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Daily Newsletter, Tuesday, 09/21/2004

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The Option Investor Newsletter                 Tuesday 09-21-2004
Copyright 2004, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Surprise, No Surprise
Futures Markets: See Note
Index Trader Wrap: Summer doldrums ends as the big board breaks out
Market Sentiment: Mixed Signals


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      09-21-2004           High     Low     Volume   Adv/Dcl
DJIA    10244.93 + 40.00 10270.52 10200.25 1.62 bln 2238/ 979
NASDAQ   1921.18 + 13.10  1925.85  1909.43 1.56 bln 2023/1108
S&P 100   544.74 +  2.81   546.08   541.93   Totals 4261/2087
S&P 500  1129.30 +  7.10  1131.54  1122.20 
SOX       403.75 +  3.90   406.66   399.90
RUS 2000  576.92 +  6.18   577.15   570.74
DJ TRANS 3271.22 + 28.90  3271.62  3243.11
VIX        13.66 -  0.77    15.97    13.39
VXO (VIX-O)12.86 -  0.92    14.15    12.66
VXN        20.30 -  0.26    20.70    19.88 
Total Volume 3,472M
Total UpVol  2,519M
Total DnVol    892M
Total Adv  4821
Total Dcl  2403
52wk Highs  270
52wk Lows    71
TRIN       0.72
NAZTRIN    0.86
PUT/CALL   0.76
************************************************************

Surprise, No Surprise
by Jim Brown

The FOMC meeting has passed into the history books and 
there was very little change from the last meeting. The
Fed hiked rates and kept the "measured pace" language.
Traders hoping for a break in the pace were disappointed
that the expected surprise was not delivered. 

Dow Chart

 
Nasdaq Chart

 
NDX Chart

 
Russell Chart

 
SOX Chart

 

The markets started out positive with traders cheering
the jump in Residential Construction and ignoring the
now routine drop in Chain Store Sales. The Chain Store
Sales number fell -1.1% for the week and continued the
weak back to school season. The drop was the sharpest
decline since June and analysts suggested improper
seasonal adjustments were the problem. 

The falling mortgage interest rates continued to push
New Home Construction back to the two million level
in August. This continued the growth from July where
the headline number jumped +171,000 to 1.988M. The
single family starts are growing slower than multifamily
units but both are growing and that is good news for
the economy. Building permits did drop -114,000 in
August but with fall weather ahead this is a normal
seasonal occurrence. Builders are taking a page from
the auto dealer play book and they are offering cash
back, upgrades, furniture, cheap interest and even
vacations to induce buyers to make the commitment now
and not hold inventory over the winter. 

Despite the Fed raising rates to 1.75% today the real
rates fell with bonds jumping on the Fed announcement.
The ten-year rate fell to 4.04% and a new five-month
low. This is a reaction to the weak economics and the
slow and measured pace comments. Bond traders still
expect the Fed to take a pass at the November meeting.

As I stated above the Fed meeting was a non-event with
the quarter point hike as expected. The statement was
mixed on economic comments. The Fed said output growth
appears to have regained some traction after moderating
earlier in the year. They felt labor conditions had
improved only modestly and inflation expectations have
eased. They said the risk of inflation and deflation
were still roughly equal. The committee kept its "pace
that will likely be measured" language and raised the 
rate to remove the current over accommodative posture.
Yawn, no surprise and no change with the exception of 
the possibly slightly stronger language about the
economy. You would have to look hard to see it. Traders
initially thought it was a concession to the future and
a potentially softer side of the Fed but once the full
statement saw the light of day the excitement faded.

The markets spiked on the news as they always do then
faded as is the norm. Once the smoke cleared a buy 
program tried to break the overhead resistance but
all they got for their effort was a failed rally. 
The Dow fell back below 10250 which has become short
term resistance. The Nasdaq fell back to 1920 and the
upper end of its range for the last two weeks, also
strong resistance. The SPX broke 1130 for about 20 min
before slipping back below that strong resistance level
at the close. The only index to really close above its
recent resistance was the Russell at 576.80 and that
was tenuous at best. After the close the various 
futures contracts bled a few more points despite some
decent earnings and no real warnings. 

Adobe beat the street and raised guidance. PAYX reported
inline with estimates as well as CBK. JBL beat analysts
by a penny and traded up about +1.60 in after hours. 
The markets had traded higher early in the day after
Lehman and Goldman both beat estimates by a mile. 
General Mills was a slight drag on the market after
it reported earnings that fell -19% due to higher
prices for its ingredients.  

It was amazing we moved higher at all with oil reaching
a new five week high and trading over $47 for most of
the day. The futures closed at $46.90 but fear of more
terrorist acts, Yukos and production slowdowns due to 
the hurricanes is keeping it higher. Tomorrow at 10:30
we get the oil and gas inventories for the week and we
have seen drops in inventories for the last seven weeks.
It appears traders are speculating that trend will
continue. The drop in inventory levels has been due 
to refineries reluctance to buy the high priced oil
according to analysts. With the summer driving season
over they are playing chicken with supplies and hoping
to produce only as much gasoline as necessary to avoid
passing the high prices up the chain. Eventually we
will reach a level where gasoline inventories will 
force them to add to crude supplies. 

The XOI Oil Index rose +20 for the day and it was
the largest one day jump since July 29th 2002. The
695.75 close is a seven-year high. In a complete 
disconnect from reality the Dow transports also hit
a new five year high at 3271. Something is definitely
wrong with this picture. 

The earnings picture took another turn south today 
with Abby Joseph Cohen predicting profit growth of
only +5% for all of 2005. That is the lowest level
I have heard and even lower than the +8.5% Reuters
number from last week. Seems we are faced with a race
to quote lower for this cycle instead of the constantly
increasing quotes for the last couple quarters. 

According to Zachs 85% of companies met or exceeded
earnings in Q2 and that quarter finished with +34%
earnings growth. Zachs current estimate for the 3Q
earnings growth is +14% to +15%. This is below the
+13% to +17% range given by Reuters just last Friday.
Assuming the numbers are close and will not get
worse is that still confirmation of a growing
economy and justification for a bull market? In 
most cases the answer is yes. We are just spoiled
by the huge gains over the last year.  

I mentioned earlier that the bonds soared on the
Fed announcement. Does that strike you as strange?
It should because there are only two real reasons
for bonds to be soaring. Either inflation is dead
for the foreseeable future or the economy is slipping
back into recession. The Fed comment today suggests
the inflation monster is not dead but at least
contained for the near term. The other side of that
coin is the economic strength. I just profiled the
earnings deceleration for you above. We have been
getting daily tech warnings and the chip sector 
could be on the verge of yet another round of order
push outs. Could it be that BOTH possibilities are
possible. Could inflation be dropping along with the
economy because we are heading into a depression? 
Scary thought but how else do you justify the four
month drop in real interest rates and the rise in
bond prices? Doesn't the Fed want rates to go higher
and bonds to weaken? With "real" rates falling the
Fed may be forced to raise rates even faster to slow
the descent. The various possibilities here for the
economic forecast are numerous enough to make your
head spin. 

Those analysts that get paid the big bucks are not
quite as positive about the markets chances as they
were just a couple weeks ago. They are now claiming
the market rallied on the post convention Bush bounce,
the drop in oil prices from the 8/20 August highs
and the recovery in the Jobs numbers. The Arnold
speech was given as the turning point in the market. 
That was August 31st and well after the price of
oil began to drop and long after the 8/16 beginning
of the current rally. It was however the rebirth of
the current rally which had failed for two days 
before that 8/31 Arnold speech. August 31st was also
the turning point in oil prices at their $41.40 low.
The march higher was choppy as the various Yukos/IRAQ
scenarios played out but for the last week there has
been no hesitation. The prices are nearing the August
highs and the equity markets are not paying attention. 

I believe this cannot continue indefinitely. The
current warning ratio is nearly 3:1 compared to those
who have affirmed guidance. We are hearing on all fronts
that profits are decelerating and analysts are racing
to post the lowest estimate. Money is pouring into
bonds while overall economics are less than inspiring.
My point to all of this is what will push traders to
chase prices higher? Abby said it best today. She said
the early stages of a bull market are full of vim and
vigor. Once that initial stage has passed and the 
consolidation begins the next stage of the market is
marked by durability. The sex appeal has gone and the
lure of doubling your money has passed. Now traders
have to decide is the potential for another +10% to
+20% is worth the risk. Is it worth buying more at 
three-month highs and at strong resistance?

That brings us to tomorrow and the rest of the week.
The SPX, Nasdaq and Russell are all right at very
strong resistance and are either poised to break out
or break down. I know you have heard this before but
if you are a bear this is exactly where you want to
enter your next short. If you are a bull this is the
resistance that must break for any material move to
succeed. What if this resistance does break? What 
then? The SPX has even stronger resistance at 1140
and 1150. The odds of those breaking before the 
election are very slim. The S&P is the strongest of
the major indexes with the Dow and Nasdaq still in a
down trend even if they break their current resistance
levels. I don't want to belabor the facts but the 
markets are not as bullish as some would have you 
think.

I do believe we will move higher before the end of
the year and we should move higher into the election.
How much higher is the question, when and why? With the
earnings warning season due to increase in intensity
as each day passes the bears are getting excited. The
bulls are saying so what? We know that already, buy
more, there is always a post election rally. I fear
that is exactly the sentiment that we should worry
about. 

Is it just the expectation of the post election 
bounce that is really powering all the bad news 
rallies we are seeing? The Stock Traders Almanac
does a great job in telling us how the markets have
moved both before and after every election cycle for
the last fifty years. The trend is well known and 
every four years traders try to capitalize on it. I
have seen several other trends of late fail to appear
once the masses begin to depend on them. I am beginning
to think this post election cycle may leave something
to be desired. I will be happy to ride any wave higher
but I am going to be looking for the sharks behind me.

This week should be the key for me. Economic reports
are few and there should be nothing for the market 
to focus on other than stocks. If we can move higher
this week it would mean strong resistance had failed
and bulls found the conviction and volume necessary 
to overcome not only the resistance but the declining
sentiment. 

Next week the calendar heats up and the road becomes
more bumpy. The closer we get to October the more 
uncomfortable traders will become because the October
dip is the longest running trend around. That dip is
produced by a weak earnings cycle and mutual fund 
rebalancing before the typical year end rally. Do 
the bulls have the conviction to push us higher in
front of that trend? We should have that answer 
really soon.   

Enter Passively, Exit Aggressively. 

Jim Brown
Editor


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

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


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

Summer doldrums ends as the big board breaks out

While today's FOMC decision on interest rates was eagerly 
awaited, it may have been the autumnal equinox that big board 
traders looked forward to most as gains for energy stocks, miners 
and homebuilders had the very broad and institutionally held NYSE 
Composite (NYA.X) 6,633.22 +1.02% rising more than 67 points and 
breaking above this summer's highs.

I'm certain today's break above June's relative highs for the 
NYSE Composite is purely coincidental, but with today being the 
last day of summer in the northern hemisphere, as marked by the 
autumnal equinox, it is a fascinating coincidence indeed.

The Federal Open Market Committee (FOMC) didn't offer up any 
surprises with today's decision to raise it target for fed funds 
to 1.75% from 1.50%, and the FOMC's brief statement read nearly 
verbatim to the June 30 release 
http://www.federalreserve.gov/boarddocs/press/monetary/2004/20040630/default.htm
 and August 10 release 
http://www.federalreserve.gov/boarddocs/press/monetary/2004/20040810/default.htm
.
As I read today's statement more closely, there were a couple of 
and words missing.  

"Transitory factors," which the FOMC had used to describe 
incoming inflation data in June and August was stricken from 
today's minutes.

"Softness," which was used to describe output growth and pace of 
the labor market in August, was also missing from today's brief 
statement.

Here's a link to today's FOMC statement.

U.S. Market Watch - 09/21/04 Close

 

While the autumnal equinox marks the end of summer and the 
beginning of autumn as night and day are nearly of the same 
length, Treasury yields trade just the INVERSE of what normal 
logic would have them doing with the FOMC raising rates, while 
the same would be true for TRANSPORTS as energy prices are back 
on the rise.

October Crude Oil futures (cl04v) rose above the $47.00 level and 
trade $47.10 ahead of tomorrow morning's 10:30 AM EDT release of 
weekly inventory reports, but that didn't stop the transports as 
depicted by the economically sensitive Dow Transportation Average 
(TRAN) 3,271.22 +0.89% from closing at new 5-year highs!

The trade in Treasuries remains perplexing with NOBODY having the 
etched-in-stone affirmative answer to what is going on.

Low inflation, hedge fund buying or slowing economy are three 
scenarios for the benchmark 10-year yield ($TNX.X) hovering just 
above 4%, but trading at 6-month lows.

With low Treasury yields, comes lower mortgage rates.  Strong 
earnings from Lennar (NYSE:LEN) $47.24 +2.8% as well as KB Homes 
(NYSE:KBH) $83.36 +9.32%, which raised fiscal 2004 and 2005 
earnings estimates set the Dow Jones Home Construction Index 
(DJUSHB) 671.89 +4.01% surging to the top of today's sector 
winner's list.

Gold bugs glowed as the HUI finally broke above its 200-day SMA 
(209.43) after falling below this longer-term simple moving 
average on April 20.

While the HUI makes a move above its 200-day SMA, the Dow 
Industrials (INDU) continues to battle with downward trend and 
its 200-day SMA (10,293).  Both the NASDAQ-100 Index (NDX.X) and 
broader NASDAQ Composite ($COMPX) remain just below their 
respective 200-day SMAs of 1,441 and 1,966.

Sectors I see very near their 200-day SMA's at today close have 
the CBOE Internet Index (INX.X) challenging its 200-day SMA for a 
sixth-straight session, while the Combined Telecom Index 
(QCharts: IXTCX) 177.68 +1.51%, which is comprised of wireless 
and land telecom service providers found a bounce higher from its 
rising 21-day SMA today, and looks set for another challenge of 
its 200-day SMA (181) after a failed first try on Monday of last 
week, September 13.

Hmmmm... the Securities Broker Dealer Index (XBD.X) 129.55 +2.55% 
looks technically similar to the Combined Telecom Index, where 
stronger than expected earnings from Goldman Sachs (NYSE:GS) 
$94.90 +3.51% and Lehman Brothers (NYSE:LEH) $79.75 +4.9% 
provided a lift in today's session.

Tomorrow morning, Morgan Stanley (NYSE:MWD) $52.38 +2.78% and 
Bear Stearns (NYSE:BSC) $90.09 +2.67% report quarterly results.

Market Snapshot / Internals - 09/21/04 Close

 

Advance/decline lines were bullish from the opening bell and 
built stronger to the close.  Volumes were brisk, but not overly 
heavy and while the S&P 500 Index (SPX.X) looked ready to erupt 
when a buy program premium was generated at 03:00 PM EDT as the 
SPX lifted to a session high of 1,131.54, it would appear to me 
that some 4 and 5-lettered stocks created somewhat of a drag in 
the final hour of trade.

At 03:00 PM EDT, NASDAQ-100 heavyweight Microsoft (NASDAQ:MSFT) 
$27.28 was ticking above $27.50, but faded to the close.  I can 
find no news to explain a sudden drop from $27.43 to $27.29 in 
the final 5-minutes of trade, where 2.6 million shares where 
traded, and this action looks like some type of program initiated 
trade to its close.  MSFT's final hour decline had the QQQ moving 
back from its session high of $35.84 found at 03:00 PM EDT.

NYSE Composite ($NYA.X) - Daily Intervals

 

The NYSE Composite ($NYA.X) faced a formidable test of strength 
on September 2 in our 03:15 PM EDT update as it approached the 
conventional 50% (blue) retracement and our "cheater's trend" 
(dashed red).  Since the conventional 61.8% retracement couldn't 
fully explain the June resistance just above 6,574, I slapped a 
PINK "fitted retracement" at a high close of 6,611, a level 
buyers were unable to break on a closing basis.

As the last days of summer draws to an end, so has this summer's 
resistance in the NYSE Composite.

You've probably been noticing the NYSE 5-day NH/NL ratio wavering 
of late.  Today's expansion of new highs gets a little kick and 
with Stochastics confirming a break of a range, I think the NYSE 
Composite most likely moves higher into the next upper zone of 
resistance, which would correlate with this Spring's relative 
highs.

Today's trade is bullish for the NYSE as it would make for a 
HIGHER high compared to June's bounce highs, from a massive 
double bottom marked by May and August's lows near 6,211.

Dow Jones Home Construction Index (DJUSHB) - Daily Intervals

 

The homebuilder sector is not necessarily a sector a trader 
trades, but I've mentioned bullish trades in two of my 
"favorites" that I hold in DR Horton (NYSE:DHI) $33.75 +5.07% and 
Toll Brother (NYSE:TOL) $47.80 +3.55%.  Other sector bulls will 
still trade DHI, TOL and other "like stocks" using the DJUSHB as 
a guide.  Tomorrow morning we'll get the Mortgage Bankers 
Association weekly figures for purchases, refinancings, etc.  I'm 
looking to sell 1/2 position profits regardless of the figures as 
the homebuilders have made a very nice move higher, but trade the 
upper end of the a bullish regression channel.  A near-term "blow 
off" move could see the rally extend to 700.  Bulls and bears 
that have traded this sector will have noticed that the DJUSHB 
has shown the ability to trade outside of its bullish regression 
channels in the past.

AMEX Gold Bugs Index ($HUI.X) - Daily Intervals

 

Gut feel is that we saw a lot of "gold bears" and "gold 
bugs/bulls" doing some aggressive buying today.  All day the 
$HUI.X was pinned just under 211.20, but when the Dollar Index 
(dx00y) 88.12 -0.97% broke back under its WEEKLY S1 of 88.32, 
buyers pressed the $HUI.X firmly higher.

Pivot Analysis Matrix -

 

One can never be certain, but I feel as if Treasuries are way 
"overbought" and we're reading for a reversal after a very 
bullish move from May's YIELD highs.  One trade I'd be alert to 
is for the 10-year yield ($TNX.X) to print under 4.0%, which for 
bond trader's is almost equivalent to "Dow 10,000."

I could see some Treasury bears capitulate here, drive YIELD 
under, or NEAR the three correlative YIELD supports (Daily S2, 
WEEKLY S2 and MONTHLY S1), where a REVERSAL could then take place 
on a snap back above DAILY Pivot and WEEKLY S1.  I don't think a 
mortgage refinancer, or a "lock'em in" mortgage originator could 
go too wrong should the benchmark bond dip under 4.0%.

The QQQ printed a session low early this morning at $35.44, just 
two cents above the WEEKLY Pivot, which has NOT been traded at 
this point.  The SOX.X finds buyers just above the psychological 
400.00 level, but was unimpressive in today's trade.  Darned, I 
missed marking the SOX.X correlative resistance of DAILY R1 
406.80 and MONTHLY R1 of 406.58.  MONTHLY R1 in the SOX.X has not 
been traded all month.  If it does get traded, today's move in 
the HUI.X could be small in comparison to potential short-
covering in the chips, on a break much above 407.

According to Dorsey/Wright and Associates, their Semiconductor 
Bullish % (BPSEMI) fell 0.63% today, but remains in "bull alert" 
status at 20.89%.  

Jeff Bailey


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

Mixed Signals
- J. Brown

The market continues to flash investors mixed signals.  The Dow 
Industrials did rally but the bounce began to fail this 
afternoon.  Meanwhile the NASDAQ Composite continued to climb and 
broke through its simple 100-dma.  The S&P 500 is out performing 
the Dow today but it too is stuck under resistance.  Overall the 
market turned in a rather bullish session.  Every sector closed 
in the green with homebuilders, networking and oil stocks as the 
strongest sectors.

Market internals were very bullish.  Advancers beat decliners by 
20-to-7 on the NYSE and 2-to-1 on the NASDAQ.  Up volume was 
about 3 times down volume on the NYSE and about 2.5 times down 
volume on the NASDAQ.  

Investors appeared to interpret the FOMC's interest rate hike to 
1.75 percent, the third hike this year, as a positive vote of 
confidence on the economy.  Yet bonds continued to climb even as 
stocks ticked higher.  If the economy is improving why are 
investors moving money into the "safety" of bonds?  Jim goes into 
more depth in tonight's market wrap.  

Another boost to investor confidence today was the housing 
starts, which came in above economists' expectations.  
Homebuilders were the best performers today with a 4 percent 
rally in the DJUSHB index.  Adding fuel to the move was KBH and 
LEN who both reported earnings and beat estimates last night.  

Sounds like a bunch of good news doesn't it?  Somehow traders are 
turning a blind eye to the rise in crude oil.  Prices climbed to 
over $47 a barrel today and closed at $46.26 up 1.46 percent.  
The OIX oil index soared 2.77 percent to hit new all-time highs.  
Rising oil prices may be good for the producers and refiners but 
it takes a heavy toll on the rest of the economy from 
manufacturers to consumers.  

If the oil issue wasn't bad enough Wall Street seems to be 
ignoring the steady stream of earnings warnings as well.  There 
was a truck load of bad news from the technology sector today but 
the group still churned higher.  Of course some of today's 
earnings news was positive but it didn't come from the technology 
sector.  Besides I don't believe that a couple of strong 
earnings reports from Goldman Sachs (GS) and Lehman Brothers 
(LEH) was enough to inspire a new wave of confidence.   The 
brokers almost always beat the estimates and the earnings 
warnings are only supposed to grow in number as we near the next 
earnings season.

Speaking of confidence I don't have much confidence in bullish
plays with the VIX/VXO volatility indices trading so low today.  
The VXO hit new multi-year lows at 12.86 this afternoon.  We 
don't have to tell you just how bearish that is on a contrarian 
basis.  Then again as Art Cashin reiterated on CNBC today the 
market tends to fool the greatest number of people as often as 
possible and if you've been watching the volume of puts on the 
QQQs lately then the market should be heading higher to confound 
the hordes of put owners looking for a decline on the NASDAQ.

Yes, we have plenty of mixed signals.


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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  9230
Current     : 10244

Moving Averages:
(Simple)

 10-dma: 10250
 50-dma: 10128
200-dma: 10272



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  990
Current     : 1129

Moving Averages:
(Simple)

 10-dma: 1123
 50-dma: 1101
200-dma: 1116



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1301
Current     : 1435

Moving Averages:
(Simple)

 10-dma: 1416
 50-dma: 1381
200-dma: 1440



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

CBOE Market Volatility Index (VIX) = 13.66 -0.77
CBOE Mkt Volatility old VIX  (VXO) = 12.86 -0.92
Nasdaq Volatility Index (VXN)      = 20.30 -0.26


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.76        834,590       631,199
Equity Only    0.72        672,724       483,557
OEX            0.92         20,512        18,944
QQQ            1.39         67,466        94,183


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

Bullish Percent Data

           Current   Change   Status
NYSE          62.6    + 1     Bear Correction
NASDAQ-100    45.0    + 2     Bull Alert      
Dow Indust.   56.6    + 0     Bear Correction
S&P 500       61.4    + 1.4   Bear Correction
S&P 100       58.0    + 2     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: 1.02
10-dma: 0.87
21-dma: 1.03
55-dma: 1.20


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    2015      1984
Decliners     798      1025

New Highs     169        80
New Lows       18        31

Up Volume   1181M     1050M
Down Vol.    407M      425M

Total Vol.  1607M     1508M
M = millions


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

Commitments Of Traders Report: 09/14/04

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

After the last few weeks of just minor changes we're seeing
some heavy volume in the commercials' positions.  They added
27K contracts to their longs and 43K contracts to their shorts.
This is the most bearish the "smart money" has been in weeks.
Small traders also added to positions with a net gain in 
their bullish bias, naturally.

Commercials   Long      Short      Net     % Of OI
08/24/04      402,599   420,478   (17,879)   (2.2%)
08/31/04      406,637   416,778   (10,141)   (1.2%)
09/07/04      415,952   426,342   (10,390)   (1.2%)
09/14/04      442,049   469,982   (27,933)   (3.0%)

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
08/24/04      135,151   100,351    34,800    14.7%
08/31/04      144,120   114,343    29,777    11.5%
09/07/04      157,732   130,817    26,915     9.3%
09/14/04      167,310   126,513    40,797    13.9%

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

Hmm... it looks like commercials have pulled back a bit
on their e-mini short positions but they remain net bearish
on the market.  Small traders didn't make any big changes
and remain strongly net bullish.

Commercials   Long      Short      Net     % Of OI 
08/24/04      392,065   473,911   ( 81,846)  ( 9.4%)
08/31/04      372,071   543,100   (171,029)  (18.7%)
09/07/04      371,111   600,593   (229,482)  (23.6%)
09/14/04      377,643   586,139   (208,496)  (21.6%)

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
08/24/04      211,995     76,184   135,811    47.1%
08/31/04      258,624     77,036   181,588    54.0%
09/07/04      286,194     80,075   206,119    56.2%
09/14/04      289,155     81,314   207,841    56.1%

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


NASDAQ-100

There is where it gets interesting.  The NDX futures witnessed
some huge surges in volume.  Commercial traders' long positions
rose 25 percent.  Yet their short positions rose 34 percent.
The overall change was a sharp reduction in their net bullish
bias.  Small traders also opened their wallets this past report.
Long positions more than doubled and short positions surged
125 percent.  Yet small traders remain net bullish.  

Commercials   Long      Short      Net     % of OI 
08/24/04       48,624     43,222     5,402    5.8%
08/31/04       48,167     43,411     4,756    5.2%
09/07/04       51,814     44,179     7,635    7.9%
09/14/04       64,282     59,808     4,474    3.6%

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
08/24/04       11,666    10,068     1,598     7.3%
08/31/04       14,635    10,572     4,063    16.1%
09/07/04       16,817    12,561     4,256    14.5%
09/14/04       36,372    28,584     7,788    12.0%

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

Wow!  After weeks of very little action the DJ futures are 
finally seeing some volume.  Long and short positions for
commercial traders' both rose 41 percent.  Thus their overall
bias didn't change.  Small traders also raised their bets
and remain strongly net bearish.  

Commercials   Long      Short      Net     % of OI
08/24/04       28,919    23,658    5,261      10.1%
08/31/04       29,143    24,147    4,996       9.3%
09/07/04       29,128    24,011    5,117       9.6%
09/14/04       41,951    34,486    7,465       9.7%
 
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
08/24/04        5,052     7,214   (2,162)   (17.6%)
08/31/04        4,929     7,122   (2,193)   (18.2%)
09/07/04        5,041     8,656   (3,615)   (26.4%)
09/14/04        8,121    14,425   (6,304)   (27.9%)

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


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The Option Investor Newsletter                  Tuesday 09-21-2004
Copyright 2004, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: None
Call Play Updates: AHC, CMI, PD, TDS
New Calls Plays: None
Put Play Updates: APOL, FFH, KRI, KSS, LXK, MMM
New Put Plays: FAST, PRX


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

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


CALLS:
*****

None


PUTS:
*****

None


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

Amerada Hess - AHC - close: 87.79 chg: +2.57 stop: 85.95*new*      

We have good news for AHC bulls.  The oil sector has been very 
strong this week.  The OIX oil index is hitting new all-time 
highs as crude oil climbs to $46.27 a barrel.  AHC has finally 
been awakened from its slumber and is breaking out to new highs 
as well.  Yesterday AHC broke through the $85.00 level and we 
suggested that short-term traders consider taking profits.  We're 
suggesting the same thing tonight.  When we picked AHC the stock 
was at $80.50 and the October 75 calls were $6.50, the 80 calls 
were $3.20 and the 85 calls were $1.30.  Now AHC is more than 
seven points higher and the 75 calls are $13.20, the 80 calls are 
$8.30 and the 85 calls are $4.10.  While we are suggesting some 
profit taking one could choose to leave the play open but merely 
tighten your stop.  We're going to tighten our stop to $85.95 but 
that may not be close enough for you.  Take note!  It's easy to 
get greedy here.  How many times have you heard "plan your trade 
and trade your plan"?  Right now AHC has exceeded our 
expectations.  We're going to keep the play open for now.  
However, we're going to set a hard exit at $89.00.  We assume 
that $90.00 will offer some round-number resistance.  Therefore 
we're going to close this play if AHC trades at $89.00.  We can 
always choose to jump back in after AHC sees some profit taking. 

Picked on August 31st at $80.50
Change since picked:     + 7.29
Earnings Date          07/28/04 (confirmed)
Average Daily Volume =      1.0 million 
Chart =


---

Cummins Inc - CMI - close: 72.33 change: +0.75 stop: 69.40

Traders continue to buy the bounce in CMI.  Yesterday the bounce 
was supported by Prudential who reiterated their "over weight" 
outlook on the stock.  Shares of CMI are up four days in a row 
and challenging its all-time highs near $72.50.  Readers can use 
a new high as a momentum entry or look for a dip back toward 
$70.50-71.00 as an entry point.  No change in our stop yet.

Picked on September 19 at $70.99
Change since picked:      + 1.34
Earnings Date           07/23/04 (confirmed)
Average Daily Volume =       724 thousand
Chart =


---

Phelps Dodge - PD - close: 85.89 chg: +2.15 stop: 82.49*new* 

We also have good news to report for PD.  The stock has turned 
around and added 2.56 percent on decent volume today.  The move 
was partially fueled by a big breakout in copper prices.  The 
December contract for copper rose 1.55 percent to $1.34 a pound.  
We don't have the exact number but this is a new multi-year high 
for the metal and a bullish technical breakout over resistance.  
This lead PD to a new five-month closing high today but the stock 
remains under the $86.00 level.  However, if PD can breakout we 
would expect it to trade towards $90 rather quickly.  We are 
going to raise our stop loss to $82.49.

Picked on August 26th at $82.10
Change since picked:     + 1.05
Earnings Date          07/27/04 (confirmed)
Average Daily Volume =      2.1 million 
Chart =


---

Telephone & Data Sys - TDS - cls: 81.98 chg: +0.36 stop: 79.50     

We do not have much new to report on for TDS.  Shares continue to 
consolidate after peaking near $84 a few days ago.  Currently TDS 
is testing support near its simple 10-dma.  We are growing 
worried again because the technical oscillators have all turned 
bearish again.  We are not suggesting new bullish entries and if 
TDS trades under $81.00 we may consider closing the play earlier.  
If TDS trades back to $84 we would consider exiting earlier as 
well.

Picked on August 24th at $78.05
Change since picked:     + 3.93
Earnings Date          07/21/04 (confirmed)
Average Daily Volume =      195 thousand
Chart =



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

None


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

Apollo Group - APOL - close: 72.00 change: -3.82 stop: 74.10*new*

Heads up!  This is your exit alert.  We added APOL to the play 
list back on September 12th with a trigger to buy puts at $79.50.  
Shares gapped down a couple of days later to $78.88 entering the 
play.  Shares gapped down again two days ago and now the stock is 
plummeting lower with a 5 percent decline on very big volume 
today.  Our original target was $73.50 and APOL has surpassed our 
expectations.  The original October options we suggested have 
risen from $3.40 to $8.70 on the $80 strikes and $1.70 to $4.90 
on the $75 strikes.  Now we know that our readers probably didn't 
get to enter at those prices but that's the closest we can come 
to showing the change in option values.  We are suggesting that 
traders exit now for a profit.  However, we're going to be a 
little greedy here.  The big volume and APOL's close near the low 
of the day in the face of a market-wide rally is pretty bearish.  
We're going to hold out for a drop to $70.50.  If APOL trades at 
$70.50 we will exit the play.  In the meantime we're lowering our 
stop loss to $74.10 since the $74 level was minor resistance in 
August it should become resistance again.

Picked on September 14 at $78.88
Change since picked:      - 6.88
Earnings Date           10/05/04 (unconfirmed)
Average Daily Volume =       3.3 million 
Chart =


---

FairFax Financial - FFH - cls: 126.73 chg: +5.98 stop: 131.00     

Our aggressive high-risk put play in FFH is proving to us just 
how risky it is.  The stock rallied almost 5 percent and erased 
four days of losses with an announcement last night.  If we're 
reading the press release correctly (as we're not familiar with 
all the Canadian terms) it looks like FFH has announced a stock 
buy back program.  FFH plans to buy back up to 950,000 shares of 
the 13 million shares in float over the next twelve months as the 
company sees its shares as "an attractive investment 
opportunity".  This could be a smart move by FFH management or it 
could be a one or two day pop that shorts merely use as a new 
entry point.  Be careful here.  We are expecting the $128-129 
level to act as resistance.  

Picked on September 12 at $126.50
Change since picked:       + 0.23
Earnings Date            00/00/00 (confirmed)
Average Daily Volume =         59 thousand
Chart =


---

Knight-Ridder - KRI - close: 64.37 change: +1.18 stop: 65.51

Hmm... yesterday the New York Times cut its profit forecast and 
shares of KRI dipped under the $63.00 level in response.  
Unfortunately, KRI didn't stay under the $63 level and the 
market-wide rally on Tuesday fueled the rebound back to 
resistance at the simple 40-dma.  We would not suggest new 
positions until KRI traded back under the $64 mark.  

Picked on September 15 at $63.85
Change since picked:      + 0.52
Earnings Date           07/22/04 (confirmed)
Average Daily Volume =       491 thousand
Chart =


---

Kohl's - KSS - close: 49.73 change: +0.23 stop: 52.01

The $50.00 level is proving to be tougher resistance than we 
thought and that's good news.  KSS has tried three times in the 
last three sessions to break back above the $50 mark and it has 
failed each time.  Granted today it did make it to $50.12 on an 
intraday basis.  We feel that this is a good show of relative 
weakness for KSS considering the market's wide-spread strength 
today.  However, we would not suggesting new bearish positions 
until KSS traded under $49.00 again.  

Picked on September 16 at $49.48
Change since picked:      + 0.25
Earnings Date           08/12/04 (confirmed)
Average Daily Volume =       3.1 million 
Chart =


---

Lexmark Intl - LXK - close: 84.95 chg: +0.10 stop: 86.01     

If you noticed our comments last night in the newsletter we're 
growing exceedingly cautious here on LXK.  The stock's latest 
bounce from its long-term trendline of support has sent shares to 
challenge overhead resistance at $85.00 and its exponential 200-
dma.  Thus far resistance is holding but we're losing confidence.  
Although we do have to say that LXK's 10-cent gain today is not 
very inspiring.  We're willing to leave the play open but we're 
not suggesting new positions.  Even if we're stopped out we would 
keep LXK on our watch list should shares ever break that long-
term trendline.

Picked on September 5th at $86.10
Change since picked:       - 1.15
Earnings Date            07/19/04 (confirmed)
Average Daily Volume =        1.2 million 
Chart =


---

3M Co - MMM - close: 81.57 change: +0.63 stop: 84.51

A gain in MMM is to be expected when the Industrials post a gain.  
Fortunately for us MMM began to roll over late this afternoon 
under support/resistance at $82.00.  Look for confirmation 
(a.k.a. more weakness) tomorrow if you're considering new 
positions.

Picked on September 15 at $82.00
Change since picked:      - 0.43
Earnings Date           07/19/04 (confirmed)
Average Daily Volume =       2.5 million 
Chart =



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

Fastenal Co - FAST - close: 57.85 chg: -0.26 stop: 60.01

Company Description:
Fastenal Company sells different types of industrial and 
construction supplies in ten product categories. These include 
different types of: threaded fasteners and miscellaneous 
supplies; tools; metal cutting tool blades; fluid transfer 
components and accessories for hydraulic and pneumatic power; 
material handling and storage products; janitorial and paper 
products; electrical supplies; welding supplies; safety supplies; 
and raw materials (metals). As of June 30, 2004, the Company 
operated 1,441 stores in all 50 U.S. states, Canada, Puerto Rico, 
Mexico and Singapore selling to the general public. The Company 
operates 12 distribution centers located in Minnesota, Indiana, 
Ohio, Pennsylvania, Texas, Georgia, Washington, California, Utah, 
North Carolina, Kansas, and in Ontario, Canada.
(source: company press release)

Why We Like It:
We like FAST for its relative weakness.  The stock completely 
ignored the market's rally today.  Considering the recent history 
we see more weakness ahead.  The stock broke out to the upside to 
new highs in early September only to promptly reverse course.  
After breaking down under support at $60.00 and its simple 50-dma 
shares of FAST managed to bounce from its simple 100-dma but that 
rebound failed at the $60 level and its 50-dma.  This is typical 
as broken support usually becomes new resistance.  We like the 
new triple-bottom breakdown sell signal on its P&F chart with a 
$51 price target.  We're willing to speculate that FAST can break 
technical support at its 200-dma's near $53.00.  However, first 
it needs to break support at $57.00 and its simple 100-dma.  
We're going to use a TRIGGER at $56.95.  Until FAST trades at or 
below this level we're just spectators.  Once triggered we'll use 
an initial stop at $60.01 and then target a drop to $51-50.

Suggested Options:
We're going to suggest the October and November puts.  Our 
favorites are the 60 and 55 strikes.

BUY PUT OCT 60 FQA-VL OI=363 current ask $3.10
BUY PUT OCT 55 FQA-VK OI=705 current ask $0.95

BUY PUT NOV 60 FQA-WL OI=4184 current ask $4.10
BUY PUT NOV 55 FQA-WK OI=2539 current ask $1.85

Annotated chart:

 

Picked on September xx at $xx.xx <-- see TRIGGER
Change since picked:      - 0.00
Earnings Date           07/13/04 (confirmed)
Average Daily Volume =       676 thousand
Chart =


---

Par Pharma. Co - PRX - close: 37.80 chg: -2.93 stop: 40.15

Company Description:
Par Pharmaceutical Companies, Inc. develops, manufactures and 
markets generic pharmaceuticals through its principal subsidiary, 
Par Pharmaceutical, Inc., and its recently acquired subsidiary, 
Kali Laboratories, Inc. The company is also developing an 
additional line of branded pharmaceutical products for specialty 
markets and expects to introduce the first of these in 2005. 
Through its FineTech subsidiary, Par also develops and utilizes 
synthetic chemical processes to design and develop intermediate 
ingredients used in the production of finished products for the 
pharmaceutical industry. Par currently manufactures, markets or 
licenses more than 80 prescription drugs.
(source: company press release)

Why We Like It:
This is purely a technical breakdown play.  A month ago we were 
watching PRX because of its breakout over resistance at the 
$40.00 mark.  Yet once it broke out it was never able to mount 
much of a rally and traded sideways for weeks.  Now the stock has 
broken down through round-number, psychological support at $40.00 
and its simple 40, 50 and 100-dma's.  Furthermore the breakdown 
came on almost four times the normal volume.  That's pretty 
bearish!  We normally don't like to chase a stock that's made a 
big move like this.  PRX dropped more than 7 percent today.  
There are multiple reasons but one of them is that the options 
tend to get inflated.  If PRX offers a small bounce back to 
$39.00 we'd take it as a better entry point but it looks like 
we'll have to enter here as the intraday chart looks pretty 
nasty.  There is potential support near $35.00 but we suspect 
that PRX can hit its lows near $32.50.  

Suggested Options:
We're going to suggest the October and November puts.  Our 
favorites are the 40s and 35s. 

BUY PUT OCT 40 PRX-VH OI=1250 current ask $3.10
BUY PUT OCT 35 PRX-VG OI= 142 current ask $0.75

BUY PUT NOV 40 PRX-WH OI= 744 current ask $4.10
BUY PUT NOV 35 PRX-WG OI=2164 current ask $1.60

Annotated chart:

 

Picked on September 21 at $37.80
Change since picked:      - 0.00
Earnings Date           07/19/04 (confirmed)
Average Daily Volume =       743 thousand
Chart =



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

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The Option Investor Newsletter                  Tuesday 09-21-2004
Copyright 2004, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Watch List: A Big Radar Screen
Spreads & Straddles: Fed Comments Spur Rally!
Premium Selling Plays: Naked Puts & Calls


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

A Big Radar Screen

___________________________________________________________________

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.
___________________________________________________________________


Schlumberger Ltd - SLB - close: 66.35 change: +1.16

WHAT TO WATCH: We strongly considered adding SLB to the play list 
tonight as a call.  The strength in the oil and oil service 
sectors is very tempting.  However, we chose to wait and see if 
there is any profit taking in the oil group tomorrow.  We would 
watch for a breakout over resistance at $66.50-66.75 in shares of 
SLB before considering new bullish positions.  The P&F chart is 
bullish and points to an $81 price target.

Chart=


---

Nike Inc - NKE - close: 79.35 change: +1.35

WHAT TO WATCH: We mentioned NKE and its bullish breakout in the 
MarketMonitor this afternoon.  The stock has broken out over 
resistance at $78.00 to hit new all-time highs.  Volume has been 
pretty strong the last couple of sessions.  The move has extended 
its P&F chart buy signal and its target is now at $100.  We would 
watch for a dip back to $78 and consider a bounce or consider 
longs on a breakout over $80.00.

Chart=


---

Pulte Homes Inc - PHM - close: 63.70 change: +1.90

WHAT TO WATCH: The DJUSHB home construction index was the best 
performing sector today up more than four percent.  The move was 
fueled by strong earnings from KBH and LEN last night and the 
strong housing starts this morning.  PHM managed a three percent 
rally and broke out over minor resistance at $63.00 to hit new 
highs.  Volume was very strong on today's gain.  Aggressive 
players may want to consider bullish positions now and target the 
$70 level.  Our only concern is that PHM is so extended.  The 
stock has been rising for about nine weeks straight.  The P&F 
chart is bullish and points to an $87 target.

Chart=




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

COP $82.18 +2.72 - We haven't played any of the super big oil 
companies recently but we considered adding COP with today's 
breakout over $80.00.

MCO $72.32 +1.01 - MCO has been a consistent climber the last 
several weeks and the recent breakout and follow through over 
$70-71 looks tempting.

BSC $90.09 +2.35 - BSC rose strongly as rivals GS and LEH turned 
in positive earnings numbers today.  BSC gets its chance tomorrow 
with earnings before the bell.  We're expecting more good news.

CME $151.17 +5.08 - Gosh, now we're wishing we'd taken that 
bounce from the $140 level a few days ago.  This is a new all-
time high.

EXM $59.00 +10.50 - It doesn't have options and the latest short 
interest data says there is virtually zero short interest.  It 
still looks like a short squeeze to us.  Remember, nothing goes 
up forever but wow look at the volume.

BDK $74.65 +1.40 - BDK might be an aggressive buy if it breaks 
out over $75.00.


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

Fed Comments Spur Rally!
By Ray Cummins

Stocks soared Tuesday afternoon in the wake of bullish comments
from the Federal Reserve.

In its third interest-rate hike this year, the FOMC raised the
cost of fed funds to 1.75%, saying that rate hikes can proceed
at a "measured" pace.  The FOMC noted that the economy appears
to have "regained some traction" and investors seem confident
of a recovery when energy prices decline.  The Dow Industrial
Average ended up 40 points at 10,244 on strength in ExxonMobil
(NYSE:XOM) and JP Morgan Chase (NYSE:JPM).  The NASDAQ Composite
Index closed 13 points higher at 1,921, despite some negative
profit reports from the technology sector.  The S&P 500 rose 7
points to 1,129 amid a rally in brokerage shares, which climbed
on better-than-expected earnings from Goldman Sachs (NYSE:GS)
and Lehman Brothers (NYSE:LEH).  In broader market, advancers
led decliners by 2 to 1 on the New York Stock Exchange and by
3 to 2 on the NASDAQ.  Big Board volume was about 1.32 billion
shares, while some 1.51 billion shares traded on the technology
exchange.  Treasury prices were trading slightly higher in the
wake of the Federal Reserve's rate adjustment.  The benchmark
10-year note rose 3/32 to 101 19/32, with its yield at 4.05%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 09/19/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

MUR    75.51  84.52  OCT  65.0  70.0  0.70   69.30   0.70   Open
RYL    88.15  91.73  OCT  75.0  80.0  0.75   79.25   0.75   Open
GIVN   38.72  38.84  OCT  30.0  35.0  0.70   34.30   0.70   Open
MBT   140.75 139.90  OCT 120.0 125.0  0.50  124.50   0.50   Open
COGN   34.58  33.56  OCT  30.0  32.5  0.30   32.20   0.30   Open
SCSC   66.22  66.46  OCT  55.0  60.0  0.50   59.50   0.50   Open
CCMP   38.29  37.12  OCT  30.0  35.0  0.75   34.25   0.75   Open
ONXX   41.99  41.14  OCT  30.0  35.0  0.50   34.50   0.50   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

AZO    74.06  76.05   OCT  85.0  80.0  0.55   80.55  0.55   Open
MXIM   40.94  42.40   OCT  50.0  45.0  0.50   45.50  0.50   Open
PLMO   32.30  35.65   OCT  45.0  40.0  0.55   40.55  0.55   Open
LEN    46.75  47.56   OCT  55.0  50.0  0.60   50.60  0.60   Open
NTES   35.51  38.99   OCT  45.0  40.0  0.60   40.60  0.60   Open
NBIX   50.65  50.96   OCT  60.0  55.0  0.55   55.55  0.55   Open
SSP    49.66  50.16   OCT  52.5  50.0  0.50   50.50  0.34   Open
 
L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss

Netease.com (NASDAQ:NTES) is on the "watch" list.

DEBIT STRADDLES

No Open Positions


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

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

GDT - Guidant  $64.02  *** On The Rebound! ***

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

GDT - Guidant  $64.02

PLAY (less conservative - bullish/credit spread):

BUY  PUT  OCT-55.00  GDT-VK  OI=4585  ASK=$0.40
SELL PUT  OCT-60.00  GDT-VL  OI=3324  BID=$1.05
INITIAL NET-CREDIT TARGET=$0.65-$0.75
POTENTIAL PROFIT(max)=15% B/E=$59.35


__________________________________________________________________

PHM - Pulte Homes  $63.70  *** Sector Rally! ***

Pulte Homes (NYSE:PHM) is a holding company whose subsidiaries
engage in the homebuilding and financial services businesses.
The Homebuilding segment consists of two major business units:
Domestic Homebuilding and International Homebuilding.  Domestic
Homebuilding, the company's core business, is engaged in the
acquisition and development of land principally for residential
purposes within the United States, and also the construction of
housing on such land targeted for the first-time, first and
second move-up and active adult home buyers.

PHM - Pulte Homes  $63.70

PLAY (less conservative - bullish/credit spread):

BUY  PUT  OCT-55.00  PHM-VK  OI=3496  ASK=$0.30
SELL PUT  OCT-60.00  PHM-VL  OI=8490  BID=$0.85
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$59.40



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

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.

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

APOL - Apollo Group  $72.00  *** A Second Try! ***

Apollo Group (NASDAQ:APOL) provides higher education to working
adults.  The company operates through its subsidiaries, The
University of Phoenix, University of Phoenix Online, Institute
for Professional Development, The College for Financial Planning
Institutes Corporation and Western International University.  The
company offers its programs and services at 71 campuses and 121
learning centers in 37 states, Puerto Rico and Vancouver, British
Columbia.  Earnings are due 10/5/04.

APOL - Apollo Group  $72.00

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-85.00  OAQ-JQ  OI=1222  ASK=$0.25
SELL CALL  OCT-80.00  OAQ-JP  OI=2505  BID=$0.65
INITIAL NET-CREDIT TARGET=$0.45-$0.50
POTENTIAL PROFIT(max)=9% B/E=$80.45


__________________________________________________________________

PRX - Par Pharmaceutical  $37.80  *** Next Leg Down? ***

Par Pharmaceutical (NYSE:PRX) is in the business of manufacturing
and distributing generic drugs in the United States.  The company
also develops and manufactures, in small quantities, complex
synthetic-active pharmaceutical ingredients through its wholly
owned subsidiary, FineTech Laboratories, based in Haifa, Israel.
It also sells a limited number of mature-brand name drugs through
an agreement between Par and Bristol-Myers Squibb Company.

PRX - Par Pharmaceutical  $37.80

PLAY (less conservative - bearish/credit spread):

BUY  CALL  OCT-45.00  PRX-JI  OI=393  ASK=$0.15
SELL CALL  OCT-40.00  PRX-JH  OI=62   BID=$0.70
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$40.60



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

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

No straddles or strangles today...

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

SEE DISCLAIMER - SECTION 1

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


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

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 09/19/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

OS       OCT    15.00   14.60   15.64    0.40   7.19%   2.74%
FHRX     OCT    17.50   17.05   19.43    0.45   6.31%   2.64%
SNDK     OCT    22.50   22.00   26.30    0.50   5.86%   2.27%
SSYS     OCT    25.00   24.45   29.32    0.55   5.91%   2.25%
JNPR     OCT    22.50   22.00   24.14    0.50   5.73%   2.27%
CREE     OCT    22.50   22.15   28.37    0.35   5.28%   1.58%
FFIV     OCT    22.50   22.20   30.05    0.30   4.45%   1.35%
AMZN     OCT    37.50   37.00   42.96    0.50   3.96%   1.35%
ASKJ     OCT    25.00   24.45   31.63    0.55   7.42%   2.25%
USNA     OCT    30.00   29.30   33.33    0.70   6.10%   2.39%
YHOO     OCT    30.00   29.40   33.46    0.60   5.51%   2.04%
CELL     OCT    15.00   14.50   16.79    0.50   8.28%   3.45%
CREE     OCT    25.00   24.35   28.37    0.65   7.26%   2.67%
CLHB     OCT    10.00    9.75   12.08    0.25   7.98%   2.56%


NAKED CALLS

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

ESIO     OCT    22.50   23.00   21.33    0.50   6.99%   2.17%
LNCR     OCT    32.50   33.30   30.18    0.80   7.12%   2.40%
ADTN     OCT    30.00   30.30   24.80    0.30   3.79%   0.99%
DIGE     OCT    30.00   30.35   26.45    0.35   6.05%   1.15%
CTB      OCT    22.50   22.85   20.86    0.35   4.25%   1.53%
MDCO     OCT    30.00   30.80   28.14    0.80   8.33%   2.60%
CECO     OCT    40.00   40.50   30.50    0.50   6.34%   1.23%

Electro-Scientific (NASDAQ:ESIO) is at a key moment (technically)
and remains on the "watch" list.

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

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

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

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

NEW NAKED-PUT CANDIDATES

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

GNSS   13.43  OCT 12.50  QFE-VV 0.30  257 12.20  24   3.1%   8.0%
FHRX   19.65  OCT 17.50  FUF-VW 0.30  312 17.20  24   2.2%   6.3%
COGN   34.56  OCT 32.50  CRQ-VZ 0.60  590 31.90  24   2.4%   6.2%
PSFT   19.36  OCT 17.50  PQO-VW 0.30 40K+ 17.20  24   2.2%   6.1%
YHOO   33.26  OCT 30.00  YHQ-VF 0.50 16K+ 29.50  24   2.1%   6.0%
ATYT   16.47  OCT 15.00  QFY-VC 0.25  695 14.75  24   2.1%   5.9%
NAVR   16.37  OCT 15.00  QIG-VC 0.25  117 14.75  24   2.1%   5.8%
LF     21.90  OCT 20.00  LF-VD  0.25  259 19.75  24   1.6%   4.5%

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.
_________________________________________________________________

GNSS - Genesis Microchip  $13.43  *** Bottom-Fishing!  ***

Genesis Microchip (NASDAQ:GNSS) designs, develops and markets
integrated circuits called display controllers that receive
and process digital video and graphic images for viewing on
a flat-panel display.  The company's display controllers are
located inside a flat-panel display device such as a computer
monitor or television.  The company is targeting flat-panel
computer monitor, liquid crystal display television and digital
television through subsidiaries and offices in the U.S., Canada,
China, India, Japan, South Korea and Taiwan.

GNSS - Genesis Microchip  $13.43

OCT 12.50 QFE-VV LB=0.30 OI=257 CB=12.20 DE=24 TY=3.1% MY=8.0%


_________________________________________________________________

FHRX - First Horizon  $19.65  *** Uptrend Intact! ***

First Horizon Pharmaceutical (NASDAQ:FHRX) is a specialty drug
company that markets and sells brand name prescription products.
The company markets and sells 14 primary products, six of which
are actively promoted and were accounted for approximately 92%
of its total sales in 2003.  Its key drug products are Sular,
Nitrolingual, the Prenate line, the Tanafed line, the Robinul
line and Ponstel.  Most of these products treat recurring or
chronic conditions or disorders, which results in repeated use
over an extended period of time.

FHRX - First Horizon  $19.65

OCT 17.50 FUF-VW LB=0.30 OI=312 CB=17.20 DE=24 TY=2.2% MY=6.3%


_________________________________________________________________

COGN - Cognos  $34.56  *** Merger/Takeover Target? ***

Cognos (NASDAQ:COGN) is a provider of business intelligence
software.  The company's solution helps improve business
performance by enabling planned performance management,
supported by effective decision-making at all levels of the
organization through the consistent reporting and analysis
of data derived from various sources.  Using its software,
customers can plan and manage the performance of all aspects
of their business and gain valuable insights to help improve
operational effectiveness, enhance customer satisfaction and
accelerate corporate response times.  Earnings are due 9/22/04.

COGN - Cognos  $34.56

OCT 32.50 CRQ-VZ LB=0.60 OI=590 CB=31.90 DE=24 TY=2.4% MY=6.2%


_________________________________________________________________

PSFT - PeopleSoft  $19.36  *** Oracle Buyout Speculation! ***

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

PSFT - PeopleSoft  $19.36

OCT 17.50 PQO-VW LB=0.30 OI=40675 CB=17.20 DE=24 TY=2.2% MY=6.1%


_________________________________________________________________

YHOO - Yahoo!  $33.26  *** Internet Retail Giant! ***

Yahoo! (NASDAQ:YHOO) is a worldwide Internet business and consumer
services company that offers a comprehensive branded network of
properties and services to more than 200 million individuals
worldwide.  The company offers an online navigational guide to the
Internet via its www.yahoo.com Website, which is a guide in terms
of traffic, advertising and household and business user reach.
Through Yahoo! Enterprise Solutions, the firm also provides many
business services designed to enhance the productivity and Web
presence of its clients.  Yahoo! has offices in the United States,
Europe, Asia, Latin America, Australia and Canada.  

YHOO - Yahoo!  $33.26

OCT 30.00 YHQ-VF LB=0.50 OI=16904 CB=29.50 DE=24 TY=2.1% MY=6.0%


_________________________________________________________________

ATYT - ATI Technologies  $16.47  *** In A Trading Range! ***

ATI Technologies (NASDAQ:ATYT) supplies graphics processing
products and technology for desktop and notebook personal
computers, consumer electronic devices, digital televisions
(including set-top boxes) and video game consoles.  The firm's
main product lines, visual and graphics processors, increase
the speed and complexity of the images that can be displayed
on PC monitors and improve resolution and color definition.

ATYT - ATI Technologies  $16.47

OCT 15.00 QFY-VC LB=0.25 OI=695 CB=14.75 DE=24 TY=2.1% MY=5.9%


_________________________________________________________________

NAVR - Navarre  $16.37  *** New 2004 High! ***

Navarre Corporation (NASDAQ:NAVR) publishes and distributes a
range of home entertainment and multimedia products, including
personal computer software, audio and video titles and various
interactive games.  The company's business is divided into two
business segments: Distribution, which it operates solely, and
Publishing, which is operated through Encore Software, and BCI
Eclipse, LLC entities.

NAVR - Navarre  $16.37

OCT 15.00 QIG-VC LB=0.25 OI=117 CB=14.75 DE=24 TY=2.1% MY=5.8%


_________________________________________________________________

LF - LeapFrog Enterprises  $21.90  *** On The Rebound! ***

LeapFrog Enterprises (NYSE:LF) is a designer, developer and
marketer of technology-based educational products and related
proprietary content.  LeapFrog designs its products to help
infants and toddlers through high school students learn age
and skill-appropriate subject matter, including phonics,
reading, writing, math, spelling, science, geography, history
and music.  LeapFrog's product line includes learning platforms,
which are portable, affordable hardware devices; educational
software-based content including interactive books designed
for use with LeapFrog's learning platforms, and stand-alone
educational products.

LF - LeapFrog Enterprises  $21.90

OCT 20.00 LF-VD LB=0.25 OI=259 CB=19.75 DE=24 TY=1.6% MY=4.5%



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

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.

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

BDY - Bradley Pharmaceuticals  $20.53  *** Sell-Off Underway! ***

Bradley Pharmaceuticals (NASDAQ:BDY) is a pharmaceutical firm
that acquires, develops and sells over-the-counter products and
prescription drugs in select markets.  The company's subsidiary,
Doak Dermatologics, promotes its core branded dermatologic and
podiatric products including Bradley Pharmaceuticals' Carmol40,
Lidamantle, Rosula and Zoderm product lines, to dermatologists
and podiatrists.  Its Kenwood Therapeutics division promotes
the company's core branded gastrointestinal products including
Anamantle HC, Pamine, Pamine Forte and Flora-Q, primarily to
gastroenterologists and colon and rectal surgeons, and, to a
lesser extent, it also markets nutritional supplements and
respiratory products.

BDY - Bradley Pharmaceuticals  $20.53

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  BDY-JX    577    0.40  22.90   7.6%   1.7%


_________________________________________________________________

PLMO - palmOne  $31.60  *** Another 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  $31.60

PLAY (sell naked call):

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

SELL CALL  OCT 35    UPY-JG   5540    0.90  35.90  11.2%   2.5%


_________________________________________________________________

USPI - United Surgical Partners  $33.79  ** Downtrend Resumes! **

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

USPI - United Surgical Partners  $33.79

PLAY (sell naked call):

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

SELL CALL  OCT 35    QPJ-JG      2    0.65  35.65   6.4%   1.8%



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

SEE DISCLAIMER - SECTION 1

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


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