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Daily Newsletter, Tuesday, 09/28/2004

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The Option Investor Newsletter                 Tuesday 09-28-2004
Copyright 2004, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Sun Still Shining 
Futures Markets: See Note
Index Trader Wrap: Metallica!
Market Sentiment: Bounce of Speed bump?


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      09-28-2004           High     Low     Volume   Adv/Dcl
DJIA    10077.40 + 88.90 10099.52  9977.92 1.72 bln 2061/1058
NASDAQ   1869.87 + 10.00  1873.86  1852.59 1.56 bln 1906/1172
S&P 100   534.19 +  3.17   535.07   529.86   Totals 3967/2230
S&P 500  1110.06 +  6.54  1111.77  1101.29 
SOX       373.69 -  3.30   377.88   370.17
RUS 2000  565.66 +  7.30   565.73   558.36
DJ TRANS 3208.58 + 31.20  3214.81  3167.30
VIX        13.83 -  0.79    14.84    13.69
VXO (VIX-O)13.23 -  1.07    14.68    13.05
VXN        21.36 -  0.56    22.23    21.20 
Total Volume 3,577M
Total UpVol  2,199M
Total DnVol  1,324M
Total Adv  4461
Total Dcl  2532
52wk Highs  261
52wk Lows   161
TRIN       1.01
NAZTRIN    1.44
PUT/CALL   0.92
************************************************************

Sun Still Shining
by Jim Brown

Oil crossed $50 and the world did not end. In fact the 
Dow ended with a +88 point gain and even more amazing 
the Transports closed with a +31 point gain. Feel like
you are seeing the Twilight Zone come to life? You are
not alone as millions of investors wonder how oil can
double in price and the transports can soar. 

Dow Chart

 
Nasdaq Chart

 
SPX Chart

 

The morning started off with a reaction dip after some
disappointing economic news on top of $50 oil but it
recovered on end of quarter window dressing. The morning
reports started off with Chain Store Sales that fell 
-0.3% on top of the -1.1% for the prior week. Nothing
new here with weak back to school buying and high gas
prices. Year over year growth was actually up +3.5%
and the best YOY growth since July. 

The worst report for the day was Consumer Confidence 
and it dropped from 98.7 to 96.8 for September. This
was the lowest level since May and most of the drop
was due to the present conditions component that fell
more than -5 points to 95.5 from 100.7. Consumers felt
the jobs market had weakened significantly. Those who
felt jobs were plentiful fell to their lowest level
since May. Those consumers planning to buy homes and 
cars fell slightly as well. You can bet that the constant
reporting on $50 oil is not going to improve confidence
any time soon. 

Let's dive right into the oil conversation since it is
controlling the majority of air time. Oil broke $50 and
the world did not come to an end and there was not an
immediate sell off. Oil traded over $50 and closed at
$49.90 an all time high. I use that term loosely because
in inflation weighted dollars the 1970s oil crisis saw
oil at levels that would equate to $80 today. The actual
contract price today at $50 is the highest actual price
on record and it may not get any better. 

The high prices today were brought to you by Nigeria
if you believe the talking heads on TV. Nigeria has a
serious internal problem with militants. They kidnap
and ransom hostages to achieve their demands and target
oil production to emphasize those demands. They are
currently warning they will declare all out war on oil
on October 1st if their demands are not met. Various
oil producers are evacuating workers from the country
until the problem is resolved. Nigeria currently 
exports about 2.5 million barrels per day of which 
1.6 million come to the U.S. That makes them our fifth
largest importer. With the world currently in an oil 
crisis we don't need to lose 2.5 mil bbls of light 
sweet crude. 

That brings us to the next topic. Saudi Arabia said 
today they were going to up production from 9.5M to 
11M barrels per day. Almost immediately an entire army
of oil experts hit the airwaves to dispute this increase.
The general consensus is that Saudi could increase total
output to 11 million but it would take weeks if not
months for the production increase to occur. Secondly
the additional oil would be "heavy" oil, not the light
sweet crude that refiners want. According to several
sources there is no refinery capacity available to
refine any additional heavy oil. That is like pulling
into a filling station for unleaded and the dealer
saying he only has diesel. That may help somebody else
but it will not help you. 

Think $50 is high, stick around most analysts expect
even higher levels soon. T. Boone Pickens said today
that $60 oil was just around the corner and he was not
alone. Cambridge Energy Research Associates said this
years rate of demand growth has more than doubled the
average for the last six years. They claim over the 
last decade there was always a 3-5 million bbl cushion
between peak demand and average capacity. This cushion
kept prices in check and smoothed out the peaks and 
valleys of seasonal demand. Currently this cushion has
dropped to only 1.4 million bbls and less than the 
levels at the beginning of the 1973 crisis. Every time
you hear about Iraq sabotage taking them offline for 
several days that eliminates the cushion. If Nigerian 
militants takes their production offline for a week 
that eliminates the cushion and puts us in a deficit.
If Yukos stops production in some sector because they
no longer have the cash to pay for transportation that
puts us into a deficit. The bottom line is the world 
economy is careening down the highway with a gas tank
running on empty. We are filling up at every filling 
station we pass but the first time we hit one that is
dry the economic bus will stop.  

I have preached several times about Hubbert's Peak
and the coming global peak in production currently 
estimated for 2008. Once that peak has arrived we
will be pumping less oil every day that passes than
the day before. Critics claim that new technology 
will continue to improve drilling and pumping and
let us recover more oil from new and existing fields
than in the past. This is true but, picture the earth
as a big sponge. When oil drilling first began you
could literally find it oozing to the top on its
own in many places. Wells were drilled in hundreds
of feet. Current technology lets us drill wells that
are miles deep in up to 10,000 feet of water in the
roughest parts of the ocean. We are light years from
our beginning but we are sucking oil out of the sponge
at record rates. If you pickup a wet sponge out of the
kitchen sink the first couple squeezes produce plenty
of water. After the first couple squeezes it takes 
more and more effort to get any more water to flow.
New technology may be able to milk a few more drops
if you have the patience to wait. If you are using 
the sponge to put out a fire on the stove you don't
have time to wait. 

Currently the global oil demand is 82.5 million bbls 
per day according to recognized estimates. Some say
this is absurdly low and the real demand is already
near 88 million bbls because producing countries are
keeping more and more for their own uses and it is
not counted in the "official" quotes. Using the 
"quoted" demand levels our demand curve looks like 
this:

Millions of barrels per day
2004 2005 2006 2007 2008 2009
82.5 85.0 87.5 90.0 92.5 95.0

82.5 MBPD = 30.1 BILLION barrels per year
95.0 MBPD = 34.7 BILLION barrels per year

Remember, demand growth this year is DOUBLE the 
average growth rate of the prior six years. That
means the chart above was probably outdated the
day after it was produced. As we can see from the
daily barrage of news stories current demand is 
pushing production levels to record twenty five year
highs and to the breaking point. Every minor crisis 
puts us that much closer to more demand than production
and when that happens $50 oil will look cheap. It will
happen. The only question is when. How much longer 
can we continue finding, drilling and pumping an
additional 30+ billion barrels per year?

The situation is becoming serious and there was a 
news story after the close that the Chinese military
was said to be eying oil rich lands in Malaysia and 
Indonesia. While I doubt the veracity of this story
it will not be long before there will be wars over
the few remaining drops of oil in our global sponge.
Peter Schiff of Euro Pacific Capital sees $100 oil
by the end of the decade. 

The problem for investors is not your next tank of
gas but the eventual impact to corporate earnings.
Currently only one of every ten companies claim the
higher oil prices are impacting profits. I would also
hasten to remind everyone that oil was trading at $25
this time last year. You and I understand that oil
prices cannot double without a material impact to 
earnings for almost every company. Investors and
corporations are still in denial. Everyone believes
that this is just a spike and it will pass. A Saudi
representative was interviewed again today and he
quoted a future price target of $25. This jawboning
is keeping the general public in the dark about the
disaster ahead. 

We know that there is a pre election event risk in
oil because the analysts have told us there is. Right
or wrong this is what everyone believes. Everyone also
believes that once the election is over oil will return
to more reasonable levels. While I agree there may be
some event risk priced into the crude futures and we
may decline after the election we will still face the
rising demand and slowing production problem. Sell oil
stocks the week before the election and buy the post
election energy dip and hold for the long term.

Oil was not the only thing on the markets mind today
but you would have to look hard to find anything else.
One point of note was a positive guidance update from
CAT. Caterpillar said sales were so strong that revenue
will rise +25% to +30% for the full year. Before you
rush out and buy CAT you should know their prior
forecast was for a +25% increase. Always check your
facts before pulling the trigger. CAT said earnings
would rise +80% to +85% which was right inline with 
its previous forecast. Traders hearing the news rushed
to buy the stock and Dow component CAT spiked nearly
+$3 intraday. Not bad for a basically inline guidance
update. To be fair there was some concern they would
miss the prior estimates and Caterpillar comments like
"unprecedented surge in orders" and "demand for heavy
duty truck engines has skyrocketed" are always good
for some knee jerk buying. 

It was a good day for Google. The 40-day quiet period
expired which prevents brokerage companies from issuing
research about stocks they IPO. CSFB, Thomas Weisel 
Partners, JP Morgan, Morgan Stanley and WR Hambrecht 
all instituted coverage at an "outperform" but the 
comments were less than exciting. The price target of
$145 was considered light in relation with its current
gains. The companies made sure they expressed the 
risks as well as potential rewards and the risks 
were many. The main focus was increasing competition
and a maturing market. Mary Meeker, Internet analyst
for Morgan Stanely gave the following comment. "We 
believe IF Google continues to execute, the company
SHOULD be well positioned to benefit from ongoing 
secular Internet user and usage growth." The keywords
there were obviously IF and SHOULD. TWP analyst Christa
Charles pointed out that Google has not been "overtly
advertiser friendly" and it would have to correct that
to be successful. She also said "We believe the 
likelihood that Google invests in negative projects 
is high." Still traders flocked to the stock and 
shorts were squeezed once again with a +$8.60 gain 
to $126.70. 

On the downside Cypress Semiconductor warned for the
second time in a month citing additional weakness 
across multiple markets. Share of CY fell to a 16-month
low at $8.50. Earnings are now expected to be less than
a nickel compared to their prior forecast of up to 15
cents per share. This sent the SOX into negative
territory and shook it free from 380 support. Oddly
the Nasdaq and Russell finished in positive territory
with the Russell on fire with a +7.30 gain. After the
bell MSPD warned and that should apply additional 
pressure to the SOX on Wednesday. The problem was a
drop in orders from Asia and a "widespread buildup of
inventory at key customers." Same song, 87th verse.

The Caterpillar bounce sent the Dow above 10040 
resistance and short covering began. When a Dow stock
like CAT jumps +$3 it impacts not only the Dow but the
S&P. When the announcement was made the markets had 
been hovering near the highs and the spike just upset
the balance of power. A buy program at 2:PM also kept
the movement going. Dow 10100 appears to be current
resistance and a level I would watch on Wednesday. 

The Nasdaq was weak due to the SOX weakness but the
end of day buy program pushed it back to yesterday's
resistance highs. There was very little decline into
the close and 1875 remains initial resistance. 

The rebound off the day's lows gave all the appearances
of weak end of quarter window dressing. The stocks bought
were the recent winners and would make funds look a lot
smarter to investors with those stocks in their statement.
It was no surprise the energy sector found itself the
recipient of late day cash flows. 

For Wednesday we will start out with the GDP report 
with expectations for a +3.0% gain. This could be a
challenge or a surprise but the risk is to the downside.
At 10:30 we will get the weekly crude oil inventories
and we have seen a drop in supplies for eight straight
weeks. Last week inventories dropped -9.1 million bbls
with -7 mil drop the week before. Traders are saying 
they expect another drop of -1.5 mil but a much larger
drop could really explode prices higher. Economic reports
increase on Thursday and Friday as we begin to get the
September production data. 

With two days left in the quarter the potential for 
another window dressing day is strong although the 
impact should be minimal. The coming economic reports
should put a little fear into the market just as we 
enter October. Speaking of fear, the VXO is right back 
down and with the low today of 13.05 very close to 
retesting the eight year low set last Tuesday. Remember
last Tuesday? That was when the Dow was at 10270 and 
the Nasdaq 1925, a two month high. Be very careful with
the VXO this low.

Enter Passively, Exit Aggressively. 

Jim Brown
Editor


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

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


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

Metallica!

I was never a "heavy metal" fan in my youth, but bulls were 
nodding their heads to a bullish beat for anything with a 
metallic taste, be it ferrous, non-ferrous, or precious.

Nucor (NYSE:NUE) $90.50 +4.72% erected itself to close at a new 
all-time high and helped lead the Dow Jones U.S. Steel Index 
(DJUSST) 132.19 +4.92% to challenge its recent all-time closing 
high of 132.79 from September 9.

Intermediate steel processor, Steel Technologies (NASDAQ:STTX) 
$25.72 +13.75, which serves industrial customers who require 
steel of precise type and thickness looks like a cat on a hot tin 
roof.

Money managers scrambled to show a little copper exposure in 
their portfolios by quarter's end with Phelps Dodge (NYSE:PD) 
$93.60 +4.76% surging more than $4.00 per share to close at an 
all-time high.

Dow component Alcoa (NYSE:AL) $32.70 +4.27% held of a late charge 
from heavy equipment maker Caterpillar (NYSE:CAT) $76.90 +3.33%, 
which upped full-year revenue guidance on strong global demand 
for its earthmoving equipment.  Alcoa's chief rival Alcan 
(NYSE:AL) $47.24 +4.9% surged more than $2 per share as bulls popped 
the top on a cold one.

All this, with the dollar little changed against its weighted 
basket of 6 major foreign currencies as the U.S. Dollar Index 
(dx00y) 88.14 -0.16% edges down 0.15 points and traded pretty 
much smack in the middle of its daily range.

U.S. Market Watch - 09/28/04 Close

 

The AMEX Gold Bugs Index ($HUI.X) 223.89 +3.64% edged out the 
Airline Index (XAL.X) 42.55 +3.32% for today's sector winner, 
afer Newmont Mining (NYSE:NEM) $44.29 +3.96% assured investors 
that gold reserves at two of its mines in Ghana were expected to 
rise 33% from last year's estimates as step-out drilling 
continues.

A second-consecutive earnings warning this month from network 
chipmaker Cypress Semiconductor (NYSE:CY) $8.60 -3.26% has the 
NWX.X and SOX.X looking like a matched pair the past 5 sessions, 
with both indices down just over 7.2%.  Cypress closed at a new 
52-week low.  

After the close, chip equipment giant Applied Materials 
(NASDAQ:AMAT) $16.21 -1.21% refused to make any comment toward an 
unsolicited mini-tender offer being made by TRC Capital Corp., a 
Toronto-based company to purchase up to 6 million shares of 
AMAT's stock (roughly 0.35% of shares outstanding) as of August 
1, for a price of $16.15 per share in cash.  

According to reports, TRC made the offer on 09/22/04 when AMAT's 
shares had closed at $17.11.  

Market Snapshot / Internals - 09/28/04 Close

 

The major indices found their lows not long after today's release 
of September Consumer Confidence, and with little "good news" 
released just prior to 03:00 PM EDT when Caterpillar (NYSE:CAT) 
raised full year revenue guidance, one might envision some 
institutional window dressing taking place ahead of Thursday's 
close as the third-quarter draws to an end.

Pivot Matrix - 

 

The SPX/SPY as well as the OEX all kissed their WEEKLY S1s just 
after the Conference Board released its September Consumer 
Confidence (96.8 vs. Aug. 98.7 and forecasted 99.5), but bulls, 
perhaps aided by some end of quarter window dressing pressed the 
SPX higher to the close.

S&P 500 Index Chart - Daily Intervals

 

It was speculated that when the SPX didn't break below its 50-day 
SMA that buyers showed renewed optimism ahead of tomorrow 
morning's final second-quarter GDP figures, where economists' 
expect a modest upward revision to 3.0% from 2.8%.  

As of today's close, the SPX is down 2.7% from its second-quarter 
close of 1,141.

Not unlike equities that found a dip lower after the consumer 
confidence figures, Treasury yields reversed off their lows of 
the session.  Economists look for the second-quarter chain 
deflator to be unrevised at up 3.2% from the previously reported 
3.2%.  

Russell 2000 Index (RUT.X) - Daily Intervals

 

The small caps of the Russell 2000 ($RUT.X) were today's 
percentage gainer and many of these components are more thinly 
traded.  IF we're seeing some end of quarter window dressing by 
institutions, then it might make sense that some of these smaller 
to mid-cap names get the bigger buy side boost.

Pacholder High Yield (PFH) - Daily Intervals

 

Traders and investors should still be keeping a close eye on a 
"junk bond" type asset class.  There are some similarities 
present TODAY in the RUT.X as found in the PHF back in July as 
the PHF reclaimed its 200-day SMA, slipped back below, then 
powered further higher.  A steady Fed interest rate policy has 
been kind to "junkers."  While I don't expect any surprises in 
tomorrow's GDP revisions, it doesn't hurt to be prepared.

Jeff Bailey


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

Bounce of Speed bump?
- J. Brown

Yesterday the markets were looking pretty sour.  The Dow 
Industrials closed under the 10,000 mark for the first time since 
August 17th while crude oil prices hit $50.00 barrel in New York 
for the first time ever.  Today stocks look a little bit stronger 
with a bounce in the indices despite another gain for crude.  

What's going on here?  Are investors totally disconnected from 
reality?  Oil is 10 cents away from $50 a barrel and crude barely 
budged when the Saudis said they would raise production from 9.5 
million to 11.0 million barrels a day.  The oil pits were focused 
on new violence in Nigeria, the world's seventh largest exporter 
of oil and known for its light sweet crude which is more easily 
refined.  Rebels in Nigeria have specifically targeted oil rigs 
and oil companies as they fight government forces. 

If $50 oil wasn't enough the consumer confidence numbers this 
morning declined for the second month in a row.  While the drop 
wasn't huge it's not a positive trend.  Yet despite it all stocks 
bounced higher with only homebuilders, semiconductors and 
networking stocks trading lower.  What's going on here?  

I think it is just window dressing before the end of the quarter.  
Fund managers saw the Dow under 10,000 and decided to "buy the 
dip" before the quarter ends on Thursday.  A positive revenue 
warning from Dow-component Caterpillar (CAT) certainly didn't 
hurt stocks either.  Throughout the day there was also talk of 
short covering after the Industrials 300-point decline in the 
last several days.  Given the bounce back above 10,000 for the 
Dow, the bounce from the simple 50-dma and the 1850 level on the 
NASDAQ and the 1100 level on the S&P 500 I could certainly see 
stock churn sideways for the remainder of the month.

That is unless the earnings warnings don't pick up.  We had at 
least four more earnings warnings today from DJO, SNA, STE and 
CY.  Cypress Semiconductor (CY) actually warned for the second 
time this quarter.  

What is really interesting was the big drops in the volatility 
indices today.  Both the VIX and VXO fell back under the 14 level 
towards their recent lows.  This remains a big bearish flag and 
I'd be mindful to double check those stops on any bullish plays.

So the question to ask is this bounce a turnaround or a speed 
bump on the way down?  I'm still bullish for the fourth quarter 
but the next two or three weeks can be painful.  Although I will 
admit that this September has been pretty mild for the "worst" 
month of the year. 



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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  9230
Current     : 10077

Moving Averages:
(Simple)

 10-dma: 10147
 50-dma: 10108 
200-dma: 10296



S&P 500 ($SPX)

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

Moving Averages:
(Simple)

 10-dma: 1116
 50-dma: 1101
200-dma: 1117



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1301
Current     : 1389

Moving Averages:
(Simple)

 10-dma: 1410
 50-dma: 1380
200-dma: 1440



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

CBOE Market Volatility Index (VIX) = 13.83 -0.79
CBOE Mkt Volatility old VIX  (VXO) = 13.23 -1.07
Nasdaq Volatility Index (VXN)      = 21.36 -0.56


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.91        689,020       630,321
Equity Only    0.85        520,063       442,490
OEX            0.88         23,050        20,327
QQQ            1.51         40,339        60,887


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

Bullish Percent Data

           Current   Change   Status
NYSE          63.2    + 0.2   Bear Correction
NASDAQ-100    43.0    - 1     Bull Alert      
Dow Indust.   56.6    + 0     Bear Correction
S&P 500       60.8    - 0.4   Bear Correction
S&P 100       59.0    + 0     Bear Correction


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

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


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

 5-dma: 1.46
10-dma: 1.25
21-dma: 1.16
55-dma: 1.20


Extreme readings above 1.5 are bullish, and readings below .85
are bearish.  These signals don't occur often and tend be early,
but when they do, they can signal significant market turning
points.


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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1915      1869
Decliners     899      1142

New Highs     181        54
New Lows       40        61

Up Volume   1164M      797M
Down Vol.    542M      700M

Total Vol.  1725M     1520M
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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The Option Investor Newsletter                  Tuesday 09-28-2004
Copyright 2004, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: None
Call Play Updates: ATH, CMI
New Calls Plays: LMT
Put Play Updates: BIIB, LLY, FFH, KSS, LXK, MMM, PRX, SEPR
New Put Plays: None


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

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


CALLS:
*****

None


PUTS:
*****

None


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Brokerage Group, addressing the demand for personalized,
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option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
success.

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

Anthem Inc - ATH - close: 87.42 chg: +1.52 stop: 84.89

A rally in the markets on Tuesday helped propel ATH to a new two-
month high over resistance at the $88.00 level.  Unfortunately, 
ATH couldn't hold it and closed with a 1.76 percent gain on 
under-average volume.  Readers may want to consider a bounce from 
$87.00 as a potential entry point or wait for a new high over 
today's $88.44 high mark.  No change in our stop.  FYI: it is 
possible that the overhead resistance in WLP at $106 and its 
simple 100 and 200-dma's could be hampering ATH's rebound even 
through ATH is acquiring WLP.

Picked on September 26 at $86.81
Change since picked:      + 0.61
Earnings Date           10/26/04 (unconfirmed)
Average Daily Volume =       2.1 million 
Chart =


---

Cummins Inc - CMI - close: 72.17 change: +1.50 stop: 69.99*new*

CMI continued to dip on Monday but traders bought the dip to 
$70.00 and now with today's market rally shares of CMI have 
rebounded 2.12 percent.  Unfortunately, volume was pretty low, 
which doesn't indicate a lot of conviction on the part of buyers.  
We're still bullish and we'd use the bounce as an entry point but 
make sure you're comfortable with your stop loss.  We're raising 
ours to $69.99.

Picked on September 19 at $70.99
Change since picked:      + 1.18
Earnings Date           07/23/04 (confirmed)
Average Daily Volume =       724 thousand
Chart =



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

Lockheed Martin - LMT - close: 55.50 change: +0.86 stop: 53.50

Company Description:
Headquartered in Bethesda, Md., Lockheed Martin employs about 
130,000 people worldwide and is principally engaged in the 
research, design, development, manufacture and integration of 
advanced technology systems, products and services. The 
corporation reported 2003 sales of $31.8 billion.
(source: company press release)

Why We Like It:
The DFI defense index is trading near all-time highs.  The sector 
has been a pillar of strength in the markets and the group is 
likely to remain strong as terrorism fears run higher ahead of 
the Presidential election on November 2nd.  We like LMT because 
the stock has been climbing higher on rising volume, which is 
always a bullish sign. Today the stock closed at new two-year 
highs.  More aggressive players may want to consider positions 
now.  We're willing to wait and use a trigger over $56.00.  Our 
entry point will be $56.01.  If triggered we'll use an initial 
stop loss under last week's low at $53.50.  The P&F chart is 
bullish with a $78 price target.  We are going to target primary 
move to $60 and then re-evaluate.  We are going to try and be 
careful here.  A few days ago there was talk that defense stocks 
could see some window dressing this week.  That means they could 
see some undressing next week.  

Suggested Options:
We are going to suggest the November calls although there are 
October calls available.  Our favorites are the 55s and 60s.

BUY CALL NOV 55 LMT-KK OI=1241 current ask $2.25
BUY CALL NOV 60 LMT-KL OI= 319 current ask $0.40

Annotated Chart:

 

Picked on September xx at $xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           07/27/04 (confirmed)
Average Daily Volume =       1.7 million 
Chart =




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

Biogen Idec - BIIB - close: 60.01 change: +0.73 stop: 62.51

The BTK biotech index didn't really participate that much in 
Tuesday's market rally.  That's good news for shorts in the 
sector or at least BIIB.  Unfortunately, BIIB did manage to 
bounce back above the $60.00 mark.  This is a little bit 
concerning since $60 should be round-number, psychological 
resistance.  Readers considering new positions may want to wait 
for a drop back under $59.00 before initiating any new plays.

Picked on September 22 at $59.57
Change since picked:      + 0.44
Earnings Date           07/28/04 (confirmed)
Average Daily Volume =       3.0 million 
Chart =


---

Eli Lilly & Co - LLY - close: 62.05 chg: -0.85 stop: 65.11*new*

We have good news for LLY put holders.  Despite Merrill Lynch 
reiterating their "buy" rating on LLY this morning shares of the 
drug maker continued to fall.  LLY slipped another 1.35 percent 
on above average volume (about 33 percent above average) while 
the DRG drug index climbed almost one percent.  That's the kind 
of relative weakness we like to see in our put candidates.  We 
are going to lower our stop loss to $65.11.

Picked on September 22 at $63.92
Change since picked:      - 1.87
Earnings Date           07/22/04 (confirmed)
Average Daily Volume =       3.1 million 
Chart =


---

FairFax Financial - FFH - cls: 124.00 chg: +2.00 stop: 130.01     

The volatility continues in FFH.  On Friday the stock performed a 
nice failed rally right under round-number resistance at $130 and 
its simple 21-dma.  Monday experienced some follow through on the 
reversal and FFH dropped to $122.  Now with today's market rally 
FFH managed a $2 bounce.  At this point readers looking for new 
entries may want to wait for FFH to break support at $120.00 
before considering new positions.  

Picked on September 12 at $126.50
Change since picked:       - 2.50
Earnings Date            00/00/00 (confirmed)
Average Daily Volume =         59 thousand
Chart =


---

Kohl's - KSS - close: 48.70 change: +0.31 stop: 52.01

It's been a give and take game in shares of KSS lately.  While 
we're encouraged by the recent failed rallies under the $50.00 
mark traders are still trying to buy the dip in KSS.  Today 
shares dipped to $47.75 before bulls stepped in.  This may be a 
tougher battle than we thought to get to the $46 level.  Of 
course it's no coincidence that the RLX retail index turned in a 
very similar performance today with a dip under the 400 level 
before bouncing.

Picked on September 16 at $49.48
Change since picked:      - 0.78
Earnings Date           08/12/04 (confirmed)
Average Daily Volume =       3.1 million 
Chart =


---

Lexmark Intl - LXK - close: 81.50 chg: -1.00 stop: 86.01     

Heads up!  We're seeing some new action in LXK that could be 
meaningful.  The stock has broken out of its recent trading range 
between $82 and $86.  LXK sank to new six-week lows and closed at 
new relative lows under the $82 level on above average volume.  
This is significant because it looks like the stock has broken 
its long-term trendline of support.  Should this be confirmed LXK 
could be poised for a sizable decline.  We do believe that 
traders should confirm the drop and wait for LXK to break support 
at the $80.00 mark.  We suggest waiting for confirmation because 
there were some rumors today that LXK could be getting new 
competition from Eastman Kodak in the inkjet printer business and 
today could be an over-reaction.   Short-term traders may still
want to consider taking profits here or as LXK nears round-
number support at $80.00.

Picked on September 5th at $86.10
Change since picked:       - 4.60
Earnings Date            07/19/04 (confirmed)
Average Daily Volume =        1.2 million 
Chart =


---

3M Co - MMM - close: 79.07 change: +1.38 stop: 81.51     
 
Uh-oh!  Yesterday MMM appeared to break its somewhat untested 
trendline of support across its rising lows yet now the stock is 
bouncing. We were so close to seeing MMM hit our immediate target 
at $77.50 but we concede the fact that the stock is short-term 
oversold and due for a bounce.  We will look to the $80.00 level 
to act as short-term, round-number resistance.  

Picked on September 15 at $82.00
Change since picked:      - 2.93
Earnings Date           07/19/04 (confirmed)
Average Daily Volume =       2.5 million 
Chart =


---

Par Pharma. Co - PRX - close: 36.55 chg: +0.49 stop: 40.01     

Sometimes no movement is good news.  PRX is still consolidating 
near the $36 level despite a bounce in the markets and the DRG 
drug index today.  The lack of participation in the rally is 
encouraging.  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.  

Picked on September 21 at $37.80
Change since picked:      - 1.25
Earnings Date           07/19/04 (confirmed)
Average Daily Volume =       743 thousand
Chart =


---

Sepracor Inc - SEPR - close: 48.40 chg: +0.09 stop: 52.01

SEPR has been pretty quiet the last couple of sessions.  The 
stock has traded sideways in a $1.15 range above its simple 50 
and 100-dma's.  Readers can watch for a failed under $50.00 or a 
new low under $47.70 as potential entry points.  The lack of 
participation in today's rally is good news for the bears. 

Picked on September 22 at $48.94
Change since picked:      - 0.54
Earnings Date           07/13/04 (confirmed)
Average Daily Volume =       1.8 million 
Chart =



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

None


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

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


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Contact Support




The Option Investor Newsletter                  Tuesday 09-28-2004
Copyright 2004, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Watch List: Chemicals to Metal stocks and more
Spreads & Straddles: Blue-Chip Shares Lead Recovery Rally!
Premium Selling Plays: Naked Puts & Calls


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

Chemicals to Metal stocks 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.
___________________________________________________________________


F M C Corp - FMC - close: 49.13 change: +2.68

WHAT TO WATCH: FMC soared more than 5.7 percent on Tuesday with 
volume way above the average.  We can't find any stock-specific 
news but almost the whole group of chemical stocks have been very 
strong lately and many have very bullish P&F charts.  FMC's P&F 
chart points to an $88 price target.  After three weeks of 
consolidating sideways in a tight range FMC may be able to 
finally get a trend going.  We would consider buying a bounce 
from $48.00.

Chart=


---

Capital One Financial - COF - close: 74.98 change: +1.51

WHAT TO WATCH: COF has been on and off the watch list for a 
while.  The recent two-week consolidation between $72 and $74 has 
ended with today's upside breakout.  Volume was pretty good.  
Traders may want to consider bullish positions over $75.00 or a 
bounce from $74.00.  The P&F chart looks pretty bullish with an 
$82 price target. 

Chart=


---

Nucor - NUE - close: 90.50 change: +4.08

WHAT TO WATCH: Steel and metal stocks were pretty strong today.  
NUE was close to leading the pack with a 4.7 percent rally.  The 
breakout and close over the $90 mark is pretty bullish.  Although 
we're a little suspicious.  This could just be window dressing 
before the quarter end on Thursday.  Don't forget that NUE splits 
2-for-1 on October 18th.  If NUE trades above $91 then momentum 
traders may want to consider a $100 target.

Chart=


---

Peabody Energy - BTU - close: 60.06 change: +2.27

WHAT TO WATCH: Energy stocks have been super strong lately and 
coal stocks like BTU may pull in more investor interest as 
businesses look for alternatives to oil.  The breakout over 
$60.00 after its recent consolidation looks pretty bullish.  
Plus, its P&F chart points to a $70 target.  This looks like an 
entry point.  

Chart=



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

GDW $110.68 +1.05 - GDW has pulled all the way back to previous 
resistance now support near $109-110.  This might be a buyable 
dip but the pull back was so sharp we'd look for some 
confirmation.

PD $93.60 +4.26 - PD was a recent call play on OptionInvestor.  
We closed it when it hit our target at $90.00.  Now the stock is 
continuing to rally and traders are probably eyeing the $100 
mark.

X $37.75 +2.17 - US Steel is bouncing from the $35 level and 
headed toward resistance at $40.00.  Look for a breakout.


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Personal Service and Education


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http://www.OneStopOption.com

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


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

September 28, 2004

Stocks rebounded Tuesday amid renewed buying pressure in "old
economy" issues.

Dow component Alcoa (NYSE:AA) led the industrial segment higher
amid anticipation of stronger worldwide demand after an upbeat
report on Chinese growth.  Caterpillar (NYSE:CAT) was also in
the "winners" category after announcing it expected continued
strength in global sales.  The blue-chip average closed up 88
points at 10,077.  The NASDAQ Composite added 8 points to end
at 1,869, despite selling pressure in networking, semiconductor,
and software shares.  The S&P 500 climbed 6 points to 1,110 on
strength in airline, gold, banking, drug and oil-related issues.
Advancers paced decliners 2 to 1 on the New York Stock Exchange,
on volume on 1.40 billion shares.  Winners edged past losers by
a margin of 3 to 2 on the NASDAQ, where over 1.5 billion shares
changed hands.  In the U.S. bond market, treasury prices moved
lower as equities rose.  The benchmark 10-year note fell 3/32,
while its yield climbed to 4.00%.

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

SUMMARY OF PREVIOUS CANDIDATES - As of 09/26/04

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 actual traders, 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 play commentary (when provided) is 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 replace your duty to 
diligently monitor and manage the positions in your portfolio.

__________________________________________________________________

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 CANDIDATES

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW (BULLISH) PLAYS - NAKED PUTS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

*** WARNING: THE RISK OF SELLING NAKED PUTS IS SUBSTANTIAL ***

For more information on Risk, Margin Requirements and Yield
click here: 

http://www.optionwriters.com/margin/OW_RealRisksofSellingNakedOptions.asp
__________________________________________________________________

NEW NAKED-PUT CANDIDATES

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

RIGL   24.60  OCT 22.50  QRG-VX 0.65   25 21.85  17   5.3%  13.9%
NABI   13.48  OCT 12.50  NIQ-VV 0.25   50 12.25  17   3.7%   9.6%
AAPL   38.04  OCT 35.00  AAQ-VG 0.65 23K+ 34.35  17   3.4%   9.1%
OMM    15.97  OCT 15.00  OMM-VC 0.25 1080 14.75  17   3.0%   7.9%
CMTL   27.12  OCT 25.00  CQH-VE 0.35   81 24.65  17   2.5%   6.9%
CREE   28.75  OCT 25.00  CQR-VE 0.30 2141 24.70  17   2.2%   6.7%
STLD   38.00  OCT 35.00  RQL-VG 0.35 1989 34.65  17   1.8%   5.0%

Abbreviations:

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

RIGL - Rigel Pharmaceuticals  $24.60  *** Drug Speculation ***

Rigel Pharmaceuticals (NASDAQ:RIGL) is engaged in the discovery
and development of a range of small molecule product candidates
for unmet medical needs.  The company is developing a portfolio
of product candidates and plans to take these candidates through
Phase II clinical trials, after which, it will seek partners for
completion of clinical trials, regulatory approval and marketing.
The company currently has three initial development programs:
allergy/asthma, hepatitis C and rheumatoid arthritis.

RIGL - Rigel Pharmaceuticals  $24.60

OCT 22.50 QRG-VX LB=0.65 OI=25 CB=21.85 DE=17 TY=5.3% MY=13.9%


_________________________________________________________________

NABI - Nabi Biopharm  $13.48  *** Positive Phase II Results! ***

Nabi Biopharmaceuticals (NASDAQ:NABI) commercializes and develops
medical products focusing on the areas of infectious, autoimmune
and addictive diseases.  The company sells five biopharmaceutical
products: PhosLo, Nabi-HB, WinRho SDF, Aloprim and Autoplex T.
Nabi's clinical product pipeline is composed of novel vaccines
and antibody-based biopharmaceutical products that are designed
to prevent and treat infectious and addictive diseases, such as
Staphylococcus aureus infections, hepatitis B and hepatitis C
and nicotine addiction.

NABI - Nabi Biopharm  $13.48

OCT 12.50 NIQ-VV LB=0.25 OI=50 CB=12.25 DE=17 TY=3.7% MY=9.6%


_________________________________________________________________

AAPL - Apple Computer  $38.04  *** An Apple A Day... ***

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

AAPL - Apple Computer  $38.04

OCT 35.00 AAQ-VG LB=0.65 OI=23136 CB=34.35 DE=17 TY=3.4% MY=9.1%


_________________________________________________________________

OMM - OMI Corporation  $15.97  *** Strong Sector! ***

OMI Corporation (NYSE:OMM) is a sea-borne transporter of crude
oil and refined petroleum products operating in the international
shipping markets.  The company concentrates its vessels into two
core categories: Suezmax tankers and petroleum product carriers.
OMI's fleet consists of product carriers which transport refined
petroleum products from refinery locations to consuming locations,
and crude oil tankers which transport oil from production and
storage locations to refinery locations.  The company's product
carriers are small and mid-sized tankers such as handysizes,
handymaxes and Panamaxes.

OMM - OMI Corporation  $15.97

OCT 15.00 OMM-VC LB=0.25 OI=1080 CB=14.75 DE=17 TY=3.0% MY=7.9%


_________________________________________________________________

CMTL - Comtech  $27.12  *** Solid Earnings! ***

Comtech Telecommunications (NASDAQ:CMTL) designs, develops, and
markets products, systems and services for unique communications
solutions.  It conducts its business through three main segments:
telecommunications transmission, mobile data communications and
radio frequency microwave amplifiers.  The telecommunications
transmission segment, which is the company's largest business
segment, provides sophisticated, advanced products for satellite,
over-the-horizon microwave and wireless line-of-sight telecom
systems.

CMTL - Comtech  $27.12

OCT 25.00 CQH-VE LB=0.35 OI=81 CB=24.65 DE=17 TY=2.5% MY=6.9%


_________________________________________________________________

CREE - Cree Incorporated  $28.75  *** Choice Chip Stock! ***

Cree (NASDAQ:CREE) is engaged in the development and manufacture
of compound semiconductor materials and electronic devices made
from silicon carbide (SiC), and a developer and manufacturer of
optoelectronic and electronic devices made from gallium nitride
and related materials.  The company also produces radio frequency
power transistor components and modules for wireless infrastructure
applications using silicon-based bipolar and laterally diffused
metal oxide semiconductor process technologies.  Cree operates its
business in two segments, the Cree segment, which consists of its
SiC-based products and research contracts, and the Cree Microwave
segment that consists of RF transistors and RF transistor modules
based on a silicon platform.

CREE - Cree Incorporated  $28.75

OCT 25.00 CQR-VE LB=0.30 OI=2141 CB=24.70 DE=17 TY=2.2% MY=6.7%


_________________________________________________________________

STLD - Steel Dynamics  $38.00  *** Next Leg Up? ***

Steel Dynamics (NASDAQ:STLD) is a steel manufacturing company.
The company owns and operates electric arc furnace mini-mills.
Its primary steel operations include the Flat Roll Division, the
Structural and Rail Division and the Bar Products Division.  The
company produces hot- and cold-rolled steel products, galvanized
sheet products, light gauge steel products, structural steel and
rails and joists and deck materials.

STLD - Steel Dynamics  $38.00

OCT 35.00 RQL-VG LB=0.35 OI=1989 CB=34.65 DE=17 TY=1.8% MY=5.0%



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

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.

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

MERQ - Mercury Interactive  $32.36  *** Stalled Recovery? ***

Mercury Interactive (NASDAQ:MERQ) is a provider of integrated
performance management solutions that enable businesses to test
and monitor their Web-based applications.  Its software products
and hosted services help Global 2004 companies enhance the user
experience by improving performance, availability, reliability
and scalability in their Web-based applications.  Its many hosted
services provide its customers with a cost-effective solution that
quickly meets business needs without dedicating significant time
and internal resources.  Its integrated performance management
solutions enable customers to more quickly identify and correct
problems before users experience them.  The company also provides
outsourced load testing and Web performance monitoring services
that complement its software products.

MERQ - Mercury Interactive  $32.36

PLAY (sell naked call):

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

SELL CALL  OCT 35    RQB-JG    4965   0.50  35.50   8.3%   1.4%


_________________________________________________________________

STK - Storage Technology  $23.82  *** Mediocre Outlook? ***

Storage Technology (NYSE:STK) designs, manufactures and sells
a range of data storage solutions for the management, retrieval
and protection of business critical information.  The company's
products can be integrated with existing infrastructures.  In
addition, its products allow universal access to data across
servers, media types and storage networks in both the mainframe
and open-systems environments.  It offers solutions in tape,
disk and network products.  The company also provides support
and maintenance services for its products.

STK - Storage Technology  $23.82

PLAY (sell naked call):

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

SELL CALL  OCT 25    STK-JE    1183   0.45  25.45   9.2%   1.8%


_________________________________________________________________

TASR - TASER International  $36.50  *** Premium-Selling Only! ***

TASER International (NASDAQ:TASR) develops and manufactures a
range of less-lethal self-defense devices.  The firm's primary
product lines include the ADVANCED TASER and the TASER X26, a
recently introduced weapon system offering a new "shaped pulse"
technology and a smaller form factor.

TASR - TASER International  $36.50

PLAY (sell naked call):

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

SELL CALL  OCT 45    QUR-JI   10237   0.35  45.35   8.2%   0.8%




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

SUMMARY OF PREVIOUS CANDIDATES - As of 09/26/04

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.

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

CREDIT SPREADS
  
These candidates are based on the underlying issue's technical
history or trend. The probability of profit in these positions
may be higher than other plays in the same strategy, due to small
disparities in option pricing. Current news and market sentiment
will have an effect on these issues.  Review each play individually
and make your own decision about its outcome.

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

PETD - Petroleum Development  $43.63  *** New 2004 High! ***

Petroleum Development (NASDAQ:PETD) is an independent energy
company engaged primarily in the development, production and
marketing of natural gas and oil.  The company has grown
primarily through drilling and development activities, the
acquisition of natural gas and oil producing wells and the
expansion of its natural gas marketing activities.

PETD - Petroleum Development  $43.63

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-35.00  PHQ-VG  OI=277  ASK=$0.25
SELL PUT  OCT-40.00  PHQ-VH  OI=190  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.40-$0.50
POTENTIAL PROFIT(max)=8% B/E=$39.60


__________________________________________________________________

RIMM	- Research In Motion  $76.98  *** Premium-Selling Only! ***

Research In Motion (NASDAQ:RIMM) is a designer, manufacturer and
seller of wide area wireless solutions for the worldwide mobile
communications market.  Through the development of integrated
hardware, software and services that support multiple wireless
network standards, the firm provides platforms and solutions for
seamless access to time-sensitive information including e-mail,
phone, short message service messaging, as well as Internet and
intranet-based corporate data applications.  Quarterly earnings
are due on 9/30/04.

RIMM	- Research In Motion  $76.98

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-60.00  RUP-VL  OI=8379   ASK=$0.35
SELL PUT  OCT-65.00  RUP-VM  OI=13159  BID=$0.65
INITIAL NET-CREDIT TARGET=$0.40-$0.45
POTENTIAL PROFIT(max)=8% B/E=$64.60



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

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.

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

LLTC - Linear Technology  $35.71  *** Back In A Trading Range? ***

Linear Technology (NASDAQ:LLTC) designs, manufactures and sells
a broad line of standard high-performance linear integrated
circuits (ICs).  Applications for the company's products include
telecommunications, cellular telephones, networking products,
optical switches, notebook and desktop computers, computer
peripherals, video/multimedia, industrial instrumentation,
security monitoring devices, high-end consumer products, digital
cameras and MP3 players, complex medical devices, automotive
electronics, factory automation, process control and military
and space systems.

LLTC - Linear Technology  $35.71

PLAY (less conservative - bearish/credit spread):

BUY  CALL  OCT-40.00  LLQ-JH  OI=4996   ASK=$0.15
SELL CALL  OCT-37.50  LLQ-JU  OI=5869   BID=$0.45
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$37.80


__________________________________________________________________

LXK - Lexmark Intl.  $81.50  *** Next Leg Down? ***

Lexmark International (NYSE:LXK) is a developer, manufacturer
and supplier of printing solutions, including laser and inkjet
printers, multifunction products and associated supplies and
services for offices and homes.  The company also markets dot
matrix printers for printing single and multi-part forms for
business users and develops, manufactures and markets a broad
line of other office imaging products.

LXK - Lexmark Intl.  $81.50

PLAY (less conservative - bearish/credit spread):

BUY  CALL  OCT-90.00  LXK-JR  OI=3388  ASK=$0.20
SELL CALL  OCT-85.00  LXK-JQ  OI=1795  BID=$0.80
INITIAL NET-CREDIT TARGET=$0.65-$0.70
POTENTIAL PROFIT(max)=15% B/E=$85.65



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
STRADDLES & STRANGLES
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SUMMARY OF PREVIOUS CANDIDATES - As of 09/26/04

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.
__________________________________________________________________

DEBIT STRADDLES

No Open Positions
       
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW STRADDLES & STRANGLES
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

No new straddles or strangles...

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


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