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Daily Newsletter, Wednesday, 10/15/2003

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The Option Investor Newsletter                Wednesday 10-15-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Pulmonary Edema
Futures Wrap: DOH!
Index Trader Wrap: See Note
Traders Corner: Know Thy Budget Deficit


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     10-15-2003            High     Low     Volume Advance/Decline
DJIA     9803.05 -  9.93  9850.01  9764.46 1.81 bln   1094/1717
NASDAQ   1939.10 -  4.09  1966.87  1933.03 2.00 bln   1254/1803
S&P 100   522.14 -  1.16   525.90   520.16   Totals   2348/3520
S&P 500  1046.76 -  2.72  1053.79  1043.15
RUS 2000  527.35 -  4.49   534.25   526.48
DJ TRANS 2863.64 - 18.02  2891.43  2853.65
VIX        17.69 +  0.32    17.96    16.98
VXN        26.77 +  0.28    27.44    26.66
Total Volume 4,184M
Total UpVol  1,663M
Total DnVol  2,412M
52wk Highs     993
52wk Lows       14
TRIN          1.10
PUT/CALL      0.67
*******************************************************************

Pulmonary Edema
Jonathan Levinson

The markets found the air a little rare this morning, with the
Dow reaching a 16 month high at 9850, the Nasdaq a 21 month high
at 1954 and the S&P 500 a 16 month high at 1054 shortly after the
open.  The indices failed from there, closing the day slightly in
the red on larger than average volume at 1.47B NYSE shares and
2.04B Nasdaq shares.

1 year daily COMPX




The one year daily chart of the COMPX reveals a rising wedge off
the March lows, with the daily oscillators growing toppy but
still well within their upphases.  Today's opening high felt like
a weak blowoff top.  The end of a cycle phase often results in
one last burst in the cycle's direction before the reversal, a
last gasp of sorts.  The opening move might or might not have
been the terminal move on the 10 day stochastic.  It didn't feel
as cataclysmic as one might have expected, but in any event we
won't know until the oscillator turns, followed by the laggier
Macd for confirmation.

The bear wedge has plenty of support below, with a potential
target of 1260.

20 day 30 minute COMPX




The 30 minute chart of the COMPX shows this morning's spike high
and the failed breakout above what is another potential wedge.
As you can imagine, I'm beginning to see wedges everywhere, and
I'm not particularly confident in this one.  Nevertheless, 1940
was an important juncture, and it failed just after 2PM.  The
oscillators on this shorter timeframe are on sell signals, aiming
for 1925 support, followed by heavier support in the 1905 area.

1 year daily INDU




The INDU broke above its daily wedge resistance line, closing
just above 9803 despite a 1.50% loss from GE.  The strength in
the Dow compared with the weakness in GE over the past week has
been astounding, and today was another example of it.  That said,
the INDU has support at 9800, and bears should sleep with one eye
open until 9350 has been taken out.  Until then, it remains in a
confirmed uptrend, despite the bearish chart patterns and topping
oscillators.

20 day 30 minute INDU




The 30 minute INDU reveals far less technical damage than that on
the COMPX chart.   Lower trendline support held, and the
oscillator downphase is far less pronounced than on the COMPX.
That said, support is close below at 9775, and GE was tripping
over itself all through the session.  Tomorrow will be a critical
day, with further downside suggested by the ongoing-but-uncertain
30 minute oscillator downphase.

The closing bounce was not strong enough to turn the indices
positive, but it did improve breadth considerably.  The VXO, the
OEX volatility index, actually closed negative at 19.26.  In
addition to the toppy daily oscillators and potentially bearish
chart patterns above, the VIX has been in historically low
territory.  Rather than describe it, I've attached a chart of the
VIX with the corresponding SPX chart above it to provide a
clearer picture of the relationship between these two indices:

5 year monthly chart of the SPX and VIX





Before you run out and short everything with a symbol, recall
that the VIX symbol was reassigned this month, what was formerly
the VIX is now known as the VXO.  The VXO has not touched the 17
level this year, and has yet to dip below 19.  Nevertheless,
there remains clear evidence of a bear market in fear, with the
SPX at a lower high.

In economic news today, the Mortgage Bankers Association (MBA)
announced this morning that seasonally-adjusted demand for
mortgage refinancings, the MBA refi index, dropped 22.1% for the
past week, despite mortgage rates holding steady with a 0.2 bp
increase to 5.81% for a thirty fixed.  Demand for loans with
which to buy homes, the Purchase index, fell 18.6% to its lowest
level since the week ended April 25. The Application index
dropped 20.5% for the week.

The New York Fed released New York's Empire State Manufacturing
Index for October was released at 8:30AM, showing substantial
improvement over September's results. The Empire State Index rose
to a record 33.7 from 18.4 in September, blowing out forecasts
for a decline.  New orders rose from September's 13 to 34.8 in
October.  Shipments rose to 25.3 from 17.0.  Employment readings
were also stronger, with the number of employees up to its
highest reading in over one year at 10.78, compared with -.92 in
September.  The Index also reflected increased optimism going
forward, rising to 66.72 from 58.79.   The release of this report
caused the euphoric bull frenzy / terrified bear panic, along
with an initial selloff treasuries.

Also released at 8:30 was the Commerce Department's September
Retail Sales report.   U.S. seasonally adjusted retail sales fell
0.2 percent in September, the first decrease since April.  Auto
sales posted their biggest decline since February, falling 1.6
percent.  Retail sales ex autos rose 0.3 percent, the lowest
reading since May 2003.  Notwithstanding the weak retail sales
numbers, the August retail sales figure was revised upward to a
1.2 percent rise from the 0.6 percent originally reported. It
appear that this revision dominated traders' attention, at least
until the 9:30 bell.

Wednesday is the day we usually receive the weekly inventory
reports for oil products from the Energy Department and the
American Petroleum Institute, but these releases were delayed
until tomorrow because of Columbus Day.  Analysts expect
inventories for crude to increase by 1.6M barrels, gasoline to
decline by 1.1M barrels, and distillate to decline by 1M barrels.

Marketwatch reported that Treasury Secretary John Snow told
interviewers that California Governor-elect Arnold Schwarzenegger
should not expect Federal assistance in addressing the state's
budget crisis.  Schwarzenegger  is slated to speak with the
President tomorrow. "I'm sure we'll listen to him, but you know
California's problems are basically California's own problems. I
think California is going to have to solve its own problems
rather than turn to the Treasury of the United States."
California constitutes the world's fifth largest economy.

In that same interview, Mr. Snow predicted growth in GDP for Q3
of "4% plus", and for Q4 "around 4%".

The Fed Beige Book was released at 2PM, with the Fed reporting
economic expansion in 10 out of 12 economic districts.  Boston
and Cleveland reported "mixed but steady levels of economic
activity. "  In the Fed's inimitable words, "Overall, both wages
and prices of finished goods and services remained relatively
stable, though there were scattered reports of business input
cost pressures."  Sounds like cost-push inflation to me.

The report indicated strength in consumer spending but weakness
in auto sales, this latter confirmed by the various earnings
reports and the retail sales report released today.  The report
noted that labor markets "remain generally slack", but noted some
signs of pickup in select districts.  Overall, the markets
greeted the report with a yawn, and the afternoon selloff
commenced a few minutes thereafter.

GM reported 3Q income of $425 million or 79 cents per share on
$44B in sales. This compares with a net loss of $804 million or
$1.42 per share for Q3 2002.  CEO Rick Wagoner made upbeat
comments, citing the "accelerating" US economy and "enthusiastic
response to GM's new products", although one might wonder whether
he was referring to its automotive or financial products.  It was
widely reported that GMAC's operations carried GM through this
earnings report.

SNDK reported Q3 revenues higher by 99% at $281.4 million and net
income of $50.6 million, up from $11.3 million in Q3 2002.   The
company raised its 2003 revenue forecast from a projected $950
million  to "exceed $1 billion."  Earnings were 60 cents per
share, blowing out expectations of 15 cents.  GENZ beat estimates
by 3 cents on revenue of $437 million, stating that it expects to
beat full-year earnings and revenue guidance as well.  SEBL met
expectations with a net loss of 12 cents per share, or 3 cents
excluding charges.

After the bell, AAPL announced ESP of 12 cents, beating estimates
of .07.  QLGC matched estimates of .35, as did IBM at 1.02 per
share.  NFLX came in at 19 cents vs. estimates of .10.  IBM got
hammered for more than 2% following the release of its report
after the bell, despite its stating that it intends to hire
10,000 next year.  Revenue was 350M below the consensus estimate
of $21.85B.  As of this writing, the conference call was ongoing,
with no guidance given as of yet.

We have the following economic data due tomorrow:


               Report                   Briefing  Market    Prior
                                        Expects   Expects
Oct 16 8:30 AM Business Inventories Aug - 0.0%    -0.1%     -0.1%
Oct 16 8:30 AM Core CPI Sep -             0.1%     0.1%      0.1%
Oct 16 8:30 AM CPI Sep -                  0.2%     0.2%      0.3%
Oct 16 8:30 AM Initial Claims 10/11 -     390K     385K      382K
Oct 16 9:15 AM Capacity Utilization Sep - 74.8%   74.8%     74.6%
Oct 16 9:15 AM Industrial Production Sep - 0.4%    0.4%      0.1%
Oct 16 12:00 PM Philadelphia Fed Oct -     17.0    15.6      14.6

While the indices remain in an uptrend, the bulls had a clear
shot at a breakaway gap.  That failure encouraged bears, but the
indices remain far from a breakdown.  With opex Friday
approaching, there's the chance that prices will begin to
gravitate toward the nearest strike prices and hold there.
Caution is urged in both directions as the markets reach ever
closer toward the apex of their respective wedges.  If a break
doesn't come this week, I expect Monday of next week to be very
exciting indeed.


************
FUTURES WRAP
************

DOH!
Jonathan Levinson

That appears to have been the prevailing reaction amongst bulls
and bears who were tricked in buying overnight and on the opening
the opening spike.  Fresh 52 week highs were reversed for a
negative close on the equity futures, with bonds finding moderate
selling and gold pulling back.


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



Note regarding pivot matrix:  The support, pivot and resistance
levels above are derived from the high, low and closing price
levels by a simple mathematical formula.  They are not intended
to be predictive of market turning points or to serve as targets,
but rather represent the range retracement levels as generated by
the pivot algorithm.  Do not think of them as market "calls"
or predictions.  Like any technically-derived indicator or price
level, the pivot matrix values should be regarded as decision
points at which to evaluate current market conditions.  Visit us
in the Futures Monitor for our realtime views of the various
markets covered here.

15 minute chart of the US Dollar Index





Jubilance ruled the market as the Empire State Index was
released, setting a new bullish record.  The less-than-stellar
retail sales report was ignored, with emphasis placed instead on
August's upward revision. The US Dollar Index reacted by jumping,
but failed at a lower high and printing a failed spike, aka
"finger" formation, somewhat resembling the profile of the Empire
State Building in this instance.  Notwithstanding the pullback,
the climb continued until 2PM, at which time the Fed's Beige Book
was released.  The summary of the report did not appear bearish
to me, but after some initial waffling, equities and the dollar
sold off.  Gold declined, while the CRB index moved sideways
closing lower by .13.


Daily chart of December gold




December gold opened weak and remained weak throughout the
session, printing a session low at 372.20.  The oscillator
uncertainty caused by this sideways movement off the lows leaves
the gold contract in limbo, partway through a downphase, between
Fibonacci support at 368 and 380.  Trading ranges are not for the
faint of heart and, absent a strong directional bias particular
individual traders, this is a tricky level at which to enter gold
in either direction.


Daily chart of the ten year note yield





The TNX gapped up again, starting with the Empire State - Retail
Sales extravaganza at 8:30 EST.  The selloff in bonds was not
nearly what the initial reaction seemed to portend, and the TNX
closed up just 4.7 bps at 4.397%.  As can be seen on the daily
chart, the 10 day stochastic is entering overbought territory,
and the price pane shows the TNX up against its upper Bollinger
band.  While the uptrend in the yield is still very solid, the
hesitation today could be hinting at at least a pause in the
steep climb.


Daily NQ candles




It's rare that a daily candle expresses the intraday drama, but
today's NQ print captures it pretty well.  The sharp doji spike
was the overnight gains going briefly vertical on the 8:30AM
reports, which managed to hold until just after the cash open.
From then until 10:15, the NQ sold off, bouncing in a slow bear
flag until it falling apart just after 2PM.  A bounce began at
3PM, returning the NQ to a small loss.

As noted yesterday, the daily chart oscillators appear to be the
dominant upphase powering this leg of the rally, fighting the
ongoing weekly oscillator weakness and causing the 30 minute
chart oscillators to trend.  Today's selling broke the trend of
higher lows on the 30 minute oscillators (see below), and robbed
the daily oscillators of some of their vigor.  The upphase on the
daily oscillator is not over, but it showed hesitation today.
30 minute 20 day chart of the NQ.


20 day 30 minute chart of the NQ




The pent-up selling pressure on the 30 minute charts got some
relief today, with the spike to new 52 week highs at the open not
only corrected, but followed through with a trendline break below
the rising support line from last week.  It's too early to be
certain, but the end-of-session bounce appears to have been no
more than a return-to-the-scene-of-the-crime, with 1424 looming
as critical resistance for the bears to defend.  Nevertheless,
that uptick into the close was enough to print a hiccup in the
downphase on the 300 minute stochastic.  Tomorrow is a key day,
and if the bulls can't undo the trendline break and get some
traction out of the stochastic upphase due slightly after the
open, then bears might have a chance.  1410 was the session low
and is the beginning of important support down to the 1400 level.

Daily ES candles




We have the same doji drama on the ES daily chart, with the
hesitation on the stochastic upphase no less pronounced than on
the NQ.   Volume was heavier today, with the Nasdaq trading 2.03B
shares and the NYSE 1.47B, as today had something to entice both
bulls and bears in either direction.  The spike above the rising
bear wedge resistance line was quickly rejected, but so was a
test of the lower rising support line.  As the ES continues to
grind ever tighter into the narrowing apex of this formation, the
big break is expected anytime, as we saw today.  As Bulkowski
notes, the bear wedge tends to break to the downside
approximately three quarters of the time.  As noted yesterday,
this is cold comfort for bears.  For now, the range is 1044 to
1050.

20 day 30 minute chart of the ES




The break below the rising support line on the 30 minute ES chart
was less pronounced than that on the NQ.  It would be premature
to say that the rising trend has broken, but with the daily
oscillators approaching the upper end of their ranges and today's
opening spike looking like a possible blowoff, there are good
arguments on both sides of the trade.  This means that traders in
either direction need to be careful.  A decisive break below
1044, followed by 1039 support could cause an avalanche, but as
we saw today, bears are antsy and ready to cover in a flash.


150-tick chart of the ES




The short cycle upphase on the intraday 150-tick ES is not quite
over, with at least one wavelet bounce due before it completes.
Whether the 30 minute oscillator upphase that follows can build
sufficient momentum to take out 1047 resistance is the key
question for tomorrow morning.  However, with weakness afterhours
as I type, the bulls will have their work cut out for them.


Daily YM candles




Same story on the YM.

20 day 30 minute chart of the YM




For tomorrow, we have treasuries extending their selloff, gold
drifting sideways, and equities holding just below a new high
printed today.  The uptrend is still intact, but today's
inability to sustain breakout levels despite overwhelming bullish
sentiment gives us cause to expect further weakness to come.  The
daily oscillator upphase remains the key cycle to watch for the
near term, and once it's pointed south instead of north, I expect
sellers to have the wind at their backs for a change.  See you at
the bell!


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

Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_101503_1.asp


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

Know Thy Budget Deficit

Not all budget deficits are created equal and knowing the kind
the government is dealing with and how is it financed can give
you a clearer picture of the market.





Since 1965, the Federal deficit grew until it hit its record
levels of almost 300 billion in 1992, then came the roaring 20's,
the year 2000 that is, and the infamous stock market bubble
turned the red ink black. Government pundits puffed up their
chest and told anyone who would listen, "look at me aren't I
wonderful, I have done turned record level deficits into a budget
surplus." With the stock market at those levels, I think my 4-
year-old grandson could have turned the deficit to a surplus.

But, unfortunately the black ink turned red again and in three
short years the budget deficit is back at record levels.

But how did we have had one of the longest and deepest bull
markets in the history of the market from 1982 to 2000 and yet
the deficit continued to grow. That is because not all deficits
are bearish.

In order to understand the effect a deficit has on the market we
need to look at the two kinds of deficit, structural and
cyclical. And then you will need to understand the implications
of the three ways the U.S. finances the deficit.

Structural versus Cyclical

A structural deficit is the part of the deficit that exists even
if the economy is at full employment, caused by the existing tax
and spending structure. A structural deficit is determined by
fiscal policy; President Bush's tax cuts or Congress' defense
spending are two examples.

A cyclical deficit is the part of the deficit that exists because
of recession and the revenue shortfalls due to recession.
Shortfalls that come from automatic stabilizers like increased
unemployment benefits or increased welfare payments.

If the government were to use a fiscal expansionary policy - tax
cuts or increased government spending - in the presence of a
structural deficit it would cause inflation. Remember from my
article on Inflation Indicators
http://www.OptionInvestor.com/traderscorner/tc_091603_1.asp a
fiscal policy to stimulate the economy in recessionary times means
more government spending or tax cuts. So in a recession the Fed is
in a real pickle, it needs to implement an expansionary policy to
stimulate the economy out of the recession but if the deficit is
structural, caused by the existing tax and spending structure, it
will only make matters worst.

In contrast, if the deficit were cyclical the economy could
simply grow out of it by reaching fuller employment and
expansionary policies may be quite appropriate. Moreover a
failure to use a stimulus policy would prolong a recession.

So as you can see, in a recession it really matters as what kind
of deficit the country is facing for dealing with it incorrectly
can be political suicide, as the Republican Party can attest to.

In the early 1990s, President Bush Senior mistook the cyclical
deficit (I'm sure on the Fed's advice) for a structural deficit
and didn't provide the fiscal stimulus the economy needed. We all
know what happened to him at the next election.

Financing the deficit

Financing the deficit seems to be a no win game. The government
can do what most politicians find loathsome and raise taxes but
since most want to be elected the next term this is usually the
last resort.

So what is left is to sell treasuries or print money. But here
the government can get into trouble also. Selling treasuries
(Bonds, notes, bills) puts the U.S. Treasury in direct
competition with the private sector. The private sector, which is
looking to sell bonds/stocks to raise money used to invest in
capital equipment used to ramp up production used to hire more
people to put stimulus into the economy. This is called "crowding
out" and both the bond market and the stock market hate crowding
out.

You can probably see the tickle down effect that selling
treasuries can cause, right down to the shrinking of a companies
earnings, which is never good for the stock market.

So what about printing money? This would not put the U.S Treasury
in direct competition with the private sector because the Fed
buys the treasuries and pays the Treasury by simply "printing
Money" in the form of expanding reserves in the banking system.
Once again there is a problem here too. An increased money supply
can cause inflation and weaken the dollar and interest rates
start to rise which makes money harder to borrow for capital
equipment used to ramp up production used to hire more people and
put stimulus in the economy.

US Treasury Report

The U.S. Treasury releases the budget report around the 3rd week
of the month, the next one is out on Friday October 17th. The
three largest expenses are: defense, social security and interest
payments on the current debt. The largest item in the revenue
column is personal income taxes, which accounts for almost 45% of
all revenue. But since government spending is so seasonal, a
month to month look at this report tells us little. You will need
to look at the numbers from the same month in the prior year to
get a feel for how well our government is doing in handling the
budget. Compare the size of the deficit to the same month a year
ago, is it going up or down. unfortunately, I'm sure you will see
the deficit only growing in the years to come from the
implications for defense and increased Homeland Security in the
wake of September 11th terrorist attacks.

Jane Fox


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The Option Investor Newsletter                Wednesday 10-15-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: None
Dropped Calls: None
Dropped Puts: CCMP
Play of the Day: Put - MRK
Spreads, Combinations & Premium-Selling Plays: A Necessary
     Consolidation!
Watch List: Look Like Shorts

Updated on the site tonight: Look Like Shorts
Market Posture: Overdue Profit Taking



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*****************
STOP-LOSS UPDATES
*****************

None


*************
DROPPED CALLS
*************

None


************
DROPPED PUTS
************

Cabot Microelect. - CCMP - close: 61.61 change: +1.56 stop: 61.50

Just as we feared, the strong earnings news from Intel pushed
shares of CCMP higher and the stock traded up and through both its
30-dma and 50-dma.  This closes the play at our stop of 61.50
although the rollover from today's highs almost looks tempting for
another short.  Volume was significantly above the average so there
might be some follow through on the gains today.  Look for CCMP to
announce earnings next Thursday.

Picked on October 12th at   $58.54
Change since picked:         +3.07
Earnings Date             10/23/03 (unconfirmed)
Average Daily Volume =       723 K
Chart =



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*********************
PLAY OF THE DAY - PUT
*********************

Merck & Co - MRK - close: 48.89 chg: -0.81 stop: 51.50

-Company Description-
Merck & Co., Inc. is a global research-driven pharmaceutical
products and services company. Merck discovers, develops,
manufactures and markets a broad range of innovative products to
improve human and animal health, directly and through its joint
ventures. (source: company press release)

- Most Recent Update (Tuesday, Oct 14, 2003)-
It's a tough gig to be bearish when the markets are etching new
yearly highs on a daily basis.  Fortunately, MRK appears to be
ignoring the market strength and some of the drug-related
headlines.  Investors had to absorb two major earnings
announcements for the drug sector today.  Dow component JNJ
announced Q3 profits that rose 20 percent to $2.1 billion, which
beat estimates by a penny.  More importantly, they guided higher
for their full year numbers by 2 cents.  Meanwhile, Forest Labs
(FRX) also reported strong profit numbers with a 29% jump for
their Q3 results but shares only added 53 cents after they guided
lower for their full year performance.  Shares of MRK continue to
languish below the $50 mark and as long as they stay there we
should be okay.

- Play of the Day Comments -
The market's back step lower today did not see any money rotate
back into beaten down drug stocks and that's just fine with us.
Actually, shares of MRK produced its second failed rally at the
$50 mark in the last three days.  The stock looks ready to start
its next leg lower so we're making it our play of the day for
Thursday.  More conservative traders can probably use a tighter
stop than our 51.50.

- Suggested Options -
Short-term traders can choose November strikes.  Longer-term
traders can look to the January's.

! Alert: October Options Expire on Friday the 17th!

BUY PUT NOV 50.00 MRK-WJ OI= 8221 at $2.15 SL=1.05
BUY PUT NOV 47.50 MRK-WW OI= 7326 at $0.90 SL=0.50
BUY PUT NOV 45.00 MRK-WI OI= 2278 at $0.35 SL= --

Annotated Chart of MRK:





Picked on October 6 at $49.90
Change since picked:   - 1.01
Earnings Date        10/22/03 (confirmed)
Average Daily Volume:    6.2 million
Chart =



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


*********************************************
SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS
*********************************************

A Necessary Consolidation!
By Ray Cummins

Stocks drifted lower Wednesday despite another round of favorable
economic data and bullish earnings reports.

The Dow Jones Industrial Average fell 9 points to 9,803 while the
NASDAQ Composite Index dipped 4 points to 1,939 amid profit-taking
in the major market sectors.  The S&P 500 index finished 2 points
lower at 1,046 on weakness in homebuilding, utilities, oil & gas
services, finance, restaurants, gold, and health care facilities.
Trading was active with about 1.5 billion shares changing hands on
the New York Stock Exchange and almost 2 billion shares swapped on
the NASDAQ.  Decliners outpaced advancers by a ratio of 5 to 3 on
the Big Board and by roughly 3 to 2 on the hi-tech exchange.  Bonds
lost ground, pushing benchmark yields to early-September highs on
strong retail sales and manufacturing data.  The benchmark 10-year
note was down 17/32, yielding 4.41%.

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

SUMMARY OF CURRENT POSITIONS - AS OF 10/14/03

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

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.


MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE

The Maximum Yield (listed in the summary and with "naked" option
selling plays) 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 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 trade.


Naked Puts
**********

Stock   Strike Strike Cost  Current   Gain    Max    Simple
Symbol  Month  Price  Basis  Price   (Loss)  Yield   Yield

CELL     OCT    25    24.40  40.55   $0.60   8.23%   2.46%
CEPH     OCT    40    39.15  47.35   $0.85   6.73%   2.17%
CVTX     OCT    20    19.70  21.03   $0.30   4.92%   1.52%
DIGE     OCT    35    34.60  42.88   $0.40   4.06%   1.16%
LLTC     OCT    35    34.30  42.00   $0.70   5.35%   2.04%
NFLX     OCT    27    27.15  47.22   $0.35   4.44%   1.29%
RIMM     OCT    27    26.90  43.55   $0.60   6.95%   2.23%
AMHC     OCT    35    34.50  44.45   $0.50   6.10%   1.45%
ELAB     OCT    35    34.50  39.27   $0.50   5.51%   1.45%
FLML     OCT    30    29.60  34.75   $0.40   5.85%   1.35%
MATK     OCT    50    49.30  51.92   $0.70   5.03%   1.42%
NFLX     OCT    32    31.90  47.22   $0.60   7.09%   1.88%
RIMM     OCT    27    27.20  43.55   $0.30   5.00%   1.10%
RIMM     OCT    30    29.35  43.55   $0.65   8.18%   2.21%
VIP      OCT    55    54.40  69.10   $0.60   3.99%   1.10%
AMHC     OCT    35    34.75  44.45   $0.25   4.49%   0.72%
ERES     OCT    30    29.70  41.72   $0.30   5.35%   1.01%
HELE     OCT    22    22.00  23.21   $0.50  10.65%   2.27%
JCOM     OCT    32    32.15  44.96   $0.35   6.05%   1.09%
MSTR     OCT    40    39.40  51.78   $0.60   7.80%   1.52%
NFLX     OCT    27    27.15  47.22   $0.35   8.16%   1.29%
RIMM     OCT    32    32.25  43.55   $0.25   4.26%   0.78%
USG      OCT    15    14.75  16.37   $0.25   9.14%   1.69%
YHOO     OCT    32    32.15  42.30   $0.35   5.37%   1.09%
AMHC     OCT    35    34.70  44.45   $0.30   9.31%   0.86%
AMZN     OCT    50    49.70  59.91   $0.30   5.41%   0.60%
BRCM     OCT    27    27.25  32.00   $0.25   7.92%   0.92%
EBAY     OCT    55    54.60  58.53   $0.40   5.99%   0.73%
NFLX     OCT    37    37.15  47.22   $0.35   8.83%   0.94%
RMBS     OCT    22    22.20  27.05   $0.30  13.54%   1.35%
NCEN     OCT    27    25.98  33.40   $0.65   5.23%   2.50%
DRIV     NOV    25    24.50  33.03   $0.50   4.78%   2.04%
ERES     NOV    32    31.50  41.72   $1.00   6.89%   3.17%
NTAP     NOV    20    19.50  26.13   $0.50   5.70%   2.56%

As noted previously, a number of issues were candidates for
early exit during the recent sell-off.  Among the positions
closed were: American Pharmaceutical Partners (NASDAQ:APPX),
Hollis Eden Pharmaceuticals (NASDAQ:HEPH), Verint Systems
(NASDAQ:VRNT), and United Online (NASDAQ:UNTD).


Naked Calls
***********

Stock  Strike Strike Cost  Current   Gain    Max     Simple
Symbol Month  Price  Basis  Price   (Loss)  Yield    Yield

APC      OCT    45   45.34  42.45   $0.45   3.14%    0.99%
TRMS     OCT    40   40.40  27.38   $0.40   5.74%    0.99%
IMCL     OCT    50   50.45  37.26   $0.45   6.53%    0.89%
PCLN     OCT    35   35.50  33.59   $0.50   8.64%    1.41%
ZRAN     OCT    25   25.35  18.87   $0.35   9.44%    1.38%
CVTX     OCT    27   27.70  21.03   $0.20   7.35%    0.72%
IMCL     OCT    45   45.45  37.26   $0.45   8.97%    0.99%
SINA     OCT    45   45.40  41.91   $0.40   9.07%    0.88%
GPRO     OCT    27   27.75  25.09   $0.25  13.98%    0.90%
IMDC     OCT    80   80.50  68.74   $0.50   7.71%    0.62%
UNTD     OCT    35   35.35  25.44   $0.35  14.16%    0.99%

As noted previously, Broadcom (NASDAQ:BRCM) has rallied with
the semiconductor group and the position was closed early to
limit potential losses.


Put-Credit Spreads
******************

Symbol  Pick   Last   Month L/P S/P Credit  C/B    G/L   Status

ANF     30.49  31.09   OCT  25  28   0.30  27.20  $0.30   Open
CFC     75.19  97.18   OCT  65  70   0.50  69.50  $0.50   Open
MO      44.65  45.00   OCT  40  43   0.30  42.20  $0.30   Open
OHP     38.60  43.28   OCT  33  35   0.25  34.75  $0.25   Open
AMZN    49.61  59.91   OCT  43  45   0.35  44.65  $0.35   Open
AZO     94.51  94.42   OCT  85  90   0.65  89.35  $0.65   Open
NE      33.98  33.85   OCT  30  33   0.25  32.25  $0.25   Open
HOV     69.16  79.45   OCT  60  65   0.55  64.45  $0.55   Open
KBH     64.20  68.00   OCT  60  55   0.45  54.55  $0.45   Open
RJR     40.32  42.66   OCT  35  38   0.10  37.40  $0.10  No Play
CUM     50.77  51.35   NOV  43  45   0.30  44.70  $0.30   Open
JCOM    46.70  44.96   NOV  30  35   0.50  34.50  $0.50   Open
NTES    67.85  68.20   OCT  55  60   0.35  59.65  $0.35   Open

There was no viable credit available for the bullish position in
R.J. Reynolds (NYSE:RJR).


Call-Credit Spreads
*******************

Symbol  Pick   Last   Month L/C S/C Credit  C/B    G/L   Status

FRX     49.56  47.81   OCT  60  55   0.60  55.60  $0.60   Open
KO      43.01  44.55   OCT  47  45   0.30  45.30  $0.30   Open
MEDI    37.03  31.95   OCT  42  40   0.25  40.25  $0.25   Open
LXK     65.14  68.90   OCT  75  70   0.55  70.55  $0.55   Open
NOC     86.00  86.14   OCT  95  90   0.50  90.50  $0.50   Open
WTW     43.15  39.08   OCT  50  45   0.40  45.40  $0.40   Open
DNA     79.72  82.00   OCT  90  85   0.50  85.50  $0.50   Open
SNPS    30.71  28.56   OCT  35  32   0.15  32.65  $0.15  No Play
XLNX    27.99  30.21   OCT  32  30   0.25  30.25  $0.04   Open *
MEDI    33.09  31.95   NOV  40  37   0.30  37.80  $0.30   Open
WLP     78.72  80.38   NOV  90  85   0.60  85.60  $0.60   Open

There was no viable credit available for the bearish position in
Synopsys (NASDAQ:SNPS).  Xylinx (NASDAQ:XLNX) has rallied with
the semiconductor group and conservative traders should consider
closing the bearish position to limit potential losses.


Synthetic Positions
*******************

No Open Positions


Debit Straddles
***************

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

ABC     60.00  57.16   NOV    60    60    7.25    8.00     Open?

Amerisourcebergen (NYSE:ABC) achieved profitability soon after it
was offered and the bearish portion (NOV-$60 Put) has previously
paid for the entire cost of the straddle.  Traders should consider
"legging-out" of the straddle to lock-in gains or preserve capital.

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 new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.  The positions with "*" will be
included in the weekly summary.  Those with "TS" (Target-Shoot)
are below our minimum monthly return, but may offer a favorable
entry price with a limit order, due to the daily volatility of
the underlying issue.

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

BULLISH PLAYS - NAKED PUTS

All of these issues have robust option premiums and relatively
favorable technical indications.  However, current news and market
sentiment will have an effect on these stocks, so review each play
thoroughly and make your own decision about its future outcome.

WARNING: THE RISK IN SELLING UNCOVERED 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.

**************
BRCM - Broadcom  $32.45  *** New 52-Week High! ***

Broadcom (NASDAQ:BRCM) is a leading provider of highly integrated
silicon solutions that enable broadband communications and the
networking of voice, video and data services.  Using proprietary
technologies and advanced design methodologies, Broadcom designs,
develops and supplies complete system-on-a-chip solutions and
related hardware and software applications for all broadband
communications markets.  Their diverse product portfolio includes
solutions for digital cable and satellite set-top boxes; cable
and DSL modems and residential gateways; high-speed transmission
and switching for local, metropolitan, wide area and storage
networking; home and wireless networking; cellular and terrestrial
wireless communications; Voice over Internet Protocol (VoIP)
gateway and telephony systems; broadband network processors; and
SystemI/O(TM) server solutions.

BRCM - Broadcom  $32.45

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  NOV 27.5  RCQ WY    2085   0.50  27.00   4.7%   1.9% *
SELL PUT  NOV 30    RCQ WF    2014   1.10  28.90   7.6%   3.8%


**************
CYD - China Yuchai  $22.90  *** Rally Mode! ***

China Yuchai International (NYSE:CYD) is a medium-duty diesel engine
manufacturer in China that also produces diesel power generators and
diesel engine parts.  The company owns a controlling interest in
Guangxi Yuchai Machinery and owns, through six subsidiaries, 76.4%
of the outstanding common shares of Yuchai.  Yuchai primarily makes
and sells diesel engines for medium-duty trucks in China.  Yuchai's
primary products are its 6105QC and 6108 medium-duty engines, which
are principally used in medium-duty trucks with a load capacity of
five to seven tons.  In addition, Yuchai also offers the 4-Series
light-duty engines and the 6112 heavy-duty engines.  Besides diesel
engines, Yuchai produces a limited number of diesel power generators
and diesel engine parts.

CYD - China Yuchai  $22.90  *** Rally Mode! ***

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  NOV 17.5  CYD WW    141    0.30  17.20   4.9%   1.7% *
SELL PUT  NOV 20    CYD WD    198    0.80  19.20   9.0%   4.2%


**************
ERES - eResearch Technology  $42.43  *** Another New High! ***

eResearch Technology (NASDAQ:ERES) is a provider of technology and
services that enable the pharmaceutical, biotechnology and medical
device industries to collect, interpret and distribute cardiac
safety and clinical data more efficiently.  The company offers a
range of products and services, including Diagnostics Technology
and Services and Clinical Research Technology.  Their Diagnostics
Technology and Services include centralized diagnostic services
and clinical research operations, including clinical trial and
data management services.  Their Clinical Research Technology and
Services include the developing, marketing and support of clinical
research technology and services.

ERES - eResearch Technology  $42.42

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  NOV 32.5  UDB WZ    105    0.40  32.10   3.6%   1.2% TS
SELL PUT  NOV 35    UDB WG    169    0.80  34.20   6.2%   2.3% *


**************
GENZ - Genzyme General  $51.58  *** Favorable Outlook! ***

Genzyme General Division (NASDAQ:GENZ) is a division of Genzyme
Corporation, a biotechnology and human healthcare company that
develops products and provides services for unmet medical needs.
Genzyme General develops and markets therapeutic products and
diagnostic products and services with an emphasis on genetic
disorders and other chronic debilitating diseases with defined
patient populations.  The company is organized into two segments,
Therapeutics, which focuses on developing and marketing products
for genetic diseases and other chronic debilitating diseases,
including a family of diseases known as lysosomal storage
disorders, and specialty therapeutics, and Diagnostic Products,
which develops, markets and distributes in vitro diagnostic
products.  The company also operates a wholly owned subsidiary,
GelTex Pharmaceuticals.

GENZ - Genzyme General  $51.58

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  NOV 45    GZQ WI    1558   0.45  44.55   2.5%   1.0% TS
SELL PUT  NOV 47.5  GZQ WS     320   0.95  46.55   4.3%   2.0% *
SELL PUT  NOV 50    GZQ WJ      81   1.65  48.35   6.4%   3.4%


**************
LRCX - Lam Research  $27.64  *** Chip-Equipment Sector ***

Lam Research Corporation (NASDAQ:LRCX) designs, manufactures,
markets and services semiconductor processing equipment used in
the fabrication of integrated circuits.  The company's products
are currently used in the front-end of the wafer processing
manufacturing cycle: etch, CMP, and post-CMP clean.  Lam's unique
family of etch systems incorporates plasma technologies designed
to meet both current and future needs.  The company offers both
200-milimeter and 300-milimeter Teres CMP integrated polishing
and cleaning systems with Linear Planarization Technology (LPT),
which uses a high-speed belt instead of the rotating table used
in conventional polishers.  The company also provides the Synergy
Integra, which incorporates advanced cleaning technology with a
platform that integrates polisher and cleaner.

LRCX - Lam Research  $27.64

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  NOV 22.5  LMQ WX    147    0.30  22.20   3.9%   1.4% *
SELL PUT  NOV 25    LMQ WE    199    0.75  24.25   6.5%   3.1%


**************
NVLS - Novellus Systems  $38.54  *** In A Comfort Zone! ***

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  $38.54

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  NOV 32.5  NLQ WZ    2012   0.40  32.10   3.3%   1.2% TS
SELL PUT  NOV 35    NLQ WG    1631   0.85  34.15   5.3%   2.5% *
SELL PUT  NOV 37.5  NLQ WU     507   1.65  35.85   8.2%   4.6%


**************
RMBS - Rambus  $26.79  *** Infineon Who? ***

Rambus (NASDAQ:RMBS) designs, develops and markets "chip-to-chip"
interface solutions that enhance the performance and effectiveness
of its client's chip and system products.  These solutions include
multiple chip-to-chip interface products, which can be grouped into
two categories: memory interfaces and logic interfaces.  Rambus'
memory interface products provide an interface between memory chips
and logic chips.  In addition, the firm's logic interface products
provide an interface between two logic chips.  Rambus has two major
memory interface products: Rambus dynamic random access memory and
Yellowstone.  Additionally, it offers a logic interface product for
high-speed serial chip-to-chip communications between logic chips
in a range of computing, networking and communications applications.

RMBS - Rambus  $26.79

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  NOV 20    BNQ WD    1657   0.45  19.55   6.2%   2.3% *
SELL PUT  NOV 22.5  BNQ WX    1837   1.00  21.50  10.8%   4.7%


**************
TXN - Texas Instruments  $25.55  *** Testing Yearly Highs! ***

Texas Instruments (NYSE:TXN) provides innovative DSP and analog
technologies to meet their customers' real world signal processing
requirements.  In addition to Semiconductor, the firm's businesses
include Sensors & Controls and Educational & Productivity Solutions.
TI is headquartered in Dallas, Texas, and has manufacturing, design
or sales operations in more than 25 countries.

TXN - Texas Instruments  $25.55

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  NOV 22.5  TXN WT    9055   0.40  22.10   4.2%   1.8% *
SELL PUT  NOV 25    TXN WE    3913   1.15  23.85   8.5%   4.8%


**************
VECO - Veeco Instruments  $25.09  *** On The Move! ***

Veeco Instruments (NASDAQ:VECO) provides solutions for nanoscale
applications in the worldwide semiconductor, data storage,
telecommunications/wireless and scientific research markets.  Their
Metrology products are used to measure at the nanoscale and their
Process Equipment tools help create nanoscale devices.  Veeco's
manufacturing and engineering facilities are located in New York,
California, Colorado, Arizona and Minnesota.  Global sales and
service offices are located throughout the United States, Europe,
Japan and Asia Pacific.

VECO - Veeco Instruments  $25.09

PLAY (sell naked put):

Action    Month &   Option    Open   Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL PUT  NOV 22.5  QVC WX      0    0.50  22.00   5.0%   2.3% *
SELL PUT  NOV 25    QVC WE      0    1.40  23.60   9.9%   5.9%


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

BULLISH PLAYS - CREDIT SPREADS

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may also be higher than other plays in the same strategy, due to
small disparities in option pricing however, each play should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.

***************
CYMI - Cymer  $45.27  *** Chip-Equipment Leader! ***

Cymer (NASADQ:CYMI) is a supplier of excimer light sources, the
essential light source for deep ultraviolet photolithography
systems. DUV lithography is a key technology that has allowed
the semiconductor industry to meet the exact specifications and
manufacturing requirements for volume production of advanced
semiconductor chips. The firm's light sources are incorporated
into step-and-repeat (steppers) and step-and-scan (scanners)
photolithography systems for use in the manufacture of various
semiconductors with critical feature sizes below 0.35 microns.
Cymer's products consist of photolithography light sources,
replacement parts and service. The firm maintains a worldwide
service organization that supports its installed base of light
sources.

CYMI - Cymer  $45.27

PLAY (less conservative - bullish/credit spread):

BUY  PUT  NOV-35.00  CQG-WG  OI=965  ASK=$0.50
SELL PUT  NOV-40.00  CQG-WH  OI=662  BID=$1.10
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$39.40


**************
ERTS - Electronic Arts  $103.58  *** Touching The Sky! ***

Electronic Arts (NASDAQ:ERTS), headquartered in Redwood City,
California, is the world's leading interactive entertainment
software company.  The firm develops, publishes and distributes
software worldwide for the Internet, personal computers and
video game systems.  Electronic Arts markets its products under
four brand names: EA SPORTS, EA GAMES, EA SPORTS BIG and EA.COM.

ERTS - Electronic Arts  $103.58

PLAY (less conservative - bullish/credit spread):

BUY  PUT  NOV-90.00  EZQ-WR  OI=1826  ASK=$0.70
SELL PUT  NOV-95.00  EZQ-WS  OI=1055  BID=$1.20
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$94.45


**************
SYK - Stryker  $78.92  *** Next Leg Up? ***

Stryker (NYSE:SYK) develops, manufactures and markets specialty
surgical and medical products.  The company's products include
orthopedic reconstructive (hip, knee and shoulder) implants,
trauma systems used in bone repair, spinal implants, bone cement,
the bone growth factor osteogenic protein-1, powered surgical
instruments, endoscopic systems, hospital beds and stretchers,
craniomaxillofacial implants and image-guided surgical systems
for the global market.  The company also provides outpatient
physical and occupational rehabilitative services in the United
States.  In the United States, most of the firm's products are
marketed directly to hospitals, doctors, and other healthcare
facilities.  The company's products are sold in more than 100
countries through more than 2,100 local dealers and direct sales
efforts.

SYK - Stryker  $78.92

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-70.00  SYK-WN  OI=160  ASK=$0.25
SELL PUT  NOV-75.00  SYK-WO  OI=223  BID=$0.65
INITIAL NET-CREDIT TARGET=$0.45-$0.55
POTENTIAL PROFIT(max)=9% B/E=$74.55


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

BEARISH PLAYS - NAKED CALLS

Based on analysis of option pricing and the underlying stock's
technical background, these positions meet our fundamental
criteria for bearish "premium-selling" strategies.  Each issue
has robust option premiums, a well-defined resistance area and
a high probability of remaining below the target strike prices.
As with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered calls entails considerable financial risk,
far more than the initial margin or collateral required to open
the position.  The maximum financial obligation for the sale of a
naked option 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 options must have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  The simple fact is: stocks often experience large price
swings, exponentially increasing the margin maintenance and very
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 price moves in
a volatile manner.  Many professional traders suggest closing the
position when the underlying share value moves beyond 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.

***************
FLML - Flamel Technologies  $32.05  *** Short-Term Trading Top? ***

Flamel Technologies (NASDAQ:FLML) is a biopharmaceutical company
engaged mainly in the development of two polymer-based delivery
technologies for medical applications.  The company's Micro-pump
technology is a multi-particulate technology for oral ingestion
of small molecule drugs with applications in controlled release,
tastemasking and bioavailability enhancement.  The company has
three major products based on its Micropump technology: Asacard,
a controlled-release formulation of aspirin for the treatment of
cardiovascular disease; Metformin XL, a controlled-release form
of Metformin that is in development for use for the treatment of
Type II diabetes, and Genvir, a controlled-release acyclovir for
the treatment of genital herpes.  In addition, FLML has developed
new herbicide delivery systems and has patented a biomaterial,
ColCys.

FLML - Flamel Technologies  $32.05

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  NOV 40    FLU KH     526   0.80  40.80   8.9%   2.0% *
SELL CALL  NOV 35    FLU KG   1,588   2.15  37.15  14.3%   5.8%


**************
IMCL - Imclone Systems  $34.06  *** Profit-Taking Underway! ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical firm whose
mission is to advance oncology care by developing a portfolio of
targeted biologic treatments designed to address the medical needs
of patients with cancer.  The company's lead product candidate,
ERBITUX, formerly known as IMC-C225, is an investigational IgG1
therapeutic monoclonal antibody that inhibits stimulation of the
Epidermal Growth Factor receptor, upon which certain solid tumors
depend in order to grow.  In addition, Imclone is also developing
inhibitors of angiogenesis, which could be used to treat various
kinds of cancer and other diseases.  The firm's next most advanced
product candidate, BEC2, is a cancer vaccine.  In partnership with
Merck KGaA, it is testing BEC2 for recurrence or progression of
limited disease small-cell lung cancer in a Phase III trial.

IMCL - Imclone Systems  $34.06

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  NOV 45    QCI KI    7,500  0.65  45.65   7.0%   1.4% *
SELL CALL  NOV 40    QCI KH    3,215  1.45  41.45  12.7%   3.5%


**************
SOHU - Sohu.com  $34.87  *** Premium-Selling Only! ***

Sohu.com (NASDAQ:SOHU) is an Internet portal in China.  The firm's
portal consists of sophisticated Chinese language Web navigational
and search capabilities, 15 main content channels, Internet-based
communications and community services, and a unique platform for
e-commerce and short messaging services.  Each of the company's
interest-specific main channels contains multi-level sub-channels
that cover a range of topics; news, business, entertainment, sports
and careers.  The firm also offers free Web-based e-mail.  Sohu.com
offers a universal registration system, and the company's portal
attracts consumers and merchants alike.  One of the key features is
a proprietary Web navigational and search capabilities that reflects
the cultural characteristics and thinking and viewing habits of the
People's Republic of China Internet users.

SOHU - Sohu.com  $34.87

PLAY (sell naked call):

Action     Month &   Option    Open   Last  Cost    Max.  Simple
Req'd      Strike    Symbol    Int.   Price Basis  Yield  Yield

SELL CALL  NOV 45    UZK KI   1,873   0.55  45.55   5.9%   1.2% *
SELL CALL  NOV 40    UZK KH   2,079   1.40  41.40  11.0%   3.4%


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

BEARISH PLAYS - CREDIT SPREADS

All of these positions are favorable candidates for "bear-call"
credit spreads, based on the current price or trading range of
the underlying issue and its recent technical history or trend.
The probability of profit from these positions may be higher
than other plays in the same strategy, due to disparities in
option pricing.  However, current news and market sentiment will
have an effect on these issues, so review each play individually
and make your own decision about its future outcome.

**************
BUD - Anheuser-Busch  $48.89  *** Technicals Only! ***

Anheuser-Busch Companies (NYSE:BUD) is the holding company parent
of Anheuser-Busch, Incorporated.  The company is also the parent
corporation to a number of subsidiaries that conduct various other
business operations.  Anheuser-Busch's operations are comprised of
domestic beer, international beer, packaging, entertainment and
other.  The domestic beer segment consists of the United States
beer manufacturing and wholesale operations.  The international
beer segment consists of the Company's export sales and overseas
beer production and marketing operations.  The packaging segment
is comprised of its aluminum beverage can and lid manufacturing,
aluminum recycling, label printing, crown/closure liner material
and glass manufacturing operations.  The entertainment segment
consists of adventure park operations.  The other segment is made
up of real estate development and transportation businesses.

BUD - Anheuser-Busch  $48.89

PLAY (conservative - bearish/credit spread):

BUY  CALL  NOV-55.00  BUD-KK  OI=138  ASK=$0.10
SELL CALL  NOV-50.00  BUD-KJ  OI=601  BID=$0.55
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$50.50


**************
KMX - CarMax  $32.31  *** Profit Warning = Sell-Off! ***

CarMax (NYSE:KMX) is a specialty retailer of used cars and light
trucks that conducts its operations through its subsidiaries.
The company has retail operations consisting of used and new car
retail sales and vehicle repair businesses.  It also has a finance
operation that provides prime-rated automobile installment loans.
The company purchases, reconditions and sells used vehicles.  In
addition, CarMax sells new vehicles under franchise agreements
with DaimlerChrysler, Mitsubishi, Nissan, Toyota, Ford and General
Motors.  It has separated the practice of trading in a used vehicle
in conjunction with the purchase of another vehicle into two major
and independent transactions.  CarMax provides an appraisal that
allows current vehicle owners to sell their cars to the company
regardless of their intent to purchase a vehicle.  CarMax also
provides its customers with a full range of related services.

KMX - CarMax  $32.31

PLAY (less conservative - bearish/credit spread):

BUY  CALL  NOV-40.00  KMX-KH  OI=71   ASK=$0.20
SELL CALL  NOV-35.00  KMX-KG  OI=141  BID=$0.95
INITIAL NET-CREDIT TARGET=$0.75-$0.85
POTENTIAL PROFIT(max)=17% B/E=$35.75


**************
NBR - Nabors Industries  $36.75  *** Sector Slump! ***

Nabors Industries (NYSE:NBR) operates in two primary business
segments within the oilfield services industry, contract drilling
and manufacturing and logistics.  The company provides drilling,
workover, well-servicing and related services on land and offshore
in the lower 48 states of the United States (lower 48 states),
Canada and Alaska, as well as international markets.  The company
also manufactures and leases (or sells) top drives, drilling
instrumentation systems and rig-reporting software domestically
and internationally, and provides oil rig construction, logistics
services and marine transportation and support services in Alaska
and the lower 48 states.

NBR - Nabors Industries  $36.75

PLAY (conservative - bearish/credit spread):

BUY  CALL  NOV-42.50  NBR-KV  OI=283   ASK=$0.20
SELL CALL  NOV-40.00  NBR-KH  OI=3005  BID=$0.45
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$40.25


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

SEE DISCLAIMER - SECTION 1

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


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

Look Like Shorts

Research In Motion - RIMM - close: 42.31 change: -1.24

WHAT TO WATCH: Shares of RIMM are up almost 300% from their March
lows.  Is today's decline the beginning of some much overdue
profit taking?  Or is it just part of a short-term bull flag
consolidation pattern before it sprints to new highs?  The
overbought MACD just produced a fresh sell signal and is
suggesting it's the former.  Aggressive bears could initiate
plays here with a stop just above $45 and see how far RIMM falls.
It's next earnings report is in December.

Chart=


---

Strayer Education - STRA - close: 93.66 change: -3.49

WHAT TO WATCH: It would appear that the educational-schools
sector is undergoing some profit taking.  CECO, COCO, APOL, UOPX,
EDMC are all seeing declines as investors take profits.  STRA
also took a hit today but is still holding up above support in
the 90-92 range.  Could we see a delayed reaction tomorrow?  More
aggressive bears could use a move below today's low at 91.81 to
open new positions.  More conservative types may want to wait for
a move under 90.  Watch out for its 100-dma near 96.  A simple
38.2% retracement of the $50 to $100 run up would put STRA near
the $81 area.  Earnings are early November.

Chart=


---

Inamed Corp - IMDC - close: 68.74 change: +0.00

WHAT TO WATCH:  We've been inundated with news stories for the
last two days while an FDA panel held discussions on whether they
should lift the 1992 ban on silicone breast implants.  The review
was sponsored by IMDC who believes that current evidence suggests
that silicone implants are no more dangerous than the saline
implants, which are currently available in the U.S.  The stock
has been halted the last two sessions while we waited for the
decision.  The vote was released this afternoon and it was
positive with 6 out of 9 panelists approving the removal of the
ban but with several conditions.  The conditions are pretty
lengthy and may stem any excitement over the potential approval.
This will definitely be a stock to watch.

Chart=


---

JetBlue Airways - JBLU - close: 65.66 change: -1.83

WHAT TO WATCH: After nearly an eight month, non-stop rally in
shares of JBLU are we just now beginning to see signs of
weakness?  Shares peaked over $70 five days ago and the recent
consolidation had been holding steady above the $66 mark.  Now
JBLU has broken that level and could easily drop to the $60 level
as investors take profits.  This is assuming that panicked shorts
don't rush in to cover on the weakness.  JBLU is expected to
announce earnings next Thursday.

Chart=



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

AMGN $65.33 -1.48 - Hmm... AMGN is rolling over under its simple
50-dma.  Will it breakout through the bottom of its descending
channel?

POT $81.40 +1.29 - We're not sure what's driving shares of POT
other the soaring commodity prices but the stock has been in a
non-stop rally the entire month of October.

LEN $83.65 -3.67 - The homebuilding sector took a big hit today
and stocks like LEN, which have been defying gravity, suddenly
look like shorts.  So does PHM, DHI, and a number of other
builders.


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

Overdue Profit Taking

To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/mp_101503.asp


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