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Daily Newsletter, Sunday, 02/01/2004

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The Option Investor Newsletter                   Sunday 02-01-2004
Copyright 2004, 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: Surprise, Surprise
Futures Market: What next?
Index Trader Wrap: Down week
Editor's Plays: Crashing to Earth
Market Sentiment: So Goes January
Ask the Analyst: Out the gate they go!
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 01-30        WE 01-23        WE 01-16        WE 01-09
DOW    10488.07 - 80.22 10568.3 - 32.22 10600.5 +141.62 + 49.04
Nasdaq  2066.15 - 57.72 2123.87 - 16.59 2140.46 + 53.54 + 80.24
S&P-100  560.31 -  5.10  565.41 +  0.69  564.72 +  8.17 +  6.56
S&P-500 1131.13 - 10.42 1141.55 +  1.72 1139.83 + 17.97 + 13.38
W5000  11029.20 -127.58 11156.8 + 40.74 11116.0 +187.04 +151.14
RUT      580.76 - 15.38  596.14 +  5.73  590.41 + 15.21 + 14.35
TRAN    2885.96 -186.99 3072.94 + 36.66 3036.28 + 47.34 - 19.22
VIX       16.63 +  1.79   14.84 -  0.16   15.00 -  1.75 -  1.47
VXO       17.05 +  2.18   14.87 -  0.40   15.27 -  0.67 -  2.00
VXN       25.06 +  3.79   21.27 +  1.03   20.24 -  2.77 -  1.50
TRIN       1.00            1.15            0.47            1.63
Put/Call   0.81            0.77            0.51            0.65
******************************************************************

Surprise, Surprise
by Jim Brown

The wheels came off the whisper number bus Friday when the
GDP failed to reach even the weakest estimates of 4Q growth.
All the analysts quoting obscene growth numbers were left to
sift positive component numbers out of the overall report in
an effort to justify their missed estimates. The market
behaved very well considering the negative news.

Dow Chart - Daily


Nasdaq Chart - Daily



The New York NAPM jumped to 257.3 from 242.6 and showed that
while the recovery may be slow across the country the New
York area is roaring out of the 2001 recession. Manufacturing
conditions improved with the quantity of purchase component
jumping from 40 to 61. This is a huge gain but the majority
of the other components were mixed. The headline number is up
a whopping +13.2% since November and may be experiencing some
rally fatigue soon. The non-manufacturing activity jumped
to 78.5 due to a rebound in financial services and is near
its highest levels since 2000. Considering manufacturing is
not a major part of the New York economy this suggests the
rest of the area economy could be growing at an even faster
rate.

Switching to the center of the country the Chicago PMI
soared to 65.9 and well over the estimates for a decline
to 60.0. Except for employment the report was very strong.
Production jumped to 76.5 from 68.9, backlogs to 57.3 from
52.2. Employment fell slightly to 48.3 from 49.6 and inventory
fell to 37.4 from 42.2. A negative component was the jump in
prices paid to 67.8 from 57.3. This is a huge one-month jump
and suggests that inflation may be closer than we think. A
+10 point jump in prices was a +18% gain in one month. This
one component weighed heavily on the positive initial
reaction to the headline number. Offsetting the jump in
prices was the inventory contraction at the fastest rate
in the last two years. Despite the good news the report
also stretched to three months the continuing layoffs in
the manufacturing sector.

Consumer Sentiment edged up only slightly for the final
January revision to 103.8 and a +11 point gain for the
month. Analysts suggest that severe weather in December
could have impacted the December decline but we have had
very cold weather the last four weeks as well. I suspect
the December decline was simply due to holiday depression
and financial stress. We are clearly out of the dip and
moving to higher ground and part of the higher sentiment
is probably due to new highs on the Dow. With massive tax
refunds on tap for the next three months those warm feelings
should continue but the gains could slow without a real
pickup in hiring. The Michigan Sentiment number is also
much higher than the Conference Board and Money Magazine
indexes. This suggests the difference in polling questions
could be adding to the positive responses.

The biggest disappointment for Friday was the Q4-GDP
which came in at a bland +4.0% compared to huge whisper
estimates. The gains were wide spread but emphasize the
slow growth thought process rather than the exploding
economy. Through out the day on Friday the whisper
numbers slowly declined from the +6.5% Thursday level
to only +5.0% by the close on Friday. That 1.5% difference
simply went up in smoke once reality appeared. The last
article I found Friday night was comparing the 4.4%
official estimate to the wildly optimistic "5%" whisper.
Obviously expectations, or at least those willing to
admit their expectations after the fact, imploded in
the white light of day.

The 4Q growth of +4.0% was being called "decent" by some
and "strong" by others when compared to the +3.1% total
for all of 2003. That makes you realize how weak the
first two quarters really were at +2.0% and +3.1%. The
4Q slowdown was being called "inline with expectations"
by Friday night. It appears in hindsight that the 3Q
explosion was due to exactly the reasons we have been
claiming in these pages. It was due to the last round
of home refinancing with ten year rates hitting 3.25%
lows in June. This prompted two months of massive cash
generation and a serious upgrade cycle for homeowners.
Adding even further to the economic explosion was a tax
rebate, tax cut program that gave billions of dollars
back to consumers. They immediately spent it all as
evidenced by the sales slowdown in the 4Q to only +2.6%
growth.

Government spending in the 4Q at +0.8% was less than
half the pace of the 3Q. Housing continued to be strong
and the weaker dollar continued to add to the bottom
line. Inventory rebuilding added +.60 basis points to
the 4Q number with IT equipment spending up +10%. Make
no mistake, this was not a shabby quarter. It simply
did not live up to the overly optimistic expectations
and proved that the 3Q spike was just a spike and not
a lasting trend. The "lasting recovery" is still in
doubt as the slowdown in Durable Goods Orders earlier
this week suggested.

The good news in the GDP report is actually the lack
of a blowout number. This decent growth is right on
track and it means the Fed is on hold for a much longer
period. The fears from Wednesday that the Fed could
be ready to pull the rate hike trigger as early as
May were totally groundless. There is nothing in the
GDP that would suggest the economy is running wild or
even that the economic recovery is self sustaining.
The Fed statement that they were still worried about
the potential for deflation confirms they did see this
coming. Without a massive jump in jobs soon we are
going into the summer doldrums at probably a +3.5%
GDP rate. That is actually a normal GDP target for
steady growth. It is just far shy from the overly
optimistic estimates.

No overheating economy and no rate cut in sight and
bonds rose on Friday once that reality struck home.
This means interest rates will stay low though the
spring home buying season and tax refunds will keep
the economy running for the next six months. With no
real economic worries the stock market recoiled from
the initial GDP announcement but the drop was very
short lived.

Sellers knocked the Dow back to Thursday's closing
support at 10450 on the GDP news but bargain hunters
jumped on the dip. It was a low volume seesaw for the
rest of the day but 10450 support held for the second
day. The Dow wandered back to 10500 resistance by day's
end on short covering but was unable to beak that current
resistance barrier with Super Bowl event risk looming
large in our future.

Russell 2000 Chart - Daily



The Russell was the strongest index once again and
closed the day positive and suggests that bargain
hunters were hoping for an oversold gap up on Monday.
The Nasdaq traded in positive territory most of the
day despite some lowered guidance from Thursday night
tech reports. The SOX also closed positive and rebounded
back to 514 and the current 50 dma.

SOX Chart - Daily



The market action or actually lack of action on Friday
was encouraging. With the already negative tone for the
week the GDP could have sent it into a death spiral.
When the initial dip was quickly bought the potential
sellers had to rethink their actions. The lure of a
potentially positive Jobs Report next Friday is a
powerful incentive to hang on as long as the market is
not self destructing. Friday turned into a consolidation
day and traders left early for the weekend.

I suspect it would have ended differently were it not
for the Super Bowl event risk. The Dept of Homeland
Security did not change the threat level but the actual
site security is extremely high. With Osama vowing to
go out a martyr and according to some reports has said
he would die in an attack in the United States this is
a very high profile target. 135 million viewers will be
watching in the U.S. and over 1 billion worldwide. Think
that would not be a tempting target for a crazed terrorist
wanting to go out with a bang? This week was also the
start of the Muslim Hajj Pilgrimage where over two million
Muslims fulfill a central duty of Islam. For 14 centuries
countless millions have made the trek to Makkah to fulfill
one of the five pillars of Islam. This is a very high
profile event and a period that could produce extra
terrorist activity. News reports out at 8:PM Friday
night said there was a sudden surge in intelligence
communication and the emphasis was on airliners flying
into the U.S. from other countries. So far no flights
were reported cancelled but you can bet any arriving
around Super Bowl time will be very heavily screened.
Let's hope that this event ends peacefully as have all
the other potential events like New Years Eve in New
York.

The one fly in the ointment to suggesting a potential
rebound next week is the crash in the transportation
sector. The transportation index has fallen -6.5% in just
the last week. For Dow theorists a falling transportation
index would prevent any meaningful rally in the Dow. The
index was only 12 points away from its 100 dma at the
lows on Friday. Despite the rebound in the broader
indexes the TRAN lost -86 points or nearly -3% for the
day. There are various reasons for the wreck and YELL was
a big reason on Friday. Yellow Roadway missed estimates
and lowered guidance. What really worried traders was
lack of shipment growth. YELL shipments rose only +1.1%
in the 4Q and Roadway shipments actually dropped -14%
during the quarter. What worries traders is the drop in
shipments in an economy that is supposedly growing. If
it is growing then shipments should be increasing. YELL
dropped -$5 on the news. Another company that is involved
in shipping, GATX Corp (GMT) dropped -15% or -$4.15 on a
-5% drop in revenues during the same period.

The transportation drop is further complicated by the
slowdown in airline passenger traffic while airlines are
racing to add capacity. Fare wars are increasing and the
business traveler has not come back yet. This suggests
the broader market and the economy is not yet out of
the woods.

Why fear? The S&P closed the month with a gain and that
almost guarantees a gain for the year. Since 1950 that
January barometer has a very impressive record of 91%
accuracy. The S&P closed up about +20 points for the
month and theoretically gives us a 91% chance of closing
the year in the black. Of course what the statisticians
don't tell you is that the barometer failed two of the
last three years. There is also another catch that we
don't always hear. If the S&P closed the year today at
1131 the record would be intact. Just closing the year
anywhere in positive territory keeps the statisticians
happy.

While we do not care about keeping the statistics guys
happy we do need to keep mom and pop investor happy.
The bean counters reported on Friday that 2003 saw an
inflow of $152.8 billion into equity funds. This was
the fifth largest inflow on record with 2000 being the
highest. There is currently $7.4 trillion being held
in all funds including money markets. Those investors
should be happy with their gains over the last twelve
months but that brings up the performance issue once
again. Those burned in the worst bear market since
the great depression have put their faith back into
Alan Greenspan and the stock market while moving full
speed into the election cycle. If your fund was up +30%
to +50% in 2003 then what are you expecting for 2004?
I would bet it is not +10% and the consensus market
projections for the rest of the year. For the next 90
days I would suspect those investors are going to be
sitting on pins and needles until we get a resumption
of the bullish trend and over the current highs.

I think the potential for that to happen is very good.
I know there were some setbacks this week with several
high profile techs not living up to the standard of the
majority of prior announcers. FDRY, GILD, NVLS, LEXR,
RNWK, SNDK and PSFT are just a handful of the most
recent disappointments. If only a handful per week is
all we have to worry about then I do not think it is a
problem. We know from past history that the deeper we
get into the earnings cycle the weaker the results
because the quality of the companies begins to decline.
With earnings currently running at +25% growth for the
4Q there is plenty of room for weaker results ahead and
still have a great earnings cycle.

The bottom line is still a growing economy, albeit slow
growing but still growing. Add in the massive tax refund
stimulation that will hit over the next three months and
the markets have plenty of room to grow. It is what will
happen after April that worries me. The comparisons to
2003 earnings will become progressively tougher and if
the economy does continue to grow the Fed will eventually
start the next rate hike cycle. The deficit is growing
and expected to be over $500 billion in 2004 and over
$1 trillion soon. The Fed actually expressed concern
over the deficit in the December FOMC minutes. But in
the scope of our current view that is still a long way
off. The average investor operates on a quarter by
quarter basis. With 4Q earnings about over the investing
public is pocketing their winnings and trying to decide
who will be the big winners for Q1. The forecast based
on the current guidance is for another great quarter.

Investors should be examining their portfolios now and
cutting back on those companies with lackluster results.
That cash should be used to buy on any pullback those who
raised their guidance. This portfolio rotation is just
beginning for this quarter and those companies that did
disappoint have been severely punished. With one more
week of decent earnings volume and a flurry of critical
economic reports the odds are good we will see some
erratic market moves. Larry Ellison is planning ahead
for this exact plan. He announced at 9:PM Friday night
that he was selling $1.67 billion in ORCL stock starting
on March 4th. It is a planned sale program to diversify
his holdings according to the press release. While that
should depress ORCL stock on Monday I would not feel
too sorry for him. He still has nearly 1.3 billion
shares left. Interesting timing on the announcement.

Assuming a successful Super Bowl weekend we should see
some month end cash flows put to work early next week.
Unless there is some real economic disaster we will
probably continue to trade in a range until after the
Jobs report on Friday. That range is probably between
Dow 10300-10650 and is wide enough to drive a truck
through. The Nasdaq range is probably between 2000-2150
and considering we have had more than a 100 point move
last week we are real close to exactly in the middle.
I am basing the lower end of my estimates on the oversold
conditions in the SOX. We saw it test 500 on Thursday and
rebound but I suspect we could see another dip to the 490
level and the 100 dma. I do expect that level to hold.
If the semis quit falling so will the Nasdaq. That does
not leave much more downside assuming we don't have any
negative surprises in our future.

Buy the dip! Assuming we do not have a black hole in our
economic future I would suggest buying the next dip. My
target for conservative traders would be Dow 10300 and
Nasdaq 2000 but recognizing we may not reach them. Over
the next couple weeks look for a sharp dip brought on by
some yet unknown event that drops us close to those
levels. If we pause at the lows and consolidate on high
volume I would enter partial positions. Once we get a
close above the prior days highs I would add to those
positions on any future dip. I fully expect to see new
highs before April-15th but that forecast and a $5 bill
will get you a cup of expensive coffee and a newspaper.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


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

What next?
Jonathan Levinson

The various markets spent the latter half of the week trying to
find their footing in the aftermath of the expression by the FOMC
of the very thought that the current low rate environment might
not last as long as previously expected.  Treasury rates and the
US Dollar Index spiked and then pulled back, gold and foreign
currencies dived and pulled up, equities dived and spent Friday
trading both sides of unchanged.


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.


Chart of the US Dollar Index


The US Dollar Index traded lower on Friday in the 87.25 area,
selling off on disappointing GDP data on Friday morning.  The
move caused a rollover on the 10 day stochastic while finding
support at 87, the primary descending channel trendline violated
following the FOMC announcement earlier this week.  For the day,
precious metals, miners and the CRB finished higher, with the CRB
adding 1.91 to close at 262.58, led by cotton, lean hog and corn
futures.


Daily chart of February gold


Just as the USD Index gave its first sell signal of the current
bounce, February gold, with its small upside correction of
yesterday's washout, gave its first buy signal.  Gold rose 1.80
to finish at 400.80, holding a higher low of 398 and lower high
of 402.  XAU added 1.63% to close at 95.58, HUI added 1.15% to
close at 215.63.  Friday was first notice day for February
futures contracts, and as of Monday I'll be covering April
contracts.  405 is now "the scene of the crime", and bulls need
to see gold not fail at that level.  392 support has not been
tested, and I view any  correction that stays north of that level
to be confirmation of the daily cycle bottom trying to form here.


Daily chart of the ten year note yield


Bonds had a good day on Friday, the ten year note yield dropping
5.9 basis points to close at 4.138%, a 1.41% move for the day.
Friday's yield drop extended Thursday's but still traversed only
half the range printed on FOMC Wednesday.  Bonds closed near
unchanged for the week after covering a wide range, with the help
of extensive Fed intervention via open market ops throughout the
week.  Friday was the exception, with a modest 2B net drained via
expiring overnight repos.  Despite the 2 day correction in the
yield, the stronger moves have been to the upside since the 3.92%
bottom held, and the daily cycle oscillators remain in an
upphase.  Descending trendline resistance moved to 4.3% on the
TNX.


Daily NQ candles


The NQ dropped 7 points to close at 1492.50, a .47% move on the
day and once again a weak showing from the NQ relative to its
peers.  The move engulfed yesterday's candle body, but was mostly
directionless, with listless trading throughout Friday's session
despite respectable Nasdaq volume of 1.94B shares, following
Thursday's 2.6+B share blowout.  It remains entirely uncertain as
to whether the current post-FOMC range is a distribution or
accumulation phase at the bottom of the week's steep selloff.
One the bullish side, we have Thursday's heavy volume doji
hammer, while on the bearish, today's lack of bounce and ongoing
daily cycle downphase.  Resistance remains 1507, followed by more
significant confluence at 1515-1520.  Support is 1492, followed
by 1482.


30 minute 20 day chart of the NQ


Friday was a great day during which to meditate.  The 30 minute
cycle upphase went nowhere at the open, and the ensuing 30 min
cycle downphase was similarly weak.  The downphase was far weaker
than the preceding upphase in terms of price traction, and as
Keene noted in the morning, it felt corrective rather than
impulsive.  1488 is weaker downside support, but at Friday
afternoon's rate, it could put a floor under the current decline.
Given the ongoing daily cycle downphase, I expect any bounce to
fail at a lower high, as has been the case since last week.  A
higher low on the current 30 minute cycle downphase would,
however, be the first sign of light for bulls as to the validity
of Thursday's 1476 bottom.


Daily ES candles


ES added half a point to close at 1130.75, having been in native
territory as of the cash close (on the basis of which the current
chart is generated).  The fact that this is relevant gives some
indication of how excruciatingly boring Friday was.  But that
benefits ES bears for a change, because the daily cycle
downphase, so long in coming, developed further on Friday, and on
the daily chart appears to be setting up an imminent test of
1115-18 support.  It's worth repeating, however, that the ES, and
all equity contracts for that matter, remain in a very strong
overall uptrend.  Below 1060, it will be more appropriate to
discuss "reversals" and such, but for leveraged traders, this
week's decline was nevertheless substantial.  Resistance is
between 1133-5, support 1115-18, followed by 1125-6.


20 day 30 minute chart of the ES


The afternoon's drift higher was sufficient to whipsaw the 30
minute cycle oscillator, but 1133-5 resistance remains
unchallenged and the daily cycle oscillators are downphasing.
Best to wait for a break of 1126 support or 1135 resistance
before choosing a direction while bulls and bears committed to
different timeframes continue to battle it out.

150-tick ES


Friday's endless drift left the various short cycle oscillators
almost perfectly discombobulated, with no direction evident here.
1126-35 remains the range to watch.


Daily YM candles


YM traded up in the final minutes to close a few points north of
unchanged.  The big news is that the upper rising primary channel
trendline at 10350 held as support on a downside spike off the
Friday GDP release.  The daily cycle downphase whipsawed but
reasserted itself, and a retest of that level appears imminent on
the daily chart.


20 day 30 minute chart of the YM


YM most closely resembles ES- nothing to add on the 30 minute
timeframe.

The strongest move of the week was without doubt the Wednesday
afternoon-Thursday post-FOMC aftermath.  That period saw a
perfect reversal of the intermarket trends that brought us the
rally of 2003, with the dollar rising and every other asset class
falling.  The fact remains that there is developing an almost
universal bearishness on the US Dollar, and in the mainstream, a
bullishness on everything else.  The FOMC reaction saw that
momentarily and explosively reversed.  How far this correction of
the 2003 trend goes is anyone's guess, and I suspect that it was
that uncertainty that gave us a lackluster Friday across all
markets.  I look forward to next week to provide us with more
clues for what to expect in February.  See you there.


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

Down week
Jonathan Levinson

The major averages closed lightly negative on Friday, capping off
the second consecutive week of losses for equities.  The Dow lost
22.22 to close at 10,488.07, the SPX lost 2.98 to close at
1131.13, and the Nasdaq dropped 2.08 to close at 2066.15.

For the week, the Dow fell 0.8%, the SPX .9% and the Nasdaq 2.7%.
Notwithstanding these losses, all 3 indices are in the green for
the year today, the Dow +0.4% for the month, the SPX +2% and the
Naz +3%.  For the past 52 weeks, it's +29.3% for the Dow, +30.9%
for the SPX and +52.1% for the Naz.

As discussed in the Futures Monitor, the big news was the FOMC
announcement that struck fear into the hears of dollar bears/
equity-bond-commodity bulls, and the trading following the
midweek drop has uncertain and rangebound.  Volatility boomed
higher, and the Dow Transports closed the week below 3,000,
dropping 2.9% or 86.04 to close at 2,885.95.  While the FOMC drop
buried the intraday oscillators in oversold, it precipated only
the beginnings of sell signals on the longer timeframes.  The OEX
volatility index, the VXO, finished the week 2 or more than 10%
points higher than where it began, closing at 17.05, while the
NDX volatility index, QQV, nearly 3 points higher at 23.14.


Weekly COMPX candles


As noted above, the selling this week did little damage on the
longer timeframes, and while this week brought the Nasdaq it's
longest red candle in months, the weekly cycle oscillators barely
twitched.  Trendline support in the 2040 area held, and until
that level falls, there's no indication of any damage to the
solid uptrend off the March '03 lows.  If you squint, you can
even see a small doji shadow at the bottom of this week's candle,
indicating the disappearance of sellers at the lower rising
trendline.  The setup is nevertheless bearish, displaying
downside acceleration below the mid-January high, but until the
trendline cracks, it's just a correction in the rally uptrend.


Weekly INDU candles


We see a similar picture on the Dow, with the decline respecting
the lower rising trendline but in this case with a bearish
engulfing candle.  There were new rally highs printed prior to
the FOMC announcement, setting this up as a key reversal week.
The last few "key reversal" signals on the daily charts have
failed, though as Linda points out, Professor Pring prizes these
among the strongest of technical indicators.  A break of the
lower rising trendline at 10400 will be the first indication of
trouble in this extended paradise.  The weekly cycle oscillators
continue to trend up.


Daily OEX candles


The OEX gave and confirmed sell signals this week on the daily
candle chart, with the daily cycle oscillators rolling over and
following through as the week progressed.  Channel support is 11
points south at 549, with primary channel support next at 535.
The daily cycle downphase has yet to do any significant technical
damage, and until the weekly cycle turns down, downside support
levels should be good for a strong battle from bulls.  If 535
fails, I expect that to affect the weekly cycle upphase and
possibly introduce the first hint of longer term bearishness into
an otherwise bullish-corrective picture.


20 day 30 minute chart of the OEX


Zooming in further to the 30 minute chart, we see the daily cycle
downphase producing a trend of lower highs since Tuesday.
Support is next at 558, followed by 556 and 553.  The end of day
upward drift produced the first suggestion of a whipsaw in the
300 minute stochastic, while the Macd remains in a hesitant
oversold bounce.  The descending trendline at 563 should cap the
current bounce under the steep daily cycle downphase, above which
566 is the next resistance level.


Daily QQQ candles


QQQ rolled over as well and saw intense selling this week,
resulting in a more advanced daily cycle downphase than we see on
the OEX.  By the same token, the uptrend is far from being
threatened so far, and secondary support projects to just south
of 36, with price confluence beginning at 36.  Given the
positioning of the Nasdaq at its rising weekly trendline, a
washout below 36 could be the start of a more significant
correction, but given the progress of the daily cycle downphase,
it's not unreasonable to expect that level to hold.  If Friday's
waffling was any indication of things to come, we can expect the
current daily cycle downphase to begin hesitating.  Bulls can
look to buy dips around 36, but should be attentive to the risk
of holding through a failure of that level given the weekly
support lines in play.


20 day 30 minute chart of the QQQ


The 30 minute cycle downphase did not whipsaw for the Qubes as it
did on the OEX.  The sideways drift violated the steep downtrend
line from Tuesday's high, but the Qubes closed lower by .70% and
were less than inspiring in either direction on Friday.  Support
is at 36.65, followed by 36.20 and 36.  Currently, the 30 minute
and daily cycle oscillators remain in synchronous downphases,
favoring a test of lower support.

Traders are fortunate to have the indices closed on key weekly
support, as it sets the stage for some clarity on Monday morning.
Any upside implies a bounce, and downside risks failure.  Traders
remain in a state of high anxiety, as we saw with the massive QQQ
volume on Thursday.  Better to show some patience and wait for
the direction to assert itself.  Let the market decide which way
it wants to go.  See you on Monday.


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


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

Crashing to Earth

On Thursday the XMSR satellite completed its crash back to
reality with a drop to the 100 dma at $21.27. We instituted
the put play last Sunday at $26.02 after they announced they
were going to offer 16 million insider shares to the public.
For whatever reason the play actually went as diagrammed and
hit our exit point at $22.50 by Wednesday morning. Mark
that one down as a winner and let's move on.

In keeping with the high risk scenario that worked so well
last week I really wanted to buy puts on TASR in advance
of their earnings on Tuesday but unfortunately they do not
have options. I would try to short it but with more than
50% of the float already short that is like playing Russian
Roulette with only one empty chamber. Pass on that idea.

I also looked at MSTR, which is up +12.00 from Thursday's
lows. Unfortunately the March options were grossly expensive.
The March $60 puts were $3.70 and I could not bring myself
to suggest the February puts with only three weeks left.
This stock could be very volatile and I really wanted more
time.

I decided to go with VSEA, which rocketed from $42.50 on
Thursday to $51 on Friday on short covering after their
earnings. It settled at $48.75 and just below long term
resistance at $50.00. I expect one more dip on the SOX
to 475-490 and profit taking in VSEA could see it drop
back to the 100 DMA at $45.00.

This is very high risk because once the SOX "dip" is
assumed to be over we could be rocketing off to new highs
before Q1 earnings. This is simply a reaction play to an
over reaction to the earnings.

I personally like the March $45 put UES-OI for $2.10.
I would set a stop loss at $51.00 and a profit target at
$46.00.

VSEA Chart




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

Play Recaps

DJX Puts

I am still holding despite the drop just in case we trip
over an economic report like the ISM or Jobs next week.
The dip encouraged me and I came very close to dumping
when the Dow neared 10400 on Thursday. I have mentally
written this position off so anything I can get from it
now is a bonus.

Initial play description December 21st
http://members.OptionInvestor.com/editorplays/edply_122103_1.asp

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

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

Good Luck

Jim Brown


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

So Goes January
- J. Brown

Maybe you've heard the old Wall Street maxim, "so goes January,
so goes the year".  Another way to say it is if January is an up
month then we'll have an up year and if January is down, well you
get the idea.  According to the Stock Traders Almanac by Hirsch,
this market barometer has a pretty incredible track record.
There have only been 5 misses in the last 50 years giving it a
90% accuracy rating for predicting the market's direction.
That's a pretty good record and fortunately it corresponds with
most market prognosticators for a bullish 2004.

As Jim pointed out in his wrap this weekend many reports fail to
mention that two of those five misses have occurred in the last
three years.  That's definitely not a positive trend.  Of course
there were extenuating circumstances like the 9/11 attacks during
one of those years.  For the record the Dow Jones Industrial
Average is up 0.3%, the S&P 500 is up 1.7% and the tech-heavy
NASDAQ is up 3.1% for the year.

Driving these early gains has been a pretty strong earnings
season.  Just over half of the S&P 500 companies have reported
their December quarter and earnings growth is coming in up 25%
from the same period a year ago. Leading the way has been
technology, which has been averaging closer to 50% gains in net
income.  We still have a couple of weeks to go before Q4 earnings
finally wind down.  Typically the second and third tier companies
report later in the cycle and then tend to under perform the rest
of the market.  An exception this year will probably be the
retailers.  The GDP number may have missed the whisper number on
Friday but analysts still expect retail sales to be high
resulting from one of the best Christmases in recent memory.

Speaking of the GDP, the report out on Friday was both
disappointing and encouraging.  Economic growth for the fourth
quarter of 2003 came in at 4.0%, which was well below the
expectations for 5.0-6.0% or better growth.  A disappointing
miss? Yes, but it also quieted investor concerns that the Fed
might raise interest rates too early.  As long as the economy is
growing and not overheating then the Fed should stand still on
interest rates.  Some FOMC commentators believe the Fed will
stand pat on rates until we see several months of strong job
growth no matter what kind of economic numbers we see.

Earnings haven't been the only thing rising.  Merger &
Acquisition activity has boomed.  The month of January saw more
than $70 billion in M&A deals announced versus something in the
neighborhood of $220 billion for all of 2003.  Speculation of
more M&A activity this year, fueled by the expectation that
business are ready to open their checkbooks is a big positive for
market momentum.  Another momentum driver is consumer confidence.
There were a number of confidence numbers released last week and
the general consensus is that consumer confidence remains high
despite the lack of job growth.  As we mentioned before the
historically low interest rates, a rising stock market and rising
home appreciation is going to boost confidence.  A confident
consumer spends money and that's essential for the economy to
recover.

One of the challenges we face next is the rising market.  It
can't rise forever.  We've talked about a correction or a
consolidation for a while now and it just doesn't seem to occur.
This last week's decline is the closet thing we've had to a pull
back in weeks and traders bought the dip Thursday and Friday.
The NYSE bullish percent data is at 13-year (bullish) extremes.
I've never seen it this high.  The DJIA bullish percent data is
at eight-year highs.  The S&P 500 and S&P 100 bullish percent
data are both at eight-year extremes.  Combine this with the
volatility indices at multi-year lows (despite this last week's
gain) and everything still screams a market top.  Of course it's
been flashing a market top for weeks.  What is a trader to do?
Play the trend, of course.  Until it reverses we can only play
what the market gives us.  Trying to call a top can be painful.
However, that doesn't mean we can't use stop losses to protect
ourselves and our trading capital!

Assuming there are no terrorist events over the weekend, next
week is looking bullish.  Wall Street will have a number of
economic reports to digest and the earnings parade is still in
full swing.  Look for the ISM report on Monday and the ISM
Services index on Wednesday as potential market movers.  However,
the big report is Friday's nonfarm payrolls numbers.  Traders
will also want to hear from Cisco Systems (CSCO), the big tech
stock earnings event of the week.  CSCO is due to report on
Tuesday after the bell.  Estimates are for 17 cents a share and
what they have to say about the current quarter could do a lot to
shape the NASDAQ's direction mid-week.


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

Market Averages

DJIA ($INDU)

52-week High: 10701
52-week Low :  7416
Current     : 10488

Moving Averages:
(Simple)

 10-dma: 10572
 50-dma: 10223
200-dma:  9458



S&P 500 ($SPX)

52-week High: 1155
52-week Low :  788
Current     : 1131

Moving Averages:
(Simple)

 10-dma: 1140
 50-dma: 1095
200-dma: 1018



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low :  795
Current     : 1493

Moving Averages:
(Simple)

 10-dma: 1526
 50-dma: 1459
200-dma: 1322



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

We have seen a strong rise in volatility over the last week but
all of these indices remain near very low levels, which continue
to suggest the market is oversold and investors are too
complacent.


CBOE Market Volatility Index (VIX) = 16.63 -0.51
CBOE Mkt Volatility old VIX  (VXO) = 17.05 -0.06
Nasdaq Volatility Index (VXN)      = 25.06 -0.14

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.81        702,516       568,347
Equity Only    0.71        580,051       409,448
OEX            1.12         17,433        19,488
QQQ            4.52         22,963       103,698


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

Bullish Percent Data

           Current   Change   Status
NYSE          76.9    + 0     Bull Confirmed
NASDAQ-100    74.0    - 1     Bull Correction
Dow Indust.   90.0    + 0     Bull Confirmed
S&P 500       87.0    + 0     Bull Confirmed
S&P 100       87.0    + 0     Bull Confirmed


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

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


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

 5-dma: 0.97
10-dma: 0.95
21-dma: 0.98
55-dma: 1.03


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    1451      1635
Decliners    1363      1405

New Highs     217       161
New Lows       15         7

Up Volume   1126M      936M
Down Vol.    891M      932M

Total Vol.  2050M     1900M
M = millions


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

Commitments Of Traders Report: 01/27/04

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

Commercials are beginning to hedge their bullishness from two
weeks ago but the changes are mild.  In the mean time small
traders have become even more bullish with a strong decline
in open short positions.


Commercials   Long      Short      Net     % Of OI
01/06/04      403,721   408,729    (5,008)   (0.6%)
01/13/04      405,558   411,361    (5,803)   (0.7%)
01/23/04      422,135   407,626    14,509     1.7%
01/27/04      417,089   410,930     6,159     0.7%

Most bearish reading of the year: (111,956) -  3/06/02
Most bullish reading of the year:   23,977  - 12/09/03

Small Traders Long      Short      Net     % of OI
01/06/04      142,844    83,518    59,326    26.2
01/13/04      149,057    90,571    58,486    24.4%
01/23/04      141,107   100,090    41,017    17.0%
01/27/04      143,089    87,828    55,261    23.9%

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

In contrast to the larger S&P contracts above, commercial
traders dramatically increased their long positions in the
e-minis but remain overall net short.  Small trader pared
back some of their exuberance from the previous weeks.


Commercials   Long      Short      Net     % Of OI
01/06/04      175,489   240,865    (65,376)  (15.7%)
01/13/04      196,858   263,845    (66,987)  (14.5%)
01/23/04      233,867   307,122    (73,255)  (13.5%)
01/27/04      291,166   334,618    (43,452)  ( 6.9%)

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
01/06/04     139,433     51,909    87,524    45.7%
01/13/04     191,241     62,711   128,530    50.6%
01/23/04     187,270     57,196   130,074    53.2%
01/27/04     154,485     60,556    93,929    43.7%

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


NASDAQ-100

There is little change to report in the commercial positions
while small traders are hedging their bets almost 50/50.


Commercials   Long      Short      Net     % of OI
01/06/04       42,892     37,801     5,091    6.3%
01/13/04       41,829     38,547     3,282    4.1%
01/23/04       42,823     39,442     3,381    4.1%
01/27/04       43,704     40,951     2,753    3.3%

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
01/06/04        8,035    17,911   ( 9,876)  (38.1%)
01/13/04        9,705    12,539   ( 2,834)  (12.7%)
01/23/04        9,180    11,371   ( 2,191)  (10.7%)
01/27/04       10,137    10,715   (   578)  ( 2.8%)

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

Commercials have reached their most bullish stance in four
weeks on the Dow and in perfect timing the small traders
are at their most bearish over the last month.


Commercials   Long      Short      Net     % of OI
01/06/04       15,697     9,497    6,200      24.6%
01/13/04       16,501     8,724    7,777      30.8%
01/23/04       16,403     9,252    7,151      27.9%
01/27/04       16,536     8,404    8,162      32.7%

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
01/06/04        5,713     8,105  ( 2,392)   (17.3%)
01/13/04        6,496     9,970  ( 3,474)   (21.1%)
01/23/04        6,068    10,183  ( 4,115)   (25.3%)
01/27/04        7,240    12,372  ( 5,132)   (26.2%)

Most bearish reading of the year: (10,136) - 12/16/03
Most bullish reading of the year:   8,523  -  8/26/03

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


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

Out the gate they go!

This year's 2004 Dow dogs are out of the gate with 2 of this
year's "little dogs" leading the pack, while one of the "big
dogs" looks to be running the wrong way.

But it's a long race until the pack of this year's dogs reach the
December 30, 2004, finish line, so investors won't be too quick
to discard their tickets as the race is still young.

I've had several requests for an update on this year's Dow Dog
bullish investment strategy as well as an update on the
investment strategy of buying last years (2003) 5 worst
performing Dow Industrials components.

LEAPS option investors have also asked to see an update on how a
LEAPS portfolio has been performing after the first month of the
2004 comes to a close.

In the January 4, 2004 Ask The Analyst column "Dow Dogs Barked
Loud in 2003" we reviewed the 2003 Dow Dogs, and introduced this
year's 10 highest dividend yielding Dow components, which make up
2004's pack of dogs.

We also made note of the strategy of buying 2003's worst
performing Dow components, where after a bullish 2003, this
strategy plays on the thought that those underperformers might
outperform in 2004.

With one month of trade complete, the Dow Dogs (all 10) are up a
modest 0.37%, just barely edging out the Dow Industrials Average
($INDU) gain of 0.33%.  It's the little dogs that look to be
pulling the sled, with a 1.52% gain for the month of January.

The 5-worst performers of 2003 may indeed be deemed "undervalued"
as this group of stocks shows a 2.12% gain as January comes to an
end.

Dow Dogs and 2003's 5-Worst Performers -



I finally got around to putting together a portfolio tracker of
this years Dow Dogs and divided them between the low priced
"little dogs" and high priced "big dogs."  I once again placed a
hypothetic $1,000 toward each stock.  I didn't use fractional
shares, so rounded down to have cost just below $1,000 for each
component.

After one-month of trade General Electric (NYSE:GE) and JP Morgan
(NYSE:JPM) are leading the pack's list of gainers, while General
Motors (NYSE:GM) looks to be running the wrong way, perhaps
exhausted after that 24.8% jump in December 2003.

The lower portion of my QCharts portfolio tracker shows last
years 5-worst performing Dow components, where investors look
hopeful that last year's 26.7% decline in Eastman Kodak (NYSE:EK)
can see a turnaround in 2004 as the company looks to restructure
its business.

On the far right of the above portfolio, I also calculated what a
10% stop loss level of trade would be, based on those stocks'
December 31, 2003 closing value.

I should note that the column labeled "Dividend" is that stock's
dividend YIELD, and not the actual dollar dividend.  Due to
horizontal space limitations, I had to narrow some of the columns
widths.

Some investors expressed an interest in these various longer-term
investment strategies, but for various reasons (limited capital,
wanted full year exposure, etc.) wanted to see a LEAPS portfolio.
There were also multiple questions regarding how a LEAPS
portfolio should be designed.  I'll address some of those
questions after we take a quick look at LEAPS options for these
types of longer-term investment strategies.

Dow Dogs and 2003's 5-Worst Performers - LEAPS Options



What I did was place one in the money LEAPS option contract in
each of the stocks, where "Basis" was taken from the opening tick
on January 2, 2004.  On 12/31/03, Altria (MO) closed at $54.42,
so I did select the out the money $55 January 2005 call.

You will see from the Subtotals, that less capital would be
needed for the Dow Dog strategy, the "little dog" strategy or the
5-worst performing strategy.

An investor with a longer-term investment horizon would also
fully comprehend TOTAL risk with a LEAPS investment strategy,
which is defined by the "Cost" of each LEAPS option.  Under some
catastrophic type of world event, risk might be reduced with a
LEAPS option strategy, than holding the underlying stocks
themselves.  Options were created for the purpose of risk
management.

One of the most frequently asked questions regarding the design
of a LEAPS option portfolio was, "how should it be weighted?"

When we compare the LEAPS portfolio to than of the portfolio
holding the underlying stocks themselves, you can see how it
becomes VERY difficult, to equally weight a leaps portfolio.

While the underlying stock portfolio shown at the top was based
on a $1,000 investment in each stock, you can see that no
position would have had the investor purchasing more than 100
shares (one option contract is equal to 100 shares).

However, a LEAPS portfolio might be weighted should a larger sum
of capital be placed in one of the Dow Dog strategies, or 5-worst
performing Dow component strategies.

For example:  An investor that would normally be willing to
expose $100,000.00 to the Dow Dog strategy (all 10 stocks), but
preferred to limit their risk with the use of LEAPS options could
do this.

Pretend to split the $100,000.00 equally among the 10 Dow dogs
underlying stocks, or $10,000 in each component's stock.

A lower priced stock like AT&T (NYSE:T) at $20.30 would equate to
492 shares.  This would then equate to 4 LEAPS contracts
(represents 400 shares), or maximum of 5 LEAPS contracts
(represents 500 shares).

A higher priced stock like Altria Group (NYSE:MO) at $54.42 would
equate to 183 shares.  This would then equate to 1 LEAPS contract
(represents 100 shares) or maximum 2 LEAPS contracts (represents
200 shares).

This would be the PROPER way to weight a LEAPS portfolio under
the terms of risk management.  It would be INCORRECT to place an
equal dollar amount of capital in each LEAP.

Another question asked was "what would you do today if I wanted
to still participate in this strategy, but didn't at the
beginning of January?"

First thing I would do is remember that the strategies discussed
are "value" oriented strategies, and NO TIMING of purchase is
used.  That is, the investment discipline is based on the thought
that a the Dow Dogs, or those with higher dividend yields are
thought to hold value, based largely on the higher dividend yield
of each stock.  The usual implementation for the strategy is to
buy the basket of stocks at the same time.

The 5-worst performers of 2003 is also a value-based strategy,
where a blue chip Dow component that under performed last year,
may be deemed undervalued in 2004, and its price would appreciate
as its value becomes recognized versus its peers.  Here too, the
strategy is to purchase the basket on the same date, with no real
timing involved.

As such, one idea an investor looking to incorporate the Dow Dog
strategy at this point in time, would be the following.

General Motors (NYSE:GM) $49.68 has fallen 6.97% for the month of
January.  I would use this $49.69 level as the "basis" point for
buying its shares, with the thought that its shares now hold
greater value today, than they did on December 31, 2003 at a
higher price of $53.40.  $1,000.00 dollars would buy 20 round
numbered shares today, where on December 31, 2003, 18 shares
would have been purchased.

General Electric (NYSE:GE) $33.63 has risen 8.55% for the month
of January.  Here I would also suggest using current price as the
cost basis where $1,000 would equate to 29 shares.  I would NOT
suggest buying 32 shares at current price, as this would have the
base value weighting of the portfolio, for this strategy then out
of balance.

The question of rebalancing a Dow Dog strategy at each quarter
was also asked.  I would once again point out that the Dow Dog
strategy, or even that of the 5-worst performing strategy is what
many consider to be "random" stock selection strategies, where
"value" is based either on dividend yield, or prior year under
performance.  These strategies are also very narrow in focus
among just 5 or 10 stocks, where prior discussions regarding
rebalancing was based on broader market averages, or asset
classes.

As such, the strategies discussed here and in the 01/04/04 "Dow
Dogs Barked Loud in 2003" article, may find that rebalancing may
indeed have the investor selling too much of one of this years
biggest winners, while buying one of this years biggest losers.

In the most basic form, the Dow Dogs strategy and 5-worst
performing stock strategy is that of "buy and hold."

Jeff Bailey


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

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

Symbol  Co               Date           Comment      EPS Est

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

ACDO   Accredo Health        Mon, Feb 2  Before the Bell      0.40
ASX    Advanced Semi Engin   Mon, Feb 2  -----N/A-----        0.08
AFL    AFLAC Incorp          Mon, Feb 2  After the Bell       0.50
AMX    Am Movil, S.A. de C.V Mon, Feb 2  After the Bell       0.47
ANDW   ANDREW CORP           Mon, Feb 2  Before the Bell      0.07
BBV    Bnc Blb Vizcaya ArgentMon, Feb 2  -----N/A-----         N/A
BSX    Boston Scientific CorpMon, Feb 2  Before the Bell      0.16
GIB    CGI Grp               Mon, Feb 2  -----N/A-----         N/A
DNB    D&B                   Mon, Feb 2  After the Bell       0.98
EDMC   Education Management  Mon, Feb 2  After the Bell       0.43
ETR    Entergy               Mon, Feb 2  Before the Bell      0.37
RE     Everest Re Grp, Ltd.  Mon, Feb 2  After the Bell       2.15
FMC    FMC Corp              Mon, Feb 2  After the Bell       0.67
FDG    Fording Inc.          Mon, Feb 2  -----N/A-----         N/A
GCI    Gannett               Mon, Feb 2  Before the Bell      1.31
HCN    Health Care REIT, Inc.Mon, Feb 2  Before the Bell      0.74
HUM    Humana Inc.           Mon, Feb 2  Before the Bell      0.40
IP     Intl Paper Co.        Mon, Feb 2  Before the Bell      0.18
JP     Jefferson-Pilot       Mon, Feb 2  After the Bell       0.91
KZL    Kerzner Intl Limited  Mon, Feb 2  Before the Bell      0.12
MXRE   Max Re Capital Ltd.   Mon, Feb 2  Before the Bell      0.47
NFS    Nationwide Finl Serv  Mon, Feb 2  After the Bell       0.71
ONNN   ON Semi Corp          Mon, Feb 2  After the Bell      -0.07
PCAR   Paccar                Mon, Feb 2  Before the Bell      1.25
PPDI   Pharm Prod. Dvlpmnt   Mon, Feb 2  After the Bell      -0.29
PXD    Pioneer Natl Res Co   Mon, Feb 2  Before the Bell      0.56
PBI    Pitney Bowes Inc.     Mon, Feb 2  After the Bell       0.66
RTP    Rio Tinto PLC         Mon, Feb 2  Before the Bell      2.30
SPP    Sappi Limited         Mon, Feb 2  Before the Bell     -0.04
SRA    Serono S.A.           Mon, Feb 2  After the Bell       0.19
SOHU   SOHU.com              Mon, Feb 2  After the Bell       0.27
SPF    Standard Pacific Corp.Mon, Feb 2  Before the Bell      2.04
TIN    Temple-Inland, Inc.   Mon, Feb 2  Before the Bell      0.20
PFG    The Principal Finl GrpMon, Feb 2  After the Bell       0.32
TWTC   Time Warner Telecom   Mon, Feb 2  -----N/A-----       -0.24
VMC    Vulcan Materials      Mon, Feb 2  After the Bell       0.59


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

AKZOY  Akzo Nobel N.V.       Tue, Feb 3  -----N/A-----         N/A
AEP    Am Electric Power     Tue, Feb 3  -----N/A-----        0.39
AVZ    AMVESCAP PLC          Tue, Feb 3  Before the Bell      0.24
AXE    Anixter Intl Inc.     Tue, Feb 3  Before the Bell      0.27
AVCT   Avocent Corp          Tue, Feb 3  Before the Bell      0.34
AVP    Avon Prod.s Inc.      Tue, Feb 3  Before the Bell      1.04
SAN    Banco Santander-Chile Tue, Feb 3  -----N/A-----        0.49
BOX    BOC Grp PLC           Tue, Feb 3  Before the Bell       N/A
BG     BUNGE LIMITED         Tue, Feb 3  Before the Bell      0.67
CHRW   C.H. Robinson Wrldwde Tue, Feb 3  After the Bell       0.34
CECO   Career Education      Tue, Feb 3  After the Bell       0.47
CMX    CareMark Rx, Inc.     Tue, Feb 3  Before the Bell      0.31
CBL    CBL & Associates Prop Tue, Feb 3  4:00 pm ET           1.21
CME    CHICAGO MERCANTILE    Tue, Feb 3  Before the Bell      0.89
CB     Chubb Corp            Tue, Feb 3  After the Bell       1.28
CSB    Ciba Specialty Chem   Tue, Feb 3  Before the Bell      0.54
CSCO   Cisco Systems         Tue, Feb 3  -----N/A-----        0.17
CL     Colgate-Palmolive     Tue, Feb 3  -----N/A-----        0.63
CU     CoCervecerias Unidas  Tue, Feb 3  -----N/A-----        0.29
EXBD   Corporate Exec Board  Tue, Feb 3  After the Bell       0.31
CVH    Coventry Health Care  Tue, Feb 3  Before the Bell      1.13
EW     Edwards Lifesciences  Tue, Feb 3  After the Bell       0.41
EMR    Emerson Electric      Tue, Feb 3  Before the Bell      0.57
EC     Engelhard Corp        Tue, Feb 3  Before the Bell      0.49
EPD    Ent Prod. Partners    Tue, Feb 3  Before the Bell      0.17
ERES   eResearch Tech        Tue, Feb 3  After the Bell       0.13
FDC    First Data            Tue, Feb 3  Before the Bell      0.54
FSH    Fisher Scientific IntlTue, Feb 3  After the Bell       0.53
FLS    Flowserve Corp        Tue, Feb 3  Before the Bell      0.32
GBP    Gables Residl Trust   Tue, Feb 3  After the Bell       0.54
GP     Georgia-Pacific       Tue, Feb 3  Before the Bell      0.47
HCA    HCA                   Tue, Feb 3  Before the Bell      0.60
ICOS   ICOS Corp             Tue, Feb 3  After the Bell      -0.53
N      Inco                  Tue, Feb 3  -----N/A-----        0.33
MAT    Mattel                Tue, Feb 3  Before the Bell      0.50
MBI    MBIA Inc.             Tue, Feb 3  Before the Bell      1.22
MKSI   MKS Instruments       Tue, Feb 3  After the Bell       0.08
MLI    Mueller Ind Inc.      Tue, Feb 3  Before the Bell      0.31
NBL    Noble Energy, Inc.    Tue, Feb 3  Before the Bell      0.51
SPOT   PanAmSat              Tue, Feb 3  -----N/A-----        0.14
PDX    Pediatrix Medical Grp Tue, Feb 3  Before the Bell      0.96
PFGC   PERFORMANCE FOOD GRP  Tue, Feb 3  Before the Bell      0.28
PRGO   Perrigo               Tue, Feb 3  Before the Bell      0.25
RNR    RenaissanceRe Hldgs   Tue, Feb 3  After the Bell       1.81
SINA   SINA CORP             Tue, Feb 3  After the Bell       0.24
PCS    Sprint Corp           Tue, Feb 3  Before the Bell     -0.12
FON    Sprint FON Grp        Tue, Feb 3  Before the Bell       N/A
TCO    Taubman Centers       Tue, Feb 3  After the Bell       0.52
TMX    Telefonos De Mexico   Tue, Feb 3  After the Bell       0.87
JOE    The St. Joe Co        Tue, Feb 3  Before the Bell      0.25
TBL    The Timberland Co     Tue, Feb 3  Before the Bell      0.95
RIG    Transocean Inc.       Tue, Feb 3  Before the Bell      0.03
TRMB   Trimble Navigation    Tue, Feb 3  After the Bell       0.26
TYC    Tyco Intl             Tue, Feb 3  Before the Bell      0.32
UCL    Unocal                Tue, Feb 3  -----N/A-----        0.62
VOLVY  Volvo AB              Tue, Feb 3  Before the Bell       N/A
WHR    Whirlpool Corp        Tue, Feb 3  Before the Bell      1.75
WTM    White Mountains Ins.  Tue, Feb 3  After the Bell       5.80


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

NDN    99 CENTS Only         Wed, Feb 4  Before the Bell      0.24
ABN    ABN Amro Hldgs        Wed, Feb 4  Before the Bell      N/A
ACE    ACE LTD               Wed, Feb 4  After the Bell       1.08
AKAM   Akamai Tech Inc.      Wed, Feb 4  After the Bell      -0.01
AXL    Am Axle & Manu Hldgs  Wed, Feb 4  Before the Bell      0.96
BUD    Anheuser-Busch Co, IncWed, Feb 4  -----N/A-----        0.36
WTR    Aqua Am               Wed, Feb 4  Before the Bell      0.20
ARI    Arden Realty Inc      Wed, Feb 4  After the Bell       0.63
ASTSF  ASE Test Limited      Wed, Feb 4  After the Bell       0.09
ASL    Ashanti Goldfields    Wed, Feb 4  Before the Bell      0.17
BCE    BCE                   Wed, Feb 4  Before the Bell       N/A
BYD    Boyd Gaming           Wed, Feb 4  After the Bell       0.19
CFFN   Capitol Federal Finl  Wed, Feb 4  -----N/A-----        0.11
CD     Cendant Corp          Wed, Feb 4  After the Bell       0.27
CERN   Cerner Corp           Wed, Feb 4  After the Bell       0.43
CINF   Cincinnati Finl Corp  Wed, Feb 4  Before the Bell      0.58
CCK    CROWN HLDGS INC       Wed, Feb 4  After the Bell      -0.11
DCX    DaimlerChrysler       Wed, Feb 4  -----N/A-----        0.81
ELE    Endesa, S.A.          Wed, Feb 4  Before the Bell       N/A
EQR    Equity Residential    Wed, Feb 4  Before the Bell      0.49
ESS    Essex Property Trust  Wed, Feb 4  After the Bell       0.98
FLIR   FLIR Systems, Inc.    Wed, Feb 4  -----N/A-----        0.40
FLR    Fluor Corp            Wed, Feb 4  After the Bell       0.57
FBR    Friedman Bllngs RamseyWed, Feb 4  After the Bell       0.46
GXP    Great Plains Energy   Wed, Feb 4  After the Bell       0.26
HET    Harrah's EntertainmentWed, Feb 4  -----N/A-----        0.53
HIT    Hitachi Limited       Wed, Feb 4  -----N/A-----         N/A
LIN    Linens 'n Things Inc. Wed, Feb 4  Before the Bell      1.01
MLM    Martin Marietta Mat   Wed, Feb 4  Before the Bell      0.56
MX     Metso Corp            Wed, Feb 4  -----N/A-----         N/A
MCO    Moody's Corp          Wed, Feb 4  After the Bell       0.53
MPS    MPS Grp               Wed, Feb 4  Before the Bell      0.04
MUR    Murphy Oil Corp       Wed, Feb 4  After the Bell       0.58
NOC    Northrop Grumman      Wed, Feb 4  Before the Bell      1.10
DCM    NTT DoCoMo            Wed, Feb 4  -----N/A-----         N/A
OHP    Oxford Hlth Plns, Inc Wed, Feb 4  Before the Bell      1.07
PNR    Pentair, Inc.         Wed, Feb 4  Before the Bell      0.66
PAS    PepsiAms              Wed, Feb 4  Before the Bell      0.19
PIXR   Pixar Animation Stdio Wed, Feb 4  After the Bell       1.23
RL     Polo Ralph Lauren CorpWed, Feb 4  Before the Bell      0.47
PP     Prentiss Prop         Wed, Feb 4  After the Bell       0.75
PLD    ProLogis Trust        Wed, Feb 4  Before the Bell      0.71
RSG    Republic Serv, Inc.   Wed, Feb 4  After the Bell       0.35
RMD    ResMed Inc.           Wed, Feb 4  After the Bell       0.38
RG     Rogers Comms Inc.     Wed, Feb 4  After the Bell        N/A
RCN    Rogers Wireless Comms Wed, Feb 4  After the Bell        N/A
ROH    Rohm and Haas Co      Wed, Feb 4  Before the Bell      0.43
SPI    ScottishPower         Wed, Feb 4  Before the Bell       N/A
SEM    Select Medical Corp   Wed, Feb 4  After the Bell       0.20
SNA    Snap-on Incorp        Wed, Feb 4  Before the Bell      0.38
SUG    Southern Union Co     Wed, Feb 4  Before the Bell      0.44
STLD   Steel Dynamics        Wed, Feb 4  After the Bell       0.20
SEO    Stora Enso            Wed, Feb 4  -----N/A-----        0.04
TDS    Telephone Data        Wed, Feb 4  Before the Bell      0.47
ALL    The Allstate Corp     Wed, Feb 4  After the Bell       1.04
BCO    The Brink's Co        Wed, Feb 4  Before the Bell      0.32
CAKE   The Cheesecake FactoryWed, Feb 4  After the Bell       0.30
TMO    Thermo Electron Corp  Wed, Feb 4  After the Bell       0.34
TOM    Tommy Hilfiger        Wed, Feb 4  -----N/A-----        0.13
TMIC   Trend Micro           Wed, Feb 4  -----N/A-----         N/A
USM    U.S. Cellular         Wed, Feb 4  Before the Bell      0.25
UMC    United MicroElec Corp Wed, Feb 4  Before the Bell      0.04
UNTD   United Online Inc.    Wed, Feb 4  Before the Bell      0.17
UNM    UnumProvident Corp    Wed, Feb 4  After the Bell       0.42
WSH    Willis Grp Hldgs Lmtd Wed, Feb 4  After the Bell       0.63


------------------------- THUSDAY -----------------------------

RKY    Adolph Coors, Co.     Thu, Feb 5  Before the Bell      0.67
AES    AES Corp              Thu, Feb 5  Before the Bell       N/A
AG     AGCO                  Thu, Feb 5  -----N/A-----        0.35
ALA    Alcatel               Thu, Feb 5  Before the Bell      0.22
APCC   Am Power Convers Corp.Thu, Feb 5  After the Bell       0.27
AN     AutoNation            Thu, Feb 5  Before the Bell      0.28
AVE    Aventis               Thu, Feb 5  -----N/A-----        0.97
BRL    Barr Pharmaceuticals  Thu, Feb 5  Before the Bell      0.73
BWA    BorgWarner, Inc.      Thu, Feb 5  Before the Bell      1.74
BPO    BROOKFIELD PPTYS CORP Thu, Feb 5  -----N/A-----        0.56
BOBJ   Business Objects      Thu, Feb 5  After the Bell       0.27
CPT    Camden Property Trust Thu, Feb 5  After the Bell       0.83
CSL    Carlisle Co           Thu, Feb 5  Before the Bell      0.52
CRE    CarrAm Realty Corp.   Thu, Feb 5  After the Bell       0.75
CNH    CNH Global N.V.       Thu, Feb 5  Before the Bell      0.16
CTB    Cooper Tire & Rubber  Thu, Feb 5  Before the Bell      0.41
TEU    CP Ships              Thu, Feb 5  Before the Bell      0.35
DASTY  Dassault Systemes SA  Thu, Feb 5  -----N/A-----        0.58
DB     Deutsche Bank         Thu, Feb 5  -----N/A-----         N/A
DVN    Devon Energy Corp     Thu, Feb 5  Before the Bell      1.45
DTE    DTE Energy Co         Thu, Feb 5  After the Bell       0.98
EDS    Electronic Data Sys   Thu, Feb 5  After the Bell       0.11
ENDP   Endo Pharmaceuticals  Thu, Feb 5  Before the Bell      0.22
EOG    EOG Resources         Thu, Feb 5  Before the Bell      0.61
EPC    Epcos                 Thu, Feb 5  Before the Bell       N/A
EOP    Eq Office Prop Trust  Thu, Feb 5  Before the Bell      0.70
FOE    Ferro Corp            Thu, Feb 5  Before the Bell      0.11
FLO    Flowers Foods         Thu, Feb 5  Before the Bell      0.23
IT     Gartner               Thu, Feb 5  Before the Bell      0.17
GYI    GETTY IMAGES INC      Thu, Feb 5  After the Bell       0.28
GR     Goodrich Corp         Thu, Feb 5  Before the Bell      0.26
THX    Houston Exploration   Thu, Feb 5  Before the Bell      0.87
IDA    Idacorp Hldg          Thu, Feb 5  Before the Bell      0.19
IGL    IMC Global            Thu, Feb 5  Before the Bell     -0.17
ICI    Imperial Chem Ind Plc.Thu, Feb 5  Before the Bell       N/A
JHF    John Hancock Finl ServThu, Feb 5  After the Bell       0.78
JRN    Journal Comms, Inc.   Thu, Feb 5  Before the Bell      0.21
KSE    KeySpan               Thu, Feb 5  Before the Bell      0.82
LAF    Lafarge North Am      Thu, Feb 5  -----N/A-----        1.04
LVLT   Level 3 Comms         Thu, Feb 5  -----N/A-----       -0.32
LPX    LP Corp               Thu, Feb 5  Before the Bell      1.09
MFC    Manulife Finl Corp    Thu, Feb 5  During the Market    0.62
MXIM   Maxim Integrated Prod.Thu, Feb 5  After the Bell       0.27
MTD    Mettler-Toledo Intl   Thu, Feb 5  After the Bell       0.71
MHK    Mohawk Industries, IncThu, Feb 5  After the Bell       1.42
MWI    Moore Wallace Incorp  Thu, Feb 5  After the Bell       0.33
NVO    Novo-Nordisk          Thu, Feb 5  -----N/A-----         N/A
NUS    Nu Skin               Thu, Feb 5  -----N/A-----        0.30
ORH    Odyssey Re Hldgs Corp.Thu, Feb 5  After the Bell       0.47
IX     Orix Corp             Thu, Feb 5  -----N/A-----         N/A
PNP    Pan Pacific Retail    Thu, Feb 5  -----N/A-----        0.84
PEP    PepsiCo               Thu, Feb 5  Before the Bell      0.52
POT    Potash Corp SaskatchwnThu, Feb 5  During the Market    0.40
PRTL   PRIMUS Tlcm Grp       Thu, Feb 5  After the Bell       0.12
O      Realty Income Corp    Thu, Feb 5  -----N/A-----        0.77
DNY    RR Donnelley          Thu, Feb 5  After the Bell       0.53
R      Ryder System, Inc.    Thu, Feb 5  Before the Bell      0.57
SC     Shll Trnsprt Trdng Co Thu, Feb 5  Before the Bell      0.73
SHW    Sherwin-Williams      Thu, Feb 5  -----N/A-----        0.45
SPG    Simon Property Grp    Thu, Feb 5  After the Bell       1.24
SBGI   Sinclair Broadcast GrpThu, Feb 5  Before the Bell     -0.01
SNN    Smith & Nephew        Thu, Feb 5  Before the Bell      0.79
HOT    Starwood Htls Rsrts   Thu, Feb 5  Before the Bell      0.32
TE     TECO Energy Inc.      Thu, Feb 5  -----N/A-----        0.13
NZT    Tlcm Crp New Zealand  Thu, Feb 5  -----N/A-----         N/A
MNY    The MONY Grp Inc.     Thu, Feb 5  Before the Bell      0.08
TM     Toyota Motor Corp     Thu, Feb 5  -----N/A-----         N/A
TQNT   TriQuint Semi         Thu, Feb 5  After the Bell      -0.01
WPI    Watson PharmaceuticalsThu, Feb 5  After the Bell       0.48


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

BLC    Belo                  Fri, Feb 6  Before the Bell      0.36
CI     CIGNA                 Fri, Feb 6  Before the Bell      1.40
ECL    Ecolab Inc.           Fri, Feb 6  Before the Bell      0.25
ERICY  Ericsson LM Telephone Fri, Feb 6  -----N/A-----       -0.09
FFH    Fairfax Finl Hldgs    Fri, Feb 6  After the Bell       4.22
HME    Home Prop, Inc.       Fri, Feb 6  Before the Bell      0.76
LZ     Lubrizol              Fri, Feb 6  Before the Bell      0.41
NTE    Nam Tai Elec, Inc.    Fri, Feb 6  After the Bell        N/A
IQW    Quebecor World        Fri, Feb 6  -----N/A-----        0.43
SILI   Siliconix             Fri, Feb 6  Before the Bell      0.40
SKM    SK Telecom            Fri, Feb 6  -----N/A-----         N/A
SUP    Superior Industries   Fri, Feb 6  Before the Bell      0.85
VSH    Vishay Intertech, Inc.Fri, Feb 6  Before the Bell      0.09


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

Symbol  Co Name              Ratio    Payable     Executable

HOFT    Hooker Furniture Corp, Inc2:1      Jan  30th   Feb   2nd
RMCF    Rocky Mountain Chocolate  N/A      Feb   1st   Feb   2nd
PROV    Provident Finl Hldgs      3:2      Feb   2nd   Feb   3rd
PCAR    Paccar Inc                3:2      Feb   5th   Feb   6th
JST     Jinpan Intl Limited       2:1      Feb   6th   Feb   9th
DCAI    Dialysis Corporation      3:2      Feb   9th   Feb  10th
MSCC    Commercial Capital Bancorp2:1      Feb   9th   Feb  10th
TASR    TASER International, Inc. 2:1      Feb  10th   Feb  11th
ONFC    Onedia Financial Corp     3:1      Feb  10th   Feb  11th
NFLX    Netflix Inc.              2:1      Feb  11th   Feb  12th


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

The first week of February is a busy one with a very full week
of economic reports.  Plus investors will still be digesting
more corporate earnings reports.


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

----------------
Monday, 02/02/04
----------------
Personal Income (BB)       Dec  Forecast:    0.2%  Previous:     0.5%
Personal Spending (BB)     Dec  Forecast:    0.5%  Previous:     0.4%
Construction Spending (DM) Dec  Forecast:    0.8%  Previous:     1.2%
ISM Index (DM)             Jan  Forecast:    64.0  Previous:     63.4


-----------------
Tuesday, 02/03/04
-----------------
Auto Sales (NA)            Jan  Forecast:    5.9M  Previous:     5.8M
Truck Sales (NA)           Jan  Forecast:    7.9M  Previous:     8.9M

-------------------
Wednesday, 02/04/04
-------------------
ISM Services (DM)          Dec  Forecast:    60.0  Previous:     58.0
Factory Orders (DM)        Dec  Forecast:    0.3%  Previous:    -1.4%


------------------
Thursday, 02/05/04
------------------
Initial Claims (BB)      01/30  Forecast:    342K  Previous:     342K
Productivity-Prel (BB)      Q4  Forecast:    3.4%  Previous:     9.4%


----------------
Friday, 02/06/04
----------------
Nonfarm Payrolls (BB)      Jan  Forecast:    180K  Previous:       1K
Unemployment Rate (BB)     Jan  Forecast:    5.7%  Previous:     5.7%
Hourly Earnings (BB)       Jan  Forecast:    0.2%  Previous:     0.2%
Average Workweek (BB)      Jan  Forecast:    33.8  Previous:     33.7
Consumer Credit (DM)       Dec  Forecast:   $6.5B  Previous:    $4.0B

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


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The Option Investor Newsletter                   Sunday 02-01-2004
Sunday                                                      2 of 5


In Section Two:

Watch List: Mostly Three-lettered Stocks
Dropped Calls: CSC, MBI
Dropped Puts: ADBE, NSM


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

Mostly Three-lettered Stocks

___________________________________________________________________

How to use this watch list:
  Readers can use the candidates below as a springboard for their
  own research.  Many are in the process of breaking support or
  resistance or in the process of starting new trends or
  extending old ones.  With your own due diligence these could be
  strong potential plays.
___________________________________________________________________


UnitedHealth Group - UNH - close: 60.88 change: -0.03

WHAT TO WATCH:  We strongly considered adding UNH to the OI call
list this weekend.  The only reason it didn't make was due to
time constraints.  The stock has been very strong, building on a
series of higher lows.   The recent bounce from its 10-dma has
pushed it to new all-time highs.  After the company's recent
upside earnings guidance shares are likely to attract steady
buying interest.  Its P&F chart suggests a $77 price target.

Chart=


---

Aetna Inc - AET - close: 70.00 change: +0.01

WHAT TO WATCH:  AET is another play in the insurance sector that
short-term traders may want to watch.  We like the bounce from
previous resistance at $68.00 and the stock could produce a pre-
earnings run up ahead of its February 12th announcement.

Chart=


---

Dow Chemical - DOW - close: 41.95 change: +0.69

WHAT TO WATCH:  Technical oscillators are turning bullish on this
issue after its recent earnings report.  Shares have bounced from
the $40 level, just above its simple 50-dma.  Traders might want
to consider a trigger above $42.00 or 42.50 as a bullish entry
point.

Chart=


---

Golden West Financial - GDW - close: 103.73 change: +0.79

WHAT TO WATCH:  GDW has been consolidating under resistance at
104 for three months.  The stock pierced this resistance on
Wednesday but couldn't hold it.  Now, after Thursday's bounce
from the simple 50-dma, GDW looks ready for another try.  Traders
can use a move over $104 as a trigger to go long.  More
conservative traders may want to wait for a move over $105.30.

Chart=


---

Yahoo! - YHOO - close: 46.98 change: +0.89

WHAT TO WATCH:  Tech traders might want to give YHOO another
look.  JPM just upgraded the stock on Friday to an "over weight"
and added it to their Focus list.  We like the big intraday
bounce from Thursday's low off its simple 50-dma.  This looks
like a bullish entry point but if you're looking for more
momentum wait for YHOO to clear the $48.00 or 48.50 level.

Chart=



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

PD $75.67 +2.27 - The rebound on Friday looks like a tradable
entry point for a run back towards the $80 level.  Friday's move
is also a bullish engulfing candlestick.

DVA $40.12 +0.18 - The bullish wedge and slow trend of lower
highs is trying to produce a bullish breakout over 40.00-40.50.
Look for a possible pre-earnings run ahead of its Feb. 11th
announcement.

AIG $69.45 +0.18 - AIG is another insurance stock that has been
offering traders decent relative strength.  A move over $70.75
would be a strong breakout over resistance.  Look for earnings on
Feb. 11th.


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**************************
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
^^^^^

Computer Sciences Corp - CSC - cls: 44.65 chng: -0.60 stop: 43.50

The past week has been pretty disappointing for CSC bulls, as the
stock surged higher on Monday and has been steadily losing ground
ever since.  We had expected the $44.50-45.00 area to be strong
support, but the bounce off the lows on Friday (near $44.25) was
far too feeble to be of much encouragement.  By the end of the
day, CSC couldn't even get back to $45 and with the close under
the 20-dma ($45.06), it looks like a serious test of the $43.50
lows from earlier in the month is in the cards.  Basically, the
stock is showing more weakness than we like to see from our
bullish plays, so we're going to cut our losses early.  Any
rebound on Monday should be used to effect a more favorable exit
from the play.

Picked on January 25th at    $46.54
Change since picked:          -1.89
Earnings Date               2/11/04 (confirmed)
Average Daily Volume =     1.22 mln


---

MBIA Inc. - MBI - close: 63.00 chg: +0.27 stop: 59.99

We are a little surprised that MBI never dipped back toward
previous resistance at $60.00-61.00 but the lack of weakness may
be a good sign for investors.  Unfortunately, as traders (not
investors) we're going to exit the play ahead of MBI's February
3rd earnings report.  However, keep an eye on MBI and the rest of
the insurance group, which has been one of the better performers
this past week.  MBI's estimates are for $1.22 a share

Picked on January 20 at $62.93
Change since picked:    + 0.07
Earnings Date         02/03/04 (confirmed)
Average Daily Volume:      572 thousand
Chart =



PUTS
^^^^

Adobe Systems - ADBE - close: 38.30 change: +2.17 stop: 39.50

The raised guidance Thursday night was just too much for the
bears and ADBE rose right up to the $39 level before settling
back a bit at the end of the day to close just over $38.  The
bearish trend was looking pretty encouraging at the close on
Thursday with the close at new multi-month lows.  But Friday's
action looks like a potential change in trend as ADBE closed
above the 20-dma for the first time in more than 3 weeks.  Rather
than risk a real breakout next week, let's pull the plug now and
focus our efforts elsewhere.

Picked on January 11th at     $37.12
Change since picked:           +1.18
Earnings Date                3/11/04 (unconfirmed)
Average Daily Volume =      3.44 mln
Chart =


---

National Semiconductor - NSM - cls: 38.47 chng: +1.56 stop: 39.00

Doing an abrupt about-face on Friday, NSM erased all its losses
from the rest of the week, ending back over $38 after tacking on
more than 4%.  We set our entry trigger below the $36 level to
avoid just such an adverse move after the play went live.  Taken
together with the daily Stochastics now starting to turn up from
deep within oversold territory, Friday's price action looks like
a strong statement that our anticipated breakdown is not going to
materialize.  We're dropping coverage this weekend and since it
is untriggered, we can do so knowing nobody got hurt.

Picked on January 27th at     $36.73
Change since picked:           +1.74
Earnings Date                3/04/04 (unconfirmed)
Average Daily Volume =      3.40 mln
Chart =



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

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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The Option Investor Newsletter                   Sunday 02-01-2004
Sunday                                                      3 of 5


In Section Three:

Current Calls: DHR, ESRX, GENZ, HSIC, MWD
New Calls: ABK, IBM, IMDC
Current Put Plays: KSS, QLGC
New Puts: EASI


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CURRENT CALL PLAYS
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Danaher Corp - DHR - close: 91.55 cls: +1.57 stop: 87.99

Company Description:
Danaher, a leading industrial company, designs, manufactures, and
markets innovative products, services and technologies with
strong brand names and significant market positions. Driven by
strong core values and a foundation provided by the Danaher
Business System, Danaher's associates are pursuing a focused
strategy aimed at creating a premier global enterprise.
(source: company website)

Why We Like It: (original play from Thursday's newsletter)
Danaher, Danaher...hmm...probably not familiar with its name but
you might know Danaher for its Craftsman tool line it makes for
Sears.  The company announced earnings this morning and they were
better than expected.  Net income was $1.06 a share but after
backing out a one-time 9-cent gain its 97 cent results beat
estimates by 2 cents.  Revenues were up nearly 17% to $1.49
billion, also better than estimates.  We normally don't like to
play a stock this close to earnings, even after the report, but
shares offered a perfect bounce from the bottom of its rising
channel, technical support at its 50-dma and price support at
$88.00.

What could propel investors to buy the stock now that the
earnings news is out?  DHR plans to complete its acquisition of
two medical device companies in the first quarter (Radiometer and
Gendex) and the company raised its earnings guidance for the
first quarter.  DHR had previously guided Q1 earnings to 72-77
cents a share.  Analysts had them pegged at 78 cents.  Now DHR
believes its first quarter net income will be in the 76 to 81
cent range.  We do feel the need to mention that while this looks
like a relatively lower risk entry near support DHR's P&F chart
isn't offering the bulls much to go on.  Its bullish vertical
count of $87 has already been met and its P&F chart is showing a
bearish high-pole warning.

We want to protect ourselves and make sure we're catching DHR on
a bounce so we plan to use a TRIGGER at $91.01 to open the play.
Until DHR trades at or above this level we'll remain on the
sidelines.  Once activated we'll start the play with a stop loss
just below today's low at $87.99.  Our first target is $96 but if
the channel holds up DHR might be able to hit $100.

FYI: DHR's last split was in June of 1998.  Shares are well above
their previous split price so there is the possibility of DHR's
management announcing a split as it approaches $100.

Weekend Update:
DHR is following our script with a strong rebound on Friday to
confirm Thursday's bounce off its 50-dma and the $88.00 level.
The move up and through the $91.00 level hit our TRIGGER and
opened the play.  Our stop loss is effectively under Thursday's
low.  The stock still looks good here but if the markets show any
weakness on Monday a dip to $90 might offer a slightly improved
entry point.


Suggested Options:
Short-term traders can choose the February or March options and
longer-term players might want to look at June or Septembers.
Our preferred strikes would be the March calls with the March 90s
as our favorite.

BUY CALL FEB 90 DHR-BR OI=1269 at $3.60 SL=1.80
BUY CALL MAR 90*DHR-CR OI= 863 at $4.90 SL=2.50
BUY CALL MAR 95 DHR-CS OI= 864 at $2.35 SL=1.15

Annotated Chart:



Picked on January 30 at $91.01
Change since picked:    + 0.54
Earnings Date         01/29/04 (confirmed)
Average Daily Volume:      841 thousand
Chart =


---

Express Scripts - ESRX - close: 69.18 change: -0.31 stop: 65.00

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

Why we like it:
The price action in shares of ESRX has been frustratingly slow
over the past two weeks, as the stock continues to grind its way
higher.  The good news is that the small-range up and down action
is continuing in the right direction - up.  Support appears to be
firming up nicely in the $67.50-68.00 area and a dip and rebound
from that level looks good for new entries into the play.  The
fact that price hasn't been able to sustain a move over $70
though, leaves us with the nagging concern that perhaps a
pullback to strong support in the $66.50 area may be necessary to
recharge the bulls' batteries.  We're still leaning to entering
on pullbacks rather than breakouts.  So long as the dip is met by
buying interest and is above critical support at $66, the trend
still looks bullish.  Maintain stops at $65, right at the 50-dma.

Suggested Options:
Shorter Term: The February $70 Call will offer short-term traders
the best return on an immediate move, as it is just slightly out
of the money.  Short term traders with a less aggressive stance
will want to use the ITM February $65 call.

Longer Term: Aggressive longer-term traders can use the March $70
Call.  Our preferred option is the March $70 strike, which is just
slightly out of the money and should provide sufficient time for
the play to move in our favor.

BUY CALL FEB-65 XTQ-BM OI= 917 at $5.00 SL=3.00
BUY CALL FEB-70 XTQ-BN OI=1940 at $1.70 SL=0.75
BUY CALL MAR-70*XTQ-CN OI= 348 at $2.65 SL=1.25

Annotated Chart of ESRX:



Picked on January 13th at    $68.32
Change since picked:          +0.86
Earnings Date               2/24/04 (confirmed)
Average Daily Volume =     1.21 mln


---

Genzyme Corp. - GENZ - close: 54.78 change: -0.88 stop: 52.00

Company Description:
Genzyme General, a division of Genzyme Corporation, is focused on
developing innovative products and services to solve major unmet
medical needs.  GENZ has nearly 600 products and services on the
market and a strong pipeline of therapeutic products for the
treatment of rare genetic diseases.  The Diagnostics business
unit develops, markets and distributes in vitro diagnostic
products and genetic testing services. With a solid, profitable
revenue base, this research is intended to maintain the company’s
high rate of earnings growth.

Why we like it:
What is it about that $55 price level?  GENZ seems determined to
see just how many times it can cross over that threshold before
making up its mind about which way to go next.  Support looks
firm at $54, with buyers eagerly supporting the stock on
pullbacks to that area.  But at the same time, resistance seems
equally firm near $56, with each foray to that level meeting with
selling pressure.  Eventually this range will break, and we think
it will be to the upside -- otherwise, what would be the point of
continuing coverage?  Note how the last dip found solid support
at the 10-dma ($53.98)-- another dip to that average certainly
seems viable as a fresh entry.  We still don't like the idea of
momentum entries into strength due to solid resistance in the
$57-58 area.  Buy the dip and hold on through the gyrations as
GENZ makes its way through that resistance.  There's just under 3
weeks until the company reports earnings, so if the bulls are
serious about taking the stock higher ahead of that report,
they'll have to get moving next week.  Maintain stops at $52.

Suggested Options:
Shorter Term: The February $55 Call will offer short-term traders
the best return on an immediate move, as it is currently at the
money.

Longer Term: Aggressive longer-term traders can use the March $60
Call, while the more conservative approach will be to use the
March $55 strike.  Our preferred option is the March $55 strike,
which is currently at the money and should provide sufficient
time for the play to move in our favor.

BUY CALL FEB-55 GZQ-BK OI=2410 at $1.80 SL=0.90
BUY CALL FEB-60 GZQ-BL OI= 884 at $0.30 SL=0.00
BUY CALL MAR-55*GZQ-CK OI= 414 at $2.70 SL=1.25
BUY CALL MAR-60 GZQ-CL OI= 608 at $0.95 SL=0.50

Annotated Chart of GENZ:



Picked on January 20th at    $53.00
Change since picked:          +1.78
Earnings Date               2/19/04 (unconfirmed)
Average Daily Volume =     2.84 mln


---

Henry Schein - HSIC - close: 70.15 chg: -0.42 stop: 67.50

Company Description:
Henry Schein, Inc. is the largest distributor of healthcare
products and services to office-based practitioners in the
combined North American and European markets. Recognized for its
excellent customer service and low prices, the Company's four
business groups--Dental, Medical, International and Technology--
serve more than 400,000 customers worldwide, including dental
practices and laboratories, physician practices and veterinary
clinics, as well as government and other institutions. The
Company's sales reached a record $3.1 billion for the twelve
months ended September 27, 2003. With a presence in 14 countries,
Henry Schein's International Group posted sales of over $500
million for the same period.  The Company operates through a
centralized and automated distribution network, which provides
customers in more than 125 countries with a comprehensive
selection of over 90,000 national and Henry Schein private-brand
products. (source: company press release)

Why We Like It:
We still believe that HSIC is ready for its next leg higher.
After weeks of consolidation between $65 and $70 the stock
finally broke out to the upside above resistance several days
ago.  Now all we need to see is some follow through by investors.
The recent acquisition news for some European dental product
distributors was accepted well by the markets and the company
signed another distribution deal just this past week.

The play is not without its caveats.  We did note that Bank of
America had downgraded the stock to a "neutral" upon hitting its
$70 price target.  Coincidentally (or not) that also happened to
be HSIC's p&f chart vertical price objective ($70).  Conservative
traders can look for a little more momentum and wait for HSIC to
trade back above the $71.00 or 71.50 levels.

Suggested Options:
Traders have plenty of options to choose from.  HSIC has
February, March, April and July strikes.  We're prone to use the
February and March calls.  Our favorite would be the March 70s
but there is little open interest.  The April 70s will have to
work.

BUY CALL FEB 65 HQE-BM OI= 35 at $5.60 SL=3.25
BUY CALL FEB 70 HQE-BN OI=541 at $1.75 SL=0.90
BUY CALL MAR 65 HQE-CM OI=  0 at $6.10 SL=4.00
BUY CALL MAR 70 HQE-CN OI= 19 at $2.65 SL=1.30
BUY CALL MAR 75 HQE-CO OI=102 at $0.75 SL= --
BUY CALL APR 70*HQE-DN OI=542 at $3.30 SL=1.65
BUY CALL APR 75 HQE-DO OI=258 at $1.25 SL=0.65

Annotated Chart:



Picked on January 22 at $70.65
Change since picked:    - 0.50
Earnings Date         03/04/04 (unconfirmed)
Average Daily Volume:      334 thousand
Chart =


---

Morgan Stanley - MWD - close: 58.21 chg: +0.37 stop: 56.75

Company Description:
Morgan Stanley is a global financial services firm and a market
leader in securities, investment management and credit services.
With more than 600 offices in 28 countries, Morgan Stanley
connects people, ideas and capital to help clients achieve their
financial aspirations. (source: company press release)

Why We Like It:
Whew!  It's been a tough couple of weeks for MWD but support at
its simple 50-dma held up and shares look poised for another
rally higher.  The XBD broker-dealer index, which had been
exceptionally strong for so long, finally hit some profit taking
in the last several days and that weighed heavily on MWD.
Fortunately, the M&A speculation that sparked the most recent MWD
breakout should become a year-long undercurrent for the markets.

In Thursday's newsletter we made note of the media buzz over
American Express and MBNA in a credit card deal.  Last September
17th a court ruled on an anti-trust case against Visa and
Mastercard saying they could not prevent their member banks from
issuing competitors cards.  The AXP-MBNA deal was news because it
was the first of probably several rollouts for AXP and its
signature credit card, which means more licensing revenues.  What
many reporters failed to mention is that MWD has a competing
credit card with its Discover operations.  This means MWD should
also benefit from this new outlet of banks looking to flesh out
their credit business.  Of course Visa and MC are appealing the
September decision so the battle isn't over yet.

The recent pull back in shares of MWD is offering a decent entry
point for new bullish positions for anyone brave enough to take
it.  If you prefer to see a bit more momentum before committing
any capital look for MWD to trade back above the $59.00 level.
We're going to leave our stop loss at 56.75.

Suggested Options:
We like the February and April 55 and 60 calls but our favorite
is the February 55's.

BUY CALL FEB 55*MWD-BK OI= 1320 at $3.80 SL=2.10
BUY CALL FEB 60 MWD-BL OI= 8423 at $0.75 SL= --
BUY CALL MAR 55 MWD-CK OI=  314 at $4.50 SL=2.25
BUY CALL MAR 60 MWD-CL OI= 1538 at $1.60 SL=0.80
BUY CALL APR 60 MWD-DL OI=21266 at $2.05 SL=1.05
BUY CALL APR 65 MWD-DM OI=10082 at $0.60 SL= --

Annotated Chart:



Picked on January 15 at $59.81
Change since picked:    - 1.60
Earnings Date         03/18/04 (unconfirmed)
Average Daily Volume:      3.8 million
Chart =



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

Ambac Financial Group - ABK - close: 74.77 chg: +1.18 stop: 71.99

Company Description:
Ambac Financial Group, Inc., headquartered in New York City, is a
holding company whose affiliates provide financial guarantees and
financial services to clients in both the public and private
sectors around the world. Ambac's principal operating subsidiary,
Ambac Assurance Corporation, a leading guarantor of public
finance and structured finance obligations, has earned triple-A
ratings, the highest ratings available from Moody's Investors
Service, Inc., Standard & Poor's Ratings Services, Fitch, Inc.
and Rating and Investment Information, Inc.
(source: company press release)

Why We Like It:
January aside, the last several months for ABK have been nothing
but boring! The stock traded sideways for six months after a
strong six-month run in the first half of 2003.  It appears that
ABK has finished digesting its 2003 gains and its ready to make
some for 2004.  The stock sprang to life in mid-January after
rival MGIC announced earnings that were much better than
expected.  Investors suddenly ramped up shares of ABK in
anticipation of stronger earnings but the stock failed at
resistance of $75.00 just as the major averages were slowing down
their own ascents.

Fortunately the company didn't disappoint and beat earnings
estimates by 5 cents.  Net income more than doubled from last
year with $1.44 a share versus 59 cents.  Revenues soared last
quarter, up 92% to $338 million, which is above the $318 million
estimate.  The company said it expects to keep a 14-16 percent
growth rate.  With strong earnings news and a strong sector (IUX)
to back it up we think ABK can run.  Currently its P&F chart is
projecting an $89 price target.  We're going to target a quick
move to $80 and then re-evaluate.  Please note that we would
normally use a trigger above resistance in the 75.00-75.20 range
but this time we're going to rely on the bull flag breakout as
our signal.  Feel free to use a trigger to confirm the breakout
if that suits your risk tolerance.  We're going to initiate the
play with a stop loss at $71.99.

Suggested Options:
Short-term traders can use February or March strikes.  February
calls expire in three weeks so we're going to suggest the March
calls.  The March 70s and 75s are our favorites.

BUY CALL FEB 70 ABK-BN OI=658 at $5.00 SL=3.25
BUY CALL FEB 75 ABK-BO OI=333 at $1.20 SL=0.65
BUY CALL MAR 70 ABK-CN OI=  0 at $5.50 SL=3.50
BUY CALL MAR 75 ABK-CO OI= 67 at $2.00 SL=1.00

Annotated Chart:



Picked on February 1 at $74.77
Change since picked:    + 0.00
Earnings Date         01/28/04 (confirmed)
Average Daily Volume:      476 thousand
Chart =


---

Int'l Bus. Machines - IBM - cls: 99.23 chng: +1.22 stop: 95.50

Company Description:
International Business Machines uses advanced information
technology to provide customer solutions.  The company provides
value to its customers through a variety of solutions including
technologies, systems, products, services, software and
financing.  IBM's three hardware product segments are comprised
of Technology, Personal Systems and Enterprise Systems.  Other
major operations consist of a Global Services segment, a Software
segment, a Global Financing segment and an Enterprise Investments
segment.

Why we like it:
It has been a very constructive month for shares of Big Blue.
After consolidating the initial breakout over $90 in September,
IBM broke over $90 in a very enthusiastic acceptance of the
company's earnings report in mid-January.  And the bulls didn't
quit running until creeping within inches of the $100 level on
Monday.  After closing at $99.85, IBM succumbed to some profit
taking with the rest of the broad market and pulled back all the
way to the 10-dma ($97.32) before yesterday's rebound and today's
strong rally that took the stock back over $99.  What's
encouraging about the bounce is that it occurred near the top of
the gap from April of 2000.  That's right, IBM has closed that
big gap and is now finding support at the bottom of that gap.
Big Blue looks ready to run and the first push through the
century mark will be the equivalent of the starter's gun.

We'll use an entry trigger at $100 and recommend entries on the
initial breakout.  Of course, a subsequent pullback to confirm
support in the $98-99 area looks good as an entry point as well.
Once solidly over $100, there's some mild resistance near $103
and then stronger resistance near $106.  But our goal will be for
a move to really strong resistance at $110.  Taking a look at the
PnF chart, we can see just how strong that breakout over the $94-
95 resistance was, as it created a triple top breakout.  Looking
a bit further back, we can see that big vertical column of X's
from August and September that gives a bullish vertical count of
$122, so apparently we aren't being overly aggressive with our
$110 target.  We'll place our initial stop at $95, which will be
under the 20-dma ($94.82) by Monday.

Suggested Options:
Shorter Term: The February $100 Call will offer short-term
traders the best return on an immediate move, as it will be at
the money when the play is triggered.

Longer Term: Aggressive longer-term traders can use the March
$100 Call, while the more conservative approach will be to use
the March $95 strike.  Our preferred option is the March $100
strike, which will be at the money and should provide sufficient
time for the play to move in our favor.

BUY CALL FEB- 95 IBM-BS OI=17298 at $4.70 SL=2.75
BUY CALL FEB-100 IBM-BT OI=30309 at $1.30 SL=0.60
BUY CALL MAR- 95*IBM-CS OI= 1569 at $5.50 SL=3.50
BUY CALL MAR-100 IBM-CT OI= 7113 at $2.40 SL=1.25

Annotated Chart of IBM:



Picked on February 1st at    $99.23
Change since picked:          +0.00
Earnings Date               4/15/04 (unconfirmed)
Average Daily Volume =     5.51 mln


---

Inamed Corp - IMDC - close: 51.54 chg: +1.21 stop: 48.00

Company Description:
Inamed is a global healthcare company with over 25 years of
experience developing, manufacturing and marketing innovative,
high-quality, science-based products. Current products include
breast implants for aesthetic augmentation and for reconstructive
surgery; a range of dermal products to treat facial wrinkles; and
minimally invasive devices for obesity intervention, including
the LAP-BAND. System for morbid obesity. (source: company press
release)

Why We Like It:
Bears are having a hard time keeping this stock down.  IMDC was a
huge winner in 2003 as the stock soared on higher and higher
revenues.  The improving economy and a confident consumer
rekindled the fire for cosmetic surgery and breast augmentation.
IMDC made a number of headlines in October of last year after
presenting data to an FDA panel for the reintroduction of
silicone implants.  After much controversy the FDA panel decided
it needed more information and shares of IMDC deflated.  After
weeks of consolidation the stock gapped even lower on January 8th
after receiving a "not approvable" letter from the FDA for its
premarket approval application.  As many analysts pointed out
this didn't kill the company's chances for approval but merely
sent them back to the starting line.  Since most analysts had not
yet begun to assume any revenues from silicone implants in their
2004 estimates for IMDC investors suddenly realized that shares
looked attractive.

The "not approvable" gap down on January 8th found support near
$42.00 just above its simple 200-dma.  The stock tested it again
two days later when it issued an earnings warning for fiscal
2004.  Surprisingly shares rebounded and several days later IMDC
has completely recouped its losses and was struggling to breakout
above resistance at $50.00 and its 50-dma.  Three days ago IMDC
broke out above this level after its rival Mentor Corp (MNT)
announced earnings that were much better than expected.  At least
one analyst is now raising estimates due to renewed growth in the
breast implant market.

The breakout for IMDC looks very tempting and shares could produce
their own pre-earnings run up, especially after MNT's
positive surprise.  We do expect resistance near the 55.00-55.25
region but bulls have more than three weeks to break through it.
Currently its P&F chart points to a $70.00 price target but we'd
be happy with a move toward its old highs near 59.00.  We'll
start the play with a stop loss at 48.00, although more
conservative traders might be able to get away with a tighter
stop.

Suggested Options:
We don't plan to hold over the Feb. 24th earnings report but that
date is not confirmed.  We suggest the March or April calls.  Our
favorites are the March 50s and 55s.

BUY CALL MAR 50 UZI-CJ OI=2503 at $4.00 SL=2.20
BUY CALL MAR 55 UZI-CK OI=5020 at $1.60 SL=0.80
BUY CALL APR 50 UZI-DJ OI= 514 at $4.90 SL=2.70
BUY CALL APR 55 UZI-DK OI= 479 at $2.60 SL=1.35

Annotated Chart:



Picked on February 01 at $51.54
Change since picked:     + 0.00
Earnings Date          02/24/04 (unconfirmed)
Average Daily Volume:       682 thousand
Chart =



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

Kohls Corp - KSS - close: 44.30 change: +0.90 stop: 45.05

Company Description:
Based in Menomonee Falls, Wisconsin, Kohl's is a family-focused,
value-oriented specialty department store offering moderately
priced national brand apparel, shoes, accessories and home
products. The company operates 542 stores in 36 states.
(source: company press release)

Why We Like It:
Our bearish technical play in KSS was moving in our direction
until one analyst suggested "aggressive accumulation" on Friday.
Comments like that tend to get in the way of any big declines. We
originally picked KSS last Tuesday because shares were failing at
the top of its descending channel once again.  It offered a
lower-risk entry point at resistance and the stock was moving as
planned.

Unfortunately an Oppenheimer analyst was quoted on Friday with
bullish comments for Kohl's.  His belief was that KSS might turn
things around this spring and its terrible performance last year
will give it easy year over year comparisons.  KSS popped higher
on Friday morning but stalled at $44.81, near its high from
Tuesday.  So the question now is will investors buy the stock on
hopes of a spring turnaround?  Or will they continue to sell
strength.  Right now KSS still has price resistance at $45 and
technical resistance at its declining 50-dma.  We're going to
keep the play open but if you're feeling cautious consider
waiting for a move back below the $43.50 level.


Suggested Options:
KSS earnings are in late February and we don't plan to hold over
the event.  That being said our favorite strikes would be the
February puts but March and Aprils are available.

BUY PUT FEB 45*KSS-NI OI= 8307 at $1.85 SL=0.95
BUY PUT FEB 40 KSS-NH OI=11794 at $0.30 SL= --
BUY PUT MAR 45 KSS-OI OI= 1375 at $2.65 SL=1.35
BUY PUT MAR 40 KSS-OH OI= 1684 at $0.80 SL= --

Annotated Chart:




Picked on January 27 at $44.05
Change since picked:    + 0.25
Earnings Date         02/26/04 (unconfirmed)
Average Daily Volume:      4.6 million
Chart =


---

QLogic Corp. - QLGC - close: 44.99 change: +0.51 stop: 48.50

Company Description:
QLogic Corporation designs and develops storage networking
infrastructure components sold to original equipment
manufacturers (OEMs), resellers and system integrators.  The
company's products include the SANblade host bus adapters (HBAs),
SANbox Fibre Channel Switches and SANsurfer Management Suite HBA
and Switch management software.  QLGC's Fibre Channel HBAs
support small computer systems interface (SCSI) protocol,
Internet protocol (IP), virtual interface (VI) and fiber
connection (FICON) protocol.  In addition, the company designs
and supplies controller chips used in hard drives and tape
drives, as well as enclosure management and baseboard management
chip solutions that monitor the health of the physical
environment within a server or storage enclosure.

Why we like it:
As we reflected on Thursday, the $44 level appeared on second
glance to be a more formidable support area than we had at first
assumed.  Sure enough, QLGC caught a bounce off of that level on
Friday coming right back up to former support near $45 by the end
of the day.  A look at the intraday chart shows the stock trading
in a steady descending channel since the sharp post-earnings drop
a couple weeks ago.  That gives us another way to gauge entries
into the play on the failed bounces.  The top of that channel is
at $45.60, helping to explain why Friday's bounce attempt ran
into resistance very near that level before drifting lower into
the close.  The best approach for new entries will be to target
rollovers near the top of this channel (below $46) ahead of a
renewed assault on the $44 support level.  Once that support
gives way, then we can start looking for a drop to the $41-42
area.  We're cautiously lowering our stop to $47.50, which is
just above last Monday's intraday high and what should be strong
resistance at $47.

Suggested Options:
Aggressive short-term traders can use the February 42 Put, while
those with a more conservative approach will want to use the
February 45 put.  We've also listed March strikes for those
traders desiring greater insulation from time decay.  Our
preferred option is the March 45 strike, as it is currently at
the money and provides more time until expiration.

BUY PUT FEB-45 QLC-NI OI=6001 at $1.65 SL=0.75
BUY PUT FEB-42 QLC-NV OI=2442 at $0.75 SL=0.40
BUY PUT MAR-45*QLC-OI OI= 424 at $2.60 SL=1.25
BUY PUT MAR-42 QLC-OV OI= 717 at $1.55 SL=0.75

Annotated Chart of QLGC:



Picked on January 22nd at    $45.25
Change since picked:          -0.26
Earnings Date               4/14/04 (unconfirmed)
Average Daily Volume =     3.95 mln



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


Eng. Support Systems - EASI - cls: 50.00 chng: +1.09 stop: 54.00

Company Description:
Engineered Support Systems, Inc. is a holding company for a group
of subsidiaries that operate as suppliers of military
electronics, equipment and logistics services.  It has nine
wholly owned subsidiaries: Systems and Electronics Inc.,
Engineered Air Systems, Inc., Keco Industries, Inc., Radian Inc.,
Engineered Coil Company, Engineered Electric Company, Universal
Power Systems, Inc., ESSIbuy.com and Engineered Specialty
Plastics, Inc.  In April 2003, the Company sold its plastic
products segment to a private equity group.  The company supplies
high-tech integrated military electronics, support equipment and
logistics services to the United States armed forces and certain
foreign militaries.  EASI also engineers and manufactures air-
handling and heat-transfer equipment, and material-handling
equipment.  Products are manufactured within three operating
segments: light military support equipment, heavy military
support equipment and electronics and automation systems.

Why we like it:
Despite beating earnings estimates in early December and raising
guidance, EASI has had a pretty miserable six weeks since then.
Gapping higher on the news initially, the stock probed above the
$60 level and then got hit with a serious round of selling on
12/15-16, resulting in an intraday selloff that took price nearly
$11 below its peak on December 15th.  That two day selloff broke
the back of the bullish trend that had prevailed up until that
point and the stock has been mired in a persistent downtrend ever
since.  The next blow to the bulls came on January 12th, as the
stock broke down through the 50-dma on a strong rise in volume.
But the bulls did step in to prop the stock up just above $48,
preventing a more severe selloff.  It looks like that more severe
selloff may be at hand though.  EASI got pummeled lower on
Wednesday and Thursday last week, hitting an intraday low of
$48.58, just above the 100-dma ($48.08) before giving a feeble
bounce on Friday.  So far, support is holding, but it really
looks like it is only a matter of time until it gives way,
especially with all the shorter-term moving averages perched
overhead as resistance.

Once EASI breaks its 100-dma, things could get ugly in a hurry, a
story that is reflected on the PnF chart as well.  EASI is
already on a Sell signal with a $40 price target, but a trade of
$48 would generate a fresh Sell signal and remove the last line
of support until $45.  That support can be seen on the standard
price chart as well, but it is clear that the stronger support
level is at $40 -- the same level as the PnF bearish price
target.  We'll use a trigger on the play at $48, and recommend
entries on the initial breakdown.  Should EASI bounce after that
breakdown, a rollover from below $50 would make for a solid entry
as well.  Our initial stop is set at $54, so as to keep the stop
from being hit until after our trigger is satisfied.  Once
triggered, we'll lower the stop to $52.50, just above what should
then be firm overhead resistance at $52.

Suggested Options:
Aggressive short-term traders can use the February 45 Put, while
those with a more conservative approach will want to use the
February 50 put.  Our preferred option is the March 45 strike, as
it provides more time until expiration.

BUY PUT FEB-50 UFE-NJ OI=381 at $2.10 SL=1.00
BUY PUT FEB-45 UFE-NI OI=270 at $0.65 SL=0.30
BUY PUT MAR-45*UFE-OI OI=167 at $1.45 SL=0.75

Annotated Chart of EASI:



Picked on February 1st at     $50.00
Change since picked:           +0.00
Earnings Date                3/09/04 (unconfirmed)
Average Daily Volume =         375 K



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The Option Investor Newsletter                   Sunday 02-01-2004
Sunday                                                      4 of 5


In Section Four:

Leaps: Was That It?
Traders Corner: Sitting Bull Ain’t Gettin’ Up Real Soon


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*****
LEAPS
*****

Was That It?
By Mark Phillips
mphillips@OptionInvestor.com

It felt like a pullback in the overall market was never going to
arrive, as the rally that began in late November just seemed to
have more lives than my cat.  But Tuesday's measured pullback the
day after the DOW notched another new high turned into a real
selloff on Wednesday following the Fed's change of language with
respect to interest rate policy.  Whether the market reaction was
overdone or not remains to be seen, but the interpretation was
definitely a shortening of the period of time that we can expect
to see interest rates remaining at their current multi-decade
lows.

The slight change in language didn't just roil the equity markets,
as there were shifts all across the spectrum.  Gold and gold
shares got sold heavily on Thursday, and the Dollar Index (DX00Y)
actually surged almost to the 88 level, putting pressure on
foreign currencies.  The reaction in the bond market may have been
the most violent, with the initial reaction to the FOMC release
producing a more than 2 point plunge in the 30-year bond price,
resulting in the yield spiking from 4.9% to as high as 5.06% --
all in the space of 15 minutes.  These extreme moves all relaxed
somewhat into the end of the week and we're now left with the
question of "What next?"

Clearly, the earnings season has progressed quite nicely for the
bulls, despite the realization that a lot of the improvements have
come from currency translation.  There is no question the economy
has improved, at least according to the official statistics.  The
nagging problem is still on the employment front and all eyes will
be on next Friday's jobs report to see if the government has been
able to resurrect those missing jobs from last month's report.
Call my a cynic, but even if they don't exist, I expect to see
them show up in the report on Friday.  If they don't, the market
reaction could be unpleasant.

Speaking of unpleasant, Friday's GDP report certainly didn't
inspire the bulls, coming in short of official estimates by more
than 20% and way short of the overly optimistic whisper numbers.
There's no doubt in my mind that the economy HAS improved over the
past 12 months and that has clearly been reflected in the rise in
the markets.  Where I disagree with the market is in its degree of
enthusiasm.  Valuations are back at nosebleed levels in terms of
P/E ratios and dividend yields, yet I sure wouldn't call this a
robust or vibrant economy.  It is just slowly improving and I
think the market action has dramatically overshot the mark to the
upside.

But so long as the FED remains accommodative and they keep running
the printing presses night and day, liquidity will continue to
fuel the market's rise.  As a side note, it should be clear that
it is this liquidity that is at the very heart of the continued
housing boom (the recent statistics notwithstanding) and the
torrid pace at which home prices continue to rise.

I've made no secret of the fact I believe there's a major day of
reckoning ahead for equities, bonds and real estate and the
tipping point may come when interest rates begin their inevitable
ascent.  The long-term picture is that equities are in a secular
bear market, but short-term we're in a cyclical bull market -- one
that is far more powerful than I initially expected.  I've seen
numbers floating around over the past week that call for the
NASDAQ back over 3000 and the DOW breaking over 12,000 by the end
of the year.  Do I believe it?  No.  But then a few short months
ago, I didn't believe the DOW could better its 2002 highs either.
The moral of the story is that the market can remain irrational
far longer than we can remain solvent.

I'll continue to take bullish and bearish trades as they appear,
but until the VIX shakes off its lethargy and climbs well above
20, I'll view the bullish case as very much intact.  That means
I'll play more cautiously on the bearish side of the ledger and be
more stingy with my stops and more aggressive with harvesting
gains.  For me, the real measure of a significant change in the
character of the market will be found at the 50-dma.  When the
DOW, NASDAQ and S&P 500 all close below their respective 50-dmas,
we'll have confirmation that the tide has changed.  Until that
happens, we can play both sides, but with a bias towards buying
the dips on bullish play candidates.

Portfolio:

SBUX - Alright, this is just starting to get a bit eerie, don't
you think?  SBUX gets downgrades and it rallies to new highs.  It
announces earnings and rallies to new highs.  The broad market
sees its best bout of profit taking in months and SBUX rallies to
new highs, and on very strong volume too.  We're getting very
close to that initial target of $37, and conservative traders
should be looking at harvesting some gains up here.  It doesn't
mean you can't buy back in on the next dip, but this is just a
matter of money management with our 2005 LEAP now up almost 100%.
This rally in SBUX has essentially continued without a serious
pullback since last May, and I can't shake the feeling that it
could be lurking just around the corner.  Without question, if
SBUX continues its rally up to the $40 level before a serious
correction, we'll be taking a pro-active exit into that strength.
Note that our stop creeps up to $33 this weekend, which will be
under the 50-dma on Monday.  Traders unwilling to give that much
back if some weakness does appear might want to use a tighter stop
just under $35.

DJX - As though the pros were gunning for our stops, DJX closed a
nickel over its stop on Monday -- just before the bottom fell out.
Why is that?  Needless to say, DJX is a drop this weekend.

SMH - We're finally starting to see a bit of favorable price
action in the SMH, as the Semiconductor sector really took it on
the chin last week, leading the weakness on the NASDAQ.  SMH has
now fallen back to/just below its 50-dma, just as it did in
December and September.  The big question is whether this time
we'll decisively break that average or if it will result in
another rebound and trip to new highs.  I think it is different
this time for a couple of reasons.  First, the 50-dma has finally
turned down, something that hasn't happened since last April.
Additionally, the weekly Stochastics is starting to tip over at a
much lower high than the last time, and in conjunction with the
higher high in price, we're presented with a clear case of bearish
divergence.  That said, we need to see significantly more price
weakness before the PnF chart will give us the 'all clear' signal.
It will take a trade at $38 (breaking the December lows) to
generate a PnF Sell signal, meaning that we still have not broken
the bullish trend.  But there are some encouraging signs.  We need
to maintain a liberal stop for now and I still feel the $46 level
is where it belongs.  Should we see a rebound from the 50-dma, new
positions can be considered on a rollover below $44-45, which
should now be resistance if the trend is in the process of
changing.

NEM - As expected, the dollar has finally gained a bit of traction
and rebounded solidly off its recent lows.  That has put pressure
on every other currency, including gold.  The change of statement
from the Fed on Wednesday really rocked the gold market on
Thursday, with the price of the yellow metal finally cracking
under the $400 level.  Remember, we're looking at strong support
for gold at $390, the XAU at $94-95 and NEM in the $38-40 area.
This is just the normal correction in the bull market in gold that
we've been waiting for.  We may have taken our entry a bit early,
but I still view dips near support for NEM to be attractive long-
term entry points.  I wouldn't rule out a test of the 200-dma (now
$38.18) before the uptrend resumes, and this is the part where
we'll need to be patient.  Traders concerned about downside risk
should buy some insurance in the form of a March put to hedge that
risk, as noted in the original Portfolio Play writeup a couple
weeks ago.

Watch List:

QCOM - Across the market, the 50-dma will be an important
technical level where the current dip should find support and the
bulls can rebuild their strength for the next push upwards.  QCOM
has been amazingly strong, only offering a dip to the top of the
early January gap near $56 last week before the bulls bought the
dip.  That isn't enough of a pullback to tempt me, especially with
the 50-dma clear down at $52.46.  I like the long-term bullish
prospects for QCOM and the PnF chart does nothing to dissuade me
from that view.  But we need a better entry point if we are going
to have any hope of managing risk and reward.  But with the
ability to hedge risk with a protective put, I do think we can
reactivate the play this weekend.  Let's set our entry target now
at $53-54 and hope for a deeper pullback in the near term, before
a breakout to new highs.  My current view is for upside potential
as high as $68-70, which is in line with the PnF bullish price
target of $67.  That makes for a viable play if we can get the
pullback, but it is questionable from current levels.  At entry,
let's use the April $50 put (AAO-PJ) for insurance.

HD - There's really nothing new to report on HD.  Price is indeed
starting to creep ever so slightly higher, but our $37-38 target
has so far remained out of reach for the bulls.  The dominant
descending channel that has been in place since early 2000
continues its gradual drop and eventually the top of the channel
and price action are destined to meet.  That will be the point
where we gain a true picture of the stock's strength/weakness.
The top of the channel is now exactly $38 and as though that
wasn't stiff enough resistance, there's the 200-week moving
average coming in at $40.07.  I think we need to remain patient
with our entry here and let it set up the way we want it or let it
alone.  I have added a Protective Call to the play this weekend in
keeping with our new form of risk control.  Use the May $40 Call
(HD-EH), currently priced at only $0.40.

SNDK - Ouch!  SNDK is looking really ugly here, slicing right
through the 200-dma on Friday, ending very close to the December
lows.  Technically, price ended at our entry target, but as we've
established here in the past, we don't enter just because the
price level has been reached.  We need a bounce off of support and
not only did that not happen, but it doesn't look like it is going
to happen in the near-term.  After looking at the PnF chart this
weekend (UGLY!) the Sell signal and corresponding $35 bearish
price target tells me that we're playing with fire right now.  I'm
not quite ready to drop the play, but we definitely want a better
technical setup before playing.  SNDK is on hold until further
notice.

Radar Screen:

WMB - As I mentioned last week, I really like the bullish
prospects for WMB over the long term, but near-term the weekly
chart really has me feeling cautious.  It looks like the weekly
Stochastics are starting to roll over and if they do so here, will
leave us with a clear case of bearish divergence.  That tells me
caution is warranted, as we may be treated to a more favorable
entry point if we just exercise a bit more patience.  I wouldn't
rule out a pullback to the 200-dma, which is below $9 at this
time.  We'll keep our eye on WMB and move it onto the Watch List
if everything lines up right.

Closing Thoughts:
That was certainly an exciting week we just closed out!  The DOW
notched a fresh 2-year high and then the broad market saw its
biggest selloff in months.  Whether the pullback is over or
there's another down-leg in store, I think we should now be
looking for entry points on bullish candidates, rather than trying
to play the downside in stocks that are already showing
significant weakness.  There's really no indication yet of the
bullish trend of the past 10 months having changed and the first
real test will arrive when those 50-dmas come into play.  With a
full slate of economic reports and more earnings this week, it
isn't likely to be a boring week!

Admin Note: As you can see from the playlists below, I am making
progress on integrating the use of the protective puts/calls into
our strategy here, but the Portfolio list is still causing some
issues.  There's just too much information and too little space to
work with.  I have no doubt that a solution is forthcoming and
I'll endeavor to discover and finalize it by next week so our
transition will be complete.  Note the new notations in the Watch
List and this week's new Watch List plays.  PC stands for
Protective Call and PP stands for Protective Put.

Have a great week!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
SBUX  11/24/03  '05 $ 30  ZOS-AF  $ 4.30  $ 8.40  +95.35%  $ 33.00
                '06 $ 30  WSP-AF  $ 6.40  $10.20  +59.38%  $ 33.00
NEM   01/18/04  '05 $ 40  ZIE-AH  $ 8.20  $ 7.30  -10.98%  $ 37.00
                '06 $ 40  WIE-AH  $10.20  $ 9.90  - 2.94%  $ 37.00


Puts:
SMH   12/30/03  '05 $ 40  ZTO-MH  $ 4.90  $ 4.50  - 8.16%  $ 46.00
                '06 $ 40  YRH-MH  $ 6.60  $ 6.30  - 4.55%  $ 46.00


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
QCOM   11/16/03   $53-54       JAN-2005 $ 55  ZLU-AK
                            CC JAN-2005 $ 50  ZLU-AJ
                               JAN-2006 $ 55  WLU-AK
                            CC JAN-2006 $ 50  WLU-AJ
                            PP APR-2004 $ 50  AAO-PJ
SNDK   12/21/03   HOLD         JAN-2005 $ 45  XWS-AK
                            CC JAN-2005 $ 40  XWS-AJ
                               JAN-2006 $ 45  YSD-AK
                            CC JAN-2006 $ 40  YSD-AJ
CHK    02/01/04   $11.50       JAN-2005 $ 12  XHV-AV
                            CC JAN-2005 $ 10  XHV-AB
                               JAN-2006 $ 12  WZY-AV
                            CC JAN-2006 $ 10  WZY-AB
                            PP APR-2004 $ 10  CHK-SB
MLNM   02/01/04   $16.50       JAN-2005 $ 17  XVX-AW
                            CC JAN-2005 $ 15  XVX-AC
                               JAN-2006 $ 17  YDA-AW
                            CC JAN-2006 $ 15  YDA-AC
                            PP APR-2004 $ 15  QMN-QC


PUTS:
HD     12/21/03  $37-38        JAN-2005 $ 35  ZHD-MG
                               JAN-2006 $ 35  WHD-MG
                            PC MAY-2004 $ 40  HD -EH


New Portfolio Plays

None


New Watchlist Plays

CHK - Chesapeake Energy Corporation $12.46  **Call Play**

The longer I look at the fundamental picture for Natural Gas, the
better I like the bullish prospects in that industry.  We're
continuing to use more and more of it to meet our energy needs and
the environmental lobby has solidified that trend by making it
untenable to consider new power plants in this country fueled by
anything other than natural gas.  Increasing demand is one thing,
but if supply can be ramped up at the same or greater rate, then
the equation remains balanced.  Unfortunately, we aren't able to
increase our supplies at anywhere near the rate of increased
demand and importing natural gas from anywhere other than Canada
is not really feasible.  To make matters worse, Canada is
retaining a larger percentage of their excess gas for domestic
uses.  This bullish supply/demand relationship has not been lost
on the futures market, with the price of the futures contract
routinely pushing into the $5-7 area and I believe in the not too
distant future we'll see prices in the double digits.  Most
recently, the March contract (NG04H) surged as high as $7.50, but
in recent weeks has been falling back to earth and we ought to see
support building in the $5 area.  CHK is a major domestic player
in the production of natural gas and quite reasonably priced with
a P/E ratio of about 11.  As prices for the gas rise, so does CHK,
and we've seen the stock on a strong bullish run for the past
several months, rising from just over $9 to its December high near
$14.  Last week finally saw the multi-month ascending channel
break and this sets the stage for a more substantial drop back to
support, at which point long-term bullish positions will make a
lot of sense.  Support is rock-solid at $11, reinforced by the
200-dma ($10.95).  I really don't expect to see CHK fall that far
in the near-term, but it would certainly make for a gift of an
entry point.  Weekly Stochastics have just given their first Sell
signal in over 6 months, so there's definitely some more downside
potential in store.  I'm going to err on the side of caution and
set our entry target $11.50 for new entries, splitting the
difference between strong support at $11 and Friday's intraday low
just over $12.  We'll use a liberal stop at $9, which is just
under the low from last July.  The PnF chart is still quite
bullish with a price target of $23.50 and it would currently take
a trade at $9 to nullify that bullish view.  To mitigate risk,
let's use a July $10 (CHK-SB) protective put.

BUY LEAP JAN-2005 $12 XHV-AV
BUY LEAP JAN-2005 $10 XHV-AB **Covered Call**
BUY LEAP JAN-2006 $12 WZY-AV
BUY LEAP JAN-2006 $10 WZY-AB **Covered Call**
BUY Put  JUL-2004 $10 CHK-SB **Insurance Put**

MLNM - Millennium Pharmaceuticals $17.60  **Call Play**

I've had my eye on MLNM for several months now, and I continue to
be amazed at two things.  The stock is trading in a very
methodical manner, building a nice pattern of higher lows and
higher highs.  But the other thing that I've noticed is that it
doesn't appear to be overly sensitive to the gyrations of the
overall market and that makes it a good candidate for a methodical
bullish play.  Fundamentally, MLNM has a nice pipeline of products
and product candidates targeted at the cancer and cardiac
treatment industries and while the company hasn't yet become
profitable, there appears to be good upside potential if and when
one or more of these candidates achieves the regulatory and market
acceptance to move those products into production.  Biotechnology
is always a more speculative arena in which to play, so I would
classify this play as more aggressive than our normal fare.  The
late December surge over $19 put MLNM back on a PnF Buy signal,
and the current vertical count is $28.50.  Looking at the daily
chart, we can see how MLNM has continued to find solid support
every time it tests its ascending trendline, which began last
February.  That trendline currently rests just over $16, so that
seems a good point to enter the play.  We'll start with our entry
target at $16.50 and set our protective stop at $14, just below
the November low.  We can see from the weekly chart that there is
significant resistance that comes into play near $20, so clearly
we'll need to be patient as we wait for the stock to work through
all that overhead supply.  In terms of risk management, I'm
suggesting the use of a May $15 Put (QMN-QC) as insurance.

BUY LEAP JAN-2005 $17 XVX-AW
BUY LEAP JAN-2005 $15 XVX-AC **Covered Call**
BUY LEAP JAN-2006 $17 YDA-AW
BUY LEAP JAN-2006 $15 YDA-AC **Covered Call**
BUY Put  MAY-2004 $15 QMN-QC **Insurance Put**

Drops

DJX - $107.05 If ever there was proof that the market makers are
reading my column and gunning for my stops, this play is it.  I
set the stop at $107, and last Monday the DJX closed at $107.05.
That was the day before the profit taking began and the DJX fell
back near the $104 support area.  In hindsight the stop might have
been a bit too tight, but it did make sense technically.
Sometimes this is just the way a trade goes and I offer no regrets
or apologies on this one.  For traders that may have cheated and
not exited on Monday's strength, I would recommend holding open
positions here with the thought that the 50-dma (now at $102.18)
may still be in play.  The key to dropping down to that area will
be a break below the $104 level next week.


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Sitting Bull Ain’t Gettin’ Up Real Soon
By Mike Parnos, Investing With Attitude

Once upon a time there were three bulls.  Momma bull, papa bull
and baby bull.  Now, if you ask me, that’s a lot of bull.  As we
all know, the only bull that remains is what is shoveled
regularly by wishful thinking talking heads on CNBC.  If you’re a
papa bull, and you think you’re going to wake up and find a
nubile young Goldilocks next to you, think again.  All that’s
next to you is undoubtedly a bulimic brokerage account that keeps
upchucking your money.  How’s that for a mental image?

There are still some CPTI students who have a bullish outlook on
the market – not now, but perhaps for a year from now.  (They’re
in therapy, but that also takes a while).  In the meantime, how
can we take advantage of that projected scenario and risk very
little?
_________________________________________________________________

The “Oldies But Goodies” Portfolio
The market leaders of years past have been beaten down.  It’s
been brutal.  Even at these “bargain basement” prices, they still
have huge market caps.  They’re still functioning and making
money.  Some analysts believe they are undervalued.  While a
small army of eternal optimists are waiting for the genie to pop
out of a bottle (usually of Jack Daniels) and grant three wishes,
here’s how you can participate in a market rebound in a few of
these companies.

A positive aspect of this strategy is that CPTI students, who
cannot do spreads in their brokerage accounts, will be able to
participate in this strategy – in both regular brokerage and many
IRA accounts.

Let’s start with an old favorite – SUNW (Sun Microsystems) –
currently trading at $3.10.
Buy 1,000 shares of SUNW @ $3.10
Buy 10 contracts of SUNW January 05 $5.00 put at $2.55
Your total out of pocket investment is $5.65.  For the next 22
months, your total risk is only $.65.

Let’s look at a few “what if” scenarios which will show you why
your risk for two years is only $.65 and how you can profit.

What if . . . in 10 months SUNW is 7.50?   The January 2005 $5
put would still have a value of about $.50 and the stock would be
worth $7.50 – for a total of $8.00.  Your cost was $5.65, so your
profit would be $2.35 with 12 more months until January 2005
expiration.

What if . . . in 10 months SUNW is $2.50?  The January 2005 $5
put would have a value of about $2.70 and the stock would be
worth $2.50 – for a total of $5.10.  With a cost of $5.65, you
would have a paper loss of $.55 with 12 more months until January
2005 expiration.

What if . . . at January 2005 expiration SUNW is $4.25?  The
January 2005 $5 put would have a value of $.75 and the stock
would be worth $4.25 – for a total of $5.00.  With a cost of
$5.65, you would have incurred the maximum loss of only $.65.

What if . . . at January 2005 expiration SUNW is $10?  The
January 2005 $5 put will expire worthless, but the stock would be
worth $10.  With a cost of $5.65, your profit is $4.35.

Take a look at the SUNW January 2005 $5 call options.  You could
buy it for just $.80.  Is that a better deal?  After all, you be
tying up only $800 for two years instead of $5,600 (for 10
contracts).

Well, if you’re right – and that’s a big “if” – owning the stock
enables you to participate penny for penny as SUNW moves up.  The
delta on the January 2005 $5 call is only 52%.  It’s your call.

Below is a list of a few other “Oldies But Goodies(?)” that could
rise from the ashes and put some bucks in your pocket.

NT (Nortel).  Trading at $2.37.  The January 2005 NT $2.50 put is
$.90.  Total cost is $3.27.  Risk is $.77.

LU (Lucent).  Trading at $1.86.  The January 2005 LU $2.50 put is
$1.30.  Total cost is $3.16.  Risk is $.66.

GTW (Gateway). Trading at $2.62.  The January 2005 GTW $5.00 put
is $3.00. Total cost is $5.62.  Risk is $.62.

AMR (American Airlines). Trading at $2.90.  The January 2005 AMR
$5.00 put is $3.40.  Total cost is $6.30.  Risk is $1.30.

MOT (Motorola).  Trading at $7.98.  The January 2005 MOT $10 put
is $3.70.  Total cost is $11.68.  Risk is $1.68.

COMS (3 Com).  Trading at $4.23.  The January 2005 COMS $5.00 put
is $1.90.  Total cost is $6.13.  Risk is $1.13.

A lot can happen in two years – good and bad.  These beaten down
companies were among those that led the markets higher during the
tech bubble of a few years ago.  There still may be some wind in
their sails, some bananas in their split, some pings with their
pongs, some stiff in their upper lips.  Then again, maybe not.

So, if you’re one of those glass is “one-quarter full” as opposed
to “three-quarters empty,” you can put your money where your milk
should be.  You may end up with a delicious milkshake or some
two-year-old cottage cheese.  Dairy products can be tricky.
They’re not for the meek, though the risk is small.

If you believe in mama bull, papa bull and baby bull, go for it!
If you believe that the only bull we’re going to see for a long
time is what is served between the buns at Burger King, this is
not for you.
______________________________________________________________

CPTI PORTFOLIO POSITION UPDATE
Position #1: BBB Iron Condor – Closed Friday at $88.70.
An Iron Condor is a credit position consisting of both a bull put
spread and a bear call spread. The collected premium will come
into your account the very next business day.  The objective is
for the underlying, at expiration, to finish anywhere within the
$85-$95 range.

Position #2: MMM Iron Condor – Closed Friday at $124.55.
The support at $120 once again seems strong, as does the
resistance at $130. Enough.  That should give MMM enough room (10
points) to bounce around for the next four weeks.

Position #3: SMH Straddle – Closed Friday at $21.50.
We bought the SMH May $22.50 puts and calls and spent $5,850 on
10 contracts. But, since we’re going to stay in this position
only for the February option cycle (5 weeks), we’ll only be
risking about $.85 ($850).   We’re looking for a big move for the
semiconductors and we don’t care which way.

Position #4: QQQ ITM Strangle – Closed Friday at $24.44.
This is a long-term position to generate a monthly cash flow.  We
own the January 2005 $21 LEAPS call and the January 2005 $29
LEAPS puts.  We’ve sold the February $29 calls and February $21
puts.

Position #5A: XAU Condor – Closed Friday at $77.00.
This is a longer term trade expiring in March.  There is a $20-
point range and we took in a credit of $1.40.  We want XAU to
finish anywhere between $70 and $90.

Position #6A:  MMM Condor – closed Friday at $124.55.
This is a longer term more conservative trade expiring in March.
There is a $20-point range and we took in a credit of $1.20.  We
want MMM to finish anywhere between $115 and $135.

Position #7A:  QQQ 2-Month Baby ITM Strangle – closed Friday at
$24.44.
Bought March QQQ $26 puts & Buy March QQQ $24 calls for total
debit of $4.20.  There is $2 of intrinsic value and only $2.20 of
risk.  We’re looking for a 3-4 point move in the QQQs.  After the
move, we want the successful long option to pay for both options.
Then we’re left with a “free” long option and waiting for the
market to reverse.
______________________________________________________________

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 Instructor


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The Option Investor Newsletter                   Sunday 02-01-2004
Sunday                                                      5 of 5


In Section Five:

Covered Calls: A System For Success!
Naked Puts: Who's In Charge Anyway?
Spreads/Straddles/Combos: How Will The "January Effect" Affect
    The Market In 2004?


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

Trading Basics: A System For Success!
By Mark Wnetrzak

One of the most difficult skills new traders must develop is the
ability to follow a trading plan.

Using a trading plan is an excellent way to enhance your profits
in the market because it removes emotion and instinct from the
activity and allows the mechanics of the trade to work for you.
At first glance, it seems like a fairly uncomplicated proposal.
All you have to do is outline a system; a specific approach that
requires you to make decisions based on a particular strategy or
technique for managing positions, and then follow that plan.  But,
the next phase; executing the plan, is where the trouble usually
begins.  In fact, many experts say this step is one of the worst
obstacles new participants will encounter when learning how to
trade profitably.

Everyone agrees that precision and consistency are necessary in
a successful trading system but few people realize how difficult
it is to follow a pre-determined plan when the elements of fear,
hope and greed enter the equation.  We all begin with the best
intentions, knowing that a mechanical and disciplined method is
the easiest way to achieve profits on regular basis.  Somewhere
along the way, we become sidetracked.  News and outside events
conspire to derail our scheme at almost every opportunity.  Of
course, we know that allowing the market to make the trading
decision is much more precise than relying on our complex human
intuition.  Unfortunately, the pressure of the moment is often
too great and we find ourselves changing designs prematurely,
usually eliminating any opportunity for a profitable outcome.

The problem is a common one.  New investors generally begin with
a great work ethic and most have a relatively worthy idea of how
they expect to manage a particular issue.  Then they get diverted
by an unexpected event such as an analyst upgrade or a news story
about the outlook for the company or its products.  At that point,
a change occurs.  But it’s generally not in the company or its
fundamental condition.  In reality, the change takes place in the
mind of the trader; an adjustment in perception as opposed to a
physical alteration.  Anyone who has participated in the stock
market will recognize this unwanted transformation as a universal
weakness that occasionally overwhelms all traders.  The primary
reason for this occurrence is lack of discipline.  The need for
instant gratification prevents the majority of investors from
exercising the patience necessary to be successful.  Indeed, we
all know that surviving the "learning curve" to eventually profit
in the market is not easy, but too many people quit after a few
losing plays, long before they have time to develop the various
skills required for profitable trading.

Once the rules are understood and a personal strategy is defined
and tested, the mechanics of the game become relatively simple.
The key is to remember that the primary goal of every system is
to limit losses and maximize profits.  Professionals utilize a
number of trading systems and position management strategies to
govern their portfolios.  They know that when emotion enters the
equation, a trader's judgment becomes clouded and the alternatives
appear limited.  As the trader begins to focus on the performance
of an individual play, his anxiety increases exponentially but a
a decision must eventually be made: "Do you remain in the position,
close it, or make and adjustment?"  What if the technical outlook
is ambiguous or the overall market trend is in opposition to your
position?  When you trade without a definite plan it's amazing how
confusing the situation can become, and once you have committed
portfolio capital, you are playing by somebody else's rules.  A
system of structured and pre-planned moves is the only solution.
Each and every day, you have to make a judgment: "Take the profit,
take the loss, or let it run?" It really doesn't matter which exit
system is used, the key is that all the decisions are made well in
advance.  Obviously, you don't want to create a battle plan in the
middle of a campaign.  After you take a position, you should know
exactly what you would do in any circumstances that may develop.

While it is of utmost importance to execute the plan precisely,
it is also essential to remain flexible and be ready to change
one’s direction or strategy when the need arises.  This concept
may appear contradictory but it makes perfect sense when the
change in tactics or attitude is based on a revised outlook,
either technical or fundamental, for the underlying issue.  In
any type of financial market, the conditions are constantly
changing and to be successful, a trader must adapt accordingly.
New trends and unexpected economic events must be interpreted
decisively, but with an open mind and in every case, an adjustment
should be initiated only after considering all the facts at hand.

Trade Wisely!


~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SUMMARY OF PREVIOUS CANDIDATES

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

Note:  Margin not used in calculations.

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

ZIXI    10.93   15.10  FEB 10.00  1.80    0.87*   6.9%
SIRI     3.15    2.70  FEB  2.50  0.80    0.15*   5.7%
VXGN    10.92   10.01  FEB 10.00  1.40    0.48*   5.5%
ALVR    13.09   13.77  FEB 12.50  1.45    0.86*   5.4%
ZIXI    14.67   15.10  FEB 12.50  2.70    0.53*   4.8%
NEOL    19.10   18.79  FEB 17.50  2.30    0.70*   4.5%
CREE    20.49   25.07  FEB 20.00  1.65    1.16*   4.5%
CHINA   11.05   11.08  FEB 10.00  1.60    0.55*   4.2%
NANX    12.39   12.96  FEB 10.00  2.90    0.51*   3.9%
CLTK     8.54    8.22  FEB  7.50  1.35    0.31*   3.9%
SCMR     5.63    5.59  FEB  5.00  0.80    0.17*   3.8%
ATSN    10.90   10.62  FEB 10.00  1.30    0.40*   3.7%
SEAC    18.40   20.18  FEB 17.50  1.75    0.85*   3.7%
GSF     27.77   27.30  FEB 27.50  1.35    0.88    3.6%
WEBM    10.93   10.70  FEB 10.00  1.25    0.32*   3.6%
LTXX    19.12   17.30  FEB 17.50  2.45    0.63    3.4%
CTLM     7.30    4.90  FEB  5.00  2.50    0.10    2.3%
CIEN     7.97    7.25  FEB  7.50  0.85    0.13    1.6%
PAAS    16.10   14.41  FEB 15.00  1.95    0.26    1.3%
ADPT    10.50    9.32  FEB 10.00  1.10   -0.08    0.0%

* Stock price is above the sold strike price.

Editor's Comments:

Investors Cautious As January Ends...

The major averages continued to consolidate this week as traders
further digested earnings and economic reports.  Caution appears
warranted in the next few days as the near-term action is a bit
worrisome and a move towards 50-day MAs (or lower) could be next.
It's time to monitor positions closely and evaluate their bullish
strength as they drift back towards support areas.  Centillum
Communications (NASDAQ:CTLM) dropped rather horridly after a
disappointing earnings report on Thursday and will be shown
closed next week.  Others issues on the early-exit watch list
include: Vaxgen (NASDAQ:VXGN), Alvarion (NASDAQ:ALVR), Celeritek
(NASDAQ:CLTK), Artesyn Technologies (NASDAQ:ATSN), Ltx Corp.
(NASDAQ:LTXX), Ciena (NASDAQ:CIEN), Adaptec (NASDAQ:ADPT), and
Pan American Silver (NASDAQ:PAAS).

Positions Previously Closed: None

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

NEW COVERED-CALL 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

ACLS   12.60  FEB 12.50  ULS BV  0.65  830    11.95  21   6.7%
TKLC   20.35  FEB 20.00   KQ BD  1.20  445    19.15  21   6.4%
CNET   10.75  FEB 10.00  QKW BB  1.15  990     9.60  21   6.0%
AFFX   31.23  FEB 30.00  FIQ BF  2.35  2182   28.88  21   5.6%
NANO   20.14  FEB 17.50  QNK BW  3.20  11     16.94  21   4.8%
IPXL   18.90  FEB 17.50  UPR BW  1.95  2491   16.95  21   4.7%
TIVO   10.75  FEB 10.00  TUK BB  1.05  15459   9.70  21   4.5%


Legend (for play description below)

LB-Last Bid price,
OI-Open Interest,
CB-Cost Basis or break-even point,
DE-Days to Expiry,
TY-Target Yield (monthly basis).

__________________________________________________________________

ACLS - Axcelis  $12.60  *** Rally Mode! ***

Axcelis Technologies (NASDAQ:ACLS) is a worldwide producer of ion
implantation, dry strip, thermal processing and photostabilization
equipment used in the fabrication of semiconductor chips in the
United States, Europe and Asia Pacific.  In addition to equipment,
the company provides extensive aftermarket service and support,
including spare parts, equipment upgrades, maintenance services
and customer training.  Investors were apparently pleased with
the company's earnings report this week as the stock rallied
higher on Friday supported by heavy volume.  This position offers
investors a method to profit from the current bullish trend.

FEB-12.50 ULS BV LB=0.65 OI=830 CB=11.95 DE=21 TY=6.7%


__________________________________________________________________

TKLC - Tekelec  $20.35  *** Next Leg Higher? ***

Tekelec (NASDAQ:TKLC) designs, manufactures, markets and supports
network systems products and selected service applications for
telecommunications networks and contact centers.  The company's
customers include telecommunications carriers, network service
providers and contact center operators.  Its network systems
products help direct and control voice and data communications.
They enable carriers to control, establish and terminate calls
as well as to offer intelligent services including any services
other than the call or data transmission itself.  The company's
products provide workforce management and intelligent call
routing systems for single and multiple-site contact centers.
Tekelec sells its contact center products primarily to customers
in industries with significant contact center operations such as
financial services, telecommunications and retail.  TKLC pleased
investors this week and the stock broke to a new 2-year high on
Friday.  Investors who remain bullish on the telecom sector can
use this position to speculate on the near-term activity in the
group.

FEB-20.00 KQ BD LB=1.20 OI=445 CB=19.15 DE=21 TY=6.4%


__________________________________________________________________

CNET - CNET Networks  $10.75  *** Rally Resumes! ***

CNET Networks (NASDAQ:CNET), a global media company informing
and connecting buyers, users, and sellers of technology, produces
a branded, global Internet network, print publications and a
technology product database for both businesses and individuals.
Using unbiased content as its platform, the company has built
marketplaces for technology and consumer products, and, through
its CNET Channel division, is a provider of standardized product
information.  CNET obviously pleased investors this week as the
stock exploded higher on Friday to a 2-year high.  Our outlook
is also bullish, due to the recent technical strength and this
position offers a reasonable cost basis in the issue.  Target
shooting a lower "net-debit" will increase the potential yield
and downside protection in the position.

FEB-10.00 QKW BB LB=1.15 OI=990 CB=9.60 DE=21 TY=6.0%


__________________________________________________________________

AFFX - Affymetrix  $31.23  *** Breaking Out! ***

Affymetrix (NASDAQ:AFFX) is engaged in the development, sale
and service of systems for genetic analysis in life sciences.
The firm has developed and intends to establish its GeneChip
system and related microarray technology as the platform of
choice for acquiring, analyzing and managing complex genetic
information.  The company's integrated platform consists of
disposable DNA probe arrays containing gene sequences on a
chip, certain reagents for use with the probe arrays, a
scanner and other instruments to process the probe arrays, as
well as software to analyze and manage genetic information
from the probe arrays.  Shares of Affymetrix broke through
near-term resistance after Wednesday's earnings report.  The
move higher on heavy volume suggests further upside potential.
Investors can use this position to speculate on that outcome
at the risk of owning AFFX near $29.00.

FEB-30.00 FIQ BF LB=2.35 OI=2182 CB=28.88 DE=21 TY=5.6%


__________________________________________________________________

NANO - Nanometrics  $20.14  *** Buying Opportunity? ***

Nanometrics (NASDAQ:NANO) designs, manufactures, markets and
supports the thin film metrology systems for the semiconductor,
flat panel display and magnetic recording head industries.  In
addition, the company has both integrated and standalone optical
critical metrology systems to measure critical dimensions of
patterns on semiconductor wafers.  The company also manufactures
a line of optical overlay registration systems that are used
to determine the alignment accuracy of successive layers of
semiconductor patterns on wafers in the photolithography process.
The company's products can be divided into 3 groups: automated
systems, integrated systems and tabletop systems.  Nanometrics
has pulled back towards its 30-day MA but the overall uptrend
remains intact.  Investors who remain bullish on the company's
future can use this position to establish a cost basis near
the 50-day MA and the December highs.

FEB-17.50 QNK BW LB=3.20 OI=11 CB=16.94 DE=21 TY=4.8%


__________________________________________________________________

IPXL - IMPAX Laboratories  $18.90  *** Favorable Decision! ***

IMPAX (NASDAQ:IPXL)) is a unique, technology-based pharmaceutical
firm focused on the development and commercialization of generic
and brand name pharmaceuticals, utilizing its controlled-release
and other in-house development and formulation expertise.  In the
generic pharmaceuticals market, IMPAX is primarily focusing its
efforts on selected controlled-release generic versions of brand
name pharmaceuticals.  The firm is also developing other generic
pharmaceuticals that present one or more competitive barriers to
entry, such as difficulty in raw materials sourcing, complex
formulation or development characteristics, or special handling
requirements.  In the brand-name pharmaceuticals market, IMPAX is
developing products for the treatment of central nervous system
disorders.  IMPAX received some favorable legal news this week
regarding a patent appeal and we like the bullish chart pattern
that depicts a strong Stage II chart (jinx?).  Investors can use
this position to speculate on the trend continuing with a cost
basis closer to technical support.

FEB-17.50 UPR BW LB=1.95 OI=2491 CB=16.95 DE=21 TY=4.7%


__________________________________________________________________

TIVO - TiVo  $10.75  *** The New VCR! ***

TiVo (NASDAQ:TIVO) is a provider of television services for digital
video recorders (DVRs), a growing consumer electronics category.
Its subscription-based TiVo Service provides consumers with a way
to record, watch and control television.  It offers advertisers,
content creators and television networks a platform for promotions,
content delivery and audience research.  The company's revenues
come from three different sources:  It receives revenues from
providing the TiVo Service;  It receives licensing and engineering
professional services revenues; and from the sale of DVR hardware.
TiVO broke above its down-trend this month which suggests a positive
change of character.  We simply favor the recent bullish signals and
investors can use this position to establish a reasonable cost basis
in the issue.

FEB-10.00 TUK BB LB=1.05 OI=15459 CB=9.70 DE=21 TY=4.5%




~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Supplemental Covered Calls
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

ASIA    7.70  FEB  7.50  EUJ BU  0.60  1834    7.10  21   8.2%
HLIT   10.59  FEB 10.00  LOQ BB  1.05  2718    9.54  21   7.0%
NOVL   12.68  FEB 12.50  NKQ BV  0.75  14968  11.93  21   6.9%
ADIC   17.87  FEB 17.50  QXG BW  1.15  296    16.72  21   6.8%
ABTL   12.57  FEB 12.50  BCU BV  0.60  900    11.97  21   6.4%
XING   13.20  FEB 12.50  QAE BV  1.20  1619   12.00  21   6.0%
SEAC   20.18  FEB 20.00  UEG BD  0.80  175    19.38  21   4.6%
WEBM   10.70  FEB 10.00  UUW BB  1.00  644     9.70  21   4.5%
PDII   27.46  FEB 25.00  PKU BE  3.10  423    24.36  21   3.8%
PMCS   21.85  FEB 20.00  SQL BD  2.35  3222   19.50  21   3.7%
PVN    13.69  FEB 12.50  PVN BV  1.50  7087   12.19  21   3.7%
SWIR   27.14  FEB 25.00  IYQ BE  2.75  411    24.39  21   3.6%



----------
NAKED-PUTS
----------

Options 101: Who's In Charge Anyway?
By Ray Cummins

A lot has been said about the power that Fed Chair Alan Greenspan
wields when it comes to the U.S. economy.

Most people believe the President is the ultimate authority in the
U.S. government, but those of us who follow the financial markets
know that the Chairman of the Federal Reserve Board is really the
person in charge of making and implementing the country’s monetary
policy.  The methods he uses are very simple and in most cases, he
relies on adjustments to short-term interest rates which in turn,
establish the cost of credit to businesses and consumers all across
America.  Of course, his goal is to promote high employment, stable
prices and sustainable growth, however his influence extends much
further and just a few select words from the Fed Chief can send the
market into a tumble or start a rally of "irrational exuberance."
Just who is this man that can affect the lives of everyone in the
United States with nothing more than an offhand comment about cost
pressures or rising demand?

The son of a stockbroker and retail employee, Alan Greenspan rose
from a Depression-era childhood to the pinnacle of the financial
world.  Not surprisingly, his background is filled with periods of
austerity and affluence.  He dropped-out of a Columbia University
doctoral program due to lack of funds, but eventually founded a
prosperous economic consulting firm.  He was asked by President
Gerald Ford to chair the Council of Economic Advisers during the
woeful mid-'70s, and achieved much notoriety during that period of
financial adversity, only to reach his current station mere months
before the stock market crash of 1987.  His economic and political
acumen stood the test of four presidencies and he also witnessed one
of the greatest rallies in the history of the market.  If experience
is a prerequisite for controlling U.S. monetary policy, Greenspan
certainly has it, though what makes this man so successful is his
calming prudence and a preference for subtle, not sweeping, economic
adjustments.

The Federal Reserve chairman has long been known for making intrepid
decisions that appear, at first glance, to conflict with traditional
policy guidelines.  In fact, one of Alan Greenspan's most memorable
proclamations in the early 1990s was his contention that industrial
productivity was climbing faster than official statistics indicated,
thus suggesting that the economy could be allowed to grow at a more
rapid rate without concerns of additional inflation.  In hindsight,
that conclusion, while certainly irregular, proved to be not only
accurate, but also eventually led to the economic prosperity that
lasted throughout the decade.  Unfortunately, "all good things must
come to an end" and the same holds true for economic cycles, where a
a recession almost always follows a period of extreme growth.  The
Fed Chief has tried to fight this trend by lowering interest rates
to their lowest level in four decades and a number of analysts say
the results are finally starting to uphold his actions.  At the same
time, Greenspan has come under fire for not adhering more to formal
rules for decision-making and some experts say U.S. monetary policy
is too dependent on the instincts of the chairman and not anchored in
economic principles.

Regardless of your opinion of the man, it's obvious he has become an
icon of financial stability, despite all the chaos in the world, and
by and large, he has made some good decisions when it really counted.
As Bob Woodward commented in his recent book on the Federal Reserve
chairman, we depend on him because "He has become both a symbol and
a means of explaining and understanding the economy."  Maybe that's
not the best state of affairs for a country with the most complex
economic system on the planet but until someone with a better plan
emerges, it may be prudent to stick with Greenspan.

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

ADAT    16.80   16.10  FEB 12.50  0.40    0.40*   3.6%  11.6%
ADAT    16.95   16.10  FEB 12.50  0.40    0.40*   3.0%   9.4%
SEPR    27.99   26.98  FEB 22.50  0.65    0.65*   2.7%   9.1%
XING    12.80   13.20  FEB 10.00  0.35    0.35*   2.6%   8.7%
IMCL    43.41   40.96  FEB 35.00  0.75    0.75*   2.4%   8.4%
NEOL    18.26   18.79  FEB 15.00  0.40    0.40*   2.5%   8.1%
OPWV    15.18   14.83  FEB 12.50  0.40    0.40*   2.4%   7.6%
PMCS    23.80   21.85  FEB 20.00  0.50    0.50*   2.3%   7.2%
SEPR    27.25   26.98  FEB 22.50  0.65    0.65*   2.2%   6.9%
ASKJ    23.83   21.66  FEB 20.00  0.60    0.60*   2.2%   6.9%
BLTI    21.14   19.30  FEB 17.50  0.30    0.30*   1.9%   6.4%
SPRT    16.40   13.45  FEB 12.50  0.25    0.25*   1.8%   6.3%
NKTR    17.12   17.01  FEB 15.00  0.45    0.45*   2.2%   6.3%
IDCC    24.46   24.36  FEB 20.00  0.50    0.50*   1.9%   6.2%
ATRS    37.40   36.00  FEB 30.00  0.45    0.45*   1.7%   6.1%
RMBS    34.60   31.16  FEB 25.00  0.50    0.50*   1.8%   6.0%
JNPR    22.00   28.83  FEB 20.00  0.55    0.55*   2.0%   5.4%
AFFX    28.29   31.23  FEB 25.00  0.50    0.50*   1.8%   5.2%
AFFX    28.40   31.23  FEB 25.00  0.40    0.40*   1.8%   5.2%
RDWR    30.73   32.17  FEB 25.00  0.35    0.35*   1.3%   4.5%
RETK    11.37    9.67  FEB 10.00  0.45    0.12    1.4%   3.6%
WFII    17.80   14.31  FEB 15.00  0.40   -0.29    0.0%   0.0%
UTHR    24.25   20.85  FEB 22.50  0.70   -0.95    0.0%   0.0%

* Stock price is above the sold strike price.

Editor's Comments:

Another Buying Opportunity?

The "necessary consolidation" we spoke of in last week's summary
commentary came to pass on Wednesday after the specter of higher
interest rates emerged from the FOMC meeting.  The Fed replaced
its pledge to keep rates low for a "considerable period" with a
promise to "be patient" before initiating the first rate hike in
over three years.  The news did not sit well with investors and
unless there are some stellar profit reports in the coming week,
equities could be in for further declines.  With that outlook in
mind, traders should extra diligent in their portfolio management
and consider new (bullish) positions only in the most favorable
issues.  Last week's "early-exit" candidate, Wireless Facilities
(NASDAQ:WFII) has been closed, along with United Therapeutics
(NASDAQ:UTHR) and Retek (NASDAQ:RETK).  Next on the "watch" list
are Supportsoft (NASDAQ:SPRT) and AskJeeves.com (NASDAQ:ASKJ).
PMC-Sierra (NASDAQ:PMCS) also has our full and complete attention,
as does Biolase Technology (NASDAQ:BLTI).

Positions Previously Closed: 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 NAKED-PUT CANDIDATES

Sequenced by Maximum Yield (monthly basis)
__________________________________________________________________

Stock  Last    Option    Option Last Open Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int. Basis Exp. Yield  Yield

NGEN   12.59  FEB 10.00  QEM NB 0.30 1070  9.70  21   4.5%  15.4%
RMBS   31.16  FEB 25.00  BNQ NE 0.45 8451 24.55  21   2.7%   9.7%
INSP   34.15  FEB 30.00  IOU NF 0.55 430  29.45  21   2.7%   7.9%
SINA   45.69  FEB 35.00  NOQ NG 0.45 2738 34.55  21   1.9%   6.8%
MU     16.11  FEB 15.00   MU NC 0.25 9542 14.75  21   2.5%   6.5%
IDCC   24.36  FEB 20.00  DAQ ND 0.25 2133 19.75  21   1.8%   6.4%
ERICY  23.01  FEB 20.00  RQC ND 0.25 1820 19.75  21   1.8%   5.6%


Legend (for play descriptions below)

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).

__________________________________________________________________

NGEN - Nanogen  $12.59  *** The "NANO" Craze!  ***

Nanogen (NASDAQ:NGEN) develops and commercializes molecular
diagnostics products and tests for the gene-based testing
market for sale primarily in the United States, Europe and the
Pacific Rim.  By integrating microelectronics and molecular
biology into a core proprietary technology platform, Nanogen
seeks to establish the open-architecture design of its primary
products, the NanoChip Molecular Biology Workstation and the
NanoChip Cartridge (collectively, the NanoChip System) as the
standard platform for molecular identification and analysis.
The firm also develops specific reagents and other commercial
applications for the NanoChip System.  The company continually
conducts research and development by itself and also with its
subsidiary and third parties, to improve the NanoChip System
and to extend its technology to other applications such as
biodefense, forensics and drug discovery (protein kinases).
Investors have been focused on Nanogen since the company said
it received a patent for a method to build nanodevices; atom
or molecule-sized electronic devices.  Investors who want a
"relatively" conservative entry point in a company that may
profit from the "NANO" craze should consider this position.

FEB-10.00 QEM NB LB=0.30 OI=1070 CB=9.70 DE=21 TY=4.5% MY=15.4%


__________________________________________________________________

RMBS - Rambus  $31.16  *** Pure Premium-Selling! ***

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.
Rambus has been a popular issue among "premium-sellers" in recent
weeks and the share-price volatility has inflated option premiums
in the near-term.  Traders who expect additional upside activity in
the issue should consider this position.

FEB-25.00 BNQ NE LB=0.45 OI=8451 CB=24.55 DE=21 TY=2.7% MY=9.7%


__________________________________________________________________

INSP - InfoSpace  $34.15  *** Up, Up & Away! ***

InfoSpace (NASDAQ:INSP) develops and delivers a wireless and
Internet platform of software and application services to a
range of customers that span each of its wireline, merchant
and wireless business units.  Many of the company's products
and application services are offered to its customers, which,
in turn, offer these products and application services to
their customers as their own solutions.  InfoSpace provides
its services across multiple platforms, including personal
computers and non-PC devices.  INSP soared to a new two-year
high this week after the wireless and Internet software firm
raised its growth estimates for 2004.  The company said it
expected first-quarter earnings of $3-$5 million on revenues
of $44-$47 million, which was well above consensus estimates
of $36 million.  Investors can establish a cost basis below
$30 in the issue with this position.

FEB-30.00 IOU NF LB=0.55 OI=430 CB=29.45 DE=21 TY=2.7% MY=7.9%


__________________________________________________________________

SINA - SINA Corporation  $45.69  *** China-based Internet ***

SINA Corporation (NASDAQ:SINA), formerly known as SINA.com, is an
online media company and value-added information service provider
for China and the global Chinese communities.  With a branded
network of localized Websites targeting China and overseas Chinese,
the company provides an array of services to its users including
region-focused online portals, search, directory, interest-based
and community-building channels, free and premium e-mail, wireless
short messaging, online games, virtual Internet service provider,
classified listings, e-commerce, e-learning, and enterprise
e-solutions.  In turn, SINA generates revenue through advertising,
fee-based services, e-commerce and enterprise services.  Shares of
China-based Internet stocks are still among the best performing
issues in the technology segment and traders who want to speculate
on one of the more volatile issues (with correspondingly large
option premiums) should consider this position.

FEB-35.00 NOQ NG LB=0.45 OI=2738 CB=34.55 DE=21 TY=1.9% MY=6.8%


__________________________________________________________________

MU - Micron Technology  $16.11  *** New Trading Range? ***

Micron Technology (NYSE:MU) is one of the world's leading
providers of advanced semiconductor solutions.  Through its
global operations, Micron manufactures and markets DRAMs, Flash
memory, CMOS image sensors, and a range of other semiconductor
components and memory modules for use in leading-edge computing,
consumer, networking, and mobile products.  Shares of MU have
moved into a new trading range in recent weeks and the company
appears to have returned to favor among investors and analysts.
Traders who agree with a bullish outlook for the issue should
consider this position.

FEB-15.00 MU NC LB=0.25 OI=9542 CB=14.75 DE=21 TY=2.5% MY=6.5%


__________________________________________________________________

IDCC - InterDigital Comm.  $24.36  *** Low Risk - Low Reward ***

InterDigital Communications (NASDAQ:IDCC) specializes in the
architecture, design and delivery of wireless technology and
product platforms.  Over the course of its corporate history,
the company has amassed a substantial and significant library of
digital wireless systems experience and know-how, and holds an
extensive worldwide portfolio of patents in the wireless systems
field.  InterDigital markets its technologies and solutions
primarily to wireless communications equipment producers and
related suppliers.  In addition, the company licenses its Time
Division Multiple Access and Code Division Multiple Access
patents to equipment manufacturers worldwide.  Shares of IDCC
have traded in a relatively small range near $24 for almost a
month and it seems as if the issue is building a "comfort zone"
near that price.  Traders who wouldn't mind owning the issue at
a basis near $20 can profit from continued lateral activity in
the stock with this position.

FEB-20.00 DAQ ND LB=0.25 OI=2133 CB=19.75 DE=21 TY=1.8% MY=6.4%


__________________________________________________________________

ERICY - LM Ericsson  $23.01  *** Nortel Rally Boosts Telecoms! ***

LM Ericsson (NASDAQ:ERICY) is a global supplier of mobile systems.
The firm provides total communications solutions from systems and
applications to services and core technology for mobile handsets.
Ericsson has been active since 1876 with products such as mobile
systems, multi-service networks, enterprise services, transmission
and transport technologies, general packet radio services (GPRS),
third generation mobile telephony, advisory services, management
and optimization services, multimedia messaging services, and a
variety of Bluetooth wireless technologies.  With Sony Ericsson,
it also is a supplier of complete mobile multimedia products.  The
rally in Nortel following a surprisingly improved earnings report
gave a boost on Friday to prices of telecommunications equipment
vendors.  ERICY was one of the best performers in that group and
traders who think the bullish trend will continue should consider
this position.

FEB-20.00 RQC ND LB=0.25 OI=1820 CB=19.75 DE=21 TY=1.8% MY=5.6%




~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Supplemental Naked Puts
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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)
__________________________________________________________________

Stock  Last    Option    Option Last Open Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int. Basis Exp. Yield  Yield

MXT     6.04  FEB  5.00  MXT NA 0.25 2198  4.75  21   7.6%  22.3%
ZIXI   15.10  FEB 12.50  HQU NV 0.50 849  12.00  21   6.0%  18.4%
CHINA  11.08  FEB 10.00  UIH NB 0.35 2825  9.65  21   5.3%  13.7%
SWC    11.46  FEB 10.00  SWC NB 0.25 314   9.75  21   3.7%  10.7%
ZRAN   19.18  FEB 15.00  ZUO NC 0.25 383  14.75  21   2.5%   8.9%
NEOL   18.79  FEB 17.50  UOE NW 0.40 1628 17.10  21   3.4%   8.7%
PSSI   12.70  FEB 12.50  PYQ NV 0.30 136  12.20  21   3.6%   8.4%
CREE   25.07  FEB 22.50  CQR NX 0.45 1463 22.05  21   3.0%   8.2%

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SEE DISCLAIMER IN SECTION ONE

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~


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

How Will The "January Effect" Affect The Market In 2004?
By Ray Cummins

Stocks finished lower Friday but the major equity averages posted
gains in January, an event that historically bodes well for share
values in the coming year.

Despite 52-week highs from blue-chip bellwethers Procter & Gamble
(NYSE:PG) and American Express (NYSE:AXP), the Dow closed down 22
points at 10,488.  The NASDAQ Composite drifted 2 points lower to
2,066 even as networking stocks were bolstered by Nortel Networks
(NYSE:NT), which was among the biggest percentage gainers after
posting stronger-than-expected earnings and its first full-year
profit since 1997.  The Standard & Poor's 500 index ended down 2
points at 1,131 with biotech, auto, and airline shares enduring
the worst losses.  Breadth was surprisingly positive on the major
exchanges with advancers ahead of decliners by a small margin on
the Big Board and the NASDAQ.  Volume reached 1.63 billion on the
NYSE and 1.91 billion on the technology exchange.  The benchmark
10-year Treasury note soared in the wake of the GDP report, but
eventually retreated to close up 10/32 with its yield at 4.13%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 01/30/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

LRCX    34.59   29.06   FEB   25  30   0.55  29.45  (0.39) Closed
OHP     46.69   47.74   FEB   40  42   0.30  42.20   0.30   Open
NBR     44.11   45.00   FEB   37  40   0.30  39.70   0.30   Open
BIIB    43.19   44.32   FEB   35  40   0.55  39.45   0.55   Open
CCMP    56.24   47.59   FEB   45  50   0.75  49.25  (1.66) Closed
GENZ    54.26   55.00   FEB   47  50   0.30  49.70   0.30   Open

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

Positions in Cabot Micro (NASDAQ:CCMP) and Lam Research (NASDAQ:LRCX)
have previously been closed.


CALL CREDIT SPREADS

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

ADBE    37.12   38.04   FEB   45  40   0.55   40.55   0.55   Open
TBL     51.13   49.89   FEB   60  55   0.65   55.65   0.65   Open
ABT     43.25   42.97   FEB   47  45   0.25   45.25   0.25   Open
POWI    32.05   30.80   FEB   40  35   0.75   35.75   0.75   Open
SCHN    45.90   44.24   FEB   60  55   0.50   55.50   0.50   Open

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

Adobe Systems (NASDAQ:ADBE) is on the "watch" list.


CALL DEBIT SPREADS

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

BRCM    36.78  40.59   FEB   30  32   2.20   32.30  0.30   Open
CREE    25.85  25.07   FEB   20  22   2.20   22.20  0.30   Open
TEVA    61.75  62.59   FEB   55  60   4.45   59.45  0.55   Open

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


PUT DEBIT SPREADS

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

MIK     41.42  44.77   FEB   47  45   2.20   45.30  0.30   Open
QLGC    47.16  44.99   FEB   55  50   4.20   55.80  0.80   Open
NVLS    39.89  34.03   FEB   45  42   2.20   42.80  0.30   Open

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

Michael's Stores (NYSE:MIK) is on the "watch" list after the rally
in retail shares.  A close above the recent resistance area near
$45.50 would be an obvious exit signal in the bearish position.


SYNTHETIC (BULLISH)

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

UTHR    23.20  20.85   MAY     30     17    (0.10)   0.40  Closed
CEPH    52.50  54.41   FEB     60     45     0.10    1.00   Open?
EYE     25.30  19.97   MAR     30     20     0.00    0.25  Closed

All of our current synthetic positions have achieved profitability
but Cephalon (NASDAQ:CEPH) was by far the best performer, offering
up to a $0.90 gain in less than one week.  The recent activity in
United Therapeutics (NASDAQ:UTHR) and Visx (NYSE:EYE) suggests that
an early exit is prudent in those plays.


SYNTHETIC (BEARISH)

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

DD      42.72  43.90   MAR     40    45     0.00     0.00   Open

Dupont (NYSE:DD) surprised almost everyone with a bullish profit
report and subsequent rally.  However, the overhead supply near
the sold (call) strike at $45 is formidable and with any luck,
the issue will remain below that price for three more weeks.


CALENDAR & DIAGONAL SPREADS

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

FISV    38.28  37.37   MAR-35P   FEB-35P   0.30    0.40    Open
AMHC    27.08  27.58   MAY-30C   FEB-30C   1.25    1.20    Open
ABGX    15.60  15.57   APR-17C   FEB-17C   0.60    0.60    Open

Fiserve (NASDAQ:FISV) is finally moving in the right direction
and the speculative position may yet provide a favorable profit.


DEBIT STRADDLES

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

MATK    65.74  65.07   MAR    65    65     9.40    9.00    Open
BSC     84.10  82.35   MAR    85    85     5.25    5.40    Open

New straddles in Nam Tai Electronics (NYSE:NTE) and Petrochina
(NYSE:PTR) were not available due to pre-market volatility on
the first trading day after the positions were offered.


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.

__________________________________________________________________

ADI - Analog Devices  $47.85  *** Earnings Speculation! ***

Analog Devices (NYSE:ADI) designs, manufactures and markets high
performance analog, mixed-signal and digital signal processing
integrated circuits used in signal processing for industrial,
communication, computer and consumer applications.  Across the
range of its signal processing ICs are general-purpose products
used by a variety of customers and applications as well as many
application-specific products designed for specific clusters of
customers in vertical markets.  The firm's products play a role
in converting real-world phenomena such as temperature, motion,
pressure, light and sound into electrical signals to be used in
an array of electronic equipment ranging from industrial process
control, factory automation systems equipment, smart munitions,
base stations, central office equipment, wireless telephones,
computers, automobiles, CAT (Computer Aided Tomography) scanners,
digital cameras and DVD players.  The company's quarterly report
is due on or about 2/12/04.

ADI - Analog Devices  $47.85

PLAY (less conservative - bullish/credit spread):

BUY  PUT  FEB-40.00  ADI-NH  OI=2020  ASK=$0.15
SELL PUT  FEB-45.00  ADI-NI  OI=3221  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$44.40


__________________________________________________________________

KOSP - KOS Pharmaceuticals  $51.00  *** Uptrend Intact! ***

KOS Pharmaceuticals (NASDAQ:KOSP) is a fully integrated specialty
pharmaceutical firm engaged in developing and commercializing a
range of proprietary prescription products for the treatment of
chronic cardiovascular and respiratory diseases.  The firm makes
the two products that it markets, Niaspan and Advicor.  Developed
for mixed lipid disorders, Niaspan is a once-daily formulation of
a product that has niacin as the active ingredient.  Advicor is a
solid-dose drug containing Niaspan and lovastatin, which is a
cholesterol-lowering drug that will be used to treat mixed lipid
disorders.  The firm cardio-metabolic products under development
consist of controlled-release, once-a-day, oral dosage products.
	
KOSP - KOS Pharmaceuticals  $51.00

PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-40.00  KQW-NH  OI=1421  ASK=$0.25
SELL PUT  FEB-45.00  KQW-NI  OI=1438  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$44.50


__________________________________________________________________

MSTR - MicroStrategy  $62.40  *** Earnings Surprise = Rally! ***

MicroStrategy (NASDAQ:MSTR) is a global leader in the increasingly
critical business intelligence software market.  Large and small
firms alike are harnessing MicroStrategy's business intelligence
software to gain vital insights from their data to help them
proactively enhance cost-efficiency, productivity and customer
relations and optimize revenue-generating strategies.  The firm's
business intelligence platform offers exceptional capabilities that
provide organizations, in virtually all facets of their operations,
with user-friendly solutions to their data query, reporting, and
advanced analytical needs, and distributes valuable insight on this
data to users via Web, wireless, and voice.

MSTR - MicroStrategy  $62.40

PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-50.00  EOU-NJ  OI=442  ASK=$0.30
SELL PUT  FEB-55.00  EOU-NK  OI=258  BID=$0.80
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$54.45


__________________________________________________________________

AVCT - Avocent  $36.56  *** In A Trading Range? ***

Avocent Corporation (NASDAQ:AVCT), together with its wholly owned
subsidiaries, designs, manufactures and sells analog and digital
KVM (keyboard, video and mouse) switching systems, as well as
serial connectivity devices, extension and remote access products
and also display products for the computer industry.  The firm's
switching and connectivity solutions offer information technology
managers with access and control of multiple servers and network
data centers from any location.  Earnings are due Tuesday, 2/3/04.

AVCT - Avocent  $36.56

PLAY (conservative - bearish/credit spread):

BUY  CALL  FEB-42.50  QVX-BV  OI=232  ASK=$0.25
SELL CALL  FEB-40.00  QVX-BH  OI=599  BID=$0.50
INITIAL NET-CREDIT TARGET=$0.25-$0.30
POTENTIAL PROFIT(max)=11% B/E=$40.25


__________________________________________________________________

OVTI - OmniVision  $48.48  *** Downtrend Resumes! ***

OmniVision Technologies (NASDAQ:OVTI) designs, develops and sells
high performance, high quality and cost efficient semiconductor
imaging devices for computing, telecommunications, industrial,
automotive and consumer electronics applications.  The company's
main product, an image sensing device called a CameraChip, is used
to capture an image in cameras and camera-related products in a
range of imaging applications such as personal computer cameras,
digital still cameras, security and surveillance cameras, personal
digital assistant cameras, mobile phone cameras, and cameras for
automobiles and toys that incorporate both still picture and live
video applications.

OVTI - OmniVision  $48.48

PLAY (less conservative - bearish/credit spread):

BUY  CALL  FEB-60.00  UCM-BL  OI=3864  ASK=$0.50
SELL CALL  FEB-55.00  UCM-BK  OI=3592  BID=$1.10
INITIAL NET-CREDIT TARGET=$0.65-$0.70
POTENTIAL PROFIT(max)=15% B/E=$55.65


__________________________________________________________________

LLY - Eli Lilly  $68.04   *** Consolidation Underway? ***

Eli Lilly & Co (NYSE:LLY) discovers, develops, manufactures and
sells pharmaceutical products.  The company manufactures and
distributes its products through owned or leased facilities in
the U.S., Puerto Rico and 19 other countries.  Over all, Eli
Lilly's products are sold in approximately 150 countries.  Most
of the products the company sells were discovered or developed
by its own scientists and its success depends to a great extent on
its ability to continue to discover and develop new pharmaceutical
products.  Eli Lilly directs its research efforts primarily toward
the search for products to diagnose, prevent and treat human
diseases.  The company also conducts research to find products to
treat diseases in animals and to increase the efficiency of animal
food production.

LLY - Eli Lilly  $68.04

PLAY (less conservative - bearish/credit spread):

BUY  CALL  FEB-75.00  LLY-BO  OI=2940  ASK=$0.10
SELL CALL  FEB-70.00  LLY-BN  OI=6105  BID=$0.65
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$70.55



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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.

__________________________________________________________________

INTU - Intuit  $50.37  *** Tax Season Approaches! ***

Intuit (NYSE:INTU) is a provider of business tax preparation and
personal finance software products and Web-based services that
simplify complex financial tasks for consumers, small businesses
and accounting professionals.  The company's principal products
and services include Quicken, QuickBooks, Quicken TurboTax,
ProSeries, Lacerte and Quicken Loans. Intuit offers products and
services in five principal business divisions, which include Small
Business, Tax, Personal Finance, Quicken Loans and Global Business.

INTU - Intuit  $50.37

PLAY (less conservative - bullish/debit spread):

BUY  CALL  FEB-45.00  IQU-BI  OI=193  ASK=$5.60
SELL CALL  FEB-47.50  IQU-BW  OI=735  BID=$3.40
INITIAL NET-DEBIT TARGET=$2.15-$2.20
POTENTIAL PROFIT(max)=14% B/E=$47.20


__________________________________________________________________

AVID - Avid Technology  $47.04  *** Post-Earnings Slump? ***

Avid Technology (NASDAQ:AVID) develops, markets, and supports a
wide range of software, and hardware and software systems, for
digital media production, management and distribution.  Avid
Technology participates in two principal markets transitioning
from well-established analog content-creation processes to
digital content-creation tools.  Both of these markets, video
and film editing and effects and professional audio, are using
the worldwide web to collaborate and distribute video and audio
content.  The company's products, which are categorized into the
two principal markets in which they are sold, are used worldwide
in production and post-production facilities, film studios,
network, affiliate, independent and cable television stations,
recording studios, advertising agencies, government and also
educational institutions, corporate communication departments,
and by game developers and Internet professionals.

AVID - Avid Technology  $47.04

PLAY (less conservative - bearish/debit spread):

BUY  PUT  FEB-55.00  AQI-NK  OI=98   ASK=$8.10
SELL PUT  FEB-50.00  AQI-NJ  OI=233  BID=$3.70
INITIAL NET-DEBIT TARGET=$4.35-$4.40
POTENTIAL PROFIT(max)=14% B/E=$50.60



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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.

__________________________________________________________________

MXT - Metris Companies  $6.04  *** Cheap Speculation! ***

Metris Companies (NYSE:MXT) operates with its subsidiaries to
provide financial products and services throughout the United
States.  MCI's principal subsidiaries are Direct Merchants Credit
Card Bank, National Association (Direct Merchants Bank), Metris
Direct, and Metris Receivables.  The company issues credit cards,
and thereby generates consumer loans through, Direct Merchants
Bank, which obtains information about prospective customers from
credit bureau information, as well as from other third-party
sources including other companies' customer lists and databases.
Metris also offers consumers a variety of enhancement services
products, including credit protection, membership program and
warranty products, third-party insurance and list syndication.

MXT - Metris Companies  $6.04

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  MAR-7.50  MXT-CU  OI=73  ASK=$0.35
SELL PUT   MAR-5.00  MXT-OA  OI=40  BID=$0.35
INITIAL NET-CREDIT TARGET=$0.05-$0.10
INITIAL TARGET PROFIT=$0.25-$0.35

Note: Using options, this position is similar to being long in
the stock.  The minimum initial margin/collateral requirement
for the sold (short) option is approximately $175 per contract.
However, do not initiate this position if you can not afford to
purchase the stock at the sold call strike price ($5.00).



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
CALENDAR SPREADS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

A calendar spread (or time spread) consists of the sale of one
option and the simultaneous purchase of an option of the same
type and strike price, but with a future expiration date.  The
premise in a calendar spread is simple: time erodes the value of
the near-term option at a faster rate than the far-term option.
The positions in this section are speculative (out-of-the-money)
spreads with low initial cost and large potential profit.

__________________________________________________________________

SONS - Sonus Networks  $8.54  *** Speculators Only! ***

Sonus Networks (NASDAQ:SONS) is a leading provider of packet
voice infrastructure solutions for wireline and wireless
service providers.  With its Open Services Architecture, Sonus
delivers end-to-end solutions addressing a full range of carrier
applications, including trunking, residential access and Centrex,
tandem switching, and IP voice termination, as well as enhanced
services.  Sonus' award-winning voice infrastructure solutions,
including media gateways, softswitches and network management
systems, are deployed in service provider networks worldwide.

SONS - Sonus Networks  $8.54

PLAY (speculative - bullish/calendar spread):

BUY  CALL  JUL-10.00  UJS-GB  OI=4534   ASK=$1.40
SELL CALL  FEB-10.00  UJS-BB  OI=18038  BID=$0.35
INITIAL NET DEBIT TARGET=$0.95-$1.00
INITIAL TARGET PROFIT=$0.35-$0.60



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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.

__________________________________________________________________

FRX - Forest Labs  $74.49  *** Probability Play ***

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.

FRX - Forest Labs  $74.49

PLAY (speculative - neutral/debit straddle):

BUY CALL  MAR-75.00  FRX-CO  OI=473  ASK=$3.10
BUY PUT   MAR-75.00  FRX-OO  OI=363  ASK=$3.50
INITIAL NET-DEBIT TARGET=6.40-$6.50
INITIAL TARGET PROFIT=$2.90-$4.10


__________________________________________________________________


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