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Daily Newsletter, Sunday, 09/05/2004

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The Option Investor Newsletter                   Sunday 09-05-2004
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: OK, Now What
Futures Wrap: See Note
Index Trader Wrap:  TIME OUT
Editor's Plays:  Google This!
Market Sentiment: Buckle Your Seat Belts
Ask the Analyst: Have fun, make money, and let the trade come to you!
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 9-03         WE 8-27         WE 8-20         WE 8-13 
DOW    10260.20 + 65.19 10195.0 + 84.91 10110.1 +284.79 + 10.02 
Nasdaq  1844.48 - 17.61 1862.09 + 31.07 1831.02 + 73.80 – 19.67 
S&P-100  541.06 +  0.18  540.88 +  4.84  536.04 + 15.32 -  1.11 
S&P-500 1113.63 +  5.86 1107.77 +  9.42 1098.35 + 33.55 +  0.83 
W5000  10820.88 + 65.86 10755.0 +106.22 10648.8 +344.09 -  3.18 
SOX      357.84 - 24.50  382.34 -  3.66  386.00 + 19.35 – 20.23 
RUT      556.24 +  4.57  551.67 +  3.75  547.92 + 30.53 -  2.26 
TRAN    3141.85 + 33.05 3108.80 + 17.93 3090.87 +123.95 +  0.84
******************************************************************

OK, Now What
by Jim Brown

The conventions are over and the Olympics have ended. 
The biggest event risks for the year have passed. The 
Jobs report is history and the dog days of summer have
turned into crisp clear days of fall. We are two thirds
done with the third quarter and a full two months remain
before the election. The markets are finally free to 
trade on their fundamentals. Now there is some real 
event risk!

Dow Chart - Daily

Nasdaq Chart - Daily


There were only two economic reports on Friday and the
biggest report was the Jobs number. The headline number
of +144,000 jobs was only slightly less than expected 
and actually surprised quite a few analysts. The July
numbers were revised up from 32K to 73K and the June
number was revised up from 78K to 96K. Including the
revisions this amounted to a net gain of +203,000 jobs.
Traders were more stunned than excited and you got the
feeling nobody believed it. The unemployment rate fell
to 5.4% but it was due to a reduction in the labor 
force rather than more people finding jobs. The number
of workers actually employed rose only a very weak 
+21,000 compared to the +629,000 gain in July. 

The revisions to the two prior months suggests Greenspan's
soft patch was not as soft as previously expected. The
Fed kept telling us jobs were being created yet traders
remained skeptical. The muted reaction on Friday may have
appeared to be continued disbelief but I believe it was
just very light pre holiday volume instead. With summer
over the jobs risk should diminish. The ramp up for the
holidays as well as the normal seasonal hiring bounce
should continue to give us positive numbers until spring.
This August gain will insure another Fed rate hike on 
the 21st. The Fed Funds Futures had been showing the
potential for only a 1.75% rate by year end but after
this report they immediately jumped back to a full 2.0%
by the Dec-14th meeting. 

More disconcerting than the Jobs report was the ISM
Services report that posted a headline number of 58.2
and a drop from last months 64.8. This was well below
the consensus estimates of 62.9 and twice in the last
three months that we have dipped below 60. Considering
the services sector was thought to be bullet proof this
is a disturbing drop. New Orders fell to 58.6 from 66.4
while most of the other components remained stable. 
This could be just a seasonal summer lull and the Sept
report will be scrutinized carefully for further signs
of weakness. Our economy may actually have reached self
sustaining status but it may be to soon to push the
life support equipment out into the hall. The economy
is breathing on its own but not yet ready to climb the
wall of worry ahead. 

There are no material economic reports next week until
Friday's PPI. Lots of small ones but they should not
impact the market. Of more concern to us is the coming
earnings warning season. The warning season should 
begin in earnest the week of the 13th but as you may
have noticed we have seen quite a few already and the
pace is accelerating. 

The Intel news was mostly trumped by the positive Jobs
report but the SOX still managed to drop -5% intraday
to 357. Intel opened at $20 and held that level most
of the day. Adding to the SOX decline was warnings from
Cypress Semi and 3Com. CY fell to a new 52-week low 
after saying weak demand and soft customer orders would
cause them to miss prior estimates. CY said they would
earn in the range of 11 cents where analysts had been
expecting 26 cents. That is some serious order weakness.

3Com, a competitor to Cisco and Juniper, cut its forecast
and reversed its prior guidance. In June the CEO had said
conditions were improving and gave revenue estimates of
$183 million for the quarter. They now expect revenue of
only $160-$164 million. This is another serious change 
in outlook. They also said margins would be lower than
expected. 

EFII warned on Friday that profit and revenue would fall
short of analyst estimates. EFII now projects earnings 
in the range of 12-14 cents. Analysts were expecting 26
cents. EFII fell -4.30 to $16.30 in heavy volume. 

On Thursday IDTI warned and that suggests we could see
a warning from PMCS. They have the same customers and 
address much of the same markets. With the Intel warning
of a reduction in capex spending we could see warnings
from AMAT and others in the chip equipment business. 
The dominos are lined up could begin falling soon. 

The coming weeks have not been kind to the markets in
the past. In fact Friday was the anniversary of the Dow's
high in 1929 when it topped out at 380. We all know the
history of the market and the ensuing crash. The Dow
retraced -89% of its height to reach a whopping low of
42 on July-8th 1932. It took more than 25 years for the
Dow to reach the 380 level once again. Most of us were
too young to have been traders back then but imagine 
an 89% drop. Just to return to the prior level requires
a 900% gain. 

There is nothing in the cards to suggest we will see a
drop of that magnitude again in this decade but there
is always a chance of a correction in our future. 
Despite putting all the summer event risk behind us
we may see a different market when traders return from
vacation next week. There are many conflicting conditions
that should provide an active market over the next four
months. It should be directional although not always
in the same directional. The potential for a flat and
boring market is very slim. 

There are huge amounts of money waiting patiently on
the sidelines. According to some analysts cash could
be at record levels for recent times. This should keep
a bid under the market until the election although we
may not see it immediately. Corporate earnings are 
rising although comps are declining. That means we
are seeing an increase in profits on a quarterly basis
but that rate of increase is just lower than the same
quarter last year. This is one major cause of the 
current flurry of warnings. Is it bad if your earnings
only increased +15% in Q3 this year compared to +20%
in Q3 last year? Last year we saw nearly $100 billion
in tax rebate cash hit the retail sector and that sent
a ripple of profit through the economy. Remember the
GDP was up +7.4% last Q3 and we are going to have to
struggle to hit +3% this year. Bottom line I do not
feel that a lower rate of profits is a material reason
not to buy stocks as long as profits are increasing
overall. 

However, we often talk about PE compression and that 
is what we may have ahead of us. This means stocks 
are priced for a specific PE ratio, say 20, based on
their expected 2004 earnings. Sometimes it is based 
on 2005 or even 2006 earnings at this point on the 
calendar. This PE ratio assumes an historical rate
of growth. The strong Q3-Q4 profits last year have
skewed that historical PE ratio to a higher than 
normal ratio. Once the warnings begin to appear on
a broader basis there will be PE compression cycle
where stocks still racing ahead will attract investors
and those slowing will lose investors. Why am I going
through this lengthy discussion today? Because 
September and October are typically when this rapid
PE compression takes place. 

Summer months tend to drag on earnings and this puts
a higher number of earnings warnings into Sept and 
earnings misses into October. This is the period where
mutual funds tend to shuffle the deck and discard the
names out of favor and add those names currently on
fire. For the market Sept/Oct is a big garage sale,
or yard sale as you would say in some parts of the 
country. Once the portfolio has been swept clean and
the sectors balanced neatly on the shelves the managers
go shopping to fill those blank spots in the pantry.

This is not a bad thing for the markets it is just how
they work. If you are a gardener it is similar to a
pruning. I know each year my fence of climbing roses
tends to look pretty straggly by October. Those limbs
that ran wild can be 5-6 feet long and ready to snag
anyone that walks by. If I don't prune them back to 
the same level as the rest they will be laying on the
ground next spring and the entire bush will suffer. 
To put this in perspective funds are preparing their
list now of those stocks that have run away from the
market and may be overextended or they just have too
much cash/profit tied up for the expected growth ahead.
They need to prune these fast growers and invest in
some more plants to expand their garden. This decreases
their risk by reallocating the cash and gives them a
wider exposure to future fast growers. 

While the Sept/Oct decline does not always happen the
potential is very strong. Everyone remembers the rally
in 2003 where the market exploded off the lows in March
and never looked back until February of this year. Well
that may not be exactly correct. Even in the middle of
that very strong directional move September had two
significant dips and one in October. The Dow reached
a high of 9609 on Sept-4th and dropped -240 points to
9380 on the 12th. It rallied again to a high of 9686
on the 19th but then dropped -456 points to a lower 
low of 9230 on the 30th. The first two weeks of October
saw a strong rebound of +620 points to 9850 on Oct-15th.
The damage was not over with a -350 point drop over the
next six days to 9497. 

I recapped those moves to prove a point. We were in 
the midst of a very bullish period in the market and
the Dow managed to move 1666 points in four direction 
changes over the two month period but only finished 
+278 points higher on Oct-30th than where it closed 
on Sep-2nd. 

The point I am trying to make is that regardless of
your market bias, bullish or bearish, we are entering 
a period where volatility reigns. About the only
guarantee we have is the promise of a post election
bounce in Nov/Dec. That potential bounce is a historical
trend and should keep the real bears at bay. Remember
the overriding market imperative for the next couple
months is to be fully invested by Halloween. If you
agree with that then you should have ample opportunity
to initiate positions over the next six weeks. I say
six weeks because the elections give us a target date
for the move and we know the majority of funds will
not wait until the last minute. They will be moving 
quickly over the next 4-6 weeks to shuffle their 
portfolios and get ready for a typical year end rally.

This also suggests the selling could accelerate into
September. The key here is the earnings warnings. This
is what institutional investors are looking for to 
give them the final clues as to what to dump and what
to keep. The roadmap is clear today only there are no
cars yet on the road. Traffic should pickup significantly
next week. 

The Dow appears perfectly poised for the next two months
of activity. The recent rebound took it back to very near
the downtrend resistance since February. The Dow closed
at 10260 on Friday and that downtrend resistance is
lurking just below 10350. If we do get the historical
post Labor Day bounce then 10350 would be well within
range. 

The Nasdaq is the weakest link here with the Intel news
knocking it back to 1845. Strong resistance is currently
1890-1900 and with the chip weakness it would take a
major reversal to get us back to test that resistance. 

SOX Chart - Daily


The SOX is the anchor holding the market down and it
may not be long before we begin springing other leaks.
The SOX set a new 52-week low today with a close at
357.91 and is very close to my target from last week 
of 342-350 for decent support. With every broker on
the planet negative on chips it may be about time to
pick some up. I think that thought process will start
to appear once we break that 350 level. Should conditions
worsen there is risk to 300 but I think there is too
much money on the sidelines for that to happen in 2004.

So what now? Traders should look for a potential bump
next week on event risk relief and then the bears may
begin their fall feast. For long-term investors I would
look for stocks I really want to own and start staging
orders at levels you would be comfortable owning the
stock. I did not say levels where you think they would
bottom because unless you have very accurate crystal
ball nobody knows those numbers. We need to pick entry
points where we would be comfortable owning the stock
or option for the next several months. For instance I
would love to see EBAY pull back to its 200dma at
$74 but with it currently ay $89 I am not holding my
breath. To knock EBAY back that far the market would
have to suffer a major retracement and I don't see it.

Next week get out your shopping list and get ready for
the blue light special to appear soon. Those of you 
that go both ways should look at any post Labor Day 
bounce as an opportunity to unload the dead wood. Get 
ready to add a few put options to keep that adrenaline
flowing while we wait for the bears to finish feasting
and go into hibernation. Have a great weekend!

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

TIME OUT 
By Leigh Stevens
lstevens@OptionInvestor.com 

THE BOTTOM LINE – 
The S&P 500 (SPX), at 1120 and the Dow 30 (INDU) in the 10,300 
area, have met my upside objectives for now. While SPX could 
still reach the 1029-1030 area and the Dow 10,350 or so, the 
rally potential looks limited with the latest tech wreck and the 
most recent rebound in crude oil prices [and the OIX: Oil Index].

While the market is nearing an overbought extreme, another rally 
to slight new highs would be pointed to by the fact that bullish 
conviction among traders has been fickle.  As soon as the recent 
rally faded, call activity slowed down significantly.   

The Nasdaq is hurting and rallies are weak with key tech stocks 
getting battered of late. Nothing robust, like the NYSE indices. 
With Microsoft (MSFT), Cisco Systems (CSCO) and especially Intel 
(INTC) with bearish chart patterns, I don't see how the rest of 
the market chugs higher ignoring this.  

In terms of the Nasdaq 100 Index (NDX) my upside target was met 
on the recent move to the 1400 area, with only an outside chance 
of hitting 1410. QQQ is only barely hanging about 34, where it 
should be above to suggest another re-try for 35. Volume patterns 
show some of feign signs of accumulation of the stock however.   

FRIDAY'S TRADING ACTIVITY – 


THE NUMBERS – 

The Standard & Poor 500 (SPX) fell 4.7 points (-0.4%), to 1,113.63 
Friday, but was up 0.5% for the week. 

The Dow Average (INDU) had four of its 30 stocks up enough to keep the 
fall a bit less than the broader market: Boeing (BA), Exxon Mobil 
(XOM), Procter and Gamble (PG) and Verizon (VZ) all going to new 52-
week highs during the session.  The Dow Average ended down 30 points  
or -0.3% to 10,260.2 - for the week however the Dow was up a fraction 
of a percent (+0.6%), marking a 4th consecutive week its been higher.

The tech-heavy Nasdaq Composite (COMP) fell 28.9 points for a loss of 
fully 1.5%, to close at 1,844.48. For the week, COMP was down 1%.

REPORTS & ECONOMIC NEWS – 

In what might have, on another day, helped trigger a rally, 
August non-farm payrolls rose 144,000 and were in line with 
projections, snapping back after 2 months of disappointing 
numbers. Payroll growth for June and July were also revised 
upwards. 

Of interest to Presidents and the public was that the U.S. 
unemployment rate fell to its lowest level in 3 years. It was 
also pointed out that most of the unemployment decline was due to 
the number of job seekers who stopped looking. Hey, put that into 
a 30-second sound bite – NOT! The Labor Department estimated the 
unemployment rate fell by a tenth of a percent to 5.4%, the 
lowest since October '01. 

STOCK SHOCK – 
Moving the market down from the opening was Intel (INTC) falling  
sharply - some 7% on the opening - after the giant chip making 
company cut its Q3 revenue estimate to $8.3 to $8.6 billion, from 
a range of $8.6 – 9.2. The company cut its gross margins target 
to 58% from 60. 

In its mid-quarter update, the 800-pound gorilla/Silicone valley 
based chipmaker also said its chip inventory would increase again 
instead of remaining flat. 

Some analysts, following the stock for their Wall Street 
clientele, promptly lowered their forecasts in reaction to this 
update. Others kept a bullish recommendation on Intel, saying 
valuation levels were getting attractive. 

Disappointment wasn't limited to Intel, as Altera, Cypress 
Semiconductor and Integrated Device Technology also lowered their 
outlooks. Altera (ALTR) said it expects Q3 sales to come in below 
its prior predictions. Cypress (CY) also dropped its Q3 earnings 
forecast and expected a decline in revenue 5-10% below its second 
quarter. Integrated Device (IDTI) joined the bandwagon, saying 
that it expected next quarterly revenues to be down as much as 5% 
from its last quarter. 

Hell hath no fury like a tech investor scorned - Altera fell 
6.6%, Cypress 8.9% and Integrated Device by 5.6%.

The Institute for Supply Management reported that its key index 
fell to 58.2 percent from 64.8 percent in July, indicating a 
slower economic expansion. This wasn't such great news but the 
corker was Intel raining on the market scene!

OTHER MARKETS –

Treasury bond prices fell after the jobs date in a light volume 
and shortened session, with the benchmark 10-year note closing 
down 18/32 at 99 24/32, as its yield climbed to 4.28 percent. 

The non-farm payroll number was seen as being strong enough to 
keep the Federal Reserve on a path of measured rate hikes, 
including an anticipated quarter percent point rate hike at their 
Sept. 21 meeting.

The U.S. dollar rallied in the wake of the U.S. jobs report. The 
buck rose 0.9% against the Japanese Yen to 110.46, and 0.9 
percent versus the euro, reaching $1.2058.


MY INDEX OUTLOOKS – 

S&P 500 Index (SPX) – Daily chart:

The S&P 500 hit my second level resistance in the 1120 area and 
then retreated. A move to as high as 1130, back to the top end of 
the current downtrend channel can't be ruled out, but that would 
be my most bullish expectation.  A close above 1130 would suggest 
a possible new up leg however. 

Near support is at 1100, then 1090 marked by the green up arrows 
on the SPX chart below. 1090 is my guess at key support, at the 
21-day moving average.  If the 21-day average does mark support, 
a move back up toward the upper trading band or envelop is 
suggested – otherwise, usually, Fagidaboutit!  

I suggest playing the downside potential here by buying puts in 
the case of a further advance such as and especially to 1130 – 
from there downside potential is back down 1100-1090 at least. If 
1090/1100 is seen first, I'll be evaluating a call buy in this 
area for a trade.         



What is common at tops of significance is a more bullish call to 
put reading than what has registered this past week. Ability to 
rally to new highs around estimated resistance at 1130, could 
cause such a build up of bullish sentiment – stay tuned on that! 
If the index dips first, the next extreme on my above call/put 
indicator should be a bullish reading.

S&P 100 Index (OEX) – Hourly chart:

If the OEX can hold 540 and rally, there may yet be a test of my 
anticipated technical resistance around 545; a stronger selling 
interest should come on any rally toward that prior top formation 
– that's the reason for the highest (red) down arrow that is 
shown on the chart below, at just under 550 – 

If another rally develops first from the 540 area, without much 
of a further decline, a put buy is suggested between 545 and 549-
550. If there's no move to a new high and a decline comes from 
here, 535, around that prior low hourly close, is key technical 
support – below that, I don't see much technical support before 
the 528 area.   



We haven't seen the pattern for some time of multiple touches to 
an overbought reading on the RSI (length: 21). The RSI has been 
showing an overbought extreme on and off but I remind myself and 
other traders often that markets can stay at extremes for some 
time; eventually it does suggest an Index top for a time. 

Dow 30 (INDU) – Daily chart:

I figured resistance at around what the Dow got to per the way 
the downtrend channel is highlighted on the daily chart – 

A move back up to the downtrend line shown at around 10,350, 
without much upside follow through, suggests a put play. A close 
above 10,350 I'd consider a breakout move, where I'd then be 
looking at the prior rally highs for a possible re-test of its 
June peak around 10,490.     

Near support is at 10,100, with next lower support at around 
9950. I know 10,000 gets some attention but on the last decline 
the Dow was under there by nearly a 100 points.  



The Stochastic on the daily Dow chart above is at a typical 
overbought extreme - it will be interesting to see if it hangs up 
in this area like the last peak in June.  The overarching 
consideration is price action – if we continue to have a pattern 
of declining rally highs and a lower lows, it's the definition of 
a downtrend. 
 
Nasdaq Composite (COMP) Index  – Daily:

The anemic rally of the past week didn't get near challenging the 
prior closing high at 1892, and the Composite promptly headed 
back down toward 1840 – well almost. The weakness in COMP was not 
surprising given the weakness in the Semiconductor stocks, led by 
the sharp break in Intel (INTC). The Semiconductor Index (SOX) 
fell to a new low below 360.

The RSI indicator is not quite into overbought territory.  My 
other key indicators are trending lower especially Nasdaq daily 
up volume totals. I will be keying off the ability of the COMP to 
hold 1840, or not, as a clue for which way on the next move. 
The recent rally attempts are lackluster so far -    



  
Nasdaq 100 (NDX) Index  – Daily:

I figured 1410 as resistance, starting around 1400, where the Nas 
100 (NDX) got to this past week. It's hard to figure where NDX 
goes next.  The 1400 area seems key. 

I'm watching the 1350 area on the downside, at the 21-day moving 
average.  A decline to below the 21-day average is most often 
followed by a fall toward the lower trading envelope line, 
suggesting we might see a re-test of the 1300 support area.    

Stay tuned for a breakout in either direction as the way to be 
trading NDX.  What would attract me for a next trade is a 
continued rally approaching 1420 – if this unfolded I will be 
looking at buying puts, with a close above 1425 as my exit point.



Buying calls in the 1340-1350 area is a possible trade, but would 
want to see how the market was then to believe it.  This market 
has just been too weak to want to play the upside except 
selectively; e.g., calls bought in the 1300 saw a 100-point 
rebound follow. 

Nasdaq 100 tracking Stock (QQQ) Daily:

QQQ remains quite weak or bearish in its technical pattern if it 
can't even mount a rally to 35 and above.  Those buyers are quick 
to get gone – tech is just too weak.  

If QQQ stays above 33.7 – 34 we could see a second up move to 
higher levels than last week. The key if is whether 35 gets 
pierced and QQQ stayed above this level – if so a rally toward 36 
could still happen. And, if so, put purchases and/or shorting the 
stock looks warranted at 35.7 – 36. 



The glimmer that another rally could get going is that the On 
Balance Indicator (OBV) is chugging higher against an overall 
downtrend in volume.  Volume has been light for the past month -  
we'll see what gives after Labor Day.  Maybe the stocks are 
getting "cheap" but they can get cheaper still!    

Good Trading Success!


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

Google This!

Looking good from my viewpoint on the Google puts from
last week. The play was profiled at $106 and we closed
on Friday at $100. The March $100 put was profiled at
$11.90 and it closed Friday at $14.00 and we are just
getting started. 

The first lockup period passed and an additional 4.5M
shares were free to trade and the stock dropped as 
they hit the market. The first lockup release on Thr
was minor compared to the next one coming in mid
November for 39 million shares. That will more than
double the current 30 million shares in the market.

This was a long-term play planned on capturing all
the lockups between now and next February when all
260 million additional shares will have been released
to trade. So far, so good. I am sure there is still
some hope that investors will flock to the new IPO
and push the prices higher than the $100 close on
Friday. As that hope fades and any Sept/Oct volatility
appears we could see some exciting times ahead. We
will get to see two quarterly earnings cycles as well
and that space is getting really crowded. Should be 
fun. 

Google Chart


September Weakness Ahead?

While there may be a post Labor Day rally if historical
trends repeat, it may not be lasting and it could just
be a springboard for the fall correction. I had originally
wanted to enter a play on the SOX using the SMH but the
Intel news has already pushed the SOX to new 52-week lows.
I hate to jump on the ride when it is so close to the end.
Obviously I have no crystal ball and it could run all the
way to 300 but I suspect the 342-350 range could provide
significant support. Therefore I am passing on the SMH.

With the Dow rally to two-month highs I think we are 
looking at something near a potential September high. 
I would target 10350 as strong down trend resistance 
that may be hard to break. 

I think any drop could come quickly and I am going to 
suggest using September puts to play a potential Dow
decline. 

The DJX Sept-102 put is only 65 cents today with the Dow
at 102.67 in DJX terms. We could easily return to 10100
or lower before the September options expire. Should
you want more time the October 102 puts are only $1.40.

I want to buy one contract on Tuesday at the open. Buy
one contract with any bounce to 10300 and another on
any bounce to 10350. Obviously you can multiply those
one contract increments by any number you wish. If we
get the right fills we should end up with a cost basis
of about 50 cents and we are going to target $1.00 for
an exit. The stop loss will be 10400 but I doubt they
will be worth much if that level is reached. 

Buy Sept $102 DJX Put DJV-UX currently 65 cents. 


DJX Chart - 120 min


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

PVN Call Update $14.71

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

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

NWS Leaps have been moved to the LEAPs section


****************
MARKET SENTIMENT
****************
Buckle Your Seat Belts
- J. Brown

Hold on tight!  Summer is over.  Mom and dad are happy the kids 
are back in school.  Corporate America is happy the third quarter 
is moving into the home stretch and they can look forward to 
historically stronger fourth quarter/Christmas shopping season.  
Wall Street is happy because the big traders should all be back 
from vacation and ready to do some investing.  But if you read 
the market wrap this weekend Wall Street firms and money managers 
are probably going to do some house cleaning first.  

The third quarter is typically the weakest time of year and this 
produces a higher number of earnings warnings (that begin in two 
weeks - actually considering this week it feels like they've 
already begun) and a higher number of earnings misses when the 
reporting season begins in October.  It's no coincidence that 
September is the worst month of the year for stocks and the first 
two weeks of October can be very bearish too.  

Everyone in the investment world knows that September is 
historically bearish and commercial traders are lining up to 
profit from it.  The action in the S&P e-mini contracts (see 
below) saw short interest soar producing the most bearish reading 
in weeks.  Now consider the following:  The Dow Industrials and 
the S&P 500 are both up four weeks in a row.  The VIX and VXO are 
both back to their lows near 14, which has typically signaled a 
new short-term market top.  Add it all together (historically 
weak September, stocks up for four weeks, VIX at bearish reversal 
levels) and we have a perfect recipe for a significant downturn.  

Now we don't have any guarantees that stocks are going to turn 
south soon but it sure looks like it.  However, this year we have 
a couple of wild cards that can and will influence direction and 
the speed of any ascent/descent.  Crude oil will continue to be a 
major factor in the markets.  Yet the real wild card is the 
November elections.  This column has already mentioned the idea 
that the markets don't like uncertainty and prefer to see the 
incumbent win.  Considering Bush's recent lead over Kerry in the 
polls this should be bullish for stocks.  While this might not 
prevent any September sell-off it may lessen the sting a bit. 

Looking ahead the shortened holiday week is full of economic 
reports but the headliners are likely to be Greenspan's 
appearance before the House Budget committee and the PPI report 
on Friday.  Look for a lot of action on Tuesday when the U.S. 
markets open again.  The day after Labor Day has been up 7 out of 
the last 9 years.  We could see stocks tick higher again and we 
can use it as a chance to do some profit taking on our long plays 
while also trying to snag a better entry on our new bearish 
plays.


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

Market Averages

DJIA ($INDU)



52-week High: 10753
52-week Low :  9230
Current     : 10260

Moving Averages:
(Simple)

 10-dma: 10175
 50-dma: 10125
200-dma: 10264



S&P 500 ($SPX)



\52-week High: 1163
52-week Low :  990
Current     : 1113

Moving Averages:
(Simple)

 10-dma: 1105
 50-dma: 1101
200-dma: 1112



Nasdaq-100 ($NDX)



52-week High: 1559
52-week Low : 1301
Current     : 1371

Moving Averages:
(Simple)

 10-dma: 1378
 50-dma: 1394
200-dma: 1440


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

CBOE Market Volatility Index (VIX) = 13.91 –0.37
CBOE Mkt Volatility old VIX  (VXO) = 13.90 -0.47
Nasdaq Volatility Index (VXN)      = 21.06 -0.56


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

          Put/Call Ratio  Call Volume   Put Volume

Total          1.03        460,669       472,480
Equity Only    0.78        331,306       260,532
OEX            1.22         19,510        23,817
QQQ            7.79          5,721        44,569


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

Bullish Percent Data

           Current   Change   Status
NYSE          57.2    + 0     Bear Confirmed
NASDAQ-100    38.0    + 2     Bull Alert      
Dow Indust.   53.3    + 0     Bear Confirmed
S&P 500       54.4    + 0     Bear Correction
S&P 100       54.0    + 0     Bear Correction


Bullish percent measures the number of stocks in an index 
currently trading on a buy signal on their point and figure 
chart.  Readings above 70 are considered overbought, and readings 
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend


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

 5-dma: 1.46
10-dma: 1.21
21-dma: 1.19
55-dma: 1.28


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    1169      1108
Decliners    1607      1802

New Highs     148        46
New Lows       15        36

Up Volume    450M      166M
Down Vol.    663M     1059M

Total Vol.  1130M     1236M
M = millions


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

Commitments Of Traders Report: 08/31/04

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

The latest data shows commercial traders reducing their short
positions just a tad.  They remain net bearish by only by a 
small margin.  Retail traders have upped both their longs and
shorts and the net result has been a reduction in their 
bullish enthusiasm.

Commercials   Long      Short      Net     % Of OI
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%)
08/31/04      406,637   416,778   (10,141)   (1.2%)

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
08/10/04      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%
08/31/04      144,120   114,343    29,777    11.5%

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


E-MINI S&P 500

Wow!  We're seeing some action in the e-minis.  Commercial
traders or "smart money" has really upped their shorts while
reducing their longs.  This has produced the most bearish 
reading in a long time.  Without missing a cue the retail
traders have upped their longs to produce the most bullish 
reading in a while.  

Commercials   Long      Short      Net     % Of OI 
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%)
08/31/04      372,071   543,100   (171,029)  (18.7%)

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
08/10/04      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%
08/31/04      258,624     77,036   181,588    54.0%

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 appear to be happy to sit still in the
NDX futures but small traders have increased their long 
positions.

Commercials   Long      Short      Net     % of OI 
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%
08/31/04       48,167     43,411     4,756    5.2%

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
08/10/04       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%
08/31/04       14,635    10,572     4,063    16.1%

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

Traders don't seem very willing to change their bets on 
the Industrials.  Neither the commercials or the small traders
are shifting any money around.

Commercials   Long      Short      Net     % of OI
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%
08/31/04       29,143    24,147    4,996       9.3%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
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%)
08/31/04        4,929     7,122   (2,193)   (18.2%)

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

Have fun, make money, and let the trade come to you!

Here's something I saw in this week's Market Monitor at 
OptionInvestor.com that I thought was rather silly at first, but 
after the market closed, I played around with it.

I don't know how fellow analyst Mark Davis found this, but he 
posted a link to a web page that has a fly swatter on the screen 
that you can move around and try and swat a bunch of mosquitoes 
that are flying around on it.

As I played around with this web page at 
http://www.shockhaber.com/zzzzzzzzzzzzzzz.htm
I started moving my mouse around, which controls the fly swatter 
and tried swatting the fast moving mosquitoes that were moving 
quickly across the screen.

After trying to swat the mosquitoes, which are small and fast 
moving at first, it took me about 5 or 6 left-clicks with my 
mouse button before I finally squished one.

Here, you try.  You MUST try.  There is a point to be made as it 
relates to entering a trade on a stock your are considering 
trading long, or selling short.

Swat the mosquito - (Screen Capture)



Think of the fast moving mosquitoes as a stock you are looking to 
trade, then think of the fly swatter as your mouse cursor and 
when you are ready to execute your trade and enter the position 
(initiate a long or short position).  Go ahead, try and swat the 
mosquitoes.

Now, I've always had pretty good hand-eye coordination, but when 
I first opened this web page, the mosquitoes were small, and fast 
moving.  I think it took me several tries before I actually 
swatted one of the mosquitoes.

So.... how did you do?  After 20 swats, how many mosquitoes did 
you squash?  Five?  Ten? Fifteen?  All twenty with twenty swats?

If you got 5 out of 20, then you scored 25%.

OK.... what do you notice as you play with this web page over 
time?  If you just sit there and do nothing, you'll notice that 
the mosquitoes start getting bigger, and they start moving 
slower.  They're easier to swat that way.

Hmmmmm..... I thought to myself.

This is kind of like trading stocks.  The more I sit and observe 
a stock, and how it trades, the more familiar I become with that 
stock.

I don't know about you, but while my trading is not 100% 
profitable all the time, have YOU ever noticed that you have a 
better feel for some stocks, or better trading success with a 
stock that you tend to follow on a regular basis?

Well, that's one thing I noticed.  There are a lot of things in 
life I associate with swatting mosquitoes, or flies.

Always looking to improve my trading, and mosquito swatting 
abilities, I began to think.

What if I don't "chase" the fast moving mosquitoes on the screen, 
but instead just leave my fly swatter in the middle of the 
screen, then wait for a mosquito to fly INTO the fly swatter and 
then right-click my mouse for execution.  Like "execute" that 
darned mosquito.

Swat the mosquito; Initiate your trade - (Screen Capture)



Instead of "chasing" the mosquitoes with your fly swatter, try 
leaving your swatter in one place.  Then when a mosquito flies 
INTO your swatter, like a stock will trade into your defined 
entry zone, then try swatting it and see if you get a good 
"execution."

Be patient, wait, and let the mosquitoes come to you!

Try this 20-times.  

Now what do you observe?

I observed that sometimes a mosquito came into the defined 
parameters of the swatter and "swat" I got one.

I observed that where my swatter was located, that one mosquito I 
wanted to swat kept flying the same pattern, and my swatter was 
nowhere close to his flight pattern.  Either I'm not going to be 
able to swat him, or I need to move my swatter up where is flight 
pattern has been, then sit and wait for him to fly into the 
swatter.

Ooops!  That second one flew by too fast and I didn't even try an 
execution.  I simply missed it.  That's OK, there will be others.

Swat!  Shoot, I missed that one.  That bugger was moving too 
fast.  As an analogy to trading stocks, fast moving stocks, or 
volatile stocks are harder to trade.  They can be rewarding when 
you get a real good entry point and catch the move just right, 
but they can also move against your/my analysis.

Swat!  Squish!  Got that one.  I saw him coming, was focused, and 
didn't let the other mosquitoes distract me.

Swat!  Missed again.  He was too small, illiquid.  A herky-jerky 
micro-cap that I wasn't all that familiar with.

Swat!  BIG SPLAT!  BIG WINNER!  I watched that one for months, 
got real familiar with how it traded.  That BIG SPLAT was a big 
winner and very profitable too.  Good execution right where I 
thought the stock would make its move from.

Swat!  Cool!  I got two at the same time.  Both of those were 
"retailers" and when the sector made its move, both of those 
stocks moved along with it at their WEEKLY Pivots.  That was too 
easy!  The stars, I mean the mosquitoes aligned.

I swatted 16 out of 20 when I kept my swatter in the same place.

You can go 20 for 20 if you just sit and observe for about 2 
minutes.  The mosquitoes get REALLY BIG and move REALY SLOW. 

Well, I will be out of the office this week, and won't be writing 
an Ask the Analyst column until Sunday September 2, 2004.

I'm supposed to be on the road by Friday afternoon at 04:30 PM 
EDT, and at this point, I have done no packing, and I'm running 
way behind.

I thought this would be a "fun" article to write.  It really 
reminded me of how important, and profitable it can be to really 
get familiar with the stocks we try and trade.

As I'm sitting under a tree next week, in the mountains of 
Colorado, I'm going to be thinking of this.  I really need to get 
a focus list of stocks to trade.  

I don't have a problem with running stock scans for trade 
candidates, but I will admit that I'm a much better trader when 
I'm focused in on how a stock trades, how its correlative sector 
or index has been trading.  And my win and profit record is much 
better when I've let the stock tell me what to do when it enters 
my action point range or level.

Jeff Bailey



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

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

Symbol  Co               Date           Comment      EPS Est

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

-no major earnings announcements-

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

FLE  Fleetwood Entrprs.   Tue, Sep 07   Before the bell     0.06
HOV  Hovnanian Entrprs.   Tue, Sep 07   Before the bell     1.35
NMG.A Neiman Marcus       Tue, Sep 07   After the close     0.36
STX  Seagate Tech.        Tue, Sep 07   Before the bell     0.03
UTIW UTi Worldwide        Tue, Sep 07   -----N/A------      0.44


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

CMVT Comverse Technology  Wed, Sep 08   After the close     0.05
DAB  Dave & Busters       Wed, Sep 08   Before the bell     0.14
GLH  Gallaher Group       Wed, Sep 08   -----N/A------      2.01
IMMU Immonomedics         Wed, Sep 08   -----N/A------      n/a
KFY  Korn Ferry Intl      Wed, Sep 08   -----N/A------      0.14
MATK Martek Biosciences   Wed, Sep 08   -----N/A------      0.15
ULCM Ulticom              Wed, Sep 08   After the close     0.05

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

CRMT America's Car-Mart   Thr, Sep 09   Before the bell     0.59
CAND Candie's Inc         Thr, Sep 09   Before the bell     n/a
CBRL CBRL Group           Thr, Sep 09   Before the bell     0.66
JOSB Jos. A Bank Clothier Thr, Sep 09   ------N/A------     0.23
NSM  National Semiconduct Thr, Sep 09   ------N/A------     0.26
TTWO Take-Two Interactiv  Thr, Sep 09   After the close    -0.30
ZQK  Quiksilver           Thr, Sep 09   ------N/A------     0.29

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

-no major earnings announcements-


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

Symbol  Company Name              Ratio    Payable     Executable

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
BLL     Ball Corp                 2:1      Sep  15th   Sep  16th
SF      Stifel Financial          4:3      Sep  15th   Sep  16th


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

Monday the markets are closed for the Labor Day holiday but the
shortened week is full.  Wall Street will digest the consumer
confidence numbers on Tuesday, Alan Greenspan on Wednesday, the
Chicago Fed Manufacturing index on Thursday and the PPI on Friday.

==============================================================
                       -For-           
----------------
Monday, 09/06/04
----------------
- U.S. Markets are CLOSED for Labor Day Holiday -

-----------------
Tuesday, 09/07/04
-----------------
Challenger Layoff Survey (DM)   Forecast:        Previous: +8%
Consumer Confidence Numbers     
Federal Reserve Governor McTeer speaks in Dallas

-------------------
Wednesday, 09/08/04
-------------------
Federal Reserve's Beige Book (DM)
July Consumer Credit (DM)
MBA Refinancing Index
Chain Store Sales 
Redbook Retail Sales data
Federal Reserve Chairman Greenspan speaks to House Budget Cmt.


------------------
Thursday, 09/09/04
------------------
Initial Jobless Claims (BB)     Forecast:        Previous: 362K
Import/Export Prices for August
Wholesale Inventories for July
Chicago Fed Manufacturing Index
Fedeal Reserve Governor Yellen talks in Seattle
Crude Oil Inventories
Gasoline Inventories
Natural Gas Inventories
Money Supply numbers.

----------------
Friday, 09/10/04
----------------
PPI Index for August            Forecast:       Previous: +0.1%
Core PPI for August             Forecast:       Previous: +0.1%
Trade Balance for July          Forecast:       Previous:$55.8B
Federal Reserve Governor McTeer talks in Dallas
Federal Reserve Governor Pianalto talks in N. Mexico


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




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We would like to have you as a subscriber. You may
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**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


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The Option Investor Newsletter                   Sunday 09-05-2004
Sunday                                                      2 of 5

In Section Two:

Watch List: BBOX, MERQ, KMB, ZMH
Dropped Calls: None
Dropped Puts: None


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

Networking to Medical Devices 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.
___________________________________________________________________

Black Box - BBOX - close: 36.95 change: -0.82

WHAT TO WATCH: Networking stocks will probably follow the NASDAQ 
and semiconductor sector lower.  CSCO is already rolling over 
while NT looks ready to drop again.  BBOX looks interesting 
because shares just failed to breakout over $38.00 and its 40-
dma.  Oscillators are starting to roll and its MACD is losing 
momentum.  Watch for a drop under $36.00 and target a move toward 
$32-30. The P&F chart is already bearish with a $23.00 target.

Chart=


---

Mercury Interactive - MERQ - close: 33.89 change: -1.20

WHAT TO WATCH: The GSO software index is struggling under 
resistance at 135 and looks ready to roll over.  Software maker 
MERQ is already weak and its MACD is very close to a new "sell" 
signal.  The P&F chart is bearish with a $17.00 target.  Watch 
for a breakdown under $33.00-32.75 as a potential entry point.

Chart=


---

Kimberly Clark - KMB - close: 68.13 change: +0.92

WHAT TO WATCH: KMB has been very strong the last couple of weeks 
and has now broken out over major resistance at the $67 level.  
The move has produced a new triple-top breakout buy signal on its 
P&F chart with a $100 target.  This could be an ominous sign that 
investors are turning to defensive stocks since KMB is usually a 
"safe haven" play.  The breakout has sent KMB to new three-year 
highs.  Watch for a dip back to $67.00 and consider buying a 
bounce.

Chart=


---

Zimmer Holdings - ZMH - close: 74.74 change: -0.98

WHAT TO WATCH: The medical equipment makers have been struggling 
the last couple of months but most of them, including ZMH, have 
rally sharply in the last few days.  Except now ZMH is struggling 
with technical resistance at its converging 50 and 200-dma's.  
Aggressive bears may take a stab at ZMH now but we'll watch for a 
drop through the $70.00 level.  Bulls can watch for a rally 
through the $78.00 level, which would produce a new P&F buy 
signal. 

Chart=



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


IMCL $53.53 -0.10 - IMCL just failed at its simple 200-dma.  
We're watching for a drop under $50.00.

HIT $61.43 -1.31 - Hitachi is rolling over at its oversold bounce 
failed under the exponential 200-dma and the 50-dma.  Looks like 
a target for a drop towards $55.

AET $94.03 +0.52 - If AET breaks the $95 level consider riding it 
toward the $100 mark.

STRA $112.75 +2.72 - The rally in STRA has been very sharp these 
past two weeks.  Now shares are breaking out over its simple 100 
and 200-dma's and the $110 level.  If the stock wasn't so 
overbought we'd consider a $120 target.


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

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


CALLS
^^^^^

None

PUTS
^^^^

None

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


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

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

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


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

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


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Contact Support




The Option Investor Newsletter                   Sunday 09-05-2004
Sunday                                                      3 of 5

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In Section Three:

Current Calls: AHC, BOL, DGX, FMC, FO, MHK, PD, RAI, TDS, ZBRA
New Calls: None
Current Puts: IVGN, SPW
New Puts: LXK, MSTR, IRF

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

Amerada Hess - AHC - close: 82.28 chg: -0.20 stop: 79.00 *new*

Company Description:
Amerada Hess Corporation is a leading global independent energy 
company, engaged in the exploration and production of crude oil 
and natural gas, as well as in refining and in marketing refined 
petroleum products, natural gas, and electricity.
(source: company website)

Why We Like It:
The rally in AHC appears to have stalled. The stock gapped above 
the $82.00 level on Thursday after an upgrade by CSFB but shares 
have traded sideways in a tight 75-cent range for the last two 
sessions.  We remain bullish on the stock and the oil group but 
traders may want to watch for a dip and bounce from the $81.00 
level. The OIX and OSX indices have been very strongly recently 
and look due for some profit taking.  Remember, that we were only 
targeting a quick run toward the $85.00 level as our initial 
target.  If AHC can climb above $84.50 we may exit early.  We are
going to raise our stop loss to $79.00.

Suggested Options:
We like the October and November strikes.  Our favorites would be 
the 75s and 80s.  Keep in mind this is a tough spot to consider
new positions.  Look for a bounce from $80-81 as an entry.

!Alert - September options EXPIRE in TWO Weeks!

BUY CALL OCT 80 AHC-JP OI=248 current ask $4.30
BUY CALL OCT 85 AHC-JQ OI=149 current ask $1.80

BUY CALL NOV 80 AHC-KP OI=1262 current ask $5.50
BUY CALL NOV 85 AHC-KQ OI= 836 current ask $3.00

Annotated Chart:



Picked on August 31st at $80.50
Change since picked:     + 1.78
Earnings Date          07/28/04 (confirmed)
Average Daily Volume =      1.0 million 
Chart =




---

Bausch Lomb - BOL - close: 66.38 change: -1.49 stop: 64.75     

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: 
After patiently waiting for two weeks BOL finally broke out over 
resistance at the $66.50 level last Wednesday.  Thursday's 
session was a very strong follow through and things were looking 
up but we knew Friday would be a day for profit taking.  We 
suspected that the $66 level would be short-term support and now 
comes the moment of truth.  BOL has dipped back to $66.15 and its 
simple 10-dma but will it bounce?  If it does bounce then we can 
use this as a new bullish entry point.  However, we're turning 
cautious on all our call plays considering the historical trend 
that September is the worst month of the year for stocks.  BOL 
may be able to out perform its peers considering its relative 
strength but it's also a target for more profit taking over the 
next month because of its strong rebound from the July lows.  
Technically we're encouraged that the recent breakout has 
produced a spread triple-top breakout on its P&F chart with an 
$86 target.  Consider positions very carefully.  We're going to 
leave our stop under support at $65.00.

Suggested Options:
We're turning cautious on most of our bullish plays but if BOL
can hold up we like the October calls.  

!Alert - September options EXPIRE in TWO Weeks!

BUY CALL OCT 65 BOL-JM OI=199 current ask $3.20
BUY CALL OCT 70 BOL-JN OI= 87 current ask $0.95

Annotated Chart: 



Picked on September 01 at $66.51
Change since picked:      - 0.13
Earnings Date           07/29/04 (confirmed)
Average Daily Volume =       397 thousand
Chart =


---

Quest Diagnostic - DGX - close: 86.31 chg: -0.51 stop: 83.50*new*

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

Why We Like It:
Our technical breakout play in DGX is holding up pretty well.  
The stock only dropped 51-cents in Friday's profit taking.  The 
bullish P&F chart still looks good and points to a $102 target.  
We'd like to see DGX bounce from $86.00 but we suspect that 
shares will dip back toward the $85.00 level again.  Traders can 
use a bounce from $85.00 as a new entry point.  However, keep in 
mind that we're turning cautious on all our call plays due to 
September's historical weakness.  We're going to cinch our stop 
loss up a bit to $83.50.  If DGX breaks the $85 level we probably 
don't want to be long.  

Suggested Options:
We're going to suggest the October or November calls.  Our
favorites are the 80s and 85s.  

!Alert - September options EXPIRE in TWO Weeks!

BUY CALL OCT 80 DGX-JP OI=362 current ask $7.30
BUY CALL OCT 85 DGX-JQ OI=440 current ask $3.60
BUY CALL OCT 90 DGX-JR OI=384 current ask $1.15

BUY CALL NOV 85 DGX-KQ OI=1904 current ask $4.80
BUY CALL NOV 90 DGX-KR OI=1190 current ask $2.25

Annotated Chart:



Picked on August 31st at $85.60
Change since picked:     + 0.71
Earnings Date          07/22/04 (confirmed)
Average Daily Volume =      578 thousand
Chart =






---

F M C Corp - FMC - close: 46.35 change: -0.50 stop: 44.90*new*

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: 
We don't have much new to report on for FMC.  The stock continues 
to climb higher using its simple 10-dma as short-term support.  
We expected it to dip on Friday as investors did some profit 
taking ahead of the weekend and FMC held up better than we 
thought it might.  Readers can use a bounce from the $46.00 level 
as a new entry point but remember that we're turning cautious on 
all of our bullish plays consider September's historical 
weakness.  Keep your stops tight.  We're going to raise our stop 
loss to $44.90.  Our short-term target remains the $50.00 region.
You may want to keep an eye on the CYC cyclical index.  The CYC 
has broken out above minor resistance at the 690 level but is 
still under resistance at the 700 mark.

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. 

!Alert - September options EXPIRE in TWO Weeks!

BUY CALL OCT 40 FMC-JH OI=400 current ask $6.90
BUY CALL OCT 45 FMC-JI OI=642 current ask $2.90
BUY CALL OCT 50 FMC-JJ OI= 70 current ask $0.75

Annotated chart: 



Picked on August 24 at $45.87
Change since picked:   + 0.48
Earnings Date        07/27/04 (confirmed)
Average Daily Volume =    265 thousand
Chart =


---


Fortune Brands - FO - close: 74.40 change: -0.01 stop: 72.99*new*

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:
We've been suggesting that conservative traders wait for FO to 
breakout over the $75.00 mark for a reason.  Shares tried to 
rally through this level on Friday and couldn't.  Now the three-
day bounce looks like a potential failed rally.  Fortunately, FO 
still has  decent uptrend and if it dips we'll look for a bounce 
from the simple 10-dma near $73.25.  It's also noteworthy that 
FO's breakout above the $74.00 mark did produce the new bullish 
P&F buy signal, which now points to an $85 target.  The P&F chart 
is actually a "bear trap", which of course is bullish for us.  On 
all of our call plays we've been reminding readers that September 
is historically the weakest month of the year for stocks.  That's 
not a good environment to buy calls.  If you're feeling bullish 
be sure to manage your risk in case of turnaround.  We're going 
to raise our stop loss to $72.99.

Suggested Options:
We're suggesting the October calls for short-term positions.  We 
like the October $70 and $75 strikes. 

!Alert - September options EXPIRE in TWO Weeks!

BUY CALL OCT 70 FO-JN OI=   4 current ask $5.40
BUY CALL OCT 75 FO-JO OI= 187 current ask $1.85

Annotated Chart:



Picked on August 29th at $74.08
Change since picked:     + 0.32
Earnings Date          07/23/04 (confirmed)
Average Daily Volume =      636 thousand
Chart =




---

Mohawk Industries - MHK - cls: 79.05 chg: +0.11 stop: 76.25*new*

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 continues to out perform and hit an intraday high of $79.27 
on Friday.  We're very encouraged by its relative strength but 
given the onset of September we're feeling that it's time to take 
some profits here.  The September options we suggested have 
doubled or tripled in value and it looks like a good time to cash 
in.  Now we're not closing the play yet but if MHK can reach the 
$80.00 level we're going to exit.  Longer-term investors can take 
comfort in the bullish P&F chart with the $96 target.  We're 
going to raise our stop loss to $76.25. 

Suggested Options:
This close to our target we're not going to suggest new entries.
Readers can prepare to exit. 


Annotated Chart:


Picked on August 24th at $75.51
Change since picked:     + 3.54
Earnings Date          07/21/04 (confirmed)
Average Daily Volume =      397 thousand
Chart =


---

Phelps Dodge - PD - close: 82.05 chg: -0.15 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:
We haven't heard any more about the potential labor strike in 
Peru that was going to affect one of PD's rivals and the world's 
copper supply.  However, considering the recent drop in copper 
prices the crisis may have abated.  Yet that shouldn't discourage 
the bulls.  Copper did bounce from support at $1.22 per pound on 
Friday and shares of PD are still bouncing from the $80.00 level.  
We like the solid trend of higher lows in shares of PD and its 
P&F chart remains very bullish with a major breakout and a $96 
target.  If the broader market sees any weakness we'll be 
watching to see if PD shows any strength as a "safe haven" play.  
After all the world's demand for copper isn't going down and 
current prices mean big bucks for the miners.

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

!Alert - September options EXPIRE in TWO Weeks!

BUY CALL OCT 80 PD-JP OI=2939 current ask $5.20
BUY CALL OCT 85 PD-JQ OI=1968 current ask $2.55

Annotated Chart:



Picked on August 26th at $82.10
Change since picked:     - 0.05
Earnings Date          07/27/04 (confirmed)
Average Daily Volume =      2.1 million 
Chart =



---


Reynolds American - RAI - cls: 75.60 chg: -0.17 stop: 71.95     

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:
So far so good.  Our call play in RAI is right on target.  Shares 
broke out over the $76 level on Friday but slipped backwards as 
investors headed for the weekend.  We're very encouraged by the 
steady trend of small gains and RAI's breakout over the early 
August high near $75.00.  Looking ahead it wouldn't surprise us 
to see RAI dip again but the $74-75 region should offer support.  
Don't forget that the government's racketeering case against the 
U.S. tobacco industry will begin on September 21st.  That could 
be pressure on the stock but we're not seeing any yet.  Our 
target remains the $77.50-80.00 range.  

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

!Alert - September options EXPIRE in TWO Weeks!

BUY CALL OCT 70 RAI-JN OI=   5 current ask $6.00
BUY CALL OCT 75 RAI-JO OI= 677 current ask $2.45

BUY CALL NOV 70 RAI-KN OI=7966 current ask $6.90
BUY CALL NOV 75 RAI-KO OI=1903 current ask $3.60

Annotated Chart: 




Picked on August 19 at $72.88
Change since picked:   + 2.72
Earnings Date        08/02/04 (confirmed)
Average Daily Volume =    1.2 million 
Chart =




--

Telephone & Data Sys - TDS - cls: 79.29 change: -0.41 stop: 75.95

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:
It was an important week for TDS.  We were getting close to 
closing the play for lack of action and suddenly shares rallied 
forth to break through the top of its six-week trading range.  We 
knew the $80.00 level might be resistance and that's what we're 
seeing now in shares of TDS.  Fortunately, the profit taking on 
Friday was pretty mild - just 41 cents.  We're also encouraged by 
the new MACD "buy" signal.  The P&F chart remains bullish with a 
$103 target.  This remains an aggressive play because stock 
volume and options volume is very low.  We are willing to suggest 
new positions but look for a bounce from $78.00 or a breakout 
over $80.00 as the entry point.  Remember that September is 
historically a very bad month for stocks.  If you're feeling 
bullish trade or don't trade accordingly.  In the news TDS said 
they would present at the Morgan Stanley Media and Communications 
conference on Sept. 8th.

Suggested Options:
The October strikes have pretty low volume so we'd suggest the
Novembers but even these are low.

!Alert - September options EXPIRE in TWO Weeks!

BUY CALL OCT-75 TDS-JO OI= 0 current ask $5.50
BUY CALL OCT-80 TDS-JP OI=32 current ask $2.30

BUY CALL NOV-75 TDS-KO OI=105 current ask $6.20
BUY CALL NOV-80 TDS-KP OI= 40 current ask $3.20
BUY CALL NOV-85 TDS-KQ OI=  0 current ask $1.50

Annotated Chart:


Picked on August 24th at $78.05
Change since picked:     + 1.24
Earnings Date          07/21/04 (confirmed)
Average Daily Volume =      195 thousand
Chart =


---

Zebra Tech. - ZBRA - close: 58.10 chg: -0.81 stop: 54.99     

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:
ZBRA remains within striking distance of our profit target but 
the rally stalled as traders did some profit taking on Friday.  
This close to our target we're not going to suggest new positions 
at this time.  We're still planning to exit if ZBRA can rise into 
the $59.50-60.00 range.  Hopefully that will be Tuesday since 7 
out of the last 9 post-Labor day weekend weeks start with a 
rally.  Look for support at the simple 10-dma near $57.

Suggested Options:
We're not suggesting new entries at this time.

!Alert - September options EXPIRE in TWO Weeks!


Annotated Chart:



Picked on August 25th at $56.18
Change since picked:     + 1.87
Earnings Date          07/28/04 (confirmed)
Average Daily Volume =      419 thousand
Chart =



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



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

Invitrogen - IVGN - close: 50.64 change: +0.75 stop: 51.51

Company Description:
Invitrogen Corporation provides products and services that 
support academic and government research institutions and 
pharmaceutical and biotech companies worldwide in their efforts 
to improve the human condition. The company provides essential 
life science technologies for disease research, drug discovery, 
and commercial bio-production. Invitrogen's own research and 
development efforts are focused on breakthrough innovation in all 
major areas of biological discovery including functional 
genomics, proteomics, bioinformatics and cell biology -- placing 
Invitrogen's products in nearly every major laboratory in the 
world. Founded in 1987, Invitrogen is headquartered in Carlsbad, 
California and conducts business in more than 70 countries around 
the world. The company globally employs approximately 4,000 
scientists and other professionals. (source: company press 
release)

Why We Like It:
Normally seeing our put play IVGN rebound back above the $50.00 
mark would be a concern.  It's certainly not good news for 
current shorts.  However, we're still un-triggered as we wait for 
IVGN to break minor support at $49.00 and hit our trigger to buy 
puts at $48.95.  Looking more closely at IVGN's intraday chart it 
would appear that Friday's bounce struggled near the closing bell 
under the $51.00 level.  Hopefully this would suggest that IVGN 
will see some additional selling come next week.  


Suggested Options:
We like the October and November puts.  Our favorites are the
55s, 50s, 47.50s and 45s.

!Alert - September options EXPIRE in TWO Weeks!

BUY PUT OCT 55.00 IUV-VK OI= 5 current ask $5.30
BUY PUT OCT 50.00 IUV-VJ OI=23 current ask $2.30
BUY PUT OCT 47.50 IUV-VW OI=94 current ask $1.40
BUY PUT OCT 45.00 IUV-VI OI=53 current ask $0.85

BUY PUT NOV 50.00 IUV-WJ OI=535 current ask $3.30
BUY PUT NOV 47.50 IUV-WW OI=489 current ask $2.30
BUY PUT NOV 45.00 IUV-WI OI=114 current ask $1.60

Annotated Chart:



Picked on September xth at $xx.xx <-- see TRIGGER
Change since picked:       - 0.00
Earnings Date            07/21/04 (confirmed)
Average Daily Volume =        1.3 million 
Chart =




---

SPX Corp - SPW - close: 36.10 change: -0.91 stop: 37.51

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: 
Thursday morning news that SPW had won five new orders worth $60 
million for dry cooling systems helped send the stock higher.  
Yet despite the news the rally couldn't break the three-week 
trend of lower highs.  Friday the stock turned tail and gave back 
all of Thursday's gains.  Selling ahead of the weekend was part 
of the problem but comments from a Prudential analyst didn't help 
either.  Forbes.com quoted the analyst as saying SPW could see 
further downside risk and they do not detect any hidden value 
making the recent weakness a worthwhile entry point.  The analyst 
has an "under weight" rating and lowered the SPW price target to 
$32.  Technically we're encouraged by the reversal and the fact 
that SPW traded under the $36.00 level for the first time in a 
month.  Our TRIGGER to buy puts is at $35.75.  Until SPW trades 
at or below this level we'll sit tight.

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

!Alert - September options EXPIRE in TWO Weeks!

BUY PUT OCT 37.50 SPW-VU OI=120 current ask $2.60
BUY PUT OCT 35.00 SPW-VG OI= 50 current ask $1.30

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

Lexmark Intl - LXK - close: 86.10 chg: -2.28 stop: 90.01

Company Description:
Lexmark International, Inc. is a leading developer, manufacturer 
and supplier of printing solutions -- including laser and inkjet 
printers, multifunction products, associated supplies and 
services -- for offices and homes in more than 150 countries. 
Founded in 1991, Lexmark reported more than $4.8 billion in 
revenue in 2003. (source: company press release)

Why We Like It:
You may have heard that September is historically the worst month 
of the year for stocks.  It's true.  Now past performance is 
never a guarantee of the future but this seasonal trend usually 
shows up on time.  We think the combination of the Industrials 
and S&P 500 at four-week highs and the VIX near its bearish-
reversal lows and Intel's disappointing news undermining 
confidence in the tech sector all add a lot of punch to what is 
typically a weak month in September.  

So why choose LXK as a put play?  We suspect that this higher-
dollar tech stock could be a prime candidate for profit taking.  
Shares are still up for the year but the oversold bounce from the 
August lows is fading.  LXK has been struggling with the simple 
50-dma as overhead resistance for the last week and its technical 
oscillators are bearish with the MACD on the verge of a new 
"sell" signal.  Friday's 2.5 percent drop was on strong volume 
and the stock broke down through its simple 40 and 200-dma's.  
Although bulls will point out that LXK did manage a meager bounce 
off its exponential 200-dma on Friday.  Technically LXK's P&F 
chart is also very bearish with the stock's rebound failing at 
overhead resistance and the chart pointing to a $70 target.  
Plus, this past week brought some negative broker comments over 
LXK facing stiff competition from DELL with its lower-priced 
printers.  

Here's our plan - We want to plan an entry in the next week and 
ride LXK down through September.  Now normally the first day back 
after Labor Day is typically bullish.  So if LXK bounces we can 
look for an entry point in a failed rally below $87.50-88.00.  If 
LXK doesn't bounce then momentum traders can pick an entry on a 
drop below $85.00.  Either entry works for us so we're going to 
"open" the play at current levels.  Keep your ears open for any 
news when LXK presents at the Smith Barney Citigroup Tehnology 
conference on September 8th.

We're going to use an initial stop at $90.01.  This may seem a
little wide but until we see whether LXK bounces or breaks we
want to give it some room.

Suggested Options:
Right now traders can choose from the October or January puts.
We believe November strikes will be added eventually.  We're going to suggest the October's.

BUY PUT OCT 90 LXK-VR OI= 729 current ask $5.80
BUY PUT OCT 85 LXK-VQ OI= 786 current ask $3.30
BUY PUT OCT 80 LXK-VP OI=2138 current ask $1.70

Annotated Chart:


Picked on September 5th at $86.10
Change since picked:       - 0.00
Earnings Date            07/19/04 (confirmed)
Average Daily Volume =        1.2 million 
Chart =


---

MicroStrategy - MSTR - close: 33.30 chg: -1.49 stop: 36.01

Company Description:
Founded in 1989, MicroStrategy is a worldwide leader in the 
increasingly critical business intelligence software market. 
Leading Fortune 2000 companies are integrating MicroStrategy's 
industrial-strength software into virtually all facets of their 
businesses. The MicroStrategy Business Intelligence Platform(TM) 
distills vast amounts of data into vital, probing insight to help 
drive cost-efficiency, productivity, customer relations and 
revenue-generation. MicroStrategy offers exceptional capabilities 
-- excellent scalability, powerful analytics, user-friendly query 
and reporting features and an outstanding, easy-to-use Web 
interface. Top companies are using MicroStrategy to cost-
effectively harness large, multi-terabyte databases; empower 
thousands of employees at all operational levels; and extend the 
benefits of business intelligence enterprise-wide and beyond to 
customers, partners and suppliers. (source: company press 
release)

Why We Like It:
MSTR is our willing sacrifice... err we mean volunteer from the 
software sector.  All the major tech indices are suffering and 
the GSO software index is struggling with resistance near 135 and 
looks ready to roll over into a new leg down.  Likewise MSTR is 
beginning to roll over under resistance near $36.00 at the top of 
its descending channel (see chart).  Oscillators confirm the 
bearish direction and its MACD is very close to producing a new 
"sell" signal.  The P&F chart is very bearish but we'll admit 
that the initial price target of $32 has already been achieved.  
We think this is one of those times when the stock exceeds the 
vertical count target.  

Like our LXK play we want to give MSTR room to bounce.  A rally 
back toward $34.50-35.00 is just as much an entry point as a new 
low under $33 but we're willing to initiate positions at current 
levels.  The first target is probably round-number support at 
$30.00 but the bottom of the channel is closer to $27.50 or less.  
Look for potential news on September 8th when MSTR presents at 
the CSFB software conference.


Suggested Options:
Short-term traders can choose the October or January puts.  We'll
suggest the Octobers. 

BUY PUT OCT 35 EOU-VG OI= 92 current ask $3.50
BUY PUT OCT 30 EOU-VF OI=551 current ask $1.20

Annotated Chart:


Picked on September 5th at $33.30
Change since picked:       - 0.00
Earnings Date            07/27/04 (confirmed)
Average Daily Volume =        376 thousand
Chart =


---

Intl Rectifier - IRF - close: 32.18 chg: -1.49 stop: 35.01

Company Description:
International Rectifier is a world leader in power management 
technology. IR's analog and mixed signal ICs, advanced circuit 
devices, integrated power systems and components enable high 
performance computing and reduce energy waste from motors, the 
world's single largest consumer of electricity. Leading 
manufacturers of computers, energy efficient appliances, 
lighting, automobiles, satellites, aircraft and defense systems 
rely on IR's power management benchmarks to power their next 
generation products. (source: company press release)

Why We Like It:
We like IRF because it's a great candidate from the semiconductor 
sector to round out our tech threesome in our effort to catch any 
historical September weakness.  Shares of IRF have been withering 
under a long-term trend of lower highs for months and Intel's 
disappointing news on Thursday night will continue to undermine 
investor confidence and promote rotation out of IRF.  Keep an eye 
on the SOX.  The SOX is the mill-stone around the NASDAQ's neck 
and together they should be able to sink into September's murky 
depths.  More conservative traders may want to wait and watch for 
IRF to trade under the $32.00 level, which appears to be short-
term support.  Fortunately, P&F chart traders don't need to wait.  
The P&F chart is already bearish with a $21.00 target.  Our 
initial target will be the $27.50 region but we do expect some 
support near $30.00.  If IRF manages to bounce next week look for 
a failed rally near $34.00 as a potential entry point.  We're 
going to give IRF a wide stop at $35.01. 

Suggested Options:
Short-term traders can choose from October or December options.
We like the October 35s and 30s. 

BUY PUT OCT 35 IRF-VG OI=251 current ask $3.90
BUY PUT OCT 30 IRF-VF OI= 44 current ask $1.25


Annotated Chart:


Picked on September 5th at $32.18 
Change since picked:       - 0.00
Earnings Date            07/29/04 (confirmed)
Average Daily Volume =        1.3 million 
Chart =




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The Option Investor Newsletter                   Sunday 09-05-2004
Sunday                                                      4 of 5

In Section Four:

Leaps: Shopping Season Ahead


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*****
LEAPS
*****

Shopping Season Ahead

I hate to keep repeating this but it is a historical
fact that the first week of September is many times
the high for the month. It seems lately every stock
I put on the watch list instantly explodes to new
highs without even a glance a lower levels. There 
is a saying that everything comes to those that wait.
I am getting tired of waiting but I know it will pay
off.  

 
New Plays

No New Plays. I do not want to add anything after
last weeks spike and in front of the potential 
September weakness. Plenty of opportunities ahead
for our watch list to mature. 
 



Portfolio Update

SMH - Semiconductor Holders $28.30 ** CLOSED **

Chalk this one up a winner and take the money off
the table. We missed our exit back on Aug-13th when
the SMH dropped to 28.30 on a Friday only to gap
open the following Monday. Our target exit price
was $28. Well after the Intel news the SMH closed 
at $28.32 this Friday and an almost perfect double
bottom. While there may be further weakness ahead
I am not willing to risk our profits again. Hold
longer if you want but I am closing the play today.

NOV-$30 put at $1.40 closed Friday at $2.75 (+93%)
NOV-$35 put at $3.80 closed Friday at $6.74 (+76%)

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


INTC - Intel Corp $20.05  **Stop $17.00**

We were triggered on the Intel LEAPS on Friday when
Intel trade at $20 at the open. Various analysts are
looking at risk to $18 maybe as low as $17 but I am
more optimistic. We saw Intel cling to $20 all day
Friday on volume of 172 million shares. If they can't
push it lower on that kind of volume it is going to 
be a battle to hit $17-$18. 

2006 $22 LEAP Call WNL-AX at $2.20 currently $2.30
2006 $25 LEAP Call WNL-AE at $1.45 currently $1.55

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


TYC - Tyco Intl. $31.55  **Stop $28.00**

Tyco continues to press the recent highs with $32 as
resistance. We probably have some rough weather ahead
and I am going to leave the stop low to get us through
it. Tyco may be holding its own but in a weak market
all stocks suffer. 


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


JNPR - Juniper Networks $23.17 **Stop $19.00**

Juniper set a new high for the month on Thursday at
$23.79 but caved in on Friday in light of the Intel,
COMS, IDTI, EFII, ALTR earnings warnings. Again I
am leaving the stop low to keep us in this position.

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


COP - Conoco Phillips $76.19 **Stop 69.00**

What a great start for this play. We got a small dip 
on Monday that should have let everyone in a little
cheaper than profiled and then a rocket ride from 
$73 to $76 and no weakness into the weekend. The
next resistance is $80 and the next pop in oil prices
could get there quickly. The LEAP is already up +20%.



****************************     
Current Portfolio: 
**************************** 


SMH - Semiconductor Holders $28.30 **CLOSED TODAY**
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 $2.75 (+93%)
Nov-$35 Put SMH-WG cost $3.80 current $6.74 (+76%)

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

SMH Chart


TYC Tyco $31.56   **Stop $28.00**
Entry $28.32

2005 $30 LEAP Call TYC-AF cost $2.15 current $3.00 
2006 $30 LEAP Call WPA-AF cost $4.00 current $5.00 
July $25 insurance put - expired - cost $.55

Tyco Chart


JNPR - Juniper Networks $23.15 **Stop $19.00**
Entry $20.19

2006 $25 LEAP Call WBW-AE cost $3.50 current $4.90 
Insurance = Sept-$17.50 Put JUX-UW cost 50 cents.  

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

JNPR Chart


COP - Conoco Phillips $76.19 **Stop 69.00**
Entry $73.30 August 30th   

Current position:
Jan-2006 $75 LEAP Call YRO-AO at $6.70 currently $8.20


Initial play description:
http://members.OptionInvestor.com/leaps/Lp_082904_1.asp

COP Chart


INTC - Intel Corp $20.05  **Stop $17.00**
Entry $20.00 Sept 3rd 
 
Current position:
2006 $22 LEAP Call WNL-AX at $2.20 currently $2.30
2006 $25 LEAP Call WNL-AE at $1.45 currently $1.55

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

Intel Chart

Intel Chart - Weekly


NWS - News Corp $30.76

This play was originally in the Editors Play section. 
I moved it here because of the long term nature. You 
can read the original play description here.  

http://members.OptionInvestor.com/editorplays/edply_041104_1.asp
http://members.OptionInvestor.com/editorplays/edply_041804_1.asp

The play was going according to plan until the exchanges
said NWS could not dual list on both the Australian 
exchange and the NYSE. NWS is moving to the NYSE next 
year. Fund holders began selling the Australian shares
when it became evident those holders would have to
liquidate. The plan was to sell calls against the NWS
position to average cost down but with the stock in a
decline there has been no premium to sell. 

A -$7.85 drop in BskyB also hit NWS as a major holder
of BskyB stock. 

Long term support is $30 and I am reluctant to close
the position as long as that support holds. 

Current position: Jan-2006 $40 Calls WLN-AH @ $3.83

NWS Chart


Position Summary Graph


LEAPS Watch List


Dropped Entry

WMT $53.25 

I am dropping Wal-Mart based on the continued weak 
consumer sector. I originally had hoped WMT would
rebound from $52 and return to a new high over $60
but the pattern is not developing. 

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


New Entry

UPL - Ultra Petroleum $43.30 **Target $38.00**

I hesitate to add this to the watch list because 
every time I look at it I can't believe how far it
has run. The only saving grace is that it does have
a pattern of pulling back to the 100dma every couple
of months. Currently at $37 it was just hit on Aug
24th. Each time it hits it bounces a mile. 

I am putting UPL on the watch list at $38 in hopes
the next technical correction in the price of oil
knocks both it and OXY back into range. UPL had a
market cap four years ago of $35 million. Today it
has a market cap over $3 billion. There has got to
be a few holders that think their slot machine has
hit the jackpot and will bail out soon. 

UPL acquired several fields in Wyoming that have
proved to be huge winners. The first two fields
have already proven to have more than one TRILLION
cubic feet of gas and the company has barely begun
to drill exploratory holes. The company says the
eventual size of the reserves could be in the
20-30 TRILLION feet of gas. The company has staked
out 600 drilling sites on the Wyoming lease. 

On July 18th the company began drilling wells in 
Bohai Bay China and expects to produce 30,000 
barrels per day soon and 65,000 barrels per day 
in 2005. Earnings are expected to jump +88% for 
the year and could double next year. 

JAN-2006 $45 LEAP Call WSS-AI $10.50 target $8.50
JAN-2006 $50 LEAP Call WSS-AJ $ 8.70 target $6.50

UPL Chart


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



OXY - Occidental Petroleum $53.40  Target $51.00

I might as well just write OXY off early with that
+3 jump right after I listed it. But, I am hard headed
and still think we could have a chance on any market
weakness. Surely somebody has some profit in OXY they 
need to harvest. We will keep it another week. 

2006 $50 JAN LEAP Calls WXY-AJ currently $7.00
2006 $55 JAN LEAP Calls WXY-AK currently $5.10

http://members.OptionInvestor.com/leaps/Lp_082904_1.asp

OXY Chart


EBAY - EBAY $89.38 target entry $75.00

Raised the entry again to $75 but with this weeks news
and gains I think it may be hopeless. I am going to leave
it on the watch list and we will target a better entry
based on what the market gives us over the next four
weeks.   

2006 $80 LEAP Call YEU-AP 

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

EBAY Chart



MER - Merrill Lynch $51.85 target entry $46.00 
               
MER failed to impress this week although it did rebound
from a promising dip to near $50. Still waiting for the
September weakness and a retracement of that Aug-16th
spike. 

2006 $50 LEAP Call WZM-AJ 

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

MER Chart


MMM - 3M Company - $83.94

Target entry $80, add to position at $75. 

After the MMM spike on Thursday I raised the entry 
point this weekend. When any real market weakness 
appears the funds will be dumping high dollar winners
to speculate on low dollar small caps. I am still
hopeful we will get an entry here.  

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 $46.91 LEAP Call
 
I raised the entry point on Citigroup based on the 
Thursday spike and speculation of where any weakness
might lead.  

Enter 1/2 position at $45.75 
Enter 1/2 position at $44.00

2006 $50 LEAP Call WRV-AJ 

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

Citigroup Chart


SYMC - Symantec - $48.67  - Target $45

I raised the entry point to $45 from $43. I thought we
were out of the ballpark on Thursday but Friday brought
it back within range.    

2006 $50 LEAP Call YAG-AJ current $8.17, target $5.00

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

SYMC Chart


GE $32.86 LEAP Call   Target $31.00

2006 $30 LEAP Call WGE-AF $4.80, target $4.00
2006 $35 LEAP Call WGE-AG $2.15, 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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**********

Please read our disclaimer at:
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The Option Investor Newsletter                   Sunday 09-05-2004
Sunday                                                      5 of 5


In Section Five:

Covered Calls:  CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS
Spreads and Straddles:  Do You Have What It Takes?  
Girlie-men Need Not Apply
Premium-Selling Plays: Naked Puts and Calls


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

 Many investors find that writing "in-the-money" covered-calls
fits their criteria for a conservative, easy-to-manage options
strategy.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW COVERED-CALL CANDIDATES
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The following group of issues is a list of potential candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

_________________________________________________________________

Sequenced by Target Yield (monthly basis/no margin)

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

CLHB   10.93  OCT 10.00  QPB-JB  1.45   293  9.48  39   4.3%
SNDA   21.70  OCT 20.00  QKU-JD  2.70    80 19.00  39   4.1%
EPIX   21.52  OCT 20.00  FCU-JD  2.40     1 19.12  39   3.6%
MOGN   29.28  OCT 27.50  QOG-JY  3.00  1876 26.28  39   3.6%
VICL    5.46  OCT  5.00  VAQ-JA  0.65    53  4.81  39   3.1%
TTEC    8.44  OCT  7.50  QTC-JU  1.20   260  7.24  39   2.8%
MXT     8.19  OCT  7.50  MXT-JU  0.95  3820  7.24  39   2.8%
RAE     5.94  OCT  5.00  RAE-JA  1.10     8  4.84  39   2.6%
TSO    24.25  OCT 22.50  TSO-JX  2.45    28 21.80  39   2.5%

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

_________________________________________________________________

CLHB - Clean Harbors  $10.93

Clean Harbors (NASDAQ:CLHB) provides a range of environmental
services and solutions and is managed in two primary segments:
Technical Services and Site Services.  Technical Services does
treatment and disposal of industrial wastes, which includes
physical treatment, resource recovery and fuels blending,
incineration, landfills, wastewater treatment, lab chemical
disposal and explosives management, collection, transportation
and logistics management, specialized packaging, transportation
and disposal of laboratory chemicals and household hazardous
wastes.  Site Services provide experts using specialty equipment
and resources to perform services such as industrial maintenance,
surface remediation, groundwater restoration, site and facility
decontamination, emergency response, remediation, transformer
decommissioning and oil disposal.

CLHB - Clean Harbors  $10.93

OCT 10.00 QPB-JB LB=1.45 OI=293 CB=9.48 DE=39 TY=4.3%


_________________________________________________________________

SNDA - Shanda Interactive Ent.  $21.70

Shanda Interactive Entertainment (NASDAQ:SNDA) is an operator of
online games in China.  The games, licensed from third parties,
as well as developed in-house by the company, include The Legend
of Mir II and The World of Legend.  The company's commercially
launched games have approximately 1.4 million peak concurrent
users and 931,570 average concurrent users.  Shanda also provides
multiplayer online games, including role-playing games and casual
online games, which allow thousands of users to interact in a
virtual world by assuming ongoing roles or characters with many
different features.

SNDA - Shanda Interactive Ent.  $21.70

OCT 20.00 QKU-JD LB=2.70 OI=80 CB=19.00 DE=39 TY=4.1%


_________________________________________________________________

EPIX - EPIX Medical  $21.52

EPIX Medical (NASDAQ:EPIX) is a developer of targeted contrast
agents that are designed to improve the diagnostic quality of
images produced by magnetic resonance imaging (MRI).  MRI is
an imaging technology for range of applications, including the
identification and diagnosis of a variety of medical disorders.
The company is developing two products, MS-325 and EP-2104R, for
use in MRI to improve the diagnosis of multiple cardiovascular
diseases affecting the body's arteries and veins (the vascular
system).

EPIX - EPIX Medical  $21.52

OCT 20.00 FCU-JD LB=2.40 OI=1 CB=19.12 DE=39 TY=3.6%


_________________________________________________________________

MOGN - MGI PHARMA  $29.28

MGI PHARMA (NASDAQ:MOGN) is an oncology-focused biopharmaceutical
company that acquires, develops and commercializes proprietary
pharmaceutical products that meet cancer patient needs.  The
company's marketed products include Aloxi injection, for the
prevention of chemotherapy-induced nausea and vomiting; Salagen
Tablets, as a treatment for the symptoms of radiation-induced dry
mouth in head and neck cancer patients and to rheumatologists as
a treatment for dry mouth associated with the autoimmune disease
Sjogren's syndrome; and Hexalen capsules, which are an orally
administered chemotherapeutic agent.

MOGN - MGI PHARMA  $29.28

OCT 27.50 QOG-JY LB=3.00 OI=1876 CB=26.28 DE=39 TY=3.6%


_________________________________________________________________

VICL - Vical  $5.46

Vical (NASDAQ:VICL) is engaged in the research and development
of biopharmaceutical products based on its deoxyribonucleic acid
delivery technologies for the prevention and treatment of serious
or life-threatening diseases.  The firm's independent development
focus is on novel DNA vaccines for cytomegalovirus and anthrax,
as well as cancer immunotherapeutic.  Vical is able to enhance
technologies through licensing and collaborative agreements.

VICL - Vical  $5.46

OCT  5.00 VAQ-JA LB=0.65 OI=53 CB=4.81 DE=39 TY=3.1%


_________________________________________________________________

TTEC - TeleTech Holdings  $8.44

TeleTech Holdings (NASDAQ:TTEC) serves its clients through two
primary businesses, Customer Management Services and Database
Marketing and Consulting.  The Customer Management Services
business provides outsourced customer support and marketing
services for a variety of industries via call centers (customer
management centers) throughout the world.  The Database Marketing
and Consulting business provides outsourced database management,
direct marketing and related customer retention services for
automotive dealerships and manufacturers in North America.

TTEC - TeleTech Holdings  $8.44

OCT  7.50 QTC-JU LB=1.20 OI=260 CB=7.24 DE=39 TY=2.8%


_________________________________________________________________

MXT - Metris Companies  $8.19

Metris Companies (NYSE:MXT) provides financial products and
services throughout the United States.  Its primary line of
business is the credit card business.  The company's credit
card products are primarily unsecured credit cards issued
through a subsidiary, Direct Merchants Credit Card Bank,
National Association.  These credit cards generate consumer
loans, which, in turn, generate income and cash flow from
principal, interest and fee payments.  Sales of the company's
other consumer financial products, such as credit protection
products, generate additional cash flow.

MXT - Metris Companies  $8.19

OCT  7.50 MXT-JU LB=0.95 OI=3820 CB=7.24 DE=39 TY=2.8%


_________________________________________________________________

RAE - RAE Systems  $5.94

RAE Systems (NYSE:RAE) is a global developer and manufacturer of
rapidly deployable, multi-sensor chemical detection monitors,
networks for homeland security and industrial applications.  In
addition, RAE offers a line of portable single-sensor chemical
and radiation detection products.  The company's unique products
include portable, wireless and fixed atmospheric monitors and
photo-ionization detectors and gamma and neutron detectors, which
enable the military and first responders, such as firefighters,
law enforcement and emergency management personnel to detect and
provide early warning of weapons of mass destruction and other
hazardous materials.

RAE - RAE Systems  $5.94

OCT  5.00 RAE-JA LB=1.10 OI=8 CB=4.84 DE=39 TY=2.6%


_________________________________________________________________

TSO - Tesoro Petroleum  $24.25

Tesoro Petroleum (NYSE:TSO) is an independent is refiner and
marketer of petroleum products with two operating segments,
Refining and Retail.  Through its refining segment, Tesoro
manufactures products, primarily gasoline and blendstocks,
jet fuel, diesel fuel and heavy fuel oils, for sale to a
variety of commercial customers.  Tesoro's retail segment
distributes motor fuels through a network of branded gas
stations, primarily trading under the Tesoro and Mirastar
brands.  The company markets its products to wholesale and
retail customers, as well as commercial end users.

TSO - Tesoro Petroleum  $24.25

OCT 22.50 TSO-JX LB=2.45 OI=28 CB=21.80 DE=39 TY=2.5%



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

Do You Have What It Takes?  Girlie-men Need Not Apply

By Mike Parnos, The Options Therapist

It takes patience.  It takes vision.  It takes time.  It takes 
discipline.  It takes skill.  It takes character.  It takes 
intestinal fortitude.  It takes an investment.   Do you have all 
of the qualities?  This may sound like I'm selling time-shares or 
an MLM program, but that's not the case.  I don't sell anything.  
I teach.  I coach.  I mentor.   It's up to you to take the 
information and put it to good use.  If you do it right, there's 
an excellent chance of profit.

If you answer "yes" to the questions above, you just might, and I 
repeat "might," be able to generate an average of 6%-7% a month.  
 If you mess it up, it will be a self-inflicted wound.  You can 
put a band-aid on it, but nobody in the market is handing out 
Purple Hearts – or painting them on the band-aids.  And you won't 
be elected president of your investment club.

In our "Ongoing Positions" Section, we've been tracking the 
progress of a QQQ ITM Strangle that was originally put on in 
October of 2003.  We've done reasonably well, but some of my 
monthly adjustment positions could have been better.  We're still 
on schedule to make a very respectable return. (see "ongoing 
positions" below)

It Ain't Easy Makin' Green
We're going to take a long hard look at the QQQ ITM Strangle 
strategy.  We're going to look inside and out and cover the good, 
the bad, and the ugly parts of the strategy.  It may take three, 
four, or five columns, but, if your mind is open, we'll try and 
put something worthwhile in there.

This may be a bit of a review for some CPTI students.  I look at 
it as "initiation" for those newer members of our Couch Potato 
Trading Institute.   I'm going to start out with the basics – 
always a good place to start.  This is going to sound like a 
"can't miss" kind of strategy.  Maybe it is, but, if you don't 
know what you're doing, you can find a way to screw it up.  
Before you know it, you'll be back watching fishing on ESPN2 – 
with a lot less money in your pocket.  So, read the following 
carefully and make sure you understand it well before you venture 
into a position.

If you simply can't resist the temptation, look into the CPTI 
archives from a few years ago and find where I discussed the 
strategy.  I also devoted a number of columns to answering 
specific reader questions on the strategy.      As they said at 
the Olympics, "Let the games begin."  Let's go for the gold.  
___________________________________________________________

THE POSITION 
QQQ ITM Strangle consists of owning in-the-money put and call QQQ 
LEAPS and selling near term options to generate income.  
Essentially, it's a put calendar spread along with a call 
calendar spread.

Using Friday's (Sept. 3rd) closing prices, let's construct a new 
"hypothetical" QQQ ITM Strangle.  We'll use a 10-contract 
position for our example.

The LEAPS
Buy 10 QQQ January 2006 $30 LEAPS call @ $7.10 ($7,100)
Buy 10 QQQ January 2006 $40 LEAPS put @ $7.10 ($7,100)
Total out of pocket is $14,200.

Take a closer look at what we just created.  It's an in-the-money 
strangle.  With the QQQs trading at $34.14, both the long put and 
long call are in-the-money.  The question arises, "How much is at 
risk?"  On the surface it looks like there is $14,200 out there 
in jeopardy.  However, in every long strangle, we also create 
some "intrinsic" value.  It is the difference between the strike 
prices.  In this case, since we own the $30 calls and $40 puts, 
our "intrinsic" value is $10 (x 10 contracts) or $10,000.   

Regardless of where the QQQs trade, between now and January 2006 
expiration, the strangle will have a minimum value of at least 
$10.  So, in reality, there is not $14,200 at risk.  The risk is 
only $4,200.

The Near Term Options
Now comes the fun part.  This is where we make the money.  Don't 
get too excited.  It's not going to be a lot.  Remember, I said 
this is a long-term strategy.  By long-term I means years -- not 
days or weeks or months.  If you're going to close out this 
position in six months because you need to to pay for a 
liposuction procedure, don't waste your time or money on this 
strategy.  If you can, with a clear conscience, make the 
necessary commitment, here's the next step.

Sell 10 QQQ October $34 puts @ $.85 ($850)
Sell 10 QQQ October $35 calls @ $.55 ($550)
Total premium received:  $1.40 ($1,400)

You have just taken in $1,400 on a total investment of $14,200.  
That's almost 10%.  Sounds good, right?  But, it's a little 
deceiving.  There are actually six weeks left until October 
expiration.  That explains the higher premium.  Usually, in a 
month, we will be able to bring in from $.60 ($600) to $1.20 
($1,200).  Over the life of this position, we can hope to average 
about $.90 ($900) per month.  This average will depend, to a 
large extent, on your trading skills – and a little luck, too.

Do The Math
There are 16 option cycles remaining until the LEAPS expire in 
January 2006.  That means there are 16 opportunities to sell near 
term premium against the LEAPS.  

Multiply 16 option cycles times $900 and you'll get $14,400 in 
premium taken in over the life of the position.  In January 2006,  
the LEAPS will expire.  We will retain the $10 of intrinsic 
value, but the $4,200 of money at risk will have eroded away.  
But, that's OK.  We took in $14,400.  Only $4,200 eroded away.  
That leaves $10,200 in premium that is ours – free and clear.

The Return Calculations
We can calculate the return a few different ways.
a) Return on Total Investment.  Over 16 months, we show a profit 
of $10,200 on a total investment of $14,200.   Divide our profit 
of $10,200 by our total investment of $14,200 and you get a 
return of 71.8% -- for 16 months.  Annualized, that's about 54% a 
year.

b) Return on Risk.  Over 16 months, we show a profit of $10,200 
on a total investment of $14,200.   But our actual risk is only 
$4,200.  Divide our profit ($10,200) by our amount at risk 
($4,200) and you get a return on risk of an incredible of 242.8% 
-- for 16 months.

Too Good To Be True?
Do you like those numbers?  Beats the hell out of a CD, doesn't 
it?  Well, now that you've been sufficiently teased, I will leave 
you to ponder.  With these kind of returns, I know that some of 
you will already be planning your retirement.  

Don't get carried away.  It's not a sure thing.  Far from it.  As 
I said before, it will depend on your knowledge and trading 
skills.  By the same token, don't be intimidated either.  It's 
not brain surgery.  But, before you indulge, you should have a 
mental procedure I like to call: an information implant.   And 
that's why you're here . . .  Stay tuned to this station for 
further developments – and the next in our QQQ ITM Strangle 
series.

Have a great Labor Day weekend!  
________________________________________________________________

SEPTEMBER CPTI POSITIONS
September Position #1 – SPX Iron Condor – 1113.63
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 – 556.24
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 "Sure Thing" – 1113.63
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).  When the market 
moved up quickly, we closed out our Sept. 1105/1130 bear call 
spread at a cost of $13.90 ($4,170).  We then put on 7 contracts 
a bull put spread (1110/1085) at $6, taking in $4,200.  Our new 
maintenance requirement is $17,500.

September Position #4 – OEX Iron Condor – 541.06
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%.  
_________________________________________________________________

ONGOING POSITIONS
QQQ ITM Strangle – Ongoing Long Term -- $34.14
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 – see write up in today's 
column text.

ZERO-PLUS Strategy.  OEX – 541.06
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, Options Therapist and 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
*****************************************

Technology Shares Lead The Retreat!
By Ray Cummins

Stocks closed with a bearish bias Friday after a profit warning
from Intel (NASDAQ:INTC) spurred a sell-off in technology issues,
while mediocre jobs data weighed heavily on the broader market.

The Dow Jones industrial average fell 30 points to 10,260, with
computer-related components Hewlett-Packard (NYSE:HPQ), Microsoft
(NASDAQ:MSFT) and Intel (NASDAQ:INTC) enduring the biggest losses.
The tech-laden NASDAQ composite index dropped 28 points to 1,844
with semiconductor, networking and data storage stocks among the
worst performers.  Standard & Poor's 500-stock index closed down
4 points at 1,113, as gold, airline, and defense shares led the
broader market lower.  NYSE volume was 923 million with decliners
pacing advancers nearly 3 to 2.  Trading volume on the NASDAQ was
1.24 billion with similar breadth.  In the bond market, the price
of the 10-year treasury fell 17/32, driving its yield up to 4.28%.
 
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 09/03/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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  68.74  SEP  55.0  60.0  0.40   59.60   0.40   Open
FPL    67.73  69.04  SEP  60.0  65.0  0.45   64.55   0.45   Open
MCO    67.33  69.63  SEP  60.0  65.0  0.65   64.35   0.65   Open
BSTE   44.14  48.41  SEP  35.0  40.0  0.55   39.45   0.55   Open
ISCA   53.40  52.76  SEP  45.0  50.0  0.55   49.45   0.55   Open
LEND   33.89  39.10  SEP  25.0  30.0  0.60   29.40   0.60   Open
PIXR   69.93  78.43  SEP  60.0  65.0  0.45   64.55   0.45   Open
PD     80.77  82.05  SEP  65.0  70.0  0.40   69.60   0.40   Open
RYL    86.01  89.02  SEP  75.0  80.0  0.65   79.35   0.65   Open
FRO    40.05  39.46  SEP  30.0  35.0  0.60   34.40   0.60   Open
NIHD   37.59  37.90  SEP  33.4  35.0  0.20   34.80   0.20   Open
NCEN   53.10  55.65  SEP  45.0  50.0  0.60   49.40   0.60   Open
SEPR   49.35  50.02  SEP  42.5  45.0  0.30   44.70   0.30   Open
GILD   69.39  70.32  SEP  60.0  65.0  0.55   64.45   0.55   Open
PCU    43.29  44.54  SEP  35.0  40.0  0.50   39.50   0.50   Open
MUR    75.51  77.29  OCT  65.0  70.0  0.70   69.30   0.70   Open
RYL    88.15  89.02  OCT  75.0  80.0  0.75   79.25   0.75   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  73.31   SEP  85.0  80.0  0.55   80.55  0.55   Open
CDWC   59.25  58.29   SEP  65.0  60.0  0.45   60.45  0.45   Open
DNA    44.23  49.90   SEP  52.5  50.0  0.35   50.35  0.35   Open?
EASI   43.53  46.02   SEP  55.0  50.0  0.40   50.40  0.40   Open
VLO    64.36  66.20   SEP  75.0  70.0  0.60   70.60  0.60   Open
FD     44.60  45.28   SEP  50.0  47.5  0.30   47.80  0.30   Open
PHS    32.42  32.40   SEP  37.5  35.0  0.30   35.30  0.30   Open
OSTK   31.03  31.43   SEP  40.0  35.0  0.60   35.60  0.60   Open
AMZN   39.90  38.74   SEP  45.0  42.5  0.30   42.80  0.30   Open
CHIR   43.41  42.58   SEP  47.5  45.0  0.30   45.30  0.30   Open
RIMM   60.22  62.36   SEP  70.0  67.5  0.20   67.70  0.20   Open
AZO    74.06  75.69   OCT  85.0  80.0  0.55   80.55  0.55   Open
 
L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss

Genentech (NYSE:DNA) remains on the early-exit list.  Briggs &
Stratton (NYSE:BGG), Guidant (NYSE:GDT), Kmart (NASDAQ:KMRT) and
Vimple Communications (NYSE:VIP) have previously been 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?
CAH     45.79  47.35   SEP   45.0   45.0    3.00    3.40    Open

Our recent straddle in Ditech (NASDAQ:DITC) was the "big winner"
in August as the issue jumped over $4 on a strong earnings report
and the announcement of two additional customers in Asia.  The
earnings date for Cardinal Health (NYSE:CAH) was published in
error by more than one financial information provider (my source
was RightLine, which has since revised its expected date to 9/7),
but the IR department at CAH reportedly said "no date has been
set."  Many traders believe the quarterly report will be released
in the next two weeks -- only time will tell.
      
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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.

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

GIVN - Given Imaging  $38.72  *** Next Leg Up? ***

Given Imaging (NASDAQ:GIVN) provides unique products for the
gastrointestinal community.  The company's principal product,
which incorporates its core technology, is the Given System,
a wireless imaging system for a visual examination of the
gastrointestinal tract.  The Given System uses a miniaturized
video camera contained in a disposable capsule, which Given
refers to as the M2A capsule.  The Given System can be sold in
the United States as a standalone or first-line tool for the
detection of abnormalities of the small intestine.

GIVN - Given Imaging  $38.72

PLAY (less conservative - bullish/credit spread):

BUY  PUT  OCT-30.00  QPG-VF  OI=0    ASK=$0.30
SELL PUT  OCT-35.00  QPG-VG  OI=110  BID=$1.00
INITIAL NET-CREDIT TARGET=$0.75-$0.80
POTENTIAL PROFIT(max)=16% B/E=$34.25


__________________________________________________________________

MBT - Mobile TeleSystems  $140.75  *** Up, Up & Away! ***

Mobile TeleSystems (NYSE:MBT) is a provider of mobile cellular
communications services in the Russian Federation and Ukraine,
employing technology based primarily on Global System for Mobile
Communications.  In addition to standard voice services, the
company offers its subscribers value-added services, including
voice mail, short message service, general packet radio service,
various SMS- and GPRS-based information & entertainment services,
and data and fax transmission.  It also offers its subscribers
the ability to roam automatically throughout Europe and in much
of the rest of the world.

MBT - Mobile TeleSystems  $140.75

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-120.00  MBT-VD  OI=36  ASK=$1.05
SELL PUT  OCT-125.00  MBT-VE  OI=4   BID=$1.45
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$124.50



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

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.

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

MXIM - Maxim Integrated  $40.94  *** Sector Slump! ***

Maxim Integrated Products (NASDAQ:MXIM) designs, develops, and
markets linear and mixed-signal integrated circuits, commonly
referred to as analog circuits.  Its many products include data
converters, interface circuits, microprocessor supervisors,
operational amplifiers, power supplies, multiplexers, delay
lines, real-time clocks, microcontrollers, switches, battery
chargers, battery management circuits, radio frequency circuits,
fiber-optic transceivers, sensors and voltage references.  The
company also provides a range of high-frequency design processes
and capabilities that can be used in custom designs.

MXIM - Maxim Integrated  $40.94

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-50.00  XIQ-JJ  OI=1749  ASK=$0.15
SELL CALL  OCT-45.00  XIQ-JI  OI=282   BID=$0.60
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$45.50


__________________________________________________________________

PLMO - palmOne  $32.20  *** Trend Reversal? ***

palmOne (NASDAQ:PLMO), formerly Palm, develops, designs and sells
Palm-branded, hand-held devices, accessories and the operating
system Palm OS.  The company was historically organized into two
operating segments: the Solutions Group and PalmSource.  Now the
Solutions Group develops and markets hand-held devices and other
accessories to provide the user with a simple, elegant and useful
productivity tool.  PalmSource developed and licensed the Palm OS
and related software, which is referred to as the Palm platform.
The Palm platform is the foundation for Palm devices, as well as
for devices manufactured by other third-party licensees.

PLMO - palmOne  $32.20

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-45.00  UPY-JI  OI=425   ASK=$0.55
SELL CALL  OCT-40.00  UPY-JH  OI=2090  BID=$1.05
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$40.55



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

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

VTS - Veritas DGC  $20.34  *** Delayed Earnings! ***

Veritas DGC (NYSE:VTS) provides integrated geophysical services
to the petroleum industry worldwide.  Its many customers include
national and independent oil and gas firms that use geophysical
technologies to identify new areas where subsurface conditions
are favorable for the production of hydrocarbons, determine the
size and structure of previously identified oil and gas fields
and optimize development and production of hydrocarbon reserves.

VTS - Veritas DGC  $20.34

PLAY (very speculative - neutral/debit straddle):

BUY CALL  SEP-20.00  VTS-ID  OI=26    ASK=$1.15
BUY PUT   SEP-20.00  VTS-UD  OI=1056  ASK=$0.75
INITIAL NET-DEBIT TARGET=$1.75-$1.80
INITIAL TARGET PROFIT=$0.65-$1.00



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

SEE DISCLAIMER - SECTION 1

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



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

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 09/03/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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   19.85    0.36   5.52%   2.30%
MCIP     SEP    15.00   14.30   17.25    0.70   8.50%   4.90%
PAAS     SEP    12.50   12.05   14.64    0.45   6.87%   3.73%
UTHR     SEP    25.00   24.70   30.77    0.30   3.01%   1.21%
AMED     SEP    25.00   24.25   25.76    0.75   6.54%   3.09%
PHM      SEP    50.00   49.25   59.86    0.75   3.32%   1.52%
KOSP     SEP    30.00   29.25   37.31    0.75   5.48%   2.56%
GLBCE    SEP    12.50   11.90   16.04    0.60  11.90%   5.04%
ECLP     SEP    12.50   12.10   14.53    0.40   6.90%   3.31%
OMM      SEP    12.50   12.10   13.15    0.40   6.51%   3.31%
CNCT     SEP    25.00   24.10   25.43    0.90   7.11%   3.73%
TOY      SEP    15.00   14.45   16.53    0.55   7.51%   3.81%
ACF      SEP    20.00   19.25   20.50    0.75   7.16%   3.90%
PLMO     SEP    30.00   29.45   32.20    0.55   5.05%   1.87%
ION      SEP    25.00   24.50   27.23    0.50   4.17%   2.04%
ESLT     SEP    20.00   19.20   19.78    0.58   5.77%   4.17%
WBSN     SEP    35.00   33.75   38.03    1.25   8.46%   3.70%
NTMD     SEP    12.50   12.15   18.50    0.35   8.12%   2.88%
UTHR     SEP    25.00   24.30   30.77    0.70   7.30%   2.88%
CNCT     SEP    25.00   24.30   25.43    0.70   6.65%   2.88%
DDS      SEP    20.00   19.50   19.85    0.35   4.42%   2.56%
MEE      SEP    22.50   22.00   28.36    0.50   5.93%   2.27%
FOSL     SEP    25.00   24.35   28.64    0.65   5.95%   2.67%
HUM      SEP    17.50   17.10   19.27    0.40   5.34%   2.34%
SCSC     SEP    50.00   49.40   60.99    0.60   3.30%   1.21%
JOSB     SEP    24.00   23.52   28.17    0.48   5.27%   2.04%
ECLP     SEP    12.50   12.20   14.53    0.30   6.57%   2.46%
WBSN     SEP    35.00   34.05   38.03    0.95   7.44%   2.79%
ARO      SEP    30.00   29.05   30.82    0.95   7.67%   3.27%
MW       SEP    25.00   24.60   29.29    0.40   4.22%   1.63%
TOL      SEP    40.00   39.05   45.14    0.95   6.19%   2.43%
SEAC     SEP    15.00   14.40   15.52    0.60  12.11%   4.17%
CLHB     SEP    10.00    9.60   10.93    0.40  10.87%   4.17%
NTMD     SEP    15.00   14.65   18.50    0.35   8.62%   2.39%
ESLT     SEP    20.00   19.20   19.78    0.58   7.69%   4.17%
MYGN     SEP    15.00   14.55   16.23    0.45   8.06%   3.09%
NAVR     SEP    12.50   12.15   14.67    0.35   9.14%   2.88%
IVX      SEP    18.00   17.56   19.85    0.44   7.02%   2.51%
UTHR     SEP    25.00   24.40   30.77    0.60   8.89%   2.46%
AAPL     SEP    30.00   29.50   35.23    0.50   5.37%   1.69%
ARO      SEP    30.00   29.50   30.82    0.50   5.51%   1.69%
SONO     SEP    22.50   22.05   25.33    0.45   6.40%   2.04%
ESLT     SEP    20.00   19.30   19.78    0.48   7.49%   3.63%
MEE      SEP    25.00   24.45   28.36    0.55   7.13%   2.25%
SRDX     SEP    22.50   21.90   24.11    0.60   8.40%   2.74%
IVX      SEP    18.00   17.52   19.85    0.48   8.94%   2.74%
BSTE     SEP    45.00   44.45   48.41    0.55   4.16%   1.24%
FCN      SEP    17.50   17.05   18.34    0.45   7.56%   2.64%
PSRC     SEP    20.00   19.35   22.81    0.65  16.45%   3.36%
MYGN     SEP    15.00   14.70   16.23    0.30   8.01%   2.04%
LCAV     SEP    22.50   21.95   24.45    0.55  10.09%   2.51%
ATI      SEP    17.50   17.10   19.18    0.40   9.15%   2.34%
LNG      SEP    15.00   14.70   20.84    0.30   9.15%   2.04%
DITC     SEP    20.00   19.55   21.83    0.45   9.32%   2.30%
ICOS     SEP    25.00   24.60   25.47    0.40   6.46%   1.63%
WNC      SEP    25.00   24.60   28.10    0.40   6.62%   1.63%
BEIQ     SEP    25.00   24.70   27.12    0.30   5.32%   1.21%
DITC     SEP    20.00   19.55   21.83    0.45  10.09%   2.30%
SHFL     SEP    30.00   29.35   32.22    0.65  10.20%   2.21%
ATI      SEP    17.50   17.20   19.18    0.30   7.78%   1.74%
SNDA     SEP    20.00   19.70   21.70    0.30   7.46%   1.52%
GMR      SEP    25.00   24.65   28.28    0.35   6.58%   1.42%
AAPL     SEP    32.50   32.05   35.23    0.45   6.20%   1.40%
SONO     SEP    22.50   22.10   25.33    0.40   8.03%   1.81%

PalmOne (NASDAQ:PLMO), which is currently profitable, Possis
Medical (NASDAQ:POSS) and Kyphon (NASDAQ:KYPH), have previously
been closed to limit losses.


NAKED CALLS

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

CRDN     SEP    40.00   40.50   41.58   (1.08)  0.00%   0.00%
SWIR     SEP    35.00   35.60   16.49    0.60   7.40%   1.69%
AVID     SEP    50.00   50.50   43.44    0.50   3.56%   0.99%
USPI     SEP    37.50   38.05   36.29    0.55   3.90%   1.45%
BDY      SEP    25.00   25.75   24.82    0.75   7.42%   2.91%
DRIV     SEP    30.00   30.30   24.15    0.30   4.51%   0.99%
SINA     SEP    30.00   30.35   20.83    0.35   5.84%   1.15%
ERES     SEP    22.50   22.80   19.54    0.30   6.66%   1.32%
MRVL     SEP    25.00   25.40   22.87    0.40   8.22%   1.57%
ICUI     SEP    30.00   30.65   27.30    0.65   7.56%   2.12%
SWIR     SEP    30.00   30.30   16.49    0.30   5.90%   0.99%
UPL      SEP    45.00   45.40   43.30    0.40   4.90%   0.88%
MCHP     SEP    30.00   30.65   25.26    0.65   6.97%   2.12%
EYET     SEP    45.00   45.75   34.00    0.75  10.85%   1.64%
CMX      SEP    30.00   30.45   28.92    0.45   4.86%   1.48%
IDXC     SEP    30.00   30.30   29.71    0.30   3.95%   0.99%
BRCM     SEP    32.50   32.90   25.98    0.40   5.76%   1.22%
ELAB     SEP    30.00   30.55   25.21    0.55   8.34%   1.80%
MRVL     SEP    25.00   25.35   22.87    0.35   5.80%   1.38%
RSTI     SEP    30.00   30.65   28.01    0.65  10.87%   2.12%
ASKJ     SEP    30.00   30.35   24.11    0.35   7.04%   1.15%
PSFT     SEP    20.00   20.35   17.68    0.35  11.10%   1.72%
PLMO     SEP    40.00   40.25   32.20    0.25   6.23%   0.62%
RECN     SEP    35.00   35.50   34.09    0.50   7.42%   1.41%
ASTE     SEP    17.50   17.95   17.50    0.45  12.48%   2.51%

The "watch" list position in Ceradyne (NASDAQ:CRDN) should have
been closed by conservative traders.  Bradley Pharma (NYSE:BDY),
IDX Systems (NASDAQ:IDXC), United Surgical (NASDAQ:USPI), and
Ultra Petroleum (NYSE:UPL) are possible "early-exit" candidates.
Dick's Sporting Goods (NYSE:DKS) has previously been closed to
limit potential losses.

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

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

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

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

NEW NAKED-PUT CANDIDATES

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

FLE    13.34  SEP 12.50  FLE-UV 0.25  100 12.25  12   5.2%  13.4%
EPIX   21.52  SEP 20.00  FCU-UD 0.25   58 19.75  12   3.2%   8.6%
MDCC   23.98  OCT 22.50  MCQ-VX 0.75   22 21.75  39   2.7%   6.6%
CC     13.64  OCT 12.50  CC-VV  0.35 5584 12.15  39   2.2%   5.9%
BLUD   21.85  OCT 20.00  QMQ-VD 0.50    3 19.50  39   2.0%   5.3%
NIHD   37.90  SEP 35.00  QHQ-UG 0.25  411 34.75  12   1.8%   5.1%
SSYS   27.00  OCT 22.50  QQG-VX 0.40    0 22.10  39   1.4%   4.7%
MOGN   29.28  OCT 25.00  QOG-VE 0.40  310 24.60  39   1.3%   4.0%

Abbreviations:

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

FLE - Fleetwood Enterprises  $13.34  *** Solid Earnings! ***

Fleetwood Enterprises (NYSE:FLE) produces recreational vehicles,
including motor homes, travel trailers and folding trailers, as
well as manufactured housing.  Fleetwood's vertically integrated
housing operations are completed by its subsidiary, HomeOne
Credit, which offers finance and insurance products to its
retail customers.  In addition, Fleetwood operates four supply
companies that provide components for the recreational vehicle
and housing operations, while also generating outside sales.

FLE - Fleetwood Enterprises  $13.34

SEP 12.50 FLE-UV LB=0.25 OI=100 CB=12.25 DE=12 TY=5.2% MY=13.4%


_________________________________________________________________

EPIX - EPIX Medical  $21.52  *** On The Rebound! ***

EPIX Medical (NASDAQ:EPIX) is a developer of targeted contrast
agents that are designed to improve the diagnostic quality of
images produced by magnetic resonance imaging (MRI).  MRI is
an imaging technology for range of applications, including the
identification and diagnosis of a variety of medical disorders.
The company is developing two products, MS-325 and EP-2104R, for
use in MRI to improve the diagnosis of multiple cardiovascular
diseases affecting the body's arteries and veins (the vascular
system).

EPIX - EPIX Medical  $21.52

SEP 20.00 FCU-UD LB=0.25 OI=58 CB=19.75 DE=12 TY=3.2% MY=8.6%


_________________________________________________________________

MDCC - Molecular Devices  $23.98  *** Rally Mode! ***

Molecular Devices (NASDAQ:MDCC) is engaged mainly in the design,
development, manufacture, sales and service of bioanalytical
measurement systems, including specialized screening solutions
and a variety of general-purpose research instruments, for life
sciences and drug discovery applications.  A majority of the
firm's products use optical technologies to detect the results
of biological tests that occur in microplates.  The company's
drug discovery systems are used to screen large numbers of
chemical compounds to assess their effects on disease targets,
and their life sciences products include bench-top detection
and liquid handling devices.

MDCC - Molecular Devices  $23.98

OCT 22.50 MCQ-VX LB=0.75 OI=22 CB=21.75 DE=39 TY=2.7% MY=6.6%


_________________________________________________________________

CC - Circuit City Stores  $13.64  *** Entry Point? ***

Circuit City Stores (NYSE:CC) is a national retailer of consumer
electronics, personal computers and entertainment software.  The
company operates stores that design feature-flexible displays to
accommodate new product offerings and offers name-brand products
as well as its own private-label merchandise brands.  The firm's
products includes a range of video and audio equipment, security
systems, personal computers, software and peripherals, and other
consumer electronics.

CC - Circuit City Stores  $13.64

OCT 12.50 CC-VV LB=0.35 OI=5584 CB=12.15 DE=39 TY=2.2% MY=5.9%


_________________________________________________________________

BLUD - Immucor  $21.85  *** New 2004 High! ***

Immucor (NASDAQ:BLUD) develops, manufactures and sells a line
of reagents and automated systems used primarily by hospitals,
clinical laboratories and blood banks.  Most of the company's
reagent products are used in tests performed prior to blood
transfusions to determine the blood group and type of patients'
and donors' blood in the detection and identification of blood
group antibodies, in platelet antibody detection, in paternity
testing and in prenatal care.  The company's blood bank testing
systems operates exclusively with its proprietary reagent lines
and capture technology.

BLUD - Immucor  $21.85

OCT 20.00 QMQ-VD LB=0.50 OI=3 CB=19.50 DE=39 TY=2.0% MY=5.3%


_________________________________________________________________

NIHD - NII Holdings  $37.90  *** Next Leg Up? ***

NII Holdings (NASDAQ:NIHD) offers digital wireless communication
services targeted at meeting the needs of business customers
located in selected Latin American markets.  The firm principal
operations are located in major business centers and related
transportation corridors of Mexico, Brazil, Argentina and Peru.
Its digital mobile networks support multiple digital wireless
services including digital mobile telephone service, including
advanced calling features such as speakerphone, conference
calling, voice-mail, call forwarding and additional line service.

NIHD - NII Holdings  $37.90

SEP 35.00 QHQ-UG LB=0.25 OI=411 CB=34.75 DE=12 TY=1.8% MY=5.1%


_________________________________________________________________

SSYS - Stratasys  $27.00  *** Consolidation Complete? ***

Stratasys (NASDAQ:SSYS) develops, builds, sells and services a
family of three-dimensional printers and other rapid prototyping
systems that enable engineers and designers to create physical
models, tooling and prototypes from plastic and other materials,
directly from a computer-aided design workstation.  The firm's
computerized modeling systems use its technology to make models
and prototypes from a designer's 3D CAD in a matter of hours.
Stratasys' offerings include Dimension, Prodigy Plus, FDM Titan
and Vantage.

SSYS - Stratasys  $27.00

OCT 22.50 QQG-VX LB=0.40 OI=0 CB=22.10 DE=39 TY=1.4% MY=4.7%


_________________________________________________________________

MOGN - MGI PHARMA  $29.28  *** Pure Premium-Selling! ***

MGI PHARMA (NASDAQ:MOGN) is an oncology-focused biopharmaceutical
company that acquires, develops and commercializes proprietary
pharmaceutical products that meet cancer patient needs.  The
company's marketed products include Aloxi injection, for the
prevention of chemotherapy-induced nausea and vomiting; Salagen
Tablets, as a treatment for the symptoms of radiation-induced dry
mouth in head and neck cancer patients and to rheumatologists as
a treatment for dry mouth associated with the autoimmune disease
Sjogren's syndrome; and Hexalen capsules, which are an orally
administered chemotherapeutic agent.

MOGN - MGI PHARMA  $29.28

OCT 25.00 QOG-VE LB=0.40 OI=310 CB=24.60 DE=39 TY=1.3% MY=4.0% TS



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

BEARISH PLAYS - NAKED CALLS

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

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

ESIO - Electro Scientific  $19.70  *** The Downtrend Resumes! ***

Electro Scientific Industries (NASDAQ:ESIO) designs and makes
high-technology manufacturing equipment for the electronics
market, including advanced laser systems that are used to
microengineer electronic device features in high-volume
production environments.  The company operates within the high
technology manufacturing equipment segment, comprised of three
product groups: the semiconductor group, the passive components
group and the electronic interconnect group.  Principal products
include laser manufacturing systems for semiconductor yield
improvement; production, test and inspection equipment for the
manufacture of passive components; laser micro-via drilling
systems used to process high-density interconnect circuit boards
and machine vision systems.

ESIO - Electro Scientific  $19.70

PLAY (sell naked call):

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

SELL CALL  OCT 22.5  EQO-JX      7    0.50  23.00   7.0%   2.2%


_________________________________________________________________

MRVL - Marvell Technology  $22.87  *** In A Trading Range! ***

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

MRVL - Marvell Technology  $22.87

PLAY (sell naked call):

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

SELL CALL  OCT 25    UVM-JE     369   0.65  25.65   6.6%   2.5%


_________________________________________________________________

OSTK - Overstock.com  $31.43  *** Pure Premium-Selling! ***

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

OSTK - Overstock.com  $31.43

PLAY (sell naked call):

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

SELL CALL  SEP 35    QKT-IG    2757   0.30  35.30   8.2%   0.8%




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