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Daily Newsletter, Sunday, 08/29/2004

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The Option Investor Newsletter                   Sunday 08-29-2004
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Quiet Before the Storm
Futures Wrap: See Note
Index Trader Wrap: WALL OF WORRY
Editor's Plays: Google Mania
Market Sentiment: The RNC approaches
Ask the Analyst: Synthetic hedge.  What is it?  What is it intended to
                 do?
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 8-27         WE 8-20         WE 8-13         WE 8-06
DOW    10195.01 + 84.91 10110.1 +284.79 9825.35 + 10.02 -324.38
Nasdaq  1862.09 + 31.07 1831.02 + 73.80 1757.22 – 19.67 -110.47
S&P-100  540.88 +  4.84  536.04 + 15.32  520.72 -  1.11 - 15.84
S&P-500 1107.77 +  9.42 1098.35 + 33.55 1064.80 +  0.83 - 37.75
W5000  10755.02 +106.22 10648.8 +344.09 10304.6 -  3.18 -393.81
SOX      382.34 -  3.66  386.00 + 19.35  366.65 – 20.23 - 29.55
RUT      551.67 +  3.75  547.92 + 30.53  517.39 -  2.26 - 31.64
TRAN    3108.80 + 17.93 3090.87 +123.95 2966.92 +  0.84 -145.61
******************************************************************

Quiet Before the Storm
by Jim Brown

Friday morning continued the pattern set on Thursday and
was Boring with a capital B. Volume was non existent and
reports from the NYSE compared it to a ghost town. The
bad news bulls were still circulating with rising support
just under the bid but there was no interest in chasing
the price. Actually there was no interest in any trading.
Buyers waited patiently for dips and sellers were absent
along with the volume.

Dow Chart – Daily


Nasdaq Chart


SPX Chart


SOX Chart


Russell Chart




Friday started slow with a GDP report that came in as
expected with a drop to +2.8% for the second quarter.
This makes it the weakest quarter since Q1-2003 which
only grew +1.9%. The headline number does not show the
positive internal changes with consumer spending moving
higher from the initial report to +1.6%. Still not strong
but better than expected. That is the lowest gain in
household consumption since the end of 2002. Business
Spending and Personal Expenditures both rose sharply
from the initial report. Dragging down the headline
number was exports and a dramatic slowdown in auto
production.

The GDP revision underlines the strong drop after three
quarters of strong growth. We did however managed to
show continued growth despite the weak quarter end. This
would suggest Q3, not normally a strong quarter anyway,
will follow in the footsteps of Q2 with sub 3% growth.
With corporate America holding their breath until the
election is over the 4Q is likely to be power packed in
Nov/Dec and that will produce something near +4% growth
to close the year. The challenge remains the high oil
prices and their dragging impact on the economy. If oil
does move lower with the resolution of some fighting in
Iraq and additional Russian production then the worst
may be behind us.

The Michigan Sentiment final came in at 95.9 and up
sharply from the initial reading of 94.0. This is still
down from July's 96.7 but the rebound from the initial
reading is moving in the right direction. Expectations
declined to 88.2 from 91.2 but present conditions rose
to 107.9 from 105.2. Analysts felt consumers were more
optimistic when gas prices did not go higher when oil
was hitting $48. There is a perception that gas prices
today should reflect the current oil prices and in
reality there is a significant lead time before the
high oil reaches the refineries and then the gas stations.
Either way consumers felt better about current conditions
and the lack of any terrorist event in Athens probably
helped that feeling. Obviously an event in New York
would be significantly depressing to sentiment.

The New York City area has been putting terrorist plans
in place for the convention for over a week with street
closings, random vehicle searches and setting up for
checkpoints into the city and convention area. The
NYSE has disaster plans in place and the floor will
only be manned at half staff or less with half the
traders working from remote locations. One desk with
30 traders is reportedly only going to operate with
only eight from the NYSE floor. There is significant
fear and caution in NYC that was not reflected in
trading as we closed the week ahead of the convention.

The attendees at the Jackson Hole Conference probably
wish they could stay there for all of next week to
avoid the extreme security and the risk for some of
returning to NYC. However, they may be feeling a little
stressed after the Greenspan speech today. He opened
his speech expressing concern about the elderly
dependency ratio. That is the number of older adults
to younger adults. That ratio has been rising for the
last 150 years and is about to spike sharply higher.
The growth of the working age population is currently
+1% per year but is expected to slow to only 1/4% by
2035 according to Greenspan. During that same time
the percentage of the population over 65, currently
12%, will expand to 20% by 2035. He went on to discuss
the impact on various economies but his real target
was social security and the problem ahead.

His premise was that the disability factor for people
over 65 was dropping rapidly as people reaching 65
were healthier and more active than in the past. He
said workers were working smarter and not harder and
their bodies were not wearing out as quickly as when
we were primarily an agricultural society where manual
laborers composed 75% of the workforce. With the
population rapidly aging, with baby boomers heading
into retirement, the system was going into fiscal arrest
in the very near future. Workers are retiring sooner
and living longer thereby requiring more contributions
from younger workers to support them. This is nothing
new to most investors and as Greenspan himself ages
he tends to talk about the problem more.

His two solutions for this problem were allowing more
immigrants into the country to inject liquidity into
the social security system AND/OR raising the retirement
age to prevent a system bankruptcy. He also suggested
the Federal government begin saving money instead of
spending it but we all know how likely that is. He
suggested making the decision to change the retirement
age quickly so those facing retirement shortly will
have time to plan for additional years of employment
and a higher rate of savings to offset the loss of
benefits from social security.

I don't know about you but for someone planning on
collecting at least some of the fortune I have paid
into social security over the years the prospect of
waiting until I am 70 is not pleasant. While I have
never expected the government to support me in my
retirement I would like to see some return for my
40+ years of contributions to date. Everyone reading
this probably understands the problem but are not
going to rush out and volunteer to forego their
social security payments and work an extra five years
just for the heck of it. Do I mention that you would
continue contributing to social security while you
continued working? I understand why Greenspan is
constantly posing these tough economic questions but
I seriously doubt any politician is going to make it
part of their platform. They would get about as many
votes as a leper with Aids on the Bachelorette would
get roses. I doubt Greenspan's words fell on fertile
ground but at least he did the right thing. That is
he did not say anything about the market that would
blunt the current uptrend. No news is good news in
his case.

Monday was the lightest volume day of the year with
only 2.75 billion shares traded. Friday was even worse
with only 2.23 billion shares traded across all markets.
As the lightest day of the year the potential for a
real disaster loomed large all day but never came to
pass. The underlying bid continued to grow despite
volume being so slow watching charts paint was almost
painful. All the indexes but the SOX finished positive
for the week. Considering last weeks rally this was
an almost impossible feat ahead of this weekends
event risk.

What event risk? I know, it appears the press are
the only ones worried. The bullish undertones all
week suggest there is little fear in investor minds.
With the Democratic convention over and the Olympics
finishing on Sunday and neither having any problems
other than long lines at security checkpoints the
event risk fear has left the market.

I have been expecting a post convention rally but I
also expected some more weakness over the last two
weeks. I suggested a couple weeks ago to buy the
dips as we waited out the Olympics on minimal volume
but reality definitely exceeded my expectations. It
appears everyone had the same game plan and we closed
not only at the highs for the week but the highs for
the month right in front of the convention. The stock
Traders Almanac says six of the last seven years has
seen a down market the last five days of August. That
string is about to be broken with only two days to go
in the month. It appears the fear of the Olympics
prompted those that wanted to exit to bail early and
that broke the trend. The Dow traded down to strong
support at 9800 and the risk takers stepped up to
the table.

Now, if conventional wisdom is to be believed the next
two weeks should be bullish assuming the convention
concludes successfully. Since the market exists to
confound the maximum number of traders on any given
day it almost makes me wonder if we are not being set
up for a big surprise. I don't know what would cause
it because all the negatives are already known. It
is almost the perfect storm in reverse. We know earnings
are going to be weak for Q3. We know the Fed is still
going to raise rates again on Sept-21st. We know the
economy is creeping along at a snails pace. We know
oil is not going back to $30 any time soon. We know
chip sales are weaker than expected and retail sales
are barely showing any gains. What is going to be the
big surprise that trumps this bullish advance? I pose
the question because I don't see one. The bulls have
the perfect wall of worry to climb and no mountains
in their path.

The setup is almost too perfect with the various
indexes closing almost exactly on critical resistance.
We were able to push right to the vertical limit but
not quite hard enough to produce a breakout. The
trap, I mean stage is set for a strong move but I
feel like the mouse in this picture. The setup is
perfect but I know there is a headache ahead somewhere.





For next week I plan on going with the flow. Monday
could be erratic on even lower volume until the actual
convention opens on Monday night. Tuesday could be a
strong day if there are no problems Monday night.

Unfortunately Tuesday is where it starts getting tricky.
This is a huge week for economic reports. That is fine
if they are all positive but this is the week for the
big guns. Tuesday is the NY-NAPM, PMI and Confidence.
Wednesday has August ISM, Construction Spending, Semi
Billings, Vehicle Sales and Mortgage Applications.
Thursday has Chain Store Sales, Monster Employment,
Jobless, Productivity and Factory Orders followed by
the Employment Report on Friday.

Obviously the key numbers are PMI, ISM and Jobs but the
entire week is a mine field of data. Adding to the jumble
is the Intel update on Thursday. Is inventory still
growing or did sales pick up? Only Craig Barrett knows
for sure and he will tell us on Thursday. I believe if
everything else is mildly positive investors will forgive
any Intel sins on Thursday.

Make no mistake there is still strong resistance just
overhead at Dow 10250, SPX 1120 and Nasdaq 1910. While
the majority of factors are pointing to a positive
week there is plenty of roadblocks up ahead. Lately
bulls have been scaling them with ease and I would
love to see that again for the third consecutive week
but with the Dow gaining +400 points in just the last
two weeks it makes me very cautious. Bullish but
cautious.

That makes my game plan for the week look like this. I
am going long over SPX 1111 (100 and 200 dma) and buying
any dips back to support levels at 1104 and 1095. I am
going to put on my helmet and be wary of any setups that
appear to good to be true. I will be leery of an opening
breakout over 1111 on Monday but will reluctantly tag
along. I would feel much better about a long entry if
I could see a little fear in the market and a decent
dip to buy but the market seldom does what I want.
Buckle those seatbelts and let's get ready for a ride.

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

WALL OF WORRY
By Leigh Stevens
lstevens@OptionInvestor.com

THE BOTTOM LINE –
I figure that the major indices have a bit more they can go on
the upside this coming week, especially with buyers still
cautious actually – the market was helped in this past week's
gain by the cautious attitude toward stocks and call options.

The market sometimes is said to climb a "wall of worry". A lot of
bad news got priced in, particularly record oil prices, until
stocks hit a bottom when oil prices fell, with the path of least
resistance being up, as short positions got covered and bargain
hunting type buying also came in. Result: continued upward creep.

FRIDAY'S TRADING ACTIVITY –
Stocks ended higher on Friday as the Dow and S&P extended its
rally for the third week and the Nasdaq made was up for a second
week based on optimism most directly tied to a significant fall
(-8%) in oil prices over the past week.

THE NUMBERS –
The S&P 500 stock index (SPX) was up 2.68 points (+0.2%), to
1,107.77 and +0.9% for the week. The Dow Industrials (INDU)
were up 21.6 points (+0.2%) to 10,195 and gained 0.8% on the
week.

The Nasdaq Composite Index (COMP) rose 9.16 points (+0.5%), to
1,862 and gained 1.3% on a weekly basis. The Russell 2000 index
(RUT) of small-cap stocks was up 0.8%.

REPORTS & ECONOMIC NEWS –
Stocks got an early boost after the University of Michigan
consumer sentiment index for August fell less than expected. The
U of M index declined to 95.9 in August from 96.7 in July, versus
expectations of a drop to 93.8.

Market fears that the U.S. economy slowed down more than expected
in Q2 didn't materialize as the revised estimate to gross
domestic product (GDP) growth came in as forecast. The economy
slowed in the second quarter - growth was estimated at a 2.8%
annual rate versus an initial estimate of 3%.

There were also no major changes in the GDP report's inflation
measures, suggesting no change in the Fed's current policy of
raising interest rates at a measured pace.

After a seesaw day for oil futures, crude oil for October
delivery settled at $43.18, up slightly but this after a steady
decline all week. Oil traders watched developments in Najaf,
Iraq, calculating what peace in the holy city there would mean
for Iraqi exports.

Under a peace deal brokered by leading Shiite cleric Grand
Ayatollah Ali al-Sistani, radical cleric Muqtada al-Sadr ordered
his fighters to leave the shrine, Najaf and neighboring Kufa.
U.S. forces, which had laid siege to the Imam Ali mosque, where
al-Sadr and his militiamen had been holed up, also pulled back.
A welcome stand down!

OTHER MARKETS –
U.S. Treasury bonds closed mostly lower as Friday's economic data
and the drop in crude prices over the week increased demand for
stocks relative to bonds.

The dollar was mixed against the major currencies in the wake of
the GDP data. The euro was off 0.7% against the dollar at $1.2022
in New York. Against the Yen, the buck was unchanged at 109.63.


MY INDEX OUTLOOKS –

S&P 500 Index (SPX) – Daily chart:

My view from last week is pretty much unchanged, as I see the
S&P 500 Index (SPX) as having key near resistance at 1110, at
a prior rally high and at the 200-day moving average. The next
resistance I peg at 1120-1122.

Near support is at 1090. Main technical support is 1080, at the
prior upside price gap.

I see mostly limited further upside potential at this point –
watch 1110 – if SPX closes through there, the Index could make it
to 1115, maybe the 1120 area. On a risk to reward basis, don't
stick around for the possibility a few more points above 1115. (I
figure only an outside chance of SPX getting up to 1130 without a
pullback first – 1130 being where the major resistance (down)
trendline comes in.)




What I do find bullish and favorable here is that my call to put
ratio has not shot up on the advance – it in fact dropped back at
week's end. The absence of excessive bullishness is a plus and
might be what keeps this rally going longer than I'm anticipating
right now.

S&P 100 Index (OEX) – Hourly chart:

As with the 500, the S&P 100 (OEX) looks near to being into a
technical resistance zone as highlighted on the chart below.
A correction or dip would be common at this point to throw off
the near-term overbought condition suggested by the RSI indicator
applied to the hourly chart below.

A decline to the 533-535 area wouldn't be surprising, perhaps a
bit lower before OEX has another rally.  I calculate 550, at the
dominant down trendline on the daily chart (not shown), to be
the best upside potential for OEX, where I would then favor put
purchases.




Dow 30 (INDU) – Daily chart:

10253 is resistance implied by the 200-day moving average, with
increasing selling pressure probably extending up to around
10,350 at the top end of the downtrend channel on the daily
chart, where I favor buying DJX puts.

Support is at 10,100, then at 10,000.



The Dow 30, and by extension the S&P indices, is getting up
toward an overbought extreme, which would be more extreme even if
INDU advanced to the 10,350 area or the top end of the downtrend
channel outlined on the chart above.

Nasdaq Composite (COMP) Index  – Daily:

The 1896-1900 area looks to be potential technical resistance,
based on a significant prior (up) swing high.

A little higher than 1900, around 1916, is the intersection of
the upper trading envelope line and is about as far extended
above the key 21-day moving average as COMP has been getting in
recent months.




The Nasdaq Composite is lagging the S&P market but is also at
less of an extreme – at more of a neutral reading – in the
oscillator type indicators like the RSI shown.

Nasdaq 100 (NDX) Index  – Daily:

1410 is where I see overhead resistance based on the prior rally
peak in the Nasdaq 100 (NDX), but the even-100 level of 1400
should be watched if the rally carries to this area and then
falters. If prices take out that prior high and NDX got up to
around 1425, I will be looking to buy puts.

1360 is support, then 1350.  If there was a drop early in the
week that took prices back to the 1360, at the 21-day moving
average with a tendency then to rally from there, there is
probably a buying opportunity in calls, looking for a rally to
the 1410 area.




It’s been a decent rally after the RSI finally got fully oversold
– if only we always had the patience to wait for those extremes!

Nasdaq 100 tracking Stock (QQQ) Daily:

The Q's churned through near resistance at 34 and may be headed
to the next area of selling interest/resistance at 35.  36 looks
like a place to buy puts, if reached.

Not the most impressive rally we've seen given the lackluster
volume – note the downtrend in the daily trading activity.  Only
prices have been going up, average daily volume is not also
trending higher. This is not uncommon off the lows however and I
mentioned, earlier on, that bullish sentiment has not risen
overly much suggesting some disbelief in the staying power of an
advance. Moderate bullish "sentiment" often goes hand in hand
with rallies that can keep going.




The market could do better in the upcoming week as there is still
some upside momentum technically – fundamentally, some
encouragement comes from an easing of tensions in Iraq and as
long as oil prices don't start shooting up again.

On a longer-term note, there is also a tendency for the market to
advance in the second half of a Presidential election year
regardless of whether the elephants or the donkeys get their
candidate elected.

TRADER'S CORNER –
This past week's article was on Trendlines; part 1 is on the uses
and construction of trendlines.  This one starts with an oil
futures chart that showed how a trendline pinpointed the exact
top in prices, providing a strong clue that the indices would
continue to gain.  See -
http://www.OptionInvestor.com/traderscorner/tc_082604_1.asp

Good Trading Success!


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

Google Mania

You have heard the hype and months of confusion about
the Google IPO and the various shenanigans behind the
scenes. The stock opened below it hoped for level and
then rapidly spiked to nearly $114 three days later.
It was unable to hold that level and returned to $104
the following day. It has been trading in the $104-$108
range for the last week.

The IPO was for 25 million shares. However there are
260 million additional shares in insider hands that
will come out of lockup over the next six months. That
means by the end of February more than ten times the
number of shares in the IPO will be available for
trading.

Here is the schedule of the shares coming out of
lockup. The IPO was on August 19th.
At 15 days... 4,575,048 new shares for sale
At 90 days... 39,081,106
At 120 days... 24,875,091
At 150 days... 24,874,091
At 180 days... 170,784,389
This represents a monumental shorting opportunity
but shares may be hard to short until more volume
hits the market. Also shorting a highly volatile
$100 stock is very dangerous.

Fortunately options became available on Friday and
this presents us with a unique opportunity. We know
exactly when the shares are available to sell and
in what quantities. This gives us a very clear roadmap
to the future. Google may be worth $100 a share with
only 25M trading but once the additional 260 million
shares hit we could be looking at a much smaller
share price. We will have two quarters of earnings
and with competition heating up for Google's market
they could see some drop in expectations.

All of these factors suggest a March option would be
long enough to capture the majority of any drop. Once
that 170 million block hits the market any remaining
drop should be swift. Those people will have watched
the stock fall from its highs to whatever valuation
the market eventually assigns it without being able
to do anything about it. The potential for a rush to
the exit in February is strong.

The biggest challenge is the option prices. For the
first day of option trading the option prices are
placed very high because the market makers don't
know what the demand will be and with only a week of
history on the stock there is no history to use for
your model.

This means we will be forced to pay more than we would
normally want for this position. This suggests the best
plan of attack may be a combination position or a put
spread.

I am going to recommend a straight put position using
the March $100 put GOQ-OT because I do not want to
limit my upside.

Other options would include a put spread of buying the
March $100 put for $11.90 and selling the March $80
for $5.50. Unfortunately even with a move under $80
the profits are minimal given the high premiums.

The best plan for those with a high-risk profile would
be to sell the March $110 call GOQ-CB for $13.50 and
buying the March $100 put for $11.90. That leaves you
with $1.60 in excess premium from the call and you have
defeated the market makers. A drop to $75 and the call
expires worthless and the put is worth at least $25.
Heck of a deal. Of course the risk is a surge by Google
to a higher level with you holding a naked call. I would
hedge against this with a stop at a new high of $115 on
the call. I would roll out to a $120 call once any rally
failed.

I don't think anyone not currently long expects Google
to move much higher but it is always possible. This play
assumes Google will eventually crumble under the weight
of 260 million new shares coming to market over the
next six months. Obviously you should not take this
risk unless you have the same view.

You may want to wait a couple more days before making
an entry to give the options premiums time to deflate.
I want to get in early so I am writing the play this
weekend to capitalize on Google still trading over $100.
Once it cracks that triple digit barrier to the downside
it could drop quickly.

BUY Put March-$100 GOQ-OT Friday's close = $11.90


GOOG Chart




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

PVN Call Update $14.65

PVN spent Thursday near a new 52-week high at $15 but
the downgrade of COF eventually weighed on PVN. I still
have faith that we will see $20 before this play is over.

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


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

The RNC approaches
- J. Brown

This past week was certainly an interesting one.  Crude oil
abruptly changed direction and fell more than 7% from its highs
in a five-day losing streak.  Wal-Mart lowered its August sales
forecasts blaming Hurricane Charley and a slow back-to-school
season.  Federal Reserve Chairman Alan Greenspan not only
mentioned a potential housing bubble, a possible slow down in
Japan's economy, and a not so soft landing for China's economy
but he also suggested raising the retirement age and putting a
cap on social security benefits before the system goes bankrupt.

Friday's trading was extremely light and a prime example of what
we were likely to see next week as Wall Streeters leave town to
avoid the traffic jams and security checkpoints for the
Republican National Convention.  Despite the low volume Friday's
session was pretty bullish.  Networking, Broker-dealers and
airline stocks were the only sector indices to close in the red.
The Dow transports did close about four cents off unchanged.
Market internals looked pretty good.  Advancing stocks
overshadowed decliners 2-to-1 o the NYSE and 19 to 11 on the
NASDAQ.  Up volume was about double down volume on both
exchanges.

Next week Wall Street will be watching three things.  First and
foremost is oil.  This remains the leading influence.
Fortunately, as of the time of this article, the Iraq peace deal
in the city of Najaf, which was guided by recently returned
Shiite cleric Grand Ayatolla Ali al-Sistani, is still holding.
If we can see several days of peace (a.k.a. less violence than
usual) then the market's fears over oil disruptions may subside
even more.

The second major story investors will be watching is the
Republican National Convention in NYC, which begins Monday night.
So far the DNC was uneventful and the Olympics have been terror-
free so traders seem quietly optimistic that the RNC will go off
without any violence as well.  The RNC runs from Monday through
Thursday with President Bush speaking on Thursday night.  This
could keep stocks trading sideways until Friday morning but the
low volume could be a wild card as the remaining traders push
stocks around.

Unfortunately, we can't expect a relief rally on Friday until
after the economic reports, which is the third major story Wall
Street will be following.  There is a boatload of economic data
to be delivered with the most significant reports being the PMI,
ISM and August Jobs data.  The Jobs report comes out on Friday.
Right now economists are expecting growth of 139,000 jobs but
many are already discounting a miss due to the two hurricanes
that hit Florida and the east coast.

Caution is definitely the mood in the markets.  The current
short-term trend may be up but now the major indices are starting
to look overdue for a dip and the longer-term prevailing trend is
still down.



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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  9233
Current     : 10195

Moving Averages:
(Simple)

 10-dma: 10049
 50-dma: 10160
200-dma: 10251



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  983
Current     : 1107

Moving Averages:
(Simple)

 10-dma: 1095
 50-dma: 1104
200-dma: 1111



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1280
Current     : 1388

Moving Averages:
(Simple)

 10-dma: 1364
 50-dma: 1404
200-dma: 1441



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

CBOE Market Volatility Index (VIX) = 14.71 –0.20
CBOE Mkt Volatility old VIX  (VXO) = 14.83 -0.04
Nasdaq Volatility Index (VXN)      = 21.27 -0.33


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.92        478,110       439,606
Equity Only    0.73        362,855       266,495
OEX            1.03         14,555        15,065
QQQ            1.95         29,210        56,926


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

Bullish Percent Data

           Current   Change   Status
NYSE          55.2    + 1     Bear Confirmed
NASDAQ-100    32.0    + 0     Bear Confirmed
Dow Indust.   46.6    + 0     Bear Confirmed
S&P 500       51.0    + 1     Bear Confirmed
S&P 100       49.0    + 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: 0.96
10-dma: 0.80
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    1833      1880
Decliners     929      1101

New Highs      80        46
New Lows       13        35

Up Volume    663M      675M
Down Vol.    337M      279M

Total Vol.  1022M      979M
M = millions


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

Commitments Of Traders Report: 08/24/04

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

Commercials have upped both their longs and shorts but remain
net bearish. Small traders have upped their shorts and pared
back their longs a bit but remain net bullish.

Commercials   Long      Short      Net     % Of OI
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%)
08/24/04      402,599   420,478   (17,879)   (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
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%
08/24/04      135,151   100,351    34,800    14.7%

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


E-MINI S&P 500

Commercial traders have decreased their longs and increased
their shorts, which could be bad news for the S&P 500.  In
lockstep mirror-like fashion small traders are moving the
opposite direction than the "smart money".

Commercials   Long      Short      Net     % Of OI
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%)
08/24/04      392,065   473,911   ( 81,846)  ( 9.4%)

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
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%
08/24/04      211,995     76,184   135,811    47.1%

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 added to both their shorts and longs
but the end result was an increase in bullish sentiment on
the NDX.  Small traders are also bullish but have cut their
enthusiasm in half.  In essence small traders are beginning
to turn bearish, which in a contrarian sense is bullish.
Confused yet?

Commercials   Long      Short      Net     % of OI
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%
08/24/04       48,624     43,222     5,402    5.8%

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
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%
08/24/04       11,666    10,068     1,598     7.3%

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 remain bullish but have pared back their
longs a bit. Meanwhile small traders remain bearish but have also
hedged their enthusiasm a bit.

Commercials   Long      Short      Net     % of OI
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%
08/24/04       28,919    23,658    5,261      10.1%

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
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%)
08/24/04        5,052     7,214   (2,162)   (17.6%)

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

Synthetic hedge.  What is it?  What is it intended to do?

I'm confused about your logic in being short NTES and long SOHU.
It appears these 2 travel in tandem, where do you think this
industry is going, up or down?  It appears to me that they may
have hit a bottom and are trending up.  Did you in fact buy SOHU
as a hedge or do you see something intriguing about the upside
potential in SOHU.

Reply:

I received a couple of questions regarding two different trades
I've profiled in the OptionInvestor.com Market Monitor, where the
"strategy" discussed is considered a synthetic hedge.

I've discussed this type of strategy in past commentary, and
traders and investors will sometimes use this strategy when an
initial buy/sell decision, finds that trade moving against you.
Sometime, a synthetic hedge will be established immediately.
However, in this article's discussion, the synthetic hedge was
established after the initial 1/2 put position was established in
the Netease.com (NASDAQ:NTES) $36.15 +0.72% December $30 puts
(NQGXF) on August 13, 2004.

Yes, both of these stocks do tend to trade in tandem.  While
Neteas.com (NTES) and Sohu.com (SOHU) are not identical, their
areas of business interest (Internet) are very similar.  Most
traders/investors that have heard of these two stocks may view
them as "Chinese Internets."

Currently, the only thing I find intriguing about a bullish
position in Sohu.com (SOHU) at this point is that it may provide
a near-term hedge against a strong bounce Netease.com (NTES) has
found after I profiled the 1/2 bearish put position in
Netease.com (NTES).

However, I will fully explain my thought process for the bearish
profile in Netease.com and subsequent bullish profile in
Sohu.com, and you can be the judge if this strategy makes any
sense.  If it does, then you may find this strategy to be useful
in your own trading, or account management.  I will also discuss
how a synthetic hedge needs to be monitored, in order to see if
it is working as it is intended to.  I will also touch on how/why
traders and investors can/will/should utilize account management
policies of determining just what a "full position" is

First things first.  What is "synthetic?"  In financial terms,
synthetic is any financial instrument that is artificially
created by using a collection of other assets, whose combined
features are comparable to the instrument it replicates. (Source:
Investopedia.com)

A "hedge" is a strategy traders/investors will use in an attempt
to insure against a loss, or further loss.  I wrote an article on
hedging for the 11/23/03 Ask the Analyst column, which isn't too
dissimilar to today's column, but in that trade I was discussing
the S&P 500 and NASDAQ-100 tracker and a synthetic hedge.  Some
similarity exists as that article was focused on two separate,
yet similar MARKETS (SPX vs. QQQ), while this article surrounds
two separate, yet similar STOCKS.

Here is a quick look at the current synthetic hedge where I've
profiled a 1/2 bearish position in the NTES Dec. $30 puts, and
the 1/4 bullish position in the SOHU Dec. $15 calls.

Position size was determined using a hypothetical $10,000, where
at time of profile, a trader/investor that has set guidelines for
their own account might view a full position as being equivalent
to $10,000 of the underlying stock (some may use $1,000, some may
consider $100,000 as a full position).

For the NTES trade, the underlying stock was trading at $28.55.
Since 1/2 of $10,000 is equal to $5,000, I quickly divided $5,000
by $28.55 to derive a share base of 175 shares.  This is roughly
equivalent to 2 option contracts (1 contract is equivalent to 100
shares).

Netease.com (NTES) and Sohu.com (SOHU) - Synthetic hedge



Based on two put option contracts, a trader that bought the NTES
Dec. $30 puts (NQGXF) was risking $1,100.00.  As of Friday's
close, shares of NTES have rebounded to $36.10 from $28.55 (see
basis).  If a trader had shorted 175 shares of NTES, that trade
would currently show a loss of 1,321.25.  The utilization of
options, which is a derivative designed to reduce risk, would
currently show a loss of $680.00 for the two NTES Dec. $30 puts.

I'm showing the 5-day Net % and 20-day Net % changes, where a
trader/investor's main focus would be the STOCK's percentage
change.  These are the securities we are trying to measure.

As Netease.com was rebounding, it was on August 25 that I
profiled the 1/4 bullish position in the SOHU Dec. $15 calls when
the underlying shares of SOHU were trading $16.50.  Again, using
$10,000.00 as the hypothetical base value for a full position, I
quickly divided $2,500 (1/4 of $10,000) to derive an underlying
stock position amount of 151 shares.  Since NTES and SOHU had
both been rebounding up to August 25, but looking near-term
extended, I decided that just 1 SOHU Dec. $15 call (UZKLC) would
be purchased for the portfolio.

Note:  According to QCharts, NTES' beta is calculated at 1.76,
while SOHU's beta is calculated at 3.19.  Beta is a mathematical
measure of the sensitivity of rates of return on a given stock
compared with rates of return on the market as a whole.  In
essence, 1 SOHU call should provide enough of hedge versus the 2
NTES puts.

I would consider the NASDAQ-100 (NDX.X), as a comparable MARKET
for NTES and SOHU.  In the past 5 sessions, the NASDAQ-100
Tracking Stock (AMEX:QQQ) has risen 1.61%, and has fallen 0.94%
during the past 20 sessions.

Assessment of RISK:  A trader holding the two positions would
have assessed a TOTAL risk of $1,460.00 to their account.

Profit Benchmarks:  Should NTES continue to hold above $30 by
December expiration then for this synthetic hedge to profit, with
just 1 SOHU Dec. $15 call, SOHU must trade above $29.60.  To
derive the $29.60 level, add cost of $1,100 + $360 = $1,460.
Divided $1,460 by 100 (1 SOHU $15 call) = $14.60.  Then add
$14.60 to strike of $15 to total $29.60.

Should NTES reverse course and confirm initial bearish analysis,
then for this synthetic hedge to profit, NTES must trade below
$22.70.  To derive $22.70 level, take the same $1,460, but this
time divide by 200 (2 NTES $30 puts) = $7.30.  Then subtract
$7.30 from the strike of $30.00 to total $22.70.

Current analysis:  NTES' STOCK has traded STRONGER relative
SOHU's STOCK in the last 5 sessions (+6.3% vs. -0.5%) and 20
sessions.  NTES' STOCK has traded relatively STRONGER than SOHU's
stock in the last 20 sessions (-3.08% vs. -23.98).

There may be the potential for a narrowing of recent price
performance differential between NTES and SOHU based on 5 and 20-
day percentage observations.  Ideally (best case scenario) SOHO
would trade unchanged from here, with NTES falling 20% from
current price level, where the current 20-day percentage
difference currently shown would be erased.

Now, this is where the synthetic hedge between NTES and SOHU
currently stands.  Let's now review some of the steps taken to
derive the trades, but also TEST to see if the current hedge
makes any "financial sense" as it relates to past and current
technical analysis.

Determining Position Size with MARKET/SECTOR Risk Analysis:

For NTES, I used observations from the NASDAQ-100 Bullish %
($BPNDX) from www.stockcharts.com to assess market
strength/weakness, but also risk.  With the NASDAQ-100 Bullish %
in "bear confirmed" status at 25% bullish, MARKET internals were
very weak, but also at oversold levels below 30%.  With MARKET
internals weak, it made sense to be trading bearish, but at low
levels of risk, it made sense to limit position size based on
NTES supply/demand chart (will discuss below).

Let's first take a look at the current readings and chart of the
NASDAQ-100 Bullish % ($BPNDX) for assessing MARKET RISK.

NASDAQ-100 Bullish % ($BPNDX) - 2% box size



On August 13, may assessment of market risk using the NASDAQ-100
Bullish % ($BPNDX) would have had me observing that the RISK of
establishing a new bearish position would have been high, as the
$BPNDX was at oversold levels and strength could resume.  A new
bearish position should only be established in a weak sector,
where the technicals for shorting/putting a stock must have some
indications that a lower price objective (bearish vertical count)
warranted a trade.  In an attempt to REDUCE bearish risk,
position size could be reduced.

On Wednesday of this week, we noted that the NASDAQ-100 Bullish %
reversed up to "bull alert" status, signaling some strengthening
of market internals.

Traders and investors will utilize the bullish % chart, using the
point and figure method of charting, to simply benchmark against
the MONTHLY intervals.  This can be useful when trying to
determine how much TIME to purchase when selecting an option
expiration.  The point and figure charting method also allows for
time referencing to SECTORS and STOCKS.

Now lets look at Dorsey/Wright and Associates' Internet Bullish %
(BPINET) to assess the Internet sector's strength/weakness as
well as SECTOR RISK.

Internet Bullish % (08/27/04) - 2% box size



A quick assessment of SECTOR strength/weakness and RISK had me
determining that the Internet sector was and is still showing
internals weakness, with the bulk of Internet-related stocks that
Dorsey/Wright and associates tracks in their point and figure
charting database, have a "sell signal" associated with their
chart.  However, RISK for a BEARISH trade could be HIGH at
oversold levels of 18% (based on chart's reading).

We can see some similarity between the NASDAQ-100 Bullish %
($BPNDX) and the Internet Bullish % (BPINET).  Since February (2
on a point and figure chart) we've seen weakness "O" find brief
periods of strength "X", then followed by weakness "O."

As volatile as Internet stocks are, the NASDAQ-100 Bullish % has
shown more gyration than the Internet Bullish % chart has, which
gives me the impression that the Internet sector as a whole tends
to FOLLOW the QQQ around.

Now that we have reviewed the MARKET and SECTOR bullish %, let's
look at NTES' and SOHU's point and figure charts and see if the
current synthetic hedge makes any sense.

I would have preferred to show a side-by-side comparison of NTES
and SOHU, but due to horizontal space limitations, I can't, as
both of these stocks are rather volatile, creating many columns
of "X" (demand) and "O" (supply) gyrations.

Here are some techniques and analysis I'm using for my current
BEARISH bias for Netease.com (NTES).

Netease.com (NTES) Chart - $1 box



I had been keeping a BEARISH eye on NTES for several days prior
to my bearish profile as the NASDAQ-100 and the Internet sector
were showing weakness.  I was hesitant to short/put the stock at
$30 when it traded that level on August 13, as MARKET and SECTOR
risk were high for a short/put, and wanted to make sure I didn't
get caught in a "bear trap," which is a point and figure chart
pattern where a stock triggers the triple bottom sell signal
($30), moves JUST 1-box lower ($30) then quickly reverses up.
When NTES traded $29, that helped negate the "bear trap"
possibility, but we see how the stock has quickly reversed up.

One reason I selected December expiration, was the study
Professor Davis published, regarding probabilities of various
point and figure chart patterns.  Professor Davis' study revealed
that on average, a stock that generated a triple bottom sell
signal in a "bear" market environment (as depicted by the bullish
percent charts) was profitable 93.5% of the time for an average
gain of 23% in 3.4 months on average.

I had also performed various "old" bearish vertical counts.
Sometimes we'll find a stock's point and figure chart giving both
"old" bearish and bullish vertical counts that keep giving
similar price targets.  I show three "old" bearish vertical
counts (BVC) where two of them hinted that NTES might be headed
to $31 and $33.  Hmmmmm.... stock was trying to firm at $31.  One
of the "old" bearish vertical counts hinted at $17.

What has me currently viewing NTES as further bearish is when the
stock did trade to $29, the current bearish vertical count was
calculated at $19.  With the breaking of some major near-term
resistance at $30, then $29, the risk/reward was 2:1 for an
OPTION trade (risking $5.50 to potentially make/reward $11).
However, for a STOCK trade, a BEAR would have had to assess RISK
to a point and figure buy signal ($39) as RISK of $10.50 to
potentially make $11.  That is TERRIBLE risk/reward and even
here, that type of RISK could only be reduced with a PARTIAL
position, perhaps 1/2 position in order help try and mitigate
RISK should the MARKET, SECTOR or STOCK suddenly reverse its
declines.

I've pointed to some of the beginning MONTHLY (Feb, March, May,
July, Aug) trades, where we can compare against the NASDAQ-100
Bullish % ($BPNDX) and Internet Bullish % (BPINET) charts.

On the above NTES chart, I also point to the $35 level, which is
approximately where the SOHU synthetic hedge was established.

Question:  If NTES were to break above resistance with a trade at
$39, and rally further, say to its June (6 on a PnF chart) highs,
what level might it trade?  We might assess a $46 price level.

Now let's look at SOHU's point and figure chart.  Does it trade
SIMILAR to NTES?  This is my assumption, and was also the
observation that the trader asking today's question made.

Sohu.com (SOHU) Chart - $0.50 and $1 box



Similarities between SOHU and NTES aren't necessarily obvious as
it relates to their Xs and Os, but you can pick up on the price
similarities when comparing the monthly (April, May, June) time
reference.

However, it is the August time reference that may have SOHU a
suitable synthetic hedge security for NTES, which is what
compelled me to use it as the hedge security.

With NTES nearing its August (8) trade reference of $37, it could
be that SOHU is "undervalued" and poised to do some catching up.
Both NTES and SOHU traded fresh lows on the same day.  This is
the ONLY bullish case a trader could make for SOHU at this time.

Based on that observation, analysis would have me thinking SOHU
is the WEAKER stock when compared to NTES.

As such, it is often a trader/investor's observation that a
WEAKER stock will lead a further DECLINE.

Other than the current rally in NTES, its point and figure chart
is still considered BEARISH, until the stock would be able to
generate a point and figure buy signal.

With a current BEARISH position in NTES and a BULLISH position in
SOHU, what would YOU as a trader want to see from this hedge?

With the BULK of capital exposed to the NTES trade, a trader
would most likely want to see SOHU decline, but then want/need to
see NTES reverse course, and FOLLOW that weakness back lower,
ideally with BOTH stocks trading their bearish vertical counts.

Right now, we do not have any bullish vertical counts to work
with, and can only assess upside/strength from the bullish
percent indications.

We do have bearish vertical counts to work from.

When I calculated out the "Profit Benchmarks" the synthetic hedge
still makes sense in my opinion, should NTES reverse from its
recent rally, and eventually achieve its current bearish vertical
count of $19.00 on or before December expiration.

Do you see how this is not a TRUE hedge?  A true hedge would be
protecting a BEARISH NTES trade with a BULLISH NTES trade, where
future price action is directly tied to the same security.

The SYNTHETIC hedge discussed above involves assumptions, based
on historical observation.

It could be that there is nothing "wrong" with NTES and there is
something "wrong" with SOHU.

Should NTES continue to rally to its early June price levels,
then it is assumed that SOHU might also rally to its June price
levels, and on a near-term basis, should be rallying to its early
August price level of $19.50 or $20.

That remains to be seen, and only time will tell.

One last comment:

Whenever possible, try NOT to establish a new position when the
13th of the month falls on a Friday.

Jeff Bailey


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

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

Symbol  Co               Date           Comment      EPS Est

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

-no major earnings announcements-


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

ABS  Albertson's          Tue, Aug 31   -----N/A-----       0.33
BAY  Bayer                Tue, Aug 31   During the market   n/a
DCI  Donaldson            Tue, Aug 31   After the close     0.33
EASI Engineered Support   Tue, Aug 31   Before the open     0.75
FCEL FuelCell Energy      Tue, Aug 31   Before the open    -0.40
MBT  Mobile Telesys       Tue, Aug 31   Before the open     2.33
OTEX Open Text            Tue, Aug 31   At the close        0.28
COO  Copper Companies     Tue, Aug 31   After the close     0.68
ZLC  Zale Corp            Tue, Aug 31   Before the open     0.13


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

COCO Corinthian College   Wed, Sep 1    Before the open     0.19
SKIL SkillSoft            Wed, Sep 1    After the close     0.02


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

CAO  CSK Auto             Thr, Sep 2    After the close     0.29
DLM  Del Monte Foods      Thr, Sep 2    Before the open     0.06
DEO  Diageo PLC           Thr, Sep 2    During the market   n/a
FNSR Finisar              Thr, Sep 2    After the close    -0.05
MBG  Mandalay Resort      Thr, Sep 2    -----N/A-----       1.03


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

-no major earnings announcements-


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

Symbol  Company Name              Ratio    Payable     Executable

BAC     Bank of America           2:1      Aug  27th   Aug  28th
CFC     Countrywide Financial Corp2:1      Aug  30th   Aug  31st
VNBC    Vineyard National Bancorp 2:1      Aug  30th   Aug  31st
HOC     Holly Corp                2:1      Aug  30th   Aug  31st
TRBS    Texas Regional Bancshares 3:2      Aug  30th   Aug  31st
ENSI    EnergySouth, Inc          3:2      Sep   1st   Sep   2nd
CHD     Church & Dwight Co. Inc   3:2      Sep   1st   Sep   2nd
TCB     TCF Financial Corp        2:1      Sep   3rd   Sep   6th
TCHC    21st Century Holding      3:2      Sep   7th   Sep  10th
CVX     ChevronTexaco             2:1      Sep  10th   Sep  13th
SSP     E.W.Scripps Co            2:1      Sep  10th   Sep  13th
POOL    SCP Pool Corp             3:2      Sep  10th   Sep  13th


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

This week has a parade of economic data but most of it will be
overshadowed by the Republican National Convention in New York
and any movement in oil.  Watch for the PMI on Tuesday, the ISM
on Wednesday and the Jobs number on Friday.

==============================================================
                       -For-
----------------
Monday, 08/30/04
----------------
Personal Income (bb)   July   Forecast: +0.5% Previous:  +0.2%
Personal Spending (bb) July   Forecast: +0.7% Previous:  -0.7%
Republican National Convention in NYC


-----------------
Tuesday, 08/31/04
-----------------
Chicago PMI (DM)       Aug.   Forecast:  60.0  Previous:  64.7
Consumer Confidence(dm)Aug.   Forecast: 103.2  Previous: 106.1
Chain Store Sales (bb)
Redbook Retail Sales (bb)
Republican National Convention in NYC

-------------------
Wednesday, 09/01/04
-------------------
ISM Manufacturing (DM) Aug.   Forecast:  60.0  Previous:  62.0
Construction Spending  July   Forecast: +0.4%  Prevoius: -0.3%
Revised Q2 Productivity
Ford's August sales
GM's August sales
MBA Refinancing index
Crude oil and gas inventories
Republican National Convention in NYC

------------------
Thursday, 09/02/04
------------------
Initial Jobless Claims        Forecast:        Previous: 343K
Factory Orders         July   Forecast:        Previous: +0.7%
Natural gas inventories
Money Supply
Intel's mid-quarter update
Republican National Convention in NYC - Last Night!


----------------
Friday, 09/03/04
----------------
Non-farm Payrolls(Jobs) Aug.  Forecast: +150K  Previous: +32K
Unemployment            Aug.  Forecast: 5.5%   Previous: 5.5%
Average Hourly Earnings
ISM Services index      Aug.  Forecast:  62.5  Previous: 64.8


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 08-29-2004
Sunday                                                      2 of 5


In Section Two:

Watch List: IVGN, DGX, AHC, BRCM
Dropped Calls: None
Dropped Puts: KLAC


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

Biotech to Oil to Chips and more!

___________________________________________________________________

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.
___________________________________________________________________


Invitrogen - IVGN - close: 51.25 change: +1.25

WHAT TO WATCH: The rebound in the DRG drug index has been
impressive.  It might be finally rubbing off on beleaguered IVGN.
The stock is trying to find a base at the $50.00 level.  We would
watch the stock for a move over $52.00 as a potential entry point
toward the bottom of the gap down near $57.50.

Chart=


---

Quest Diagnostic - DGX - close: 84.65 change: +1.49

WHAT TO WATCH: The rebound from the simple and exponential 200-
dma's has sent DGX back to the $85.00 mark.  If shares can push
through this resistance traders can target a run toward $90.00.
The P&F chart is more bullish with an upside target at $93.00 but
this will likely be revised upward.

Chart=


---

Amerada Hess - AHC - close: 79.31 change: +1.76

WHAT TO WATCH: The oil sector has been rebounding in spite of the
7% drop in the price of crude this past week.  AHC appears to
have produced a bottom near $76.00.  Short-term technicals are
bullish and its MACD has produced a new "buy" signal.  We would
watch for a push through the $80.00 mark as an entry point for
longs.  Our short-term target would be $85.00.

Chart=


---

Broadcom - BRCM - close: 28.31 change: -0.92

WHAT TO WATCH: We came very close to adding BRCM to the play list
this weekend as a put.  The downtrend shows no signs of stopping
unlike other semiconductor stocks that are beginning to rebound
higher.  Recent bad news has undermined confidence in BRCM and
we'd use a trigger under $28.00 to target a drop to $25.00.  The
P&F chart is very bearish with a $10.00 target.

Chart=



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

PDX $69.90 +1.11 - PDX appears to have produced a big double-
bottom at the $60.00 mark.  Now shares are challenging resistance
at $70.00.  Use a trigger over $70.00 or the April highs at 71.50
and target 6-to-8 week move toward $80.00.

PRX $41.91 +0.78 - Slow and steady shares of this biotech/drug
stock has been pushing through resistance.  Consider buying a
bounce from $40.00 or a new high over $42.

BA $51.99 -0.08 - We're still bullish on BA but we'd watch for a
bounce from $51.00 first.


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The Option Investor Newsletter                   Sunday 08-29-2004
Sunday                                                      3 of 5

In Section Three:

Current Calls: AET, BOL, FMC, INSP, MHK, PD, POT, RAI, TDS, ZBRA
New Calls: FO
Current Puts: SPW
New Puts: None

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

Aetna - AET - close: 92.42 change: +0.14 stop: 89.95

Company Description:
As one of the nation's leading providers of health care, dental,
pharmacy, group life, disability and long-term care benefits,
Aetna puts information and helpful resources to work for its
approximately 13.4 million medical members, 11.4 million dental
members, 8.1 million pharmacy members and 12.6 million group
insurance members to help them make better informed decisions
about their health care and protect their finances against
health-related risks. Aetna provides easy access to cost-
effective health care through a nationwide network of more than
633,000 health care professionals, including over 377,000 primary
care and specialist doctors and 3,866 hospitals.
(source: company press release)

Why We Like It:
The IUX insurance index has churned sideways in a very tight
range the last couple of sessions and AET is following suit.
Actually, if you look more closely at AET's intraday chart you'll
see a minor trend of higher lows building over the last couple of
days.  Unfortunately, the stock isn't climbing fast enough to
head off what appears to be an imminent "sell" signal in its
MACD.  We're still bullish on AET but we would probably not
suggest new positions right here.  A bounce from $90.00 or a
breakout over $95 are probably the better plays.

Suggested Options:
We like the September calls.  Our favorites are the $90 strikes
although the $95s work well too.  See play details for entry
points.

BUY CALL SEP  90 AET-IR OI=3827 current ask $3.80
BUY CALL SEP  95 AET-IS OI=7250 current ask $1.15
BUY CALL SEP 100 AET-IT OI= 997 current ask $0.30

Annotated Chart:




Picked on August 15th at $90.72
Change since picked:     + 1.70
Earnings Date          07/29/04 (confirmed)
Average Daily Volume =      1.4 million
Chart =


---

Bausch Lomb - BOL - close: 65.76 change: +0.63 stop: 62.50

Company Description:
Bausch & Lomb is the eye health company, dedicated to perfecting
vision and enhancing life for consumers around the world. Its
core businesses include soft and rigid gas permeable contact
lenses and lens care products, and ophthalmic surgical and
pharmaceutical products. The Bausch & Lomb name is one of the
best known and most respected healthcare brands in the world.
Celebrating its 150th anniversary, the Company is headquartered
in Rochester, New York. Bausch & Lomb's 2003 revenues were $2.0
billion; it employs approximately 11,500 people worldwide and its
products are available in more than 100 countries.
(source: company press release)

Why We Like It:
BOL is going nowhere fast.  The stock rallied right to resistance
near $66.00 and has spent the last week churning sideways.
Optimistically we're encouraged that the consolidation managed to
hold above minor round-number support at $65.00.  This
strengthens our hope that the rally isn't over yet but merely
taking a rest.  However, as with any stock that pauses after a
decent rally the technical oscillators start to sour.  We're
still waiting for BOL to trade at $66.51 to open the play.  Until
then we'll sit on the sidelines.

Suggested Options:
Short-term traders can choose from the September or October
calls.  We like both months at the $65 strike.

BUY CALL SEP 65 BOL-IM OI=213 current ask $1.95
BUY CALL SEP 70 BOL-IN OI= 19 current ask $0.35

BUY CALL OCT 65 BOL-JM OI=186 current ask $3.00
BUY CALL OCT 70 BOL-JN OI= 81 current ask $0.95

Annotated Chart:




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 =


---

F M C Corp - FMC - close: 45.92 change: -0.46 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:
FMC is thus far on track.  We added the play on Tuesday after its
high-volume breakout over resistance at $45.00.  Shares saw some
follow through but Friday FMC experienced some minor profit
taking.  Fortunately traders stepped in to buy the dip near
$45.00, which is what we should expected after the breakout.  We
continue to suggest bullish positions at current levels but make
sure you're comfortable with the overall market environment
before committing any capital.  The P&F chart for FMC remains
bullish with an $88 target.  We're only targeting a quick move to
$50.00.

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 $6.50
BUY CALL OCT 45 FMC-JI OI=510 current ask $2.70
BUY CALL OCT 50 FMC-JJ OI= 50 current ask $0.70

Annotated chart:




Picked on August 24 at $45.87
Change since picked:   + 0.05
Earnings Date        07/27/04 (confirmed)
Average Daily Volume =    265 thousand
Chart =



---

InfoSpace - INSP - close: 38.88 change: +0.36 stop: 37.75*new*

Company Description:
InfoSpace, Inc. is a diversified technology and services company
that develops Internet and wireless solutions for a wide range of
customers. InfoSpace Search & Directory provides Web search and
online directory products that help users find the information
they need while creating opportunities for merchants. InfoSpace
Mobile develops infrastructure, tools and applications that
enable carriers and content providers to efficiently develop and
deliver mobile data services across multiple devices.
(source: company press release)

Why We Like It:
Heads up!  It may be time to consider exiting INSP.  We're not
giving up just yet but the oscillators continue to deteriorate
and we've not seen much of a bounce from the $38.00 level.
Shares of INSP traded in a very tight 70-cent range on Friday,
which doesn't offer us any guidance.  We are not suggesting new
bullish positions until INSP trades back over the $40.00 level.
We are going to try and minimize any losses by raising our stop
loss to $37.75, just under the simple 10-dma, which should act as
support.


Suggested Options:
We are not suggesting new bullish positions until INSP trades
back above the $40.00 level.


Annotated Chart:




Picked on August 23rd at $40.10
Change since picked:     - 1.22
Earnings Date          07/28/04 (confirmed)
Average Daily Volume =      1.1 million
Chart =



--


Mohawk Industries - MHK - close: 77.47 change: +0.27 stop: 73.00

Company Description:
Mohawk is a leading supplier of flooring for both residential and
commercial applications. Mohawk offers a complete selection of
broadloom carpet, ceramic tile, wood, stone, laminate, vinyl,
rugs and other home products. These products are marketed under
the premier brands in the industry, which include Mohawk,
Karastan, Ralph Lauren, Lees, Bigelow, Dal- Tile and American
Olean. Mohawk's unique merchandising and marketing assist our
customers in creating the consumers' dream. Mohawk provides a
premium level of service with its own trucking fleet and over 250
local distribution locations. (source: company press release)

Why We Like It:
MHK was one of the big winners this week with a major breakout
over the top of its trading range, round-number resistance at
$75.00 and technical resistance at its simple 200-dma.  Volume
was strong on the breakout and we were triggered at $75.51.
Traders bought the early dip back to $75.00 on Wednesday and MHK
looks poised to hit new relative highs next week.  Short-term
traders can prepare to exit as MHK nears the $80.00 level.  More
aggressive types can hang on to see if MHK breaks through $80.
The P&F chart looks very bullish with a triple-top breakout buy
signal and a $90.00 target (the target keeps rising).

We would probably not suggest new positions unless MHK dipped
back to $76.00.

Suggested Options:
Traders need to be careful here.  We're not suggesting any big
positions.  The September calls are our favorites but volume is
very light.  Novembers are available but that's two extra months
we don't think we need.

BUY CALL SEP 70 MHK-IN OI=  2 current ask $7.90
BUY CALL SEP 75 MHK-IO OI= 73 current ask $3.40
BUY CALL SEP 80 MHK-IP OI= 67 current ask $0.70

BUY CALL OCT 75 MHK-JO OI= 46 current ask $4.30
BUY CALL OCT 80 MHK-JP OI= 52 current ask $1.65

BUY CALL NOV 75 MHK-KO OI=1130 current ask $5.10
BUY CALL NOV 80 MHK-KP OI=  72 current ask $2.55

Annotated Chart:




Picked on August 24th at $75.51
Change since picked:     + 1.96
Earnings Date          07/21/04 (confirmed)
Average Daily Volume =      397 thousand
Chart =


---

Phelps Dodge - PD - close: 82.89 chg: +0.79 stop: 77.00

Company Description:
Phelps Dodge Corp. is the world's second-largest producer of
copper, a world leader in the production of molybdenum, the
largest producer of molybdenum-based chemicals and continuous-
cast copper rod, and among the leading producers of magnet wire
and carbon black. The company and its two divisions, Phelps Dodge
Mining Co. and Phelps Dodge Industries, employ more than 13,500
people in 27 countries. (source: company press release)

Why We Like It: (Original Play from Thursday night)
If you're a MarketMonitor subscriber then you know we've been
following PD as it flirts with the $80.00 level the last couple
of weeks.  Today Jeff Bailey mentioned the new high and bullish
P&F buy signal.  Investors bid up shares of PD and other miners
due to a rise in copper prices.  Copper surged to a new eight-
year high ($1.403 a lb.) because of news that workers at two
Southern Peru Copper Corp mines have threatened a strike on
August 31st if the company doesn't cough up some wage increases.

The obvious risk here is that the Southern Peru Copper Corp
capitulates pretty quickly and copper prices subside again.  We
don't know if or when that can happen.  All we do know is that
global demand for copper is very strong right now and any
disruption would be a boon for those companies still producing.
Plus, we have the very obvious bullish breakout over $80-82 in
shares of PD and the triple-top breakout buy signal on its P&F
chart.  Actually, if you're counting it's a quintuple-top
breakout.  The P&F chart's bullish target is $93.00 but we would
target the $87.50-90.00 range.

We're willing to speculate on a continued rise with an immediate
stop under $77.00, which was the recent low on Wednesday.

Weekend Update:
PD did see some follow through on Thursday's breakout but the
rally stalled under the $84 mark.  We suspect traders will get
another chance to buy a dip to $82.00 or $81.00.  Look for the
bounce.

Suggested Options:
We're going to suggest the September or October calls.  The
$80 and $85 strikes should work well.

BUY CALL SEP 80 PD-IP OI=8095 current ask $4.60
BUY CALL SEP 85 PD-IQ OI=3153 current ask $1.75

BUY CALL OCT 80 PD-JP OI=3023 current ask $6.20
BUY CALL OCT 85 PD-JQ OI=1928 current ask $3.40

Annotated Chart:



Picked on August 26th at $82.10
Change since picked:     + 0.79
Earnings Date          07/27/04 (confirmed)
Average Daily Volume =      2.1 million
Chart =



---

Potash - POT - close: 54.03 change: +0.41 stop: 51.00 *new*

Company Description:
Potash Corporation of Saskatchewan Inc. is the world's largest
fertilizer enterprise producing the three primary plant nutrients
and a leading supplier to three distinct market categories:
agriculture, with the largest capacity in the world in potash,
fourth largest in phosphate and third largest in nitrogen; animal
nutrition, with the world's largest capacity in phosphate feed
ingredients; and industrial chemicals, as the largest global
producer of industrial nitrogen products and one of only three
North American suppliers of industrial phosphates.
(source: company press release)

Why We Like It:
It's been a great week for POT.  The stock has not experienced
any post-split depression and Merrill Lynch upgraded the stock to
a "buy" on Tuesday.  Thursday saw POT take off on better than
average volume and Friday had POT closing near its highs.  Now
that shares are over the $54 level it's within striking distance
of our target at $55.  We will officially exit the play at $54.90
to avoid everyone else who may want to exit at $55.00.  We are
not suggesting new bullish plays at this time.  Readers can be
preparing to exit.  We will raise our stop loss to $51.00.

Suggested Option:
We are not suggesting new positions at this time.  We suggest
readers prepare to exit with a profit.

Annotated Chart:




Picked on August 10th at $ 51.08
Change since picked:      + 2.95
Earnings Date           07/29/04 (confirmed)
Average Daily Volume =       180 thousand
Chart =


--

Reynolds American - RAI - close: 73.81 change: +0.44 stop: 69.36

Company Description:
Reynolds American Inc. is the parent company of R.J. Reynolds
Tobacco Company, Santa Fe Natural Tobacco Company, Inc., Lane
Limited and R.J. Reynolds Global Products, Inc. R.J. Reynolds
Tobacco Company, the second- largest U.S. tobacco company,
manufactures about one of every three cigarettes sold in the
United States, including five of the nation's 10 best-selling
brands: Camel, Winston, KOOL, Salem and Doral. Santa Fe Natural
Tobacco Company, Inc. manufactures Natural American Spirit
cigarettes and other tobacco products, and markets them both
nationally and internationally. Lane Limited manufactures several
roll-your-own, pipe tobacco and little cigar brands, and
distributes Dunhill tobacco products. R.J. Reynolds Global
Products, Inc. manufactures, sells and distributes American-blend
cigarettes and other tobacco products to a variety of customers
worldwide. (source: company press release)

Why We Like It:
The bullish trend of higher lows continues to build for shares of
RAI.  We're encouraged to see RAI close at new three-week highs
but the stock is still struggling with the $74.00 level.  We
believe that RAI will continue to attract buyer interest with its
5 percent dividend yield and relative "safe haven" status in
spite of the litigation pressures.  Readers can choose to buy a
bounce from $73.00 or a breakout over $74.00.

Suggested Options:
We like the September and November calls although our favorites
are probably the September 70s and 75s.

BUY CALL SEP 70 RAI-IN OI=1781 current ask $4.10
BUY CALL SEP 75 RAI-IO OI=1750 current ask $0.90

BUY CALL OCT 70 RAI-JN OI=   5 current ask $4.90
BUY CALL OCT 75 RAI-JO OI= 407 current ask $1.85

BUY CALL NOV 70 RAI-KN OI=7986 current ask $5.80
BUY CALL NOV 75 RAI-KO OI=1789 current ask $2.95

Annotated Chart:




Picked on August 19 at $72.88
Change since picked:   + 0.93
Earnings Date        08/02/04 (confirmed)
Average Daily Volume =    1.2 million
Chart =




--

Telephone & Data Sys - TDS - cls: 77.33 change: -0.18 stop: 74.00

Company Description:
TDS Telecom is a growing communications company serving more than
1 million residential and business customers in small rural and
suburban communities in 30 states. The company's goal is to
provide the most effective communication technology and high-
quality services in its chosen markets. TDS Telecom is a
subsidiary of Telephone and Data Systems, Inc., a diversified
telecommunications corporation founded in 1969 and a FORTUNE 500
company, that operates primarily by providing wireless and local
telephone service through its strategic business units, U.S.
Cellular and TDS Telecom. (source: company press release)

Why We Like It:
We are starting to turn more cautious on TDS.  There was no
follow through on the breakout over $78.00 and shares continue to
churn sideways.  Bulls can be encouraged by the bullish P&F chart
but we're just not seeing any momentum.  We're going to give TDS
a couple more days to generate some excitement.  If it does not
we'll cut it loose.  Remember this has been an aggressive,
higher-risk play given the low stock volume and low option
volume.  Volume next week is going to get even lower!


Suggested Options:
We are not suggesting new bullish positions until TDS trades back
above $78.40.

Annotated Chart:




Picked on August 24th at $78.05
Change since picked:     - 0.72
Earnings Date          07/21/04 (confirmed)
Average Daily Volume =      195 thousand
Chart =


---

Zebra Tech. - ZBRA - close: 57.43 chg: +0.98 stop: 53.99*new*

Company Description:
Zebra Technologies Corp. delivers innovative and reliable on-
demand printing solutions for business improvement and security
applications in 90 countries around the world. More than 90
percent of Fortune 500 companies use Zebra-brand printers. A
broad range of applications benefit from Zebra-brand thermal bar
code, "smart" label, receipt, and card printers, resulting in
enhanced security, increased productivity, improved quality,
lower costs, and better customer service. The company has sold
four million printers, including RFID printer/encoders and
wireless mobile solutions, and also offers software, connectivity
solutions and printing supplies. (source: company press release)

Why We Like It:
The rebound continues for ZBRA and the stock is hitting new six-
week highs.  We're encouraged by the follow through on the
breakout over resistance this past week and the fact there's been
no post-split depression.  We're also optimistic about next week
since ZBRA closed near its highs for the day on Friday.  This is
a tough spot to consider new positions though.  Our target is
$60.00.  We might consider initiating new plays if ZBRA dipped
back to 56.50-57.00 but watch your stops.  We're going to raise
our stop loss to $53.99 but more conservative traders should be
able to get away with a stop closer to $54.95.

Suggested Options:
Our favorites are the September calls but the Novembers have more
volume.  You will want to confirm the option symbols with your
broker consider ZBRA's recent 3:2 split. Our old suggested
strikes have become new strikes at 53.75 and 56.62.  The new
strikes below have very low volume.

BUY CALL SEP 55 ZBQ-IK OI=  0 current ask $3.90
BUY CALL SEP 60 ZBQ-IL OI= 15 current ask $1.05

BUY CALL NOV 55 ZBQ-KK OI= 14 current ask $5.70
BUY CALL NOV 60 ZBQ-KL OI= 12 current ask $2.75

Annotated Chart:



Picked on August 25th at $56.18
Change since picked:     + 1.25
Earnings Date          07/28/04 (confirmed)
Average Daily Volume =      419 thousand
Chart =



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

Fortune Brands - FO - close: 74.08 change: +1.63 stop: 71.50

Company Description:
Fortune Brands, Inc. is a $6 billion leading consumer brands
company. Its operating companies have premier brands and leading
market positions in home and hardware products, spirits and wine,
golf equipment and office products. Home and hardware brands
include Moen faucets, Aristokraft, Schrock, Diamond and Omega
cabinets, Therma-Tru door systems, Master Lock padlocks and
Waterloo tool storage sold by units of Fortune Brands Home &
Hardware, Inc. Major spirits and wine brands sold by units of Jim
Beam Brands Worldwide, Inc. include Jim Beam and Knob Creek
bourbons, DeKuyper cordials, The Dalmore single malt Scotch, Vox
vodka and Geyser Peak and Wild Horse wines. Acushnet Company's
golf brands include Titleist, Cobra and FootJoy. Office brands
include Swingline, Wilson Jones, Kensington and Day-Timer sold by
units of ACCO World Corporation.
(source: company press release)

Why We Like It:
The stock market has been rather volatile in August and shares of
FO didn't fare any better.  Early August was painful and shares
broke down through multiple levels of support to produce a new
P&F sell signal.  The latter half of August has been equally
volatile to the upside. The stock has risen back through old
support, which was now new resistance.  More importantly we're
seeing a new relative high.  FO has broken through the downtrend
of lower highs as well as all of its overhead moving averages.
This is a technical play and with its P&F chart now in a new
"buy" signal (also a bear-trap signal) the P&F chart is
forecasting an $85 target.  We'd be happy with a run toward
$80.00.  We're willing to consider positions at current levels
but some traders may feel more comfortable waiting for FO to
breakout above the $75.00 mark.

Suggested Options:
Traders can choose from the September or October calls for short-
term positions.  We like the October $70 and $75 strikes.

BUY CALL SEP 70 FO-IN OI= 720 current ask $4.60
BUY CALL SEP 75 FO-IO OI= 787 current ask $0.90

BUY CALL OCT 70 FO-JN OI=   0 current ask $5.10
BUY CALL OCT 75 FO-JO OI=  36 current ask $1.75

Annotated Chart:



Picked on August 29th at $74.08
Change since picked:     + 0.00
Earnings Date          07/23/04 (confirmed)
Average Daily Volume =      636 thousand
Chart =



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

SPX Corp - SPW - close: 36.81 change: +0.05 stop: 38.26

Company Description:
SPX Corporation is a global provider of technical products and
systems, industrial products and services, flow technology,
cooling technologies and services, and service solutions.
(source: company press release)

Why We Like It:
We're not giving up yet.  Thus far we remain un-triggered.  SPW
has not broken through support at $36.00 and hit our trigger to
buy puts at $35.75 or lower.  However, the stock's trend of lower
highs just coincided with its overhead 21-dma.  SPW appears to be
coiling for a breakdown under support soon. We'll give it a few
more days.

Suggested Options:
We like the September puts.  Our favorites are the $37.50s
and $35s.

BUY PUT SEP 37.50 SPW-UU OI=4719 current ask $1.80
BUY PUT SEP 35.00 SPW-UG OI=1225 current ask $0.60

Annotated Chart:




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

None


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The Option Investor Newsletter                   Sunday 08-29-2004
Sunday                                                      4 of 5

In Section Four:

Leaps: More Stress Ahead


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*****
LEAPS
*****

More Stress Ahead

It is stress for me to watch our targeted stocks move
higher and farther away from our potential entry points.
However, we have to keep focused on two things. We only
want to buy them if we can get our price. This reduces
our risk substantially. Chasing prices can cause you
to buy at the top and the next bout of weakness puts
you in a losing position. If we wait to buy on weakness
then our long term results will be much better.

Secondly, we have the two worst months of the year
ahead of us. September and October normally have the
biggest dips of the year and are known for their
corrections. October is known as the bear killer
month because many sharp corrections end in October
with a monster rebound. That is still a potential
for this year and one that I am counting on. Be
patient, cash is a position and it is really tough
to lose money while waiting in cash.


New Plays


COP - Conoco Phillips $73.33

Conoco has been on a permanent uptick since October
2002. That uptrend accelerated in December 2003 and
topped out at $80 this August. The stock took a dive
in early August when Conoco released earnings that
almost doubled but said they were selling some assets
to reduce $1.5B in debt. Investors decided to take
profits and see what Conoco had for future plans.

COP, along with AHC, MRO and OXY is working with
Libya to get assets frozen in 1986. This would be
a favorable event but would require some updating
to return to full production. At least that production
would not need to be bought or bid on as any new
leases in Libya currently on the auction block.

COP took a serious jump on Thursday when it was
announced they are a front runner in acquiring a
strong stake in the Russian oil firm Lukoil. The
Russian government is selling the 7.6% it owns and
COP is rumored to be trying to acquire a 25% interest
in the full company. This would give COP access to
literally hundreds of billions of barrels in oil
reserves. The prospect of COP pulling this off sent
share soaring to $74.50 from their 71.28 low on
Thursday. The initial drop was on the prospect of
a huge cash outlay for the Lukoil interest but the
size of the reserves and the potential for gain
changed direction quickly.

I view the August drop on COP as an entry point and
will not be putting a target price on the entry.
We are going to take what is offered on Monday and
take our chances. Already -10% off its 52-week high
with strong support at $70 there should be little
risk. With oil prices not expected to stay low any
future reserves increase in value daily.

With COP at $73.33 I am going to recommend the Jan
2006 $75 LEAP Call YRO-AO currently $6.70. Should
oil break $50 over the next two years any recovered
assets in Libya and reserves in Russia could easily
provide a strong boost to the stock.

Buy Jan-2006 $75 LEAP Call YRO-AO currently $6.70

COP Chart





Portfolio Update

TYC - Tyco Intl. $31.86  **Stop $28.00**

This was a strong weak for Tyco with a spike to
$32.20 on Thursday. Shorts were caught off guard
and were forced to cover after the Wednesday jump
in the markets. If we do get a post convention rally
I expect Tyco to set a new 52-week high.


JNPR - Juniper Networks $22.96 **Stop $19.00**

Juniper continued to rally out of the August tech
wreck and broke above its 100/200 day averaged on
Friday. It is poised to run and now that the Cisco
problems are behind it there are blue skies ahead.


SMH - Semiconductor Holders $30.29 **Stop 31.25**

The SOX is still weak and with the Intel update
next Thursday this tech insurance play could still
pay off. Even at today's prices we are still up
about +30% but that is well below the strong gains
we had in this play before the SOX rebound. Plenty
of time for this November insurance to come back
into play.



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

Current Portfolio:

SMH - Semiconductor Holders $30.16 **Stop $31.25**
Entry $32.50 August 2nd
Profit Target = SMH $28  ($28.30 low hit 8/13)

Current position:
Nov-$30 Put SMH-WF cost $1.40 current $1.80
Nov-$35 Put SMH-WG cost $3.80 current $5.10

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

SMH Chart






TYC Tyco $31.84   **Stop $28.00**
Entry $28.32

2005 $30 LEAP Call TYC-AF cost $2.15 current $3.10
2006 $30 LEAP Call WPA-AF cost $4.00 current $5.20
July $25 insurance put - expired - cost $.55

Tyco Chart




JNPR - Juniper Networks $22.96 **Stop $19.00**
Entry $20.19

2006 $25 LEAP Call WBW-AE cost $3.50 current $4.70
Insurance = Sept-$17.50 Put JUX-UW cost 50 cents.

http://members.OptionInvestor.com/leaps/Lp_081504_1.asp

JNPR 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:

We are still vertically challenged with a two week rally
behind us. I raised several target entry points but not
very far. We still have a couple of rough months ahead
and plenty of time for those targets to be hit.


New Entry

OXY - Occidental Petroleum $50.89  Target $49.50

Just copy my comments on COP in the new play today
and you will have a general idea about adding OXY to
the watch list. OXY is a strong bidder in several
places today and is actively trying to tie up as
many reserves as possible. The news headlines for
OXY are full of positive press and the chart shows
it.

The reason I am putting OXY on the watch list instead
of making it an instant play is the chart. It hit a
52-week high on Friday and that is not the time to buy
calls. I am hoping to get at least a minor pullback to
enter a position.

BUY 2006 $50 JAN LEAP Calls WXY-AJ currently $6.00

*Note - there is only $2 difference between the premium
on the $50 and $55 calls. Hopefully if we get a drop
in the stock we can shave some off the $50 leap. I
hate to give up $5 to save only $2.

OXY Chart





EBAY - EBAY $85.91 target entry $74.00

Missing that EBAY entry at $72 with EBAY's dip to $73
was painful. It is even more painful to watch it rocket
higher on a daily basis. I raised the entry to $74
today to keep with the 200dma. I am not going to chase
it with Sept/Oct still ahead. Plenty of time for another
correction.

2006 $80 LEAP Call YEU-AP

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

EBAY Chart




MER - Merrill Lynch $51.50 target entry $46.00

2006 $50 LEAP Call WZM-AJ

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

MER Chart





INTC - Intel $22.02 target entry $20.00

Intel is still lagging the recovery and with the mid
quarter update next week we could still get lucky.

2006 $22 LEAP Call WNL-AX
2006 $25 LEAP Call WNL-AE

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

INTC Chart





MMM - 3M Company - $81.51

Target entry $75, add to position at $70.

MMM is also lagging the rally. Should the market roll
over again I think we still have a good chance of
filling at $75.

2006 $80 LEAP Call VMU-AP
2006 $85 LEAP Call VMU-AQ

http://members.OptionInvestor.com/leaps/Lp_080804_1.asp

MMM Chart





C - Citigroup $46.73 LEAP Call

Citigroup is pulling another EBAY on us with a daily
uptick but it is not moving quite as fast. Just keep
thinking October, October, October. Plenty of corrections
occur over the next 60 days.

Enter 1/2 position at $42.50
Enter 1/2 position at $40.00

2006 $45 LEAP Call WRV-AI

http://members.OptionInvestor.com/leaps/Lp_080804_1.asp

Citigroup Chart




SYMC - Symantec - $48.39  - Target $43

I thought SYMC might be out of reach but software
stocks have been weak over the past week. I raised the
target to $43, half way between the 100 dma at 45.35
and the 200dma at 41.70.

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

http://members.OptionInvestor.com/leaps/Lp_080804_1.asp

SYMC Chart




WMT - Wal-Mart $53.58 Target $51.00

2006 $55 LEAP Call WW-TAK
Insurance = Sept-$50 Put WMT-UJ

http://members.OptionInvestor.com/leaps/Lp_081504_1.asp

WMT Chart




GE $32.80 LEAP Call   Target $31.00

2006 $30 LEAP Call WGE-AF $4.20, target $3.50
2006 $35 LEAP Call WGE-AG $2.00, target $1.75

I am not suggesting insurance on GE but the
December $27.50 put is only 40 cents. We would
need a serious national disaster to see GE break
$30 and I think it would only be temporary.

GE Chart





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The Option Investor Newsletter                   Sunday 08-29-2004
Sunday                                                      5 of 5

In Section Five:

Covered Calls: Stocks Grind Higher Amid Favorable Economic Data!
Spreads and Straddles: The “Sure Thing” Credit Spread
Premium-Selling Plays: Naked Puts and Calls


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

A better-than-expected gross domestic output, combined with
improving consumer sentiment, helped the major equity averages
finish the week on a bullish note.

The Dow Jones industrial average closed up 21 points at 10,195
with Alcoa (NYSE:AA) leading the blue-chip group into positive
territory.  The NASDAQ composite index gained 9 points to 1,862
as biotechnology stocks enjoyed renewed buying interest.  The
broader Standard & Poor's 500-stock index ended 2 points higher
at 1,107 with steel, aluminum, hospital, and health care supply
issues among the best performers.  Advancing stocks outnumbered
decliners by nearly 2 to 1 on the NYSE, but volume was only 875
million shares.  NASDAQ breadth was better than 3 to 2, despite
volume of only 1.1 billion.  Bonds traded lower with the 10-year
note down 4/32, while its yield climbed to 4.22%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 08/27/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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  66.37  SEP  55.0  60.0  0.40   59.60   0.40   Open
FPL    67.73  68.55  SEP  60.0  65.0  0.45   64.55   0.45   Open
MCO    67.33  68.52  SEP  60.0  65.0  0.65   64.35   0.65   Open
BSTE   44.14  46.94  SEP  35.0  40.0  0.55   39.45   0.55   Open
ISCA   53.40  52.98  SEP  45.0  50.0  0.55   49.45   0.55   Open
LEND   33.89  38.36  SEP  25.0  30.0  0.60   29.40   0.60   Open
PIXR   69.93  76.00  SEP  60.0  65.0  0.45   64.55   0.45   Open
PD     80.77  82.89  SEP  65.0  70.0  0.40   69.60   0.40   Open
RYL    86.01  88.25  SEP  75.0  80.0  0.65   79.35   0.65   Open
FRO    40.05  38.00  SEP  30.0  35.0  0.60   34.40   0.60   Open
NIHD   37.59  36.52  SEP  33.4  35.0  0.20   34.80   0.20   Open
NCEN   53.10  54.13  SEP  45.0  50.0  0.60   49.40   0.60   Open
SEPR   49.35  50.99  SEP  42.5  45.0  0.30   44.70   0.30   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  74.90  SEP  85.0  80.0  0.55   80.55  0.55   Open
CDWC   59.25  60.09  SEP  65.0  60.0  0.45   60.45  0.36   Open
BGG    69.80  75.96  SEP  80.0  75.0  0.45   75.45 (0.51)  Open?
DNA    44.23  49.90  SEP  52.5  50.0  0.35   50.35  0.35   Open?
EASI   43.53  42.79  SEP  55.0  50.0  0.40   50.40  0.40   Open
VLO    64.36  66.04  SEP  75.0  70.0  0.60   70.60  0.60   Open
FD     44.60  45.00  SEP  50.0  47.5  0.30   47.80  0.30   Open
PHS    32.42  32.47  SEP  37.5  35.0  0.30   35.30  0.30   Open
GDT    56.26  60.40  SEP  65.0  60.0  0.60   60.60  0.20   Open?
OSTK   31.03  32.58  SEP  40.0  35.0  0.60   35.60  0.60   Open

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

Briggs & Stratton (NYSE:BGG), Guidant (NYSE:GDT) and Genentech
(NYSE:DNA) are on the early-exit list.  Kmart (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

DITC    17.97  21.84   SEP   17.5	  17.5    3.00    5.50    Open?

Our new straddle in Ditech (NASDAQ:DITC) was a "big winner" last
week 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.

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

GILD - Gilead Sciences  $69.39  *** Next Leg Up? ***

Gilead Sciences (NASDAQ:GILD) is a biopharmaceutical company
that discovers, develops and commercializes therapeutics to
advance the care of patients suffering from life-threatening
diseases worldwide.  Gilead has six products that are sold in
the United States, all of which are also marketed worldwide.
These products are Viread and Emtriva, for the treatment of
HIV infection; Hepsera, for the treatment of chronic hepatitis
B infection; AmBisome, an antifungal agent, and Vistide, for
the treatment of CMV retinitis.  In addition, Hoffmann-La Roche
sells Tamiflu, for the treatment of influenza, under a royalty
agreement with Gilead.

GILD - Gilead Sciences  $69.39

PLAY (less conservative - bullish/credit spread):

BUY  PUT  SEP-60.00  GDQ-UL  OI=2211  ASK=$0.25
SELL PUT  SEP-65.00  GDQ-UM  OI=1984  BID=$0.75
INITIAL NET-CREDIT TARGET=$0.55-$0.65
POTENTIAL PROFIT(max)=12% B/E=$64.45


__________________________________________________________________

PCU - Southern Peru Copper  $43.29  ** Basic Materials Demand! **

Southern Peru Copper (NYSE:PCU)) is an integrated producer of
copper that operates mining, smelting and refining facilities
in the southern part of Peru.  The copper operations of the
company involve mining, milling and flotation of copper ore
to produce copper concentrates, the smelting of concentrates
to produce blister copper and the refining of blister copper
to produce copper cathodes.  The company also produces refined
copper using the solvent extraction/electrowinning technology.

PCU - Southern Peru Copper  $43.29

PLAY (less conservative - bullish/credit spread):

BUY  PUT  SEP-35.00  PCU-UG  OI=13  ASK=$0.25
SELL PUT  SEP-40.00  PCU-UH  OI=42  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$39.50



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

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.

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

AMZN - Amazon.com  $39.90  *** Consolidation In Progress? ***

Amazon.com (NASDAQ:AMZN) is a customer-centric company that sells
a wide range of products that it purchases from manufacturers and
distributors through its six primary websites: www.amazon.com,
www.amazon.co.uk, www.amazon.de, www.amazon.fr, www.amazon.co.jp
and www.amazon.ca.  The company offers new, used, refurbished and
collectible items in a wide variety of categories.  Through its
Syndicated Stores program, the company utilizes its e-commerce
services, features and technologies to sell its products through
other businesses' Websites.

AMZN - Amazon.com  $39.90

PLAY (less conservative - bearish/credit spread):

BUY  CALL  SEP-45.00  ZQN-II  OI=8901  ASK=$0.20
SELL CALL  SEP-42.50  ZQN-IV  OI=8457  BID=$0.45
INITIAL NET-CREDIT TARGET=$0.30-$0.35
POTENTIAL PROFIT(max)=14% B/E=$42.80


__________________________________________________________________

CHIR - Chiron  $43.41  *** Fluviron Release Delayed! ***

Chiron (NASDAQ:CHIR) is a global pharmaceutical company focused
on developing products for cancer and infectious diseases.  The
firm commercializes its products through three business units:
blood testing, vaccines and biopharmaceuticals.  Chiron Blood
Testing develops and commercializes a range of blood safety
products utilized by the blood banking and transfusion medicine
industry.  Chiron Vaccines offers more than 30 vaccines such as
flu, meningococcal, travel and also pediatric vaccines.  Chiron
Biopharmaceuticals discovers, develops, manufactures and sells
a range of therapeutic products.

CHIR - Chiron  $43.41

PLAY (less conservative - bearish/credit spread):

BUY  CALL  SEP-47.50  CIQ-IT  OI=2148  ASK=$0.15
SELL CALL  SEP-45.00  CIQ-II  OI=2493  BID=$0.40
INITIAL NET-CREDIT TARGET=$0.30-$0.35
POTENTIAL PROFIT(max)=14% B/E=$45.30



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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.
__________________________________________________________________

CAH - Cardinal Health  $45.79  *** Earnings Speculation ***

Cardinal Health (NYSE:CAH) is a holding company encompassing a
number of operating subsidiaries that do business as Cardinal
Health.  The company is a provider of products and services
supporting the healthcare industry and helping healthcare
providers and manufacturers improve the efficiency and quality
of healthcare.  Cardinal Health has four reporting segments:
Pharmaceutical Distribution and Provider Services, Medical
Products and Services, Pharmaceutical Technologies and Services
and Automation and Information Services.  Cardinal Health's
quarterly earnings report is due on September 2, 2004.

CAH - Cardinal Health  $45.79

PLAY (speculative - neutral/debit straddle):

BUY CALL  SEP-45.00  CAH-II  OI=9237  ASK=$1.95
BUY PUT   SEP-45.00  CAH-UI  OI=7766  ASK=$1.15
INITIAL NET-DEBIT TARGET=$2.90-$3.00
INITIAL TARGET PROFIT=$1.10-$1.65



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

SEE DISCLAIMER - SECTION 1

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


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

The “Sure Thing” Credit Spread

By Mike Parnos

I’ve heard it said that there are no “sure things.”  I beg to differ.
First of all, there was this girl in high school who . . . .  and then
there’s this interesting credit spread strategy.  I lost touch with the
girl (damn!), but the strategy lives on.   Fluff up your couch
cushions, open your mind, get comfortable, and read on.

How “sure” of a thing is the “Sure Thing” strategy?  It depends
partially on the market.  It depends mostly on YOU!  This strategy is
for the aware trader, the experienced trader, the capitalized trader,
and the trader who has the time freedom to monitor the position.

The “Sure Thing” strategy is actually a new name for our Credit Spread
Boogie.  “Sure Things” are taken a lot more seriously than “Boogies.”
Since we are using this strategy in our CPTI portfolio, it seems
appropriate to review how it works.
____________________________________________________________

The Position
We like the SPX index because it’s a cash settlement vehicle.  We will
use a conservative 2-contract position for our example.  You should, as
always, adjust your position to accommodate your risk tolerance and
account size.  For our hypothetical example, let’s assume SPX is
trading at 1105 with four weeks left until front month expiration.

In the “Sure Thing” strategy, we’re going to try to take advantage of a
market trend.  Yes, you heard me right.  We are, at least temporarily,
going to predict a direction.  Notice I said “temporarily.”  The beauty
of this strategy is that we are ready to change our mind – IF the
market shows us that it has changed ITS mind.   We’re starting with the
belief that the downtrend in the market is not over and will continue
into the foreseeable future.  Therefore, we’re going to establish a
bear-call spread above where the SPX is currently trading.

Sell a September SPX 1115 call @ $10.40
Buy a September SPX 1140 call @ $3.10
Net Credit:  $7.30 x 100 = $730 per contract x 2 contracts = $1,460

We're assuming that you’re at least a semi-shrewd trader and have
managed to shave some premium off each side of the posted spreads.
Depending on the time you place the trade, you should be able to get
between $7.00-$8.00 for a similar 25-point spread.  The larger the
credit, the better.


The Risk
You’ve created a 25-point spread and you’ve taken in $7.30 of premium.
That leaves $17.70.   Your out-of-pocket risk is calculated by
multiplying the $17.70 x 2 contracts (3,540).  That’s your worst-case
scenario. But you’ll never allow it to reach that point because you are
disciplined, right?  Right!!

Are You Sufficiently Capitalized?
The “Sure Thing” strategy requires a decent sized account.  At first,
per the above example, you’ll only need about $5,000. But, if the
market reverses, and you need to make an adjustment, there will likely
be larger margin requirements.  Your broker’s initial maintenance
requirement on the original 2-contract position would be $5,000 (the 25
point difference between the strikes multiplied by 2 contracts).

A Plan For The Well Adjusted
How can we adjust our position and keep our risk to minimum?  We’re
going to accomplish this by having a plan – a way to adjust the
position should the SPX go in the wrong direction.

If the trend continues and SPX remains below 1105, you’ll be in great
shape.  Both options of the bear call spread will expire worthless, you
keep the premium and live happily ever after.  No adjustments were
necessary.   It will please all of our beneficiaries -- and enable you
to pay your for your therapy sessions.

But, as we know, the market is a living, breathing and very annoying
thing.  It has multiple personalities.  No sooner do we begin to get
comfortable with Mr. Bear, but, with no warning, Mr. Bull shows up and
confuses the situation.  Sounds like my ex-mother-in-law.  We have to
be ready to soothe the savage beast – regardless what form it takes.

What If . . .
If the SPX relapses, its alter ego emerges, does an about-face, and
starts to trend in the other direction:
You wait until the SPX gets to the point where it costs about $14.00 to
close out the bear call spread.  At that point, you close both
contracts of the bear call spread (both the short and long call) for
the $14.00.  Why wait that long?  You want to wait for a sufficiently
large movement because, if the SPX has gone that far in the opposite
direction, it’s likely a new trend has begun.  Believe me, with this
strategy, you’d much prefer not to be whipsawed back and forth.

What If You’re Wrong?
We were wrong about the initial direction.  That’s OK?  It’s not the
first time we’re wrong and certainly won’t be the last. It broke, the
chart lied, but it’s fixable.  We’re at the mercy of the markets.  With
the “Sure Thing” strategy, we have become counter-punchers.

2.  Look over to the put side of the option chain.  You’ll want to find
a bull-put spread, at or above where the SPX is trading (at the time
you closed the bull put spread), which will enable us to take in a
total credit of at least $14.00.  Our objective is to replace the
$14.00 it cost us to close out the original bull put spread.  To
accomplish this, we may have to establish a slightly wider spread (more
than 25-points) and/or sell a few more contracts of the new bull put
spread.  It may even be necessary to roll into the October option
cycle.

To achieve a $7.00 credit in the new bull-put spread, it might be
necessary to widen the spread a bit – thereby increasing your
maintenance requirement.  For example, instead of a $25 difference
between strikes, it might require a $30 difference between strikes.  If
you took in $7.00 per new 30-point spread, it would require trading
four contracts to completely replenish the $14.00.

Much depends on whether the SPX has moved quickly or not.  If it has
moved quickly, you may be able to establish the new spread in the
original option cycle.  If it has taken a few weeks, you may have to
roll out to the next option cycle where more premium is available.  By
rolling to the next option cycle, you may be able to maintain the 25-
point spread or not have to increase the number of contracts.

How does that affect your maintenance?  Obviously, the kind of
adjustment discussed above will require more maintenance.  But, that’s
why we started out with only two contracts.

Let’s look at a possible scenario.  If you have to establish a new 30-
point SPX bear call spread with four contracts to get back our $14.00,
here’s what we’re looking at for maintenance.  $30 (30-point spread) X
400 (4 contracts) = $12,000.  That’s the maintenance figure.  Since
we’ve already taken in the original $1,460, our actual out of pocket
risk is $10,540.

Many Forms Of Maintenance
When we discuss maintenance, remember that maintenance does not have to
be in the form of cash.  If you have bonds, mutual funds, stocks or
other securities, the maintenance amount can be applied against their
marginable value.  Make sure your bungee cord is attached before you
jump – and confirm length of the cord, too.  Call your broker and check
out their margin policies.  They are NOT all the same.

Note that, after our little flurry of trades, our original $7.30
($1,460) credit is still intact – less a few commissions.  If the SPX
continues trending up, it’s time to light up your victory cigar.
However, if it reverses again, we have to repeat the process – by going
in the other direction – and increasing the number of contracts.

We’re hoping for a trend, and it doesn’t really matter what direction.
It doesn’t have to last forever – four or five weeks is plenty.  We’re
willing to go with the flow and that’s how we position ourselves.
You’ll never look more forward to option expiration.  This is why it’s
called the “Sure Thing” strategy.  It might take a month, or two, or
three, but eventually you will be right and the premium will be yours.
It takes awareness, a plan and a few extra bucks in your trading
account.  It’s only a risk if you let it move out of control without
acting.

The Return Of The Return
How do we calculate a return with the “Sure Thing” strategy?  The
method that makes most sense is to base the return on what is actually
at risk.  In the first scenario, if all goes according to plan, our
actual risk is $3,540.  Our maximum potential profit is $1,460.  When
we divide $3,640 into $1,460, we get a potential return on risk of
41.2% -- for a very short period of time.

In the second scenario, let’s assume we had to make an adjustment and
we’re sitting with four contracts of a 30-point spread.  Our
maintenance, as calculated above, is $12,000.  Our risk is $10,540.
Therefore, our new return on risk is $1,460 divided by $10,540 – or
13.85% -- in two months – which sure beats the hell out of a CD.

When All Is Said And Done 
The SPX “Sure Thing” strategy may not be your salvation.  It probably
isn't going to do much for fools and drunks either – they're God's
problem.  Losing the high school girl’s phone number – well, that was
definitely NOT just a paper loss.  She truly provided instant
gratification.  With the “Sure Thing” strategy, gratification takes a
little longer.  It does, however, give skilled, dedicated traders a way
of taking advantage of a trending market.
____________________________________________________________

SEPTEMBER CPTI POSITIONS
September Position #1 – SPX Iron Condor – 1107.77
The SPX has become our favorite index.  The premiums are respectable.
The spreads are wide enough to do a little shaving, and we can create
some huge trading ranges for safety purposes.

We sold 10 Sept. SPX 1015 puts and bought 10 September SPX 995 puts for
a credit of about: $1.10 ($1,100).  Then we sold 10 September SPX 1140
calls and bought 10 September SPX 1160 calls for a credit of about
$1.40 ($1,400).  Total credit and potential profit of $2,500.  Maximum
profit range: 1015 to 1140.  That’s a 125-point range.  It is going to
require $20,000 in maintenance.  The return on risk will be about
14.3%.

September Position #2 – RUT Iron Condor – 551.67
The RUT gave us a big scare in August.  A lot of traders rolled out
their 520 short puts when the price was violated a week ago.  It was
the prudent thing to do.  The huge bounce could not have been
predicted.  Those that held had a 50/50 chance of success.  They rolled
the dice and they won.

We sold 10 RUT September 500 puts and bought 10 RUT September 490 puts
for a credit of about: $1.00 ($1,000).  Then we sold 10 RUT September
580 calls and bought 10 RUT September 590 puts
Credit of about $1.00 ($1,150).   Total credit and profit potential of
$2,000.  It’s a nice size maximum profit range of 500 to 580.  The
maintenance requirement is only $10,000.  The return on risk will
depend on what premium you take in.  If you take in $2,000, the return
on risk will be 25%.

September Position #3 – SPX Credit Spread Boogie – 1107.77
In this August cycle, our Credit Spread Boogie play is going to be 100%
profitable.  It may have taken two months to make this money, but it
was well worth it.  So, let’s do it again.

We sold 3 September SPX 1105 calls and bought 3 September SPX 1130
calls for a credit of about $7.00 ($2,100).  This is based on the
feeling that, despite the recent bounce, the downtrend will continue.
We’ve taken in $2,100.  We’re going to remain in this position until it
costs $14.00 to unwind it.  That will be an indication that the trend
has likely changed and we will then reposition ourselves in the
opposite direction – playing enough contracts to replenish what we
spent to close out the original spread.  The initial maintenance
requirement is $7,500.  However, keep some of your powder dry.  If we
have to shift positions, we will need additional maintenance dollars
for the additional contracts.

September Position #4 – OEX Iron Condor – 540.88
This position is in response to some requests for an OEX play.

We sold 10 September OEX 505 puts and bought 10 September OEX 495 puts
for a credit of about: $.65 ($650).  Then we sold 10 September OEX 555
calls and bought 10 September OEX 565 calls for a credit of about $.75
($750).

Total net credit of about $1.40 ($1,400).  Maximum profit range: 505 to
555.  Potential return on risk of about 16%.  It’s been a long time
since I’ve traded the OEX in a condor.  I don’t remember how generous
they are in shaving the bid/ask spreads.  Good luck.

ONGOING POSITIONS
QQQ ITM Strangle – Ongoing Long Term -- $34.56
We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts of the
2005 QQQ $29 calls for a total debit of $14,300.   We make money by
selling near term puts and calls every month.  Here’s what we’ve done
so far:  Oct. $33 puts and Oct. $34 calls – credit of $1,900. Nov. $34
puts and calls – credit of $1,150. Dec. $34 puts and calls – credit of
$1,500.  Jan. $34 puts and calls – credit of $850.  Feb. $34 calls and
$36 puts – credit of $750. Mar. $34 calls and $37 puts – credit of
$1,150. Apr. $34 calls and $37 puts – credit of $750.  May $34 calls
and $37 puts – credit of $800.
June $34 calls and $37 puts -- total net credit of $750.  We rolled out
to the July $34 calls ($.20 credit) and $37 puts ($.60 credit) and took
in a credit of $.80 ($800).  We rolled to the August $34 calls and $37
puts, taking in a credit of $900.  For the September cycle, we rolled
to the Sept. $34 calls and $37 puts, only yielding $.45 or $450 for the
cycle. Our new total credit is now $11,750.

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

ZERO-PLUS Strategy.  OEX – 540.88
In my Feb. 8th column, I outlined a strategy based on an initial
investment of $100,000.  $74,000 was spent on zero coupon bonds
maturing in seven years at a value of $100,000.  The principal $100,000
investment is guaranteed.  We’re trading the remaining $26,000 to
generate a “risk free” return on the original investment.
Our current position:  We own 3 OEX December 2006 540 calls @ $81 (x
300 = $24,300).  Our cash position as of May expiration was $4,390 plus
unused $1,700 = $6,090.  From the June option cycle, we are able to
officially add $1,175 to our cash position – that now stands at $6,265
As of July expiration we had a total of $7,440.  We now add the $950
for the August expiration for a new total of $8,390.

New Zero Plus Positions For September
September bull put spread 505/495 for credit of $.75 x 5 contracts =
$375.  Short 555 call for credit of $1.20 x 5 = $600.  If all goes
well, we’ll be able to add $975 to our cash position as we wait for the
market to move up – hopefully in this lifetime.
__________________________________________________________

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

Mike Parnos, CPTI Master Strategist



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



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*****************************************
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 08/27/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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    16.00   15.64   19.69    0.36   5.52%   2.30%
MCIP     SEP    15.00   14.30   17.71    0.70   8.50%   4.90%
PAAS     SEP    12.50   12.05   14.73    0.45   6.87%   3.73%
UTHR     SEP    25.00   24.70   31.99    0.30   3.01%   1.21%
AMED     SEP    25.00   24.25   25.92    0.75   6.54%   3.09%
PHM      SEP    50.00   49.25   59.30    0.75   3.32%   1.52%
KOSP     SEP    30.00   29.25   37.72    0.75   5.48%   2.56%
GLBCE    SEP    12.50   11.90   16.45    0.60  11.90%   5.04%
ECLP     SEP    12.50   12.10   14.37    0.40   6.90%   3.31%
OMM      SEP    12.50   12.10   13.30    0.40   6.51%   3.31%
CNCT     SEP    25.00   24.10   26.05    0.90   7.11%   3.73%
TOY      SEP    15.00   14.45   16.38    0.55   7.51%   3.81%
ACF      SEP    20.00   19.25   21.15    0.75   7.16%   3.90%
PLMO     SEP    30.00   29.45   38.25    0.55   5.05%   1.87%
ION      SEP    25.00   24.50   26.48    0.50   4.17%   2.04%
ESLT     SEP    20.00   19.20   21.70    0.80   7.95%   4.17%
WBSN     SEP    35.00   33.75   39.56    1.25   8.46%   3.70%
NTMD     SEP    12.50   12.15   18.28    0.35   8.12%   2.88%
UTHR     SEP    25.00   24.30   31.99    0.70   7.30%   2.88%
CNCT     SEP    25.00   24.30   26.05    0.70   6.65%   2.88%
DDS      SEP    20.00   19.50   20.20    0.50   6.31%   2.56%
MEE      SEP    22.50   22.00   27.94    0.50   5.93%   2.27%
FOSL     SEP    25.00   24.35   28.75    0.65   5.95%   2.67%
HUM      SEP    17.50   17.10   18.99    0.40   5.34%   2.34%
SCSC     SEP    50.00   49.40   61.51    0.60   3.30%   1.21%
POSS     SEP    25.00   24.20   18.04   (6.16)  0.00%   0.00%
JOSB     SEP    24.00   23.52   28.06    0.48   5.27%   2.04%
ECLP     SEP    12.50   12.20   14.37    0.30   6.57%   2.46%
WBSN     SEP    35.00   34.05   39.56    0.95   7.44%   2.79%
ARO      SEP    30.00   29.05   33.75    0.95   7.67%   3.27%
MW       SEP    25.00   24.60   28.74    0.40   4.22%   1.63%
TOL      SEP    40.00   39.05   44.38    0.95   6.19%   2.43%
SEAC     SEP    15.00   14.40   15.75    0.60  12.11%   4.17%
CLHB     SEP    10.00    9.60   11.62    0.40  10.87%   4.17%
NTMD     SEP    15.00   14.65   18.28    0.35   8.62%   2.39%
ESLT     SEP    20.00   19.20   21.70    0.80  10.61%   4.17%
MYGN     SEP    15.00   14.55   16.01    0.45   8.06%   3.09%
NAVR     SEP    12.50   12.15   15.07    0.35   9.14%   2.88%
IVX      SEP    18.00   17.56   19.69    0.44   7.02%   2.51%
UTHR     SEP    25.00   24.40   31.99    0.60   8.89%   2.46%
AAPL     SEP    30.00   29.50   34.35    0.50   5.37%   1.69%
ARO      SEP    30.00   29.50   33.75    0.50   5.51%   1.69%
SONO     SEP    22.50   22.05   24.66    0.45   6.40%   2.04%
ESLT     SEP    20.00   19.30   21.70    0.70  10.92%   3.63%
MEE      SEP    25.00   24.45   27.94    0.55   7.13%   2.25%
SRDX     SEP    22.50   21.90   24.10    0.60   8.40%   2.74%
IVX      SEP    18.00   17.52   19.69    0.48   8.94%   2.74%
BSTE     SEP    45.00   44.45   46.94    0.55   4.16%   1.24%
FCN      SEP    17.50   17.05   17.75    0.45   7.56%   2.64%

Ivax (NYSE:IVX) has been adjusted to reflect a 5-for-4 split in
its common stock.  The position in Possis Medical (NASDAQ:POSS)
was closed earlier in the week after the stock price plunged on
news of disappointing trial results of its blood clot treatment.
Kyphon (NASDAQ:KYPH) has previously been closed to limit losses
and Connetics (NASDAQ:CNCT), Dillards (NYSE:DDS), and Seachange
(NASDAQ:SEAC) along with many others, are on the "watch" list.


NAKED CALLS

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

CRDN     SEP    40.00   40.50   39.10    0.50   5.29%   1.23%
SWIR     SEP    35.00   35.60   23.05    0.60   7.40%   1.69%
AVID     SEP    50.00   50.50   43.70    0.50   3.56%   0.99%
USPI     SEP    37.50   38.05   36.45    0.55   3.90%   1.45%
BDY      SEP    25.00   25.75   24.29    0.75   7.42%   2.91%
DRIV     SEP    30.00   30.30   25.03    0.30   4.51%   0.99%
SINA     SEP    30.00   30.35   21.40    0.35   5.84%   1.15%
ERES     SEP    22.50   22.80   20.82    0.30   6.66%   1.32%
MRVL     SEP    25.00   25.40   23.71    0.40   8.22%   1.57%
ICUI     SEP    30.00   30.65   26.54    0.65   7.56%   2.12%
SWIR     SEP    30.00   30.30   23.05    0.30   5.90%   0.99%
UPL      SEP    45.00   45.40   38.70    0.40   4.90%   0.88%
MCHP     SEP    30.00   30.65   26.76    0.65   6.97%   2.12%
EYET     SEP    45.00   45.75   37.46    0.75  10.85%   1.64%
CMX      SEP    30.00   30.45   28.23    0.45   4.86%   1.48%
IDXC     SEP    30.00   30.30   28.75    0.30   3.95%   0.99%
BRCM     SEP    32.50   32.90   28.31    0.40   5.76%   1.22%
ELAB     SEP    30.00   30.55   26.83    0.55   8.34%   1.80%
MRVL     SEP    25.00   25.35   23.71    0.35   5.80%   1.38%

Dick's Sporting Goods (NYSE:DKS) has previously been closed to
limit potential losses.  Bradley Pharmaceuticals (NYSE:BDY),
Ceradyne (NASDAQ:CRDN), and United Surgical (NASDAQ:USPI) are
on the "watch" list.

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

PSRC   24.40  SEP 20.00  MQS-UX 0.65    4 19.35  20   5.1% 16.4%
LCAV   24.60  SEP 22.50  JVQ-UX 0.55   93 21.95  20   3.8% 10.1%
DITC   21.84  SEP 20.00  QZD-UD 0.45  361 19.55  20   3.5%  9.3%
LNG    17.19  SEP 15.00  LNG-UC 0.30  210 14.70  20   3.1%  9.2%
ATI    18.75  SEP 17.50  ATI-UW 0.40  138 17.10  20   3.6%  9.1%
MYGN   16.01  SEP 15.00  GSQ-UC 0.30   29 14.70  20   3.1%  8.0%
WNC    27.02  SEP 25.00  WNC-UE 0.40  205 24.60  20   2.5%  6.6%
ICOS   26.64  SEP 25.00  IIQ-UE 0.40  205 24.60  20   2.5%  6.5%
DBEIQ  27.88  SEP 25.00  GEU-UE 0.30    0 24.70  20   1.8%  5.3%

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.
_________________________________________________________________

PSRC - Palmsource  $24.40  *** Rally Mode! ***

PalmSource (NASDAQ:PSRC) is a developer and licensor of software
that enables mobile information devices.  The company's platform
consists of the Palm operating system and software development
tools that mobile information device manufacturers use to design
products from PalmSource's unique platform.  PalmSource has also
extended its platform with new applications such as information
management software, Web browsers and e-mail.

PSRC - Palmsource  $24.40

SEP 20.00 MQS-UX LB=0.65 OI=4 CB=19.35 DE=20 TY=5.1% MY=16.4%


_________________________________________________________________

LCAV - LCA-Vision  $24.60  *** Upgrade = Rally! ***

LCA-Vision (NASDAQ:LCAV) is a developer and operator of laser
vision correction centers under the brand name LasikPlus.  The
firm's vision centers provide the staff, facilities, equipment
and support services for performing laser vision corrections
that employ laser technologies to help correct nearsightedness,
farsightedness and astigmatism.  LCA uses fixed-site excimer
lasers manufactured by Bausch & Lomb, VISX and Alcon and its
vision centers are supported by full-time, board-certified
ophthalmologists and optometrists, as well as other healthcare
professionals.

LCAV - LCA-Vision  $24.60

SEP 22.50 JVQ-UX LB=0.55 OI=93 CB=21.95 DE=20 TY=3.8% MY=10.1%


_________________________________________________________________

DITC - Ditech Communications  $21.84  *** Solid Earnings! ***

Ditech Communications (NASDAQ:DITC) is a global telecom equipment
supplier for voice networks.  The firm's voice-processing products
focus on echo cancellers, used to eliminate echo, a common problem
in existing and emerging voice networks.  The company's newest
voice-processing products not only provide customers with the
traditional echo cancellation features, but also can be used to
provide voice quality assurance features that address issues, such
as background noise and other voice quality issues in wireline and
wireless communications.  The company's earnings report is due on
August 24, 2004.

DITC - Ditech Communications  $21.84

SEP 20.00 QZD-UD LB=0.45 OI=361 CB=19.55 DE=20 TY=3.5% MY=9.3%


_________________________________________________________________

LNG - Cheniere Energy  $17.19  *** Energy Sector ***

Cheniere Energy (NYSE:LNG) is engaged in the development of
liquefied natural gas receiving and related opportunities,
centered on the United States Gulf Coast.  The LNG-receiving
terminal business consists of receiving deliveries of LNG
from LNG ships, processing such LNG to return it to a gaseous
state and delivering it to pipelines for transportation to
purchasers.  The company is also engaged in exploration for
oil and gas, as well as development and exploitation of major
reserves, in the Gulf of Mexico.

LNG - Cheniere Energy  $17.19

SEP 15.00 LNG-UC LB=0.30 OI=210 CB=14.70 DE=20 TY=3.1% MY=9.2%


_________________________________________________________________

ATI - Allegheny Tech.  $18.75  *** Basic Materials Demand! ***

Allegheny Technologies (NYSE:ATI) is a diversified producer of
specialty materials.  The company operates in three business
segments: flat-rolled products, high-performance metals and
industrial products.  Their products include stainless steel,
nickel-based alloys and super-alloys and titanium and other
specialty materials.  The industrial products segment's focus
is producing tungsten powder, tungsten carbide materials and
carbide cutting tools.

ATI - Allegheny Technologies  $18.75

SEP 17.50 ATI-UW LB=0.40 OI=138 CB=17.10 DE=20 TY=3.6% MY=9.1%


_________________________________________________________________

MYGN - Myriad Genetics  $16.01  *** Flurizan Speculation ***

Myriad Genetics (NASDAQ:MYGN) is a biopharmaceutical company
focused on the development of novel therapeutic products and
the development and marketing of predictive medicine products.
The company's researchers have made important discoveries in
the fields of cancer, Alzheimer's disease, viral diseases (such
as HIV), depression and obesity.  Flurizan, the company's lead
therapeutic candidate for the treatment of prostate cancer, is
in a large, multi-center human clinical trial.  Myriad is also
conducting a Phase I human clinical trial for the evaluation of
Flurizan for the treatment of Alzheimer's disease.

MYGN - Myriad Genetics  $16.01

SEP 15.00 GSQ-UC LB=0.30 OI=29 CB=14.70 DE=20 TY=3.1% MY=8.0%


_________________________________________________________________

WNC - Wabash National  $27.02  *** In A Trading Range? ***

Wabash National (NYSE:WNC) designs, manufactures and markets
standard and customized truck trailers and intermodal equipment
under a number of trademarks.  The company's subsidiary, Wabash
National Trailer Centers, sells new and used trailers through
its retail network and offers aftermarket parts and maintenance
service for the company's and competitors' trailers and related
equipment.  Wabash markets its equipment to common carriers,
leasing companies, private fleet carriers and package carriers.

WNC - Wabash National  $27.02

SEP 25.00 WNC-UE LB=0.40 OI=205 CB=24.60 DE=20 TY=2.5% MY=6.6%


_________________________________________________________________

ICOS - Icos Corporation  $26.64  *** Bottom-Fishing Only! ***

ICOS Corporation (NASDAQ:ICOS) is a biotechnology firm bringing
therapeutic products to patients.  The company is marketing its
first product, Cialis, for the treatment of erectile dysfunction,
through Lilly ICOS LLC, its joint venture with Eli Lilly and
Company.  Cialis is an oral inhibitor of the phosphodiesterase
type 5 enzyme (PDE5) and is being manufactured and marketed by
Lilly ICOS, which has rights to commercialize Cialis in North
America and Europe.  Research and Development activities include
studying and developing product candidates targeting a variety
of serious diseases and medical conditions.

ICOS - Icos Corporation  $26.64

SEP 25.00 IIQ-UE LB=0.40 OI=205 CB=24.60 DE=20 TY=2.5% MY=6.5%


_________________________________________________________________

BEIQ - BEI Technologies  $27.88  *** Uptrend Intact! ***

BEI Technologies (NASDAQ:BEIQ) designs, manufactures and sells
electronic devices that provide sensory input and actuation for
control systems of advanced machinery and automation systems.
Sensors designed and manufactured by BEI Technologies, most of
which are concerned with physical motion, provide information
that is essential to logical, safe and efficient operation of
sophisticated machinery.  The firm also develops and produces
motors and actuators for high-performance machinery.

BEIQ - BEI Technologies  $27.88

SEP 25.00 GEU-UE LB=0.30 OI=0 CB=24.70 DE=20 TY=1.8% MY=5.3%



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

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.

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

ASKJ - Ask Jeeves  $26.58  *** Premium-Selling Only! ***

Ask Jeeves (NASDAQ:ASKJ) offers an advanced Internet search
technology to the public through advertiser-supported sites
on the Web.  It operates four Websites dedicated to search:
Ask.com, Ask.co.uk, Teoma.com and AJKids.com.  On its main
websites, Ask.com in the United States and Ask.co.uk in the
United Kingdom, users submit their search requests, and the
company's algorithmic search technology, Teoma, delivers a
results list of Web pages likely to contain relevant and
authoritative answers.  Ask Jeeves also syndicates its search
technology and advertising products to third-party websites,
including portals, infomediaries and content and destination
websites.

ASKJ - Ask Jeeves  $26.58

PLAY (sell naked call):

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

SELL CALL  SEP 30    AUK-IF    6122   0.35  30.35   7.0%   1.2%


_________________________________________________________________

PSFT - PeopleSoft  $17.46  *** Oracle Buyout Speculation! ***

PeopleSoft (NASDAQ:PSFT) designs, develops, sells and supports
enterprise application software products for use in large and
medium-sized organizations worldwide.  The company provides
enterprise application software for customer relationship
management, human capital management, financial management and
supply chain management, each with a range of industry-specific
features and functions.  Within each of its application suites,
it offers embedded analytics and portal applications.  The firm
also offers a suite of products for application integration and
analytic capability.

PSFT - PeopleSoft  $17.46

PLAY (sell naked call):

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

SELL CALL  SEP 20    PQO-ID    109    0.35  20.35  11.1%   1.7%


_________________________________________________________________

RSTI - Rofin-Sinar Tech.  $27.46  *** Volatility = Premium! ***

Rofin-Sinar Technologies (NASDAQ:RSTI) designs, develops, makes
and markets laser-based products, primarily used for cutting,
welding and marking a range of materials.  The company offers
its customers CO2, solid state and diode laser sources and
solutions in a variety of configurations and options.  Its
lasers all deliver a high-quality beam at guaranteed power
outputs and feature compact design, high processing speed,
flexibility, low operating and maintenance costs and easy
integration into the customer's production process.

RSTI - Rofin-Sinar Tech.  $27.46

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    QRT-IF      4    0.65  30.65  10.9%   2.1%



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

SEE DISCLAIMER - SECTION 1

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



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