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Daily Newsletter, Sunday, 02/15/2004

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The Option Investor Newsletter                   Sunday 02-15-2004
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Now Entering The Catalyst Void
Futures Market: Dollar Rallies, Equities and Metals Reverse
Index Trader Wrap: Oh Dell, my Bell
Editor's Plays: Too Good Too Be True
Market Sentiment: Look at the time!
Ask the Analyst: Inside buying and selling
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 02-13        WE 02-06        WE 01-30        WE 01-23
DOW    10627.85 + 34.82 10593.0 +104.96 10488.1 - 80.22 - 32.22
Nasdaq  2053.56 - 10.45 2064.01 -  2.14 2066.15 - 57.72 - 16.59
S&P-100  565.92 -  0.14  566.06 +  5.75  560.31 -  5.10 +  0.69
S&P-500 1145.81 +  3.05 1142.76 + 11.63 1131.13 - 10.42 +  1.72
W5000  11174.00 + 44.60 11129.4 +100.20 11029.2 -127.58 + 40.74
RUT      585.14 +  1.07  584.07 +  3.31  580.76 - 15.38 +  5.73
TRAN    2916.56 + 22.20 2894.36 +  8.40 2885.96 -186.99 + 36.66
VIX       15.58 -  0.41   15.99 -  0.64   16.63 +  1.79 -  0.16
VXO       15.63 -  0.35   15.98 -  1.07   17.05 +  2.18 -  0.40
VXN       24.14 -  0.49   24.63 -  0.43   25.06 +  3.79 +  1.03
TRIN       1.19            0.62            1.00            1.15
Put/Call   0.76            0.62            0.81            0.77
******************************************************************

Now Entering The Catalyst Void
by Jim Brown

With earnings basically over for the 4Q we are entering
the period in the earnings cycle where there is a lack of
a catalyst to move stocks forward. The economic calendar
will heat up next week and there is a greater risk of a
disappointment than a positive surprise. As we enter this
void traders will be watching recent support levels very
carefully.

Dow Chart - Daily


Nasdaq Chart - Daily



Economically Friday the 13th lived up to its superstitious
reputation. The December Balance of Trade reversed its gains
from last month and despite the declining dollar exports fell
and imports rebounded strongly from the November drop. The
December exports to China were the second highest on record
at $3.3 billion. Imports from the EU were the highest on
record at +$23.1 billion. One positive sign was the $20.1
billion in imports of high technology products. This was the
highest level since Nov-2000. This suggests there was a real
pickup in business spending or at least ordering in the last
quarter. Considering more and more of our consumer goods are
now produced overseas there is little chance of the trade
balance reverting any time soon. The majority of the imports
were autos and parts, oil and related products and the high
tech equipment. All high dollar items.

The Import and Export Prices rose substantially for January
but the majority of the volatility was again oil and beef.
Prices jumped +1.3% and well over the +0.5% expected. This
was the largest monthly increase in nearly a year. Commodity
prices are also rising as global demand continues to increase.

The biggest shock of the day was the Consumer Sentiment which
fell to 93.1 from 103.8 in January. I say it was a big shock
unless you have been reading my commentary. I have reported
twice in the last week that we could have a negative surprise
based on other survey information. Both components fell with
expectations falling to 88.4 from 100.1 and present conditions
falling to 100.4 from 109.5. This is a serious drop in the
sentiment BUT it is only a retracement of the +11 point jump
in January. We are right back in the December range of 92.6.
The spike to 103.8 was simply a spike caused mostly by the
unreasonable expectations for a big Jobs number in January.
When those jobs failed to appear the miss was so large most
consumers suddenly felt maybe the future was not so bright.
There is also the election impact. Now that the democrats are
blasting the airwaves with how bad jobs and the economy have
been under Bush those voters are feeling depressed. It is not
a slam against democrats, just a fact that negative campaigns
produce negative feelings of well being. This report should
not be seen as a market negative. The January numbers were
wrong and they have been corrected with the initial February
survey.

The markets used the economic numbers as an excuse for profit
taking but despite all the whining coming from the talking
heads on TV it was not that bad. We had a couple of sell
programs at 10:20 and 10:30 and a sudden drop at 12:20 when
news of a fire alarm at a Senate building hit the airwaves.
Contrary to the commentator's rhetoric it was not a bad day.

The Dow did fall to 10600 support but was immediately bought
and was in no danger into the close. The Nasdaq dropped to
support at 2050 and quickly rebounded and held above that
level for the rest of the day. The Nasdaq closed exactly
-100 points off the high of the year but nowhere near any
critical support. This was the fourth consecutive weeks of
losses for the Nasdaq but it is still within 100 points of
the highs. Sounds better when you say it that way. The Dow
Closed up for the week and stretched its winning streak to
10 of the last 12 weeks. The S&P has closed up 11 of the
last 12 weeks.

All of this just emphasizes the sideways consolidation phase
we are in. That may sound strange when you remember the Dow
and S&P closed at a new two-year highs on Wednesday. Need
further proof we are moving sideways? The S&P is only trading
up +25 points from its January-5th close at 1121. The Dow is
only +90 points above its 10540 close on Jan-5th. The trend
is definitely up but we have spent almost as many days under
10540 as above it over the last three weeks. February is
known as a consolidation month and is historically the 3rd
weakest month of the year. Given those historical norms we
are having a great month.

However, we are entering the catalyst void. This is kind of
like the Bermuda Triangle of the earnings cycle. Strange
things can and do happen for no apparent reason. Next week we
have a flurry of economic reports and very few major earnings
to provide excitement. The major reporters are WMT, TGT, AMAT,
HPQ and Deere (DE). Nobody expects any surprises
from WMT or TGT and HPQ already pre announced. That leaves
AMAT as the only real tech poster child to announce next
week and they are assumed to be doing great. This sets up
a potential for negative surprises but it is a very small
risk. The real risk comes on the economic side but it is
still hard to paint a high risk picture. On Tuesday we will
get the NY Empire State manufacturing Survey, Industrial
Production and the Housing Index. Not much to worry about
there. Wednesday has a bunch of reports but none critical.
Thursday will be a key day with Jobless Claims, PPI and the
Philly Fed Survey. With Jobless Claims up over 350K for the
two weeks with weather getting the blame it will be crucial
to see a drop this week. If claims are over 350K again it
will be tough to sell the weather excuse. The PPI could
show signs of inflation with rising commodity prices and
the Philly Fed will be read with hopes last months monster
spike is not retraced like the sentiment numbers. Friday is
almost an after thought with only the CPI on the economic
schedule.

We have a flurry of reports but nothing really critical as
long as the positive trend continues. Should a couple weaken
slightly they will probably be ignored but in a weak void
of excitement each could take on a life of their own. Next
week is also option expiration and other than the two sell
programs on Friday we really have not seen any normal
increase in volatility. This may be the first month since
November that the markets are not significantly higher for
the option cycle. This could dampen the option related
explosions we saw in Dec/Jan. Those that rolled out to the
next month to avoid big losses may finally escape the pain.
This could suggest a negative bias for the week compared to
the prior two months expirations.

Odds are we will continue our consolidation and with that
in mind the Dow does not appear to be in any danger. It is
above support at 10600 and well above stronger support at
10450. That is a lot of points to churn given the current
bullish sentiment and patient Fed. The 50 dma has risen to
10392 and in position to provide even stronger support to
the 10450 level by the end of the week. The Nasdaq is more
of a problem. The morning drop on Friday knocked the Nasdaq
below its comfort range support for the week at 2060. The
current 2050 support level is more psychological than
physical but the 50 dma has risen to just below the current
level at 2032. The Nasdaq is in danger of retesting that
50 dma support on even minimal selling. The last test took
us down to just below 2020 and left 2000 untouched. Worst
case the 2000-2020 level should provide significant support.
This leaves the Nasdaq with a possible range between 2000
and the highs for the week near 2100. Should we continue to
consolidate in this range I am sure nobody would complain.

The biggest losers on Friday were the SOX and the Russell.
The SOX dropped -1.58% on Friday to close at 511 but that
is well off last weeks lows of 493. The biggest hit to the
sector came on a downgrade from BAC on Intel and the chip
equipment stocks. They said they lowered estimates on Intel
based on weaker than expected notebook PC demand. Based on
their own channel checks they expect Q1 notebook shipments
to drop -12.9%. Long term they still suggest using any
weakness in Intel as a buying opportunity and predicted
very strong performance for Intel in the second half. Still
the SOX was knocked for a loss with the knee jerk reaction
to the downgrade. Intel's mid quarter update is scheduled
for March-4th. The drop in the SOX was likely a one day
event in front of the holiday weekend. It is still well
above support at 495.

Semiconductor Index - Daily



Russell-2000 - Daily



The Russell also dropped -1.28% to 585 but is still much
better off than the SOX. The Russell came very close to its
recent high at 601 on Wednesday and well over its 565 support
low last week. I suspect the drop on Friday was simply profit
taking in the high risk stocks before the weekend.

In reality the majority of the profit taking on Friday was
probably related to event risk over the long weekend. We
had flights cancelled on Friday, evacuations of Senate
offices and a post office closed because of a white powder.
It is a wonder the selling was not any worse. The internals
were negative but no worse than any normal profit taking
day. In short there is nothing to suggest that Friday's
drop was anything more than just a normal market cycle.
We are still in buy the dip mode until something changes
and I see nothing on the immediate horizon to make me
change that opinion. I expect some increased volatility
next week due to option expiration but nothing serious.
However, the really big moves normally come when you least
expect them so keep those stops in place!

Enter Very Passively, Exit Very Aggressively!

Jim Brown

*********************
HPQ Earnings Play
*********************

For those that took the HPQ earnings play on Tuesday night
you know by now that the rules changed. The Greenspan rally
sent HPQ soaring to $25 by noon Wednesday and our 40 cent
option more than doubled with Dell's earnings coming out
on Thursday and HPQ not due until next week. That is where
the plan fell apart. For no particular reason HPQ suddenly
pre-announced earnings during market hours at 2:30 Wednesday
afternoon. Huh? In what was clearly a ploy to steal some
of Dell's thunder they totally ruined any earnings strategy
by any option trader playing their earnings cycle. Our play
was immediately busted and the option values collapsed along
with their stock price. Thank you Hewlett Packard! Remember
to check Dell's offerings the next time you buy a computer
printer.


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

Dollar Rallies, Equities and Metals Reverse
Jonathan Levinson

The US Dollar Index broke to multiyear lows with the release of
negative economic data Friday morning, then reversed powerfully
to close above Thursday's high.  Metals and equities did the same
thing in reverse, while treasuries and the CRB advanced
fractionally.


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


Friday saw some dramatic moves in the US Dollar Index, with an
upside surprise in the balance of trades data released at 8:30AM
and a downside surprise in the 9:45(ish) preliminary Michigan
Sentiment report.  The Dollar Index got slammed to a new low for
the move below former support of 84.80, but was bought back up to
engulf yesterday's range, resulting in an upside key reversal.
The daily print was a bullish doji hammer, and the only fly in
ointment is the daily cycle downphase still in progress.  The
bounce remains corrective, even though the intraday action was
certainly impulsive to the upside.  The US Dollar Index closed at
85.53 and the CRB added .13 to close at 264.85 led by heating
oil, crude oil and sugar futures.

The bounce was sufficiently strong and sudden to reek of
intervention, but the source was not as glaringly evident as
usual. As CBS Marketwatch reported, "Rumors swirled through the
markets that the European Central Bank or another European
national bank had sold euros to drive the single currency lower.
Gary Noone, a currency analyst at MMS in London, cited
speculation that German banks were acting on behalf of the
Bundesbank or European Central Bank.  "I'm confident it was not
the ECB," said Marc Chandler, an analyst at HSBC in New York. He
said large traders sold as much as 1 billion euros through a
German bank, thus fueling the rumors.  The move had all the
trademarks of central bank intervention, another analyst said.
"This is way greater than any profit-taking when the currency
drops 1 cent in less than 15 minutes," said Ashraf Laidi, chief
currency analyst at MG Financial in New York."

Either way, support under the US Dollar Index held on Friday.
Whether it proves to be a significant bottom or merely the site
of the latest deadcat bounce remains to be seen.


Daily chart of April gold


April gold and March silver both finished lower Friday after
rocketing on the dollar weakness in the morning.  The moves were
key outside reversals for the metals, with Thursday's prints
engulfed by the wide ranging declines.   Gold printed a high of
418, silver at 6.73, lows of 407.10 and 6.465.  Gold closed lower
by 2.10 or .51% at 411, silver -.03 at 6.47.  The daily cycle
upphase in gold remains intact, and resistance remains 414,
followed by 418-420, support at 407, 402 and 398.  For the day,
the XAU dropped .37% to 102.16, and the HUI lost .55% to close at
234.07.


Daily chart of the ten year note yield


The Fed announced a generous 8.5B in 5-day repos against no
expiries on Friday, for a net addition in that amount.  Perhaps
assisted by that respectable amount of intervention money,
treasuries advanced slightly, with ten year note yields (TNX)
declining 1 basis point to 4.048%, a .25% move.  The daily cycle
downphase on the yield continues, but Friday's doji candle
printed a higher low against Thursday's, which was higher than
Wednesday.  With support approaching above 3.92%, treasury bulls
will need to pour on the steam if they wish to see that level
seriously tested.


Daily NQ candles


The NQ got clocked for 13 or .87% to finish at 1487.50.  It was a
wide-ranging day in which the NQ tested its 50 day EMA and
printed a low at 1479, one point below 1480 support.  The move
coincided with a 30 minute cycle downphase that bottomed toward
the end of the session, and engulfed the week's prior prints with
the lowest spike seen since last Friday.  This occurred following
the morning's spike to a lower high at 1512.50 as equities
advanced against the falling dollar following the 9:45 Michigan
Sentiment release.  The daily cycle upphase faltered, with the
Macd actually undrawing its prior buy signal, but the 10 day
stochastic remains in a tentative upphase.  Support below 1480 is
1460, with resistance at 1492, 1496, 1505, 1512 and 1518.

The daily cycle bounce from last Friday's low set up a secondary
rising trendline connecting the lows since Decemeber.  A break
below that level would establish the trendline as a possible
hunchback head and shoulders, with this week's candles forming
the right shoulder.  The downside projection is complicated by
the steep upward slope of the neckline but would be roughly 100
points below the break.


30 minute 20 day chart of the NQ


The 30 minute NQ delivered a steep selloff following the bearish
divergence discussed throughout the week.  The string of sub-.55
put to call readings from Thursday continued for the first half
hour on Friday with a .48 print, but that was last sub-.60
reading we saw for the day.  Leveraged dip-buyers got crushed as
the NQ took out a week's worth of lows and stayed there.  That
said, the 30 minute cycle put in a tentative bottom at a higher
low, which should be enough to preserve the daily cycle upphase.
But the violation of the lows that had held all week meant that
only those who went long last Friday stayed in the green, and in
my view, that qualifies this as one very difficult market to
trade.  So long as the rising trendline here remains intact,
bulls should be OK, but beneath that, 1476 and then 1460 is all
that remains between them and a test of the rising daily channel
support line.


Daily ES candles


ES lost 5.50 or .48% to close at 1145.50, bouncing from a low of
1142 and failing at a high of 1156.75.  As with the NQ, Friday's
high was below that of Thursday, but the low did not violate the
week's floor, retracing only Wednesday's gains.  The Macd did not
reverse its buy signal, but another down day on Tuesday would
change that.  With rising trendline support approaching within
the ongoing daily cycle upphase, Friday's selling did not do
significant technical damage and appears merely corrective.
1130-1136 is a confluence zone we remember too well from the
prior week, and it's going to take some serious commitment from
bears to bring it into the crosshairs.  Resistance is at 1148-
1150, followed by 1154.


20 day 30 minute chart of the ES


The weakness evident in the NQ is mostly absent from the ES.  The
selling on Friday was dramatic, but the overall pattern looks
less ominous than it does on the NQ.  With the 30 minute cycle
bottoming at the close from a higher low, it will take a whipsaw
on Tuesday to change the current picture of a corrective pullback
within the as-yet unchallenged daily upphase.


150-tick ES


Friday afternoon was a long study in boredom punctuated by brief
bouts of fear.  The rise from the intraday low felt corrective,
like a bear flag, but it kept going.  The chop was sufficient to
confuse the intraday oscillators, and no clear reading is evident
on this short cycle intraday timeframe.  Note how the red channel
is near the middle of the wider orange channel-  just a sideways
drift above the bottom of the 30 minute channel printed just
after noon.


Daily YM candles


YM dropped 59 points or .55% to finish at 10627, resting right on
the upper rising channel trendline.  The Dow Transports closed
lower by 1.14% at 2916.56, mirroring the strength in crude oil
futures.  Despite this weakness, the daily cycle upphase remains
unchallenged and the selling appears so far corrective.


20 day 30 minute chart of the YM


Same picture on the 30 minute YM:  the index closed on rising
support with a buy signal to provide comfort to bulls for the
weekend.  A break of that trendline must then run a gauntlet of
confluence support below, but would be a clear sign of unexpected
trouble for the bulls so far only hinted at by the weakness in
the $TRAN.

This week saw big moves in the US Dollar Index, metals and
equities.  Until Friday, the picture was bearish for the former
and bullish for the latter.  In all cases, the oscillators tell
us that Friday's reversals were merely corrective, despite their
apparent impulsiveness.  Any continuation of Friday's moves when
trading resumes on Tuesday would indicate that there was more to
Friday's action that so far meets the eye, and we'll be watching
the next support levels for metals and equities, resistance for
the dollar.   See you there.


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

Oh Dell, my Bell
By Leigh Stevens
lstevens@OptionInvestor.com

THE BOTTOM LINE –
One reason cited for the Friday drop was the fall in the Consumer
Sentiment numbers.  While the link between this survey and actual
consumer spending is weak, when a market has a sustained run like
we've had - getting "overbought" – such negatives now provide
reasons to book some profits and raise some cash.  The Trade
Deficit jump rained on the market too – a bigger than expected
rise in imports and exports fell. Only the healthcare sector kept
chugging along.  Nasdaq finished the week with slight losses and
the S&P (500) slightly higher.

The Nasdaq 100 (NDX) looks vulnerable to falling under key
support at 1450 and the Composite (COMPX) under 2000-2010.  SPX
support around 1120 and Dow 10,400 seem more likely to hold –
there is however, a possible double top formed in the S&P 100
(OEX) and 500 (SPX). The potential for further declines looks
greater than for a move to new highs.

FRIDAY'S TRADING ACTIVITY –

ImClone Systems was in the spotlight Friday, after the FDA
approved its drug for the treatment of colon cancer.  Shares of
the stock (IMCL) were up sharply, ending at 43.79, a gain of
nearly 40%.  This after the stock was off sharply on Thursday, as
the market reacted to a rumor of an FDA turndown for this drug.

Ironically of course, this is the company that saw a sharp drop
in their stock last year after it was known that the Food and
Drug Administration indicted inadequate testing of IMCL's Erbitux
drug – inside knowledge of this led to selling of a block of
stock by the company founder and an alleged tip off to Martha
Stewart. I doubt Martha is smiling about the irony of this.

Dell was the even bigger stock story - the corp. of the hour - as
their earnings came in better than expected, giving a boost to
the market early. Dell's (DELL) Q4 revenues were up 8% and their
earnings better than expected because of it.  DELL finished at
34.55, up nearly 3%. Since we know that our economic recovery
hangs on the consumer and the market fears any possible slow down
in the longtime consumer spending strength is running up a lot of
consumer debt, the only area that can take up the slack (of a
consumer retrenchment) is business spending. And spending on
computers and the like is a potential biggie.

When the University of Michigan sentiment numbers showed a
softening as reported during the session on Friday it was met by
immediate selling. The U of M index fell sharply, to 93.1 from
103.8 in January, reversing most of the prior month's big
increase in reported optimism.  Consumers indicated that they
were much more pessimistic about job growth in the future than
the month before.

The backdrop to this period was the DEMS bashing of the
Administration's record in this area.  Meanwhile, this week, the
President was promising that there will be millions of new jobs
created this year.  Non-farm payroll growth is going to have to
really ramp up from the 100,000 – 150,000 range to meet this
expectation. This looks to be the number to watch in the future,
bar none.  So, says Chairman Greenspan too.  Not just from my
lowly perch on the scene here.

Can Dell Computer and other manufacturers increase their output
without taking on new workers? – up to a point they can. This has
been the rub, the cleverness shown by business in getting more
output without hiring – and, gasp, having to pay those health
care benefits and all the rest.  There is plenty to give the
market pause here for the next few weeks and months, mostly on
jobs and including the political – the threat of losing a very
business friendly Administration.

Another fly in the ointment is trade and the weakness of the
dollar.  The Euro is now getting close to $1.30, which would be
an all-time high for Euroland.  I don't think the market cares
that much about this dollar weakness.  The Administration doesn't
give it much play in what they are staying up nights worrying
about.  But, there is some awareness that our trade deficits
can't be out of sight and also be a good underpinning for stocks
and a sustained advance in U.S. Equities.  Of course, in Euro
terms for example, stocks are pretty cheap.

A major problem with our record spending on imports comes if
prices of foreign goods start running up.  On Friday the Labor
Dept. reported the biggest jump in import prices in nearly a
year.

The deficit numbers themselves are staggering – the Commerce
Dept. reported that the U.S. Trade deficit widened to $42.5
billion in December, well above the expectation for less than 40
billion.

What's the deficit mean to us, to the market?  Probably not much,
IF the job growth picks up and we continue to get some pick up in
earnings, especially tech.  While these trends get clearer in the
next few weeks, the trend can get choppy as the indices do some
backing and filling – and, the technical picture suggests an
overbought market as mentioned.

OTHER MARKETS –
The long bond (30 year Treasury) was 5/32nds higher to close at
106 23/32 to yield 4.92%.  The 10-year Note over the week traded
at prices that meant yields between 3.99 and 4.1%.

No wonder the stock market is looking attractive, as annual
equities appreciation is looking more like it's back for now to
at least the long-term historical average of 10%.

There was selling in the Euro in the early going in New York, and
it fell a half percent against the dollar to close at 1.2744 –
this after getting back to its all-time high around 1.29. Hey,
those traders like to take profits too! The greenback was up
against the yen, to close at 105.47.

MY INDEX OUTLOOKS –

S&P 500 Index (SPX) – Daily & Weekly charts:

THE BIGGER PICTURE –
Someone asked me what it means when someone says that an index is
getting "overbought".  It's a technical term without a precise
meaning but there are some guidelines as to how to measure it.
First, I need say that it's a relative term.  Depends on the
kinds of market.  At the 90's peak, the market was quite
overbought for a long time – so what!  You couldn't short Index
puts just on an arbitrary thing like a stochastic being above 90
or RSI above 80. However, based on the following kinds of
factors, we can say that the market is more vulnerable to a
correction or price drop.  And, the market is a game of
probabilities so to speak.

(By the way, e-mail to me with questions related to such
technical stuff – technical analysis – are used for possible
answer in my Trader's Corner article)

200-day moving average
The S&P is trading 10% above its 200-day moving average currently
and it tends not to stay that far above this average. Either the
index drops back, OR the Index goes sideways long enough for the
Average to come closer. In an uptrend 5-6% is more common – such
as would be the case if SPX was trading around 1090-1100.




Oscillator type (technical) Indicators –
When for example the 14-day RSI gets above 75-80, the market is
said to be in an overbought situation and more likely to fall.
Better is to use the longer term weekly RSI, as on the lower
chart.  On a 13-week timeframe, this market has come pretty far,
without too much of a pullback.  When you see this AND the Index
is back up to an important prior peak – or series of peaks such
as you see above (dashed level line) – it's possible trouble for
the bulls.

Some other technical patterns suggesting we may not get much
higher soon is the possible double top and that the last high was
on less "relative strength" – that is, the daily Relative
Strength Index (RSI - upper chart) was at a lower level then it’s
prior peak, contrary to what was happening with prices.

S&P 100 Index (OEX) – Daily charts:

The double top that has formed so far, was what I anticipated for
this Index based on the bearish/price RSI divergence that had
developed, the aforementioned overbought situation and my
sentiment indicator – equities calls to puts daily volume ratio
that got pretty extreme at the first price peak.  See this on the
left hand side.

I look would for further weakness now if there is one or, better,
a couple of consecutive closes below the 21-day moving average as
seen on the right hand chart.  The OEX's 21-day average is at 565
currently. The Indexes tend to trade within envelope lines or
percentages above or below a moving average.




When there is second drive to a top that lacks follow through AND
the index then retreats to below the average (center line), there
is usually a further drop – sometimes back to the lower envelope
line. However, I always also look at the trend – in a strong
uptrend, the surprises, and extreme moves, tend to come on the
upside.

OEX support looks to be in the 557 area.  Given the double top,
and the line of resistance above, I expect a retreat to lower
support. If so, a drop to 560 or below, would break the steep up
trendline. If in puts at 570 and above per my last commentary, I
suggest staying put – no PUN intended. However, a new closing
high would be my stop out/exit/liquidation/get-me-out trigger.

OEX – Hourly:

ON THE OTHER HAND –

Taking a closer view of things, as in the hourly chart below,
I've noted before the good tendency for reversals when both the 5
and 21-hour stochastics BOTH get to extremes – as noted by use of
the arrows on the lower portion of the chart.

There is also a bit different support (up) trendline that comes
by use of the hourly chart – suggesting support just above 560.

After the long weekend, based on the two stochastic models and
especially if there is a further dip to the trendline but now
below it, look for a 1-2 day rebound.




The key factor will be if there is a new high made above 573. If
there is a new daily closing high, a double top is no longer
suggested.  Stay tuned.  If I wanted to hold positions, I would
be in some puts, but looking to buy calls a bit lower (e.g., to
562) looking for a bounce in the short-term and trading the 1-3
day price swings.

Nasdaq Composite Index (COMPX) – Daily & Hourly:

The Composite (COMPX) turned lower even below the resistance I
was anticipating in the 2100 area.  Showing less strength than
the S&P Indexes, it turned after forming an hourly down trendline
drawn from the recent top.

The small rebound that was then traced out off the Friday low,
has the appearance of a bear flag or a pause, maybe about midway,
in a downswing.  A second downswing should carry back to around
2010.





As with the S&P, the hourly oversold, suggests there may be some
rally attempt first.  Key resistance comes into play at the
hourly down trendline currently intersecting around 2080.  Absent
a close above this level, the short-term trend is down.

Nasdaq 100 (NDX) – Hourly:

The hourly NDX chart is another way of looking at the same
pattern as described above.  Downside potential is to 1460 next.





QQQ – Daily & Hourly:

The Q's are in danger of breaking down below its uptrend channel
that it has traced out since the August low – see the daily chart
below.  Meanwhile the shorter-term trend as shown in the hourly
chart at on the upper chart is down. Downside potential is the
lower trend channel boundary, currently intersecting around 37.7
at the green up arrow shown.




If the lower trendline on the daily chart is not penetrated,
especially on a closing basis, the up trend remains intact.  The
volume trend is still bullish – QQQ is not at an overbought
extreme.  More market action is needed to resolve this pattern.

This resolution should be soon based on last week's minor
reversal pattern of the move to a new (weekly) high followed by a
new low for the week – but the lower trendline break has yet to
come. Stay tuned.

Good Trading Success!


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

Too Good Too Be True

After two weeks of winning plays the streak was broken with
last weeks MHK put play. We should have played calls instead.
The change of the accounting period that sent MHK to just
below $80 last Friday continued to provide lift and MHK
soared to over $84 on Thursday. This was well over the
suggested $80 drop point. Fortunately it was a quick and
relatively painless exit that came at the open on Monday.
MHK gapped up to $81.50 Monday morning and thus officially
negating the play. I know a couple brave souls did think
it was just a better entry and charged in at the higher
level. That idea was shattered on the Wednesday bounce.

Cheap Option Earnings Play

AMAT announces earnings after the close on Wednesday and
after the SOX dip on Friday I feel AMAT is primed to make
a decent move regardless of what they announce. They gave
guidance last quarter for an expected +20% order growth
and revenue of $1.2-$1.3 billion.

I was looking for an inexpensive stock with cheap options
that was exactly between two option strikes. AMAT closed
on Friday at $21.82. The March $22.50 call is only 95 cents
and the March $20 put is only 55 cents. While I do not
expect AMAT to disappoint, we all know how companies can
report good earnings and still get trashed by traders.

I am suggesting a potential March 20/22.50 strangle for
$1.50 or a straight long call using the April option. If
AMAT does not disappoint it still may not gain ground
immediately. It is trading just above support at 21.25
and expectations for the chip sector are low.

The market is expecting a rally into the April earnings
cycle and that will not happen without chip stocks leading
the way. AMAT is well off its highs and could rebound into
a leadership position with positive earnings guidance.

Aggressive Traders:

Every play is always a risk and this one is no different.
The primary option would be the March 22.50 call with the
22.50 put as insurance. That insurance put is well out of
the money and you have to decide if you want to take the
risk without the insurance or not.

Buy March-$22.50 Call ANQ-CX currently $0.95
Buy March-$20.00 Put ANQ-OD currently $0.55

Conservative Traders:

More conservative traders may want to use April options
at $1.30 for the call and $0.80 for the put. If you use
April options I would probably skip the put in favor of
a simple stop loss in case things went bad. The time
value will prevent a material drop in the price on the
earnings announcement assuming they do not declare
bankruptcy.

Buy April $22.50 Call ANQ-DX currently $1.30


The April call will be the recommended option for this
play.


Our target would be an optimistic bounce to the January
levels back near $24.50.

I would sell the call on any dip below $21.00.

AMAT Chart - Daily




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

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

Good Luck

Jim Brown


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

Look at the time!
- J. Brown

Wow! Would you believe it?  February is half over and we're
already six weeks into the new year.  And what an eventful year
it has been.  On Wednesday the Dow Jones Industrials, the S&P 500
and the Wilshire 5000 index all hit new highs, surpassing
January's peak.  Not bad for a February, which is typically the
third worst month of the year for stocks.  We've just survived a
very eventful Q4 earnings season, the two-day FOMC meeting,
Greenspan's appearances before congress and a wardrobe
malfunction during the Super Bowl.

The only thing more surprising was the Comcast bid to buy Disney.
Well that and the strength in this market.  It seems like the
market has become immune to headlines of "white powder" and other
potential threats showing up in Washington post offices and
congressional buildings.  Not to mention air travel cancellations
based on terrorist data.  It's amazing how fast we adjust.
Speaking of adjusting it looks like consumers have altered their
confidence levels from irrationally exuberant in January back
down to just really confident with the disappointing February
Michigan sentiment numbers.  Now if we could only get this
growing economy to produce some jobs the forecast would look
pretty bright.

In the mean time Wall Street will have to settle with a strong
corporate profit outlook, low interest rates, a federal reserve
promising to be "patient" and a declining dollar that is
benefiting multinational corporations based in the U.S.  Sounds
pretty good doesn't it?  The only bad news seems to be a market
rally that is finally looking a little tired (again), at least in
a few indices.  The NASDAQ and the Russell 2000 both produced
lower highs on the Thursday-Friday decline this week.  Joining
them were nearly all the tech indices (Disk drives, hardware,
software, internets, semiconductors) also producing lower highs.
Throwing a shadow across the technical picture was the Dow
Transports index, which is failing under its 50-dma after last
week's big bounce.  One of the recent winners, the drug sector,
experienced some decent profit taking too.

However, this last week was not without its bright spots.  Oil
service stocks continued to soar and natural gas issued rode
their coattails.  Hitting new highs were the DFI defense index
and the IUX insurance index.  Also noteworthy is the RLX retail
index, which has maintained its recent gains and is approaching
four-year highs.

Next will bring a basketful of economic reports but the headline
numbers will be the PPI on Thursday and the CPI on Friday.  Plus,
we still have earnings from retail titan Wal-Mart (WMT) on
February 19th and semiconductor equipment giant Applied Materials
(AMAT) on February 18th.  Both companies have significant
influence on their sectors and will affect investor confidence.
Last week the second largest chip equipment maker Tokyo Electron
quadrupled its estimates.  I don't believe AMAT, the largest
equipment maker, can produce similar guidance but they should
have positive comments given the strength in the chip business.



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

Market Averages

DJIA ($INDU)

52-week High: 10746
52-week Low :  7416
Current     : 10627

Moving Averages:
(Simple)

 10-dma: 10581
 50-dma: 10392
200-dma:  9577



S&P 500 ($SPX)

52-week High: 1158
52-week Low :  788
Current     : 1145

Moving Averages:
(Simple)

 10-dma: 1141
 50-dma: 1113
200-dma: 1030



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low :  795
Current     : 1484

Moving Averages:
(Simple)

 10-dma: 1489
 50-dma: 1476
200-dma: 1341



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

Friday produced a decent bounce in the VXO but these indices
remain low and are still no help in suggesting a change in
direction.

CBOE Market Volatility Index (VIX) = 15.58 +0.27
CBOE Mkt Volatility old VIX  (VXO) = 15.63 +0.73
Nasdaq Volatility Index (VXN)      = 24.14 +0.61

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.76        766,143       582,099
Equity Only    1.71        632,241       370,129
OEX            0.85         37,220        43,539
QQQ            2.78         27,000        75,155


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

Bullish Percent Data

           Current   Change   Status
NYSE          77.2    + 0     Bull Confirmed
NASDAQ-100    69.0    + 0     Bear Alert
Dow Indust.   86.7    + 0     Bull Confirmed
S&P 500       88.2    + 0     Bull Confirmed
S&P 100       89.0    + 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: 1.04
10-dma: 1.00
21-dma: 0.96
55-dma: 0.98


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    1029      1013
Decliners    1813      2048

New Highs     311       158
New Lows        9         2

Up Volume    517M      481M
Down Vol.   1077M     1260M

Total Vol.  1619M     1753M
M = millions


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

Commitments Of Traders Report: 02/10/04

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

No change for the Commercial traders.  Small Traders have
grown slightly more bullish.


Commercials   Long      Short      Net     % Of OI
01/23/04      422,135   407,626    14,509     1.7%
01/27/04      417,089   410,930     6,159     0.7%
02/03/04      411,920   414,596    (2,676)   (0.3%)
02/10/04      412,217   414,044    (1,827)   (0.2%)

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
01/23/04      141,107   100,090    41,017    17.0%
01/27/04      143,089    87,828    55,261    23.9%
02/03/04      141,465    81,926    59,539    26.7%
02/10/04      143,496    80,362    63,134    28.2%

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

Commercials are starting to put some money to work and we're
seeing another jump in contracts for both longs and shorts.
Small traders have pared back their longs a bit and put some
of that money on the short side.



Commercials   Long      Short      Net     % Of OI
01/23/04      233,867   307,122    (73,255)  (13.5%)
01/27/04      291,166   334,618    (43,452)  ( 6.9%)
02/03/04      280,519   346,042    (65,523)  (10.5%)
02/10/04      297,601   356,630    (59,029)  ( 9.0%)

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
01/23/04     187,270     57,196   130,074    53.2%
01/27/04     154,485     60,556    93,929    43.7%
02/03/04     133,293     55,476    77,817    41.2%
02/10/04     110,480     58,428    52,052    30.8%

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


NASDAQ-100

Not much change from the Commercial traders but they are
a tiny bit more bullish here.  Small Traders have significantly
bumped up their long positions.



Commercials   Long      Short      Net     % of OI
01/23/04       42,823     39,442     3,381    4.1%
01/27/04       43,704     40,951     2,753    3.3%
02/03/04       43,600     41,441     2,159    2.5%
02/10/04       44,406     40,439     3,967    4.7%

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
01/23/04        9,180    11,371    (2,191)  (10.7%)
01/27/04       10,137    10,715    (  578)  ( 2.8%)
02/03/04        8,907    13,729    (4,822)  (21.3%)
02/10/04        9,906    13,018    (3,112)  (13.6%)

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

Not much change this week for Commercials.  Small traders
are slightly more bearish on the Dow.



Commercials   Long      Short      Net     % of OI
01/23/04       16,403     9,252    7,151      27.9%
01/27/04       16,536     8,404    8,162      32.7%
02/03/04       17,765     9,619    8,146      29.7%
02/10/04       21,764    11,974    9,790      29.0%

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
01/23/04        6,068    10,183   (4,115)   (25.3%)
01/27/04        7,240    12,372   (5,132)   (26.2%)
02/03/04        6,352    13,113   (6,761)   (34.7%)
02/10/04        6,267    14,220   (7,953)   (38.8%)

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

Inside buying and selling

Is insider buying or selling a good clue as to a stock's future
price direction?

I received a couple of questions regarding the buying or selling
of stock by "insiders," which you and I would associate with
corporate heads (CEO, COO, CFO or Directors), where their buying
or selling of company stock may be a hint as to the future
direction (up or down) the stock may be headed.

The questions were largely in regards to an intra-day update at
OptionInvestor.com regarding Winn Dixie Stores' (NYSE:WIN) $6.57
-0.3% Director John Dasburg purchasing 100,000 shares of WIN
stock at a price range from $5.75-$5.90.

Is this a sign that this troubled grocery retailer is about to
see its stock turn around after its shares traded an all-time low
of $5.69 this month (February 2004)?

Let me first say that the reason I profiled a LEAPS call option
play was that WIN's point and figure chart had achieved its
bearish vertical count of $6.00.  While we know that stocks can
always exceed below a bearish vertical count, and sometimes not
achieve the bearish vertical count, I thought these types of
technicals, along with a sizeable insider purchase might be worth
a small portion of an investor's capital.

Mr. Dasburg seemed to think it was worth a $585,000.00
investment.

I don't know what Mr. Dasburg's financial net worth is, and I
wouldn't argue with another investor that the $585,000.00
investment Mr. Dasburg made might be considered "pocket change"
to him, but I do believe that insider buying says that there is
some type of confidence, that a profit will eventually be
realized.

I'm tempted to call Mr. Dasburg and ask him if he is a follower
of point and figure charting.  Perhaps Mr. Dasburg doesn't really
have knowledge that Winn Dixie's stock fortunes are going to take
a turn for the better, but feels the stock has fulfilled its
longer-term destiny.

Let me also say that over the years, it has been my observation
that insider BUYING is more telling to a stock's future price
direction than insider SELLING is.

The reasons for this type of logic are rather simple.

People usually buy stocks because they think will eventually
generate a profit.  While it has been argued that anytime an
insider buys their company stock, it is based on some type of
knowledge that the public (you and I) may not be privy too.  It
is for this reason that the Securities Exchange Commission put
laws in place where insiders must file their buy/sell stock
transactions.

Why do insiders sell stock?  There are two reasons I can think
of.  One is that they believe they have some type of factual
knowledge, which may negatively impact price direction.  A second
reason is that the insider has too much of his/her financial net
worth exposed to the company's stock, and for reasons of
diversification, sells a portion of the stock in order to
diversify their financial wealth.

Enough with my logic.

While I looked for current scientific evidence, or statistics on
insider activity, I was unable to find any current data, which
might give us a statistical probability of how accurate insider
buying or selling is, when trying to predict the future direction
of a stock's price.

I did find a rather interesting 1993 study conducted by Aswath
Damodaran and Crocker H. Liu from the Stern School of Business,
New York University, where their research concluded that there is
substantial evidence that insider trading is present around
corporate announcements and that this insider trading is
motivated by private information.

If you are interested in reading this 41-page document, you can
do so by copying the following link to an open browser.

http://www.rfs.oupjournals.org/cgi/reprint/6/1/79.pdf

In brief, the researches used data on equity real estate
investment trusts (EREITs) and real estate operating companies,
which offered the researches a rather clever, and unique set of
data to truly test the hypothesis that insider information was
influencing the buy/sell decisions of insiders.

The reason ERIETs were used was that these ERIETs oftentimes used
outside appraisers to revalue the properties that they own.

Hmmmm.... if YOU were a director or officer of a EREIT and found
out your portfolio of real estate holding rose or fell, might it
not influence your buy/sell decisions?

There would be little that I (Jeff Bailey) could say at this
point to change any investor's mind regarding the importance or
unimportance of insider buying and selling.

For me, its just one of those "nice to know" investment tools,
which may heighten a trader's, or investor's, bullish/bearish
senses.

Once alert to any unusual or notable insider activity, I would
strongly suggest a trader/investor begin establishing
support/resistance level, or taking notes as to bullish or
bearish vertical counts, which may then become the building
blocks for developing bullish (insider buying) or bearish
(insider selling) scenarios.

The thought behind establishing a resistance level in relation to
insider buying is for the scenario ... if this insider knows
something bullish about the future, thus the reason they're
buying, the stock should break above resistance.

The thought behind the establishing of a support level in
relation to insider buying is for the scenario ... if this
insider knows something bearish about the future, thus the
reason they're selling, the stock should break below support.

In the case of Winn Dixie (NYSE:WIN) it was the insider buying so
near an all-time low (not a widely followed investment philosophy
unless the buyer is really convinced more new lows will be
found), which just happened to coincide with a bearish vertical
count that caught my attention.

How illegal is insider buying or selling?

This is a great question, and one not easily answered.

For me, I tend to think that it is rather hard to prove the
illegality of insider trading, unless the insider activity is so
blatantly obvious as it relates to the insider's past
buying/selling habits, where the activity took place just prior
to a rather large directional move in the stock's price.

It is more often that insiders are charged with illegal insider
trading when the insider has been selling prior to, or during a
large decline, where the investing public eventually lost money,
where monies are thought to not have been lost, if all had the
same information.

It is rare that an insider (officer or director of a company) is
charged with illegal insider trading, when the stock price
appreciates.  I think this is rather unfair to the bearish
investor/trader as I would think they should also be privy to any
"insider information" that might harm their account.  However,
there seems to be little sympathy for bears that lose money.

Where can you find recent filings of insider activity on a stock.

You can get FREE insider buy/sell information at Yahoo's! finance
section. http://finance.yahoo.com/

Once there, type in a stock symbol at the top of that page and
press "Go"

Once that page appears, look to the far left column of the page,
go down to the "Ownership" section and click the "Insider
Transaction" link.

Hey!  I see Mr. Auriana picked up another 5,000 shares of
MEDIWARE (NASDAQ:MEDW) $14.30 +0.71% at $13.25 on January 26,
2004.  That was just below his October 28, 2003 purchase of 5,000
shares from $14.00-$14.10.

It was in a 12/07/03 Ask the Analyst column titled "Generating
New Trading Ideas" that we discovered Mr. Auriana was a MEDIWARE
director, where we used the SEC insider information to track Mr.
Auriana's historical purchases.

Jeff Bailey


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

Symbol  Co                  Date            Comment

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

NHY    Norsk Hydro           Mon, Feb 16  -----N/A-----
SNY    Sanofi Synthelabo     Mon, Feb 16  -----N/A-----


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

ANF    Abercrombie & Fitch CoTue, Feb 17  After the Bell
A      Agilent Technologies  Tue, Feb 17  After the Bell
AHM    Amersham              Tue, Feb 17  Before the Bell
ACGL   Arch Capital Group    Tue, Feb 17  After the Bell
ARW    Arrow Electronics     Tue, Feb 17  -----N/A-----
BLDP   Ballard Power Systems Tue, Feb 17  Before the Bell
ITU    Banco Itau Holding FinTue, Feb 17  -----N/A-----
BRG    BG Group              Tue, Feb 17  Before the Bell
COG    Cabot Oil & Gas Corp  Tue, Feb 17  After the Bell
CNT    CENTERPOINT PPTYS TR  Tue, Feb 17  After the Bell
CCRT   CompuCredit           Tue, Feb 17  After the Bell
CMLS   Cumulus Media Inc.    Tue, Feb 17  After the Bell
DE     Deere & Co            Tue, Feb 17  Before the Bell
DDR    DVLP DIVERSIFIED RLTY Tue, Feb 17  After the Bell
DCEL   Dobson Communications Tue, Feb 17  After the Bell
FRT    Fedl Rlty Inv Trust   Tue, Feb 17  Before the Bell
FHCC   First Health Group    Tue, Feb 17  -----N/A-----
GPC    Genuine Parts         Tue, Feb 17  Before the Bell
GLG    Glamis Gold Ltd       Tue, Feb 17  -----N/A-----
GG     Goldcorp              Tue, Feb 17  After the Bell
IMY    Grupo IMSA, S.A.      Tue, Feb 17  -----N/A-----
HC     Hanover Compressor    Tue, Feb 17  Before the Bell
IPXL   Impax Laboratories    Tue, Feb 17  Before the Bell
KEG    Key Energy Services   Tue, Feb 17  -----N/A-----
LPNT   LifePoint Hospitals   Tue, Feb 17  After the Bell
MLS    Mills Corp            Tue, Feb 17  Before the Bell
NFP    National Finl Part    Tue, Feb 17  After the Bell
NTES   Netease.com Inc       Tue, Feb 17  After the Bell
NTAP   Network Appliance     Tue, Feb 17  After the Bell
OMC    Omnicom Group         Tue, Feb 17  Before the Bell
QGENF  Qiagen N.V.           Tue, Feb 17  -----N/A-----
RRI    Reliant Resources     Tue, Feb 17  Before the Bell
RTRSY  Reuters Group         Tue, Feb 17  Before the Bell
ROL    Rollins, Inc.         Tue, Feb 17  Before the Bell
SKE    Spinnaker Exploration Tue, Feb 17  Before the Bell
TI     Telecom Italia        Tue, Feb 17  -----N/A-----
TEVA   Teva Pharmaceutical   Tue, Feb 17  Before the Bell
TRW    TRW Auto              Tue, Feb 17  Before the Bell
UAG    Un Auto Group         Tue, Feb 17  -----N/A-----
VAL    Valspar               Tue, Feb 17  Before the Bell
YCC    Yankee Candle         Tue, Feb 17  After the Bell
ZLC    Zale Corp             Tue, Feb 17  Before the Bell


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

ADCT   ADC                   Wed, Feb 18  After the Bell
AAP    Advance Auto Parts    Wed, Feb 18  After the Bell
ALD    Allied Capital Corp   Wed, Feb 18  Before the Bell
AMT    American Tower Corp.  Wed, Feb 18  Before the Bell
AMAT   Applied Materials     Wed, Feb 18  -----N/A-----
AHG    Apria Healthcare GroupWed, Feb 18  -----N/A-----
BHP    BHP Billiton Ltd      Wed, Feb 18  After the Bell
VNT    C. A. Nacl Tele de VenWed, Feb 18  After the Bell
CSG    Cadbury Schweppes     Wed, Feb 18  Before the Bell
CDX    Catellus Development  Wed, Feb 18  After the Bell
CEC    CEC Entertainment     Wed, Feb 18  -----N/A-----
CCI    Crown Castle Intl     Wed, Feb 18  After the Bell
ELN    Elan Corp, PLC        Wed, Feb 18  Before the Bell
EQY    Equity One            Wed, Feb 18  After the Bell
EVG    Evergreen Resources   Wed, Feb 18  After the Bell
INTU   Intuit                Wed, Feb 18  After the Bell
JNY    Jones Apparel Group   Wed, Feb 18  Before the Bell
KOSP   Kos Pharmaceuticals   Wed, Feb 18  Before the Bell
LFG    LandAmerica Finl GroupWed, Feb 18  After the Bell
MGM    Metro-Goldwyn-Mayer   Wed, Feb 18  -----N/A-----
OVTI   Omnivision Tech       Wed, Feb 18  After the Bell
ROP    Roper Industries      Wed, Feb 18  After the Bell
TEX    Terex Corp            Wed, Feb 18  After the Bell
TBI    Tom Brown             Wed, Feb 18  After the Bell
UNT    Unit                  Wed, Feb 18  Before the Bell
UHS    Universal Health Serv Wed, Feb 18  After the Bell
WCN    Waste Connections     Wed, Feb 18  After the Bell
WRC    Westport Resources    Wed, Feb 18  Before the Bell
WON    Westwood One          Wed, Feb 18  Before the Bell


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

ABB    ABB                   Thu, Feb 19  -----N/A-----
AMCR   Amcor Limited         Thu, Feb 19  -----N/A-----
ANT    Anteon Intl Corp      Thu, Feb 19  Before the Bell
BEAS   BEA Systems           Thu, Feb 19  After the Bell
CBRL   CBRL Group            Thu, Feb 19  Before the Bell
CHTR   Charter Comm          Thu, Feb 19  Before the Bell
CIEN   CIENA Corp            Thu, Feb 19  Before the Bell
CDE    Coeur d'Alene Mines   Thu, Feb 19  Before the Bell
CTV    CommScope             Thu, Feb 19  After the Bell
CEI    Crescent Real Estate  Thu, Feb 19  Before the Bell
DADE   Dade Behring          Thu, Feb 19  After the Bell
DCX    DaimlerChrysler       Thu, Feb 19  Before the Bell
DEO    Diageo PLC            Thu, Feb 19  Before the Bell
ELAB   Eon Labs              Thu, Feb 19  Before the Bell
FE     FirstEnergy           Thu, Feb 19  -----N/A-----
GENZ   Genzyme Corp          Thu, Feb 19  Before the Bell
GTM    GULFTERRA ENERGY PART Thu, Feb 19  Before the Bell
HAN    Hanson plc            Thu, Feb 19  -----N/A-----
HCC    HCC Insurance HoldingsThu, Feb 19  After the Bell
HPQ    Hewlett-Packard       Thu, Feb 19  After the Bell
HRL    Hormel Foods Corp     Thu, Feb 19  Before the Bell
IVX    Ivax                  Thu, Feb 19  -----N/A-----
KG     King Pharmaceuticals  Thu, Feb 19  Before the Bell
NXTL   Nextel Communications Thu, Feb 19  Before the Bell
JWN    Nordstrom             Thu, Feb 19  After the Bell
PNRA   Panera Bread          Thu, Feb 19  Before the Bell
PDCO   Patterson Dental      Thu, Feb 19  Before the Bell
PCG    PG&E Corp             Thu, Feb 19  Before the Bell
PHCC   PRIORITY HEALTHCARE   Thu, Feb 19  Before the Bell
Q      Qwest Communications  Thu, Feb 19  Before the Bell
RSH    RadioShack Corp       Thu, Feb 19  Before the Bell
RUK    Reed Elsevier NV/Plc. Thu, Feb 19  -----N/A-----
POOL   SCP Pool Corp         Thu, Feb 19  Before the Bell
SLVN   Sylvan Learning Sys   Thu, Feb 19  Before the Bell
TGT    Target Corp           Thu, Feb 19  Before the Bell
TARO   Taro Pharmaceutical   Thu, Feb 19  -----N/A-----
TEM    Telefonica Moviles    Thu, Feb 19  Before the Bell
TP     TPG NV                Thu, Feb 19  Before the Bell
USPI   Un Surgical Part Intl Thu, Feb 19  After the Bell
UVN    Univision Comm        Thu, Feb 19  After the Bell
VCI    Valassis Comm         Thu, Feb 19  Before the Bell
WMT    Wal-Mart Stores Inc.  Thu, Feb 19  Before the Bell
WRE    Wash Rl Est Inv Trst  Thu, Feb 19  After the Bell
WGR    Western Gas Resources Thu, Feb 19  Before the Bell
WMB    Williams Companies IncThu, Feb 19  Before the Bell
YRK    York Intl Corp.       Thu, Feb 19  Before the Bell


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

KNBWY  Kirin Brewery Co      Fri, Feb 20  -----N/A-----


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

Symbol  Co Name              Ratio    Payable     Executable

NYB     New York Community Bancorp4:3      Feb  17th   Feb  18th
SBGA    Summit Bank Corp          3:2      Feb  17th   Feb  18th
BMS     Bemis Co                  2:1      Feb  17th   Feb  18th
MOG.A   N/A                       3:2      Feb  17th   Feb  18th
OVTI    OmniVision Technologies   2:1      Feb  17th   Feb  18th
SNDK    SanDisk Corp              2:1      Feb  18th   Feb  19th
CCBI    Commercial Capital Bancorp4:3      Feb  20th   Feb  23rd
SLFI    Sterling Finl Corp        5:4      Feb  20th   Feb  23rd
NATI    National Instruments      3:2      Feb  20th   Feb  23rd
ACV     Alberto-Culver Co         3:2      Feb  20th   Feb  23rd
AMG     Affliated Managers Group  3:2      Feb  24th   Feb  25th
SAFM    Sanderson Farms, Inc      3:2      Feb  26th   Feb  27th
ETN     Eaton Corp                2:1      Feb  27th   Mar   1st
CNI     Canadian National Railway 3:2      Feb  27th   Mar   1st
AME     AMETEK Inc                2:1      Feb  27th   Mar   1st


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

We still have a few earnings laggards but many on Wall Street
consider earnings season over.  Markets are closed on Monday.
We'll have a number of economic reports to keep our interest
throughout the week.


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

----------------
Monday, 02/16/04
----------------
-Markets Closed for President's Day-


-----------------
Tuesday, 02/17/04
-----------------
NY Empire State Index (BB) Feb  Forecast:    36.4  Previous:     39.2
Industrial Production (DM) Jan  Forecast:    0.7%  Previous:     0.1%
Capacity Utilization (DM)  Jan  Forecast:   76.2%  Previous:    75.8%


-------------------
Wednesday, 02/18/04
-------------------
Housing Starts (BB)        Jan  Forecast:  2.000M  Previous:   2.088M
Building Permits (BB)      Jan  Forecast:  1.910M  Previous:   1.953M


------------------
Thursday, 02/19/04
------------------
Initial Claims (BB)      02/14  Forecast:     N/A   Previous:     N/A
PPI (BB)                   Jan  Forecast:    0.3%  Previous:     0.3%
Core PPI (BB)              Jan  Forecast:    0.1%  Previous:    -0.1%
Leading Indicators (DM)    Jan  Forecast:    0.5%  Previous:     0.2%
Philadelphia Fed (DM)      Feb  Forecast:    35.0  Previous:     38.8
Semi Book-to-Bill report

----------------
Friday, 02/20/04
----------------
CPI (BB)                   Jan  Forecast:    0.3%  Previous:     0.2%
Core CPI (BB)              Jan  Forecast:    0.1%  Previous:     0.1%


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


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Contact Support
The Option Investor Newsletter                   Sunday 02-15-2004
Sunday                                                      2 of 5


In Section Two:

Watch List: A Well Rounded List
Dropped Calls: ABK, TEVA
Dropped Puts: None


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

A Well Rounded List
___________________________________________________________________

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.
___________________________________________________________________


Legg Mason - LM - close: 92.32 change: -0.72

WHAT TO WATCH:  We're feeling pretty bullish on LM, which has
helped lead the XBD broker-dealer index to new highs.  The recent
profit taking may be an entry point for new bullish positions.
However, patient traders can wait for a deeper pull back toward
the $90 level.  A bounce from $90 would be a great entry on LM's
next run at the $100 mark.

Chart=


---

Sealed Air Corp - SEE - close: 47.48 change: -1.22

WHAT TO WATCH: Ouch!  The 2.5% drop on Friday not only cements
SEE's position under its 200-dma but it also breaks through minor
support at the $48.00 level.  The longer-term bullish trend has
clearly been broken and SEE's P&F chart is pointing toward a $41
price target.  Bears can use Friday's drop as an entry point.
The $41 P&F target coincides with support from June 2003.

Chart=


---

Netease.com - NTES - close: 40.83 change: -1.21

WHAT TO WATCH:  Keep an eye on NTES this week.  The company
reports earnings after the close on Feb. 17th.  Estimates are for
32 cents a share.  The stock has been suffering lately with a
couple of failed rallies under its 200-dma.  Fortunately, it has
also found support at $40.00, although this level looks
vulnerable at the moment.  Traders might consider capturing any
post-earnings movement with a straddle at the $40 strikes but
being a volatile Chinese Internet stock it could be an expensive
strategy.  Bears can wait for a breakdown under the $40 mark and
target a drop to the $35 level.  Take note of its P&F chart,
which shows support near $38.

Chart=


---


Intel Corp - INTC - close: 30.14 change: -0.60

WHAT TO WATCH:  Intel dropped 1.95% on Friday after Bank of
America lowered their earnings estimates for the company.  INTC
has been testing support near $29.75 and a breakdown here would
be very bad indeed for the semiconductor sector.  Bears can look
for a break under 29.75 and target a move to the 200-dma.  Bulls
need to be patient and look for INTC to trade back above the
31.50 level.

Chart=


---

OmniVision Technologies - OVTI - close: 48.53 change: +0.66

WHAT TO WATCH:  OVTI, a maker of chips for camera phones, appears
to have found a bottom at its 200-dma.  Its MACD has just
produced a new buy signal and a move over the 50.25-50.50 level
might look like a bullish entry point.  However, OVTI has
earnings on Wednesday as well as a 2-for-1 stock split that takes
affect on Wednesday.  Also watch for P&F chart resistance near
$52.

Chart=


---

UTStarcom Inc - UTSI - close: 33.73 change: -0.56

WHAT TO WATCH:  This maker of IP switching solutions has seen its
stock struggle this week under its 200-dma.  The stock looks
ready to test its September-October support near $31.00.  A
breakdown under this level and it could drop to $27.50.
Technicals are mostly negative but volume has been light the last
few sessions.

Chart=


---

Donaldson Co Inc - DCI - close: 50.60 change: -3.75

WHAT TO WATCH:  Friday was not a good day for DCI shareholders.
The company issued an earnings earning and the stock dropped
6.89% while breaking its 200-dma.  Fortunately, the sell-off
stalled just above its $50.00 level but this support may not
hold.  Traders have two alternatives here.  DCI might produce a
dead cat bounce.  Look for a failed rally under $52.00 to
consider new bearish positions.  The alternative is to look for a
drop under the $50 mark.  DCI's P&F chart has produced an ugly
bearish signal suggesting a $40 price target.

Chart=



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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
^^^^^

Ambac Financial Group - ABK - close: 76.03 chg: -0.32 stop: 71.99

We're calling it quits on ABK.  The stock is stuck in a
consolidation pattern while the IUX insurance index has been
hitting new highs.  Fortunately, we can close ABK with a small
move in our favor.  We are still bullish on the insurance sector
and suggest readers check out the new call on RNR.

Picked on February 1 at $74.77
Change since picked:    + 1.26
Earnings Date         01/28/04 (confirmed)
Average Daily Volume:      476 thousand
Chart =


---

Teva Pharmaceutical - TEVA - cls: 65.92 chng: -0.04 stop: 63.00

Despite moving consistently in the right direction, our TEVA play
has been rather disappointing.  The problem is that it just didn't
move far enough fast enough to make it profitable ahead of
earnings.  The company is due to report its quarterly results on
Tuesday and with Monday being a holiday, logic dictates that we
drop the play this weekend.  TEVA has been slowly eating away at
the $66 resistance level over the past week, so any push above
that level early on Tuesday can be used to achieve a more
favorable exit.

Picked on February 3rd at    $64.66
Change since picked:          +1.26
Earnings Date               2/17/04 (unconfirmed)
Average Daily Volume =     2.62 mln
Chart =



PUTS
^^^^

None


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

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

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

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

Please read our disclaimer at:
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**************************************************************
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or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                   Sunday 02-15-2004
Sunday                                                      3 of 5


In Section Three:

Current Calls: AHC, APOL, ATH, CDWC, DHR, DHI, GD, ESRX, IBM, PD
New Calls: RNR
Current Put Plays: AVID
New Puts: MMM, SINA


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

Amerada Hess Corp. - AHC - close: 60.34 change: -0.28 stop: 57.00

Company Description:
Amerada Hess Corporation explores for, produces, purchases,
transports and sells crude oil and natural gas.  These exploration
and production activities take place in the United States, United
Kingdom, Norway, Denmark, Equatorial Guinea, Gabon, Indonesia,
Thailand, Azerbaijan, Algeria, Malaysia, Colombia and other
countries.  The company also manufactures, purchases, transports,
trades and markets refined petroleum and other energy products.
It owns 50% of a refinery joint venture in the United States
Virgin Islands, as well as another refining facility, terminals
and retail gasoline stations located on the east coast of the
United States.

Why we like it:
In light of the weakness in the overall market on Friday, AHC
actually held up fairly well.  A part of the reason for that
strength has to do with the fact that both the OIX and OSX indices
held their ground fairly well, due in large part to the fact that
Crude Oil continued its bullish climb, ending the session just
below $35 per barrel.  After last week's breakout over the $59
level, AHC showed a fair amount of follow-through, reaching almost
to $61 before running into resistance.  With historical resistance
in the $61-62 area, we can now expect a mild pullback, which
should set us up for new entries, so long as support is found at
old resistance.  A mild pullback should find support in the
$58.75-59.00 area, while a deeper pullback could see AHC testing
the $57.50-58.00 area.  A solid rebound from either of these areas
looks good for new entries, although we'd prefer to not see the
stock much below $58, as we want to see support holding at the 20-
dma ($57.85).  Maintain stops at $57.

Suggested Options:
Shorter Term: With February options expiring next week, the March
$60 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 May $65
Call, while traders looking for more immediate movement will want
to use the May $60 strike.  Our preferred option is the March $60
strike, which is at the money and should provide sufficient time
for the play to move in our favor.

! Alert - February options expire next week!

BUY CALL FEB-60 AHC-BL OI=2198 at $0.95 SL=0.50
BUY CALL MAR-60*AHC-CL OI= 567 at $1.95 SL=1.00
BUY CALL MAY-60 AHC-EL OI= 736 at $3.10 SL=1.50
BUY CALL MAY-65 AHC-EM OI= 294 at $1.25 SL=0.60

Annotated Chart of AHC:



Picked on February 10th at   $59.53
Change since picked:          +0.81
Earnings Date               1/28/04 (confirmed)
Average Daily Volume =     1.07 mln
Chart =


---

Apollo Group - APOL - close: 77.37 change: -1.09 stop: 73.50

Company Description:
The Apollo Group provides higher education to working adults.  The
company operates through its subsidiaries, The University of
Phoenix, Inc., Institute for Professional Development, The College
for Financial Planning Institutes Corporation and Western
International University, Inc.  APOL offers its programs and
services at 58 campuses and 102 learning centers in 36 states,
Puerto Rico, and Vancouver, British Columbia.

Why we like it:
In a valiant attempt to keep the bullish trend running hard,
buyers ramped APOL all the way to $79.50 this morning, but the
stock fell back to the $78 level almost as quickly as it rose.  a
big part of the weakness was probably due to the disappointing
economic data that kept the market under pressure all the way to
the closing bell.  We've been wondering when APOL would begin its
next round of profit taking that would bring it back down to
support for another solid entry opportunity and it looks like that
correction is underway.  While there is some mild support at $77
and then again at $76, the first logical bounce point appears to
be $75.  That was the site of the previous high, which is
currently reinforced by the 20-dma ($75.07) and a rebound from
that area looks like a solid entry point.  As noted previously,
APOL is a bit extended up here and with daily Stochastics now
dipping out of overbought territory, we would not recommend buying
into strength early next week.  Maintain stops at $73.50, which is
solidly below the 30-dma ($73.96).

Suggested Options:
Shorter Term: The March $75 Call will offer short-term traders the
best return on an immediate move, as it is currently in the money.
With February options expiring next week, there isn't enough time
for February options to appreciate against the spectre of time
decay.

Longer Term: Aggressive longer-term traders can use the March $80
Call, while traders looking at a longer time horizon will want to
use the May $80 strike.  Our preferred option is the March $75
strike, which is both in the money and should provide sufficient
time for the play to move in our favor.

! Alert - February options expire next week!

BUY CALL FEB-75 OAQ-BO OI=1261 at $3.00 SL=1.50
BUY CALL MAR-75*OAQ-CO OI= 303 at $4.40 SL=2.75
BUY CALL MAR-80 OAQ-CP OI= 354 at $1.80 SL=0.90
BUY CALL MAY-80 OAQ-EP OI= 659 at $3.80 SL=2.25

Annotated Chart of APOL:



Picked on February 1st at    $77.44
Change since picked:          -0.07
Earnings Date               12/18/03 (confirmed)
Average Daily Volume =     1.75 mln
Chart =


---

Anthem, Inc. - ATH - close: 84.20 change: -0.33 stop: 81.00

Company Description:
Anthem is a health benefits company serving over 7 million
members, primarily in Indiana, Kentucky, Ohio, Connecticut, New
Hampshire, Colorado and Nevada.  The company owns the exclusive
right to market its products and services using the Blue Cross
Blue Shield (BCBS) names in these states under license agreements
with the Blue Cross Blue Shield Association.  ATH's product
portfolio includes a diversified mix of managed care products,
including health maintenance organizations (HMOs), preferred
provider organizations (PPOs) and point-of-service (POS) plans, as
well as traditional indemnity products.  The company's managed
care plans and products are designed to encourage providers and
members to select cost-effective healthcare by utilizing the full
range of its medical management services.

Why we like it:
Early strength in the Healthcare index (HMO.X) on Friday lent
enough strength to our ATH play to push it through $85 and
activate our entry trigger.  Unfortunately, the stock couldn't
hold altitude and fell back to consolidate for the remainder of
the day near $84.  Friday's price action doesn't change anything
on the play -- ATH looks strong and poised to break out over $85
resistance.  It just didn't succeed with the breakout on Friday.
But now that our trigger has been activated, we can look to buy
this pullback to support.  There's a slight chance of a real
rebound from the $84 level, but more realistically, ATH will
probably have to pull back to strong support in the $82.50-83.00
area before continuing higher.  Traders that would prefer to enter
on strength should now wait until the stock pushes above Friday's
$85.25 high (preferably on strong volume) before playing.
Maintain stops at $81.

Suggested Options:
Shorter Term: The February $85 Call will offer short-term traders
the best return on an immediate move, as it is currently at the
money.  But with February expiration next Friday, the better
choice appears to be the March $85 call

Longer Term: Aggressive longer-term traders can use the March $90
Call, while traders looking for more insulation against time decay
will want to use the June $90 strike.  Our preferred option is the
March $85 strike, which is at the money and should provide
sufficient time for the play to move in our favor.

! Alert - February options expire next week!

BUY CALL FEB-85 ATH-BQ OI=1631 at $0.75 SL=0.30
BUY CALL MAR-85*ATH-CQ OI=3117 at $2.60 SL=1.30
BUY CALL MAR-90 ATH-CR OI=1441 at $0.85 SL=0.40
BUY CALL JUN-90 ATH-FR OI= 122 at $2.65 SL=1.25

Annotated Chart of ATH:



Picked on February 12th at   $84.53
Change since picked:          -0.33
Earnings Date               4/28/04 (unconfirmed)
Average Daily Volume =     1.54 mln
Chart =


---

CDW Corp. - CDWC - close: 67.29 change: -1.32 stop: 64.00

Company Description:
CDW Corporation is a direct marketer of multi-brand computers and
related technology products and services in the United States.
The company offers multi-brand computers and related technology
products, including hardware and peripherals, software, networking
and communication products and accessories, for use with
microcomputers based on a variety of operating platforms,
including Microsoft, Apple, Linux, Novel, Oracle and others.  CDWC
offers more than 80,000 products that include a range of product
types from manufacturers including Cisco, Hewlett-Packard, IBM,
Intel, Microsoft, Sony and Toshiba.  With this selection of
products, the company can provide its customers with fully
integrated, multi-branded technology solutions and the convenience
of one-stop shopping.

Why we like it:
That doesn't look good at all, now does it?  After holding near
the $69 level for most of the week, shares of CDWC got smacked
lower on Friday, losing nearly 2% on very light volume.  If the
stock breaks below the $67 level and violates the 30-dma ($66.79),
we can expect a further decline down to test the $64 support
level, which will likely coincide with the 50-dma.  Fortunately,
we initiated coverage of CDWC with an entry trigger of $70.25.
Since that trigger was never activated, the play is more of an
academic exercise right now.  We need to see price over that
trigger before considering entries into the play and if the $67
level breaks, then it is a safe bet that we'll have to drop the
play, perhaps early next week.  We'll stick with it for now,
optimistically looking for a rebound from above $67 and then the
breakout over $70 that we were expecting.  Wait for the breakout
over our trigger before initiating new positions.

Suggested Options:
Shorter Term: The February $70 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.  But with February options expiring
next week the better choice is the March $70 Call.

Longer Term: Aggressive longer-term traders can use the March $75
Call, while the more conservative approach will be to use the
March $70 strike or even the April $75 strike.  Our preferred
option is the March $70 strike, which will be at the money when
the play is triggered and should provide sufficient time for the
play to move in our favor.

! Alert - February options expire next week!

BUY CALL FEB-70 DWQ-BN OI=920 at $0.40 SL=0.00
BUY CALL MAR-70*DWQ-CN OI=440 at $1.70 SL=0.80
BUY CALL MAR-75 DWQ-CO OI=262 at $0.60 SL=0.30
BUY CALL APR-75 DWQ-DO OI= 82 at $1.15 SL=0.60

Annotated Chart of CDWC:



Picked on February 8th at    $69.13
Change since picked:          -1.84
Earnings Date               1/21/04 (confirmed)
Average Daily Volume =     1.36 mln
Chart =


---

Danaher Corp - DHR - close: 92.44 cls: -1.89 stop: 89.85 *new*

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:
A number of market pundits are still preaching that cyclicals are
a good place to be with the Fed promising to be "patient".  We
still like the bullish trend in DHR but the weakness on Friday
suggests it may see another test of its 50-dma.  We would
probably wait for the pull back and signs of a bounce before
initiating any new positions, especially with DHR's technical
oscillators rolling over (hinting at a pull back towards $90).
If you prefer an alternative entry point would be to wait for a
breakout over the $95.00 level.  We are going to raise our stop
to $89.85, just under the bottom of its rising channel and under
its 50-dma.

Suggested Options:
Short-term traders can choose the 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.

! Caution - February options EXPIRE on Friday!

BUY CALL MAR 90*DHR-CR OI= 914 at $4.70 SL=2.35
BUY CALL MAR 95 DHR-CS OI= 989 at $1.95 SL=1.00

Annotated Chart:



Picked on January 30 at $91.01
Change since picked:    + 1.43
Earnings Date         01/29/04 (confirmed)
Average Daily Volume:      841 thousand
Chart =


---

D.R.Horton - DHI - close: 30.45 chg: -0.34 stop: 27.99

Company Description:
Founded in 1978, D.R. Horton, Inc. is engaged in the construction
and sale of high quality homes designed principally for the
entry-level and first time move-up markets. D.R. Horton currently
builds and sells homes in 20 states and 47 markets, with a
geographic presence in the Midwest, Mid-Atlantic, Southeast,
Southwest and Western regions of the United States. The Company
also provides mortgage financing and title services for
homebuyers through its mortgage and title subsidiaries.
(source: company press release)

Why We Like It:
The market pull back on Friday is giving bulls another chance to
pick an entry in DHI near the $30.00 level.  Homebuilders should
out perform the broader markets if investors come to believe that
the Fed truly will be patient before raising rates again.  The
spring-summer home buying season is only a couple of months away
and industry watchers are expecting another big year, especially
with mortgage rates still near historic lows.  We're starting to
hear some analysts suggest the recent weakness in homebuilders as
a buying opportunity for these relatively "cheap" growth stocks.
DHI is only trading at nine times its estimated 2004 earnings and
that leaves a lot of room for P/E expansion.

In other news Standard & Poors raised its credit rating on DHI
from "BB" to "BB+".  In their press release S&P said, "The
upgrade acknowledges Horton's commitment to an organic growth
strategy and lower leverage levels over the past year, which has
materially improved the company's financial profile. This well-
diversified national homebuilder's above-average margins improved
over the past year as well, and efforts to strengthen inventory
turns continue."


Suggested Options:
Our preference is for the March and May calls.  You may notice
some odd option symbols as a result of the recent 3:2 stock
split.  We're going to pick the May 30s as our favorite.

! Caution - February options EXPIRE on Friday!

BUY CALL MAR 25 DHI-CE OI= 177 at $5.70 SL=3.50
BUY CALL MAR 30 DHI-CF OI=1319 at $1.70 SL=0.85
BUY CALL MAY 30*DHI-EF OI= 759 at $2.65 SL=1.35
BUY CALL MAY 35 DHI-EG OI= 148 at $0.85 SL= --

Annotated Chart:



Picked on February 08 at $30.00
Change since picked:     + 0.45
Earnings Date          01/21/04 (confirmed)
Average Daily Volume:       2.4 million
Chart =


---

General Dynamics - GD - close: 95.94 chg: -0.28 stop: 92.00

Company Description:
General Dynamics, headquartered in Falls Church, Va., employs
approximately 67,600 people worldwide and had 2003 revenue of
$16.6 billion. The company has leading market positions in land
and amphibious combat systems, mission critical information
systems and technologies, shipbuilding and marine systems, and
business aviation. (source: company press release)

Why We Like It:
We're not going to give up yet.  It's only been a week and we've
seen GD spend it consolidating sideways while the broader markets
shot higher only to come back down.  Defense stocks have been
investment winners this year as the market predicts that any
future budget will see an increase in defense spending and wisely
so given the White House's recent budget proposal.  GD, as one of
the lead defense contractors, will certainly see their share of a
fatter defense budget.  We like the stock at current levels,
especially now that it has already retested previous resistance
at $94 as new support.

No change in our stop loss and our first target is $100 with a
secondary target at $109-110.  Currently GD's P&F chart is
projecting at $125 price target.


Suggested Options:
Our preference is the March or May calls.  We normally don't pick
OTM calls as our favorite but we're going to bet on the May 100s.

! Caution - February options EXPIRE on Friday!


BUY CALL MAR  90 GD-CR OI=  57 at $6.90 SL=5.00
BUY CALL MAR  95 GD-CS OI= 697 at $3.20 SL=1.85
BUY CALL MAR 100 GD-CT OI= 229 at $1.05 SL=0.60
BUY CALL MAY  95 GD-ES OI=1003 at $4.70 SL=2.70
BUY CALL MAY 100*GD-ET OI=1014 at $2.45 SL=1.25

Annotated Chart:



Picked on February 08 at $96.88
Change since picked:     - 0.94
Earnings Date          01/21/04 (confirmed)
Average Daily Volume:       1.0 million
Chart =


---

Express Scripts - ESRX - cls: 70.58 chng: +1.44 stop: 67.50*new*

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:
It has been a nip and tuck battle between support and resistance,
but it looks like the bulls are finally going to win.  After more
than 3 weeks of bouncing between $68 support and $71 resistance,
ESRX caught a big bounce on Friday, in complete defiance of the
broad market weakness.  That 2% gain came on volume slightly ahead
of the ADV and pushed the stock to its best close since late July.
There is definitely some stiff resistance coming into play in the
$71-72 area, but we're looking for the stock to really break out
ahead of earnings, currently scheduled for February 24th.
Hopefully, we've seen the last trip down to the $68 support level
and the next move will be a solid breakout over that $71-72
resistance area.  Should we get another dip back near the $68
level, it should still provide a viable entry into the play.
Remember, our final target for the play is $75, which would be a
retest of the June and July highs.  Raise stops slightly to
$67.50, which is below the 30-dma ($67.80), as well as the
intraday lows of the past 2 weeks.

Suggested Options:
Shorter Term: With February options expiring next week, the March
$70 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 $75
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.

! Alert - February options expire next week!

BUY CALL FEB-70 XTQ-BN OI=3866 at $1.80 SL=0.90
BUY CALL MAR-70*XTQ-CN OI= 898 at $3.80 SL=2.25
BUY CALL MAR-75 XTQ-CO OI= 372 at $1.50 SL=0.75

Annotated Chart of ESRX:




Picked on January 13th at    $68.32
Change since picked:          +2.26
Earnings Date               2/24/04 (confirmed)
Average Daily Volume =        991 K
Chart =


---

Int'l Bus. Machines - IBM - cls: 99.71 chng: +0.41 stp: 96.50

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:
Can you believe IBM still hasn't been able to break out over $100?
Sure there have been a couple brief forays over that level, but
the stock has been unable to sustain a bullish move and that's
frustrating.  But on the positive side, there's really been no
discernible weakness either, as the stock continues to find solid
support just above $98.  That's a pretty tight range and with the
intraday lows gradually moving higher, it feels like we're setting
up for a breakout, and soon.  Of course, we'll need to have market
strength to support that breakout, and that certainly wasn't the
environment found on Friday as investors were jittery ahead of the
long weekend.  In light of that weakness, it was encouraging to
see Big Blue finish the day in the green, even if just
fractionally.  Dips and rebounds from above the $98 level still
look good for new entry points, while momentum traders will still
need to wait for a breakout over $100.50 before playing.

Suggested Options:
Shorter Term: The February $100 Call will offer short-term traders
the best return on an immediate move, although with February
options expiring next week, the better choice is the March $100
Call.

Longer Term: Aggressive longer-term traders can use the April $105
Call, while the more conservative approach will be to use the
April $100 strike.  Our preferred option is the March $100 strike,
which is currently at the money and should provide sufficient time
for the play to move in our favor.

! Alert - February options expire next week!

BUY CALL FEB-100 IBM-BT OI=27631 at $0.80 SL=0.40
BUY CALL MAR- 95 IBM-CS OI= 2547 at $5.70 SL=3.50
BUY CALL MAR-100*IBM-CT OI=13845 at $2.20 SL=1.00
BUY CALL APR-100 IBM-DT OI=20916 at $3.20 SL=1.50
BUY CALL APR-105 IBM-DA OI= 9337 at $1.30 SL=0.75

Annotated Chart of IBM:



Picked on February 1st at    $99.23
Change since picked:          +0.48
Earnings Date               4/15/04 (unconfirmed)
Average Daily Volume =     5.48 mln
Chart =


---

Phelps Dodge - PD - close: 81.87 chg: -2.38 stop: 78.00

Company Description:
Phelps Dodge Corp. is the world's second-largest producer of
copper, a world leader in the production of molybdenum, the
largest producer of molybdenum-based chemicals and continuous-
cast copper rod, and among the leading producers of magnet wire
and carbon black. The company and its two divisions, Phelps Dodge
Mining Co. and Phelps Dodge Industries, employ more than 13,000
people in 27 countries. (source: company press release)

Why We Like It:
Copper is at multi-year highs and demand is outstripping supply
as the global economy heats up again.  The goods news is that
copper demand is expected to grow over the next two years keeping
commodity prices for the metal strong, which translates into a
better bottom line for PD.  The rise in copper helped PD recently
produce its first net profit since 2000 and rumors are growing
that the company may reintroduce a cash dividend.  Investors like
PD because it's the second largest copper producer in the world
and shares are very liquid compared to the stocks for many of its
peers.

We were triggered on February 11th when PD trade through our
entry price at $80.51.  PD quickly shot up to $86.51 on another
spike in copper prices but the stock turned lower on profit
taking.  PD may see a retest of previous resistance at $80.00 as
new support.  We would suggest a bounce from $80 as a new entry
point for bullish positions.  Point-and-figure chart fans will
note that PD's new vertical count points to a $115 price target.

Suggested Options:
We like the March and April strikes.  If PD sees a dip the $75's
would be a good play.  We're going to suggest the March 80's.

! Caution - February options EXPIRE on Friday!

BUY CALL MAR 80 PD-CP OI=1195 at $5.10 SL=2.90
BUY CALL MAR 85 PD-CQ OI= 863 at $2.60 SL=1.35
BUY CALL APR 80 PD-DP OI=1111 at $6.30 SL=4.00
BUY CALL APR 85 PD-DQ OI=1654 at $3.80 SL=1.90

Annotated Chart:



Picked on February 11 at $80.51
Change since picked:     + 1.36
Earnings Date          01/29/04 (confirmed)
Average Daily Volume:       1.6 million
Chart =



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

Renaissancere Ltd - RNR - close: 50.83 chg: +0.74 stop: 49.50

Company Description:
RenaissanceRe Holdings Ltd. is a global provider of reinsurance
and insurance. The Company's business primarily consists of four
business units: (1) Catastrophe Reinsurance; (2) Specialty
Reinsurance; (3) Individual Risk business, which includes primary
insurance and quota share reinsurance, and (4) Renaissance
Underwriting Managers, which manages the Company's Property
Catastrophe Joint Ventures, its Business Development Joint
Ventures, and its Structured Reinsurance Products.
(source: company press release)

Why We Like It:
We're bullish on the insurance sector, a group that has been
consistently hitting new highs, and as a result we're closing the
ABK call play and suggesting a new one in RNR.  RNR should be
attractive to investors because the company guided higher on
earnings and said they expect a 20% ROI for 2004 back in early
December.  This is above their peer group's performance and
management is showing they can deliver.  Their recent earnings
announcement in early February reported net income 31 cents above
street estimates of $1.82.  Revenues soared 30% to $351.8 million
for the quarter.

We also like RNR because shares are bouncing from support at
$50.00 four weeks of consolidation.  Most of its technical
oscillators are bullish and its P&F chart points to a $69.00
price target.  The recent bounce from support also allows for a
tight stop to keep risk at a minimum.  Our first target is the
$55-56 region.  We'll start the play with a stop loss at 49.50.

Suggested Options:
Option trading is a little light on RNR especially in the March
strikes.  We're going to suggest the April 50s as our favorite.

BUY CALL MAR 50 RNR-CJ OI=  5 at $1.90 SL=1.00
BUY CALL APR 45 RNR-DI OI= 90 at $6.50 SL=4.00
BUY CALL APR 50 RNR-DJ OI=120 at $2.70 SL=1.35
BUY CALL APR 55 RNR-DK OI= 20 at $0.45 SL= --

Annotated chart:




Picked on February 15 at $50.83
Change since picked:     + 0.00
Earnings Date          02/03/04 (confirmed)
Average Daily Volume:       238 thousand
Chart =



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Avid Technology - AVID - close: 41.25 chg: -0.23 stop: 45.50

Company Description:
Avid Technology, Inc. is the world leader in digital nonlinear
media creation, management and distribution solutions, enabling
film, video, audio, animation, games, and broadcast news
professionals to work more efficiently, productively and
creatively. For more information about the company's Oscar.,
Grammy., and Emmy. award-winning products and services, please
visit: www.avid.com. (source: company press release)

Why We Like It:
So far so good.  We originally added AVID to the list after
shares reacted negatively to its recent earnings report.  The
very high-volume sell-off broke through multiple levels of
support including its 200-dma while also producing a very bearish
P&F chart forecasting a price target in the mid-twenties.
Shares of AVID have continued to falter and now we're seeing the
simple 10-dma act as overhead pressure.  The new short-term trend
of lower lows is also good news for bears.

Take note, AVID is approaching what could be support at the $40
level and the stock could see a bounce although we probably
wouldn't expect a bounce higher than the 42-43 level and
conservative traders can adjust their stops accordingly.  Our
current target is the $38 region.  In the news, AVID announced
that its VP and CFO will present at the Roth Capital Partners
Growth Stock Conference on Tuesday, Feb. 17th.

Suggested Options:
February strikes don't have much time left so we're going to
suggest the March or June puts.  Our favorite is the March 45s.

! Caution - February options EXPIRE on Friday!

BUY PUT MAR 45*AQI-OI OI=2196 at $5.40 SL=3.00
BUY PUT MAR 40 AQI-OH OI=3201 at $2.50 SL=1.25
BUY PUT JUN 45 AQI-RI OI= 649 at $7.50 SL=4.25
BUY PUT JUN 40 AQI-RH OI= 318 at $4.80 SL=2.65

Annotated chart:



Picked on February 04 at $42.87
Change since picked:     - 1.62
Earnings Date          01/29/04 (confirmed)
Average Daily Volume:       612 thousand
Chart =



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

3M Company - MMM - close: 79.68 change: -1.30 stop: 82.50

Company Description:
Commonly known as the maker of the ubiquitous, adhesive-backed
Post-It Notes, MMM is also a leading manufacturer of a variety of
industrial, consumer, and medical products.  Reflective sheeting
on highway signs, respirators, spill-control sorbents, and
Thinsulate brand insulations are just some of the company's
industrial products.  MMM also makes microbiology products, making
it easier for food processors to test for the microbiological
quality of food.

Why we like it:
Investors sold shares of MMM hard after their earnings report on
January 20th an that started a downtrend from which the stock has
not been able to escape.  The first rebound took the stock back
over the 50-dma, but strong selling pressure pushed the stock back
below that average and all the way down to the $78 level before
the next bounce commenced.  That rebound stalled out last Thursday
near the $81.50 level and MMM rolled over again, this time below
the 50-dma (currently $82.14).  With large cap stocks feeling the
brunt of the selling pressure on Friday in response to the
disappointing Consumer Sentiment reading, and MMM shed 1.6% on
rising volume.  That decline pushed the daily Stochastics down out
of overbought territory and it looks like the stock is headed for
new recent lows.  Clearly initial support will be found near $78
and then there's potential support at $76.  But we're looking for
a more substantial decline down to the strong support near $73,
also the site of the 200-dma ($72.83).

MMM has yet to issue a PnF sell signal, but will do so on a trade
at $77.  That lack of a current sell signal makes this a more
aggressive trade, but once that signal is issued, we'll have a
tentative price target of $72, which lines up nicely with our $73
target for the play.  We aren't going to use a trigger on the
play, as entries near current levels or even on a slight bounce
into the $80-81 area look favorable.  More conservative traders
will want to wait for the break under $77 before playing.  Since
we're playing aggressively here and not using an entry trigger, we
are going to use a fairly tight stop at $82.50, which is just
above the top of the most recent rebound, as well as the 50-dma.

Suggested Options:
Aggressive short-term traders can use the March 75 Put, while
those with a more conservative approach will want to use the March
80 put.  Our preferred option is the March 80 strike, as it
provides more time until expiration.  Note that with February
expiration occurring next week, we have not listed any February
strikes due to the rapid pace of time decay.

BUY PUT MAR-80*MMM-OP OI=2523 at $2.35 SL=1.25
BUY PUT MAR-75 MMM-OO OI=2693 at $0.70 SL=0.30

Annotated Chart of MMM:



Picked on February 15th at    $79.68
Change since picked:           +0.00
Earnings Date                1/20/04 (confirmed)
Average Daily Volume =      2.76 mln
Chart =



---

Sina Corp - SINA - close: 40.45 change: -0.65 stop: 41.35

Company description:
SINA Corporation (FKA: SINA.com) is a leading online media
company and value-added information service ("VAS") provider for
China and for global Chinese communities. With a branded network
of localized web sites targeting Greater China and overseas
Chinese, SINA operates three major business lines including
SINA.com (online media and entertainment service), SINA Online
(consumer fee-based online and wireless VAS) and SINA.net (small
and medium-sized enterprises VAS), providing an array of services
including online portals, premium email, wireless short
messaging, virtual ISP, search, classified information, online
games, e-commerce, e-learning and enterprise e-solutions.
(source: company press release)

Why We Like It:
Right off the bat let us state that this is a little aggressive.
SINA and the rest of the Chinese Internet stocks tend to be
volatile and that can be painful to your trading account as well
as your stomach.  If you can't stand a lot of ups and downs look
elsewhere.  Now having said that shares of SINA have actually
been pretty tame lately.  That's probably bad news for bulls
because SINA reported pretty strong earnings on Feb. 4th and the
stock barely reacted.  The short-term trend of lower highs is
pushing SINA towards a breakdown under its 50-dma.

The P&F chart is pointing to a $35 price target and we agree.
Yet we're NOT going to open this play until SINA trades through
our TRIGGER at $39.35, which happens to be where its 50-dma is
sitting.  If we are triggered we'll use a stop loss at $41.35.

Suggested Options:
Short-term traders can look over the March contracts, longer-term
players can choose from Junes.  Our favorite is the March 40 put.
Remember, SINA needs to trade $39.35 first!

BUY PUT MAR-40 NOQ-OH OI=3206 at $2.90 SL=1.50
BUY PUT MAR 35 NOQ-OG OI=6444 at $1.20 SL=0.60

Annotated Chart:



Picked on February xx at $xx.xx
Change since picked:     + 0.00
Earnings Date          01/21/04 (confirmed)
Average Daily Volume:       238 thousand
Chart =



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The Option Investor Newsletter                   Sunday 02-15-2004
Sunday                                                      4 of 5


In Section Four:

Leaps: Emperor Greenspan
Traders Corner: By Request - The Return Of The Quickie


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LEAPS
*****

Emperor Greenspan
By Mark Phillips
mphillips@OptionInvestor.com

In watching Greenspan's testimony before Congress last week, I was
struck by the similarity of what is happening now to stories I
heard in grade school.  We all heard tell of the way the sadistic
Emperor Nero fiddled as Rome burned.  Well, we're watching a
similar conflagration in the fiscal bedrock of this country.  The
Bush administration and the Greenspan Fed have joined forces to
destroy the one thing that has enabled the United States to
prosper so strongly these past many years -- a strong dollar.

The process has been so artfully crafted, it really is impressive.
On one hand, we have officials from the Bush administration lie to
us and tell us that the United States still has a strong dollar
policy, which we later find out has nothing to do with the fiscal
strength of the dollar, because the definition has been changed to
something touchy-feely and meaningless about how other countries
"feel" about the dollar.  Well, guess what guys.  If you take a
look at the currency markets, I think its pretty clear that the
international market thinks the dollar is in trouble, and rightly
so.  Treasury Secretary Snow continues to repeat that the U.S. has
a strong dollar policy, while in the fine print telling us that
the term "strong dollar policy" has been redefined.  Will somebody
please tell me how that isn't a blatant lie, both to the American
people and to the global community?

The other piece of the puzzle is the Greenspan Fed, printing
dollars as fast as the press can turn them out and issuing the
promise that interest rates can remain at multi-decade lows for a
long time, more than likely into 2005.  That promise implicitly
guarantees that the dollar will continue to weaken throughout the
remainder of this year.  The great indignity is that the Maestro
tells us that the weakening dollar is not a problem, while at the
same time telling us that inflation is virtually non-existent and
parroting the line that the lack of growth in employment is not a
concern either.

With the Euro once again testing its all-time highs near $1.29,
the British Pound at 11-year highs near $1.89 and the U.S. Dollar
trading near 10-year lows against the Canadian dollar, it is clear
that the Currency Markets have figured out the game.  There's
already talk of the Euro rising into the $1.35-1.40 range later
this year and rumblings of currency interventions by the European
Central Banks to stem the fall of the dollar against their
currencies.  How well has that worked in Japan?  After buying
hundreds of billions of dollars to help hold its own currency down
against the greenback, the dollar has fallen more than 22% against
the Yen since late 2001 and remains pinned to critical support.
If that support near 105 Yen/Dollar gives way, we could easily see
a continued slide towards the 1995 lows near 80 Yen/Dollar.  Not
only would that be very bad for the Japanese export-driven
economy, it would implicitly mean the dollar would have weakened
significantly.

Let's face it, if the dollar is weakening, then it will continue
to cost more in dollars to buy the items that we all need to
support our lifestyles.  Manufactured products are not becoming
more expensive due to Asia's continue export of deflation through
cheap production of all the widgets we buy, due to extremely cheap
labor costs.  That dynamic will cause the domestic manufacturing
industry to continue to atrophy.  As those jobs continue to
migrate overseas, it will leave greater numbers of Americans
either chronically unemployed or under-employed, working for lower
wages in jobs that are below their level of expertise.

With 70% of our GDP produced through individual consumers'
expenditures, and employment failing to expand at anything close
to the 250-300K new monthly jobs needed to signal sustainable
economic expansion, it is only a matter of time before consumer
spending once again begins to contract and we head back into a
recessionary environment.  If the dollar's slide is not arrested
before that point, we'll also be confronted with an inflationary
problem, that while masked due to the way important items such as
housing, energy, health care and food (all significantly higher in
price over the past year) are excluded from the official
government statistics, is very real right now.

Of course, central to this very issue is the issue of the U.S.
government's twin deficits -- trade and budget, each of which are
pushing the $500 billion annual level, and that's without
factoring in increased costs for our activities in Iraq and
Afghanistan.  The budget deficit must be funded by selling bonds,
which are increasingly being absorbed by foreigners.  What happens
when those foreigners determine that they've got enough U.S. debt,
which is continuing to decrease in value as the dollar continues
to fall?  I'll let you ponder that one on your own, but it isn't
an answer that will make Uncle Alan very happy.  The trade deficit
only exacerbates this problem, as it erodes confidence in the
underlying currency if there is a chronic excessively large
imbalance.  The key level cited where this becomes a problem is at
5% of GDP.  Well, with total GDP coming in at a $10.6 trillion
annual pace and based on the final GDP figure of $489 billion for
2003, that puts the trade deficit at 4.6% of GDP.  We're right
there up against the 5% barrier, but not over it yet.  But with
the trade deficit projected to continue growing (rising energy
costs and greater amounts of cheap imported manufactured goods
aren't going to help), any slowdown or contraction will put as at
or potentially over the magic 5% barrier.

As we've noted in the past, the rise in the U.S. equity markets
since last April has been nothing more than a direct effect of the
dollar weakening.  Price the DOW or S&P 500 in terms of the Euro
(or any one of a dozen foreign currencies), gold or even crude oil
and the market has been flat to down since tax day last year.
While this illusion of rising stocks has fooled most in the U.S.,
it hasn't been lost on foreign investors, as their investments
have not risen at all in terms of their local currency.  Should
the U.S. markets turn south, we can expect those foreign investors
to make a hasty retreat, rather than suffer the double indignity
of a loss on the equity position, as well as a continued loss due
to the unfavorable exchange rate from holding dollar-denominated
assets.

As we've discussed in the past, the bull market in gold is so far
confined to the U.S. market, as the rise in gold has simply been a
reflection of the decline in the dollar.  Gold has not broken
above important resistance against most foreign currencies.  But
let's look forward a bit and ask what will happen if other
countries join Japan's effort to try to hold their local
currencies down against the falling dollar.  The way this is
implemented is through printing up excess currency (the Euro in
terms of the European Union) with which to buy dollars.  In
theory, this increases the supply of their own currency and
decreases the supply of dollars in the open market.  The problem
with the theory is that when countries engage in this form of
currency manipulation, they are doing it to make their own exports
more affordable on the open market.

With the United States still the consumer for the rest of the
world, everyone will be vying for our consumer dollars.  It
doesn't take a great imagination to see where we quickly devolve
into an environment where everyone is trying to devalue their
currency against the dollar so as to stimulate their own exports.
While it would likely achieve the desired near-term effect, it has
a much more significant long-term effect.  What is the one and
only form of currency that can't be devalued by printing up more?
If you guessed gold, then pat yourself on the back.  If more and
more of the fiat currencies are being printed against a relatively
fixed amount of global gold, then there's no alternative but for
gold to rise.

That is the dynamic we've seen over the past couple years, with
gold rising in terms of dollars but not really gaining any
traction against other currencies.  When gold does break out to
new highs against the Canadian dollar, the Aussie dollar, the Euro
and the Pound, it will be in response to this process of
competitive devaluations and we'll know that the next leg of the
gold bull market is underway.  That will be the phase that will
see significant appreciation against all major currencies and I
expect we will see the 1980 highs in the price of gold exceeded.

If I could give investors one piece of advice for the long term,
it would be to accumulate gold and gold stocks whenever weakness
appears on profit taking like we saw during the month of January.
This is not a trade, it is a long-term investment, one that I
suspect will continue to appreciate through the end of the current
decade.  We do long-term trading here in the LEAPS column, but the
time horizon I'm speaking of above is even longer than the 2-3
year time horizon that LEAPS allow us to capitalize on.

So why have I spent so much time discussing such a long-term
picture today instead of focusing on what is currently happening
in the equity market?  There are a couple of reasons.  The first
is that nobody else seems to be giving much attention to this
long-term view that I think is very important for us to
understand.  It gives us a view of the overall landscape so that
we can put the current equity rally in its proper context -- that
of a bear-market rally (a powerful one to be sure, but still a
bear-market rally), which will end with the bear coming back with
a vengeance.  It could be next month, 6 months from now or next
year, but I have no doubt he'll be back and I expect him to be in
a very nasty mood when he returns.

For now, we continue to play the game as the near-term market
action dictates.  That means for the most part, we have to give
the nod to the bulls.  The VIX remains anemic near the 15 level
and bullish percent readings are still pegged to the ceiling.
Every dip is still being aggressively bought and we can expect
last week's new high in the DOW to give the bulls renewed
enthusiasm to continue pressing towards a retest of the all-time
highs near 11,700.

That said, the action in the DOW Transports over the past few
weeks is a big warning flag, at least if you happen to follow Dow
Theory.  What we have from last week's failed rally is a new high
for the DOW, but a much lower high in the Transports -- that's a
classic non-confirmation of the Dow's new high and it potentially
has bearish implications.  The other warning sign is the continued
loss of leadership by the Semiconductor stocks, with the SOX
rolling over near $530 last week and breaking back under the 50-
dma.  This bodes well for our bearish play on the SMH, especially
with bearish Stochastics divergence on the weekly chart.  And
guess what.  If the SOX is unable to get over its 2002 highs near
$640 before really rolling over, we'll have strong bearish
divergence on the monthly chart as well.

There are some slight hints of developing weakness, but for the
most part the market is still quite healthy and bullish.  That
means we can selectively play the downside, but the bulk of our
efforts must continue to be directed to the long side until such
time as we have more evidence that the sellers are starting to
throw their weight around, creating important technical
breakdowns, a rising VIX, bearish bullish percent readings and a
deterioration of the incessantly and excessively bullish market
sentiment.

Portfolio:

SBUX - Like the Energizer Bunny, SBUX just keeps going and going.
It's starting to sound like a broken record, but the stock notched
a new all-time high again last Wednesday at $37.40.  Those of you
that are nervous enough to harvest gains near the $37 level have
gotten ample opportunity to do so, and I'm going to quit
mentioning it.  Our objective now is for a run at $40, which will
be our final target for the play if it is reached before our stop
is triggered.  Speaking of our stop, I just can't see the logic in
keeping a loose stop on the play anymore.  If SBUX starts to
retrace, I think we want to be taken out early.  So I'm raising
the stop to $35.00 this weekend, which is at the bottom of the
late January gap and below all of the intraday lows since then.

SMH - Considering the strength of the rebound in the SMH a week
ago Friday, last week's action in the Semiconductor sector has me
feeling a bit better.  The SMH just barely managed to hang onto
the 50-dma as tenuous support throughout most of the week, with
price vacillating around the $42 level.  It looked like that
support was failing early in the day, but the afternoon rebound
had price moving back near both the 50-dma and $42 at the close.
At the same time, daily Stochastics moved into overbought and are
now turning bearish.  Also, the bearish cross we were looking for
on the weekly Stochastics has arrived and that means we finally
have confirmed bearish divergence.  That's right, this play just
might work out after all.  We'll have to see what unfolds in the
shortened week ahead, but I think we may have seen the highs for
this cycle and it should only be a matter of time before the $40
support gives way and we can target lower levels from there.
Maintain stops at $46 for now.

NEM - Just like clockwork, fears of interest rate hikes in the
near term gave us a bounce in the dollar, which was just the
ticket to cause a vicious bout of selling in the precious metals
sector.  But Easy Al's testimony before Congress last week put
things back in perspective.  The dollar is weak and that's ok.
Interest rates are going to stay low for a long while and we can
expect further weakness from the dollar.  Gold bugs rejoiced and
gold rebounded solidly above $400 and gold stocks are looking
better once again.  Dollar manipulation gave us our entry point
and now we're headed back up.  It may not be a straight path, but
it does appear we're on the way.  After trading down very near the
$40 support level, NEM surged as high as $45.75 before being
stalled at the 50-dma.  If you missed your entry point on the dip
near $40, any return trip to $42 or below looks good for entries.
Note that weekly Stochastics have nearly reached oversold, and
when they turn upwards, it will be time for the gold bulls to
party again.  Remember, we have VERY strong support in the $38-40
area, with the 200-dma rising to reinforce that support, currently
at $38.91.  Maintain stops at $37.

Watch List:

QCOM - With the rebound in the NASDAQ -- weak as it is -- it comes
as no great surprise to see QCOM rebounding back towards the $60
resistance level.  This leaves us in the same position we've been
in for weeks. QCOM looks strong, but is also bumping up against
some strong resistance after a powerful run off the late-November
lows.  Risk seems to difficult to manage here, so rather than take
the chance, we'll still patiently wait for that elusive pullback
to support in the $53-54 area, which is just below the 50-dma.
Maybe if we're lucky we can get a pullback just under the 50-dma
(like what happened in late November) before the next upward leg
gets underway.

HD - As expected, HD kept creeping higher last week and
Wednesday's broad market surge was enough to push the stock up
into our targeted entry zone.  Finally, HD moves into the
Portfolio.

SNDK - If that's all the bounce the bulls can give to SNDK, then
I'd say it's a safe bet we're going to see lower levels ahead
before the real buying opportunity shows up.  Of course, if I had
seen the initial breakdown coming, we'd be enjoying a nice bearish
play right now.  But since se missed that, buying the bottom of
this decline looks not only viable, but like a very attractive
play on a risk-reward basis.  Price action is stalling below the
10-dma near $53 and unless buyers can get the stock over the 200-
dma ($57.46) and soon, I suspect a break to new recent lows.  Of
course, that $25 PnF price target is still in the back of my mind,
but I think we'll see support hold at a higher level than that.
The 2 most likely targets are the 62% retracement of last year's
gains near $43.75 and then the 75% retracement, which comes in
near $35.  I favor an entry at the lower level, as it is right at
the bottom of the $35-40 consolidation area where I tried to buy
the stock on the way up the first time.  Maybe the second time's a
charm?  At any rate, we'll leave the play on hold for now, but
that gives you an idea of the action points we'll be watching for.

CHK - Uh-oh!  Is this train going to leave the station without us?
Despite a lack of a rebound in the price of Natural Gas, CHK has
put in an impressive rebound off the $11.75 level, after just
missing our entry point. In hindsight, I probably should have just
said "good enough" and taken the entry late last week, but I
didn't.  Looking at the weekly Stochastics, we can see the first
hint of perhaps a short-cycle bullish reversal and if gas prices
start to recover, shares of CHK could really get moving to the
upside.  Let's look for one more downward cycle to let us into the
play.  I'll loosen up the entry point a bit to $11.50-12.00, as
that area ought to hold as firm support now, especially with the
200-dma now solidly over $11.00.

MLNM - What was that I said last week about having to re-evaluate
if MLNM broke out over the December highs?  Well, it's time to
take that second look because the stock followed through on
Wednesday's rally with a strong breakout on Thursday to end above
$19.50 for the first time since the first half of 2002.  Not only
is this a solid breakout (on heavy volume), but it represents a
breakout of the bullish triangle that has been building for close
to a year.  In short, this breakout looks significant.  Once
again, being a bit too stingy with the entry point cost us, as now
we've got to target a pullback to a higher level.  I like the $18
level as firm support now, as it is the top of the broken
triangle.  Just to be on the safe side, let's use an entry zone of
$18.00-18.50.  Note that with the higher entry point, we've also
raised the strike prices, both for the long position and the
protective put.

Radar Screen:

WMB - As expected, there's not a lot to report on WMB this week.
Price is just barely holding above the 100-dma, but with bearish
Stochastics divergence clearly in place on the weekly chart and
weekly Stochastics now in an established downswing, we need to
exercise patience.  The most likely entry will come near the $9
level, which coincides nicely with the 200-dma.  My primary
hesitation in adding WMB to the Watch List with an actual entry
target is the unknown influence of this Stochastics downstroke.
We don't know how far it will carry, so it makes more sense to
wait until it begins to bottom in/near oversold territory.

LUV - The Transports finally bounced last week, but we can't
really call that slight upward wiggle in shares so LUV to be a
rebound, can we?  As if to drive the point home, Friday's sharp
drop pushed the daily Stochastics back into a bearish descent and
the weekly hasn't even hinted at an emergence from oversold
territory.  With major support in the $11.50-12.00 area and the
current vertical count on the PnF chart pointing to the $10 level,
we're clearly early for a bottom-fishing expedition.  But a bit
more downside will make the prospects for a bullish play look very
attractive.

APA - I guess it figures as soon as I start eyeing some Natural
gas plays that the stocks in question catch a strong bounce.  I
still really like shares of APA as a long-term bullish play, but
not at current levels.  The stock has had an impressive run from
the lows in November 2002 and I think we're due for a bit more
downside before a buyable bottom will be in place.  The 38%
retracement from the 11/02 lows, strong support and the 200-dma
all line up in the $35 area and that looks like a good place to
stake a position.  For now, we wait, but APA could easily make it
onto the Watch List over the next couple weeks, depending on how
quickly that weekly Stochastics makes it back to oversold
territory.

Closing Thoughts:
As you can see by my commentary above, I really see no significant
change in the investing landscape.  The bulls are continuing to
buy the dips and we can't discount the importance of last week's
new high in the DOW.  We are almost out of catalysts until the
next round of earnings pre-announcements arrives, but I just don't
see what is going to change the overall bullish trend in price and
sentiment that has prevailed over the past year.  Steady as she
goes, and we'll continue to pick our plays very carefully.

Admin Notes:
Believe it or not, I finally finished the modifications to the
LEAPS Portfolio and I think you'll like the result.
Unfortunately, I just wasn't able to squeeze in a column showing
the percentage return, like we have always shown in the past.  I'm
not sure if this is critical or not, so I'll leave it up to you.
Take a look at the new format and drop me a line with your likes,
dislikes and suggestions.  That's the only way it's going to get
better!

I'm hoping that the new Portfolio playlist is rather self-
explanatory, but I recognize that I may be too close to things and
need a fresh perspective.  So I'll start with a quick primer on
what we're looking at.  As you can see, we still have the Calls on
the top and the Puts on the bottom, with a block of data for each
open play.  You can see fields for Symbol, Date Entered, Entry
Price, which are the selected LEAPS, along with their price at
entry and the current price of each LEAP.  What's new (as shown on
the NEM and HD plays is that we've included the use of insurance
options as we've been discussing for the past several weeks.

That's where the final row and final column in each block of data
come in.  The final row shows the symbol used for the insurance
put on the call plays (we'll use an insurance call on the put
plays), along with its price at entry, current price and change
since the position was opened.  The final column takes into
account the change in the insurance option and combines that value
with the change in the price of the LEAPS to produce a true total
gain or loss for the position.  Note that negative numbers are
shown in parenthesis, rather than with a minus sign.  So on the
NEM play below, you can see the Change w/ Insurance column for the
2005 LEAP shows a loss of $0.10, displayed as ($0.10).  I'm sure
there are things that will need to be clarified as we move
forward, but this should be a good starting point.  As I said
before, don't hesitate to drop me a line if you have any
questions.

Have a great week!

Mark


LEAPS Portfolio

Current Open Plays



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   $11.50-12.00 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   $18.00-18.50 JAN-2005 $ 20  XVX-AD
                            CC JAN-2005 $ 17  XVX-AW
                               JAN-2006 $ 20  YDA-AD
                            CC JAN-2006 $ 17  YDA-AW
                            PP MAY-2004 $ 17  QMN-QW


PUTS:
None


New Portfolio Plays

HD - The Home Depot $36.17  **Put Play**

It really seemed like HD was never going to gain enough altitude
to allow us into this bearish play, but Wednesday's euphoric ramp
on the heels of Greenspan's testimony before Congress did the
trick.  The stock rallied up to $37.01 and then dropped back
fractionally to close at $36.83.  Sure it was a bit on the
aggressive side, entering so close to the day's high, but the
stock satisfied our criteria for an entry in the $37-38 area and
with our new approach of buying insurance options, we can take
positions with greater confidence.  What happens if HD just blasts
off from here and hits $45?  We're protected by our short-term
call.  In this case we're using the May $40 call, which cost us a
whopping $0.55.  Alright, let's recap why we like this play.  HD
has been a chronic under-performer over the past year, and all the
rally from its early 2003 lows has served to accomplish is push
the stock back up to the top of its multi-year descending channel,
currently just a few pennies below $38.  HD has ceased to be a
growth stock and this can be seen in the slowing revenue growth
and narrowing profit margins.  LOW has become the growth stock in
the sector, but both companies are ceasing to be growth stocks as
they near market saturation.  That means in addition to pressure
from the technical side, HD will be under pressure from the
fundamental side, as valuations naturally compress.

Weekly Stochastics produced bearish divergence between the May and
November peaks and the way things are going, even if HD did
managed to briefly poke above the November highs to touch $38,
we're probably going to be confronted a second instance of bearish
divergence.  For the past 2 months, the stock has been gradually
drifting higher in what looks an awful lot like a bear flag.  What
we want to see is a break down out of that pattern and then a
break below the $33 support from December and then continuation
down to the $31 level.  This is a pivotal level for two reasons.
First, a trade at $31 will create a new PnF Sell signal and open
the door to lower levels.  But the other important aspect of the
$31 level is that it is the 38% retracement off the January 2003
low.  It will likely provide initial support, but if broken, it
will make possible a decline to the 50% ($29) and 62% ($27)
levels.  But we should wait for some favorable price action to
unfold before putting too much effort into prognosticating how far
it can fall.  The numbers above simply give us a rough roadmap.
HD has given us our desired entry point and now we wait for
gravity to take over.  We'll set a fairly liberal stop on the
play, as we don't want to choke it off prematurely.  Set initial
stops at $41, which is well above the top of the channel, solidly
above the 200-week moving average ($39.80) and above next major
historical resistance in the $40.50 area.  Simply put, if our stop
is taken out, then we'll know there's something very wrong.

BUY LEAP JAN-2005 $35 ZHD-MG $2.95
BUY LEAP JAN-2006 $35 WHD-MG $4.50
BUY CALL MAY-2004 $40 HD -EH $0.55 **Protective Call**


New Watchlist Plays

None

Drops

None


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By Request - The Return Of The Quickie
By Mike Parnos, Investing With Attitude

What a Valentine’s Day!  The market hasn’t sent us any Valentines
– at least not lately.  Maybe ours got lost in the mail.   No
flowers or candy either.  Well, it’s a fickle love-hate
relationship with the market – depending on the closing prices of
the day and the positions held.  Of course, without a willing
partner, the position possibilities are rather limited.

The Good News & The Bad News
We haven’t done quickies in a while.  So, I’ve scoured the
landscape and come up with a few potential (and, of course,
hypothetical) positions that could possibly put a few bucks in our
hypothetical pockets.  The good news is that there are only four
trading days left to expiration.  The bad news is that the prices
below will be less accurate because of the additional day of time
erosion.

The suggestions below are based on the belief that the market will
churn over the next week and, hopefully, end up right back where
they started.  If you don’t believe that, then these trades are
not for you.
_____________________________________________________________

FEBRUARY QUICKIES

SPX – Iron Condor – 1145.81
Sell 10 Feb. SPX 1130 puts and buy 10 1120 puts for a credit of
about $.70.
Sell 10 Feb. SPX 1160 calls and buy 10 1170 calls for a credit of
about $.90.
Net credit of about $1.60.  Max. profit range of 1130 to 1160 = 30
points.  There are only three trading days left for the SPX – plus
the dreaded Friday morning opening calculation.

RMBS – Iron Condor – 25.53
Sell 10 Feb. RMBS $20 puts and buy 10 $15 puts for a credit of
about $.50.
Sell 10 Feb. RMBS $30 calls and buy 10 $35 calls for a credit of
about $.50.
Net credit of about $1.00.  Max profit range of $20 to $30 = $10.
As a result of RMBS tanking earlier last week, there is still a
lot of premium in the options.

CELG – Siamese Condor -- $40.18
Sell 10 Feb. CELG $40 puts and 10 $40 calls for a credit of about
$1.95.
Buy 10 Feb. CELG $30 puts and 10 $50 calls for a debit of $.10.
Net credit of about $1.85.  Profit range of $38.15 to $41.85.  The
closer CELG finishes to $40, the more we make.  Bailout points are
the same as the profit range.  The market makes could play a role
here by keeping CELG near the $40 strike.

IBM – Siamese Condor -- $99.71
Sell 10 Feb. IBM $100 puts and 10 $100 calls for a credit of about
$1.70
Buy 10 Feb. IBM $90 puts and 10 $110 calls for a debit of $.10.
Net credit of about $1.60.  Profit range (and bailout points) of
$98.40 and $101.60.  The closer IBM finishes to $100, the more we
make.  Hopefully, the market makers will help us out here and keep
IBM near $100.
_____________________________________________________________

QQQ ITM Strangle Adjustment
As I wrote in Thursday’s column, on Friday we were ready to roll
out the $36 puts.  We got lucky.  We bought back the February $36
put for a dime in the morning, as planned.  But then, the QQQs
started to move down and we were able to sell the March $37 put
for $1.05.  The result was a credit of $.95 – as opposed to an
anticipated credit of $.80.

The rollout of the Feb. $34 call was another story.  The market
has, in recent days, dipped down and popped back up during the
course of the day.  On Friday, the range was relatively small, so
we settled for buying back the Feb. $34 call for $3.00 and selling
the March $34 call for $3.20 – resulting in a credit of $.20.

Our total credit for the March rollout was $1.15 ($1,150).  The
only problem is that we now have a $3.00 difference between the
$37 put and the $34 call.  At some point, it would be wise to
narrow that to one or two dollars.  If you choose to do it this
month, you could roll the Feb. $34 calls to the March $35 calls at
a cost of about $.65.  That would leave you with a net credit of
$.30 for the March rollout.
______________________________________________________________

Those Friendly Reminders
February is a five-week option cycle.  The premiums quoted on the
above educational trades are based on Friday's closing bid/ask
prices.  On Tuesday the premiums will likely be different due to
market movement and/or the additional three days of time erosion.
In a few instances, when the bid/ask spread is wide, we figure you
may be able to shave off a nickel here and there.  Be careful.  If
a stock gaps up or down, it may change the entire dynamic of the
trade.  Don't skydive without a parachute.  Just because you have
a pulse and evidence of brain activity doesn't mean you’re a
trader.  And make sure you thoroughly know the intricacies of a
strategy before you trade.  The money you save may be your own.
__________________________________________________________

FEBRUARY CPTI POSITIONS

Position #1 -- OEX – Credit Spread Boogie – 565.92
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 – 148.45
This index seems substantially safer than the highly volatile NDX.
We going 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.  The market turned
down and that “skew” might come back to bit us in the ass, but the
market popped up off the 50-day MA.
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 -- $102.16
This is a low risk and relatively safe play with a wide range.  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) - $105.82
We reduced 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.

OSX has violated our short $105 call.  The bear call spread could
now be closed for $1.70 – resulting in a loss of $1.00 ($1,000).
For our CPTI portfolio, I’m going to hang on for a little while
longer and give the OSX a chance to come back down.  If anyone is
actually in the trade, it might be wiser to take your loss at this
point – or roll out (see suggestions below).  Remember, the CPTI
portfolio is playing with “hypothetical” dollars.

What are some possible adjustments for OSX?  At this writing, if
you believe OSX will stall at this level or pull back, you could:
a) close the Feb. $105/$110 call spread for $1.70 and sell a March
$105/$110 call spread for $2.00.  That would buy another month of
time and put another $.25 in your pocket.
b) close the Feb. $105/$110 call spread for $1.70 and put on a new
March Iron Condor of March $110/$115 BCS and $100/$95 BPS for a
total credit of about $1.90.  That would give you some upside room
and an additional $.25 of premium for your pocket.
_____________________________________________________________

ONGOING POSITIONS
QQQ ITM Strangle – Ongoing Long Term -- $36.94
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.
March: Mar. $34 calls and $37 puts – credit of $1,150.
Total credit: $7,300.

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.

ZERO-PLUS Strategy.  OEX – 565.92
In the Feb. 8th column, I outlined a strategy based on an initial
investment of $100,000.  $74,000 was spent on zero coupon bonds
that will mature in seven years at a value of $100,000.  In
essence, that guarantees the principal $100,000 investment.  We
are trading the remaining $26,000 to generate a “risk free” return
on the original investment.

We bought 3 OEX Jan. 2006 540 calls at a cost of $24,300.  Then we
sold 3 OEX March 2004 585 calls for a credit of $930.  We also put
on a bull put spread, selling three OEX March 535 puts an buying
three OEX March 525 puts for a credit of $330.  Our total credit
is $1,260.  Our current cash position is $2,960 ($1,260 plus the
unused $1,700).  This one is going to drag on for seven years, so
get comfortable.  We’re going to make some money.
________________________________________________________________

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.


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The Option Investor Newsletter                   Sunday 02-15-2004
Sunday                                                      5 of 5


In Section Five:

Covered Calls: A System For Success!
Naked Puts: Learning The Trade
Spreads/Straddles/Combos: Another Dip In The Road To Recovery


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

Trading Basics: A System For Success!
By Mark Wnetrzak

When it comes to trading, emotion is a "capital killer" that can
only be conquered by a systematic approach to position management.

In trading more than any other vocation, we rely heavily on our
instincts, either through unrealistic goals or expectations, based
on our previous experiences.  Rather than reasoning in the present,
we often rely on acquired associations (the past) or idealistic
perceptions (the future) to help make difficult judgments.  With
that in mind, it's easy to see why the ability to remain focused
on the present, evaluating each play based on its current merits
and assessing the trade as it unfolds, is one of the most difficult
skills for a person to develop.

Before a trader can learn to make timely and effective adjustments,
he must understand his personality and know his individual faults
and limitations.  The stock market has a unique way of reflecting
the fundamental emotions and character of humans and in addition
to offering great financial rewards, it can also help us to know
ourselves better.  Before entering a position, you must recognize
the anxiety it might produce and be prepared to base your trading
decisions on sound ideas rather than impulses or "gut" reactions.
Taking the emotion out of trading can be very difficult, however
it is achievable if you have the discipline to develop and follow
a trading plan.

Just as a business plan describes in detail the establishment and
development of a potential venture, a trading plan outlines the
proposed structure for participation in the financial markets.
In most venues, there are two primary requirements of a trading
plan: a method of price prediction which signals if and when to
initiate a position and a money management system which prescribes
the maximum amount of portfolio capital to risk on any one trade.
Strategies that involve stocks or options must also specify when
to take profits and cut losses, and include a means to correctly
position trading stops.  Since the optimal management of winning
plays is the key to success in any probabilities-based strategy,
special attention must be given to techniques that protect gains
once they are achieved.  While adhering to the parameters of the
trading plan is paramount to consistent profits, the system must
also remain flexible in the sense that it should be constantly
evaluated so as to improve its overall performance.

Some of the basic guidelines for developing such a plan include:

1. Learn to limit losses and your profits will grow.

The science of successful trading is less dependent on making
profits, but rather on avoiding losses.  The need to restrict
draw-downs and prevent losing plays from significantly eroding
capital should be a dominant theme in any type of trading.  To
reduce losses, most traders prefer to use a specific plan with
pre-determined exits.  Stop-loss orders can be used to remove
urgent decision-making from the equation and "trailing" stops
can be utilized to follow a position into greater profits while
protecting for unexpected reversals.  In addition, not only must
losses be limited, but all positions must be reviewed regularly
to ensure that the total portfolio risk is kept to a practical
minimum.


2. Know your limits before you open any position!

Just as setting stops on each individual trade is an absolute
must, a "maximum allowable loss" must be considered when managing
portfolio positions.  The rule is simple: Never trade with more
money than you can reasonably afford to lose and always maintain
adequate cash reserves.  When assessing position size and cash or
collateral requirements, ensure that funds for active trades are
not co-mingled with capital for other functions.  It is also very
important to set a "loss limit" at the beginning of each month or
option expiration period.  When this level is reached, trading
should be halted for the duration of that period.  Of course, if
your losses are consistently higher than your gains, stop trading!
Step back and take a few days off.  When you are ready to try
again, evaluate your current trading strategies and review the
most recent plays (to learn from your mistakes), then move on.
When you begin to make money, put some of the profits in a small
reserve account, just in case there are unexpected developments
in the future.


3. Know your strategy, its advantages and weaknesses and only use
techniques that fit your trading style and portfolio outlook.

You can't make good decisions without knowing the mechanics of a
specific technique and the best traders are those who are acutely
aware of the shortcomings of their particular approach.  Focus on
positions whose trading characteristics match your ability and
risk-reward attitude.  Don't use complex or advanced methods simply
because they are intriguing.  In addition, if the strategy is not
appropriate for your financial condition, it should be avoided,
regardless of how attractive it appears.  Obviously every strategy
has risk.  The key is to develop an arsenal of profitable methods,
use only those that fit the market outlook, and manage each play
for maximum potential.


4. Learn the art of patience: timing is the key to success!

The opening trade is of particular importance.  It deserves your
best analysis and judgment and it is vital to assess all potential
trades well in advance.  In the case of stocks, the issue should
be one you want to own and the price must be technically favorable
with minimal downside risk.  Correctly timing the initial purchase
requires a thorough knowledge of charting techniques and market
trends.  The entire process is something a trader must completely
understand because a successful exit is by and large the product
of a proper entry.  Those who are guilty of "over-trading" should
assess their past results in this careless practice whenever they
are tempted to participate in such activities.

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

MXT      5.89    5.90  FEB  5.00  1.05    0.16*   7.2%
ZIXI    10.93   12.91  FEB 10.00  1.80    0.87*   6.9%
CNET    10.75   10.24  FEB 10.00  1.15    0.40*   6.0%
TKLC    20.35   19.94  FEB 20.00  1.20    0.79    6.0%
NEOL    18.73   20.08  FEB 17.50  1.70    0.47*   5.9%
SIRI     3.15    2.96  FEB  2.50  0.80    0.15*   5.7%
AFFX    31.23   32.65  FEB 30.00  2.35    1.12*   5.6%
VXGN    10.92   10.42  FEB 10.00  1.40    0.48*   5.5%
ALVR    13.09   14.16  FEB 12.50  1.45    0.86*   5.4%
AKSY    10.87   10.02  FEB 10.00  1.10    0.23*   5.1%
ZIXI    14.67   12.91  FEB 12.50  2.70    0.53*   4.8%
NANO    20.14   19.59  FEB 17.50  3.20    0.56*   4.8%
IPXL    18.90   22.22  FEB 17.50  1.95    0.55*   4.7%
NEOL    19.10   20.08  FEB 17.50  2.30    0.70*   4.5%
TIVO    10.75   11.25  FEB 10.00  1.05    0.30*   4.5%
CREE    20.49   24.00  FEB 20.00  1.65    1.16*   4.5%
GSF     27.77   29.09  FEB 27.50  1.35    1.08*   4.4%
PAAS    16.10   17.55  FEB 15.00  1.95    0.85*   4.4%
CHINA   11.05   11.40  FEB 10.00  1.60    0.55*   4.2%
NANX    12.39   11.85  FEB 10.00  2.90    0.51*   3.9%
CLTK     8.54    8.27  FEB  7.50  1.35    0.31*   3.9%
ATSN    10.90   10.67  FEB 10.00  1.30    0.40*   3.7%
SEAC    18.40   19.46  FEB 17.50  1.75    0.85*   3.7%
WEBM    10.93   10.69  FEB 10.00  1.25    0.32*   3.6%
LTXX    19.12   16.80  FEB 17.50  2.45    0.13    0.7%
SCMR     5.63    4.76  FEB  5.00  0.80   -0.07    0.0%
DDS     17.53   17.00  FEB 17.50  0.45   -0.08    0.0%
ACLS    12.60   11.75  FEB 12.50  0.65   -0.20    0.0%

ASIA     7.80    7.78  MAR  7.50  0.90    0.60*   6.3%
TIBX     7.95    8.08  MAR  7.50  0.90    0.45*   4.6%
CNET    10.72   10.24  MAR 10.00  1.30    0.58*   4.5%

* Stock price is above the sold strike price.

Editor's Comments:

A Key Moment For The Major Averages?

Both the DJ-30 and S&P-500 could be forming a double-top while
the NASDAQ continues to flounder above its 50-day MA.  With one
week left in the February options series, it's time to evaluate
your current positions and act accordingly.  Sycamore Networks
(NASDAQ:SCMR) disappointed investors with their earnings this
week and will be shown closed next week.  Both Dillard's (NYSE:
DDS) and Axcelis Tech (NASDAQ:ACLS) will be on the early-exit
watch-list as well as the $12.50 position for Zix (NASDAQ:ZIXI).
(It just depends on whether you want to chance owning the stock
after expiration.)

Previously Closed: Centillum Communications (NASDAQ:CTLM), Ceina
(NASDAQ:CIEN), and Adaptec (NASDAQ:ADPT) -- which has rebounded
nicely for those still looking to exit.

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

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

KERX   12.62  MAR 12.50  QKY CV  1.30  13     11.32  34   9.3%
MWY     5.04  MAR  5.00  MWY CA  0.50  578     4.54  34   9.1%
GMST    7.67  MAR  7.50  QLF CU  0.80  2498    6.87  34   8.2%
NEOL   20.08  MAR 17.50  UOE CW  3.60  381    16.48  34   5.5%
CRYP   16.38  MAR 15.00  UFW CC  2.00  31     14.38  34   3.9%
SKX    11.38  MAR 10.00  SKX CB  1.75  87      9.63  34   3.4%
PMSI    5.72  MAR  5.00  POQ CA  0.90  128     4.82  34   3.3%


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).

__________________________________________________________________

KERX - Keryx  $12.62  *** On The Move! ***

Keryx Biopharmaceuticals (NASDAQ:KERX) is engaged in acquiring,
developing and commercializing pharmaceutical products for the
treatment of serious, life-threatening diseases, including cancer
and diabetes.  In August 2002, the company commenced a corporate
restructuring and refocused its efforts mainly on the acquisition
of additional clinical stage compounds and on the development of
its lead compound, KRX-101, which has completed a European Phase
II trial.  Keryx has obtained a license to develop sulodexide
(KRX-101) to treat diabetic nephropathy and other conditions.
Keryx has been rocketing higher on extremely heavy volume since
it announced in January that it had entered into an agreement to
acquire ACCESS Oncology.  The stock made another strong move on
Friday, well above its announced private placement of about $32
million through the sale of shares of its common stock at $10 per
share.  Investors looking for a speculative drug stock can use
this position to target-shoot an entry point in Keryx near $11.

MAR-12.50 QKY CV LB=1.30 OI=13 CB=11.32 DE=34 TY=9.3%


__________________________________________________________________

MWY - Midway Games  $5.04  *** On The Mend? ***

Midway Games (NYSE:MWY) develops and publishes interactive
entertainment software.  The company and its predecessors have
published over 400 titles.  It develops and publishes games for
play on new-generation home videogame consoles and hand-held
game platforms, including Sony's PlayStation 2, Microsoft's Xbox
and Nintendo's GameCube and Game Boy Advance.  Midway's titles
include game genres such as action, adventure, driving, extreme
sports, fighting, role-playing, sports and strategy.  Mortal
Kombat is the company's most profitable videogame franchise,
with over 20 million units sold.  Midway Games has also licensed
two television and two film adaptations of Mortal Kombat and
granted merchandising licenses for toys, clothing, comic books,
strategy guides and other product lines.  With earnings due on
February 25, investors can use this position speculate on the
strength of Midway Games' recent recovery.

MAR-5.00 MWY CA LB=0.50 OI=578 CB=4.54 DE=34 TY=9.1%


__________________________________________________________________

GMST - Gemstar-TV Guide   $7.67  *** Comcast Deal! ***

Gemstar-TV Guide International (GMST) develops, licenses, markets
and distributes technologies, products and services targeted at
the television guidance and home entertainment needs of consumers
worldwide.  Their businesses include technology and intellectual
property development and licensing; interactive program guide
products and services, and TV media and publishing properties.
The company is organized into three principal business sectors:
the Technology and Licensing Sector; the Interactive Platform
Sector; and the Media and Services Sector.  Gemstar-TV Guide's
primary business strategy is to develop a comprehensive solution
to the television guidance needs of consumers worldwide.  Its
electronic program guidance technologies are incorporated into
television sets, VCRs, hard disk recorders, DVD recorders and
cable and satellite television set-top boxes.  Gemstar-TV Guide
exploded higher on Wednesday after the company struck a licensing
and development deal with Comcast (NASDAQ:CMCSA).  We simply
favor the bullish chart, which shows Gemstar-TV Guide breaking
out of a trading range near $5 on heavy volume.  A reasonable
risk-reward scenario for investors who wouldn't mind owning the
stock at a basis near $6.90.

MAR-7.50 QLF CU LB=0.80 OI=2498 CB=6.87 DE=34 TY=8.2%


__________________________________________________________________

NEOL - NeoPharm  $20.08  *** Rally Mode! ***

NeoPharm (NASDAQ:NEOL) is a biopharmaceutical company engaged
in the research, development and commercialization of drugs for
the treatment of various cancers.  The firm has built its drug
portfolio based on its novel proprietary technology platforms,
the proprietary NeoLipid liposomal drug delivery system and a
tumor-targeting toxin platform.  NeoPharm has several promising
compounds in various stages of development.  The company's lead
compound is IL13-PE38, a tumor-targeting toxin being developed
as a treatment for glioblastoma multiforme, a deadly form of
brain cancer.  NeoPharm has formed a trading channel over the
last 10 months and the stock has now made another new 52-week
high.  Investors who believe the bullish trend will continue
for another 5 weeks can speculate on that outcome with this
position.

MAR-17.50 UOE CW LB=3.60 OI=381 CB=16.48 DE=34 TY=5.5%


__________________________________________________________________

CRYP - CryptoLogic  $16.38  *** Internet Gaming Stock ***

CryptoLogic (NASDAQ:CRYP) is an Internet software and services
provider (ISP) with proprietary e-commerce enabling technology
that permits financial transactions over the Internet.  They are
focused on providing proprietary software technology and related
support services to the Internet gaming industry.  Through its
wholly owned subsidiary, WagerLogic, the company licenses and
supports proprietary Internet-based software package to licensees
worldwide.  These licensees include a number of brand name and
land-based gaming organizations in the United Kingdom that hold
Internet gaming licenses issued by governments where their online
operations are domiciled.  Quarterly earnings are due on 2/26/04
and traders can use this position to speculate on the announcement.

MAR-15.00 UFW CC LB=2.00 OI=31 CB=14.38 DE=34 TY=3.9%


__________________________________________________________________

SKX - Skechers  $11.38  *** New Board Member? ***

Skechers U.S.A. (NYSE:SKX) designs and markets a collection of
branded contemporary footwear for men, women and children, as
well as a designer line for women branded separately.  Their
product line consists of over 1,500 styles that are organized
in 11 distinct collections.  Skechers pursues its retail store
strategy through 3 integrated retail formats, the concept store,
the factory outlet store and the warehouse outlet store.  The
Warehouse Outlet Stores enable the company to liquidate excess
merchandise, discontinued lines and odd-size inventory.  As of
December 31, 2002, Skechers operated 34 concept stores, 34
factory outlet stores and 23 warehouse outlet stores in the
United States.  Did the stock really rally over $3 because of
a new board member?  Maybe.  In any case, we simply favor the
bullish break-out from a year-long base on heavy volume that
suggests further upside potential.  Reasonable speculation with
a risk of owning SKX near a cost basis of $9.65.

MAR-10.00 SKX CB LB=1.75 OI=87 CB=9.63 DE=34 TY=3.4%


__________________________________________________________________

PMSI - Prime Medical  $5.72  *** Bottom-Fishing ***

Prime Medical Services (NASDAQ:PMSI) primarily operates in the
segments of lithotripsy services, a non-invasive procedure for
treating kidney stones, and manufacturing, which includes the
design and manufacture of mobile trailers and coaches that
transport high-technology medical devices and equipment designed
for broadcasting and communications applications.  The company's
lithotripters performed approximately 33,400 procedures in the
United States, in 2002, through a network of partnerships with
physicians serving approximately 375 hospitals and surgery
centers in 34 states.  PMSI provides design and manufacturing
services through its subsidiaries Calumet Coach, AK Specialty
Vehicles, Frontline Communications, Smit Mobile Equipment and
Winemiller Communications.  Prime Medical has been forging a
Stage I base for the last 10 months and recently moved above
resistance around $5.50 on heavy volume.  The company's earnings
are due on February 24 and this position offers a favorable way
to speculate on the outcome.  Target-shooting a lower net-debit
will lower the cost basis and improve the potential yield.

MAR-5.00 POQ CA LB=0.90 OI=128 CB=4.82 DE=34 TY=3.3%




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

NANO   19.59  MAR 17.50  QNK CW  3.10  35     16.49  34   5.5%
SIRI    2.96  MAR  2.50  QXO CZ  0.60  11742   2.36  34   5.3%
WEBM   10.69  MAR 10.00  UUW CB  1.20  90      9.49  34   4.8%
MSO    11.68  MAR 10.00  MSO CB  2.15  1389    9.53  34   4.4%
MERX   27.34  MAR 25.00  KXQ CE  3.40  121    23.94  34   4.0%
PCLN   23.98  MAR 22.50  PUZ CX  2.40  1459   21.58  34   3.8%
FHRX   17.10  MAR 15.00  FUF CC  2.70  1      14.40  34   3.7%
IBIS   15.30  MAR 12.50  UIB CV  3.30  141    12.00  34   3.7%
LAB    11.06  MAR 10.00  LAB CB  1.45  694     9.61  34   3.6%
ARRS   10.84  MAR 10.00  AQC CB  1.20  305     9.64  34   3.3%
SWIR   25.59  MAR 22.50  IYQ CX  3.90  224    21.69  34   3.3%


**********
NAKED-PUTS
**********

Options 101: Learning The Trade
By Ray Cummins

One of our new readers asked for a list of recommended books on
the subject of conservative option trading strategies.

Of the many publications I have reviewed personally, here are a
few books that will help new traders improve their knowledge and
skills in the most common techniques:


Options as a Strategic Investment, 4th edition, by Larry McMillan.

This is the bible of options trading, used by professional as well
as retail participants, and it is the benchmark by which all other
books on this subject are compared.  The chapter on covered-writes
provides a complete explanation of the "Total Return Concept,"
which is the foundation of our approach to the covered-write
strategy here at the OIN.


Stocks for Options Trading: Low-Risk, Low-Stress Strategies for
Selling Stock Options -- Profitably, by Harvey Friedentag

This book explains how to develop a successful investment plan by
creating and utilizing covered-calls in a conservative stock-option
portfolio.  It is likely the only (recent) book completely devoted
to the strategy of writing calls against long-term portfolio issues.


LEAPS Strategies with Jon Najarian, by Jon Najarian

Not one you would expect in this group, but Dr. J's book is an
excellent source of information on the advantages of buying LEAPS
as a substitute for stock ownership with the idea of writing
"covered" calls for consistent, low risk profits in a conservative
stock-option portfolio.


Option Volatility and Pricing: Advanced Trading Strategies and
Techniques, by Sheldon Natenberg.

This is a must-read for serious option traders as it covers the
concept of volatility and pricing theory in great detail.  It is
the other "bible" of professional traders and I have personally
seen it at many of the trading desks on the CBOE floor.  However,
if you want to learn about many of the same concepts in a more
user-friendly format, consider the next book.


The Option Trader's Guide to Probability, Volatility, and Timing,
by Jay Kaeppel.

Another great book by one of the foremost volatility specialists,
covering risk-reward analysis, exit-adjustment methods, and the
most common mistakes made by inexperienced option traders.  The
book is an excellent resource for "premium sellers" as it explains
the fundamentals of a statistical approach to option trading and
provides some guidance on when to implement those strategies.


Trading for a Living: Psychology, Trading Tactics, Money Management,
by Dr. Alexander Elder

One of the most popular and well-known books about trading, it
covers three major areas that are key to success; psychology,
trading tactics and money management.  This material is essential
to developing discipline when participating in the stock market
and learning how to avoid the pitfalls of emotional trading.


In addition to reading the widely published written materials on
option trading, new subscribers should also review the strategy
sections of the newsletter each week, as well as the back-issues
on the website, and especially the past commentaries on the most
popular techniques.  It is also important to consider any other
worthy trading publications in order to learn all you can about
technical analysis, option pricing and the effects of volatility
on common positions.  I have written many narratives on the most
successful methods used by professionals and those are posted in
the website archives.  Of course, there is also a plethora of
great articles by other OIN researchers, covering almost every
imaginable strategy used by retail traders.  With these resources
available, there is simply no reason for OIN readers to lack
knowledge in the subject of derivatives.

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

NGEN    12.59   10.93  FEB 10.00  0.30    0.30*   4.5%  15.4%
LSCP    19.53   23.07  FEB 17.50  0.40    0.40*   5.1%  14.1%
ADAT    16.80   16.94  FEB 12.50  0.40    0.40*   3.6%  11.6%
NVDA    22.76   23.30  FEB 20.00  0.30    0.30*   3.3%   9.8%
AMR     16.05   15.21  FEB 15.00  0.25    0.25*   3.7%   9.7%
RMBS    31.16   25.53  FEB 25.00  0.45    0.45*   2.7%   9.7%
ADAT    16.95   16.94  FEB 12.50  0.40    0.40*   3.0%   9.4%
TER     26.77   25.82  FEB 25.00  0.40    0.40*   3.5%   9.3%
SEPR    27.99   27.47  FEB 22.50  0.65    0.65*   2.7%   9.1%
XING    12.80   11.79  FEB 10.00  0.35    0.35*   2.6%   8.7%
IMCL    43.41   43.79  FEB 35.00  0.75    0.75*   2.4%   8.4%
ASKJ    22.82   21.66  FEB 20.00  0.25    0.25*   2.8%   8.3%
NEOL    18.26   20.08  FEB 15.00  0.40    0.40*   2.5%   8.1%
INSP    34.15   34.80  FEB 30.00  0.55    0.55*   2.7%   7.9%
OPWV    15.18   14.46  FEB 12.50  0.40    0.40*   2.4%   7.6%
PMCS    23.80   21.19  FEB 20.00  0.50    0.50*   2.3%   7.2%
AZR     23.35   22.19  FEB 22.50  0.60    0.29    2.9%   6.9%
SEPR    27.25   27.47  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%
SINA    45.69   40.45  FEB 35.00  0.45    0.45*   1.9%   6.8%
MU      16.11   15.73  FEB 15.00  0.25    0.25*   2.5%   6.5%
IDCC    24.36   25.93  FEB 20.00  0.25    0.25*   1.8%   6.4%
BLTI    21.14   18.45  FEB 17.50  0.30    0.30*   1.9%   6.4%
NKTR    17.12   18.31  FEB 15.00  0.45    0.45*   2.2%   6.3%
IDCC    24.46   25.93  FEB 20.00  0.50    0.50*   1.9%   6.2%
RMBS    34.60   25.53  FEB 25.00  0.50    0.50*   1.8%   6.0%
ERICY   23.01   28.03  FEB 20.00  0.25    0.25*   1.8%   5.6%
JNPR    22.00   26.65  FEB 20.00  0.55    0.55*   2.0%   5.4%
AFFX    28.29   32.65  FEB 25.00  0.50    0.50*   1.8%   5.2%
AFFX    28.40   32.65  FEB 25.00  0.40    0.40*   1.8%   5.2%
RDWR    30.73   28.35  FEB 25.00  0.35    0.35*   1.3%   4.5%
BLUD    23.52   22.16  FEB 22.50  0.25   -0.09    0.0%   0.0%
SPRT    16.40   11.81  FEB 12.50  0.25   -0.44    0.0%   0.0%


* Stock price is above the sold strike price.

Editor's Comments:

A Vote Of No Confidence!

The major equity averages retreated Friday as consumer sentiment
reportedly fell short of expectations in February.

A number of other events conspired to drive stocks lower but in
reality, the market was due for a pullback and investors simply
used the opportunity to take some profits.  That might also be a
good idea for traders in many of the naked-put positions as there
are no real catalysts for buying pressure expected in the coming
weeks.  Rambus (NASDAQ:RMBS), Immucor (NASDAQ:BLUD), Supportsoft
(NASDAQ:SPRT), Teradyne (NYSE:TER), American Airlines (NYSE:AMR),
AskJeeves.com (NASDAQ:ASKJ), PMC-Sierra (NASDAQ:PMCS), Biolase
(NASDAQ:BLTI), Aztar (NYSE:AZR), Micron technology (NYSE:MU) and
Nanogen (NASDAQ:NGEN) are now among the ranks of the "early-exit"
candidates.

Positions Previously Closed: Wireless Facilities (NASDAQ:WFII),
United Therapeutics (NASDAQ:UTHR), Altiris (NASDAQ:ATRS), and
Retek (NASDAQ:RETK).

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

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

ADAT   16.94  MAR 12.50  HAU OV 0.45 927   12.05  34   3.3%  10.5%
IBIS   15.30  MAR 12.50  UIB OV 0.40 505   12.10  34   3.0%   9.6%
LSCP   23.07  MAR 20.00  LXQ OD 0.60 78    19.40  34   2.8%   7.9%
CRYP   16.38  MAR 12.50  UFW OV 0.30 0     12.20  34   2.2%   7.5%
DNDN   14.49  MAR 12.50  UKO OV 0.30 1031  12.20  34   2.2%   6.5%
AWE    11.82  MAR 11.00  AWE OM 0.30 25543 10.70  34   2.5%   6.4%
WEBX   26.12  MAR 22.50  UWB OX 0.50 367   22.00  34   2.0%   6.1%


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).

__________________________________________________________________

ADAT - Authentidate Holding  $16.94  *** Entry Point? ***

Authentidate Holding (NASDAQ:ADAT) develops security software
technology, document imaging software products and systems
integration services and products.  The firm's products include
DocStar document imaging software products, the Authentidate
authentication and security software products and system
integration services and products through its DJS Marketing
Group subsidiary.  AHC also offers, through the Trac Medical
Solutions subsidiary, the CareCert Internet-based medical
forms processing service.  The company's subsidiary, DJS, is
also an authorized sales and support provider for software
products such as Microsoft Solutions and Lotus Notes.  DJS
sells computer hardware and provides software and integration
services to businesses to meet their data management needs.
Web security and digital document processing and certification
are necessary services for almost all Internet users and this
company has some unique solutions to those needs.  The company
announced earnings Friday and traders who have an optimistic
outlook for ADAT can use the post-earnings drop (expected next
week) to establish a cost basis near $12 in the issue.

MAR-12.50 HAU OV LB=0.45 OI=927 CB=12.05 DE=34 TY=3.3% MY=10.5%


__________________________________________________________________

IBIS - Ibis Technology  $15.30  *** New Product Order! ***

Ibis Technology (NASDAQ:IBIS) develops, manufactures and markets
SIMOX-SOI implantation equipment and wafers for the worldwide
semiconductor industry.  SIMOX, or Separation by IMplantation of
Oxygen, is a form of silicon-on-insulator (SOI) technology that
creates an insulating barrier below the top surface of a silicon
wafer.  SIMOX-SOI products are well suited for many commercial
applications, including servers and workstations, portable and
desktop computers, wireless communications and battery-powered
devices such as laptop computers, personal digital assistants,
and mobile telephones, integrated optical components and harsh
environment electronics.  Last week, Ibis Technology announced a
big order for its ion implanters and apparently, this order was
a breakthrough for the company.  The stock certainly reflects
that attitude as it has moved to a new 2004 high on heavy volume.
Investors who believe the bullish trend will continue can profit
from that outcome with this position.

MAR-12.50 UIB OV LB=0.40 OI=505 CB=12.10 DE=34 TY=3.0% MY=9.6%


__________________________________________________________________

LSCP - Laserscope  $23.07  *** Another Entry Point? ***

Laserscope (NASDAQ:LSCP) designs, manufactures, sells and services,
on a worldwide basis, an advanced line of medical laser systems and
related energy devices for the medical office, outpatient surgical
center and hospital markets.  The firm pioneered development and
commercialization of lasers and advanced fiber-optic devices for a
variety of applications.  The company's product portfolio consists
of more than 150 medical laser systems and related energy delivery
devices.  The firm's primary medical markets include dermatology,
aesthetic surgery and urology.  Its secondary markets include ear,
nose & throat surgery, general surgery, gynecology, photo-dynamic
therapy and other surgical specialties.  On Thursday, Laserscope
announced strong fourth quarter revenues, driven by the "explosive
growth of their urology product line and very solid domestic growth
of their aesthetics products."  Investors who like the outlook for
this unique company can establish a (relatively) conservative cost
basis in its stock with this position.

MAR-20.00 LXQ OD LB=0.60 OI=78 CB=19.40 DE=34 TY=2.8% MY=7.9%


__________________________________________________________________

CRYP - CryptoLogic  $16.38  *** Internet Gaming Stock ***

CryptoLogic (NASDAQ:CRYP) is an Internet software and services
provider (ISP) with proprietary e-commerce enabling technology
that permits financial transactions over the Internet.  They are
focused on providing proprietary software technology and related
support services to the Internet gaming industry.  Through its
wholly owned subsidiary, WagerLogic, the company licenses and
supports proprietary Internet-based software package to licensees
worldwide.  These licensees include a number of brand name and
land-based gaming organizations in the United Kingdom that hold
Internet gaming licenses issued by governments where their online
operations are domiciled.  Quarterly earnings are due on 2/26/04
and traders can use this position to speculate on the announcement.

MAR-12.50 UFW OV LB=0.30 OI=0 CB=12.20 DE=34 TY=2.2% MY=7.5%


__________________________________________________________________

DNDN - Dendreon  $14.49  *** Drug Speculation! ***

Dendreon Corporation (NASDAQ:DNDN) is dedicated to the discovery
and development of novel products for the treatment of diseases
through its manipulation of the immune system.  The firm product
pipeline is focused on cancer and includes therapeutic vaccines,
monoclonal antibodies and small-molecule product candidates.  The
product candidates most advanced in development are therapeutic
vaccines to stimulate a patient's immunity for the treatment of
cancer.  Dendreon has a unique prostate cancer drug, Provenge, in
late-stage trials (the final stage of human testing before seeking
marketing approval) and investors are hoping it will be successful.
Traders can use the inflated option premiums to participate in the
drug speculation with a cost basis near $12.

MAR-12.50 UKO OV LB=0.30 OI=1031 CB=12.20 DE=34 TY=2.2% MY=6.5%


__________________________________________________________________

AWE - AT&T Wireless Services  $11.82  *** Merger/Buy-Out? ***

AT&T Wireless Services (NYSE:AWE) is a wireless communications
service provider in the United States.  The company provides
wireless voice and data services over two separate, overlapping
networks.  One network uses time division multiple access (TDMA)
as its signal transmission technology.  AWE also provides voice
and enhanced data services over a separate network that uses the
signal transmission technology known as global system for mobile
(GSM) communications and general packet radio service (GPRS).
Cingular Wireless and Vodafone Group are vying for ownership of
AWE and some traders say the buy-out price could be as high as
$12.50 per share.  AT&T Wireless is reviewing the bids and a
decision could come as early as next week.  Traders who believe
the final offer will be $11 or more can profit from that outcome
with this position.

MAR-11.00 AWE OM LB=0.30 OI=25543 CB=10.70 DE=34 TY=2.5% MY=6.4%


__________________________________________________________________

WEBX - WebEx Communications  $26.12  *** Solid Earnings! ***

WebEx (NASDAQ:WEBX) develops and sells services that allow users
to conduct meetings and share software applications, documents,
presentations and other content on the Internet using a standard
Web browser.  Integrated telephony and Web-based audio and video
services are available using telephones, computer Web-cameras
and microphones.  The company's activities have been focused on
continuing to enhance and market its WebEx Interactive Services
and its WebEx Multimedia Switching Platform, developing and
deploying new services, expanding its marketing organizations
and deploying its global WebEx Media Tone Network.  The company
sells WebEx Meeting Center, WebEx Meeting Center Pro, WebEx
Training Center, WebEx Support Center, WebEx OnStage and WebEx
Enterprise Edition.  It also provides a service called WebEx
Business Exchange to existing customers.  Earlier this month,
WEBX raised its 2004 earnings and revenue guidance after posting
a fivefold increase in fourth-quarter net income and topping Wall
Street consensus estimates.  Investor who favor the fundamental
outlook for the company can use this position to establish a cost
basis near $22 in the issue.

MAR-22.50 UWB OX LB=0.50 OI=367 CB=22.00 DE=34 TY=2.0% MY=6.1%




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

SEPR   27.47  MAR 20.00  ERQ OD 0.85 4991  19.15  34   4.0%  12.0%
GNTA   12.66  MAR 10.00  GJU OB 0.30 12676  9.70  34   2.8%   9.5%
ZIXI   12.91  MAR 10.00  HQU OB 0.30 166    9.70  34   2.8%   9.3%
SKX    11.38  MAR 10.00  SKX OB 0.35 208    9.65  34   3.2%   8.9%
NEOL   20.08  MAR 15.00  UOE OC 0.40 450   14.60  34   2.5%   8.1%
CLZR   22.75  MAR 20.00  UKZ OD 0.60 27    19.40  34   2.8%   7.7%
OSTK   18.15  MAR 15.00  QKT OC 0.35 199   14.65  34   2.1%   7.0%
KERX   12.62  MAR 10.00  QKY OB 0.20 25     9.80  34   1.8%   6.6%
PAAS   17.55  MAR 15.00  USP OC 0.35 344   14.65  34   2.1%   6.5%

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

SEE DISCLAIMER IN SECTION ONE

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


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

Another Dip In The Road To Recovery
By Ray Cummins

U.S. equities slumped Friday on concerns over rising unemployment
claims and declining consumer confidence.

The Dow Jones industrial average ended 66 points lower at 10,627,
with shares of Walt Disney (NYSE:DIS) leading the retreat after a
strong rally earlier in the week.  Favorable earnings from Dell
Computer (NASDAQ:DELL) did not curtail selling pressure in the
NASDAQ, which finished 20 points lower at 2,053.  The broader
Standard & Poor's 500 Index slipped 6 points to 1,145, with some
of the biggest losses seen in manufactured housing, recreational
vehicles, radio broadcasting, office supply and pollution control
companies.  Trading activity was average, with 1.3 billion shares
changing hands on the NYSE and 1.8 billion shares swapped on the
NASDAQ.  Decliners outnumbered advancers 5 to 3 on the Big Board
and 2 to 1 on the technology exchange.  Treasuries traded higher
throughout the day, with the yield on the 10-year note falling to
4.04% as its price closed up 7/32.

Note: U.S. stock markets are closed on Monday for Presidents Day.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 02/13/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

OHP     46.69   47.20   FEB   40  42   0.30  42.20   0.30   Open
NBR     44.11   46.97   FEB   37  40   0.30  39.70   0.30   Open
BIIB    43.19   43.53   FEB   35  40   0.55  39.45   0.55   Open
GENZ    54.26   55.38   FEB   47  50   0.30  49.70   0.30   Open
AVE     73.00   78.59   FEB   65  70   0.45  69.55   0.45   Open
CI      60.55   53.05   FEB   50  55   0.55  54.45  (1.40) Closed
DNA     96.40   98.25   FEB   85  90   0.70  89.30   0.70   Open
ADI     47.85   50.64   FEB   40  45   0.60  44.40   0.60   Open
KOSP    51.00   56.89   FEB   40  45   0.50  44.50   0.50   Open
MSTR    62.40   63.05   FEB   50  55   0.55  54.45   0.55   Open
CFC     85.54   88.74   FEB   75  80   0.50  79.50   0.50   Open
CERN    46.09   44.05   MAR   35  40   0.60  39.40   0.60   Open
NFLX    38.32   35.54   FEB   33  35   0.27  34.73   0.27   Open

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

The "watch-list" position in Cigna (NYSE:CI) was closed, for a
smaller than published debit, when the issue moved below the sold
(put) strike at $55.00, .  Positions in Cabot Micro (NASDAQ:CCMP)
and Lam Research (NASDAQ:LRCX) have previously been closed for
small losses.


CALL-CREDIT SPREADS

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

ADBE    37.12   38.53   FEB   45  40   0.55   40.55   0.55   Open
ABT     43.25   44.31   FEB   47  45   0.25   45.25   0.25   Open
POWI    32.05   28.55   FEB   40  35   0.75   35.75   0.75   Open
SCHN    45.90   49.30   FEB   60  55   0.50   55.50   0.50   Open
OVTI    51.10   48.53   FEB   65  60   0.50   60.50   0.50   Open
VSEA    45.27   43.04   FEB   55  50   0.55   50.55   0.55   Open
OVTI    48.48   48.53   FEB   60  55   0.60   55.60   0.60   Open
CYBX    27.04   25.97   MAR   35  30   0.65   30.65   0.65   Open
SOHU    29.05   28.72   MAR   40  35   0.60   35.60   0.60   Open

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

Bearish positions in Timberland (NYSE:TBL), Eli Lilly (NYSE:LLY)
and Avocent (NASDAQ:AVCT), which is currently profitable, have
previously been closed for small losses.  Adobe (NASDAQ:ADBE) is
on the "watch" list along with and Abbott Labs (NYSE:ABT).


CALL-DEBIT SPREADS

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

BRCM    36.78  38.63   FEB   30  32   2.20   32.30  0.30   Open
CREE    25.85  24.00   FEB   20  22   2.20   22.20  0.30   Open?
TEVA    61.75  65.92   FEB   55  60   4.45   59.45  0.55   Open
INTU    50.37  48.41   FEB   45  47   2.20   47.20  0.30   Open?
KSS     48.64  48.65   MAR   40  45   4.45   44.45  0.55   Open
SPF     49.75  49.16   MAR   40  45   4.45   44.45  0.55   Open

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

Intuit (NASDAQ:INTU) and Cree Inc. (NASDAQ:CREE) are on the "watch"
list.


PUT-DEBIT SPREADS

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

QLGC    47.16  44.04   FEB   55  50   4.20   55.80  0.80   Open
NVLS    39.89  33.26   FEB   45  42   2.20   42.80  0.30   Open
AVID    47.04  44.25   FEB   55  50   4.55   50.45  0.45   Open

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

As noted last week, the position in Michael's Stores (NYSE:MIK)
has been closed to limit potential losses.


SYNTHETIC (BULLISH)

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

CEPH    52.50  57.20   FEB     60     45     0.10    1.00  Closed
MXT      6.04   5.90   MAR      7      5     0.10    0.00   Open
SKX      8.94  11.38   APR     10      7    (0.15)   2.30   Open?

Skechers (NYSE:SKX) was a "big winner" this week for traders who
chose to buy calls (or the stock).  However, the issue did not
offer the suggested debit, on a simultaneous order basis, before
spiking 25% higher in a mid-week rally.  Cephalon (NASDAQ:CEPH)
was closed after moving to a recent low on heavy trading volume
but on Friday, the issue rebounded to a 52-week high.  Previous
positions in United Therapeutics (NASDAQ:UTHR) and Visx (NYSE:EYE)
achieved profitability, however they were eventually closed to
limit potential losses.


SYNTHETIC (BEARISH)

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

DD      42.72  44.46   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 two more weeks.


CALENDAR & DIAGONAL SPREADS

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

FISV    38.28  38.90   MAR-35P   FEB-35P   0.30    0.50   Closed
AMHC    27.08  29.87   MAY-30C   FEB-30C   1.25    1.90    Open?
ABGX    15.60  16.04   APR-17C   FEB-17C   0.60    0.75    Open
SONS     8.54   5.82   JUL-10C   FEB-10C   1.00    0.90   Closed
MEDI    25.14  25.97   JUN-20C   MAR-25C   4.35    4.25    Open

Fiserve (NASDAQ:FISV) offered a viable "early-exit" profit for
conservative traders when the issue fell below $36.  The American
Healthways (NASDAQ:AMHC) calendar spread is also profitable with
over three months left in the position.  The long (call) position
in Sonus Networks (NASDAQ:SONS) was closed earlier in the week to
preserve capital.


DEBIT STRADDLES

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

MATK    65.74  63.57   MAR    65    65     9.40    9.00    Open
BSC     84.10  85.44   MAR    85    85     5.25    6.10    Open
FRX     74.49  74.56   MAR    75    75     6.50    6.30    Open
LF      29.75  27.65   FEB    30    30     3.20    4.00    Open?
MNST    25.13  23.40   FEB    25    25     2.60    2.70    Open
XMSR    22.86  21.68   FEB    22    22     2.15    2.15    Open

Leapfrog (NYSE:LF) provide a favorable early-exit profit during
Wednesday's session.  However, Monster Worldwide (NASDAQ:MNST)
and XM Satellite Radio (NASDAQ:XMSR) were not as volatile as
expected after their respective earnings announcements.  New
straddle plays 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 (BULLISH & BEARISH)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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.

__________________________________________________________________

DNA - Genetech  $98.25  *** New Multi-Year High! ***

Genentech (NYSE:DNA) is a biotechnology firm using human genetic
information to discover, develop, manufacture and commercialize
biotherapeutics for significant unmet medical needs.  The company
manufactures and commercializes 10 biotechnology products directly
in the United States.  These include Herceptin, Rituxan, TNKase,
Activase, Cathflo Activase, Nutropin Depot, Nutropin AQ, Nutropin
human growth hormone, Protropin and Pulmozyme.  The company also
licenses several additional products to other companies and its
product development efforts, including those of its collaborative
partners, cover a wide range of medical conditions, including
cancer, respiratory disorders, cardiovascular diseases, endocrine
disorders and inflammatory and immune problems.

DNA - Genetech  $98.25

PLAY (less conservative - bullish/credit spread):

BUY  PUT  MAR-85.00  DNA-OQ  OI=2918  ASK=$0.65
SELL PUT  MAR-90.00  DNA-OR  OI=3284  BID=$1.30
INITIAL NET-CREDIT TARGET=$0.65-$0.75
POTENTIAL PROFIT(max)=15% B/E=$89.35


__________________________________________________________________

ESRX - Express Scripts  $70.58  *** Next Leg Up? ***

Express Scripts (NASDAQ:ESRX) is an independent pharmacy benefit
manager (PBM), provides integrated PBM services including network
pharmacy claims processing, mail pharmacy services, benefit design
consultation, drug utilization review and formulary management.
The company offers PBM services to clients in the United States
and Canada.  Some of the Company's largest clients included United
HealthCare Insurance Company, which manages the AARP Pharmacy
Service, Blue Cross Blue Shield of Massachusetts, Blue Shield of
California, Mutual of Omaha, the State of Georgia, Mid Atlantic
Medical Services, Group Health Incorporated, and the Department of
Defense TRICARE Management Activity.

ESRX - Express Scripts  $70.58

PLAY (less conservative - bullish/credit spread):

BUY  PUT  MAR-60.00  XTQ-OL  OI=219   ASK=$0.60
SELL PUT  MAR-65.00  XTQ-OM  OI=3454  BID=$1.20
INITIAL NET-CREDIT TARGET=$0.65-$0.75
POTENTIAL PROFIT(max)=15% B/E=$64.35


__________________________________________________________________

NBR - Nabors Industries  $46.97  *** Oil Service Rally! ***

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

NBR - Nabors Industries  $46.97

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAR-40.00  NBR-OH  OI=856  ASK=$0.25
SELL PUT  MAR-42.50  NBR-OV  OI=954  BID=$0.50
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$42.25


__________________________________________________________________

KLAC - KLA-Tencor  $54.24  *** Chip Sector Slump! ***

KLA-Tencor (NASDAQ:KLAC) is a supplier of process control and
yield management solutions for the semiconductor and related
microelectronics industries.  The company's large portfolio
of products, software, analysis, services and expertise is
designed to help integrated circuit manufacturers manage yield
throughout the entire wafer fabrication process, from research
and development to final mass production yield analysis.  The
company offers a broad spectrum of products and services that
are used by every major semiconductor manufacturer in the world.
These customers turn to the company for in-line wafer defect
monitoring; reticle and photomask defect inspection; CD SEM
metrology; wafer overlay; film and surface measurement; and
overall yield and fab-wide data analysis.

KLAC - KLA Tencor  $54.24

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-65.00  KCQ-CM  OI=2877  ASK=$0.20
SELL CALL  MAR-60.00  KCQ-CL  OI=6304  BID=$0.75
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$60.60


__________________________________________________________________

IACI - InterActiveCorp  $31.92  *** In A Trading Range? ***

InterActiveCorp (NASDAQ:IACI), formerly known as USA Interactive,
is a multi-brand interactive commerce firm transacting business
worldwide via the Internet, television and the telephone.  Their
portfolio of companies collectively enables direct-to-consumer
transactions across many areas, including home shopping, tickets,
personals, travel, teleservices and local services.  During 2002,
InterActiveCorp completed two major transactions that together
transformed the company.  The firm acquired a majority interest
in Expedia.com and it accomplished the contribution of its
entertainment businesses to Vivendi Universal Entertainment, a
joint venture controlled by Vivendi Universal, S.A.  The firm's
business is organized into three groups: Electronic Retailing;
Information and Services, and Travel Services.

IACI - InterActiveCorp  $31.92

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-37.50  QTH-CU  OI=945   ASK=$0.20
SELL CALL  MAR-35.00  QTH-CG  OI=4568  BID=$0.45
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$35.25


__________________________________________________________________

NVLS - Novellus Systems  $33.26  *** Second Time's A Charm! ***

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

NVLS - Novellus Systems  $33.26

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAR-40.00  NLQ-CH  OI=6140  ASK=$0.25
SELL CALL  MAR-37.50  NLQ-CU  OI=4060  BID=$0.50
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$37.75



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
DEBIT SPREADS (BULLISH & BEARISH)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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.

__________________________________________________________________

AA - Alcoa  $37.01  *** Blue-Chip Play ***

Alcoa (NYSE:AA) is a producer of primary aluminum, fabricated
aluminum and alumina and is also active in technology, mining,
refining, smelting, fabricating and recycling.  Aluminum and
alumina represent approximately two-thirds of the company's
revenues.  Its non-aluminum products include precision castings,
fasteners, vinyl siding, consumer products, foodservice and
flexible packaging, plastic closures, fiber-optic cables and
electrical distribution systems for cars and trucks.  Alcoa is
a global company operating in 39 countries.  North America is
the largest regional market and Europe is also a significant
market.  Alcoa also has investments and activities in Asia and
Latin America, with opportunities for growth in Brazil, China
and Korea.

AA - Alcoa  $37.01

PLAY (conservative - bullish/debit spread):

BUY  CALL  MAR-32.50  AA-CZ  OI=857   ASK=$4.80
SELL CALL  MAR-35.00  AA-CG  OI=7257  BID=$2.55
INITIAL NET-DEBIT TARGET=$2.20-$2.25
POTENTIAL PROFIT(max)=11% B/E=$34.75


__________________________________________________________________

AMKR - Amkor Technology  $15.92  *** Consolidation Underway! ***

Amkor Technology (NASDAQ:AMKR) is the global subcontractor of
semiconductor packaging and test services.  The firm provides
a portfolio of packaging and test technologies and services;
pursues the design and development of new package and test
technologies; develops expertise in high-volume manufacturing,
and diversifies its operational scope by establishing production
capabilities in China, Japan and Taiwan, in addition to its many
long-standing capabilities in Korea and the Philippines.  The
semiconductors that are packaged and tested for Amkor's customers
ultimately become part of electric systems used in communications,
computing, consumer, industrial, automotive and various military
applications.

AMKR - Amkor Technology  $15.92

PLAY (conservative - bearish/debit spread):

BUY  PUT  MAR-20.00  QEL-OD  OI=566  ASK=$4.40
SELL PUT  MAR-17.50  QEL-OW  OI=706  BID=$2.15
INITIAL NET-DEBIT TARGET=$2.20-$2.25
POTENTIAL PROFIT(max)=11% B/E=$17.75



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

__________________________________________________________________

NEOL - NeoPharm  $20.08  *** Rally Mode! ***

NeoPharm (NASDAQ:NEOL) is a biopharmaceutical company engaged
in the research, development and commercialization of drugs for
the treatment of various cancers.  The firm has built its drug
portfolio based on its novel proprietary technology platforms,
the proprietary NeoLipid liposomal drug delivery system and a
tumor-targeting toxin platform.  NeoPharm has several promising
compounds in various stages of development.  The company's lead
compound is IL13-PE38, a tumor-targeting toxin being developed
as a treatment for glioblastoma multiforme, a deadly form of
brain cancer.

NEOL - NeoPharm  $20.08

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  APR-25.00  UOE-DE  OI=1074  ASK=$1.60
SELL PUT   APR-17.50  UOE-PW  OI=250   BID=$1.70
INITIAL NET-CREDIT TARGET=$0.20-$0.25
INITIAL TARGET PROFIT=$0.95-$1.40

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 $715 per contract.
However, do not initiate this position if you can not afford to
purchase the stock at the sold call strike price ($17.50).



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
STRADDLES AND STRANGLES
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable volatility-based plays.

__________________________________________________________________

CMOS - Credence Systems  $12.75  *** Expiration-Week Earnings! ***

Credence Systems (NASDAQ:CMOS) designs, manufactures, sells and
services engineering validation test equipment, emission-based
optical diagnostics and failure analysis products and automatic
test equipment used for testing semiconductor integrated circuits.
These hardware products are designed to test semiconductors at
two stages of their lifecycle: first, at the prototype stage, and
second, as they are produced in high volume.  The company also
develops, licenses and distributes software products that provide
automation solutions in the IC design and test flow fields.  Its
software products enable design and test engineers to develop and
troubleshoot production test programs prior to fabrication of the
device prototype.  Quarterly earnings are due 2/19/04.

CMOS - Credence Systems  $12.75

PLAY (very speculative - neutral/debit straddle):

BUY CALL  FEB-12.50  CQS-BV  OI=1421  ASK=$0.70
BUY PUT   FEB-12.50  CQS-NV  OI=356   ASK=$0.40
INITIAL NET-DEBIT TARGET=0.95-$1.00
INITIAL TARGET PROFIT=$0.35-$0.60


__________________________________________________________________

NTES - NetEase.com  $40.83  *** Expiration-Week Earnings! ***

NetEase.com (NASDAQ:NTES) is a China-based Internet technology
company that pioneered the development of applications, services
and other technologies for the Internet in China.  The NetEase Web
sites, operated by an affiliate, organize and provide access to 18
content channels through distribution arrangements with more than
one hundred international and domestic content providers.  In
addition, the NetEase Internet sites offer a variety of products
and services, including Instant Messaging (Popo), Dating, Love,
Alumni and Personal Home Page.  These products and services enable
users to communicate about interests and areas of expertise.  The
company's quarterly earnings are due after the close on 2/17/04.

NTES - NetEase.com  $40.83

PLAY (very speculative - neutral/debit straddle):

BUY CALL  FEB-40.00  NQG-BH  OI=1277  ASK=$2.40
BUY PUT   FEB-40.00  NQG-NH  OI=2258  ASK=$1.45
INITIAL NET-DEBIT TARGET=3.70-$3.75
INITIAL TARGET PROFIT=$1.10-$1.65


__________________________________________________________________

SRNA - Serena Software  $22.12  *** Expiration-Week Earnings! ***

Serena Software (NASDAQ:SRNA) is a provider of infrastructure
software to manage change to enterprise applications.  The firm's
products and services are used to manage and control application
change for organizations whose business operations are dependent
on managing information technology.  The company has developed
highly effective solutions for managing software change that allow
customers to improve their return on IT investments by improving
application availability, accelerating time to the market and also
increasing programmer productivity while reducing application
development and IT infrastructure maintenance costs.  Quarterly
earnings are due 2/19/04.

SRNA - Serena Software  $22.12

PLAY (very speculative - neutral/debit straddle):

BUY CALL  FEB-22.50  NHU-BX  OI=471  ASK=$0.35
BUY PUT   FEB-22.50  NHU-NX  OI=240  ASK=$0.65
INITIAL NET-DEBIT TARGET=0.90-$0.95
INITIAL TARGET PROFIT=$0.30-$0.50


__________________________________________________________________


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