.20 might erode during that period.  That's about $1.10-$1.50
risk.

Regardless of what happens, we're out of this trade in 30 days or
less.  If the announcement doesn't come, we're out with an
acceptable loss.  We're not greedy (usually).  We'll settle for a
$1-2 in profit.  We have to be on our toes, because the spike (up
or down) happens quickly and may not last the entire day.

Remember
The premium prices are quoted based on Friday's closing numbers.
Monday may reflect two more days of time erosion (and maybe not).
If you come reasonably close to our posted numbers, the trade will
still be valid.
_________________________________________________________________

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




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


Buying the pullbacks is not always as easy as it looks.
Jane Fox

Find a trend and buy the pullback sounds easy enough doesn't it?
That's what I thought also. But I have learned simple concepts
sometimes just don't work out, at least in day trading during
these summer months.

The ADX-5 system I use (or at least used to use) for day trading
is based on this very premise. I employ the ADX and DMI indicators
to define a trend, a moving average to define the pullback and get
on board when the trend resumes. Nice thought, unfortunately this
little simple strategy has not been working well lately. Actually
not working too well since August 18. August 18 was the last time
I had a winning trade with the ADX-5 day trading system. The
upside is that it hasn't had a lot of losers as far as day trading
system go. It has mostly sat on the sidelines and just watched the
summer go by totally content to not do too much work, which may be
a good thing considering the trading environment we have had this
summer.

To give you a recap of the ADX-5 system, it takes 1/2 profits at 3
points, called P1 and the other 1/2 at 4 points, called P2. Once
P1 profits have been pocketed your stop is placed at breakeven on
the remaining 1/2. Many times the system will get to the P1 level
and not the P2. The last time the system took profits at both P1
and P2 was July 25th, almost two months ago.

Here are the trades since August 18.




The trade on September 10 was not taken because of the gap down in
the morning. We had a winner on August 18 but since then every
trade ended in a loss. Five loses to be exact; five loses in a row
for a total of 21.5 points. So on September 18th I decided to
abandon the system and try a retooling.

Here is the trade for September 18th:




Yup! Not only was this a positive trade it went all the way to P2,
which the dang system had not done since July 25th. Imagine my
surprise.

However, enough lamenting for I am not here to talk about my day
trades, I am here to talk about buying the pullback and jumping on
board using the daily charts for a swing trade.

Here is the system I use for swing trades. It is based on the same
premise as the ADX-5 but triggers at different levels. It  uses
the ADX to define a trend, the DMI to define the direction and a
moving average to define the pullback.

ADX(10) = 30
DMI(14)
Simple moving Average = 4

First, the ADX has to be over 30 to define a trend.

Second, if DMI+ is greater than the DMI- the trend is up and if
the DMI- is greater that the DMI+ the trend is down.

Third, if a daily bar trades completely below the 4 MA I jump on
board the next day at one tick above the high if going long or one
tick below the low if short. A stop order is placed at low (or
high) of the entry bar.

Fourth, profits are taken in four days.

It is simple but quite effective. The system also has the added
bonus of relatively close stops.

I have a lot of examples. First of let's look at a trade I closed
on September 18th (so you see the 18th wasn't a complete waste).

This is the chart for Seagate (STX). I have not allotted anything
for commission, slippage and results are based on 100 shares.

Each time the strategy triggers a trade, Tradestation will print
"Buy 100" or "Sell 100" then draw a magenta line to the exit. If
the exit was a stop loss it will print "Stop" but if the stock
exited at the time elapsed exit (4 days) it will print the word
"TimeExit."





Each "TimeExit" print means the trade was not stopped out and the
magenta line is usually going north, meaning a winning trade. But
don't just believe your eyes, here is a list of the actual
triggered trades. Out of the 10 trades the system triggered, it
lost only twice for an 80% win/loss ratio.






Here is the strategy performance report for STX. The win/loss
ratio is a very impressive 80% with a profit factor (the dollar
amount the strategy makes for every dollar lost) of 24.12.






But let's not stop here I have more. Here is a chart of Alcon
(ACL).






This stock has only had 4 trades since May but all of them were
winners for a win/loss ratio of 100%. This doesn't mean all of
them will be winners but the odds are in your favor that you could
make money on this stock using this swing trade system.






How about one more? This is my favorite for I have played this
stock most of the way up - JetBLue (JBLU).





JBLU has an extremely impressive win/loss ratio of 80% with a
profit factor of 10.69. Since I only trade this stock from the
long side my win/loss ratio has been almost 90% with a profit
factor of 23.70.






Check some of these out for your self. Here is a list of others
you can check also. LRCX, PLCM, AMLN, DG, OVTI, LIOX, PETM, SNDK,
AMTD and RCL.

To find these little gems, I use a stock scanner like the one at
stockcharts.com with the following criteria:

1. Price greater than $5.00, don't want to trade penny stocks
2. Volume is greater than 1,000,000, you want the big guys
playing.
3. Daily ADX(10) is greater than or equal to 30, nice trend.
4. Daily +DMI(14) is greater than -DMI(14), determine the
direction of the trend.
5. Daily high(low) is less (more) than the 4 day simple moving
average, stock has made a pullback.

Once I have my done the scan and created my nightly list I use
Tradestation to show me how well the strategy would have worked in
the past. If you don't have Tradestation it will take a little
more work but you can still see if the strategy will work. Use the
price formations of some of stocks I have mentioned and see if the
stocks you find have the same type of formation. I can usually
pick the winners without even looking at the TS reports for I know
what the other charts look like.

You probably have noticed that I have only shown long trades. I
have found this system works best on the long side and I'm sure
when (if) we ever start a healthy decline it would work equally
well on the short side but for now we are into a very bullish
period and I for one plan on making hay while the sun shines.

Now you go make some hay.

Remember plan your trade and trade your plan.

Jane Fox




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The Option Investor Newsletter                   Sunday 09-21-2003
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Trading Basics: Stock Stages Explained -- Part III
Naked Puts: Options 101: Making Money Is One Thing -- Keeping It Is Another!
Spreads/Straddles/Combos: Equities Consolidate Amid Minor Profit-Taking

Updated In The Site Tonight:
Market Posture: Another Bullish Week


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


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

Our readers offered some great comments on "Sko's dilemma" with
the Western Wireless (NASDAQ:WWCA) trade.

Editors Note -- For those of you who are not familiar with Sko's
questions about stage analysis, read these articles first:

http://members.OptionInvestor.com/coveredcalls/cc_090703_1.asp

and

http://members.OptionInvestor.com/coveredcalls/cc_091403_1.asp


Now that we are all on the same page, here's a chart of the stock
we are referring to:

Western Wireless (NASDAQ:WWCA) Chart

http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-09-21/oicc_092103_01.gif




My views...

With an entry near $11+, Stan Weinstein's 30-week MA (150-DMA)
gives up all of the potential profit.  One reader noted that a
6-month MA was only violated in April.  My view from this point
is that a breach of the 30-dma, which was tested in August and
appears to define the current trend, would be a good stop-loss
signal.  Or, using the low near the end of August could offer
another reasonable stop-loss point while still allowing for a
continuation of the current trend.  The recent pullback to the
$19 range should offer a clue as to the potential of the next
leg up.  If the high in early September can't be overcome soon,
tightening stops to the recent low would be a prudent way to
lock-in some profit while allowing for lateral consolidation.  As
always, it's a balancing act between downside risk and potential
profit, but at least the exit point (in this case) is on the
positive side of the equation.


And here are some comments from one of our diligent readers...

Subject: Sko's dilemma

From personal experience, do not give back any profits and
definitely don't let a winner turn into a loser.  In my opinion,
the best method is to use a trailing stop of say 5 or 10 percent
below the current price, and enter a GTC order to close the trade
out automatically so you don't let your emotions talk you out of
it.  This stop price can be adjusted daily or weekly, but make
sure you have an actual stop order in place with your broker.

This forces you to keep most of your profits, not lose all of
your gains and it certainly won't let a winner turn into a loser.
Also, if you do get stopped out, you can always get back into the
stock at a lower price as long as the chart pattern continues to
look promising, and ride the stock up to a higher level for even
more profits.

This is the kind of problem I wish I would encounter more often!

Good Luck!

DR


And from another reader...

Subject: Sko' Dilemma -- WWCA follows a 6-month DEMA

Hi Mark,

WWCA has been playable with crossings of the 6-month DEMA.  This
had 1 significant error in April '02, and a minor whip-lash in
April 03, but overall did very well.

MA


And here's what Sko had to say about my latest reply...

Subject: Stage II -- Now What?

Thank you for your well thought out response Mark.

I am continually fascinated by the psychology of trading and its
impact on my emotions, Elder's book was a good read.  From the
time that I placed my very first trade evolving into a business
has been one of the most challenging paths I have chosen to travel.
While at first I felt bad about selling too early my feelings
quickly changed when I realized that I had dropped my cost basis
to around $9 and I am sitting on a double.  There is always more
than one way to look at things and you are dead on when you mention
that it could have easily collapsed and vaporized my gains.

In one sense I am pretty lucky as I am the type of person that
embraces change.  Keeping an open mind with a willingness to be
flexible can go long way in improving my money management and
trade decisions.  Hey this was my first time out attempting a
different type of strategy and I have learned a great deal about
myself.  When you wrote about the different stages they were
foremost on my mind and simply had to solicit your thoughts.

Thanks for a few different suggestions about looking at other
indicators.  I know there was not a set in stone type of answer
to my question and I appreciate your thoughts.  I will definitely
put them to good use.  Keep up all the great work.  You may not
hear from me very often but you can be guaranteed that I am
listening and learning.

Take no prisoners!

Sko



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   12.98  SEP 12.50  1.50    0.49*   8.9%
PLXT     5.25    7.71  SEP  5.00  0.60    0.35*   8.2%
IPXL    15.16   15.66  SEP 15.00  0.70    0.54*   8.1%
WAVX     3.46    3.22  SEP  2.50  1.20    0.24*   7.7%
XOMA     8.09    8.31  SEP  7.50  1.30    0.71*   7.6%
PLUG     5.13    5.27  SEP  5.00  0.45    0.32*   7.4%
TER     20.11   22.00  SEP 20.00  0.75    0.64*   7.2%
ENER    10.39   15.67  SEP 10.00  1.10    0.71*   6.6%
KVHI    30.99   32.42  SEP 30.00  1.85    0.86*   6.4%
EMBT    10.25   10.49  SEP 10.00  0.65    0.40*   6.3%
NWAC     8.30   10.93  SEP  7.50  1.40    0.60*   6.3%
EPNY     5.07    6.05  SEP  5.00  0.40    0.33*   6.1%
NEOF    12.45   16.49  SEP 12.50  0.90    0.95*   6.0%
FLML    28.49   42.85  SEP 25.00  4.40    0.92*   5.8%
WAVX     3.20    3.22  SEP  2.50  0.85    0.15*   5.5%
MCRL    12.60   13.61  SEP 12.50  0.65    0.55*   5.0%
IBIS    10.70   13.00  SEP 10.00  1.00    0.30*   4.7%
USG     14.11   17.51  SEP 12.50  2.35    0.74*   4.6%
XOMA     9.45    8.31  SEP  7.50  2.25    0.30*   4.5%
ITMN    19.01   21.69  SEP 17.50  2.00    0.49*   4.4%
VSAT    15.09   18.25  SEP 15.00  0.80    0.71*   4.3%
TKLC    15.46   18.00  SEP 15.00  1.15    0.69*   4.2%
CCRN    15.60   15.42  SEP 15.00  1.00    0.40*   4.2%
ISIS     5.33    8.05  SEP  5.00  0.60    0.27*   4.1%
RFMD     8.07   10.06  SEP  7.50  0.90    0.33*   4.0%
SNIC    11.18   16.52  SEP 10.00  1.70    0.52*   4.0%
ADLR    13.96   15.10  SEP 12.50  1.90    0.44*   4.0%
GSIC    11.52   11.45  SEP 10.00  1.95    0.43*   3.9%
CREE    16.30   17.40  SEP 15.00  1.75    0.45*   3.4%
TALK    15.34   14.60  SEP 15.00  0.80    0.06    0.9%
SIB     22.60   20.95  SEP 22.50  0.90   -0.75    0.0%
FWHT    25.56   20.21  SEP 25.00  1.40   -3.95    0.0%

SCMR     5.20    5.00  OCT  5.00  0.65    0.45    8.6%
CHU      7.43    8.00  OCT  7.50  0.50    0.57*   7.1%
ARIA     5.24    5.91  OCT  5.00  0.60    0.36*   6.7%
VXGN     6.50    8.75  OCT  5.00  1.80    0.30*   5.5%
THOR    16.83   18.60  OCT 15.00  2.70    0.87*   5.4%
HEPH    26.29   30.20  OCT 22.50  4.90    1.11*   4.5%
DSCM     7.99    8.48  OCT  7.50  0.85    0.36*   4.4%

*   Stock price is above the sold striking price.

Comments:

The September option expiration ended in a rather lackluster way
after Thursday's impressive rally.  The major averages were down
slightly Friday, but did end the week in positive territory.  The
Covered-Call Portfolio performed fairly well this month, even
though a couple of issues were spanked by investors for negative
news.  Why couldn't FindWhat.com (NASDAQ:FWHT) have waited until
Monday to announce that it's renegotiating a deal to buy Espotting?
Murphy's Law I guess.  Staten Island Bancorp (NYSE:SIB) continues
to act a bit worrisome as it tests it 50-DMA.  Prudent investors
may have already exited the position.  As for October, a few of
the new candidates like Vaxgen (NASDAQ:VXGN) may have required a
"roll-in" entry as the stocks jumped higher at the open on Monday.
With the unsettling month of October before us, now is not the time
to become undisciplined and reckless with your portfolio.

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

INCY    5.15  OCT  5.00  IPQ JA  0.50  0      4.65  28   8.2%
BEAV    5.12  OCT  5.00  BQV JA  0.45  521    4.67  28   7.7%
MXO    12.90  OCT 12.50  MXO JV  1.05  5642  11.85  28   6.0%
ALKS   14.23  OCT 12.50  QAL JV  2.20  81    12.03  28   4.2%
HEPH   30.20  OCT 25.00  QGQ JE  6.10  962   24.10  28   4.1%
ISIS    8.05  OCT  7.50  QIS JU  0.80  3735   7.25  28   3.7%
IDBE   18.95  OCT 15.00   QQ JC  4.40  429   14.55  28   3.4%


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).

*****
INCY - Incyte  $5.15  *** New Drug Speculation ***

Incyte (NASDAQ:INCY) is a drug discovery company that develops
proprietary genomic information and applies its expertise in
medicinal chemistry and molecular, cellular and in vivo biology
to the discovery of novel small molecule and protein therapeutics.
The company's current products include information databases,
intellectual property licensing, and certain other products,
such as full-length clones.  Incyte's databases integrate
bioinformatics software with proprietary and, when appropriate,
publicly available genomic data.  Its products can be applied
to gene and target discovery, functional genomics studies,
preclinical pharmacology and toxicology studies.  The portfolio
of database products and services includes: LifeSeq Foundation;
ZooSeq; Bioknowledge Library; and DrugMatrix.  Incyte rallied
earlier this month after the company announced that they have
entered into a collaborative licensing agreement with Pharmasset
to develop and commercialize the antiretroviral drug Reverset(TM).
Investors can use this position to speculate conservatively on
the company's future.

OCT-5.00 IPQ JA LB=0.50 OI=0 CB=4.65 DE=28 TY=8.2%


*****
BEAV - BE Aerospace  $5.12  *** On The Move! ***

BE Aerospace (NASDAQ:BEAV) manufactures cabin interior products for
commercial aircraft and business jets and distributes aftermarket
fasteners.  The company sells its manufactured products directly to
most of the world's major airlines and airframe manufacturers, and
a variety of general aviation customers.  The company's major
product categories include commercial aircraft seats; aircraft food
and beverage preparation and storage equipment; both chemical and
gaseous aircraft oxygen delivery systems; business jet and general
aviation interior products.  The current technical outlook for BE
is "recovering" and our position offers speculators an excellent
reward potential at the risk of owning this industry-leading issue
at a favorable cost basis.  Target-shooting a lower "net debit"
will raise the potential yield and lower the cost basis in the
position.

OCT-5.00 BQV JA LB=0.45 OI=521 CB=4.67 DE=28 TY=7.7%


*****
MXO - Maxtor  $12.90  *** Bullish Sector!  ***

Maxtor (NYSE:MXO) is a provider of hard disk drives for a
variety of applications, including desktop computers, servers,
near-line storage systems and consumer electronics.  Maxtor's
desktop products are marketed under the Fireball, DiamondMax
and MaXLine brand names, and consist of 3.5-inch hard disk
drives with storage capacities ranging from 20 to 300 gigabytes
per platter and speeds of 5,400 RPM and 7,200 RPM.  The company
also provides a line of high-end 3.5-inch hard disk drives for
use in high-performance, storage-intensive applications such as
workstations, enterprise servers and storage subsystems.  These
Intel-based server products are marketed under the Atlas brand
name and provide storage capacities of 18.4 to 146.9 gigabytes
at speeds of 10,000 RPM and 15,000 RPM.  Maxtor continues to
move higher on heavy volume and traders who believe the bullish
trend will continue can use this position to target-shoot an
entry point closer to technical support.

OCT-12.50 MXO JV LB=1.05 OI=5642 CB=11.85 DE=28 TY=6.0%


*****
ALKS - Alkermes  $14.23  *** Bracing For A Rally? ***

Alkermes (NASDAQ:ALKS) is a pharmaceutical company developing
products based on applying its sophisticated drug delivery
technologies to enhance therapeutic outcomes.  The company's
areas of focus include controlled, extended-release of injectable
drugs using its ProLease and Medisorb delivery systems, and the
development of inhaled pharmaceuticals based on its proprietary
Advanced Inhalation Research pulmonary delivery system.  Alkermes
partners its proprietary technology systems and drug delivery
expertise with many other pharmaceutical companies, and it also
develops novel, proprietary drug candidates for its own account.
The company has a pipeline of products in various stages of
development including:  Risperdal Consta, Nutropin Depot,
Vivitrex, inhaled epinephrine, r-hFSH (recombinant human
follicle stimulating hormone), Exenatide LAR, inhaled insulin
and inhaled human growth hormone.  ALKS has been in a lateral
consolidation phase since June with strong buying support near
our cost basis.  Investors who believe the trend will continue
can use this position to profit from that outcome.

OCT-12.50 QAL JV LB=2.20 OI=81 CB=12.03 DE=28 TY=4.2%


*****
HEPH - Hollis-Eden  $30.20  *** Another Week, Another Rally ***

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
from 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 rise on heavy volume and conservative investors can
use this position to obtain an entry point closer to technical
support.

OCT-25.00 QGQ JE LB=6.10 OI=962 CB=24.10 DE=28 TY=4.1%


*****
ISIS - ISIS Pharma  $8.05  *** New Drug Speculation: Part II ***

ISIS Pharmaceuticals (NASDAQ:ISIS) is a biopharmaceutical firm
exploiting proprietary RNA-based drug discovery technologies to
identify and commercialize novel drugs to treat major diseases.
With its main technology, antisense, the firm creates inhibitors,
or oligonucleotides, designed to hybridize, or bind, with high
specificity to their RNA target and modulate the production of
proteins associated with diseases.  ISIS has 12 antisense products
in its development pipeline with eight in human clinical trials
designed to assess safety and efficacy.  The company's products
in development address numerous therapeutic areas, including
inflammatory, viral, metabolic and dermatological diseases and
cancer.  Some favorable results on early clinical trials of ISIS'
second generation experimental arthritis and diabetes drugs has
sparked a heavy-volume rally in the stock.  Investors can use this
position to establish a conservative entry point in the issue.

OCT-7.50 QIS JU LB=0.80 OI=3735 CB=7.25 DE=28 TY=3.7%


*****
IDBE - ID Biomedical  $18.95  *** Rocketing Higher! ***

ID Biomedical (NASDAQ:IDBE) is a biotechnology company focused
on the development of proprietary subunit vaccines, including
those based on its Proteosome protein intranasal adjuvant/delivery
technology.  In addition, the company owns and licenses rights
to its proprietary genomics analysis system, Cycling Probe
Technology.  IDB has three subsidiaries: ID Biomedical Corp. of
Washington, ID Biomedical Corp. of Quebec and ID Biomedical Corp.
of Maryland.  The company is developing subunit vaccines for the
prevention of a number of different diseases.  Subunit vaccines
differ from traditional vaccines in that they consist of proteins
or other components of the organism rather than the whole, live
organism.  Their product candidates in clinical development are
StreptAvax vaccine, a multivalent subunit vaccine against group
A streptococcus, and FluINsure vaccine, an intranasally delivered
subunit influenza vaccine.  On Thursday, ID Biomedical announced
that its preliminary data from its most recent influenza challenge
study of FluINsure showed "significant" reductions in clinical
illness across all vaccine regimens tested when compared with
placebo.  Traders jumped on the "buying" bandwagon and propelled
the stock up nearly $4 in two days on extremely heavy volume.
Investors who believe the rally will continue can use this play
to target-shoot an entry price a bit closer to technical support.

OCT-15.00 QQ JC LB=4.40 OI=429 CB=14.55 DE=28 TY=3.4%


*****


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

ROXI   10.09  OCT 10.00  RXU JB  1.00  515    9.09  28  10.9%
EMIS    8.43  OCT  7.50  MTQ JU  1.55  181    6.88  28   9.8%
IIJI    8.70  OCT  7.50  IQD JU  1.75  1679   6.95  28   8.6%
CEGE   15.10  OCT 15.00  UCG JC  1.05  266   14.05  28   7.3%
SANM   10.49  OCT 10.00  SQN JB  1.05  6577   9.44  28   6.4%
VXGN    8.75  OCT  7.50  UWG JU  1.65  3202   7.10  28   6.1%
WAVX    3.22  OCT  2.50  KWW JZ  0.85  118    2.37  28   6.0%
NKTR   13.75  OCT 12.50  QNX JV  1.90  3526  11.85  28   6.0%
CRA    12.61  OCT 12.50  CRA JV  0.70  433   11.91  28   5.4%
THOR   18.60  OCT 17.50  TQU JW  1.90  2328  16.70  28   5.2%
PPCO   24.01  OCT 20.00  OGQ JD  4.90  104   19.11  28   5.1%
NEOF   16.49  OCT 15.00  QZX JC  2.15  38    14.34  28   5.0%
TWR     5.34  OCT  5.00  TWR JA  0.55  291    4.79  28   4.8%
SONS    8.54  OCT  7.50  UJS JU  1.35  3530   7.19  28   4.7%
COB    15.97  OCT 15.00  COB JC  1.55  349   14.42  28   4.4%
ABGX   16.58  OCT 15.00  AZG JC  2.15  511   14.43  28   4.3%
LEXR   19.61  OCT 17.50  EQG JW  2.75  1202  16.86  28   4.1%
CMOS   13.65  OCT 12.50  CQS JV  1.45  126   12.20  28   2.7%





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


Options 101: Making Money Is One Thing -- Keeping It Is Another!
By Ray Cummins

Stocks have always outpaced every other type of investment over
periods of time, however that doesn't mean that simply throwing
money into the market will guarantee success over the long haul.

The key to lasting prosperity in any financial endeavor is to
develop a sound plan for growing your wealth and then follow a
sensible course of action to hold on to your assets.  Most of
the instructional narratives in the newsletter concentrate on
profitable trading but it's also important to focus on ways to
preserve your hard-earned assets.  A well-known axiom suggests,
"An investor accumulates wealth through portfolio concentration
but keeps his wealth through portfolio diversification."  In
light of the recent recovery in equity values, that is a great
topic for discussion.

The first phase of asset management begins with an evaluation of
your overall financial situation.  That means you must list all
of your assets including cash and cash-equivalents; checking and
savings accounts, money-market funds and short-term certificates
of deposit.  The second group of holdings should include all of
your active and tradable investments such as stocks, options,
futures or commodities contracts, bonds, and mutual fund shares.
The final category might consist of all your income-producing
instruments that are not readily liquid such as rental or lease
properties, real-estate deeds, trust notes, promissory agreements,
and similar contracts.  Among the various classes of investments,
individual categories can be made for positions with different
time-frames and risk profiles.

Once you have thoroughly reviewed your current holdings, you can
begin to evaluate the risk potential of each individual position
and decide which ones merit a place in your investment portfolio.
From a financial standpoint, risk is the possibility of losing
money, either in a specific transaction or multiple trades in a
market of issues such as equities or bonds.  While that is the
primary focus or portfolio management, there are other forms of
risk that can affect asset value and one of the most obvious is
lost potential.  An investor stands to lose prospective profits
if he (or she) takes no action on a specific set of favorable
circumstances and the failure to act or react, in a timely manner,
can be a very costly decision.  A similar type of risk can emerge
when a person has unrealistic objectives or goals.  In fact, a
correctly defined financial target or goal, based on historical
performance and practical estimates, is often the only difference
between a profitable outcome and a losing position.  For long-term
investors, a risk that is often forgotten is inflation risk; the
possibility that higher prices will reduce the relative gains of
a successful portfolio.  All of these concerns need to be taken
into account when deciding what strategy or approach offers the
most conservative and practical means of capital appreciation for
your portfolio.

Regardless of the approach or techniques one uses to maintain
wealth, there is risk in all areas of finance.  Fortunately,
there are also some basic guidelines that will substantially
reduce investing losses.  The first step is to identify any
attitudes or behaviors that can lead to unfavorable results.
This step is very important because it is hard to control or
manage risk when emotion and instinct are primary players in
the investing process.  The next phase requires a thorough
understanding of the methods used to control risks.  The most
popular technique for limiting financial exposure, regardless
of the commodity or instrument, is diversification.  The rule
here is very simple: "Don't put all your eggs in one basket!"
Spread your portfolio holdings over a broad range of issues and
instruments so they don't all decrease in value because of a
single event or trend.  While even the most catastrophic events
can generally be managed to reduce the effects of the shortfall,
there are occasions when issues plunge without warning leaving
no opportunity for exit or adjustment.  Unforeseen events simply
occur; negative announcements, shareholder lawsuits, detrimental
news in a particular industry or sector, and changes in public
sentiment.  All of these activities can affect the success of
an individual position but with a diversified portfolio, the
overall effects are minimal.  Diversification also allows you
to take advantage of the wide variety of investment vehicles
available in the global financial markets, and an assortment of
positions in different categories will ensure that at least a
portion of your holdings are outperforming the major indices.

In the next segment, we'll talk more about developing a plan for
protecting wealth in a long-term investment portfolio.

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   15.05  SEP 12.50  0.45    0.45*   8.1%  26.5%
AMSC    13.20   11.65  SEP 10.00  0.70    0.70*   6.5%  18.2%
CBST    12.72   12.98  SEP 10.00  0.50    0.50*   4.6%  14.3%
NEOF    16.40   16.49  SEP 15.00  0.35    0.35*   5.2%  13.8%
GNTA    16.00   15.05  SEP 10.00  0.30    0.30*   4.7%  13.0%
RIMM    24.61   33.71  SEP 20.00  0.75    0.75*   2.8%   9.1%
RIMM    28.48   33.71  SEP 25.00  0.50    0.50*   3.1%   9.0%
SINA    34.32   40.23  SEP 30.00  0.40    0.40*   2.9%   8.9%
OVTI    43.77   46.10  SEP 35.00  0.95    0.95*   2.4%   8.5%
CVTX    27.33   27.27  SEP 25.00  0.35    0.35*   3.1%   8.5%
THER    13.93   13.50  SEP 12.50  0.55    0.55*   3.3%   8.5%
DRIV    28.75   30.15  SEP 25.00  0.30    0.30*   2.6%   8.1%
NFLX    34.55   37.00  SEP 30.00  0.35    0.35*   2.6%   7.9%
RIMM    28.74   33.71  SEP 25.00  0.60    0.60*   2.7%   7.8%
NTAP    22.36   22.77  SEP 20.00  0.35    0.35*   2.7%   7.7%
IDTI    13.10   14.50  SEP 12.50  0.35    0.35*   3.1%   7.6%
FLML    28.49   42.85  SEP 22.50  0.30    0.30*   2.1%   7.6%
BLUD    23.12   28.88  SEP 22.50  1.00    1.00*   3.4%   7.5%
BOBJ    27.05   28.84  SEP 25.00  0.45    0.45*   2.8%   7.4%
SEPR    21.76   31.30  SEP 17.50  0.50    0.50*   2.1%   7.3%
NFLX    28.80   37.00  SEP 25.00  0.55    0.55*   2.4%   7.2%
TKLC    13.73   18.00  SEP 12.50  0.45    0.45*   2.7%   6.9%
PHTN    28.90   32.20  SEP 25.00  0.65    0.65*   2.3%   6.8%
TIVO    10.91    9.93  SEP 10.00  0.30    0.23    2.6%   6.7%
SRNA    18.77   19.86  SEP 17.50  0.40    0.40*   2.5%   6.5%
JDAS    13.90   16.80  SEP 12.50  0.40    0.40*   2.4%   6.4%
UTEK    25.75   30.63  SEP 22.50  0.55    0.55*   2.2%   6.3%
SEPR    23.49   31.30  SEP 20.00  0.45    0.45*   2.0%   6.2%
PDII    24.25   26.42  SEP 20.00  0.50    0.50*   1.9%   6.1%
NFLX    33.33   37.00  SEP 27.50  0.30    0.30*   1.7%   5.8%
IMCL    46.56   46.15  SEP 40.00  0.30    0.30*   1.6%   5.3%
BRCM    25.80   26.42  SEP 22.50  0.35    0.35*   1.7%   5.2%
PSUN    22.37   22.48  SEP 20.00  0.23    0.23*   1.8%   5.1% **
AEIS    21.02   22.36  SEP 17.50  0.30    0.30*   1.5%   5.0%
PHTN    29.57   32.20  SEP 25.00  0.35    0.35*   1.5%   5.0%

EMIS     6.19    8.43  OCT  5.00  0.35    0.35*   6.5%  18.6%
ADLR    15.95   15.10  OCT 12.50  0.50    0.50*   3.6%  11.8%
STAT    14.58   14.30  OCT 12.50  0.40    0.40*   2.9%   8.4%
ASKJ    21.29   21.67  OCT 17.50  0.45    0.45*   2.3%   7.6%
NKTR    13.83   13.75  OCT 10.00  0.25    0.25*   2.2%   7.2%
INSP    19.92   21.85  OCT 17.50  0.35    0.35*   1.8%   5.2%
GOLD    23.93   25.82  OCT 20.00  0.35    0.35*   1.5%   5.1%

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

Comments:

Friday's quadruple-witching expiration of options on stocks,
stock indexes and futures contracts was a "non-event" and just
what we needed to keep the Naked-Puts portfolio "in the black"
for the month of September.  There were virtually no surprises
during the session and all the major equity indices remain in
a relatively bullish trend for the coming week.  At the same
time, the quarterly earnings season is approaching, so it is
prudent to remain vigilant in position management (even though
there are no positions on the early-exit "watch" list).

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

USG    17.51  OCT 12.50  USG VV 0.35 1156 12.15  28   3.1%   9.9%
SEAC   14.34  OCT 12.50  UEG VV 0.35 50   12.15  28   3.1%   9.0%
NPSP   32.82  OCT 25.00  QKK VE 0.50 1242 24.50  28   2.2%   7.7%
ONXX   23.92  OCT 20.00  OIQ VD 0.40 100  19.60  28   2.2%   7.2%
THOR   18.60  OCT 15.00  TQU VC 0.25 723  14.75  28   1.8%   6.6%
CEPH   49.62  OCT 40.00  CQE VH 0.65 1755 39.35  28   1.8%   6.5%
IDXC   26.02  OCT 22.50  XQW VX 0.35 0    22.15  28   1.7%   5.3%


Company Descriptions

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

*****
USG - USG Corporation  $17.51 *** Asbestos Speculation! ***

USG Corporation (NYSE:USG) produces a range of products for use
in new residential, new non-residential and repair and remodel
construction, as well as products used in certain industrial
processes.  Its operations are organized into three operating
segments: North American Gypsum, which manufactures Sheetrock
brand gypsum wallboard and related products in the United States,
Canada and Mexico; Worldwide Ceilings, which manufactures ceiling
tile in the United States and ceiling grid in the United States,
Canada, Europe and the Asia-Pacific region, and Building Products
Distribution, which distributes gypsum wallboard, drywall metal,
ceiling products, joint compound and other building products
throughout the United States.  Companies with asbestos-related
liabilities continue to enjoy lots of "premium" in their options
(suggesting a potential for volatility) and traders who think
that recent legislation will lead to a favorable reform of laws
concerning asbestos litigation can use this position to speculate
on that outcome.

OCT-12.50 USG VV LB=0.35 OI=1156 CB=12.15 DE=28 TY=3.1% MY=9.9%


*****
SEAC - SeaChange International  $14.34  *** Rally Mode! ***

SeaChange International (NASDAQ:SEAC) is a developer, builder,
and marketer of systems (video storage servers) that automate
the management and distribution of long-form video streams such
as movies or other feature presentations, and short-form video
streams such as advertisements.  The company sells products and
services to cable system operators, including AOL Time Warner,
Cablevision, Charter Communications, Comcast, Cox Communications
and Insight Communications, telecommunications companies, as well
as Deutsch Telecom and broadcast television companies, including
Ascent Media, Clear Channel Communications and Echostar.  SEAC's
broadband network segment includes its video-on-demand system,
which digitally manages, stores and distributes digital video,
allowing cable system operators and telecommunications companies
to offer VOD and other interactive television services, including
interactive electronic advertising and retrieval of web content,
through the television.  In August, SeaChange announced a second
quarter profit versus a year ago loss that resulted from rising
orders for its video systems.  Revenue for video-on-demand rose
16% and the company believes the bullish trend will continue in
the coming quarter.  Investors can establish a relatively low
risk entry point in the issue with this position.

OCT-12.50 UEG VV LB=0.35 OI=50 CB=12.15 DE=28 TY=3.1% MY=9.0%


*****
NPSP - NPS Pharmaceuticals  $32.82  ** New Drug Speculation! ***

NPS Pharmaceuticals (NASDAQ:NPSP) is engaged in the discovery,
development and commercialization of pharmaceutical products.
Its product pipeline consists of product candidates in various
stages of clinical development and preclinical development.  Two
of these product candidates, PREOS and cinacalcet HCl, are in
Phase III clinical trials.  A third product candidate, ALX-0600,
has completed a pilot Phase II clinical trial and plans are now
underway to commence additional clinical trials.  PREOS is NPS'
brand name for a recombinant, full-length parathyroid hormone
it is developing for the treatment of osteoporosis.  ALX-0600
is the company's analog of glucagon-like peptide 2 that it is
developing for the treatment of gastrointestinal disorders.
Cinacalcet HCl, its orally active, small-molecule compound for
the treatment of hyperparathyroidism, is being developed by the
company's licensees, Amgen and Kirin Brewery Company.  NPSP is
another company with drugs awaiting FDA approval and investors
who perform the necessary due-diligence may find this position
attractive for a speculative portfolio.

OCT-25.00 QKK VE LB=0.50 OI=1242 CB=24.50 DE=28 TY=2.2% MY=7.7%


*****
ONXX - Onyx Pharmaceuticals  $23.92  *** Multi-Year High! ***

Onyx Pharmaceuticals (NASDAQ:ONXX) is engaged in the discovery
and development of novel cancer therapies utilizing two primary
technology platforms, small molecules that inhibit the proteins
involved in excess growth signaling, and therapeutic viruses
that selectively replicate in cells with cancer-causing genetic
mutations.  The firm is developing a new small molecule compound,
BAY 43-9006, in collaboration with Bayer Pharmaceuticals.  Using
its proprietary virus technology, the company is also developing
ONYX-411, a second-generation product that targets cancers with
abnormal function of the retinoblastoma tumor-suppressor gene,
and is developing Armed Therapeutic Virus products.  Onyx is set
to present at the UBS Global Life Sciences Conference in New York
City on Monday (9/22) and investors are hoping for an optimistic
outlook.  Traders who believe the reception will be positive, and
the recent upside activity will continue, should consider this
position.

OCT-20.00 OIQ VD LB=0.40 OI=100 CB=19.60 DE=28 TY=2.2% MY=7.2%


*****
THOR - Thoratec  $18.60  *** Medicare Approval Coming? ***

Thoratec (NASDAQ:THOR) offers two 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 firm is also
developing a small-diameter access graft for use in coronary
artery bypass graft surgery.  In addition, the Thoratec 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 has requested that approval for
one of its devices for treating late-stage congestive heart
failure be expanded to include Medicare patients who are not
candidates for heart transplants.  The decision is expected in
the coming weeks and traders can speculate conservatively on
that outcome with this position.

OCT-15.00 TQU VC LB=0.25 OI=723 CB=14.75 DE=28 TY=1.8% MY=6.6%


*****
CEPH - Cephalon  $49.62  *** New Trading Range? ***

Cephalon (NASDAQ:CEPH) is an international biopharmaceutical firm
dedicated to the discovery, development and marketing of products
to treat sleep disorders, neurological disorders, cancer and pain.
In addition to conducting a very active research and development
program, the company markets three products in the United States
and a number of products in various countries throughout Europe.
Cephalon's United States products are comprised of Provigil, for
the treatment of excessive daytime sleepiness associated with
narcolepsy, Actiq for cancer pain management, and Gabitril for
the treatment of partial seizures associated with epilepsy.  The
most recent news for Cephalon is their offer to buy Cima Labs for
$26-a-share and investors are apparently happy with the potential
merger.  CEPH shares closed Friday's session near the top of a
four-month trading range and the issue looks poised to continue
higher in the coming weeks.

OCT-40.00 CQE VH LB=0.65 OI=1755 CB=39.35 DE=28 TY=1.8% MY=6.5%


*****
IDXC - IDX Systems  $26.02  *** A Big Day! ***

IDX Systems Corporation (NASDAQ:IDXC) is a provider of software,
services and technologies for healthcare organizations.  IDX's
core business segment, providing information systems, services
and connectivity for group physician practices, hospitals and
integrated delivery networks, operates under the IDX brand name
and consists of software licensing, services and hardware sales.
Shares of IDXC rallied Friday amid optimistic comments from a
brokerage firm regarding the firm's chances of winning major
contracts in the United Kingdom's initiative to automate all of
its hospitals.  W.R. Hambrecht & Co. analyst Sean Wieland said
IDXC is "well-positioned for success in two of the five contracts
to be awarded by the U.K.'s National Health System."  Investors
who agree with that optimistic assessment should consider this
position.

OCT-22.50 XQW VX LB=0.35 OI=0 CB=22.15 DE=28 TY=1.7% MY=5.3%


*****


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

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

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

ZIXI    8.98  OCT  7.50  HQU VU 0.40 135   7.10  28   6.1%  17.3%
FLML   42.85  OCT 35.00  FLU VG 1.15 205  33.85  28   3.7%  12.0%
XING    9.13  OCT  7.50  QAE VU 0.25 98    7.25  28   3.7%  12.0%
KVHI   32.42  OCT 30.00  VJU VF 1.15 42   28.85  28   4.3%  10.7%
STAT   14.30  OCT 12.50  TAQ VV 0.35 83   12.15  28   3.1%   8.9%
CMTL   28.25  OCT 25.00  CQH VE 0.70 144  24.30  28   3.1%   8.7%
NFLX   37.00  OCT 30.00  QNQ VF 0.60 735  29.40  28   2.2%   7.8%
CELL   32.01  OCT 25.00  ULN VE 0.45 104  24.55  28   2.0%   7.1%
RIMM   33.71  OCT 27.50  RUL VY 0.50 689  27.00  28   2.0%   7.0%
INSP   21.85  OCT 20.00  IOU VD 0.45 91   19.55  28   2.5%   6.7%
JCOM   42.42  OCT 32.50  JQF VZ 0.55 747  31.95  28   1.9%   6.6%
VSH    19.00  OCT 17.50  VSH VW 0.35 422  17.15  28   2.2%   5.9%
SINA   40.23  OCT 30.00  NOQ VF 0.40 1050 29.60  28   1.5%   5.1%


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




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



Equities Consolidate Amid Minor Profit-Taking
By Ray Cummins

Stocks closed lower Friday as investors took profits in the wake
of the recent sharp rally, which propelled the major indices to
levels not seen in over a year.

The Dow Jones industrial average slipped 14 points to 9,644 with
Merck (NYSE:MRK), Honeywell (NYSE:HON), Boeing (NYSE:BA) and Coca
Cola (NYSE:KO) among the worst performers.  The tech-laden NASDAQ
Composite Index slumped 3 points to 1,905 with the biggest losses
emerging in communications equipment stocks.  The broad Standard
& Poor's 500 Index ended 3 points lower at 1,036, despite buying
pressure in footwear, gold, oil and gas services, retail apparel,
and healthcare facilities.  Trading was active with 1.46 billion
shares changing hands on the New York Stock Exchange while 1.86
billion shares were crossed on the NASDAQ.  Advancers outnumbered
decliners 9 to 7 on the Big Board, and by a slightly larger margin
on the technology exchange.  In the U.S. bond market, the price of
the 10-year note finished almost unchanged with its yield at 4.16%.


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

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


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

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

ADI     39.51   41.21  SEP   30  35   0.65  34.35  $0.65  Closed
BOW     38.57   44.48  SEP   30  35   0.60  34.40  $0.60  Closed
MXIM    39.11   43.35  SEP   30  35   0.65  34.35  $0.65  Closed
BBY     47.90   51.44  SEP   40  42   0.30  42.20  $0.30  Closed
JCI     96.49   99.95  SEP   85  90   0.65  89.35  $0.65  Closed
MBI     53.13   56.95  SEP   45  50   0.65  49.35  $0.65  Closed
WMT     57.77   58.14  SEP   50  55   0.50  54.50  $0.50  Closed
BSX     63.25   68.41  SEP   50  55   0.40  54.60  $0.40  Closed
SNPS    66.53   68.57  SEP   55  60   0.50  59.50  $0.50  Closed
ISIL    27.58   27.98  SEP   22  25   0.30  24.70  $0.30  Closed
POWI    32.08   37.30  SEP   25  30   0.55  29.45  $0.55  Closed
VIA     44.64   42.05  SEP   40  42   0.30  42.20 ($0.15) Closed
AMZN    46.32   47.58  SEP   40  42   0.25  42.25  $0.25  Closed
GS      88.48   93.73  SEP   80  85   0.40  84.60  $0.40  Closed
TTWO    29.81   36.12  SEP   25  27   0.30  27.20  $0.30  Closed
SYMC    59.45   63.46  SEP   50  55   0.40  54.60  $0.40  Closed
AMLN    29.04   29.73  OCT   22  25   0.30  24.70  $0.30   Open
MERQ    49.41   50.93  OCT   40  42   0.30  42.20  $0.30   Open
BBH    137.69  139.46  OCT  120 125   0.45 124.55  $0.45   Open
CELG    45.48   45.89  OCT   35  40   0.50  39.50  $0.50   Open
MYL     39.00   40.27  OCT   32  35   0.20  34.80  $0.20   Open
SINA    37.41   40.23  OCT   25  30   0.45  29.55  $0.45   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   60.35   SEP   75  70   0.60  70.60  $0.60  Closed
DB      59.64   66.57   SEP   70  65   0.60  65.60 ($0.97) Closed
AMGN    66.48   68.89   SEP   75  70   0.35  70.35  $0.35  Closed
MEDI    34.58   36.00   SEP   40  37   0.25  37.75  $0.25  Closed
CTX     75.42   76.42   SEP   85  80   0.40  80.40  $0.40  Closed
DNA     79.40   87.72   SEP   90  85   0.50  85.50 ($2.22) Closed
CNF     28.87   32.36   OCT   32  30   0.40  30.40 ($1.96) Closed
CAH     56.36   58.60   OCT   65  60   0.65  60.65  $0.65   Open
PFE     30.51   31.45   OCT   35  32   0.25  32.75  $0.25   Open
XL      76.05   77.25   OCT   85  80   0.60  80.60  $0.60   Open
APC     42.70   43.60   OCT   47  45   0.35  45.35  $0.35   Open

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

CNF Transportation (NYSE:CNF) picked a great time to announce that
it was raising its third-quarter earnings guidance, citing strong
performance across its operating units and an improving economy.
The freight company now expects third-quarter earnings of $0.45 to
$0.50 a share, and investors applauded the news with a sharp rally.
Intuit (NASDAQ:INTU), Investors Financial Services (NASDAQ:IFIN)
and SAP AG (NYSE:SAP) have previously been closed to limit losses.
Deutsche Bank AG (NYSE:DB) and Genentech (NYSE:DNA) were profitable
until Thursday's market-wide rally.  Anadarko Petroleum (NYSE:APC)
and XL Capital (NYSE:XL) are on the early-exit "watch" list.


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

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

MWD     48.54  52.38  SEP   40  45   4.45   44.45  0.55  Closed
MGAM    24.97  29.10  SEP   20  22   2.30   22.30  0.20  Closed
MUR     52.94  56.58  SEP   45  50   4.45   49.45  0.55  Closed
CTSH    31.90  40.41  SEP   25  30   4.40   29.40  0.60  Closed
ERTS    89.97  94.75  SEP   80  85   4.50   84.50  0.50  Closed
HTCH    33.02  36.58  OCT   25  30   4.50   29.50  0.50   Open
AVII     5.54   5.86  DEC    5   7   0.90    5.90 (0.04)  Open
APPX    38.74  37.24  OCT   30  33   2.95   32.95  0.42   Open
HEPH    26.29  30.20  OCT   20  22   2.25   22.25  0.25   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  73.05  SEP   75  70   4.10   70.90 (2.15) Closed

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

The "Reader's Request" position in Hershey Foods (NYSE:HSY) has
previously been closed 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  22.70   JAN     30    17     0.00    0.20   Closed
AVCT    27.83  30.85   SEP     30    25    (0.10)   1.30   Closed
ADRX    20.79  21.93   DEC     25    17    (0.20)   0.15    Open
CVTX    27.55  27.27   OCT     35    20    (0.10)   0.00    Open
GLGC     6.00   6.38   NOV      7     5    (0.10)   0.00    Open

CV Therapeutics (NASDAQ:CVTX) remains near a "key" support area
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  24.95   OCT-20C   SEP-22C   1.90    2.25   Closed
NE      34.86  33.24   DEC-37C   SEP-37C   1.15    1.50   Closed
NSM     22.77  35.90   JAN-20C   SEP-25C   3.90    5.30   Closed
GNTA    13.95  15.05   OCT-12C   SEP-15C   2.00    2.45   Closed
MSFT    27.31  29.96   JAN-27C   SEP-30C   2.20    2.40    Open
ING     19.07  20.86   JAN-20C   OCT-20C   0.55    0.75    Open
MDCO    26.17  28.17   JAN-30C   OCT-30C   0.50    1.20    Open
PRU     36.41  37.70   DEC-37C   OCT-37C   0.30    0.60    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.  Microsoft
(NASDAQ:MSFT) required an adjustment to reflect the new "bullish"
outlook and the spread is now diagonal with a larger debit.  The
older position in SPX Corporation (NYSE:SPW) was closed early for
a profit and the Brady Pharmaceuticals (NYSE:BDY) position 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

ADBE    34.36  41.37   SEP    35    35     2.80    6.50   Closed
BBY     50.08  51.44   SEP    50    50     4.05    4.90   Closed
PDCO    54.42  59.70   SEP    55    55     2.35    5.50   Closed
SNE     30.74  37.39   OCT    30    30     3.75    8.00    Open?
AMTD    10.00  13.00   OCT    10    10     1.45    2.90    Open?
TRI     30.50  31.11   NOV    30    30     4.90    5.00    Open
CLS     17.55  17.87   OCT    17    17     2.35    3.10    Open
NVDA    18.17  19.84   OCT    17    17     2.90    3.50    Open
EASI    59.70  64.28   NOV    60    60     8.50    9.00    Open
AFCI    22.66  22.75   OCT    22    22     3.10    3.00    Open

Sony (NYSE:SNE), Adobe Systems (NASDAQ:ADBE), Patterson Dental
(NASDAQ:PDCO) and Ameritrade (NASDAQ:AMTD) were "big" winners this
month.  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 also small profits.  Engineered
Support Systems (NASDAQ:EASI) is off to a great start as well.


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

No Open Positions


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

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

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

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

*****
COGN - Cognos  $33.16  *** Solid Outlook! ***

Cognos (NASDAQ:COGN), the world leader in business intelligence
and performance management, delivers software that helps companies
drive, monitor and understand corporate performance.  The firm's
competitive advantage is achieved through strategic application
of BI on an enterprise scale.  Their integrated CPM solution helps
customers drive performance through planning; monitor performance
through scorecarding; and understand performance through business
intelligence.  Cognos serves more than 22,000 customers in over 135
countries.  Cognos enterprise business intelligence and performance
management solutions and services are also available from more than
3,000 worldwide partners and resellers.

COGN - Cognos  $33.16

PLAY (less conservative - bullish/credit spread):

BUY  PUT  OCT-27.50  CRQ-VY  OI=0   ASK=$0.30
SELL PUT  OCT-30.00  CRQ-VF  OI=31  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$29.70


*****
CTSH - Cognizant Tech.  $40.41  *** Up-Trend Intact! ***

Cognizant Technology Solutions (NASDAQ:CTSH) delivers full life
cycle solutions to complex software development and maintenance
problems that companies face as they transition to e-business.
These information technology (IT) services are delivered through
the use of a seamless on-site and offshore consulting project
team.  The company's solutions include application development
and integration, application management and re-engineering
services.  The company's customers include ACNielsen Corporation,
ADP, Incorporated, Brinker International, Incorporated, Computer
Sciences Corporation, The Dun & Bradstreet Corporation, First
Data Corporation, IMS Health Incorporated, Metropolitan Life
Insurance Company, Nielsen Media Research, Incorporated, PNC
Bank and Royal & SunAlliance USA.

CTSH - Cognizant Tech.  $40.41

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-30.00  UPU-VF  OI=1834  ASK=$0.30
SELL PUT  OCT-35.00  UPU-VG  OI=466   BID=$0.75
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$34.50


*****
IMDC - Inamed  $76.91  *** Booming Beauty-Treatment Market! ***

Inamed (NASDAQ:IMDC) is a global medical device company that
develops, manufactures and markets a diverse line of products
that enhance the quality of people's lives.  The company has
three principal product lines: breast aesthetics, consisting
primarily of breast implants and tissue expanders sold largely
for use in plastic and reconstructive surgery; facial aesthetics,
consisting primarily of collagen and other dermal fillers sold
largely to dermatologists and plastic surgeons, and obesity
intervention, consisting of products for use in treating severe
and morbid obesity.  The company also offers collagen products
for use by medical manufacturers.

IMDC - Inamed  $76.91

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-60.00  UZI-VL  OI=206  ASK=$0.55
SELL PUT  OCT-65.00  UZI-VM  OI=889  BID=$1.05
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$64.45


*****
NEM - Newmont Mining  $40.66  *** Gold "Bulls" Only! ***

Newmont Mining (NYSE:NEM), along with its subsidiaries, is a
worldwide company engaged in the production of gold, exploration
for gold and acquisition of gold properties.  The company also
has an interest in a copper/gold mine that commenced production
in late 1999.  In addition, the company produces zinc, lead and
copper concentrates at its property in Western Australia.  The
company approved in 2002 a restructuring plan to facilitate the
acquisitions of Normandy Mining Limited and Franco-Nevada Mining
Corporation Limited, and to create a more flexible corporate
structure.

NEM - Newmont Mining  $40.66

PLAY (less conservative - bullish/credit spread):

BUY  PUT  OCT-35.00  NEM-VG  OI=4293  ASK=$0.20
SELL PUT  OCT-37.50  NEM-VU  OI=2125  BID=$0.50
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$37.20


*****
CI - Cigna  $47.15  *** Consolidation In Progress! ***

Cigna Corporation (NYSE:CI) and its subsidiaries are investor-
owned employee benefits organizations in the United States.  Its
subsidiaries are major providers of employee benefits offered
through the workplace, including health care products and other
services, life, accident and disability insurance, retirement
products and services and investment management.  CIGNA's main
perating divisions include Employee Health Care, Disability and
Life Benefits, CIGNA Group Insurance, Employee Retirement, and
Investment Services, and International Life, Health and Employee
Benefits.

CI - Cigna Corporation  $47.15

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-55.00  CI-JK  OI=1502  ASK=$0.15
SELL CALL  OCT-50.00  CI-JJ  OI=4928  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$50.55


*****
FRX - Forest Labs  $48.93  *** Trading Range? ***

Forest Laboratories (NYSE:FRX) develops, manufactures and sells
both branded and generic forms of ethical drug products that
require a physician's prescription, as well as non-prescription
pharmaceutical products sold over-the-counter.  The company's
most important U.S. products consist of branded ethical drug
specialties marketed directly, or "detailed," to physicians by
its Forest Pharmaceuticals, Therapeutics and Specialty sales
forces.  The company's many products include those developed by
Forest and those acquired from other pharmaceutical companies
and integrated into Forest's marketing and distribution systems.
Principal products include Celexa, an SSRI for the treatment of
depression; the respiratory products Aerobid and Aerochamber;
Tiazac, a once-daily diltiazem for the treatment of hypertension
and angina; and Infasurf, a lung surfactant for the treatment and
prevention of respiratory distress syndrome in premature infants.

FRX - Forest Labs  $48.93

PLAY (less conservative - bearish/credit spread):

BUY  CALL  OCT-60.00  FHA-JL  OI=3609  ASK=$0.50
SELL CALL  OCT-55.00  FHA-JK  OI=4793  BID=$1.10
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$55.60


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

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

*****
NVLS - Novellus Systems  $38.55  *** Trading Range? ***

Novellus Systems (NASDAQ:NVLS) manufactures, sells and services
semiconductor processing equipment.  The company's products are
comprised primarily of advanced systems used to deposit thin
conductive and insulating films on semiconductor devices, as well
as equipment for preparing the device surface prior to these
deposition processes.  Novellus is a supplier of high productivity
deposition and surface preparation systems used in the fabrication
of integrated circuits.  Chemical Vapor Deposition systems employ
a chemical plasma to deposit all of the dielectric (insulating)
layers and certain of the metal (conductive) layers on the surface
of a semiconductor wafer.  Physical Vapor Deposition systems are
used to deposit conductive metal layers by sputtering metallic
atoms from the surface of a target source via high DC power.
Electrofill systems are used for depositing copper conductive
layers in a dual damascene design architecture using an aqueous
solution.

NVLS - Novellus Systems  $38.55

PLAY (less conservative - bullish/debit spread):

BUY  CALL  OCT-32.50  NLQ-JZ  OI=448  ASK=$6.50
SELL CALL  OCT-35.00  NLQ-JG  OI=753  BID=$4.30
INITIAL NET-DEBIT TARGET=$2.10-$2.15
POTENTIAL PROFIT(max)=16% B/E=$34.65


*****
LMT - Lockheed Martin  $48.70  *** A Reader's Request! ***

Lockheed Martin (NYSE:LMT) is a customer-focused, global enterprise
primarily engaged in the research, design, development, manufacture
and integration of advanced technology systems, products and
services for government and commercial customers.  The company's
core business areas are systems integration, aeronautics, space and
technology services.  The company's Systems Integration segment is
engaged in the design, development, integration and production of
electronic systems for undersea, shipboard, land and airborne
applications.  Space Systems is engaged in the design, development,
engineering and production of commercial and military space systems.
Aeronautics designs, researches and develops, produces and supports
combat and air mobility aircraft, surveillance, reconnaissance,
platform systems integration and advanced development programs.
Technology Services provides information management, engineering,
scientific and logistic services.

LMT - Lockheed Martin  $48.70

PLAY (less conservative - bearish/debit spread):

BUY  PUT  OCT-55.00  LMT-VK  OI=122   ASK=$6.50
SELL PUT  OCT-50.00  LMT-VJ  OI=1492  BID=$2.00
INITIAL NET-DEBIT TARGET=$4.40-$4.45
POTENTIAL PROFIT(max)=12% B/E=$50.55


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

*****
XING - Qiao Xing Univ. Telephone  $9.13  *** Speculation Only! ***

Qiao Xing Universal Telephone (NASDAQ:XING) is one of the largest
telephone manufacturers in China.  The firm currently produces
over 200 models of corded and cordless telephones and distributes
such products through an extensive network of more than 3,500
retail stores throughout China.  In May 2002, Qiao Xing's 80%-owned
subsidiary Qiao Xing Mobile Communication acquired a 65% interest
in CEC Telecom, which was formally approved by all the necessary
government authorities in February, 2003.

XING - Qiao Xing Universal Telephone  $9.13

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  DEC-12.50  QAE-LV  OI=614  ASK=$0.90
SELL PUT   DEC-7.50   QAE-XU  OI=135  BID=$0.95
INITIAL NET-CREDIT TARGET=$0.10-$0.25
INITIAL TARGET PROFIT=$0.55-$0.80

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $300 per contract.  However, do not
open this position if you can not afford to purchase the stock at
the sold put strike price ($7.50).


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

*****
YHOO - Yahoo!  $37.24  *** Earnings Volatility? ***

Yahoo! (NASDAQ:YHOO) is a global Internet business and consumer
services company that offers a comprehensive branded network of
properties and services to more than 200 million individuals
worldwide.  The company offers an online navigational guide to the
Internet via its www.yahoo.com Website, which is a guide in terms
of traffic, advertising and household and business user reach.
Through Yahoo! Enterprise Solutions, the firm also provides many
business services designed to enhance the productivity and Web
presence of its clients.  Yahoo! has offices in the United States,
Europe, Asia, Latin America, Australia and Canada.  The company's
next quarterly earnings report is due on October 8, 2003

YHOO - Yahoo!  $37.24

PLAY (speculative - neutral/debit straddle):

BUY CALL  OCT-37.50  YHQ-JU  OI=5809  ASK=$1.75
BUY PUT   OCT-37.50  YHQ-VU  OI=837   ASK=$2.15
INITIAL NET-DEBIT TARGET=$3.70-$3.80
INITIAL TARGET PROFIT=$1.40-$1.90


*****




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

Another Bullish Week


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