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Daily Newsletter, Sunday, 08/08/2004

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The Option Investor Newsletter                   Sunday 08-08-2004
Copyright 2004, All rights reserved.                        1 of 5
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In Section One:

Wrap: Want to See Something Really Scary?
Futures Wrap: See Note
Index Trader Wrap: Double whammy: oil and jobs
Editor's Plays: Busted!
Market Sentiment: New Lows
Ask the Analyst: Was That A Stop Sign
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 8-06         WE 7-30         WE 7-23         WE 7-16
DOW     9815.33 -324.38 10139.7 +177.49 9962.22 -177.56 - 73.44
Nasdaq  1776.89 -110.47  1887.4 + 38.27 1849.09 - 34.06 - 63.18
S&P-100  521.83 - 15.84  537.67 +  7.29  530.38 -  5.52 -  6.73
S&P-500 1063.97 - 37.75 1101.72 + 15.52 1086.20 - 15.20 - 11.41
W5000  10307.84 -393.81 10701.7 +147.83 10553.8 -178.04 -110.82
SOX      386.88 - 29.55  416.43 + 10.85  405.58 -  4.88 - 40.68
RUT      519.65 - 31.64  551.29 + 12.07  539.22 - 16.26 -  8.25
TRAN    2966.08 -145.61 3111.69 + 68.25 3043.44 - 44.89 +  0.36
******************************************************************

Want to See Something Really Scary?
by Jim Brown

That title may be a famous line from the Twilight Zone
movie but you only need to take a look at the index
changes for the week in the table above for a real
nightmare on Wall Street. The Nasdaq lost nearly -5%
for the week and all the indexes are at their lows for
the year. While most analysts would be blaming the Jobs
disaster there was far more impacting the markets and
the road ahead could be even worse.

Dow Chart – Weekly


Nasdaq Chart – Weekly


SPX Chart – Weekly



Let's get the worst out of the way first. The July Jobs
report was not just below estimates but a disaster. At
only +32,000 jobs about the only thing worse would have
been a job loss instead of a job gain. With consensus
estimates at +220,000 and whisper numbers as high as
+300K the minor +32,000 gain was a disaster. If you
factor in the downward revisions to May and June we
actually lost jobs with this report. The May number
was revised down from +235K to +208K for a loss of
-27K. The June report was revised down from +112K to
+78K for a reduction of -44K. Let's see, using the new
math a drop in previously reported gains of -71K and
a gain in July of only +32K leaves us with a net change
of -39K when analysts were expecting +220K. OOPS!

Twelve Month Jobs Table



There was a lot of talk about the falling unemployment
rate to 5.5% from 5.6% but the key there was a drop in
the overall workforce more than an increase in employment.
The services sector was the weakest link in the report
with financial services, retail trade, leisure and
hospitality, information and social services all
showing losses. Another factor was a loss due to
seasonal adjustments. Many of the government reports
have fudge factors for various months to smooth out
normal volatility. In July the seasonal adjustments
knocked real job growth (raw data) down from +222,000
to only +32,000. In reality many more jobs were created
but the raw data is not used as a yardstick due to years
of historical seasonal adjustment precedent. Live by the
adjustment, die by the adjustment. This was slowest
rate of jobs growth in eight months.

The Housing Survey showed jobs increased by +629,000
jobs and was a serious divergence from the Payroll Survey
quoted above. Unfortunately 577,000 of those jobs were
only part time and weighted toward those with lower
education. Highly educated workers have been having a
harder time finding employment all year.

If you were Alan Greenspan today you were probably
reaching for the Maalox. With the Fed scheduled to
raise rates on Tuesday the Jobs report was a bitter
pill to swallow. When the Fed embarked on its current
"measured pace" of rate hikes the economy was thought
to be charging down the road to recovery and the rate
hikes were needed to curb potential inflation and
return the benchmark rate to a normal level. With the
recent economic reports mixed and with many trending
down the Fed may want to take its foot off the brake
but can't due to the current policy. The Fed would
have a hard time not raising rates on Tuesday because
it would bring up questions of "what do they know we
don't" and fears that the economy is worse than it
appears. That means the Fed will have to "rescue" the
market from itself with a positive statement after the
meeting. Former Fed Governor Wayne Angel disagreed
with the consensus the Fed was locked into a hike
cycle and suggested Greenspan could surprise investors
next week.

The chances of a rate hike next week have declined
from 100% according to the futures to about 80%. The
chance for a September hike declined to about 12% at
the open but returned to 30% by the close. Still far
from a lock. The analysts are still expecting the
Fed to stick to its measured pace of hikes but the
target for December is now only 1.75% instead of 2.0%.
Currently the rate is 1.25%.

Bonds soared on the negative Jobs news with yield
on the ten year falling to 4.21% and a four month low.
Home builders will be overjoyed as low rate mortgages
become yet another sales tool for the rest of the
summer.

Ten-Year Yield Chart




The Jobs number was only slightly more important than
the new high in oil at $44.65 but news from Russia put
pressure on late in the day. The Yukos story continues
to flip flop back and forth and today was a win for
Yukos. The company won a court battle and lived to
fight another day. Oil closed at $43.94 but the
uptrend is still alive.

The uptrend in oil is the only uptrend still alive.
The Dow closed at 9815 and a level not seen since Nov
2003. This was the low for the year and a significant
breakdown. The -324 (-3%) loss for the week was minor
compared to the hit in the Nasdaq. The Nasdaq closed
at 1776 and lost -110 points, -5.8% for the week.
Considering we actually traded up on Mon/Tue it shows
how negative the last two days have been. The Nasdaq
is -10% YTD and the SOX is down -30% YTD. The bears
have come out to growl and the bulls are running
scared.

The Dow broke under 9800, a level most would not have
believed possible only a few weeks ago. By breaking
the May lows the index has now setup a retest of 9500
and a -38% retracement of the rally from the Mar-2003
low. This would have been an unheard of retracement
back June but times have changed. I preached about
the coming summer event risk for the last three months
until I felt everyone was tired of hearing it. Well
boys and girls it is here to liven up our August.

The Jobs report is smoke. Yes, it was bad relative to
the prior six months results but it was still positive.
The economy is still growing as evidenced by the various
economic reports just slower than hoped. This is a
normal summer slump aggravated by the terror event risk.
Companies are doing exactly what they did before the
war. They are holding off on purchases and hiring
until the risk of a major attack passes. Add in the
election uncertainty and you get a market with no
buyers. Those investors who were considering remaining
long and toughing it out are then shaken out of their
convictions by things like the Jobs numbers.

Those convictions were definitely shaken today. Not
only did the Dow drop to new lows and the Nasdaq
break the 1800 support line but the SPX completely
lost the 1070-1080 numbers I wrote about Thursday
night. SPX 1080 was the 200 week moving average and
1068-1070 was a double Fib retracement level. All of
this support should have held better than it did. The
1070 level did hold until 2:PM but finally caved in
at the close. Volume increased and internals crumbled
once that level failed.

SOX Chart – Weekly


Russell Chart – Weekly



This sets up a serious situation for Monday. We can
hope for an opening rebound back above the 1070 level
to calm those itchy trigger fingers but without a
major change in sentiment it could be only a temporary
reprieve. We can hope for a rebound into the FOMC
meeting on the chance they will not hike rates again
but the odds of that happening are still slim. Even
if the Fed did not hike it will not provide a lasting
bounce. It just removes one minor reason for concern
and adds another level of economic uncertainty.

The challenge in our future is not the Olympics. With
a million people coming to town it should not be hard
to sneak in a dozen or so. However bad and unfortunate
an attack would be, unless they found a nuke or were
successful in some kind of biological spread, this is
not going to be an earthshaking risk for the U.S.
However, people are seeing it as a strong negative
and electing to move to the sidelines. I do not think
the risk is worth the selling but it is not my money.
The real risk is the week following the Olympics
when the Republicans come to New York. If NYC goes
to the same security lengths as Boston did then the
convention should be safe. Again, it is not the event
itself but the perception of the risk.

Al Qaeda is not going to attack where we expect them
to attack and that is the real problem. I have little
doubt they will try to disrupt the election because
they proved they could do it in Spain. That means
sometime in the next 90 days we will wake up to a
surprise and this is what the market fears not the
loss of jobs.

Traders seem to need an excuse to push themselves off
dead center and there are plenty of excuses appearing
on a daily basis. What these events have done is push
stocks back down to where real value has begun to
appear and those funds sitting on cash have got to
be drooling about the opportunities ahead. The PE
on the S&P has declined to only 16 times expected
2005 earnings after an earnings cycle that exceeded
all expectations. Yes, I know there was much more
inline guidance and a few more earnings misses but
overall earnings were well over +20%.

Experienced investors understand that historically
August is not kind to investors. Over the last 15 years
August has been the worst month of the year for the
Dow and S&P and the second worst month for the Nasdaq.
It appears that despite the event risk, soaring oil
and weak economics we are right in line with the
historical trend. The key is not why the markets
are dropping but what are you going to do about it
and more importantly when?

Based on the commentary above I would say our buying
opportunity is not over. I see no reason to rush into
stocks regardless of how low priced they seem. The
normal summer weakness tends to climax with a sharp
drop in September and October. Considering the NYC
convention ends on Thursday Sept-2nd and Labor Day
is Monday Sept-6th I would want to have all my ducks
lined up by Sept-7th. The seven weeks between Labor
Day and the election should be considered bargain
days in the market. I would begin taking small
positions with an eye on the market direction. We
know that historically the markets tend to react
strongly once the election is over and with literally
hundreds of billions waiting in cash on the sidelines
the last two months of 2004 could be very strong. Of
course that assumes there is no earthshaking terror
event on U.S. soil before the election concludes.

That leaves us in window-shopping mode for the next
three weeks. We will see more selling and some short
term rallies but I would be surprised to see any
rebound stick. When the markets go directional as
they did this week they tend to do everything to
excess. This means there are probably lower lows
ahead and I would not discount the potential for
the Dow to test 9500. Nasdaq 1703 is a 50% retracement
of the March-2003 low to the Jan-2004 high. I would
think that is a safe bet given the current sentiment.
1600 is actually stronger support as a confluence of
the Oct/Mar Fib levels but it would take a real washout
to see that level again. However the timing would
correspond to the next major target on the SPX of the
50% retracement level at 965. The 965 level has been
targeted by hard core bears for months and I am
beginning to see that as a possibility. Slim but
still a possibility.

Since the market exists to confound the most traders
and all analysts those numbers are far from set in
stone. As I sit here and look at the SPX chart I find
it hard to believe 965 is a target but my bias is
clouding my vision. Meanwhile the increase in volatility
is providing great trading opportunities. The back to
back triple digit moves on the Dow and the -5% Nasdaq
drop for the week gave everyone something to trade. I
don't know if I could stand that much volatility for
the next three weeks but I will definitely try. More
than likely we will find a range before next Friday
to wait out the Olympics on minimal volume. Once we
hit that range I would spend more time researching
stocks/LEAPs you want to add to your long term portfolio
than worrying about the day to day changes in the market.
If you are not a trader the next three weeks should be
ignored. If you are a trader then cinch up that seatbelt
and join the party.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


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

Futures wrap is not emailed due to the excessive number of charts.
It may be read on the website at this address.
http://www.OptionInvestor.com/indexes/futureswrap.asp


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

Double whammy: oil and jobs
By Leigh Stevens
lstevens@OptionInvestor.com

THE BOTTOM LINE –
Record oil prices and too few new jobs was a big double whammy
for stocks this past week, causing the indices to sink to new
lows in a decline that's now about 5 weeks old.

The last time I wrote two weeks ago I saw some rally potential
and the S&P 500 (SPX) did rebound from the 1080 area to 1105 or
so and the Nasdaq Composite (COMP) from around 1830 up to 1895
over the week that following. This was short-lived and this past
week saw this ground given back fast and then some.

To keep things a bit in perspective: from weekly low to high, SPX
has now retraced 25% of the late-2002 to early-'04 advance, with
the Nasdaq Composite giving back around 36%.  This retracement
has been fast of course, relative to the long advance, but per
the old commodity expression, they always "slide faster than they
glide". The market in rally phases builds in an overly optimistic
earnings expectation and then adjusts – unlike buying, selling
tends to be closer to a one-time decision.

But, says the option trader, should I cover my index puts soon
and look to maybe buy some calls? Probably so – maybe after 1-2
more days of this decline or choppiness, such as into Tuesday.

My indicator of bearish sentiment got to an extreme by Friday.
Traders finally got a healthy dose of fear and went into puts
heavily enough to suggest that the market could be near a
tradable low. This was the only thing that didn't quite fit for
me before – traders were "too" bullish to suggest that that the
1080 SPX low was going to be it for a while.

FRIDAY'S TRADING ACTIVITY –

THE NUMBERS –
The S&P 500 (SPX) fell 16.7 points (-1.5%) to close at 1,063.97
and its lowest close since last December and off 3.5% for the
week. The Dow (INDU) 30 closed at 9,815.33, off 147.7 points
(also –1.5%). The Dow fell over 300 points over Thursday and
Friday, reaching a low point not seen since late-November.

The Nasdaq Composite (COMP) fell 44.74 (-2.5%) to 1,776.9. You
have to go back to a year ago August to equal this close. For the
week, COMP was down almost 6% in a tech wreck.

REPORTS & ECONOMIC NEWS –
The big shock Friday was of course the Labor Department's report
that the U.S. economy only added 32,000 non-farm payroll jobs in
July, compared with about 230-235,000 expected.

To add insult to injury, payroll growth in May and June was
revised lower by a cumulative 61,000, as well. The unemployment
rate fell to 5.5 percent from 5.6 percent. Of course, the
Administration could tout this drop but the market is influenced
by job creation as it discounts or assesses the coming months
ahead.

As has been the case this year, this was THE report for the month
as job creation is what can fuel continued consumer spending –
certainly business spending remains relatively lackluster.

Bonds rallied strongly after the report, which showed the worst
monthly job growth this year. The benchmark 10-year note jumped 1
and 16/32, to 104 and 7/32 to yield 4.22%, down substantially
from a yield of 4.4% on Thursday.

OTHER MARKETS –
The big OTHER market this past week was crude oil, which fell off
a bit on Friday but after setting a record price. September crude
futures closed off 46 cents to $43.92 a barrel, after climbing to
as high as $44.65, a new record.

Most of this climb in Oil prices is attributed to unrest in the
middle east and Russian supply disruptions real or imagined.
Most of it is a "risk premium" and not related to current supply
and demand conditions.

U.S. crude inventories are at a "comfortable" level, near the
300,000-barrel level. The Strategic Petroleum Reserves have been
increased for emergency use. The Russian dilemma over Yukos oil
company is reported to be closer to a short-term resolution.

Some oil traders in the know suggest that prices could drop back
under $40 in the coming month, but may also hit $45 a barrel
first, even $50 as a wild card possibility.  Even with a fall in
oil prices ahead, gasoline prices would typically continue to
rise over the next 30 days or so due to the lag in refining – not
good for the summer driving season.

In currency trading, the dollar was off 1.2% against the yen, at
110.36 yen and lost 2% against the euro, with its close at
$1.228 in New York.

MY INDEX OUTLOOKS –

S&P 500 Index (SPX) – Daily chart:

Based on the area reached on the downside on Friday of this week,
relative to my lower trading envelope (3% under the 21-day moving
average) and the accompanying "gap", the S&P 500 (SPX) should not
have much further downside potential left.  Perhaps a bit lower
such either on Monday or a mild rebound and then another slide to
the lows or a bit lower such as 1060-1058, but further downside
from here is not huge in my estimation.

The slight price "gap" that occurred as Friday's high was below
Thursday's low is important from a technical standpoint. I would
anticipate a rally back to that gap area around 1080 in the not
too distant future which would then be met with renewed selling –
a close above this area, if it held as support on subsequent
pullbacks, would be a key way to measure further rally potential
beyond just an oversold rebound.




An indicator I rely on very much and that has finally given a
solidly bullish reading is my call to put ratio for daily CBOE
equities options, as it fell to under "1" on Friday since put
volume was greater than calls.  As you can see from the chart
above, such low readings often, not always, occur in clusters at
significant bottoms – enough so to pull the 5-day average down
closer to the line.

However, any 1-day reading like the one on Friday is enough to
suggest that the market is at or near a low within 1-5 trading
days assuming my other main indicators line up bullishly also –
more on my "tree of indicators" further on.

S&P 100 Index (OEX) – Daily chart:

Near-term, I don't have objectives much beyond 520 – allowing
some slippage, perhaps to 518.  I don't think the S&P is headed
to the 500 area again, certainly not near-term.  The 530 area is
key resistance and I would expect a rally back to this area this
(coming) week.  However, more selling should be expected on a
rebound to this area.




The OEX is about as oversold as it tends to get without at least
going sideways to "throw off" some of the oversold condition.
The new low was "confirmed" by a similar new low in the RSI, so
there is not bullish divergence that set up.  This market is
adjusting to a new set of economic and earnings assumptions.

S&P 100 Index (OEX) – Hourly chart:

As you can see by how I have outlined it, the OEX is near the low
end of its hourly downtrend channel – this at least suggests that
the decline will likely slow.  The steep declines tend to occur
for the top of these channels when the index is in a downtrend;
i.e., anytime we have a pattern of lower rally peaks and lower
lows.




Of course the S&P 100 is oversold short-term so the potential for
a rebound is there. Those who come in and buy OEX puts on Monday
morning are snoozing – too late to get into a winning situation
most likely.

S&P Main Indicators:

The red arrows are areas where my "tree of (main) indicators" for
the S&P segment of the market were lined up to suggest a top.
The green arrows show the reverse.  The Up Volume indicator is
mostly only useful to show a bottom, so no red arrows there.

The indicators are all getting into bullish readings and the S&P
500 index could find some support at the low end of its downtrend
channel.  The rally potential on a first rally might not be much
however – I think more bearishness will build up first.




The volume indicator is one that I have not shown as much in my
column but will start to include it when it could be suggesting
that it is reaching the area where the market typically bottoms.
Looking at the last time that these indicators seemed to suggest
a bottom was early – at least the rally that followed was
limited, not major.

Nasdaq 100 (NDX) Index  – Daily:

As with the S&P indices, the Nasdaq 100 is about as oversold as
it gets and the extension of this decline to the lower envelope
line (4.5% under its 21-day moving average) typically, more or
less, marks the low end of its range.  Some further lows around
1315-1310 will offer some call buying potential, for at least a
rally back up the 1350-1355 area at some point.




I will be watching for a rally attempt, say by Tuesday, then
another decline back toward the lows already established – if put
volumes stay high at that point, this may be a buy point. So much
for my crystal ball – stay tuned for what the market tells us
next.

Nasdaq 100 (NDX) Index  – Hourly:

NDX has reached the lower end of its hourly downtrend channel –
what does this mean?  Not much, except, that it does suggest that
the best part of the decline is over.  The "easy" money so to
speak, for those positioned in puts from the 1380 area
especially, has been made. A next good entry for puts may come
with a rebound back into toward the top of the downside gap area
around 1350.




The hourly chart of the Nas 100 has the same appearance as QQQ's
hourly chart, so I don't include both.  The Q's are also at the
low end of its hourly channel.

Nasdaq 100 tracking Stock (QQQ) Daily:

The $34 area was support – once broken and so decisively, it is a
key near technical resistance as suggested by the green (support)
and red (resistance) arrows on the chart below. The downside gap
area is typically a place that prices come back to.  Next lower
support suggested by going back on the daily chart in QQQ looks
to be 32-32.25.  Resistance as noted is 34. Unless there is a
daily close above 34, and the subsequent ability to hold above
this area, I would anticipate prices trading in a 32-34 range.




There is nothing much volume shows us here – the jump in volume
on the market break on Friday is consistent with a bearish turn
of events.  If it has been low volume, it might have suggested
that the decline would be brief.  On the other hand, many long
holders of the stock sold once the 34 technical support was
decisively penetrated. Not a good day to be a bull.

I would do some buying in the 32 area if reached – a rebound back
to the 34 area at that point is a good bet.

Good Trading Success!


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

Editors Note:

I will be on vacation from Aug-12-21 and there will
be no Editors Plays until the Aug-29th newsletter. I
am not including a new play today since there would
be no follow up. Short any rally!

Busted!

Last week I profiled a put play on the Russell Ishares
but when I reached back into memory for the symbol I
profiled IWN instead of IWM. The IWN was the Russell
2000 Value Index and IWM is just the Russell 2000
Index. The concept of the play was valid for either
symbol but I apologize for the error.

The play called for buying three contracts of the Sept
$160 Put IWN-UL. One at Monday's open and one each on
a touch of IWN $165 and $166. I was expecting a post
convention rebound early in the week but the Sunday
terror announcement killed that possibility.

If you followed the rules you should have filled on
the one contract at Monday's open at $3.10/$3.20. You
would never have filled on the others as the high on
Monday was $164.80 and 20 cents shy of the next target.

The play went as planned with the exception of the
symbol and lack of a meaningful rally (grin) and the
Russell crashed back to earth by Friday's close. The
IWN closed at 157.25 and the Sept-160 put was $6.00
by $6.10. Not bad for a busted play.

The target on the play was $155 and we are very close.
I would set a stop at $5.00 and let it run in hopes
the August weakness continues.

IWN Chart





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


QQQ Update  $32.74

The target to exit the call was $35.50 and the Monday
high for the week was $35.02 with the call at 70 cents.
We did not hit the exit target but since the strategy
for the week was to bail out of the position I hope
everyone took advantage of the near miss to exit.

http://members.OptionInvestor.com/editorplays/edply_072504_1.asp

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

Microsoft Update  $27.14

Microsoft cooperated with us and traded down to $27.06
and well below out $27.50 target exit. The $27.50 put
traded as high as 70 cents with our cost was only a
quarter. In this case the parachute functioned perfectly.


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

News Corp Update $32.29

NOTE: After today I am moving this play to the LEAPS
section for future coverage.

Ouch! The -$7.75 hit to BskyB on the 4th knocked NWS
for a loss back to $32.90 after trading as high as $34.65
for the week. NWS has a big stake in BskyB and received
a sharp haircut for its trouble. With the market negative
there is still no premium in the $35 calls to justify
selling calls against our leaps. We have plenty of time
before the move to the U.S. occurs.

Current position: Long (6) Jan-2006 $40 Calls WLN-AH @ $3.83

http://members.OptionInvestor.com/editorplays/edply_041104_1.asp

http://members.OptionInvestor.com/editorplays/edply_041804_1.asp


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

PVN Call Update $13.20

http://members.OptionInvestor.com/editorplays/edply_061304_1.asp


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

New Lows
- J. Brown

Bearish, fearful, concerned, confused, and weary are just some of
the choices one could use to describe investor sentiment.  Now
that the major indices and a good number of sector-specific
indices are hitting new lows for the year it's hard to find
anything to be bullish about.  Even oil stocks, which have been a
pillar of strength in this market, have seen some sharp selling
in spite of crude oil all-time highs.

This column has mentioned the impact of crude oil on the markets,
the economy and the consumer before and nothing has changed.  The
high price of crude remains a significant threat to our economic
recovery.  There does seem to be a split in the analyst
community.  Some believe crude will fall back towards $35 a
barrel by the U.S. November elections compared to the other side
who believe crude will hit $50.00.  Of course we could see both.
It would not surprise me to see crude soar to $50 on some sort of
news and or terrorist event to then only fall back in a massive
bout of profit taking (maybe I'm just being optimistic on the
sell-off).  If this dance between the Kremlin and Russian oil
producer Yukos would end we'd probably see oil ease a bit.

Believe it or not the jobs picture managed to overshadow crude
oil's grip on the markets this past Friday but not in a good way.
I won't go into details since this weekend's market wrap covers
the job report more in depth but needless to say the 200,000 miss
is a big one.  If you consider the revisions to the previous
reports we actually lost jobs in July.  This not only raises huge
doubts on the strength of the economy but it throws the upcoming
presidential election into more turmoil, if that was possible.

Market internals are certainly painting a bearish picture.
They've been pretty negative for the last two sessions.  Friday
saw declining stocks outnumber advancers by more than 2-to-1 on
the NYSE and almost 4-to-1 on the NASDAQ.  Down volume was about
5-to-1 over up volume on the NYSE and more than 8-to-1 on the
NASDAQ.

Volatility indices, which were traditional gauges of investor
sentiment, are rising fast.  They are all near bullish reversal
levels but they have not yet hit their highs seen in May.
Unfortunately, interpreting the VIX/VXO/VXN is more art that
science.  I can't say that if the VIX/VXO hit 21-22 the markets
will immediately rebound. These volatility indices could always
go higher but no one really expects them to rise to the levels
they saw in 2001-2002.  What I can say that the higher these
indices rise the higher the odds are that we're near a short-term
bottom.  This makes it somewhat dangerous to consider new bearish
positions even through everything appears to be breaking down.

Next week will be driven by concerns over economic data, mainly
the FOMC meeting and expected rate hike on Tuesday and the host
of reports out Thursday and Friday.  As we approach the end of
the week and the beginning of the Olympics we could see investors
move to the sidelines over fears of a terrorist event in Athens
sending stocks lower worldwide.  This could easily muffle any
sort of oversold bounce if one does decide to show up.

Trade carefully and watch your stops.


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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  8997
Current     :  9815

Moving Averages:
(Simple)

 10-dma: 10045
 50-dma: 10193
200-dma: 10226



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  960
Current     : 1063

Moving Averages:
(Simple)

 10-dma: 1092
 50-dma: 1108
200-dma: 1108



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1204
Current     : 1315

Moving Averages:
(Simple)

 10-dma: 1377
 50-dma: 1420
200-dma: 1446



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

CBOE Market Volatility Index (VIX) = 19.34 +1.02
CBOE Mkt Volatility old VIX  (VXO) = 20.23 +2.11
Nasdaq Volatility Index (VXN)      = 27.45 +1.26


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

          Put/Call Ratio  Call Volume   Put Volume

Total          1.38        753,807     1,042,286
Equity Only    1.28        535,745       683,184
OEX            0.78         54,529        42,303
QQQ            3.88         72,091       279,918


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

Bullish Percent Data

           Current   Change   Status
NYSE          55.1    - 2     Bear Confirmed
NASDAQ-100    28.0    - 5     Bear Confirmed
Dow Indust.   53.3    + 0     Bear Confirmed
S&P 500       49.0    - 3     Bear Confirmed
S&P 100       50.0    - 4     Bear 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: 1.91
10-dma: 1.44
21-dma: 1.37
55-dma: 1.22


Extreme readings above 1.5 are bullish, and readings below .85
are bearish.  These signals don't occur often and tend be early,
but when they do, they can signal significant market turning
points.


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

Market Internals

            -NYSE-   -NASDAQ-
Advancers     933       640
Decliners    1902      2387

New Highs      22        14
New Lows      107       240

Up Volume    277M      175M
Down Vol.   1493M     1490M

Total Vol.  1782M     1672M
M = millions


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

Commitments Of Traders Report: 07/27/04

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the
Chicago Mercantile Exchange and Chicago Board of Trade. COT data
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs tend
to be wrong.

S&P 500

Commercial traders haven't made any big bets but the data
we're looking at doesn't reflect the big sell-off in the last
two days.  Small traders remain bullish as of this report.

Commercials   Long      Short      Net     % Of OI
07/13/04      407,166   416,869   ( 9,703)   (1.2%)
07/22/04      404,828   419,017   (14,189)   (1.7%)
07/27/04      397,354   422,914   (25,560)   (3.1%)
08/03/04      401,619   419,429   (17,810)   (2.2%)

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

Small Traders Long      Short      Net     % of OI
07/13/04      133,935    95,787    38,148    16.6%
07/22/04      138,123    94,990    43,133    15.5%
07/27/04      135,136    90,433    44,703    19.8%
08/03/04      128,510    88,833    39,677    18.3%

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

Not much movement in the e-minis from commercial traders.  Small
traders have turned a bit more bullish, but again this is before
the big sell-off.


Commercials   Long      Short      Net     % Of OI
07/13/04      265,142   427,017   (161,875)  (23.4%)
07/22/04      309,972   428,240   (118,268)  (16.0%)
07/27/04      337,615   429,477   ( 91,862)  (12.0%)
08/03/04      340,053   428,736   ( 88,683)  (11.5%)

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
07/13/04      225,410     57,699   167,711    59.2%
07/22/04      212,078     62,416   149,662    54.5%
07/27/04      186,211     68,930   117,281    46.0%
08/03/04      195,105     68,717   126,388    47.9%

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


NASDAQ-100

Commercial traders have reversed their previous gain by
paring their longs and adding to their shorts.  Meanwhile
small traders have turned bearish again.

Commercials   Long      Short      Net     % of OI
07/13/04       44,211     37,007     7,204    8.9%
07/22/04       45,069     37,975     7,094    8.5%
07/27/04       43,042     35,935     7,107    9.0%
08/03/04       42,771     36,863     5,908    7.4%

Most bearish reading of the year: (21,858)  - 08/26/03
Most bullish reading of the year:  25,160   - 06/01/04

Small Traders  Long     Short      Net     % of OI
07/13/04        7,847    15,243    (7,396)  (32.0%)
07/22/04        9,398    11,776    (2,378)  (11.2%)
07/27/04       14,543    14,518        25     0.0%
08/03/04        8,995    13,901    (4,906)  (21.4%)

Most bearish reading of the year: (20,270) - 06/01/04
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

Commercials seem to be taking some money off the table as
their bullish stances seems to waver a bit here.  Small traders
pared back their longs and their shorts but remained net
bearish.

Commercials   Long      Short      Net     % of OI
07/13/04       27,773    20,573    7,200      14.9%
07/22/04       27,957    20,389    7,568      15.7%
07/27/04       27,577    21,427    6,150      12.5%
08/03/04       30,118    25,029    5,089       9.2%

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
07/13/04        5,292     9,068   (3,776)   (26.3%)
07/22/04        4,857     7,297   (2,440)   (20.1%)
07/27/04        5,310     6,099   (  789)   ( 6.9%)
08/03/04        4,325     5,212   (  887)   ( 9.3%)

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

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


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

Jeff,

I have been playing with options for several years now (with OI's
help) and enjoy the action, but I am a rookie.  Over the past
couple of days, compared to today's close, I've lost about 35% of
the value of my positions from being stopped out at the low trade
of the day.  After the lessons from a few years ago, I know that
stops are important, but I never seem to hit them correctly.

Unfortunatly, I have a job and can't watch the markets during the
trading hours.  Do you have some tips for those of us that can't
trade on interday happenings?

Thanks in advance,

Randy

Jeff's reply:

Yes.... I have a tip or two.  Read some of these "Ask the
Analyst" columns.  Your paying for a subscription, you might as
well get your money's worth.

"Your account is your business" 11/07/2002

"Position size is up to you" 06/20/2004

Randy:  The REASON OI play writer's profile a STOP in an OPTION
is because too many OPTION traders OVERLEVERAGE in options.  A
trader that buys 10 calls, or 10 puts in a $100 stock is saying
"I'd buy/short 1,000 shares of a $100 stock in my account, and
still not exceed the 10% rule for my account."  Too many traders
trading a $10,000 account OVERLEVERAGE when they buy 10 call/puts
on a $100 stock, then they MUST use a stop on the option,
sometimes getting stopped out right at the wrong time, never
getting a chance to let the trade work.

"Risk/Reward, Point and Figure, and minimizing risk with options"
05/04/2003.

Hope these help, but THINK about them, then REVIEW what YOU are
doing in YOUR account, then GO BACK AND REVIEW your LOSING
TRADES, not just from point of being stopped for a loss, but the
days, weeks that followed.

For those of you that DO USE STOPS IN YOUR OPTIONS, I STRONGLY
SUGGEST you review THOSE TRADES YOU WERE STOPPED OUT OF!  Where
are they now if the OPTION has NOT expired?

Hey.... could you quickly send me the stocks/options you've
played lately?  I would like to use them as examples (good or
bad) in the Ask the Analyst column.

YOU will remain anonymous in the article.

(End of Jeff's reply)

Jeff,

Thanks for the tips--I'll keep reading! I am a little
embarrassed, but here are some of the errors I made this week.

(Jeff's thinking... hey, at least this guy is serious, he's
actually reviewing his trades.... excellent!)

1.  I had a couple of what I call runners and could not decide
what to do with them.  All I knew was that I wanted to protect
the gains. (Jeff remembers the saying... I've never met a poor
man that takes a profit).

-Bought Oct 60 NUE calls at 6.10 set stop at 17.50 executed at
17.20.
-Bought Oct 35 TXI calls at 3.00 set stop at 8.00 executed at
7.40.

2.  Got scared--
Bought August 27.5 DISH puts at .60 stop set at .70 executed at
65

3. Tried a couple of short term plays and held over earnings
based on last year's market (maybe stupid buys, and after today,
glad I got stopped)

Bought August 22.5 calls TXN at 2 stop and execution at .50
Bought August 15 MOT calls at 2.30 stop and execution at 1.30

4. I liked this stock and it climbed nicely today.  Bought August
12.50 calls DHB at 3.20 stop at 1.50 executed at 1.30.

5. Maybe the worst decision-Bought August 35 IRF puts at 2.20
stop and execution at 1.70.

6. Committed the Cardinal Sin-Held over earnings MMM August 90
calls-now worthless.

Jeff's reply:

Randy:

Good gravy!  Don't be at all embarrassed.  You, I, and others
will make mistakes.  If you ever talk to anyone that says they
never lost on a trade, they're a liar.

OK.... between now and then, I would REVIEW this.

1)  IF NOT stopped out, how would each trade look today?  Between
now and EXPIRATION?  Remember, you paid some premium for time,
did you get your money's worth?

2)  I see a lot of August expirations.  What is an option
trader's BIGGEST risk when trading near-month expiration,
especially when he/she loads up on SEVERAL near-month expirations
(put or call)?  Answer:  When buying a BUNCH of near-month
expiration, the tendency is "to be right quick, otherwise if I'm
not, the more rapid time loss, as well as any Market Volatility
(VIX.X) could have great impact on the option's price.  If
trading near-month expiration and using stops, high likelihood of
getting stopped.  Remember that its tough enough to predict price
movement, let alone predict what options volatility is going to
do to options.  One time I (Jeff Bailey) had an EXCELLENT call
trade on IBM right at a bottom.  However, as the broader market
surged higher, as did IBM, option's volatility PLUNGED from a
high VIX.X.  IBM's STOCK gained big time, but the PREMIUM that
was also built into the calls, worked against me as it premiums
plummeted.  Had I bought more TIME, greater gain would have been
achieved.

3)  See your (Randy's) #2 "I got scared?"  Think about this as
it relates to the number of option contracts you bought (you
didn't disclose), but I'm guessing you OVER LEVERAGED.  I'm
thinking you bought those Aug. $27.50 puts (10 of them, maybe
more?) when the STOCK was below $28.  Now, if you bought 10 puts
(1,000 shares equivalent) would you (Randy) have shorted 1,000
shares of DISH at $28, stop $28.60, target $26.00?  If your
answer is "No, I can't take that kind of heat, let alone afford
to short 1,000 shares of a $28 stock, but I would have shorted
200 shares, and my account size affords me the ability to short
200 shares (2 put options equivalent), then I would have been
willing to risk $0.60 to a stop in the UNDERLYING STOCK.  Now
Randy.... do you see where you can "consign the loss," or assess
risk ahead of time, NOT use a stop and possibly get swung out,
stopped out, of an option trade?

4)  See your #3?  Stupid buys?  Why is that?  I'd make a note
that they are BOTH semiconductor stocks.  OK, might not repeat
that one in the near future, maybe that was "stupid."  After
today (now your looking in the rear view mirror, thinking STOPS
on options are a good idea).  Good gravy!  Does it make sense to
pay $2.00 for an option, then take a 75% loss the next day or
two?  Hey...if you're using a stop on the option, then that's
life.  Before you or I say "and after today, glad I got stopped,"
check these trades in a week or two to solidify this belief.

5)  Check against "in the money" and "out the money."  Sometimes
we buy out the money because they are cheaper, less capital at
risk.  That's fine, UNLESS you use the "lower price" of out the
money to then believe "hey, I can buy more, and OVER LEVERAGE
more."  Ugh!  Sounds like GREED doesn't it?  Hey!  Those OSIP out
the money August $50 puts (GHU-TJ) I've profiled in the Market
Monitor (3 contracts), I'm just above break even after they bid
$2.00 the other morning.  I missed it at the open, and I've been
watching them trade $1.90, $1.80, $1.70, $1.60, $1.50, $1.40,
$1.30, $1.20 to today's close.  GREED is not good! (grin) (Note:
I ended up closing this OSIP put option position for 3 puts
bought at $1.00 when we sold 2 of them at $1.65, and the other
one at $2.20 later in the day.  I will guarantee you if I had
bought 10 contracts, they would have been sold either at a loss,
or relatively break even.)

6)  See you're #1?  Stop!!!!!! Stop!!!!!!!, Stop!!!!!!!!
 NEVER, and I mean NEVER question the RAISING of a PROFIT STOP on
an OPTION to PROTECT GAINS.  Here you CORRECTLY let the MARKET
decide when you take PROFIT!  This is NOT GREEDY.  Helps pay for
those "stupid" trades we take every now and then. (grin)

Traders would beat me down silly if I said.... "that's stupid to
set a profit stop to take a 200% gain, and we got juked out on
the profit stop."  Goodness.... do you know how many traders
would love that problem of idiocy? (I can't stop laughing if we
as traders get frustrated with taking a profit)  Hey... how many
did you buy?  If you're (Randy) still frustrated with the thought
"I got juke out of further gains," maybe next time you could set
a profit stop on 1/2 of you calls.  Leg out of the position.
Then if you get profit stopped out, check back in a week or two.
If calls have fallen further in price, then you're still "happy"
you sold 1/2 of them at higher price.  If you did get "juked out"
and calls are higher a week later, then you're "happy" you've
still got some!  Either way, you've taken care of you're
emotions, and you're happy.  Too often, traders think it is "all
in and all out at once."

When a military general attacks his opponent, does he send all of
his troops into battle at once?  In Iraq, are we withdrawing ALL
of our troops at once?  Trading certainly is not the same thing,
but traders can implement similar strategy by "legging in" or
"legging out" of a position.  The term "legging" in trader talk
means gradual.

When looking to buy "out the money" calls or puts, an EXCELLENT
strategy is to "leg into" a position, especially if buying a
couple of months out in expiration.

For instance, stock you're looking to PUT is trading $24.50, but
you think stock is determined to trade $20 between now and
whatever expiration you are contemplating, and you decide to buy
the out the money $22.50 puts.  There's nothing wrong with the
strategy of saying.... "I believe stock is headed to $20, why not
buy 1/2 of the position now, wait a week, see if stock is
CONFIRMING my analysis/belief."  IF stock is trading $23.50 a
week later, then analysis builds some conviction, trader legs
into the other 1/2 position.

Anyway.... you (Randy) took the time to gather some of your trade
data, and I wanted to respond in this e-mail.

Oh!  Always set a target too!  Here's an article from an "Ask the
Analyst" column from a trader that was trying to figure out how
to manage a profitable put option he held on Federated Dept.
Stores.

Ask the Analyst "Setting profit stops when target is near"
02/23/2003.

By setting TARGETS and utilizing point and figure chart analysis,
it can be VERY helpful in trade management.

(End of Jeff's reply)

Jeff,

I really appreciate the time you have spent with me.  I probably
need to read your emails and links a few more times, but I'd
thought I'd share my initial takeaways.  In general, my strategy
has been to set stops at 50% losses and tighter stops after 100%
gains; however, I usually let my emotions about future market
direction interfere with my plan.  In other words, I need to
rethink my "business plan" and stick to it!  Maybe I need to
start thinking in dollars instead of percentages.  For example,
the 4 dish puts I bought at $0.60, were such a small fraction of
my account that a stop loss did not make any sense.  I have a
small account, so my positions are almost always only 2-4
options.  I try to keep the number of contracts even with
"legging out" as a strategy in mind, but I have rarely done so.
I made some "easy money" in 2003, but have been treading water in
2004 (but my online broker is happy with me).

Although I have not learned to fully understand P&F charts, I
understood the value of your FD example completely and can think
of many examples of -- had I used that technique I would have
enhanced my account (and peace of mind).  I bought one OSIP July
65 put on 6/21 at $3.00 and was stopped out on 6/22 at $1.50, but
I have been watching the stock since.  Do you mind sharing what
your play has been with it?  I am not happy treading water, so
will be working hard over the next couple of months to increase
my knowledge.

Thanks, and I'll stop bugging you soon,

Randy

Jeff's reply:

I had profiled a bearish trade for OSI Pharmaceuticals
(NASDAQ:OSIP) on July 19, 2004, where based on technical analysis
using BOTH a bar chart and the point and figure chart from
www.stockcharts.com (which you can view for FREE at their
website), decided that out-the-money August $50 puts (GHU-TJ)
would be a good option play based on what the MARKET and the
biotech SECTOR was doing.

OSI Pharmaceuticals (OSIP) - Daily Intervals



On July 19, 2004, I thought a put play in OSIP might be a good
trade.  I had been observing stocks "gravitating" toward their
200-day SMAs, which I'm sure other market participants had been
observing.  Some fitted retracement work gave hint that the stock
might trade to at least the lower part of a "zone of support"
from $52.83-$56.64.  At the time (July 19) the point and figure
chart of OSIP had its bullish support trend at $50, which I
consider to be a longer-term support trend and good target.

Now, on July 22, I was running late with the 09:00 intra-day
update upload and e-mail, and all be darned if OSIP didn't gap
lower at the open.  I had placed a QCharts alert at $54 so that
I'd be alert that this option trade would be close to a 100%
gainer after just three-days had passed since profile, and that
might be an enjoyable trade for subscribers.  Well, I missed it.

Now.... have YOU (the reader of this article) ever found yourself
"wishing" you had close out a trade?  Remember my talk with Randy
about watching those puts go from $1.90 bid, to $1.80, $1.70,
... $1.20?

I often find that when I "wish" I had done something, when given
a second chance (which the market will often provide) it's a good
time to take it.

On July 26, and after having watched these options go from a 100%
gain to $0.90 bid, OSIP gave us a second chance.  But like Randy,
I suddenly became "certain" of my analysis.  So certain (grin)
that I decided it best to "leg out" of the position and sell 2 of
those puts at $1.65.  Remember, I "wished" I had sold them a
couple of days ago at $1.90, $1.80, $1.70, $1.60, $1.50.....

Later in the day, as OSIP looked like it was falling apart, I
thought.  Hmmm.... $2.20 bid on a $50 puts.  Do you (Jeff Bailey)
really think this thing can trade $47.80 ($50-$2.20 = $47.80) and
break below that bullish support trend on your point and figure
chart?

What do you think of the above bar chart of OSIP as it relates to
my YELLOW zones?  Is OSIP currently trading in a "zone of
support," or is my original analysis and lower YELLOW zone going
to be the "zone of support?"

Now put yourself in the position of previously "wishing" you had
taken a profit, then saw it evaporate, then find the profit
reappear.

Good gravy man!  Take your profits!

One trader asked me why I closed the position out entirely when
the stock looked so weak.  I didn't really have a quick reply,
other than to say we had a nice profit, it evaporated, then we
had the opportunity to take the profit again.

Another question was, why 3 put options?  Doesn't that violate
you OptionInvestor.com Market Monitor portfolio trading size of
$10,000 in the underlying security?

Yes it does.  But if I had profiled 1, or 2 put options ($10,000
/ $58 stock = 172 shares) was it worth $100, or $200 plus
commissions to try for a quick 100% gain?  Maybe, maybe not.

Another question was, why not just short it, use a tight stop
instead of paying $1.00 per contract premium?  This one is SO
EASY.  Remember my (Jeff Bailey's) rule of NOT SHORTING BIOTECH
STOCKS?  See that little gap higher to the left of the chart from
about $38.65 to $77.00?  A "tight stop" would have done NO GOOD
that day.

Let me share a FEAR I had this week with you.  Those of you that
took my bearish day trade short in biotech Protein Design Labs
(NASDAQ:PDLI) from $16.80 to the MANDATORY close out before the
close to $16.47, during the late afternoon, my heart sunk deep in
my stomach when all of a sudden my time and sales suddenly froze,
and the stock stopped trading!

"Oh $*#&$!!!" I thought, it has been halted!  They've discovered
the cure for what ails us!

Whew!  Lucky for us shorts, it was my trading software data feed
that went down.  The stock was still trading as I scrambled to
fire up my Ameritrade Level II quotes.

I don't know what the odds are of being short a biotech when it
moves 100%, 200%, 300% against you, but I believe more in NOT
shorting the underlying stock of a biotech and holding it
overnight, than I do in the belief that I will win the lottery.

I would MUCH rather LIMIT my RISK to a KNOWN amount with a PUT
OPTION, sleep at night, than think about the number of casualties
I've witnessed when a biotech stock is thought to have discovered
the cure for cancer, or some previously untreated ailment.

Jeff Bailey


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

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

Symbol  Co               Date           Comment      EPS Est

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

ACF    AmeriCredit Corp.   Mon, Aug 09  After the Bell       0.34
ADRX   Andrx Corporation   Mon, Aug 09  -----N/A-----        0.33
ANPI   Angiotech Pharm     Mon, Aug 09  After the Bell      -0.10
BAB    British Airways     Mon, Aug 09  Before the Bell       N/A
CVC    Cablevision Systems Mon, Aug 09  Before the Bell     -0.40
DQE    Duquesne Light HldngMon, Aug 09  Before the Bell      0.26
FLA    FL East Coast Ind   Mon, Aug 09  Before the Bell      0.15
JHX    James Hardie Ind    Mon, Aug 09  After the Bell        N/A
GAS    Nicor Inc.          Mon, Aug 09  Before the Bell      0.19
ONXX   Onyx PharmaceuticalsMon, Aug 09  After the Bell      -0.31
PSUN   Pac Sunwear of Cali Mon, Aug 09  After the Bell       0.23
KPN    Royal Kpn N.V.      Mon, Aug 09  Before the Bell       N/A
SGY    Stone Energy        Mon, Aug 09  After the Bell       1.45
TOUS   Tech Olympic USA    Mon, Aug 09  After the Bell       0.49
PGR    The Progressive CorpMon, Aug 09  -----N/A-----         N/A
UCOMA  UnitedGlobalCom     Mon, Aug 09  -----N/A-----       -0.03
WSC    Wesco Financial     Mon, Aug 09  -----N/A-----         N/A


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

ANF    Abercrombie & Fitch Tue, Aug 10  After the Bell       0.41
ATO    Atmos Energy Corp   Tue, Aug 10  After the Bell       0.02
CHD    Church & Dwight Co. Tue, Aug 10  Before the Bell      0.44
CSCO   Cisco Systems       Tue, Aug 10  After the Bell       0.20
CCH    Coca-Cola Helnc BttlTue, Aug 10  Before the Bell      0.62
CSC    Comp Sciences Corp  Tue, Aug 10  After the Bell       0.57
DISH   EchoStar Comm Corp. Tue, Aug 10  Before the Bell      0.23
FOSL   Fossil, Inc.        Tue, Aug 10  Before the Bell      0.17
FS     Four Seasons Hotels Tue, Aug 10  Before the Bell      0.35
HSP    Hospira             Tue, Aug 10  Before the Bell      0.33
OSIP   OSI Pharmaceuticals Tue, Aug 10  After the Bell      -1.18
PRGO   Perrigo             Tue, Aug 10  Before the Bell      0.13
TEO    Telecom Argentina   Tue, Aug 10  After the Bell      -0.36
MAY    May Depart Stores CoTue, Aug 10  Before the Bell      0.35
DIS    Walt Disney         Tue, Aug 10  After the Bell       0.27


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

AAP    Advance Auto Parts  Wed, Aug 11  After the Bell      0.69
ABV    AmBev - Comp BebidasWed, Aug 11  -----N/A-----       0.28
ANN    AnnTaylor Stores    Wed, Aug 11  After the Bell      0.40
RMK    Aramark Corporation Wed, Aug 11  Before the Bell     0.34
AVT    Avnet               Wed, Aug 11  After the Bell      0.39
BSG    BISYS GROUP INC     Wed, Aug 11  -----N/A-----       0.17
EAT    Brinker Internatl   Wed, Aug 11  Before the Bell     0.71
BUH    Buhrmann NV         Wed, Aug 11  Before the Bell      N/A
CGT    CAE                 Wed, Aug 11  Before the Bell      N/A
RIO    Comp Vale Rio Doce  Wed, Aug 11  After the Bell      0.97
FD     Fed Depart Stores   Wed, Aug 11  Before the Bell     0.61
FOX    Fox Entertain Group Wed, Aug 11  After the Bell      0.29
MIM    MI DEVS INC         Wed, Aug 11  Before the Bell     0.48
NVO    Novo-Nordisk        Wed, Aug 11  Before the Bell      N/A
LQU    Quilmes Industrial  Wed, Aug 11  After the Bell      0.22
NWS    The News Corp Ltd   Wed, Aug 11  After the Bell       N/A


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

AEG    AEGON N.V.          Thu, Aug 12  -----N/A-----         N/A
A      Agilent TechnologiesThu, Aug 12  After the Bell       0.28
AEOS   Am Eagle Outfitters Thu, Aug 12  Before the Bell      0.36
ADI    Analog Devices Inc. Thu, Aug 12  After the Bell       0.45
BEAS   BEA Systems         Thu, Aug 12  -----N/A-----        0.07
CSB    Ciba Spec Chems HldgThu, Aug 12  Before the Bell      0.55
DELL   Dell, Inc.          Thu, Aug 12  After the Bell       0.31
DT     Deutsche Telekom    Thu, Aug 12  Before the Bell       N/A
DEX    Dex Media, Inc.     Thu, Aug 12  Before the Bell       N/A
EON    E.ON AG             Thu, Aug 12  Before the Bell       N/A
FMD    Frst Marblehead CorpThu, Aug 12  Before the Bell      0.68
KSS    Kohl's              Thu, Aug 12  After the Bell       0.43
0494.HK  Li & Fung Limited Thu, Aug 12  -----N/A-----         N/A
MTA    Matav               Thu, Aug 12  -----N/A-----         N/A
PBY    Pep Boys            Thu, Aug 12  Before the Bell      0.37
SPI    ScottishPower       Thu, Aug 12  -----N/A-----         N/A
TGT    Target Corporation  Thu, Aug 12  Before the Bell      0.47
TIF    Tiffany & Co.       Thu, Aug 12  Before the Bell      0.29
UBB    Unibanco            Thu, Aug 12  -----N/A-----        0.70
URBN   Urban Outfitters    Thu, Aug 12  Before the Bell      0.20
WMT    Wal-Mart Stores Inc.Thu, Aug 12  Before the Bell      0.60
WTW    Weight Watchers IntlThu, Aug 12  After the Bell       0.49


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

ERJ    Embraer-Empresa BrasFri, Aug 13  -----N/A-----        0.45
SCM    Swisscom AG         Fri, Aug 13  Before the Bell       N/A


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

Symbol  Co Name              Ratio    Payable     Executable


CAPX    Capital Crossing Bank     2:1      Aug   9th   Aug  10th
QCOM    Qualcomm Inc              2:1      Aug  13th   Aug  16th
RNT     Aaron Rents, Inc          3:2      Aug  16th   Aug  17th
WIRE    Encore Wire Corporation   3:2      Aug  16th   Aug  17th
BOCH     Bank of Commerce Holdings3:1      Aug  16th   Aug  17th
IMGC    Intermagnetics Gen Corp   3:2      Aug  17th   Aug  18th
POT     Potash Corp Saskatchewan  2:1      Aug  17th   Aug  18th
JOSB    JoS A. Bank Clothiers Inc 5:4      Aug  18th   Aug  19th
HTLD    Heartland Express         3:2      Aug  20th   Aug  23rd
TOX     MEDTOX Scientific, Inc    3:2      Aug  20th   Aug  23rd

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

The Q2 earnings season is starting to slow down this week.
Wall Street's focus will be on the Tuesday FOMC meeting and the
expected 1/4 point hike.  Thursday and Friday are very busy with
lots of economic data being released.  Friday's PPI report is
probably the big one to watch.

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

----------------
Monday, 08/09/04
----------------
Wholesale Inventories (DM) Jun  Forecast:    0.6%  Previous:     1.2%


-----------------
Tuesday, 08/10/04
-----------------
Productivity-Prel (BB)      Q2  Forecast:    2.0%  Previous:     3.8%
FOMC Meeting on monetary policy (DM)


-------------------
Wednesday, 08/11/04
-------------------
Treasury Budget (DM)       Jul  Forecast: -$60.0B  Previous:  -$54.2B


------------------
Thursday, 08/12/04
------------------
Initial Claims (BB)      08/07  Forecast:    340K  Previous:     336K
Business Inventories (BB)  Jun  Forecast:    0.5%  Previous:     0.4%
Export Prices ex-ag. (BB)  Jul  Forecast:     N/A  Previous:    -0.1%
Import Prices ex-oil (BB)  Jul  Forecast:     N/A  Previous:     0.0%
Retail Sales (BB)          Jul  Forecast:    1.1%  Previous:    -1.1%
Retail Sales ex-auto (BB)  Jul  Forecast:    0.4%  Previous:    -0.2%
FOMC minutes released.

----------------
Friday, 08/13/04
----------------
Trade Balance (BB)         Jun  Forecast: -$46.5B  Previous:  -$46.0B
PPI (BB)                   Jul  Forecast:    0.3%  Previous:    -0.3%
Core PPI (BB)              Jul  Forecast:    0.1%  Previous:     0.2%
Mich Sentiment-Prel. (DM)  Aug  Forecast:    98.0  Previous:     96.7


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


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The Option Investor Newsletter                   Sunday 08-08-2004
Sunday                                                      2 of 5

In Section Two:

Watch List: Two Bullish, Two Bearish
Dropped Calls: ADSK, ETN, FDX, HUG
Dropped Puts: None


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

Two Bullish, Two Bearish

___________________________________________________________________

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.
___________________________________________________________________



Chicago Mercantile Exchange - CME - close: 129.88 chg: +8.63

WHAT TO WATCH: We mentioned CME in the MarketMonitor on Friday.
Shares exploded higher for no apparent reason after dipping under
support at the $120 level and its simple 100-dma.  Volume was
very big at more than twice the norm.  The stock broke through
three-week old resistance at the $127.50 level and closed right
under its 40 and 50-dma's and the $130 mark.  We strongly
considered adding CME to the play list as a call but chose to
pass since we couldn't determine the cause of the rally.  More
aggressive readers may want to consider bullish positions on a
breakout above $130.00.

Chart=


---

LandAmerica Financial - LFG - close: 40.25 change: +1.29

WHAT TO WATCH: Any time a stock can buck the prevailing trend in
the face of a market-wide sell-off it will pique our curiosity.
LFG broke out from its recent trading range and pushed through
round-number resistance at $40.00 and technical resistance at its
simple 100-dma.  Volume was well above normal on the rally yet we
can't find a catalyst for the move.  Readers might want to
consider bullish positions if LFG shows any follow through on
Monday.

Chart=


---

Omnicom - OMC - close: 67.69 change: -1.48

WHAT TO WATCH: We considered adding OMC to the put list this
weekend.  The oversold bounce has completely turned around and
OMC has broken through support at the $68.00 level.  Short-term
technicals are very bearish and its MACD is nearing a new "sell"
signal.  The bearish P&F chart points to a $53 target.  Readers
may want to consider bearish positions on any new weakness with a
$60 target.

Chart=


---

Maxim Integrated - MXIM - close: 44.23 change: -2.35

WHAT TO WATCH: The SOX semiconductor index continues to fall and
is currently testing the trendline of lower lows (a.k.a. the
bottom of its descending channel).  Should the SOX continue to
breakdown then we'd expect MXIM to break support at the $44.00
level.  Should this occur traders could use it as a trigger to
target a drop toward the $40.00 level.  MXIM's bearish P&F chart
has produced a new triple-bottom breakdown sell signal that
currently points to a $38 target.

Chart=



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

IMCL $51.45 -3.93 - IMCL's oversold bounce has turned into a
full-fledged retreat and shares have broken the simple 200-dma.
Aggressive traders might watch for a drop under the $50.00 mark.

DE $57.60 -2.25 - Ouch!  The follow through on DE's breakdown
under the $60 level is sharp.  Volume on Friday's decline was
more than twice the norm.


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**************************
PICKS WE DROPPED THIS WEEK
**************************

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS
^^^^^

Autodesk - ADSK - close: 36.28 change: -2.27 stop: 36.99

Ouch!  We knew that Thursday's breakdown was bad news (and said
so).  The market wide sell-off on Friday and the carnage in the
tech sector hit ADSK for a 5.8 percent drop.  Technicals are very
bearish and while ADSK managed to stop above its simple 100-dma
it may not hold as support.  We were stopped out at $$36.99.  We
would keep ADSK on your watch list as some analyst expect a
rebound in the software sector soon.

Picked on July 30 at $ 40.05
Change since picked:  - 3.77
Earnings Date       08/19/04 (confirmed)
Average Daily Volume:    2.1 million
Chart =


--

Eaton Corp - ETN - close: 61.00 change: -2.95 stop: 61.99

Friday's market weakness hit ETN pretty hard as well.  Shares
fell more than 4.6 percent and broke down through its simple 50-
dma to hit new one-month lows.  Volume on the decline was double
the norm.  While we expect ETN to have some support at the $60.00
level it doesn't look very good.  We have been stopped out at
$61.99.

Picked on July 29 at $ 64.98
Change since picked:  - 3.98
Earnings Date       07/15/04 (confirmed)
Average Daily Volume:    925 thousand
Chart =


---

Fedex Corp - FDX - close: 78.14 change: -1.11 stop: 79.00

As we expected FDX broke down under support at the $79 level and
its simple 50-dma.  The move was lead by a sharp 2.9 percent drop
in the Dow Transports.  Technicals are bearish for FDX and shares
could head lower to retest the $75-76 region as support.  FDX did
gap down on Friday to open at $78.30, which is under our stop
loss at $79.00.

Picked on July 20 at $ 82.81
Change since picked:  - 4.67
Earnings Date       06/23/04 (confirmed)
Average Daily Volume:    1.1 million
Chart =


---

Hughes Supply - HUG - close: 56.81 change: -2.04 stop: 57.75

HUG is another casualty to the market's big drop in the last
couple of days.  Shares have broken down through support at
$58.00 and its simple 40 and 50-dma.  Look for a potential bounce
from the simple 100-dma just north of $55.00.  We've been stopped
out at $57.75.

Picked on July 15 at $ 60.51
Change since picked:  - 3.70
Earnings Date       08/24/04 (unconfirmed)
Average Daily Volume:    288 thousand
Chart =



PUTS
^^^^

None


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


OI  = Open Interest - the number of open contracts outstanding.
Last Trade @ = Indicates where the option traded last.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

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

RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


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DISCLAIMER
**********

Please read our disclaimer at:
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The Option Investor Newsletter                   Sunday 08-08-2004
Sunday                                                      3 of 5

In Section Three:

Current Calls: CCMP, IMO, SYMC, TXT
New Calls: None
Current Put Plays: AMZN, AZO, CAT, CI, EBAY, RIMM
New Puts: DGX, WHR


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

Cabot Micro - CCMP - close: 32.67 change: -1.61 stop: 31.75

Company Description:
Cabot Microelectronics Corporation, headquartered in Aurora,
Illinois, is the leading supplier of CMP slurries for polishing
various materials used in semiconductor manufacturing processes.
The company's products play a critical role in the production of
the most advanced semiconductor devices, enabling the manufacture
of smaller, faster and more complex devices by its customers.
(source: company press release)

Why We Like It:
It's do or die time for CCMP and the SOX semiconductor index.
The SOX has slipped with the NASDAQ to new lows.  However, there
is some small hope for a rebound in the SOX with the index
resting right at the trendline of support of lower lows dating
back several months.  Yet if the SOX doesn't bounce soon then it
could game over for CCMP.  We're actually impressed that CCMP is
holding up so well.  The stock has been churning in its trading
range between $32 and $26 the last couple of weeks.  The test now
is whether or not support at $32 will hold.  Unfortunately,
technicals are turning bearish and CCMP closed under its simple
100-dma, which is normally bad news.  Aggressive traders can
consider a bounce from $32 as an entry point.  The rest of us can
probably wait for a move over $35-36 again.

Suggested Option:
Right now, with the SOX hitting new lows and CCMP nearing support
at $32 we are not recommending new positions.

Annotated Chart:



Picked on August 1st at $35.46
Change since picked:    - 2.79
Earnings Date         07/22/04 (confirmed)
Average Daily Volume =     935 thousand

Chart =


--

Imperial Oil - IMO - close: 47.70 change: -0.69 stop: 46.75

Company Description:
Imperial Oil is Canada's largest integrated oil company and its
largest refiner and marketer of petroleum products with over
2,100 Esso-branded retail sites across the country.
(source: company press release)

Why We Like It:
The sell-off has been so strong this past week that even oil
stocks have been hit with profit taking.  The fact that crude oil
is closing near all-time highs is not enough to save the oil
patch from investor fear.  IMO managed to breakout above the
$50.00 level on an intraday basis earlier in the week but
couldn't hold it.  Then the selling began.  We expected a little
profit taking and outlined a potential bounce from $48 as an
entry point.  Now IMO has broken down under $48.00, its 10-dma,
and 21-dma.  Technicals have turned bearish and shares are headed
toward the $47 level. If IMO doesn't bounce from $47.00 and its
simple 40-dma we're in trouble.  We would not suggest new
positions until IMO traded back above $48.50-49.00.

Suggested Option:
Given the current market environment we are not suggesting new
bullish positions in IMO at this time.  See comments above.

Annotated Chart:



Picked on August 1st at $49.49
Change since picked:    - 1.79
Earnings Date         07/22/04 (confirmed)
Average Daily Volume =      55 thousand
Chart =


---

Symantec - SYMC - close: 45.51 change: +0.10 stop: 42.45

Company Description:
Symantec is the global leader in information security providing a
broad range of software, appliances and services designed to help
individuals, small and mid-sized businesses, and large
enterprises secure and manage their IT infrastructure. Symantec's
Norton brand of products is the worldwide leader in consumer
security and problem-solving solutions. Headquartered in
Cupertino, Calif., Symantec has operations in more than 35
countries. (source: company press release)

Why We Like It:
Relative strength.  That's what bulls should be happy about when
they look at SYMC.  On a day that the NASDAQ lost 2.45 percent
and the GSO software index fell 2.4 percent shares of SYMC
actually closed in the green with a decent bounce off its
intraday lows.  We find this very encouraging and suggests that
when the market does bounce SYMC could be a leader to the upside.

It's worth noting that SoundView came out on Thursday and said
the software sector was extremely oversold and due for a
significant rebound.  Also noteworthy was Piper Jaffray's upgrade
for SYMC from "market perform" to "out perform".  The analyst
also raised their price target on SYMC from $50 to $55.

There has been some concerns in the software security industry
recently about how third-party products will interface with
Microsoft's big update coming out (service pack 2), which is
supposed to seriously upgrade the security on Windows XP.
Fortunately, SYMC announced Friday afternoon that their products
are compatible with service pack 2.

We're still willing to buy a bounce at $44.00 but should it fail
to appear traders can use a breakout above $46 as an entry.  Such
a move would appear to be a bull flag breakout.  Our target
remains the $49.50-50.00 region although the bullish P&F chart
points to a long-term $60 target.

Suggested Options:
We like the August and September calls, specifically the $40 and
$45 strikes.  We'd suggest the September strikes.

BUY CALL AUG 40 SYQ-HH OI= 6156 Current Ask $5.70
BUY CALL AUG 45 SYQ-HI OI=10962 Current Ask $1.50
BUY CALL SEP 40 SYQ-IH OI=  698 Current Ask $6.20
BUY CALL SEP 45 SYQ-II OI=  922 Current Ask $2.60

Annotated chart:



Picked on July 27 at $ 44.91
Change since picked:  + 0.60
Earnings Date       07/21/04 (confirmed)
Average Daily Volume:    5.4 million
Chart =


---

Textron - TXT - close: 61.32 change: -0.71 stop: 59.49

Company Description:
Textron Inc. is a $10 billion multi-industry company with more
than 43,000 employees in nearly 40 countries. The company
leverages its global network of aircraft, industrial and finance
businesses to provide customers with innovative solutions and
services. Textron is known around the world for its powerful
brands such as Bell Helicopter, Cessna Aircraft, Kautex,
Lycoming, E-Z-GO and Greenlee, among others.
(source: company press release)

Why We Like It:
In spite of the last two days of declines shares of TXT are still
out performing the market.  Nothing goes up in a straight line
and that's especially true when the markets are sinking.  Now the
bearish twist we're seeing in the technicals is discouraging but
not completely unexpected.  Readers can look for a bounce from
the $60.00-60.50 region as a new entry point for bullish
positions.  However, any new positions are probably best
considered only if the market is rebounding as well.  The $60
level, which was resistance for so long, should hold as support.
If it doesn't then we want out.

Suggested Options:
We like the August and September calls. Our favorites are the
$55s and $60s with the Septembers looking like the better deal.

BUY CALL AUG 55 TXT-HK OI=   0 Current Ask $6.60
BUY CALL AUG 60 TXT-HL OI= 174 Current Ask $2.00
BUY CALL SEP 55 TXT-IK OI= 588 Current Ask $6.80
BUY CALL SEP 60 TXT-IL OI= 456 Current Ask $2.85
BUY CALL SEP 65 TXT-IM OI=1114 Current Ask $0.55

Annotated Chart:




Picked on July 26th at $60.72
Change since picked:   + 0.60
Earnings Date        07/22/04 (confirmed)
Average Daily Volume =    622 thousand
Chart =



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

None


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

Amazon.com - AMZN - close: 35.49 change: -0.12 stop: 39.08

Company Description:
Amazon.com, a Fortune 500 company based in Seattle, opened on the
World Wide Web in July 1995 and today offers Earth's Biggest
Selection. Amazon.com seeks to be Earth's most customer-centric
company, where customers can find and discover anything they
might want to buy online, and endeavors to offer its customers
the lowest possible prices. Amazon.com and other sellers offer
millions of unique new, refurbished and used items in categories
such as health and personal care, jewelry and watches, gourmet
food, sports and outdoors, apparel and accessories, books, music,
DVDs, electronics and office, kids and baby, and home and garden.
(source: company press release)

Why We Like It:
It was hard to believe.  For the first half of Friday's session
shares of AMZN were trading higher as the market crashed lower.
Was it an oversold bounce?  Were shorts covering/bulls buying the
dip when it dipped to round-number support at $35.00?  We
couldn't find any news to relate to the bounce.  Fortunately,
before 1:00 PM rolled around AMZN had peaked and began to sink
back toward the $35 level.  We remain bearish on the stock and
believe that if the major indices are now hitting new relative
lows for the year then AMZN is likely to lead them.  Shares are
at round-number support at $35.00 so it is possible that AMZN
might try another oversold bounce but we would expect the simple
10-dma, currently at $37.75 to act as resistance.

We're currently targeting a drop to the $32.50-30.00 range.  That
makes new entries somewhat challenging.  Readers can choose to
short/buy puts on another failed bounce under the 10-dma or look
for a drop under Friday's low at $34.85.  It is interesting to
note that the P&F chart now points to a $15.00 target.

FYI: some readers may want to exit all or half their position
with the rise in put values.  The August 35s have virtually
doubled to $1.40.  The August 37.50s have risen from $1.60 to
$2.95 and the August 40s have climbed from $3.20 to $4.90.  The
September puts have made impressive gains as well.

Suggested Options:
Short-term traders have a choice between August and September
puts.  We prefer the September 35s and 40s.

BUY PUT AUG 32.50 ZQN-TZ OI= 2666 Current Ask $0.60
BUY PUT AUG 35.00 ZQN-TG OI=12169 Current Ask $1.40
BUY PUT AUG 37.50 ZQN-TU OI=10474 Current Ask $2.95
BUY PUT AUG 40.00 ZQN-TH OI=13202 Current Ask $4.90

BUY PUT SEP 32.50 ZQN-UZ OI= 3811 Current Ask $1.55
BUY PUT SEP 35.00 ZQN-UG OI= 8558 Current Ask $2.55
BUY PUT SEP 37.50 ZQN-UU OI= 5641 Current Ask $3.90
BUY PUT SEP 40.00 ZQN-UH OI= 3032 Current Ask $5.70

Annotated chart:



Picked on August 3rd at $37.61
Change since picked:    - 2.12
Earnings Date         07/22/04 (confirmed)
Average Daily Volume =     8.3 million
Chart =


---

AutoZone - AZO - close: 73.81 change: +1.46 stop: 76.51

Company Description:
As of May 8, 2004, AutoZone sells auto and light truck parts,
chemicals and accessories through 3,337 AutoZone stores in 48
states plus the District of Columbia in the U.S. and 60 AutoZone
stores in Mexico. Each store carries an extensive product line
for cars, sport utility vehicles, vans and light trucks,
including new and remanufactured automotive hard parts,
maintenance items and accessories. Many domestic stores also have
a commercial sales program that provides commercial credit and
prompt delivery of parts and other products to local, regional
and national repair garages, dealers and service stations.
AutoZone also sells ALLDATA brand diagnostic and repair software.
(source: company press release)

Why We Like It:
Are we looking at a mirage?  Is the intraday rebound from new
lows in shares of AZO to be believed?  The stock hit new lows at
$70.35 on Friday, which incidentally could qualify as a hit for
our initial target region "near" $70.00, before rebounding
sharply and almost touching old support - now new resistance at
$75.00.  What prompted such a move?  It would seem that rumors of
Eddie Lampert and his ESL Investments could be planning to buy
more stock in AZO.  Lampert has been making headlines recently
because he's behind the turnaround in Kmart and everyone's keenly
aware of how shares of KMRT have rocketed higher.  We can't say
if this Lampert news is the culprit for AZO's surprise rally or
if it will last.  What we can see is how the $75 level held up as
resistance. This may prove to be another entry point to initiate
bearish positions.  We'd probably suggest readers wait for AZO to
drop back under the $73.50-73.25 levels before initiating new
plays.

Suggested Options:
Short-term traders can play the August puts if they like but
we're partial to the September strikes.

BUY PUT SEP 80 AZO-UP OI= 952 current ask $7.10
BUY PUT SEP 75 AZO-UO OI=1558 current ask $3.70
BUY PUT SEP 70 AZO-UN OI= 976 current ask $1.60

Annotated chart:




Picked on August 4th at $74.60
Change since picked:    - 0.79
Earnings Date         05/26/04 (confirmed)
Average Daily Volume =     1.0 million
Chart =


---

Caterpillar - CAT - close: 70.25 change: +0.63 stop: 73.25

Company Description:
For more than 75 years, Caterpillar has been building the world's
infrastructure and, in partnership with our independent dealers,
is driving positive and sustainable change on every continent.
Caterpillar is a technology leader and the world's largest maker
of construction and mining equipment, diesel and natural gas
engines and industrial gas turbines.
(source: company press release)

Why We Like It:
Technically shares of CAT still look very weak and with the Dow
Industrials breaking down to new lows for the year the future
could be challenging for this Dow-component.  Oddly enough shares
of CAT managed to buck the trend in the broader indices and close
higher.  Not only did CAT close in the green it closed above the
$70.00 mark, which is seen as round-number support/resistance.
Volume was the strongest it has been in the last two weeks.
Could there be some rumors circulating about the latest union
negotiations?  We mentioned earlier that CAT does have a major
event risk ahead of us.  On Thursday it issued its last and
"best" offer to the UAW labor union just as workers were
beginning to walk out.  The labor talks have been going on for
months and both sides say they want to avoid the pain of a
strike.  If CAT and the UAW can come to an agreement we would
expect shares to rally.  That's why you need to keep your stops
in place.  More importantly if this is too much risk for you then
don't play.  Obviously if CAT doesn't reach an agreement with its
union workers then we expect shares to fall.  Traders willing to
play with the risks can look for another failed rally under
$72.00 and its simple 10-dma as an entry point or a drop through
$70.00 again.

Suggested Options:
We like the August puts because there is more liquidity and open
interest.  Yet we like the September puts more because we get
more time.

BUY PUT AUG 75 CAT-TO OI=6024 current ask $5.10
BUY PUT AUG 70 CAT-TN OI=7939 current ask $1.60
BUY PUT SEP 75 CAT-UO OI= 964 current ask $5.90
BUY PUT SEP 70 CAT-UN OI=1837 current ask $2.85
BUY PUT SEP 65 CAT-UM OI= 517 current ask $1.20 *very speculative

Annotated chart:



Picked on August 5th at $70.75
Change since picked:    - 0.50
Earnings Date         07/22/04 (confirmed)
Average Daily Volume =     2.4 million
Chart =


--

Cigna Corp - CI - close: 59.20 change: -0.93 stop: 62.51

Company Description:
CIGNA Corporation headquartered in Philadelphia, and its
subsidiaries constitute one of the largest publicly owned
providers of health care, disability, life and accident insurance
benefits in the United States and selected markets around the
world. (source: company press release)

Why We Like It: (Original play from Thursday)
If you read the earnings report you probably feel that CI belongs
on the call list not the put list.  The company blew away
estimates and raised its outlook for 2004.  So why did shares
paint a massive bearish engulfing candlestick yesterday after the
results came out?  Good question.  It would appear that CI is
dealing with a continuing decline in its membership and predicted
that it would continue.  Today shares saw an early morning
(oversold?) bounce but it faded with the market's decline.  Now
we want to list CI as a potential bearish breakdown candidate.
The P&F chart already shows CI in a double-bottom breakdown sell
signal with a $50.00 target.  We think that traders might be able
to get a quick drop to the $55.00 level if CI breaks support
again at the $60.00 level and its simple 200-dma.  However, the
jobs number is coming out tomorrow and if it's good then stocks
should rebound.  If the jobs number is bad...well.. look out
below.  We will use a TRIGGER under the recent July low.  Our
entry point will be a drop under $59.70 with a quick exit point
at $55.00.

Weekend Update:
The market sell-off on Friday was enough to push CI through
support at the $60.00 level.  CI hit our TRIGGER to open bearish
positions at $59.70 with its gap down at the open ($59.59).  The
$60 level should now be overhead resistance.  CI still looks ripe
for new positions.

Suggested Options:
This should be a quick play if it happens but we'll feel more
comfortable with the September puts.

BUY PUT SEP 60 CI-UL OI=1248 current ask $3.10
BUY PUT SEP 55 CI-UK OI= 640 current ask $1.15

Annotated Chart:



Picked on August 6th at $59.59
Change since picked:    - 0.39
Earnings Date         08/04/04 (confirmed)
Average Daily Volume =     985 thousand
Chart =


---

eBay Inc - EBAY - close: 73.76 change: -0.03 stop: 77.50*new*

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:
EBAY and AMZN were both running higher on Friday at least for the
first half of the session.  We were surprised to see EBAY
bouncing as the rest of the tech sector sank.  It would appear
the move could have been technical in nature.  EBAY's morning low
tagged the exponential 200-dma, not its simple 200-dma.
Fortunately, the rally faded and the stock turned negative again
just before the close.  Point-and-figure traders will note that
EBAY's recent weakness has finally reversed the recent bounce-buy
signal into a new sell signal with a $65 target.

Now more importantly is what do we do now?  EBAY is testing its
exponential 200-dma and is within a couple of points of our
target near $71.50.  We would suggest readers tighten their stops
and plan to exit.  EBAY could dip to $71.50 intraday only to
bounce again and we need to be ready to close the play, which we
will do if EBAY trades within 25 cents of our target.  We're
going to tighten our stop loss to $77.50 but this may be too wide
for some readers.

FYI: If EBAY breaks down under $70.00 we may consider new put
positions.

Suggested Options:
EBAY is only a couple of points away from our target at $71.50.
We are not suggesting new put positions and readers need to be
ready to exit.  The August 75s have already risen from $1.50 to
$2.85.  The August 80s have climbed from $4.20 to $6.70.  The
September 75s are up to $4.60 from $3.00.

Annotated chart:



Picked on August 3rd at $77.08
Change since picked:    - 3.32
Earnings Date         07/21/04 (confirmed)
Average Daily Volume =     9.1 million
Chart =


---

Research In Motion - RIMM - close: 53.89 chg: -2.44 stop: 58.51

Company Description:
Research In Motion is a leading designer, manufacturer and
marketer of innovative wireless solutions for the worldwide
mobile communications market. Through the development of
integrated hardware, software and services that support multiple
wireless network standards, RIM provides platforms and solutions
for seamless access to time-sensitive information including
email, phone, SMS messaging, Internet and intranet-based
applications. RIM technology also enables a broad array of third
party developers and manufacturers to enhance their products and
services with wireless connectivity to data. RIM's portfolio of
award-winning products, services and embedded technologies are
used by thousands of organizations around the world and include
the BlackBerry. wireless platform, the RIM Wireless Handheld(TM)
product line, software development tools, radio-modems and
software/hardware licensing agreements. Founded in 1984 and based
in Waterloo, Ontario, RIM operates offices in North America,
Europe and Asia Pacific. (source: company press release)

Why We Like It: (Original play from Thursday)
This is purely a technical play on RIMM's bearish posture.  The
earnings news faded as soon as we moved into the month of July.
The oversold bounce from the last week of July has faded.  Now
RIMM has fallen under the $60.00 level again and is nearing
significant support at the $55.00 level and its simple 100-dma.
It is also important to note that RIMM's point-and-figure chart
is showing a descending triple-bottom breakdown with a $49 price
target.

We are going to use a TRIGGER to enter this play because
tomorrow's jobs report could change everything.  We only want to
buy puts if RIMM breaks down under the simple 100-dma.  This
technical level held up pretty well back in May.  We'll use a
TRIGGER at $54.50 as our entry point.  Short-term traders can
target a quick drop to $50.  We suspect that RIMM could trade
down to its simple 200-dma near $45.

Weekend Update:
Heads up!  The market weakness on Friday sent RIMM to another 4.3
percent loss.  Shares broke down under support at $55.00 and its
simple 100-dma.  Volume on Friday's decline was almost double the
average.  We are TRIGGERED at $54.50 with a stop loss at $58.51.
Short-term traders can target a move to $50.  We're looking for a
drop toward $45 (or at least $47.50).

Suggested Options:
We like the September strikes.  We think the 57.50s, 55s, 52.50s
and even the 50s can work well for this play.

BUY PUT SEP 57.50 RUP-UY OI=5585 current ask $6.40
BUY PUT SEP 55.00 RUP-UK OI=5919 current ask $4.90
BUY PUT SEP 52.50 RUP-UX OI=2790 current ask $3.70
BUY PUT SEP 50.00 RUP-UJ OI=6583 current ask $2.70

Annotated Chart:



Picked on August 6th at $54.50
Change since picked:    - 0.00
Earnings Date         06/29/04 (confirmed)
Average Daily Volume =     6.7 million
Chart =



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

Quest Diagnostic - DGX - close: 79.41 chg -2.04 stop: 82.51

Company Description:
Quest Diagnostics Incorporated is the nation's leading provider
of diagnostic testing, information and services, providing
insights that enable healthcare professionals to make decisions
that improve health. The company offers the broadest access to
diagnostic testing services through its national network of
laboratories and patient service centers, and provides
interpretive consultation through its extensive medical and
scientific staff. Quest Diagnostics is the leading provider of
esoteric testing, including gene-based medical testing, and
provides advanced information technology solutions to improve
patient care. (source: company press release)

Why We Like It:
When everything is breaking down and hitting new lows for the
year it's tough to find something that isn't oversold.  That's
why we're drawn to DGX.  Shares are showing weakness but there's
still plenty of room for more profit taking.  The stock peaked in
early June and drifted lower to test support at the $80 level in
late July just as the market produced its short-lived bounce.
The bounce faded in DGX too and now the stock has cracked support
at the $80.00 mark and its simple 200-dma.  The bullish
perspective here is that DGX has out performed the markets by
falling more slowly.  That may be true but the selling pressure
is likely to pick up the pace if the major indices keep sliding
and if DGX completes the breakdown under support.

That's right, DGX still has some support left.  The stock has not
yet closed under its exponential 200-dma (currently 79.24) nor
has it closed under its February low at $79.25.  We're willing to
short a breakdown but we want to see some confirmation.  We'll
use a TRIGGER at $78.99 to open the play.  If we're triggered
we'll target a drop toward $72.00 but short-term traders can
target a quick move toward support at $75.00.  The P&F chart is
currently bearish with a $74 target but shows support near $71-
72.  More aggressive traders could target an entry on a failed
rally back toward $81.50 but be careful!

Suggested Options:
We would suggest the September 80s or 75s.

BUY PUT SEP 80 DGX-UP OI= 131 current ask $3.00
BUY PUT SEP 75 DGX-UO OI=  26 current ask $1.20

Annotated Chart:



Picked on August xth at $xx.xx <-- see TRIGGER
Change since picked:    - 0.00
Earnings Date         07/22/04 (confirmed)
Average Daily Volume =     602 thousand
Chart =


---

Whirlpool - WHR - close: 58.71 change: -1.00 stop: 61.51

Company Description:
Whirlpool Corporation is the world's leading manufacturer and
marketer of major home appliances, with annual sales of over $12
billion, 68,000 employees, and nearly 50 manufacturing and
technology research centers around the globe. The company markets
Whirlpool, KitchenAid, Brastemp, Bauknecht, Consul and other
major brand names to consumers in more than 170 countries
(source: company press release)

Why We Like It:
Normally when a company's CFO resigns the market's reaction is
pretty negative.  Yet when WHR announced that its CFO was
suddenly leaving on August 3rd shares slipped lower but not by
very much.  It took the market's widespread drop on Thursday to
finally produce a reaction in WHR.  Shares broke down under
support at the $61.00 and the $60.00 level on big volume.  Friday
saw some follow through on the drop with the intraday rebound
rolling over by the closing bell.

This technical breakdown could have been spooked by the
disappointing personal spending numbers or general worries that
the economy isn't as strong as we thought it might be.  It is
worth noting that WHR's P&F chart has produced a new double-
bottom breakdown sell signal with a $53 target.  We suspect that
the stock could actually fall farther but we're going to list an
early target at $55.00 partly due to the trendline on its weekly
chart (see below).  Readers can choose to pick entries here or
look for a bounce and roll over under $60 or $61.  We'll start
the play with a stop loss at 61.51.

Our immediate risk is probably positive comments from the Fed
after its meeting on Tuesday.  Yet it could produce the sort of
bounce we want to short WHR at resistance.

Suggested Options:
We're going to suggest the September 60 and 55 puts.

BUY PUT SEP 60 WHR-UL OI=1717 current ask $3.50
BUY PUT SEP 55 WHR-UK OI= 306 current ask $1.35

Annotated Chart:



Picked on August 6th at $58.71
Change since picked:    - 0.00
Earnings Date         07/21/04 (confirmed)
Average Daily Volume =     849 thousand
Chart =



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The Option Investor Newsletter                   Sunday 08-08-2004
Sunday                                                      4 of 5

In Section Four:

Leaps: Mass Confusion Reigns


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*****
LEAPS
*****

Mass Confusion Reigns

Last week was an exercise in futility. I started it
off with wrong symbols in the Russell put play and
the week started off with a high profile terror alert
on Sunday. The expected rebound fizzled after the
alert and we barely stayed in the green on Mon/Tue.

The SMH puts are working like a charm with the SOX
under 400 once again. We were triggered on Monday
when the SMH hit $32.50 and our target is $28.00.

The Russell puts were another story. I profiled
the Russell Ishares but when I reached into my memory
bank for the symbol I came up with IWN instead of IWM.
The IWN is the Russell 2000 Value Ishares and the IWM
is the Russell 2000 Index. I updated the website
Sunday night when the error was found and sent out
an update in the Monday night email as well.

The play worked regardless of what symbol you used
with the IWN symbol (IWN-UL) up from $3.10 to $6.20.
The IWM symbol (IWT-WB) jumped from $4.10 to $6.60.
In fact you can see the wrong symbol actually
performed better because of the higher index value.

The corrected Russell IWM play had a target of $105
and that target was hit on Friday. Since it got off
to such a bad start I left it in the portfolio for
this weekend. I still expect the Russell to move
lower but it will be up to you to plan your own
exit. I will remove it from the list next week.


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

With the market imploding and creating new values for
us on all fronts we really can't complain that several
of our current plays are also dropping. In a down
market all stocks are treated equal.

The next three weeks should continue to offer us
buying opportunities and I fully plan on taking
advantage of the opportunities. Some of the targets
on the watch list may seem extreme but after the last
week in the markets I would not assume anything was
too low. Over the last 15 years August has been the
worst month for the markets for the Dow and SPX and
the second worst month for the Nasdaq.


SYMC - Symantec - $45.51

In a world where multiple new viruses are a daily event
nobody can afford to be without virus software. Personally
I think Symantec's Norton is the best available. I have
tried McAffe and Norton side by side and by far the
Symantec product is the best for my money. We run
Norton on all of our personal PCs and our server farm.

I had profiled SYMC in the past as a takeover candidate
by Microsoft but it no longer appears they are interested.
Microsoft was giving away the Symantec product with
various operating system packages earlier this year.
Microsoft will eventually be a strong competitor to
Symantec but I doubt it will be soon. They have too
many other irons in the fire.

SYMC is one of those stocks like EBAY that seldom
loses ground. For this reason we may have a hard time
getting filled on an entry point.

The stock is currently at $45 with the 200dma at
$40.69. I would always like to get an entry on strong
stocks at the 200dma but I am not holding my breath
on SYMC. I am going to target $41 and hope a continued
Nasdaq implosion hits our target.

2006 $45 LEAP Call YAG-AI current $9.20, target $6.00
2006 $50 LEAP Call YAG-AJ current $7.10, target $5.00

SYMC Chart




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


Blue Chippers

In researching various companies for the watch list I was
struck but the potential opportunity to add a few blue
chip companies cheap over the coming weeks. Several of
the strong performers are dropping fast as funds raise
cash. Making an individual case for each of these names
is not really a necessity as you know them all.

Using the analogy of a falling tide lowers all boats
we have a chance over the next several weeks to land
several battleships.

MMM - 3M Company - $79.87

3M is a prime example. They are well off their $90 high
at $79 and stand a very good chance of dropping to $75.
The 200dma at 81.25 was just broken on worries that
rising oil prices could hurt earnings. I agree there
is a danger but I think MMM will manage it and move on.
Every major company will be hit by the high oil not
just MMM. Buy on weakness sell on strength.

Target entry $75, add to position at $70.
2006 $80 LEAP Call VMU-AP current $8.80 target $7.00
2006 $85 LEAP Call VMU-AQ current $6.50 target $5.00

MMM Chart



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

C - Citigroup - $43.19

Citigroup is approaching 52-week support at $42.50 and
while that is a logical entry point I am hoping to get
in lower. Citigroup is a cash cow and they are raking
in profits. They have either paid or allocated reserves
to pay literally billions in settlements for various
problems over the last five years. Still they continue
to earn literally billions per quarter. The last quarter
was the lowest in years at +$1.1B after the settlement
reserves. Their average earnings over the last two years
have been a whopping $5 billion per quarter. Citigroup
was down on Friday on speculation of a takeover of
Barclays for $82 billion. It was denied by all parties.
Still it got us closer to a potential entry point. I
also like Citigroup because their leaps are cheap.
I see support at 42.50 but I would really like to enter
lower. Next real support is 38.50 but I have serious
doubts it will drop that far. Because I want to take
advantage of the current drop I am posting two entries.

Enter 1/2 position at $42.50 and another 1/2 at $40.00.

2006 $45 LEAP Call WRV-AI current $3.80, target $3.00

Citigroup Chart




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

Prospective watch list additions for next week:

WMT $51.33 target $47.50 2006 $55 LEAP Call WWT-AK $4.00
GE $31.50 target $30.00 2006 $35 LEAP Call WGE-AG $2.00


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


Portfolio Updates:

HD - Home Depot - $32.90
Leap Put

Late Friday afternoon Home Depot announced they were
adding $1 billion to their current share buyback
program and they rallied off the lows for the day
but still closed barely negative. HD has been moving
slower than a 100 yr old tortoise and was just about
to break support at $32.50 when they made the
announcement. Lucky timing I am sure. Our stop is
$34.50 and should we have a positive day on Monday
we could be taken out. I would drop HD today for
lack of movement but it is so close to breaking that
$32.50 support I want to give it at least one more
week.


CIEN - Ciena - $2.05  ** Dropped **
Takeover candidate

It was not a pretty sight. Only a week after adding
CIEN as a takeover candidate after a bullish interview
on TV they came out with a warning that revenues would
be flat instead of the "substantially higher" comments
from just a couple weeks earlier. They said softness
in the sector was rampant and the broker community
lost no time in downgrading them across the board.
I am not going to continue carrying CIEN after the
lousy change in guidance. There are far better LEAP
candidates getting cheaper every day. We entered the
2006 $5 call LEAP at 70 cents and it is worth 25x30
today. Exit and write this one off.


TYC - Tyco - $30.25
LEAP Call

Tyco announced a +63% jump in earnings on Tuesday and
jumped to $32.10 on the news despite the lousy market.
Unfortunately with the market imploding later in the
week TYC could not hold its gains. I only hope we do
not get stopped out (29.50) on further market weakness.
Tyco beat the street by +3 cents and had nothing but
good news. I like TYC and hope we can avoid the stop.


RHAT - RedHat - $15.30
LEAP Call

RHAT jumped to a high for the week at $17.75 on Monday
on several bits of Linux news but despite a Credit Suisse
affirmation and suggestion that it was still an "attractive
entry point" the stock fell with the market. Our stop is
$12.50 so we are in no danger but it is frustrating to
see the stock crater with the market. Unfortunately
a sinking tide lowers all boats.


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

Current Portfolio:

SMH - Semiconductor Holders $30.65
Entry $32.50 August 2nd
Profit Target = SMH $28

Current position:
Nov-$30 Put SMH-WF cost $1.40 current $2.00
Nov-$35 Put SMH-WG cost $3.80 current $5.00

Initial play description:
http://members.OptionInvestor.com/leaps/Lp_080104_1.asp

SMH Chart




IWM - Russell 2000 Ishares
Entry $110 August 2nd
Profit Target $105 (hit on Friday)

Current position:
Nov-$106 Put IWT-WB cost $4.10 current $6.60

Initial play description:
http://members.OptionInvestor.com/leaps/Lp_080104_1.asp

IWM Chart





RHAT Red Hat $15.30, stop $12.50
Entry $14.81   Recommended July-18th

Current position:
2006 $20 LEAP Call YFX-AD cost $2.75 Current $2.85
Sept $12.50 ins put RCV-UV cost $0.55 Current 0.35

Initial play description:
http://members.OptionInvestor.com/leaps/Lp_071804_1.asp


Red Hat Chart




TYC Tyco $30.22 Stop $29.50
Entry $28.32

2005 $30 LEAP Call TYC-AF cost $2.15 current $2.50
2006 $30 LEAP Call WPA-AF cost $4.00 current $4.50
July $25 insurance put - expired - cost $.55

Tyco Chart




HD Home Depot $32.90   Stop 34.50
Entry $34.69

2005 $35 LEAP Put HD-MG  cost $2.95 current $3.30
2006 $35 LEAP Put WHD-MG cost $4.50 current $4.80
May $40 Insurance put - expired - cost $.55

HD Chart




Position Summary Graph




LEAPS Watch List

**Editors Note** In the event of a market drop due to a
terrorist attack on U.S. soil all entry targets should be
immediately cancelled.


Watch List Update:

With the market dropping sharply and creating bargains
on a daily basis we are very close to our entry points
on nearly all of the watch list candidates. I would be
a buyer of these leaps if our targets are hit despite
the market weakness.

EBAY - ** ENTRY POINT CHANGE **

Change the entry point on EBAY to $71 from $70. This
is the 200dma and it has risen since the initial
recommendation.

EBAY - EBAY $73.76 target entry $71.00

2006 $80 LEAP Call YEU-AP currently $12.00

http://members.OptionInvestor.com/leaps/Lp_072504_1.asp

EBAY Chart




MER - Merrill Lynch $47.53 target entry $46.00

2006 $50 LEAP Call WZM-AJ Currently $5.97 target $5.00

http://members.OptionInvestor.com/leaps/Lp_071804_1.asp

MER Chart





INTC - Intel $22.77 target entry $20.00

2006 $22 LEAP Call WNL-AX currently $4.20
2006 $25 LEAP Call WNL-AE currently $3.10

http://members.OptionInvestor.com/leaps/Lp_071804_1.asp

INTC Chart




JNPR - Juniper Networks $21.06 target entry $20.00

2006 $25 LEAP Call WBW-AE currently $4.10

http://members.OptionInvestor.com/leaps/Lp_072504_1.asp

JNPR Chart




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The Option Investor Newsletter                   Sunday 08-08-2004
Sunday                                                      5 of 5

In Section Five:

Spreads and Straddles: Black Gold Spoils Market Outlook!
Premium-Selling Plays: Naked Puts and Calls


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*******************
SPREADS & STRADDLES
*******************

Black Gold Spoils Market Outlook!
By Ray Cummins

The major equity averages plunged this week amid the rising price
of oil and renewed concerns over the strength of the U.S. economy.

Crude prices hit a new record high Friday, pushing the broad S&P
500 index down 16 points to 1,063, its lowest close in 2004.  The
blue-chip Dow was also hammered, losing 147-points to finish at
9,815 as stocks like United Technologies (NYSE:UTX), Honeywell
International (NYSE:HON) and 3M Company (NYSE:MMM) succumbed to
the lackluster outlook for the economy.   The NASDAQ Composite
Index dropped 44 points to 1,776, capping a 5% decline for the
week, its worst performance since the beginning of May.  Volume
on the NYSE was 1.52 billion with decliners leading advancers by
a 2 to 1 margin.  NASDAQ volume was 1.69 billion shares with 3
losing issues for every one that closed higher.  Bonds soared
during the session with the benchmark 10-year note closing up
49/32, while its yield fell to 4.21%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 08/06/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position 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.


PUT-CREDIT SPREADS

Stock  Pick   Last   Mon  L/P   S/P  Credit   CB     G/L   Status

FRE    63.57  65.04  AUG  55.0  60.0  0.55   59.45   0.55   Open
POT    98.08  98.57  AUG  85.0  90.0  0.60   89.40   0.60   Open
FAST   54.74  58.53  AUG  45.0  50.0  0.60   49.40   0.60   Open
PD     79.00  73.41  AUG  65.0  70.0  0.60   69.40   0.60   Open
AAPL   32.30  29.78  AUG  27.5  30.0  0.30   29.70   0.08  Closed
FSH    58.66  56.54  AUG  50.0  55.0  0.65   54.35   0.65   Open?
ANSS   47.44  43.00  AUG  40.0  45.0  0.45   44.55  (1.55) Closed
WBSN   38.19  35.20  AUG  30.0  35.0  0.45   34.55   0.45   Open?
BJS    49.60  45.90  AUG  45.0  47.5  0.35   47.15  (1.25) Closed
RTP   105.00 102.10  AUG  95.0 100.0  0.55   99.45   0.55   Open

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

The broad sell-off in equities pushed a number of positions into
the "early-exit" category including Apple Computer (NASDAQ:AAPL),
Anyss (NASDAQ:ANSS), and BJ Services (NYSE:BJS).  Issues on the
"watch" list include: Fisher Scientific (NYSE:FSH) and Websense
(NASDAQ:WBSN).  Positions in Gilead Sciences (NASDAQ:GILD), which
is currently profitable, Anthem (NYSE:ATH), University of Phoenix
Online (NASDAQ:UOPX) and Wellpoint (NYSE:WLP), have previously
been closed to limit losses.


CALL-CREDIT SPREADS

Stock  Pick   Last   Mon  L/C   S/C  Credit   CB    G/L   Status

LLTC   36.74  37.25  AUG  42.5  40.0  0.30   40.30  0.30   Open
XLNX   31.53  27.96  AUG  37.5  35.0  0.25   35.25  0.25   Open
MERQ   46.17  32.95  AUG  55.0  50.0  0.65   50.65  0.65   Open
SMH    34.58  30.65  AUG  42.5  40.0  0.30   40.30  0.30   Open
TLB    33.04  26.81  AUG  40.0  35.0  0.60   35.60  0.60   Open
VAR    77.24  31.38  AUG  90.0  85.0  0.50   85.50  0.50   Open
KLAC   43.33  38.38  AUG  50.0  47.5  0.25   47.75  0.25   Open
NVLS   29.23  24.90  AUG  35.0  32.5  0.20   32.70  0.20   Open
BZH    90.65  93.56  AUG 105.0 100.0  0.45  100.45  0.45   Open
LLY    64.67  61.00  AUG  75.0  70.0  0.65   70.65  0.65   Open
ACS    51.80  49.49  AUG  60.0  55.0  0.45   55.45  0.45   Open
DIGE   33.08  31.65  AUG  40.0  35.0  0.55   35.55  0.55   Open
SRCL   48.00  47.25  AUG  55.0  50.0  0.30   50.30  0.30   Open

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


DEBIT STRADDLES

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

DVN     69.40  65.35   AUG   70.00  70.00   5.00    5.00    Open
TBL     60.26  54.35   AUG   60.00  60.00   4.75    6.10    Open

Timberland (NYSE:TBL) is now comfortably profitable and Devon
Energy (NYSE:DVN) has moved below of a recent trading range in
the past two sessions, suggesting additional volatility in the
coming week.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW POSITIONS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As with
any new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.

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

BULLISH PLAYS - CREDIT SPREADS

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

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

FRE - Freddie Mac  $65.04  *** Interest Rate Speculation ***

Federal Home Loan Mortgage Corporation (NYSE:FRE) or Freddie Mac,
is a stockholder-owned corporation established by Congress in
1970 to support home ownership and rental housing.  Freddie Mac
purchases single-family and multi-family residential mortgages
and mortgage-related securities, which it finances mainly by
issuing mortgage pass-through securities and debt instruments in
the capital markets.  The Federal Home Loan Mortgage Corporation
guarantees these securities and mortgage lenders sell their loans
to the company and use the proceeds to fund new mortgages, which
in turn increases the money supply to homebuyers.  Freddie Mac
does not make loans directly to the homebuyer, but puts private
investor capital to work for homebuyers in general.

FRE - Freddie Mac  $65.04

PLAY (very conservative - bullish/credit spread):

BUY  PUT  SEP-55.00  FRE-UK  OI=927   ASK=$0.25
SELL PUT  SEP-60.00  FRE-UL  OI=1400  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.40-$0.50
POTENTIAL PROFIT(max)=8% B/E=$59.60


__________________________________________________________________

FPL - FPL Group  $67.73  *** Broad-Market Hedge ***

FPL Group (NYSE:FPL) is a public utility holding company that,
through its principal subsidiary, Florida Power & Light Company,
is engaged in the generation, transmission, distribution and
sale of electric energy.  FPL, a rate-regulated public utility,
supplies electric service to approximately 4 million customers
throughout most of the east and lower west coasts of Florida.
The company's other subsidiaries include FPL Energy, LLC and
FPL FiberNet.

FPL - FPL Group  $67.73

PLAY (very conservative - bullish/credit spread):

BUY  PUT  SEP-60.00  FPL-UL  OI=245  ASK=$0.15
SELL PUT  SEP-65.00  FPL-UM  OI=466  BID=$0.55
INITIAL NET-CREDIT TARGET=$0.45-$0.55
POTENTIAL PROFIT(max)=9% B/E=$64.55


__________________________________________________________________

MCO - Moody's Corporation  $67.33  *** New Trading Range? ***

Moody's Corporation (NYSE:MCO) is a provider of credit ratings,
research and analysis covering debt instruments and securities
in the global capital markets and a provider of quantitative
credit assessment services, credit training services and credit
process software to banks and other financial institutions.  The
company operates in two business segments, Moody's Investors
Service and Moody's KMV, which is a provider of risk management
products for banks and investors in credit-sensitive assets.

MCO - Moody's Corporation  $67.33

PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-60.00  MCO-UL  OI=55  ASK=$0.40
SELL PUT  SEP-65.00  MCO-UM  OI=36  BID=$1.00
INITIAL NET-CREDIT TARGET=$0.65-$0.70
POTENTIAL PROFIT(max)=15% B/E=$64.35



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

BEARISH PLAYS - CREDIT SPREADS

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

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

PDCO - Patterson Companies  $73.40  *** Stuck In A Range? ***

Patterson Companies (NASDAQ:PDCO) is a value-added distributor
serving three markets, such as North American dental supply;
United States companion-pet veterinary supply, including dogs,
cats and other common household pets, and the rehabilitative
and non-wheelchair assistive products supply market.  The firm's
operating units are: Patterson Dental Supply, which provides
consumable products, dental equipment, practice management and
clinical software, patient education systems, and office forms
and stationery; Webster Veterinary Supply, which distributes a
range of consumable supplies, equipment, diagnostic supplies,
vaccines and pharmaceuticals, and AbilityOne Products, which
include aids to daily living, orthopedic soft goods/splints,
clinical products, mobility products, pediatric seating and
positioning, and modalities.

PDCO - Patterson Companies  $73.40

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-85.00  DOU-IQ  OI=30  ASK=$0.35
SELL CALL  SEP-80.00  DOU-IP  OI=43  BID=$0.85
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$80.55


__________________________________________________________________

CDWC - CDW Corporation  $59.25  *** Next Leg Down? ***

CDW Corporation (NASDAQ:CDWC) is a direct seller of multi-brand
computers and related technology products and services in the
United States.  Its offerings include multi-brand computers and
related technology products, including hardware and peripherals,
software, accessories and other products, for use with business
computers based on a variety of operating platforms, including
Microsoft, Apple, Linux, Novel, Unix and others.  CDW provides
a variety of value-added services and Web-based tools to its
customers, including the ability to custom configure solutions,
manage software licenses through its Software License Tracker
tool and track tagged assets through its IT Asset Management
Tracking Database.

CDWC - CDW Corporation  $59.25

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-70.00  DWQ-IN  OI=188  ASK=$0.20
SELL CALL  SEP-65.00  DWQ-IM  OI=240  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$65.55



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

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

INDEX-BASED COMBINATION POSITIONS

As a trader, you may be familiar with options on individual stocks
where you have the right to buy (call option) or the right to sell
(put option) a particular stock at some predetermined price within
some predetermined time.  The buyer has the rights and the seller
the obligations.  With index options the basic ideas are the same.
Index options allow you to make investment decisions on a specific
industry group or on the market as a whole.  Spread strategies can
be made with index options similar to those made with individual
stock options and professional traders also employ index spreads
in common hedge strategies.  These positions will not be included
in the weekly summary.
_________________________________________________________________

XAU - PHLX Gold & Silver Index  $86.67  ** Range-Bound Index? **

The PHLX Gold & Silver Sector (XAU) is a capitalization-weighted
index composed of the common stocks of 9 companies involved in
the gold and silver mining industry.  XAU was set to an initial
value of 100 in January 1979; the options commenced trading on
December 19, 1983.  For a list of individual stocks in the XAU,
click here:

http://www.phlx.com/products/xaucomp.htm

XAU - PHLX Gold & Silver Index  $86.67

PLAY (conservative - neutral/credit strangle):

SELL CALL  SEP-95.00  XAV-IT  OI=2690  BID=$0.55
SELL PUT   SEP-75.00  XAU-UO  OI=1060  BID=$0.45
INITIAL NET-CREDIT TARGET=$1.10-$1.15
MAXIMUM PROFIT (MARGIN) = 6%
UPSIDE B/E=$96.10 DOWNSIDE B/E=$73.90



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

SEE DISCLAIMER - SECTION 1

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


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*****************************************
PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS
*****************************************

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 08/01/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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


MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE

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

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

NAKED PUTS

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

NFI      AUG    30.00   29.20   40.67    0.80   5.99%    2.74%
NVTL     AUG    20.00   19.50   19.17   (0.33)  0.00%    0.00%
PETD     AUG    25.00   24.35   27.65    0.65   4.86%    2.67%
CRDN     JUL    35.00   34.55   32.58   (1.97)  0.00%    0.00%
CRDN     JUL    35.00   34.70   32.58   (2.12)  0.00%    0.00%
NFI      AUG    30.00   29.40   40.67    0.60   4.68%    2.04%
NVTL     AUG    20.00   19.50   19.17   (0.33)  0.00%    0.00%
EYET     AUG    35.00   34.45   33.80   (0.65)  0.00%    0.00%
FRO      AUG    30.00   29.30   34.48    0.70   4.97%    2.39%
GIVN     AUG    30.00   29.45   33.65    0.55   4.21%    1.87%
ATI      AUG    15.00   14.50   16.62    0.50   7.89%    3.45%
BEIQ     AUG    25.00   24.00   24.42    0.42   3.20%    4.17%
AMHC     AUG    25.00   24.25   26.02    0.75   5.98%    3.09%
VTS      AUG    22.50   21.85   22.33    0.48   4.23%    2.97%
OSTK     AUG    30.00   29.40   29.14   (0.26)  0.00%    0.00%
ATI      AUG    15.00   14.75   16.62    0.25   4.68%    1.69%
EYET     AUG    30.00   29.55   33.80    0.45   3.85%    1.52%
CTSH     AUG    22.50   22.05   24.75    0.45   4.61%    2.04%
FARO     AUG    20.00   19.65   19.48   (0.17)  0.00%    0.00%
STLD     AUG    30.00   29.60   29.05   (0.55)  0.00%    0.00%
SRDX     AUG    20.00   19.50   23.36    0.50   7.27%    2.56%
NFI      AUG    35.00   33.85   40.67    1.15   9.90%    3.40%
ISG      AUG    30.00   29.05   29.35    0.30   2.40%    3.27%
LCAV     AUG    25.00   24.35   22.53   (1.82)  0.00%    0.00%
DHB      AUG    12.50   12.15   13.50    0.35   8.54%    2.88%
MSO      AUG    10.00   9.65    10.64    0.35   9.88%    3.63%
EENC     AUG    12.50   12.25   13.56    0.25   4.83%    2.04%
IDCC     AUG    17.50   17.05   17.44    0.39   5.83%    2.64%
NFI      AUG    35.00   34.25   40.67    0.75   7.63%    2.19%
LCAV     AUG    25.00   24.75   22.53   (2.22)  0.00%    0.00%
CERN     AUG    35.00   34.35   44.94    0.65   6.54%    1.89%
VLCCF    AUG    25.00   24.35   25.00    0.65   8.65%    2.67%
KRON     AUG    40.00   39.40   40.40    0.60   6.74%    1.52%
CRK      AUG    20.00   19.75   18.03   (1.72)  0.00%    0.00%
UTHR     AUG    22.50   22.20   29.84    0.30   6.05%    1.35%
CYTC     AUG    22.50   22.10   23.00    0.40   7.64%    1.81%
TOY      AUG    15.00   14.75   16.02    0.25   7.45%    1.69%
IDCC     AUG    17.50   17.20   17.44    0.24   6.14%    1.74%
KYPH     AUG    25.00   24.50   27.71    0.50   8.62%    2.04%
TOY      AUG    15.00   14.75   16.02    0.25   8.30%    1.69%
KIND     AUG    22.50   22.10   25.17    0.40   8.57%    1.81%
ODSY     AUG    17.50   17.25   17.85    0.25   6.78%    1.45%
NFI      AUG    30.00   29.55   40.67    0.45   9.02%    1.52%
KYPH     AUG    25.00   24.35   27.71    0.65  12.55%    2.67%
BR       AUG    37.50   37.10   35.14   (1.96)  0.00%    0.00%
KWK      AUG    30.00   29.35   26.95   (2.40)  0.00%    0.00%
AH       AUG    35.00   34.60   34.60    0.00   0.00%    0.00%

Ceradyne (NASDAQ:CRDN) was Friday's "big" loser, down nearly
10%, despite a lack of negative news.  A small rebound early
in the session helped traders escape with minimal losses, but
the uptrend certainly appears to have come to an end.  The
most obvious stocks on the "early-exit" list are: BR, CRDN,
CRK, EYET, FARO, LCAV, NVTL, OSTK, STLD and VLCCF.  A long
list of positions; ARXX, BLUD, CACS, CBST, ELN, ERES, ESIO,
GPRO, KWK, JCOM, JNPR, MGAM, TECH, and TASR, have previously
been closed to limit potential losses.


NAKED CALLS

Stock   Strike  Strike  Break  Current   Gain    Max    Simple
Symbol  Month   Price   Even    Price   (Loss)  Yield   Yield

SLAB     AUG    50.00   51.00   32.72    1.00   5.30%   1.96%
SINA     AUG    40.00   40.85   24.12    0.85   7.85%   2.08%
ATRS     AUG    30.00   30.85   24.12    0.85   6.52%   2.76%
MRVL     AUG    27.50   27.85   22.61    0.35   3.98%   1.26%
MACR     AUG    25.00   25.40   18.89    0.40   4.55%   1.57%
ISIL     AUG    20.00   20.45   17.14    0.45   5.72%   2.20%
ELAB     AUG    45.00   45.00   27.49    0.00   0.00%   0.00%
FLML     AUG    25.00   25.50   16.86    0.50   8.15%   1.96%
OTEX     AUG    30.00   30.65   21.79    0.65   6.12%   2.12%
TELK     AUG    25.00   25.45   16.05    0.45   5.60%   1.77%
ASKJ     AUG    40.00   40.50   24.48    0.50   5.97%   1.23%
DRIV     AUG    30.00   30.85   24.86    0.85   7.92%   2.76%
SINA     AUG    35.00   35.45   24.12    0.45   6.42%   1.27%
BSX      AUG    40.00   40.50   33.21    0.50   3.58%   1.23%
ICUI     AUG    30.00   30.80   27.52    0.80   8.64%   2.60%
WMGI     AUG    35.00   35.65   24.90    0.65   5.46%   1.82%
LSCP     AUG    30.00   30.70   15.60    0.70  11.15%   2.28%
ERICY    AUG    30.00   30.65   25.41    0.65   8.01%   2.12%
NTES     AUG    40.00   40.45   31.92    0.45   6.31%   1.11%
SPW      AUG    45.00   45.40   36.65    0.40   5.03%   0.88%
ACDO     AUG    35.00   35.00   26.44    0.00   0.00%   0.00%
ULBI     AUG    17.50   17.50   13.50    0.00   0.00%   0.00%
MXIM     AUG    50.00   50.45   44.23    0.45   5.06%   0.89%
YHOO     AUG    32.50   32.70   26.02    0.20   4.20%   0.61%
MRVL     AUG    25.00   25.30   22.61    0.30   8.23%   1.19%

There was no viable position in Eon Labs (NASDAQ:ELAB), Accredo
Health (NASDAQ:ACDO) or Ultralife Batteries (NASDAQ:ULBI), due
to "gap-down" trading activity after those plays were listed.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW POSITIONS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As with
any new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.

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

NEW NAKED-PUT CANDIDATES

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

GLBCE  15.70  SEP 12.50  GQC-UV 0.60 3899 11.90  41   3.7%  11.9%
MCIP   15.99  SEP 15.00  MQI-UC 0.70 3160 14.30  41   3.6%   8.5%
ING    23.44  AUG 22.50  ING-TX 0.25 1161 22.25  12   2.8%   7.3%
PAAS   13.49  SEP 12.50  USP-UV 0.45  298 12.05  41   2.8%   6.9%
AMED   28.73  SEP 25.00  CQW-UE 0.75  168 24.25  41   2.3%   6.5%
KOSP   34.33  SEP 30.00  KQW-UF 0.75  139 29.25  41   1.9%   5.5%
IVX    24.00  SEP 20.00  IVX-UD 0.45 2913 19.55  41   1.7%   5.5%
PHM    56.64  SEP 50.00  PHM-UJ 0.75  482 49.25  41   1.1%   3.3%
UTHR   29.84  SEP 25.00  FUH-UE 0.30 2001 24.70  41   0.9%   3.0%

Abbreviations:

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, SY-Simple Yield (monthly basis without
margin), MY-Maximum Yield (monthly basis with margin), TS-Target
Shoot.

__________________________________________________________________

GLBCE - Global Crossing  $15.70  *** Speculators Only! ***

Global Crossing (NASDAQ:GLBCE) is a provider of telecom services
to carriers and commercial enterprises around the world.  The
principal services the company offers to its customers include
voice, data and conferencing services.  Global Crossing offers
these services using a global Internet protocol-based network
that directly connects more than 300 cities in over 30 countries
and delivers services to more than 500 major cities in over 50
countries around the world.  The firm also provides installation
and maintenance services for subsea telecommunications systems
through its subsidiary, Global Marine Systems Limited.

GLBCE - Global Crossing  $15.70

SEP 12.50 GQC-UV LB=0.60 OI=3899 CB=11.90 DE=41 TY=3.7% MY=11.9%


__________________________________________________________________

MCIP - MCI Incorporated  $15.99  *** Own This One! ***

MCI Incorporated (NASDAQ:MCIP), whose predecessor was WorldCom,
is a global communication company, providing a wide range of
communication services in over 200 countries on six continents.
It operates a communications network of approximately 100,000
route miles of network connections linking metropolitan centers
and various regions across North America, Europe, Asia, Latin
America, the Middle East, Africa and Australia.  It also owns
an Internet protocol backbone and is a carrier of international
voice traffic.  Since April 2003, business has been conducted
using the brand name MCI, under which the company operates in
three primary business units: Business Markets, Mass Markets
and International.

SEP 15.00 MQI-UC LB=0.70 OI=3160 CB=14.30 DE=41 TY=3.6% MY=8.5%


__________________________________________________________________

ING - ING Groep N.V.  $23.44  *** Favorable Earnings! ***

ING Groep N.V. (NYSE:ING) is a global financial institution of
Dutch origin that offers banking, insurance and asset management
to more than 60 million clients in more than 50 countries.  The
clients are individuals, businesses, corporations, institutions
and governments.  The firm consists of a spectrum of businesses
that serve their clients under the ING brand.  ING's primary
segments, which are based on the management structure of the
company, are ING Europe, ING Americas and ING Asia/Pacific.

ING - ING Groep N.V.  $23.44

AUG 22.50 ING-TX LB=0.25 OI=1161 CB=22.25 DE=12 TY=2.8% MY=7.3%


__________________________________________________________________

PAAS - Pan American Silver  $13.49  *** Broad-Market Hedge! ***

Pan American Silver (NASDAQ:PAAS) is principally engaged in the
exploration for, and the acquisition, development and operation
of, silver properties primarily in Peru, Mexico, Bolivia and
Argentina, with a secondary focus on the United States and the
Americas.  Pan American's principal products and sources of
revenue are silver-rich zinc, lead and copper concentrates that
it sells through a small-scale operation in central Peru.  The
stockpiles were accumulated over several years by Volcan, a
mining company in the Cerro de Pasco mining district in central
Peru.  In 2003, the Quiruvilca, Huaron and La Colorada mines
and stockpiles accounted for all of Pan American's production
of concentrates.

PAAS - Pan American Silver  $13.49

SEP 12.50 USP-UV LB=0.45 OI=298 CB=12.05 DE=41 TY=2.8% MY=6.9%


__________________________________________________________________

AMED - Amedisys  $28.73  *** Premium-Selling Only! ***

Amedisys (NASDAQ:AMED) is a multi-state provider of home health
and nursing services.  The company operates home care nursing
offices and has corporate offices in the southern and southeastern
United States.  The firm's wholly owned subsidiaries are Amedisys
Arkansas, Cypress Health Services and Amedisys LA Acquisitions.
The services provided in home healthcare include four primary
categories: home health nursing services, infusion therapy,
respiratory therapy and home medical equipment.

AMED - Amedisys  $28.73

SEP 25.00 CQW-UE LB=0.75 OI=168 CB=24.25 DE=41 TY=2.3% MY=6.5%


__________________________________________________________________

KOSP - KOS Pharmaceuticals  $34.33  *** On The Rebound? ***

KOS Pharmaceuticals (NASDAQ:KOSP) is a fully integrated specialty
pharmaceutical firm engaged in developing and commercializing a
range of proprietary prescription products for the treatment of
chronic cardiovascular and respiratory diseases.  The firm makes
the two products that it markets, Niaspan and Advicor.  Developed
for mixed lipid disorders, Niaspan is a once-daily formulation of
a product that has niacin as the active ingredient.  Advicor is a
solid-dose drug containing Niaspan and lovastatin, which is a
cholesterol-lowering drug that will be used to treat mixed lipid
disorders.  The firm cardio-metabolic products under development
consist of controlled-release, once-a-day, oral dosage products.
	
KOSP - KOS Pharmaceuticals  $34.33

SEP 30.00 KQW-UF LB=0.75 OI=139 CB=29.25 DE=41 TY=1.9% MY=5.5%


__________________________________________________________________

IVX - IVAX Corporation  $24.00  *** Drug Speculation! ***

IVAX Corporation (NYSE:IVX) is a multinational company engaged
in the research, development, manufacture and marketing of
pharmaceutical products.  The company manufactures and/or sells
several brand name pharmaceutical products and a variety of
brand equivalent and over-the-counter pharmaceutical products,
primarily in the United States, Europe and Latin America.  It
also has subsidiaries throughout the world that specialize in
the development, manufacture and marketing of respiratory drugs,
primarily for asthma, delivered by metered-dose and dry-powder
inhalers.

IVX - IVAX Corporation  $24.00

SEP 20.00 IVX-UD LB=0.45 OI=2913 CB=19.55 DE=41 TY=1.7% MY=5.5%


__________________________________________________________________

PHM - Pulte Homes  $56.64  *** Leading The Homebuilders! ***

Pulte Homes (NYSE:PHM) is a holding company whose subsidiaries
engage in the homebuilding and financial services businesses.
The company's direct subsidiaries include Pulte Diversified
Companies, Inc. (PDCI), Del Webb Corporation and others that
are engaged in the homebuilding business.  PDCI's operating
subsidiaries include Pulte Home Corporation (PHC), Pulte
International Corporation and other subsidiaries that are
engaged in the homebuilding business.  The company also has a
mortgage banking company, Pulte Mortgage Corporation, which is
a subsidiary of PHC.

PHM - Pulte Homes  $56.64

SEP 50.00 PHM-UJ LB=0.75 OI=482 CB=49.25 DE=41 TY=1.1% MY=3.3% TS


__________________________________________________________________

UTHR - United Therapeutics  $29.84  *** Recent Rally! ***

United Therapeutics (NASDAQ:UTHR) is a biotechnology company
focused on the development and commercialization of therapeutics
to treat chronic and life-threatening diseases in 3 therapeutic
areas: cardiovascular medicine, infectious disease and oncology.
It has 5 therapeutic platforms: Prostacyclin analogs are stable
synthetic forms of a molecule that has effects on blood-vessel
health and function; Remodulin has been approved in the United
States for the treatment of pulmonary arterial hypertension in
patients with New York Heart Association Class II-IV symptoms;
Immunotherapeutic monoclonal antibodies are antibodies that
activate patients' immune systems to treat cancer; Glycobiology
anti-viral agents are a class of small molecules that may be
effective as an oral therapy for hepatitis C or other infections,
and Telemedicine involves portable digital devices that enable
physicians to remotely monitor patients' bodily measurements.

UTHR - United Therapeutics  $29.84

SEP 25.00 FUH-UE LB=0.30 OI=2001 CB=24.70 DE=41 TY=0.9% MY=3.0% TS



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

BEARISH PLAYS - NAKED CALLS

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

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

CRDN - Ceradyne  $32.58  *** A Trend Reversal! ***

Ceradyne (NASDAQ:CRDN) develops, manufactures and sells advanced
technical ceramic products and components for defense, industrial,
automotive and commercial applications.  The company's primary
products include lightweight ceramic armor for soldiers and
military helicopters; aesthetic ceramic orthodontic brackets;
durable, reduced friction, ceramic diesel engine components;
ceramic-impregnated dispenser cathodes for microwave tubes,
lasers and cathode ray tubes, and ceramic industrial components
for erosion and corrosion resistant applications.

CRDN - Ceradyne  $32.58

PLAY (sell naked call):

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

SELL CALL  SEP 40    AUE-IH    989    0.50  40.50   5.3%   1.2%


__________________________________________________________________

SWIR - Sierra Wireless  $27.06  *** Pure Premium-Selling! ***

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  $27.06

PLAY (sell naked call):

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

SELL CALL  SEP 35    IYQ-IG    7014   0.60  35.60   7.4%   1.7%


_________________________________________________________________

AVID - Avid Technology  $42.80  ** Profit-Taking In Progress! **

Avid Technology (NASDAQ:AVID) develops, markets, sells and
supports a wide range of software and hardware products for
digital media production, management and distribution.  The
company has two principal business segments, Video and Film
Editing and Effects, and Professional Audio.  The Video and
Film Editing and Effects segment produces non-linear video
and film editing systems as well as 3-D and special effects
software designed to provide capabilities for editing and
finishing feature films, television shows, broadcast news
programs, commercials, music videos and corporate and home
videos.  The Professional Audio segment produces digital
audio systems for the professional audio market, including
products developed to provide audio recording, editing,
signal processing, and automated mixing.

AVID - Avid Technology  $42.80

PLAY (sell naked call):

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

SELL CALL  SEP 50    AQI-IJ    231    0.50  50.50   3.6%   1.0%


_________________________________________________________________

USPI - United Surgical Partners  $33.86  ** Sell-Off Underway! **

United Surgical Partners (NASDAQ:USPI) owns and operates a
number of short-stay surgical facilities including surgery
centers and private surgical hospitals in the United States,
Spain and the United Kingdom.  The firm focuses on providing
surgical facilities that meet the combined needs of patients,
physicians and payors better than hospital-based and other
outpatient surgical facilities.  USPI acquires and develops
its facilities through the formation of relationships with
physicians and healthcare systems to better access and serve
the communities in its markets.

USPI - United Surgical Partners  $33.86

PLAY (sell naked call):

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

SELL CALL  SEP 37.5  QPJ-IU    100    0.55  38.05   3.9%   1.4%



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

SEE DISCLAIMER - SECTION 1

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


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