Option Investor

Daily Newsletter, Sunday, 03/14/2004

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The Option Investor Newsletter                   Sunday 03-14-2004
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

In Section One:

Wrap: What a Week!
Futures Market: See Note
Editor's Plays: Tough Call
Market Sentiment: Speed Bump or a Rebound?
Ask the Analyst: Option expiration and Max Pain
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 03-12        WE 03-05        WE 02-27        WE 02-20
DOW    10240.08 -355.47 10595.5 + 11.63 10583.9 - 35.11 -  8.82
Nasdaq  1984.73 - 62.90 2047.63 + 17.81 2029.82 -  8.11 - 15.63
S&P-100  549.92 - 18.53  568.45 +  3.91  564.54 -  0.33 -  1.05
S&P-500 1120.57 - 36.29 1156.86 + 11.91 1144.95 +  0.84 -  1.70
W5000  10968.18 -346.24 11314.4 +141.50 11172.9 + 29.34 - 30.42
SOX      485.10 - 19.15  504.25 +  1.99  502.26 -  7.99 -  0.80
RUT      582.84 - 16.70  599.54 + 13.98  585.56 +  5.67 -  5.25
TRAN    2863.09 - 29.98 2893.07 -  9.12 2902.19 + 10.01 - 24.38
VIX       18.30 +  3.82   14.48 -  0.09   14.57 -  1.47 +  0.46
VXO       18.72 +  3.92   14.80 +  0.04   14.76 -  1.49 +  0.62
VXN       25.30 +  3.22   22.08 -  0.79   22.87 -  1.25 -  0.02
TRIN       0.44            1.40            1.26            1.29
Put/Call   1.05            0.79            0.73            0.86

What a Week!
by Jim Brown

Last Sunday we were jubilant that the Dow managed to close
up on Friday and right at 10600 after the disappointing Jobs
report. This Sunday we are just thankful we did not break Dow
10000 again. Definitely not the kind of week we have seen in
2004. Actually it has been 19 months since we have seen a
week this bad.

Dow Chart - Daily

Dow Chart - 5 min

Nasdaq Chart - Daily

The lack of any materially negative economic reports and the
lack of any new terrorist news resulted in a strong rebound
from grossly oversold conditions. We will need a couple more
days of trading to find out if this was the end of the
correction or just an oversold bounce but nobody was heard
complaining on Friday.

The economics we ignored included the Business Inventories
that rose only +0.1% and less than estimates of +0.3%. This
was widely expected to miss the estimates after the weak
Wholesale Trade report. The inventory to sales ratio remained
at record lows at 1.33 and it is only a matter of time before
inventories have to be replenished. Growth in most components
slowed with only Manufacturers posting a minor gain. Sales
were still increasing only at a slower rate. Should inventory
levels not pickup quickly the GDP for Q1 could see a sizeable

The Current Account balance increased due to strong income
flows into the US during the 4Q. This was surprising and
when taken as a percentage of GDP it has shows gains, a
decrease in the outstanding liability, for three quarters.
Both imports and exports improved during the quarter. No
complaints here.

The most surprising report was the Consumer Sentiment which
was inline with estimates at 94.1 and only slightly off the
February levels. Considering the falling sentiment/confidence
levels for all of February a flat report showing a firming
of sentiment was surprising. This may be the last positive
sentiment report for several weeks. The polling was done
for this before the Intel guidance, weak Jobs report, the
terrorist attack in Spain and the stock market correction.
Once consumers are polled after those events there could
be a significant change. In Friday's report the present
conditions component was 105.7 and up from 103.6 in February.
This was probably a result of the strong market and the hype
over strong jobs expectations two weeks ago. The expectations
component fell to 86.6 from 88.5 which was probably related
to the increased economy bashing in the presidential campaign.
The constant reference to jobs being lost from outsourcing
probably weighed on workers minds. As the quarter progresses
tax refunds and bonuses should help offset some of the

The rebound on Friday sent many traders home breathing easier.
The Dow rebounded +111 points and the Nasdaq +41. Nice gains
but if you looked at the header to this article you noticed
some very bearish numbers for the week. The Dow lost -355
and the Nasdaq -63 and that is after the gains from Friday.
Needless to say it was a very bad week but in reality it
was just normal. I know it was painful to everyone who was
long but we were due for a drop. It had been 19 months since
we had seen a -5% correction and there was plenty of cash
waiting on the sidelines for an entry point.

I am going to review both the potential for a continued
rebound and a continued drop today and some of the reasons
the drop occurred. Despite our personal biases we always
need to be aware of things happening in the market. First
the market has a tendency to celebrate anniversaries of
turning points with another turning point. It seems that
prior painful memories tend to resurface in trader's
subconscious minds. Actually even pleasant memories tend
to haunt the markets.

For instance, March 12th-2003 was the turning point in the
markets and marked the low for all of 2003. We have literally
moved almost straight up since that day. March 10th-2000 was
the absolute high point for the Nasdaq at 5132. March-11th
2002 was also the high for all of 2002. I could stop there
and rest my case for a potential market anniversary event
in March of 2004 but it would have been pure speculation and
posses no technical justification. To apply justification we
add the historical fact based on research done by Ned Davis
that cyclical bull markets tend to last about 12-15 months
and tend to rebound about 50% from the bear market lows.
This may or may not be a cyclical bull market but either
way the tendency to correct at those levels even if only
temporary remains the same. Obviously time frames are always
vague depending on sentiment, earnings, interest rates,
current events, etc. The most critical factor is the +50%
gain off the lows. From the October low at 768 and the March
low at 788 I was using the +50% target for my cautions of a
January dip at 1175. A +50% gain from each low would have
produced 1152-1182 as a target. I settled on 1175 which was
the double top resistance high in March-2002. Notice how
those March dates continue to appear? We reached 1155 in
January. It took six weeks from the Jan-26th 1155 high to
push only +8 points higher to the 1163 high on March-5th.
In retrospect I missed the eventual high by 12 points. The
extreme bullish sentiment in January simply refused to
capitulate but that is not the focus of this commentary.
The problem as I see it today is where are we in the grand
scheme of things. Are we going back up or back down?

SPX Chart - Weekly

The argument for a rebound to the highs is based on earnings,
interest rates and the current economic recovery. I heard
again on Friday that First Call is now expecting earnings
for the first quarter to be in the +15% to +17% range. Their
current hard estimate is +14.9% and rising. This would tend
to suggest stocks should continue to go up as long as
earnings continue to climb. The Fed is on hold and mortgage
interest rates are plunging to lows not seen since last year.
This is good for home and auto sales and could bring another
round of refinancing and that money eventually finds its
way into the economy. Tax checks are starting to flow and
the economy is continuing to recover, maybe. All I need to
do is break into a rendition of "Happy days are here again"
to solidify this warm fuzzy feeling.

However, and you knew there was a however, we all know the
market discounts future events 6-9 months out. Stock prices
today are based on those expectations of Oct-Dec conditions.
If we look into the future we see much stronger comparisons
for earnings. Remember the blowout Q3 and Q4 in 2003? Unless
this recovery catches fire and I mean roaring fire really
quick the earnings comparisons for Q3 and Q4 for this year
are going to start shrinking. Instead of +15% growth it
could drop to single digits and that would really sour

We are also reaching the point where the dollar cannot
continue to go down. Eventually the strong dollar will begin
to reassert itself and that will hurt earnings. For instance
over half of Oracle's growth in database sales for last qtr
was from gains in currency translation. License revenue
grew +13% and currency gains accounted for +7% of the total
revenue and +8% of the new software growth. What will happen
when the dollar begins to strengthen again? Weaker earnings
for most multinational companies.

We also have the already questionable recovery. Almost
every economic report continues to show growth but the
pace of growth continues to slow. This is troubling quite
a few analysts. The lack of job creation is also a problem.
I know it is a lagging indicator. I got the memo. But, even
lagging indicators eventually have to confirm and jobs are
the weakest of our current indicators. The current debate
on outsourcing is bringing the problem more to the forefront
than ever before. Are we in a growing recovery or has it
already peaked?

The massive explosion in the bond market over the last week
and the drop in yields was far in excess of what should
have been expected from the weak jobs report. There is a
real undercurrent in the analyst community that suggests
there are more problems in the system than anyone expected.
There are moves underway to find the change in the current
environment that is consuming jobs. The fear is that what
worked before may not be working now and nobody knows why.
The inordinate rise in bonds has spooked economists,
politicians and stock and currency traders alike. Can you
have too much of a good thing? Evidently you can if nobody
knows why it is happening.

The terrorist attack in Spain and the bogus claim of
responsibility by the Al Qaeda cell may have had a serious
impact on our already spooked markets but that has passed.
The terror war may eventually return to our soil but the
real war that will impact our markets is the political one.
The battle will be waged on the airwaves and the outcome is
far from clear. The surveys made public early last week may
have had more impact on the markets than people realize.
Projections that Bush had lost his commanding lead and was
running a dead heat or possibly even behind Kerry threw
institutions into a tizzy. The potential for a change in
power and a repeal of the tax incentives caused a sudden
rethinking of strategy. The previously unthinkable after
Bush had soared to enormous satisfaction ratings had now
become possible.

Historically the fourth year of a presidential term is a
positive year for the markets. The party in power uses
every means at their disposal to remain in power. That
includes tax cuts, social security increases, big jumps
in spending including doling out pork projects like manna
from heaven. Also, historically the first two years of
a second term have spawned many of the worst bear markets
on record. Specifically 1929, 1937, 1957, 1969, 1973, 1977
and 1981. You can't give away the candy store in an election
year without paying for it eventually. Taxes get raised,
budgets cut and all the unpopular work gets done. During
a second term the president does not have to worry about
getting himself reelected but tries to clean up conditions
quickly so his party's successor has a chance of victory.

So where does all this confusing and conflicting information
leave us? Are we going back up or back down? Wouldn't we
all like to know? Unfortunately there is no clear answer.
The market "should" rebound into the April earnings cycle
because the earnings growth is still expanding. It "should"
begin to decline into the summer as the earnings comparisons
become harder and the election mud slinging heats up. "Sell
in May and go away" has been a market maxim since before I
was born. This puts investors on the sideline during the
summer doldrums and safe from any inadvertent market moving
campaign comments. When politicians are running for office
nothing is safe. Drug companies could be hit by controls.
Energy companies, health care services, defense, no one
is safe from attack if it will score more votes.

The problem would be easier to solve if the recovery would
simply catch fire. A roaring economy covers many sins. The
deficit would slow, taxes would flow, employment would rise
and workers would consume goods. Unfortunately the recovery
is still missing in action on many fronts. We saw what $365B
in tax rebates and the lowest mortgage rates in 45 years
did for the economy in Q3-2003 but nobody expects any more
miracles in 2004.

I think all of this leaves us with a negative bias after
April unless we get a major economic surprise. That means
any rebound next week may only be temporary. According to
the Stock Traders Almanac next week is bullish with a
triple witching options expiration on Friday. That is
great news because we need to rebuild trader confidence
if we are going to have any April earnings run. Our mid
quarter update cycle is nearly over and next week will
begin the warning cycle. So far there have been very few
early confessions and hopefully this trend will continue.

Technically the Dow has resistance at 10300, 10450 and
much stronger resistance at 10600. The 10600 level was
the center of the recent trading range and it is highly
doubtful we will exceed that level any time soon in our
weakened condition. That means the Dow could be forced
to define a new trading range with 10500-10600 on the
upside and 10000 on the downside. Right now we are still
oversold despite the +111 point gain and we are probably
going to move higher next week. How high is a matter of

Where the Dow just suddenly fell out of its range the
Nasdaq has been trending down since late January. This
suggests a different type of problem. The Dow contains
materials stocks, financials, consumer cyclicals, techs
and manufacturing stocks. All solid blue chip companies
and places where funds can park money in times of
uncertainty. The Nasdaq has a different problem. In
times of uncertainty traders tend to flee highly volatile
tech stocks and move to safety. This is why the Nasdaq
typically leads any drop and has deeper corrections. The
percentage drop from the highs for the year on the Nasdaq
is twice the Dow percentage and right at -10%.

The Nasdaq has resistance at 2000, which is also the
100dma and again at 2030 to 2060. With the downtrend in
progress since Jan-27th it is going to be tough to get
back over 2050. That level was the price magnet for the
two weeks prior to the current drop and is now strong
resistance. The Nasdaq also has strong support at 1900
and heavy congestion between 1900 and 2000. This suggests
the Nasdaq could also be locked into a new range from

I know this commentary probably angered some readers and
bored others but it is the kind of fact summary that we
all need to consider. I would like to think we will reach
new highs before May and nothing would please me more.
Unfortunately the current market environment is not
suggesting that will happen.

The drop this week was not unreasonable in its depth as
all indexes dropped approx -3.5%. Just a normal correction
and one that should be over. What shocked investors was
the dramatic way it dropped. This also suggests that
investors are worried. Instead of a calm decline the
drop was sudden and sharp with signs of panic.

For me the strongest indication of strength on Friday
came from the Russell. The little index that thought it
could roared back up the hill and posted a +14 point,
+2.47% gain. This was a monstrous move when put into
perspective. The Dow gained +1.10%, Wilshire +1.35%
and Nasdaq +2.10%. The Russell was the motivating factor
behind the Nasdaq gain. The closing Russell sprint added
+5 points to the Nasdaq in the last 8 min of trading. The
Russell was the ONLY index to not break its bullish uptrend
support for the week.

Russell-2000 Chart - Daily

The rebound on Friday came on very strong internals with
up volume 6:1 over down volume and advancers 5:2 over
decliners. Traders would have been cheering at the close
were it not for the very low volume of only 3.7B shares.
This is not what builds investor confidence. The drop on
Thursday was on very strong volume of over 5B shares and
4:1 down volume to up. Everything was in place for the
rebound but that vital volume component. My theory is
weekend related. With the renewed terror risk I feel
investors were willing to wait until Monday to avoid
weekend event risk. That makes Monday a critical day
for the bulls. We must rally on strong volume and strong
internals to rebuild confidence in the market.

That may be a tall order for the Dow with resistance just
overhead at 10300. It fought 10225 all day and was only
able to break back above its 100dma at that level in the
last ten minutes of trading as shorts covered into the
close. The Nasdaq has about 20 points of free space
before running into resistance at 2000 and only if it
can open in positive territory and over resistance at
1980. We could win back a lot of traders with a blast
out of the gate and a push back to 10350/2000 or higher
on Monday. Conversely if we are unable to push higher
then Friday will be seen as a simple oversold relief
rally and the overhead pressure will begin to build

The economic reports on Monday are neutral and should
provide bullish confirmation with the Housing Index and
Industrial Production. Marginally weak numbers should
not be seen as negative to the market. The NY Empire
State Manufacturing Survey has been on a steady uptrend
and one of the few reports consistently gaining strength.
The February number was a record high so any pullback
will just be seen as a pause and any higher number is a
new record. Not much risk there.

Next week is going to be critical to the market for the
rest of the quarter and the base for any April earnings
run. We must have a couple of good days beginning with
Monday or traders will begin rethinking their plans with
many electing to take profits and leave early for the
summer. Normal profit taking does not cause alarm but
extreme uncertainty does. With our uncertainty quotient
growing daily we need a booster shot of confidence to
get us over the hump. The inoculations will begin at
the bell on Monday.

Enter Very Passively, Exit Very Aggressively!

Jim Brown

2004 Stock Traders Almanac

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special and would still like to get a Stock Traders
Almanac this is your chance.
For only $44.95 you will get:

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Futures wrap is not emailed due to the excessive number of charts.
It may be read on the website at this address.


By Leigh Stevens

We may have seen the lows on Thurday/Friday for the correction
that snowballed last week - it was a decent rally, especially
coming after the terrorist bombing in Madrid on Thursday with 200
people dead and many times that injured, many seriously.  This
event of course hit European markets pretty hard ahead of the New
York opening on Friday.

Last week's sharp sell-off arrived last just after I was starting
to think that the indices could break out to the upside because
stocks did at least keep rebounding after the S&P and Dow
Industrials failed to exceed highs hit repeatedly in the same

Market action ahead may be choppy and not substantially down or
up from Friday's close, until we get nearer to the releases of Q1
earnings in April - we may get some "warnings" on earnings in the
coming week and they will be a focus for buying or selling
interest.  Specifics on the indices are seen below along with
select stock index charts.

The Federal Reserve Open Market Committee meets Tuesday, and bond
and stock investors will also be looking at any statements from
them that could relate to any possible change in their interest-
rate stance.

The Dow lost 355.47 points on the week, which was a 3.4 percent
decline. The Nasdaq Composite lost 62.9 points on the week, or
3.1% for the week. The S&P 500 (SPX), while rebounding nearly 14
points on Friday, had a loss for the week of 36 points and this
also represented a decline of 3.1 percent.

On the NYSE advancers outnumbered decliners by nearly 3 to 1 -
ditto the Nasdaq.

The University of Michigan on Friday said its consumer sentiment
index fell to 94.1 in March, from 94.4 in February.  This number
was close to expectations of 94.4. On Thursday the Labor
Department reported a decline in weekly jobless claims and this
set a bit of a positive tone for the end of the week also.

Airlines, semiconductors, brokers, oil services and Internet
stocks were among the best performing sectors. Gold and health
care were losing sectors.

Disney (DIS), which had suffered a steady decline in its share
price, after CEO Michael Eisner's negative press with
shareholders and their withholding of support, rebounded to above
26, up nearly 5%. This action helped the Dow 30 and the S&P blue
chip indices.

Helping out the Nasdaq, was an analyst upgrade of Dell (DELL)
Computer.  The stock ran up 3.5 percent to just over $33 after
upgrades at Morgan Stanley and J.P. Morgan.

The 10-year T note was down 15/32 at 102, ending at a yield of
3.76%.  Potential bond buyers were not buying as many Treasury
issues given yield under 4% and selling was the result by week's
end.  The 10-year was higher on the week however.

Federal Chairman Greenspan said Friday that U.S. job creation has
been "badly lagging," but he also expressed some optimism that
hiring would pick up soon.  Lagging job growth has of course been
a key factor behind current record low interest rates.

In late-day New York trading on Friday, the dollar was up over a
percent against the euro, trading at 1.22.

There was talk among Forex traders that the euro's decline of
over 6 cents (dipping below 1.23)after it hit an all-time high of
$1.29 in Feb, has led to continued profit taking buying by
holders of short dollar/long euro positions.

Some of the "hedge funds" as well as other speculators who held
large long euro positions have pulled some money out of the euro.


Nasdaq Composite (COMP) Index  – Daily:
Last week, a close over 2060 - above the 21-day moving average -
was needed to suggest a renewed uptrend.  Instead, the rally
failed right in this area and reversed to the downside,
suggesting that the Composite might again fall to the area of the
lower envelope line set at 3.5% under the 21-day moving average.

At 1950 and in the area of my lower envelope line, COMPX again
was oversold and would have some likelihood of a rebound - this
is what happened: a final dip under 1950 and then a rally
followed. The rally appeared seemed to be more than than short-
covering type buying, as there was decent upside follow through
on Friday as buyers showed up.

As I've been saying for awhile, the Nasdaq Composite might get to
as low as 1900 but that is a "worst-case" downside projection. In
general, I would now favor buying Nasdaq options with the
Composite in the 1950-1900 zone.

Resistance in COMPX can be assumed again in the area of the 21-
day moving average, currently intersecting in the 2030 area.  A
close above 2030 is needed to suggest that this index might be
poised to get back up to 2060-2070, where I would take on bearish
option plays.

I doubt that there is going to be sustained upside follow in the
coming week or two, given the ease with which sellers took stocks
down last week.  Buying interest appears cautionary and not yet
wholehearted as tech businesses await a better economic rebound
than has been seen to date.

Nasdaq 100 (NDX) Index  – Daily & Hourly:
A noteworthy technical event in the Nasdaq 100 or NDX, was that
it fell to the lower end of its projected hourly downtrend
channel and then rebounded.  The channel lines are outlined in
the chart on the right below.  Support is suggested by this trend
channel as in the 1400-1405 area, with resistance at 1460, where
the red (down) arrow is seen.

I suggest call purchases around 1400 if there is another dip - if
so, I also suggest exiting on a close below 1380. Index puts look
favorable when the NDX is at or above 1460, with a suggested exit
point being an Index close above 1480.

As with the Nasdaq Composite, a dip under the lower envelope line
I've been using, set at 3 percent under the 21-day moving
average, gave a good idea of where this index was both oversold
and in a price area where the Index could snap back (see the
daily chart, left below).

The other tendency we often see with the hourly chart is that
upside reversals often occur when both the stochastic models, set
at "length (number of periods) 5 and 21, fall to the lower
extremes.  The last time both got into overbought territory and
turned down, there was a decline of some 90 points from the time
when both lined up at or under their the lower extremes of the
green level lines - see lower most indicators, above right.

Nasdaq 100 (NDX) Index  – Daily:
The daily chart in a bit more detail and with a downtrend channel
outlined is shown below.  There were a couple of key technical
events - one, when the index broke under its uptrend line and
then could not get back above this line.  Two, the same break and
subsequent failure to get back above the 50-day moving average.
NDX fell under this average and it was then the exact point
marking the top of intraday rallies - before a next wave of
selling came in, taking the Nas 100 index down again.

The top of the daily chart downtrend channel, intersecting
currently in the 1470 area, is the key resistance in my
estimation. If you are holding long calls bought near 1400, I
suggest taking at least partial profits around 1470, if reached.

According to the 14-day RSI Indicator, the NDX Index got as
oversold as it has been in some months, with a reading under 35
toward the end of the week.  Readings in this area may not always
reflect major potential for a trend reversal but it does suggest
an "oversold" market and one that is ripe for taking profits held
on puts.

Nasdaq 100 tracking Stock (AMEX:QQQ)– Hourly:
We didn't see the close over 37-37.50 that might have suggested
some upside follow through to the last rally attempt prior to
last week's declines.  Instead, the Nas 100 tracking stock fell
to the lower boundary of its downtrend channel, which was also
suggested as a downside trading objective in QQQ - at 35-35.50
specifically.  This area offered an opportunity to both exit
short stock positions and puts and a place to do some buying of
the stock anticipating a tradable rally.

I indicated last week that a fall to below support at 36.25
suggested downside potential to the lower end of the channel, at
35-34.75. This same prior support point is now likely to define a
first important resistance are. Above 36.25, expect resistance
and selling interest around 36.75.

Hopefully, those short the stock made a decent profit on my last
week comment to cover shorts and buy back the stock beginning at
35.25  - I wasn't sure the Q's would get to 35 even - WRONG!

S&P 500 Index (SPX) – Daily chart:
The S&P 500 dipped to well under my lower envelope line set at 2%
under the 21-day moving average - often I also use a 3 percent
setting which marked the exact lows on Thursday and Friday.

In a strong uptrend, such as we have seen in recent months,
declines tend to stop at a envelope setting that is not as wide
as 3%, but more like 2 percent.

I tend to use a tighter setting until there is a decline that is
back to a "normal" envelope range of 3 percent above or below a
21-day moving average of the S&P 500 (SPX) close.  The envelope
lines, as seen in the chart below at TWO percent, will be reset
(to 3%) on my chart for the future.

The other Indicator worth mentioning here is my custom indicator
that plots daily call to daily put volume, as seen on the lower
portion of the chart above.  The readings of this Indicator are
suggesting a current or recent bearish extreme in market
"sentiment" - one that is extreme to a point where it often
precedes an upside reversal or the opposite of what traders
expect.  The magenta line is a 5-day moving average of the daily
ratio number.

With put volume approaching an extreme relative to daily equities
call volume, traders are about as bearish as they will tend to
get.  Once everyone gets that bearish, the market is often then
setting up for a reversal to the upside as much of the selling
gets done, such that a relatively small amount of buying can
drive stocks back up.

S&P 100 Index (OEX) – Daily chart:
The S&P 100 or OEX Index broke the 561-562 support I was seeing
on the charts and this event triggered more selling and the
snowball effect (and with buyers retreating to the sidelines)
took over last week.

I made mention last week that technical support might develop in
the 558 area, assuming 566 was penetrated. Well, how about 448
instead?!  The market decline took on significant downside
momentum and the slide was more than I bargained for.

I also take a look here at the common 38, 50 and 62% retracments
- the OEX has not quite retraced half or 50% of its last major
upswing.  542 would be a 50% retracement - if this area is
reached I think it offers a high potential trade in terms of
(further downside) risk relative to (upside) reward potential.

Dow Industrials (INDU) Daily:
The sideways pattern outlined by the two dashed level lines in
the Dow chart below, called a "line" or "rectangle" pattern, most
often suggests that the market is consolidating for a new move
up.  Sometimes, this pattern precedes a downside break however,
and a sharp and quick downside move, as happened last week.

The decline then stopped at the Dow's uptrend line - funny how
that happens so often!  I now look for what was support, at the
lower end of the box, to now offer resistance assuming a rally
takes the Dow 30 back up to the 10400 area (at the red arrow). I
lean right now to exiting calls around 1040, at least in the way
it looks to me now and before seeing further market action in the
week ahead.

As noted in this column last week: "A decisive downside
penetration below 10400 gives me a downside objective to around
10200 to 10100."  Not a bad prediction as it turned out.  I hope
some of our OIN subscribers used this downside objective as the
likely right area to exit puts and even do some call buying. I
continue to favor buying calls in this same zone - 10200-10100.
I doubt that we will see 10,000 in the Dow anytime soon.

Good Trading Success!

2004 Stock Traders Almanac, Mousepad and Video

Those readers who did not sign up for the end of year
special and would still like to get a Stock Traders
Almanac this is your chance.

For only $44.95 you will get:

2004 Stock Traders Almanac - $34.95 value
2004 Option Expiration Mousepad - $14.95 value
Intro to Options Trading Success Video - $84.95 value

We had a few sets left and they are $44.95 per set.



Editor's Plays

Tough Call

I have not had so much trouble picking a play for this article
in months. I looked at hundreds of charts and option montages
to no avail.

The problem is my market view today. After researching and
writing wraps for about eight hours Friday night I was more
confused than when I started. I think the strong internals
on Friday were bullish but we had the light volume
qualification to deal with. We also had an irrational move
in the Russell futures at the close and a +2.71% gain for
the day. This was about double the gains on the bigger
indexes. I am concerned that Friday bullishness could see
some profit taking at the open on Monday. ANY profit taking
at the open on Monday could sour the bullish sentiment.

Also, the NDX and the Compx are only 20 points below strong
resistance on each index. This suggests any opening bounce
could meet stiff resistance just about the time it reaches
a decent gain. Already winded from the sprint they may not
have enough energy left to break those levels. A failure to
break them could lead to another round of declines.

So how do you pick a stock play under these conditions?
The volatility has spiked multiple points and option premiums
are very high. I looked at home builders for instance with
the idea that they would benefit from low interest rates
and from the NAHB Housing Index to be announced on Monday.
Unfortunately premiums were out of sight. I hate to pay
$3 for an option $5 OTM a couple months away. With the
current overhead resistance on all the indexes it will be
hard for any stock to continue to out perform.

I looked at selling puts to capture the high premium and
decided it was too risky given the overhead resistance in
the market. I looked at selling some credit spreads and
passed due to the low risk-reward ratio. I looked at
numerous combinations and the high premiums negated any
potential profit.

The problem is my view that the Dow will have trouble
moving much over 10300 and the Nasdaq moving much over
2000. I could be wrong and we will blast over those levels
in a heartbeat at Monday's open. Unfortunately my bias
is preventing me from recommending most plays for that
reason and option premiums restrict the others.

I looked at some cheap option lottery plays for expiration
week except cheap options are few and far between. Those
that were cheap had stocks going nowhere. GE, MSFT, INTC,

I looked at the QQQ, DJX and Russell Ishares and could
not get comfortable with the risk/reward ratio.

Sometimes cash is the best position but I could not
believe I could not find a play for expiration week.

I like things like MMM, UTX and EBAY on their recent
pullbacks but their options are grossly expensive. I
like GE at $30.50 and the 200dma but I would like to
make sure the new stock is all digested first. With
GE at $30.60 the Mar-$30 calls are only 85 cents and
they are already 60 cents ITM. If they stock was already
in the market GE could bounce a buck easily. I am just
not convinced.

I like MMM at its 200 dma but why is it continuing to go
down? Enquiring minds want to know.

I have been trying to get into EBAY for two months. The
stock only pulled back -$3 last week and already bounced
back +$2. I should just shut up and buy it at $69 but it
has failed to hold over $70 for two months. What's up with
that? The stock has huge relative strength but can't
move up. Pass again.

I finally settled on an old favorite that is 36 cents
from an all time high despite the market crash. Symantec.
SYMC dropped from $45 to $41 last week and rebounded back
to $44.64 at Friday's close. This stock is stronger than
Arnold and I am just ticked I did not have an alarm set
when it dipped.

Surprisingly the options are not that expensive. The
April $45 ATM call is only $1.75. That is less than the
stock gained on Friday. This may not be your choice for
a rocky market play but it was the only one I would place
my money on.

I am thinking the April option simply to get us past any
potential rebound over the next week. If you would rather
go longer term I would look at the July $50 call for $1.55.

Remember, I am anticipating some market weakness ahead.
I want a stock that will shake it off and keep on moving
like it did this week. I want to take a quick profit and
run to the sidelines.

Buy the April $45 Call SYQ-DI, currently $1.75.
Target price = $2.75
Stop loss = $1.00
Risk = 75 cents

Keep your fingers crossed!

Symantec Chart


Speed Bump or a Rebound?
 - J. Brown

Ouch!  After last week the bulls are probably thinking they need
a vacation.  After all they've been running for almost a year
straight - granted they've grown a little tired the last few
weeks.  It was encouraging to see the markets do some heavy
lifting on Friday but the volume numbers were a little
disappointing.  Sharp, brief sell-offs are common characteristics
of a bull market correction and there are plenty of investors who
have been waiting on the sidelines to jump in.  The question now
is whether or not the correction is over and Friday's rally is a
new short-term bottom?  Or is Friday just an oversold bounce in
what could be a new change in the trend (think of it as a speed
bump on the way down).

Historically the week of triple-witching options expiration in
March tends to be a bullish one.  Considering the market's still
oversold condition from last week's sell-off a continuation of
the bounce is probably a good bet.  Unfortunately, that bounce
may be muted on Monday and Tuesday morning as we wait for the
FOMC announcement at Tuesday's meeting.  No one expects Alan & Co
to move interest rates but if and how they change the wording of
their statement will be major news for the next three sessions.

Next week also brings a number of economic reports but
potentially overshadowing them is the onset of the corporate
confession cycle or earnings warning season.  Yet this time we
might actually see a bullish affect.  We've already heard three
or four corporations issue positive pre-announcements last week.
It would be great to hear more positive upside guidance, which
could jump start an early earnings run for the April reporting
season.  At least that's what my optimistic side is looking for.

We will hear from a number of the broker-dealers this week who
report earnings head of the crowd.  Lehman Brothers, Bear Stearns
and Morgan Stanley will all announce and odds are they'll crush
expectations again.  This should have a positive influence on
investor sentiment.  Speaking of investor sentiment we noticed
some pretty big moves in the COT data (look below).  Commercial
traders or institutional traders have been slowly turning bullish
on the NASDAQ 100 for weeks but this latest report hit extremes
not seen since June 2002.  This is good news because the
commercial traders are normally right while the small trader
tends to be wrong.  Also noteworthy is the new bearish extremes
in the Dow Jones futures by the small traders.  Using the same
logic this is a contrarian bullish indicator suggesting a bullish
move for the Dow.  Unfortunately, this COT report is from March
9th and before the last two sessions of the steep sell-off and
before the Thursday terrorist bombings in Spain.  I would
certainly wait to see how these numbers change in next week's
report before adding too much weight to them but they do add a
little bit of encouragement for the bulls.


Market Averages


52-week High: 10753
52-week Low :  7416
Current     : 10241

Moving Averages:

 10-dma: 10469
 50-dma: 10547
200-dma:  9760

S&P 500 ($SPX)

52-week High: 1163
52-week Low :  760
Current     : 1120

Moving Averages:

 10-dma: 1140
 50-dma: 1137
200-dma: 1050

Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low :  946
Current     : 1431

Moving Averages:

 10-dma: 1451
 50-dma: 1492
200-dma: 1372


Volatility indices dropped strongly on Friday given the broad-
based bounce but this week's market decline produced a surge
in volatility that broke the previous multi-month trends.  While
I'd expect volatility to slowly drift lower it may not return
toward its previous lows very soon.

CBOE Market Volatility Index (VIX) = 18.30 -2.37
CBOE Mkt Volatility old VIX  (VXO) = 18.72 -2.99
Nasdaq Volatility Index (VXN)      = 25.30 -1.28


          Put/Call Ratio  Call Volume   Put Volume

Total          1.05        758,249       795,143
Equity Only    0.82        563,698       463,767
OEX            1.31         54,825        71,831
QQQ            2.54         57,289       145,699


Bullish Percent Data

           Current   Change   Status
NYSE          73.5    + 0     Bull Confirmed
NASDAQ-100    43.0    + 0     Bear Confirmed
Dow Indust.   80.0    + 0     Bull Correction
S&P 500       79.4    + 0     Bull Correction
S&P 100       84.0    + 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: 1.93
10-dma: 1.49
21-dma: 1.29
55-dma: 1.08

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


Market Internals

            -NYSE-   -NASDAQ-
Advancers    2114      2327
Decliners     732       736

New Highs      83        74
New Lows       17        14

Up Volume   1454M     1376M
Down Vol.    207M      287M

Total Vol.  1679M     1680M
M = millions


Commitments Of Traders Report: 03/09/04

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

Commercial traders are committing new money to both long
and short positions but they are turning more and more
bearish in the large S&P contracts.  Small traders are
holding relatively steady.

Commercials   Long      Short      Net     % Of OI
02/17/04      416,148   415,278       870     0.0%
02/24/04      417,490   416,502       988     0.0%
03/02/04      411,932   418,936    (7,004)   (0.1%)
03/09/04      418,394   433,237   (14,843)   (1.7%)

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

Small Traders Long      Short      Net     % of OI
02/17/04      141,533    84,227    57,306    25.3%
02/24/04      141,559    85,171    56,388    24.9%
03/02/04      148,383    84,135    64,248    27.6%
03/09/04      155,947    88,317    67,630    27.7%

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

Wow!  We really saw some money come into the e-mini's
this week.  Commercial traders added nearly 90K new long
contracts and more than 90K new short contracts.  They
remain net bearish on the S&P.  Small traders also added
more to their positions but remain net bullish.

Commercials   Long      Short      Net     % Of OI
02/17/04      296,313   371,703    (75,390)  (11.3%)
02/24/04      320,425   387,255    (66,830)  ( 9.4%)
03/02/04      344,805   395,112    (50,307)  ( 6.8%)
03/09/04      431,623   485,268    (53,645)  ( 5.9%)

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:  133,299   - 09/02/03

Small Traders Long      Short      Net     % of OI
02/17/04     144,014     64,391    79,623    38.2%
02/24/04     129,894     63,524    66,370    34.3%
03/02/04     119,382     67,453    51,929    27.8%
03/09/04     135,233     76,558    58,675    27.7%

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


Commercial traders have slowly been turning more and more
bullish on the NASDAQ 100 over the last few weeks.  As of
March 9th, they hit new extremes surpassing they're last
bullish peak dating back to June 11th, 2002.  Unfortunately,
this reading is before the steep Wednesday-Thursday sell-off
this week and before the Thursday morning terror attack in
Spain.  We'll have to wait until next week to see how
commercial traders, or "smart money", reacts to the last
few sessions.  Small traders have also turned more bullish
but they're not hitting extreme readings.

Commercials   Long      Short      Net     % of OI
02/17/04       46,104     40,385     5,719    6.6%
02/24/04       47,266     40,452     6,814    7.8%
03/02/04       49,959     41,059     8,900    9.8%
03/09/04       57,368     46,082    11,286   10.9%

Most bearish reading of the year: (21,858)  - 08/26/03
Most bullish reading of the year:  11,286   - 03/12/04

Small Traders  Long     Short      Net     % of OI
02/17/04        9,630    12,338    (2,708)  (12.3%)
02/24/04       12,388     7,310     5,078    25.8%
03/02/04       11,605     7,128     4,477    23.9%
03/09/04       15,533     8,070     7,463    31.6%

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


Commercial traders or institutions have been slowly growing
more and more bullish on the Dow over the last few weeks.
Again, this latest data is before the Wednesday-Thursday
sell-off and the Thursday terror event but it is encouraging.
In contrast small traders have turned more bearish and actually
hit a new extreme in their bearishness, surpassing last
December's readings.  This is a contrarian bullish indicator
since small traders tend to be wrong.  Yet I would hesitate
to draw too many conclusions until we see next week's data
and investor reaction to the terrorist attacks.

Commercials   Long      Short      Net     % of OI
02/17/04       24,451    12,907   11,544      30.9%
02/24/04       27,176    13,918   13,258      32.3%
03/02/04       27,594    14,166   13,428      32.2%
03/09/04       26,867    12,845   14,022      35.3%

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
02/17/04        6,768    15,623   (8,855)   (39.5%)
02/24/04        6,509    14,919   (8,410)   (39.2%)
03/02/04        6,898    15,874   (8,976)   (39.4%)
03/09/04        7,053    19,159  (12,106)   (46.2%)

Most bearish reading of the year: (12,106) -  3/09/04
Most bullish reading of the year:   8,523  -  8/26/03


2004 Stock Traders Almanac, Mousepad and Video

Those readers who did not sign up for the end of year
special and would still like to get a Stock Traders
Almanac this is your chance.

For only $44.95 you will get:

2004 Stock Traders Almanac - $34.95 value
2004 Option Expiration Mousepad - $14.95 value
Intro to Options Trading Success Video - $84.95 value

We had a few sets left and they are $44.95 per set.




Option expiration and Max Pain

I received several questions this week regarding Max Pain theory,
which is a theory, based on mathematics and the never-ending goal
of an option market maker to make as much money for himself as
possible as option expiration nears, while at the same time
trying to make life as difficult and as unprofitable for options

I shouldn't beat on market makers.  They need to make a living
too, and I've never met a good trader that didn't have profit in
mind.  It's OK to want to make a profit, and I really wouldn't
hold it against anyone.

So what is Max Pain theory?  In simplistic form, the theory
itself is based on the thought that a security that trades
options, usually with high open interest, might gravitate toward
a mathematically derived average price as option expiration
nears.  The Max Pain is really somewhat of a mid-point, or the
average price if you were to add up all the current option open
interest for a particular month at all the various strike prices.

Believe me when I say that that is the "simplistic" version, or
explanation, as it is much more complex, where it would really
take a book of text to be able to explain fully.

Let's take a look at the NASDAQ-100 Tracking Stock (AMEX:QQQ)
$35.51, where the current month Max Pain has been calculated at
approximately $36.00, or the $36.00 strike.

Remember last week's article on the bullish % sector bell curve?
Think of Max Pain as somewhat of a bell curve, where the top of
the curve, is really the mid-point, or point of equilibrium for a
given point in time.

QQQ March Option Contracts - Sorted by Open Interest

Here's a look at a QCharts option chain of the QQQ, where I've
sorted by Open Interest, for the current month March option

We can see that there is greater amount of interest in the March
37 calls and puts, March 36 puts, and March 35 puts, where open
interest begins to drop off from there.

Before we go further with this article, let me say that there are
MANY dynamics in the marketplace that can influence price action,
but as we near an option expiration, price action in an
underlying security can be INFLUENCED near-term, simply from what
takes place in the derivatives market, whether it be futures
expiration, or options expiration.

See the column "NetSinceOpen%" in the above table?  That's the
percentage gain/loss found in various option contracts during
Friday's trade.

Even though the current Max Pain level for the QQQ is calculated
at $36.00, the mindset of a trader/investor could be.... "Who has
the greatest amount of profit risk, from current level of trade?"
Don't just think about RISK from the perspective of an investor,
but also that of the MARKET MAKER.

Thursday evening, the QQQ closed at $34.87, and investors holding
the March $35 puts (QQQOI) long were holding an in the money
contract.  One day later (Friday) they're holding an out the
money contract, where if the QQQ closes ABOVE $35.00, the option
would be worthless.

Thursday evening, the QQQ closed at $34.87, and a MARKET MAKER
(it could be your or I that sold a put option short, but a market
maker probably has a greater amount of capital to work with than
you or I) holding a March $35 put short position, who is
OBLIGATED to buy the QQQ at $35.00 should it close at or below
that price level on Friday, March 19, 2004 was holding a
potentially losing position.  Potentially losing position,
because we really don't KNOW what his/her average price of
premiums received has been, during market making activities.  The
price range for the March $35 put contract has been $0.05 to

QQQ March $35 Put (QQQOI) Chart - Monthly Intervals

If looking at things from the perspective of the MARKET MAKER,
what would we be trying to do with the QQQ right now?  For the
past three months, since December's quarterly expiration, the
March $35 put has traded between $0.10 and $1.15, where 668,999
contracts have traded hands since January 1, 2004, yet open
interest at Thursday evening's close was 232,361.

While I can't say for certain, the above chart gives the
perspective that a MARKET MAKER that has been selling these
options to market participants that have been BUYING them, has
probably SOLD an average PREMIUM of $0.60, and should the QQQ
close above $35.00, all that premium is then a profit, where the
MARKET MAKER's break-even is a QQQ close of $35.40 ($36 - $0.60 =

I use the QQQ put as an example, but you can begin to make
similar observations as it relates to other option contracts,
with HIGH open interest, where those option strikes CLOSEST to
current QQQ level of trade has a high degree of PROFIT RISK.

I could also discuss the PROFIT RISK for the MARKET MAKER in the
QQQ $35 calls, but note that the open interest in those calls is
about 1/2 that of the offsetting $35 puts.  If YOU were a MARKET
MAKER, where is YOUR attention focused?  Right now, you're most
likely FOCUSED on where the open interest in your book is, and
you're trying to keep as much premium profit as possible.

Now that we have a feel for gain/loss on a daily basis, start
looking at those options, based on a QQQ trading at $35.51, where
the LONG position has the greatest PROFIT RISK.  Think PROFIT
turning to $0.00.  Remember, when YOU or I BUY an option, we've
already factored in what we could LOSE, so when we think of "max
pain," I think it best to think of those options with the
GREATEST PROFIT, where as option expiration nears, those profits
could erode quickly (that's RISK) should price action in the
underlying security suddenly move against the option position.

Do you begin to see what can take place as option expiration
nears?  Remember that the clock is ticking as it relates to March
expiration.  If you as a MARKET MAKER can "manipulate" or begin
to INFLUENCE price action near-term, to try and achieve MAX
PROFITABILITY for your book, then YOUR risk window is just 5-
days.  If successful, then the MARKET MAKER can also inflict Max
Pain on the general public, which tends to BUY LONG call and put

To fully comprehend, or tabulate Max Pain you can begin to see
how complex it becomes, as you really need to fully review and
think through the process of average price paid for the various
contracts that are currently CLOSE to the price of the underlying

One observation that traders have made over time is that Max Pain
levels aren't always accurate as to where the underlying security
actually closes on option expiration.

Why is that?

Besides stating the obvious that some type of major event
(earnings, geopolitical, etc) took place, which impacted price of
the underlying security, Max Pain theory can be inaccurate, or
unreliable, when considering that the derivatives, which the
theory is based upon, may have been heavily used by an
institution(s) to hedge a large position underlying bullish
position, or to actually PURCHASE a position at a specified
strike price, at some future point in time.  This is more apt to
be present in individual stocks than indices, but here is why Max
Pain theory can be very unreliable.

Pretend for a moment that the QQQ is actually a company's stock,
and you find that Max Pain for March expiration is $36.00.  Let's
also pretend that QQQ trades average daily volume of 5 million
shares per day.

A year ago, a large hedge fund began accumulating QQQ shares,
from $24 to $30 over several months, with full intention of
selling that position in March of 2004 at $36.00.  When the
position exceeded the hedge funds price objective at $37, the
hedge fund manager purchased March $36.00 puts for $0.30 per
contract in order to put a floor of profit under the position to
protect those gains.

And here is how a trader (like you and I) that RELIES TOO HEAVILY
on Max Pain theory working, can get in big trouble if they have
relied heavily on the theory working as if price will gravitate
toward the Max Pain level.

Put yourself in the shoes of the hedge fund manager with the now
largely profitable QQQ position and you're ready to sell at your
stated objective of $36.  Maybe you wished you had sold at $38,
but things were looking very promising at that price level, and
it wasn't time to reallocate your assets.  Still you can't
complain considering the current profits you have amassed.

But wait!  There might still be opportunity.

A hedge fund manager is out to make a profit just like the next
guy.  What if the QQQ is trading $35.51 the day BEFORE, or the
day OF expiration, and YOU, the hedge fund manager are holding
50,000 March $36 puts, which covers your 5,000,000 underlying
share position?

Hey!  As the hedge fund manager, you might decide to let go of
your position in the public market, and utilize your large long
position in the underlying QQQ to see and exponential price gain
be created in your March $36 puts!

This type of scenario is where Max Pain theory can be very
unreliable, where the mathematical theory that just because there
is a lot of open interest around the $36.00 level would have the
QQQ closing at or near $36.  The above scenario of a large
position suddenly being liquidated on or around expiration, in
order to actually further profit from the option position is not
all that uncommon.

A hedge fund could actually INFLUENCE other market participants
to sell their bullish positions in the underlying stock, or get
market participants to suddenly, and with aggression, begin
buying put options, selling in the money call options where
PROFIT RISK was found, if a sudden downward move is seen in the

Do you see where the VOLATILITY sometimes found around, or near
option expiration can be found?  Do you see where a trader that
has relied HEAVILY on Max Pain theory actually coming to fruition
can be harmed if the actual Max Pain theory level is not
achieved, but actually works against the trader's best laid

That's just one scenario where you could see a Max Pain theory of
$36 see a downside move.

Even with a stock trading at $35.51 in to expiration, with a Max
Pain of $36, doesn't mean the stock can jump to $36.50 as
expiration nears.

A scenario here would be that of a hedge fund manager decided in
January, when the QQQ was trading above $36, that he/she going to
buy the QQQ at $35 in March, should the QQQ pull back to that
level or lower, but wasn't willing, or didn't have the capital at
the time to begin building the bullish position.  So instead,
decided to sell naked (short) the QQQ March $35 puts (QQQOI) for
$0.30 per contract, and sold 50,000 contracts, taking in
$15,000.00 in premium.

If you were the hedge fund manager and had already determined
that you were a buyer of QQQ at $35.00, it might not be beyond
your ability to MANIPULATE things to your liking and come into
the market and begin buying your QQQ position up to $35.30
(you're going to buy it anyway from the naked put sale which
OBLIGATED you to buy it at $35.00 less the $0.30 premium
received) and once you filled your position, perhaps influencing
market participants to drive price higher, you've not only kept
the naked put premium, but the stock and your underlying position
is now working well within your favor.

What can be helpful to know about Max Pain levels is to simply
have an observation of where there is derivative interest that
surrounds a particular price level, which can help a trader or
even an investor understand where they might look for a security
to gravitate toward into expiration, but also understand, or be
prepared when considering entering or exiting a position, how

Remember that Max Pain theory is based on the options market,
which is a derivative, where that very derivative allows for high
amount of leverage.  Its when that leverage suddenly unwinds that
an underlying security's PRICE action can become just so

If you don't see how this can be, you must once again put
yourself in the shoes of an options MARKET MAKER.

Take the last scenario as the example.  If you the market maker
have sold short the to market the March $35 puts and the March
$36 puts, you're happy that QQQ price action is above $35 and
moving higher.  But what are you going to do with about the March
$35 calls, or more importantly the March $36 calls when suddenly,
your book is short 169,323 contracts at an average premium
received of $0.50 and the QQQ is trading $36.50?

There are a lot of things you can do.  You can try and get long
16,932,000 shares of the underlying position, as you being NAKED
the $36 calls has you OBLIGATED to deliver 16.9 million shares
should the QQQ close above the $36 strike on expiration.

Again, if this were a stock, and not the QQQ which does trade
with a high degree of liquidity, getting long (buying) 16.9
million shares the day of, or a couple of days before expiration
could be a big problem, where suddenly, you the MARKET MAKER is
actually driving price action in the market.

Heck, suddenly, you're selling in the money March PUTS at $37,
$38 because you know the more underlying stock you're buying to
fulfill your OBLIGATIONS in the $35 and $36 calls is going to
most likely have YOU, and other market participants driving price

Here you can see how this high degree of leverage, which
surrounds a specific strike price, can suddenly bring a great
amount of price volatility to the underlying security, if price
moves "too far" away from the Max Pain level.

I know this topic is rather complex.  Max Pain isn't a simple, or
cut and dried mathematical theory, that can be thought of as
being highly reliable.  Max Pain levels can work to perfection,
and they can blow up where extreme price volatility away from the
gravitation point is found, should the unwinding of the
derivatives market take place.

The lesson to be learned is to try and understand how the Max
Pain level is derived, and how it can serve as a gravitational
point toward an option expiration.  The other lesson to be
learned is the implications of making big bets into an option
expiration, if you aren't aware of how, or why, price volatility
of securities can be created should a large derivative trade
suddenly unwind.

Jeff Bailey


Earnings Calendar

Symbol  Co               Date           Comment      EPS Est

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

BTH    Blyth Inc.            Mon, Mar 15  Before the Bell     0.75
CTAS   Cintas Corporation    Mon, Mar 15  After the Bell      0.39
DG     Dollar General Corp.  Mon, Mar 15  -----N/A-----       0.34
IMCL   ImClone Systems Inc   Mon, Mar 15  -----N/A-----      -0.32
L      Liberty Media Group   Mon, Mar 15  -----N/A-----       0.05
SRV    Service Corp Intl     Mon, Mar 15  Before the Bell     0.06
THC    Tenet Healthcare      Mon, Mar 15  After the Bell      0.02
UCOMA  UnitedGlobalCom, Inc. Mon, Mar 15  Before the Bell    -0.02
URS    URS Corp.             Mon, Mar 15  After the Bell      0.23

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

ANPI   Angiotech Pharm       Tue, Mar 16  After the Bell     -0.05
CLL    Celltech Group PLC    Tue, Mar 16  02:00 am ET          N/A
FDS    FactSet Research Sys  Tue, Mar 16  -----N/A-----       0.41
GIS    General Mills, Inc.   Tue, Mar 16  Before the Bell     0.66
KBH    KB Home               Tue, Mar 16  After the Bell      1.60
LEH    LEHMAN BROS HLDGS INC Tue, Mar 16  -----N/A-----       1.64
LEN    Lennar Corporation    Tue, Mar 16  After the Bell      0.83
ROST   Ross Stores, Inc.     Tue, Mar 16  08:00 am ET         0.48
SCHL   Scholastic            Tue, Mar 16  After the Bell      0.01

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

BF     BASF                  Wed, Mar 17  01:30 am ET          N/A
BSC    Bear Stearns          Wed, Mar 17  Before the Bell     2.00
BMET   Biomet, Inc.          Wed, Mar 17  Before the Bell     0.33
DRI    Darden Restaurants    Wed, Mar 17  After the Bell      0.45
ERJ    Embraer-Empresa Bras  Wed, Mar 17  After the Bell      0.34
FDX    FedEx                 Wed, Mar 17  Before the Bell     0.67
GPN    Global Payments Inc.  Wed, Mar 17  After the Bell      0.40
MLHR   Herman Miller         Wed, Mar 17  After the Bell      0.11
JBL    Jabil                 Wed, Mar 17  After the Bell      0.22
SQM    Sociedad Quimica      Wed, Mar 17  Before the Bell      N/A
TIBX   TIBCO Software        Wed, Mar 17  After the Bell      0.03
V      Vivendi Universal     Wed, Mar 17  -----N/A-----        N/A
WOR    Worthington Ind       Wed, Mar 17  Before the Bell     0.16

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

COMS   3Com Corp             Thu, Mar 18  After the Bell     -0.13
ADBE   Adobe Systems         Thu, Mar 18  After the Bell      0.40
AAA    Altana AG             Thu, Mar 18  -----N/A-----        N/A
BKS    Barnes&Noble          Thu, Mar 18  Before the Bell     1.65
BAY    Bayer                 Thu, Mar 18  Before the Bell      N/A
CGA    Corus Group plc       Thu, Mar 18  Before the Bell      N/A
ERF    Enerplus Res Fund     Thu, Mar 18  -----N/A-----        N/A
KMRT   Kmart                 Thu, Mar 18  -----N/A-----        N/A
NKE    Nike                  Thu, Mar 18  After the Bell      0.69
PFP    Prem Farnell Plc (ADR)Thu, Mar 18  Before the Bell      N/A
SLR    Solectron             Thu, Mar 18  After the Bell     -0.02
TEK    Tektronix Inc.        Thu, Mar 18  After the Bell      0.25
WSM    Williams-Sonoma       Thu, Mar 18  Before the Bell     0.84
WGO    Winnebago             Thu, Mar 18  Before the Bell     0.46

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

CLC    CLARCOR Inc.          Fri, Mar 19  -----N/A-----       0.45
PAYX   Paychex               Fri, Mar 19  Before the Bell     0.21

Upcoming Stock Splits In The Next Two Weeks...

Symbol  Co Name              Ratio    Payable     Executable

CTX     Centex Corporation        2:1      Mar  12th   Mar  15th
BRL     Barr Pharmaceuticals      3:2      Mar  15th   Mar  16th
ATVI    Activision, Inc           3:2      Mar  15th   Mar  16th
CEC     CEC Entertainment Inc     3:2      Mar  15th   Mar  16th
CLZR    Candela Corp              2:1      Mar  16th   Mar  17th
DCOM    Dime                      3:2      Mar  16th   Mar  17th
GWR     Genesee & Wyoming Inc     3:2      Mar  18th   Mar  19th
XTO     XTO Energy Inc            5:4      Mar  18th   Mar  19th
HBHC    Hancock                   2:1      Mar  18th   Mar  19th
DCI     Donaldson Company, Inc    2:1      Mar  19th   Mar  22nd
NIHD    NII Holdings, Inc         3:1      Mar  22nd   Mar  23rd
ASFI    Asta Funding Inc          2:1      Mar  23rd   Mar  24th
COCO    Corinthian Colleges Inc   2:1      Mar  23rd   Mar  24th
RJF     Raymond James Financial   3:2      Mar  24th   Mar  25th
AMSG    AmSurg Corp               3:2      Mar  24th   Mar  25th
SCHN    Schnitzer Steel Ind, Inc  3:2      Mar  25th   Mar  26th
WGA     Wells-Gardner Elect Corp 21:20     Mar  26th   Mar  29th
HOV     Hovnanian Ent, Inc        2:1      Mar  26th   Mar  29th
MVL     Marvel Enterprises        3:2      Mar  26th   Mar  29th

Economic Reports This Week

Wall Street's main focus this week will be Tuesday's FOMC
meeting but the week is riddled with economic reports that
could move the market in absence of any major headlines.
Earnings warning season is almost upon us.


Monday, 03/15/04
NY Empire State Index(BB)  Mar  Forecast:    38.9  Previous:    42.05
Industrial Production(DM)  Feb  Forecast:    0.4%  Previous:     0.8%
Capacity Utilization (DM)  Feb  Forecast:   76.4%  Previous:    76.2%

Tuesday, 03/16/04
Housing Starts (BB)        Feb  Forecast:   1930K  Previous:    1903K
Building Permits (BB)      Feb  Forecast:   1903K  Previous:    1920K
FOMC Meeting

Wednesday, 03/17/04
CPI (BB)                   Feb  Forecast:    0.3%  Previous:     0.5%
Core CPI (BB)              Feb  Forecast:    0.1%  Previous:     0.2%
Greenspan speaks to banking community.

Thursday, 03/18/04
Initial Claims (BB)      03/13  Forecast:     N/A  Previous:     341K
Leading Indicators (DM)    Feb  Forecast:    0.1%  Previous:     0.5%
Philadelphia Fed (DM)      Mar  Forecast:    29.5  Previous:     31.4
SEMI Book-to-Bill report

Friday, 03/19/04
Wall Street is looking for both the January and February PPI reports
to be released soon.  Both have been delayed and they are tentatively
on the schedule for this Friday.

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

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The Option Investor Newsletter                   Sunday 03-14-2004
Sunday                                                      2 of 5

In Section Two:

Watch List: From A to Z
Dropped Calls: None
Dropped Puts: MMM

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Watch List

From A to Z


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.

American Standard Co - ASD - close: 109.43 change: +0.56

WHAT TO WATCH: We've had ASD on the watch list before but take
extra note of today's entry.  The stock hit new all-time highs on
Tuesday, yes Tuesday while the market was sinking.  Shares did
pull back intraday and eventually bottomed on Friday morning.
Traders stepped in to buy the dip when ASD touched its rising 40-
dma.  The stock hasn't broke its 40-dma since last summer and it
rarely pulls back this far before investors jump in.  We feel
this is a great bullish entry point for a rebound back to the
$115 level and beyond.



Imclone Systems - IMCL - close: 46.51 change: +1.22

WHAT TO WATCH: Shares of IMCL, the biotech stock that's probably
more famous for its connection to the Martha Stewart case than
its Erbitux treatment, is due to report earnings on Monday.  The
stock weathered the recent market weakness very well, which
probably indicates that investors have high hopes for this
quarter's earnings numbers.  The stock is currently trading near
two-year highs just under resistance in the $49-50 range.  Monday
should be volatile with its pre-open earnings report so look for
a breakout over $50.00 or a breakdown under $44.00.



Quest Diagnostic - DGX - close $81.80 change: +0.98

WHAT TO WATCH: The consolidation in shares of DGX appears to be
coming to an end soon.  There is a narrowing pattern of higher
lows and lower highs (a.k.a. a pennant), which just so happens to
be consolidating near its rising 50-dma and the bottom of its
wide rising channel.  We would look for a move over the $83.00
level (maybe 83.50) as a bullish entry point.  There is some
resistance near $86.00 but the top of the channel is
significantly higher.



M D C Holdings - MCD - close: 69.60 change: +2.00

WHAT TO WATCH: MDC is another homebuilder that is really out
performing the market.  Shares recently broke out above
resistance at $65.00 and the pull back to $67 on Wednesday-
Thursday this last week looks like a bullish entry point.  We
would target a move to the $75 level although its P&F chart
suggests a $78 price target.



Zale Corp - ZLC - close: 60.25 change: +1.88

WHAT TO WATCH: Market sell-off?  Correction?  What are you
talking about?  Shares of ZLC are hitting new all-time highs and
they barely dipped through most of this week's weakness.  The
breakout over the $60.00 looks like an entry point.  We'd target
a move to the $64-65 region.  However, take note of its P&F
chart.  The bullish triangle breakout on its P&F chart (not
shown) is one of the most bullish patterns you can play.  Yet at
the same time ZLC has already met its bullish price target of $58
while it has not yet satisfied the average gain from the bullish
triangle breakout formation.  We'd suggest a relatively tight
stop loss.


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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.




3M Company - MMM - close: 76.22 change: +0.87 stop: 77.00

With Thursday's breakdown near the $75 level, MMM was close enough
to our final target of $74, that it only made sense to
aggressively tighten our stop to $77, just over Thursday's
intraday high.  MMM tested the $75 level again on Friday morning
before rebounding steadily throughout the day, ending very near
its high and over the $76 level.  The risk of a further advance
early next week that would take out our stop now seems to outweigh
the potential for a continued decline down to the 200-dma.
Therefore, it makes sense to just book our gains here and let MMM
do as it pleases.  This play took much longer than we expected and
it highlights the importance of buying plenty of time in the
current market environment.  Use any weakness on Monday to exit at
a more favorable level.

Picked on February 15th at    $79.68
Change since picked:           -3.46
Earnings Date                1/20/04 (confirmed)
Average Daily Volume =      2.83 mln
Chart =


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.

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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Almanac this is your chance.

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The Option Investor Newsletter                   Sunday 03-14-2004
Sunday                                                      3 of 5

In Section Three:

Current Calls: AET, ATH, CFC, EBAY, RNR
New Calls: JNPR, LXK, TARO
Current Put Plays: CHIR, ETN, IVGN, UTX
New Puts: None

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Aetna Inc. - AET - close: 84.42 change: +4.77 stop: 79.95*new*

Company Description:
Aetna is one of the nation's leading providers of health care,
dental, pharmacy, group life, disability and long-term care
benefits, serving approximately 13.0 million medical members,
10.9 million dental members, 7.4 million pharmacy members and
12.3 million group insurance customers, as of December 31, 2003.
The company has expansive nationwide networks of more than
600,000 health care services providers, including over 362,000
primary care and specialist physicians and 3,626 hospitals.
(source: company press release)

Why We Like It:
AET has become a symbol of strength.  The stock managed to
weather the market volatility by holding steady above support at
the $80 level for most of March.  It was not until Thursday's
market decline, spurred by the terrorist bombings in Spain, that
AET began to show weakness and closed under the $80 level but
held support at its 21-dma.  Fortunately for shareholders AET
issued a positive preannouncement before the bell on Friday.

The company raised its Q1 earnings guidance from $1.50-1.55 a
share to $1.68-1.73 a share citing stronger trends in membership
growth and margins.  This is above Thomson's consensus estimates
at $1.53 a share.  AET also raised its full year guidance from
$6.25-6.35 to $6.60-6.75 for 2004.  Investors rewarded the stock
with a 5.98% gain on Friday hitting new all-time highs.  There
was no afternoon fade and shares closed near their high for the

AET may be near our initial target price of $85.00 that doesn't
mean the play is over.  Short-term traders can start planning
their exits on a move to $85.00 but there is still a chance to
play AET if the stock dips next week to fill the gap from Friday.
We'd look for a dip to the $82.00 region as an entry point.  If
AET doesn't dip then we'd probably avoid new positions at this
time.  We are going to raise our stop loss to $79.95.

Suggested Options:
We like the April 80's.

! Alert - March Options EXPIRE this Friday!

BUY CALL APR 80*AET-DP OI= 726 at $5.70 SL=3.25
BUY CALL APR 85 AET-DQ OI=3576 at $2.35 SL=1.15

Annotated Chart:

Picked on February 29 at $80.79
Change since picked:     + 3.63
Earnings Date          02/12/04 (confirmed)
Average Daily Volume:       1.2 million
Chart =


Anthem, Inc. - ATH - close: 87.88 change: +1.15 stop: 85.70

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:
It looks like we got a reprieve on our ATH play, as the stock
responded favorably to the broad market rebound on Friday,
popping the stock back over the 10-dma ($87.30, where it spent
the entire day in a very tight range.  Friday's price action is
not what we would have liked to have seen, as if the stock is
still strong, it should have been able to build on its early
gains like the rest of the market did.  Instead, ATH gapped over
up to just under $88 and after the initial volatility subsided,
was never able to get back to that level.  Until we see further
price strength, it is hard to justify new entry points.  A solid
rebound from the 10-dma on Monday could be used for entry, but
our preference would be to enter on a push through Friday's
$88.30 intraday high, preferably on stronger volume.  ATH really
shouldn't be able to trade below Thursday's $86.61 intraday low
if the stock truly has upside potential, so our $85.70 stop
should be safe, especially since it
is now below the 20-dma ($85.73).

Suggested Options:
Shorter Term: The March $85 Call will offer short-term traders
the best return on an immediate move, but with March options
expiring next week, the better choice for is the April $85

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

! Alert - March options expire next week!

BUY CALL MAR-85 ATH-CQ OI=6251 at $3.40 SL=1.75
BUY CALL APR-85 ATH-DQ OI=2591 at $4.60 SL=2.75
BUY CALL APR-90*ATH-DR OI=1241 at $1.85 SL=0.90
BUY CALL JUN-90 ATH-FR OI=1245 at $3.70 SL=2.25

Annotated Chart of ATH:

Picked on February 26th at   $85.37
Change since picked:          +2.51
Earnings Date               4/28/04 (unconfirmed)
Average Daily Volume =     1.44 mln
Chart =


Countrywide Financial - CFC - cls: 93.37 chg: +1.45 stop: 90.00

Company Description:
Founded in 1969, Countrywide Financial Corporation is a member of
the S&P 500, Forbes 500 and Fortune 500. Through its family of
companies, Countrywide provides mortgage banking and diversified
financial services in domestic and international markets.
(source: company press release)

Why We Like It:
It was not the best week performance-wise for CFC but the pull
back is offering traders another chance at an entry point.  A
week ago Friday CFC gapped higher on the weak jobs report and the
subsequent rally in the bond market (and drop in mortgage rates).
Shares have since filled the gap while weathering the market's
recent sell-off.  The good news is that CFC was able to hold
support above the $90.00 level.  We're bullish on the mortgage
lenders given the sharp drop in rates and the expectation that
the Fed will remain on hold for the next several months if not
the rest of the year.  CFC recently announced strong February
lending numbers and we expect that March will be similar.
Our target remains the $100 level and we'll leave our stop loss
at $90.00.

Suggested Options:
Our favorite strikes are the April 90's.  Be careful.  There are
some odd option symbols floating around due to CFC's recent stock
split.  Be sure you check the correct symbols with your broker.

! Alert - March Options EXPIRE this Friday!

BUY CALL APR 90*CFC-DR OI=  666 at $6.30 SL=3.85
BUY CALL APR 95 CFC-DS OI= 1088 at $3.60 SL=1.85

Annotated Chart:

Picked on February 24 at $91.63
Change since picked:     + 1.74
Earnings Date          01/27/04 (confirmed)
Average Daily Volume:       2.3 million
Chart =


eBay Inc - EBAY - close: 69.13 chg: +1.69 stop: 66.50

Company Description:
eBay is The World's Online Marketplace.. Founded in 1995, eBay
created a powerful platform for the sale of goods and services by
a passionate community of individuals and businesses. On any
given day, there are millions of items across thousands of
categories for sale on eBay. eBay enables trade on a local,
national and international basis with customized sites in markets
around the world. Through an array of services, such as its
payment solution provider PayPal, eBay is enabling global e-
commerce for an ever growing online community.
(source: company press release)

Why We Like It:
Kudos to the brave traders who bought the dip to EBAY's 50-dma.
Thursday's sell-off in the markets was pretty demoralizing and in
Thursday's update we suggested more aggressive traders use the
dip as an entry point but that the rest of us are probably better
off waiting for EBAY to trade back above the $70 mark.  Hopefully
we'll see the Internet powerhouse back above the $70 level soon.
The stock has been flexing its relative-strength muscles and
weathered the recent decline pretty well.  Its technicals are
mixed but its P&F chart remains bullish (and pointing toward a
$97 price target).

We're certainly encouraged by EBAY's bounce above the 50-dma,
which is actually another new higher low and we're still
targeting a move to $77.50.  No change in our stop loss.

Suggested Options:
Short-term traders should probably choose from the April or July
strikes but July seems a ways off yet.  We're going to select the
April 70's although the April 65's look pretty tempting too!

! Alert - March Options EXPIRE this Friday!

BUY CALL APR 65.00 XBA-DM OI=17693 at $5.20 SL=3.00
BUY CALL APR 67.50 XBA-DU OI= 7854 at $3.60 SL=1.80
BUY CALL APR 70.00 XBA-DN OI=16674 at $2.30 SL=1.15
BUY CALL APR 72.50 XBA-DV OI= 5714 at $1.30 SL=0.65

Annotated Chart:

Picked on March 09 at $ 70.05
Change since picked:   - 0.92
Earnings Date        04/20/04 (unconfirmed)
Average Daily Volume:     7.0 million
Chart =


Renaissancere Ltd - RNR - close: 53.86 chg: +0.01 stop: 52.00

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:
Psst!  Someone tell RNR that the market rallied on Friday.  We
were pretty impressed with RNR's relative strength through most
of last week.  The stock held support at the $53.50 level despite
painful drops in the major averages and the IUX insurance index.
Unfortunately, RNR failed to rally on Friday with the rest of the
market.  Its technical picture is mixed with the MACD turning
bearish and its shorter-term oscillators like the RSI and
stochastics hinting at bullish moves.

We hesitate to recommend new bullish positions because the stock
is stuck halfway between our entry and exit points.  Should RNR
pull back then traders may want to consider initiating positions
on a bounce above the $52.00 level.  Hopefully the 52.50 region
since our stop loss is at $52.00.  Maybe the rebound in the IUX,
if it continues, can reawaken the bulls in RNR.

Suggested Options:
RNR is pretty close to our planned exit point so we're not
suggesting new entries at this time.

! Alert - March Options EXPIRE this Friday!

Annotated chart:

Picked on February 15 at $50.83
Change since picked:     + 2.03
Earnings Date          02/03/04 (confirmed)
Average Daily Volume:       238 thousand
Chart =


Juniper Networks - JNPR - close: 25.81 chg: +1.20 stop: 23.64

Company Description:
Juniper Networks transforms the business of networking by
converting a commodity -- bandwidth -- into a dependable, secure
and highly valuable corporate asset. Founded in 1996 to meet the
stringent demands of service providers, Juniper Networks is now
relied upon by the world's leading network operators, government
agencies, research and education institutions, and information-
intensive enterprises as the foundation for uncompromising
networks. The Infranet Initiative uses Juniper Networks MINT
(Model for Infranet Transformation) as its underlying framework.
Juniper Networks is headquartered in Sunnyvale, California.
(source: company press release)

Why We Like It:
We've had our eye on JNPR for a long time.  Ever since the stock
gapped higher on its impressive January earnings report we've
been watching it for the right entry point.  We think this may be
it.  The pull back to $24.00 (actually 23.64) has essentially
filled the gap from January.  However, what's really impressive
is JNPR's relative strength this last week.  When the markets
were falling on Tuesday, Wednesday, Thursday shares of JNPR were
inching higher.  When the markets rebounded on Friday JNPR broke
out above its descending trendline of resistance, the $25.00
level and its simple 50-dma.  Boosting the stock and the sector
were positive comments from S&P.  On Wednesday a Reuters article
mentioned the recent credit upgrades by Standard & Poor's for
Lucent and Alcatel as signs of a new (bullish) beginning for the
telecom/networking sector.

Short-term technicals on JNPR are bullish and its MACD is close
to painting a new buy signal.  We like the stock at current
levels and plan to target a move back to $30.00.  We'll initiate
the play with a stop loss under the recent low.

Suggested Options:
Short-term traders can choose the April or July options.  We're
going to suggest the April 22.50s as our favorite but the 25's
look good too.

BUY CALL APR 22.50*JUX-DX OI= 5228 at $4.10 SL=2.05
BUY CALL APR 25.00 JUX-DE OI=30231 at $2.50 SL=1.25
BUY CALL JUL 25.00 JUX-GE OI=11815 at $3.80 SL=1.75

Annotated chart:

Picked on March 14 at $ 25.81
Change since picked:   + 0.00
Earnings Date        04/21/04 (unconfirmed)
Average Daily Volume:    15.7 million
Chart =


Lexmark Intl. - LXK - close: 85.77 change: +3.92 stop: 80.75

Company Description:
Wrapping its arms around the entire life-cycle of printers, LXK
develops and manufactures a broad range of laser, inkjet and dot
matrix printers for the office and home markets.  The company is
also the exclusive source for new print cartridges for the laser
and inkjet printers it manufactures.  Additionally, LXK provides
supplies for IBM printers and offers after-market laser
cartridges for the large installed base of a range of laser
printers sold by other manufacturers.

Why we like it:
If there was any doubt as to who is the leader in the computer
printer industry, the price action of LXK should remove any
doubt.  After breaking out to new all-time highs last fall, the
stock has been steadily working its way higher, regularly using
the 50-dma (now at $81.72) as key support, just before launching
to new highs.  Following its January earnings report, the stock
launched to new highs again, hitting an intraday peak of $86.72.
After a few weeks of consolidation, LXK succumbed to some orderly
profit taking, which led price down to the 50-dma once again.
The stock has been climbing along that average for the past few
weeks and then rocketed higher on Friday to the tune of 4.78% on
volume well over double the daily average.  LXK couldn't break
its all-time high, but it looks very close to doing so and
another bullish day in the broad market just might provide the
necessary boost.

Taking a quick look at the PnF chart shows just how constructive
the chart pattern has been over the past several months.  Each
pullback finds solid support right at the bullish support line,
with the most recent test being the rebound from the 50-dma last
week.  Friday's rally generated a double top Buy signal, that
carries with it a vertical price target of $97.  But the real
clincher will come with a trade at $87, which will deliver a
triple top Buy signal.  We want to wait for that level to be
traded before jumping into the play, so we're going to set an
entry trigger at that level.  Due to the strength of the chart
pattern, our preferred entry strategy will be on the initial
breakout.  More conservative traders may be able to gain a better
entry on a subsequent pullback to test support at former
resistance near $85.  Place stops initially at $80.75, just under
last Tuesday's intraday low and the 50-dma.

Suggested Options:
Shorter Term: The March $85 Call will offer short-term traders
the best return on an immediate move, but with March options
expiring next week, the more prudent choice would be the April
$85 Call.

Longer Term: Aggressive longer-term traders can use the April $90
Call, while the more conservative approach will be to use the
April $85 strike.  Traders looking for even more insulation
against time decay will want to focus on the July strike.  Our
preferred option is the April $85 strike, which is at the money
and should provide sufficient time for the play to move in our

! Alert - March options expire next week!

BUY CALL MAR-85 LXK-CQ OI=1123 at $1.80 SL=1.00
BUY CALL APR-85*LXK-DQ OI=1214 at $3.40 SL=1.75
BUY CALL APR-90 LXK-DR OI=1428 at $1.25 SL=0.60
BUY CALL JUL-90 LXK-CQ OI=1125 at $4.10 SL=2.50

Annotated Chart of LXK:

Picked on March 14th at      $85.77
Change since picked:          +0.00
Earnings Date               4/19/04 (unconfirmed)
Average Daily Volume =        912 K
Chart =


Taro Pharma. - TARO - close: 61.85 chg: +1.06 stop: 59.00

Company Description:
Taro is a multinational, science-based pharmaceutical company
dedicated to meeting the needs of its customers through the
discovery, development, manufacturing and marketing of the
highest quality healthcare products.
(source: company press release)

Why We Like It:
The market-wide sell-off this last week was pretty sharp but it
hit the Drug sector exceptionally hard.  The DRG index fell very
sharply before finding support at its simple 200-dma.  We feel
that the move here is overdone and offers traders a chance to
capture a good chunk of the oversold bounce in the next couple of
weeks.  What attracted us to TARO was its relative strength to
its peer group.  Yes, it did slide lower with the rest of the
drug sector but the slide wasn't that sharp.  Plus, investors
stepped in to buy the dip at $59.00.  This is very close to its
January 2003 low, which also happens to be near its simple 200-
dma, which also happens to be at its rising P&F chart support
line.  With all of this support for the stock and its high volume
rebound TARO could be a leader in a group that looks ready to
bounce back.

Technically TARO looks good short-term.  Its RSI and Stochastics
are bullish. We'll probably see its MACD catch up soon enough.
We're obviously expecting a bounce from the P&F support line.
Unfortunately, TARO does have some overhead resistance.  It still
has to deal with the simple 50-dma just overhead and there is a
descending trendline from the December and February highs that
could come into play near the $65 level.  Short-term traders may
want to target an early exit near $65.00.  We're going to look
for a move in the $66-68 range.  Our initial stop is $59.00.

Suggested Options:
Short-term traders can use the April and July options.  Our
favorite is the April 60's.

BUY CALL APR 60*QTT-DL OI= 204 at $4.10 SL=2.05
BUY CALL APR 65 QTT-DM OI= 280 at $1.55 SL=0.80
BUY CALL JUL 65 QTT-GM OI= 123 at $3.80 SL=1.90

Annotated chart:

Picked on March 14 at $ 61.85
Change since picked:   + 0.00
Earnings Date        02/17/04 (confirmed)
Average Daily Volume:     284 thousand
Chart =

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Chiron Corp - CHIR - close: 47.77 chg: +0.27 stop: 49.40*new*

Company Description:
Chiron Corporation, headquartered in Emeryville, California, is a
global pharmaceutical company that leverages a diverse business
model to develop and commercialize high-value products that make
a difference in people's lives. The company has a strategic focus
on cancer and infectious disease. Chiron applies its advanced
understanding of the biology of cancer and infectious disease to
develop products from its platforms in proteins, small molecules
and vaccines. The company commercializes its products through
three business units: BioPharmaceuticals, Vaccines and Blood
Testing. (source: company press release)

Why We Like It:
It has been a painfully slow decline for CHIR but the stock is
moving in the right direction.  Traders are still using the
simple 10-dma as the pressure point to sell the stock and when
the occasional rally surfaces they use the simple 21-dma.  We're
going to lower our stop loss from above round-number
psychological support at $50.00 to just above the 21-dma at
$49.40.  If you can handle the extra risk the better stop is
probably above the $50 mark.

If you're losing enthusiasm for CHIR check out its weekly chart.
It shows the breakdown under the $50.00 mark with more clarity
than the daily chart.  We're a little disappointed that CHIR
didn't fall faster this last week with the BTK dropping along
with the broader-market indices.  Now that the BTK has stalled at
support near its own 50-dma we'd expect a bounce in the group.
This will probably take CHIR back toward its own 10 or 21-dma's.
Another failed rally under $49 is probably a decent entry point.
We're still targeting a move to the $45-44 levels.

Suggested Options:
We're going to select the April 50 puts as our favorite.

! Alert - March Options EXPIRE this Friday!

BUY PUT APR 50.00*CIQ-PJ OI=2489 at $3.20 SL=1.60
BUY PUT APR 47.50 CIQ-PT OI=2475 at $1.65 SL=0.85
BUY PUT APR 45.00 CIQ-PI OI= 255 at $0.75 SL= --

Annotated Chart:

Picked on February 24 at $49.11
Change since picked:     - 1.34
Earnings Date          01/28/04 (confirmed)
Average Daily Volume:       1.7 million
Chart =


Eaton Corp. - ETN - close: 56.05 change: +1.23 stop: 58.50

Company Description:
Eaton Corporation is a global diversified industrial manufacturer
with businesses in fluid power systems, electrical power quality,
distribution and control, automotive engine air management and
fuel economy and intelligent truck systems for fuel economy and
safety.    The principal markets for the company's Fluid Power,
Automotive and Truck segments are original equipment
manufacturers and after market customers of heavy-, medium- and
light-duty trucks, passenger cars, off-highway vehicles,
industrial equipment, and aerospace products and systems.  The
principal markets for the company's Industrial and Commercial
Controls segment are industrial, construction, commercial,
automotive and government customers.

Why we like it:
Playing right into our hands, ETN staged a nice rebound on
Friday, following Thursday's sharp selloff that violated the 100-
dma for the first time since last April.  We were actually hoping
for an oversold rebound to give us a better entry point before
the slide continues down towards our target at the 200-dma
($49.27).  Looking at the daily chart, we can see that there
should be strong resistance at the $56-57 area, with initial
resistance provided by the top of the gap from early January that
last week's selling frenzy sliced through like a hot knife
through butter.  That resistance will be reinforced by the
falling 10-dma ($57.81), which has now strongly broken the 50-dma
($58.52) and should be strong resistance on successive rally
attempts.  Our chosen entry strategy is on a failed rally in the
$56-57 area and from the looks of Friday's bounce, we could see
that satisfied ahead of Tuesday's FOMC meeting.  More
conservative traders may want to wait until after the post-FOMC
volatility to settle out before playing.  Momentum traders will
need to see price break under $54.75 before taking a position.
We initially placed our stop at $58.50 and in retrospect, that
seems a bit too close.  So we're going to raise it to $58.75 this
weekend so that the 50-dma and resistance at Thursday's morning
high ($58.70) can provide some protection.

Suggested Options:
Aggressive short-term traders can use the March 55 Put, but with
March options expiring next Friday, time decay will be a problem.
Those with a more conservative approach will want to use the
April 55 put.  Aggressive traders looking for more insulation
against time decay will want to utilize the April 52 strike.  Our
preferred option is the April 55 strike, as it is currently at
the money and should provide ample time for the play to move in
our favor.

! Alert - March options expire next week!

BUY PUT MAR-55 ETN-OK OI= 660 at $0.45 SL=0.20
BUY PUT APR-55*ETN-PK OI= 113 at $1.45 SL=0.75
BUY PUT APR-52 ETN-PX OI=  74 at $0.75 SL=0.40

Annotated Chart of ETN:

Picked on March 11th at       $54.82
Change since picked:           +1.23
Earnings Date                1/21/04 (confirmed)
Average Daily Volume =      1.14 mln


Invitrogen - IVGN - close: 69.20 chg: +1.94 stop: 71.01

Company Description:
Invitrogen Corp. provides products and services that support
academic and government research institutions and pharmaceutical
and biotech companies worldwide in their efforts to improve the
human condition. The company provides essential life science
technologies for disease research, drug discovery and commercial
bio-production. Invitrogen's own research and development efforts
are focused on breakthrough innovation in all major areas of
biological discovery including functional genomics, proteomics,
bio-informatics and cell biology -- placing Invitrogen's products
in nearly every major laboratory in the world. Founded in 1987,
Invitrogen has headquarters in Carlsbad, Calif., and conducts
business in more than 70 countries around the world. The company
globally employs approximately 3,000 scientists and other
professionals. (source: company press release)

Why We Like It: (Original Update from Thursday)
The trend changed for IVGN in mid-February.  Actually it was
February 12th, the day of its earnings report.  The stock enjoyed
a great pre-earnings run up boosted by gains in the broader
market.  IVGN beat earnings by 2 cents and announced a debt
offering of $450 million in convertible notes due 2024 to payoff
their notes due in 2007.  Something didn't sit well with
investors.  It was either the normal post-earnings depression or
the debt sale or something else but shares of IVGN couldn't turn
around.  There was a brief bounce at its simple 50-dma but the
bounce was rather flat.  In the last four sessions we've seen
IVGN break support at its simple 100-dma and the psychological
and historical support at $70.00 on better than average volume.

Considering the stock's run from March of last year there is
still plenty of profit on the table and IVGN looks vulnerable
toward its December lows near $63.00 and quite possibly its
simple 200-dma near $60.00.  Its P&F chart is on a sell signal
that points to the $63.00 level so we'll make that our initial
target.  We'll start the play with a stop loss at $71.01 but more
conservative traders can probably use a tighter stop just north
of $70.  We would open positions at current levels but failed
rallies under $69.50 will also work.

The IVGN rebound on Friday looks more like an oversold bounce
than anything else.  Shares failed to close over its simple 100-
dma and failed to close over round-number psychological
support/resistance at $70.00.  Look for a roll over under the $70
mark to initiate new positions.

Suggested Options:
We would suggest the April of May puts.  Our favorite would be
the April 70's.

BUY PUT APR 70*IUV-PN OI= 176 at $4.00 SL=2.00
BUY PUT APR 65 IUV-PM OI= 401 at $1.85 SL=0.95
BUY PUT APR 60 IUV-PL OI= 132 at $0.80 SL= --
BUY PUT MAY 70 IUV-QN OI=1047 at $5.20 SL=3.20
BUY PUT MAY 65 IUV-QM OI= 731 at $3.00 SL=1.50

Annotated Charts:

Picked on March 11 at $ 67.26
Change since picked:   + 1.94
Earnings Date        02/12/04 (confirmed)
Average Daily Volume:     910 thousand
Chart =


United Technologies - UTX - cls: 87.35 chg: +1.72 stop: 89.51

Company Description:
Based in Hartford, Conn., United Technologies Corp. provides high
technology products and support services to the commercial
building and the aerospace industries through its seven
companies: Otis Elevator, Carrier heating and air conditioning,
Chubb security, UTC Power, Pratt & Whitney jet engines, Hamilton
Sundstrand aerospace systems and Sikorsky helicopters.
(source: company press release)

Why We Like It:
Uh-oh!  UTX didn't quite make it to our target of $83.50 near its
simple 200-dma.  The market rebound on Friday was impressive,
albeit on low volume, and with the Dow up 111 points UTX couldn't
help but rally with it.  We believe that UTX still looks bearish
and there's been a definite change in the trend.  Yet the stock
is so short-term oversold it could rebound to its simple 10-dma
near $89.25 before rolling over again.  That's almost $2.00 from
the current level.  It's up to the trader on whether or not they
want to endure that kind of volatility in their options or
whether they want to exit now and look for another failed rally
near $89 as another entry point.  As a newsletter we're not
designed to just jump in an out so quickly but you the reader
can.  Unfortunately, that does involve more broker fees for each
trade.  Now we could be overly cautious here and if UTX doesn't
break above the $88 level we'll feel more secure.

Suggested Options:
Short-term traders can probably benefit using the April or
May strikes.  Our choice is the April 90's.

BUY PUT APR 85 UTX-PQ OI= 900 at $1.70 SL=0.85
BUY PUT APR 90*UTX-PR OI= 605 at $4.20 SL=1.99
BUY PUT APR 95 UTX-PS OI=  99 at $8.20 SL=5.35
BUY PUT MAY 90 UTX-QR OI=1181 at $5.30 SL=3.25
BUY PUT MAY 85 UTX-QQ OI=2103 at $2.80 SL=1.35

Annotated chart:

Picked on March 09 at $ 88.75
Change since picked:   - 1.40
Earnings Date        01/20/04 (confirmed)
Average Daily Volume:     2.3 million
Chart =



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The Option Investor Newsletter                   Sunday 03-14-2004
Sunday                                                      4 of 5

In Section Four:

Leaps: Fear Makes A Cameo Appearance

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Fear Makes A Cameo Appearance
By Mark Phillips

Wow, that was an exciting week!  I had to actually check the date
and make sure I hadn't traveled back in time.  We haven't seen
that kind of strong directional movement in the broad market since
the launch of the bottom last March.  We haven't seen that kind of
action on the downside since January of 2003.  I obviously wasn't
the only one surprised by the extent of the moves, as that fact is
clearly borne out by the sharp rise in the volatility indices.

At the close on Thursday, the VIX ended over 20 for the first time
since early October and the VXO (old VIX) ended over 21.  Just in
case we might have gotten excited and thought wide range days were
here to stay, volatility collapsed on Friday, completely erasing
the rise in fear on Thursday.  But it was nice just the same to
see fear make a cameo appearance, if only for a brief moment in
time.  Please understand, I don't root for the market to fall -- I
really couldn't care less whether it rises or falls -- but I do
care about what last week's price action suggests.

Namely that the "bullish, buy everything on any dip" spell has
been broken.  It may be a bit pollyannish of me, but it is my hope
that this broken spell will mean a return to normal range action
in the equity markets, which provide more frequent opportunities
for capable traders.  But we're focused on the longer-term picture
here in LEAPS-land, so why don't we take a picture at the big
picture and see what we can learn.

One final note on the VIX/VXO action from the past two days.  Note
that Friday's drop in the fear indices completely erased the
panicky rise from Thursday.  What's interesting about it is that
the price rise in the DOW/SPX/OEX did NOT recoup all of Thursday's
losses.  To me that is an indication that last week's spike in
volatility may be a fluke, rather than the beginning of a return
to normalcy.  As the saying goes, one day does not make a trend
and the real answer will be provided by price action we can't yet
see.  But let's leave our discussion of the volatility moves last
week with a suspicious attitude.  Until we see a SUSTAINED move
over the 20-22 area, I think it's safe to say that nothing has
really changed.

On the candle charts, last week was painful and we now have
confirmed Sell signals on the weekly charts, with both MACD and
Stochastics in clear bearish alignment on the DOW, S&P 500, S&P
100, NASDAQ Composite and NASDAQ-100.  There was some serious
technical damage done too, with the DOW breaking its 100-dma and
the NASDAQ Composite breaking under 2000.  Interestingly, the S&P
500 found support at its 100-dma and the S&P 100 bounced exactly
on its 100-dma.  Despite the strong rebound on Friday, strong
support is still well below Friday's bounce point.

For the DOW, strong support isn't seen until the 9800 level, with
the 200-dma (9760) rising to reinforce that level.  On the S&P
500, corresponding strong support is at 1070 with the 200-dma down
at 1050.  On the sister S&P index, the OEX eyes $525-530 as key
support, with the 200-dma at $523.  Strong support is much closer
for the NASDAQ indices, which makes sense given that they've been
declining longer than the DOW or S&Ps.  For the COMPX, strong
support looks like 1900, with the 200-dma at 1876 and for the NDX,
support looks strong in the 1360-1380 area, with the 200-dma right
in the middle at 1372.

In short, last week was a painful (but much needed) correction to
the still ongoing cyclical bull market and there's nothing to
suggest that picture has changed.  We'd need to see those support
levels listed above violated and then provide resistance on
subsequent rally attempts to play requiem for the bull.  At least
that's my subjective view.  Now let's turn to a less biased judge,
the PnF charts to see if I'm standing in quicksand.

First up is the DOW and its PnF chart put in a big Sell signal
last week.  Taking the vertical count off that decline produces a
downside target of 9500, which is right at the bullish support
line.  That means that even after hitting a low just over 10,100
on Thursday, the DOW can fall another 600 points before the PnF
chart will change its bullish view.  The Bullish Percent chart has
a similarly sanguine view, with the drop to 80% still deep in
overbought territory and the status still Bull Correction.

Next up is the S&P 500, which shows a very different picture.
Because of the different nature of its price rise from late last
year, this market is still on a strong PnF Buy signal and it would
currently take a break below -- drumroll, please -- 1010 to give
us a fresh Sell signal.  Clearly that could change depending on
the nature of the near-term consolidation, but there's nothing to
worry about in terms of the big picture.  That view is reinforced
by the BP chart, which is also in bull correction deep in
overbought territory at 79.40%.

Turning to the NASDAQ-100, we see a different picture, which is
what we should expect, given that it has seen a more protracted
and deeper pullback than the other indices.  It's pertinent PnF
Sell signal came back in late February when price first fell under
the 1460 level.  That Sell signal corresponded to a bearish price
target of 1390, which at the time was right at the bullish support
line.  With the passage of time and several price reversals, the
bullish support line at 1420 was actually broken on Thursday's
decline, but the 1390 price objective is still valid.  Clearly
this is the weakest of the indices we've looked at and the BP
chart bears that out, with a very clear bear confirmed status at
43%.  Last week's drop in the bullish percent is currently testing
the bullish support line, which has been in place since October of
2002.  I can still make an argument for more downside in the NDX
(and by association the COMPX), but you'll notice that price is
still holding above both the PnF price objective and my own gauge
of support in the 1360-1380 area.

In all of that analysis, we can see nothing that tells us the end
of the bull is nigh, except perhaps for the NDX breaking its
bullish support line and being in bear confirmed status.  But at
42%, the NDX is very close to oversold in a BP sense and with
price still holding in a bullish pattern above the 200-dma, we
could actually view this as a sort of bullish divergence.  Despite
the sharp increase in fear as measured by the volatility indices,
we only witnessed a normal retracement in a dominant bull market.
The bears FINALLY won a victory in what has been a very rough year
for them.  If they want to win the war, there is still a LOT of
work to do.

What this tells me is that we had a very healthy rebound in fear,
which should eventually produce the next wall of worry for the
bulls to climb.  This pullback should be viewed as a gift by long-
term traders.  I don't think we've seen the bottom of this
decline, but in the weeks ahead, we ought to be rewarded with some
dynamite bullish entry points ahead of the next upward leg.  I do
not view last week's drop as an invitation to build long-term
short positions.  That time will come soon enough, but it is not
upon us right now.

Now it's time to delve into our list of plays and see what
surprises last week's volatility provided.  Due to the number of
new plays this week, I've kept my rambling commentary to a
minimum.  Alright, let's go.


SMH - Last week's meltdown across the entire market had the
Semiconductor index falling right to critical support at $475,
with the SMH matching that decline and testing key support at
$38.50.  Friday's rebound gave the bulls a reprieve, with support
holding and the SMH recovering back towards the $40 level.  Over
the past couple months, SMH has been trading in a broad descending
channel, with last week's rebound making perfect sense, as it
commenced from the bottom of that channel.  Turning to the PnF
chart, we can see another reason for the rebound, as a trade at
$38 would generate a fresh PnF Sell signal.  For now, we remain in
a bearish trend and we'll stick with it until that ceases to be
the case or until we see a real meltdown to hit what should be
solid support in the $34-35 area.  Note that even after cracking
$38, we'll have to contend with potential support at the 200-dma
at $37.63.  With the weekly Stochastics having made a lot of
progress towards oversold territory, I'm not very enthusiastic
about new entries into the play.  We've taken our position and now
we'll let the market prove whether we were correct or not.  Lower
stops to $42.50, which is just over both the top of the channel,
and the 50-dma.

NEM - As the dollar continues its recovery against foreign
currencies, the price of gold has continued to languish just above
$390 support.  The more critical level is the 200-dma about $10
lower.  At the same time, the XAU index continues to meander in
its own trading range, which is just a bit over strong support in
the $93-94 area, also the site of the 200-dma.  NEM is working on
its own consolidation in the $41-44 area, as the 200-dma continues
to rise to meet price.  Throughout the sector, price continues to
hold just above support, as consolidation continues ahead of the
next leg of the gold bull market.  Dips into the $40-41 area still
look attractive for new entries while we wait for the next bullish
move to arrive.

HD - After just kissing the top of its long-term descending
channel, HD headed south all week, coming to rest at $36, which is
now right at the bottom of the short-term rising channel, which I
have so far interpreted as a bear flag.  Something will have to
give soon.  Either HD will continue up in the rising channel and
break out over the top of the long-term descending channel, or it
will obey the longer-term channel and confirm my bear flag
interpretation by breaking down below its 100-dma ($35.88) and
taking aim at next support at the 200-dma.  With this week's
decline, we can see the weekly Stochastics hinting at a bearish
rollover, so everything is still intact for a nice downside move.
Now we just wait for it to unfold.  Another rollover from the top
of the declining channel (now at $37.25) still looks favorable for
new entries.

MLNM - It was a rough week in every sector of the market and
Biotechs were not immune.  In response to the sharp 4-day drop in
the BTK index, MLNM declined back to strong support at the
ascending trendline near $17, helping the stock to rebound off its
lows to close back over both the trendline and the 100-dma.
Traders that missed getting an entry on the last dip appear to be
getting another chance here.  Those with a more conservative
approach may want to wait for a break back over near-term
resistance at $17.80 before entering the fray.  MLNM is still in a
a broad consolidation that has been building for the past 3 months
and it will take a breakout over $20 to turn the picture more
bullish.  But I do like the way the stock continues to bounce near
$17, confirming that old resistance is new support.

CHK - No sector was immune from the broad market selloff last week
and Energy stocks declined with the rest.  CHK rolled over after
the prior week's test of the broken rising channel and then
plunged back to its 100-dma where it found strong support for
Friday's rebound that took it back up to the 50-dma.  The stock
appears to be building a new rising channel, just below the one
that broke in late January.  With weekly Stochastics turning a
clean bullish reversal above oversold territory, the bullish case
is very much intact technically and the fundamental picture
remains as strong as ever with the front month Natural Gas
contract once again breaking out to new highs.  Successive dips
near the bottom of the new channel (now at $12.50) look favorable
for new entries if you missed your shot on the dip to $12 a couple
weeks ago.

Watch List:

SNDK - Last week's broad-market selloff worked to our advantage,
as it drove SNDK right down into the midst of our $25-26 entry
zone early on Thursday, with a rebound to the top of that zone by
the end of the day.  That looked good for an entry and it was
confirmed on Friday with the strong rally back over $27.  SNDK
moves to the Portfolio this weekend.

LUV - Well, I may have jumped the gun, but I think this is good
enough for an entry point.  LUV's kiss of the $14 level and slight
rebound on Tuesday satisfied our entry requirement, although more
conservative traders will want to wait for the dip under that
level to resolve itself with a fresh breakout above $14 before
playing.  LUV moves to the Portfolio this weekend as well.

TYC - The bearish pressures last week were enough to drop TYC
halfway to our goal, as the stock pulled back from the top of its
rising channel to the midline near the 50-dma, hitting an intraday
low of $27.69 on Thursday.  But the bulls bought the dip too soon
for our purposes and TYC rebounded nearly $1 on Friday.  TYC
should provide a better entry point before we're tempted into the
play though and the $26 level looks as good as ever, as it is just
above the bottom of the channel and the 100-dma.  It's unlikely
that the broad market will just rocket back to its highs and TYC
should provide the entry we're looking for in the weeks ahead.

Radar Screen:

WMB - Alright now that's more encouraging!  It looks like WMB is
starting to roll over again on the weekly Stochastics and that
probably means a solid break of the 200-dma and a test of stronger
support down in the $6-7 area.  I know what you're thinking..."Is
He Nuts??"  No, just patient.  You see the February dip to $8.50
put WMB on a PnF Sell signal and now I want to see that bearish
move run its course.  The bearish price target right now is $5.50
and at this point I think it will be interesting and educational
to see if the stock can actually get there.  I'm in no hurry to
buck the current trend as depicted by both the PnF chart and
weekly Stochastics and you shouldn't be either.  But once it has
run its course, I like the prospects for WMB to make a move back
over $11 and up to test strong resistance near $15.

APA - Talk about your volatile price action!  APA has been all
over the map in the brief span of time we've been talking about
it.  First reversing back up from the 100-dma, the stock made it
all the way up to set a fractionally higher all-time high and then
headed back into the middle of that range last week.  Proving they
hadn't given up, the bulls staged an impressive rebound on Friday
and it looks like we're headed back up.  Of course, natural gas
prices charging to new highs certainly haven't helped!  I still
feel that if we're going to play in this arena, we're going to
need to see a larger pullback to strong support first.  A test of
the 200-dma down near $26 looks pretty attractive.  The problem is
that a trade at $36 would represent a new PnF Sell signal.  What
to do...  Wait for now, but I'm thinking of adding APA to the
Watch List next weekend, using an entry target at $37.

GM - The selling party in the broad market last week smashed GM
through its 100-dma, doing so on strongly increasing volume.  This
looks like the beginning stages of a major decline.  But, and you
knew there had to be a but, right?  Weekly Stochastics are far
below their last low, while price is well above their previous
low.  If you're thinking bullish divergence, you're on the right
track.  It isn't there yet, but we just might see price stabilize
above the 200-dma and head right back to the top of the long-term
descending channel.  Let's see just what price action has in store
in the weeks ahead and use that data to make an informed decision
on what to do about GM.

Closing Thoughts:
I'll be honest -- I actually cheered for last week's meltdown in
the broad market.  Not because I wish bad things for the market,
but because we were so ridiculously overdue for a meaningful
correction in this year-long bull move.  The market has provided
scant opportunities to enter long-term plays over the past year,
and last week was one of those rare opportunities.  Is the market
still overvalued?  Absolutely!  Is it likely to continue rising
for much of 2004?  I believe so.  There are many factors to the
overall action in the equity market that we've been discussing in
recent weeks and those will each have their day in the sun over
the coming months.  For now, we need to keep our eye on the ball
and take advantage of these buying opportunities when they come

Have a great week!


LEAPS Portfolio

Current Open Plays

LEAPS Watchlist

Current Possibles


TYC    03/07/04   $26-27       JAN-2005 $ 30  ZPA-AF
                            CC JAN-2005 $ 25  ZPA-AE
                               JAN-2006 $ 30  WPA-AF
                            CC JAN-2006 $ 25  WPA-AE
                            PP JUL-2004 $ 25  TYC-SE
EBAY   03/14/04   $67          JAN-2005 $ 70  ZQX-AN
                            CC JAN-2005 $ 65  ZQX-AM
                               JAN-2006 $ 70  YEU-AN
                            CC JAN-2006 $ 65  YEU-AM
                            PP JUL-2004 $ 60  XBA-SL


New Portfolio Plays

LUV - Southwest Airlines $14.10  **Call Play**

Helping to solidify bearish sentiment last week, the Dow
Transports absolutely cratered, busting below $2800 before coming
back with a vengeance on Friday.  Throughout the volatile ride,
the Airline index (XAL.X) fell through the 200-dma and hit a low
of $54.55.  This isn't the most favorable climate in which to be
adding a bullish play on an Airline stock, but that's just what
we've done.  While the XAL still has some potential downside from
here as demonstrated by the still-falling weekly Stochastics, LUV
appears to be near an important floor, both in terms of price and
weekly Stochastics which are trying to turn up after having been
in oversold territory since late last year.  We were looking for
an entry on a touch of the $14 level and that condition was
satisfied last Tuesday.  That entry was a bit premature, as the
stock continued to drop into Thursday's low of $13.45.  The short-
term descending channel is still intact and more conservative
traders may want to wait for an upside break from this pattern
(over $14.50) before taking the plunge.  As noted previously,
we're looking to pick a bottom in the stock of one of the better
run Airline stocks ahead of the peak travel season, with an eye
towards a rally back to the $18-20 area.  That's not a very big
move, but with the low premium required for LUV LEAPS, just a move
into the middle of that target zone would be an easy double.  Once
above the top of the descending channel, LUV will have to contend
with resistance at the 50-dma ($14.88) and then horizontal
resistance near $16 before it can make a serious assault on the
200-dma (currently $16.80).  We'll place our initial stop at $11,
as a break below that level would have the stock setting new all-
time lows and tell us that buying this dip was a bad idea.  Near
term protection is provided by the July put, which should keep us
out of trouble until the upside gets underway.

BUY LEAP JAN-2005 $15 ZUV-AC $ 1.35
BUY LEAP JAN-2006 $15 WUV-AC $ 2.50
BUY PUT  JUN-2004 $12 LUV-RV $ 0.40 **Protective Put**

SNDK - SanDisk Corporation $25.98  **Call Play**

After hanging out on our Watch List for months, it's finally time
to take our shot at SNDK, as it appears the downside may have
finally been shaken out of the stock.  The month of February saw
strong support being built near the $24 level and the recent rally
back up to the 200-dma actually looked pretty encouraging.
Despite the price weakness last week, I'm very encouraged by the
way SNDK performed.  With the NASDAQ breaking to new lows for the
year, SNDK held at a higher low and this has the feeling of
bullish divergence, relative strength or whatever other bullish
label we want to place on it.  Make no mistake, the stock will
have an uphill battle in front of it, as it is below the 50-dma
(28.66) and the 200-dma ($29.88) and the picture is even more
disheartening with the 50-dma below the 200-dma.  While the PnF
chart is still bearish with a price target well below current
levels, it will only take a rise to $30 to generate a new PnF Buy
signal and negate that bearish outlook.  That would also have
price over both the 50-dma and the 200-dma, which would be another
very encouraging sign.  We were looking for a dip to the $25-26
area and SNDK delivered on Thursday.  Sure I bent the rules a bit
by taking the entry on Thursday's $25.98 close instead of waiting
for a confirmed break above $26, but that's where judgment comes
into play.  As it turns out, it was a good decision in light of
the strong rebound on Friday.  Successive dips near $25-26 can
still be used for entry, while more conservative traders may want
to wait for that breakout over $30 before jumping aboard.  Our
initial target will be for a rise back to the $35 level, but I
suspect a run as high as $40 will be in the cards later this year.
Due to the higher risk associated with this play, let me strongly
urge you to utilize the protective put.  The cost is quite low and
could be invaluable if something unexpected occurs.  Isn't that
why we buy insurance?  We'll place our initial stop at $21.50,
just under the 62% retracement of last year's impressive rally.

BUY LEAP JAN-2005 $27 XWS-AY $ 5.10
BUY LEAP JAN-2006 $27 YSD-AY $ 6.80
BUY PUT  JUL-2004 $22 SWQ-SX $ 1.65 **Protective Put**

New Watchlist Plays

EBAY - eBay Inc. $69.13  **Call Play**

While it's certainly aggressive, I've been considering the idea of
a bullish long-term play on EBAY for quite a while now.  I know
all the arguments against it, from fundamental to technical and
have used a number of them myself in order to justify past bearish
profiles on the stock.  Here's the bottom line though -- investors
LOVE this stock.  It is a business that just continues to grow and
it is almost as ubiquitous in our lives as McDonalds and
Starbucks.  Aside from the meltdown from the 2000 highs, the stock
has been virtually immune to the broad market selloffs in recent
year.  After bottoming near $15 in early 2001, EBAY spent the
remainder of the year posting higher lows, then traded perfectly
sideways in 2002 before gaining well over 100% from the October
2002 lows to its December peak near $65.  How's that for being
impervious to the bears' attack?  Is there any other stock that
was able to hold its own in 2001-2002 and then gain more than 100%
from the October 2002 lows?  All that is in the past though, and
all it does is give us a subjective feel for the strength of the
stock in past bear and bull cycles.

That brings us forward to now.  Since late December, EBAY has been
gradually working its way higher in a healthy manner, as the 50-
dma has risen to support the stock and it has provided support on
a couple of occasions in the past couple weeks.  Will that trend
continue and produce a sustained breakout over the $70 level of
resistance?  The PnF chart seems to think so, with its current
bullish price target of $97.  What it would take to change that
view is a drop below $66, which would result in a fresh PnF Sell
signal.  There's no question this is aggressive, but if we buy
into the view that the broad market will continue higher
throughout the year and EBAY will lead that charge, it's hard to
justify letting this one get away without at least an attempt to
catch a ride on the northbound train.  We'll set our entry target
at $67, hoping for one more dip to test the 50-dma and then wait
for the breakout over $70.  Actually, what we'll really need to
see is a move through last Monday's $72.04 intraday peak to really
confirm a breakout move in progress.  Initial stops go at $65,
which should only come into play on a serious violation of
support.  Our upside target will be the PnF objective of $97.

BUY LEAP JAN-2005 $65 ZQX-AM **Covered Call**
BUY LEAP JAN-2006 $65 YEU-AM **Covered Call**
BUY Put  JUL-2004 $60 XBA-SL **Insurance Put**



2004 Stock Traders Almanac, Mousepad and Video

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special and would still like to get a Stock Traders
Almanac this is your chance.

For only $44.95 you will get:

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The Option Investor Newsletter                   Sunday 03-14-2004
Sunday                                                      5 of 5

In Section Five:

Option Spreads: “The Quick & The Dead” Comes To Wall Street
Spreads/Straddles/Combos: Another Entry Point Or Time To Sell?

2004 Stock Traders Almanac, Mousepad and Video

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special and would still like to get a Stock Traders
Almanac this is your chance.

For only $44.95 you will get:

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Option Spread Strategies

“The Quick & The Dead” Comes To Wall Street
By Mike Parnos, Investing With Attitude

“The Quick and The Dead” wasn’t just about a gunfight in the old
west.  It was about survival.  It was good vs. evil.  There are a
lot of similarities to option expiration week.

In the movie, Sharon Stone, beautiful, intense, dressed in
leather, walks slowly down Main Street, spurs jingling with each
step.  Waiting in the street, in front of the saloon, is Gene
Hackman, the devil incarnate.  He’s run roughshod over the town
for years and never lost a gunfight.  He pulls his coat back,
exposing his holstered Colt 45 (not the malt liquor).  Years ago,
Hackman killed Stone’s father.  She’s been living for this day,
the day she can exact her revenge.

Stone stops 100 feet away.  Her hand, only inches from her weapon.
One will walk away.  The other will not.  They wait for the clock
to strike 12.  Hackman flicks away his cigarette, poised,
confident.  The hatred and determination evident on Stone’s face.
Tick, tick, tick . . .

Fast forward to today.  Instead of walking down Main Street, it’s
Wall Street.   Gene Hackman has turned into some nameless,
faceless market maker.  Sharon Stone is now the glorious mass of
option traders, intent on survival, motivated by countless
portfolio casualties.  There’s no killing market makers.  If one
dies, another magically appears to take his place.  It’s a
bottomless pit.  But, underdog option traders never give up.
Quitting is not an option.

How do we compete?  Are you bringing a knife to a gunfight?  At
the very least, you’re going to get mugged.  You might as well
just hand over your money and beg for mercy.

The educated option trader can make choices to increase his/her
chances of success.  The mission of the CPTI (Couch Potato Trading
Institute) is to prepare each and every option trader for his/her
monthly showdown with the market makers.  The sensible choice is
to arm yourself with the strategies you learn at the CPTI.  Will
it level the playing field?  Not entirely, but it will give you a
fighting chance.  In an option trading shootout, you can’t ask for

March Expiration Quickies
First, the warning.  These quickies can be hazardous to your
wealth.  In past months we’ve had many more winners than losers.
The losers can be expensive, though.  These are hypothetical and
educational plays, but readers have been known to roll the
“quickie” dice.   Should you be so inclined, only use hypothetical
money you can afford to lose.

Quickie #1: RUT – 582.84 – Iron Condor
Sell 10 RUT March 560 puts
Buy 10 RUT March 550 puts
Credit:  $.65 (x 10 contracts = $650)

Sell 10 RUT March 600 calls
Buy 10 RUT March 610 calls
Credit:  $.80 (x 10 contracts = $800)

Total net credit of $1.45.  Maximum profit range of  550 to 600.
Safety range:  548.55 to 601.45.  Potential profit:  $1,450.

Quickie #2: BBH – 146.10 – Siamese Condor
BBH faked us out of our regular CPTI position.  I guess I’m just a
glutton for punishment.  What the hell . . .
Sell 10 BBH March $145 calls
Sell 10 BBH March $145 puts
Buy 10 BBH March $155 calls
Buy 10 BBH March $135 calls
Credit:  $3.45 (x 10 contracts = $3,450)

Our profit range is $141.55 to $148.45.  As long as BBH finishes
somewhere within this range, we’ll make money.  The closer BBH
finishes to $145, the more we’ll make.  Our bailout point
parameters are the same as the profit range -- $141.55 on the
bottom and $148.45 on top.

Quickie #3:  QQQ - $35.51 – Straddle
The market has been nuts lately.  Expiration week has been known
to be crazy at times.  I don’t believe Friday’s bounce will last
(but, what do I know?), so I’m going to risk a buck and see what
Buy 10 QQQ March $36 puts
Buy 10 QQQ March $36 calls
Total debit: $1.00 ($1,000)

If the QQQs continue the current downtrend and get down to $34,
our $36 put will be worth $2 and we’ll double our money.  Even if
the QQQs don’t move, we should be able to recoup half of the $1
risked.  With the QQQs at $35.51, I selected the $36 puts and
calls because I have a slight downward bias.  If you have an
upward bias, you might want to use the $35 calls and puts.

Those Friendly Reminders
The premiums quoted on the above educational trades are based on
Friday's closing bid/ask prices.  On Monday, the premiums will
likely be different due to market movement and/or the additional
two 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 a trader.  And make sure you thoroughly
know the intricacies of a strategy before you trade.  The money
you save may be your own.


Position #1 – OEX (S&P 100 Index) Iron Condor – 549.92
We sold 12 OEX March 595 calls and bought 12 OEX March 605 calls
(Bear Call Spread).  Then we sold 12 OEX March 540 puts and bought
12 OEX March 530 puts (Bull Put Spread).  The total net credit was
$1.20 ($1,440).  Maximum profit range: 540 – 595.  Maintenance:

Position #2 – RUT (Small Cap Index) Iron Condor – 582.84
We sold 8 RUT March 610 calls and bought 8 RUT March 620 calls
(Bear Call Spread).  Then we sold 8 RUT March 550 puts and buy 8
RUT March 540 puts (Bull Put Spread).  The total net credit was
$2.75 ($2,200).  Maximum profit range: 550 - 610.  Maintenance:

Position $3 – MNX (Mini-NDX Index) Iron Condor - $143.14
We sold 20 MNX March $157.50 calls and bought 20 MNX March $160
calls (Bear Call Spread).  Then we sold 20 MNX March $142.50 puts
and bought 20 MNX March $140.00 puts (Bull Put Spread).  The total
net credit was $.90 ($1,800).  Maximum profit range: $142.50 -
$157.50.  Maintenance: $5,000 less $1,800 = $3,200.  Our range was
violated and we closed the position for $2,300.  We took in
$1,800.  Result:  $500 loss.

Position #4 – BBH (Biotech Index) - Siamese Condor - $146.10
We sold 10 BBH March $145 calls and sell 10 BBH March $145 puts
for a credit of about $6.95.  Then we bought 10 BBH March $160
calls and buy 10 BBH March $130 puts for a debit of about $.70.
The total net credit was $6.25 ($6,250).  Our profit (safety)
range was $138.75 to $151.25.  These were also our bailout points.
The closer BBH finishes to $145, the more money we will make.  We
closed the position for a loss of $1.15 ($1,150).

QQQ ITM Strangle – Ongoing Long Term -- $35.51
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 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.
April: Apr. $34 calls and $37 puts – credit of $750
Total credit: $8,050.

Note:  We haven't included 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 – 549.92
In my 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.  That
guarantees the principal $100,000 investment.  We’re trading the
remaining $26,000 to generate a “risk free” return on the original

Bought 3 OEX Jan. 2006 540 calls @ $81 (x 300 = $24,300)
March: Sold 3 OEX 585 calls @ $3.10 (x 300 = $930)
March: 535/525 Bull Put Spread for credit of $1.10 (x 300 = $330)
Current cash position is $2,960 ($1,260 plus the unused $1,700).

Adjustment:  This week we bought back the OEX March 585 calls for
$.10 and sold the March 560 calls for $1.35.  A credit of $1.25 x
300 = $375.00.  We won’t update our cash position until the March
cycle resolves itself and we put on our April positions.

A Sign Of The Times:
Recently we have received credible intelligence that there have
been seven terrorists working in your office. Six of the seven
have been apprehended. Bin Sleepin’, Bin Loafin’, Bin Goofin’, Bin
Lunchin’, Bin Drinkin’ and Bin Butt-Kissin have all been taken
into custody. At this time, no one fitting the description of the
seventh cell member, Bin Workin’, has been found at your office.
We are confident that anyone who looks like he's Bin Workin’ will
be very easy to spot. You are OBVIOUSLY not a suspect at this
time. So keep on doing what you Bin Doing.

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

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


Another Entry Point Or Time To Sell?
By Ray Cummins

U.S. stocks rallied Friday after a week of sharp declines that saw
the major equity averages erase their gains for 2004.

The blue-chip Dow industrial average ended up 111 points at 10,240,
reducing its losses for the week to 355 points.  The NASDAQ soared
as well, adding 40 points to close at 1,984, only 3% lower than it
started on Monday.  The S&P 500 gained 13 points, which helped the
broader market index recover to a 36-point deficit for the week.
Volume was active, with about 1.4 billion shares trading hands on
the New York Stock Exchange while roughly 1.7 billion shares were
swapped on the NASDAQ.  Advancers trounced decliners by a ratio of
3 to 1 on both the NYSE and the technology exchange.  Bond prices
slid lower after a recent rally as the U.S. dollar firmed against
other major currencies.  The yield on the benchmark 10-year note
climbed to 3.77%.


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.


The Maximum Yield (listed in the summary and with "naked" option
selling plays) is the greatest possible profit available in the
position.  This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations.  Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The "Simple Yield" is based on the cost of the underlying issue
(in the event of assignment), including the premium from the sold
option, thus it reflects the maximum potential loss in the trade.



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

IDCC     MAR    20    19.55   18.88   (0.67)  0.00%    2.30% *
LSCP     MAR    17    17.10   23.15    0.40   6.20%    2.34%
PCLN     MAR    22    21.70   23.50    0.80   7.85%    3.69%
AMLN     MAR    20    19.55   23.98    0.45   6.42%    2.30%
ATRX     MAR    22    22.05   25.67    0.45   6.79%    2.04%
BRCM     MAR    37    36.95   39.55    0.55   4.29%    1.49%
IDCC     MAR    22    22.10   18.88   (3.22)  0.00%    1.81% *
OSTK     MAR    20    19.35   29.77    0.65  10.25%    3.36%
NEOL     MAR    17    16.95   22.19    0.55  10.48%    3.24%
RMBS     MAR    30    28.90   28.98    0.08   0.77%    3.81%
SMTC     MAR    22    22.15   22.13   (0.02)  0.00%    1.58% *
ADEX     MAR    20    19.55   21.20    0.45   8.22%    2.30%
ALXN     MAR    20    19.70   24.42    0.30   6.05%    1.52%
APPX     MAR    30    29.70   39.36    0.30   4.59%    1.01%
ATRX     MAR    22    22.20   25.67    0.30   6.03%    1.35%
MRVL     MAR    37    37.10   41.83    0.40   4.40%    1.08%
NEOL     MAR    17    17.30   22.19    0.20   5.25%    1.16%
OSTK     MAR    20    19.70   29.77    0.30   6.70%    1.52%
SEPR     MAR    17    17.25   46.63    0.25   5.37%    1.45%
ADEX     APR    20    19.45   21.20    0.55   5.64%    2.83%
ALXN     MAR    22    22.05   24.42    0.45  10.40%    2.04%
KMRT     MAR    30    29.65   34.07    0.35   6.19%    1.18%
NEOL     APR    15    14.55   22.19    0.45   6.79%    3.09%
OSTK     MAR    25    24.65   29.77    0.35   9.74%    1.42%
PKZ      MAR    25    24.60   29.26    0.40   8.63%    1.63%
AAPL     MAR    25    24.65   27.56    0.35   9.53%    1.42%
AMLN     APR    22    21.80   23.98    0.70   6.68%    3.21%
APPX     APR    32    32.48   39.36    0.90   5.98%    2.77%
ASKJ     MAR    25    24.70   28.64    0.30  10.09%    1.21%
NEOL     APR    15    14.65   22.19    0.35   5.57%    2.39%
NKTR     APR    20    19.20   20.51    0.80   8.87%    4.17%
OSTK     APR    25    24.30   29.77    0.70   7.25%    2.88%

Interdigital (NASDAQ:IDCC) shares plunged Wednesday after the
company posted an 81% decline in its fourth-quarter profit due
to higher-than-expected operating expenses and lower revenue.
Conservative traders should have closed the play Tuesday, after
the second consecutive session of sharp declines, for a smaller
than published loss.  As noted last week, Semtech (NASDAQ:SMTC)
is a candidate for early exit and many of the technology issues
in the portfolio are on the "watch" list after the recent slump
in equities.


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

AAII     MAR    25    25.40    9.41    0.40   7.47%    1.57%
CMTL     MAR    35    35.45   26.18    0.45   7.46%    1.27%
FLML     MAR    35    35.35   26.39    0.35   6.02%    0.99%
MHS      MAR    35    35.45   31.40    0.45   4.40%    1.27%
CECO     MAR    55    55.50   46.47    0.50   4.96%    0.90%
ECLG     MAR    22    22.85   19.40    0.35  10.15%    1.53%
ESI      MAR    50    50.30   28.70    0.30   4.96%    0.60%
ISSI     MAR    17    17.85   16.00    0.35  11.45%    1.96%
SEAC     APR    20    20.40   14.62    0.40   7.86%    1.96%
NTE      MAR    30    30.00   24.83    0.00   0.00%    0.00%
NTLI     MAR    70    70.50   59.38    0.50   6.27%    0.71%


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

CERN    46.09  45.49   MAR  35  40   0.60  39.40   0.60   Open
DNA     98.25 107.70   MAR  85  90   0.70  89.30   0.70   Open
ESRX    70.58  73.53   MAR  60  65   0.65  64.35   0.65   Open
NBR     46.97  44.40   MAR  40  42   0.25  42.25   0.25   Open
BSX     41.94  41.24   MAR  35  37   0.25  37.25   0.25   Open
CEC     51.62  58.00   MAR  45  50   0.55  49.45   0.55   Open
ONXX    36.80  36.19   MAR  30  35   0.55  34.45   0.55   Open
OSTK    29.27  29.77   MAR  22  25   0.30  24.70   0.30   Open
RYL     85.72  89.90   MAR  75  80   0.50  79.50   0.50   Open
GS     107.09 104.93   MAR  95 100   0.65  99.35   0.65   Open
MSTR    64.78  61.20   MAR  50  55   0.55  54.45   0.55   Open
MICC    22.06  19.22   MAR  18  19   0.12  18.63   0.12   Open
VIP     83.25  88.40   MAR  70  75   0.65  74.35   0.65   Open
GDT     69.79  67.55   MAR  60  65   0.65  64.35   0.65   Open
MTH     71.09  75.50   MAR  60  65   0.70  64.30   0.70   Open
APOL    77.82  80.77   APR  65  70   0.60  69.40   0.60   Open
S       48.35  45.00   APR  42  45   0.35  44.65   0.35  Closed
BZH    111.90 108.50   APR  95 100   0.70  99.30   0.70   Open
KBH     78.71  77.73   APR  65  70   0.55  69.45   0.55   Open

L/P = Long Put  S/P = Short Put  CB = Cost Basis  G/L = Gain/Loss

Sears (NYSE:S) is now on the "early-exit" list.  The position in
Synopsys (NASDAQ:SNPS) has previously been closed to limit losses.


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

CYBX    27.04  22.01   MAR  35  30   0.65  30.65   0.65   Open
SOHU    29.05  24.46   MAR  40  35   0.60  35.60   0.60   Open
KLAC    54.24  53.09   MAR  65  60   0.60  60.60   0.60   Open
IACI    31.92  31.00   MAR  37  35   0.30  35.30   0.30   Open
NVLS    33.26  31.01   MAR  40  37   0.30  37.80   0.30   Open
BBBY    40.62  39.82   MAR  45  42   0.30  42.80   0.30   Open
LLTC    40.03  38.30   MAR  45  42   0.25  42.75   0.25   Open
PIXR    65.76  63.76   MAR  75  70   0.55  70.55   0.55   Open
SFNT    37.96  37.90   MAR  45  40   0.60  40.60   0.60   Open
UTEK    26.28  23.61   MAR  35  30   0.60  30.60   0.60   Open
AMZN    44.87  42.44   MAR  55  50   0.50  50.50   0.50   Open
CTAS    42.77  41.55   MAR  50  45   0.60  45.60   0.60   Open
CCU     43.44  41.84   MAR  50  45   0.60  45.60   0.60   Open
DISH    35.50  35.48   APR  42  40   0.30  40.30   0.30   Open
NVLS    31.15  31.01   APR  37  35   0.35  35.35   0.35   Open
ADBE    36.46  35.71   APR  45  40   0.55  40.55   0.55   Open
VSEA    40.85  39.23   APR  50  45   0.60  45.60   0.60   Open

L/C = Long Call  S/C = Short Call  CB = Cost Basis  G/L = Gain/Loss

The bearish position in Icos (NASDAQ:ICOS), which is positive, as
well as the spreads in Neurocrine Bisosciences (NASDAQ:NBIX), OSI
Pharmaceuticals (NASDAQ:OSIP), and Multimedia Gaming (NASDAQ:MGAM)
have previously been closed to limit losses.


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

SNP     40.74  41.16   APR    40    40     5.70    5.70    Open
TTWO    32.03  32.75   MAR    32    32     3.20    3.00    Open?
AMX     35.66  35.74   MAY    35    35     3.65    4.30    Open
CCMP    44.55  42.24   APR    45    45     5.90    5.75    Open
AIG     74.28  71.61   MAY    75    75     5.60    6.00    Open
SLB     65.13  62.50   MAY    65    65     6.75    6.50    Open

Hovnanian (NYSE:HOV) was the "play of the month," offering up to
a $8.00 gain on $7.00 invested.  Straddles in Martek Biosciences
(NASDAQ:MATK), Bear Stearns (NYSE:BSC) and Forest Labs (NYSE:FRX),
which is now profitable, have previously been closed to preserve
capital.  Prices for the new positions in American International
(NYSE:AIG) and Schlumberger (NYSE:SLB), as well as any potential
gains (max. value) for existing straddles, will not be accurate
as I did not monitor the portfolio during my recent absence from
the market.


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



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


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.


APPX - American Pharma Partners  $39.36  *** Near 2004 Highs! ***

American Pharmaceutical Partners (NASDAQ:APPX) is a specialty
drug company that develops, manufactures and markets injectable
pharmaceutical products, focusing on the oncology, anti-infective
and critical care markets.  The company is one of the largest
producers of injectables, with more than 130 generic products in
more than 350 dosages and formulations.

APPX - American Pharma Partners  $39.36

PLAY (sell naked put):

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

SELL PUT  APR 30    AQO PF    3606   0.25  29.75   2.8%   0.8% TS
SELL PUT  APR 33.37 AXD PV     422   0.65  32.73   5.8%   2.0% *
SELL PUT  APR 35    AQO PG    1511   1.05  33.95   7.8%   3.1%


ASKJ - Ask Jeeves  $28.64  *** A Necessary Consolidation! ***

Ask Jeeves (NASDAQ:ASKJ) is a provider of Internet-wide search,
providing consumers with authoritative and fast ways to find
relevant information to their everyday searches.  Ask Jeeves
deploys its search technologies on Ask Jeeves (Ask.com and
Ask.co.uk), Teoma.com, and Ask Jeeves for Kids (AJKids.com).
In addition, to its internet sites, Ask Jeeves syndicates its
monetized search technology and advertising units to a network
of affiliate partners.  The company is based in Emeryville,
California, with offices in New York, Boston, New Jersey, Los
Angeles, London and Dublin.

ASKJ - Ask Jeeves  $28.64

PLAY (sell naked put):

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

SELL PUT  APR 22.5  AUK PX     316   0.25  22.25   3.9%   1.1% TS
SELL PUT  APR 25    AUK PE     966   0.85  24.15   9.0%   3.5% *


CLZR - Candela  $27.00  *** Multi-Year High! ***

Candela (NASDAQ:CLZR) develops, manufactures, and distributes
innovative clinical solutions that enable physicians, surgeons,
and personal care practitioners to treat selected cosmetic and
medical conditions using lasers, aesthetic laser systems, and
other advanced technologies.  Founded near Boston in 1970, the
company markets and services its products in over 60 countries
from offices in the United States, Europe, Japan and other Asian
locations.  Candela established the aesthetic laser market 14
years ago, and currently has an installed base of over 6,000
lasers worldwide.

CLZR - Candela  $27.00

PLAY (sell naked put):

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

SELL PUT  APR 22.5  UKZ PX     44    0.35  22.15   4.9%   1.6% *
SELL PUT  APR 25    UKZ PE     80    0.95  24.05   9.0%   4.0%


INVN - InVision Technologies  $41.22  *** Solid Earnings! ***

InVision Technologies (NASDAQ:INVN) develops, manufactures, sells
and supports explosives detection systems based on its advanced
computed tomography technology for civil aviation security.  The
company's wholly-owned subsidiary Yxlon develops, manufactures,
markets and supports X-ray based diffraction for explosives
detection, and automated X-ray based non-destructive testing
systems for a wide range of industrial applications.  Another
subsidiary, Quantum Magnetics, develops detection systems for
weapons, narcotics, explosives and other threats based on unique
magnetic sensing technologies.  InVision's wholly-owned Inovec
develops, manufactures, sells and supports scanning, optimization
and control systems for the forest products industry.

INVN - InVision Technologies  $41.22

PLAY (sell naked put):

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

SELL PUT  MAR 40    FQQ OH     794   1.15  38.85  42.6%   3.0%
SELL PUT  APR 35    FQQ PG     426   0.50  34.50   4.3%   1.4% *
SELL PUT  APR 40    FQQ PH     413   2.05  37.95  10.9%   5.4%


JNPR - Juniper Networks  $25.81  *** Next Leg Up? ***

Juniper Networks (NASDAQ:JNPR) is a provider of Internet infra-
structure solutions that enable Internet service providers and
other telecommunications service providers to meet the demands
resulting from the growth of the Internet.  Juniper's Internet
routers are designed and purpose-built for service provider
networks and offer performance, scalability, interoperability
and flexibility, as well as lower complexity and cost compared
to legacy alternatives.  Juniper's proprietary software is
designed for the Internet protocol network routing, operations
and control requirements of service providers and is an integral
embedded component of its product family system architecture.

JNPR - Juniper Networks  $25.81

PLAY (sell naked put):

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

SELL PUT  MAR 25    JUX OE    14842  0.25  24.75  15.6%   1.0%
SELL PUT  APR 22.5  JUX PX     9262  0.65  21.85   7.8%   3.0% *
SELL PUT  APR 25    JUX PE     8858  1.50  23.50  12.6%   6.4%


NEOL - NeoPharm  $22.19  *** Near 2-Year Highs! ***

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  $22.19

"SPECULATIVE" PLAY (sell naked put):

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

SELL PUT  APR 15    UOE PC    2743   0.35  14.65   6.7%   2.4% *
SELL PUT  APR 17.5  UOE PW     607   1.00  16.50  16.9%   6.1%


PDII - PDI Incorporated  $25.72  *** In A Trading Range? ***

PDI (NASDAQ:PDII) is an innovative healthcare sales and marketing
provider to biopharmaceutical and medical devices companies and
and the diagnostics industry.  Its three business units offer
service and product-based capabilities for companies seeking to
maximize profitable brand sales growth.  The three units include
PDI Pharmaceutical Products, PDI Sales and Marketing Services,
and PDI Medical Devices and Diagnostics.

PDII - PDI Incorporated  $25.72

PLAY (sell naked put):

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

SELL PUT  MAR 25    PKU OE     199   0.25  24.75  15.5%   1.0%
SELL PUT  APR 22.5  PKU PX      13   0.70  21.80   8.3%   3.2% *
SELL PUT  APR 25    PKU PE       9   1.50  23.50  12.5%   6.4%


SWIR - Sierra Wireless  $30.30  *** Entry Point? ***

Sierra Wireless (NASDAQ:SWIR) is a leader in delivering highly
differentiated wireless solutions that enable our customers to
improve their productivity and lifestyle.  Sierra Wireless
develops and markets AirCard, the industry-leading wireless PC
card line for portable computers; embedded modules for OEM
wireless applications; the MP line of rugged vehicle-mounted
connectivity solutions and Voq, a line of professional phones
with secure, easy-to-use, products for mobile professionals.

SWIR - Sierra Wireless  $30.30

PLAY (sell naked put):

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

SELL PUT  APR 22.5  IYQ PX      31   0.35  22.15   5.0%   1.6% *
SELL PUT  APR 25    IYQ PE      65   0.80  24.20   9.7%   3.3%



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


COF - Capital One Financial  $73.50  *** Bracing For A Rally? ***

Capital One Financial (NYSE:COF) is a holding company whose major
subsidiaries market a variety of financial products and services
to consumers using its proprietary information-based strategy.
The company's primary business is consumer lending, with a focus
on credit cards, but including other consumer lending activities
such as unsecured installment lending and automobile financing.
The company's principal subsidiary, Capital One Bank, a limited
purpose, state-chartered credit card bank, offers credit card
products.  Capital One, F.S.B., a federally chartered bank, offers
consumer lending and deposit products.  Capital One Services, the
other major subsidiary, provides various operating, administrative
and business services to the company and its subsidiaries.

COF - Capital One Financial  $73.50

PLAY (conservative - bullish/credit spread):

BUY  PUT  APR-60.00  COF-PL  OI=1483  ASK=$0.40
SELL PUT  APR-65.00  COF-PM  OI=1825  BID=$0.85
POTENTIAL PROFIT(max)=11% B/E=$64.50


HUG - Hughes Supply  $52.95  *** New "All-Time" High! ***

Hughes Supply (NYSE:HUG) is one of the United State's largest
diversified wholesale distributors of construction, repair and
maintenance-related products, with 489 locations in 38 states.
Headquartered in Orlando, Florida, Hughes employs approximately
8,400 associates and generates annual revenues of over $3 billion.
Hughes Supply is a Fortune 500 company and was named the second
most admired company in America in the Wholesalers: Diversified
Industry segment by Fortune Magazine.

HUG - Hughes Supply  $52.95

PLAY (conservative - bullish/credit spread):

BUY  PUT  APR-45.00  HUG-PI  OI=10  ASK=$0.25
SELL PUT  APR-50.00  HUG-PJ  OI=60  BID=$0.65
POTENTIAL PROFIT(max)=11% B/E=$49.50


SYMC - Symantec  $44.64  *** Rally Mode! ***

Symantec (NASDAQ:SYMC) provides content and network security
software and appliance solutions to enterprises, individuals and
service providers.  The firm provides client, gateway and server
security solutions for virus protection, firewall and virtual
private network, security management, intrusion detection, e-mail
filtering and Internet content, remote management technologies
and security services to enterprises and service providers
worldwide.  The company views its business in five operating
major segments: enterprise security, enterprise administration,
consumer products, services and other activities.

SYMC - Symantec  $44.64

PLAY (less conservative - bullish/credit spread):

BUY  PUT  APR-37.50  SYQ-PU  OI=1912  ASK=$0.25
SELL PUT  APR-40.00  SYQ-PH  OI=4812  BID=$0.55
POTENTIAL PROFIT(max)=16% B/E=$39.65



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


The sale of uncovered calls entails considerable financial risk,
far more than the initial margin or collateral required to open
the position.  The maximum financial obligation for the sale of a
naked option is the strike price (of the underlying stock) that
is sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of options must have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  The simple fact is: stocks often experience large price
swings, exponentially increasing the margin maintenance and very
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock price moves in
a volatile manner.  Many professional traders suggest closing the
position when the underlying share value moves beyond the sold
strike, or using a "buy-to-close" stop order at a price that is no
more than twice the original premium received from the sold option.


CECO - Career Education  $46.47  *** Pure Premium-Selling! ***

Career Education Corporation (NASDAQ:CECO)) is the world's largest
on-campus provider of private, for-profit postsecondary education
and has a rapidly growing presence in online education.  CEC's
Colleges, Schools and Universities Group operates 51 campuses in
the U.S., Canada, France, the United Kingdom and the United Arab
Emirates and offers master's degree, bachelor's degree, associate
degree and diploma programs in the career-oriented disciplines of
visual communication & design technologies, information technology,
business studies, culinary arts and health education.  The Online
Education Group's AIU Online Division offers master's degree,
bachelor's degree and associate degree programs in information
technology, business administration, visual communication and

CECO - Career Education  $46.47

PLAY (sell naked call):

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

SELL CALL  MAR 50    CUY CJ    6538   0.35  50.35  13.8%   0.7%
SELL CALL  APR 55    CUY DK    8899   0.65  55.65   5.6%   1.2% *
SELL CALL  APR 50    CUY DJ    2322   1.75  51.75   9.6%   3.4%


ERES - eResearch Technology  $27.68  *** Downgrade = Sell-Off! ***

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

ERES - eResearch Technology  $27.68

PLAY (sell naked call):

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

SELL CALL  MAR 30    UDB CF     742   0.20  30.20  13.6%   0.7%
SELL CALL  APR 35    UDB DG     363   0.30  35.30   4.7%   0.8% *
SELL CALL  APR 32.5  UDB DZ     276   0.50  33.00   6.8%   1.5%


FARO - FARO Technologies  $23.15  *** Post-Earnings Plunge! ***

FARO Technologies (NASDAQ:FARO) designs, develops, markets and
supports portable, software-driven, 3-D measurement systems used
in a broad range of manufacturing and industrial applications.
The firm's principal products are the Faro-Arm Control Station
and Control Station Pro (articulated measuring devices), the Faro
Laser Tracker and Laser Control Station and their companion Soft
Check Tool and CAM2 software, respectively, which provide for
computer-aided design (CAD)-based inspection and factory-level
statistical process control.  Faro's products bring precision
measurement, quality inspection and specification conformance
capabilities, integrated with CAD software, to the factory floor.

FARO - FARO Technologies  $23.15

PLAY (sell naked call):

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

SELL CALL  MAR 25    QEJ CE     409   0.40  25.40  31.2%   1.6%
SELL CALL  APR 30    QEJ DF     377   0.40  30.40   7.3%   1.3% *
SELL CALL  APR 25    QEJ DE      13   1.45  26.45  15.1%   5.5%



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


COGN - Cognos  $29.54  *** Next Leg Down? ***

Cognos (NASDAQ:COGN), the world leader in business intelligence
and corporate performance management, delivers software that
helps companies monitor and understand corporate performance.
Cognos delivers the next level of competitive advantage achieved
through the strategic application of BI on an enterprise scale.
Cognos serves more than 22,000 customers in over 135 countries.
Cognos enterprise business intelligence solutions and services
are also available from more than 3,000 worldwide partners and

COGN - Cognos  $29.54

PLAY (less conservative - bearish/credit spread):

BUY  CALL  APR-35.00  CRQ-DG  OI=31   ASK=$0.25
SELL CALL  APR-32.50  CRQ-DZ  OI=401  BID=$0.55
POTENTIAL PROFIT(max)=16% B/E=$32.85


SFA - Scientific-Atlanta  $31.96  *** In A Trading Range? ***

Scientific-Atlanta (NYSE:SFA) is a leading supplier of digital
content distribution systems, transmission networks for broadband
access to the home, digital interactive set-tops and subscriber
systems designed for video, high-speed Internet and voice over
IP (VoIP) networks, and worldwide customer service and support.

SFA - Scientific-Atlanta  $31.96

PLAY (conservative - bearish/credit spread):

BUY  CALL  APR-40.00  SFA-DH  OI=102  ASK=$0.15
SELL CALL  APR-35.00  SFA-DG  OI=589  BID=$0.65
POTENTIAL PROFIT(max)=12% B/E=$35.55


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


LEN - Lennar  $55.58  *** Earnings Speculation ***

Lennar (NYSE:LEN) is a homebuilder and a provider of residential
financial services.  The company's homebuilding operations include
the sale and construction of single-family attached and detached
homes as well as the purchase, development and sale of residential
land directly and through its unconsolidated partnerships.  The
company's financial services operations provide mortgage financing,
title insurance and closing services for both its homebuyers and
others, resell the residential mortgage loans it originates in the
secondary mortgage market and also provide Internet access, cable
television and alarm monitoring services to residents of its many
communities.  Lennar's quarterly earnings report is due March 17.

LEN - Lennar  $55.58

PLAY (very speculative - neutral/debit straddle):

BUY CALL  MAR-55.00  LEN-CK  OI=2326  ASK=$1.50
BUY PUT   MAR-55.00  LEN-OK  OI=1699  ASK=$0.95


TEK - Tektronix  $29.59  *** Earnings Speculation ***

Tektronix (NYSE:TEK) is a test, measurement and monitoring firm
providing measurement solutions to the communications, computer
and semiconductor industries worldwide.  With more than 55 years
of experience, Tektronix enables its customers to design, build,
deploy and manage next-generation global communications networks,
computing and advanced technologies.  Headquartered in Beaverton,
Oregon, Tektronix has operations in more than 20 countries around
the globe.  The company's earnings are due Thursday, March 18.

TEK - Tektronix  $29.59

PLAY (very speculative - neutral/debit straddle):

BUY CALL  MAR-30.00  TEK-CF  OI=40  ASK=$0.55
BUY PUT   MAR-30.00  TEK-OF  OI=13  ASK=$1.00




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