Option Investor
Newsletter

Daily Newsletter, Monday, 02/02/2004

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                   Monday 02-02-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Did The Market See Its Shadow?
Futures Wrap: Distribution
Index Trader Wrap: Vertigo
Traders Corner: Max Ansbacher – A Living Options Legend


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     02-02-2004            High     Low     Volume Advance/Decline
DJIA    10499.18 + 11.11 10568.96 10434.67 1.96 bln   1526/1461
NASDAQ   2063.15 -  3.00  2085.49  2053.79 1.90 bln   1319/1639
S&P 100   562.76 +  2.45   566.42   558.69   Totals   2845/3100
S&P 500  1135.26 +  4.13  1142.58  1127.87
RUS 2000  580.54 -  0.22   585.07   576.03
DJ TRANS 2968.02 - 17.93  2892.40  2856.28
VIX        17.11 +  0.48    17.56    16.67
VXO        16.87 -  0.18    17.19    16.04
VXN        25.81 +  0.75    26.38    25.22
Total Volume 4,296M
Total UpVol  2,052M
Total DnVol  2,079M
52wk Highs     498
52wk Lows       11
TRIN          0.87
PUT/CALL      0.72
*******************************************************************

Did The Market See Its Shadow?
by James Brown

Saying that stocks were mixed today would be an understatement.
A day after the Super Bowl investors seemed undecided on which
direction to take the market.  As a result the major averages
oscillated both directions.  As is typically the case the
Industrials, the NASDAQ Composite and the S&P 500 index all
posted similar moves.  The early morning strength looked more
like a continuation of Friday's afternoon bounce.  Unfortunately,
that strength didn't last and stocks quickly faded before finding
a bottom just before 11:00 a.m.  A quick rebound launched a
strong rally that stalled mid-afternoon.  Traders began to take
money off the table again and the last hour drift suddenly became
a sharp drop in the market's last thirty minutes.

Contributing to the market volatility was mixed economic data.
The reports were generally positive but the numbers missed
expectations.  Not helping were mixed to down markets overseas.
Britain's FTSE dropped 9 points to 4381 while the German DAX
gained 13 to 4071.  The Japanese NIKKEI lost less than 7 points
to close at 10,776 but the Chinese Hang Seng fell 289 points to
12,999.  It could be concerns over the Avian flu or it could be
just profit taking but the Hang Seng has dropped more than 750
points in the last seven sessions.

Speaking of the avian flu, which has now spread to more than 10
Asian countries, the XAL airlines index dropped more than 1.88%
and marked its third loss in four sessions.  Investors could be
concerned that this new outbreak will dramatically cut back on
air travel to the region.  China has already killed 23 million
chickens in an attempt to stop the flu's advance.  Unfortunately,
the virus may be mutating.  The U.N.'s health agency reported
yesterday that two sisters in Vietnam died from the deadly virus
after potentially contracting it from their brother.  This would
be the first human-to-human transmission if confirmed.  Currently
the W.H.O. is claiming there is no pandemic in Asia and their
level of concern has not risen with just 12 deaths being
attributed to the avian flu.  Also weighing on the airlines was
news of at least three flights being cancelled over the weekend
due to terrorist threats.  British Airways and Air France had
flights from Europe to the U.S. cancelled on Saturday while
Continental Airlines had one flight from Washington D.C. to
Houston cancelled on Sunday.

Evidence of equities' mixed movements today can be seen in the
market's internals.  The NYSE reported 15 winners for every 13
losers while the NASDAQ witnessed advancing stocks falling behind
decliners almost 15 to 16.  Up volume on the NYSE outnumbered
down volume but it was just the opposite on the NASDAQ.  Market
pundits claimed that Monday's low volume exacerbated the moves in
the indices.  In the futures market we saw crude oil rocket
higher with a $1.93 jump to $34.98 a barrel while gold futures
slipped $3.60 to $399.30 an ounce.  Stock sectors that saw the
heaviest buying pressure were insurance, defense, biotechs and
drug stocks.

Insurance stocks were up on anticipation of stronger earnings.
Several companies in the sector are due to announce this week.  A
few of them announced tonight.  Everest RE Group (RE) missed
earnings by 7 cents despite Q4 profits more than doubling.  AFLAC
(AFL) reported earnings that were inline and announced a 30
million share buyback.  Nationwide Financial Services (NFS)
reported earnings that beat estimates by 8 cents (estimates were
71 cents).  The Principal Financial Group (PFG) sprinted past
earnings estimates of 31 cents with net income hitting 46 cents a
share in spite of a write down that lowered income from last
year's numbers.

Defense stocks were higher due to an increase for defense
spending in the just released White House budget plan.  Biotechs
were higher lead by a strong day for Amgen (AMGN) and news that
Chiron (CHIR) had launched a new clinical trial for its latest
HIV/AIDS treatment.  The DRG drug index hit a new relative high
after Pfizer (PFE), the largest drug company on the planet by
market cap, announced that the FDA had approved two new drugs.
The new hypertension/cholesterol treatment, named Caduet,
combines their cholesterol fighting treatment Lipitor with
Norvasc for high blood pressure.  The second new drug is Spiriva,
developed by Germany's Boehringer Ingelheim and co-marketed by
Pfizer.  Spiriva is designed to treat Chronic Obstructive
Pulmonary Disorder (COPD), which affects millions of smokers.
Analysts believe both drugs can eventually top $1 billion and
potentially reach $2 billion in annual sales each.  Shares of PFE
broke out above resistance at $37.00 to a new 52-week high.

Also in the news was SBC Communications (SBC) who announced a
rise in DSL prices.  Both Bank of America and Goldman Sachs
offered positive comments on this news.  Meanwhile speculation
that SBC might bid on AT&T Wireless (AWE) appears to be cooling.
Shares of SBC rose 3.8%.  The lead front runner for an AWE
acquisition seems to be Cingular.  Ford also made the news with a
"sell" rating from Deutsche Bank, who downgraded the stock from a
"hold".  Last week we noted the rollover in shares of General
Motors (GM) and today's downgrade for rival Ford sent Dow
component GM even lower.

Of course the biggest news story of the day, aside from the
halftime show "incident", was the ISM index.  After two quarters
of strong GDP growth the Institute for Supply Management's
factory index reached 20-year highs as manufacturers geared up to
replace low inventories and meet rising demand.  January's ISM
number hit 63.6.  This passed December's 63.4 but missed
economists' expectations for 64.  Readings above 50 indicate
economic growth and this was the eighth month in a row the index
came in above 50 and the third consecutive reading above 60.  The
last time the ISM was this strong was back in December 1983,
which read 69.9.

Looking deeper into the ISM factory index's components we see
that the new orders index, a major factor of growth, slipped from
73.1 to 71.1.  The production index rose from 69.2 to 71.1,
another 20-year high dating back to December 1983.  The order
backlog index slipped from 61 to 60.5 and the new export orders
index fell from 60 to 57.5.  The employment index also slipped to
52.9 from 53.5, but marked its third month in a row over 50 (a
sign of expansion).  Today's ISM number corresponds with last
Friday's GDP number.  Both fell below expectations but together
they confirm steady growth.

The ISM wasn't the only economic report out this morning.
Investors also had to digest the December construction spending
numbers, which rose 0.4%.  This was below the 0.7% growth
expected.  Making this potentially troublesome was November's
downward revision from 1.2% to 0.5% growth.  The Commerce
Department also announced that real disposable personal incomes
were flat while wages slipped for the first time in over a year.

On a more positive note the Semiconductor Industry Association
(SIA) once again reiterated their belief that chip sales would
grow nearly 20 percent in 2004.  Meanwhile the World
Semiconductor Trade Statistics group reported that global chip
sales did rise 18.3% in 2003.  Unfortunately, this wasn't enough
to keep the chip stocks in the green and the SOX semiconductor
index slipped lower in the afternoon sell-off.

Tomorrow will be interesting.  Nearly two thirds of the S&P 500
have reported their December quarterly earnings and this week
we'll hear from another 75 companies.  The big tech stock to
report this week is Cisco Systems (CSCO).  CSCO is due to report
after the bell on Tuesday with estimates set at 17 cents per
share.  The stock had traded strongly higher midday on Monday but
gains slipped to just 1.9% amid the afternoon pull back.
Expectations are pretty strong for CSCO, especially given the
blow out numbers and guidance from rivals Juniper and Nortel
Networks.

It will also be interesting to see it the semiconductor index
(SOX) can hold support at the 500 level.  Many people believe the
SOX tends to lead the NASDAQ.  If that's true then tomorrow may
be a down day.  After the bell tonight I heard a note that
Goldman Sachs was downgrading the chip sector to "neutral".
Unfortunately, I was unable to confirm this announcement.

We still have a week full of economic news with the next major
report on Wednesday with the ISM services index.  Friday is the
big event with the non-farm payrolls report.  Currently Bloomberg
is reporting an average estimate of about 165,000 jobs being
created in January.  Let's hope it doesn't disappoint this time
or we may be in store for a stock market freeze.  In the mean
time button up those coats.  Punxsutawney Phil, the most famous
groundhog prognosticator, saw his shadow today indicating six
more weeks of winter.


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

Distribution
Jonathan Levinson

Equities began to sell off and were suddenly airlifted on a huge
buy program toward the end of the morning as the dollar continued
to rise.  Equities broke their recent range to the upside,
teetered along below next resistance, and then sold off to give
back most of their gains.  Treasuries traded both sides of
unchanged while precious metals and the CRB sold off.


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 found an overnight bottom in the 87.10 area
and spent today's session retracing Friday's losses despite
disappointing economic data in the morning.  The move coincided
initially with weakening equities and metals, but the trend
reversed temporarily toward the end of the morning, with equities
spiking higher and metals continuing to fade, but equities
reversed back lower toward the end of the afternoon.  The CRB
dropped 1.85 to close at 260.72 despite strength in crude oil,
heating oil and natural gas, with silver, soybeans and cotton
leading to the downside.


Daily chart of April gold


Gold and particularly silver got sold aggressively today, with
lows printed at 395.10 and 5.951 respectively.  As discussed last
week, 392 is next support, and the shape of the 10-day stochastic
suggested that absent a break of that level, the cycle would
begin to form an upphase above support.  The first preliminary
daily cycle buy signal was given today on the bounce off 395.10,
and the test of that level was sufficiently scary give the buy
signal credence amongst contrarian bulls.  For the day, April
gold closed lower by 3.20 at 399.80, the XAU added .49% to finish
at 96.05, and HUI lost .05 to close at 215.58, with the miners
reversing deep losses in the final hour of the session.


Daily chart of the ten year note yield


Bonds drifted uncertainly throughout the session, trading both
sides of unchanged but finishing slightly lower, with the ten
year note yield (TNX) adding 1.3 bps to close at 4.151%, a .31%
move for the day.  The daily cycle upphase on the TNX remains
intact, but the lack of upside momentum since Wednesday's spike
suggests that the daily cycle upphase is targeting a maximum
level of 4.34% resistance from here.  A strong up day for the
yield could change that, but for now the trend appears to be
losing its strong initial momentum.


Daily NQ candles


It was, overall, a perverse day for equities, in which the price
action did its best to confound traders in both directions.  The
NQ bounced from a lower low below Friday's range, and then rose
to a higher high, breaking the upper range and printing what at
first glance could have made a convincing breakout. The attempt
failed, with NQ fading slightly and then selling off as violently
as it rose to close in light negative territory at 1489, down 6
points for the day.  The daily cycle downphase continues to point
lower, but with Bollinger support at 1481 and the 1480 area
holding for yet another session, it's going to take a show of
force from bears to bring us our test of lower channel support at
1440.  For the time being, the bias on this timeframe remains to
the downside, but the repeated closes above 1480 are not at all
bearish.


30 minute 20 day chart of the NQ


The intraday whipsaws left another "finger" formation on the 30
minute chart.  The moves were far too quick for the 30 minute
cycle oscillator to track them effectively, with both the Macd
and the 300 minute stochastic still pointed higher despite the
precipitous drop in price.  Lower rising support on what I
believe to be a bear flag is now at 1487, with the intraday
bottom holding twice today at 1482.  Resistance is between 1506
and 1510, followed by stiff resistance from 1515 to 1520.  The
afternoon's sharp drop confirmed the still-influential daily
cycle downphase, and I believe the descending trendline from the
high two weeks ago represents the descending daily cycle channel
within which the 30 minute cycles are oscillating.  A break of
1480 on the next 30 minute cycle downphase will confirm this,
while support holding in that level could signal another early
abort to the daily cycle downphase.


Daily ES candles


ES gained 5 points to close at 1135, back below the primary
rising channel.  The move above 1140 was a beautiful whipsaw, as
was its reversal.  The failure at 1140 confirmed the bottom of
the previous week's range at 1142 and gives us very clear
resistance at 1142 and 1149.  The higher low above 1126 looks
bullish currently, but the shape of the prints of the past two
weeks set up a sloppy head and shoulders formation more easily
viewed on the 30 minute chart below.


20 day 30 minute chart of the ES


The 30 minute chart has rough neckline support at 1122 (my best
guess), but with strong support in the 1115 area, traders need to
proceed with caution.  The break above the descending trendline
off last week's top looked like a violation of the daily cycle
downphase, but the correction this afternoon behaved as a
throwover above the channel should.  Bears want to see price
weaken from here as the still-toppy 30 minute cycle begins its
downphase.  Look for next trendline support at 1133, followed by
1128 and 1122.  Measuring from the neckline at 1122, a head and
shoulders break of that level would target a potential move to
1089.


Daily YM candles


YM added 21 points to close at 10488, right on the 22 day EMA.
The upper rising channel trendline on continues to hold as
support, despite the ongoing daily cycle downphase in progress.
We see the same head and shoulders shaping up as on the ES above.


20 day 30 minute chart of the YM


Nothing to add here, as the YM closely resembles the ES.  Support
at 10410 is the level to watch.

The buy and sell programs that defined today's equities session
were sharp and violent, and there was little to do for committed
day traders except to let their stops take them out.  The 30
minute cycles are generally quite reliable, but today was an
egregious exception.  When such occurs, I move down to shorter
timeframes, which in this case would be the "short" cycles or
150-tick charts.  Currently, the violent whipsaws have muddied
the waters, and while the daily cycles suggest a negative
outcome, we saw today that anything can happen.

The US Dollar Index was mostly stronger today, despite the late
afternoon selling.  I would ordinarily expect the binary dollar
trade to bring us weaker equities as the dollar rises, but today
showed us a little of everything.  Keep an open mind and a
defensive trigger figure until this shakes out, and hopefully
tomorrow will bring us a move that can be counted in hours or
days instead of in seconds and minutes.


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

Vertigo

If Sunday's Super Bowl and halftime celebration wasn't enough to
make my head spin, then today's 6.5-hours of market gyrations has
me feeling like I've been on one heck of a roller coaster ride,
where a stomach churning case of vertigo is a result.

The NASDAQ Composite (COMPX) 2,063.15 -0.1% finished down 3-
points and showed more intra-day mood swings than the most ardent
of Carolina Panther fans, while the NYSE Composite ($NYA.X)
6,568.70 +0.26% posted a 17-point gain to eek out its first
winning session in the past 5.

And just like the Super Bowl, where only the last on the clock
brought an end to today's turmoil, traders had to stick around to
the last second of trade to see that Airline Index ($XAL.X) 60.45
-1.88% take today's top spot among sector loser, with the
Semiconductor Index (SOX.X) 506.01 -1.63% falling at close to cap
a volatile tech session.  The AMEX Gold Bugs Index ($HUI.X)
215.58 -0.02%, which traded lower throughout today's trade,
erased a 2% deficit in the final 15-minutes of trade.

Market Snapshot / Internals - 02/02/04 Close



After a broadly positive start to the session, stocks turned
lower mid-morning as manufacturing data from the Institute of
Management came in slightly below economists' forecast, but
turned higher by the midpoint of today's trade as investor
rethought a much stronger-than-expected manufacturing reading
from the regional Chicago PMI data released on Friday.

Traders seemed little moved over President Bush's forecast of a
record $521 billion budget deficit in 2004 when the proposed
budget was first released, but a late round of selling in
Treasuries that had the benchmark 10-year YIELD rising 1.3 basis
points by its close, seemed to hint that bond traders were
uncomfortable with the government saying it expected a heavy
borrowing period early in 2004 to fund the growing deficit.

S&P 500 Index (SPX.X) Chart - Daily Intervals



The SPX whipped either side of its new WEEKLY and MONTHLY pivot
levels and tended to show more significant support/resistance
trade at zones derived from the WEEKLY/MONTHLY pivot retracement.

S&P 100 Index Chart (OEX.X) - Daily Intervals



Recent trades I've profiled in the Market Monitor (long and
short) in stocks or indices have not been profitable, and it is
rather frustrating to this trader (Jeff Bailey) to see a
fractional gain get stopped out, then have the stock or index
come right back to the original trade entry point.

This action has me confused, or not sensing any type of good
directional bias that I can pick up on.  While I am not "the
market," I must say the market is trying to find some type of
point of equilibrium right now, as it too may be suffering from
vertigo as participants digest earnings, economic data, President
Bush's budget and perhaps which Democratic candidate will oppose
George Bush in this fall's election.

I will say that once the SPX and OEX moved back above their
WEEKLY Pivots, I would have thought buyers would have been able
to hold these two indices above the pivots.

I placed a shorter-term upward trend on the OEX, and marked the
recent pullback low of 557.36 to try and define a more finite
level of support.  This would be the equivalent of the 01/29/04
low of 1,122.38 for the SPX.

The S&P Insurance Index ($IUX.X) 319.23 +1.37% jumped to a 52-
week high and looks to take over some of the financial sector
leadership, while the S&P Banks Index (BIX.X) 350.44 +0.29%
posted a fractional gain for the third-straight session.  The
lingering strength from the financials is perplexing if the
market is truly worried about any type of rate hikes from the
Fed, or worries about economic slowing.

Dow Industrials (INDU) Chart - Daily Intervals



The first sign of weakness for the INDU on its conventional 50-
point box size point and figure chart would be a trade at 10,350,
but the way the INDU has traded in recent months, it would seem
that the "weakness" at 10,350 might actually find a bounce back
higher to 10,600, where a move back above 10,368 could be used as
a trigger for strength.  Conversely, a move back above the
MONTHLY R1 of 10,672 and failure back below 10,656 might allow
for a bearish entry type of trade.  When I look at the various
Dow component point and figure charts, it is a very mixed look
where recent strength finds weakness, but weaker components show
sign of renewed strength.  American Express (NYSE:AXP) $52.54
+1.35% traded another 52-week high on talk that it might be a
takeover candidate, and has traded more like a technology stock
the last two months that had been heavily shorted.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals



I have hit a major cold streak in my trading of the QQQ the past
two weeks and will refrain from trying to make any type of call
on the Q's at this point.  I've got a major case of vertigo and I
can see $38.26 on Cisco earnings just as easily as I was the QQQ
falling to a day trade target today of $36.72 when the
Semiconductor Index (SOX.X) 506.01 -1.63% quickly reversed this
morning's higher trade to then move below Friday's lows.

Pivot Analysis Matrix



The only close correlation with the pivot matrix I saw today was
in the QQQ at its MONTHLY and WEEKLY Pivot of $37.43-$37.46 as
resistance, and with few correlations of support, then SOX
498.04-496.37 may be important.  Lots of traders and investors
have been discussing the round 500 level as an important round-
number level of support, which may just have to be tested
tomorrow.

Other than this QQQ $37.45 level, WEEKLY S1's and DAILY S2s look
to provide the near-term support.  WEEKLY Pivots were traded on
the upward move in today's trade, as the equity indices all
closed below their WEEKLY Pivots on Friday.

Jeff Bailey


************************Advertisement*************************

Live Securities Brokerage Service with Licensed Option Principals

OCO Stop & Profit Orders                        OneStopOption
All types of Spreads and Buy Writes             888-281-9569
Auto-Trade Market Monitor Signals
Personal Service and Education


**Services available for Foreign Traders including Canada**

http://www.OneStopOption.com

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


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

**************************************************************
This Traders Corner was supposed to be posted on Sunday.  Due
to technical difficulties Mike Parnos sent us the wrong column,
please accept our apologies!
**************************************************************

Max Ansbacher – A Living Options Legend
By Mike Parnos, Investing With Attitude

Daniel Boone blazed new trails through the American wilderness
before there was 4-wheel drive.  Columbus sailed on Queen
Isabella’s dime until he stumbled onto America (actually the
Bahamas) and Magellan was the first to sail around the world,
though he died before he completed the journey.  All, in their own
way, were pioneers.

The world of options also had its pioneers.  Today we’re going to
meet Max Ansbacher – long time trader, teacher, author and money
manager.  Ansbacher, referred to by some as a “living legend,” was
a man ahead of his time.  Max has been trading options since 1973
when he started selling call options during the bear market that
began in 1973.

Ansbacher was one of the first option traders who recognized the
value of selling options as opposed to buying them.  He has
compared the purchase of options to buying a lottery ticket.

“I became fascinated with exchange traded options, which were just
being introduced.  I started writing (selling) them for my own
account,” explained Ansbacher.  “In the beginning, there were no
put options, so the only ones I could write were calls.  It was a
great money making proposition.  That experience got me hooked on
options.”

In 1975, Ansbacher wrote what was considered the definitive book
on options, “The New Options Market.”  “My book is written in
plain English,” he explained. “Not only do I explain the basic
concepts in clear language without any complicated mathematical
formulas.  I also present a number of easy to follow rules for
each strategy.” (A revised version of “The New Options Market” is
currently available online and at bookstores).

The Index
Over the years, Ansbacher has been consistently successful using
option selling strategies.  He has developed his own indicator
called the “Ansbacher Index,” which can be a “useful statistic in
helping to forecast where the stock market is likely to go in the
next four to eight weeks,” said Ansbacher.

“The index measures the relative prices of out-of-the-money puts
and calls on a stock index.  In theory, the price of a call which
is, for example, 35 points out of the money, should be about the
same as a put which is 35 points out of the money,” he continued.
“But in practice, the prices are usually quite different.  I
believe that this is due to the fact that option buyers tend to
form a consensus as to where the market is about to go.”

“If the consensus is that the market will go down, they all buy
puts, with the result that the price of the puts will become much
higher than the price of the calls,” said Ansbacher.  “I believe
that whenever there is a strong consensus that the market will go
down, it probably will not go down.  So I give my Index a contrary
interpretation and, if it shows that option buyers are buying
puts, that is bullish for the market; and if it shows that they
are buying calls, then that is negative for the market.”

The Contrarian Theory
What is the theory that makes a “contrarian” type of indicator
work?  Ansbacher explains that when most people are bullish, the
stock market is likely to go down.  When they are bearish, it is
likely to go up.  This is due to the fact that when a person is
rally bullish, the investor has already bought all the stock and
calls he or she is likely to buy.  Therefore, there is not much
more the person can do to cause the market to rally.  If, however,
the market goes down, there is a lot of selling the investor will
probably do which will intensify the downturn.  The reverse is
true when a person is really bearish.

How The Ansbacher Index Works
To calculate the Index, one starts with the current price of the
OEX.  Then one goes down about 30 points to the put with a strike
price at that level.  Then one goes up 30 points from the OEX and
finds the price of the call.  The should be three to seven weeks
left until their expiration.

Since the OEX is at 560, let’s go down 30 points to the February
530 put that has a value of $1.40.  Then let’s go up 30 points to
the February 590 call at a value of $.60.  We then divide the call
value by the put value.  Divide .60 by 1.40.  The value is .43.
How do we interpret this result?

The higher the price of the put compared to the price of the call,
the lower the Index will be.  For example, if a put was 2 and the
call was 1, the index would be 0.5.  If the put and call were
equal, the Index would be 1.0, and if the put was 1 and the call
was 2, the Index would be 2.  Therefore, the more people are
willing to pay for puts, which is an indication that they are
bearish – and the less the index would be.  Based on the
contrarian theory, the more bullish the Index is.  A rating of .8
to 1.2 would be considered neutral.  In our OEX example, the .43
value would be considered bullish.

Weekly Calculations
The Index can be calculated on a weekly basis, but one problem
exists.  The number of weeks left to expiration has an impact on
the result.  Near term options are likely to yield more extreme
results while longer term readings will be closer to neutral.  We
have to take this into consideration, but how?

As is the case, let’s assume there are seven weeks until
expiration and we’re using the February options.  We have our
reading of .43.  However, next week, instead of using just the
February options, we will compute the Index using both the
February and March options.  Then we combine the two numbers,
giving a 75% weight to the February figure and a 25% weighting to
the March figure.

The week after that, we will decrease the weight of the February
options to 50% and increase the weight of the March options to
50%.  The following week, the February result will have a 25%
weight while the March will have a 75% weight.

Not The Holy Grail
Keep in mind that the Ansbacher Index is only one indicator.  It’s
meant to measure current market sentiment and give us a hint as to
how traders may lean in the near future.  It’s one of the
indicators Max uses to determine levels at which he will places
his trades.
_________________________________________________________________

FEBRUARY CPTI POSITIONS

Position #1 -- OEX – Credit Spread Boogie – 560.31
With the market trending, let's not fight the tape.  We're going
to establish a bull put spread, take in some premium, and ride the
wave into shore.
We sold 3 OEX February 565 puts, and bought 3 OEX February 540
puts for a total credit of $6.80 (x 3 contracts = $2,040).
This strategy requires $25 x 3 contracts = $7,500.  We're only
trading three contracts because, if the market reverses
significantly, it might become necessary to close the bull put
spread and establish a bear call spread that may be wider and
would require more contracts.  We need to preserve our money for a
potential maintenance requirement.

Position #2 – MNX (mini NDX index) – Iron Condor – 149.31
This index seems substantially safer than the highly volatile NDX.
We're going to put on an Iron Condor with limited exposure.
Because the market is trending, we skewed the strike prices
slightly so that we have a little more cushion on the upside.
We sold 10 MNX February 165 calls and bought 10 MNX February 170
calls for a net credit of $.40 x 10 contracts = $400.  Then we
sold 20 MNX February 150 puts and bought 20 MNX February 147.50
puts for a net credit of $.50 x 20 contracts = $1,000.  Our total
credit of $1,400.  Our maximum profit range is 150 to 165.  Our
exposure is only $3,600 ($5,000 less $1,400).  Maximum profit:
$1,400.

Position #3 – XAU (Gold/Silver Index) – Iron Condor -- $95.58
The XAU has been temperamental of late.  This is a low risk and
relatively safe play with a wide range.  Maybe we can make a
couple of bucks.
We sold 10 XAU February 90 puts and bought 10 XAU February 85 puts
for a net credit of about $.70 (x 10 contracts = $700).  Then we
sold 10 XAU February 110 calls and bought 10 XAU February 115
calls for a net credit of about $.45 (x 10 contracts = $450).  Our
maximum profit range is $90 to $110 – a 20-point range.  Our
exposure is $3,850 ($5,000 less $1,150).  Maximum profit: $1,150.

Position #4 – OSX (Oil Service Sector Index) - $100.87
We're being cautious again here.  We're reducing our potential
income by expanding our safety range.
We sold 10 OSX February 105 calls and bought 10 OSX February 110
calls for a net credit of about $.45.  Then we sold 10 OSX
February 90 puts and bought 10 OSX February 85 puts for a net
credit of about $.75.  Our total net credit of about $1.20 (x 10 =
$1,200).  Our maximum profit range is 90 to 105 – a 15-point
range.  Our exposure is $3,800 ($5,000 less $1,200).  Maximum
profit: $1,200.
_____________________________________________________________

ONGOING POSITION
QQQ ITM Strangle – Ongoing Long Term -- $37.07
We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts
of the 2005 QQQ $29 calls for a total debit of $14,300.   We're
going to make money by selling near term puts and calls every
month.  Here's what we've done so far:
October: Oct. $33 puts and Oct. $34 calls – credit of $1,900.
November: Nov. $34 puts and calls – credit of $1,150.
December: Dec. $34 puts and calls – credit of $1,500.
January: Jan. $34 puts and calls – credit of $850.
February: Feb. $34 calls and $36 puts – credit of $750.
Total credit: $6,150.

Note:  We haven't included any of the proceeds from this long term
QQQ ITM Strangle in our profit calculations.  It's a bonus!  And
it's a great cash flow generating strategy.
___________________________________________________________

New To The CPTI?
Are you a new Couch Potato Trading Institute student?  Do you have
questions about our educational plays or our strategies?  To find
past CPTI (Mike Parnos) articles, look under "Education" on the OI
home page and click on "Traders Corner."  They're waiting for you
24/7.
____________________________________________________________

Happy Trading!
Remember the CPTI credo: May our remote batteries and self-
discipline last forever, but mierde happens. Be prepared! In
trading, as in life, it’s not the cards we’re dealt. It’s how we
play them. Your questions and comments are always welcome.

Mike Parnos
CPTI Master Strategist and HCP
_____________________________________________________________

Couch Potato Trading Institute Disclaimer
All results reported in this section are hypothetical. While the
numbers represented here may have been achieved or beaten by our
readers, we make no representation that any individual investor
achieved these exact results. The tracking for the plays listed in
this section uses closing prices for the day the newsletter is
published and it is not meant to imply that any reader actually
received those prices or participated in these recommendations.
The portfolio represented here is hypothetical and for investment
education purposes only. It is only an illustration of what type
of gains a knowledgeable investor might receive utilizing these
strategies.


************************Advertisement*************************

Stock Option and Futures Brokerage

OneStopOption teams the best trading technology with varying
levels of professional assistance at very competitive prices.
Commission costs are comparable to discount brokerage and
tailored to individual customer needs.

The power of one brokerage group with experience and expertise
in the Securities* and Futures Markets offers unprecedented
convenience for traders.

Access To All Futures Markets            Toll Free 888-281-9569
Stock Option Principals

www.OneStopOption.com

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


*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is $49.95. The quarterly
price is $129.95 which is $20 off the monthly rate.

We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


**********
DISCLAIMER
**********

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


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

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

Contact Support
The Option Investor Newsletter                   Monday 02-02-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: None
Dropped Calls: None
Dropped Puts: None
Watch List: Dip Buyers Losing Confidence?


************************Advertisement*************************

Live Securities Brokerage Service with Licensed Option Principals

OCO Stop & Profit Orders                        OneStopOption
All types of Spreads and Buy Writes             888-281-9569
Auto-Trade Market Monitor Signals
Personal Service and Education


**Services available for Foreign Traders including Canada**

http://www.OneStopOption.com

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


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

None


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

None


************************Advertisement*************************

Full Service Brokers

Man Financial announces the formation of the OneStopOption
Brokerage Group, addressing the demand for personalized,
experienced service for both securities* and futures trading
within the same firm. Licensed Option Principals Andrew Aronson
and Alan Knuckman specialize in live assistance of stock*,
option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
success.

Live Broker and Online Trading Available     888-281-9569

http://www.OneStopOption.com

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


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

None


************************Advertisement*************************

Full Service Brokers

Man Financial announces the formation of the OneStopOption
Brokerage Group, addressing the demand for personalized,
experienced service for both securities* and futures trading
within the same firm. Licensed Option Principals Andrew Aronson
and Alan Knuckman specialize in live assistance of stock*,
option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
success.

Live Broker and Online Trading Available     888-281-9569

http://www.OneStopOption.com

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


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

Dip Buyers Losing Confidence?

Amgen Inc. - AMGN - close: 66.21 change: +1.47

WHAT TO WATCH: We looked at AMGN last week, as it pushed through
the 200-dma and moved back over $65, expecting further bullish
action.  That continuation materialized today, with the BTK index
surging to test the $530 resistance again and AMGN breaking out to
its best level since October.  Bullish entries look favorable on a
pullback to test the $65 level as support ahead of the BTK
breaking out over resistance.  Target a rally to the $70-72 area.

Chart=


---

Lexmark International Inc. - LXK - close: 84.45 change: +1.56

WHAT TO WATCH: After consolidating it post earnings rally, shares
of LXK look ready to make another run to new highs.  The PnF chart
is still strongly bullish with a price target of $92, so breakout
entries above $86 should have room to run as the bulls once again
appear to be buying the dip.

Chart=


---

American International Group - AIG - close: 70.86 change: +1.43

WHAT TO WATCH: Putting the final touches on the recent
consolidation, shares of AIG broke out with vigor on Monday,
bettering its recent 52-week highs and clearing the $71 level.
With earnings coming up on February 11th, it looks like a bit of
an earnings run may be underway.  Use a trigger over today's high
and target a pre-earnings move up to the $75-76 resistance area.

Chart=


---

Loews Corp. - LTR - close: 54.58 change: +0.92

WHAT TO WATCH: Tobacco stocks have been amazingly strong of late
and LTR has been tearing its way up the chart, gaining more than
$12 in just the past 2 weeks.  Amazingly, it looks like there is
more upside in store ahead of the February 12 earnings report.
Use a trigger over $55 and target a move to resistance in the $60-
62 area ahead of earnings.

Chart=



===================
On the RADAR Screen
===================

PII $80.00 - It looks like investors weren't quite enamored of
PII's earnings report last Thursday, as the stock got hit with
some serious selling today, finally dropping it through the $80
support level.  That opens the door for a run down to the 200-dma
near $75.  Use a trigger under today's low and look to exit when
the first bounce arrives, either at the 200-dma or at next support
near $72.50.

MMM $78.00 - After the initial post-earnings selloff paused near
$80, MMM caught a mild oversold bounce before rolling over and
dropping under $80 support late last week.  The selloff picked up
steam on Monday, with the stock apparently on its way down to test
its 200-dma near $72.  Entries look favorable on either a break
below today's low or a failed bounce below $80.  Watch for
potential support near $75 on the way down to the 200-dma.

SNDK $53.30 - As competition concerns heat up, shares of SNDK are
continuing to weaken and last week's break of the 200-dma looks
ominous.  The stock is barely holding onto support near $53, left
behind from the mid-December selloff.  Use an entry trigger below
$53 and target a drop to next solid support near $47.


*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is $49.95. The quarterly
price is $129.95 which is $20 off the monthly rate.

We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


**********
DISCLAIMER
**********

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


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

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

Contact Support

DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives