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Daily Newsletter, Tuesday, 08/24/2004

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The Option Investor Newsletter                 Tuesday 08-24-2004
Copyright 2004, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Sitting here in No-man's Land.
Futures Markets: See Note
Index Trader Wrap: Bulls and bears struggle for a footing as
                   oil slides to $45
Market Sentiment: No Bounce from Oil Drop


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      08-24-2004           High     Low     Volume   Adv/Dcl
DJIA    10098.63 + 25.58 10146.79 10062.13 1.34 bln 1612/1226
NASDAQ   1836.89 -  1.81  1850.29  1828.51 1.28 bln 1637/1364
S&P 100   534.98 +  0.09   537.46   533.43   Totals 3249/2590
S&P 500  1096.19 +  0.51  1100.94  1092.82
SOX       380.27 -  9.82   391.92   378.12
RUS 2000  545.01 +  1.54   548.58   542.56
DJ TRANS 3102.17 + 34.08  3103.72  3070.05
VIX        15.33 -  0.55    15.81    15.33
VXO (VIX-O)15.21 -  0.65    15.87    14.91
VXN        21.97 -  0.57    22.73    21.97
Total Volume 2,620M
Total UpVol  1,141M
Total DnVol  1,362M
Total Adv  3249
Total Dcl  2590
52wk Highs  116
52wk Lows    59
TRIN       1.47
PUT/CALL   0.79
************************************************************

Sitting here in No-man's Land.

The Dow gained 25.58 points to settle at 10098.63. The Nasdaq
slid 1.81 to end the day at 1836.89 and the S&P ended pretty well
flat at 1096.19.

The biggest sector percentage loser today was the AMEX Gold Bug
Index (HUI) with a loss of -5.50 or 2.68%. I'm sure this will be
addressed more fully in the Futures Wrap tonight. The next on the
list of the top five sector losers was the Semiconductor Index
(SOX) with a loss of -9.82 points or 2.51%. Rounding out the list
of the top five sectors losers were the Networking Index at -2.45
points or -1.14%, the Oil Index (OIX) at -2.88 points or -0.81%
and the software index (GSO) at -0.50 or -0.37% loss.

Your top five gainers were lead by the Airline index (XAL) with a
jump of +1.14 or +2.43%, Transportation Index (TRAN) with a rise
of +34.08 or +1.11%, both reflecting the drop in Crude Oil. Third
on the list is the Banking Index (BIX) with a rise of +1.52 or
0.42%, fourth is the insurance index (IUX) with a rise of 0.75 or
0.24% and finishing off the list was the Morgan Stanley
Healthcare Index (HMO) with a increase of +1.82 or 0.19%.

Today's news

Iraq resumed exporting oil today and the October Crude Oil
contract traded under $45 a barrel. After posting all time highs
for most of August, oil prices have fallen more than $3.50 in the
past three trading sessions. The September crude contract, which
set the all-time high of $49.40, expired on Friday.

Earlier this month Toys "R" Us Inc. (TOY) said it might abandon
its toy business, but is now cautioning that this speculation may
have been premature.

John Eyler, chief executive of TOY recently said "while this
remains a possibility, our focus ... remains on running our
company and taking advantage of our place in the market as the
world's largest specialty toy retailer." He also said the
company's toy business remains lucrative generating about $6.5
billion in sales last year and with an operating income in excess
of $100 million. TOY ended the day +0.17 at 16.21.

A report from Semiconductor International Capacity Statistics
states that the demand for the chips used in cellphones and
digital products has boosted the world's chipmakers operating
capacity to 95.4% utilization rate. This is the highest
utilization percentage in nearly four years and crosses the
threshold at which manufacturers start building new factories.
The factory utilization rate was the sixth straight quarter of
increasing output and the highest since 96.4 percent in the third
quarter of 2000. When utilization rates are above 90 percent,
chip makers typically begin building new factories.

Economic reports

July sales of existing homes declined from the previous month
showing we have hit a soft spot in the housing market even though
mortgage rates remain relatively low.

The National Association of Realtors' Existing-homes Sales failed
to meet Wall Street expectations when it fell 2.9% to a
seasonally adjusted annual rate of 6.72 million units last month.
This is down from a downwardly revised 6.92 million unit pace in
June.

NAR Chief Economist David Lereah said July's numbers were the
first drop since January and the third best annualized rate of
home resales ever and thinks this is a healthy pullback in the
housing market and is due to rising interest rates.

Although mortgage rates rose sharply in last two months, they
have settled well below 6.0% in recent weeks to an average of
5.81% last week. The average interest rate for a 30-year fixed-
rate mortgage hovered around 6.0% for most of July, compared to
an average of 6.29% in June and 6.27% in May.

Earnings

Despite an increase in sales from the year-earlier fiscal first
quarter, H.J. Heinz Co.'s (HNZ) profit slid 9%. The maker of
processed foods such as ketchup and baked beans said it earned
$194.8 million, or 55 cents a share, for the first quarter ended
July 28, down from $214 million, or 60 cents a share, for the
year-earlier quarter. HNZ ended the day +1.03 at 37.63.

On to the charts

In my August 19th Market Wrap, I drew a bunch of red boxes where
I thought we would see resistance. I would now like to revisit
those resistance zones and see how well they are holding up.

Annotated Daily Chart of the NYA :



NYA is the strongest market of all the major markets so
resistance holding here would not bode well for the stock market
in general. So far there is no evidence that the resistance will
break and NYA is in the process of making an ominous double top.
But we are way too premature here because we also have little
evidence this resistance will not break. I think more than a 50%
retracement of the move from August 12th lows to august 23rd
highs would tell us the resistance has held and we are destined
for lower lows. A 50% retracement is a trade below 6318.

Although I hesitate to mention bearish patterns because I can be
labeled as too bearish, the swing high on August 23rd was lower
than the swing high on August 2nd making the bearish case just a
tad stronger. But then on the bullish side you have a huge
positive MACD divergence and those cannot be ignored.

However, the RED box on this chart is very important and one you
need to watch.

Annotated Daily Chart of the RUT:




The blue line joins the March lows with the June lows but notice
the August highs are lower. Then we have the August 23 high lower
than the August 2nd high and I am looking at a market that needs
some of mom's chicken soup because it does not look healthy.

Qcharts does not do a great job of volume on the major indexes so
I use a proxy for my volume studies. The proxy I will use here is
Russell 2000 Ishare IWM to show you the declining volume as the
market advances.




The Red arrows show IWM advancing on declining volume, then the
magenta arrows show IWM falling on advancing volume and since
August 16th (blue arrows) IWM is advancing on declining volume
again.

Annotated Daily Chart of the SPX:



SPX has continued to advance but is hitting its red box also. I
expect SPX to make it at least to the red arrow which is the
swing high made on August 2nd and then make a decision as to if
it wants to move on up or retest August lows at 1060.

Volume here is quite bearish also. I have used the SPY for the
volume chart.




The Red arrows show SPY advancing on declining volume. The
magenta arrows show SPY falling on advancing volume and since
August 16th (blue arrows) SPY is advancing on declining volume
again.

Annotated Daily Chart of the DOW:




The 50 and 200 MAs are diverging more now than they were when I
showed them on August 19 but they will still work as resistance
because right in the middle of them is the red arrow from the
August 2nd highs.

When I wrote my wrap on August 19th I didn't think MACD was
showing a positive divergence but I see that it really is. It is
also making a higher high while price is not and is another
positive divergence.

For volume studies I used the Diamonds (DIA)



As you can see it is the same story here as in the SPY and IWM.

Annotated Daily Chart of the COMPX:




This market is not yet testing the Red Box and I still don't see
anything bullish about this chart.

The 200 and 50 MA have diverged so much in this market that you
cannot use them both for a resistance zone so I have used the
August 2nd highs, of course, then the 50 MA and the 50%
retracement from June highs to August lows for resistance.

For the volume studies I used the QQQs



Volume is the same story in this market as it is in the others.

Tomorrows Earnings and Economic Releases

Tomorrow at 8:30 ET the Department of Commerce will release data
for July's Durable Goods. Consensus is for a 1.0% rise.
Briefing.com gives and importance rating to the economic releases
from A to F and this report got a B for importance.

Also out tomorrow, the Commerce Department will release data on
new-home sales at 10:00 ET but this should not be a market mover.
Economists surveyed by Dow Jones Newswires and CNBC expect a 2.3%
decrease. Briefing.com gave this report a C+ for importance.

Tomorrow look for earnings from CWTR, DLTR, MEDW, MIK, NTWK,
RAZF, TOL and WSM.

Outlook

As I said in my August 19 Market Wrap I will be keeping my powder
dry and continue to sit here in No-Man's Land until I see the
markets break some Red boxes and if not then break August 16th
lows.

And remember Plan your Trade and Trade your Plan.

Jane Fox


***************
FUTURES MARKETS
***************

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


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*****************
INDEX TRADER WRAP
*****************

Bulls and bears struggle for a footing as oil slides to $45

It was an up, then down, then back to relatively unchanged trade
as the major indices finished unchanged for a second-straight
session as oil prices briefly dipped below the $45 level, which
helped offset a slightly weaker-than-forecasted existing home
sales report for July.

U.S. Market Watch - 08/24/04 Close



The dollar found gains again today as October Crude Oil futures
(cl04v) 45.15 -1.95% slipped further from their recent contract
highs of $48.37.  The dollar's strength had the AMEX Gold Bugs
Index ($HUI.X) 199.35 -2.68% giving back some of last week's
gains, while October Gold futures (gc04v) were drilled lower by
$7.20, but still hold above the psychological $400.00 level.

Oils decline continues to lend itself to bullish sentiment as the
S&P Retail Index (RLX.X) 388.05 +0.60% managed to close above
both its rounding flat 200-day SMA (386.76) and trending lower
50-day SMA (387.28).  As of Monday evening's close, Dorsey/Wright
and Associates' Retail Bullish % (BPRETA) was still reading "bear
confirmed" at 42.15%, where a reversing higher reading of 46%
would be needed to achieve "bear correction" status.

Treasuries were little-changed as bond traders get ready for
tomorrow's 2-year auction.

October Crude Oil futures (cl04v) - 30-minute intervals



Today's trade at $45.25 had the October Crude Oil futures (cl04v)
slipping below its WEEKLY S1 ($45.26), but perhaps more
importantly, generating a double bottom sell signal on its $0.25
box scale point and figure chart.  A near-term "oversold" bounce
might have this contract bouncing back to its WEEKLY Pivot of
$46.78, but much more than that and one could only consider the
recent decline as some profit taking.  The 30-minute interval
chart allows us to quickly overlay the QCharts-derived weekly
pivot analysis levels for this futures contract where I would
have to go back to the week of 06/28/04-07/02/04 to find a period
when this futures contract traded below its WEEKLY S1.  That
week, this contract traded BELOW its WEEKLY S2 of $36.29 early in
the week, then rallied to trade just shy of its WEEKLY S2 ($39.09) by week's end.

It may not be a stretch at this point to associated Oil's WEEKLY
Pivots with those for the major indices (INDU/SPX/OEX/NDX) in our
Pivot Matrix.

Market Snapshot / Internals - 08/24/04



It certainly looked like bulls were on the ropes mid-session as
advance/decline lines turned modestly negative while the weaker
Semiconductor Index (SOX.X) 380.27 -2.52% challenged the recently
resurgent AMEX Gold Bugs Index ($HUI.X) 199.35 -2.68% for
downside leadership.

By session's end, the major pulled right back up to close at
today's DAILY Pivots, where many intra-day observations I was
able to make had a lot of stocks and indices hanging pegging some
of their own DAILY S1s, Pivots and R2s.

Baffling was the rising TRIN above 1.00 and its DAILY Pivot,
while the Market Volatility Index (VIX.X) 15.33 -3.46% fell from
the opening bell.

The TRIN and VIX.X indication have me counting "2 bearish" and "1
bullish" on the session, where price action was somewhat
reflective of a modestly bearish, yet split decision.

Dow Industrials (INDU) Chart - Daily Intervals



Not unlike the S&P 500 Index (SPX.X) which struggles with my old,
yet primary downward trend, the narrower Dow Industrials (INDU)
10,098.63 +0.25% did battle with its trend just as the July
existing home sales figures were released.  The Dow looks range-
bound near-term from a rather correlative curling higher 21-day
SMA and WEEKLY Pivot, while bound by resistance at the
intermediate-term 50-day SMA and MONTHLY Pivot.

One could say that stocks anticipated the recent pullback in oil
prices, but after a rather quick 6% decline in oil prices and the
closely monitored PRELIMINARY second-quarter GDP figures due out
Friday, traders seem little eager to make any meaningful bets,
where volumes at both the NYSE and NASDAQ were relatively light.

Pivot Analysis Matrix -



The Semiconductor Index (SOX.X) 380.27 -2.51% found some elastic-
type of snap near the close, but is the first equity-based index
in our Pivot Matrix to see a trade a lower trade at its WEEKLY
Pivot of 379.00.  While 2-points difference, I've marked
correlative support at SOX.X DAILY S1 and MONTHLY S1, which would
be the only levels of support between current trade and the
recent August 13 52-week low of 360.61.  A quick check of
Dorsey/Wright and Associates' Semiconductor Bullish % (BPSEM) has
their bullish % still reading "bear confirmed" at 11.04% as of
Monday evening, and it would take a reversing higher reading of
12% to reverse up to "bull alert" status.  Very weak, yet very
oversold internals here.

I've marked tomorrow DAILY S1 for the SPX.X as I see that level
is very correlative with the SPX chart shown in last night's
wrap, where the MONTHLY 61.8% retracement (1,092.47) is rather
correlative, and where buyers lurked just above in today's trade.

Jeff Bailey


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

No Bounce from Oil Drop
- J. Brown

Over the last few weeks the markets have been begging for crude
oil to drop.  It was only a few days ago that stocks surged on
the hope that crude prices had topped.  That was before oil
surged to $49 a barrel.  Now that we've seen crude prices slide
three days in a row there's no reaction.  This could leave the
little investor wondering, "what's going on?"  If you ask the
"professionals" on the floor they'll say that a drop in price has
already been priced into the market. Sure, it's priced in.
Sounds like they don't know either.

While the drop in oil prices is good news the disappointing home
sales numbers was bad news for the markets today.  Yet this
didn't have the same impact that the semiconductor sector did.
The SOX slipped 2.5% turning in the worst performance among the
major sector indices.  The move was sparked by a CSFB downgrade
of Broadcom.  The analyst firm said channel checks predicted
potentially weak sales and the firm lowered their price target on
BRCM from $54 to $38.  Pouring salt in the wound were comments
from the management at semiconductor maker Infineon.  They said
they did not believe the U.S. chip market would grow at 25 to 30
percent in 2005 as previously expected.  This undermined the
whole group.

There was a lot of talk today about the upcoming Republican
National Convention (RNC), which is due to hit New York City a
week from yesterday.  Bob Pisani, on CNBC, estimated that 50% of
Wall Street was planning to take the week off and avoid downtown.
This will turn what is normally a weak trading period into a
ghost town.  Volume will probably hit its lows for the year and
stock movements will likely be exacerbated both directions.

Investors will need to be careful tomorrow.  Late this evening
news spread that two passenger jets in Russia have crashed.  The
first question in everyone's mind is "could it be terrorist?"
With two jets dropping in the same few minutes it certainly seems
like a possibility.  Wednesday morning could see an initial
reaction to sell first and ask questions later.





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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  9230
Current     : 10098

Moving Averages:
(Simple)

 10-dma:  9991
 50-dma: 10157
200-dma: 10247



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  983
Current     : 1096

Moving Averages:
(Simple)

 10-dma: 1084
 50-dma: 1105
200-dma: 1110



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1256
Current     : 1369

Moving Averages:
(Simple)

 10-dma: 1342
 50-dma: 1409
200-dma: 1441



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

CBOE Market Volatility Index (VIX) = 15.33 –0.55
CBOE Mkt Volatility old VIX  (VXO) = 15.21 –0.65
Nasdaq Volatility Index (VXN)      = 21.97 –0.57


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.79        581,836       458,150
Equity Only    0.59        475,033       282,587
OEX            1.18         10,356        12,211
QQQ            0.27         55,859        15,399


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

Bullish Percent Data

           Current   Change   Status
NYSE          54.0    + 0     Bear Confirmed
NASDAQ-100    29.0    + 0     Bear Confirmed
Dow Indust.   46.6    + 0     Bear Confirmed
S&P 500       49.0    + 0     Bear Confirmed
S&P 100       46.0    + 0     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: 0.90
10-dma: 1.08
21-dma: 1.20
55-dma: 1.24


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    1612      1637
Decliners    1226      1364

New Highs      78        38
New Lows       20        39

Up Volume    638M      503M
Down Vol.    658M      704M

Total Vol.  1342M     1284M
M = millions


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

Commitments Of Traders Report: 08/17/04

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

There has been very little change in the commercial traders'
positions.  They remain slightly net short while small traders
are net long (bullish).

Commercials   Long      Short      Net     % Of OI
07/27/04      397,354   422,914   (25,560)   (3.1%)
08/03/04      401,619   419,429   (17,810)   (2.2%)
08/10/04      397,576   419,734   (22,158)   (2.7%)
08/17/04      398,472   416,109   (17,637)   (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
07/27/04      135,136    90,433    44,703    19.8%
08/03/04      128,510    88,833    39,677    18.3%
08/10/04      135,689    93,897    41,792    18.2%
08/17/04      138,550    97,792    40,758    17.2%

Most bearish reading of the year:  (1,657)- 5/27/03
Most bullish reading of the year: 114,510 - 3/26/02


E-MINI S&P 500

In the e-mini contracts we see commercial traders upping
both their long and short positions but they remain net
bearish.  Small traders have done the same by increasing
positions overall and they have increased their bullish
sentiment.

Commercials   Long      Short      Net     % Of OI
07/27/04      337,615   429,477   ( 91,862)  (12.0%)
08/03/04      340,053   428,736   ( 88,683)  (11.5%)
08/10/04      369,547   441,055   ( 71,508)  ( 8.8%)
08/17/04      404,065   457,372   ( 53,307)  ( 6.2%)

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
07/27/04      186,211     68,930   117,281    46.0%
08/03/04      195,105     68,717   126,388    47.9%
08/10/04      179,940     89,239    90,701    33.7%
08/17/04      192,939     92,361   100,578    35.3%

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 increased both their longs and
shorts in the NDX but shorts made a stronger comeback.
Commercial traders remain net bullish but the strength of
their sentiment is decreasing at least as of Aug. 17th.
Small traders have turned sharply bullish with a big switch
in positions.

Commercials   Long      Short      Net     % of OI
07/27/04       43,042     35,935     7,107    9.0%
08/03/04       42,771     36,863     5,908    7.4%
08/10/04       43,968     38,351     5,617    6.8%
08/17/04       44,743     41,535     3,208    3.7%

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
07/27/04       14,543    14,518        25     0.0%
08/03/04        8,995    13,901    (4,906)  (21.4%)
08/10/04       10,081    10,858    (  777)  ( 3.7%)
08/17/04       12,256     8,352     3,904    18.9%

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

Commercial traders are at a virtual standstill during the
latest period and remain net bullish on the Industrials.
Naturally small traders are making the opposite bet and have
turned more bearish.

Commercials   Long      Short      Net     % of OI
07/27/04       27,577    21,427    6,150      12.5%
08/03/04       30,118    25,029    5,089       9.2%
08/10/04       30,634    22,994    7,640      14.2%
08/17/04       30,271    22,809    7,462      14.1%

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
07/27/04        5,310     6,099   (  789)   ( 6.9%)
08/03/04        4,325     5,212   (  887)   ( 9.3%)
08/10/04        6,450     8,488   (2,038)   (13.6%)
08/17/04        4,388     7,089   (2,701)   (23.5%)

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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The Option Investor Newsletter                  Tuesday 08-24-2004
Copyright 2004, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: None
Call Play Updates: AET, BOL, INSP, MHK, POT, RAI, TDS, TXT, ZBRA
New Calls Plays: FMC
Put Play Updates: HIG, SPW
New Put Plays: KLAC


****************
PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****




PUTS:
*****



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********************
PLAY UPDATES - CALLS
********************

Aetna - AET - close: 92.08 change: -1.54 stop: 89.95

We were expecting some resistance near the $95.00 level and sure
enough there it is.  That's why our Sunday update suggested
short-term traders consider taking some profits off the table.
Now we can look to see where AET will bounce.  Will the stock
bounce from the minor support in the $91.50-91.80 range that it
saw last week or will it retest the $90.00 mark?  Traders have
time to be patient and choose their entry carefully.

Picked on August 15th at $90.72
Change since picked:     + 1.36
Earnings Date          07/29/04 (confirmed)
Average Daily Volume =      1.4 million
Chart =


---

Bausch Lomb - BOL - close: 65.70 change: -0.45 stop: 62.50

There is good news for the bulls in BOL.  Traders bought the dip
toward the $65.00 level today and volume was pretty light
compared to the recent rally.  This could be an entry point for
more aggressive players but we're still waiting for BOL to
confirm the breakout and hit our TRIGGER at $66.51.

Picked on August xxth at $xx.xx <-- see TRIGGER
Change since picked:     + 0.00
Earnings Date          07/29/04 (confirmed)
Average Daily Volume =      397 thousand
Chart =


---


InfoSpace - INSP - close: 39.41 change: +2.14 stop: 36.50

This week started off with a bang for INSP.  The company
announced that Britain's Virgin Mobile had chosen INSP to provide
media content downloads to their clients.  One firm, Wedbush
Morgan, was impressed enough by the news to reiterate their "buy"
rating on the stock.  Shares of INSP climbed to $41.10 before
giving it all back and more by Monday's closing bell.  Our play
was not looking so hot.  Yesterday's session looked like a major
failed rally and we were triggered at $40.10 on the move.
Fortunately, INSP found some strength near the $38 level today
and the intraday chart suggests the stock could bounce tomorrow.
The OI newsletter is hypothetically long the stock at $40.10 but
we suggest readers look for another move over $40 before
considering new bullish positions.  Our Sunday update did suggest
that aggressive traders look for a bounce from the $38 level as a
potential entry point.

Picked on August 23rd at $40.10
Change since picked:     - 1.65
Earnings Date          07/28/04 (confirmed)
Average Daily Volume =      1.1 million
Chart =


--

Mohawk Industries - MHK - close: 76.00 change: +1.88 stop: 72.45

Good news Mohawk fans!  MHK's recent consolidation under the
simple 200-dma yet above the exponential 200-dma has produced a
strong breakout over resistance at the $75.00 mark.  We're very
encouraged by the move with volume about 65 percent above the
average.  Our TRIGGER to go long was at $75.51.  This is a
bullish breakout over the top of MHK's 3 1/2 month trading range.
It is somewhat odd that we can't find a catalyst for the move but
we're not complaining.  Readers may consider new positions now at
current levels or on a bounce from $75.00, which should now act
as support.  FYI: the bullish P&F price target has risen from $84
to $87.

Picked on August 24th at $75.51
Change since picked:     + 0.49
Earnings Date          07/21/04 (confirmed)
Average Daily Volume =      397 thousand
Chart =


---

Potash - POT - close: 51.66 change: +1.37 stop: 49.49 *new*

Monday's session was looking pretty dire for our bullish play in
POT.  The stock had produced a small bearish engulfing
candlestick and was testing support at the $50.00 mark by Monday
afternoon.  It was do or die time and buyers need to step in to
buy POT at support.  Fortunately, buyers got a dose of courage on
Tuesday morning after Merrill Lynch upgraded POT from a "neutral"
to a "buy" with a $60 price target.  The firm said POT's core
business should remain strong for the foreseeable future.  More
conservative traders may want to snug their stop up under the
$50.00 level.  We're going to raise ours to $49.49.  Our target
remains the $55 region.


Picked on August 10th at $ 51.08
Change since picked:      + 0.58
Earnings Date           07/29/04 (confirmed)
Average Daily Volume =       180 thousand
Chart =


--

Reynolds American - RAI - close: 72.95 change: -0.14 stop: 69.36

RAI has been struggling with resistance near $73.75 for the last
two days.  Monday's afternoon dip saw some follow through this
morning but traders stepped in to buy the dip near $72.50 and by
the afternoon RAI was looking up again.  This may prove to be a
new bullish entry point in RAI.  Now if we could just see some
strong volume help push this stock higher we'd really get
excited.

Picked on August 19 at $72.88
Change since picked:   + 0.07
Earnings Date        08/02/04 (confirmed)
Average Daily Volume =    1.2 million
Chart =


--

Telephone & Data Sys - TDS - cls: 77.65 change: +0.45 stop: 74.00

Yeah!  TDS flexed its relative strength muscles today and managed
to breakout over resistance at the $78.00 level.  We've been
triggered at $78.05.  We're encouraged that TDS closed at $78.00
and not under it and we're encouraged by what appears to be a
bullish development in its MACD indicator.  Remember this is an
aggressive, higher-risk play so plan your trades carefully and
watch your risk.  Volume is low on this stock and so it the
option volume.  Readers can choose to look for a bounce from the
21-dma or a new high above $78.40 as an entry point if they don't
like buying at $78.

Picked on August 24th at $78.05
Change since picked:     - 0.05
Earnings Date          07/21/04 (confirmed)
Average Daily Volume =      195 thousand
Chart =


---

Textron - TXT - close: 64.25 change: +0.55 stop: 61.99 *new*

The rally continues for TXT as it too shows off some relative
strength today.  Shares have broken through minor resistance at
the $64.00 level to hit new four-year highs.  Short-term
technicals like the RSI and stochastics are bullish and its P&F
chart continues to point to a $76 target.  Readers should note
that TXT is nearing our initial profit target of $65 to $66.
Short-term traders can plan their exits at $65.00.  Right now
we're willing to be a little greedy and aim for $66.  We are
going to raise our stop loss to $61.99.

Picked on July 26th at $60.72
Change since picked:   + 3.53
Earnings Date        07/22/04 (confirmed)
Average Daily Volume =    622 thousand
Chart =


---

Zebra Tech. - ZBRA - close: 83.20 chg: +0.59 stop: 79.95

Heads up!  Tomorrow (Wednesday, August 25th) is your last chance
to exit if you're worried about any post-split depression.
Shares of ZBRA will begin trading on a post-split basis (3-for-2)
on Thursday morning.  At this time we've decided to hold over the
split.  Our new trigger will drop from $84.35 to just over $56.
Our target will fall from $90 to $60.  Our new stop loss will
move from $79.95 to $53.25.  Keep a close eye on the $83.50 (or
post-split 55.60) level as it seems to be a tight lid on the
stock. We remain un-triggered.

Picked on August xxth at $xx.xx <-- see TRIGGER
Change since picked:     + 0.00
Earnings Date          07/28/04 (confirmed)
Average Daily Volume =      419 thousand
Chart =



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

F M C Corp - FMC - close: 45.87 change: +1.81 stop: 42.00

Company Description:
FMC Corporation is a diversified chemical company serving
agricultural, industrial and consumer markets globally for more
than a century with innovative solutions, applications and
quality products. The company employs approximately 5,300 people
throughout the world. The company operates its businesses in
three segments: Agricultural Products, Specialty Chemicals and
Industrial Chemicals. (source: company press release)

Why We Like It:
The month of July was a painful one for FMC as shares slowly
melted day after day in the summer sun.  Then the stock exploded
higher after the company reported earnings that blew away the
estimates.  There were a couple of warts on the report but
investors focused on the strong profit picture and FMC's newly
raised guidance for FY04.  The investment team at Standard &
Poor's agrees that FMC's profit outlook is improving.  That's
their main investment rationale for putting FMC in their Top 10
portfolio with a $54 price target.

We like the today's bullish breakout over five-month resistance
at the $45.00 level on double the average volume.  The P&F chart
is bullish and currently points to an $88 target.  We are a
little surprised by the high-volume move today because there
appears to be no catalyst for the move.  We believe the $50.00
level is a good short-term target while longer-term investors
might target the $55 plus region.  There is one caveat.  FMC
topped out near $48.00 back in 1997 but that was so long ago
we're not going to count it as resistance.  Let's hope that
doesn't come back to bite us.

Suggested Options:
Option volume is pretty sparse except near the ATM strikes.  We
like the October 45s.  If you're feeling daring the October 50s
work but there is no current open interest.

BUY CALL OCT 40 FMC-JH OI=400 current ask $6.60
BUY CALL OCT 45 FMC-JI OI=498 current ask $2.95
BUY CALL OCT 50 FMC-JJ OI=  0 current ask $0.95

Annotated chart:


Picked on August 24 at $45.87
Change since picked:   + 0.00
Earnings Date        07/27/04 (confirmed)
Average Daily Volume =    265 thousand
Chart =



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*******************
PLAY UPDATES - PUTS
*******************

Hartford - HIG - close: 59.84 change: +0.25 stop: 61.26

We are starting to turn more cautious on our HIG put play.  The
Monday reversal back under the $60.00 level is very favorable but
the lack of follow through makes us wonder if we have a lack of
sellers here.  We also need to keep an eye on the IUX Insurance
index.  The IUX has rallied over the last couple of weeks but
we've seen it stall and struggle with its simple 50-dma as
overhead resistance for the last three sessions.  A bullish
breakout in the IUX could immediately put our HIG play in danger.
At this point we'd probably shy away from new bearish plays
unless shares of HIG traded back under the $59.00 level.  Be
careful here.

Picked on August 12 at $59.17
Change since picked:   + 0.67
Earnings Date        07/21/04 (confirmed)
Average Daily Volume =    1.4 million
Chart =


--

SPX Corp - SPW - close: 36.41 change: -0.46 stop: 38.26

SPW has so far acted as we expected it to.  The neutral
consolidation has broken downwards and SPW has broken its trend
of higher lows.  The stock did manage a weak bounce from the $36
level today but shares look poised for more weakness.  Our
TRIGGER to open new put plays is on a drop through $35.75.

Picked on August xxth at $xx.xx <-- see TRIGGER
Change since picked:     - 0.00
Earnings Date          08/02/04 (confirmed)
Average Daily Volume =      814 thousand
Chart =



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

KLA-Tencor - KLAC - close: 37.01 change: -0.76 stop: 38.51

Company Description:
About KLA-Tencor: KLA-Tencor is the world leader in yield
management and process control solutions for semiconductor
manufacturing and related industries. Headquartered in San Jose,
Calif., with operations around the world, KLA-Tencor ranked #6 on
S&P's 2002 index of the top 500 companies in the U.S.
(source: company press release)

Why We Like It:
CSFB issued some negative comments about potentially weak sales
for specialty chipmaker BRCM and the stock went south.  Yet when
you add comments from semiconductor maker Infineon who said the
U.S. semiconductor market would not grow 25 to 30 percent in
2004, as previously expected, then you have reason for the whole
sector to drop.  Drop it did as the SOX index slipped 2.5 percent
under performing the entire market.  One day does not a trend
make but there is too much coincidence with so many semiconductor
stocks rolling over from the tops of their descending channels.
KLAC is one of them (see the chart below).  We will stick an
aggressive label on this play because the chip stocks have been
somewhat unpredictable lately.  We hope to lower our risk by
using a relatively tight stop loss at $38.51, just over the
recent high.  Our short-term target is $34.00 but the bottom of
the channel could be closer to $30.00.  KLAC's bearish P&F chart
currently points to a $26.00 target.

Suggested Options:
We're going to suggest the September or October puts but our
favorites are probably the Septembers since this should be a
short-term play.

BUY PUT SEP 40.00 KCQ-UH OI=4390 current ask $3.50
BUY PUT SEP 37.50 KCQ-UU OI=2329 current ask $1.80
BUY PUT SEP 35.00 KCQ-UG OI=4673 current ask $0.80

Annotated Chart:


Picked on August 24 at $37.01
Change since picked:   - 0.00
Earnings Date        07/29/04 (confirmed)
Average Daily Volume =    6.7 million
Chart =



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The Option Investor Newsletter                  Tuesday 08-24-2004
Copyright 2004, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Watch List: A to Q: a list of bullish candidates
Spreads & Straddles: Another Listless Session...
Premium Selling Plays: Naked Puts & Calls


**********
WATCH LIST
**********

A to Q: a list of bullish candidates

___________________________________________________________________

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.
___________________________________________________________________


Allstate - ALL - close: 47.94 change: +0.28

WHAT TO WATCH: Hurricane?  What hurricane?  Shares of ALL have
been very strong considering the damage caused by hurricane
Charley.  The sector seems to be doing pretty well considering
they were better prepared this time and that analysts believe
they'll be able to raise rates next year.  Readers can watch for
a breakout over resistance at $48.00.  This should reverse ALL's
current bearish P&F chart into a bullish one.

Chart=


---

Boeing - BA - close: 50.91 change: +0.26

WHAT TO WATCH: Bulls may want to keep an eye on BA.  The stock
has been building a strong trend of higher lows since it bounce
from $46.40 in July.  The defense contractor is coiling for a
bullish breakout over resistance at $51.50.  At the same time the
DFI defense index is coiling for a bullish breakout to new highs.
The bullish P&F chart for BA currently points to a $62 target.
Readers may want to use a breakout over $51 as an entry point.

Chart=


---

QUALCOMM - QCOM - close: 38.01 change: +0.04

WHAT TO WATCH: We've had QCOM on the watch list recently for a
breakout above $36.50.  That move came on Friday with above
average volume.  Monday saw some follow through and Tuesday
surged higher at the open as well but fell to some profit taking.
Readers may want to watch QCOM for a dip back to $37.00-36.50 and
buy a bounce.  The bullish P&F chart points to a $66 target.

Chart=


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

NCEN $53.10 +1.10 - This mortgage lender continues to climb.
We're watching it for a bullish entry point.

HRB $51.23 +1.26 - HRB broke out over resistance at its simple
200-dma but then disappointed on earnings.  Shares are trading
under $48.00 in after hours trading.

SSD $59.05 +2.55 - This bullish breakout looks great but we
hesitate to suggest plays because volume is so low on the stock.

ZMH $71.66 -1.05 - Looking for a put play?  Check out ZMH.  The
stock is faltering.  A drop under $70.00 may be an entry point.

STJ $66.73 -0.86 - STJ is in the same boat as ZMH.  They're both
sinking after the recent oversold bounce.  Aggressive traders can
look for puts now, otherwise watch for a drop under $65.


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

Another Listless Session...
By Ray Cummins

Stocks traded in mixed fashion Tuesday as renewed weakness in the
semiconductor segment weighed heavily on the NASDAQ while shares
of Caterpillar (NYSE:CAT) bolstered blue-chip gains.

Traders noted the current pullback in oil has largely been priced
into stocks, thus the market appears to have little impetus for
additional upside in the near-term.  The Dow Jones Industrials
closed up 25 points at 10,098, well off an intraday low of 10,062.
The NASDAQ Composite ended down 1 point at 1,836, with Broadcom
(NASDAQ:BRCM) among the most prominent hi-tech losers on news of
order weakness in the current quarter.  The Standard & Poor's 500
stock index was unchanged at 1,096, with construction equipment,
airlines, retail and restaurants among the bullish groups.  Volume
was light with 1.1 billion shares changing hands on the Big Board
while 1.3 billion shares were exchanged on the NASDAQ.  Advancers
had a slight edge over decliners on the New York Stock Exchange,
and the ratio was similar for technology stocks.  U.S. treasury
prices were under pressure for a third consecutive session, but
the benchmark 10-year note ended up 1/32 with its yield unchanged
at 4.28%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 08/22/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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    65.04  66.63  SEP  55.0  60.0  0.40   59.60   0.40   Open
FPL    67.73  67.99  SEP  60.0  65.0  0.45   64.55   0.45   Open
MCO    67.33  68.33  SEP  60.0  65.0  0.65   64.35   0.65   Open
BSTE   44.14  47.23  SEP  35.0  40.0  0.55   39.45   0.55   Open
ISCA   53.40  51.82  SEP  45.0  50.0  0.55   49.45   0.55   Open
LEND   33.89  37.41  SEP  25.0  30.0  0.60   29.40   0.60   Open
PIXR   69.93  74.27  SEP  60.0  65.0  0.45   64.55   0.45   Open
PD     80.77  80.20  SEP  65.0  70.0  0.40   69.60   0.40   Open
RYL    86.01  86.55  SEP  75.0  80.0  0.65   79.35   0.65   Open

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


CALL-CREDIT SPREADS

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

PDCO   73.40  76.29  SEP  85.0  80.0  0.55   80.55  0.55   Open
CDWC   59.25  58.97  SEP  65.0  60.0  0.45   60.45  0.45   Open
BGG    69.80  73.33  SEP  80.0  75.0  0.45   75.45  0.45   Open
DNA    44.23  47.87  SEP  52.5  50.0  0.35   50.35  0.35   Open
EASI   43.53  42.35  SEP  55.0  50.0  0.40   50.40  0.40   Open
VLO    64.36  65.69  SEP  75.0  70.0  0.60   70.60  0.60   Open

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

Kmart Holdings (NASDAQ:KMRT) and Vimple Communications (NYSE:VIP)
were previously closed in order to limit potential losses.


DEBIT STRADDLES

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

DVN     69.40  66.12   AUG   70.00  70.00   5.00    5.20   Closed
TBL     60.26  57.02   AUG   60.00  60.00   4.75    6.75   Closed
UTSI    15.00  16.48   AUG   15.00  15.00   1.00    1.50   Closed
SHRP    17.80  17.49   AUG   17.50  17.50   1.25    1.60   Closed

Special Tuesday note: Our new straddle in Ditech (NASDAQ:DITC)
was a big winner in "after-hours" trading as the issue jumped
over $4 on a strong earnings report and the announcement of two
additional customers in Asia.

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

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

NCEN - New Century Financial  $53.10  *** Rally Mode! ***

New Century Financial Corporation (NASDAQ:NCEN) is one of the
nation's largest specialty mortgage companies, providing first
and second mortgage products to borrowers nationwide through its
operating subsidiaries.  It offers mortgage products to borrowers
who generally do not satisfy the credit, documentation or other
underwriting standards prescribed by conventional mortgage lenders
and loan buyers, such as the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation.  New Century is
committed to serving the communities in which it operates with
fair and responsible lending practices.

NCEN - New Century Financial  $53.10

PLAY (less conservative - bullish/credit spread):

BUY  PUT  SEP-45.00  URE-UI  OI=150  ASK=$0.30
SELL PUT  SEP-50.00  URE-UJ  OI=743  BID=$0.85
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$49.40


__________________________________________________________________

SEPR - Sepracor  $49.35  *** Consolidation Complete? ***

Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company
dedicated to treating and preventing human disease through the
discovery, development and commercialization of pharmaceutical
compounds, including product candidates directed toward serving
unmet medical needs.  The firm's proprietary compounds are either
single-isomer or active metabolite forms of existing drugs, which
Sepracor refers to as improved chemical entities, or new chemical
entity compounds, which are unrelated to current products.

SEPR - Sepracor  $49.35

PLAY (less conservative - bullish/credit spread):

BUY  PUT  SEP-42.50  ERU-UV  OI=1352  ASK=$0.40
SELL PUT  SEP-45.00  ERU-UI  OI=1028  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.35-$0.40
POTENTIAL PROFIT(max)=17% B/E=$44.65



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

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.

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

GDT - Guidant  $56.26  *** Stent Design Woes? ***

Guidant Corporation (NASDAQ:GDT) provides therapeutic medical
solutions of distinctive value for customers, patients and
healthcare systems worldwide.  The company develops, makes and
markets implantable defibrillator systems, implantable pacemaker
systems, coronary stent systems, angioplasty systems and cardiac
surgery systems.  Guidant's lifesaving medical technologies are
designed to extend the lives and improve the quality of life of
millions of patients suffering from life-threatening cardiac and
vascular disease.  Its products treat the heart, managing its
rhythms, clearing its arteries and permitting less-invasive
surgeries.

GDT - Guidant  $56.26

PLAY (less conservative - bearish/credit spread):

BUY  CALL  SEP-65.00  GDT-IM  OI=3444   ASK=$0.40
SELL CALL  SEP-60.00  GDT-IL  OI=13134  BID=$1.00
INITIAL NET-CREDIT TARGET=$0.65-$0.70
POTENTIAL PROFIT(max)=15% B/E=$60.65


__________________________________________________________________

OSTK - Overstock.com  $31.03  *** Pure Premium-Selling! ***

Overstock.com (NASDAQ:OSTK) is an online "closeout" retailer
offering discount, brand-name merchandise for sale primarily
over the Internet.  The company's merchandise offerings include
bed-and-bath goods, kitchenware, watches, jewelry, electronics,
sporting goods and designer accessories.  Overstock offers its
customers an opportunity to shop for bargains conveniently,
while offering an alternative inventory liquidation distribution
channel to its suppliers.  The company typically offers around
5,000 non-media products and over 100,000 media products (books,
CDs, DVDs, video cassettes and video games) in seven departments
on its Websites, www.overstock.com, www.overstockb2b.com and
www.worldstock.com.

OSTK - Overstock.com  $31.03

PLAY (less conservative - bearish/credit spread):

BUY  CALL  SEP-40.00  QKT-IH  OI=938   ASK=$0.35
SELL CALL  SEP-35.00  QKT-IG  OI=2054  BID=$0.90
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$35.60



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

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

No straddles or strangles today...

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

SEE DISCLAIMER - SECTION 1

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


*****************************************
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 08/22/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

IVX      SEP    20.00   19.55   24.72    0.45   5.52%    2.30%
MCIP     SEP    15.00   14.30   17.43    0.70   8.50%    4.90%
PAAS     SEP    12.50   12.05   14.91    0.45   6.87%    3.73%
UTHR     SEP    25.00   24.70   30.87    0.30   3.01%    1.21%
AMED     SEP    25.00   24.25   26.50    0.75   6.54%    3.09%
PHM      SEP    50.00   49.25   58.76    0.75   3.32%    1.52%
KOSP     SEP    30.00   29.25   36.55    0.75   5.48%    2.56%
GLBCE    SEP    12.50   11.90   15.85    0.60  11.90%    5.04%
ECLP     SEP    12.50   12.10   14.10    0.40   6.90%    3.31%
OMM      SEP    12.50   12.10   13.66    0.40   6.51%    3.31%
CNCT     SEP    25.00   24.10   26.70    0.90   7.11%    3.73%
TOY      SEP    15.00   14.45   15.61    0.55   7.51%    3.81%
ACF      SEP    20.00   19.25   21.00    0.75   7.16%    3.90%
PLMO     SEP    30.00   29.45   38.15    0.55   5.05%    1.87%
ION      SEP    25.00   24.50   25.75    0.50   4.17%    2.04%
ESLT     SEP    20.00   19.20   21.49    0.80   7.95%    4.17%
WBSN     SEP    35.00   33.75   39.84    1.25   8.46%    3.70%
NTMD     SEP    12.50   12.15   19.55    0.35   8.12%    2.88%
UTHR     SEP    25.00   24.30   30.87    0.70   7.30%    2.88%
CNCT     SEP    25.00   24.30   26.70    0.70   6.65%    2.88%
DDS      SEP    20.00   19.50   20.91    0.50   6.31%    2.56%
MEE      SEP    22.50   22.00   27.35    0.50   5.93%    2.27%
FOSL     SEP    25.00   24.35   29.10    0.65   5.95%    2.67%
HUM      SEP    17.50   17.10   18.85    0.40   5.34%    2.34%
SCSC     SEP    50.00   49.40   61.75    0.60   3.30%    1.21%
POSS     SEP    25.00   24.20   29.68    0.80   8.82%    3.31%
JOSB     SEP    24.00   23.52   27.27    0.48   5.27%    2.04%
ECLP     SEP    12.50   12.20   14.10    0.30   6.57%    2.46%
WBSN     SEP    35.00   34.05   39.84    0.95   7.44%    2.79%
ARO      SEP    30.00   29.05   31.90    0.95   7.67%    3.27%
MW       SEP    25.00   24.60   28.11    0.40   4.22%    1.63%
TOL      SEP    40.00   39.05   42.72    0.95   6.19%    2.43%

Special Tuesday note: The bullish position in Possis Medical
(NASDAQ:POSS) was closed today after the stock plunged on
disappointing results from a study of its AngioJet catheter.
Connetics (NASDAQ:CNCT) and Dillards (NYSE:DDS) moved sharply
lower on heavy volume, suggesting an early exit in those plays
as well.


NAKED CALLS

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

CRDN     SEP    40.00   40.50   39.30    0.50   5.29%   1.23%
SWIR     SEP    35.00   35.60   23.88    0.60   7.40%   1.69%
AVID     SEP    50.00   50.50   44.33    0.50   3.56%   0.99%
USPI     SEP    37.50   38.05   36.23    0.55   3.90%   1.45%
BDY      SEP    25.00   25.75   23.60    0.75   7.42%   2.91%
DRIV     SEP    30.00   30.30   25.59    0.30   4.51%   0.99%
SINA     SEP    30.00   30.35   20.43    0.35   5.84%   1.15%
ERES     SEP    22.50   22.80   20.18    0.30   6.66%   1.32%
MRVL     SEP    25.00   25.40   23.98    0.40   8.22%   1.57%
ICUI     SEP    30.00   30.65   25.96    0.65   7.56%   2.12%
SWIR     SEP    30.00   30.30   23.88    0.30   5.90%   0.99%
UPL      SEP    45.00   45.40   38.65    0.40   4.90%   0.88%

Dick's Sporting Goods (NYSE:DKS) has previously been closed to
limit potential losses.

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

ESLT   21.50  SEP 20.00  EQX-UD 0.70   25 19.30  25   4.4% 10.9%
IVX    24.89  SEP 22.50  IVX-UX 0.60 4044 21.90  25   3.3%  8.9%
SRDX   24.01  SEP 22.50  UZF-UX 0.60   63 21.90  25   3.3%  8.4%
FCN    17.84  SEP 17.50  FCN-UW 0.45  184 17.05  25   3.2%  7.6%
MEE    26.94  SEP 25.00  MEE-UE 0.55  452 24.45  25   2.7%  7.1%
SONO   23.99  SEP 22.50  UZS-UX 0.45   20 22.05  25   2.5%  6.4%
ARO    32.42  SEP 30.00  ARO-UF 0.50  387 29.50  25   2.1%  5.5%
AAPL   31.95  SEP 30.00  AAQ-UF 0.50 8011 29.50  25   2.1%  5.4%
BSTE   49.12  SEP 45.00  BQS-UI 0.55  245 44.45  25   1.5%  4.2%

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.
__________________________________________________________________

ESLT - Elbit Systems  $21.50  *** Volatility = Premium! ***

Elbit Systems (NASDAQ:ESLT) develops, manufactures and integrates
defense electronic and electro-optic systems for customers around
the world.  The company focuses on designing, developing, making
and integrating command and control, communication, computer,
intelligence, surveillance and reconnaissance systems for defense
and homeland security applications.  The company also performs
upgrade programs for airborne, land and naval defense platforms,
often as a prime contractor.

ESLT - Elbit Systems  $21.50

SEP 20.00 EQX-UD LB=0.70 OI=25 CB=19.30 DE=25 TY=4.4% MY=10.9%


__________________________________________________________________

IVX - IVAX Corporation  $24.89  *** 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  $24.89

SEP 22.50 IVX-UX LB=0.60 OI=4044 CB=21.90 DE=25 TY=3.3% MY=8.9%


__________________________________________________________________

SRDX - SurModics  $24.01  *** In A Trading Range? ***

SurModics (NASDAQ:SRDX) is a provider of surface-modification
solutions for medical device and biomedical applications.  Its
PhotoLink chemistry is the core technology platform on which
many of its surface-modification capabilities are based.  This
technology helps modify and enhance the surface characteristics
of medical devices and biomedical applications, thus improving
performance, and, in some cases, enabling the development of
new products.  The firm commercializes its surface-modification
technologies through licensing and royalty arrangements with
medical device manufacturers that apply coatings to their own
products.

SRDX - SurModics  $24.01

SEP 22.50 UZF-UX LB=0.60 OI=63 CB=21.90 DE=25 TY=3.3% MY=8.4%


__________________________________________________________________

FCN - FTI Consulting  $17.84  *** Bottom-Fishing Only! ***

FTI Consulting (NYSE:FTN) is a national provider of forensic
accounting and litigation, corporate finance/restructuring and
economic consulting services in the United States.  During 2003,
the firm completed three strategic acquisitions of best-in-class
consulting practices that fit within its business model.  The
Lexecon business is an economic consulting firm in the United
States, concentrating in litigation support and expert analysis,
public policy analysis, anti-trust and competition and general
business services.  The company's four primary practices are
Forensic Accounting and Litigation Practice, Corporate Finance
and Restructuring Practice, Economic Consulting and Related
Expert Services.

FCN - FTI Consulting  $17.84

SEP 17.50 FCN-UW LB=0.45 OI=184 CB=17.05 DE=25 TY=3.2% MY=7.6%


__________________________________________________________________

MEE - Massey Energy  $26.94  *** Energy Sector Hedge! ***

Massey Energy (NYSE:MEE) produces, processes and sells bituminous,
low sulfur coal of steam and metallurgical grades through its 19
processing and shipping centers, called resource groups, many of
which receive coal from multiple coal mines.  The firm's resource
groups or mining complexes blend, process and ship coal that is
produced from one or more mines, with a single complex handling
the coal production of as many as eight distinct underground or
surface mines.  These mines are at strategic locations in close
proximity to the Massey preparation plants and rail facilities.
Coal is transported from its mining complexes to customers by
means of railroad cars or trucks.  Massey operates 30 underground
mines and 13 surface mines in West Virginia, Kentucky and Virginia.
The company's steam coal is primarily purchased by utilities and
industrial clients as fuel for power plants.

MEE - Massey Energy  $26.94

SEP 25.00 MEE-UE LB=0.55 OI=452 CB=24.45 DE=25 TY=2.7% MY=7.1%


__________________________________________________________________

SONO - SonoSite  $23.99  *** Testing Recent Highs! ***

SonoSite (NASDAQ:SONO) is global developer of high-performance,
hand-carried ultrasound imaging systems for use in a variety
of clinical applications and settings.  The company's products
include the SonoSite TITAN system, for general imaging and
cardiology applications, the SonoSite 180PLUS system, for
general ultrasound imaging, and the SonoHeart ELITE, configured
for cardiovascular applications.  The iLook 25 imaging tool is
designed to provide visual guidance for physicians and nurses
while performing vascular access procedures and the iLook 15
imaging tool is designed to provide visual imaging of the chest
and abdomen for physicians and nurses while performing other
procedures and examinations.

SONO - SonoSite  $23.99

SEP 22.50 UZS-UX LB=0.45 OI=20 CB=22.05 DE=25 TY=2.5% MY=6.4%


__________________________________________________________________

ARO - Aeropostale  $32.42  *** Bullish Retailer! ***

Aeropostale (NYSE:ARO), together with its subsidiary, Aeropostale
West, is a mall-based specialty retailer of casual apparel and
accessories that target both young women and young men aged 11
to 20 years.  The firm provides its customers with a selection
of active-oriented, fashion basic merchandise.  Aeropostale
maintains control over its proprietary brand by designing and
sourcing all of its merchandise.  The company's products can be
purchased only at its stores or organized sales events at college
campuses.  The company plans to open approximately 95 new stores
in fiscal 2004.

ARO - Aeropostale  $32.42

SEP 30.00 ARO-UF LB=0.50 OI=387 CB=29.50 DE=25 TY=2.1% MY=5.5%


__________________________________________________________________

AAPL - Apple Computer  $31.95  *** An Apple A Day... ***

Apple Computer (NASDAQ:AAPL) designs, manufactures and markets
personal computers (PCs) and related software, peripherals and
personal computing and communicating solutions.  Its products
include the Macintosh line of desktop and notebook computers,
the Mac OS X operating system, the iPod digital music player and
a portfolio of software and peripheral products for education,
creative, consumer and business customers.  The company sells
its products through its online stores, direct sales force,
third-party wholesalers and resellers and its retail stores.

AAPL - Apple Computer  $31.95

SEP 30.00 AAQ-UF LB=0.50 OI=8011 CB=29.50 DE=25 TY=2.1% MY=5.4%


__________________________________________________________________

BSTE - Biosite  $49.12  *** Next Leg Up? ***

Biosite (NASDAQ:BSTE) is a provider of medical diagnostics that
aid a physician to diagnose diseases and health conditions.  The
firm provides tests for drug screening, heart attack, congestive
heart failure (CHF), acute coronary syndromes (ACS) and certain
bacterial and parasitic infections.  Its commercialized products
include Triage MeterPlus, Triage BNP Test, Triage Cardiac Panel,
Triage Cardio ProfilER, Triage Drugs of Abuse and Triage
Microbiology Panels.

BSTE - Biosite  $49.12

SEP 45.00 BQS-UI LB=0.55 OI=245 CB=44.45 DE=25 TY=1.5% MY=4.2% 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.

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

BRCM - Broadcom  $28.96  *** Sector Slump! ***

Broadcom (NASDAQ:BRCM) is a leading provider of highly integrated
silicon solutions that enable broadband communications and the
networking of voice, video and data services.  Using proprietary
technologies and advanced design methodologies, Broadcom designs,
develops and supplies complete system-on-a-chip solutions and
related hardware and software applications for all broadband
communications markets.  Their diverse product portfolio includes
solutions for digital cable and satellite set-top boxes; cable
and DSL modems and residential gateways; high-speed transmission
and switching for local, metropolitan, wide area and storage
networking; home and wireless networking; cellular and terrestrial
wireless communications; Voice over Internet Protocol (VoIP)
gateway and telephony systems; broadband network processors; and
SystemI/O(TM) server solutions.

BRCM - Broadcom  $28.96

PLAY (sell naked call):

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

SELL CALL  SEP 32.5  RCQ-IZ    7279   0.40  32.90   5.8%   1.2%


_________________________________________________________________

ELAB - Eon Labs  $26.77  *** Next Leg Down? ***

Eon Labs (NASDAQ:ELAB) is a generic pharmaceutical firm engaged
in developing, licensing, manufacturing, selling and distributing
a range of prescription pharmaceutical products primarily in the
United States.  The company focuses on drugs in a broad range of
solid oral dosage forms, utilizing both immediate and sustained
release delivery, in tablet, multiple layer tablet, film-coated
tablet and capsule forms.  Eon Labs obtains new generic products
primarily through internal product development and from strategic
licensing or co-development arrangements with Hexal AG, as well
as with other companies.

ELAB - Eon Labs  $26.77

PLAY (sell naked call):

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

SELL CALL  SEP 30    ESQ-IF    1771   0.55  30.55   8.3%   1.8%


_________________________________________________________________

IDXC - IDX Systems  $27.82  *** Downtrend Intact! ***

IDX Systems (NASDAQ:IDXC) is a provider of software, services
and technologies for healthcare organizations.  The company
provides information systems and services for physician group
practices, hospitals and integrated delivery networks.  IDX
System's patient access, financial and business intelligence
products for hospitals, integrated delivery networks and group
practices are packaged as IDX Flowcast and IDX Groupcast.  The
clinical solutions are packaged as the IDX Carecast System and
its radiology and imaging products are sold as IDX Imagecast.

IDXC - IDX Systems  $27.82

PLAY (sell naked call):

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

SELL CALL  SEP 30    XQW-IF     24    0.30  30.30   3.9%   1.0% TS


_________________________________________________________________

MRVL - Marvell Technology  $22.85  *** Premium-Selling Only! ***

Marvell (NASDAQ:MRVL) designs, develops and markets integrated
circuits utilizing proprietary communications mixed-signal and
digital signal processing technology for communications-related
markets.  Marvell offers its customers a wide range of integrated
circuit solutions using proprietary communications mixed-signal
processing and digital signal processing technologies.  Marvell's
product groups include: storage products, consisting of a variety
of read channel, system-on-chip and preamplifier products; and
broadband communications products, consisting of a variety of
transceiver products, switching products, internetworking
products and wireless LAN products.

MRVL - Marvell Technology  $22.85

PLAY (sell naked call):

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

SELL CALL  SEP 25    UVM-IE    3535   0.35  25.35   5.8%   1.4%



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

SEE DISCLAIMER - SECTION 1
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~


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