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Daily Newsletter, Tuesday, 10/05/2004

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The Option Investor Newsletter                 Tuesday 10-05-2004
Copyright 2004, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Bowflex Bulls
Futures Markets: See Note
Index Trader Wrap: Make that about 50 million doses of flue vaccine
Market Sentiment: Weak Economics and Rising Oil


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      10-05-2004           High     Low     Volume   Adv/Dcl
DJIA    10177.68 + 38.90 10221.11 10158.07 1.76 bln 1579/1637
NASDAQ   1955.50 +  3.10  1960.90  1946.86 1.71 bln 1413/1729
S&P 100   544.48 -  0.26   546.17   543.13   Totals 2992/3366
S&P 500  1134.48 -  0.69  1137.87  1132.03 
SOX       404.57 -  0.43   408.53   399.48
RUS 2000  587.34 -  1.75   590.09   586.64
DJ TRANS 3335.60 + 17.00  3342.76  3310.28
VIX        13.95 +  0.54    14.19    13.51
VXO (VIX-O)13.27 +  1.22    13.92    13.20
VXN        20.02 +  0.41    20.26    19.59 
Total Volume 3,741M
Total UpVol  1,877M
Total DnVol  1,797M
Total Adv  3342
Total Dcl  3713
52wk Highs  401
52wk Lows    63
TRIN       1.44
NAZTRIN    0.54
PUT/CALL   0.84
************************************************************

Bowflex Bulls
by Jim Brown

Fresh off their Bowflex workout the bulls continue to hold
the indexes at their highs. Pumping iron would be an easy
task compared to holding up the Nasdaq at these levels but
the bulls are making it look easy. For two days the buyers
have refused to let the Nasdaq vary more than a ten point
range and support at 1950 is building.  

Dow Chart

 
Nasdaq Chart

 


Earnings warnings, high oil and negative economics failed
to weaken the six day old rally and more traders are now
wondering if the next move will be to bypass profit taking
and blaze higher. The bulls do not appear to be afraid of 
the calendar or the news. 

The negative economics began with the Challenger Layoff
report which showed job cut announcements surged to a 
new eight month high impacting 107,863 workers in Sept.
Also down were new hires with only 16,166 new job openings
compared to 132,105 in August. The layoffs were 41% more
than the level in September 2003. For the entire third
quarter there were 251,585 announced layoffs, +20% more
than the second quarter. Computers, transportation, telecom
and consumer products surged to twice as high as prior
months. Despite all the doom and gloom we need to remember
that job cuts increase towards the end of a quarter so 
this may not be a pattern that will continue. The general
consensus for the jobs report on Friday is for overall 
gains for September in the range of 160,000 jobs. 

The headline number on the ISM Services fell to 56.7 
for September from 58.2 in August. This was well below
the expected rise to 59.3. This was the second straight
month under the 60% level considered as decent growth. 
The headline number at 56.7 was the lowest level since
May-2003. New orders were flat and inventory fell slightly
but employment rose more than +2 points to 54.6. The 
strong employment component further suggests we could
have a decent jobs number on Friday. With the mixed
internals it is very hard to build a case for a strong
economy. It may still be expanding but the pace is 
continuing to slow. High energy prices continue to 
produce a drag on consumer spending and the service 
sector was not immune. 

The mixed messages from the Challenger Report and the
ISM put further emphasis on the Friday Jobs report. 
Coming just before the next presidential debate the
report will be key for the economic picture and both
candidates could find ammunition to use against the
other depending on the outcome. Also due out on Friday
is the revised estimates for the jobs for the last
quarter. These revisions could amount to a gain of
+288,000 additional jobs according to one analyst.
If the revision comes to pass as well as the +160,000
consensus estimate the Bush position would be much
stronger. Should we see a strong upward revision I
would not put it past Kerry to question administration
numbers and motives for announcing the data in advance
of the second debate. While we all know the revisions
are a matter of course each quarter the voting public
could easily be led astray by the apparent timing. 

Oil continued to rise and finally broke the mental $50 
barrier that has held us for a week and jumped to close
at $51.09. Despite the jump there was no material
impact to the equity markets. Impacting prices today
was a report that 25% of the Gulf of Mexico production
was still shut in due to hurricane damage. Wednesday
afternoon we will get the weekly oil and gas inventories
and a decline is again anticipated. Home heating oil
and natural gas prices are continuing to explode and
consumers are not going to be happy when holiday
shopping rolls around and wallets are empty. 

AMD warned today that revenue would be lower due to  
reduced sales in its flash memory business. Prior
guidance for a modest gain in Q3 was erased but they
did say earnings would be inline due to strength in
the processor business. Earnings are due out on 
Thursday and the stock was down only -2 cents in
regular trading. Intel gained +19 cents on the news
and closed at a new five week high. Current resistance
is the 50dma at 21.55 and August resistance at $22.

Pulte Homes got whipped for another -3.88 drop to $52
after warning that sales would be weaker due to a sales
slowdown in Las Vegas. The company said they raised 
prices too fast in Vegas with increases of up to +100%
in the last year. With the housing market so tight 
there homes were being bought months in advance of
being built. The feeding frenzy has cooled and PHM
was forced to cut prices about -$70,000 per home 
(-18%) to move inventory. Toll Brothers fired back 
today that growth was still expected to be +30% with
20% or more growth in 2006. They were also seeing -5%
cancellation rates in Vegas but felt it was consistent
with market averages. 

After the bell today Amerisource Bergen (ABC) warned
on revenue and earnings saying price increases were
less than expected. Delphi (DPH) warned that it would
post a larger than expected loss. Ford and GM said
they were cutting production for Q4 early last month.
Those production cuts and rising commodity prices
put the squeeze on Delphi. Zoran (ZRAN) warned after
the close that its chip sales for consumer electronic
devices would be less than expected. Open Text (OTEX)
fell -17% after warning as well. OPNET (OPNT) also
warned. Not everything was negative with RCKY and 
SALM guiding slightly higher. 

The earnings calendar begins to hspeed up as the 
week progresses and turns into a flood next week. For
Wed we have DNA, MON and WWW. Thursday sees the first
Dow component report with Alcoa, who has already warned,
and AMD, AMHC, COST, MAR and ATYT. With Friday's Jobs
report we will also get earnings from GE. Next week
more than 250 companies report and although we have
seen some warnings this week it has been much less
than most analysts expected. This lack of news could
be giving the markets additional lift as investors
begin to build on hopes that Q3 is not going to be 
as bad as originally thought. 

After two very strong days of gap open surges we saw
Tuesday turn into a consolidation day for the Dow. The
Dow support is currently 10167 and the 100dma and we 
held there all afternoon. This 10167 level is right in
the middle of the range we have seen over the last two 
months. This is neither a bullish or bearish level and
should be considered a neutral zone as we face the 
typical October challenges. The upper side of this
neutral zone is strong resistance at 10300-10350. The
200dma awaits at 10298 along with downtrend resistance
from January. 

The Nasdaq is much stronger with the bounce to 1960
holding despite numerous tech warnings still appearing.
The AMD warning failed to produce any negativity and
the mixed economics caused barely a blip. As long as
the SOX remains over 400 the tech bulls do not need to
worry about protecting their flanks. Tech investors see
that SOX strength and become encouraged. The SOX has
put in higher highs and lows since the bottom at 350
in September and with the historical end of October
rebound ahead nobody is taking profits. The Nasdaq
is chipping away at the 200dma resistance at 1965
and any good news could easily break through that 
level.

The VP debate hits the airwaves tonight and Cheney 
will try to repair some of the problems created
by Bush last week. Cheney is a strong public speaker
but as a trial lawyer so is Edwards. Odds are good we
will see a verbal brawl and the outcome is far from 
assumed. Tomorrow we have no material economic reports
but will have to deal with oil inventories at 10:30. 
The markets need to hold their gains for the rest of 
the week to put bearish fears to rest. It may not be
an easy task with economics intensifying on Thursday
and Jobs on Friday but it is possible. The bulls 
climbed a significant wall of worry to get here and
they are enjoying a well deserved rest but loftier 
heights await. 

Enter Passively, Exit Aggressively. 

Jim Brown
Editor

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

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


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

Make that about 50 million doses of flue vaccine

On September 24, the Centers for Disease Control and Prevention 
(CDC) said it thought about 100 million doses of influenza 
vaccine would be available this year in the United States.

The CDC noted that Chiron (NASDAQ:CHIR) $37.98 -16.38% had 
reported a delay in their vaccine delivery schedule, but the CDC, 
as well as Chiron, expected to distribute about 47 million total 
Fluvirin doses this year (2004) plus 2 million doses to the CDC 
stockpile.

However, today's news from British health officials that Chiron's 
Fluvirin manufacturing license had been suspended, cuts in half 
this year's expected 100 million doses of influenza vaccine as 
flu season is about to begin.

According to Chiron officials, practically all of the 48 million 
doses slated for the United States had already been manufactured 
at its Liverpool manufacturing facility when the Medicines and 
Healthcare Products Regulatory Agency (MHRA), which is Britain's 
equivalent of the U.S. Food and Drug Administration (FDA) yanked 
Chiron's license to manufacture and ship the Fluvirin vaccine.

Sanofi-Aventis (NYSE:SNY) $37.14 +0.97% has already shipped some 
vaccine and reports no delays in vaccine deliver, and is expected 
to deliver about 20 million doses of its flu vaccine by 
September, and an additional 32 million doses in October.  In 
January of this year, shares of SNY surged to as high as $40 when 
children began dying from the flu virus.  Sanofi-Aventis' 
Aventise (NYSE:AVE) $86.00 +1.39% subsidiary, of which 5% of its 
shares are publicly trades, was up $1.18.

MedImmune (NASDAQ:MEDI) $25.78 +5.78% jumped $1.41 in today's 
session on the Chiron news.  According to the CDC's latest 
"Influenza Vaccine Bulletin #3," MedImmune expects to deliver all 
of its 1.5 million doses of preservative-free intranasal vaccine 
(FluMist) in October.

One item of note that I would make as a trader/investor and 
PARENTS today is a note from the CDC's website 
(http://www.cdc.gov) and its "Influenza Vaccine Bulletin #3."  

Bulletin #3:  CDC has legislative authority through the Vaccines 
for Children (VFC) program to purchase influenza vaccine for a 
national stockpile program for children through 18 years of age.  
Influenza vaccine is being stockpiled by the CDC to ensure 
sufficient supply in case of a shortage like the one experienced 
this past winter.  4.5 million doses will be purchased for the 
stockpile this year. Stockpiled vaccine may be made available 
directly to state immunization programs through the VFC program 
without additional cost to the programs, or manufacturers may 
“borrow against” the stockpile for non-VFC populations.  
Influenza vaccine for non-VFC populations will not be free of 
cost to vaccine providers.

It would appear to me (Jeff Bailey) that the CDC is/was preparing 
for what many believe could be a rather nasty flu season, and 
today's news out of Britain most likely halves many of the 
figures that had been posted on the CDC's web page on September 
24, 2004.

I (Jeff Bailey) would by no means predict a major outbreak of 
flue, but should the number of flue outbreaks begin to mount in 
the months to come, it should not be a surprise that negative 
market psychology brought on by "fear" could present itself in 
the months to come.

U.S. Market Watch - 10/05/04 Close

 

Today's session was mixed, where weakness in the Biotechnology 
Index (BTK.X) 529.43 -1.25% was greatly attributed to Chiron's 
16.49% decline.

Genentech (NASDAQ:DNA) $51.13 -5.29% fell back below its trending 
higher 200-day SMA ($52.05) after the company issued a press 
release Monday evening that it had received a subpoena from the 
U.S. Attorney General's Office.  The investigation relates to the 
marketing of Rituxan, a treatment for non-Hodgkins lymphoma, a 
blood cancer.  Rituxan is sold through a joint venture between 
Genentech and Biogen-Idec (NASDAQ:BIIB) $61.81 -1.0%, and had 
sales of about $1.5 billion in 2003.

The S&P Insurance Index ($IUX.X) 315.03 -1.37% was weighed lower, 
as was the Dow Industrials (INDU) 10,177 -0.38%, as American 
Intl. Group (NYSE:AIG) $66.50 -2.9% traded back toward three-
month lows when the SEC and the Justice Department said they are 
still unhappy with how the company worded its press releases over 
some ongoing probes.  The SEC said it may bring civil action 
against the company for its alleged role in helping PNC Financial 
Services Group (NYSE:PNC) $54.95 -1.41% hide bad loans.

Hospitals may have gotten a boost with the Morgan Stanley Health 
Provider Index (RXH.X) 347.68 +0.94% closing at a 2-month high.  
Triad Hospitals (NYSE:TRI) $34.91 +2.91%, Community Health 
(NYSE:CYH) $27.86 +2.35% and HCA Inc. (NYSE:HCA) $38.41 +1.99% 
were atop the percentage gainers list.  While not mentioning any 
names, Piper Jaffray posed a potentially bullish scenario for the 
group. (See today's 03:15 PM EDT Update).

According to Dorsey/Wright and Associates, they group many of the 
RXH.X components (TRI, CYH, HCA, DVA, HMA, LPNT, SRZ, UHS, AHG, 
LNCR, RCI, THC, OCR and HCR) as belonging to their Healthcare 
Bullish % (BPHEAL), which is currently in "bear correction" 
status at 44.25% bullish having reversed up from "bear confirmed" 
status at 32% in August.  It would currently take a reading of 
76% to achieve "bull confirmed" status, where in January, this 
sector bullish % topped out at 74%.

Stocks that I think look compelling for bullish consideration 
that have a "hospital flavor" would be TRI, CYH and HMA. 

The CBOE Oil Index (OIX.X) 401.49 +1.26% and Natural Gas Index 
(XNG.X) 275.01 +1.42% were bullish standouts in today's session, 
where we'll get updated weekly energy inventory data tomorrow.  

November Crude Oil futures (cl04x) settled above the $51.00 level 
and another record contract high, where bulls bought to the close 
after the Minerals Management Service released its daily report 
showing roughly 1.7 million barrels of oil production per day 
from the Gulf of Mexico is still shut in after recent hurricane 
activity.  

The AMEX Gold Bugs Index ($HUI.X) 232.68 +3.05% snapped back from 
Monday's declines after China said it would take its time in 
letting its currency float against the dollar.

Pulte Homes (NYSE:PHM) $52.45 -6.88% found buyers at its rising 
200-day SMA ($51.94) to close off its lows of $51.25, but lead 
declines for the Dow Jones Home Construction Index (DJUSHB) 
618.45 -2.06%.

Market Snapshot / Internals - 10/05/04 Close

 

Volumes were brisk again today, with the NASDAQ churning a rather 
impressive 1.7 billion shares.  I say "impressive" as average 
daily volume for the NASDAQ during the month of September was 
just over 1.28 billion, and with three days of trading completed 
in October, NASDAQ's running a more robust 1.80 billion share per 
day average.  

Sirius Satellite Radio (NASDAQ:SIRI) $3.35 +3.39% challenges 
Friday's 5-month high of $3.35 at today's close, and was the most 
heavily traded stock on building volume of 72.17 million shares.

The Semiconductor Index (SOX.X) 404.58 -0.11% tries to find a 
footing at 400.00, where Intel (NASDAQ:INTC) $21.31 approaches 
its trending lower 50-day SMA ($21.56) on consistent volume of 
72.08 million shares.

Treasuries were little changed, and commentary from Alan 
Greenspan at the American Bankers Association Annual Convention 
in New York had Treasury bond traders little moved.

Pivot Matrix - 

 

Of the major indices covered in the Pivot Matrix, only the Dow 
Industrials (INDU) and S&P 100 Index (OEX.X) reside below their 
respective 200-day SMA's of 10,300 (see MONTHLY R1) and 548 (see 
WEEKLY R1).

Correlative support for the INDU looks important at DAILY S2 and 
WEEKLY Pivot, where today's rise in the Market Volatility Index 
(VIX.X) 13.95 +4.02% above its WEEKLY Pivot has me looking at 
today's most actively traded SPX options, where the Dec. 1,100, 
Oct. 1,025, Dec. 1,125 and Dec. 1,050 puts were the top 5 most 
actively traded.

Both the Oct. 1,025 and Dec. 1,050 are way out the money, 
especially the Oct. 1,025 with expiration so near, and either 
that's a bunch of closing out of options (8,358 vs. 75,519 OI), 
or some bearish speculators looking for some type of "premium 
pop" on a speculative $0.25 per contract.

Dow Industrials (INDU) Chart - Daily Intervals

 

The INDU is notably underperforming the other major averages of 
late, thanks in large part to Merck (NYSE:MRK).  Smaller priced 
components of this price-weighted index have been seeing some 
gains, but without Caterpillar (NYSE:CAT) the INDU most likely 
sits on or below its 50-day SMA.

American Intl. Group (NYSE:AIG) $66.50 -2.90% is one of the top 5 
price components and becomes a stock that Dow index traders need 
to be monitoring.  

Jeff Bailey


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

Weak Economics and Rising Oil
- J. Brown

What's on investors' minds these days?  Record high oil prices is 
a hot topic.  Light sweet crude close at $51.09 - an all-time 
record.  A few weeks ago people were worried about $50 a barrel.  
Now the talk is $60 a barrel.  This isn't good news for our 
economic recovery and it's not good news for consumers, 
businesses and future earnings numbers.  

Less than inspiring economic data this morning didn't help 
matters.  The ISM services index slipped to 56.7 percent in 
September, down from economists' expectations and the August 
reading at 59.0.  Of course it's all about interpretation.  Any 
reading over 50 is technically bullish because it represents 
economic growth and expansion.  

The planned corporate job cuts report from Challenger, Gray and 
Christmas did not do much to inspire investors either.  The 
latest data out this morning shows that American businesses plan 
to cut over 107,000 jobs over the next few months compared to 
just 74,000 in August.  Some see the Challenger report as a 
leading indicator for this Friday's non-farm payrolls (jobs) 
report.  

Another round of earnings warnings may be taking the wind out of 
the bulls' sails as well.  On Monday it was homebuilder Pulte 
(PHM) who issued a warning and sent the entire sector lower.  
Today it was yet another semiconductor stock, this time AMD, who 
warned for the third quarter.  The Q3 earnings season begins on 
Thursday with Alcoa and Friday with General Electric. 

If you follow the ARMS index or short-term trading index you may 
notice that the 5-day moving average is sporting a very bearish 
reading at 0.68.  Normally readings under 0.85 are consider 
bearish.  

Look for oil to hog the spotlight again tomorrow.  Wall Street 
will be waiting for the latest crude oil inventories numbers.  
Plus, there's always a chance that Fed Governors Poole or Hoenig 
may say something interesting as both speak at separate events 
tomorrow.  Last but not least if there is any lack of news 
tomorrow the media is likely to fill it with recaps and analysis 
of the vice-presidential debate tonight.



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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  9230
Current     : 10177

Moving Averages:
(Simple)

 10-dma: 10106
 50-dma: 10121 
200-dma: 10298



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  990
Current     : 1134

Moving Averages:
(Simple)

 10-dma: 1117
 50-dma: 1104
200-dma: 1119



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1301
Current     : 1461

Moving Averages:
(Simple)

 10-dma: 1418
 50-dma: 1385
200-dma: 1441



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

CBOE Market Volatility Index (VIX) = 13.95 +0.54
CBOE Mkt Volatility old VIX  (VXO) = 13.27 +0.16
Nasdaq Volatility Index (VXN)      = 20.02 +0.41


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.83        849,417       709,061
Equity Only    0.67        740,807       497,794
OEX            1.48         19,754        29,358
QQQ            4.27          9,069        38,720


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

Bullish Percent Data

           Current   Change   Status
NYSE          66.2    + 1     Bear Correction
NASDAQ-100    47.0    + 3     Bull Alert      
Dow Indust.   60.0    + 3.6   Bear Correction
S&P 500       64.4    + 1.8   Bear Correction
S&P 100       63.0    + 1     Bear Correction


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

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


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

 5-dma: 0.68
10-dma: 1.07
21-dma: 1.97
55-dma: 1.12


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    1344      1359
Decliners    1467      1663

New Highs     185        70
New Lows       12        26

Up Volume    682M      967M
Down Vol.   1051M      685M

Total Vol.  1751M     1693M
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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The Option Investor Newsletter                  Tuesday 10-05-2004
Copyright 2004, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None	
Dropped Puts: PRX
Call Play Updates: CMI, GDW, GIVN, KMRT, LMT, MHK, OSIP
New Calls Plays: See Note
Put Play Updates: LLY, FLIR, MMM, SEPR, 
New Put Plays: See note


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

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


CALLS:
*****

None


PUTS:
*****

Par Pharma. Co - PRX - close: 36.61 chg: +0.06 stop: 37.25          

Believe it or not PRX is starting to trend higher.  Shares are 
still stuck within the current range but there is a mild up trend 
of higher lows and higher highs in the last few sessions.  It was 
today's higher high at $37.25 that hit our stop loss to exit.  If 
you remain bearish on the stock look for a failed rally under $40 
or a new low under $35.50.

Picked on September 21 at $37.80
Change since picked:      - 1.19 
Earnings Date           07/19/04 (confirmed)
Average Daily Volume =       743 thousand
Chart =



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

Cummins Inc - CMI - close: 74.99 change: -0.10 stop: 69.99     

The action in CMI is very similar to what's happening in the 
Industrials.  Shares spiked up on Monday with the market and 
churned sideways today as the Industrials slowly drifted lower.  
Remember that CMI has already achieved our early target of $75.00 
and we're holding on to see if the diesel maker can reach $77.50.  
If CMI trades at $77.50 we will close the play.  

Picked on September 19 at $70.99
Change since picked:      + 4.00
Earnings Date           07/23/04 (confirmed)
Average Daily Volume =       724 thousand
Chart =


---

Golden West Financial - GDW - cls: 111.96 chg: -0.76 stop: 108.99

We are seeing similar action in GDW.  The stock popped higher on 
Monday morning with strength in the major indices.  Unfortunately 
for GDW the stock has slowly consolidated lower since Monday's 
highs.  There was a little bit of a bounce Tuesday afternoon but 
not much.  We were suggesting readers look for a bounce from $111 
as a new entry point but the lowest GDW hit was $111.66.  Patient 
traders can still wait for a dip to $111.  No change in our stop.

Picked on September 30 at $110.95
Change since picked:       + 1.01
Earnings Date            07/20/04 (confirmed)
Average Daily Volume =        512 thousand
Chart =


---

Given Imaging - GIVN - close: 42.15 change: +0.89 stop: 37.00

We added GIVN to the call list on Monday after its high-volume 
breakout over major resistance at $40.00.  Shares saw some follow 
through this morning before experiencing some midday profit 
taking.  Fortunately, traders bought the dip and GIVN ended the 
session on a positive note.  Shares still look poised to run 
higher but there is a chance that GIVN will test the $40 level 
again and patient traders can wait for the dip.

Picked on October 04 at $41.26
Change since picked:    + 0.89
Earnings Date         10/27/04 (unconfirmed)
Average Daily Volume =     247 thousand
Chart =


---

Kmart Holdings - KMRT - close: 89.20 chg: -1.33 stop: 84.99

We added KMRT to the play list on Monday night after its above-
average volume breakout over round-number resistance at $90.00.  
Unfortunately, the stock is not off to a strong start.  Instead 
KMRT slipped 1.4 percent compared to a 0.4 percent decline in the 
RLX today.  If the dip continues look for a bounce from $87.50 as 
a potential entry point although we'd prefer to only consider 
longs with KMRT above the $90.00 mark.

Picked on October 04 at $90.53
Change since picked:    - 1.33
Earnings Date         08/16/04 (confirmed)
Average Daily Volume =     2.7 million 
Chart =


---

Lockheed Martin - LMT - close: 56.52 change: -0.08 stop: 53.50

It's been a big week for LMT so far.  Yesterday the company 
announced that it had won a $625 million contract to develop 
radars for the Medium Extended Air Defense System (MEADS), an 
international air defense program (source: LMT).  Incidentally 
the DFI defense index hit new all-time highs on Monday while LMT 
hit new multi-year highs.  Dips to $56 continue to look like 
entry points for bullish plays.

Picked on October 01 at $56.01
Change since picked:    + 0.51
Earnings Date         07/27/04 (confirmed)
Average Daily Volume =     1.7 million 
Chart =


---

Mohawk Industries - MHK - cls: 79.69 chg: -0.58 stop: 77.99

We're not happy with the action in MHK and its decline under 
round-number support/resistance at $80.00 but in reality things 
could be worse.  PHM's earnings warning on Monday undermined the 
entire homebuilding sector and some of the ancillary industries 
(like flooring).  MHK dipped this morning but rebounded back 
toward $81.00 before slipping again.  There is a tug of war going 
on between bulls and bears here but we're not giving up on the 
bulls although we probably would not consider new long until MHK 
traded above today's high at $80.85.

Picked on October 03 at $80.35
Change since picked:    - 0.66
Earnings Date         10/21/04 (confirmed)
Average Daily Volume =     355 thousand
Chart =


---

OSI Pharma - OSIP - close: 63.14 change: -0.31 stop: 59.99

Wow!  The volatility in OSIP is just amazing.  Okay we're 
kidding. OSIP has been trading sideways this week and might 
retest support at the $60 level.  Keep an eye on the stock and 
consider buying another dip (or bounce) from the $60.25-60.50 
range.  We remain bullish despite today's weakness in the BTK 
biotech index.

Picked on October 03 at $63.45
Change since picked:    - 0.31
Earnings Date         08/10/04 (confirmed)
Average Daily Volume =     1.6 million 
Chart =



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

- Please see tonight's watch list for possible play candidates


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

Eli Lilly & Co - LLY - close: 62.01 chg: +0.45 stop: 62.51     

Heads up!  It may be time to exit LLY.  The action on Monday with 
its early high to $62.38 and its roll over back under $62 looked 
like a failed rally to end the oversold bounce.  Today's gain and 
close over $62 may have changed that.  LLY is still finding minor 
resistance near $62.35 near its simple 10-dma but it may not hold 
for long.  Our stop is at $62.51 so we're not too worried but 
more conservative traders may want to exit early if you didn't 
exit near $60 back on Thursday.  

Picked on September 22 at $63.92
Change since picked:      - 1.91
Earnings Date           07/22/04 (confirmed)
Average Daily Volume =       3.1 million 
Chart =


---

FLIR Systems - FLIR - close: 59.98 chg: +0.48 stop: 62.51

FLIR is not cooperating very well.  The stock is trying to 
rebound back over the $60 level.  So far it has been unsuccessful 
and that's the good news.  Plus, we're encouraged to see that 
today's bounce was on low volume compared to the recent declines.  
This may be nothing more than a new entry point to open bearish 
positions but look for some downward momentum like a drop under 
the $59.00 level.  

Picked on September 29 at $59.35
Change since picked:      + 0.63
Earnings Date           07/22/04 (confirmed)
Average Daily Volume =       577 thousand
Chart =


---

3M Co - MMM - close: 78.76 change: -0.18 stop: 80.75*new*

MMM is at a pivotal level.  The stock continued Friday's failed 
rally and turned lower on Monday despite the market's bullish 
tone.  Today shares dipped toward $78 before investors stepped in 
to buy the dip.  It's no coincidence that the low was near its 
rising trendline of support.  This may be as close as we get to 
our initial target at $77.50 or it may be a pause on the way 
down. That's why we're willing to keep the play open.  However, 
we are going to lower our stop loss to $80.75, which was Friday's 
high mark.  We are not suggesting new positions at this time.
 
Picked on September 15 at $82.00
Change since picked:      - 3.24
Earnings Date           07/19/04 (confirmed)
Average Daily Volume =       2.5 million 
Chart =


---

Sepracor Inc - SEPR - close: 47.67 chg: -1.06 stop: 52.01

Excellent.  The recent bounce looks like nothing more than a 
failed rally under resistance at $50.00.  Readers can use today's 
weakness as a new entry point to bearish plays.  We are targeting 
the simple and exponential 200-dma's near $43.00.  No change in 
our stop loss but more conservative types may want to consider 
something tighter near the $50 mark.

Picked on September 22 at $48.94
Change since picked:      - 1.27
Earnings Date           07/13/04 (confirmed)
Average Daily Volume =       1.8 million 
Chart =



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

- Please see tonight's watch list for possible play candidates


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**********

Please read our disclaimer at:
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The Option Investor Newsletter                  Tuesday 10-05-2004
Copyright 2004, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Watch List: Breakdowns to pending breakouts
Spreads & Straddles: A Day Of Consolidation...
Premium Selling Plays: Naked Puts & Calls


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

Breakdowns to pending breakouts

___________________________________________________________________

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.
___________________________________________________________________



Respironics - RESP - close: 49.17 change: -1.96

WHAT TO WATCH: We had RESP on the watch list a week ago for a 
possible breakdown under major support at $50.00.  We got that 
breakdown today with a 3.8 percent drop on above average volume.  
The move was sparked by a broker downgrade.  This looks like an 
entry point to initiate new bearish positions with a short-term 
target of $45.00.  However, we suggest caution as option volume 
on the November puts is pretty low.

Chart=


---

Henry Schein - HSIC - close: 59.64 change: -4.25

WHAT TO WATCH: We also had HSIC on the watch list a week ago for 
a breakdown under major support at the $60.00 mark.  That 
breakdown occurred today with a 6.6 percent drop on huge volume.  
The move is related to CHIR's news that it will not be supplying 
any flu vaccines to the U.S. this year.  HSIC is the major 
distributor for CHIR's vaccines into the U.S. so naturally this 
will impact earnings.  We want to buy puts but we don't like the 
bounce from today's lows.  Look for some confirmation before 
initiating new plays.  The P&F chart currently points to a $54 
target.  

Chart=


---

Knight-Ridder - KRI - close: 66.75 change: +0.60

WHAT TO WATCH: KRI is looking bullish with its August-September 
trend of higher lows.  Plus the stock is bouncing from a test of 
round-number support at $65.  Technical indicators are bullish 
and its P&F chart has reversed into a new buy signal with a $76 
target.  Bullish traders can go long but watch for resistance at 
the 100-dma and the exponential 200-dma.  The 200-ema is just 
under the $70 mark. 

Chart=


---

Timberland Co - TBL - close: 59.30 change: +0.64

WHAT TO WATCH: The recent consolidation in shares of TBL is 
turning bullish.  The stock just broke out over its simple 200-
dma while its short-term technicals (RSI and stochastics) have 
turned positive.  Watch for a breakout over its 100-dma and the 
$60.00 mark as a potential entry point to go long.  We would 
target the $64-65 region. 

Chart=



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

AVE $86.00 +1.18 - French drugmaker AVE isn't seeing any 
weakness.  The stock just hit another new high over round-number 
resistance at $85.

LEH $80.52 +0.54 - The stock looks a bit extended on the weekly 
chart but on the intraday LEH looks ready to rebound from the $80 
level. 

LLTC $37.55 -0.24 - Will semiconductor maker LLTC roll over under 
its simple 200-dma for the sixth time in six months?

ERTS $45.33 +0.50 - We're still watching for a drop under $44.50.

CI $71.43 +0.58 - More aggressive traders may want to buy a 
bounce from $70.


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Personal Service and Education


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http://www.OneStopOption.com

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


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

A Day Of Consolidation...
By Ray Cummins

Concerns over the record cost of oil and unfavorable employment
data conspired to keep buyers on the sidelines during Tuesday's
session.

The Dow Jones Industrial Average ended down 38 points at 10,177,
with Hewlett-Packard (NYSE:HPQ) among the bearish components on
news of a JP Morgan Securities downgrade.  The NASDAQ Composite
Index was up 3 points at 1,955 on mild buying pressure in select
hi-tech groups.  The S&P 500 index closed virtually unchanged as
losses in homebuilding, retail apparel, insurance, airlines and
aluminum shares offset gains in gold and oil-related issues.  In
the broader markets, advancers and decliners ended roughly even,
while losers barely outpaced winners on the technology exchange.
Trading volume was 1.41 billion on the Big Board and 1.7 billion
on the NASDAQ.  Treasury prices ended mixed, with most investors
reluctant to take firm positions before Friday's key employment
report.  The benchmark 10-year note slipped 2/32 to yield 4.17%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 10/03/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


PUT-CREDIT SPREADS

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

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

Special Tuesday Note: The "watch-list" position in Pulte Homes
(NYSE:PHM) was closed Monday after the company's stock price
slumped on news of declining profits.  Pulte said it expects
third-quarter earnings from continuing operations of $1.95 to
$2.05 a share, down from previous guidance.  Our other spread
in the group, Ryland (NYSE:RYL), has more room for a downside
move but we will be monitoring the issue closely in the coming
week.


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  30.55   OCT   30.0   30.0    2.40    2.35    Open
MDC     74.96  70.00   OCT   75.0   75.0    3.50    7.00    Open?

Special Tuesday Note: Our new straddle in MDC Holdings (NYSE:MDC)
was a "big winner" after only one session.  Share values in the
home construction segment plummeted after Pulte Homes (NYSE:PHM)
posted the group's first bad news in months.  Pulte reported it
expects lower third-quarter sales due to consumer resistance to
price increases.  That doesn't bode well for other stocks in the
group and although MDC Holdings announced favorable earnings, the
company's stock slid on speculation that it could not "maintain"
home prices in the coming months.

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

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

BTU - Peabody Energy  $60.07  *** Energy Sector Hedge ***

Peabody Energy (NYSE:BTU) is a private-sector coal company that
owns, through its subsidiaries, majority interests in 29 coal
operations located throughout the coal-producing regions in the
United States and in Australia.  Most of its production in the
western United States is low-sulfur coal from the Powder River
Basin.  The company also owns and operates mines in Arizona,
Colorado, New Mexico, Wyoming, Illinois, Indiana, Kentucky and
West Virginia.  In addition, it owns one mine in Australia.

BTU - Peabody Energy  $60.07

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-50.00  BTU-WJ  OI=8    ASK=$0.25
SELL PUT  NOV-55.00  BTU-WK  OI=147  BID=$0.80
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$54.40


__________________________________________________________________

MRVL - Marvell Technology  $28.84  *** New Trading Range? ***

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

MRVL - Marvell Technology  $28.84

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-22.50  UVM-WX  OI=4249  ASK=$0.40
SELL PUT  NOV-25.00  UVM-WE  OI=4231  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.35-$0.40
POTENTIAL PROFIT(max)=16% B/E=$24.65



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

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.

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

BZH - Beazer Homes  $103.14  *** Sector Slump! ***

Beazer Homes USA (NYSE:BZH) designs, builds and sells single family
homes in the following locations within the United States: Florida,
Georgia, North Carolina, South Carolina, Tennessee, Arizona, Nevada,
California, Colorado, Texas, Maryland, New Jersey/Pennsylvania and
Virginia.  Beezer designs its homes to appeal mainly to entry-level
and first time "move-up" homebuyers.  The company's objective is to
provide its customers with homes that incorporate quality and value
while seeking to maximize its return on invested capital.

BZH - Beazer Homes  $103.14

PLAY (aggressive - bearish/credit spread):

BUY  CALL  NOV-115.00  BZH-KC  OI=1143  ASK=$0.80
SELL CALL  NOV-110.00  BZH-KB  OI=1433  BID=$1.90
INITIAL NET-CREDIT TARGET=$1.10-$1.20
POTENTIAL PROFIT(max)=28% B/E=$111.10


__________________________________________________________________

CHIR - Chiron  $37.98  *** Production Problems In The UK! ***

Chiron (NASDAQ:CHIR) is a global pharmaceutical company focused
on developing products for cancer and infectious diseases.  The
firm commercializes its products through three business units:
blood testing, vaccines and biopharmaceuticals.  Chiron Blood
Testing develops and commercializes a range of blood safety
products utilized by the blood banking and transfusion medicine
industry.  Chiron Vaccines offers more than 30 vaccines such as
flu, meningococcal, travel and also pediatric vaccines.  Chiron
Biopharmaceuticals discovers, develops, manufactures and sells
a range of therapeutic products.

CHIR - Chiron  $37.98

PLAY (conservative - bearish/credit spread):

BUY  CALL  NOV-45.00  CIQ-KI  OI=1033  ASK=$0.45
SELL CALL  NOV-42.50  CIQ-KV  OI=46    BID=$0.70
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$42.80



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

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

No straddles or strangles today...

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

SEE DISCLAIMER - SECTION 1

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


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

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 10/03/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE

The Maximum Yield (listed in the summary and with "naked" option
selling plays) is the greatest possible profit available in the
position.  This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations.  Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The "Simple Yield" is based on the cost of the underlying issue
(in the event of assignment), including the premium from the sold
option, thus it reflects the maximum potential loss in the trade.
  
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
 
NAKED PUTS

Stock   Strike  Strike  Cost   Current   Gain    Max    Simple
Symbol  Month   Price   Basis   Price   (Loss)  Yield   Yield

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

MEDI   25.78  OCT 25.00  MEQ-VE 0.30 2263 24.70  10   3.7%   9.3%
LNG    21.85  NOV 20.00  LNG-WD 0.80  100 19.20  46   2.8%   6.9%
IDBE   14.59  NOV 12.50  OO-WV  0.35  295 12.15  46   1.9%   5.7%
DITC   24.94  NOV 20.00  QZD-WD 0.45   83 19.55  46   1.5%   5.4%
KYPH   25.54  NOV 22.50  QYQ-WX 0.60    0 21.90  46   1.8%   5.1%
WEBX   23.95  NOV 20.00  UWB-WD 0.35 2593 19.65  46   1.2%   3.9%
HTCH   34.09  NOV 30.00  UTQ-WF 0.45  166 29.55  46   1.0%   3.0%

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.
_________________________________________________________________

MEDI - MedImmune  $25.78  *** CHIR's Loss = MEDI's Gain! ***

MedImmune (NASDAQ:MEDI) is a biotechnology company that uses
advances in biological sciences to discover, develop, make,
and commercialize products that treat or prevent infectious
diseases, immune system disorders and cancer.  MedImmune's
core competencies are in the areas of monoclonal antibodies
and vaccines.  The company promotes three primary products:
Synagis (palivizumab) and FluMist (Influenza Virus Vaccine
Live, Intranasal), used to prevent two common respiratory
infectious diseases, and Ethyol (amifostine), used to reduce
undesired side-effects of certain cancer treatments.  The
company also markets three additional products: CytoGam,
NeuTrexin and RespiGam.

MEDI - MedImmune  $25.78

OCT 25.00 MEQ-VE LB=0.30 OI=2263 CB=24.70 DE=10 TY=3.7% MY=9.3%


_________________________________________________________________

LNG - Cheniere Energy  $21.85  *** Energy Sector Hedge ***

Cheniere Energy (NYSE:LNG) is engaged in the development of
liquefied natural gas receiving and related opportunities,
centered on the United States Gulf Coast.  The LNG-receiving
terminal business consists of receiving deliveries of LNG
from LNG ships, processing such LNG to return it to a gaseous
state and delivering it to pipelines for transportation to
purchasers.  The company is also engaged in exploration for
oil and gas, as well as development and exploitation of major
reserves, in the Gulf of Mexico.

LNG - Cheniere Energy  $21.85

NOV 20.00 LNG-WD LB=0.80 OI=100 CB=19.20 DE=46 TY=2.8% MY=6.9%


_________________________________________________________________

IDBE - ID Biomedical  $14.59  *** SARS Vaccine Grant! ***

ID Biomedical (NASDAQ:IDBE) is a biotechnology firm focused on
the development of subunit vaccines, including those based on
its Proteosome protein intranasal adjuvant/delivery technology.
The technology potentially serves as both a vaccine adjuvant
(stimulant of immune responses) and mucosal delivery system
that may enhance a vaccine's effectiveness and/or ease of use.
The company is developing subunit vaccines for the prevention
of a number of different diseases.

IDBE - ID Biomedical  $14.59

NOV 12.50 OO-WV LB=0.35 OI=295 CB=12.15 DE=46 TY=1.9% MY=5.7%


_________________________________________________________________

DITC - Ditech Communications  $24.94  *** Entry Point? ***

Ditech Communications (NASDAQ:DITC) is a global telecom equipment
supplier for voice networks.  The firm's voice-processing products
focus on echo cancellers, used to eliminate echo, a common problem
in existing and emerging voice networks.  The company's newest
voice-processing products not only provide customers with the
traditional echo cancellation features, but also can be used to
provide voice quality assurance features that address issues, such
as background noise and other voice quality issues in wireline and
wireless communications.
  
DITC - Ditech Communications  $24.94

NOV 20.00 QZD-WD LB=0.45 OI=83 CB=19.55 DE=46 TY=1.5% MY=5.4%


_________________________________________________________________

KYPH - Kyphon  $25.54  *** A Big Day! ***

Kyphon (NASDAQ:KYPH) develops medical devices to restore spinal
anatomy using minimally invasive technology.  The firm's initial
marketing focus is on surgeons who repair spine fractures caused
by osteoporosis.  Kyphon's first commercial products, comprising
its KyphX instruments, utilize its proprietary balloon technology.
Surgeons use those tools to help repair fractures during minimally
invasive spine surgeries.  Its instruments have also been used in
open surgical procedures.  The firm sells various instruments for
use in spine fracture procedures including: Bone Access Systems,
Inflatable Bone Tamps, Inflation Syringes, Bone Filler Devices
and Bone Biopsy Devices.  Quarterly earnings are due on 8/4.

KYPH - Kyphon  $25.54

NOV 22.50 QYQ-WX LB=0.60 OI=0 CB=21.90 DE=46 TY=1.8% MY=5.1%


_________________________________________________________________

WEBX - WebEx Communications  $23.95  *** Recovery Underway! ***

WebEx Communications (NASDAQ:WEBX) develops and sells services
that allow end users to conduct meetings and share software
applications, documents, presentations and other content on
the Internet using a web browser.  Integrated telephony and
web-based audio and video services are also available using
standard devices such as telephones, computer Web cameras and
microphones.  The company's communications services provide a
range of features that build on the real-time functionality
and capabilities of their unique WebEx MediaTone Network.

WEBX - WebEx Communications  $23.95

NOV 20.00 UWB-WD LB=0.35 OI=2593 CB=19.65 DE=46 TY=1.2% MY=3.9% TS


_________________________________________________________________

HTCH - Hutchinson Technology  $34.09  *** Rally Mode! ***

Hutchinson Technology (NASDAQ:HTCH) supplies a variety of
suspension assemblies and suspension assembly components
based on several standard designs to manufacturers of disk
drives and manufacturers of disk drive components.  The
company builds its suspension assemblies with proprietary
technology and processes to precise specifications with
very low part-to-part variation.  These specifications are
critical to maintaining the necessary microscopic clearance
between the head and disk and the electrical connectivity
between the head and the drive circuitry.

HTCH - Hutchinson Technology  $34.09

Editor's Note: This issue will likely consolidate from its
recent upside activity in the coming sessions, thus traders
should (initially) target a higher premium in the play.

NOV 30.00 UTQ-WF LB=0.45 OI=166 CB=29.55 DE=46 TY=1.0% MY=3.0% TS



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

BEARISH PLAYS - NAKED CALLS

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

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

BSX - Boston Scientific  $38.41  *** Premium-Selling Only! ***

Boston Scientific (NYSE:BSX) is a global developer, maker and
seller of medical devices whose products are used in a range of
interventional medical specialties, including interventional
cardiology, peripheral interventions, neurovascular intervention,
electrophysiology, vascular surgery, endoscopy, oncology, urology
and gynecology.

BSX - Boston Scientific  $38.41

PLAY (sell naked call):

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

SELL CALL  OCT 40    BSX-JH   23295   0.25  40.25   5.4%   0.6%


_________________________________________________________________

WGO - Winnebago Industries  $33.24  *** Earnings Speculation! ***

Winnebago Industries (NYSE:WGO) is a United States manufacturer
of motor homes, which are self-contained recreation vehicles
used primarily in leisure travel and recreation activities.
Its motor homes are sold under the Winnebago, Itasca, Rialta
and Ultimate brand names.  The company markets its recreation
vehicles on a wholesale basis to a diversified dealer group
located throughout the United States, and, to a limited extent,
in Canada.  Winnebago also makes extruded aluminum, commercial
vehicles and a wide variety of component products for other
manufacturers.  Earnings are due on or about 10/14/04.

WGO - Winnebago Industries  $33.24

"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 35    WGO-JG     917   0.45  35.45  11.4%   1.3%



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

SEE DISCLAIMER - SECTION 1

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


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