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Daily Newsletter, Sunday, 10/03/2004

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The Option Investor Newsletter                   Sunday 10-03-2004
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:  Bulls Stampede
Futures Wrap: See Note
Index Trader Wrap: OIL SHOCKS AGAIN 
Editor's Plays:  Do You Hear Music?
Market Sentiment:   Investor Moods
Ask the Analyst: Rebalancing paid off in third quarter
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 10-01         WE 9-24         WE 9-17         WE 9-10 
DOW    10192.65 +145.41 10047.2 -237.22   10284 - 28.61 + 52.87 
Nasdaq  1942.20 + 62.72 1879.48 - 30.61 1910.09 + 15.78 + 49.83 
S&P-100  543.11 +  8.74  534.37 - 11.43  545.80 +  2.45 +  5.19 
S&P-500 1131.50 + 21.39 1110.11 - 18.47 1128.58 +  4.66 + 10.29 
W5000  11058.70 +220.40 10838.3 -155.02   10993 + 57.00 +115.44 
SOX      401.91 + 19.36  382.55 -  5.95  388.50 +  4.89 + 25.77 
RUT      585.03 + 19.06  565.97 -  7.20  573.17 +  3.26 + 13.67 
TRAN    3298.80 + 96.69 3202.11 - 55.28 3257.39 + 24.00 + 82.53 
VXO       12.55           14.14           13.55           13.49
VXN       18.91           21.10           20.13           19.56
******************************************************************


That will probably be the Saturday morning headline on the
stock pages across the country. The truth may be entirely
different but the results are the same. Funds poured cash
into the market despite fund flows turning negative for 
the last week of the quarter. Too soon for end of quarter
retirement deposits so where did the money come from? 

Dow Chart

Nasdaq Chart

SPX Chart


Drowsy bears anticipating a long nap beginning a couple
weeks from now were shaken violently awake by stampeding
bulls on Friday. The Dow gapped open +108 points and the
shock waves were felt across all indexes. The post debate
meltdown in the futures was met with a strong buy program
at the open of the cash market. Volume was again over 4B
shares across all markets but the internals were seriously
positive at 7:1 advancing volume to declining volume. The
Nasdaq ratio was slightly lower at 5:1 but nobody was
complaining. 

There was nothing in the economics to provide a reason 
for the blowout but nothing to hold it back either. The
University of Michigan Consumer Sentiment came in flat
at 94.2 on the final reading and no surprise there. This
was a drop from the 95.9 reading in August but inline
with the initial reading for September. 

Construction Spending increased +0.8% in August and the
July number was revised up to +1.0% from +0.4%. Low rates
are helping with construction funding but slow job growth
is keeping employers from the need to expand space. The
total value of current construction rose to $1.015 trillion
dollars. Considering the various constraints in various
sectors this is surprisingly strong. 

The ISM Index fell for the second consecutive month to 
58.5 from 62.0 in July. While this is still positive it
represents a continuation of the decline which began 
with the January high at 63.6. While it has not been
straight down the trend has been steady. New Orders fell
from 61.2 to 58.1 but employment rose to 58.1 from 55.7.
Overall the index produced a picture of a continued
expansion and one that should continue at least through
year end. While the report was not bullish it did not
give the bulls any additional cause for concern. 

Global semiconductor sales rose slightly at +1.1% for
August and the collective sigh of relief was heard around
the world. Analysts had feared sales had fallen and the
gain, although slight, was well received. Processor sales
increased +3.5% due to the back to school build. Intel
jumped +4% on the news to $20.85. Chip sales grew in all
regions where it had been focused to the Asia Pacific
region in prior quarters. We have heard from many chip
companies that orders to Asia had fallen off sharply
in recent months but it appears rising global demand
offset that drop. The SOX rocketed +18 to 402 for a 
+4.6% gain and came very close to the 405 highs from 
September. The strong semi rebound helped push the 
Nasdaq and the Russell to new relative highs. 

SOX Chart


The jump in techs ignored the CIO magazine survey 
released Friday that said tech spending was slowing and
would probably not exceed +7.4% over the next 12 months.
The Tech Future Growth Index, which projects growth over
the next 12 months, slipped to a six-month low of 3.0 
after reaching its high for the year of 4.0 in August.
Those officers planning on increasing spending dropped
to only 44% from 47% in August.

Automakers rose and helped provide lift for the markets
in general after GM sales rose by +25% over last years
levels. Daimler Chrysler sales rose +13% and Ford was
the laggard losing ground at -4.2%. GM rolled out the
0% interest rate for 60 months or your choice of a $6000
cash discount to unload its remaining 2004 inventory.
Evidently the program was a strong success. Considering
the low expectations for the automakers this was a very
strong report. Consumer sentiment may be falling but if
you sell things cheap enough there will always be buyers
waiting. Toyota announced they were increasing production
of their Prius hybrid and would double deliveries to 
the U.S. market. This amounts to about 100,000 new
hybrids and puts Toyota well ahead of the competition. 

Kerry won the debate and the market exploded. Surprise,
surprise. Were they related? Probably not. Remember
on Thursday night I told you that $16 billion in bonds
were sold at Thursday's open in 150,000 contracts. The
profit taking streak in the bond market has now stretched
to three days and the volume is heavy. It appears the
four month bond rally is over and funds are moving to
equities in anticipation of a post election rally. Just
looking at fund flows would not support the kind of
jump we saw today. According to TrimTabs.com stock funds
saw outflows for the week ending on Thursday compared
to multi billion inflows for the last several seeks. 
Funds in general lost money for investors in Q3 with 
the average diversified fund losing -2.8% for the 
quarter according to Investors Business Daily. 

So what happened on Friday? It appears that bond money
flipped to equities in an asset allocation play to 
capitalize on a post election rally. I also believe
we saw funds who sat on cash until the quarter ended
to not risk the normal September market decline also 
take the opportunity of the new quarter to make that 
same equity investment. It was clearly a fund day with
the majority of broad market buying over by 10:30. Those
issues most beaten down shared the spotlight with those
winners of late. There was broad divergence of those 
losers and winners moving higher while the "average"
performers failed to find a significant bid. You can
see the drastic differences with SYMC +2.22 and new
high, CME +4.43 and new high compared to INTC +4%, 
SLAB +8% and UTEK +12% all chip stocks rebounding 
off their lows. 
  
While the SOX roared for a +4.6% +18 point gain it 
still remains under downtrend resistance. The big 
winner for the day was the Russell which found buyers
for the fourth consecutive day and tacked on +12 points
to finish at a three month high and a clean break above
downtrend resistance. The race to the 585 close kept
the Nasdaq and Dow from crumbling under their own 
weight as the day wound down. It also moved the Russell
to within 15 points of a breakout over very strong
resistance at 600 and only -20 points away from the
all time high close of 606. On the surface it would
appear bullishness is breaking out all over. 

Russell Chart


That bullishness has pushed the VIX/VXO to new eight
year lows. I hate to keep preaching to the choir but
as a warning signal the klaxon has gone from muted
beep to a solid siren. The challenge with the VIX/VXO
is that there is no specific number that triggers a
sell off. Highs and lows are more critical than a 
single number. Whenever these indicators are setting
new highs/lows we should pay rapt attention. Needless
to say eight year lows are screaming to be heard. 
Checkout Keene's VIX article in the Traders Corner
this weekend. 

For next week we could see an acceleration of warnings
from the software sector. The ratio of warnings to 
positive guidance in the sector is currently 2:1 and
that number could rise sharply. Software makers 
typically cram as many last minute sales into the
quarter as possible and offer growing incentives as
the quarter ends. They really do not know if they made
their numbers until the smoke clears. This could 
pressure the sector and techs in general. This same
practice is used in other industries and we could
see a general spike in warnings next week. 

However, the pace of warnings for the current week 
did not pickup as analysts expected. They continued
but at a level pace with no increase in frenzy. This
could be a positive sign for the quarter after many
have predicted a potential drop to single digits for
overall earnings growth. We have also seen a lack of
warnings by major companies. Since Alcoa warned the
big caps have been mostly silent. IBM, MMM and the
other Dow components have been quiet and have now
passed the normal time for confessing. It is just
possible the asset allocation we saw on Friday was
due in part to the lack of big cap warnings. The 
little guys have been beaten badly but maybe the
multinationals have not been hurt as much as the
analysts previously thought. 

Even if that is true the trend may be changing. Oil
closed over $50 at $50.12 for the first time ever on
Friday. More and more pundits are talking $55-$60
and this will eventually squeeze profits for almost
everyone. GDP for most nations will fall as prices 
curtail expansion. Japan has been the hardest hit 
as it must import all of its oil. The Japan markets
have been in a nose dive on energy fears. It is 
entirely possible we will see an entire wave of 
cautious guidance over the next several weeks of
earnings as companies lose traction in the widening
oil slick. 

There is also a recent trend by invertors to ignore
warnings. Companies warning have been slapped on the
wrist instead of taken to the woodshed for a beating.
With disasters like MRK, CL and TZOO lurking around 
every corner a small drop in earnings from tech 
favorites is easily overlooked. 

Before we get overly bullish about the prospects we
need to remember what month we are in. October has
seen four of five major bubbles burst. The top three
single day Dow drops, -22%, -12% and -11% were all in 
October. There is some good news to tame the negative
outlook. Eight of the last nine election years October
broke out of the prior trading range to the upside. 
This is the carrot that lures timid investors to take
risks in advance of a normally highly volatile period. 

A major challenge confronting us is the known trend.
It is almost universally accepted that the market will
rally into and after the election with that rally 
ending in January. The abnormally low VIX shows that
despite a terrible quarter behind us there is little
or no fear heading into October. Everybody is counting
on the trend and the universal acceptance that it will
happen. Now we all know what happens when the entire
market accepts the existence of a trend and starts
counting on it. The market exists to confuse the
maximum amount of traders at any one time. This could
truly be one of those situations where all investors
could end up on the same side of the boat at the same
time with disastrous results. I am not predicting this
only suggesting we don't run head first into the trap
with our eyes closed to other possibilities. 

For next week there are no major economic reports
until Thursday with the Jobs report closing the
week on Friday. This gives stocks free reign to run
on Monday if Friday was not a one day fund wonder.
Keep your eye on oil over $50 and watch for the number
of warnings to increase and more importantly watch how
the market reacts to those warnings. We should see some
more short covering at Monday's open if nothing eventful
occurs over the weekend. Once any opening bounce fades
we will see if the rally has wings. Yes, wings not legs.
A move higher from this level would break the SPX down
trend and trigger even more short covering. If the
Russell clears 590 we could see investors racing to 
chase prices and a move over 600 could see an explosion
of activity. There is a lot of should and could in this
paragraph but there are also a lot of surprised traders
staring at charts this weekend. I suggest we do the same.

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

 
By Leigh Stevens
lstevens@OptionInvestor.com 

THE BOTTOM LINE - 
The market looks headed still higher but watch for the ability of 
the S&P 100 (OEX) and Nasdaq 100 (NDX) to close above resistances 
at 546-548 and 1478 respectively, as well as at 10,300 in the Dow 
30 (INDU). Price action continues to be best predicted by 
strictly technical patterns and indicators. It was hard to 
understand by the market fundamentals the strong late-week rally. 
The week before last, reversals came right at down trendlines 
(both S&P indices and the Dow) and at key retracement and moving 
average points (NDX). This was followed by strong upside 
reversals at technical supports at 1100 in SPX (S&P 500), 10,000 
in the INDU and 1850 in the Nasdaq Composite (COMP). 

Technically bullish before and at, this past week's reversal 
points, were 2 of my 3 key indicators: sentiment and up volume 
(more on this in the charts). Low volatility (VIX) and related 
key fundamental factors like crude oil prices at $50! - didn't 
suggest a continued decline like they have at other times this 
year. Go figure. 

The bottom line is that it was not easy to figure why the market 
rallied so strongly except it was ready to, wanted to. That and 
still oversold tech and semi-conductor sectors. Some pundits said 
the market rallied cause participants think President Bush will 
be re-elected, but they thought Kerry won the debates. Again, go 
figure. 

WILD CARD - Oil looks to me like its going to 52 next and I don't 
know how long the market will shrug this off.  Technically, both 
the market and oil look headed higher so I go with how both 
charts present currently.  

THE NUMBERS - 

The S&P 500 index (SPX) rallied 16.9 points to 1,131.50. SPX was 
up 2% on the week. The Dow 30 Average (INDU) closed 112 points 
higher, with a 1.5% gain for the week. 

The Nasdaq Composite (COMP) advanced 45 points (+2.4%), to 
1,942.20, which was it best single day gain since late-March.
COMP rallied rose 3.4% for the week.  

Tech is back!? - the jury is out still - this sector has been 
depressed for some time and any news that tech has turned the 
corner will cause a big short-covering type rally.    

FRIDAY'S TRADING ACTIVITY - 

Friday was day 1 of the new quarter and money managers got in a 
buying mood early and that buying feeling never went away even as 
Crude oil closed over $50.  It goes to show that when the market 
wants to rally and the bulls stampede down Wall Street, other 
influences are not seen by the herd as showstoppers.  

And early bullish influence in U.S. stocks was after gains in 
overseas markets, based on a closely watched Japanese business 
sentiment survey.

The two main influences that fueled the advance was a strong 
rebound in the chip stocks - +4.6% in the Philly semiconductor 
index (SOX) - after JP Morgan's analyst came out with an estimate 
that the chip equipment sector bottomed out in the third quarter.

Intel (INTC), Microsoft (MSFT) and Hewlett-Packard (HPQ) were 3 
big gainers in the Tech area, that are also Dow stocks.

Another strong bullish influence on Friday came on the release of 
the monthly report from the Institute of Supply Management or 
ISM. Although their report showed a dip in factory activity for 
September, falling to 58.5% in September from 59%, their 
employment index rose to 58.1 from 55.7 in August, a significant 
rebound. This led to speculation that we may see strong grown in 
non-farm payrolls in this coming week's report from the Labor 
Dept. (Friday).

The University of Michigan reported a bigger-than-expected fall 
in consumer sentiment in late-September. Their consumer sentiment 
index fell to 94.2 in September from 95.8 earlier in the month, 
but some softening was expected

The Commerce Department reported a surge of homebuilding pushed 
total outlays for construction projects up by a better-than-
expected 0.8% in August. July's output figures were also revised 
higher. It now looks like housing construction will make a strong 
positive contribution to third quarter GDP

As I mentioned, political talk on the floor and buzzing around 
was that while George Bush might not have put on the best or a 
great debate showing the night before, he didn't have any big 
gaffs, the betting was that our Business friendly President would 
win next months election. 

The market doesn't like uncertainty or any more than we got in 
this day and age - better the leader you got rather than a new 
sheriff in town. 

OTHER MARKETS -
 
Nearby or lead contract November crude futures gained 48 cents to 
close at $50.12 a barrel in New York trading and ending above the 
key $50 mark for the first time, a gain of nearly 3% for the week

U.S. Treasury bonds fell for the 4th straight session, as the 10-
year note lost 18/32 to close at 100 15/32 and yield 4.19%, a 3-
week high.

The dollar strengthened in New York Friday trading against the 
euro and the pound after weaker than expected manufacturing 
surveys were reported in Britain and in Europe, raising concerns 
over the impact of higher oil prices on economic growth. However, 
the Euro is still trading close to 1.2885, around the highs hit 
in July. 

MY INDEX OUTLOOKS - 

S&P 500 Index (SPX) - Daily chart:

The S&P 500 (SPX) found support at 1100 as anticipated but I 
didn't think last week however that there would be a sky shoot 
back up past the prior highs and trendline resistance. Surprise, 
but as one old saying goes, at least sometimes, "trendlines are 
made to be broken" - 

The chart pattern has turned bullish with the very strong rally 
on Friday.  I have to figure there were a lot of shorts that ran 
for cover to help explain this much of a rebound. Prior rally 
highs in the 1145-1146 area can be figured as the next key 
resistance. First support should now be 1126-1125, at the 
previously broken down trendline - what was resistance "becomes" 
support.  Next support should be 1115, then again at 1100.    

I thought the least likely scenario was a "quick rebound to 
resistance at 1130" - WRONG! Any puts bought in the 1125 per my 
suggestion, if not sold on the close over 1130, ought to be 
exited if SPX does not close back below 1126 in early trade in 
the week ahead.  



I didn't put a lot of stock last time in the bullish reading on 
my sentiment indicator - see the green arrow on the "sentiment" 
indicator chart just above.  However, when within 1-5 days, 
"confirmation" is seen with a 10-day NYSE Up volume reading at 
the baseline (green arrow on the middle chart) this is typically 
a good buy signal. 

It didn't pay in my own case to put much focus on the S&P not 
coming down to an oversold RSI/Stochastic reading (see next 
chart) or, by the low Volatility (VIX) reading or spike in oil 
prices - these are not my primary indicators, especially things 
like inter-market analysis; e.g., what oil is doing. Well, if it 
were so easy to figure out the market would not humble us all at 
some time or other!   

S&P 100 Index (OEX) - Daily chart:

The S&P 100 (OEX) held key support in the 530 area and will 
achieve a bullish breakout if there is a penetration above its 
trendline at 546, then above its prior (up) swing high at 548.5. 
If the prior high is exceeded, OEX could be headed toward the 
upper trading envelope line. The 14-day RSI is still well below   
registering a near-term overbought reading. Stay tuned!  

If however, OEX tops out in the area of the prior high, this is 
another indicator for a top and defines the high end of a 
possible trading range - in which case, put positions are again 
suggested.    

The rebound back above the 21-day moving average was a bullish 
reversal indication suggesting exiting any puts taken at the last 
cluster of highs at the resistance (down) trendline. 



While not shown on the chart above, last week's low was an exact 
Fibonacci 62% retracement of the prior rally - ditto with the Dow 
(INDU) average.  

I've been writing on retracements as points to look for potential 
trend reversals in recent Traders Corner article such as at - 
http://www.OptionInvestor.com/traderscorner/tc_091604_1.asp  

Dow 30 (INDU) - Daily chart:

The Dow 30 Average reversed strongly after retracing 62% of the 
last rebound as shown in my last week's Trader's corner - see 
http://www.OptionInvestor.com/traderscorner/tc_092304_1.asp

INDU of course is still not broken out above key resistance 
implied by its down trendline and its 200-day moving average 
which intersects in the 10,300 area.  A move to this area, 
followed by a rally failure suggesting exiting calls and going 
into puts as a next trade. 

10,140-10,150 is near support, then the 10,000 area more major 
technical support.  



Momentum is up as suggested by the 21-day stochastic and there is 
plenty of room for this indicator to expand before reaching a 
bearish reading again.  Readings on this indicator on a daily 
chart basis and with "length" set to 21 has been a good one to 
watch for indication of the market being vulnerable to a fall.

Nasdaq Composite (COMP) Index  - Daily:

The Nasdaw Composite (COMP) has resumed a bullish chart pattern 
with the decisive upside penetration of its prior rally highs. 
COMP now looks like it could be finally headed to its upper trend 
channel line around 1985.  Support is at 1900, at the bottom end 
of the upside gap achieved Friday when the low was above Thursday 
high.  The upside gaps were a tip off for the strong rally that 
developed at week's end.

COMP is in the beginnings of an overbought area on the (14-day) 
RSI - markets can get and stay overbought. Overbought readings 
mostly suggest that the market is vulnerable to news "shocks" - 
ones that are seen having possible bearish impacts of course.  

What was bullish at the lows last week was upside reversal after 
the pullback to the recent or short-term up trendline. 



Along with bullish action in the chart pattern, came the 
contraction of Nasdaq Up volume, on a 10-day basis, to one of the 
two "baselines" from which rallies have been developing in the 
past few months - see the green up arrow on the Nasdaq Up Volume 
chart.   
  
Nasdaq 100 (NDX) Index  - Daily chart:

The Nasdaq 100 (NDX) chart turned bullish after Friday's upside 
gap and acceleration.  Support in fact is suggested at the low 
end of this gap in NDX, in the 1420 area, then at 1410.  

I figure significant resistance as in the 1478 area, at the upper 
end of the "internal" down trendline; i.e., a line connecting the 
most number of highs at major tops since late-January, explaining 
why this line bisects two intraday highs at the June top. 

A reversal in the 1478-1480 area keeps with a still-bearish 
pattern of lower rally highs that we've been seeing over past 
months. I would like to enter NDX puts on signs of a rally 
failure around in this area.    



The RSI is nearing an overbought reading again. Something else to 
consider - if NDX reversed without exceeding Friday's peak level, 
RSI would not confirm the new high, which is a bearish divergence 
price/oscillator. 

Absent that, if RSI gets up in the 65-70 zone, this index will 
become increasingly overbought - this is where the market becomes 
vulnerable to reversals, so those in calls ought to be alert to 
downside reversals. 

Nasdaq 100 tracking Stock (QQQ) Hourly chart:

QQQ reversed above, and without digging into, support in the $34 
area, then in a very strong move for the Q's, closed above key 
resistance at 36.  Next key resistance is around 37, at the down 
trendline.  This is the area to watch - inability to get above 
this area would maintain the stock in a downtrend. Reversal in 
this area would suggest going from long to short the stock also. 

Watch whether QQQ can now hold above 35.75-36 on a closing basis 
- failure to do so could suggest a bull trap reversal by a move 
to new high and if this was followed by an immediate downside 
reversal.

An advance to the area of the prior peak at 37.9 would set up a 
double top - pushing above this area would create a reversal to 
the 2004 downtrend pattern.



Note - My suggested stop for a bearish play on a rally toward the 
36 area, was at 35.7.  I would look again at the short side in 
the 36.75-37 area, with a suggested stop at 37.50.  

Good Trading Success!
 

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

Do You Hear Music?

While the play updates below span the range of good
news to bad news the play for today contains no news
at all. 

Of course I am talking about XMSR Satellite Radio 
and their streaming no news, no interruptions music. 
On Friday XMSR said they now have over 2.5 million 
subscribers and added +415,000 for the quarter. When
you consider that growth rate of 20% per quarter it
is staggering. They are predicting over 3.1 million
by year end. 

Rumor has it that they will be streaming 70 channels
over the Internet within two weeks. Of course that
is extra cost for current subscribers at $3.99 per
month and $7.99 for non subscribers. Instantly 
another income stream emerges and getting quality
music at work will be considerably easier. No more
dealing with license fees, mp3 players or hauling
CDs back and forth to work. 

Our opportunity comes from some bad news XMSR gave
after the close. Seems their growth would have been
stronger last quarter but a component problem in
their units halted production temporarily. Despite
the strong subscriber news and forecast XMSR dropped
-$1.73 in after hours in a knee jerk reaction to 
$29.15. 

Since the Internet music service is not yet widely
known and will be advertised extensively XMSR could
get a huge sentiment pop over the next couple weeks.
I feel the after hours drop is a buying opportunity.

The Jan-$30 call (QSY-AF) could drop to $2.50 as it
goes out of the money at the open. The Jan-$32.50
call (QSY-AZ) could drop to $1.50-$1.75. Support is
$28.75 and resistance $31.50. I would recommend the
$30 call as the safest option. 

Depending on market conditions at Monday's open I
would either buy the open if the market is bullish 
or if the market opens down wait to see if we are 
going to take profits from Friday's rally. Pick your
entry point and go listen to some music.  

BUY JAN-$30 Call QSY-AF 
BUY JAN-$32 Call QSY-AZ 

XMSR Chart


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

MSO Put Update $15.85

MSO dropped from last Sunday's $17.07 to $15.08 where
it found temporary support on Thursday. The Friday
rally may have stimulated some short covering with
MSO moving up +45 cents in the last two hours. 

Next week should renew the question in investor's minds
of why hold a non performer with negative earnings for
the next six months when other small caps are exploding.

Hopefully that $15 support will fail and the downtrend
begin. We are slightly positive in our put option but
volatility is still bleeding off from last weeks spike.
Time is on our side but let's lower the stop to $17.50
just in case.   

March $15 Put MSO-OC @ $2.00 currently $2.15
Stop MSO @ $17.50
  
MSO Chart


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


Terrorist Insurance Update

Marathon $41.96

So far, so good and oil closed over $50 on Friday. 
Our option is up about +110% at $3.10 and MRO closed
at another new high. 

With oil due to profit take soon I am raising the 
stop to MRO at $40.25. I suggest you manage your 
own trade to lock in a profit but remember the
concept on this trade. We are expecting a potential
terrorist event in oil that will push prices much
higher before the election. Since we are already 
up strongly I want to protect against a loss but
be ready if an event does occur. 

Long term uptrend resistance is about $43.60 so I
would look for weakness in that area as an exit
indicator. That should be close to 200% profit so
no harm in taking it off the table. 


Call Jan-$40 MRO-AH @ $1.45 currently $3.10


Marathon Chart


http://members.OptionInvestor.com/editorplays/edply_091904_1.asp
   

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


GOOG Put Update $132.71

Google took flight on Tuesday when the 40 day quiet
period expired for the IPO underwriters. All five
brokerage firms issued an "outperform" rating for 
the stock with a $145 price target. Shorts were 
instantly treated to another rocket ride. 

The analysts were far less than glowing about GOOG
but as underwriters they could hardly place a "SELL"
rating on it after pitching it as a good investment 
to thousands of their customers. 

We were stopped at $125 and the plan was to reenter
at $120. With GOOG at $132.71 today I am raising that
reentry point to $125 and our prior exit. If the buzz
cools on GOOG I would like to get back in as high as
possible. $118 was support for over a week and I would
rather be in ahead of that retest on the downside. 

There are still 240 million shares coming to market
over the next five months, nearly ten times the amount
currently available to trade, and two earnings reports.

GOOG Chart



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

Investor Moods
- J. Brown

What is investor sentiment?  We hear about sentiment indicators.  
These are supposed to measure investors bullishness or 
bearishness.  Analysts then tend to use these as contrarian 
indicators.  If everyone's bullish then it's probably time to 
sell.  If everyone's bearish then it may be time to buy.  Wall 
Street has a number of colorful maxims explaining these concepts.  
Analysts like to evaluate investor sentiment because when it hits 
extremes it usually signals a reversal is just around the corner.  
As Jim put it this weekend - when everyone runs to one side of 
the boat odds are good the boat can tip over.  

The problem with sentiment indicators is that interpreting them 
is more art than science.  They offer clues not black and white 
buy and sell signals.  A clear example these days is the 
volatility indices the VIX/VXO.  For years if the VIX traded near 
or under the 20 level it was a clear signal that the market was 
near a top because investors were too confidence or too bullish.  
There was no fear in the markets, which is why the VIX is 
referred to as the "fear" index.  Now the VIX and VXO are both 
under 13 and hitting multi-year lows.  In the past few months 
when the VIX/VXO traded near 13-14 it was a sign that the market 
was near a short-term top.  Yet what did we learn over the past 
couple of years?  We learned that these sentiment indicators can 
always get more oversold (or overbought).  They still work but 
interpreting them becomes more challenging.  

Right now the VIX/VXO is screaming at us that the stock market is 
near a top.  Yet that top may not come for days or weeks and the 
VIX/VXO may end up hitting 12, 11 or 10, etc... before stocks 
reverse.  What's my point to this discussion?  This past week 
we've seen some end of quarter window dressing and Friday's start 
to the fourth quarter was extremely bullish.  There was a huge 
surge in new one-year highs and stocks were breaking out left and 
right.  I still believe the trend is your friend and as traders 
we should trade what we see but we don't have to do so on blind 
faith.  Short-term stocks may have more upside but this is 
dangerous territory.  

If you're a regular reader of this column you know I'm already 
bullish for stocks through the second half of October through the 
end of the year.  As Jim mentions in the wrap this weekend it's 
the historical post-election bounce.  Jim suspects that it is 
confidence in the coming bounce that is driving Friday's rally 
and funds are jumping in early ahead of the post-election bounce.  
It's a simple trade for money managers with President Bush still 
ahead in the polls despite his lackluster performance in Thursday 
night's debate.  However, I agree with Jim that usually when 
everyone's counting on the same pattern to show up it tends to be 
a no-show or it doesn't perform as well as in the past.  Right 
now everyone's counting on the post-election bounce so there's 
one big caution flag.  Second, the lack of any significant pull 
back from the August-September rally still leaves a number of 
stocks overbought and extended.  This is a tough spot to consider 
new long plays. I for one feel like a lot of investors are 
chasing stocks here because they don't want to be left behind.  
There's caution flag number two.

Crude oil continues to be a major issue and now that it's closing 
at record highs over $50 a barrel it's a lot easier for people to 
see oil at $55 or even $60.  You already know that oil at these 
levels is a huge drain on the global economy and impacts 
businesses and consumers alike.  We've already seen the economic 
growth in the U.S. slow down month after month.  If oil doesn't 
recede our growth is going to be in jeopardy and corporate 
earnings are going to suffer.  Wall Street isn't going to care so 
much about Q3's earnings as much as they care about guidance for 
the fourth quarter.  Keep waving caution flag number four.

I don't want you to think I'm a big bear.  I would much prefer to 
buy stocks or call options.  I merely find it more challenging 
when it feels like the market is near a top.  Yet I'm more than 
willing to consider that we're experiencing a potential trend 
change and the major indices could breakout from their multi-
month trading range and hit new relative highs.  

Looking ahead we have a very busy week.  Q3 earnings season 
begins with Alcoa (AA) reporting earnings on Thursday and General 
Electric (GE) reporting on Friday.  This week also has several 
appearances from multiple Federal Reserve governors including 
Greenspan himself.  In addition to the ISM services index, 
September's retail comparable sales numbers and other economic 
data the big event will be Friday's non-farm payrolls report.  
The latest jobs numbers are guaranteed to be more fodder for the 
Presidential campaigns. 

For more details on this week's events see the Market Watch page.  
For more on the volatility indices see Keene's article on the VIX 
this weekend.
 


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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  9230
Current     : 10192

Moving Averages:
(Simple)

 10-dma: 10141
 50-dma: 10113 
200-dma: 10298



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  990
Current     : 1131

Moving Averages:
(Simple)

 10-dma: 1115
 50-dma: 1102
200-dma: 1118



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1301
Current     : 1452

Moving Averages:
(Simple)

 10-dma: 1412
 50-dma: 1381
200-dma: 1440



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

CBOE Market Volatility Index (VIX) = 12.75 -0.59
CBOE Mkt Volatility old VIX  (VXO) = 12.55 -0.89
Nasdaq Volatility Index (VXN)      = 18.91 -1.57


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.97        912,411       886,252
Equity Only    0.77        705,362       546,099
OEX            1.14         41,631        47,437
QQQ            2.97         59,482       176,876


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

Bullish Percent Data

           Current   Change   Status
NYSE          65.2    + 1.5   Bear Correction
NASDAQ-100    44.0    + 1     Bull Alert      
Dow Indust.   56.6    + 3.3   Bear Correction
S&P 500       62.6    + 1.4   Bear Correction
S&P 100       62.0    + 2     Bear Correction


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

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


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

 5-dma: 0.94
10-dma: 1.07
21-dma: 1.01
55-dma: 1.15


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    2174      2139
Decliners     617       875

New Highs     274       123
New Lows       14        21

Up Volume   1642M     1516M
Down Vol.    268M      282M

Total Vol.  1921M     1807M
M = millions


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

Commitments Of Traders Report: 09/28/04

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 most recent data doesn't show a lot of movement.  Commercial
traders upped their short positions a bit so they remain net
bearish.  Small traders didn't do much maneuvering and remain
net bullish.

Commercials   Long      Short      Net     % Of OI
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%)
09/28/04      404,773   434,441   (29,668)   (3.5%)

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
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%
09/28/04      135,317   107,173    28,144    11.6%

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 e-minis always see a lot of action and this time we see
the commercial traders upping both their longs and shorts in
almost equal percentage moves so "smart" money remains bearish.
Small traders also upped their longs and shorts and remain
strongly net bullish.

Commercials   Long      Short      Net     % Of OI 
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%)
09/28/04      226,020   420,714   (194,694)  (30.1%)

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
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%
09/28/04      262,501     68,255   194,246    58.7%

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


NASDAQ-100

The NDX futures aren't seeing much action from the commercials.
They did up their short positions a bit after the previous 
periods significant drop.  Yet professional traders remain
net bullish on the NDX.  In contrast the small trader remains
heavily net bearish but not to the extreme they were a week
ago.  

Commercials   Long      Short      Net     % of OI 
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%
09/28/04       55,045     32,319    22,726   26.0%

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
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%)
09/28/04       10,078    22,917   (12,839)  (38.9%)

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

Interesting... commercial traders didn't make many adjustments
but small traders did.  We're seeing small traders hedge their
bets as their longs and shorts grow closer together.  This 
has significantly reduced their bearish outlook on the Dow.

Commercials   Long      Short      Net     % of OI
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%
09/28/04       29,714    26,877    2,837       5.0%
 
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
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%)
09/28/04        5,143     5,988   (  845)   ( 7.6%)

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


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

Rebalancing paid off in third quarter

In our continuing addition of quarterly rebalancing, and an 
investor's question from late last year, its time to rebalance 
those retirement accounts and systematically take some profits 
where they're found, and buy some of those "depreciated" asset 
classes.

And ooooooohhhhh boy does last quarter's rebalancing of the 
"Beetle's Balanced Benchmark Fund" pay some reward in the third 
quarter where profits were taken in the Dow Diamonds (DIA), the 
S&P Depository Receipts (SPY) and NASDAQ-100 Tracker (QQQ), and 
those profits redistributed among other asset classes in the 
hypothetical fund's asset classes.

We had also redistributed some moneys from cash, perhaps best 
depicted by the U.S. Dollar Index (dx00y), which after the second 
quarter was up fractionally, and while our shorter-dated Treasury 
asset class, depicted by the iShares Lehman 1-3 year (SHY) showed 
a 1.66% loss in the second quarter, it had "outperformed" other 
bond asset classes, where we were forced to reallocate some of 
those funds to areas that had under performed.

Here's what we were looking at in the June 27, 2004 Ask the 
Analyst column titled "Another quarterly rebalancing (update)."

Beetle's Balanced - 06/25/04 Close (rebalanced 03/26/04)



Near the end of the second quarter, the Beetle's Balanced had 
fallen 3.79% (Total for P/L %) where gains for the DIA, SPY and 
QQQ were not enough to offset losses in our fixed income asset 
classes.  A sharp 15.75% decline in the AMEX Gold Bugs Index 
($HUI.X) had to be a bargain!  

At the 06/25/04 rebalance, the Beetle's Balanced Benchmark was 
valued at 11,655.04.  All we did was take that 11,655.04 and 
redistribute it equally among the 10 asset classes shown, where 
#Shares was simply derived by taking $1,165.50 (10% of 
$11,655.04) and dividing that by the closing value (Last) to 
derive a new share amount.  

Here's what happened in the recent quarter, where on Thursday 
night (09/30/04) I captured the portfolio's closing values.  For 
the quarter (since 06/25 rebalance), the Beetle's Balanced 
Benchmark had risen 2.97%!  Of course, this does not include the 
any additional benefit of dividends paid during the quarter.

Beetle's Balanced Benchmark - 09/30/04 Close (will rebalance)



Redemption!  The forced taking of profits in the DIA, SPY and QQQ 
and redistribution to various fixed income (bond) assets looks 
like it paid off.  The "junk bond" Pacholder High Yield (PHF) was 
the biggest gainer in that fixed income section with a nice 8.62% 
gain.  The PHF has been kicking off a $0.075 dividend each month 
too (not included in results).  And look at that Gold Bugs Index 
($HUI.X), up a whopping 19.09%!  That more than makes up for the 
drubbing in the second-quarter.

Certainly we lost some money as the DIA, SPY and QQQ asset 
classes declined, but the "good news is" we were forced to take 
some of the profits from those asset classes in the second 
quarter.  

So.... we're left with $12,000.62 at the end of the third quarter 
and it is time to rebalance again.  No high math needed here.

We'll take the $12,000.62, divide that value by the 10 asset 
classes ($1,200.06) and with closing values (Last) at the ready, 
can easily calculate how many shares we either need to sell, or 
buy, to have each specific asset class rebalanced to $1,200.06 
(Cost).

Do institutions rebalance their holdings as a quarter draws to a 
close?  You bet, and while they will weight there asset classes 
based on various risk/reward profiles, just like a 25-year old 
investor might have a more "growth" oriented profile than an 80-
year old investor who is probably more "income" oriented, the 
Beetle's Balanced Benchmark was non-strategically weighted, with 
equal amounts of capital distributed among 10 different asset 
classes.

I won't go through all the asset classes and buy/sell share 
amounts, but as we rebalance we end up buying more DX00Y, SHY, 
DIA, SPY and QQQ shares, and sell some of our IEF, TLT, LQD, PHF 
and HUI.X.

"Buy low and sell high," but with no type of timing of the 
market.

With one day of trading under our belt (10/01/04) here how the 
"Beetle's Balanced Benchmark" looks.  Basis is derived from the 
09/30/04 Close, and Cost is as close to 1,200.06 as I can get, 
even with fractional shares.  You can't buy 34.151 QQQ shares, 
but I'm trying to keep our Cost and Total Cost consistent, as the 
whole point of our quarterly rebalancing is to try and prove to 
ourselves that rebalancing pays off over time.

Beetle's Balanced - 10/01/04 Close (rebalanced 09/30/04)



Our new "Total Cost" is equal to what the "Total Value" was on 
09/30/04 (pretty darned close), so I'm confident may mathematics 
for rebalancing are correct.  Under the "#Shares" column, I 
dashed green those asset classes were we bought additional 
shares, and with dashed red have marked those asset classes where 
we sold some of those asset classes.

Is rebalancing paying off?  Here's the "Beetle's Balanced 
Benchmark" as of Friday's close (10/01/04) and how it would look 
from its established date of (12/26/03) if we had just bought and 
held the 10 asset classes and not rebalanced at the end of each 
quarter.  Remember that dividends are NOT included in any of the 
totals.

Beetle's Balanced - 10/01/04 Close (no rebalance since 12/25/03)



As of 10/01/04, rebalancing does appear to by paying off, by a 
positive amount of ($12,000.69 - $11,953.90 = $54.23) $54.23 on a 
portfolio that began the year with a cost of $11,928.37.  

While $54.23 doesn't seem like a lot, we have to remember that 
we're not reflecting some of the compounding from dividends.  

For our fixed-income area (SHY to PHF) when be "buy low" we're 
usually getting a larger dividend YIELD on those investments, or 
greater amount of income production for the quarter, until the 
next rebalance.  Those dividends (I use the term dividend instead 
of interest for our fixed income, since those fixed income assets 
aren't really bonds.  They're iShares or closed-end fund in the 
case of PHF) will actually provide additional cash that could be 
used to buy additional assets.

The exercise here, over a longer-period of time is the 
compounding of gains, which may seem fractional, begin to add up 
over a longer-period of time. 

For a more detailed history of what we've been doing this year 
with quarterly rebalancing of the "Beetle's Balanced Benchmark 
Fund," you can read other Ask the Analyst columns from 
12/28/2003, 01/25/2004, 04/05/2004 and 06/27/2005.

Jeff Bailey


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

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

Symbol  Co               Date           Comment      EPS Est

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

RI   Ruby Tuesday         Mon, Oct 04  After the market     0.44


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

AYI  Acuity Brands Inc    Tue, Oct 05  ---- n/a ----        0.55
APOL Apollo Group         Tue, Oct 05  After the market     0.48
BCF  Burlington Coat Fc.  Tue, Oct 05  ---- n/a ----        n/a
YUM  Yum! Brands Inc      Tue, Oct 05  After the market     0.60

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

DNA  Genentech Inc        Wed, Oct 06  After the market     0.21
MON  Monsanto Co          Wed, Oct 06  Before the bell      0.03
SCHN Schnitzer Steel      Wed, Oct 06  Before the bell      0.90
WWW  Wolverine World Wide Wed, Oct 06  Before the bell      0.47

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

AA   Alcoa Inc            Thr, Oct 07  After the market     0.33
AMHC American Healthways  Thr, Oct 07  After the market     0.27
COST Costco Wholesale     Thr, Oct 07  Before the bell      0.58
ISCA Intl Speedway        Thr, Oct 07  Before the bell      0.59
MAR  Marriott Intl        Thr, Oct 07  Before the bell      0.55
RGS  Regis Corp           Thr, Oct 07  Before the bell      0.57

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

ARA  Aracruz Celulose     Fri, Oct 08  ---- n/a ----        0.59
GE   General Electric     Fri, Oct 08  Before the bell      0.38



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

Symbol  Company Name              Ratio    Payable     Executable

ANSS    ANSYS Inc                 2:1      Oct   4th   Oct   5th
VLO     Valero Energy             2:1      Oct   7th   Oct   8th
MIK     Michaels Stores           2:1      Oct  12th   Oct  13th
NUE     Nucor Corp                2:1      Oct  15th   Oct  18th
PCBK    Pacific Continental Bank  5:4      Oct  15th   Oct  18th
RAVN    Raven Industries          2:1      Oct  15th   Oct  18th

--------------------------
Economic Reports This Week
--------------------------
We have a very busy week ahead of us.  The Q3 earnings season 
begins with Alcoa and General Electric reporting late in the week.
There is a number of economic reports and a parade of Fed Governors
speaking this week.  The biggest event will be Friday's jobs 
reort but the presidential and vice-presidential debates will
certainly get some air time.

==============================================================
                       -For-           
----------------
Monday, 10/04/04
----------------

Factory orders for August   Estimate: +0.1%  Last: +1.3%
Fed Governor Bies speaks in Philladelphia
Fed Governor Poole speaks in Missouri
Fed Governor Santomero speaks on Monetary Policy

-----------------
Tuesday, 10/05/04
-----------------
ISM Services index for September  Estimate: 59.0   Last: 58.2
Challenger's layoffs for September
Vice President Debate in Cleveland, OH.

-------------------
Wednesday, 10/06/04
-------------------
Fed Governor Poole speaks in Missouri
Fed Governor Hoenig speaks on Monetary Policy
Crude oil, gasoline inventories reported

------------------
Thursday, 10/07/04
------------------
Weekly Initial Jobless Claims   Estimate: 350K   Last: 369K
Fed Chairman Greenspan speaks in St. Louis
Fed Governor Guynn speaks
Fed Governor McTeer speaks
Chain Store Comparable Sales for September
Consumer Credit 
Natural gas inventories

----------------
Friday, 10/08/04
----------------
Non-farm Payrolls (Jobs) for September  Est: 140K  Last: 144K
Unemployment rate for September   Estimate: 5.4%   Last: 5.4%
Fed Governor Bernanke speaks in St. Louis
Fed Governor Ferguson speaks in St. Louis
Hourly Earnings
Average Workweek
Wholesale Inventories
Presidential Debate at 9:00 PM ET


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 10-03-2004
Sunday                                                      2 of 5

In Section Two:

Watch List: PDCO, EMR, CI, FO
Dropped Calls: ATH
Dropped Puts: BIIB, FFH, LXK


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

Plenty of Bullish Candidates to Watch

___________________________________________________________________

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.
___________________________________________________________________

Patterson Companies - PDCO - close: 77.30 change: +0.74

WHAT TO WATCH: We've been watching PDCO for a while now.  The 
stock has finally broken out over its six-month trend of lower 
highs.  The move has also produced a new ascending triple-top 
bullish buy signal on its P&F chart.  The P&F chart points to a 
$91 target.  We would consider longs here with an $85 target. 

Chart=


---

Emerson Electric - EMR - close: 63.90 change: +2.01

WHAT TO WATCH: EMR surged 3.24 percent on Friday with above 
average volume fueling the move but it still couldn't breakout 
over resistance at $64.00-64.25.  EMR has been stuck under this 
level since March.  If shares can breakout then traders can use 
it as an entry point to target a move toward $68-69.  The P&F 
chart looks pretty bullish with a strong base in place and a new 
quadruple-top breakout buy signal pointing to $73.

Chart=


---

Cigna Corp - CI - close: 70.60 change: +0.97

WHAT TO WATCH: We came very close to adding CI to the play list 
as a call candidate this weekend.  The stock has finally broken 
out over six-month resistance at $70.00-70.50 and its technical 
indicators are bullish again.  We choose to pass because of the 
200-week moving average looming overhead near $73.90.  CI may 
completely ignore this moving average so we're willing to watch 
it.  The P&F chart is bullish and points to a $93 target.

Chart=


---

Fortune Brands - FO - close: 74.80 change: +0.71

WHAT TO WATCH: You may remember FO from the play list a few weeks 
ago.  Unfortunately FO couldn't breakout over resistance at 
$75.00.  The stock is still under this level but this time it 
looks poised to push through the $75 mark.  Should this occur 
then readers may want to consider bullish plays with an $80 
target.  The P&F chart shows a new bear trap and triple-top 
breakout buy signal with an $85 target.

Chart=




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

PBI $45.30 +1.20 - PBI climbed more than 2.7 percent on Friday to 
breakout over massive resistance and close at new four-year 
highs.

NUE $93.02 +1.65 - What are the odds of NUE hitting $100 before 
its 2:1 split on October 18th?

EXM $40.11 -1.97 - Truly crazy trades may want to consider 
bearish strategies on EXM now that momentum has changed 
direction.  (This would be very high risk!)

TTC $70.00 +1.70 - We're watching TTC for a breakout over $71.00 
and new all-time highs.

WWY $63.39 +0.08 - We're watching WWY for a breakout over 
resistance at $64.00 and new all-time highs.



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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
^^^^^

Anthem Inc - ATH - close: 86.73 chg: -0.52 stop: 84.89

We're choosing to exit ATH early.  The stock appears stuck in its 
current trading range between $85.00 (and its 200-dma) and the 
$88.00 level overhead.  Technical oscillators are starting to 
grow more bearish and ATH's failure to join the market rally on 
Friday is discouraging.  If you want to stay long keep an eye on 
the simple 200-dma as support.  If you're looking for new bullish 
positions consider waiting for ATH to breakout over $88.50.

Picked on September 26 at $86.81
Change since picked:      - 0.08
Earnings Date           10/27/04 (confirmed)
Average Daily Volume =       2.1 million 
Chart =


PUTS
^^^^

Biogen Idec - BIIB - close: 62.87 change: +1.70 stop: 62.51

We've been issuing cautious comments on BIIB the last few days as 
the bounce back above $60.00 looked like bad news for bears.  
Sure enough with the NASDAQ up 2.39 percent on Friday BIIB wasn't 
going to be left behind.  The stock surged in the last couple of 
hours of trading and broke through our stop loss at $62.51 to 
close just under the $63.00 level.  If BIIB can breakout over 
$64.00 traders may actually want to consider bullish positions.

Picked on September 22 at $59.57
Change since picked:      + 3.30
Earnings Date           07/28/04 (confirmed)
Average Daily Volume =       3.0 million 
Chart =


---

FairFax Financial - FFH - cls: 132.75 chg: +7.90 stop: 130.01     

How frustrating!  Resistance near $127.00-127.50 was holding 
through most of the session on Friday.  Until the last two hours 
when a number of stocks just surged higher.  FFH broke through 
round-number resistance at $130.00 and stopped us out.  Super 
aggressive traders may actually want to consider bullish 
positions now that the two-month downtrend has been broken, 
although we'd probably look for a bounce from $130.  We haven't 
heard any more news or comments on FFH's liquidity issues and 
potential bankruptcy in the last three weeks so the rumor has 
obviously lost steam.

Picked on September 12 at $126.50
Change since picked:       + 6.25
Earnings Date            00/00/00 (confirmed)
Average Daily Volume =         59 thousand
Chart =


---

Lexmark Intl - LXK - close: 86.48 chg: +2.47 stop: 86.01     

This time LXK helped lead the tech stocks higher as LXK took to 
an early lead on Friday.  The breakout over resistance at $85.00 
and its simple 40 and 50-dma's and its exponential 200-dma looks 
significant.  Friday's 2.9 percent rally is also a breakout from 
its three-week trading range.  We've been stopped out at $86.01.

Picked on September 5th at $86.10
Change since picked:       + 0.38
Earnings Date            07/19/04 (confirmed)
Average Daily Volume =        1.2 million 
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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Contact Support




The Option Investor Newsletter                   Sunday 10-03-2004
Sunday                                                      3 of 5

In Section Three:

Current Calls: CMI, GDW, LMT
New Calls: MHK, OSIP
Current Puts: LLY, FLIR, KSS, MMM, PRX, SEPR
New Puts: None

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

Cummins Inc - CMI - close: 75.30 change: +1.41 stop: 69.99     

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:
Exit alert!  CMI stretched its winning streak to four days in a 
row.  The end-of-the-quarter window dressing was followed by 
another huge surge of buying and CMI added 1.9 percent to close 
above round-number, psychological resistance at $75.00.  Our 
initial profit target was the $75.00 mark.  We had a secondary 
target of $77.50.  We are suggesting that short-term traders 
consider exiting now.  We are going to keep the play open and aim 
for $77.50 but we are not suggesting new positions at this time.  
A dip and bounce from $72.50 might work if you are looking for 
new entry points.  If CMI trades at $77.50 we will close the 
play.  

Suggested Options:
CMI has already achieved our initial profit target. We are not 
suggesting new entries at this time.

Annotated chart:



Picked on September 19 at $70.99
Change since picked:      + 4.31
Earnings Date           07/23/04 (confirmed)
Average Daily Volume =       724 thousand
Chart =


---

Golden West Financial - GDW - cls: 112.58 chg: +1.63 stop: 108.99

Company Description:
Headquartered in Oakland, California, Golden West is one of the 
nation's largest financial institutions with assets over $95 
billion as of August 31, 2004. The Company has one of the most 
extensive thrift branch systems in the country, with 276 savings 
branches in 10 states and lending operations in 38 states.
(source: company press release)

Why We Like It: (Original Play Description from Thursday)
GDW has been a frequent candidate on our nightly watch list over 
the last several weeks.  We had been watching for a breakout over 
resistance at the $110 level in an effort to ride a rally toward 
$116.  When the breakout finally did come it was too fast for us 
to catch and it failed just where we expected it to.  Now GDW has 
consolidated back toward the $110 region except this time it 
should act as support.  We mentioned the bounce from $108.85 back 
on Monday and now we're willing to act on it with today's higher 
low.  Our goal is to ride GDW back toward $115-116.  The P&F 
chart is much more bullish with a $129 price target. 

WEEKEND UPDATE:
GDW is off to a strong start.  The stock added another 1.46 
percent as a follow through to Thursday's bounce.  Volume was 
again above average.  If shares dip look for a bounce from $111.

Suggested Options:
Short-term traders can choose the Octobers and November options.
We're going to suggest the Novembers. Our favorites are the 
110s and 115s.

BUY CALL NOV 110 GDW-KB OI=537 current ask $4.80
BUY CALL NOV 115 GDW-KC OI=308 current ask $2.05

Annotated chart:


Picked on September 30 at $110.95
Change since picked:       + 1.63
Earnings Date            07/20/04 (confirmed)
Average Daily Volume =        512 thousand
Chart =


---

Lockheed Martin - LMT - close: 56.32 change: +0.54 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:
We are triggered in LMT.  We added LMT a few days ago with a 
trigger to go long/buy calls at $56.01.  The stock broke out over 
the $56.00 level on Friday after Goldman Sachs upgraded the stock 
to an "out perform".   Volume was well above average on the 
breakout and LMT is trading at new 18-month highs.  We encouraged 
by strength in the defense sector as a whole.  The DFI index 
broke out to new all-time highs and while it looks a bit 
overbought we could still see the group extend its gains.  
Fortunately, LMT is not overbought yet and should have plenty of 
room to run.  Our initial target is $60.00.  

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=1520 current ask $2.65
BUY CALL NOV 60 LMT-KL OI= 441 current ask $0.50

Annotated Chart:


Picked on October 01 at $56.01
Change since picked:    + 0.31
Earnings Date         07/27/04 (confirmed)
Average Daily Volume =     1.7 million 
Chart =



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

Mohawk Industries - MHK - cls: 80.35 chg: +0.96 stop: 77.99

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

Why We Like It:
We like MHK because the three and a half week consolidation 
appears to be over.  We initially rode the MHK bullish breakout 
over $75.00 back in August.  After peaking under $82.00 in early 
September the stock spent the next few weeks consolidating above 
new support at $78.00.  That consolidation appears to be over and 
MHK looks ready to continue its upward trend.  Why are investors 
buying MHK?  The company benefits from both new home sales and 
existing home sales since replacement carpeting is big business.  
The pace of home sales have been pretty robust and that should 
translate into earnings for MHK.  Speaking of earnings look for 
the company to report in about three weeks.  We'll confirm the 
date when MHK releases it.  The P&F chart is bullish with a $102 
price target. We're a little less enthusiastic and plan to target 
a move toward $85.00.

Suggested Options:
We are not planning to hold over MHK's October earnings but we're
still suggesting the November calls.

BUY CALL NOV 75 MHK-KO OI= 876 current ask $6.60
BUY CALL NOV 80 MHK-KP OI=1331 current ask $2.95
BUY CALL NOV 85 MHK-KQ OI= 375 current ask $1.00

Annotated Chart:


Picked on October 03 at $80.35
Change since picked:    + 0.00
Earnings Date         10/21/04 (unconfirmed)
Average Daily Volume =     355 thousand
Chart =


---

OSI Pharma - OSIP - close: 63.45 change: +1.99 stop: 59.99

Company Description:
OSI Pharmaceuticals is a leading biotechnology company focused on 
the discovery, development, and commercialization of high-
quality, next-generation oncology products that both extend life 
and improve the quality of life for cancer patients worldwide. 
OSI has a balanced pipeline of oncology drug candidates that 
includes both novel mechanism-based, gene-targeted therapies 
focused in the areas of signal transduction and apoptosis and a 
next-generation cytotoxic chemotherapy agent.
(source: company press release)

Why We Like It:
If you tend to follow the drug sector and/or biotech sector then 
you've probably already heard about OSIP's and DNA's Tarceva 
drug.  The two companies are co-developing the treatment for a 
variety of illnesses but the main target is advanced non-small 
cell lung cancer.  On September 20th shares of OSIP gapped higher 
and hit resistance at $70.00 after positive news came out on 
Tarceva's Phase III trials for pancreatic cancer.  Since the 20th 
shares of OSIP have slowly consolidated back toward support at 
the $60.00 mark bolstered by its simple 40 and 50-dma's.  Then on 
Thursday there was more positive news on Tarceva.  The FDA has 
accepted the OSIP's filing for its New Drug Application and given 
Tarceva a priority review.  The positive news combined with the 
bounce from support at $60.00 looks like a tempting entry point 
to buy calls.  Our initial target is the $70.00 region.  We'll 
start the play with a stop loss at $59.99. 

Suggested Options:
We're going to suggest the November calls.  Our favorites are the 
60s and 65s.

BUY CALL NOV 60 GHU-KL OI= 19 current ask $6.50
BUY CALL NOV 65 GHU-KM OI=564 current ask $3.70
BUY CALL NOV 70 GHU-KN OI=890 current ask $1.95

Annotated Chart:


Picked on October 03 at $63.45
Change since picked:    + 0.00
Earnings Date         08/10/04 (confirmed)
Average Daily Volume =     1.6 million 
Chart =




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

Eli Lilly & Co - LLY - close: 61.40 chg: +1.35 stop: 62.51     

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:
Thus far LLY has been right on target.  The stock quickly dropped 
to our initial profit target at $60.00 and yesterday we suggested 
that short-term traders consider taking profits.  Obviously the 
Merck news gave LLY a little push lower but the drug sector and 
LLY were already weak.  We suspected that LLY would bounce on 
Friday and said look for resistance at $62.00.  That's exactly 
where LLY bounced to with a high of 61.83 on Friday.  The 
question now is does LLY continue its oversold bounce or does it 
continue lower.   The P&F chart looks pretty bearish here with a 
$44 price target but we're not sure if a one-day bounce is enough 
to satisfy LLY before it continues lower.  We're going to leave 
our stop loss at $62.51 for now.  More aggressive traders may 
want to put their stop above the simple 10-dma and give LLY more 
room to move.  We probably wouldn't suggest new bearish plays 
until LLY broke support at $59.70.  

Suggested Options:
We are not suggesting new plays at this time.  LLY hit our 
initial profit target of $60.00 on Thursday.

Annotated chart:



Picked on September 22 at $63.92
Change since picked:      - 2.52
Earnings Date           07/22/04 (confirmed)
Average Daily Volume =       3.1 million 
Chart =


---


FLIR Systems - FLIR - close: 58.04 chg: -0.46 stop: 62.51

Company Description:
FLIR Systems, Inc. is a world leader in the design, manufacture 
and marketing of thermal imaging and stabilized camera systems 
for a wide variety of thermography and imaging applications 
including condition monitoring, research and development, 
manufacturing process control, airborne observation and 
broadcast, search and rescue, drug interdiction, surveillance and 
reconnaissance, navigation safety, border and maritime patrol, 
environmental monitoring and ground-based security.
(source: company press release)

Why We Like It:
We added FLIR on Wednesday this past week after the stock broke 
down through round-number, psychological support at the $60.00 
mark on heavy volume in the face of a big market rally.  Once 
again FLIR is trading lower while the rest of the market is in 
rally mode.  This lack of participation should be good news for 
FLIR bears and the stocks looks ready to trade lower next week 
now that we have a new "failed rally" under $60.00 given Friday's 
performance.  Our initial target is $55.00 but we suspect that 
FLIR could trade lower.

Suggested Options:
Short-term traders can choose Octobers, November and January
puts.  Right now our preference would be the Novembers but the
January's look pretty good here too.  

BUY PUT NOV 65 FFQ-WM OI= 10 current ask $7.90
BUY PUT NOV 60 FFQ-WL OI=216 current ask $4.40
BUY PUT NOV 55 FFQ-WK OI= 71 current ask $2.10

Annotated chart:


Picked on September 29 at $59.35
Change since picked:      - 1.31
Earnings Date           07/22/04 (confirmed)
Average Daily Volume =       577 thousand
Chart =


---


Kohl's - KSS - close: 48.75 change: +0.56 stop: 50.26     

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:
We originally added KSS about three weeks ago after it and the 
RLX retail index topped out and began to see profit taking.  KSS 
had broken its narrow, rising channel and its MACD had just 
crossed into a sell signal.  Unfortunately, the following decline 
has been a slow one.  Bulls and bears are battling over every 
dollar.  We think we know why too.  Like many investors who 
follow KSS the next six months should be positive for the stock.  
KSS has some very easy to beat same-store sales numbers for the 
next few quarters and if KSS delivers it should renew the current 
up trend.  We were only aiming for a short-term drop to support 
near $46.00.  KSS may not dip that low as traders try and take 
bullish positions before the upcoming Q4 holiday shopping season.  
Currently KSS has tested resistance at $50.00 and now $49.00.  
Yet the stock also has support at its exponential 200-dma, which 
was this week's low.  This is an important test for KSS now.  If 
shares break back above the $49 level we may want to abandon this 
play.  Not only has KSS not declined fast enough to our liking 
but now we're faced with a same-store sales report that could 
come out this week.  Be very careful here.

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

Annotated chart:



Picked on September 16 at $49.48
Change since picked:      - 0.73
Earnings Date           08/12/04 (confirmed)
Average Daily Volume =       3.1 million 
Chart =



---

3M Co - MMM - close: 79.69 change: -0.28 stop: 81.51     

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:
It's been two and a half weeks and for the most part MMM has 
performed as expected.  The stock continued its short-term 
bearish downtrend and came within 19 cents of our initial profit 
target at $77.50.  Unfortunately, the Industrials soon rallied 
and MMM was lifted back above the $80.00 level.  The good news 
here is the bounce is already failing.  On a short-term basis the 
rebound to $80.75 looks like a 38.2 percent Fibonacci retracement 
of its September decline.  Plus, MMM's failure to retain any sort 
of gain on Friday in the face of a triple-digit Dow gain is 
pretty bearish.  We're not suggesting new plays here but more 
aggressive traders may want to give it another look.  This could 
be the sort of "failed rally" entry point we look for.

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:      - 2.31
Earnings Date           07/19/04 (confirmed)
Average Daily Volume =       2.5 million 
Chart =



---

Par Pharma. Co - PRX - close: 36.12 chg: +0.19 stop: 37.25*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:
Hmmm... what do we do now? We initially added PRX on its high-
volume bearish breakdown through $40.00 and several major moving 
averages.  There was one day of follow through and since then the 
stock has traded sideways between $35.75 and $37.00.  The good 
news is that PRX has not participated in any of the market 
rallies in the last two weeks.  The bad news is that PRX isn't 
moving lower either.  We're going to turn conservative here and 
significantly tighten our stop loss to $37.25.  If PRX breaks out 
we can close the play and step away.  This keeps the play open 
and gives PRX a chance to breakdown instead.  We would not 
consider new bearish positions until PRX trades under $35.75 
again.

Suggested Options:
We're going to suggest the November puts.

BUY PUT NOV 40 PRX-WH OI= 684 current ask $5.00
BUY PUT NOV 35 PRX-WG OI=2172 current ask $2.00

Annotated chart:


Picked on September 21 at $37.80
Change since picked:      - 1.68
Earnings Date           07/19/04 (confirmed)
Average Daily Volume =       743 thousand
Chart =


---

Sepracor Inc - SEPR - close: 48.84 chg: +0.06 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:
We initially added SEPR several days ago as a simple trading 
range play.  The stock has been stuck between $42.50 and $53.00 
for months.  SEPR failed near $53 again in mid-September and had 
just broken minor support at $49.00.  Unfortunately, since adding 
the play the decline has been extremely slow.  At the same time 
the BTK index has been somewhat volatile.  In contrast SEPR has 
been vacillating around several moving averages all clumped 
together.  We are feeling a bit cautious here on SEPR but we're 
encouraged that the stock failed to participate in Friday's big 
market rally.  More conservative traders may want to adjust their 
stops closer to the $50 level.  We're going to leave ours at 
$52.00 for now.

Suggested Options:
We're suggesting the November puts.  

BUY PUT NOV 50.00 ERU-WJ OI= 172 current ask $3.20
BUY PUT NOV 47.50 ERU-WW OI=  46 current ask $1.90
BUY PUT NOV 45.00 ERU-WI OI=1565 current ask $1.05

Annotated chart:


Picked on September 22 at $48.94
Change since picked:      - 0.10
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 10-03-2004
Sunday                                                      4 of 5


In Section Four:

Leaps:   Backing Up the Truck 


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*****
LEAPS
*****

Backing Up the Truck

After getting a little aggressive on a couple entries
over the last couple of weeks the market helped us
out of a tight spot and back into the winning column.

We are supposed to buy stocks when nobody else wants
them and after picking up several like that last week
I was beginning to get nervous. Fortunately funds
swapped bonds for equities and October is off to a
roaring start. 

It would be stupid of us to think that it will continue
unabated but I would not complain. There are a couple
of stocks I would still like to buy but without
putting our current portfolio at risk there does not
seem to be much chance. 

I really hate we did not fill on any of our index LEAPs
but we needed one more day of weakness and it was not
in the cards. The QQQ came within 23 cents of our entry
at $34 before blasting off to close at $36.12 on Friday.

Because of the growing LEAP portfolio I have to restrict
the commentary to a minimum or make a separate newsletter
out of it. We have definitely backed up the truck and
after the two additions today I will refrain from any
new entries until we get another dip. 

I am going to leave the index LEAPs on the watch list
but it would take a significant market event to reach
them. 

I am going to carry the large portfolio because I know
everyone does not enter every play. Most readers will
pick out 4-5 that they like and keep the brain damage
to a minimum. Unfortunately everybody likes different
things so I have a smorgasbord of offerings. 


**** 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. I believe the market would recover quickly
but it obviously depends on the severity of any
attack. Our time is ticking away with 34 days
between us an the election. The next two weeks
will be the most dangerous.  

 

 

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


XMSR $29.15 (after hours close)

XMSR Satellite Radio is the leading satellite music
provider with their streaming no news, no interruptions
music. On Friday XMSR said they now have over 2.5 
million subscribers and added +415,000 for the quarter.
When you consider that growth rate of 20% per quarter
it is staggering. They are predicting over 3.1 million
by year end. 

Rumor has it that they will be streaming 70 channels
over the Internet within two weeks. Of course that
is extra cost for current subscribers at $3.99 per
month and $7.99 for non subscribers. Instantly 
another income stream emerges and getting quality
music at work will be considerably easier. No more
dealing with license fees, mp3 players or hauling
CDs back and forth to work. 

Our opportunity comes from some bad news XMSR gave
after the close. Seems their growth would have been
stronger last quarter but a component problem in
their units halted production temporarily. Despite
the strong subscriber news and forecast XMSR dropped
-$1.73 in after hours in a knee jerk reaction to 
$29.15. 

Since the Internet music service is not yet widely
known and will be advertised extensively XMSR could
get a huge sentiment pop over the next couple weeks.
I feel the after hours drop is a buying opportunity.

I am playing this on a short term basis in the 
Editors Plays but I think it is a great long term
play as well. The ultimate market for XMSR is in
the tens of millions and they are just barely 
scratching the surface.  

Depending on market conditions at Monday's open I
would either buy the open if the market is bullish 
or if the market opens down wait to see if we are 
going to take profits from Friday's rally. Pick 
your entry point and go listen to some music.  


BUY 2006 JAN-$30 LEAP Call YLX-AF est $6.00 
BUY 2006 JAN-$32 LEAP Call YLX-AZ est $5.00
BUY 2006 JAN-$35 LEAP Call YLX-AG est $4.00 
(prices are estimated opening prices for Monday)

XMSR Chart



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

PFE - Pfizer $30.96

This should be a no-brainer. Merck removed its blockbuster
VIOXX drug from the market this week and will suffer a
-$2.5 billion drop in annual revenue. This was a huge
drug for Merck. However, Pfizer has the number one drug
in this category already with estimated 2004 sales of
$3.0 billion while in competition with VIOXX. The drug
of choice and the first patented is Celebrex. 

With the competition knocked out of contention Celebrex
could easily rocket to near $5 billion in sales. This
boost in revenue will come at almost no cost to Pfizer
because the drug already exists in the supply chain and
once you are addicted to the COX-2 inhibitors there is
no going backwards. 

Pfizer was quick to take center stage and began 
approaching wholesalers, pharmacy chains, benefit 
managers and other managed care organizations to 
assure them they will be able to meet their needs 
on the large quantities needed to fill the VIOXX gap.

They also made public three long-term studies showing
that doses at 2-4 times the suggested dose had shown
no adverse effects for heart attack or cardiovascular
events. The problem appears only related to the VIOXX
formula. 

They also released a government study of 1.4 million
patients that found no increased risk of cardiac events
with Celebrex. Ironically it was the same study that
first raised warnings about VIOXX. 

Pfizer also said it is in long term studies with over
6000 patients using the drug as a preventative treatment
for Alzheimers and colorectal cancer. Should these
studies prove effective the sales of Celebrex would
go through the roof. 

Fortunately for us PFE had been on a long decline from
its 2004 high near $39 to support at $30 which it just
tested this week before the Merck news hit. This is 
probably the best entry point we are ever going to
get for news of this magnitude. 

This Pfizer play is not without risk. A Kerry White
House is expected to put pressure on drug companies
to lower prices and margins could be squeezed. Under
no scenario would Pfizer become unprofitable and any
new rules would impact all drug companies alike. With
Pfizer having the lock on the Celebrex market I doubt
they will go down without a fight. With Bush pulling
ahead last week we have seen companies exiting their
drug shorts and starting to go long and Pfizer is the
company most discussed according to Don Ross, Chief
Investment Officer at National City Investment Mgmt. 
    
LEAPS are cheap for PFE because of the heavy volume.

BUY 2006 JAN $30 CALL LEAP WPE-AF currently $3.70
BUY 2006 JAN $32 CALL LEAP WPE-AB currently $2.50
 
PFE Chart





******************************     
New Watch List Plays Triggered
******************************  


RIMM $73.72 Research in Motion
Entry $77.00 (9/28)

We got the breakout over $76.50 resistance but it
sold off on Friday after strong earnings on Thursday. 

Buy 2006 $80 LEAP Call WLJ-AP @ $16.50
Buy 2006 $90 LEAP Call WLJ-AR @ $13.20
Sell 2006 $120 LEAP Put WLJ-MD @ $46.70



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


BA  $52.47  Boeing Aerospace   
Entry $52 (9/28)

I believe we got an excellent entry on Boeing on
Tuesday on a small bit of bad news. The stock
dropped to $50.50 and triggered us at $52 on the
way down. 

Buy 2006 $55 LEAP Call WBO-AK @ $4.70
Buy 2006 $60 LEAP Call WBO-AL @ $3.00



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

OXY - Occidental Petroleum $56.45  
Entry $55.50 (9/28)

We finally filled out the energy portfolio with a
fill on OXY on a breakout at $55.50. The dip came
within a buck of our lower entry at $53.50 but the
energy rebound came too soon. OXY closed at a new
high on Friday.  

2006 $50 LEAP Calls WXY-AJ @ $8.60
2006 $55 LEAP Calls WXY-AK @ $5.60
2006 $60 LEAP Calls WXY-AL @ $3.50

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

SYMC - Symantec - $57.20   
Entry $53.00 (9/27)

Outstanding! I hate breakout entries but in the case
of Symantec it worked like a charm with SYMC closing
at a new all time high on Friday at $57.20   

2006 $50 LEAP Call YAG-AJ @ $10.70
2006 $55 LEAP Call YAG-AK @ $8.00
2006 $60 LEAP Call YAG-AL @ $5.70




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

Position Summary Table




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

XLE - S&P Energy SPDR $35.43  ** Stop 33.90 **

New high for the XLE on Friday and oil is still rising.

2006 $32 LEAP Call WHA-AF currently at $5.10
2006 $35 LEAP Call WHA-AI currently at $3.20

Entry $33.92 on 9/20
http://members.OptionInvestor.com/leaps/Lp_091904_1.asp

XLE Chart



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

QLGC - Qlogic Corp - $31.54  ** Stop $27.50 **

QLGC closed at a new five month high on Friday and
slightly over resistance at $31. The move was related
to the hot chip sector and an upgrade from Goldman
Sachs. Goldman downgraded ELX at the same time. Good
news for us.    

2006 $30 LEAP YIO-AF currently $6.89
2006 $35 LEAP YIO-AG currently $4.60

Entry $30.36 9/20
http://members.OptionInvestor.com/leaps/Lp_091904_1.asp


QLGC Chart



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

MMM - 3M Company - $79.70, ** Stop $74.00 **

1/2 Entry at $82 on 9/15
1/2 Entry at $78 on 9/27

We saw MMM dip on Monday to trigger our second entry
point at $78 before rebounding to nearly $81 on Friday.
$78 is strong support and MMM has passed the normal
warning period. If the market can survive next week
we should be out of trouble.  

The stop is $74.00 to get under the March and August 
lows. 

2006 $80 LEAP Call WMU-AP currently $7.60
2006 $85 LEAP Call WMU-AQ currently $5.50

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

MMM Chart





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


C - Citigroup $44.87 LEAP Call  **Stop $42.00**

Entry 1/2 46.00 9/20 
Entry 1/2 45.00 9/22
 
Citigroup appears to have found support at $44 after
the Japan news has turned stale. Citibank also settled
a suit over WorldCom on Friday. UBS upgraded earnings
estimates to 98 cents from 95 cents saying better
credit quality and broader margins at its Smith Barney
unit would help results. 

The 4Q is normally a strong quarter for banks and as
long as the market does not implode Citibank should
move up from here.  

Stop was changed to $42.

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 $20.85  **Stop $18.00**
Entry $20.00 Sept 3rd

Intel rebounded +4% on Friday on news that processor
sales increased +3.5% in August on decent back to 
school computer sales. With chip stocks back in favor
I am raising the stop to $18.00.

Current position:
2006 $22 LEAP Call WNL-AX at $2.20 currently $2.30
2006 $25 LEAP Call WNL-AE at $1.45 currently $1.60

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

Intel Chart




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


TYC - Tyco Intl. $31.44  **Stop $28.00**
Entry 5/18 $28.32

Tyco roared back from the short bout of profit taking 
and gained +2 over the last four days. It is back at
the high for the month and saw heavy volume on Friday.
Prosecutors in the Kozlowski are dropping the charge
that accused the company of being run as a criminal
enterprise. This frees Tyco of yet another cloud from
the Kozlowski era. Things are looking up for Tyco
and a cooperative market would do worlds of good. 

Current position:
2005 $30 LEAP Call TYC-AF cost $2.15 current $2.60 
2006 $30 LEAP Call WPA-AF cost $4.00 current $4.80 
July $25 insurance put - expired - cost $.55

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

Tyco Chart


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


JNPR - Juniper Networks $23.96 **Stop $19.00**
Entry $20.19 (8/16)

Juniper is trying to put in a higher low at $23 but
downgrades and warnings from other related techs
continue to make JNPR struggle. Once over $25 we
should be in rally territory but we need to get
into the earnings cycle and away from the warnings.

FBR cut its rating to "market perform" from "outperform"
on 9/28. That was the first downgrade to Juniper since
9/10/2003 when Smith Barney cut it to inline. On 4/22/04
Smith Barney reversed that call to a "buy". There have
been 20 upgrades for Juniper since last September and
only the one downgrade to "inline" last week.    


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

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

JNPR Chart


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


COP - Conoco Phillips $84.07 **Stop 79.00**
Entry $73.30 August 30th   

COP won the stake in the Russian oil giant Lukoil
and after a day of sell the news profit taking it
rose once again to close at a new high. 

The deal gives COP several billion barrels of proven
oil reserves and options on an even larger stake. 
The deal gives them control of one of the largest
undeveloped oil fields remaining on the planet
and pushed them to number two in proven reserves. 

$84 appears to be resistance but with oil closing 
over $50 on Friday this company is truly sitting
on black gold. 

The stop was raised to $79. 

Current position:
Jan-2006 $75 LEAP Call YRO-AO at $6.70 currently $12.50


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

COP Chart




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


NWS - News Corp $32.87 **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 $1.55

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 $49.90  **Stop $44.00**

Entry $45.50 9/21

Last week I mentioned if oil hit $50 UPL would probably
hit $50 and it surprised me all the way to $51. Profit
taking hit after Kramer said it was overdone but it
quickly recovered and is wedging back up at $50 once
again. 

They delivered the initial production from their China
field of 300,000 barrels. They are currently producing
30,000 barrels per day from the China lease. They also
commenced production on three gas wells in Wyoming and 
all three wells broke previous production records.   

JAN-2006 $45 LEAP Call WSS-AI currently $13.30 
JAN-2006 $50 LEAP Call WSS-AJ currently $11.80 

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

UPL Chart


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

EBAY - EBAY $92.16      ** Stop $84.00 **
Entry $90.00 on 9/22

EBAY is rebounding with the market but does not appear
as strong as in August. Extreme heights tends to do 
that to stocks. Support appears to be $91 and the
next week will be critical. 

EBAY was in the Top-25 Fastest Growing Companies list
in Forbes Magazine this week. That could help as the
top 25 tend to outperform again in the current year.    

2006 $90 LEAP Call YRL-AR currently $16.10
2006 $100 LEAP Call YRL-AT currently $11.70

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

EBAY Chart



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

MER - Merrill Lynch $50.61   ** Stop $46.00 **
Entry $51.00 
               
Merrill is still hanging in there and actually showing
signs of life despite a UBS downgrade last week. This
is the season for financial stocks and Merrill is set
to record blowout earnings in a couple weeks. Let's
hope they follow through on that expectation.   

2006 $50 LEAP Call WZM-AJ currently $6.60
2006 $55 LEAP Call WZM-AK currently $3.80

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

MER Chart



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

Proctor & Gamble $54.64  ** Stop $52.00 **
Entry $54.08 (9/26)

So far so good on PG with the stock beginning its
rebound off the CL/UN earnings warnings. PG has not
warned and earnings are ahead. If it pulls the rabbit
out of the hat and show to be gaining market share
over CL/UN then we could be headed for new highs. 

Investors are still cautious in fear PG will join
the warning party. 

Jan-2006 $55 LEAP Call WPG-AK @ $4.20 currently $4.30
Jan-2006 $57 LEAP Call WPG-AY @ $3.00 currently $3.10

PG Chart: 


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

RIMM $73.72 Research in Motion   ** Stop $69.00 **
Entry $77.00 (9/28)

That did not work out as I expected. We entered RIMM
on a breakout trigger at $77 last Tuesday and they 
announced earnings on Thursday. Normally RIMM soars
after earnings due to their high growth rate. They
beat estimates and raised estimates and still got
knocked for a loss on profit taking. 

Very few tech companies still have the growth to 
match RIMM and I am hoping we will see support at
$72.50 hold and new money come into the stock.  

Because options are so expensive on RIMM I am putting
the stop a little closer at $69. 

2006 $80 LEAP Call WLJ-AP @ $16.50 now $14.20
2006 $90 LEAP Call WLJ-AR @ $13.20 now $10.60
Sell 2006 $120 LEAP Put WLJ-MD @ $46.70 now $48.10

RIMM Chart  


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

BA  $52.48  Boeing Aerospace   ** Stop $48.00 **
Entry $52 (9/28)

Boeing dropped back to $51 on comments about Airbus
being overly optimistic about its 2005 outlook. The
dip was quickly bought and BA began to rise again
despite the press about the weapons buyer at the 
Pentagon who went to jail over a preferential order.
The scandal forced Boeing's CEO and CFO to resign
and clouded the companies future a year ago. Obviously
BA has recovered and with the case behind them things
are looking up. They delivered 67 planes in Q3 and
218 planes so far in 2004. 

Resistance is now $53.50 then $55.  

2006 $55 LEAP Call WBO-AK @ $4.70 now $4.70
2006 $60 LEAP Call WBO-AL @ $3.00 now $2.85

Boeing Chart



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

OXY - Occidental Petroleum $56.47  ** Stop $53.00 **
Entry $55.50 (9/28)

You had to look fast to see that OXY dip. It lasted
only two days before it rocketed off to set a new
high close. I would have much rather gotten the 
dip entry to $53.50 but we missed it by a buck and
oils are off and running again. With the $50.12
closing price on crude we could have a strong day
on Monday. We need to clear $57 on OXY for the 
next sprint to begin. 
  

2006 $50 LEAP Calls WXY-AJ @ $8.60 currently $9.00
2006 $55 LEAP Calls WXY-AK @ $5.60 currently $6.30
2006 $60 LEAP Calls WXY-AL @ $3.50 currently $4.00

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

OXY Chart



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

SYMC - Symantec - $57.15   ** Stop $50.00 **
Entry $53.00 on breakout

Amazing move for Symantec. It rebounded from $51 last
Sunday to close at $57 on Friday. Had we not had the
breakout entry in place we would have missed it again.   

Symantec announced on Thursday that the time between
a security flaw being announced and a virus being
written to exploit the flaw had dropped to 5.8 days. 
This makes it even more important to have a constantly
updated virus program and Symantec if number one. 

On Friday the head of the Homeland Security for 
Cyber Security abruptly resigned. A former VP for
Symantec resigned in disgust due to the roadblocks
in getting anything done on a national scale. 

With SYMC now in new high territory again the sky
is the limit if we get a tech rally with legs. $65
would be the next level resembling resistance. 

2006 $50 LEAP Call YAG-AJ @ $10.70 now $13.50
2006 $55 LEAP Call YAG-AK @ $8.00 now $10.70
2006 $60 LEAP Call YAG-AL @ $5.70 now $8.00

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

SYMC Chart




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

Close but Not Close Enough

We came very close to getting an entry on the QQQ
leaps at $34 with a dip to $34.23 on Tuesday. 
Unfortunately it was not close enough. 

That was the best attempt of the four index plays
and with Friday's rally the odds are slim we will
get another chance. At this point with a full
portfolio I would really hate to see a retracement
to our previous entry points. 

I am going to leave them the same this week as this
will be the pivotal week for the markets. If we can
get out of it unscathed we have a good chance for
a three month rally. 


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


None


***********************   
New Watch List Entries 
***********************    

I am running out of space to add big descriptions to
the watch list entries. With the large portfolio of
active LEAPs plays I am going to keep it brief. 


No new entries 


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


SMH  $31.69 Semiconductor Holders **Target $28.50**

This target may not be out of reach. The semi stocks
have been very oversold but also briefly overbought.
The chip sector is still weak and the rebound on
Friday to $31.63 is still below last months resistance
at $32. I am keeping the $28.50 target just in case
this week goes to the dogs.  

Buy 2006 $30 LEAP Call YRH-AF currently $6.10
Buy 2006 $35 LEAP Call YRH-AG currently $3.80
Sell 2006 $55 LEAP Put YRH-MA currently $23.30

SMH Chart



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

DIA  $102.16 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 two weeks. 

The odds are not as good as they were last week for
a retest of 9900 but they still exist.  

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.

These prices should drop significantly if we get
an entry at $99.
 
Buy 2006 $100 LEAP Call YGF-AV currently $8.40
Buy 2006 $104 LEAP Call YGF-AZ currently $6.20
Buy 2006 $108 LEAP Call YGF-AD currently $4.30
Buy 2006 $112 LEAP Call YGF-AH currently $2.85

DIA Chart



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

QQQ  $36.10 Nasdaq 100 Tracking Stock  
Target $34.00


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 $34 but
after Friday I think our chances are slim. 

If we do get a move down we will be ready and if not 
then we can reevaluate next week. 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 $4.90
Buy 2006 $37 LEAP Call YWZ-AD currently $3.80

These prices should drop about 1.00 with a dip to $34
and 1.25 with a dip to $33.  

QQQ Chart




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

IWM  $116.72 Russell-2000 Index Ishares
Target 1/2 108.00
Target 1/2 106.00

Our wishful thinking entry from last week has become
an impossible mission this week. It would take a major
correction to bring the Russell back -40 points to 
support.  The IWM rocketed from its pullback to 111
on Monday to close near 117 on Friday. This is a very
strong move and probably took us out of range. 

This is a strong play for me because I believe the
small caps will lead any post election rally. If
that rally started last week then we will have missed
this opportunity. 

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 eight
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 est 12.00 at $108
2006 $115 LEAP Call WOI-AK est 9.50 at $108
2006 $120 LEAP Call WOI-AP est 7.00 at $108

IWM Russell Chart





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The Option Investor Newsletter                   Sunday 10-03-2004
Sunday                                                      5 of 5

In Section Five:

Covered Calls:  CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS
Spreads and Straddles:  Stocks Rally As Fourth Quarter Begins!
Premium-Selling Plays: Naked Puts and Calls


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www.OneStopOption.com

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


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

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

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

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

_________________________________________________________________

Sequenced by Target Yield (monthly basis/no margin)

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

EXEL    8.60  NOV  7.50  XQT-KU  1.60  121   7.00  48    4.5%
RIGL   25.36  NOV 22.50  QRG-KX  4.10   95  21.26  48    3.7%
SNDK   30.42  NOV 27.50  SWQ-KY  4.20 4334  26.22  48    3.1%
SSYS   32.53  NOV 30.00  QQG-KF  3.80   29  28.73  48    2.8%
DHB    14.52  NOV 12.50  DHB-KV  2.55  482  11.97  48    2.8%
ECLP   16.24  NOV 15.00  IQV-KC  1.85  137  14.39  48    2.7%
AKAM   14.50  NOV 12.50  UMU-KV  2.50  376  12.00  48    2.6%
SIMG   14.40  NOV 12.50  QSI-WV  2.40  458  12.00  48    2.6%
SYNA   21.66  NOV 20.00  QYG-KD  2.45   15  19.21  48    2.6%
VRSN   20.98  NOV 20.00  QVR-KD  1.75  940  19.23  48    2.5%
TELK   23.53  NOV 20.00  ZUL-KD  4.30    3  19.23  48    2.5%


Company Descriptions

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

_________________________________________________________________

EXEL - Exelixis  $8.60

Exelixis (NASDAQ:EXEL) is a biotechnology company whose primary
goal is to develop proprietary human therapeutics by leveraging
its integrated discovery platform to improve speed, efficiency
and quality of pharmaceutical product discovery and development.
The company uses comparative genomics and model system genetics
to find new drug targets.  Its research is designed to identify
novel genes and proteins expressed by those genes, that, when
changed, either decrease or increase the activity in a specific
disease pathway in a therapeutically relevant manner.

EXEL - Exelixis  $8.60

NOV  7.50 XQT-KU LB=1.60 OI=121 CB=7.00 DE=48 TY=4.5%


_________________________________________________________________

RIGL - Rigel Pharmaceuticals  $25.36

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  $25.36

NOV 22.50 QRG-KX LB=4.10 OI=95 CB=21.26 DE=48 TY=3.7%


_________________________________________________________________

SNDK - SanDisk  $30.42

SanDisk (NASDAQ:SNDK) designs, manufactures, and markets flash
memory storage products that are used in a wide variety of 
electronic systems.  The company has designed its flash memory
storage solutions for applications in the consumer electronics
and industrial/communications markets.  The company's products
are used in a number of rapidly growing consumer electronics
applications, such as digital cameras, PDAs, portable digital
music players, digital video recorders and smart phones, as well
as in industrial and communications applications.

SNDK - Sandisk  $30.42

NOV 27.50 SWQ-KY LB=4.20 OI=4334 CB=26.22 DE=48 TY=3.1%


_________________________________________________________________

SSYS - Stratasys  $32.53

Stratasys (NASDAQ:SSYS) manufactures and sells a line of rapid
prototyping and three-dimensional printing devices that create
physical models from computerized designs.  The company's rapid
prototyping systems are based on its patented fused deposition
modeling technology or on its patented Genisys technology.  The
company is also involved in the office prototyping market (rapid
prototyping) and develops, manufactures and markets a family of
rapid prototyping devices and 3-D printers that enable engineers
and designers to create physical models, tooling and prototypes
out of plastic and other materials directly from a computer-aided
design workstation.  Earnings are due 4/28/04.

SSYS - Stratasys  $32.53

NOV 30.00 QQG-KF LB=3.80 OI=29 CB=28.73 DE=48 TY=2.8%


_________________________________________________________________

DHB - DHB Industries  $14.52

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  $14.52

NOV 12.50 DHB-KV LB=2.55 OI=482 CB=11.97 DE=48 TY=2.8%


_________________________________________________________________

ECLP - Eclipsys  $16.24

Eclipsys Corporation (NASDAQ:ECLP) is a healthcare information
technology firm that develops and licenses proprietary software
to hospitals.  The company's software allows them to automate
the key clinical, administrative and financial functions that
they require.  Eclipsys' software is designed to improve patient
care and patient satisfaction for its customers and allow them
to reduce their operating costs.  Among other things, its unique
software enables physicians and nurses to check on a patient's
condition, order patient tests, review test results, monitor a
patient's medications and provide alerts to various changes in
a patient's condition.

ECLP - Eclipsys  $16.24

NOV 15.00 IQV-KC LB=1.85 OI=137 CB=14.39 DE=48 TY=2.7%


_________________________________________________________________

AKAM - Akamai Technologies  $14.50

Akamai Technologies (NASDAQ:AKAM) principally offers e-business
infrastructure services and solutions.  The company distributes
computing solutions and services that are designed primarily to
make the Internet predictable, scalable and secure for customers
seeking to conduct business over the Internet.  Their solutions
extend web operations anywhere, anytime, and improve insight and
management of applications and content through unique technology.

AKAM - Akamai Technologies  $14.50

NOV 12.50 UMU-KV LB=2.50 OI=376 CB=12.00 DE=48 TY=2.6%


_________________________________________________________________

SIMG - Silicon Image  $14.40

Silicon Image (NASDAQ:SIMG) offers multi-gigabit semiconductor
solutions for the transmission, storage and display of digital
media.  The company broadens market adoption of the digital
visual interface, high-definition multimedia interface and
serial advanced technology attachment interfaces by licensing
its Internet protocol cores to companies providing advanced
system-on-a-chip solutions incorporating these interfaces.

SIMG - Silicon Image  $14.40

NOV 12.50 QSI-WV LB=2.40 OI=458 CB=12.00 DE=48 TY=2.6%


_________________________________________________________________

SYNA - Synaptics  $21.66

Synaptics (NASDAQ:SYNA) is a worldwide developer and supplier of
custom-designed user interface solutions for notebook computers.
The company's original equipment manufacturer customers include
ten large personal computer OEMs.  Synaptics generally supplies
its OEM customers through its contract manufacturers, which take
delivery of its products and pay the company directly for the
OEMs.  Synaptics family of product solutions include TouchPad,
TouchPad Under Plastic, TouchStyk, dual pointing solutions,
ClearPad, Spiral, QuickStroke, TouchPad with embedded Chinese
character recognition, Fingerprint TouchPad, TouchRing and
TouchScreen.

SYNA - Synaptics  $21.66

NOV 20.00 QYG-KD LB=2.45 OI=15 CB=19.21 DE=48 TY=2.6%


_________________________________________________________________

VRSN - VeriSign  $20.98

VeriSign (NASDAQ:VRSN) is a provider of critical infrastructure
services.  The company is organized into two service-based lines
of business: the Internet Services Group and the Communications
Services Group.  The Internet Services Group consists of the
Security Services business and the Naming and Directory Services
business.  The Communications Services Group provides Signaling
System 7 network services, intelligent database and directory
services, application services, and billing and payment services
to wireline and wireless telecommunications carriers.

VRSN - VeriSign  $20.98

NOV 20.00 QVR-KD LB=1.75 OI=940 CB=19.23 DE=48 TY=2.5%


_________________________________________________________________

TELK - Telik  $23.53

Telik (NASDAQ:TELK) is a biopharmaceutical company working to
discover, develop and commercialize small-molecule drugs to treat
serious diseases, including cancer and diabetes.  Among Telik's
most advanced product development programs is TLK286.  TLK286 is
a small-molecule tumor-activated cancer drug that the company is
evaluating initially to treat cancers which are resistant to
standard chemotherapy drugs.  Another advanced product, TLK199,
is a small-molecule bone marrow stimulant being developed for the
treatment of blood disorders associated with low white blood cell
levels.  TLK19781 is a proprietary, orally active small-molecule
insulin receptor activator for the potential treatment of Type II
diabetes and other conditions related to insulin resistance.

TELK - Telik  $23.53

NOV 20.00 ZUL-KD LB=4.30 OI=3 CB=19.23 DE=48 TY=2.5%





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

U.S. equities surged higher Friday amid favorable economic news
and renewed buying pressure in the semiconductor sector.

Analysts also noted the effects of "window dressing" on the major
averages, with new money being put to work by fund managers and
a pronounced asset allocation shift out of treasuries.  The Dow
Jones industrial average jumped 112 points to 10,192, with most
blue-chip components trading in the green.  The NASDAQ Composite
index soared 45 points to 1,942 with computer hardware, software,
disk drive, and networking shares among the best performers.  The
broader S&P 500 index added 16 points to end at 1,131 with almost
every market sector enjoying gains.  Volume was moderately higher
with 1.6 billion shares traded on the NYSE and 1.9 billion shares
changing hands on the NASDAQ.  Breadth was better than 2 to 1 on
both exchanges.  The bond market moved in opposition to equities.
The benchmark 10-year treasury closed down 16/32 to yield 4.18%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 10/01/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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  85.76  OCT  65.0  70.0  0.70   69.30   0.70   Open
RYL    88.15  92.89  OCT  75.0  80.0  0.75   79.25   0.75   Open
GIVN   38.72  38.98  OCT  30.0  35.0  0.70   34.30   0.70   Open
MBT   140.75 148.13  OCT 120.0 125.0  0.50   24.50   0.50   Open
COGN   34.58  36.67  OCT  30.0  32.5  0.30   32.20   0.30   Open
SCSC   66.22  66.56  OCT  55.0  60.0  0.50   59.50   0.50   Open
CCMP   38.29  37.47  OCT  30.0  35.0  0.75   34.25   0.75   Open
ONXX   41.99  42.57  OCT  30.0  35.0  0.50   34.50   0.50   Open
AHC    83.99  90.04  OCT  75.0  80.0  0.55   79.45   0.55   Open
CELG   59.39  58.88  OCT  50.0  55.0  0.55   54.45   0.55   Open
GDT    64.02  66.76  OCT  55.0  60.0  0.65   59.35   0.65   Open
PHM    63.70  61.63  OCT  55.0  60.0  0.60   59.40   0.60   Open
PD     90.48  93.63  OCT  80.0  85.0  0.50   84.50   0.50   Open
RTP   104.28 110.18  OCT  95.0 100.0  0.55   99.45   0.55   Open
PETD   43.63  43.72  OCT  35.0  40.0  0.45   39.55   0.45   Open
RIMM   76.98  73.80  OCT  60.0  65.0  0.40   64.60   0.40   Open

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

The position in Pulte Homes (NYSE:PHM) is on the "watch" list.


CALL-CREDIT SPREADS

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

AZO    74.06  77.05   OCT  85.0  80.0  0.55   80.55  0.55   Open
MXIM   40.94  43.74   OCT  50.0  45.0  0.50   45.50  0.50   Open?
PLMO   32.30  32.24   OCT  45.0  40.0  0.55   40.55  0.55   Open
LEN    46.75  47.60   OCT  55.0  50.0  0.60   50.60  0.60   Open
NTES   35.51  38.26   OCT  45.0  40.0  0.60   40.60  0.60   Open
NBIX   50.65  47.15   OCT  60.0  55.0  0.55   55.55  0.55   Open
SSP    49.66  48.25   OCT  52.5  50.0  0.50   50.50  0.50   Open
APOL   78.35  76.33   OCT  90.0  85.0  0.25   85.25  0.25   Open
STJ    70.73  74.98   OCT  80.0  75.0  0.55   75.55  0.55   Open?
APOL   72.00  76.33   OCT  85.0  80.0  0.45   80.45  0.45   Open
PRX    37.80  36.12   OCT  45.0  40.0  0.60   40.60  0.60   Open
CERN   42.99  44.61   OCT  50.0  45.0  0.50   45.50  0.50   Open?
IMCL   50.35  54.75   OCT  60.0  55.0  0.40   55.40  0.40   Open?
LLTC   35.71  37.54   OCT  40.0  37.5  0.30   37.80  0.26   Open?
LXK    81.50  86.48   OCT  90.0  85.0  0.65   85.65 (0.83) Closed
 
L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss

The recent upside activity in stocks suggests "early-exit" trades
in a number of positions including: Cerner (NASDAQ:CERN), ImClone
(NASDAQ:IMCL), Lexmark (NYSE:LXK), Linear Technology (NASDAQ:LLTC),
Maxim Integrated Products (NASDAQ:MXIM), and St. Jude (NYSE:STJ).
Netease.com (NASDAQ:NTES) remains on the "watch" list.


DEBIT STRADDLES

Stock   Pick   Last   Exp.   Long   Long  Initial   Max     Play
Symbol  Price  Price  Month  Call   Put    Debit   Value   Status

QLGC    29.12  31.54   OCT   30.0   30.0    2.40    2.35    Open


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

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

BSC - Bear Stearns  $94.16  *** New 2004 High! ***

The Bear Stearns Companies (NYSE:BSC) is an investment banking,
securities and derivatives trading, clearance and brokerage
firm.  It conducts its businesses through its broker-dealer and
bank subsidiaries: Bear, Stearns & Co., Bear, Stearns Securities,
Bear, Stearns International Limited, and Bear Stearns Bank plc.
BSSC provides professional and correspondent clearing services,
in addition to clearing and settling customer transactions of
the company.  Bear Stearns Companies also conducts activities
through other wholly owned subsidiaries.

BSC - Bear Stearns  $94.16

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-80.00  BSC-WP  OI=230   ASK=$0.50
SELL PUT  NOV-85.00  BSC-WQ  OI=1149  BID=$1.10
INITIAL NET-CREDIT TARGET=$0.65-$0.75
POTENTIAL PROFIT(max)=15% B/E=$84.35


__________________________________________________________________

PHS - Pacificare Health  $37.23  *** Recovery Underway! ***

Pacificare Health Systems (NYSE:PHS) offers managed care and
other health insurance products to employer groups and Medicare
beneficiaries, mainly in eight western states and Guam.  These
programs include health maintenance organizations, preferred
provider organizations and Medicare Supplement products.  The
firm also offers specialty managed care products and services
that employees can purchase as a supplement to basic commercial
and senior medical plans or as stand-alone products.  These
include pharmacy benefit management services, behavioral health
services, group life and health insurance and dental and vision
benefit plans.

PHS - Pacificare Health  $37.23

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-30.00  PHS-WF  OI=687   ASK=$0.40
SELL PUT  NOV-32.50  PHS-WZ  OI=492   BID=$0.70
INITIAL NET-CREDIT TARGET=$0.35-$0.40
POTENTIAL PROFIT(max)=16% B/E=$32.15



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

BEARISH PLAYS - CREDIT SPREADS

All of these positions are favorable candidates for "bear-call"
credit spreads, based on the current price or trading range of
the underlying issue and its recent technical history or trend.
The probability of profit from these positions may be higher
than other plays in the same strategy, due to disparities in
option pricing.  However, current news and market sentiment will
have an effect on these issues, so review each play individually
and make your own decision about its future outcome.

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

AMZN - Amazon.com  $40.47  *** Stuck In A Trading Range? ***

Amazon.com (NASDAQ:AMZN) is a website where customers can find
and discover anything they may want to buy online.  The company
lists millions of items in categories such as books, music, DVDs,
videos, consumer electronics, toys, camera and photo items, PC
software, computer and video games, tools and hardware, outdoor
living items, kitchen and house-wares products, toys, baby and
baby registry, travel services and magazine subscriptions.  At
its Amazon Marketplace, Auctions and zShops services, businesses
and individuals can sell virtually any product to millions of
customers, and with Amazon.com Payments, sellers are able to
accept credit card transactions in addition to other methods of
payment.  The company operates a U.S.-based Website: amazon.com,
and four internationally focused Websites: www.amazon.co.uk,
www.amazon.de, www.amazon.fr and www.amazon.co.jp.

AMZN - Amazon.com  $40.47

PLAY (conservative - bearish/credit spread):

BUY  CALL  NOV-50.00  ZQN-KJ  OI=638   ASK=$0.30
SELL CALL  NOV-45.00  ZQN-KI  OI=1228  BID=$0.90
INITIAL NET-CREDIT TARGET=$0.65-$0.75
POTENTIAL PROFIT(max)=15% B/E=$45.65


__________________________________________________________________

PDX - Pediatrix Medical Group  $55.00  *** Declining Revenues! ***

Pediatrix Medical Group (NYSE:PDX) is a healthcare services firm
focused on physician services for newborn, maternal-fetal and
other pediatric subspecialty care.  Its network of affiliated
physicians provide clinical care in 30 states and Puerto Rico,
primarily within hospital-based neonatal intensive care units
to babies born prematurely or with medical complications.  The
company's affiliated neonatal physician specialists staff and
manage clinical activities at more than 200 hospitals and its
81 affiliated maternal-fetal medicine sub-specialists provide
care to expectant mothers experiencing complicated pregnancies
in many areas where its affiliated neonatal physicians practice.

PDX - Pediatrix Medical Group  $55.00

PLAY (conservative - bearish/credit spread):

BUY  CALL  NOV-65.00  PDX-KM  OI=158  ASK=$0.35
SELL CALL  NOV-60.00  PDX-KL  OI=239  BID=$0.85
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$60.60



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

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

MDC - M.D.C. Holdings  $74.96  *** Earnings Speculation! ***

M.D.C. Holdings (NYSE:MDC) is primarily engaged in owning and
managing subsidiary companies that build and sell homes in the
United States under the name Richmond American Homes.  The
company conducts its homebuilding operations in Colorado,
Northern Virginia, suburban Maryland, Arizona, Nevada, and
California.  MDC also has a growing presence in Dallas/Fort
Worth and has entered the Houston, San Antonio, Philadelphia,
West Florida, Jacksonville and Chicago markets.  The company
also owns and manages HomeAmerican Mortgage Corporation, which
originates mortgage loans primarily for MDC's homebuyers.  In
addition, MDC provides title agency services through American
Home Title and Escrow Company to MDC homebuyers in Virginia,
Maryland and Colorado, and also offers third-party insurance
products through American Home Insurance Agency.  Earnings are
due on or about 10/12/04.

MDC - M.D.C. Holdings  $74.96

PLAY (very speculative - neutral/debit straddle):

BUY CALL  OCT-75.00  MDC-JO  OI=8378  ASK=$1.85
BUY PUT   OCT-75.00  MDC-VO  OI=141   ASK=$1.85
INITIAL NET-DEBIT TARGET=$3.40-$3.50
INITIAL TARGET PROFIT=$1.25-$1.90



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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 10/01/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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   16.47    0.40   7.19%   2.74%
FHRX     OCT    17.50   17.05   20.78    0.45   6.31%   2.64%
SNDK     OCT    22.50   22.00   30.42    0.50   5.86%   2.27%
SSYS     OCT    25.00   24.45   32.53    0.55   5.91%   2.25%
JNPR     OCT    22.50   22.00   23.92    0.50   5.73%   2.27%
CREE     OCT    22.50   22.15   31.24    0.35   5.28%   1.58%
FFIV     OCT    22.50   22.20   31.63    0.30   4.45%   1.35%
AMZN     OCT    37.50   37.00   40.47    0.50   3.96%   1.35%
ASKJ     OCT    25.00   24.45   33.47    0.55   7.42%   2.25%
USNA     OCT    30.00   29.30   35.59    0.70   6.10%   2.39%
YHOO     OCT    30.00   29.40   35.03    0.60   5.51%   2.04%
CELL     OCT    15.00   14.50   16.98    0.50   8.28%   3.45%
CREE     OCT    25.00   24.35   31.24    0.65   7.26%   2.67%
CLHB     OCT    10.00    9.75   11.70    0.25   7.98%   2.56%
PDII     OCT    25.00   24.45   28.02    0.55   6.98%   2.25%
GILD     OCT    35.00   34.35   37.69    0.65   5.61%   1.89%
BOBJ     OCT    20.00   19.65   24.18    0.35   5.73%   1.78%
ASTE     OCT    17.50   16.95   19.07    0.55   9.55%   3.24%
LCAV     OCT    25.00   24.35   26.55    0.65   7.97%   2.67%
ALO      OCT    17.50   17.10   19.85    0.40   7.17%   2.34%
FHRX     OCT    17.50   17.20   20.78    0.30   6.33%   1.74%
GNSS     OCT    12.50   12.20   13.99    0.30   8.02%   2.46%
NAVR     OCT    15.00   14.75   14.37   (0.38)  0.00%   1.69%
COGN     OCT    32.50   31.90   36.67    0.60   6.15%   1.88%
PSFT     OCT    17.50   17.20   22.83    0.30   6.15%   1.74%
LF       OCT    20.00   19.75   21.00    0.25   4.46%   1.27%
ATYT     OCT    15.00   14.75   16.06    0.25   5.90%   1.69%
YHOO     OCT    30.00   29.50   35.03    0.50   6.01%   1.69%
AGIX     OCT    12.50   11.75   32.93    0.75  21.96%   6.38%
DHB      OCT    12.00   11.60   14.52    0.40  14.91%   3.45%
INTV     OCT    10.00    9.70   11.49    0.30  12.10%   3.09%
NVTL     OCT    22.50   21.95   24.31    0.55  10.37%   2.51%
SFL      OCT    20.00   19.55   20.99    0.45   9.47%   2.30%
FHRX     OCT    17.50   17.15   20.78    0.35   8.94%   2.04%
PAAS     OCT    15.00   14.75   16.88    0.25   7.04%   1.69%
BLUD     OCT    20.00   19.75   25.78    0.25   6.52%   1.27%
AAPL     OCT    35.00   34.35   38.67    0.65   9.07%   1.89%
RIGL     OCT    22.50   21.85   25.36    0.65  13.86%   2.97%
CMTL     OCT    25.00   24.65   28.85    0.35   6.90%   1.42%
NABI     OCT    12.50   12.25   14.09    0.25   9.59%   2.04%
CREE     OCT    25.00   24.70   31.24    0.30   6.67%   1.21%
STLD     OCT    35.00   34.65   39.02    0.35   4.99%   1.01%
OMM      OCT    15.00   14.75   16.43    0.25   7.89%   1.69%

American Pharmaceutical Partners (NASDAQ:APPX), although now
a profitable position, has previously been closed to limit
potential losses.  Conservative traders should have exited
the Navarre (NASDAQ:NAVR) position after the recent slump.


NAKED CALLS

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

ESIO     OCT    22.50   23.00   17.75    0.50   6.99%   2.17%
LNCR     OCT    32.50   33.30   29.99    0.80   7.12%   2.40%
ADTN     OCT    30.00   30.30   23.18    0.30   3.79%   0.99%
DIGE     OCT    30.00   30.35   26.69    0.35   6.05%   1.15%
CTB      OCT    22.50   22.85   20.61    0.35   4.25%   1.53%
MDCO     OCT    30.00   30.80   24.60    0.80   8.33%   2.60%
CECO     OCT    40.00   40.50   29.58    0.50   6.34%   1.23%
CPRT     OCT    20.00   20.35   19.12    0.35   6.97%   1.72%
FLML     OCT    17.50   17.80   14.86    0.30  10.47%   1.69%
SSNC     OCT    20.00   20.35   20.70   (0.35)  0.00%   1.72%
USPI     OCT    35.00   35.65   33.37    0.65   6.36%   1.82%
BDY      OCT    22.50   22.90   20.31    0.40   7.63%   1.75%
PLMO     OCT    35.00   35.90   32.24    0.90  11.25%   2.51%
XLNX     OCT    30.00   30.25   28.56    0.25   4.46%   0.83%
APPX     OCT    30.00   30.50   27.23    0.50   8.60%   1.64%
ALTR     OCT    20.00   20.50   20.26    0.24   5.11%   2.44%
CYMI     OCT    30.00   30.40   30.87   (0.47)  0.00%   1.32%
TASR     OCT    45.00   45.35   38.22    0.35   8.19%   0.77%
STK      OCT    25.00   25.45   26.04   (0.59)  0.00%   1.77%
MERQ     OCT    35.00   35.50   36.88   (1.38)  0.00%   1.41%

A number of issues are candidates for early exit in the wake of
Friday's sharp rally.  Semiconductor stocks are among the most
obvious targets and they include: Altera (NASDAQ:ALTR), Mercury
Interactive (NASDAQ:MERQ), Storage Technology (NYSE:STK), Cymer
(NASDAQ:CYMI) and Xilinx (NASDAQ:XLNX).  The position in SS&C
Technologies (NASDAQ:SSNC) is also an early-exit candidate.
 
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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

SNDK   30.42  OCT 27.50  SWQ-VY 0.40 9327 27.10  13   3.5%   9.7%
RIGL   25.36  OCT 22.50  QRG-VX 0.30   35 22.20  13   3.2%   9.3%
YHOO   35.03  OCT 32.50  YHQ-VZ 0.40 33k+ 32.10  13   2.9%   7.9%
WRLS   10.92  NOV  7.50  QGW-WU 0.30   64  7.20  48   2.6%   7.7%
OSTK   38.86  OCT 35.00  QKT-VG 0.40 1201 34.60  13   2.7%   7.7%
NVTL   24.21  OCT 22.50  NVU-VX 0.25  255 22.25  13   2.6%   7.1%
SYNA   21.66  OCT 20.00  QYG-VD 0.20   12 19.80  13   2.4%   6.5%
SIMG   14.40  NOV 12.50  QSI-WV 0.40    1 12.10  48   2.1%   6.0%

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.
_________________________________________________________________

SNDK - SanDisk  $30.42  *** Strong Uptrend! ***

SanDisk (NASDAQ:SNDK) designs, manufactures, and markets flash
memory storage products that are used in a wide variety of 
electronic systems.  The company has designed its flash memory
storage solutions for applications in the consumer electronics
and industrial/communications markets.  The company's products
are used in a number of rapidly growing consumer electronics
applications, such as digital cameras, PDAs, portable digital
music players, digital video recorders and smart phones, as well
as in industrial and communications applications.  The company's
products include removable CompactFlash cards, MultiMediaCards,
FlashDisk cards, Secure Digital Cards, embedded FlashDrives and
Flash ChipSets.

SNDK - Sandisk  $30.42

OCT 27.50 SWQ-VY LB=0.40 OI=9327 CB=27.10 DE=13 TY=3.5% MY=9.7%


_________________________________________________________________

RIGL - Rigel Pharmaceuticals  $25.36  *** 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  $25.36

OCT 22.50 QRG-VX LB=0.30 OI=35 CB=22.20 DE=13 TY=3.2% MY=9.3%


_________________________________________________________________

YHOO - Yahoo!  $35.03  *** The Internet Giant! ***

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

YHOO - Yahoo!  $35.03

OCT 32.50 YHQ-VZ LB=0.40 OI=33949 CB=32.10 DE=13 TY=2.9% MY=7.9%


_________________________________________________________________

WRLS - Telular  $10.92  *** Entry Point? ***

Telular (NASDAQ:WRLS) designs, develops, manufactures and sells
products based on its interface technologies.  These products
provide the capability to connect standard telecommunications
equipment, including standard telephones, fax machines, data
modems and alarm panels, with wireless communication networks
in the cellular and personal communications service frequency
bands.  The company refers to this concept as Cellular Fixed
Wireless.  Addressing the needs of basic voice, fax, data and
security, Telular's business segments are divided across two
primary product lines: a line of fixed wireless phones and a
line of wireless security products.

WRLS - Telular  $10.92

NOV  7.50 QGW-WU LB=0.30 OI=64 CB=7.20 DE=48 TY=2.6% MY=7.7%


_________________________________________________________________

OSTK - Overstock.com  $38.86  *** Pure Premium-Selling! ***

Overstock.com (NASDAQ:OSTK) is an online retailer offering
discount, brand-name merchandise for sale primarily over the
Internet.  Its merchandise offerings include bed-and-bath goods,
kitchenware, watches, jewelry, electronics, sporting goods and
designer accessories.  The company also sells books, magazines,
CDs, DVDs, videocassettes and video games.  Overstock offers
its customers an opportunity to shop for bargains conveniently,
while providing suppliers an alternative inventory liquidation
distribution channel.  The company also offers travel services,
including airline tickets, hotel reservations and car rentals.

OSTK - Overstock.com  $38.86

OCT 35.00 QKT-VG LB=0.40 OI=1201 CB=34.60 DE=13 TY=2.7% MY=7.7%


_________________________________________________________________

NVTL - Novatel Wireless  $24.21  *** Bracing For A Rally? ***

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  $24.21

OCT 22.50 NVU-VX LB=0.25 OI=255 CB=22.25 DE=13 TY=2.6% MY=7.1%


_________________________________________________________________

SYNA - Synaptics  $21.66  *** Conservative Entry Point? ***

Synaptics (NASDAQ:SYNA) is a worldwide developer and supplier of
custom-designed user interface solutions for notebook computers.
The company's original equipment manufacturer customers include
ten large personal computer OEMs.  Synaptics generally supplies
its OEM customers through its contract manufacturers, which take
delivery of its products and pay the company directly for the
OEMs.  Synaptics family of product solutions include TouchPad,
TouchPad Under Plastic, TouchStyk, dual pointing solutions,
ClearPad, Spiral, QuickStroke, TouchPad with embedded Chinese
character recognition, Fingerprint TouchPad, TouchRing and
TouchScreen.

SYNA - Synaptics  $21.66

OCT 20.00 QYG-VD LB=0.20 OI=12 CB=19.80 DE=13 TY=2.4% MY=6.5% TS


_________________________________________________________________

SIMG - Silicon Image  $14.40  *** Technical Break-Out! ***

Silicon Image (NASDAQ:SIMG) offers multi-gigabit semiconductor
solutions for the transmission, storage and display of digital
media.  The company broadens market adoption of the digital
visual interface, high-definition multimedia interface and
serial advanced technology attachment interfaces by licensing
its Internet protocol cores to companies providing advanced
system-on-a-chip solutions incorporating these interfaces.

SIMG - Silicon Image  $14.40

NOV 12.50 QSI-WV LB=0.40 OI=1 CB=12.10 DE=48 TY=2.1% MY=6.0%



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

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.

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

ALD - Allied Capital  $24.68  *** In A Trading Range? ***

Allied Capital (NYSE:ALD) is a business development company
that provides long-term debt and equity investment capital
to companies in a variety of industries.  Its lending and
investment activity is generally focused on private finance
and commercial real estate finance, primarily the investment
in non-investment grade commercial mortgage-backed securities
and collateralized debt obligation bonds and preferred shares.
The company's private finance activity principally involves
providing financing through privately negotiated long-term
debt and equity investment capital.

ALD - Allied Capital  $24.68

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    ALD-JE    1080   0.20  25.20   5.2%   0.8% TS


_________________________________________________________________

CYBX - Cyberonics  $18.85  *** ANSI Withdraws Buyout Offer! ***

Cyberonics (NASDAQ:ANSI) designs, develops, manufactures and
markets the Cyberonics VNS (Vagus Nerve Stimulation) Therapy
System, an implantable medical device for the treatment of
epilepsy and other debilitating chronic disorders.  The VNS
Therapy System consists of the VNS Therapy Pulse Generator,
the Bipolar Lead, the programming wand and software and the
tunneling tool.  The company has been approved by the FDA to
market the VNS Therapy System in the United States, as an
adjunctive therapy for reducing the frequency of seizures in
patients over 12 years of age with partial onset seizures that
are refractory or resistant to drugs.

CYBX - Cyberonics  $18.85

"SPECULATIVE" 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    QAJ-JD    2731   0.40  20.40  14.9%   2.0%




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