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Daily Newsletter, Tuesday, 10/12/2004

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The Option Investor Newsletter                 Tuesday 10-12-2004
Copyright 2004, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Close, But Was It Close Enough?
Futures Markets: See Note
Index Trader Wrap: Oil, earnings and expiration make for lively trade
Market Sentiment: The Earnings Shuffle


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      10-12-2004           High     Low     Volume   Adv/Dcl
DJIA    10077.18 -  4.80 10102.33 10017.15 1.62 bln 1519/1703
NASDAQ   1925.17 -  3.60  1929.98  1904.11 1.52 bln 1312/1778
S&P 100   539.22 -  0.70   540.49   536.27   Totals 2821/3481
S&P 500  1121.84 -  2.55  1124.39  1115.77 
SOX       386.36 -  5.20   391.53   380.17
RUS 2000  576.71 -  0.85   578.10   570.49
DJ TRANS 3338.98 +  2.80  3330.78  3296.09
VIX        15.05 +  0.34    15.69    14.91
VXO (VIX-O)15.17 +  0.18    16.10    14.87
VXN        20.93 +  0.88    21.77    20.71 
Total Volume 3,440M
Total UpVol  1,166M
Total DnVol  2,204M
Total Adv  3155
Total Dcl  4023
52wk Highs  170
52wk Lows   120
TRIN       1.76
NAZTRIN    0.51
PUT/CALL   1.00
************************************************************

Close, But Was It Close Enough?
by Jim Brown

Intel and Yahoo announced earnings after the bell and 
both were close to analyst's estimates. The question is
were they close enough? Were they good enough to pull
the markets back from the brink of disaster or did they
lack enough excitement keep them from going over the 
cliff? 

Dow Chart

 
Nasdaq Chart

 


The morning opened with a flurry of earnings warnings
and earnings from a couple of heavy weights. JNJ beat
the street this morning by +2 cents at 78 cents for the
quarter. JNJ saw strong sales in multiple divisions both
locally and globally. Revenue rose +10.5% for the quarter
and they raised their estimates for Q4. This was much
needed good news for the drug industry and consumer
products. They did say they saw slower growth for 2005.
 
Merrill Lynch posted earnings that beat the street but
were down from last years levels. The company said slow
trading volumes contributed to the revenue decline but
overall performance was very strong given the market
conditions. Merrill jumped +1.48 on the news.

Those two earnings releases did a lot to offset the
damage done by a SEMI report saying global chip sales
had fallen -29% in August on a month over month basis. 
Chip sales in China fell -51%, North America -31%, 
Japan -20%. This knocked about -10 points off the SOX
at the open and cratered the tech sector. Warnings from
HLIT and a SEC inquiry at AMKR also pressured chips. PHG
said sales would be flat sequentially and they were also
seeing price erosion for consumer electronics chips. SB
downgraded SNDK to a sell citing weakening pricing and
slowing manufacturing benefits. They spoke positive
about FLSH in the same report. 

Greasing the slide was a sharp spike in oil to new highs
at $54.45 before the open and once over $54 the equity
market imploded. This appeared to be the point where
even the strongest bulls lost their appetite for stocks.
Oil was up on strikes/fires in Nigeria and a 55,000 MBpd
loss of production from Norway. Bulls got a reprieve late
in the day when oil suddenly fell out of sight to trade 
on Globex at a $52.14 low. This was -2.31 off the highs
on no real news. Analysts theorized that the $54 level 
was simply too much for those already long to pass up 
and profits were taken. This same thing happened when 
we neared $50 the first time. We are also only three 
weeks away from the election and the calendar is ticking
down on any risk for terrorists to impact prices before
the election. 

When oil began its sharp drop the equity markets began
a bullish run that took the Dow and Nasdaq back to 
positive territory. Fear of Intel and Yahoo earnings
produced some profit taking prior to the close and we
ended level for the day in everything but the SOX. 

After the bell Intel announced earnings that missed
estimates by a penny but said the right things in the
earnings release to send their stock higher. They earned
30 cents per share but 3.6 cents was due to a tax item
and not operating earnings. Their gross margins fell to
55.7% and well below estimates of 58%. The reason for 
the drop was discounting to get rid of inventory and
a product mix slanted to lower margins. Intel rose in
after hours trading despite the miss and some cautious
comments about the 4Q. They are targeting 4Q margins
at 56% which is still below analysts estimates. They
targeted revenue at $8.6B-$9.2B and the consensus was
for $9.1B. On the conference call Andy Bryant said 
there was too much inventory still in the system and
seasonal 4Q demand was softer than expected but they
were making progress. 

Considering the negative expectations for Intel the
fact they missed earnings slightly and guidance was
only "soft" represented a positive surprise. INTC 
traded up +70 cents in after hours. The real question
is how will it trade tomorrow? Was the soft guidance 
good enough to provide a continued bounce when real 
volume hits the tape? 

Yahoo actually posted better earnings even though they
only matched street estimates at nine cents. They did
exceed revenue estimates of $644 million with a spike
to $655 million. Advertising revenue was up +10% over
Q2 and Q2 was up +9.2% over Q1. They gave guidance for 
Q4 for $710-$760 million that straddled analysts 
estimates of $730 million. They also raised full year
estimates slightly. YHOO only rose +50 cents in after
hours and represents expectations already priced into
the stock. The real impact could be to Google which
rose +$2 in after hours in advance of their earnings
on Thursday of next week. Google will be expected to
match or beat Yahoo's performance and guidance or face
the wrath of traders. On Monday American Technology
Research downgraded GOOG to a SELL citing concerns 
about valuation and competition. Last week Jeffries
also downgraded Google citing excessive valuations.
ATR went so far as to suggest shorting Google at this
level. However, Google got to this level over the
bodies of bleeding bears so caution is definitely 
the key. I expect we will see further GOOG spikes on
Wednesday as shorts cover on fears they will post
better results than Yahoo.  

The economics for the day were evenly mixed with the
Richmond Fed Survey moving +4 points higher and the
Kansas Fed Survey dropping -2 points. The Richmond
Fed rose inexplicably after New Orders fell to 8 from
13, Order Backlog to -6 from +1 and the Six Month 
Outlook to 23 from 28. The only major component to
rise was Shipments from 18 to 22. Employment did
return to positive territory but remained soft. 
The Kansas Fed Survey showed only a small drop in the
headline number and that was repeated in the majority
of the components. Again employment rose slightly and
New Orders fell.   

Oil prices may have fallen but commodities in general
continue to rise. This will continue to be a sore
topic for months to come regardless of what happens
to oil. The Goldman Sachs Commodity Index has risen
over +103% in the last 33 months. According to one
analyst a gain of more than 55% in any 30 month period
has NEVER failed to produce a recession. CNBC ran a
sequence of screens several times on Tuesday showing
price rises in various common products like butter +50%,
turkeys +38%, etc over the last year. Feedstocks are
soaring and that is pushing up the cost of food across
the board. Storm damage has wiped out most of the orange, 
grapefruit and peanut crops in the south and prices 
for those items and products made with those items are
going even higher. Peanuts are a major staple ingredient
for many products including candy, baked goods, peanut
oil for frying and cooking, etc. This just a random
sample but other sectors with soaring prices include 
building materials. The hurricane damage is expected 
to suck up a six month supply of building supplies 
like plywood, sheetrock, shingles, insulation, etc. 
This will raise prices for home construction across 
the country as supply as demand equalizes. Add in oil
prices that suddenly seem cheap at $52 overnight today
and the economy has a tough road ahead.

I relate that paragraph above because just having Yahoo
serve up +10% more ads and Intel happy about only "soft"
4Q demand is not going to send the bulls roaring back
into the market for long. We may get a bounce on 
Wednesday but we are going to need a stronger showing
of major firms with positive earnings and guidance to
convince the herd. 

We are three weeks away from the election and the 
candidates are still dead even going into the last 
debate on Wednesday. The election is up for grabs and
the market does not know which way to jump. The next
round of earnings continues tomorrow with the emphasis
on chips and technology. ASML, AAPL, LRCX, NTOP, NVLS,
QLGC and SNDK report on Wednesday. On Thursday we get 
AOS, ABT, BAC, BBT, C, CY, ETN, ENDP, SSP, FITB, FDC,
GM, HIB, KEY, KRI, LSTR, MRCY, MTG, NCC, NOK, BTU, PII,
RDC, LUV, SVU, TRAD, UIS, UNH, WGO, CNET, CREE, FCS, 
JNPR, LEXR, NFLX, NMSS, RMBS, SYK, SUNW. There are some
well known companies in that list but we are lacking
the big name market movers like IBM, MSFT, MMM, etc. 
The rest of this week has a lot of smoke but the next 
real wave of market movers does not come until next week.
Intel may have relieved some pressure from the tech sector
but the small fry above could sour that picture once again.

The rebound on the Dow today lifted the index away from
breakdown risk at the 10000 level but we are still a
long way from breaking last weeks 10250 resistance. The
10100 level has been initial resistance for three days
and based on the futures overnight we should retest 
that again at the open. If a higher move is successful
that puts us right back into the middle of our congestion
range while we wait for the earnings generals next week.

The Nasdaq is already in the middle of the recent range
at 1930 and has +40 points of upside potential before
hitting the strong 1965 resistance level. The overnight
Nasdaq futures are showing a +10 point gain and again
that leaves us right in the middle of our recent range.

The current setup suggests the rest of the week may not
see a breakout in either direction. We could be left to
suffer slow torture as dozens of small companies with
mixed results push the markets around like a rowboat on
a stormy lake. Lots of chop but no real direction. To 
make matters worse this is option expiration week and 
we have yet to see any real option related moves. With
the Intel and Yahoo volatility added to Wednesday trading
that expiration volatility could appear at the open. If
there were any institutions betting on a major Intel miss
then they could be squeezed at the open and that could give
us the last major move for the week. Thursday and Friday
are not expected to be directional. Bottom line for me
is look both ways before stepping off the curb tomorrow
but expect traffic to slow by the end of the week. 

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

Oil, earnings and expiration make for lively trade

Intel (NASDAQ:INTC) $20.28 -1.6% jumped to $21.00 in Tuesday 
evening's extended session after the chip giant said it saw 
stability in inventory levels and sees some upside potential into 
the end of the year.

Yahoo! Inc. (NASDAQ:YHOO) $34.23 +0.61% also saw gains in its 
extended session to $34.78 after reporting quarterly results that 
matched Wall Street's expectations.

Is this the news tech bulls have been looking for?  Is the news 
out of INTC and YHOO as bad as bears had hoped for?

It is impossible to say if investors have been "too bearish" on 
tech, or "too optimistic," but I expect technology sector/index 
traders are going to be put to the test into this week's October 
expiration, and should institutions turn to try and save 
positions they may have written calls against earlier this month, 
then things should liven up into the weekend.

Throw in today's reversal back lower in oil prices with weekly 
inventory data due out tomorrow morning, and Thursday/Friday 
option expiration, and traders are going to probably think they 
grabbed hold of a tiger's tail by Friday's close.

Market Snapshot / Internals - 10/12/04 Close

 

It was looking like bulls were headed for the slaughterhouse 
earlier this morning as oil traded new highs for a sixth-straight 
session, which seemed to provide the straw to break a bull's 
conviction.

Oils rise has been "nothing new," but equity traders, as well as 
economists will contemplate just how high oil might rise before 
having a significantly negative impact on not only the U.S. 
economy, but the global economy as well.  

But as the session wore on, November Crude Oil futures (cl04x) 
found selling near their DAILY R1 and settled at the lows of the 
session, where weekly inventory figures will be released tomorrow 
morning.  I think I can show how we may have also seen some 
option expiration come into play today, and should we see a 
continuation of this afternoons action, equity bulls might be in 
for a pleasant surprise.

Let's quickly review a 10-minute interval chart of the November 
Crude Oil futures (cl04x), which trades down 17 cents at $52.34, 
as Wednesday's trade is already underway.

As I looked at this chart, it also looked very similar to the 
Market Volatility Index (VIX.X) 15.05 +2.31%, which also closed 
back at its session low, but still above its 200-pd SMA and 
WEEKLY Pivot.  

The reason I mention oil and the VIX.X, is that options market 
makers, as well as institutions may have to make some quick 
decisions regarding any October expiration call/put hedges as we 
are just days away from October expiration.

November Crude Oil futures (cl04x) - 10-minute intervals

 

On Wednesday of last week, November Crude Oil futures (cl04z) 
were trading at their WEEKLY R2 of $51.59, yet the SPX was 
trading higher (than it is today 1,122) at 1,140 and the NASDAQ-
100 was trading higher (than it is today 1,1,435) at 1,470.

When we review the Pivot Matrix later tonight, understand where 
oil IS, and where it WAS.  

Bottom line as I see it.  An important near-term SUPPORT level 
for oil is probably $51.60-$52.00.  Think of this as a 
PSYCHOLOGICAL level of BULLISH EQUITY PSYCHOLOGY RESISTANCE.

In essence ... should we see a break much BELOW oil $52, market 
psychology could get a boost.  I'll try and explain how this 
might play into option expiration.

Imagine that you sold OUT-THE-MONEY calls (naked or covered) on 
October expiration last week, with the thought that rising oil 
above $52 would put a lid on equity gains.  Heck, imagine that 
you sold IN-THE-MONEY calls at October "Max Pain" Theory levels. 
(bottom of 10/07/04 Index Trader Wrap).  

For some, you DON'T have to imagine doing any of the above.  But 
many an options market maker may have, and oil, along with the 
VIX.X may be a trader's best friend into Friday's close.

Now oil is acting a little "funny" into tomorrow's weekly 
inventory data, where the last two weeks we have seen modest 
builds, not draws in inventory.  And while Intel's (INTC) 
quarterly earnings were nothing to write home about, the stock 
traded up in after-hours.

U.S. Market Watch - 10/12/04 Close

 

I've updated some of the longer-term 200-day SMAs (red) for the 
major indices, as well as some sectors we've reviewed in recent 
sessions.  

BIG Tech as depicted by the Morgan Stanley High Tech 35 (MSH.X) 
450.74 -0.78% closed just about right on its 21-day SMA (pink) at 
450.78.  For you Pivot Matrix followers, the MHS.X WEEKLY Pivot 
from QCharts is 458, where not too unlike the Semiconductor Index 
(SOX.X), the MSH.X did see trade at its WEEKLY S1 (447.59) today.

Pivot Matrix - 

 

Main points I would want to take note of.  The SOX.X traded 
correlative MONTHLY Pivot/WEEKLY S1 support of 380 and held that 
level PRIOR to the Intel (INTC) data.  Was there a pre-determined 
"bullish semiconductors" trade, or was it simply October "Max 
Pain" theory of 380 that got the attention.  One could say both.

Now.... NDX/QQQ session low (bold pink) came fractions from their 
respective WEEKLY S1s.  OK, that makes some sense with the SOX.X 
trade.  Session lows came close to their October "Max Pain" 
values of 1,400 and $35.  Let's keep NDX 1,400 in mind with the 
thought of "where we've been" in just the past week of trade.  
Remember, the NDX was just recently trading ABOVE MONTHLY R1 
(bold pink).

See where I've marked the VIX.X and WEEKLY Pivot?  The VIX.X 
traded as high as 15.69 today, but NOT UNLIKE OIL, closed at its 
lows of the session.  Now, here's where I make a tie to the 
November Crude Oil futures (cl04x) chart.  

Here's the VIX.X using the same 10-minute intervals.  I would 
make special note of the 200-pd SMA and its WEEKLY Pivot.  Go 
back and take a quick refresher of the November Oil contract, 
just in case oil gets volatile tomorrow.

Market Volatility Index (VIX.X) Chart - 10-minute intervals

 

I'm showing the VIX.X chart with QCharts' DAILY Pivot levels 
overlaid.  I have drawn the WEEKLY S1, WEEKLY Piv and WEEKLY R1 
on the chart (solid pink).  Note the rising 200-pd SMA near 
WEEKLY Pivot.

One thought tomorrow is that a DECLINE IN OIL below its WEEKLY 
Pivot (say $52.00), could influence option trade into expiration.  

IF SO, then VIX.X could break back under WEEKLY Pivot, and depict 
put selling, and call buying.

Why do I bring this up now you might ask?

Late Thursday evening in the Market Monitor (October 8 MM archive 
at bottom of the archive) I made some notes of things in the 
NDX.X that I would monitor into this week's expiration.  I showed 
the following chart of the e-mini NASDAQ-100 futures (nq04z), 
which an options market maker will use to hedge his/her option-
related activity.  In those notes, I discussed just "how" I came 
up with the following chart, but I want you to focus on the 
YELLOW zones.

I think traders should also be able to use the Pivot Matrix 
Levels in the Pivot Matrix to also see similar levels, and how 
the VIX.X can play into things.

Bottom line:  As it stands tonight (08:17:41 PM EDT) it looks 
like NASDAQ could bid BIG tomorrow.

Dec. e-mini NASDAQ-100 futures - Daily Intervals

 

I think the NASDAQ-100 will rally from the opening tick to its 
WEEKLY R1, and then hang out there until the 10:30 AM EDT release 
of weekly crude oil inventories.  From my prior market monitor 
notes mentioned earlier in the wrap, WKLY R1 is going to be a 
formidable challenge, where further clues to strength could come 
from the VIX.X, or the VXN.X.  

However, since we track just the VIX.X in the Pivot Matrix, I 
think it should suffice.  

Jeff Bailey


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

The Earnings Shuffle
- J. Brown

If you just look at the closing numbers then Tuesday turned out 
to be a non-event.  However, you would be missing the excitement 
of the long slow climb back toward breakeven today.  I'm being 
sarcastic.  The major indices were just shy of break even and the 
climb was anything but exciting.  Volume has been relatively low 
the past two sessions.  Most investors were sitting on the 
sidelines waiting for this afternoon's earnings announcements.  

Throughout the session oil remained the focus, not earnings.  
November oil futures hit $54 a barrel before declining to $52.50.  
The pull back was probably the only thing giving stocks a boost 
today.  

Overall the markets were mixed with a negative bias.  Internals 
showed 5 losers for every 4 winners on the NYSE and 17 decliners 
for every 12 winners on the NASDAQ.  Down volume was almost twice 
as strong as up volume on the NYSE and about a third better on 
the NASDAQ.  

It was interesting to hear of SG Cowen's note to clients to avoid 
semiconductor stocks just hours before Intel reported earnings 
after the close.  Intel missed the estimate by a penny but 
investors seem to be interpreting the call as bullish with higher 
revenues and lower inventories.  Meanwhile YHOO's earnings were 
inline but sales were strong and the company gave a bullish bias 
towards the fourth quarter.  Now the question is whether any of 
this positive spin will still be around tomorrow to influence 
technology shares on Wednesday.  

Tomorrow's big events are as follows.  Wall Street will be 
interested to hear the latest crude oil and gasoline inventory 
numbers.  Major earnings on Wednesday include AAPL, ASML, HDI, 
LRCX, NVLS, QLGC, and SNDK but none of them are real market 
movers.  Wednesday night will be the third and final presidential 
debate but most pundits expect the two candidates to merely play 
to their base of core voters.  

I would keep an eye on some of the technology stocks.  Looking at 
the sector specific indices (GHA.X, GSO.X, SOX.X, etc.) they've 
all painted a decent bounce from today's lows that could see some 
follow through tomorrow.  Meanwhile the OIX oil index has turned 
south and broken through the bottom of its narrow rising channel.  
The OSX oil services index did the same yesterday and is seeing 
some additional profit taking today.  Don't be surprised to see 
more selling tomorrow as traders rush to lock in gains in these 
overbought sectors.


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

Market Averages

DJIA ($INDU)

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

Moving Averages:
(Simple)

 10-dma: 10138
 50-dma: 10120 
200-dma: 10294



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  990
Current     : 1121

Moving Averages:
(Simple)

 10-dma: 1127
 50-dma: 1107
200-dma: 1119



Nasdaq-100 ($NDX)

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

Moving Averages:
(Simple)

 10-dma: 1443
 50-dma: 1390
200-dma: 1441



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

CBOE Market Volatility Index (VIX) = 15.05 +0.34
CBOE Mkt Volatility old VIX  (VXO) = 15.17 +0.18
Nasdaq Volatility Index (VXN)      = 20.93 +0.88


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

          Put/Call Ratio  Call Volume   Put Volume

Total          1.00        773,793       773,814
Equity Only    0.90        569,940       512,918
OEX            1.13         36,034        40,651
QQQ            2.65         50,568       133,835


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

Bullish Percent Data

           Current   Change   Status
NYSE          65.7    - 0.25  Bear Correction
NASDAQ-100    45.0    - 0     Bull Alert      
Dow Indust.   56.6    + 0     Bear Correction
S&P 500       64.2    - 0     Bear Correction
S&P 100       61.0    - 1     Bear Correction


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

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


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

 5-dma: 1.31
10-dma: 0.99
21-dma: 1.11
55-dma: 1.13


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    1281      1273
Decliners    1521      1717

New Highs      82        70
New Lows       27        34

Up Volume    526M      605M
Down Vol.   1070M      856M

Total Vol.  1613M     1503M
M = millions


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

Commitments Of Traders Report: 10/05/04

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

Commercial traders aren't making any big bets ahead of the Q3
earnings season.  Longs and shorts have moved closer to parity
and the bearish sentiment is at it lowest level in four weeks.
Small traders are upping both their longs and their shorts but
their bullish bias is waning a bit.

Commercials   Long      Short      Net     % Of OI
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%)
10/05/04      421,217   435,736   (14,519)   (1.7%)

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
09/14/04      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%
10/05/04      137,210   114,489    22,721     9.0%

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

Commercial traders have upped their positions in both longs
and shorts but clearly remain net bearish.  In contrast the
small traders have raised their positions in longs and shorts
and remain staunchly net bullish.

Commercials   Long      Short      Net     % Of OI 
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%)
10/05/04      248,190   476,608   (228,418)  (31.5%)

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
09/14/04      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%
10/05/04      308,021     80,373   227,648    58.6%

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


NASDAQ-100

We are not seeing a lot of movement in commercials' positions
so they remain net bullish on the NDX.  Meanwhile small traders
are raising positions in both longs and shorts but shorts saw
a big jump creating a large bearish bias by small traders.  This
is of course a bullish contrarian indicator.  

Commercials   Long      Short      Net     % of OI 
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%
10/05/04       55,640     32,872    22,768   25.7%

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

Small Traders  Long     Short      Net     % of OI
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%)
10/05/04       12,254    30,693   (18,439)  (42.9%)

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

Investors both big and small seem rather undecided about how
to bet on the Industrials. The gap between longs and shorts 
continue to narrow, especially between small traders where it's
a dead-even.  This is the least bullish commercials have been
in weeks while it's the least bearish small traders have been
in weeks.

Commercials   Long      Short      Net     % of OI
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%
10/05/04       27,498    25,772    1,726       3.2%
 
Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
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%)
10/05/04        5,531     5,539   (    8)   ( 0.0%)

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 10-12-2004
Copyright 2004, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: LLY
Call Play Updates: CMI, GDW, GIVN, IR, KMRT, LMT, OSIP, PH
New Calls Plays: None
Put Play Updates: APOL, FLIR, IVGN, SEPR, WHR
New Put Plays: None


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

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


CALLS:
*****

None


PUTS:
*****

Eli Lilly & Co - LLY - close: 57.15 chg: -1.85 stop: 61.85     

A new downgrade to "market perform" sent shares of LLY gapping 
lower on Tuesday.  LLY ended the session down 3.13 percent on 
huge volume.  Looking at the action on the intraday chart we 
suspect that LLY will trade lower tomorrow as well.  However, our 
initial target was the $60 level and our secondary target was the 
$58.00-56.50 region.  We've hit both and we're calling it quits.  
We'd rather exit now for a profit than see LLY bounce back to $60 
again, which it could since shares are so oversold.  Keep in mind 
that just because we're closing the play doesn't mean you have 
too.  You choose whether to let LLY run or book profits now but
we would tighten our stop loss.

Picked on September 22 at $63.92
Change since picked:      - 6.77
Earnings Date           07/22/04 (confirmed)
Average Daily Volume =       3.1 million 
Chart =



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

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

Cummins Inc - CMI - close: 74.10 change: +0.10 stop: 69.99     

We're not making a lot of progress in CMI but then shares aren't 
slipping much either.  Buyers seem to be defending CMI near the 
$73 level so we're not complaining.  Plus, volume has been pretty 
light on the consolidation so that's a positive development.  We 
have already achieved our initial target a few days ago and we're 
not suggesting new plays but more aggressive players looking for 
new positions might want to consider a move over $74.50 or $75 as 
entry point.  In the news CMI announced that its BoD had declared 
a quarterly cash dividend of 30 cents per share payable on 
December 1st, 2004.

Picked on September 19 at $70.99
Change since picked:      + 3.11
Earnings Date           10/20/04 (confirmed)
Average Daily Volume =       724 thousand
Chart =


---

Golden West Financial - GDW - cls: 114.99 chg: -0.01 stop: 111.65*new*

Oh we're so close!  Yesterday GDW hit a high of $115.39 and today 
its high was $115.35.  Our target range/exit point has been the 
$115.50-116.00 range given current overhead resistance at $116.  
Conservative traders may want to consider just exiting now.  
We're going to raise our stop loss to $111.65.  We are not 
suggesting new bullish positions this close to our target.

Picked on September 30 at $110.95
Change since picked:       + 4.04
Earnings Date            10/21/04 (confirmed)
Average Daily Volume =        512 thousand
Chart =


---

Given Imaging - GIVN - close: 44.07 change: +1.87 stop: 39.90*new*

Ah!  Now we're seeing some progress.  GIVN has spent the last few 
days consolidating sideways after the bullish breakout over the 
$40.00 level.  Today's 4.4 percent rally is very encouraging 
because it was fueled by more than three times the average 
volume.  Remember that our profit target/exit range is the 
$47.50-50.00 region but we want to see GIVN get there before its 
late October earnings report.  We are raising our stop loss to 
$39.90.  If you're wondering there was no discernable news to 
account for the spike higher today.

Picked on October 04 at $41.26
Change since picked:    + 2.81
Earnings Date         10/27/04 (unconfirmed)
Average Daily Volume =     247 thousand
Chart =


---

Ingersoll-Rand - IR - close: 68.89 change: -0.35 stop: 67.49

Decisions, decisions.  We immediately turned cautious on IR when 
the bullish breakout over $70.00 reversed on us.  But we kept the 
play open because IR had minor support at $68 and felt shares 
could bounce.  Thus far it looks like that today's dip to $68.22 
wasn't low enough and IR could actually test the $68 level soon.  
So...do we decide to exit now and try to keep our losses to a 
minimum or do we stick it out and see if IR bounces from $68?  At 
the moment we're going to stick it out but we're not suggesting 
any new bullish plays until IR trades back above $70.00 or 
$70.50.

Picked on October 06 at $70.19
Change since picked:    - 1.30
Earnings Date         10/21/04 (confirmed)
Average Daily Volume =     1.2 million 
Chart =


---

Kmart Holdings - KMRT - close: 86.98 chg: -1.17 stop: 84.99

KMRT, like a number of stocks in the market, is just marking 
time.  Shares are one-cent worse off today than they were on 
Friday.  What are investors waiting for?  That's a good question.  
We're willing to hold on to KMRT if it keeps building this trend 
of higher lows but if shares trade under $85.85 again we may get 
worried.  In the news today KMRT did some debt shuffling to the 
tune of $200 million and in the end reduced its expenses.

Picked on October 04 at $90.53
Change since picked:    - 3.55
Earnings Date         08/16/04 (confirmed)
Average Daily Volume =     2.7 million 
Chart =


---

Lockheed Martin - LMT - close: 55.42 change: -0.84 stop: 53.50

This is it!  LMT is at a pivotal level.  The stock should bounce 
from the $55.00 level.  If not we're going to consider an early 
exit.  Meanwhile in the news LMT has asked the Air Force to 
review four deals that LMT lost to rival Boeing (BA), including a 
$4 billion deal to upgrade the electronics in the military's 
aging C-130 cargo plane fleet.  Stay on top of your stop losses 
if LMT trades near $55.00.  More conservative types may want to 
wait for any rebound to clear the $56 mark before opening new 
positions.

Picked on October 01 at $56.01
Change since picked:    - 0.59
Earnings Date         07/27/04 (confirmed)
Average Daily Volume =     1.7 million 
Chart =


---

OSI Pharma - OSIP - close: 62.99 change: +0.04 stop: 59.99

OSIP is still trapped in no man's land.  The stock has bounced 
higher this week but the rally failed near $64.50 near OSIP's 
simple 100-dma.  We are encouraged by the minor trend of higher 
lows there seemed to be some negative comments circling over 
OSIP's earnings estimates after the closing bell.  Look for OSIP 
to bounce from the $62.00 level, otherwise wait for OSIP to trade 
over $64.58 before considering new positions. 

Picked on October 03 at $63.45
Change since picked:    - 0.46
Earnings Date         08/10/04 (confirmed)
Average Daily Volume =     1.6 million 
Chart =


---

Parker Hannifin - PH - close: 62.31 chg: +0.26 stop: 59.49

News out on Monday that PH was buying refrigeration/AC parts 
maker Sporlan Valve Co. was not enough to spark any sort of 
movement in shares of PH.  The stock appears to be consolidating 
the breakout over $60.00.  We'd still buy a bounce from $60 if 
shares dipped but now we're looking for a new move higher over 
$63.00.  

Picked on October 06 at $62.78
Change since picked:    - 0.47
Earnings Date         10/19/04 (confirmed)
Average Daily Volume =     719 thousand
Chart =


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

None


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

Apollo Group - APOL - close: 68.06 chg: -1.22 stop: 73.01*new*

So far so good.  APOL continues to sink after breaking down under 
its October lows and round-number, psychological support at 
$70.00.  We're also encouraged by the stronger than average 
volume on the recent declines suggesting some real selling 
pressure.  It's not too late to consider positions but patient 
traders might want to wait for another bounce/failed rally back 
to $70 as an entry point.  We are going to lower our stop to 
$73.01.

Picked on October 10 at $69.81
Change since picked:    - 1.75
Earnings Date         10/05/04 (confirmed)
Average Daily Volume =     3.3 million 
Chart =


---

FLIR Systems - FLIR - close: 54.10 chg: -1.62 stop: 58.01*new*

Good news! FLIR continues to show weakness after failing near the 
$56.00 mark (as expected).  Since we've already hit our initial 
target we still suggest short-term traders consider exiting now 
for a profit.  More aggressive types can keep the play open and 
target a drop toward $52-50.  We are going to EXIT if FLIR hits 
$51.50.  Meanwhile we are lowering the stop loss to $58.01.

Picked on September 29 at $59.35
Change since picked:      - 5.25
Earnings Date           10/20/04 (confirmed)
Average Daily Volume =       577 thousand
Chart =


---

Invitrogen - IVGN - close: 53.54 chg: -0.10 stop: 56.25

Hmm... we're not seeing a lot of progress in our IVGN put play.  
The stock is struggling with minor resistance at $54 but it's not 
very convincing.  We're going to give IVGN a couple of more days.  
If we don't see some downward momentum we may exit early.  

Picked on October 07 at $53.83
Change since picked:    - 0.29
Earnings Date         10/28/04 (confirmed)
Average Daily Volume =     1.5 million 
Chart =


---

Sepracor Inc - SEPR - close: 47.26 chg: -0.55 stop: 50.01     

SEPR continues to slowly fade under a trend of lower highs.  This 
type of pattern usually produces a more significant breakdown.  
We're still targeting the 200-dma's near $43.50.  No change in 
plan although more conservative traders may want to consider a 
tighter stop loss. 

Picked on September 22 at $48.94
Change since picked:      - 1.68
Earnings Date           07/13/04 (confirmed)
Average Daily Volume =       1.8 million 
Chart =


---

Whirlpool - WHR - close: 58.79 change: +0.29 stop: 60.55     

WHR appears to be digesting the recent declines with a bounce 
back toward overhead resistance.  This may be another entry point 
for bearish positions.  Watch to see if the $59.00 mark holds or 
will WHR retest the $60 level before turning lower again.  No 
change in our strategy or stop loss. 

Picked on October 07 at $59.03
Change since picked:    - 0.24
Earnings Date         10/20/04 (confirmed)
Average Daily Volume =     854 thousand
Chart =



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

None


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

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


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Contact Support




The Option Investor Newsletter                  Tuesday 10-12-2004
Copyright 2004, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Watch List: Defense to Communication stocks and more!
Spreads & Straddles: Stocks Slump Amid Concerns Over Rising Energy Costs
Premium Selling Plays: Naked Puts & Calls


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

Defense to Communication stocks and more!

___________________________________________________________________

How to use this watch list:
  Readers can use the candidates below as a springboard for their
  own research.  Many are in the process of breaking support or
  resistance or in the process of starting new trends or
  extending old ones.  With your own due diligence these could be
  strong potential plays.
___________________________________________________________________


General Dynamic - GD - close: 101.40 change: +1.33

WHAT TO WATCH: Defense stocks are a mixed bunch these days but 
overall the sector has been pretty strong.  GD is one of the 
bellwethers in the group and shares look ready to trade higher.  
Candlestick traders will note the current three-day pattern looks 
like a bullish reversal.  Plus, we're encouraged with the bounce 
back over the $100-101 level.  Currently GD has a very bullish 
quadruple-top breakout buy signal on its P&F chart with a $119 
target.  Unfortunately we would not hold over the October 20th 
earnings report.  Short-term traders may want to use today's 
rebound as an entry point. 

Chart=


---

QUALCOMM - QCOM - close: 41.54 change: +0.33

WHAT TO WATCH: QCOM is holding up pretty well with the sideways 
consolidation for most of the month of October.  We would watch 
this relative strength leader for a dip and bounce from $40.00 or 
a new high over $42.00.  Either could be used as a bullish entry 
point for new plays.  The P&F chart is very bullish with a $66 
target.  Meanwhile earnings are not expected until the first week 
of November.

Chart=


---

Research In Motion - RIMM - close: 76.97 change: +0.83

WHAT TO WATCH: It may look like a sideways consolidation in RIMM 
over the last four weeks but we see a slight uptrend of higher 
lows.  Oscillators are mixed but the P&F chart is bullish with an 
$87 target.  Plus, earnings were just two weeks ago and 
expectations are positive for the fourth quarter.  Aggressive 
traders may want to take another look at today's bounce from $75.  
Otherwise we'd watch for a new high over $80. 

Chart=


---

Bear Stearns - BSC - close: 92.88 change: +0.88

WHAT TO WATCH: The XBD broker-dealer index has not been the best 
performer lately and is still trading under major resistance.  
Yet you can't deny that BSC has been out performing its peers.  
The stock has spent the last several days consolidating gains 
from a breakout to new highs.  Now the stock is bouncing from the 
$91.50 level and today's session painted a bullish engulfing 
candlestick.  This looks like an entry point to go long. 

Chart=



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

MEDI $26.73 +0.51 - MEDI is seeing some follow through on 
yesterday's breakout over the top of its trading range.

HSIC $59.68 -0.60 - The tug-of-war continues with the breakdown 
under $60 but the bounce from $58.  


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Auto-Trade Market Monitor Signals
Personal Service and Education


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http://www.OneStopOption.com

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


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

Stocks Slump Amid Concerns Over Rising Energy Costs
By Ray Cummins

The major equity averages drifted lower Tuesday after crude oil
set another record high during the session.

Crude futures hit $54 per barrel for the first time in history
on renewed supply concerns, however the price of "black gold"
eventually retreated as traders were reluctant to continue buying
the commodity ahead of the upcoming inventory reports.  The Dow
Jones Industrial Average finished 4 points lower at 10,077, with
only Johnson & Johnson (NYSE:JNJ), American International Group
(NYSE:AIG), Merck (NYSE:MRK) and Verizon (NYSE:VZ) enjoying gains.
The NASDAQ fell 3 points to 1,925 amid ongoing selling pressure
in the semiconductor sector, which slumped on a cautious outlook
from consumer electronics stalwart Philips Electronics (NYSE:PHG).
The Standard & Poor's 500 Index slipped 2 points to 1,121, with
gold and automobile shares among the notable losers.  Declining
issues paced advancers 17 to 15 on the New York Stock Exchange,
where volume came to 1.32 billion shares.  Losing stocks ousted
winning issues by nearly 3 to 2 on the technology exchange, with
volume near 1.48 billion shares.  Treasury prices rose as equity
values declined.  The 10-year note ended up 8/32, while its yield
fell to 4.10%.

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

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


PUT-CREDIT SPREADS

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

MUR    75.51  84.61  OCT  65.0  70.0  0.70   69.30   0.70   Open
RYL    88.15  87.33  OCT  75.0  80.0  0.75   79.25   0.75   Open
GIVN   38.72  41.78  OCT  30.0  35.0  0.70   34.30   0.70   Open
MBT   140.75 145.98  OCT 120.0 125.0  0.50  124.50   0.50   Open
COGN   34.58  36.02  OCT  30.0  32.5  0.30   32.20   0.30   Open
SCSC   66.22  71.32  OCT  55.0  60.0  0.50   59.50   0.50   Open
CCMP   38.29  34.69  OCT  30.0  35.0  0.75   34.25   0.44  CLOSED
ONXX   41.99  42.73  OCT  30.0  35.0  0.50   34.50   0.50   Open
AHC    83.99  91.57  OCT  75.0  80.0  0.55   79.45   0.55   Open
CELG   59.39  61.04  OCT  50.0  55.0  0.55   54.45   0.55   Open
GDT    64.02  62.93  OCT  55.0  60.0  0.65   59.35   0.65   Open
PD     90.48  96.01  OCT  80.0  85.0  0.50   84.50   0.50   Open
RTP   104.28 110.62  OCT  95.0 100.0  0.55   99.45   0.55   Open
PETD   43.63  42.38  OCT  35.0  40.0  0.45   39.55   0.45   Open
RIMM   76.98  75.71  OCT  60.0  65.0  0.40   64.60   0.40   Open
BSC    94.16  92.49  NOV  80.0  85.0  0.65   84.35   0.65   Open
PHS    37.23  38.30  NOV  30.0  32.5  0.35   32.15   0.35   Open
BTU    60.07  60.65  NOV  50.0  55.0  0.60   54.40   0.60   Open
MRVL   28.84  28.38  NOV  22.5  25.0  0.35   24.65   0.35   Open

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

Special Tuesday Note: As previously mentioned, the bullish spread
on Cabot Micro (NASDAQ:CCMP) was an "early-exit" candidate on any
further downside activity and Tuesday's slump left no doubt about
the status of the position.


CALL-CREDIT SPREADS

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

AZO    74.06  77.10   OCT  85.0  80.0  0.55   80.55  0.55   Open
MXIM   40.94  42.89   OCT  50.0  45.0  0.50   45.50  0.50   Open?
PLMO   32.30  30.60   OCT  45.0  40.0  0.55   40.55  0.55   Open
LEN    46.75  43.70   OCT  55.0  50.0  0.60   50.60  0.60   Open
NTES   35.51  39.08   OCT  45.0  40.0  0.60   40.60  0.60  CLOSED
NBIX   50.65  44.78   OCT  60.0  55.0  0.55   55.55  0.55   Open
SSP    49.66  49.70   OCT  52.5  50.0  0.50   50.50  0.50   Open
APOL   78.35  69.81   OCT  90.0  85.0  0.25   85.25  0.25   Open
STJ    70.73  72.63   OCT  80.0  75.0  0.55   75.55  0.55   Open
APOL   72.00  69.81   OCT  85.0  80.0  0.45   80.45  0.45   Open
PRX    37.80  35.03   OCT  45.0  40.0  0.60   40.60  0.60   Open
CERN   42.99  45.02   OCT  50.0  45.0  0.50   45.50  0.48   Open?
IMCL   50.35  51.30   OCT  60.0  55.0  0.40   55.40  0.40   Open?
LLTC   35.71  36.86   OCT  40.0  37.5  0.30   37.80  0.30   Open?
AMZN   40.47  40.00   NOV  50.0  45.0  0.65   45.65  0.65   Open
PDX    55.00  55.55   NOV  65.0  60.0  0.60   60.60  0.60   Open
BZH   103.14 101.67   NOV 115.0 110.0  1.10  111.10  1.10   Open
CHIR   37.98  35.63   NOV  45.0  42.5  0.30   42.80  0.30   Open
 
L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss

Special Tuesday Note: The rally in Netease.com (NASDAQ:NTES) has
forced an early departure from the position for a small loss.
Cerner (NASDAQ:CERN) is an "early-exit" candidate on any further
upside activity.  Although currently profitable, the position in
Lexmark (NYSE:LXK) has previously been closed to limit potential
losses.
  

DEBIT STRADDLES

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

QLGC    29.12  29.27   OCT   30.0   30.0    2.40    2.35    Open
MDC     74.96  67.40   OCT   75.0   75.0    3.50    8.00    Open?

Our new straddle in MDC Holdings (NYSE:MDC) was a "big winner"
this week when share values in the home construction segment
plummeted after Pulte Homes (NYSE:PHM) posted disappointing
earnings.


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

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

GIVN - Given Imaging  $44.07  *** New 2004 High! ***

Given Imaging (NASDAQ:GIVN) is an Israeli company established to
develop, produce and market a platform technology for diagnostics
and therapy of the gastrointestinal (GI) tract.  The company was 
founded to commercialize a minimally invasive, disposable imaging
capsule for diagnosing small intestine disorders and diseases. 
Given has submitted more than 20 patents worldwide for the tech-
nologies employed in the Given Diagnostic Imaging System, and for
new capsules to be developed using the basic technological plat-
form.  Future generations of the Given Diagnostic Imaging System 
will be developed to capture images of the rest of the upper GI 
tract and the large intestine.

GIVN - Given Imaging  $44.07

PLAY (less conservative - bullish/credit spread):

BUY  PUT  NOV-35.00  QPG-WG  OI=4508  ASK=$0.40
SELL PUT  NOV-40.00  QPG-WH  OI=542   BID=$1.05
INITIAL NET-CREDIT TARGET=$0.70-$0.75
POTENTIAL PROFIT(max)=16% B/E=$39.30


__________________________________________________________________

INSP - InfoSpace  $47.25  *** Earnings Speculation! ***

InfoSpace (NASDAQ:INSP) develops and delivers a wireless and
Internet platform of software and application services to a
range of customers that span each of its wireline, merchant
and wireless business units.  Many of the company's products
and application services are offered to its customers, which,
in turn, offer these products and application services to
their customers as their own solutions.  InfoSpace provides
its services across multiple platforms, including personal
computers and non-PC devices.  Earnings are due on 10/28/04.

INSP - InfoSpace  $47.25

PLAY (less conservative - bullish/credit spread):

BUY  PUT  NOV-35.00  IOU-WG  OI=187  ASK=$0.55
SELL PUT  NOV-40.00  IOU-WH  OI=460  BID=$1.40
INITIAL NET-CREDIT TARGET=$0.80-$0.95
POTENTIAL PROFIT(max)=19% B/E=$39.20



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

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.

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

BIIB - Biogen Idec  $59.82  *** In A Trading Range? ***

Biogen Idec (NASDAQ:BIIB) develops, makes and commercializes a
range of novel therapies.  The company currently has four major
commercial products: Avonex, for the treatment of relapsing
multiple sclerosis, Rituxan and Zevalin, both of which treat
certain B-cell non-Hodgkin's lymphomas, also referred to as
B-cell NHLs, and Amevive, for the treatment of adult patients
with moderate-to-severe chronic plaque psoriasis who are also
andidates for systemic therapy or phototherapy.  The company
receives revenues from royalties on sales by its licensees of
a number of products covered under patents that it controls
including sales of Rituxan outside the United States.

BIIB - Biogen Idec  $59.82

PLAY (conservative - bearish/credit spread):

BUY  CALL  NOV-70.00  IHD-KN  OI=337   ASK=$0.30
SELL CALL  NOV-65.00  IHD-KM  OI=4188  BID=$0.90
INITIAL NET-CREDIT TARGET=$0.65-$0.75
POTENTIAL PROFIT(max)=15% B/E=$65.65


__________________________________________________________________

MCHP - Microchip Technology  $27.56  *** Sector Slump! ***

Microchip Technology (NASDAQ:MCHP) develops and manufactures
specialized semiconductor products used by its customers for
embedded control applications.  The company's product portfolio
consists of the PIC micro field-reprogrammable (Flash) reduced
instruction set computer microcontrollers that serve embedded
control applications, along with linear and mixed-signal, power
management and thermal management devices.  The firm also offers
microperipheral products, including interface devices, serial
electrically erasable programmable read only memory and its
application-specific standard products.

MCHP - Microchip Technology  $27.56

PLAY (conservative - bearish/credit spread):

BUY  CALL  NOV-35.00  QMT-KG  OI=43    ASK=$0.15
SELL CALL  NOV-30.00  QMT-KF  OI=1207  BID=$0.75
INITIAL NET-CREDIT TARGET=$0.65-$0.70
POTENTIAL PROFIT(max)=15% B/E=$30.65



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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.
_________________________________________________________________

RMBS - Rambus  $15.23  *** Cheap Speculation! ***

Rambus (NASDAQ:RMBS) creates a range of chip-to-chip interface
technologies that enhance the performance and cost-effectiveness
of its customers' semiconductor and system products.  The firm's
interface solutions can be grouped into two major categories,
memory interfaces and logic interfaces.  Their Memory interface
solutions provide an interface between memory chips and logic
chips.  Logic interface solutions provide an interface between
two logic chips.  Both of these advanced chip-to-chip interface
solutions increase the data transfer rate between semiconductor
chips, improving performance and reducing systems costs.  The
company's earnings report is due on 10/14/04.

RMBS - Rambus  $15.23

PLAY (very speculative - neutral/debit straddle):

BUY CALL  OCT-15.00  BNQ-JC  OI=5130  ASK=$0.75
BUY PUT   OCT-15.00  BNQ-VC  OI=4493  ASK=$0.45
INITIAL NET-DEBIT TARGET=$1.10-$1.15
INITIAL TARGET PROFIT=$0.35-$0.60



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

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

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   17.23    0.40   7.19%   2.74%
FHRX     OCT    17.50   17.05   21.21    0.45   6.31%   2.64%
SNDK     OCT    22.50   22.00   30.20    0.50   5.86%   2.27%
SSYS     OCT    25.00   24.45   30.99    0.55   5.91%   2.25%
JNPR     OCT    22.50   22.00   24.35    0.50   5.73%   2.27%
CREE     OCT    22.50   22.15   29.34    0.35   5.28%   1.58%
FFIV     OCT    22.50   22.20   31.02    0.30   4.45%   1.35%
AMZN     OCT    37.50   37.00   40.00    0.50   3.96%   1.35%
ASKJ     OCT    25.00   24.45   32.58    0.55   7.42%   2.25%
USNA     OCT    30.00   29.30   33.15    0.70   6.10%   2.39%
YHOO     OCT    30.00   29.40   34.17    0.60   5.51%   2.04%
CELL     OCT    15.00   14.50   16.27    0.50   8.28%   3.45%
CREE     OCT    25.00   24.35   29.34    0.65   7.26%   2.67%
CLHB     OCT    10.00    9.75   11.68    0.25   7.98%   2.56%
PDII     OCT    25.00   24.45   27.60    0.55   6.98%   2.25%
GILD     OCT    35.00   34.35   37.80    0.65   5.61%   1.89%
BOBJ     OCT    20.00   19.65   23.65    0.35   5.73%   1.78%
ASTE     OCT    17.50   16.95   18.80    0.55   9.55%   3.24%
LCAV     OCT    25.00   24.35   26.85    0.65   7.97%   2.67%
ALO      OCT    17.50   17.10   17.12    0.02   0.36%   2.34%
FHRX     OCT    17.50   17.20   21.21    0.30   6.33%   1.74%
GNSS     OCT    12.50   12.20   14.25    0.30   8.02%   2.46%
COGN     OCT    32.50   31.90   36.02    0.60   6.15%   1.88%
PSFT     OCT    17.50   17.20   21.95    0.30   6.15%   1.74%
LF       OCT    20.00   19.75   19.90    0.15   2.67%   1.27%
ATYT     OCT    15.00   14.75   17.04    0.25   5.90%   1.69%
YHOO     OCT    30.00   29.50   34.17    0.50   6.01%   1.69%
AGIX     OCT    12.50   11.75   29.65    0.75  21.96%   6.38%
DHB      OCT    12.00   11.60   14.24    0.40  14.91%   3.45%
INTV     OCT    10.00   9.70    11.21    0.30  12.10%   3.09%
NVTL     OCT    22.50   21.95   23.04    0.55  10.37%   2.51%
SFL      OCT    20.00   19.55   24.25    0.45   9.47%   2.30%
FHRX     OCT    17.50   17.15   21.21    0.35   8.94%   2.04%
PAAS     OCT    15.00   14.75   17.57    0.25   7.04%   1.69%
BLUD     OCT    20.00   19.75   26.97    0.25   6.52%   1.27%
AAPL     OCT    35.00   34.35   39.06    0.65   9.07%   1.89%
RIGL     OCT    22.50   21.85   25.14    0.65  13.86%   2.97%
CMTL     OCT    25.00   24.65   26.92    0.35   6.90%   1.42%
NABI     OCT    12.50   12.25   13.14    0.25   9.59%   2.04%
CREE     OCT    25.00   24.70   29.34    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   17.15    0.25   7.89%   1.69%
SNDK     OCT    27.50   27.10   30.20    0.40   9.70%   1.48%
WRLS     NOV     7.50    7.20   10.45    0.30   7.65%   4.17%
OSTK     OCT    35.00   34.60   39.55    0.40   7.74%   1.16%
SIMG     NOV    12.50   12.10   13.29    0.40   5.95%   3.31%
NVTL     OCT    22.50   22.25   23.04    0.25   7.11%   1.12%
RIGL     OCT    22.50   22.20   25.14    0.30   9.26%   1.35%
SYNA     OCT    20.00   19.80   22.82    0.20   6.50%   1.01%
YHOO     OCT    32.50   32.10   34.17    0.40   7.88%   1.25%

Alopharma (NYSE:ALO), Leapfrog (NYSE:LF), Novatel (NASDAQ:NVTL)
and Nabi Biopharmaceuticals (NASDAQ:NABI) are the most obvious
issues on the "watch" list.  Plays on American Pharmaceutical
Partners (NASDAQ:APPX) and Navarre (NASDAQ:NAVR), which is now
at the "break-even" point, have previously been closed to limit
potential losses.


NAKED CALLS

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

ESIO     OCT    22.50   23.00   16.97    0.50   6.99%   2.17%
LNCR     OCT    32.50   33.30   30.35    0.80   7.12%   2.40%
ADTN     OCT    30.00   30.30   20.41    0.30   3.79%   0.99%
DIGE     OCT    30.00   30.35   25.54    0.35   6.05%   1.15%
CTB      OCT    22.50   22.85   19.93    0.35   4.25%   1.53%
MDCO     OCT    30.00   30.80   23.51    0.80   8.33%   2.60%
CECO     OCT    40.00   40.50   26.75    0.50   6.34%   1.23%
CPRT     OCT    20.00   20.35   18.85    0.35   6.97%   1.72%
FLML     OCT    17.50   17.80   15.76    0.30  10.47%   1.69%
SSNC     OCT    20.00   20.35   20.22    0.13   2.85%   1.72%
USPI     OCT    35.00   35.65   33.10    0.65   6.36%   1.82%
BDY      OCT    22.50   22.90   19.00    0.40   7.63%   1.75%
PLMO     OCT    35.00   35.90   30.60    0.90  11.25%   2.51%
XLNX     OCT    30.00   30.25   27.63    0.25   4.46%   0.83%
APPX     OCT    30.00   30.50   26.51    0.50   8.60%   1.64%
CYMI     OCT    30.00   30.40   28.85    0.40   6.78%   1.32%
TASR     OCT    45.00   45.35   37.43    0.35   8.19%   0.77%
ALD      OCT    25.00   25.25   24.78    0.25   6.46%   0.99%
CYBX     OCT    20.00   20.40   18.66    0.40  14.93%   1.96%

Positions in Mercury Interactive (NASDAQ:MERQ) and Storage
Technology (NYSE:STK), along with Altera (NASDAQ:ALTR) and
SS&C Technologies (NASDAQ:SSNC), both of which are currently
profitable, have previously been closed to limit potential
losses.  Cymer (NASDAQ:CYMI) remains on the "watch" list.

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

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

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

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

NEW NAKED-PUT CANDIDATES

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

ENER   16.13  NOV 15.00  EQI-WC 0.60   10 14.40  38   3.3%   8.1%
DRIV   30.02  NOV 25.00  DQI-WE 0.65    7 24.35  38   2.1%   6.8%
WEBX   24.72  NOV 20.00  UWB-WD 0.40 5124 19.60  38   1.6%   5.8%
SNDA   32.81  NOV 25.00  QKU-WE 0.50  201 24.50  38   1.6%   5.7%
CCBI   23.97  NOV 22.50  FVU-WX 0.60   28 21.90  38   2.2%   5.5%
CNCT   26.77  NOV 22.50  UXU-WX 0.40   40 22.10  38   1.4%   4.7%
PLMD   32.73  NOV 30.00  PM-WF  0.45   23 29.55  38   1.2%   3.3%

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.
_________________________________________________________________

ENER - Energy Conversion Devices  $16.13  *** Oil Alternative ***

Energy Conversion Devices (NASDAQ:ENER) is a technology, product
development and manufacturing company engaged in the invention,
engineering, development and commercialization of new materials,
products and production technology in the fields of alternative
energy technology and information technology.  The company has
developed materials that permit them to design and commercialize
products, such as thin-film solar cell (photovoltaic) products,
nickel metal hydride (NiMH) batteries, and phase-change memory
devices.
  
ENER - Energy Conversion Devices  $16.13

NOV 15.00 EQI-WC LB=0.60 OI=10 CB=14.40 DE=38 TY=3.3% MY=8.1%


_________________________________________________________________

DRIV - Digital River  $30.02  *** Next Leg Up? ***

Digital River (NASDAQ:DRIV) is a provider of electronic commerce
outsourcing solutions.  As an application service provider, the
company enables its clients to access its proprietary electronic
commerce system over the Internet.  The firm's hi-tech platform
allows it to provide a suite of electronic commerce services,
including Web commerce development and hosting, transaction 
processing, fraud screening, digital delivery, integration to
physical fulfillment and customer service.  Digital River also
provides analytical marketing and merchandising services to
assist clients in increasing Web page view traffic to, and sales
through, their Web commerce systems.

DRIV - Digital River  $30.02

NOV 25.00 DQI-WE LB=0.65 OI=7 CB=24.35 DE=38 TY=2.1% MY=6.8%


_________________________________________________________________

WEBX - WebEx Communications  $24.72  *** Earnings Speculation! ***

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  $24.72

NOV 20.00 UWB-WD LB=0.40 OI=5124 CB=19.60 DE=38 TY=1.6% MY=5.8%


_________________________________________________________________

SNDA - Shanda Interactive Ent.  $32.81  *** Premium-Selling! ***

Shanda Interactive Entertainment (NASDAQ:SNDA) is an operator of
online games in China.  The games, licensed from third parties,
as well as developed in-house by the company, include The Legend
of Mir II and The World of Legend.  The company's commercially
launched games have approximately 1.4 million peak concurrent
users and 931,570 average concurrent users.  Shanda also provides
multiplayer online games, including role-playing games and casual
online games, which allow thousands of users to interact in a
virtual world by assuming ongoing roles or characters with many
different features.

SNDA - Shanda Interactive Ent.  $32.81

NOV 25.00 QKU-WE LB=0.50 OI=201 CB=24.50 DE=38 TY=1.6% MY=5.7%


_________________________________________________________________

CCBI - Commercial Capital Bancorp  $23.97  *** Own This One!  ***

Commercial Capital Bancorp (NASDAQ:CCBI) is a diversified
financial services holding company that provides a variety of
lending and deposit products and services to middle-market
commercial businesses, income property real estate investors,
related real estate service companies and professionals.
Commercial Capital conducts its operations through Commercial
Capital Bank, FSB (the Bank), a federally chartered savings
bank, Commercial Capital Mortgage, a commercial mortgage
banking company and ComCap Financial Services, a registered
broker dealer.

CCBI - Commercial Capital Bancorp  $23.97

NOV 22.50 FVU-WX LB=0.60 OI=28 CB=21.90 DE=38 TY=2.2% MY=5.5%


_________________________________________________________________

CNCT - Connetics  $26.77  *** In A Trading Range? ***

Connetics (NASDAQ:CNCT) is a specialty pharmaceutical company
focusing on the treatment of dermatological conditions.  It
markets two pharmaceutical products: OLUX Foam and Luxq Foam.
The company has a binding purchase agreement with Roche to
acquire exclusive United States rights to Soriatane-brand
acitretin, an approved oral medicine for the treatment of
severe psoriasis in adults.  Soriatane, a once-a-day oral
retinoid approved in the United States, is used for the
treatment of severe psoriasis in adults.

CNCT - Connetics  $26.77

NOV 22.50 UXU-WX LB=0.40 OI=40 CB=22.10 DE=38 TY=1.4% MY=4.7%


_________________________________________________________________

PLMD - PolyMedica  $32.73  *** Target-Shoot An Entry!  ***

PolyMedica (NASDAQ:PLMD) is engaged in the business of buying
and growing medical product and pharmaceutical businesses.  The
company, through its segments; Liberty Diabetes, is a provider
of diabetes testing supplies to Medicare-eligible seniors, and
also provides a simple and reliable way for its customers to
obtain their supplies and medications; Liberty Respiratory
segment, provides direct-to-consumer respiratory medications
to Medicare-eligible seniors; and through its Pharmaceuticals
segment, sells prescription medications directly to its Liberty
Diabetes and Liberty Respiratory customers, and also makes and
sells to distributors prescription and over-the-counter urology
products.

PLMD - PolyMedica  $32.73

NOV 30.00 PM-WF LB=0.45 OI=23 CB=29.55 DE=38 TY=1.2% MY=3.3% 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.

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

IVX - IVAX Corporation  $18.26  *** Drug Speculation! ***

IVAX Corporation (NYSE:IVX) is a multinational company engaged
in the research, development, manufacture and marketing of
pharmaceutical products.  The company manufactures and/or sells
several brand name pharmaceutical products and a variety of
brand equivalent and over-the-counter pharmaceutical products,
primarily in the United States, Europe and Latin America.  It
also has subsidiaries throughout the world that specialize in
the development, manufacture and marketing of respiratory drugs,
primarily for asthma, delivered by metered-dose and dry-powder
inhalers.

IVX - IVAX Corporation  $18.26

PLAY (sell naked call):

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

SELL CALL  NOV 20    IVX-KD    7366   0.75  20.75   9.5%   3.6%


_________________________________________________________________

PLMO - palmOne  $29.82  *** Pure Premium-Selling! ***

palmOne (NASDAQ:PLMO) develops, builds and sells Palm-branded,
hand-held devices, accessories and the Palm operating system
(Palm OS).  The company was historically organized into two
operating segments: the Solutions Group and PalmSource.  The
Solutions Group develops and markets hand-held devices and
accessories to provide the user with a simple, elegant and
useful productivity tool.  PalmSource developed and licensed
the Palm OS and related software, which is referred to as the
Palm platform.  The Palm platform is the foundation for Palm
devices, as well as for devices manufactured by third-party
licensees.

PLMO - palmOne  $29.82

PLAY (sell naked call):

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

SELL CALL  NOV 40    UPY-KH    3865   0.45  40.45   5.6%   1.1%


_________________________________________________________________

SLXP - Salix Pharmaceuticals  $18.03  ** Pure Premium-Selling! **

Salix Pharmaceuticals (NASDAQ:SLXP) is a specialty pharmaceutical
company engaged in acquiring, developing and commercializing
prescription drugs used in the treatment of a wide variety of
gastrointestinal diseases that affect the digestive tract.  The
company's four products are balsalazide disodium, which it sells
in the United States under the brand name Colazal; three dosage
strengths of azathioprine, a FDA-approved product licensed by the
company under the brand name Azasan; rifaximin, for the treatment
of travelers diarrhea, and a granulated formulation of mesalamine,
to expand the range of treatment options for ulcerative colitis.

SLXP - Salix Pharmaceuticals  $18.03

PLAY (sell naked call):

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

SELL CALL  NOV 20    PQN-KD     466   0.65  20.65   8.8%   3.1%



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

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

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