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Daily Newsletter, Sunday, 09/26/2004

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The Option Investor Newsletter                   Sunday 09-26-2004
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: October Approaching
Futures Wrap: See Note
Index Trader Wrap: OIL SHOCKS AGAIN
Editor's Plays: Your Fired!
Market Sentiment: End of the Quarter
Ask the Analyst: Volume doesn't add up.  Shareholder dilution?
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 9-24         WE 9-17         WE 9-10         WE 9-03 
DOW    10047.24 -237.22   10284 - 28.61   10313 + 52.87 + 65.19 
Nasdaq  1879.48 - 30.61 1910.09 + 15.78 1894.31 + 49.83 - 17.61 
S&P-100  534.37 - 11.43  545.80 +  2.45  546.25 +  5.19 +  0.18 
S&P-500 1110.11 - 18.47 1128.58 +  4.66 1123.92 + 10.29 +  5.86 
W5000  10838.30 -155.02   10993 + 57.00   10936 +115.44 + 65.86 
SOX      382.55 -  5.95  388.50 +  4.89  383.61 + 25.77 - 24.50 
RUT      565.97 -  7.20  573.17 +  3.26  569.91 + 13.67 +  4.57 
TRAN    3202.11 - 55.28 3257.39 + 24.00 3224.38 + 82.53 + 33.05 
VXO       14.14           13.55           13.49           13.91 
VXN       21.10           20.13           19.56           21.06
******************************************************************

October Approaching
by Jim Brown

Tough week for the markets but not as bad as it could
have been. The Dow lost -2.3% and was the weakest link.
Techs had one horrible day but held their ground for the
rest of the week losing only -1.5%. The key was not how
much the indexes lost but where they closed. All closed
very near the lows for the week as September draws to a
close with no major market events. Will October be as
kind?

Dow Chart

Nasdaq Chart

SPX Chart

Crude Oil Chart



The markets attempted an oversold relief rally on Friday
but conflicting economics and higher oil prices spoiled
the rebound. The Durable Goods Orders headline number
fell -0.5% and much worse than the +0.1% gain expected.
However, don't believe all you see. The headline number
was skewed significantly by a sharp drop in aircraft
orders. Ex-aircraft, which is a highly volatile sector,
the growth in durable goods orders was +2.3%. This is a
very strong gain and was led by strong numbers in critical
sectors. Computers saw a +4.1% jump and communications
equipment rose +6.8%. Overall shipments are up +13.4%
year over year and that represents the strongest sustained
growth in the last ten years. The May/June dip has been
erased and we appear to have growing order strength. 

The Existing Home Sales fell slightly to 6.54 million 
units and this was inline with estimates. Analysts had
expected this drop due to the higher mortgage rates in
May/June, which created a shopping lull. With rates making
a new attempt at five month lows we could see a fall 
bounce but the major buying trend has passed. Analysts
want the levels to remain firm but nobody is expecting
a new high any time soon. 

The above economics were far less important to traders
on Friday than the rising price of oil. Crude closed at
another new high at $48.80 despite announcement of oil
draw downs from the SPR. The coming hurricane was cited
as a new event risk as well as new pipeline sabotage in
Iraq. This may be the stated reasons for the continued
push higher but we know it is really event risk speculation
in front of the election. Bloomberg cited a survey showing
a record number of analysts (59) expected oil to hit $50
next week. The real question is not will we hit it but
what will happen when we do? Is this going to be some
kind of electric fence that will repel prices back to 
$40 almost instantly? I seriously doubt it. I do believe
we will see some profit taking but the key is really the
conditions. Just hitting a $50 price does not change the
hurricane status, IRAQ terror attacks, election risk or
long term global demand. In the short term passing on
$50 oil in the form of higher gas prices will slow 
consumer demand but a month from now that negativity 
will ease as we become immune to $2 gas and the demand
will pick up again. 

Several brokers are suggesting that oil stocks have
reached extreme valuation levels and traders should
lighten up. I miss the reasoning here. Yes oil stocks
are high and some are nearly vertical but until the
production/demand equation reverses there is still
long term upside. Oil stocks tend to trade based on
the price of the underlying commodity and that should
not surprise anyone. I definitely think we will see
some price dips ahead once the election is over but
they will only be temporary. I view them as a buying
opportunity for the next leg up. Ed Hyman the chairman
of ISI Group, named top economist for 24 consecutive
years, said oil was the only sector he was considering
at present. His forecast for 2005 oil prices is $45 to
$55. He claims the emerging economies currently are 
expanding rapidly and are very energy intensive. The 
top seven expanding countries are approaching a 
combined GDP of $7 trillion and together are about 
equal to the U.S. but growing much more rapidly at 
nearly a +13% pace. Thus a continued increase in 
demand for oil. He also predicted the risk of 
deflation would increase before year end. 

Hyman also compared 2004 to 1994 as many others have
also done. 1993/2003 were the beginning years of a
recovery with a strong move higher ending in January.
In 1994 the Fed raised rates six times for a whopping
+2.50% jump in rates to 5.50% at year-end. Two of the
increases were 50 points and the last one was 75 points.
The markets refused to die although they did not move
higher. In 1995 the economy caught fire and the market
exploded. While Ed thinks the 93/03 94/04 comparison 
is very similar he does not think 2005 will follow the
same pattern. His concern was due to the price of oil 
depressing the economy/market. With his expected price
of oil at $45-$55 his economic projections are weak. 
At $55 oil he felt the GDP would run at only a +2% 
growth rate. At $45 oil he said a +4% growth rate
was possible. This puts the focus right back on oil 
prices as the most critical piece of the 2005 picture. 
Remember Ed was voted the economist of the year for 24
consecutive years. We should assume he knows what he 
is doing. 

Dow comparison chart 1993-1995 to 2003-2005



The major indexes changed sides on Friday with the Dow
closing in positive territory and the Nasdaq losing
ground. No surprise here with the Dow in oversold status
from the -2.3% drop for the week. We should have seen
some profit taking by the shorts. The Dow has been
trending down since its recent 10363 high on Sept-7th
and closed at 10046 on Friday. This is only 15 points
above its low for the week and represents a low level
of confidence that next week will be any better. Given
the -320 point drop in the last two weeks you would
have expected the bulls to put up a better fight this
close to 10000. The challenge remains fear of earnings
warnings from Dow components with next week the last
week in the quarter. 

The Nasdaq has dropped -2.3% in the last three days 
from the 1925 high set on the 21st. Friday's close at
1880 was the lowest close since Sept-10th and the low
for the week. This definitely does not bode well for 
next week. The Nasdaq has seen four rallies of +9% or
more since December and each was followed by a lower
low. This appears to me to be the impact of earnings
deceleration in front of the election. Funds are using
each rally in the longer term decline to lighten up
from the gains made in 2003. The 1880 close today
represents the same support levels we saw in Oct/Nov
of 2003. Nasdaq 1750-1785 represents very strong support
from last September and from the August 04 dip. If we
are going to see an October dip event that would be my
worst case target. 

The SOX has been a rock all week but on Friday it began
to crumble. The SOX lost traction at 395 and dropped 
-2.85% back to the 380 support level we saw last week.
Much of that loss came in a sell program that hit at
11:20 and knocked off -12 points in one swift drop.
Should that 380 support level break it could be a 
quick return to 350. 

SOX Chart



Next week is the end of the quarter and funds may need
to square positions and possibly mark up some stocks
but September is not known as a big month for this 
trend. Funds want to be in cash for the normal October
dip and they tend to not shuffle the portfolio much at
the end of September. October is the typical portfolio
reshuffle month and investors typically dig a little
deeper and fire off an extra check to the funds in
anticipation of the October dip/rebound. In this market
managers are probably losing sleep and hair trying to
make the right decision for the next three weeks. 

On Friday the airwaves were full of speculation on 
bonds. Rumors abound of several hedge funds that bet
on interest rates moving higher once the Fed began its
current cycle. As you know they have done just the 
opposite and are currently just above five month lows.
Those that bet rates will rise are in serious pain and
the rumor is the current bond rally has been fueled by
funds covering shorts. Must be tough to know rates will
eventually rise because the Fed will guarantee it but
not have enough money or guts to ride the trade to
conclusion. I know from experience how painful that
is on similar stock trades but with billions at stake
in bonds and the outcome guaranteed it must be extremely
frustrating. Word to the wise, if you have not refinanced
to take advantage of the low rates now is the time. 

The earnings cycle is nearly upon us. Two more weeks
and Alcoa will kick off the reporting cycle on Oct-7th.
This makes the coming week an active week for warnings
as time before earnings expires. As of Friday we have
seen 612 warnings for Q3 which is nearly twice the 356
for this time last year. Negative guidance is running 
3:1 over positive guidance. 143 companies have warned
in the last 17 days of trading. 54 of those have used
the hurricane excuse. That should increase as it gives
companies a free pass for some investors as a random
event rather than a company problem. The current storm
heading towards the east coast will only intensify this
trend if it does as expected and moves up the coast line
instead of moving inland. This will allow it to retain
its strength and inconvenience the maximum number of 
people.

The tech sector has experienced the most warnings by far.
90% of the semiconductor sector has warned according to
Thompson Financial. The major reason is a sudden drop in
orders across the board that impacted almost every sub
sector of the chip market. This is the result of a global
IT slow down and while everybody is expecting it to pickup
in 2005 there is currently no confirmation. The next 30-45
days is the order window for early 2005 and we should have
that guidance soon. Thompson cited the various warnings 
this week and noted the outlook for Q3 earnings growth 
fell -0.5% to +14.3% from +14.8% the prior week. This is
still strong growth historically but investors have grown 
accustomed to +20% to +25% or even more over the last 
year. The tech sector has seen outflows from tech funds
for 30 of the last 31 weeks. 

When evaluating the S&P earnings growth at +14.3% you 
need to realize that the energy sector is a major part 
of the S&P. Currently energy makes up about 8% of the 
S&P and earnings for the S&P energy stocks are up +33.6%
for the year. Remember this when you see the talking
heads continually listing the S&P estimates. Without
energy it would be significantly lower and probably 
in single digits.

Next week it starts out slow economically but picks
up beginning with Wednesday's GDP and a heavy schedule 
on Thursday and Friday. Earnings warnings will be the
focus beginning on Monday and of course oil at $50 will
attract attention. The terrorist countdown to the 
election stands at 37 days and counting. The Dow at 
Friday's 10040 close is nearing strong support at 9900
and a likely stopping point for any further weakness.
The Nasdaq has risk to 1755-1785 and that would be my 
worst-case range unless we see a serious external event
like an attack. It is the end of the quarter so 
volatility should increase. Other than that it should
be a normal market week with long periods of boredom 
interspersed with periods of panic. 

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

OIL SHOCKS AGAIN
By Leigh Stevens
lstevens@OptionInvestor.com 

THE BOTTOM LINE – 
With the strong rebound in oil prices, the manor indices failed 
at or near technical resistance areas – surprise! - right at 
strong down trendlines in the case the S&P 500 (SPX) and the Dow 
30 (INDU) and both at the trendline and the 200-day moving 
average in the case of the S&P 100 (OEX).  Hey!, a good market 
for Index option traders as the market continues to be fairly 
"technical" – a common situation with uncertainty in the 
fundamental economic/earnings outlook. 

The definition of a downtrend is a series of lower rally peaks 
and we got that, time and time again since the February top – 
well, January in the case of the Nasdaq Composite (COMP). 

After a week of being under pressure, the only charts that still 
look bullish is nearby (November) oil futures and XAU, the Gold & 
Silver Index. (The Oil Stock Index, OIX, may be at or near a peak 
however.) The Dow Transportation average (TRAN) was a minor 
bright spot, but its rally has failed as it dropped back under 
its prior peak. Bellwethers GE and Microsoft (MSFT) have made 
double tops and Intel (INTC) and Cisco (CSCO) continue in weak, 
bearish patterns.  The Russell Index (RUT) reversed at its 200-
day moving average.  

I would like to believe that current monetary and fiscal policies 
will continue to create lift for the economy, but the market 
doesn't seem to be predicting that, at least for the next few 
months.   
  
THE NUMBERS – 
The S&P 500 index (SPX) rebounded a bit -1.7 points to 1,110, but 
fell 1.6% for the week, which broke a 6-week streak of higher 
weekly closes. The Dow 30 (INDU) gained 8.3 points to 10,047, but 
for the week decline 2.3%. Dow components Hewlett-Packard (HPQ) 
and Altria (MO) declined more than 1%.

The Nasdaq Composite (COMP) was off by 6.95 to close at 1,879.48. 
The key semiconductor sector (SOX), which couldn't in the past 
week hold above the key 400 area for any duration per what was 
suggested by the charts in my work, put a damper on tech as 
revenue warnings from Philips Electronics and Cirrus Logic came 
in.  For the week, COMP fell 1.6%.

FRIDAY'S TRADING ACTIVITY – 
Stocks were down and down on the week - the U.S. Federal Fed put 
out the word of course that it was on track with further interest 
rate hikes when it announced a quarter-point rise in the Fed 
Funds rate to 1.75% earlier in the week.  This was expected, but 
may have created a bit of negative backdrop nevertheless as some 
had been thinking that less than robust economic activity of late 
might cause them to hold off a while.  Time waits for no man, 
woman or the Fed! 

Hitting the market like another battering by yet another 
hurricane, was another record high for oil, some profit warnings 
from household names like Wendy's and Colgate, and some negative 
revenue and earnings forecasts from semiconductor group.  
 
Two key economic reports gave mixed signals on the U.S. economy.

The National Association of Realtors reported that U.S. existing 
home sales fell a much larger-than-expected 2.7% for August - to 
6.54 million units on a seasonally adjusted annual basis.
The association said the decline was due to higher mortgage 
rates. Duh! 

The latest durable goods report, contained some bullish news. 
Total orders for new durable goods fell a larger-than-expected 
0.5 percent in August, held back by a 42.8% drop in orders for 
civilian airplanes. But, excluding the 6.8% drop in orders for 
transportation goods, orders actually rose 2.3%, the biggest 
increase since March. 

OTHER MARKETS –
Oil prices closed out the week at a record - crude for November 
delivery rose 42 cents to $48.88 a barrel. In the past week, oil 
futures rose $3.29, or 7.2%. - the highest closing level since 
August 19th's close at $48.70.  However, nearby futures prices 
are still below the intraday high of $49.40 set Aug. 20

News of "temporary small loans" to refineries from the U.S. 
Strategic Petroleum Reserve didn't seem to sway the market as 
it’s such a small amount. The Energy Department said late 
Thursday that it was prepared to make available a limited 
quantity of crude oil, to ease short-term supply concerns. This 
couldn't have anything to do with the upcoming election – nah!

U.S. Treasury bonds ended slightly lower, given the market 
concerns as to whether the Fed, as I said, would pause in its 
path and past announced intent to do some further tightening.
The 10-year note was down 3/32 at 101 25/32, yielding 4.03%,  
percent versus 4.02% on Thursday.

In the Forex markets, the dollar stabilized just above a 1-month 
low against the euro, as the latest economic data left currency 
traders wondering about the course of future interest-rate hikes.  


MY INDEX OUTLOOKS – 

S&P 500 Index (SPX) – Daily chart:

The reversal right at a high that forms the 3rd point of a down 
trendline, strongly suggests a reversal of the short-term up 
trend and puts the S&P 500 (SPX) back in its intermediate trend, 
which is down. Last week I thought SPX might break out above this 
line and perhaps challenge the prior rally high and the best I 
could see it doing. Not even that. I wouldn't say this is a bear 
market necessarily, but the trend seems clearly down when the 
rally peaks are continuously hitting lower highs.  

And, not for nothing have I been writing the last three times in 
my weekly Trader's Corner on trendlines.  Last week, at – 
http://www.OptionInvestor.com/traderscorner/tc_092304_1.asp  
Hey, and all you need is a straight edge and a printed out chart.
My mentor used to use the cocktail napkin edges or matchbooks if 
we were out and about in New York and had a chart-book in the 
briefcase.

The chart pattern is bearish, especially with the downside 
penetration of the 200-day moving average.  Buy puts on any 
rallies back to the 1120-1125 area. Least likely in the coming 
week would be a quick rebound to resistance at 1130. What was 
support, at the green arrow, should be the key resistance area.   

I had figured some support at 1110, then best support at 1100 – 
then more major support at 1080.  The hourly chart below also 
helps define these areas. 



I thought that my sentiment indicator would need to show a more 
bullish extreme before the market would top out.  Instead, we had 
1 recent day where sentiment got overly bearish – almost at turn 
around levels but patterns and other indicators don't suggest 
that the trend will turn back up.  The 14-day RSI diverged from 
price action by not also going to a new high, giving an ideal 
sell signal once there was not trendline breakout.

S&P 500 Index (SPX) – Hourly:

There are often things that show up in better detail on intraday 
charts – I almost always watch the hourly charts.  Use of the 
hourly chart shows the (downside) penetration of the up trendline 
or lower end of the uptrend channel.  After this happened, you'll 
notice the rebound back to, but not above, this line – what was 
support has "become" resistance.  As the RSI and stochastic model 
trended lower, the final rally to the 1130 area to make a triple 
hourly top was a bearish trade indication highlighting the area 
to buy index puts.  




S&P 100 Index (OEX) – Daily chart:

The S&P 100, like the Nas 100 (NDX) has had the best chart 
definitions due to the narrowness of the stocks that buyers are 
interested in, in a select market.  You can see this in the 
trendline which has several points in the cluster of recent highs 
that touch the area of the down trendline.  This gives some more 
confidence to pulling that trade trigger.

The break of the 21-day moving average I find a good secondary 
indicator that momentum has shifted to the downside – that and a 
falling momentum indicator like the RSI (or Stochastic). If 
waiting for a typical "overbought" reading, that has not been 
happening as much (i.e., overbought extremes) on rallies – which 
again shows that the buying power has just not been there in the 
rallies.  Option traders have been noticing the low VIX (CBOE 
Volatility Index) readings and have not been enthusiastic buyers 
of calls, or stocks either.



Support and resistance areas can be better seen on the hourly 
chart, which is next –

S&P 100 Index (OEX) – Hourly:

Also seen by use of the OEX hourly chart was the Head & 
Shoulder's pattern that developed.  As I note in my book, some 
research suggests that the Head and Shoulder formation has good 
predictive ability for reversals, from short-term to long. In 
this case, the downside objective implied by the distance from 
the top of the "head" to the "neckline" has been met already as 
the index fell to the area of a prior low.  

Look for resistance and selling pressure coming in on any rebound 
to the aforementioned neckline at the prior lows there – around 
542.  544 is resistance implied by an hourly down trendline (not 
shown).  530 is the better support I think as the pattern formed 
by the cluster of recent lows looks to me like it will be 
penetrated and a more short-term oversold situation shaping up 
before there is much of a rally attempt.  



A note on the rally that developed after the highest high that 
formed the hypothetical "head" – the middle top: There is not 
always just one rally to form a left or right "shoulder" as there 
can be 2-3.  The key to whether it’s a top pattern is that prices 
to do not carry to higher than the prior peak.  

A sure tip off then to buy puts and providing a good indication 
to not even wait for the neckline break.  Clear as mud?  E-mail 
with questions if interested. 

Dow 30 (INDU) – Hourly chart:

Not a lot to say about the Dow 30 (INDU), not already said about 
the S&P indices.  The daily Dow chart has a clear cut down 
trendline (not shown).  Use of the hourly chart is good to 
highlight support and resistance area – 

The inability to achieve a decisive upside penetration of the top 
end of its prior range in the 10,350 area, was the tip off that 
the Dow could not move higher. That and the break of the down 
trendline shown at the green arrow on the hourly chart. 

10,300 at the prior up swing high is the key resistance, but the 
trendline intersects lower than that and may turn back any rally 
attempts a bit lower than this; e.g., 10,270 and lower as the 
week goes on.  10,000 is potential support implied by it 
representing a 62% retracement of the last rally.  



The chart pattern looks bearish (like a bear flag or 
consolidation before another downswing) and suggests even a 
possible downside objective to the 9900 area. This much of a 
further fall, before another rally sets us, will likely depend on 
whether oil shoots still higher in the week coming up.  

Nasdaq Composite (COMP) Index  – Daily:

The Nas Composite (COMP) rally failed and reversed at my upper 
trading envelope line.  The approximate subsequent double top and 
failure of RSI to confirm the new closing high was the tip off 
for the fall that followed – that the market would be vulnerable 
to some shock, some "event" that would drive it down. 

Failure to stay above the prior high at 1896 and the probability 
that COMP will break under the 21-day moving average suggests 
that the Composite may be heading back down to the 1825 area at a 
minimum – maybe, eventually back to 1800.



A close over 1900 is needed to get things looking like bullish 
potential again.
  
Nasdaq 100 (NDX) Index  – Hourly:

When a rally can't exceed more than a Fibonacci 62 t0 66% 
retracement of the prior down swing, look out for a reversal and 
that is just what happened – the fact that this area was also 
right at the 200-day moving average gave me more conviction to 
buy puts, figuring I would exit on any close over this key level.  

I like trades where there are a few technical suggestions of 
resistance and the risk to find out if you're right is low – the 
risk is lower too given the nature of the technicals (include 
here the RSI in the overbought area and by the economic and 
political backdrop; e.g., oil was shooting back up again and it 
seemed unlikely that peace was going to break out in the Mid 
East. 

I suggested last week that 1420 as a place to buy NDX puts looked 
too low, but the 1440 area looked right – I think the intraday 
high was 1140.8.  

1380 looks like a next potential support area, 1417-1420 like 
near resistance now.  Lower and key support I figure at 1350 
currently – I would be happy to take my (put) profits and run if 
1350-1355 was seen.  



The first rally to the recent top area initially put the RSI at a 
new high, "confirming" price action.  The second high a few days 
later was not accompanied by a similar new high in RSI – hey, it 
rhymes! Given the other signs of a top, this slight or scant 
divergence was a further clue to take trades playing the 
downside.  

With index options I try to pick maximum extensions of rallies to 
buy against technical resistance, rather than to go in when 
support areas are broken, which tends to cause premiums to spike 
up.  This style makes for a better risk to reward situation, 
assuming you are skilled at applying and using technical 
analysis. There is no one size fits all in trading options 
however – thank goodness!     

Nasdaq 100 tracking Stock (QQQ) Hourly chart:

And, of course, speaking of buying NDX puts, if I feel like a 
still lower risk way to play the Nasdaq 100, I can short its 
tracking stock, QQQ – this was suggested when the hourly up 
trendline was penetrated or on the return rally to this 
previously broken (up) trendline, at the first red (resistance) 
arrow.  

35.5 is near technical resistance, around 34.1 looks to be the 
closest support that can be guessed at from the chart.


For those short at 35 or above, I suggesting risking to 35.7 with 
a buy stop, taking as an objective 33.80.  At least with short 
the stock I don't have to worry about how soon this happens 
unlike the constant time calculations necessary to keep in mind 
for (long) options.



Occasionally an optimal trade sets up when both the short and 
longer-term Stochastic indicators both get up, or down, to 
extremes simultaneously.  You can look back at a few such good 
trades – these two setting (for "length') on the hourly chart is 
worth watching.   

Good Trading Success!
 

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

Your Fired!

That is what Martha Stewart investors should be saying
to Martha after the "me first" deals she inked just
before heading off to the slammer. 

First her new contract was announced on Friday and
she will receive $900,000 per year for the next five
years. Plus a bonus each year of not less than 55%
of her salary and up to as much as 150% depending on
the whim of the compensation committee. Stewart got
a signing bonus of $200,000 when the agreement went
into effect. 

Think that is bad? You have not seen anything yet. 
For each show she does in the future she will receive
a minimum of $500,000 (PER SHOW) or two-thirds of the
"talent" fees due to the company for each show. She
gets whichever is greater. Previously her show 
appearances were part of her base salary plus a few
perks. 

She will also get an expense allowance of $100,000
per year. 

It gets better. Because Stewart will be confined to
her house for five months after she gets out of prison
she required the company to pay her $500,000 per year
for any filming done at her house. That amount increases
to $750,000 for the 2nd and 3rd year of the contract. 

Stewarts new title is Chief Editorial and Media Director
and she will have complete control of all TV, radio and
print publications. 

Mark Burnett, the king of reality TV, signed a deal 
with Stewart to do a reality TV show when she gets
out of prison. Reportedly Burnett got $2.5 million
in warrants in MSO that jumped +$5 million on the
announcement. Stewart, NOT MSO, will reportedly get
several million for the deal. 

Now, I may be wrong but since Martha caused all the
heartache and losses for stockholders of MSO doesn't
it seem like some of this "compensation" is over the
top even for Martha? Shouldn't the stockholders 
received some benefit of the TV deal. Shouldn't
Martha quit gouging the MSO stockholders with her
outrageous salary demands? 

Unbelievably the stock went through the roof on 
Thursday when all this was announced. Shorts and 
there are a bunch of them got killed. That was
lucky for us. 

Standard and Poors downgraded the stock to AVOID
on the news and said it was over valued for a stock
that would lose, not earn, -$1.27 per year for the
next two years. 

The spike over $19 was short lived and the drop
back to $17 once the widespread criticism appeared
was very quick. There is also widespread doubt the
Burnett deal will ever happen because of the opposite
personalities involved. 

I am recommending a March $15 put MSO-OC currently
at $2.00. I believe once she goes behind bars and
the public will not see her face on TV on a daily
basis the news will stop and reality will return.
I would target a return to the $12 range by year
end. 

Buy March $15 Put MSO-OC currently $2.00
Stop MSO @ $20.50
  
MSO Chart


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


GOOG Put Update $119.91

Monday saw Google bolt out of the gate like a scalded
cat to $121.50 and then decline for the next three days.
This convinced me the short covering last week was option
related and the Monday morning settlement was the last
gasp. A broker upgrade to "above average" from "average"
did not hurt either. Don't you wish they would standardize
those ratings? Maybe Buy, Sell, Hold and Short? 

On Thursday RBC Capital initiated coverage with a "sector
perform" rating and another short squeeze began. That 
squeeze broke on Friday when it was announced Google may
be trying to write its own browser to compete with Netscape
and Microsoft. Now that would be a dumb move in my opinion.
Seems Google has been hiring software engineers with skills
necessary to produce a browser and some that have worked 
on Explorer and Netscape in the past. The stock quickly
dropped from its $124 squeeze high and closed at $119.91.

I am beginning to think Google may be another Taser 
at this point. The general consensus by "conventional 
investors" is it is vastly over valued. They see every 
top as an opportunity to short it. However the momentum
investors with visions of 1999/2000 all over again take
every news item as a reason to buy. Shorts cover, short 
the top, another news item appears and we repeat. Until  
this tug of war and artificial inflation stops the 
volatility will continue. 

To avoid riding a QCOM style rocket ala 1999 where it
went from $40 to $400 in just a few months I am going
to put in a stop scenario. 

If GOOG hits $125 we close the trade and wait. If GOOG
falls back to earth we reopen the trade at $120. This
protects us from being completely wiped out and keeps
us in the game. 

I believe a drop below $117 will be a death knell and
the top will be set. 

I received many emails from readers who have doubled,
tripled or quadrupled down on this play at the higher 
levels. That is great if it works out as planned but
be careful not to over leverage yourself. The more
contracts you have the more careful you have to be. 
Anyone not in the play could be looking at a great
entry point but I would want to see the downtick 
confirm on Monday before jumping on this bobsled.

GOOG Chart


http://members.OptionInvestor.com/editorplays/edply_082904_1.asp
http://members.OptionInvestor.com/editorplays/edply_090504_1.asp

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


Terrorist Insurance Update

Marathon $40.52

The Marathon call play from last Sunday has exploded
out of the gate. We entered the calls on a break over
resistance at $38 and the stock closed on Friday at
$40.50. 

The concept here is simple. We expect oil prices to 
continue to move higher as we approach the election
as terrorists attempt to cause as much grief for Bush
as possible. 

By going long MRO which has good fundamentals as well
as being in the right place at the right time we are
capitalizing on this event risk speculation. 

We are going to close the play the Friday before the
election to beat the post election dip in oil. Maybe
sooner depending on the coming events. 

Place a stop at $38 and far enough away to avoid any
volatility. The stock has gone up a lot so we could
expect profit taking soon. That would be an opportunity
for new readers to make an entry. 

Call Jan-$40 MRO-AH @ $1.45 currently $2.25


Marathon Chart


http://members.OptionInvestor.com/editorplays/edply_091904_1.asp
   
****************
MARKET SENTIMENT
****************

End of the Quarter
- J. Brown

The end of the third quarter approaches.  That means investors 
can expect more earnings warnings as we near the October earnings 
reporting cycle.  It also means we can expect some end of the 
quarter window dressing by money managers.  While the end of 
September does see some window dressing as funds buy the recent 
winners and dump their losers to make their statements look good 
the extent of the window dressing tends to be muted compared to 
the other three quarters.  Still if you're interested in watching 
the short-term pop higher keep an eye on oil/energy stocks, 
defense, Internets, telecoms and utilities.  The rest of the 
market is likely to trade sluggishly.  

The end of September, according to the Stock Trader's Almanac, 
tends to be weak.  That should be no surprise.  We've already had 
hundreds of earnings warnings for the third quarter.  I know the 
term "hundreds" seem pretty high but we only hear about the big 
ones.  This past week alone the major earnings warnings came from 
consumer non-durable giants Colgate and rival Unilever.   If the 
economy is so strong these companies should be doing well but 
rising material costs and advertising are affecting the bottom 
line.  Plus, we've had even more tech stock/semiconductor sector 
earnings warnings.  Yes, the end of September tends to be weak 
because we can expect even more earnings warnings ahead of us.  

I'm sort of counting on the next couple of weeks to be bearish.  
Our play list is dominated by bearish strategies as the three 
major indices all start to falter from overbought levels with new 
MACD sell signals.  That's right the Dow Industrials, the NASDAQ 
Composite and the S&P 500 are all showing MACD sell signal as 
they trend lower from resistance.  It looks like a good spot to 
consider shorts.  If we can see a decent consolidation lower it 
will provide a great entry point into what should be a positive 
fourth quarter.  Of course if everyone is looking for the same 
dip it may not show up and/or it may not be a very big dip.  

Hopefully with crude oil prices nearing $50 a barrel we can get 
some additional weakness in stocks.  At least that's my short-
term expectation.  Then as October earnings begin to hit we can 
rotate from bearish plays into bullish ones.  

Next week has a number of economic reports but the ones Wall 
Street will really be watching are the Tuesday consumer 
confidence numbers, the Wednesday GDP numbers, and the Friday ISM 
manufacturing index and Michigan consumer sentiment index.  

Keep an eye on oil too.  With another hurricane off the east 
coast and oil traders pricing in a terrorist event to try and 
disrupt the Presidential election we could see crude push past 
the $50 mark easier than we might expect. 


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

Market Averages


`
DJIA ($INDU)

52-week High: 10753
52-week Low :  9230
Current     : 10047

Moving Averages:
(Simple)

 10-dma: 10224
 50-dma: 10113 
200-dma: 10294



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  990
Current     : 1110

Moving Averages:
(Simple)

 10-dma: 1121
 50-dma: 1100
200-dma: 1117



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1301
Current     : 1399

Moving Averages:
(Simple)

 10-dma: 1419
 50-dma: 1380
200-dma: 1440



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

CBOE Market Volatility Index (VIX) = 14.28 -0.52
CBOE Mkt Volatility old VIX  (VXO) = 14.19 -0.68
Nasdaq Volatility Index (VXN)      = 21.10 -0.07


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

          Put/Call Ratio  Call Volume   Put Volume

The CBOE data was unavailable this weekend.  
We'll update this on Tuesday.


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

Bullish Percent Data

           Current   Change   Status
NYSE          63.0    + 0.3   Bear Correction
NASDAQ-100    44.0    + 0     Bull Alert      
Dow Indust.   56.6    + 0     Bear Correction
S&P 500       61.4    + 0.4   Bear Correction
S&P 100       59.0    + 1     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: 1.21
10-dma: 1.10
21-dma: 1.13
55-dma: 1.19


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    1546      1439
Decliners    1239      1515

New Highs     122        58
New Lows       34        38

Up Volume    778M      374M
Down Vol.    725M      922M

Total Vol.  1531M     1329M
M = millions


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

Commitments Of Traders Report: 09/21/04

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 COT data shows a big drop in positions for both 
commercials and small traders but commercials remain slightly
net bearish and small traders remain net bullish.

Commercials   Long      Short      Net     % Of OI
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%)
09/21/04      404,746   425,560   (20,814)   (2.5%)

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
08/31/04      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%
09/21/04      134,943   108,036    26,907    11.1%

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

The passing of the quadruple-witching Friday cut a large
chunk of open positions among long and shorts, big and small.
Yet the remain positions still open have sent commercials to 
their most bearish bias in weeks and the small trader to their
most bullish.

Commercials   Long      Short      Net     % Of OI 
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%)
09/21/04      213,014   397,844   (184,830)  (30.2%)

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:  133,299   - 09/02/03

Small Traders Long      Short      Net     % of OI
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%
09/21/04      256,315     60,275   196,040    61.9%

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


NASDAQ-100

Wow!  It looks like last week's option expiration has 
produced some major shifts.  There is a huge drop in open
positions that have produced dramatic changes in bias. 
Commercials are now strongly bullish and small traders are
incredibly bearish.  To be honest I'm not sure how much
I trust these numbers. 


Commercials   Long      Short      Net     % of OI 
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%
09/21/04       54,530     30,827    23,703   27.7%

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

Small Traders  Long     Short      Net     % of OI
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%
09/21/04        7,417    25,821   (18,404)  (55.3%)

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

DOW JONES INDUSTRIAL

The Dow Jones futures show the same dramatic drop in open
positions with the recent option/futures expiration.  However,
the DJ futures do not show a big switch in bias.  

Commercials   Long      Short      Net     % of OI
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%
09/21/04       30,816    27,200    3,616       6.2%
 
Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
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%)
09/21/04        4,467     6,748   (2,281)   (20.3%)

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


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

Volume doesn't add up.  Shareholder dilution?

I was wondering if you could help me with something.  Somebody 
from my investment club posed a question about volume (block 
trades) not showing up on charts and I thought you may have the 
answer because of your previous experience.  I’ll just copy and 
paste first question and then my response.  If you have any 
insight it would be greatly appreciated.  Thanks Kat

The above question from one investment club buddy to another is 
one that I (Jeff Bailey) have received several times in month's 
past, where traders/investors have also asked about a "spot filing."

If you're a strictly fundamental-based investor, you may get 
caught looking at a chart when you see a news item that the 
company's stock you own may have sold x-number of shares to 
another company and you don't see the volume spike on the day of 
the announcement.  Sometimes the price of the sale doesn't make 
sense either.

Here's the conversation between "Kat," the trader/investor that 
sent me today's question and his investment buddy.

Oh!  If you have EVER thought about, or wanted to join an 
investment club, you might want to visit the National Association 
of Investors Corporation (NAIC) at the following link 
http://www.better-investing.org/ .  

Kat's Friend says:  Something that is bugging me.  

Why does nasdaq.com show that some institution purchased shares 
in stock xyz on June 30, but the volume on the chart does not 
support that large of a volume pattern on any day in June, May, 
or even July?

Can or does some institutional volume get hidden from charts????? 

If they can, how much of a true value is volume on charts???? 

Kat's response to his friend:  As far as I know charts cover 
EVERY transaction that takes place during regular hours.  Pre-
market and AH trading I'm not sure. The only thing I can think of 
to explain the anomaly you mentioned is this...

When an institution wants to take a large position in stock xyz 
they normally make a call to the floor and tell a MM to work the 
trade for them.  Example: let's say a fund wants to purchase 5M 
shares of INTC @ $20.00.  They call and place the order and the 
MM goes to work.  It may take him several days or even longer to 
fill the trade.  He uses his own inventory to collect INTC shares 
for the fund.  Then at EOD he transfers whatever number of shares 
he has been able to collect to the fund.  That's why you will 
sometimes see large block trades cross the tape in AH trading. 

I have also noticed large block trades crossing the tape during 
regular trading BELOW the bid.  I assume this is also a MM either 
working a large order for a client or transferring some of his 
inventory to another MM. 

Bottom line... I'm not sure if after hours trading shows up on 
charting websites like StockCharts.com.  I'll run this question 
by Jeff Bailey on Monday.  He will probably have the answer for 
you. 

Jeff's response:  Kat - Your response to your friend was 
excellent and the initial "gathering" or buying by the 
specialist/market maker would equate to the volume, where at the 
end of the day, or even during the session, the large block that 
is eventually recorded, or displayed to market participants, is 
NOT counted as that would be double counting.  Still, the 
accumulation and eventual "billed price" to the customer must be 
shown for all market participants to see.

Now, there is another explanation that may speak to your friend's 
question if he/she is talking about a news release of ABC buying 
5 million shares of xyz company on a certain date, where that 
volume may not be reflected on a stock's chart, nor in after 
hours trade.

XYZ company could have approached ABC company (or the other way 
around) and XYZ said, "We're expanding" or "we want to pay down 
debt" and if you're interested (ABC company) in taking a stake in 
our company (ABC and XYZ do a lot of business together), we'd be 
willing to sell you 5 million shares of AUTHORIZED stock at 
$20.00 per share.

Authorized stock is the maximum number of shares a company is 
legally permitted to issue under its articles of incorporation 
and is usually listed in the capital accounts section of the 
balance sheet.  Should a company ever decide in INCREASE the 
number of authorized shares, it must seek shareholder approval.  

Now, if ABC company does decide to buy the 5 million shares of 
XYZ company, it can certainly do so.  Once the transaction is 
completed then those 5 million shares of XYZ stock is immediately 
recorded as OUTSTANDING shares.

Sometimes we will read a company's press release where XYZ issued 
a SPOT SECONDARY of 5 million shares at a price of $20.00 to ABC.  
A SPOT SECONDARY is usually made to an institution rather than 
the public.  This method of secondary distribution is faster than 
a conventional secondary offering that REQUIRES filings with the 
SEC.

Outstanding shares are the number of shares that are currently 
owned by investors.  This includes restricted shares (shares that 
are owned by the company's officers and insiders) and shares that 
are held by the public.  

This transaction would NOT show up as volume on a chart, but this 
additional number of outstanding shares is used in the 
calculations of many metrics including EPS and market 
capitalization.

For a fundamental investor, this type of transaction can cause 
dilution to your shareholder value as you are now sharing 
revenues and profits, with an additional 5 million shares that 
are now issued and outstanding.

There can be cost benefits for a company like XYZ to sell shares 
in such a manner as it can reduce the EXPENSE of raising capital 
via a secondary offering, or issuing of new debt instruments to 
pay off, or down, existing debt that may carry a higher rate of 
interest.

This might also address your friend's question if he/she is 
reading a press release that ABC purchased 5 million shares of 
XYZ at $20.00 per share and did not see any such volume, or trade 
take place.

Jeff Bailey


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

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

Symbol  Co               Date           Comment      EPS Est

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

AULT Ault Inc             Mon, Sep 27  AFTER THE MARKET     n/a
EXR  Extra Space Storage  Mon, Sep 27  BEFORE THE BELL      0.16
TENT Total Entertainment  Mon, Sep 27  AFTER THE MARKET     0.04
WAG  Walgreens            Mon, Sep 27   ---- N/A ----       0.31

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

BSET Bassett Furniture    Tue, Sep 28  AFTER THE MARKET     0.18
EMMS Emmis Communications Tue, Sep 28  BEFORE THE BELL      0.20
ICLR ICON (ADS)           Tue, Sep 28   ---- N/A ----       0.52
LNDC Landec Corp          Tue, Sep 28  AFTER THE MARKET    -0.03
TONS Novamerican Steel    Tue, Sep 28   ---- N/A ----       n/a
PBG  Pepsi Bottling Grp   Tue, Sep 28  BEFORE THE BELL      0.70
RMCF Rocky Mtn Chocolate  Tue, Sep 28   ---- N/A ----       n/a
SLR  Solectron            Tue, Sep 28  AFTER THE MARKET     0.04

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

ARRO Arrow Intl           Wed, Sep 29  AFTER THE MARKET     0.34
BLUD Immucor              Wed, Sep 29  BEFORE THE BELL      0.14
LNR  LNR Property         Wed, Sep 29   ---- N/A ----       0.41
MU   Micron Technology    Wed, Sep 29   ---- N/A ----       0.21
NEOG Neogen               Wed, Sep 29  BEFORE THE BELL      0.18
RECN Resources Connect.   Wed, Sep 29  AFTER THE MARKET     0.32

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

ATU  Actuant Corp         Thr, Sep 30  BEFORE THE BELL      0.51
CMN  Cantel Medical       Thr, Sep 30   ---- N/A ----       0.27
CMGI CMGI                 Thr, Sep 30  AFTER THE MARKET     n/a
LENS Concord Camera       Thr, Sep 30  BEFORE THE BELL     -0.05
STZ  Constellation Brands Thr, Sep 30  AFTER THE MARKET     0.70
FDO  Family Dollar Store  Thr, Sep 30  BEFORE THE BELL      0.26
FGP  Ferrellgas Partners  Thr, Sep 30  During the market   -0.90
OXM  Oxford Industries    Thr, Sep 30  AFTER THE MARKET     0.38
PEP  PepsiCo              Thr, Sep 30  BEFORE THE BELL      0.65
RIMM Research In Motion   Thr, Sep 30  AFTER THE MARKET     0.43
WNI  Weider Nutrition     Thr, Sep 30  BEFORE THE BELL      0.06

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

- No Major Earnings Announcements -



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

Symbol  Company Name              Ratio    Payable     Executable

AMWD    American Woodmark         2:1      Sep  24th   Sep  27th
LM      Legg Mason Inc            3:2      Sep  24th   Sep  27th
CATY    Cathay General Bancorp    2:1      Sep  28th   Sep  29th
WST     West Pharma               2:1      Sep  29th   Sep  30th
NPBC    National Penn             5:4      Sep  30th   Oct   1st
WBNK    Waccamaw Bank             2:1      Sep  30th   Oct   1st
ANSS    ANSYS Inc                 2:1      Oct   4th   Oct   5th
MIK     Michaels Stores           2:1      Oct  12th   Oct  13th

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

It's the last week of the quarter so many investors will be watching
for heavy mutual fund window dressing.  There are a number of 
economic reports out this week with the big one being the ISM
index on Friday.  We also have an uptick in earnings announcements.

==============================================================
                       -For-           
----------------
Monday, 09/27/04
----------------
New Home Sales for August   Estimate: 1150K   

-----------------
Tuesday, 09/28/04
-----------------
Consumer Confidence for September   Estimate: 100.0
Fed Governor Hoenig speaks on Monetary policy

-------------------
Wednesday, 09/29/04
-------------------
Q2 GDP - final reading   Estimate: 3.0%
Q2 Chain Deflater - final reading
Fed Governor McTeer speaks at a Banking conference

------------------
Thursday, 09/30/04
------------------
Weekly Initial Jobless Claims   Last week: 350K
Help Wanted Index for August  
Chicago PMI for September   Estimate: 58.0  Last: 57.3
Personal Income for August
Personal Spending for August

----------------
Friday, 10/01/04
----------------
ISM Mfg Index for September   Estimate: 58.3   Last: 59.0
Michigan Sentiment for September   Estimate: 96.5  Last 95.8
Construction Spending for August   Estimate: +0.3%
Auto & Truck Sales for September
Group of Seven Finance Ministers meet in Wash. DC.
Fed Governor Geithner speaks on Banking
Fed Governor Stern speaks on Banking

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


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The Option Investor Newsletter                   Sunday 09-26-2004
Sunday                                                      2 of 5


In Section Two:

Watch List: Internets to Oil and more
Dropped Calls: PD, TDS
Dropped Puts: FAST


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

Internets to Oil 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.
___________________________________________________________________

eBay Inc - EBAY - close: 89.22 change: -0.88

WHAT TO WATCH: Would you believe we strongly considered adding 
EBAY to the play list this weekend as a put play?  The stock had 
run almost non-stop from $74 in early August to over $96 a week 
ago.  EBAY was due for some profit taking and now shares have 
broken round-number support at the $90.00 mark and its MACD has 
rolled into a new sell signal from overbought levels.  Not only 
that the P&F chart has signaled a "high pole" reversal warning.  
We would play puts on EBAY if it were not for our concerns that 
the stock will climb higher next week on window dressing.  

Chart=


---

Ashland Inc - ASH - close: 54.90 change: +0.51

WHAT TO WATCH: Speaking of window dressing the oil sector could 
see a lot of it next week.  We like ASH because shares have held 
their gains after breaking out over resistance at the $54.00 
level.  We know the stock looks extended and overbought but it 
can get more extended and overbought next week.  Watch this one 
for more short-term strength.  

Chart=


---

Allergan Inc - AGN - close: 77.89 change: +2.21

WHAT TO WATCH: Drug stocks have not been the strongest sector 
this week but AGN is not showing it.  The stock has continued to 
rebound from its August lows and is now challenging the bottom of 
the gap down from July.  If AGN can break into the gap it has a 
chance of filling the gap.  Watch for a move over $78.50.  Then 
again watch out for resistance at the exponential 200-dma near 
$80.00 and the simple 100 and 200-dma's above that.   The P&F 
chart has turned bullish and points to a $95 target. 

Chart=


---

Kmart Holding - KMRT - close: 86.30 change: +0.71

WHAT TO WATCH: We are very tempted to buy the bounce from $84.00.  
KMRT has shown a lot of relative strength but now some of its 
technical oscillators are starting to falter.  Its MACD has 
slipped into a new sell signal.  Aggressive traders may want to 
watch this one for more weakness and but be careful.  After any 
profit taking the bullish reversals tend to be sharp and painful 
for the bears. It wouldn't surprise us to see KMRT trade higher 
on window dressing this week.  

Chart=




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

GD $99.76 +1.31 - One of the pundits on TV mentioned defense 
stocks could see some window dressing this week.  If GD trades 
over $100 again it might be a short-term buy.

AH $39.60 +1.50 - AH is another defense stock worth watching.  A 
move over $41.00 could be a momentum trader's entry point.

DGX $86.39 +1.07 - We like the recent strength in DGX and its new 
short-term bottom near $84.  Watch for a breakout over $87.00.

HAL $33.58 +1.34 - We didn't check the news but volume was pretty 
strong on HAL's 4% rally on Friday.

LLTC $36.77 -0.94 - Yet again LLTC has failed at its simple 200-
dma for the fourth time in six months.  

HSIC $60.92 -0.17 - The bounces keep failing for HSIC.  We're 
getting closer to adding this as a put play with a trigger under 
$60.00.

RESP $50.56 -0.26 - We're still watching for a breakdown under 
$50.00.

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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
^^^^^

Phelps Dodge - PD - close: 90.48 chg: +3.50 stop: 82.99      

Target achieved!  It took almost a month but PD has reached our 
profit target/exit point at $90.00 after picking the stock at 
$82.10.  We alerted readers in the MarketMonitor throughout the 
session as PD approached $90 and then finally surpassed the 
$90.00 level.  Per our trading plan we are closing the play.  
However, more aggressive plays may look at the bullish breakout 
over resistance at $90 and the heavy volume backing the move as a 
momentum entry point.  We think the stock is a bit overbought 
here and would prefer to consider new entries on a decent pull 
back.  Yet it certainly possible that PD will consolidate near 
the $90 level now.  Its P&F chart has grown very bullish with a 
$117 (long-term) price target.  You can bet that we'll keep PD on 
our watch list for new entry points. 

Picked on August 26th at $82.10
Change since picked:     + 8.38
Earnings Date          07/27/04 (confirmed)
Average Daily Volume =      2.1 million 
Chart =



---

Telephone & Data Sys - TDS - cls: 84.84 chg: +2.29 stop: 81.25          

It's not $85 but it's close enough.  Originally our target was 
the $85 level but the last several days we've been publishing our 
suggestion to exit if TDS trades at $84 again.  The stock surged 
more than 2.2 percent on Friday with heavy volume (for TDS) 
backing the move.  Shares pushed through the $84 level early in 
the session and continued to climb higher.  We're going to take 
our own suggestion and close the play.  More aggressive players 
may decide that the high-volume breakout over $84 could be worth 
hanging on to.  After picking TDS near $78 a month ago we're 
satisfied with the move thus far.

Picked on August 24th at $78.05
Change since picked:     + 6.79
Earnings Date          07/21/04 (confirmed)
Average Daily Volume =      195 thousand
Chart =



PUTS
^^^^

Fastenal Co - FAST - close: 57.04 chg: -0.47 stop: 60.01

We're choosing an early exit on FAST.  We are still bearish on 
FAST.  It's just that the stock hasn't really confirmed the 
breakdown under support at $57.00 and its simple 100-dma.  The 
short-term trend is still down.  The P&F chart still has a 
relatively new triple-bottom breakdown sell signal and a $49 
target.  We just don't feel that comfortable with the lack of 
follow through and potential support at the 200-dma's below.  
Plan your exit according to your own level of risk. 

Picked on September 22 at $56.95
Change since picked:      + 0.09
Earnings Date           07/13/04 (confirmed)
Average Daily Volume =       676 thousand
Chart =



***********
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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The Option Investor Newsletter                   Sunday 09-26-2004
Sunday                                                      3 of 5

In Section Three:

Current Calls: CMI
New Calls: ATH
Current Puts: SEPR, PRX, MMM, LXK, KSS, FFH, LLY, BIIB
New Puts: None

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

Cummins Inc - CMI - close: 71.71 change: -0.48 stop: 69.40

Company Description:
Cummins Inc., a global power leader, is a corporation of 
complementary business units that design, manufacture, distribute 
and service engines and related technologies, including fuel 
systems, controls, air handling, filtration, emission solutions 
and electrical power generation systems. Headquartered in 
Columbus, Indiana, (USA) Cummins serves its customers through 
more than 680 company-owned and independent distributor locations 
in 137 countries and territories. Cummins also provides service 
through a dealer network of more than 5,000 facilities in 197 
countries and territories. With more than 24,000 employees 
worldwide, Cummins reported sales of $6.3 billion in 2003.
(source: company press release)

Why We Like It:
It has been a relatively rocky week for CMI even through shares 
spent the last five sessions in a $3.00 range.  We're encouraged 
by the new all-time high on Wednesday but we're not that excited 
about the weakness in the latter half of the week.  Traders did 
buy the dip early on Friday suggesting this might be a new entry 
point for bulls but we're feeling cautious.  The next couple of 
weeks could be tough for the markets and bulls need to see CMI 
hold support in the $70.00-70.50-71.00 region.  We're still 
willing to buy a bounce from $71 (like Friday's dip) but keep a 
close eye on that stop loss.  Momentum traders may want to wait 
and see CMI trade back above $72.50 before considering positions.  
Remember that our short-term immediate target was $75.00 and our 
secondary target was $77.50.

Suggested Options:
Short-term traders can choose from the October and December
strikes.  We like the Octobers.  Our favorites are the 70s 
although the 75s have more open interest.

BUY CALL OCT 65 CMI-JM OI=  7 current ask $7.10 
BUY CALL OCT 70 CMI-JN OI=484 current ask $2.95
BUY CALL OCT 75 CMI-JO OI=400 current ask $0.70


Annotated chart:



Picked on September 19 at $70.99
Change since picked:      + 0.72
Earnings Date           07/23/04 (confirmed)
Average Daily Volume =       724 thousand
Chart =



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

Anthem Inc - ATH - close: 86.81 chg: +1.30 stop: 84.89

Company Description:
Anthem's mission is to improve the health of the people it 
serves. Anthem, Inc. is an Indiana-domiciled publicly traded 
company that, through its subsidiary companies, provides health 
care benefits to more than 12.6 million people. Anthem is the 
fourth largest publicly traded health benefits company in the 
United States and an independent licensee of the Blue Cross and 
Blue Shield Association. Anthem is the Blue Cross and Blue Shield 
licensee for Indiana, Kentucky, Ohio, Connecticut, New Hampshire, 
Colorado, Nevada, Maine and Virginia, excluding the Northern 
Virginia suburbs of Washington, D.C.
(source: company press release)

Why We Like It:
We like ATH for its recent bout of strength and bullish breakout 
over resistance at $85.00 and its simple 200-dma.  It's common 
for a stock to pull back after breaking out over resistance only 
to test prior resistance as support.  That's exactly what we're 
seeing in ATH.  Shares broke through the $85 level and now the 
stock has tested this level as support for the past four days in 
a row.  Short-term technicals like the RSI and stochastics are 
curling into bullish formations again.  Even the P&F chart is 
bullish with a $105 price target.  Unfortunately, ATH is fighting 
with P&F resistance right at the $88 level.  However, the stock 
is bouncing from new support and could have enough momentum to 
push through the $88 level this time.  Meanwhile the merger news 
is not getting any worse.  Investor concerns over the merger 
falling apart appear to be fading.  CEOs from both ATH and WLP 
are working together to deal with objections from California.  
We're willing to speculate that ATH can trade to the $92-93 
region.  We'll use an initial stop at $84.89. 

Suggested Options:
We like the October and November calls with the 85 and 90s as 
our favorites.

BUY CALL OCT 85 ATH-JQ OI=5047 current ask $2.95
BUY CALL OCT 90 ATH-JR OI=2058 current ask $0.55

BUY CALL NOV 85 ATH-KQ OI= 101 current ask $4.30
BUY CALL NOV 90 ATH-KR OI= 226 current ask $1.70

Annotated Chart:


Picked on September 26 at $86.81
Change since picked:      + 0.00
Earnings Date           10/26/04 (unconfirmed)
Average Daily Volume =       2.1 million 
Chart =


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

Biogen Idec - BIIB - close: 59.69 change: +0.36 stop: 62.51

Company Description:
Biogen Idec creates new standards of care in oncology and 
immunology. As a global leader in the development, manufacturing, 
and commercialization of novel therapies, Biogen Idec transforms 
scientific discoveries into advances in human healthcare.
(source: company press release)

Why We Like It:
Our technical bearish breakdown play in BIIB is stuck at the 
starting line.  There has been little follow through on 
Wednesday's decline through round-number, psychological support 
at the $60.00 and its simple 21 and 100-dma's.  Instead we've 
seen BIIB churn sideways the last two sessions.  Although if 
you're bearish one could argue that Friday's action looks like a 
failed rally at the $60.50 level and its simple 21-dma.  The MACD 
is still in a new sell signal but we are going against the grain 
on the bullish P&F chart.  Be sure to keep an eye on the BTK 
biotech index.  The BTK looks very overbought from its August 
lows and due for some profit taking.  The BTK's MACD has produced 
a new sell signal but the index needs to break down through the 
520 level.  Conservative traders may want to consider tightening 
their stop on BIIB as we target a drop toward support at $55.

Suggested Options:
This is a short-term play so we're going to suggest the October
puts but Novembers are available.

BUY PUT OCT 60 IHD-VL OI=6859 current ask $1.90
BUY PUT OCT 55 IHD-VK OI=7417 current ask $0.50

Annotated chart:



Picked on September 22 at $59.57
Change since picked:      + 0.12
Earnings Date           07/28/04 (confirmed)
Average Daily Volume =       3.0 million 
Chart =


---

Eli Lilly & Co - LLY - close: 63.66 change: +0.16 stop: 67.01

Company Description:
Lilly, a leading innovation-driven corporation, is developing a 
growing portfolio of first-in-class and best-in-class 
pharmaceutical products by applying the latest research from its 
own worldwide laboratories and from collaborations with eminent 
scientific organizations. Headquartered in Indianapolis, Ind., 
Lilly provides answers -- through medicines and information -- 
for some of the world's most urgent medical needs
(source: company press release)

Why We Like It:
The DRG drug index has been a major sector of weakness in the 
market these past several days.  The bounce from the August lows 
failed near 325 and the group slowly turned lower.  Now the 
sector is in a full-fledged retreat.  As one of the largest drug 
companies out there LLY is both leading and following the group 
lower.  The recent breakdown through support at $64.00 and its 
simple 40 and 50-dma's has been able to thwart any rebound 
attempts.  Technicals are weak and its MACD is in a new sell 
signal.  The P&F chart for LLY is bearish and points to a $44 
target.  Currently we're targeting a drop toward support at 
$60.00.  It's very possible that LLY will be extra weak next week 
as funds do some window "undressing" as they exit their losers.

Suggested Options:
We like the October and November puts.  Our favorites are the
65s and 60s.

BUY PUT OCT 65 LLY-VM OI=28864 current ask $2.40
BUY PUT OCT 60 LLY-VL OI=51586 current ask $0.85

BUY PUT NOV 65 LLY-WM OI= 336 current ask $3.90
BUY PUT NOV 60 LLY-WL OI=1244 current ask $2.10

Annotated chart:



Picked on September 22 at $63.92
Change since picked:      - 0.26
Earnings Date           07/22/04 (confirmed)
Average Daily Volume =       3.1 million 
Chart =


---



FairFax Financial - FFH - cls: 125.75 chg: -0.11 stop: 130.01     

Company Description
Fairfax Financial Holdings Limited is a financial services 
holding company which, through its subsidiaries, is engaged in 
property and casualty insurance and reinsurance, investment 
management and insurance claims management.
(source: company press release)

Why We Like It:
We warned readers from the start that this was a high risk, 
speculative play.  Volume is too low. Option volumes are low and 
the stock has been volatile.  FFH proved again how volatile it 
was this past week with a bounce from $120 on Monday to $129.50 
on Friday.  Fortunately, the $130.00 proved to be round-number 
resistance and the stock sank toward its low of the session by 
the closing bell. The candle on Friday looks like a bearish 
reversal/failed rally and a potential new entry point for bearish 
positions.  Be sure you're comfortable with the risks involved 
before opening any positions.  The low option volume and 
volatility is playing havoc with the spread and option prices.
For those who don't remember the original update we added FFH 
despite its oversold condition because of concerns the insurance 
company was having liquidity issues and could face bankruptcy.

Suggested Options:
We're going to suggest the October options but Januarys are 
available for the longer-term trader.

BUY PUT OCT 130.00 FFH-VF OI= 22 current ask $ 7.30
BUY PUT OCT 125.00 FFH-VE OI= 28 current ask $ 4.50
BUY PUT OCT 120.00 FFH-VD OI= 58 current ask $ 2.65
BUY PUT OCT 115.00 FFH-VC OI= 45 current ask $ 1.65
BUY PUT OCT 110.00 FFH-VB OI=104 current ask $ 1.15
BUY PUT OCT 100.00 FFH-VT OI=462 current ask $ 0.65

Annotated Chart:



Picked on September 12 at $126.50
Change since picked:       - 0.75
Earnings Date            00/00/00 (confirmed)
Average Daily Volume =         59 thousand
Chart =


---

Kohl's - KSS - close: 49.43 change: -0.08 stop: 52.01

Company Description:
The Menomonee Falls, Wisconsin-based department store was a 
strong growth play a few years ago.  Stores provide shoes, 
apparel, and home products all targeted at middle-income 
families.  KSS currently runs over 560 stores.

Why We Like It:
The lack of follow through on KSS' bearish breakdown a week ago 
is disappointing but we're encouraged to see the $50.00 mark 
holding as resistance.  KSS has tried to breakout above $50.00 
almost every day the past week and can't.  Now with the RLX 
retail index looking overbought, with a new MACD sell signal, and 
poised to turn lower we're willing to stick it out with KSS and 
give it a few more days.  More conservative traders can probably 
tighten their stop loss on KSS and still be fine.  Remember that
this is just a short-term play to capture a dip to $46.00.  We
are bullish on KSS between mid-October through January.


Suggested Options:
We're only expecting this to be a short-term play so we're 
suggesting the October puts.  Our favorites are the 50s.

BUY PUT OCT 50 KSS-VJ OI=6992 current ask $1.55
BUY PUT OCT 45 KSS-VI OI=5504 current ask $0.20

Annotated chart:


Picked on September 16 at $49.48
Change since picked:      - 0.05
Earnings Date           08/12/04 (confirmed)
Average Daily Volume =       3.1 million 
Chart =



---

Lexmark Intl - LXK - close: 82.95 chg: -1.45 stop: 86.01     

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:
LXK continues to churn within its $82-86 trading range.  There is 
a tug-of-war going on between the bulls and the bears as LXK 
consolidates above its long-term trendline of support (see weekly 
chart below).  We are NOT suggesting new plays at this time.  
Short-term traders may want to consider exiting as LXK trades 
near the $82.00 level again before it bounces back.  For that 
matter nimble traders may want to buy calls and trade the bounce 
from $82 back to $85.50-86.00 but we'd use a very tight stop. If 
by some chance that LXK breaks down and trades under $80.00 we 
will be suggesting new bearish positions because this would be a 
huge technical breakdown.  

Suggested Options:
We are not suggesting new positions at this time.

Annotated Chart:



Picked on September 5th at $86.10
Change since picked:       - 3.15
Earnings Date            07/19/04 (confirmed)
Average Daily Volume =        1.2 million 
Chart =



---

3M Co - MMM - close: 78.68 change: -0.02 stop: 81.51*new*

Company Description:
Every day, 3M people find new ways to make amazing things happen. 
Wherever they are, whatever they do, the company's customers know 
they can rely on 3M to help make their lives better. 3M's brands 
include Scotch, Post-it, Scotchgard, Thinsulate, Scotch-Brite, 
Filtrete, Command and Vikuiti. Serving customers in more than 200 
countries around the world, the company's 67,000 people use their 
expertise, technologies and global strength to lead in major 
markets including consumer and office; display and graphics; 
electronics and telecommunications; safety, security and 
protection services; health care; industrial and transportation.
(source: company press release)

Why We Like It:
Attention traders!  MMM is approaching our initial target/exit 
point at $77.50.  The stock has continued its decline and has now 
broken multiple levels of support in the last two weeks.  We are 
not suggesting new bearish positions unless you believe MMM can 
trade under the $75.00 level.  As you can see from our chart 
below MMM does have potential support right at the $77.50 region.  
We are suggesting that short-term traders prepare to exit at 
$77.50.  More aggressive types may want to consider closing half 
their position at $77.50 and holding the other half for a 
possible drop to $75.00.  

Suggested Options:
We are not suggesting new positions at this time as MMM is very
close to our initial profit target.

Annotated chart:


Picked on September 15 at $82.00
Change since picked:      - 3.32
Earnings Date           07/19/04 (confirmed)
Average Daily Volume =       2.5 million 
Chart =



---

Par Pharma. Co - PRX - close: 36.07 chg: -0.28 stop: 40.01*new*

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:
While we'd like to see more follow through on the bearish 
breakdown in PRX we can't complain with the lack of bounce.  The 
best oversold bounce bulls could mount was a rebound to $37.00 on 
Thursday morning that quickly faded.  The intraday chart on PRX 
looks ready to breakdown under the $36.00 level.  This is a tough 
spot to consider new positions.  PRX looks a little oversold here 
and due for a bounce.  Readers may want to consider momentum 
entries on a new low or an entry on a failed rally under $38.50 
near its simple 100-dma, which should act as overhead resistance.  
We are feeling a little overexposed with a wide stop at $40.01 
but until we see where the bounce, if any, does occur it's a bit 
dangerous to lower the stop under round-number resistance at $40.  
We will lower the stop to $40.01.  We still believe there is 
potential support near $35.00 but our target remains $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=1116 current ask $4.30
BUY PUT OCT 35 PRX-VG OI= 329 current ask $1.00

BUY PUT NOV 40 PRX-WH OI= 684 current ask $5.10
BUY PUT NOV 35 PRX-WG OI=2170 current ask $2.00

Annotated chart:


Picked on September 21 at $37.80
Change since picked:      - 1.73
Earnings Date           07/19/04 (confirmed)
Average Daily Volume =       743 thousand
Chart =


---

Sepracor Inc - SEPR - close: 48.68 chg: +0.14 stop: 52.01

Company Description:
Sepracor Inc. is a research-based pharmaceutical company 
dedicated to treating and preventing human disease through the 
discovery, development and commercialization of innovative 
pharmaceutical products that are directed toward serving unmet 
medical needs. Sepracor's drug development program has yielded an 
extensive portfolio of pharmaceutical compound candidates with a 
focus on respiratory and central nervous system disorders. 
Sepracor's corporate headquarters are located in Marlborough, 
Massachusetts. (source: company press release)

Why We Like It:
SEPR is another trading range play.  On top of being stuck 
between $42.50 and $53.00 for the last several months SEPR's 
strength is being undermined by weakness in the DRG drug index.  
Plus, there is new evidence that SEPR may be negatively impacted 
by competition overseas.  The recent failed rally near $53.00 
looked like a bearish entry point but we didn't like it until 
shares broke down under mild support at $49.00.  Currently SEPR 
has found some support at its simple 40, 50, and 100-dma's, which 
have all converged near $48.00.  A breakdown under $48.00 and the 
stock should be on its way toward the bottom of its trading range 
near $42.50 and its 200-dma. 

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

BUY PUT OCT 50.00 ERU-VJ OI=8818 current ask $2.35
BUY PUT OCT 47.50 ERU-VW OI=2146 current ask $1.05
BUY PUT OCT 45.00 ERU-VI OI=4881 current ask $0.45

BUY PUT NOV 50.00 ERU-WJ OI= 167 current ask $3.60
BUY PUT NOV 47.50 ERU-WW OI=  40 current ask $2.25
BUY PUT NOV 45.00 ERU-WI OI=1050 current ask $1.35

Annotated chart:


Picked on September 22 at $48.94
Change since picked:      - 0.26
Earnings Date           07/13/04 (confirmed)
Average Daily Volume =       1.8 million 
Chart =


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

None


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The Option Investor Newsletter                   Sunday 09-26-2004
Sunday                                                      4 of 5


In Section Four:

Leaps: Good News, Bad News
Option Spreads: Trade Within The Trade or "DFWI"

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*****
LEAPS
*****

Good News, Bad News

The good news is the beginning of a pullback in the 
markets that could give us some good entries for any
end of year rally. The bad news is this pullback has
impacted those plays we were already long. This is a
fact of life and one traders have faced since trading
began. We may be stopped on some good plays and be
forced to reenter them on a rebound. If we are stopped
we will trail a buy stop behind them and look for a
new entry at a cheaper level. 

The dynamics of the market is changing. Consumer stocks
suffered a significant blow with the dual warnings from
Colgate and Unilever and they have failed to rebound.
Several analysts have suggested the consumer stocks
are also reacting to the apparent slowdown in consumer
spending. While consumers may be spending more for gas
and less on frivolous items I still believe they will
continue to buy consumer staples. Diapers, shampoo, 
soap, bathroom tissue, etc will continue to fill the
baskets at the market. Because of this anti recessionary
trend I am adding Proctor Gamble as a play this weekend.
We can benefit here from the consumer products hit from
CL/UN and buy the dip. 

Oil stocks continue to rocket higher and if you have 
been reading my columns you know I don't think they
will ever change back to prior levels. With the peak
in world oil production expected in 2007-2008 I believe
oil prices will continue higher. I believe we are seeing
an election event risk premium in prices today and we
will see a pullback once the election passes. Reuters
feels the drop could break the $40 level but not by
much. I considered dropping OXY from the watch list as
we are already oil heavy with COP, XLE and UPL but 
decided against it. I am leaving it with a low entry
price. If we get a drop after the election we will 
take profits in those we are currently long and look
to reenter when oil finds a temporary bottom.

I am looking forward to the next three weeks because 
they could see a sharp pullback in the indexes and an
opportunity for leap buyers. I am going to load up the
watch list over the next two weeks with some low entries
and just like in fishing we will see what we can catch. 

Our nice set of plays from last week with several 
showing very nice profits have all turned to dust
with only a little market weakness. COP, TYC and JNPR
are still strongly in the green but the rest have
fallen back to minor losses in most cases. We knew
there might be some weakness ahead and this is the 
price of doing business. We expected weakness but
nobody could guarantee it so we took our chances
with the long entries. I have adjusted the stops
to try and prevent being whipsawed out of our 
positions but nothing is ever guaranteed. Manage 
your own risk according to your risk profile. 


**** STRONG CAUTION ***

I would strongly caution everyone that a terrorist
event in the U.S. prior to the election could 
drastically change the market outlook. Should an
event occur I would think twice before making an
entry. 

Secondly, these LEAP plays are based on the current
conventional wisdom that Bush will win the election
and the market will celebrate with a post election
rally into January. Oil will still be a wild card
and once the election is over traders will look at
January earnings and guidance very critically to 
see if 2005 is going up or down. It could be a great
year or a dud. We just cannot tell that now. By
purchasing these LEAPs we are betting on a positive
outcome and a growing 2005 economy. Those may not 
be safe bets but it is either that or crawl under
a rock. We will adjust the portfolio as time passes
and the outlook become clearer. 

 

*******************   
New Plays
*******************   


Proctor & Gamble $54.00

Colgate (NYSE:CL) and Unilever (NYSE:UN) confessed 
to the investing public in a surprise announcement 
on Monday that sales would disappoint for the current
quarter. For Colgate the reasons were given as the 
rising cost of raw materials and increased marketing
costs. For Unilever it was blamed on rain in Spain or
at least in Europe. Seems the cold wet weather depresses
Ben and Jerry's ice cream sales, Lipton tea and Dove soap. 
Sounds fishy to me but it was the reason given.

There may be another cause. Take a quick look at the
chart for Proctor & Gamble (NYSE:PG) and then think about
those excuses once again. PG has been on a steady move
higher as it steals market share from CL and UN and the
outlook is for more of the same. Actually PG is continuing
to take market share not only from CL and UN but also 
Kimberly Clark (NYSE:KMB) and Alberto Culver (NYSE:ACV).

The warnings may have shocked a drop in the consumer 
products sector but it may not actually be sector wide
weakness. ACV was quick to issue a press release saying
that the current quarter would meet or beat analysts 
estimates but the damage had already been done. ACV 
was already on a downward path from $49 back in early
September and the twin warnings on Monday pushed it 
to $42. KMB hit $69 back on the 7th and fell to just
over $64 today. Neither of those companies have warned
but the stocks have been punished in advance. 

Let's go back to that PG chart. Proctor and Gamble has
been stronger than Mike Tyson since August of 2003. The
steady climb for this Dow component has been remarkable
and the drop in July was the only time the 100 day 
average has been touched all year. The rebound was quick
because of Proctor's strength in the sector. The warning
by CL and UN knocked PG back to that 100 day average at
$54.50 but it was only a minor -4% drop. I believe it 
is a buying opportunity. In times of market stress you
only want to buy the strongest stocks in a sector and
a sector that will continue to see growth. Hair care,
soap, diapers and bathroom tissue are not going to 
remain on grocers shelves just because the economy 
is weak. This is a recession proof company and the 
strongest of all the competitors. 

For those who like to buy and forget the January-2006
$55 LEAP Call is only $4.30 and gives you more than
a year to profit from Proctor's steady rise higher.
This would be my choice for a long-term investment.
Just be sure to check the label on your consumer items
for the next 15 months and make sure you are helping
PG succeed.  


BUY Jan-2006 $55 LEAP Call WPG-AK currently $4.20
BUY Jan-2006 $57 LEAP Call WPG-AY currently $3.00

PG Chart: 



****************************     
New Plays Triggered
****************************  

EBAY $89.20

EBAY was triggered on Wednesday morning when it dropped 
to $90. The LEAPs profiled were:

2006 $90  LEAP Call YRL-AR $14.70
2006 $100 LEAP Call YRL-AT $10.40


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


UPL - Ultra Petroleum $46.33 

UPL was triggered on Tuesday when it exploded at the
open and through our upside breakout trigger at $45.50.  

JAN-2006 $45 LEAP Call WSS-AI $11.30 
JAN-2006 $50 LEAP Call WSS-AJ $9.20


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

MER - Merrill Lynch $50.41 
               
Merrill hit $51 on Monday to trigger the play and 
then rebounded to $53 on Tuesday before falling
on the Morgan Stanley earnings miss.    

2006 $50 LEAP Call WZM-AJ currently $7.30
2006 $55 LEAP Call WZM-AK currently $4.80




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

Position Summary Graph




****************************     
Play Updates 
****************************    

XLE - S&P Energy SPDR $34.59  ** Stop 32.25 **

The XLE roared out of the gate on Monday and hit a
high of $34.85 on Tuesday. We saw a dip on Wednesday
when several big oil stocks were downgraded on 
valuation but the rise resumed as oil neared $50.

2006 $32 LEAP Call WHA-AF currently at $4.60
2006 $35 LEAP Call WHA-AI currently at $2.85

Entry $33.92 on 9/20
http://members.OptionInvestor.com/leaps/Lp_092604_1.asp

XLE Chart


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

QLGC - Qlogic Corp - $29.12  ** Stop $27.50 **

QLGC hit $31.36 on Monday with the rebound in the
SOX but gave it back up late in the week when the
SOX retreated. If the SOX breaks 380 support we 
could get stopped on QLGC pretty quickly. The 
resistance at $31 just happened to correspond
to the rebound level for the SOX. 

There was no negative news on QLGC to cause the
decline and is was simply market/resistance
motivated.  

2006 $30 LEAP YIO-AF currently $5.30
2006 $35 LEAP YIO-AG currently $3.43

Entry $30.36 9/20
http://members.OptionInvestor.com/leaps/Lp_092604_1.asp


QLGC Chart


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

MMM - 3M Company - $78.68, ** Stop $74.00 **

Entry at $82 on 9/15, add to position at $78. 

MMM is the ugliest chart in the portfolio. The Alcoa
warning has put fear into MMM shareholders and the
stock has been punished severely. We are nearing the
second entry point at $78 where we can add to the
position. I pressed the entry two weeks ago because
it appeared MMM was going to leave the station 
without us and now I am regretting it. 

We went for weeks chasing prices higher without any
fills and the desire to tackle something was strong. 
I liked MMM at $80 and I still like it at $78. 

I changed the stop to $74.00 to get under the March
and August lows. 

2006 $80 LEAP Call WMU-AP currently $7.40
2006 $85 LEAP Call WMU-AQ currently $4.50

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

MMM Chart


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


C - Citigroup $44.05 LEAP Call  **Stop $41.00**

Entry 1/2 46.00 9/20 1/2 45.00 9/22
 
That hurt! The Japan news came out on Friday the 17th
with no material impact on Citigroup. On Monday the
bottom fell out and we gapped down to $46 at the open.
That would be the official entry point for the first
1/2 position. The stock took another drop on Wednesday
despite an upgrade from S&P. 

Citigroup is now tied to the market and after the
last couple of earnings misses from brokers the bloom
is off the rose. Citigroup is still a leading financial
and we are into the position cheap at an average cost
of $45.50 and $2.00. 

Stop was changed to $41 in light of the market weakness.

1/2 position at $46.00 9/20
1/2 position at $45.00 9/22

2006 $50 LEAP Call WRV-AJ currently $1.75

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

Citigroup Chart


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

INTC - Intel Corp $20.12  **Stop $17.00**
Entry $20.00 Sept 3rd

Intel continues to be at the mercy of the SOX but is
holding above support at $20. Intel has tried several
times to rebound from this level but the overhead SOX
resistance and chip earnings warnings have been too
strong. Intel is being held down by the market at 
this point and should do fine once the Sep/Oct dip
has passed.     

Current position:
2006 $22 LEAP Call WNL-AX at $2.20 currently $2.05
2006 $25 LEAP Call WNL-AE at $1.45 currently $1.40

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

Intel Chart


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


TYC - Tyco Intl. $30.20  **Stop $25.00**
Entry 5/18 $28.32

Tyco is hanging in despite the market weakness but
I lowered the stop to $25 to get under the early
2004 support. I still like TYC and I think it is
one of the strongest stocks in the portfolio but
in a down market even good stocks go down.    

Current position:
2005 $30 LEAP Call TYC-AF cost $2.15 current $2.15 
2006 $30 LEAP Call WPA-AF cost $4.00 current $4.30 
July $25 insurance put - expired - cost $.55

http://members.OptionInvestor.com/leaps/Lp_051604_1.asp

Tyco Chart


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


JNPR - Juniper Networks $24.68 **Stop $19.00**
Entry $20.19 (8/16)

Juniper shook off the Cisco downgrade and is holding 
right at the $25 resistance highs. I still expect
some profit taking if we have a serious market dip
so I lowered the stop to $19. Given the tech 
weakness this is a strong performer. We are still
abut +$5 over our entry point.  


2006 $25 LEAP Call WBW-AE cost $3.50 current $5.60 
Insurance = Sept-$17.50 Put (expired) cost 50 cents.  

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

JNPR Chart


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


COP - Conoco Phillips $81.75 **Stop 75.50**
Entry $73.30 August 30th   

COP continues to power ahead as oil continues to rise.
Conoco is one of the oil favorites and it receives
good press almost daily. It is still favored to win
the auction for the shares of Russian oil giant Lukoil
on Monday. As of Friday no bids had been made and COP
is expected to bid on Monday and could be the only 
bidder.  

COP is expected to win a 7.6% stake in Lukoil when
the share is auctioned off on Sept-29th. This will
give COP a huge increase in proven reserves.  

We have no idea how the Russian bid announcement 
will impact the price. Traders could be excited 
about the +25% increase in reserves or disappointed
in the amount paid. You might tighten up the stops
and reenter on any material drop. 

We cleared resistance at $80 and are in blue sky 
territory. 

Current position:
Jan-2006 $75 LEAP Call YRO-AO at $6.70 currently $11.40


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

COP Chart


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


NWS - News Corp $32.63 **Stop 29.00**

No additional news on the News Corp move to the U.S.
The shareholder vote is now scheduled for Oct-26th 
and is expected to pass. NWS would reincorporate
in the U.S. and move its primary listing to the NYSE.
It could continue to retain secondary listings on the
Australian and London exchanges. This move would allow
inclusion in the various U.S. indexes and could produce
a strong move higher in the stock as fund managers
begin entering positions. If the move is approved by
shareholders NWS will seek formal approval from the
regulators and the move is expected to be completed
in November. NWS owns FOX as well as many other 
networks around the globe. 

 
Current position: 
2006 $40 LEAP Call WLN-AH at $3.83 currently $1.85

Initial play description:
http://members.OptionInvestor.com/editorplays/edply_041104_1.asp
http://members.OptionInvestor.com/editorplays/edply_041804_1.asp


NWS Chart


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

UPL - Ultra Petroleum $46.33  **Stop $43.00**

Entry $45.50 9/21

That did not work out as I expected. We saw UPL building
an ascending triangle at $45 and I had hoped to see a dip
to $43 before it broke out. Unfortunately two upgrades
triggered a blast off and our breakout entry was triggered
on Tuesday. UPL is very strong and held the high ground
despite the +$3 jump. If oil hits $50 next week this 
stock may hit $50 as well.  

JAN-2006 $45 LEAP Call WSS-AI $11.30 
JAN-2006 $50 LEAP Call WSS-AJ $10.20 

http://members.OptionInvestor.com/leaps/Lp_090504_1.asp

UPL Chart


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

EBAY - EBAY $89.20      ** Stop $84.00 **
Entry $90.00 on 9/22

Amazing! EBAY actually declined for five out of seven
days. Just enough to trigger our entry at $90 on 9/22.
Now the race will be to find some Nasdaq strength before
we get a real breakdown. 

In news this week EBAY said it decided not to shut down
half.com as planned in October because it was doing 
better than expected in sales. It also became election
fodder when Edwards compared it to a sidewalk lemonade
stand.  

2006 $90 LEAP Call YRL-AR
2006 $100 LEAP Call YRL-AT 

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

EBAY Chart


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

MER - Merrill Lynch $50.41   ** Stop $46.00 **
Entry $51.00 
               
We finally got the completed pull back on Merrill to
our target entry of $51 on Monday. The good earnings
news from brokers on Tuesday sent it soaring back to
$53 but the following day a high profile earnings miss
by Morgan Stanley set it back to the dugout. 

Merrill reports earnings in mid October and they are
expected to do well. The market is our worst enemy
now as we try to tiptoe through the next three weeks
without a major disaster.  

2006 $50 LEAP Call WZM-AJ currently $7.30
2006 $55 LEAP Call WZM-AK currently $4.50

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

MER Chart


****************************    
LEAPS Watch List
****************************    

Time to load the boat?

With market weakness appearing and a market event 
possible over the next three weeks I am going to 
load up the watch list and hope we can get some
index plays going as well as a couple more stocks.

If we are going to see an October dip it should be 
early and over by mid October unless we have a
terrorist event. 

The index plays are cheap leaps and far less critical
to earnings and news stories. If we can get all four
of them they would make a good portfolio by themselves.

***********************   
Dropped Entries 
***********************   

GE $33.41 Too many better candidates



***********************   
New Entries 
***********************   

I am running out of space to add big descriptions to
the watch list entries. With the potential to add
5-7 stocks to the LEAPs section over the next three
weeks I am going to keep it brief. 


RIMM $74.63  Research in Motion

BA  $53.15  Boeing Aerospace

SMH  $30.20 Semiconductor Holders

DIA  $100.68 Dow Diamonds Trust

QQQ  $34.79 Nasdaq 100 Tracking Stock

IWM  $112.70 Russell-2000 Index Ishares 


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

RIMM $74.63 Research in Motion

Breakdown target $70.00
Breakout target $77.00

RIMM is a leading designer and manufacturer of wireless
communications devices for the mobile market. The key
product is the Blackberry and various model variations.

RIMM has seen a remarkable run with gains from $55 to
$75 since mid August. The last week RIMM has paused to
consolidate at $75 and could be about ready to push
higher. There have been no real attempt to take profits
in the last two weeks despite some Nasdaq weakness and
the big gains. 

RIMM and SYMC are almost identical charts. They both
sprinted higher on the August rally and then have clung
to those highs in the face of mixed markets. Fortunately
this has give the options time to cool and prices fade
slightly. 

I am using a breakout and breakdown trigger on RIMM
because I do not want to chase this one to $100. If
it was any other October I would be looking to enter
at $60 on a pullback but the potential for a post
election rally is keeping the bid strong on any dip. 

Buy 2006 $80 LEAP Call WLJ-AP currently $15.90
Buy 2006 $90 LEAP Call WLJ-AR currently $12.30
Sell 2006 $120 LEAP Put WLJ-MD currently $47.70

RIMM Chart  


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

BA  $53.15  Boeing Aerospace   Target $52

Boeing has an excellent chart and excellent prospects.
Not only do they have the 7E7 in process but they are
continuing to win government contracts for high tech
systems for the next decade. On Monday BA and IBM 
announced a joint effort to increase efforts to 
computerize the battlefield. 

Boeing has moved from $25 to $55 since March of 2003
and has not lost any momentum in the process. They
raise guidance with their last earnings and the CEO
affirmed that guidance last week. No warnings here. 

BA has pulled back slightly with the market weakness
and I would love to get an entry in the $50 range. 
However I think $52 would still be reasonable and 
possibly attainable. $50 might be overly optimistic
and the difference in option prices will not be 
material.

Buy 2006 $55 LEAP Call WBO-AK currently $5.50
Buy 2006 $60 LEAP Call WBO-AL currently $3.60

Boeing Chart



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

SMH  $30.20 Semiconductor Holders **Target $28.50**

This may be wishful thinking on the semiconductor
holders but $28 is the level the SMH should hit if
the SOX retests 350. A pause at $28.50 could give
a convincing reverse H&S and take about a week to
achieve. This would set us up for a semi rebound
into the election. You saw the last rebound of +15%
from the September lows and the next time we could
move even faster. 

Buy 2006 $30 LEAP Call YRH-AF currently $5.30
Buy 2006 $35 LEAP Call YRH-AG currently $3.20
Sell 2006 $55 LEAP Put YRH-MA currently $25.00

SMH Chart



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

DIA  $100.68 Dow Diamonds Trust **Target 99.00**

No magic here. This is simply a long play designed
to capitalize on any Dow rebound from a sub 10000
test over the next three weeks. 

The odds are good we could retest 9900 and possibly
9800 but I do not want to miss the entry by a point
if we end up with a reverse head and shoulders at
9900. 

Options are a tossup as there are several strange
strikes. They go in four point increments rather
than five or one as in the QQQ. 

They also seem expensive but the difference between
a 104 and 108 strike is only 400 Dow points. With
many estimates of Dow 12500 by end of 2005 there 
is plenty of room for profit. The DIA options move
$1 for every 100 Dow points if they are in the money.

For instance a move to Dow 12500 (DIA 125) would
put the $108 leap call 17 points in the money or
$17. That would be four times the current $4 price.

Buy 2006 $100 LEAP Call YGF-AV currently $7.80
Buy 2006 $104 LEAP Call YGF-AZ currently $5.70
Buy 2006 $108 LEAP Call YGF-AD currently $4.00
Buy 2006 $112 LEAP Call YGF-AH currently $2.65

DIA Chart


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

QQQ  $34.79 Nasdaq 100 Tracking Stock  
Target 1/2 at $34.00
Target 1/2 at $33.00

The Nasdaq 100 tracking stock has strong support at $34
but it still managed to break to just below $33 on the
August dip. I would like to get a long entry at $33 but
I think we would be pressing our luck. 

To compromise lets try to enter 1/2 at $34 and 1/2 at
$33 and average down. If we never get to $33 there is
no harm done. The QQQ has traded as high as $120 back
in 2000 but I doubt we will see that again this decade.

The QQQ has strong resistance at 38, 42 and 49. I think
everybody reading this would be very happy to see $49 
or even $42 again over the next year. 

Buy 2006 $35 LEAP Call YWZ-AI currently $4.30
Buy 2006 $37 LEAP Call YWZ-AD currently $3.30

These prices should drop about 50 cents at $34
and 65 cents at $33.  

QQQ Chart


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

IWM  $112.70 Russell-2000 Index Ishares
Target 1/2 108.00
Target 1/2 106.00

If you thought the QQQ was wishful thinking then this 
is positively pie in the sky. In a perfect world we 
would return to 106 to form a reverse H&S and then
rocket off into the wild blue yonder. Unfortunately
there is a heck of a lot of selling and buying that
would have to occur to make this happen. BUT, we are
headed into October and a month known for dip. 

While I think 106 could be a stretch I think we could
see 108 or somewhere in that range. I would be happy
to take a fill there and hold it for a year. 

The downtrend resistance at 115 and falling will be
the first major hurdle followed by very strong
resistance at 120. If the scenario turns out as
expected with no terrorist attacks and a Bush win
then a break of 120 could be met with very strong
short covering and new highs all the way around. 

This is a strong play for me because I believe the
small caps will lead any post election rally. 

There are one point increments on the IWM LEAPS
so pick the lowest strike you can afford when the
entry point is hit. Since the IWM has to move 4-6
points to hit our entry point the current price on
the options will change drastically. I would estimate
the 115 to be around $9 and the 120 to be around $7.
An at the money option is around $13 so if we assume
the minimum level reached in 2005 is 120 the 120
strike at a 108 entry would probably double in value.
($7 to $14)

2006 $110 LEAP Call WOI-AF currently $14.30 est 12.00
2006 $115 LEAP Call WOI-AK currently $11.60 est 9.50
2006 $120 LEAP Call WOI-AP currently $ 9.20 est 7.00

IWM Russell Chart


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

OXY - Occidental Petroleum $55.00  

Target $53.50 breakdown, $55.50 breakout

We already have three oils but OXY is rated so highly
and doing so well I am keeping it on the watch list.
Hopefully we will get a drop in prices once $50 is
reached and we can get a profit taking entry. 

The stock looked like it might pull back last week
but roared out of the gate on Monday to a new high.
If you are managing your own trades I would be very 
careful not to let this one get away on the next 
bounce. 

There was some confusion about a contract in Ecuador 
on Thursday that stole some OXY excitement but the
fire is still burning. Starmine expects OXY to beat
earnings by +0.15 cents when it reports in the 3Q.
  

2006 $50 LEAP Calls WXY-AJ currently $8.50
2006 $55 LEAP Calls WXY-AK currently $5.40
2006 $60 LEAP Calls WXY-AL currently $3.40

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

OXY Chart



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

SYMC - Symantec - $51.84   
Target $49.00 on breakdown
Target $53.00 on breakout

Still holding at resistance. SYMC refuses to move lower
despite the weakness in techs. This is a very strong 
stock and I probably should just take the entry here 
at $52 but I would really like to hold out for a
potential dip next week. 

We will continue to bracket the price and catch the
entry regardless of which way it moves. If we get
the $49 drop it could take more than $1 off the option
premiums.   

Add to the position with a -$3 drop below any fill. 

2006 $50 LEAP Call YAG-AJ current $10.10
2006 $55 LEAP Call YAG-AK current $7.70
2006 $60 LEAP Call YAG-AL current $5.80

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

SYMC Chart



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************************
Option Spread Strategies
************************

Trade Within The Trade or "DFWI"
By Mike Parnos


Temptation is everywhere -- whether it's in the form of Twinkies, 
Trixies or trading.  Each is hovering out there waiting to 
satisfy its own specific appetite.  We have to beware of 
seemingly simple solutions that may provide us with instant 
gratification.  The gratification, though yummy and exciting, is 
only temporary.  The longer term effects can be less than 
positive -- but nothing that liposuction, a shot of penicillin or 
an inheritance can't fix.

The CPTI is structured pretty much for option traders who do not 
have the flexibility to monitor their trades all day long.  Most 
CPTI students have jobs and/or other responsibilities that keep 
them away from the computer screen.  Our method works quite well, 
as is demonstrated by our track record and the emails I receive.  
We put on a trade and adjust it only when necessary.

The "DFWI" couch potato approach works.  However, for those who 
tend to be a touch more aggressive -- and those who can keep a 
closer eye on their trades, opportunities do present themselves 
during the trading day.  

On Friday I got a call from one of my students who has an October 
Iron Condor on the SPX.  He got in a little earlier and has the 
1165/1180 bear call spread and the 1075/1060 bull put spread, 
having taken in a nice credit of $3.10.

After two significant down days on higher than average volume, he 
said he believes the market doesn't have any good reason to move 
up.  Since the market moved down a bunch, he saw an opportunity 
to close out his bear call spread.  So, he put in an order to buy 
back the Oct. 1165 call and sell the Oct. 1180 call for a debit 
of $.25.  The posted prices for those options would only have 
required a debit of $.40.  He figured he'd shave off a dime here 
and a nickel there from the bid/ask spreads.  A quarter is pretty 
cheap, but damned if he didn't get filled.  And there are still 
three weeks left in the option cycle!!  One of the nice things 
about trading is that it doesn't cost anything to put an order 
out there.  

What did that accomplish?  By closing out the bear call spread, 
he 
a)  no longer had an obligation to perform if the SPX spiked 
higher and threatened 1065.
b)  he locked in a profit on the bear call spread.
c)  he freed up $15,000 of maintenance requirements.   If he was
using a brokerage firm that requires maintenance on both sides, 
he could now use that $15,000 for other purposes
d)  and, with three weeks left, he has the time and financial 
flexibility to explore other ways to generate money.

We looked at a chart of the SPX to find a secondary resistance 
level.  There looks to be reasonable resistance between 1145 & 
1150.  Then we consulted the SPX option chain.  He put in an 
order to sell the Oct. 1145 call and buy the Oct. 1160 call for a 
credit of $.90.   It didn't get filled and he had to settle for 
$.85, but it was still worthwhile.  

He spend $.25 to close the initial bear call spread.  Then, he 
rolled down to second bear call spread and took in $.85.  He took 
in an additional $.60 x 15 contracts ($900) into his account.

If he had wanted to be five points more conservative, the new 
bear call spread of 1150/1165 would have yielded a credit of 
about $.65 -- with a net credit of $.40 ($600). 

With the SPX trading at about 1110, he now has a cushion of about 
35 points.  Normally, when we first initiate an Iron Condor 
position, we like to have a 40-45 point cushion.  But, remember, 
there are only three weeks left until expiration.  His exposure 
to the market is a week less.  That, along with his bearish 
outlook for the market, enabled him to justify the 35-point 
cushion.  Is it riskier?  Sure.  Is it worth it?  It certainly 
can be -- if you're right.  If you're wrong and the market 
reverses, it can present a whole other set of problems.

It's a personal choice.  If you're in a position to take 
advantage of these kinds of these opportunities, you don't have 
to do it with your entire position.  You could always just do a 
few contracts and get a feel for what's involved -- both the 
rewards and the risks.

Just don't jump in head first without checking the water level.  
The instant gratification isn't worth it, if you can't handle the 
consequences.  If you don't want to need liposuction, penicillin 
or lose a relative, just stick with the "DFWI" approach.  It was 
Baretta who said, "Don't do the crime if you can't do the time."
____________________________________________________________

OCTOBER CPTI HYPOTHETICAL POSITIONS
October Position #1 - SPX Iron Condor - 1110.11
We sold 10 SPX October 1160 calls and bought 10 SPX October 1175 
calls for a net credit of about $1.75 ($1,750).  Then we sold 10 
SPX October 1075 puts and bought 10 SPX October 1060 puts for a 
credit of about $1.30 ($1,300).  Total net credit of appx. $3.05 
($3,050).  Maximum profit range is 1075 to 1160.  Maintenance is 
$15,000.
 
Position #2 -- RUT Iron Condor - 565.97
We sold 10 RUT Oct. 610 calls and bought 10 RUT Oct. 620 calls 
for a credit of about $.65 ($650).  Then we sold 10 RUT Oct 530 
puts and bought 10 RUT Oct 520 puts for a credit of about $.55 
($550).  Total net credit of about $1.20 ($1,200).  Maximum 
profit range is 530 to 610.  Maintenance is $10,000.  

Position #3 - OEX Iron Condor - 534.37
We sold 10 OEX October 520 puts and bought 10 OEX October 510 
puts for a credit of about $.70 ($700).  Then we sold 10 OEX 
October 565 calls and bought 10 OEX October 575 calls for a 
credit of about $.50 ($500).   Total net credit of about $1.20 
($1,200).  Maximum profit range is 520 to 565.  Maintenance is 
$10,000.  

Position #4 - BBH Iron Condor - $143.80
We sold 10 BBH October $150 calls and bought 10 BBH October $160 
calls for a credit of about $.95 ($950).  Then we sold 10 BBH 
October $135 puts and bought 10 BBH October $125 puts for a 
credit of about $.55 ($550).  Total net credit of about $1.50 
($1,500).  Maximum profit range is $135 to $150.  Maintenance is 
$10,000.  Be careful.

Position #5 -- SPX "Sure Thing" Strategy - 1110.11
Formerly called the "Credit Spread Boogie."  The market seems to 
be in an uptrend since mid-August.  Let's go with the flow until 
the market tells us otherwise.  

We sold 3 SPX 1120 October puts and bought 3 SPX 1095 October 
puts for a net credit of about $6.50 ($1,950).  The initial 
maintenance is $7,500.  Before trying this, make sure you have a 
large brokerage account that will accommodate a lot more 
maintenance -- just in case.  Remember, the "Sure Thing" strategy 
involves the possibility of doubling the number of contracts and 
going in the opposite direction, if the trend does not continue.
_________________________________________________________________

ONGOING POSITIONS
QQQ ITM Strangle - Ongoing Long Term -- $34.80
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.  We rolled to the Sept. $34 calls and $37 
puts, yielding $.45 or $450 for the cycle. For October we were 
again limited to a $.45 ($450) rollout.  Our new total credit is 
now $12,200.

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

ZERO-PLUS Strategy.  OEX - 534.37
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).  In September we added another $975 for a new 
total of $9,365.

New Zero Plus Positions For October  
Not a lot of credit available this month.  October bull put 
spread 520/510 for credit of $.65 x 5 contracts = $325.  October 
bear call spread 565/575 for another credit of $.65 x 5 contracts 
= $325.  If all goes well, we'll be able to add $650 to our cash 
position.
__________________________________________________________

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.


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

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


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The Option Investor Newsletter                   Sunday 09-26-2004
Sunday                                                      5 of 5

In Section Five:


Spreads and Straddles:  Crude Prices Curb Stock Buying
Premium-Selling Plays: Naked Puts and Calls


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

Crude Prices Curb Stock Buying
By Ray Cummins

U.S. equities ended mixed Friday, despite a midday rally, as
the cost of oil climbed to record levels.

Investor optimism over a Commerce Department report on durable
goods orders for August faded in late trading as crude renewed
its efforts to eclipse the $50-per-barrel mark.  The blue-chip
Dow Jones industrial average ended up 8 points at 10,047, with
McDonald's (NYSE:MCD) leading the 30-component group higher on
rumors it might be interested in acquiring Krispy Kreme Donuts
(NYSE:KKD).  The NASDAQ composite index fell 6 points to 1,879
as networking, internet, computer hardware, and semiconductor
shares drifted lower.  The broader Standard & Poor's 500 index
gained 1 point to finish at 1,110, with retail issues among the
best performers.  Advancing issues outnumbered decliners 5 to 4
on the New York Stock Exchange, where volume was 1.26 billion
shares.  Losers paced winners by a small margin on the NASDAQ,
where trading volume amounted to 1.36 billion shares.  The bond
market ended nearly unchanged with the 10-year note down 3/32,
while its yield rose to 4.03%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 09/24/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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  85.06  OCT  65.0  70.0  0.70   69.30   0.70   Open
RYL    88.15  91.65  OCT  75.0  80.0  0.75   79.25   0.75   Open
GIVN   38.72  38.49  OCT  30.0  35.0  0.70   34.30   0.70   Open
MBT   140.75 136.97  OCT 120.0 125.0  0.50  124.50   0.50   Open
COGN   34.58  34.55  OCT  30.0  32.5  0.30   32.20   0.30   Open
SCSC   66.22  64.00  OCT  55.0  60.0  0.50   59.50   0.50   Open
CCMP   38.29  35.26  OCT  30.0  35.0  0.75   34.25   0.75   Open?
ONXX   41.99  43.16  OCT  30.0  35.0  0.50   34.50   0.50   Open
AHC    83.99  86.48  OCT  75.0  80.0  0.55   79.45   0.55   Open
CELG   59.39  58.17  OCT  50.0  55.0  0.55   54.45   0.55   Open
GDT    64.02  63.66  OCT  55.0  60.0  0.65   59.35   0.65   Open
PHM    63.70  62.00  OCT  55.0  60.0  0.60   59.40   0.60   Open

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

Cabot Micro (NASDAQ:CCMP) is an "early-exit" candidate in the wake
of the renewed decline in semiconductor-related shares.


CALL-CREDIT SPREADS

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

AZO    74.06  75.73   OCT  85.0  80.0  0.55   80.55  0.55   Open
MXIM   40.94  41.59   OCT  50.0  45.0  0.50   45.50  0.50   Open
PLMO   32.30  29.29   OCT  45.0  40.0  0.55   40.55  0.55   Open
LEN    46.75  47.61   OCT  55.0  50.0  0.60   50.60  0.60   Open
NTES   35.51  38.17   OCT  45.0  40.0  0.60   40.60  0.60   Open
NBIX   50.65  48.09   OCT  60.0  55.0  0.55   55.55  0.55   Open
SSP    49.66  49.45   OCT  52.5  50.0  0.50   50.50  0.50   Open
APOL   78.35  72.82   OCT  90.0  85.0  0.25   85.25  0.25   Open
STJ    70.73  73.43   OCT  80.0  75.0  0.55   75.55  0.55   Open
APOL   72.00  72.82   OCT  85.0  80.0  0.45   80.45  0.45   Open
PRX    37.80  36.07   OCT  45.0  40.0  0.60   40.60  0.60   Open
 
L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss

St. Jude Medical (NYSE:STJ) is on the "watch" list after Friday's
rally and Netease.com (NASDAQ:NTES) warrants further attention as
it hovers slightly below the sold (call) strike at $40.


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.

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

PD - Phelps Dodge  $90.48  *** The Copper King! ***

Phelps Dodge (NYSE:PD) is engaged in the production of copper,
carbon black, magnet wire, continuous-cast copper rod and also
molybdenum products.  The firm consists of two major divisions:
Phelps Dodge Mining, which is an international business for its
vertically integrated copper operations, and Phelps Dodge
Industries, which is the manufacturing division, comprising two
individual business segments that produce engineered products
for the global energy, telecommunications, transportation and
specialty chemicals sectors.

PD - Phelps Dodge  $90.48

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-80.00  PD-VP  OI=3812  ASK=$0.30
SELL PUT  OCT-85.00  PD-VQ  OI=3910  BID=$0.75
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$84.50


__________________________________________________________________

RTP - Rio Tinto  $104.28  *** Natural Resources In Demand! ***

Rio Tinto plc (NYSE:RTP), and Rio Tinto Limited, operate as a
single business organization engaged in discovering, mining and
processing the Earth's mineral resources.  Its major products
include aluminum, copper, diamonds, energy products (coal and
uranium), gold, industrial minerals (borax, titanium dioxide,
salt and talc) and iron ore.  Its activities are represented
in Australia and North America, with significant businesses in
South America, Asia, Europe and southern Africa.

RTP - Rio Tinto  $104.28

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-95.00   RTP-VS  OI=47  ASK=$0.35
SELL PUT  OCT-100.00  RTP-VT  OI=47  BID=$0.85
INITIAL NET-CREDIT TARGET=$0.55-$0.60
POTENTIAL PROFIT(max)=12% B/E=$99.45



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

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.

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

CERN - Cerner  $42.99  *** New Downtrend Underway! ***

Cerner (NASDAQ:CERN) designs, develops, markets, installs, hosts
and supports software information technology and content solutions
for healthcare organizations and consumers.  The firm's solutions
give end users secure access to clinical, administrative and other
financial data in real-time.  Consumers retrieve appropriate care
information and educational resources via the Internet.  The firm
implements these solutions as stand-alone, combined or enterprise
wide systems.  Cerner solutions can be managed by the company's
clients or via an application outsourcing/hosting model.  Cerner
provides hosted solutions from its data center in Lee's Summit,
Missouri.  Earnings are due after the close of trading on 7/21.

CERN - Cerner  $42.99

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-50.00  CQN-JJ  OI=104  ASK=$0.15
SELL CALL  OCT-45.00  CQN-JI  OI=515  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=12% B/E=$45.50


__________________________________________________________________

IMCL - ImClone Systems  $50.35  *** Erbitux Sales Decline? ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company
involved in advance oncology care by developing a portfolio of
targeted biologic treatments designed to address the medical
needs of patients with cancer.  It focuses on three strategies
for treating cancer: growth factor blockers, angiogenesis
inhibitors and cancer vaccines.  The company's lead product,
ERBITUX (Cetuximab), is an antibody which has been approved for
use in combination with irinotecan in the treatment of patients
with a unique type of colorectal cancer.

IMCL - ImClone Systems  $50.35

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-60.00  QCI-JL  OI=4141  ASK=$0.20
SELL CALL  OCT-55.00  QCI-JK  OI=4246  BID=$0.55
INITIAL NET-CREDIT TARGET=$0.40-$0.50
POTENTIAL PROFIT(max)=8% B/E=$55.40



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

QLGC - Qlogic  $29.12  *** Earnings Speculation! ***

QLogic (NASDAQ:QLGC) designs and develops storage networking
infrastructure components for original equipment manufacturers,
distributors, resellers and system integrators.  The company
produces the controller chips, management enclosure chips,
host bus adapters, fabric switches and management software that
provide the connectivity infrastructure for every size of storage
network.  It serves customers with solutions based on various
storage area network, technologies, including small computer
systems interface, Internet SCSI and fibre channel.  Quarterly
earnings are due on or about 10/13/04.

QLGC - Qlogic  $29.12

PLAY (very speculative - neutral/debit strangle):

BUY CALL  OCT-30.00  QLC-JF  OI=8378  ASK=$0.80
BUY PUT   OCT-30.00  QLC-VF  OI=5071  ASK=$1.70
INITIAL NET-DEBIT TARGET=$2.30-$2.40
INITIAL TARGET PROFIT=$1.05-$1.50

Note: The position Delta or "hedge ratio" suggests we should
purchase more calls than puts to maintain a neutral outlook.
However, any reasonable movement in the issue next week
should allow both sides of the position to be purchased at
similar prices (possibly at a lower strike).




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

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 09/24/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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   16.02    0.40   7.19%   2.74%
FHRX     OCT    17.50   17.05   19.30    0.45   6.31%   2.64%
SNDK     OCT    22.50   22.00   27.38    0.50   5.86%   2.27%
SSYS     OCT    25.00   24.45   28.56    0.55   5.91%   2.25%
JNPR     OCT    22.50   22.00   24.65    0.50   5.73%   2.27%
CREE     OCT    22.50   22.15   28.70    0.35   5.28%   1.58%
FFIV     OCT    22.50   22.20   29.84    0.30   4.45%   1.35%
AMZN     OCT    37.50   37.00   40.94    0.50   3.96%   1.35%
ASKJ     OCT    25.00   24.45   33.00    0.55   7.42%   2.25%
USNA     OCT    30.00   29.30   34.62    0.70   6.10%   2.39%
YHOO     OCT    30.00   29.40   32.58    0.60   5.51%   2.04%
CELL     OCT    15.00   14.50   16.13    0.50   8.28%   3.45%
CREE     OCT    25.00   24.35   28.70    0.65   7.26%   2.67%
CLHB     OCT    10.00    9.75   11.63    0.25   7.98%   2.56%
PDII     OCT    25.00   24.45   26.53    0.55   6.98%   2.25%
APPX     OCT    27.50   27.10   27.72    0.40   5.57%   1.48% *
GILD     OCT    35.00   34.35   36.50    0.65   5.61%   1.89%
BOBJ     OCT    20.00   19.65   22.58    0.35   5.73%   1.78%
ASTE     OCT    17.50   16.95   18.78    0.55   9.55%   3.24%
LCAV     OCT    25.00   24.35   25.23    0.65   7.97%   2.67%
ALO      OCT    17.50   17.10   18.13    0.40   7.17%   2.34%
FHRX     OCT    17.50   17.20   19.30    0.30   6.33%   1.74%
GNSS     OCT    12.50   12.20   12.82    0.30   8.02%   2.46%
NAVR     OCT    15.00   14.75   14.87    0.12   2.80%   1.69%
COGN     OCT    32.50   31.90   34.55    0.60   6.15%   1.88%
PSFT     OCT    17.50   17.20   19.99    0.30   6.15%   1.74%
LF       OCT    20.00   19.75   20.76    0.25   4.46%   1.27%
ATYT     OCT    15.00   14.75   15.76    0.25   5.90%   1.69%
YHOO     OCT    30.00   29.50   32.58    0.50   6.01%   1.69%

American Pharmaceutical Partners (NASDAQ:APPX) became an early
exit candidate Thursday after the Wall Street Journal reported
that the company is facing a probe by regulators over whether
it misled investors about the progress of a key cancer drug it
is developing.  In addition, a number of other issues are on
the "watch" list after the recent retreat in technology shares.
Remember, the key to success in "premium-selling" strategies
is limiting draw-downs in losing positions.


NAKED CALLS

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

ESIO     OCT    22.50   23.00   17.58    0.50   6.99%   2.17%
LNCR     OCT    32.50   33.30   30.30    0.80   7.12%   2.40%
ADTN     OCT    30.00   30.30   23.71    0.30   3.79%   0.99%
DIGE     OCT    30.00   30.35   26.21    0.35   6.05%   1.15%
CTB      OCT    22.50   22.85   20.02    0.35   4.25%   1.53%
MDCO     OCT    30.00   30.80   25.52    0.80   8.33%   2.60%
CECO     OCT    40.00   40.50   28.65    0.50   6.34%   1.23%
CPRT     OCT    20.00   20.35   18.89    0.35   6.97%   1.72%
FLML     OCT    17.50   17.80   15.12    0.30  10.47%   1.69%
SSNC     OCT    20.00   20.35   20.10    0.25   5.48%   1.72%
USPI     OCT    35.00   35.65   33.55    0.65   6.36%   1.82%
BDY      OCT    22.50   22.90   21.10    0.40   7.63%   1.75%
PLMO     OCT    35.00   35.90   29.29    0.90  11.25%   2.51%

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

AGIX   23.59  OCT 12.50  AUB-VV 0.75 3754 11.75  19  10.2%  22.0%
DHB    13.51  OCT 12.50  DHB-VV 0.40  764 12.10  19   5.3%  13.4%
INTV   10.55  OCT 10.00  VQN-VB 0.30   70  9.70  19   5.0%  12.1%
NVTL   24.27  OCT 22.50  NVU-VX 0.55  144 21.95  19   4.0%  10.4%
SFL    21.40  OCT 20.00  SFL-VD 0.45   40 19.55  19   3.7%   9.5%
FHRX   19.30  OCT 17.50  FUF-VW 0.35  326 17.15  19   3.3%   8.9%
PAAS   15.94  OCT 15.00  USP-VC 0.25 2545 14.75  19   2.7%   7.0%
BLUD   23.53  OCT 20.00  QMQ-VD 0.25    8 19.75  19   2.0%   6.5%

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.
_________________________________________________________________

AGIX - AtheroGenics  $23.59  *** Big Risk - Big Reward! ***

AtheroGenics (NASDAQ:AGIX) is a research-based pharmaceutical
firm focused on the discovery, development and commercialization
of novel drugs used to treat chronic inflammatory diseases,
including heart disease (atherosclerosis), rheumatoid arthritis,
organ transplant rejection and asthma.  The company has developed
a vascular protectant technology platform to discover drugs to
treat these types of diseases.  Based on this platform, it has
four drug development programs in the clinic and is pursuing a
number of other preclinical programs.

AGIX - AtheroGenics  $23.59

(Note: This play is SPECULATIVE with large potential losses!)

OCT 12.50 AUB-VV LB=0.75 OI=3754 CB=11.75 DE=19 TY=10.2% MY=22.0%


_________________________________________________________________

DHB - DHB Industries  $13.51  *** Upgrade = Rally! ***

DHB Industries (NYSE:DHB) is a holding company with two major
divisions: DHB Armor Group and DHB Sports Group.  The Armor
Group includes Point Blank Body Armor and Protective Apparel
Corporation of America and they manufacture various types of
body armor.  The Sports Group, which consists of NDL Products,
manufactures and distributes protective athletic apparel and
equipment, including elbow, breast, hip, groin, knee, shin and
ankle supports and braces, as well as a line of therapy products.

DHB - DHB Industries  $13.51

OCT 12.50 DHB-VV LB=0.40 OI=764 CB=12.10 DE=19 TY=5.3% MY=13.4%


_________________________________________________________________

INTV - Intervoice  $10.55  *** Bottom-Fishing! ***

Intervoice (NASDAQ:INTV) provides converged voice and data
solutions for network and enterprise operators.  Their Omvia
Voice Framework is built on an open-standard, distributed
architecture and provides a comprehensive platform allowing
organizations to connect, develop, run, manage and report on
voice-driven solutions.  Intervoice offers a wide range of
voice-driven technology, including messaging, payment and
portal solutions with focus on voice development, management
and application solutions.  The company also offers solutions
that include professional services, such as speech prototyping,
remote monitoring, disaster recovery, system installation and
integration, technical training and solutions tuning.

INTV - Intervoice  $10.55

OCT 10.00 VQN-VB LB=0.30 OI=70 CB=9.70 DE=19 TY=5.0% MY=12.1%


_________________________________________________________________

NVTL - Novatel Wireless  $24.27  *** Next Leg Up? ***

Novatel Wireless (NASDAQ:NVTL) is a provider of wireless
broadband access solutions for the mobile communications
market.  The company's range of products includes wireless
data modems and software for laptop personal computers,
embedded wireless modules for OEMs, and ruggedized wireless
data modems for public safety and telemetry applications.
Through the integration of hardware and software, Novatel's
products are designed to operate on most global wireless
networks, and provide mobile subscribers with secure access
to data, including corporate, public and personal information
through the Internet and enterprise networks.

NVTL - Novatel Wireless  $24.27

OCT 22.50 NVU-VX LB=0.55 OI=144 CB=21.95 DE=19 TY=4.0% MY=10.4%


_________________________________________________________________

SFL - Ship Finance International  $21.40  *** Strong Sector! ***

Ship Finance International (NYSE:SFL) operates through a number
of vessel-owning subsidiaries in the Bahamas, the Isle of Man,
Liberia, Panama and Singapore.  The company purchased a fleet of
46 crude oil tankers from Frontline, its parent company, which it
has chartered under long-term, fixed-rate charters to Frontline
Shipping Limited, a wholly owned subsidiary of Frontline (the
Charterer).  The company also acquired from Frontline an option
to purchase one additional very large crude carrier tanker, which
it expects to exercise before the end of 2004.  Ship Finance also
entered into fixed-rate management and administrative services
agreements with Frontline Management to provide for the operation
and maintenance of its vessels and administrative support.

SFL - Ship Finance International  $21.40

OCT 20.00 SFL-VD LB=0.45 OI=40 CB=19.55 DE=19 TY=3.7% MY=9.5%


_________________________________________________________________

FHRX - First Horizon  $19.30  *** 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  $19.30

OCT 17.50 FUF-VW LB=0.35 OI=326 CB=17.15 DE=19 TY=3.3% MY=8.9%


_________________________________________________________________

PAAS - Pan American Silver  $15.94  *** Precious Metals Hedge! ***

Pan American Silver (NASDAQ:PAAS) is principally engaged in the
exploration for, and the acquisition, development and operation
of, silver properties primarily in Peru, Mexico, Bolivia and
Argentina, with a secondary focus on the United States and the
Americas.  Pan American's principal products and sources of
revenue are silver-rich zinc, lead and copper concentrates.
It transports and sells silver-rich pyrite stockpiles at a
small-scale operation in central Peru.  These stockpiles were
accumulated over several years by Volcan, a mining company in
the Cerro de Pasco mining district in central Peru.

PAAS - Pan American Silver  $15.94

OCT 15.00 USP-VC LB=0.25 OI=2545 CB=14.75 DE=19 TY=2.7% MY=7.0%


_________________________________________________________________

BLUD - Immucor  $23.53  *** Who Can Live Without BLUD? ***

Immucor (NASDAQ:BLUD) develops, manufactures and markets a
complete line of reagents and automated systems used primarily
by hospitals, clinical laboratories and blood banks in a number
of tests performed to detect and identify certain properties of
the cell and serum components of human blood prior to blood
transfusion.  Immucor also sells a complete family of automated
instrumentation for all of their market segments.  Earnings are
due on 9/29/04.

BLUD - Immucor  $23.53

OCT 20.00 QMQ-VD LB=0.25 OI=8 CB=19.75 DE=19 TY=2.0% MY=6.5%



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

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.

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

ALTR - Altera  $19.30  *** Chip Sector Slump! ***

Altera (NASDAQ:ALTR) designs, builds, and sells programmable
logic devices, HardCopy devices, pre-defined design building
blocks known as intellectual property cores and associated
development tools.  The company's programmable logic devices
are semiconductor integrated circuits that are manufactured
as standard chips to perform desired logic functions within
their electronic systems.  Altera's HardCopy devices enable
its customers to move from a PLD to a low-cost, high-volume,
non-programmable implementation of their designs.  Customers
can license IP cores from the Company for implementation of
standard functions in their PLD designs.  Customers develop,
compile and verify their PLD designs, and then program their
designs into Altera's PLDs using its proprietary development
software, which operates on personal computers and engineering
workstations.

ALTR - Altera  $19.30

"AGGRESSIVE" PLAY (sell naked call):

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

SELL CALL  OCT 20    LTQ-JD    6648   0.50  20.50  10.6%   2.4%


_________________________________________________________________

APPX - American Pharma Partners  $27.72  *** Trend Reversal! ***

American Pharmaceutical Partners (NASDAQ:APPX) is a specialty
pharmaceutical company that develops, manufactures and markets
injectable pharmaceutical products.  The company manufactures
products in each of the three basic forms, in which injectable
products are sold, including liquid, powder and lyophilized or
freeze-dried. vIts products are generally used in hospitals,
long-term care facilities, alternate care sites and clinics
within North America.  American Pharmaceutical has a number of
product candidates under development in the areas of oncology,
anti-infective and critical care.

APPX - American Pharma Partners  $27.72

"AGGRESSIVE" PLAY (sell naked call):

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

SELL CALL  OCT 30    AQO-JF    6531   0.50  30.50   8.6%   1.6%


_________________________________________________________________

CYMI - Cymer  $27.89  *** Downtrend Intact! ***

Cymer (NASADQ:CYMI) is a supplier of excimer light sources, the
essential light source for deep ultraviolet photolithography
systems.  DUV lithography is a key technology that has allowed
the semiconductor industry to meet the exact specifications and
manufacturing requirements for volume production of advanced
semiconductor chips. The firm's light sources are incorporated
into step-and-repeat (steppers) and step-and-scan (scanners)
photolithography systems for use in the manufacture of various
semiconductors with critical feature sizes below 0.35 microns.
Cymer's products consist of photolithography light sources,
replacement parts and service. The firm maintains a worldwide
service organization that supports its installed base of light
sources.

CYMI - Cymer  $27.89

PLAY (sell naked call):

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

SELL CALL  OCT 30    CQG-JF     390   0.40  30.40   6.8%   1.3%


_________________________________________________________________

XLNX - Xilinx  $27.66  *** Consolidation In Progress? ***

Xilinx (NASDAQ:XLNX) designs, develops and markets complete
programmable logic solutions, including advanced integrated
circuits, software design tools, predefined system functions
delivered as intellectual property cores, design services,
customer training, field engineering and technical support.
The programmable logic devices include field programmable gate
arrays and complex programmable logic devices.  These devices
are standard products that its customers program to perform
desired logic functions.  Its products are designed to provide
high integration and quick time-to-market for electronic
equipment manufacturers primarily in the telecommunications,
networking, computing, industrial and consumer markets.

XLNX - Xilinx  $27.66

PLAY (sell naked call):

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

SELL CALL  OCT 30    XLQ-JF    3736   0.25  30.25   4.5%   0.8% TS



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